As filed with the Securities and Exchange Commission
on August 9, 2021.
Registration Statement No. 333-257688
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No.1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DatChat, Inc.
(Exact name of registrant as specified in its charter)
|
Nevada
|
|
4822
|
|
47-2502264
|
|
(State or other jurisdiction of
|
|
(Primary Standard Industrial
|
|
(I.R.S. Employer
|
|
incorporation or organization)
|
|
Classification Code Number)
|
|
Identification Number)
|
DatChat, Inc.
65 Church Street
2nd Floor
New Brunswick, NJ 08901
(732) 354-4766
(Address and telephone number of registrant’s principal executive offices)
Darin Myman,
Chief Executive Officer
DatChat, Inc.
Chief Executive Officer
65 Church Street
New Brunswick, NJ 08901
(732) 354-4766
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
|
Richard A.
Friedman, Esq.
Stephen Cohen, Esq.
Sheppard, Mullin, Richter & Hampton LLP
30 Rockefeller Plaza
New York, NY 10112-0015
Telephone: (212) 653-8700
Facsimile: (212) 653-8701
|
Jolie Kahn,
Esq.
12 E. 49th Street,
11th floor
New York, NY 10017
Telephone: (516)
217-6379
Facsimile: (866)
705-3071
|
Approximate date of commencement
of proposed sale to the public: As soon as practicable after the effective date of this registration statement becomes effective.
If any of the securities being
registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933
check the following box: ☒
If this Form is filed to register
additional securities for a registration statement pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier effective registration statement for the same registration
statement. ☐
If this Form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same registration statement. ☐
If this Form is a post-effective
amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same registration statement. ☐
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ☐
|
Accelerated filer ☐
|
|
Non-accelerated filer ☒
|
Smaller reporting company ☒
|
|
|
Emerging growth company ☒
|
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION
FEE
|
Title of Each
Class of Securities to be Registered
|
Proposed
Maximum Aggregate Offering Price(1)(2)
|
Amount
of Registration Fee
|
|
Units
consisting of:
|
|
|
|
(i) Common stock, no par value per share(3)
|
$15,243,419.50
|
$1,663.06
|
|
(ii) Series A Warrants to purchase one
common share(4) (5)
|
|
|
|
Common
stock issuable upon exercise of the Series A Warrants
|
$15,243,419.50
|
$1,663.06
|
|
Representative’s warrants(5)(6)
|
|
$127.26
|
|
Common stock issuable upon exercise of the
representative’s warrants
|
$1,166,452.97
|
|
|
Total
|
$31,652,291.97
|
$3,453.37
|
|
(1)
|
Estimated solely for the purpose of calculating
the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended, or the Securities
Act. Fees were previously paid.
|
|
(2)
|
Pursuant to Rule 416, the securities being registered
hereunder include such indeterminate number of additional securities as may be issuable to prevent dilution resulting from stock
splits, stock dividends or similar transactions.
|
|
(3)
|
Includes the offering price of any additional
shares of common stock that the underwriters have the right to purchase from the Registrant to cover over-allotments, if any.
|
|
(4)
|
Includes the offering price of any additional
Series A Warrants the underwriters have the right to purchase from the Registrant to cover over-allotments, if any.
|
|
(5)
|
No fee is required pursuant to Rule 457(i) under
the Securities Act.
|
|
(6)
|
Represents 228,045 warrants to purchase a
number of shares of common stock equal to 8% of the number of common stock sold in this offering at an exercise price equal to 110%
of the public offering price.
|
|
*
|
$1,350.66
previously paid.
|
The registrant hereby amends this registration
statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment
which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information
in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer to sell nor is it a solicitation of an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
|
PRELIMINARY
PROSPECTUS
|
SUBJECT
TO COMPLETION
|
DATED
AUGUST 9, 2021
|
2,850,569 Units Consisting
of Common Stock and Series A Warrants
This is a firm commitment initial public offering
of units each consisting of one share of our common stock, $0.0001 par value per share, and one Series A Warrant to purchase one share
of our common stock (and the shares issuable from time to time upon exercise of the Series A Warrants) pursuant to this prospectus based
upon an anticipated combined offer price of between $4.15 and $5.15 per unit and an $4.65 assumed initial public offering (which, is
the midpoint of the $4.15 to $5.15 range; this assumption is used throughout this preliminary prospectus). Each Series A Warrant will
have an assumed exercise price of $5.58 per share, will be exercisable upon issuance and will expire five years from issuance. Prior
to this offering, there has been no public market for our units, common shares or warrants. The components of the units will begin to
trade separately immediately upon listing on The Nasdaq Capital Market.
We have applied
to list our common stock on the Nasdaq Capital Market under the symbol “DATS.” No assurance can be given that our
application will be approved. In conjunction therewith, we intend to also apply to have the Series A Warrants listed on The Nasdaq Capital
Market under the symbol “DATSW.”
Investing in our securities involves a high degree
of risk. See “Risk Factors” beginning on page 5 of this prospectus for a discussion of information that should be
considered in connection with an investment in our securities.
We are an “emerging growth company”
under the federal securities laws and may elect to comply with certain reduced public company reporting requirements for future filings.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
|
|
|
Per Unit
|
|
Total
|
|
Initial
public offering price(1)
|
|
$
|
|
|
|
$
|
|
|
|
Underwriting
discounts and commissions(2)
|
|
$
|
|
|
|
$
|
|
|
|
Proceeds to us, before
expenses
|
|
$
|
|
|
|
$
|
|
|
(1) The assumed public offering price and underwriting
discount corresponds to in respect of the units (a) an assumed public offering price per share of common stock of $4.64 and (b) an assumed
public offering price per Series A Warrant of $0.01.
(2) Does not include a non-accountable expense allowance
equal to 1% of the gross proceeds of this offering payable to EF Hutton, division of Benchmark Investments, LLC, the representatives
of the underwriters. See “Underwriting” for a description of compensation payable to the underwriters. We have agreed
to issue warrants to the representative of the underwriters. See “Underwriting” on page 70 of this prospectus for
a description of the compensation arrangements.
We have granted a 45-day option to the underwriters,
exercisable one or more times in whole or in part, to purchase up to an additional 427,585 shares of common stock and/or Series A Warrants
at the public offering price per unit and, in each case, less the underwriting discounts and commissions, to cover over-allotments, if
any.
The underwriters expect to deliver our units against
payment on or about , 2021.
|
Lead
Book Running Manager
EF HUTTON
division of Benchmark Investments, LLC
|
Joint
Book Running Manager
TIGER BROKERS
|
The
date of this prospectus is , 2021.
TABLE OF CONTENTS
We have not authorized anyone to provide any information
or to make any representations other than those contained in this prospectus or in any free writing prospectus prepared by or on behalf
of us or to which we have referred you. We take no responsibility for and can provide no assurance as to the reliability of, any other
information that others may give to you. The information contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or any sale of our common stock.
You should rely only on the information
contained in this prospectus. No dealer, salesperson or other person is authorized to give information that is not contained in this
prospectus. This prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of these securities.
Through
and including ,
2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to
deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
For investors outside the United States: Neither
we nor the underwriter has done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction
where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe
any restrictions relating to this offering and the distribution of this prospectus.
Unless otherwise indicated, information contained
in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position,
market opportunity and market share, is based on information from our own management estimates and research, as well as from industry
and general publications and research, surveys and studies conducted by third parties. Management estimates are derived from publicly
available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be
reasonable. Our management’s estimates have not been verified by any independent source, and we have not independently verified
any third-party information. In addition, assumptions and estimates of our and our industry’s future performance are necessarily
subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.”
These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Cautionary
Note Regarding Forward-Looking Statements.”
PROSPECTUS
SUMMARY
The following summary highlights selected information
contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial statements included
elsewhere in this prospectus. It does not contain all the information that may be important to you and your investment decision. You
should carefully read this entire prospectus, including the matters set forth under “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and related notes included
elsewhere in this prospectus. In this prospectus, unless context requires otherwise, references to “we,” “us,”
“our,” “DatChat,” or “the Company” refer to DatChat, Inc.
Unless otherwise expressly provided herein, all
share and per share numbers set forth herein relating to our common stock (assume no exercise of (a) any warrants and/or options, (b)
the representatives’ common stock purchase warrants and/or (c) the representatives’ over-allotment option.
Overview
We are a communication software company. We believe
that one’s right to privacy should not end the moment they click “send.” Our flagship product, DatChat Messenger &
Private Social Network (the “Application”), is a mobile application that gives users the ability to communicate with privacy
and protection.
The Application allows users to exercise control
over their messages, even after they are sent. Through the 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.
The Application integrates with iMessage, making
private messages potentially available to hundreds of millions of users.
Our Corporate Information
We were originally incorporated in the State of 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 our name to “DatChat, Inc.”
Our principal executive offices are located at 65
Church Street, New Brunswick, New Jersey 08901, and our telephone number is (732) 354-4766. Our website address is www.datchat.com. The
information contained on our website is not incorporated by reference into this prospectus, and you should not consider any information
contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common shares.
Regulation “A” Offering
On September 23, 2016, we filed an Offering Statement
on Form 1-A pursuant to Tier II of Regulation A under the Securities Act of 1933, as amended (the “Securities Act”),
with the Securities and Exchange Commission (“SEC”) and subsequent amendments thereto on December 7, 2016, January 12, 2017,
January 25, 2017 and January 31, 2017 (the “Offering Statement”). The Offering Statement was qualified by the SEC on February
2, 2017. Pursuant to the Regulation A offering, as of March 31, 2021, we have sold an aggregate of 1,230,701 shares of our common stock,
$0.0001 par value per share, at a purchase price of $4.00 per share, resulting in aggregate gross proceeds of $4,922,804, before deducting
offerings expenses of $794,790.
Out of the net proceeds, we spent approximately $2.6
million on developer and officer compensation, marketing and general operating expenses. As of the date hereof, we have retained $1.3
million in cash and cash equivalents. Furthermore, the common stock sold through the Regulation A offering is not quoted on any public
markets such as the OTC Pink.
Reverse
Stock Split
On July 28, 2021, we filed a certificate of change
to our 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 our common stock without any change to its par value. The Reverse
Split became effective on upon such filing. No fractional shares were issued in connection with the Reverse Stock Split as all fractional
shares were rounded up to the next whole share. All share and per share amounts of our common stock listed in this prospectus have been
adjusted to give effect to the Reverse Stock Split.
Implications of Being an Emerging Growth Company
Unless otherwise expressly provided herein, all
share and per share numbers set forth herein relating to our common stock (i) assume no exercise of (a) any warrants and/or options,
(b) the representatives’ common stock purchase warrants and/or (c) the representatives’ over-allotment option.
As an emerging growth company, we intend to take
advantage of an extended transition period for complying with new or revised accounting standards as permitted by The JOBS Act.
To the extent that we continue to qualify as a “smaller
reporting company,” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth
company may continue to be available to us as a smaller reporting company, including: (i) not being required to comply with the
auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act; (ii) scaled executive compensation disclosures;
and (iii) the requirement to provide only two years of audited financial statements, instead of three years.
THE
OFFERING
|
Securities Offered by us:
|
2,850,569 units (at
an assumed offering price of $ 4.65 per share of common stock and Series A Warrant combined), each consisting of one share
of common stock and one Series A Warrant. The units will split apart and the shares and Warrants will trade separately immediately
upon listing.
|
|
|
|
|
Common
Stock Outstanding before the Offering:
|
13,389,083
shares
|
|
|
|
|
Common Stock to be Outstanding after this Offering:
|
16,239,652 shares
|
|
|
|
|
Over-allotment Option:
|
We
have granted a 45-day option to the underwriters, exercisable one or more times in whole or in part, to purchase up to an additional
427,585 shares of common stock and/or Series A Warrants at an assumed offering price of $4.65 per unit, in each case, the underwriting
discounts and commissions, to cover over-allotments, if any.
|
|
|
|
|
Use of Proceeds:
|
We
intend to use the net proceeds from this offering for product development, marketing, working
capital and general corporate purposes. See “Use of Proceeds” for a more
complete description of the intended use of proceeds from this offering.
|
|
|
|
|
Proposed Listings on Nasdaq:
|
We
have applied to list our common stock on The Nasdaq Capital Market under the symbol “DATS.” No assurance can be given
that our application will be approved. In conjunction therewith, we have also applied to have the Series A Warrants listed on The
Nasdaq Capital Market under the symbol “DATSW”. Our units will not trade and will be split into common stock and Series
A Warrants immediately upon listing.
|
|
|
|
|
Lock-up
|
We,
our directors and officers have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise
dispose of any of our common stock or securities convertible into common stock for 180 days after the date of this prospectus. In
addition, certain of our securityholders holding an aggregate
of 138,250 shares have agreed with the underwriters not
to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible
into common stock for 45 days after the date of this prospectus and will thereafter each be permitted to sell, pledge or otherwise
dispose of, directly or indirectly, $15,000 shares
of common stock per month until 180 days after the date of this prospectus. See
“Underwriting” on page 70
|
|
|
|
|
Risk Factors:
|
Investing
in our securities is highly speculative and involves a significant degree of risk. See “Risk Factors” and other information
included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our securities.
|
|
|
|
|
Representative’s
Warrant
|
We will issue to EF Hutton, division of Benchmark
Investments, LLC, as Lead Book Running Manager and representative of the underwriters, and US Tiger Securities, Inc., as Joint Book
Running Manager, or its designees at the closing of this offering warrants to purchase the number of common shares equal to 8%
of the aggregate number of common shares sold in this offering. The representative’s warrant will be exercisable six months
from the effective date of the registration statement for this offering and will expire five years after the effective date. The
exercise price of the representative’s warrant will equal 110% of the public offering price per share. See “Underwriting.”
|
The number of shares of
common stock to be outstanding after this offering is based on 13,389,083 shares of common stock issued and outstanding as of
August 9, 2021, and excludes the following:
|
|
·
|
2,000,000
shares of common stock reserved for future issuance under our 2021 Equity Incentive Plan;
|
Except as otherwise indicated
herein, all information in this prospectus assumes the following:
|
|
·
|
no
exercise of the outstanding options or warrants described above;
|
|
|
·
|
no
exercise by the underwriter of their option to purchase additional units consisting of common
shares and Series A Warrants to purchase common shares to cover over-allotments, if any;
and
|
|
|
·
|
no
exercise of the representatives’ warrant; and
|
|
|
·
|
a
1-for-2 reverse stock split of our common stock that was completed on July 28, 2021, pursuant
to which (i) every 2 shares of outstanding common stock was decreased to one share of common
stock, (ii) the number of shares of common stock for which each outstanding warrant to purchase
common stock is exercisable was proportionally decreased on a 1-for-2 basis, and (iii) the
exercise price of each outstanding warrant to purchase common stock was proportionately increased
on a 1-for-2 basis, (the “Reverse Stock Split”).
|
SUMMARY
OF RISK FACTORS
Our business is subject to numerous risks and uncertainties,
including those highlighted in the section titled “Risk Factors,” that represent challenges that we face in connection with
the successful implementation of our strategy. The occurrence of one or more of the events or circumstances described in the section
titled “Risk Factors,” alone or in combination with other events or circumstances, may have an adverse effect on our
business, cash flows, financial condition and results of operations. Such risks include, but are not limited to:
|
|
●
|
We have a limited operating history and have not yet generated any
revenues;
|
|
|
●
|
We have not developed a strong customer base, and we have not generated
sustainable revenue since inception. We cannot assure you that we ever will. We will incur significant losses in launching products
and we may not realize sufficient subscriptions or profits in order to sustain our business;
|
|
|
●
|
There is substantial doubt about our ability to continue as a going
concern;
|
|
|
●
|
We are dependent on the services of certain key management personnel,
employees, and advisors. If we are unable to retain or motivate such individuals or hire qualified personnel, we may not be
able to grow effectively;
|
|
|
●
|
The Application is based on new and unproven technologies and is subject
to the risks of failure inherent in the development of new products and services;
|
|
|
●
|
If we are unable to maintain a good relationship with the markets where
the Application is distributed, our business will suffer;
|
|
|
●
|
The mobile application industry is subject to rapid technological change
and, to compete, we must continually enhance the Application;
|
|
|
●
|
Defects in the Application and the technology powering it may adversely
affect our business;
|
|
|
●
|
If we fail to retain current users or add new users, or if our users
engage less with the Application, our business would be seriously harmed;
|
|
|
●
|
There is a risk that the public will not perceive the privacy protections
that we offer to be necessary or useful and therefore would not be interested in our services;
|
|
|
●
|
The characteristics of the Application, including but not limited to
privacy and encryption, may be exploited to facilitate illegal activity; if any of our users do so or are alleged to have done so,
it could adversely affect us and generate negative perception of our products in the marketplace;
|
|
|
●
|
We expect to derive substantially all of our revenue from a single
product;
|
|
|
●
|
The Application depends on effectively operating with mobile operating
systems, hardware, networks, regulations, and standards that we do not control. Changes in our products or to those operating systems,
hardware, networks, regulations, or standards may seriously harm our user growth, retention, and engagement;
|
|
|
●
|
We rely on a single third-party provider, Amazon Web Services, for
computing infrastructure, secure network connectivity, and other technology-related services needed to deliver our products. Any
disruption in the services provided by such third-party provider could adversely affect our business;
|
|
|
●
|
Major network failures could have an adverse effect on our business;
|
|
|
●
|
We may not be able to adequately protect our proprietary technology,
and our competitors may be able to offer similar products and services which would harm our competitive position;
|
|
|
●
|
Unauthorized breaches or failures in cybersecurity measures adopted
by us and/or included in our products and services could have a material adverse effect on our business;
|
|
|
●
|
We may be subject to stringent
and changing laws, regulations, standards, and contractual obligations related to privacy, data protection, and data security. Our
actual or perceived failure to comply with such obligations could adversely affect our business;
|
|
|
●
|
We do not expect to pay
dividends in the foreseeable future;
|
|
|
●
|
If our stock price fluctuates
after the offering, you could lose a significant part of your investment;
|
|
|
●
|
The delisting of our securities
by Nasdaq; and
|
|
|
●
|
Exclusive forum provisions
in our amended and restated certificate of incorporation and amended and restated bylaws.
|
SUMMARY
FINANCIAL DATA
The following table sets
forth our selected financial data as of the dates and for the periods indicated. We have derived the statement of operations data for
the years ended December 31, 2020 and 2019 from our audited financial statements included elsewhere in this prospectus. The
statements of operations data for the three months ended March 31, 2021 and 2020 and the balance sheet data as of March 31, 2021 have
been derived from our unaudited financial statements included elsewhere in this prospectus. The following summary financial data
should be read with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our
financial statements and related notes and other information included elsewhere in this prospectus. Our historical results are not necessarily
indicative of the results to be expected in the future. The data below reflects a one-for-two (1:2) reverse stock split of our common
stock that was effectuated on July 28, 2021.
Balance Sheet Data:
|
|
|
December 31,
|
|
March 31,
2021
|
|
|
|
2020
|
|
2019
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
690,423
|
|
|
$
|
70,774
|
|
|
$
|
1,628,100
|
|
|
Working capital (deficit)
|
|
$
|
555,690
|
|
|
$
|
(339,880
|
)
|
|
|
1,627,260
|
|
|
Total assets
|
|
$
|
744,315
|
|
|
$
|
229,354
|
|
|
|
1,819,119
|
|
|
Total liabilities
|
|
$
|
161,990
|
|
|
$
|
569,234
|
|
|
|
170,593
|
|
|
Accumulated deficit
|
|
$
|
(16,761,512
|
)
|
|
$
|
(15,782,042
|
)
|
|
|
(17,758,283
|
)
|
|
Total stockholders’ equity (deficit)
|
|
$
|
582,325
|
|
|
$
|
(339,880
|
)
|
|
|
1,648,526
|
|
Statement
of Operations Data:
|
|
|
Years Ended
December 31,
|
|
Three Months Ended
March 31,
(unaudited)
|
|
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
Revenues
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and related expenses
|
|
$
|
494,002
|
|
|
$
|
502,277
|
|
|
$
|
279,135
|
|
|
$
|
79,601
|
|
|
Professional and consulting
|
|
$
|
263,245
|
|
|
$
|
167,468
|
|
|
$
|
604,036
|
|
|
$
|
32,405
|
|
|
General and administrative
|
|
$
|
327,184
|
|
|
$
|
310,854
|
|
|
$
|
113,637
|
|
|
$
|
81,781
|
|
|
Total operating expenses
|
|
$
|
1,084,431
|
|
|
$
|
980,599
|
|
|
$
|
996,808
|
|
|
$
|
193,787
|
|
|
Net loss
|
|
$
|
(979,470
|
)
|
|
$
|
(6,557,336
|
)
|
|
$
|
(996,771
|
)
|
|
$
|
(207,962
|
)
|
|
Net
loss per common share—basic and diluted1
|
|
$
|
(0.07
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.02
|
)
|
|
Weighted average common shares outstanding—basic and diluted
|
|
|
13,245,088
|
|
|
|
12,762,576
|
|
|
|
12,963,374
|
|
|
|
13,206,345
|
|
RISK
FACTORS
Any investment in our
shares of common stock involves a high degree of risk. Investors should carefully consider the risks described below and all of the information
contained in this prospectus before deciding whether to purchase our common shares. Our business, financial condition or results of operations
could be materially adversely affected by these risks if any of them actually occur. This prospectus also contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including the risks we face as described below and elsewhere in this prospectus. See “Cautionary
Statement Regarding Forward-Looking Statements.”
Risks Related to our Business and Industry
We have a limited operating history and have
not yet generated any revenues.
Our limited operating history makes evaluating the
business and future prospects difficult, and may increase the risk of your investment. We were incorporated in 2014, and since then
there have been a limited amount of downloads of the Application. To date, we have no revenues. Since inception through March 31, 2021,
we have recorded accumulated losses totaling $17,758,283. We intend, in the long term, to derive revenues from advertisement sales, technology
licensing, and other forms of revenue. The Application is available for download on certain mobile platforms and we are developing compatibility
on with other platforms. We also continue to develop and refine functions of the Application.
We have not developed a strong customer base,
and we have not generated sustainable revenue since inception. We cannot assure you that we ever will. We will incur significant losses
in launching products and we may not realize sufficient subscriptions or profits in order to sustain our business.
We have not yet developed a strong customer base
and we have not generated sustainable revenue since inception. We are subject to the substantial risk of failure facing businesses seeking
to develop and commercialize new products and technologies. Maintaining and improving our platform will require significant capital.
We will also incur substantial accounting, legal and other overhead costs as a public company. If our offerings to customers are unsuccessful,
result in insufficient revenue or result in us not being able to sustain revenue, we will be forced to reduce expenses, which may result
in an inability to gain new customers.
There is substantial doubt about our ability
to continue as a going concern.
We are in the early stages of developing our customer
base and have not completed our efforts to establish a stabilized source of revenue sufficient to cover our costs over an extended period
of time. For the years ended December 31, 2020 and 2019, we had net losses of $979,470 and $6,557,336, respectively, and cash used in
operations of $1,095,577 and $1,038,472. As of March 31, 2021, we had accumulated losses of $17,758,283. We have concluded that these
conditions raise substantial doubt about our ability to continue as a going concern. There is uncertainty regarding our ability to implement
our business plan and to grow our business to a greater extent than we can with our existing financial resources without additional financing.
Our long-term future growth and success is dependent upon our ability to raise additional capital and implement our business plan. There
is no assurance that we will be successful in implementing our business plan or that we will be able to generate sufficient cash from
operations, sell securities or borrow funds on favorable terms or at all. Our inability to generate significant revenue or obtain additional
financing could have a material adverse effect on our ability to fully implement our business plan and grow our business to a greater
extent than we can with our existing financial resources.
We may fail to develop new products, or may
incur unexpected expenses or delays.
Although the Application is currently available for
download, we may need to develop various new technologies, products and product features to remain competitive. Due to the risks
inherent in developing new products and technologies — limited financing, loss of key personnel, and other factors — we may
fail to develop these technologies and products, or may experience lengthy and costly delays in doing so. Although we are able to
license some of our technologies in their current stage of development, we cannot assure that we will be able to develop new products
or enhancements to our existing products in order to remain competitive.
We are dependent on the services of certain
key management personnel, employees, and advisors. If we are unable to retain or motivate such individuals or hire qualified personnel,
we may not be able to grow effectively.
We depend on the services of a number of key management
personnel, employees, and advisors and our future performance will largely depend on the talents and efforts of such individuals. We
do not currently maintain “key person” life insurance on any of our employees. The loss of one or more of such key individuals,
or failure to find a suitable successor, could hamper our efforts to successfully operate our business and achieve our business objectives.
Our future success will also depend on our ability to identify, hire, develop, motivate and retain highly skilled personnel. Competition
in our industry for qualified employees is intense, and our compensation arrangements may not always be successful in attracting new
employees and/or retaining and motivating our existing employees. Future acquisitions by us may also cause uncertainty among our current
employees and employees of the acquired entity, which could lead to the departure of key individuals. Such departures could have an adverse
impact on the anticipated benefits of an acquisition.
We may face intense competition and expect
competition to increase in the future, which could prohibit us from developing a customer base and generating revenue.
We are focused on the mobile application industry,
specifically the mobile messaging market, which is already saturated with established companies. Many of these companies, including Apple
Inc., Alphabet Inc., Facebook, Inc., and Snap Inc., already have an established market in our industry. Most of these companies have
significantly greater financial and other resources than us and have been developing their products and services longer than we have
been developing ours.
The Application is based on new and unproven
technologies and is subject to the risks of failure inherent in the development of new products and services.
Because the Application is based on certain new technologies,
it is subject to risks of failure that are particular to new technologies, including the possibility that:
|
|
●
|
the Application may not gain market acceptance;
|
|
|
●
|
proprietary rights of third parties may preclude us from
marketing a new product or service;
|
|
|
●
|
the Application may not receive the exposure required to
obtain new users; or
|
|
|
●
|
third parties may market superior products or services.
|
If we are unable to maintain a good relationship
with the markets where the Application is distributed, our business will suffer.
The Apple App Store is the primary distribution,
marketing, promotion and payment platform for the Application. Any deterioration in our relationship with Apple or any application market
place we utilize in the future would harm our business and adversely affect the value of our common stock.
We are subject to Apple’s standard terms and
conditions for application developers, which govern the promotion, distribution and operation of mobile applications on its platform.
Our business would be harmed if:
|
|
●
|
Apple discontinues or limits access to its platform by
us and other application developers;
|
|
|
●
|
Apple modifies its terms of service or other policies, including fees charged to, or
other restrictions on, us or other application developers, or Apple changes how the personal information of its users is made available
to application developers on their respective platforms or shared by users;
|
|
|
●
|
Apple establishes more favorable relationships with one
or more of our competitors;
|
|
|
●
|
Apple limits our access to its application marketplace
because our application provides mobile messaging services similar to Apple; or
|
|
|
●
|
Apple makes changes in its operating system or development platform that are incompatible
with our technology.
|
We expect to benefit from Apple’s strong brand
recognition and large user base. If Apple loses its market position or otherwise falls out of favor with mobile users, we would need
to identify alternative channels for marketing, promoting and distributing our application, which would consume substantial resources
and may not be effective. In addition, Apple has broad discretion to change their terms of service and other policies with respect to
us and other developers, and those changes may be unfavorable to us. Any such changes in the future could significantly alter our users
experience or how interact within our application, which may harm our business.
In the event that Apple’s standard terms and
conditions become prohibitively costly or unduly burdensome, we plan to host our own servers in a co-location facility and create a web-based,
desktop version of the Application that does not require users to install the Application from the App store.
The mobile application industry is subject
to rapid technological change and, to compete, we must continually enhance the Application.
We must continue to enhance and improve the performance,
functionality and reliability of the Application. The mobile application industry is characterized by rapid technological change, changes
in user requirements and preferences, frequent new product and services introductions embodying new technologies and the emergence of
new industry standards and practices that could render our product and services obsolete. We have discovered that some of our customers’
desire additional performance and functionality that the Application, and the underlying technology, does not currently support. Our
success will depend, in part, on our ability to both internally develop leading technologies to enhance the Application, develop new
mobile applications and services that address the increasingly sophisticated and varied needs of our customers, and respond to technological
advances and emerging industry standards and practices on a cost-effective and timely basis. The development of our technology and other
proprietary technology involves significant technical and business risks. We may fail to use new technologies effectively or to adapt
our proprietary technology and systems to customer requirements or emerging industry standards. If we are unable to adapt to changing
market conditions, customer requirements or emerging industry standards, we may not be able to create revenue and expand our business.
Defects in the Application and the technology
powering it may adversely affect our business.
Tools, code, subroutines and processes contained
within the Application may contain defects not yet discovered or contained in updates and new versions. Our introduction of new mobile
applications or updates and new versions with defects or quality problems may result in adverse publicity, reduced downloads and use,
product redevelopment costs, loss of or delay in market acceptance of our products or claims by customers or others against us. Such
problems or claims may have a material and adverse effect on our business, prospects, financial condition and results of operations.
If we fail to retain current users or add new
users, or if our users engage less with the Application, our business would be seriously harmed.
Adding, maintaining,
and engaging daily monthly users will be essential to attaining our growth targets and sustaining
operations. If current and potential users do not perceive our products to be effective and useful, we may not be able to attract new
users, retain existing users, or maintain or increase the frequency and duration of their engagement. In addition, our products typically
require high bandwidth data capabilities, high-end mobile device penetration and high bandwidth capacity cellular networks with large
coverage areas. We therefore do not expect to experience rapid user growth or engagement in countries with low smartphone penetration
even if such countries have well-established and high bandwidth capacity cellular networks. We may also not experience rapid user growth
or engagement in regions where, even though smartphone penetration is high, due to the lack of sufficient cellular based data networks,
consumers rely heavily on Wi-Fi and may not access our products regularly.
There are many factors that could negatively affect
user retention, growth, and engagement, including if:
|
|
●
|
|
users increasingly engage with competing products
instead of ours;
|
|
|
●
|
|
our competitors may mimic our products and therefore
harm our user engagement and growth;
|
|
|
●
|
|
we fail to introduce new and exciting products
and services or those we introduce are poorly received;
|
|
|
●
|
|
our products fail to operate effectively on the
iOS and Android mobile operating systems;
|
|
|
●
|
|
we are unable to continue to develop products
that work with a variety of mobile operating systems, networks, and smartphones;
|
|
|
●
|
|
we are unable to combat hostile or inappropriate
usage on our products;
|
|
|
●
|
|
there are changes in user sentiment about the
quality or usefulness of the Application;
|
|
|
●
|
|
there are concerns about the privacy implications,
safety, or security of our products;
|
|
|
●
|
|
there are changes in our products that are mandated
by legislation, regulatory authorities, or litigation, including settlements or consent decrees that adversely affect the user experience;
|
|
|
●
|
|
technical or other problems frustrate the user
experience, particularly if those problems prevent us from delivering our products in a fast and reliable manner;
|
|
|
●
|
|
we fail to provide adequate service to users;
|
|
|
●
|
|
we are the subject of adverse media reports or
other negative publicity; and
|
|
|
●
|
|
we do not maintain our brand image or our reputation
is damaged.
|
Any decrease to user retention,
growth, or engagement could render our products less attractive to users, advertisers, or partners, and would seriously harm our business.
There is a risk that the public will not perceive
the privacy protections that we offer to be necessary or useful and therefore would not be interested in our services.
No matter how effective our products might be in
affording users control over their privacy, the general public may not perceive our products to be necessary or useful. In general, although
people are more aware than in the past of the amount of personal data that is tracked on a daily basis with the advent of social media
and targeted advertising, mere awareness does not necessarily translate into a desire to take affirmative action with respect to one’s
privacy. For us, this could mean that the average person might not feel the need to have the ability to delete messages that they have
sent. While we believe that the general public will recognize the value of our products and feel empowered to take control of their privacy,
it is possible that a great number of people have come to believe that their personal information cannot be protected and that any attempt
to do so would be ineffective. As such, regardless of how effective our products might be, there is a risk that the general public might
deem our products to be unnecessary and will not be drawn to download and use the Application.
Users may not want to change the way that they
send messages and therefore would not be interested in our products.
Our success is dependent in part on users altering
their behavior and changing the way that they send text messages. Although the Application is fully integrated with iMessage, the Application
requires the user to send the message through a separate text bar, which is located below the ordinary iMessage bar. Even if users have
downloaded the Application, it is possible that users will bypass this option when they go to send a text message. In addition, our user
experience may not be received positively, as some users might find it inconvenient to have two text bars appearing on the screen at
the same time when they go to send a text message. The iMessage integration figure does not currently allow a user to remove the iMessage
bar so that only the Application’s bar appears and it is doubtful that Apple would ever allow such a feature. Moreover, because
both text bars are displayed on the screen at the same time, users may inadvertently send a private message through iMessage that they
intended to send through the Application, thereby defeating the data protection and privacy benefits that the Application offers. If
users do not adapt to seeing and typing messages with two texts bars displayed, our user retention may suffer.
The characteristics of the Application, including
but not limited to privacy and encryption, may be exploited to facilitate illegal activity; if any of our users do so or are alleged
to have done so, it could adversely affect us and generate negative perception of our products in the marketplace.
For all of the same reasons that our products are
attractive to the general public, the privacy, data protection and encryption features could appeal to persons and groups engaged in
illegal activities due to the ability of the Application to delete messages from a recipient’s phone. In this context, the Application
may be used to facilitate both illegal activity and the destruction of evidence, which could potentially draw scrutiny from regulators.
In addition, the Application could develop a stigma that it is associated with illegal activity and deter certain people from communicating
through the Application.
Negative publicity
could adversely affect our reputation, our business, and our operating results.
Negative publicity about
our company, including about the quality and reliability of our products, content shared by users through the Application, changes to
our products, policies and services, our privacy and security practices, litigation, regulatory activity, the actions of users on the
Application, or user experience with our products, even if inaccurate, could adversely affect our reputation and the confidence in and
the use of our product. Such negative publicity could also have an adverse effect on the size, engagement, and loyalty of our user base
and, in turn, adversely affect our business, results of operations and financial condition.
We expect to derive
substantially all of our revenue from a single product.
We expect to derive substantially
all of our revenue from the Application. As such, the continued growth in market demand for and market acceptance of the Application
is critical to our continued success. Demand for the Application is affected by a number of factors, many of which are beyond our control,
such as continued market acceptance; the timing of development and release of competing new products; consumer preferences; the development
and acceptance of new features, integrations, and capabilities; price or product changes by us or our competitors; technological changes
and developments within the markets we serve; growth, contraction, and rapid evolution of our market; and general economic conditions
and trends. If we are unable to continue to meet demands of our users or trends in preferences or to achieve more widespread market acceptance
of the Application, our business, results of operations, and financial condition could be harmed. Changes in preferences of users may
have a disproportionately greater impact on us than if we offered multiple products. In addition, competitors may develop or acquire
their own tools or software and people may continue to rely on traditional tools and software, such as text message and email, which
would reduce or eliminate the demand for the Application. If demand declines for any of these or other reasons, our business could be
adversely affected.
The Application depends on effectively operating
with mobile operating systems, hardware, networks, regulations, and standards that we do not control. Changes in our products or to those
operating systems, hardware, networks, regulations, or standards may seriously harm our user growth, retention, and engagement.
Because the Application
is used primarily on mobile devices, the Application must remain interoperable with popular mobile operating systems, Android and iOS.
The owners of such operating systems, Google and Apple, respectively, each provide consumers with products that compete with ours. We
have no control over these operating systems or hardware, and any changes to these systems or hardware that degrade our products’
functionality, or give preferential treatment to competitive products, could seriously harm DatChat usage on mobile devices. Our competitors
that control the operating systems and related hardware the Application runs on could make interoperability of our products with those
mobile operating systems more difficult or display their competitive offerings more prominently than ours. When introducing new products,
it takes time to optimize such products to function with these operating systems and hardware, impacting the popularity of such products,
and we expect this trend to continue. Moreover, our products require high-bandwidth data capabilities. If the costs of data usage increase,
our user growth, retention, and engagement may be seriously harmed.
We may not successfully cultivate relationships with
key industry participants or develop products that operate effectively with these technologies, systems, networks, regulations, or standards.
If it becomes more difficult for our users to access and use the Application on their mobile devices, if our users choose not to access
or use the Application on their mobile devices, or if our users choose to use mobile products that do not offer access to the Application,
our user growth, retention, and engagement could be seriously harmed.
Moreover, the adoption of
any laws or regulations that adversely affect the popularity or growth in use of the internet or mobile applications, including laws
or regulations that undermine open and neutrally administered internet access, could decrease user demand for the Application and increase
our cost of doing business. For example, in December 2017, the Federal Communications Commission adopted an order reversing net neutrality
protections in the United States, including the repeal of specific rules against blocking, throttling or “paid prioritization”
of content or services by internet service providers. To the extent internet service providers engage in such blocking, throttling or
“paid prioritization” of content or similar actions as a result of this order and the adoption of similar laws or regulations,
our business, financial condition and results of operations could be materially adversely affected.
Risks Related to Information
Technology Systems, Intellectual Property and Privacy Laws
We rely on a single third-party provider, Amazon
Web Services (“AWS”), for computing infrastructure, secure network connectivity, and other technology-related services needed
to deliver our products. Any disruption in the services provided by such third-party provider could adversely affect our business.
Our products are hosted from, and use computing infrastructure,
secure network connectivity, and other technology-related services provided by AWS. We do not control the operations
of this third-party provider or own the equipment used to provide such services. Because we cannot easily switch our AWS-serviced
operations to another cloud provider, any disruption of or interference with our use of AWS, for example, due to natural disasters,
cyber-attacks, terrorist attacks, power losses, telecommunications failures, or similar events, would impact our operations and may adversely
affect our business, financial condition, operating results and cash flows. In addition, AWS has no obligation to renew its agreement
with us on commercially reasonable terms or at all. If we are unable to renew our agreement on commercially reasonable terms or develop
our blockchain capabilities, we may be required to transition to a new provider, and we may incur significant costs and possible service
interruption in connection with doing so.
In addition, Amazon may
take actions beyond our control that could seriously harm our business, including:
|
|
●
|
discontinuing or limiting our access to its cloud platform
|
|
|
●
|
increasing pricing terms;
|
|
|
●
|
terminating or seeking to terminate our contractual relationship
altogether;
|
|
|
●
|
establishing more favorable relationships or pricing terms
with one or more of our competitors; and
|
|
|
●
|
modifying or interpreting its terms of service or other
policies in a manner that impacts our ability to run our business and operations.
|
Amazon has broad discretion
to change and interpret its terms of service and other policies with respect to us, and those actions may be unfavorable to us. They
may also alter how we are able to process data on their cloud platform. If Amazon makes changes or interpretations that are unfavorable
to us, our business could be seriously harmed.
Major network failures could have an adverse
effect on our business.
Our technology infrastructure is critical to the
performance of the Application and customer satisfaction. The Application runs on a complex distributed system, or what is commonly known
as cloud computing. Some elements of this system are operated by third-parties that we do not control and which would require significant
time to replace. We expect this dependence on third parties to continue. Major equipment failures, natural disasters, including severe
weather, terrorist acts, acts of war, cyber-attacks or other breaches of network or information technology security that affect third-party
networks, communications switches, routers, microwave links, cell sites or other third-party equipment on which we rely, could cause
major network failures and/or unusually high network traffic demands that could have a material adverse effect on our operations or our
ability to provide service to our customers. These events could disrupt our operations, require significant resources to resolve, result
in a loss of customers or impair our ability to attract new customers, which in turn could have a material adverse effect on our business,
prospects, results of operations and financial condition. If we experience significant service interruptions, which could require significant
resources to resolve, it could result in a loss of customers or impair our ability to attract new customers, which in turn could have
a material adverse effect on our business, prospects, results of operations and financial condition. In addition, with the growth of
wireless data services, enterprise data interfaces and Internet-based or Internet Protocol enabled applications, wireless networks and
devices are exposed to a greater degree to third-party data or applications over which we have less direct control. As a result, the
network infrastructure and information systems on which we rely, as well as our customers’ wireless devices, may be subject to
a wider array of potential security risks, including viruses and other types of computer-based attacks, which could cause lapses in our
service or adversely affect the ability of our customers to access our service. Such lapses could have a material adverse effect on our
business, prospects, results of operations and financial condition.
If third parties claim that we infringe their
intellectual property, it may result in costly litigation.
We cannot assure you that third parties will not
claim our current or future products or services infringe their intellectual property rights. Any such claims, with or without merit,
could cause costly litigation that could consume significant management time. As the number of product and services offerings in the
mobile application market increases and functionalities increasingly overlap, companies such as ours may become increasingly subject
to infringement claims. Such claims also might require us to enter into royalty or license agreements. If required, we may not be able
to obtain such royalty or license agreements, or obtain them on terms acceptable to us.
We may not be able to adequately protect our
proprietary technology, and our competitors may be able to offer similar products and services which would harm our competitive position.
Our success, in part, depends upon our proprietary
technology. We have various forms of intellectual property including patent, copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to establish and protect our proprietary rights. Despite these precautions, third parties could
copy or otherwise obtain and use our technology without authorization, or develop similar technology independently. We also pursue the
registration of our domain names, trademarks, and service marks in the United States. We have also filed patent applications. However,
we cannot provide any assurance that patent applications that we file will ultimately result in an issued patent or, if issued, that
they will provide sufficient protections for our technology against competitors. We cannot assure you that the protection of our proprietary
rights will be adequate or that our competitors will not independently develop similar technology, duplicate our products and services
or design around any intellectual property rights we hold.
We could be harmed by improper disclosure or
loss of sensitive or confidential data.
In connection with the operation of our business,
we plan to process and transmit data. Unauthorized disclosure or loss of sensitive or confidential data may occur through a variety of
methods. These include, but are not limited to, systems failure, employee negligence, fraud or misappropriation, or unauthorized access
to or through our information systems, whether by our employees or third parties, including a cyberattack by computer programmers, hackers,
members of organized crime and/or state-sponsored organizations, who may develop and deploy viruses, worms or other malicious software
programs.
Such disclosure, loss or breach could harm our reputation
and subject us to government sanctions and liability under laws and regulations that protect sensitive or personal data and confidential
information, resulting in increased costs or loss of revenues. It is possible that security controls over sensitive or confidential data
and other practices we and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information.
The potential risk of security breaches and cyberattacks may increase as we introduce new services and offerings, such as mobile technology.
Further, data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions
in which we provide services. Any failure or perceived failure to successfully manage the collection, use, disclosure, or security of
personal information or other privacy related matters, or any failure to comply with changing regulatory requirements in this area, could
result in legal liability or impairment to our reputation in the marketplace.
Unauthorized breaches or failures in cybersecurity
measures adopted by us and/or included in our products and services could have a material adverse effect on our business.
Information
security risks have generally increased in recent years, in part because of the proliferation of new technologies and the use of the
Internet, and the increased sophistication and activity of organized crime, hackers, terrorists, activists, cybercriminals and other
external parties, some of which may be linked to terrorist organizations or hostile foreign governments. Cybersecurity attacks are becoming
more sophisticated and include malicious attempts to gain unauthorized access to data and other electronic security breaches that could
lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and corruption of data,
substantially damaging our reputation. Our security systems are designed to maintain the security of our users’ confidential
information, as well as our own proprietary information. Accidental or willful security breaches or other unauthorized access by third
parties or our employees, our information systems or the systems of our third-party providers, or the existence of computer viruses or
malware in our or their data or software could expose us to risks of information loss and misappropriation of proprietary and confidential
information, including information relating to our products or customers and the personal information of our employees.
In addition, we could become subject to unauthorized
network intrusions and malware on our own IT networks. Any theft or misuse of confidential, personal or proprietary information as a
result of such activities or failure to prevent security breaches could result in, among
other things, unfavorable publicity, damage to our reputation, loss of our trade secrets and other competitive information, difficulty
in marketing our products, allegations by our customers that we have not performed our contractual obligations, litigation by affected
parties and possible financial obligations for liabilities and damages related to the theft or misuse of such information, as well as
fines and other sanctions resulting from any related breaches of data privacy regulations, any of which could have a material adverse
effect on our reputation, business, profitability and financial condition. Furthermore, the techniques used to obtain unauthorized access
or to sabotage systems change frequently and are often not recognized until launched against a target, and we may be unable to anticipate
these techniques or to implement adequate preventative measures.
We may be subject to stringent and changing
laws, regulations, standards, and contractual obligations related to privacy, data protection, and data security. Our actual or perceived
failure to comply with such obligations could adversely affect our business.
We receive, collect, store, and process certain personally
identifiable information about individuals and other data relating to users of the Application. We have legal and contractual obligations
regarding the protection of confidentiality and appropriate use of certain data, including personally identifiable and other potentially
sensitive information about individuals. We may be subject to numerous federal, state, local, and international laws, directives, and
regulations regarding privacy, data protection, and data security and the collection, storing, sharing, use, processing, transfer, disclosure,
disposal and protection of information about individuals and other data, the scope of which are changing, subject to differing interpretations,
and may be inconsistent among jurisdictions or conflict with other legal and regulatory requirements. We strive to comply with our applicable
data privacy and security policies, regulations, contractual obligations, and other legal obligations relating to privacy, data protection,
and data security. However, the regulatory framework for privacy, data protection and data security worldwide is, and is likely to remain
for the foreseeable future, uncertain and complex, and it is possible that these or other actual or alleged obligations may be interpreted
and applied in a manner that we do not anticipate or that is inconsistent from one jurisdiction to another and may conflict with other
legal obligations or our practices. Further, any significant change to applicable laws, regulations or industry practices regarding the
collection, use, retention, security, processing, transfer or disclosure of data, or their interpretation, or any changes regarding the
manner in which the consent of users or other data subjects for the collection, use, retention, security, processing, transfer or disclosure
of such data must be obtained, could increase our costs and require us to modify our services and features, possibly in a material manner,
which we may be unable to complete, and may limit our ability to receive, collect, store, process, transfer, and otherwise use user data
or develop new services and features.
If we are found in violation of any applicable laws
or regulations relating to privacy, data protection, or security, our business may be materially and adversely affected and we would
likely have to change our business practices and potentially the services and features, integrations or other capabilities of the Application.
In addition, these laws and regulations could impose significant costs on us and could constrain our ability to use and process data
in a commercially desirable manner. In addition, if a breach of data security were to occur or be alleged to have occurred, if any violation
of laws and regulations relating to privacy, data protection or data security were to be alleged, or if we were to discover any actual
or alleged defect in our safeguards or practices relating to privacy, data protection, or data security, the Application may be perceived
as less desirable and our business, financial condition, results of operations and growth prospects could be materially and adversely
affected.
We also expect that there will continue to be new
laws, regulations, and industry standards concerning privacy, data protection, and information security proposed and enacted in various
jurisdictions. For example, the California Consumer Privacy Act (“CCPA”), which came into force in 2020, provides new data
privacy rights for California consumers and new operational requirements for covered companies. Specifically, the CCPA mandates that
covered companies provide new disclosures to California consumers and afford such consumers new data privacy rights that include, among
other things, the right to request a copy from a covered company of the personal information collected about them, the right to request
deletion of such personal information, and the right to request to opt-out of certain sales of such personal information. The California
Attorney General can enforce the CCPA, including seeking an injunction and civil penalties for violations. The CCPA also provides a private
right of action for certain data breaches that is expected to increase data breach litigation. Additionally, a new privacy law, the California
Privacy Rights Act (“CPRA”), was approved by California voters in the November 3, 2020 election. The CPRA generally takes
effect on January 1, 2023 and significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain
personal information and creating a new state agency to oversee implementation and enforcement efforts, potentially resulting in further
uncertainty and requiring us to incur additional costs and expenses in an effort to comply. Some observers have noted the CCPA and CPRA
could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could also increase our potential
liability and adversely affect our business. For example, the CCPA has encouraged “copycat” or other similar laws to be considered
and proposed in other states across the country, such as in Virginia, New Hampshire, Illinois and Nebraska. This legislation may add
additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment in resources to
compliance programs, could impact strategies and availability of previously useful data and could result in increased compliance costs
and/or changes in business practices and policies.
Various U.S. federal privacy laws are potentially
relevant to our business, including the Federal Trade Commission Act, Controlling the Assault of Non-Solicited Pornography and Marketing
Act, the Family Educational Rights and Privacy Act, the Children’s Online Privacy Protection Act, and the Telephone Consumer Protection
Act. Any actual or perceived failure to comply with these laws could result in a costly investigation or litigation resulting in potentially
significant liability, injunctions and other consequences, loss of trust by our users, and a material and adverse impact on our reputation
and business.
In addition, the data protection landscape in the
EU is continually evolving, resulting in possible significant operational costs for internal compliance and risks to our business. The
EU adopted the General Data Protection Regulation (“GDPR”), which became effective in May 2018, and contains numerous requirements
and changes from previously existing EU laws, including more robust obligations on data processors and heavier documentation requirements
for data protection compliance programs by companies.
Among other requirements, the GDPR regulates the
transfer of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal
data, including the United States. Recent legal developments in Europe have created complexity and uncertainty regarding such transfers.
For instance, on July 16, 2020, the Court of Justice of the European Union (the “CJEU”) invalidated the EU-U.S. Privacy Shield
Framework (the “Privacy Shield”) under which personal data could be transferred from the European Economic Area to U.S. entities
who had self-certified under the Privacy Shield scheme. While the CJEU upheld the adequacy of the standard contractual clauses (a standard
form of contract approved by the European Commission as an adequate personal data transfer mechanism and potential alternative to the
Privacy Shield), it made clear that reliance on such clauses alone may not necessarily be sufficient in all circumstances. Use of the
standard contractual clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination
country, including, in particular, applicable surveillance laws and rights of individuals, and additional measures and/or contractual
provisions may need to be put in place; however, the nature of these additional measures is currently uncertain. The CJEU also states
that if a competent supervisory authority believes that the standard contractual clauses cannot be complied with in the destination country
and that the required level of protection cannot be secured by other means, such supervisory authority is under an obligation to suspend
or prohibit that transfer.
Additionally, the GDPR greatly increased the European
Commission’s jurisdictional reach of its laws and added a broad array of requirements for handling personal data. EU member states
are tasked under the GDPR to enact, and have enacted, certain implementing legislation that adds to and/or further interprets the GDPR
requirements and potentially extends our obligations and potential liability for failing to meet such obligations. The GDPR, together
with national legislation, regulations and guidelines of the EU member states a governing the processing of personal data, impose strict
obligations and restrictions on the ability to collect, use, retain, protect, disclose, transfer and otherwise process personal data.
In particular, the GDPR includes obligations and restrictions concerning the consent and rights of individuals to whom the personal data
relates, security breach notifications and the security and confidentiality of personal data.
Failure to comply with the GDPR could result in penalties
for noncompliance (including possible fines of up to the greater of €20 million and 4% of our global annual turnover for the preceding
financial year for the most serious violations, as well as the right to compensation for financial or non-financial damages claimed by
individuals under Article 82 of the GDPR).
In addition to the GDPR, the European Commission
has another draft regulation in the approval process that focuses on a person’s right to conduct a private life. The proposed legislation,
known as the Regulation of Privacy and Electronic Communications (“ePrivacy Regulation”), would replace the current ePrivacy
Directive. While the text of the ePrivacy Regulation is still under development, a recent European court decision and regulators’
recent guidance are driving increased attention to cookies and tracking technologies. If regulators start to enforce the strict approach
in recent guidance, this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing
activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional
liabilities. Regulation of cookies and similar technologies may lead to broader restrictions on our marketing and personalization activities
and may negatively impact our efforts to understand users.
Further, in March 2017, the United Kingdom formally
notified the European Council of its intention to leave the EU pursuant to Article 50 of the Treaty on European Union (“Brexit”).
The United Kingdom ceased to be an EU Member State on January 31, 2020, but enacted a Data Protection Act substantially implementing
the GDPR (“U.K. GDPR”), effective in May 2018, which was further amended to align more substantially with the GDPR following
Brexit. It is unclear how U.K. data protection laws or regulations will develop in the medium to longer term and how data transfers to
and from the United Kingdom will be regulated. Some countries also are considering or have enacted legislation requiring local storage
and processing of data that could increase the cost and complexity of delivering our services. Beginning in 2021 when the transitional
period following Brexit expired, we are required to comply with both the GDPR and the U.K. GDPR, with each regime having the ability
to fine up to the greater of €20 million (in the case of the GDPR) or £17 million (in the case of the U.K. GDPR) and 4% of
total annual revenue. The relationship between the United Kingdom and the EU in relation to certain aspects of data protection law remains
unclear, including, for example, how data transfers between EU member states and the United Kingdom will be treated and the role of the
United Kingdom’s Information Commissioner’s Office following the end of the transitional period. These changes could lead
to additional costs and increase our overall risk exposure.
Any failure or perceived failure by us to comply
with our posted privacy policies, our privacy-related obligations to users, or any other legal obligations or regulatory requirements
relating to privacy, data protection, or data security, may result in governmental investigations or enforcement actions, litigation,
claims, or public statements against us by consumer advocacy groups, or others and could result in significant liability, cause our users
to lose trust in us, and otherwise materially and adversely affect our reputation and business. Furthermore, the costs of compliance
with, and other burdens imposed by, the laws, regulations, other obligations, and policies that are applicable to the businesses of our
users may limit the adoption and use of, and reduce the overall demand for, the Application. Further, public scrutiny of, or complaints
about, technology companies or their data handling or data protection practices, even if unrelated to our business, industry or operations,
may lead to increased scrutiny of technology companies, including us, and may cause government agencies to enact additional regulatory
requirements, or to modify their enforcement or investigation activities, which may increase our costs and risks. Any of the foregoing
could materially and adversely affect our business, financial condition and results of operations.
Online applications are subject to various
laws and regulations relating to children’s privacy and protection, which if violated, could subject us to an increased risk of
litigation and regulatory actions.
A variety of laws and regulations
have been adopted in recent years aimed at protecting children using the internet such as the COPPA and Article 8 of the GDPR. We implement
certain precautions to ensure that we do not knowingly collect personal information from children under the age of 13 through the Application.
Despite our efforts, no assurances can be given that such measures will be sufficient to completely avoid allegations of COPPA violations,
any of which could expose us to significant liability, penalties, reputational harm and loss of revenue, among other things. Additionally,
new regulations are being considered in various jurisdictions to require the monitoring of user content or the verification of users’
identities and age. Such new regulations, or changes to existing regulations, could increase the cost of our operations.
Risks Related to the
Offering and Our Common Stock
A sustained, active trading market for our
common stock or Series A Warrants may not develop or be maintained which may limit investors’ ability to sell shares at all or
at an acceptable price.
As we are in our early stage of development, an investment
in our Company will likely require a long-term commitment, with no certainty of return. There is currently no trading market for our
common stock or Series A Warrants and we cannot predict whether an active market for our securities will ever develop or be sustained
in the future. In the absence of an active trading market:
|
|
●
|
investors may have difficulty buying and selling or obtaining
market quotations;
|
|
|
|
|
|
|
●
|
market visibility for our common stock, and Series A Warrants may be
limited; and
|
|
|
|
|
|
|
●
|
a lack of visibility for our common stock and Series A Warrants may
have a depressive effect on the market price for our common stock.
|
The lack of an active market impairs your ability
to sell your securities at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may
also reduce the fair market value of your securities. An inactive market may also impair our ability to raise capital to continue to
fund operations by selling securities and may impair our ability to acquire additional assets by using our securities as consideration.
Investors in this offering will experience immediate and substantial
dilution in net tangible book value (deficit).
You will incur immediate and substantial dilution
as a result of this offering. After giving effect to the sale by us of an assumed 2,850,569 shares of common stock based on an assumed
public offering price of $4.65 per share, and after deducting the underwriter’s discounts and commissions and estimated offering
expenses payable by us, investors in this offering can expect an immediate dilution of $3.86 per share. Accordingly, should we be liquidated
at our book value, you would not receive the full amount of your investment.
The price of our common stock and our Series
A Warrants may fluctuate substantially.
You should consider an investment in our common stock
and Series A Warrants to be risky, and you should invest in our common stock and Series A Warrants only if you can withstand a significant
loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of our common stock to
fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and elsewhere in this prospectus, are:
|
|
●
|
sale of our common stock by our shareholders, executives, and directors;
|
|
|
●
|
volatility and limitations in trading volumes of our shares of common stock;
|
|
|
●
|
our ability to obtain financing;
|
|
|
●
|
the timing and success of introductions of new products by us or our competitors or any
other change in the competitive dynamics of our industry, including consolidation among competitors;
|
|
|
●
|
our ability to attract new customers;
|
|
|
●
|
changes in our capital structure or dividend policy, future issuances of securities,
sales of large blocks of common stock by our shareholders;
|
|
|
●
|
announcements and events surrounding financing efforts, including debt and equity securities;
|
|
|
●
|
our inability to enter into new markets or develop new products;
|
|
|
●
|
announcements of acquisitions, partnerships, collaborations, joint ventures, new products,
capital commitments, or other events by us or our competitors;
|
|
|
●
|
changes in general economic, political and market conditions in or any of the regions
in which we conduct our business;
|
|
|
●
|
changes in industry conditions or perceptions;
|
|
|
●
|
analyst research reports, recommendation and changes in recommendations, price targets,
and withdrawals of coverage;
|
|
|
●
|
departures and additions of key personnel;
|
|
|
●
|
disputes and litigations related to intellectual properties, proprietary rights, and
contractual obligations;
|
|
|
●
|
changes in applicable laws, rules, regulations, or accounting practices and other dynamics;
and
|
|
|
●
|
other events or factors, many of which may be out of our control.
|
In addition, if the market for stocks in our industry
or industries related to our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of
our common stock could decline for reasons unrelated to our business, financial condition and results of operations. If any of the foregoing
occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and
a distraction to management.
We have broad discretion in the use of the
net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the
application of the net proceeds from this initial public offering, including for any of the currently intended purposes described in
the section entitled “Use of Proceeds.” Because of the number and variability of factors that will determine our use of the
net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management may not
apply our cash from this offering in ways that ultimately increase the value of any investment our securities or enhance shareholder
value. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net
proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable
return to our shareholders. If we do not invest or apply our cash in ways that enhance shareholder value, we may fail to achieve expected
financial results, which may result in a decline in the price of our shares of common stock, and, therefore, may negatively impact our
ability to raise capital, invest in or expand our business, acquire additional products or licenses, commercialize our products, or continue
our operations.
There is no established trading market for
our securities; further, our common stock and Series A Warrants will be subject to potential delisting if we do not maintain the listing
requirements of the Nasdaq Capital Market.
This offering constitutes our initial public offering
of units consisting of one share of common stock and one Series A Warrant. No public market for these securities currently exists. We
have applied to list the shares of our common stock and Series A Warrants on the Nasdaq Capital Market, or Nasdaq (and will also list
our Series A Warrants if such application is accepted). An approval of our listing application by Nasdaq will be subject to, among other
things, our fulfilling all of the listing requirements of Nasdaq. Even if these shares are listed on Nasdaq, there can be no assurance
that an active trading market for these securities will develop or be sustained after this offering is completed. The initial offering
price has been determined by negotiations among the lead underwriter and us. Among the factors considered in determining the initial
offering price were our future prospects and the prospects of our industry in general, our revenue, net income and certain other financial
and operating information in recent periods, and the financial ratios, market prices of securities and certain financial and operating
information of companies engaged in activities similar to ours. However, there can be no assurance that following this offering our common
stock will trade at a price equal to or greater than the offering price.
In addition, Nasdaq has rules for continued listing,
including, without limitation, minimum market capitalization and other requirements. Failure to maintain our listing, or de-listing from
Nasdaq, would make it more difficult for shareholders to dispose of our securities and more difficult to obtain accurate price quotations
on our securities. This could have an adverse effect on the price of our common stock. Our ability to issue additional securities for
financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely
affected if our common stock and/or other securities are not traded on a national securities exchange.
Our ability to have our common stock and Series
A Warrants traded on the Nasdaq is subject to us meeting applicable listing criteria.
We intend in the near future to apply to list our
common stock and Series A Warrants to be listed on Nasdaq, a national securities exchange. The Nasdaq requires companies desiring to
list their common stock to meet certain listing criteria including total number of shareholders: minimum stock price, total value of
public float, and in some cases total shareholders’ equity and market capitalization. Our failure to meet such applicable listing
criteria could prevent us from listing our common stock on Nasdaq. In the event we are unable to have our shares traded on Nasdaq, our
common stock could potentially trade on the OTCQX or the OTCQB, each of which is generally considered less liquid and more volatile than
the Nasdaq. Our failure to have our shares traded on Nasdaq could make it more difficult for you to trade our shares, could prevent our
common stock trading on a frequent and liquid basis and could result in the value of our common stock being less than it would be if
we were able to list our shares on Nasdaq.
We may acquire other companies or technologies,
which could divert our management’s attention, result in dilution to our stockholders and otherwise disrupt our operations and
adversely affect our operating results.
We may in the future seek to acquire or invest in
businesses, applications and services or technologies that we believe could complement or expand our services, enhance our technical
capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and
cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.
In addition, we do not have any experience in acquiring
other businesses. If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations and technologies
successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits
from the acquired business due to a number of factors, including:
|
|
●
|
inability to integrate or benefit from acquired technologies or services in a profitable
manner;
|
|
|
●
|
unanticipated costs or liabilities associated with the acquisition;
|
|
|
●
|
difficulty integrating the accounting systems, operations and personnel of the acquired
business;
|
|
|
●
|
difficulties and additional expenses associated with supporting legacy products and hosting
infrastructure of the acquired business;
|
|
|
●
|
difficulty converting the customers of the acquired business onto our platform and contract
terms, including disparities in the revenue, licensing, support or professional services model of the acquired company;
|
|
|
●
|
diversion of management’s attention from other business concerns;
|
|
|
●
|
adverse effects to our existing business relationships with business partners and customers
as a result of the acquisition;
|
|
|
●
|
the potential loss of key employees;
|
|
|
●
|
use of resources that are needed in other parts of our business; and
|
|
|
●
|
use of substantial portions of our available cash to consummate the acquisition.
|
In addition, a significant portion of the purchase
price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment
at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating
results based on this impairment assessment process, which could adversely affect our results of operations.
Acquisitions could also result in dilutive issuances
of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business
fails to meet our expectations, our operating results, business and financial position may suffer.
If research analysts do not publish research
about our business or if they issue unfavorable commentary or downgrade our common stock or Series A Warrants, our securities’
price and trading volume could decline.
The trading market for our securities may depend
in part on the research and reports that research analysts publish about us and our business. If we do not maintain adequate research
coverage, or if any of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business,
the price of our common stock and Series A Warrants could decline. If one or more of our research analysts ceases to cover our business
or fails to publish reports on us regularly, demand for our securities could decrease, which could cause the price of our common stock
and Series A Warrants or trading volume to decline.
We may issue additional equity securities,
or engage in other transactions that could dilute our book value or relative rights of our common stock, which may adversely affect the
market price of our common stock and Series A Warrants.
Our board of directors may determine from time to
time that it needs to raise additional capital by issuing additional shares of our common stock or other securities. Except as otherwise
described in this prospectus, we will not be restricted from issuing additional common stock, including securities that are convertible
into or exchangeable for, or that represent the right to receive, shares of our common stock. Because our decision to issue securities
in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount,
timing, or nature of any future offerings, or the prices at which such offerings may be affected. Additional equity offerings may dilute
the holdings of existing shareholders or reduce the market price of our common stock and Series A Warrants, or all of them. Holders of
our securities are not entitled to pre-emptive rights or other protections against dilution. New investors also may have rights, preferences
and privileges that are senior to, and that adversely affect, then-current holders of our securities. Additionally, if we raise additional
capital by making offerings of debt or preference shares, upon our liquidation, holders of our debt securities and preference shares,
and lenders with respect to other borrowings, may receive distributions of its available assets before the holders of our common stock.
An investment in our Series A Warrants is speculative
in nature and could result in a loss of your investment therein.
The Series
A Warrants offered in this offering do not confer any rights of common share ownership on their holders, such as voting rights or the
right to receive dividends, but rather merely represent the right to acquire shares of our common stock at a fixed price for a limited
period of time. Specifically, commencing on the date of issuance, holders of the Series A Warrants may exercise their right to acquire
the common stock and pay an assumed exercise price of $5.58 per share (120% of the public offering price of our common stock and Series
A Warrants in this offering), prior to five years from the date of issuance, after which date any unexercised Series A Warrants will
expire and have no further value. Moreover, following this offering, the market value of the Series A Warrants is uncertain and there
can be no assurance that the market value of the Series A Warrants will equal or exceed their public offering price. There can be no
assurance that the market price of the common stock will ever equal or exceed the exercise price of the Series A Warrants, and consequently,
whether it will ever be profitable for holders of the Series A Warrants to exercise the Series A Warrants.
Our Series A Warrants contain
a provision which only permits securities claims to be brought in federal court.
Section 11 of the Series A Warrant states in relevant
part: “[t]he Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City
of New York, Borough of Manhattan (except for claims brought under the Securities Act and the Exchange Act which must be brought in federal
court).” Therefore, any claims with respect to our Series A Warrants brought under the Securities Act or the Exchange Act must
be brought in federal court while all other claims may be brought in federal or state court. Section 27 of the Exchange Act creates exclusive
federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations
thereunder. Section 22 of the Securities Act, however, creates concurrent jurisdiction for federal and state courts over all suits brought
to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Thus, there may be uncertainty
as to whether a court will enforce such a provision included in the Series A Warrant with regard to claims under the Securities Act.
This forum provision may limit a Series A Warrant
holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers
or other employees, which may discourage such lawsuits against the Company and its directors, officers and other employees. Proceedings
in federal court may be more expensive than in state court due to more comprehensive rules on how discovery and motion and trial practice
are handled. Alternatively, if a court were to find the choice of forum provision contained in the Series A Warrant to be inapplicable
or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could
harm our business, results of operations, and financial condition.
Market and economic conditions may negatively
impact our business, financial condition and share price.
Concerns over inflation, energy costs, geopolitical
issues, the U.S. mortgage market and a declining real estate market, unstable global credit markets and financial conditions, and volatile
oil prices have led to periods of significant economic instability, diminished liquidity and credit availability, declines in consumer
confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth
going forward, increased unemployment rates, and increased credit defaults in recent years. Our general business strategy may be adversely
affected by any such economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions.
If these conditions continue to deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete,
more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material
adverse effect on our growth strategy, financial performance, and share price and could require us to delay or abandon development or
commercialization plans.
The ability of a stockholder to recover all
or any portion of such stockholder’s investment in the event of a dissolution or termination may be limited.
In the event of a dissolution or termination of the
Company, the proceeds realized from the liquidation of the assets of the Company or such subsidiaries will be distributed among the stockholders,
but only after the satisfaction of the claims of third-party creditors of the Company. The ability of a stockholder to recover all
or any portion of such stockholder’s investment under such circumstances will, accordingly, depend on the amount of net proceeds
realized from such liquidation and the amount of claims to be satisfied therefrom. There can be no assurance that the Company will recognize
gains on such liquidation, nor is there any assurance that Common Stock holders will receive a distribution in such a case.
We do not intend to
pay cash dividends on our shares of common stock so any returns will be limited to the value of our shares.
We currently anticipate
that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying
any cash dividends for the foreseeable future. Any return to shareholders will therefore be limited to the increase, if any, of our share
price.
We are an “emerging growth company”
and are able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common
stock less attractive to investors.
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we have elected to take advantage of
certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth
companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments
not previously approved. In addition, pursuant to Section 107 of the JOBS Act, as an “emerging growth company” we have
elected to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying
with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain
accounting standards until those standards would otherwise apply to private companies. As such, our financial statements may not be comparable
to companies that comply with public company effective dates.
We cannot predict if investors will find our common
stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there
may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting
exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until
the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more;
(ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the
date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date
on which we are deemed to be a large accelerated filer under the rules of the SEC.
We may be at risk of securities class action
litigation.
We may be at risk of securities class action litigation.
In the past, small-cap issuers have experienced significant stock price volatility, particularly when associated with regulatory requirements
by governmental authorities, which our industry now increasingly faces. If we face such litigation, it could result in substantial costs
and a diversion of management’s attention and resources, which could harm our business and results in a decline in the market price
of our common stock.
Financial reporting obligations of being a
public company in the United States are expensive and time-consuming, and our management will be required to devote substantial time
to compliance matters.
As a publicly traded company, we will incur significant
additional legal, accounting and other expenses that we did not incur as a privately company. The obligations of being a public company
in the United States require significant expenditures and will place significant demands on our management and other personnel, including
costs resulting from public company reporting obligations under the Exchange Act and the rules and regulations regarding corporate governance
practices, including those under the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) the Dodd-Frank Wall Street Reform and
Consumer Protection Act, and the listing requirements of the stock exchange on which our securities are listed. These rules require the
establishment and maintenance of effective disclosure and financial controls and procedures, internal control over financial reporting
and changes in corporate governance practices, among many other complex rules that are often difficult to implement, monitor and maintain
compliance with. Moreover, despite recent reforms made possible by the JOBS Act, the reporting requirements, rules, and regulations will
make some activities more time-consuming and costly, particularly after we are no longer an “emerging growth company.” In
addition, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability
insurance. Our management and other personnel will need to devote a substantial amount of time to ensure that we comply with all of these
requirements and to keep pace with new regulations, otherwise we may fall out of compliance and risk becoming subject to litigation or
being delisted, among other potential problems.
If we fail to comply with the rules under Sarbanes-Oxley
related to accounting controls and procedures in the future, or, if we discover material weaknesses and other deficiencies in our internal
control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.
Section 404 of Sarbanes-Oxley requires annual
management assessments of the effectiveness of our internal control over financial reporting. If we fail to comply with the rules under
Sarbanes-Oxley related to disclosure controls and procedures in the future, or, if we discover material weaknesses and other deficiencies
in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.
If material weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and maintain the adequacy of our
internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over
financial reporting in accordance with Section 404 of Sarbanes-Oxley. Moreover, effective internal controls are necessary for us
to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports
or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information,
and the trading price of our common stock could drop significantly.
Comprehensive tax reform bills could adversely
affect our business and financial condition.
The U.S. government recently enacted comprehensive
federal income tax legislation that includes significant changes to the taxation of business entities. These changes include, among others,
a permanent reduction to the corporate income tax rate. Notwithstanding the reduction in the corporate income tax rate, the overall impact
of this tax reform is uncertain, and our business and financial condition could be adversely affected. This prospectus does not discuss
any such tax legislation or the manner in which it might affect purchasers of our common stock. We urge our shareholders to consult with
their legal and tax advisors with respect to any such legislation and the potential tax consequences of investing in our common stock.
We could issue “blank check” preferred
stock without stockholder approval with the effect of diluting interests of then-current stockholders and impairing their voting
rights, and provisions in our charter documents and under Nevada law could discourage a takeover that stockholders may consider favorable.
Our Amended
and Restated Articles of Incorporation provides for the authorization to issue up to 20,000,000 shares of “blank check” preferred
stock with designations, rights and preferences as may be determined from time to time by our board of directors. Our board of directors
is empowered, without stockholder approval, to issue one or more series of preferred stock with dividend, liquidation, conversion, voting
or other rights which could dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series
of preferred stock could be used as a method of discouraging, delaying or preventing a change in control. For example, it would be possible
for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt
to change control of our company. In addition, advanced notice is required prior to stockholder proposals, which might further delay
a change of control.
Our principal stockholders and management own
a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
Our directors, executive officers and each of our
stockholders who owned greater than 5% of our outstanding Common Stock beneficially, as of August 9, 2021 , own approximately 63.54%
of our common stock outstanding immediately before this offering and 52.38% of our common stock outstanding immediately after
this offering stock. Accordingly, these stockholders have and will continue to have significant influence over the outcome of corporate
actions requiring stockholder approval, including the election of directors, a merger, the consolidation or sale of all or substantially
all of our assets or any other significant corporate transaction. The interests of these stockholders may not be the same as or may even
conflict with our other investors’ interests. For example, these stockholders could delay or prevent a change in control of us,
even if such a change in control would benefit our other stockholders, which could deprive our stockholders of an opportunity to receive
a premium for their Common Stock as part of a sale of the Company or our assets. The significant concentration of stock ownership may
negatively impact the value of our Common Stock due to potential investors’ perception that conflicts of interest may exist or
arise.
Our Articles of Incorporation, as amended ,
our Amended and Restated Bylaws, and Nevada law may have anti-takeover effects that could discourage, delay or prevent a change in control,
which may cause our stock price to decline.
Anti-takeover provisions may limit the ability of
another party to acquire us, which could cause our stock price to decline. Our articles of incorporation, as amended, bylaws and Nevada
law contain provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficial to
our stockholders. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our
common stock.
If our shares become subject to the penny stock
rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer
practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00,
other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation
systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange
or system. If we do not obtain or retain a listing on the Nasdaq Capital Market or if the price of our common stock falls below $5.00,
our common stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not
otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition,
the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer
must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s
written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks;
and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements would likely have the effect of reducing
the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
FINRA sales practice requirements may limit
a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules
described above, the Financial Industry Regulatory Authority, Inc. (“FINRA”), has adopted rules that require that in recommending
an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.
Prior to recommending speculative, low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts
to obtain information about the customer’s financial status, tax status, investment objectives and other information. The FINRA
requirements may make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may have the
effect of reducing the level of trading activity in our common stock. As a result, fewer broker-dealers may be willing to make a market
in our common stock, reducing a stockholder’s ability to resell shares, as well as overall liquidity, of our common stock.
We may be considered a smaller reporting company
and will be exempt from certain disclosure requirements, which could make our common stock less attractive to potential investors.
Rule 12b-2 of the Exchange Act, defines a “smaller
reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a
parent that is not a smaller reporting company and that:
|
|
●
|
had a public float of less than $250 million as of the last business day of its most
recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting
common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices
of common equity, in the principal market for the common equity; or
|
|
|
●
|
in the case of an initial registration statement under the Securities Act of 1933, as
amended (“Securities Act”), or the Exchange Act for shares of its common equity, had a public float of less than $250
million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate
worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration
statement, the number of such shares included in the registration statement by the estimated public offering price of the shares;
or
|
|
|
●
|
in the case of an issuer whose public float was zero, had annual revenues of less than
$100 million during the most recently completed fiscal year for which audited financial statements are available.
|
As a smaller reporting company, we would not be required
and may not include a Compensation Discussion and Analysis section in our proxy statements; we would provide only two years of financial
statements; and we would not need to provide the table of selected financial data. We also would have other “scaled” disclosure
requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our common stock less
attractive to potential investors, and also could make it more difficult for our stockholders to sell their shares.
Our Amended
and Restated Articles of Incorporation provide that the Eighth Judicial District Court of Clark County, Nevada will be the sole and exclusive
forum for certain disputes which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with the Company
or its directors, officers, employees or agents.
Our Amended
and Restated Articles of Incorporation provide that unless the Company consents in writing to the selection of an alternative forum,
the Eighth Judicial District Court of Clark County, Nevada shall be the sole and exclusive forum for state law claims with respect to:
(i) any derivative action or proceeding brought in the name or right of the Company or on its behalf, (ii) any action asserting a claim
for breach of any fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or the Company’s
stockholders, (iii) any action arising or asserting a claim arising pursuant to any provision of Nevada Revised Statutes Chapters 78
or 92A or any provision of the Company’s Amended and Restated Articles of Incorporation or Amended and Restated Bylaws or (iv)
any action asserting a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply,
enforce or determine the validity of the Company’s Amended and Restated Articles of Incorporation or Amended and Restated Bylaws.
This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the
Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based
upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any
duty or liability created by the Exchange Act or the rules and regulations thereunder.
Section 22
of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability
created by the Securities Act or the rules and regulations thereunder. However, our Amended and Restated Articles of Incorporation contain
a federal forum provision which provides that unless the Company consents in writing to the selection of an alternative forum, the federal
district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of
action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock
of the Corporation are deemed to have notice of and consented to this provision. As this provision applies to Securities Act claims,
there may be uncertainty whether a court would enforce such a provision.
These choice of forum provisions may limit a stockholder’s
ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other
employees, which may discourage such lawsuits against the Company and its directors, officers and other employees. Alternatively, if
a court were to find our choice of forum provisions contained in either our Amended and Restated Articles of Incorporation or Amended
and Restated Bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving
such action in other jurisdictions, which could harm its business, results of operations, and financial condition.
INFORMATION REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking statements
that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements. All statements other than
statements of historical facts contained in this prospectus are forward-looking statements. The forward-looking statements in this prospectus
are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future
events and financial trends that we believe may affect our business, financial condition and results of operations. In some cases, you
can identify these forward-looking statements by terms such as “anticipate,” “believe,” “continue,”
“could,” “depends,” “estimate,” “expects,” “intend,” “may,” “ongoing,”
“plan,” “potential,” “predict,” “project,” “should,” “will,”
“would” or the negative of those terms or other similar expressions, although not all forward-looking statements contain
those words. We have based these forward-looking statements on our current expectations and projections about future events and trends
that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and
objectives and financial needs. These forward-looking statements include, but are not limited to, statements concerning the following:
|
|
●
|
our ability to obtain additional funds for our operations;
|
|
|
●
|
our financial performance, including our revenues, cost of revenues, operating expenses,
and our ability to attain and sustain profitability;
|
|
|
●
|
our ability to attract and retain users;
|
|
|
●
|
our ability to attract and retain advertisers;
|
|
|
●
|
our ability to compete effectively with existing competitors and new market entrants;
|
|
|
●
|
our ability to successfully expand in our existing markets and penetrate new markets;
|
|
|
●
|
our expectations regarding the time during which we will be an emerging growth company
under the Jumpstart Our Business Startups Act, or JOBS Act;
|
|
|
●
|
our ability to effectively manage our growth, and future expenses;
|
|
|
●
|
our ability to maintain, protect, and enhance our intellectual property;
|
|
|
●
|
our ability to comply with modified or new laws and regulations applying to our business,
competitors and industry;
|
|
|
●
|
our ability to attract and retain qualified key management and technical personnel; and
|
|
|
●
|
other risks and uncertainties, including those listed under the caption “Risk Factors.”
|
These forward-looking statements are subject to a
number of risks, uncertainties and assumptions, including those described in “Risk Factors.” Moreover, we operate in a very
competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all
risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks,
uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results
could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements
as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable,
we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking
statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for
the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements
for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.
You should read this prospectus and the documents
that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is
a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially
different from what we expect.
INDUSTRY
AND MARKET DATA
This prospectus contains estimates and other statistical
data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry
and market data in this prospectus from our own research as well as from industry and general publications, surveys and studies conducted
by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance
of the industries in which we operate that are subject to a high degree of uncertainty, including those discussed in “Risk Factors”.
We caution you not to give undue weight to such projections, assumptions and estimates. Further, industry and general publications, studies
and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy
or completeness of such information. While we believe that these publications, studies and surveys are reliable, we have not independently
verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable,
such results and estimates have not been verified by any independent source.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of
units will be approximately $11,428,590 million, or approximately $13,237,915 million if the underwriter exercises in full its option
to purchase additional units, based on an assumed public offering price of $4.65 per unit, after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by us. This estimate excludes the proceeds, if any, from the exercise
of the Series A Warrants in this offering. If all of the Series A Warrants sold in this offering were to be exercised in cash at an assumed
exercise price of $5.58 per share, we would receive additional net proceeds of approximately $15,906,175 million. We cannot predict when
or if these Series A Warrants will be exercised. It is possible that these Series A Warrants may expire and may never be exercised. Each
$1.00 increase (decrease) in the assumed public offering price of $4.65 per common share and Series A Warrant would increase (decrease)
the net proceeds to us from this offering by approximately $2,850,569 million, or approximately $3,278,154 million if the underwriter
exercises its over-allotment option in full, assuming the number of shares offered by us, as set forth on the cover page of this prospectus,
remain the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The expected use of net proceeds of this offering
represents our current intentions based upon our present plan and business conditions. As of the date of this prospectus, we cannot specify
with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. The amounts and timing
of our actual use of net proceeds will vary depending on numerous factors. As a result, management will have broad discretion in the
application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this
offering. We currently estimate that we will use the net proceeds from this offering as follows: for product development, marketing,
working capital and general corporate purposes. Additionally, we may use a portion of the proceeds to us for acquisitions of complementary
businesses, technologies, or other assets. We have presumed that we will receive aggregate gross proceeds of approximately $13,255,150
million and deducted approximately $1,826,560 million payable in offering costs, commissions and fees.
The use of the proceeds represents management’s
estimates based upon current business and economic conditions. We reserve the right to use the net proceeds we receive in the offering
in any manner we consider to be appropriate. Although our Company does not contemplate changes in the proposed use of proceeds, to the
extent we find that adjustment is required for other uses by reason of existing business conditions, the use of proceeds may be adjusted.
The actual use of the proceeds of this offering could differ materially from those outlined above as a result of several factors including
those set forth under “Risk Factors” and elsewhere in this prospectus.
Pending the use of the net proceeds of this offering,
we intend to invest the net proceeds in short-term investment-grade, interest-bearing securities.
MARKET FOR OUR COMMON SHARES
AND RELATED SHAREHOLDER MATTERS
Our common shares are not quoted on any market, and
never have been.
As of August 9 , 2021, we had 2,462
shareholders of record of our common shares.
We have applied for the listing of our common shares
on the Nasdaq Capital Market under the symbol “DATS.” In conjunction therewith, we have also applied to apply to have the
Series A Warrants listed on The Nasdaq Capital Market under the symbol “DATSW”. No assurance can be given that such application
will be approved or that a trading market will develop.
DIVIDEND POLICY
We have never paid or declared
any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination
to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results
of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors
our board of directors deems relevant.
CAPITALIZATION
The following table sets forth our
cash and capitalization as of March 31, 2021 on:
|
|
·
|
on
a pro forma as adjusted basis to reflect the sale by us of an assumed units at an assumed
combined initial public offering price of $4.65 per unit, which is the midpoint of the price
range set forth on the cover page of this prospectus, after deducting the underwriting discounts
and commissions and estimated offering costs payable by us.
|
The pro forma information in this
table is unaudited and is illustrative only and our capitalization following the completion of this offering will be adjusted based on
the actual initial public offering price and other terms of this offering determined at pricing. You should read this table in conjunction
with the information contained in “Use of Proceeds,” “Summary Financial Data” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operation,” as well as the financial statements and the notes included elsewhere
in this prospectus.
|
|
|
As of March
31, 2021
|
|
|
|
Actual
|
|
Pro
Forma(1)
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,628,100
|
|
|
$
|
13,056,690
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit):
|
|
$
|
1,648,526
|
|
|
$
|
13,077,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in
capital
|
|
$
|
19,404,132
|
|
|
$
|
30,833,775
|
|
|
Accumulated deficit
|
|
|
(17,758,283
|
)
|
|
|
(17,758,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity (deficit)
|
|
$
|
1,648,526
|
|
|
$
|
13,077,116
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capitalization
|
|
$
|
1,819,119
|
|
|
$
|
13,247,709
|
|
The number of common shares that will be outstanding after this offering
set forth above is based on shares of our common stock outstanding as of March 31, 2021, and excludes the following:
|
|
●
|
additional shares of common stock reserved for future issuance under our 2021 Equity
Incentive Plan; and
|
|
|
●
|
shares underlying outstanding warrants at a weighted average exercise price of $0.40
per share.
|
Unless specifically stated otherwise, all information in this prospectus
assumes:
|
|
●
|
no exercise of the outstanding options or warrants described above;
|
|
|
|
|
|
|
●
|
no exercise by the underwriter of their option to purchase additional common stock and/or Series
A Warrants to purchase our common stock to cover over-allotments, if any; and
|
|
|
|
|
|
|
●
|
no exercise of the representatives’ warrant; and
|
|
|
|
|
|
|
●
|
a one-for-two (1:2) reverse stock split effected on July 28, 2021.
|
|
(1)
|
Reflects the Reverse Stock Split.
|
|
(2)
|
A $1.00 increase or decrease in the assumed public offering price per share would increase or decrease our pro forma as adjusted
cash and cash equivalents, additional paid-in capital, total shareholders’ equity and total capitalization by approximately
$2,222,223 million assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the
same and after deducting the underwriting discount and estimated offering expenses payable by us.
|
DILUTION
If you invest in our units in this offering, your
ownership interest will be diluted to the extent of the difference between the initial public offering price per common share of in this
offering and the as adjusted net tangible book value per share immediately after this offering. We calculate net tangible book value
per share by dividing our net tangible book value, which is tangible assets less total liabilities less debt discounts, by the number
of our outstanding common stock as of March 31, 2021, assuming no value is attributed to the Series A Warrants and such Series A Warrants
are accounted for and classified as equity. Our historical net tangible book value as of March 31, 2021, was approximately $1,457,507
or $0.11 per share based upon shares of common stock outstanding on such date.
After giving effect to the sale of an assumed per
unit (including $4.65 per share of common stock and $5.58 per Series A Warrant), after deducting the underwriting discounts and commissions
and estimated offering costs payable by us, our as adjusted net tangible book value (deficit) as of March 31, 2021, would have been approximately
$12,886,097 or $0.79 per common share and accompanying Series A Warrant. This represents an immediate increase in as adjusted net tangible
book value of $11,428,589 per share to existing shareholders and an immediate dilution of $3.86 per share to investors purchasing our
common shares in this offering at the assumed public offering price, attributing none of the assumed combined public offering price to
the Series A Warrants offered hereby.
The following table illustrates per share dilution
as of March 31, 2021:
|
Assumed initial
Public offering price per share of common stock
|
|
$4.65
|
|
Net
tangible book value (deficit) per share as of March 31,2021
|
$0.11
|
|
|
Increase in net tangible book value (deficit) per share attributable to this offering
|
$0.68
|
$0.79
|
|
Net
tangible book value (deficit) per share after this offering
|
|
$0.79
|
|
Dilution
per share to investors participating in this offering
|
|
$3.86
|
Each $1.00 increase (decrease) in the assumed public
offering price would increase (decrease) our as adjusted net tangible book value (deficit) after this offering by approximately $2,850,569
or approximately $0.18 per share, and the dilution per share to new investors by approximately $0.18 per share, assuming that the number
of shares and related Series A Warrants offered by us, as set forth on the cover page of this prospectus, remain the same and after deducting
the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease
the number of shares and related Series A Warrants we are offering. An increase of 1,000,000 shares of common stock and related Series
A Warrants in the number of shares and related Series A Warrants offered by us would increase our as adjusted net tangible book value
(deficit) after this offering by approximately $4,650,000 or $0.23 per share of common stock and related Series A Warrants, and decrease
the dilution per share to new investors by $0.14 per share of common stock and related Series A Warrants, assuming that the assumed initial
public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering
expenses payable by us. Similarly, a decrease of 1,000,000 shares in the number of shares offered by us would decrease our as adjusted
net tangible book value (deficit) after this offering by approximately $4,650,000 or $0.25 per share of common stock and related Series
A Warrants, and increase the dilution per share to new investors by $0.25 per share of common stock and related Series A Warrants, assuming
that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the actual
initial public offering price and other terms of this offering determined at pricing. This table does not take into account further dilution
to new investors that could occur upon the exercise of outstanding options and warrants, including the Series A Warrants offered in this
offering, having a per share exercise price less than the public offering price per share in this offering.
If the underwriters exercise in full their option
to purchase up to additional shares of common stock at the assumed initial public offering price of $4.65 per share, the as adjusted
net tangible book value (deficit) after this offering would be $14,436,091 per share, representing an increase in net tangible book value
(deficit) of $0.08 per share to existing shareholders and immediate dilution in net tangible book value (deficit) of $0.08 per share
to investors purchasing our common shares in this offering at the assumed public offering price.
MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis
of our financial condition and plan of operations together with “Summary Financial Data” and our financial statements and
the related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed
below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those
discussed in the section titled “Risk Factors” included elsewhere in this prospectus. All amounts in this report are in U.S.
dollars, unless otherwise noted.
Overview
We are a communication software company. We believe
that one’s right to privacy should not end the moment they click “send.” Our flagship product, DatChat Messenger &
Private Social Network (the “Application”), is a mobile application that gives users the ability to communicate with privacy
and protection.
The Application allows users to exercise control
over their messages, even after they are sent. Through the 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.
The Application integrates with iMessage, making
private messages potentially available to hundreds of millions of users.
Regulation “A” Offering
On September 23, 2016, we filed an Offering Statement
on Form 1-A pursuant to Tier II of Regulation A under the Securities Act of 1933, as amended (the “Securities Act”),
with the Securities and Exchange Commission (“SEC”) and subsequent amendments thereto on December 7, 2016, January 12, 2017,
January 25, 2017 and January 31, 2017 (the “Offering Statement”). The Offering Statement was qualified by the SEC on February
2, 2017. Pursuant to the Regulation A offering, as of March 31, 2021, we have sold an aggregate of 1,230,701 shares of our common stock,
$0.0001 par value per share, at a purchase price of $4.00 per share, resulting in aggregate gross proceeds of $4,922,804, before deducting
offerings expenses of $794,790.
Basis of Presentation
The financial statements contained herein have been
prepared in accordance with GAAP and the requirements of the SEC.
Critical Accounting Policies and Significant
Judgments and Estimates
This management’s discussion and analysis of
financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S.
GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenue and expenses during the reported period. In accordance with U.S. GAAP, we base our estimates on historical experience and
on various other assumptions we believe to be reasonable under the circumstances. Actual results may differ from these estimates if conditions
differ from our assumptions. While our significant accounting policies are more fully described in Note 1 in the “Notes to Financial
Statements”, we believe the following accounting policies are critical to the process of making significant judgments and estimates
in preparation of our financial statements.
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 financial statements
and during the reporting period. Actual results could materially differ from these estimates. Significant estimates include the valuation
of deferred tax assets, valuation of warrants issued with debt, and the value of stock-based compensation expenses.
Revenue recognition
The Company will recognize 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 will further analyze its revenue recognition policy when it enters into revenue producing customer
contracts.
Stock-based compensation
Stock-based compensation is accounted for
based on the requirements of the Share-Based Payment Topic of ASC 718, “Compensation — Stock Compensation” (“ASC
718”), which requires recognition in the financial statements of the cost of employee, non-employee and director services received
in exchange for an award of equity instruments over the period the employee, non-employee or director is required to perform the services
in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee, non-employee,
and director services received in exchange for an award based on the grant-date fair value of the award.
Leases
In February 2016, the Financial Accounting Standards
Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and
lease liabilities all leases with a term greater than 12 months regardless of their classification. In addition, the updated guidance
requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The
updated guidance is effective for interim and annual periods beginning after December 15, 2018.
On January 1, 2019, we adopted ASU No. 2016-02, applying
the package of practical expedients to leases that commenced before the effective date whereby we elected to not reassess the following:
(i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered
into on or after the effective date, at the inception of a contract we assessed whether the contract is, or contains, a lease. Our assessment
is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially
all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset.
We will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease
payments.
Operating lease right of use assets (“ROU”)
assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present
value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate,
we use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future
payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general
and administrative expenses in the statements of operations.
Capital Expenditures
We do not have any contractual obligations
for ongoing capital expenditures at this time. We do, however, purchase equipment and software necessary to conduct our operations on
an as needed basis.
Quantitative and Qualitative Disclosures
about Market Risk
In the ordinary course of our business, we
are not exposed to market risk of the sort that may arise from changes in interest rates or foreign currency exchange rates, or that
may otherwise arise from transactions in derivatives.
Recently Issued Accounting Pronouncements
Refer to the notes to the audited financial statements.
Results of Operations For the Three Months Ended
March 31, 2021 and 2020
Revenue
We did not generate any revenues during
the three months ended March 31, 2021 and 2020 and we do not anticipate that we will generate revenue for the foreseeable future. Once
we achieve a critical mass of users, we will offer new features and will harge fees in order to generate revenues from these added features.
Cost of goods sold
We remain in developmental stage and,
in conjunction with not having any operational revenue, we have incurred no Cost of Goods and Services Sold.
General and administrative expenses
General and administrative expenses for
the three months ended March 31, 2021 and 2020 were $113,637 and $81,781, an increase of $31,856 or 39%. General and administrative expenses
primarily consisted of the following expense categories: marketing, advertising and promotion, insurance, travel, utilities, office related
expenses and rent expense. Such increase was primarily attributable to increase in insurance and office expenses.
Professional and consulting expenses
During the three months ended March 31,
2021 and 2020, we reported professional and consulting fees of $604,036 and $32,405, respectively, an increase of $571,631 or
1,764%, which are principally comprised of the following items:
|
|
●
|
We
incurred $564,950 and $20,861 of consulting fees for sales, marketing, advisory consulting, investor relation and other incidental
services for the three months ended March 31, 2021 and 2020, respectively. During the three months ended March 31, 2021 and 2020,
$470,000 and $0, respectively, of these services were paid in the form of common stock valued on the date of grant at its estimated
fair value using recent sales of common stock.
|
|
|
●
|
The
remaining amounts attributed to professional and consulting fees incurred during the three months ended March 31, 2021 and 2020 were
primarily are attributed to legal and accounting fees which amounted to approximately $34,870 and $9,884, respectively. Various other
types of professional fees were incurred none of which are individually significant.
|
Compensation and related expenses
Compensation and related expenses for
the three months ended March 31, 2021 and 2020 were $279,135 and $79,601, respectively, an increase of $199,534 or 251%, and relates
to salaries, health insurance and other benefits of our three officers and one part time employee. The increase in compensation is primarily
related to increase salaries to our three officers.
Other Expense
During the three months ended March 31,
2021 and 2020, we reported other income (expense) of $37 and ($14,175), respectively. During the three months ended March 31, 2021, other
income primarily consisted of interest income of $134, offset by interest expense of $97. For the three months ended March 31, 2020,
other expense included interest income of $1, offset by interest expense of $14,176 related to our debts. The decrease in interest expense
is primarily attributable due to repayments of debt during the three months ended March 31, 2021 and in fiscal 2020.
Net Loss
For the foregoing reasons, our net loss
for the three months ended March 31, 2021 and 2020, was $996,771 and $207,962, respectively.
Results of Operations For the Years Ended December
31, 2020 and 2019
Revenue
We did not generate any revenues during the
years ended December 31, 2020 and 2019 and we do not anticipate that we will generate revenue for the foreseeable future. Once we achieve
a critical mass of users, we will offer new features and will charge fees in order to generate revenues from these added features.
Cost of goods sold
We remain in developmental stage and, in conjunction
with not having any operational revenue, we have incurred no Cost of Goods and Services Sold.
General and administrative expenses
General and administrative expenses for the
years ended December 31, 2020 and 2019 were $327,184 and $310,854. General and administrative expenses primarily consisted of the following
expense categories: marketing, advertising and promotion, insurance, travel, utilities, office related expenses and rent expense.
Advertising Costs
Advertising costs were $211,956 and $197,358
for the years ended December 31, 2020 and 2019, respectively, and are included in general and administrative expenses on the statement
of operations.
Professional and consulting fees
During the years ended December 31, 2020 and
2019, we reported professional and consulting fees of $263,245 and $167,468, respectively which are principally comprised of the following
items:
|
|
●
|
We incurred $194,165 and $88,069 of consulting fees for sales, marketing, investor relation
and other incidental services for the years ended December 31, 2020 and 2019, respectively. During the years ended December 31, 2020
and 2019, $20,000 and $10,000, respectively, of these services were paid in the form of common stock valued on the date of issuance
at its estimated fair value using recent sales of common stock.
|
|
|
●
|
The remaining amounts attributed to professional fees incurred during the years ended
December 31, 2020 and 2019 were primarily are attributed to legal and accounting fees which amounted to approximately $47,000 and
$73,000, respectively. Various other types of professional fees were incurred none of which is individually significant.
|
Compensation expenses
Compensation and related expenses for the
years ended December 31, 2020 and 2019 were $494,002 and $502,277, respectively, and relates to salaries, health insurance and other
benefits of our officers and employees.
Other Expense
During the years ended December 31, 2020 and
2019, we reported other income (expense) of $104,961 and ($5,576,737), respectively. During the year ended December 31, 2020, other income
primarily consisted of gain on the extinguishment of a convertible note totaling $143,353, and other income of $7,000 from grant received
from the SBA under the SBA’s Economic Injury Disaster Loan assistance program in light of the impact of the COVID-19 pandemic in
2020, offset by interest expense of $45,499. For the years ended December 31, 2019, other expense included interest expense and amortization
of original issue discounts on notes payable of $176,218 and loss on debt extinguishment of $5,400,569 pursuant to a Forbearance and
Exchange Agreement with a note holder.
As of December 31, 2020 and 2019, accrued
interest related to the convertible notes payable amounted to $0 and $50,005, respectively, and was included in accounts payable and
accrued expenses in the accompanying balance sheets.
Net Loss
For the foregoing reasons, our net loss for
the years ended December 31, 2020 and 2019, was $979,470 and $6,557,336, respectively.
Liquidity, Capital Resources and Plan of Operations
For the Three Months Ended March 31, 2021 and 2020
As of March 31, 2021, we had cash totaling approximately
$1,628,100.
Going Concern Consideration
We have not generated revenues to date. For the three
months ended March 31, 2021 and 2020, respectively, we had a net loss of $996,771 and $207,962 and will require additional capital in
order to operate in the normal course of business and implement its business plan. In addition we used cash in operations of $650,231
for the three months ended March 31, 2021. We have an accumulated deficit of $17,758,283 at March 31, 2021 and have not generated revenues
since inception. While these circumstances cause substantial doubt about our ability to continue as a going concern, we believe that
the actions presently being taken provide the opportunity for us to continue as a going concern. The ability for us to continue as a
going concern is dependent on our ability to further implement our business plan, raise capital, and generate revenues once we achieve
a critical mass and begin to charge fees.
Net cash used in operating activities totaled approximately
$650,231 and $270,571 for the three months ended March 31, 2021 and 2020, respectively. Net loss for the three months ended March 31,
2021 and 2020 totaled approximately $996,771 and $207,962, respectively. For the three months ended March 31, 2021, stock-based compensation
was $470,000, and operating changes were a net decrease of $130,146 primarily due to increase in prepaid expenses.
For the three months ended March 31, 2020, operating
changes were a decrease of $68,201. Total advance deposits increased by $50,000, and total accounts payable and accrued expenses increased
by approximately $12,609.
Net cash provided by financing activities totaled
approximately $1,587,908 and $274,909 for the three months ended March 31, 2021 and 2020, respectively. During the three months ended
March 31, 2021, financing activities was primarily attributable to net proceeds of approximately $1,592,972 from the sale of common stock
and $95,143 of advances from a related party, offset by $92,707 repayment of related party advances and $7,500 repayment of related-party
notes. During the three months ended March 31, 2020, financing activities was primarily attributable to net proceeds of approximately
$281,799 from the sale of common stock and $64,015 of advances from a related party, offset by $69,905 repayment of related party advances
and $1,000 repayment of related-party notes.
Off-Balance Sheet Arrangements
We did not have, during the periods presented,
and we do not currently have, any off-balance sheet arrangements.
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
JOBS Act
Please see the section of this prospectus entitled
“Prospectus Summary — Implications of Being an Emerging Growth Company.”
BUSINESS
We are a communication software company. We believe
that one’s right to privacy should not end the moment they click “send.” Our flagship product, DatChat Messenger &
Private Social Network (the “Application”), is a mobile application that gives users the ability to communicate with privacy
and protection.
The Application allows users to exercise control
over their messages, even after they are sent. Through the 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.
The Application integrates with iMessage, making
private messages potentially available to hundreds of millions of users.
Corporate Background
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.
General Overview
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. We
currently have approximately 22,572 Monthly Active Users, of which approximately 16,620 are Android users.
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.
Our Privacy Platform
The Application, built with advanced privacy controls
for users engaged in both individual and group messaging, provides users with enhanced control over their messages before and after they
are sent. Users can select how long or how many times a message may be viewed by a recipient. After a message is sent, users can also
adjust the extent to which recipients can view the message. In addition, a sender may, at any time, delete individual messages or entire
conversations from the recipient’s device.
Current Messaging Features
|
|
●
|
User Ability to Limit Message Availability to Recipients: Users can control the amount
of views or time a message they send is available to the recipient or recipients in a group message.
|
|
|
●
|
User Control Over Sent Messages: Users may unilaterally delete messages from a recipient’s
device. Users may also, at any time, unilaterally delete an entire conversation from a recipient’s device.
|
|
|
●
|
User Control Over Forwarding Sent Messages: Our technology prevents recipients from forwarding
messages sent through the Application without the sender’s permission. In order to forward a message, the recipient must send
a request to the sender and be granted permission. Further, encrypted messages sent through the Application cannot be forwarded by
default.
|
|
|
●
|
Anti-Screenshot Protection: The Application utilizes proprietary technology to give senders
the option to limit the recipient’s ability to screenshot and save the contents of the message. If a recipient is able to take
a screenshot, the sender is notified.
|
Features under Development
We are currently developing a feature that may give
users control over forwarding sent messages. We are building this feature so that it can prevent recipients from forwarding messages
sent through the Application without the sender’s permission. In order to forward a message, the recipient will have to send a
request to the sender and be granted permission. Further, we are designing this feature so that encrypted messages sent through the Application
may not be forwarded by default. In addition, we are currently developing a desktop version of the Application.
Private Encrypted Social Network
Our private social network creates a secure and private
space to post, share, comment and engage with friends and associates. Users control who will be able to see their posts and comments.
Additionally, messages cannot be screenshotted, forwarded or shared. All posts are encrypted and can be permanently deleted at any time
or set to self-destruct at a specific time. Our social privacy platform creates a unique social network for users to share and talk with
their friends.
Current Features
|
|
●
|
Extensive User Ability to Limit a Social Media Post’s Availability to Network Members:
Users can control the amount of time their social media messages are available in private social networks to which they belong. Once
the time limit is reached, the message is automatically deleted.
|
|
|
●
|
All Social Media Posts and comments are encrypted specifically
for members of the private social network that the user is participating in.
|
|
|
●
|
Anti-Screenshot Protection: Our private social network
utilizes proprietary technology to restrict the recipient’s ability to screenshot and save the contents of social media posts
or comments. If the viewer of the post attempts to take a screenshot, the entire private social network is notified and the post
automatically disappears for that user.
|
Features under Development
We are currently working on a variety of new features
to enhance the user experience, such as (1) adding color and different fonts to posts, (2) adding emojis and a GIF generator, and (3)
adding a feature that allows users to view who liked or disliked their post or comment.
Blockchain Decentralized Communications Platform
We are currently developing an innovative privacy
platform that will be powered by a decentralized global communications and digital rights management blockchain (“Micro-Blockchain”).
We anticipate that the Micro-Blockchain will allow users to create and use blockchain to protect their privacy and connect directly with
intended recipients.
Features under Development:
|
|
●
|
Directly connect with intended recipients. We believe that
this feature is critical because it will allow users to send messages and files directly to their intended recipients, which bypasses
the traditional centralized services such as email that could possibly store personal information indefinitely. Our technology helps
ensure that only the user and their recipients have access to the information that is shared.
|
|
|
●
|
We believe that our Micro-Blockchain will strengthen trust
among our community of users because the Application ensures that users connect only with their intended audience. In addition, we
believe that the Application will allow messages and information to be delivered in a more timely, reliable and secure manner.
|
|
|
●
|
Users should be able to use our Micro-Blockchain for much
more than just messaging. Potentially, with just one click, users could create private Personal Social Networks, File Sharing Groups,
Photo Sharing, and Family Archives.
|
|
|
●
|
Mobile application developers will have the potential to
create new and exciting uses for our Micro-Blockchain technology.
|
We are using blockchain technology solely for purposes
of developing the privacy features and functionality as described above and we have no intention of developing our Micro-Blockchain to
be compatible with, or involved in, cryptocurrency in any capacity.
In order to launch all of our features under development,
we believe that it will take approximately 12 months at an estimated cost of approximately $3,500,000. However, no assurance can be given
that we will meet this timeline and budget, which could be impacted by a variety of factors, including those described in “Risk
Factors.”
Disruptive Digital Rights Management (DRM) Technology
Our DRM technology is currently used to manage the
digital rights to messages, posts and data within the DatChat Privacy Platform and the Private Encrypted Social Network. Further, we
may use our DRM technology to power the Micro-Blockchain.
Our motivation for developing our Micro-Blockchain
and Digital Rights Management “DRM” technology is the sheer amount of information that people share on a daily basis, which
is archived through the traditional centralized services such as email, social networks and texting. We believe that people deserve to
have control over the countless emails, files and messages that they send over the course of their lifetimes. We expect that our Micro-Blockchain
and Digital Rights Management “DRM” technology will allow users to connect directly and securely, with the ability to maintain
control of the information that they share even after they click send. Users can expect to have control over both the content and the
duration of the information that they share. Through our DRM technology, users can take back control of their privacy.
We anticipate that the Application will allow for
immutable and ephemeral chains, content delivery and third-party application development. We intend for our “micro” blockchain
system to be permissioned, private, and controlled. A “micro” blockchain permanently deletes itself when it has outlived
its usefulness or utility, as defined by the genesis block creator. Our digital rights management tools can give chains a “life,”
or control it by reaching consensus within the chain. The genesis block creator sets the parameters of the “micro” blockchain,
either directly when creating a chain or indirectly through the consensus rules. This feature will allow users to prevent a message from
being forwarded after it is received by the initial recipient, and also allows chains to be permanently erased by the originator. Additionally,
a genesis block creator can define the micro-blockchain as immutable.
Email and messaging are two of the most widely used
and oldest internet applications, but we believe that they are both in need of an interface overhaul. Lacking adequate real privacy or
control, we believe that email and messaging are potentially great applications of blockchain technology. One of the biggest threats
to a user’s privacy comes from relying on others to protect our information. While most cyber-security companies are focused on
keeping intruders out, our technology is focused on developing cyber-security solutions for both before and after a user selects “send”
or “submit.”
The Market
According to data from eMarketer, a market research
company, in 2020, there were around 2.7 billion mobile phone messaging app users worldwide. That number is expected to grow to 3.1 billion
by 2023, representing approximately 40% of the global population. eMarketer defined mobile phone messaging applications as services that
provide private one-to-one or one-to-many communication between registered users, where messages and calls are then transmitted via data
connections and the mobile web. Mobile phone messaging application users are individuals who make use of such services on at least a
monthly basis. In 2020, an estimated 3.23 billion people, or 80.7% of internet users worldwide, visited a social network at least monthly.
In 2021, that number is expected to reach 3.35 billion, according to eMarketer.
Without the Application and the personal privacy
platform that it is built on, users of mobile messaging applications are forced to decide between sending either a regular or self-destructing
(ephemeral) message. Other ephemeral applications such as Snapchat send one message at a time and do not provide a conversational experience.
Traditional messengers such as WhatsApp, Facebook Messenger and iMessage provide the sender with no way to control or destruct messages
after they are sent. The Application seeks to appeal to the market of users who want the control of an ephemeral application, with the
practicality of a traditional messaging application.
In the light of new social media censorship and information
privacy concerns, we hope to attract users seeking to protect their social media privacy rights and remain in control of their information
after it has been shared, without the concern of unreasonable censorship. We believe that this growing discontent with social media censorship,
coupled with the explosive growth in social media use around the world, provides a fertile opportunity for the Application to gain market
acceptance and capture market share among social messaging platforms.
Intellectual Property
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 August 9 , 2021,
we had 1 issued patent, 1 notice of allowance and 1 filed patent application in the United States relating to our encryption technologies
and blockchain platform. Our issued patent 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.
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 www.privacy@DatChat.com.
Competition
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.
Software and Development
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. Our software and development expenses which primarily consisted of salaries for software programming services were
approximately $190,965 for fiscal year 2019 and approximately $217,959 for fiscal year 2020 which are included in compensation expense.
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.
Marketing and Monetization
The Application
is currently offered for free at 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.
Growth Strategy
We plan to grow both organically and through strategic
acquisitions. Our growth strategy includes enhancing our products and services to grow our customer base and entering the global market.
We plan to further increase our brand awareness and build trust with our users through increased public relations, social media and advertising.
Our growth begins with developing improved products
and new services. Improved products and new services will assist us in appealing to a large and diverse customer base. For example, our
“Nuke” feature in the Application provides critical functionality for users, allowing them to erase an entire conversation
on the message recipient’s phone, including messages that have already been sent. We plan to create services tailored to corporate
clients, which we believe will create a new market with businesses. We also plan to offer the Application in versions compatible with
languages other than English, allowing us to expand into the non-English speaking market.
We believe there is significant opportunity to expand
our relationship with existing customers by selling additional products and services such as mobility applications, secure business communication
services and secure social networking.
In addition, in order for us to continue to develop
our solutions organically, we intend to evaluate strategic opportunities and anticipate that we will selectively pursue acquisitions
of, and strategic investments, in businesses and technologies that will strengthen and expand the features and functionality of our solutions
or provide access to new customers.
We intend to continue to leverage data and insights
to personalize the product and customer care experiences of our customers, as well as tailor our solutions and marketing efforts to each
of our customer segments. We are constantly seeking to improve our website, marketing programs and customer care to intelligently reflect
where customers are in their lifecycle and identify their specific product needs. We intend to continue investing in our technology and
data platforms to further enable our personalization efforts.
Moreover, we have also identified long-term opportunities
in services other than messaging where we believe we can utilize our technology and resources. We intend to continue to introduce new
applications, as well develop additional features and capabilities for the Application and
decentralized messaging and email platform.
Our goal is to bring all of our planned products
to market and build a sufficient user base with the proceeds of this offering within 12 months. Of the anticipated net proceeds from
this offering, we plan to use approximately 65% for research and development, 25% for marketing and 10% for working capital.
Employees
As of August 9 , 2021, we have a total of 6
full-time employees and 4 consultants. We are not a party to any collective bargaining agreements. We believe that we maintain good relations
with our employees.
Legal Proceedings
We are not currently involved in any litigation that
we believe could have a materially adverse effect on our financial condition or results of operations. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to
the knowledge of the executive officers of our Company, threatened against or affecting our Company, our Common Stock, or our officers
or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
MANAGEMENT
Executive Officers and Directors
The following table sets forth the name, age and
position of each of our executive officers, key employees and directors as of the date of this prospectus.
|
Name
|
|
Position(s)
|
|
Age
|
|
|
Executive Officer
|
|
|
|
|
|
|
Darin Myman
|
|
Chief
Executive Officer and Director
|
|
56
|
|
|
Peter Shelus
|
|
Chief Technology Officer and Director
Nominee
|
|
38
|
|
|
Vadim Mats
|
|
Chief Financial Officer Nominee
|
|
36
|
|
|
Gabriel Daniels
|
|
Chief Information Officer
|
|
38
|
|
|
Dan Zeno
|
|
Chief Operating Officer
|
|
32
|
|
|
Wayne D. Linsley
|
|
Director Nominee
|
|
64
|
|
|
Joseph Nelson
|
|
Director Nominee
|
|
38
|
|
|
Carly
Schumer
|
|
Director
Nominee
|
|
32
|
|
Darin Myman - Chief Executive Officer and Director
Darin Myman has served as Chief Executive Officer
and as a director of the Company since January 2016. Prior to DatChat, Mr. Myman was a co-founder and Chief Executive Officer of Wally
World Media, Inc., a public company. He also has served as the Chief Executive Officer and a member of PeopleString’s board of
directors since PeopleString’s inception. Mr. 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. We believe
that Mr. Myman’s aforementioned experience and skills make him a valued advisor and highly qualified to serve as a director.
Peter Shelus - Chief Technology Officer and
Director Nominee
Peter Shelus is a co-founder of DatChat and has served
as our Chief Technology Officer since January 2016. Mr. Shelus has over 10 years of ephemeral messaging and mobile video development
experience. Mr. 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. Mr. Shelus received a bachelor’s degree in computer science from Rutgers University, where he graduated
with honors. We believe that Mr. Shelus is qualified to serve as a director because of his experience in ephemeral messaging and mobile
video development and his knowledge with respect to coding and technology matters.
Vadim Mats - Chief Financial Officer Nominee
Vadim Mats will serve as our Chief Financial
Officer effective upon the closing of our initial public offering. From March 2018, Mr. Mats has served as the Chief Financial Officer
of Grand Private Equity, and since February 2018, he has served as the Founder and Managing Member of BespokeCFO, a finance and
accounting advisory practice. From June 2010 to December 2016, Mr. Mats was Chief Financial Officer of Whalehaven Capital. Mr. Mats
also served as the Assistant Controller at Eton Park Capital Management, LP, a multi-strategy fund, from July 2007 to December 2009.
From June 2006 to July 2007, Mr. Mats was a Senior Fund Accountant at The Bank of New York Mellon, where he was responsible for over
fifteen funds. From 2011 until March 2017, Mr. Mats served as Director and Chair of the Audit Committee of Wizard Entertainment Inc.
(OTCQB: WIZD). Mr. Mats holds a master of science degree in accounting and finance and a bachelor's degree in business administration
specializing in finance and investments from the Zicklin School of Business at Bernard Baruch College. Further, Mr. Mats is a CAIA© Charterholder
and a Certified Public Accountant in the State of New York. We believe that Mr. Mats is qualified to serve as a director because of his
experience as a board member of a public company and his knowledge with respect to finance, accounting, tax, and operations matters.
Gabriel Daniels – Chief Information Officer
Gabriel Daniels has been 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 2019, Mr.
Daniels served as the Cybersecurity Program Manager at Chinook Systems, an engineering firm. From June 2017 to April 2018, Mr. Daniels
worked as a Senior Information Assurance Manager at Navstar Inc., an Information Technology &
Services firm. In 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. Mr. Daniels is a 15-year U.S. Army and Navy veteran.
While serving in the Army, Mr. Daniels aided in the development of the Army’s Strategic Cybersecurity and Cyber’s Incident
Handling Response Plans. Mr. Daniels holds a master’s degree in cybersecurity and a bachelor’s degree in marketing from the
University of Maryland University College.
Dan Zeno – Chief Operating Officer
Dan Zeno has been our Chief Operating Officer since
March 2021. From January 2019 to January 2021, Mr. Zeno served as the co-owner and founder of Seed Burger LLC, a fast-casual restaurant
and sustainable food startup company based in New Brunswick, New Jersey. From 2013 to 2018, Mr. Zeno served as a United States Air Force
Officer, honing his operational and leadership capacities while commanding upwards of 800 Airmen and across diverse mission sets in various
countries. Mr. Zeno received his bachelor of arts and master of arts in organizational communications from Texas State University.
Wayne D. Linsley – Director Nominee
Wayne D. Linsley, one of our independent director
nominees has, since 2014, served as the Vice President of Operations of CFO Oncall, Inc., and from 2011 to 2014 he served as the Director
of Operations of CFO Oncall, Inc., a company that provides financial management and CFO services. Prior to CFO Oncall, Inc., Mr. Linsley
served as the Managing Member of Flagship Advisory & Management Group, LLC, a management consulting firm, from 2010 to 2011. In addition,
since 2019, Mr. Linsley has served as the Chief Executive Officer and sole owner of Executive Outsource Group, Inc., a company that provides
financial reporting services. Mr. Linsley has served in various other capacities including Alternate Channels Manager of Mettel; Director
of Channel Sales of Impsat, USA; National Accounts Manager of Venali, Inc; and Director of Sales of Broadview Networks. Since January
2020, Mr. Linsley has served as a member of the board of directors of Silo Pharma, Inc. (OTCQB: SILO). In addition, since April 2020,
Mr. Linsley has served as a member of the board of directors of Hoth Therapeutics, Inc. (Nasdaq: HOTH). Mr. Linsley received his bachelor
of business administration degree in accounting/business administration from Siena College. We believe Mr. Linsley is qualified to serve
as a director because of his forty years of business management experience including accounting, audit support and financial reporting.
Joseph Nelson – Director Nominee
Joseph Nelson, one of our independent director nominees
has, since December 2017, 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. Prior to joining GasLog in 2017, Mr. Nelson was an Equity Research Analyst, most recently at Credit Suisse from
November 2014 to November 2017, where he covered US listed equities in the oil services and marine transportation sectors. From November
2013 to November 2014, Mr. Nelson worked as an Equity Research Analyst at Maxim Group, where he covered industrials. Mr. Nelson began
his career as a consultant for the Louis Berger Group (now WSP), a global provider of infrastructure and development solutions, where
he worked from 2006 to 2013, specializing in data analysis. Mr. Nelson has a bachelor of science degree in Chemistry and a bachelor of
arts degree in Philosophy from the Stevens Institute of Technology and an MBA from New York University’s Stern School of Business.
We believe that Mr. Nelson is qualified to serve as a director because of his experience in investor relations and his knowledge with
respect to finance, corporate governance and sales matters.
Carly Schumer – Director Nominee
Carly Schumer, one of our independent director nominees
has, since May 2011, worked as a freelance digital consultant. From May 2018 to June 2020, Ms. Schumer served as a digital director for
Lust For Life, LLC, a subsidiary of Renewable Energy & Power, Inc. (OTCQB: RBNW). Ms. 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 engagements. Ms. Schumer specializes
in working with start-up companies, across the technology, healthcare and fashion industries. She is passionate about innovation and
newly emerging marketing trends with a keen eye toward insights and process. She worked as the Marketing Director for Jerrick Media (now
Creatd Nasdaq: CRTD) from inception to its eventual public offering where she was responsible for managing SEO, social and marketing
employees and strategies. Ms. Schumer received a bachelor’s degree in Arts, Entertainment & Media Management from Columbia
College. We believe that Ms. Schumer’s marketing experience qualifies her to serve on our board of directors.
Involvement in Certain Legal Proceedings.
None of the following events has occurred during
the past ten years and which are material to an evaluation of the ability or integrity of any director or executive officer:
(1) A petition under the federal bankruptcy laws
or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the
business or property of such person, or any partnership in which he was general partner at or within two years before the time of such
filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such
filing;
(2) Such person was convicted in a criminal proceeding
or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
(3) Such person was the subject of any order, judgment,
or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining
him from, or otherwise limiting, the following activities:
(i) Acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by
the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter,
broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association
or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
(ii) Engaging in any type of business practice; or
(iii) Engaging in any activity in connection with
the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal
commodities laws;
(4) Such person was the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting
for more than 60 days the right of such person to engage in any activity described in paragraph (3)(i) above, or to be associated with
persons engaged in any such activity;
(5) Such person was found by a court of competent
jurisdiction in a civil action or by the SEC to have violated any Federal or state securities law, and the judgment in such civil action
or finding by the SEC has not been subsequently reversed, suspended, or vacated;
(6) Such person was found by a court of competent
jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment
in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
(7) Such person was the subject of, or a party to,
any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated,
relating to an alleged violation of:
(i) Any federal or state securities or commodities
law or regulation; or
(ii) Any law or regulation respecting financial institutions
or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil
money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
(iii) Any law or regulation prohibiting mail or wire
fraud or fraud in connection with any business entity; or
(8) Such person was the subject of, or a party to,
any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity, or
any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with
a member.
Family Relationships
There are no family relationship
between any director, executive officer or person nominated to become a director or executive officer.
Independence of Directors
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.
Board Committees
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.
Upon the consummation of this offering, our audit
committee will consist of Wayne D. Linsley, Carly Schumer and Joseph Nelson, with Mr. Linsley serving as chair. Our board of directors
has affirmatively determined that each meet the definition of “independent director” under the rules of The Nasdaq Capital
Market, and that they meet the independence standards under Rule 10A-3. Each member of our audit committee meets the financial literacy
requirements of Nasdaq rules. In addition, our board of directors has determined that Wayne D. Linsley will qualify as an “audit
committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K. Our board of directors will
adopt a written charter for the audit committee, which will be available on our principal corporate website at www.datchat.com substantially
concurrently with the consummation of this offering.
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; and
|
|
|
●
|
the Company’s incentive compensation and other equity-based plans and recommending
changes to such plans to our board of directors, when necessary.
|
Upon the consummation of this offering, our compensation
committee will consist of Wayne D. Linsley, Carly Schumer and Joseph Nelson, with Mr. Linsley serving as chair. Our board of directors
will adopt a written charter for the compensation committee, which will be available on our principal corporate website at www.datchat.com
substantially concurrently with the consummation of this offering.
Nominating 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:
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; and
|
|
|
●
|
monitoring and evaluating the performance of the board of directors and leading the board
in an annual self-assessment of its practices and effectiveness.
|
Upon the consummation of this offering, our nominating
and corporate governance committee will consist of Wayne D. Linsley, Carly Schumer and Joseph Nelson, with Mr. Linsley serving as chair.
Our board of directors will adopt a written charter for the nominating and corporate governance committee, which will be available on
our principal corporate website at www.datchat.com substantially concurrently with the consummation of this offering.
Code of Business Conduct and Ethics
Prior to the completion
of this offering, we will adopt 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 will be 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.
EXECUTIVE AND DIRECTOR COMPENSATION
Summary Compensation Table
The following table sets forth the compensation paid
or accrued during the fiscal year ended December 31, 2020 and 2019 to our principal executive officer and one additional officer
(collectively, the “named executive officers”):
• Darin Myman,
Chief Executive Officer; and
• Peter Shelus,
Chief Technology Officer.
Summary
Compensation Table
The following table presents
the compensation awarded to, earned by or paid to each of our named executive officers for the year ended December 31, 2020 and 2019.
|
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Darin Myman
|
|
|
2019
|
|
|
$
|
195,926
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
195,926
|
|
|
Chief Executive Officer
|
|
|
2020
|
|
|
$
|
165,026
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
24,632
|
|
|
$
|
189,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Shelus
|
|
|
2019
|
|
|
$
|
111,932
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
111,932
|
|
|
Chief Technology Officer
|
|
|
2020
|
|
|
$
|
126,447
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
30,727
|
|
|
$
|
156,719
|
|
Outstanding Equity Awards at 2020 Fiscal Year-End
None.
Director Compensation
To date, we have not compensated our directors for
their service to the Company.
Employment Agreements
Other than as set forth below, we do not currently
have employment agreements with any of our officers or employees but intend to enter into employment agreements prior to the commencement
of this offering.
Vadim Mats Employment Agreement
On June 28, 2021, the Company entered into an Employment
Agreement with Vadim Mats, our Chief Financial Officer, effective as of the closing of this offering, pursuant to which he shall receive
a base salary at the annual rate of $60,000, payable in monthly installments in accordance with the Company’s standard payroll
policies. Mr. Mats shall also receive stock options to purchase up to 50,000 shares of common stock under the our 2021 Equity Incentive
Plan.
2021 Equity Incentive Plan
The following is a summary of the material features
of our 2021 Equity Incentive Plan (the “2021 Plan”). This summary is qualified in its entirety by the full text of the 2021
Plan, a copy of which is filed as an exhibit to the registration statement of which this prospectus forms a part.
Authorized Shares. A total of 2,000,000 shares
of our common stock were originally reserved for issuance pursuant to the 2021 Plan. Our board of directors and stockholders adopted
and approved the 2021 Plan on July 26, 2021 (the “Effective Date”).
Types of Awards. The
2021 Plan provides for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights (“SARs”),
restricted stock, restricted stock units (“RSUs”), and other stock-based awards. Items described above in the Section
called “Shares Available” are incorporated herein by reference.
Administration. The
2021 Plan will be administered by our board of directors, or if our board of directors does not administer the 2021 Plan, a committee
or subcommittee of our board of directors that complies with the applicable requirements of Section 16 of the Exchange Act and any other
applicable legal or stock exchange listing requirements (each of our board of directors or such committee or subcommittee, the “plan
administrator”). The plan administrator may interpret the 2021 Plan and may prescribe, amend and rescind rules and make all other
determinations necessary or desirable for the administration of the 2021 Plan, provided that, subject to the equitable adjustment provisions
described below, the plan administrator will not have the authority to reprice or cancel and re-grant any award at a lower exercise,
base or purchase price or cancel any award with an exercise, base or purchase price in exchange for cash, property or other awards without
first obtaining the approval of our stockholders.
The 2021 Plan permits the plan administrator to select
the eligible recipients who will receive awards, to determine the terms and conditions of those awards, including but not limited to
the exercise price or other purchase price of an award, the number of shares of common stock or cash or other property subject to an
award, the term of an award and the vesting schedule applicable to an award, and to amend the terms and conditions of outstanding awards.
Restricted Stock and Restricted Stock Units. Restricted
stock and RSUs may be granted under the 2021 Plan. The plan administrator will determine the purchase price, vesting schedule and performance
goals, if any, and any other conditions that apply to a grant of restricted stock and RSUs. If the restrictions, performance goals or
other conditions determined by the plan administrator are not satisfied, the restricted stock and RSUs will be forfeited. Subject to
the provisions of the 2021 Plan and the applicable award agreement, the plan administrator has the sole discretion to provide for the
lapse of restrictions in instalments.
Unless the applicable award agreement provides otherwise,
participants with restricted stock will generally have all of the rights of a stockholder; provided that dividends will only be paid
if and when the underlying restricted stock vests. RSUs will not be entitled to dividends prior to vesting but may be entitled to receive
dividend equivalents if the award agreement provides for them. The rights of participants granted restricted stock or RSUs upon the termination
of employment or service to us will be set forth in the award agreement.
Options. Incentive
stock options and non-statutory stock options may be granted under the 2021 Plan. An “incentive stock option” means
an option intended to qualify for tax treatment applicable to incentive stock options under Section 422 of the Internal Revenue Code.
A “non-statutory stock option” is an option that is not subject to statutory requirements and limitations required for
certain tax advantages that are allowed under specific provisions of the Internal Revenue Code. A non-statutory stock option under
the 2021 Plan is referred to for federal income tax purposes as a “non-qualified” stock option. Each option granted under
the Plan will be designated as a non-qualified stock option or an incentive stock option. At the discretion of the administrator,
incentive stock options may be granted only to our employees, employees of our “parent corporation” (as such term is defined
in Section 424(e) of the Code) or employees of our subsidiaries.
The exercise period of an option may not exceed ten
years from the date of grant and the exercise price may not be less than 100% of the fair market value of a share of common stock on
the date the option is granted (110% of fair market value in the case of incentive stock options granted to ten percent stockholders).
The exercise price for shares of common stock subject to an option may be paid in cash, or as determined by the administrator in its
sole discretion, (i) through any cashless exercise procedure approved by the administrator (including the withholding of shares of common
stock otherwise issuable upon exercise), (ii) by tendering unrestricted shares of common stock owned by the participant, (iii) with any
other form of consideration approved by the administrator and permitted by applicable law or (iv) by any combination of these methods.
The option holder will have no rights to dividends or distributions or other rights of a stockholder with respect to the shares of Common
Stock subject to an option until the option holder has given written notice of exercise and paid the exercise price and applicable withholding
taxes.
In the event of a participant’s termination
of employment or service, the participant may exercise his or her option (to the extent vested as of such date of termination) for such
period of time as specified in his or her option agreement.
Stock Appreciation Rights. SARs
may be granted either alone (a “free-standing SAR”) or in conjunction with all or part of any option granted under the
2021 Plan (a “tandem SAR”). A free-standing SAR will entitle its holder to receive, at the time of exercise, an amount
per share up to the excess of the fair market value (at the date of exercise) of a share of common stock over the base price of the free-standing SAR
(which shall be no less than 100% of the fair market value of the related shares of common stock on the date of grant) multiplied by
the number of shares in respect of which the SAR is being exercised. A tandem SAR will entitle its holder to receive, at the time of
exercise of the SAR and surrender of the applicable portion of the related option, an amount per share up to the excess of the fair market
value (at the date of exercise) of a share of common stock over the exercise price of the related option multiplied by the number of
shares in respect of which the SAR is being exercised. The exercise period of a free-standing SAR may not exceed ten years from
the date of grant. The exercise period of a tandem SAR will also expire upon the expiration of its related option.
The holder of a SAR will have no rights to dividends
or any other rights of a stockholder with respect to the shares of Common Stock subject to the SAR until the holder has given written
notice of exercise and paid the exercise price and applicable withholding taxes.
In the event of an participant’s termination
of employment or service, the holder of a SAR may exercise his or her SAR (to the extent vested as of such date of termination) for such
period of time as specified in his or her SAR agreement.
Other Stock-Based Awards. The
administrator may grant other stock-based awards under the 2021 Plan, valued in whole or in part by reference to, or otherwise based
on, shares of common stock. The administrator will determine the terms and conditions of these awards, including the number of shares
of common stock to be granted pursuant to each award, the manner in which the award will be settled, and the conditions to the vesting
and payment of the award (including the achievement of performance goals). The rights of participants granted other stock-based awards
upon the termination of employment or service to us will be set forth in the applicable award agreement. In the event that a bonus is
granted in the form of shares of common stock, the shares of common stock constituting such bonus shall, as determined by the administrator,
be evidenced in uncertificated form or by a book entry record or a certificate issued in the name of the participant to whom such grant
was made and delivered to such participant as soon as practicable after the date on which such bonus is payable. Any dividend or dividend
equivalent award issued hereunder shall be subject to the same restrictions, conditions and risks of forfeiture as apply to the underlying
award.
Equitable Adjustment and Treatment of Outstanding Awards Upon a
Change in Control
Equitable Adjustments. In
the event of a merger, consolidation, reclassification, recapitalization, spin-off, spin-out, repurchase, reorganization, special or
extraordinary dividend or other extraordinary distribution (whether in the form of common shares, cash or other property), combination,
exchange of shares, or other change in corporate structure affecting our common stock, an equitable substitution or proportionate adjustment
shall be made in (i) the aggregate number and kind of securities reserved for issuance under the 2021 Plan, (ii) the kind and number
of securities subject to, and the exercise price of, any outstanding options and SARs granted under the 2021 Plan, (iii) the kind, number
and purchase price of shares of common stock, or the amount of cash or amount or type of property, subject to outstanding restricted
stock, RSUs and other stock-based awards granted under the 2021 Plan and (iv) the terms and conditions of any outstanding awards
(including any applicable performance targets). Equitable substitutions or adjustments other than those listed above may also be made
as determined by the plan administrator. In addition, the plan administrator may terminate all outstanding awards for the payment of
cash or in-kind consideration having an aggregate fair market value equal to the excess of the fair market value of the shares of
common stock, cash or other property covered by such awards over the aggregate exercise price, if any, of such awards, but if the exercise
price of any outstanding award is equal to or greater than the fair market value of the shares of common stock, cash or other property
covered by such award, the plan administrator may cancel the award without the payment of any consideration to the participant. With
respect to awards subject to foreign laws, adjustments will be made in compliance with applicable requirements. Except to the extent
determined by the plan administrator, adjustments to incentive stock options will be made only to the extent not constituting a “modification”
within the meaning of Section 424(h)(3) of the Code.
Change in Control. The
2021 Plan provides that, unless otherwise determined by the plan administrator and evidenced in an award agreement, if a “change
in control” (as defined below) occurs and a participant is employed by us or any of our affiliates immediately prior to the consummation
of the change in control, then the plan administrator, in its sole and absolute discretion, may (i) provide that any unvested or unexercisable
portion of an award carrying a right to exercise will become fully vested and exercisable; and (ii) cause the restrictions, deferral
limitations, payment conditions and forfeiture conditions applicable to any award granted under the 2021 Plan to lapse, and the awards
will be deemed fully vested and any performance conditions imposed with respect to such awards will be deemed to be fully achieved at
target performance levels. The administrator shall have discretion in connection with such change in control to provide that all outstanding
and unexercised options and SARs shall expire upon the consummation of such change in control.
For purposes of the 2021 Plan, a “change in
control” means, in summary, the first to occur of the following events: (i) a person or entity becomes the beneficial owner of
more than 50% of our voting power; (ii) an unapproved change in the majority membership of our board of directors; (iii) a merger or
consolidation of us or any of our subsidiaries, other than (A) a merger or consolidation that results in our voting securities continuing
to represent 50% or more of the combined voting power of the surviving entity or its parent and our board of directors immediately prior
to the merger or consolidation continuing to represent at least a majority of the board of directors of the surviving entity or its parent
or (B) a merger or consolidation effected to implement a recapitalization in which no person is or becomes the beneficial owner of our
voting securities representing more than 50% of our combined voting power; or (iv) stockholder approval of a plan of our complete liquidation
or dissolution or the consummation of an agreement for the sale or disposition of substantially all of our assets, other than (A) a sale
or disposition to an entity, more than 50% of the combined voting power of which is owned by our stockholders in substantially the same
proportions as their ownership of us immediately prior to such sale or (B) a sale or disposition to an entity controlled by our board
of directors. However, a change in control will not be deemed to have occurred as a result of any transaction or series of integrated
transactions following which our stockholders, immediately prior thereto, hold immediately afterward the same proportionate equity interests
in the entity that owns all or substantially all of our assets.
Tax Withholding
Each participant will be required to make arrangements
satisfactory to the plan administrator regarding payment of up to the maximum statutory tax rates in the participant’s applicable
jurisdiction with respect to any award granted under the 2021 Plan, as determined by us. We have the right, to the extent permitted by
applicable law, to deduct any such taxes from any payment of any kind otherwise due to the participant. With the approval of the plan
administrator, the participant may satisfy the foregoing requirement by either electing to have us withhold from delivery of shares of
common stock, cash or other property, as applicable, or by delivering already owned unrestricted shares of common stock, in each case,
having a value not exceeding the applicable taxes to be withheld and applied to the tax obligations. We may also use any other method
of obtaining the necessary payment or proceeds, as permitted by applicable law, to satisfy our withholding obligation with respect to
any award.
Amendment and Termination of the 2021 Plan
The 2021 Plan provides our board of directors with
authority to amend, alter or terminate the 2021 Plan, but no such action impair the rights of any participant with respect to outstanding
awards without the participant’s consent. The plan administrator may amend an award, prospectively or retroactively, but no such
amendment may materially impair the rights of any participant without the participant’s consent. Stockholder approval of any such
action will be obtained if required to comply with applicable law. The 2021 Plan will terminate on the tenth anniversary of the Effective
Date (although awards granted before that time will remain outstanding in accordance with their terms).
Clawback. If we are
required to prepare a financial restatement due to the material non-compliance with any financial reporting requirement, then the
plan administrator may require any Section 16 officer to repay or forfeit to us that part of the cash or equity incentive compensation
received by that Section 16 officer during the preceding three years that the plan administrator determines was in excess of the amount
that such Section 16 officer would have received had such cash or equity incentive compensation been calculated based on the financial
results reported in the restated financial statement. The plan administrator may take into account any factors it deems reasonable in
determining whether to seek recoupment of previously paid cash or equity incentive compensation and how much of such compensation to
recoup from each Section 16 officer (which need not be the same amount or proportion for each Section 16 officer). The amount and form
of the incentive compensation to be recouped shall be determined by the administrator in its sole and absolute discretion.
CERTAIN RELATIONSHIPS AND RELATED
PERSON TRANSACTIONS
Transactions with Related Persons
Except as described
below and except for employment arrangements which are described under “executive compensation,” since January 1, 2018, 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, 2020 and 2019, 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. Darin Myman, from
time to time, provided advances to us for working capital purposes. At March 31, 2021, the Company had a payable to the officer of $2,630.
These advances are short-term in nature and non-interest bearing. During the three months ended March 31, 2021 and 2020, respectively,
Mr. Myman provided advances to the Company for working capital purposes for a total of $95,143 and $64,015. The Company repaid $92,707
and $69,905 of these advances.
On May 29, 2015, we entered into a promissory
note agreement, providing for the issuance of a note in the principal amount of $30,000 to Silo Pharma, Inc.. The note was due on July
29, 2015. The annual interest rate for the loan is 10%. We defaulted to repay the note when it was due. On February 25, 2016, we entered
into an extension agreement with the lender to extend the maturity date of the note to December 31, 2016. In accordance with the extension
agreement, the lender and us agreed to increase the amount of the principal amount of the note by $5,000 as penalty for our failure to
repay the note on July 29, 2015. In connection with the increase in principal amount of $5,000, we recorded non-cash interest expense
of $5,000 on February 25, 2016. On October 25, 2017, we agreed to pay an additional $5,000 as penalty fee for the extension of maturity
date to June 30, 2018. Between October 2018 and November 2018, we paid a total principal amount of $10,000. Between March 2019 and December
2019, we paid a total principal amount of $13,500. During the year ended December 31, 2020, we paid a total principal amount of $9,000.
As of December 31, 2020 and 2019, the principal balance of this note was $7,500 and $16,500, respectively. This note is currently in
default. We fully paid the principal amount of $7,500 in February 2021.
As of December 31, 2020 and December 31, 2019, accrued
interest related to the note payable – related party above amounted to $16,282 and $14,924, respectively, and is included in accounts
payable and accrued expenses on the accompanying balance sheets.
On June 26, 2015, the Company entered into a promissory
note agreement, providing for the issuance of a promissory note in the principal amount of $15,000 to Robb Knie, a principal stockholder
of the Company. The note was due on December 26, 2016. The annual interest rate for the loan was 10%. In August 2018, the Company fully
paid the principal balance and interest of this note. At December 31, 2018, the note had no outstanding balance.
On September 1, 2015, the Company entered into a
promissory note agreement, providing for the issuance of a note in the principal amount of $7,500 to Robb Knie, a principal stockholder
of the Company. The note was due on December 26, 2016. The annual interest rate for the note was 10%. The Company repaid $4,000 on July
11, 2016. In August 2018, the Company fully paid the principal balance and interest of this note. At December 31, 2018, the note had
no outstanding balance.
On October 31, 2016, the Company entered into a promissory
note agreement, providing for the issuance of a note in the principal amount of $2,500 to Craig Myman, a related party. The note was
due on December 26, 2016. The annual interest rate for the note was 10%. In May 2018, the Company repaid the principal balance of this
note. At December 31, 2018, the note had no outstanding balance.
On May 25, 2017, the Company entered into a promissory
note agreement, providing for the issuance of a note in the principal amount of $800 to Craig Myman, a related party. The note was due
on December 31, 2017. The annual interest rate for the note was 10%. In May 2018, the Company repaid the principal balance of this note.
At December 31, 2018, the note had no outstanding balance.
On February 28, 2017, the Company entered into a
promissory note agreement, providing for the issuance of a note in the principal amount of $15,000 to Robb Knie, a principal stockholder
of the Company. The note was due on August 28, 2017. The annual interest rate for the note was 10%. In January 2018, the Company repaid
the principal balance of this note. At December 31, 2018, the note had no outstanding balance.
As of December 31, 2019 and 2018, accrued interest
related to the notes above amounted to $22,163 and $21,341, respectively, and is included in accounts payable and accrued expenses on
the accompanying balance sheets.
Related Person Transaction Policy
Prior to this offering, we have not had a formal
policy regarding approval of transactions with related parties. We expect to adopt a related person transaction policy that sets forth
our procedures for the identification, review, consideration and approval or ratification of related person transactions. The policy
will become effective immediately upon the execution of the underwriting agreement for this offering. For purposes of our policy only,
a related person transaction is a transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships,
in which we and any related person are, were or will be participants in which the amount involved exceeds the lesser of $120,000 or one
percent of our total assets at year-end for our last two completed fiscal years. Transactions involving compensation for services provided
to us as an employee or director are not covered by this policy. A related person is any executive officer, director or beneficial owner
of more than 5% of any class of our voting securities, including any of their immediate family members and any entity owned or controlled
by such persons.
Under the policy, if a transaction has been identified
as a related person transaction, including any transaction that was not a related person transaction when originally consummated or any
transaction that was not initially identified as a related person transaction prior to consummation, our management must present information
regarding the related person transaction to our audit committee, or, if audit committee approval would be inappropriate, to another independent
body of our board of directors, for review, consideration and approval or ratification. The presentation must include a description of,
among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction
and whether the transaction is on terms that are comparable to the terms available to or from, as the case may be, an unrelated third
party or to or from employees generally. Under the policy, we will collect information that we deem reasonably necessary from each director,
executive officer and, to the extent feasible, significant shareholder to enable us to identify any existing or potential related-person
transactions and to effectuate the terms of the policy. In addition, under our code of business conduct and ethics, our employees and
directors will have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give
rise to a conflict of interest. In considering related person transactions, our audit committee, or other independent body of our board
of directors, will take into account the relevant available facts and circumstances including, but not limited to:
|
|
●
|
the risks, costs and benefits to us;
|
|
|
●
|
the impact on a director’s independence in the event that the related person is
a director, immediate family member of a director or an entity with which a director is affiliated;
|
|
|
●
|
the availability of other sources for comparable services
or products; and
|
|
|
●
|
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.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth
certain information with respect to the beneficial ownership of our common stock as of August 9 , 2021 by:
|
|
●
|
each of our directors nominees;
|
|
|
●
|
each of our named executive officers;
|
|
|
●
|
each of our named executive officer nominees;
|
|
|
●
|
all of our current directors, director nominees, executive officers and executive officer
nominees as a group; and
|
|
|
●
|
each person, or group of affiliated persons, who beneficially owned more than 5% of our
common stock.
|
The number of shares of our common
stock beneficially owned by each entity, person, director or executive officer is determined in accordance with the rules of the SEC,
and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership
includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual
has the right to acquire within 60 days of August 9 , 2021, through the exercise of any stock option, warrants or other rights.
Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock held by that person.
The percentage of shares beneficially
owned is computed on the basis of shares of our common stock outstanding as of August 9 , 2021.
Shares of our common stock that
a person has the right to acquire within 60 days of August 9 , 2021, are deemed outstanding for purposes of computing the percentage
ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any
other person, except with respect to the percentage ownership of all directors, director nominees, executive officers and executive officer
nominees as a group. The address of each holder listed below, except as otherwise indicated, is 65 Church Street, Second Floor, New Brunswick,
New Jersey 08901.
|
|
|
|
|
Shares
Beneficially owned before
|
|
Percentage
of shares Beneficially owned
|
|
Name
|
|
offering
|
|
Before
offering
|
|
After Offering
|
|
Directors, Director Nominees, Named Executive
Officers and Named Executive Officer Nominees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Darin
Myman
|
|
|
1,750,275
|
|
|
|
13.07
|
%
|
|
|
10.78
|
%
|
|
|
Peter Shelus
|
|
|
1,000,000
|
|
|
|
7.47
|
%
|
|
|
6.16
|
%
|
|
|
Vadim Mats
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Gabriel Daniels
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Dan Zeno
|
|
|
125
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Wayne D. Linsley
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Joseph Nelson
|
|
|
2,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Carly Schumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
All Director, Director
Nominees, Named Executive Officers and Named Executive Officer Nominees as a group (8 persons)
|
|
|
2,756,650
|
|
|
|
20.59
|
%
|
|
|
16.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robb Knie
|
|
|
1,250,000
|
|
|
|
9.34
|
%
|
|
|
7.70
|
%
|
|
|
Silo Pharma, Inc.(1)
|
|
|
1,000,000
|
|
|
|
7.47
|
%
|
|
|
6.16
|
%
|
|
|
Alpha Capital Anstalt
(2)
|
|
|
750,000
|
|
|
|
5.60
|
%
|
|
|
4.62
|
%
|
|
* Represents beneficial ownership
of less than 1%.
|
|
(1)
|
Eric Weisblum has voting and investment power over the
securities held by Silo Pharma, Inc.
|
|
|
(2)
|
Conrad Ackerman has voting and investment power over the
securities held by Alpha Capital Anstalt.
|
DESCRIPTION OF CAPITAL STOCK
General
The following description summarizes the most important
terms of our capital stock, as they will be in effect upon the closing of this offering. Because it is only a summary, it does not contain
all of the information that may be important to you. For a complete description of the matters set forth in this “Description of
Capital Stock,” you should refer to our Articles of Incorporation and Amended and Restated Bylaws, to be effective immediately
prior to the closing of this offering, and the registration rights agreements, each of which will be included as exhibits to the
registration statement of which this prospectus forms a part, and to the applicable provisions of Nevada law. Immediately prior to the
closing of this offering, our authorized capital stock will consist of 180,000,000 shares of common stock, $0.0001 par value per share,
and 20,000,000 shares of preferred stock, $0.0001 par value per share of which 1 share of preferred stock is designated as Series A Preferred
Stock.
On July 28, 2021, we filed a certificate of change
to our 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 our common stock without any change to its par value. The Reverse
Stock Split became effective on upon such filing. No fractional shares were issued in connection with the Reverse Stock Split as all
fractional shares were rounded up to the next whole share.
As of August 9 , 2021, 13,389,083 shares
of our common stock were issued and outstanding, held by 2,461 holders of record, and 0 shares of our Series A Preferred Stock were issued
and outstanding. As of July 28, 2021, we had no stock options outstanding. Our board of directors is authorized, without stockholder
approval except as required by the Nasdaq Rules, to issue additional shares of our capital stock.
Common Stock
Each share of our common stock entitles the holder
to receive notice of and to attend all meetings of our stockholders with the entitlement to one vote. Holders of common stock are entitled,
subject to the rights, privileges, restrictions and conditions attaching to any other class of shares ranking in priority to the common
stock, to receive any dividend declared by the board of directors. If the Company is voluntarily or involuntarily liquidated, dissolved
or wound-up, the holders of common stock will be entitled to receive, after distribution in full of the preferential amounts, if any,
all of the remaining assets available for distribution ratably in proportion to the number of shares of common stock held by them. Holders
of common stock have no redemption or conversion rights. The rights, preferences and privileges of holders of shares of common stock
are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate
and issue in the future.
Preferred Stock
Immediately prior to the closing of this offering,
our board of directors will be authorized, subject to limitations prescribed by Nevada law, to issue up to 20,000,000 shares of our preferred
stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation,
powers, preferences, and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case
without further vote or action by our shareholders. Our board of directors can also increase or decrease the number of shares of any
series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by
our shareholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility
in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring
or preventing a change in control of our company and might adversely affect the market price of our common stock and the voting and other
rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock.
Warrants
As of August 9 , 2021, warrants to purchase
up to 62,500 shares of our common stock were issued and outstanding. The warrants are exercisable for five years from the date of issuance
at an exercise price of $0.40, subject to adjustment for stock dividends, stock splits, pro rata distributions and upon the occurrence
of fundamental transactions. If at any time following the issuance date of the warrants there is no registration statement registering
for resale the shares of common stock issuable upon exercise of the warrants, the warrants may be exercised on a cashless basis. The
warrants contain an ownership limitation such that the holder may not exercise the warrant to the extent that such exercise would result
in the holder’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together
with all shares owned by the holder and its affiliates, which beneficial ownership limitation may be increased by the holder up to, but
not exceeding, 9.99% of the Company’s issued and outstanding common stock.
Equity Awards
None.
Registration and Piggyback Rights
Certain holders of our common stock may be contractually
entitled to certain “piggyback” registration rights. The piggyback registration rights are not applicable to certain shares
that may be sold pursuant to Rule 144 of the Securities Act and shares that are subject to an effective registration statement.
The piggyback registration rights are subject to customary underwriter cutbacks applicable to all holders of registration rights, pursuant
to which the underwriters of any underwritten offering will have the right to limit the number of shares having registration rights to
be included in such registration statement.
Securities Offered in this Offering
We are offering of units each consisting of one share
of common stock and one Series A Warrant to purchase one share of common stock. The common stock and accompanying Series A Warrant will
be split from the units immediately upon issuance. We are also registering the common stock issuable from time to time upon exercise
of the Series A Warrants offered hereby. The description of our common stock is set forth above in this section. The following summary
of certain terms and provisions of the Series A Warrants offered hereby is not complete and is subject to, and qualified in its entirety
by, the provisions of the form of Series A Warrant, which is filed as an exhibit to the registration statement of which this prospectus
is a part. Prospective investors should carefully review the terms and provisions set forth in the form of Series A Warrant.
Exercisability. The Series A Warrants
are exercisable at any time after their issuance and at any time up to the date that is five years after their issuance. The Series A
Warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and,
at any time a registration statement registering the issuance of the common shares underlying the Series A Warrants under the Securities
Act is effective and available for the issuance of such common shares, or an exemption from registration under the Securities Act is
available for the issuance of such common shares, by payment in full in immediately available funds for the number of common shares purchased
upon such exercise. If a registration statement registering the issuance of the common shares underlying the Series A Warrants under
the Securities Act is not effective or available and an exemption from registration under the Securities Act is not available for the
issuance of such shares, the holder may, in its sole discretion, elect to exercise the Series A Warrant through a cashless exercise,
in which case the holder would receive upon such exercise the net number of common shares determined according to the formula set forth
in the Series A Warrant. No fractional common shares will be issued in connection with the exercise of a Series A Warrant. In lieu of
fractional shares, we will round up to the next full share.
Exercise Limitation. A holder will not have the right
to exercise any portion of the Series A Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99%
of the number of our common shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined
in accordance with the terms of the Series A Warrants.
Exercise Price. The assumed exercise
price per whole common share purchasable upon exercise of the Series A Warrants is $5.58 per share or 120% of the public offering price
of our common shares and Series A Warrants. The exercise price is subject to appropriate adjustment in the event of certain stock dividends
and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common shares and also upon any
distributions of assets, including cash, stock or other property to our shareholders.
Transferability. Subject to applicable
laws, the Series A Warrants may be offered for sale, sold, transferred or assigned without our consent.
Exchange Listing. We have applied for
the listing of the Series A Warrants offered in this offering on The Nasdaq Capital Market under the symbol “DATSW”. No assurance
can be given that such listing will be approved or that a trading market will develop.
Warrant Agent. The Series A Warrants
will be issued in registered form under a warrant agency agreement between West Coast Stock Transfer, Inc., as warrant agent, and us.
The Series A Warrants shall initially be represented only by one or more global warrants deposited with the warrant agent, as custodian
on behalf of The Depository Trust Company (DTC) and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed
by DTC.
Fundamental Transactions. In the event
of a fundamental transaction, as described in the Series A Warrants and generally including any reorganization, recapitalization or reclassification
of our common shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation
or merger with or into another person, the acquisition of more than 50% of our outstanding common shares, or any person or group becoming
the beneficial owner of 50% of the voting power represented by our outstanding common shares, the holders of the Series A Warrants will
be entitled to receive upon exercise of the Series A Warrants the kind and amount of securities, cash or other property that the holders
would have received had they exercised the Series A Warrants immediately prior to such fundamental transaction.
Rights as a Stockholder. Except as otherwise
provided in the Series A Warrants or by virtue of such holder’s ownership of our common stock, the holder of a Series A Warrant
does not have the rights or privileges of a holder of our common shares, including any voting rights, until the holder exercises the
Series A Warrants.
Governing Law. The Series
A Warrants and the warrant agency agreement are governed by New York law. The courts of the State of New York and federal courts with
jurisdiction in the State New York have jurisdiction for all matters brought under the Warrants, except that any claims under the Securities
Act and/or the Exchange Act must be brought in federal court. Section 27 of the Exchange Act creates exclusive federal jurisdiction over
all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Section 22 of
the Securities Act, however, creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty
or liability created by the Securities Act or the rules and regulations thereunder. Thus, there may be uncertainty as to whether a court
will enforce such a provision included in the Series A Warrant with regard to claims under the Securities Act. This forum provision may
limit a Series A Warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company
or its directors, officers or other employees, which may discourage such lawsuits against the Company and its directors, officers and
other employees. Alternatively, if a court were to find the choice of forum provision contained in the Series A Warrant to be inapplicable
or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions, which
could harm its business, results of operations, and financial condition.
Anti-Takeover Provisions our Amended and Restated
Bylaws
Board of Directors Vacancies
Our Amended and Restated Bylaws authorize only our
board of directors to fill vacant directorships. In addition, the number of directors constituting our board of directors may be set
only by resolution of the majority of the incumbent directors.
Special Meeting of Shareholders
Our Amended and Restated Bylaws provide that special
meetings of our shareholders may be called by the chief executive officer of the Corporation, the board of directors or a committee of
the board of directors that has been duly designated by the board of directors and whose powers and authority include the power to call
such meetings.
Advance Notice Requirements for Shareholder Proposals and
Director Nominations
Our Amended and Restated Bylaws provide that shareholders
seeking to bring business before our annual meeting of shareholders, or to nominate candidates for election as directors at our annual
meeting of shareholders, must provide timely notice of their intent in writing. To be timely, a shareholder’s notice must be delivered
to the secretary at our principal executive offices not later than the close of business on the 90th day nor earlier than the close
of business on the 120th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that
in the event the date of the annual meeting is not within 25 days before or after such anniversary date, notice by the shareholder to
be timely must be so delivered not later than the close of business on the 10th day following the day on which such notice
of the date of annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever occurs first. These
provisions may preclude our shareholders from bringing matters before our annual meeting of shareholders or from making nominations for
directors at our annual meeting of shareholders.
Exclusive Forum
Each of our Amended Articles of Incorporation and
our Amended and Restated Bylaws provide that unless the Company consents in writing to the selection of an alternative forum, the Eighth
Judicial District Court of Clark County, Nevada shall be the sole and exclusive forum for state law claims with respect to: (i) any derivative
action or proceeding brought in the name or right of the Company or on its behalf, (ii) any action asserting a claim for breach of any
fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or the Company’s stockholders, (iii)
any action arising or asserting a claim arising pursuant to any provision of Nevada Revised Statutes Chapters 78 or 92A or any provision
of the Company’s Second Amended and Restated Articles of Incorporation or Amended and Restated Bylaws or (iv) any action asserting
a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforce or determine
the validity of the Company’s Amended and Restated Articles of Incorporation or Amended and Restated Bylaws. This exclusive forum
provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any
other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law
claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability
created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent
jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the
rules and regulations thereunder. The enforceability of similar exclusive forum provisions in other corporations’ bylaws has been
challenged in legal proceedings, and it is possible that a court could rule that this provision in our Amended and Restated Bylaws is
inapplicable or unenforceable.
Additionally, each of our Amended and Restated Articles
of Incorporation and our Amended and Restated Bylaws provide that unless the Company consents in writing to the selection of an alternative
forum, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting
a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares of
capital stock of the Company are deemed to have notice of and consented to this provision. As this provision applies to Securities Act
claims, there may be uncertainty whether a court would enforce such a provision.
Transfer Agent
The transfer agent and registrar for our common stock
is West Coast Stock Transfer, Inc.
Exchange Listing
We have applied to list our common stock and Series
A Warrants on the Nasdaq Capital Market under the symbol “DATS / DATSW.”
SHARES ELIGIBLE FOR FUTURE
SALE
Prior to this offering, there has been no public
market for our common stock, and a liquid trading market for our common stock may not develop or be sustained after this offering. Future
sales of substantial amounts of our common stock in the public market, or the anticipation of these sales, could materially and adversely
affect market prices prevailing from time to time, and could impair our ability to raise capital through sales of equity or equity-related
securities.
Only a limited number of shares of our common stock
will be available for sale in the public market for a period of several months after completion of this offering due to contractual and
legal restrictions on resale described below. Nevertheless, sales of a substantial number of shares of our common stock in the public
market after such restrictions lapse, or the perception that those sales may occur, could materially and adversely affect the prevailing
market price of our common stock. Although we have applied to list our common stock on the Nasdaq Capital Market, we cannot assure you
that our common stock will be listed on the Nasdaq Capital Market and if listed, there will be an active market for our common stock.
Of
the shares to be outstanding immediately after the completion of this offering, we expect that the shares to be sold in this offering
will be freely tradable without restriction under the Securities Act unless purchased by our “affiliates,” as that term is
defined in Rule 144 under the Securities Act, which generally includes officers, directors
or 10% stockholders. The remaining shares of our common stock outstanding
after this offering will be subject to a 180-lock-up period under the lock-up agreements as described below. These restricted securities
may be sold in the public market only if registered or pursuant to an exemption from registration, such as Rule 144.
Rule 144
Affiliate Resales of Restricted Securities
Affiliates of ours must generally comply with Rule 144
if they wish to sell any shares of our common stock in the public market, whether or not those shares are “restricted securities.”
“Restricted securities” are any securities acquired from us or one of our affiliates in a transaction not involving a public
offering. All shares of our common stock issued prior to the closing of the offering made hereby, are considered to be restricted securities.
The shares of our common stock sold in this offering are not considered to be restricted securities.
Non-Affiliate Resales of Restricted Securities
Any person or entity who is not an affiliate of ours
and who has not been an affiliate of ours at any time during the three months preceding a sale is only required to comply with Rule 144
in connection with sales of restricted shares of our common stock. Subject to the lock-up agreements described below, those persons may
sell shares of our common stock that they have beneficially owned for at least one year without any restrictions under Rule 144
immediately following the effective date of the registration statement of which this prospectus is a part.
Further, beginning 90 days after the effective
date of the registration statement of which this prospectus is a part, a person who is not an affiliate of ours at the time such person
sells shares of our common stock, and has not been an affiliate of ours at any time during the three months preceding such sale, and
who has beneficially owned such shares of our common stock, as applicable, for at least six months but less than a year, is entitled
to sell such shares so long as there is adequate current public information, as defined in Rule 144, available about us.
Resales of restricted shares of our common stock
by non-affiliates are not subject to the manner of sale, volume limitation or notice filing provisions of Rule 144, described above.
Equity Incentive Awards
We intend to file a registration statement on
Form S-8 under the Securities Act after the closing of this offering to register the shares of common stock that are issuable pursuant
to our 2018 Plan. The registration statement is expected to be filed and become effective as soon as practicable after the completion
of this offering. Accordingly, shares registered under the registration statement will be available for sale in the open market following
its effective date, subject to Rule 144 volume limitations and the lock-up arrangement described above, if applicable.
Lock-Up Agreements
We, and each of our directors and executive officers
have agreed that, without the prior written consent of the representative of the underwriters, we and they will not, subject to limited
exceptions, during the period ending 180 days after the date of this prospectus:
|
|
●
|
offer, pledge, sell or contract to sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares
of common stock or any securities convertible into or exercisable or exchangeable for common stock;
|
|
|
●
|
enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of our common stock or any securities convertible into or exchangeable or exercisable for shares of our
common stock, whether such transaction is to be settled by delivery of shares of our common stock or such other securities, in cash
or otherwise;
|
|
|
●
|
make any demand for or exercise any right with respect to the registration of any shares of our common stock
or any securities convertible into or exchangeable or exercisable for shares of our common stock; or
|
|
|
●
|
publicly announce an intention to do any of the foregoing.
|
MATERIAL U.S. FEDERAL INCOME
TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of the material U.S. federal
income tax consequences to non-U.S. holders (as defined below) of the ownership and disposition of our common stock but does not
purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions
of the Internal Revenue Code of 1986, as amended, (the “Internal Revenue Code”), Treasury regulations promulgated thereunder,
administrative rulings and judicial decisions, all as in effect as of the date hereof. These authorities may be changed, possibly retroactively,
so as to result in U.S. federal income tax consequences different from those set forth below. No ruling on the U.S. federal, state, or
local tax considerations relevant to our operations or to the purchase, ownership or disposition of our shares, has been or will be requested
from the Internal Revenue Service (the “IRS”) or other tax authority. No assurance can be given that the IRS would not assert,
or that a court would not sustain, a position contrary to any of the tax consequences described below.
This summary also does not address the tax considerations
arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws, except to the limited
extent set forth below. In addition, this discussion does not address tax considerations applicable to an investor’s particular
circumstances or to investors that may be subject to special tax rules, including, without limitation:
|
|
●
|
banks, insurance companies or other financial institutions, regulated investment companies or real estate
investment trusts;
|
|
|
●
|
persons subject to the alternative minimum tax or Medicare contribution tax on net investment income;
|
|
|
●
|
tax-exempt organizations or governmental organizations;
|
|
|
●
|
controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings
to avoid U.S. federal income tax;
|
|
|
●
|
brokers or dealers in securities or currencies;
|
|
|
●
|
traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
|
|
|
●
|
persons that own, or are deemed to own, more than five percent of our capital stock (except to the extent
specifically set forth below);
|
|
|
●
|
U.S. expatriates and certain former citizens or long-term residents of the United States;
|
|
|
●
|
partnerships or entities classified as partnerships for U.S. federal income tax purposes or other pass-through
entities (and investors therein);
|
|
|
●
|
persons who hold our common stock as a position in a hedging transaction, “straddle,” “conversion
transaction” or other risk reduction transaction or integrated investment;
|
|
|
●
|
persons who hold or receive our common stock pursuant to the exercise of any employee stock option or otherwise
as compensation;
|
|
|
●
|
persons who do not hold our common stock as a capital asset within the meaning of Section 1221 of the
Internal Revenue Code; or
|
|
|
●
|
persons deemed to sell our common stock under the constructive sale provisions of the Internal Revenue Code.
|
You are urged to consult your tax advisor with
respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase,
ownership and disposition of our common stock arising under the U.S. federal estate or gift tax rules or under the laws of any state,
local, non-U.S., or other taxing jurisdiction or under any applicable tax treaty.
Non-U.S. Holder Defined
For purposes of this discussion, you are a non-U.S.
holder (other than a partnership) if you are any holder other than:
|
|
●
|
an individual citizen or resident of the United States (for U.S. federal income
tax purposes);
|
|
|
●
|
a corporation or other entity taxable as a corporation created or organized in the United States or under
the laws of the United States, any state thereof, or the District of Columbia, or other entity treated as such for U.S. federal income
tax purposes;
|
|
|
●
|
an estate whose income is subject to U.S. federal income tax regardless of its source; or
|
|
|
●
|
a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has
one or more “U.S. persons” (within the meaning of Section 7701(a)(30) of the Internal Revenue Code) who have the
authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a U.S. person.
|
In addition, if a partnership or entity classified
as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner generally will depend on
the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold our common stock, and partners
in such partnerships, should consult their tax advisors.
Distributions
As described in “Dividend Policy,” we
have never declared or paid cash dividends on our common stock and do not anticipate paying any dividends on our common stock in the
foreseeable future. However, if we do make distributions on our common stock, those payments will constitute dividends for U.S. federal
income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income
tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, the excess will constitute
a return of capital and will first reduce your basis in our common stock, but not below zero, and then will be treated as gain from the
sale of stock as described below under “—Gain on Disposition of Common Stock.”
Subject to the discussion
below on effectively connected income, backup withholding and foreign accounts, any dividend paid to you generally will be subject to
U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable
income tax treaty. In order to receive a reduced treaty rate, you must provide us with an IRS Form W-8BEN, IRS Form W-8BEN-E
or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate. A non-U.S. holder of shares of our common
stock eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund or credit of any excess
amounts withheld by timely filing an appropriate claim for refund with the IRS. If the non-U.S. holder holds the stock through a
financial institution or other agent acting on the non-U.S. holder’s behalf, the non-U.S. holder will be required to provide appropriate
documentation to the agent, which then will be required to provide certification to us or our paying agent, either directly or through
other intermediaries.
Dividends received by you that are effectively connected
with your conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, attributable to a permanent establishment
maintained by you in the United States) are generally exempt from such withholding tax if certain
certification and disclosure requirements are satisfied. In order to obtain this exemption, you must provide us with an IRS Form W-8ECI
or other applicable IRS Form W-8 properly certifying such exemption. Such effectively
connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of
certain deductions and credits. In addition, if you are a corporate non-U.S. holder, dividends you receive that are effectively connected
with your conduct of a U.S. trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate
as may be specified by an applicable income tax treaty. You should consult your tax advisor regarding any applicable tax treaties that
may provide for different rules.
Gain on Disposition of Common Stock
Subject to the discussion below regarding backup
withholding and foreign accounts, you generally will not be required to pay U.S. federal income tax on any gain recognized upon the sale
or other disposition of our common stock unless:
|
|
●
|
the gain is effectively connected with your conduct of a U.S. trade or business (and, if required by an applicable
income tax treaty, the gain is attributable to a permanent establishment maintained by you in the United States);
|
|
|
●
|
you are a non-resident alien individual who is present in the United States for a period or periods aggregating
183 days or more during the taxable year in which the sale or disposition occurs and certain other conditions are met; or
|
|
|
●
|
our common stock constitutes a United States real property interest by reason of our status as a “United
States real property holding corporation,” or USRPHC, for U.S. federal income tax purposes at any time within the shorter of
(i) the five-year period preceding your disposition of our common stock, or (ii) your holding period for our common stock.
|
We believe that we are not currently and will not
become a USRPHC for U.S. federal income tax purposes, and the remainder of this discussion so assumes. However, because the determination
of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other
business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long
as our common stock is regularly traded on an established securities market, such common stock will be treated as U.S. real property
interests only if you actually or constructively hold more than five percent of such regularly traded common stock at any time during
the shorter of the five-year period preceding your disposition of, or your holding period for, our common stock.
If you are a non-U.S. holder described in the first
bullet above, you will be required to pay tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates,
and a corporate non-U.S. holder described in the first bullet above also may be subject to the branch profits tax at a 30% rate, or such
lower rate as may be specified by an applicable income tax treaty. If you are an individual non-U.S. holder described in the second bullet
above, you will be required to pay a flat 30% tax (or such lower rate specified by an applicable income tax treaty) on the gain derived
from the sale, which gain may be offset by U.S. source capital losses for the year (provided you have timely filed U.S. federal income
tax returns with respect to such losses). You should consult any applicable income tax or other treaties that may provide for different
rules.
Federal Estate Tax
Our common stock beneficially owned by an individual
who is not a citizen or resident of the United States (as defined for U.S. federal estate tax purposes) at the time of their death will
generally be includable in the decedent’s gross estate for U.S. federal estate tax purposes and therefore, may be subject to U.S.
federal estate tax, unless an applicable estate tax treaty provides otherwise. The test for whether an individual is a resident of the
United States for U.S. federal estate tax purposes differs from the test used for U.S. federal income tax purposes. Some individuals,
therefore, may be non-U.S. holders for U.S. federal income tax purposes, but not for U.S. federal estate tax purposes, and vice versa.
Backup Withholding and Information Reporting
Generally, we must report annually to the IRS the
amount of dividends paid to you, your name and address and the amount of tax withheld, if any. A similar report will be sent to you.
Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in your country
of residence.
Payments of dividends or of proceeds on the disposition
of stock made to you generally would be subject to information reporting and backup withholding at a current rate of 24% unless you establish
an exemption, for example, by properly certifying your non-U.S. status on an IRS Form W-8BEN, IRS Form W-8BEN-E or another
appropriate version of IRS Form W-8.
Backup withholding is not an additional tax; rather,
the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information
is furnished to the IRS in a timely manner.
Foreign Account Tax Compliance
The Foreign Account Tax Compliance Act (“FATCA”)
imposes a U.S. federal income withholding tax at a rate of 30% on dividends on and gross proceeds from the sale or other disposition
of our common stock paid to “foreign financial institutions” (as specially defined under these rules), unless such institution
enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities
substantial information regarding the U.S. account holders of such institution (which includes certain equity and debt holders of such
institution, as well as certain account holders that are foreign entities with U.S. owners) or otherwise establishes an exemption. FATCA
also generally imposes a U.S. federal withholding tax of 30% on dividends on and gross proceeds from the sale or other disposition of
our common stock paid to a “non-financial foreign entity” (as specially defined for purposes of these rules) unless such
entity provides the withholding agent with a certification identifying certain substantial direct and indirect U.S. owners of the entity,
certifies that there are none or otherwise establishes an exemption. The withholding provisions under FATCA generally apply to dividends
on our common stock, and under current transition rules, are expected to apply with respect to the gross proceeds from the sale or other
disposition of our common stock on or after January 1, 2019. An intergovernmental agreement between the United States and an applicable
foreign country may modify the requirements described in this paragraph. Non-U.S. holders should consult their tax advisors regarding
the possible implications of this legislation and any applicable intergovernmental agreements on
their investment in our common stock.
Each prospective investor should consult its tax
advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, holding and disposing of
our common stock, including the consequences of any proposed change in applicable laws.
UNDERWRITING
We have entered into an underwriting agreement with
EF Hutton, division of Benchmark Investments, LLC, as Lead Book Running Manager and representative of the underwriters (“EF Hutton”)
of this offering, with respect to the offering of shares of our units. Subject to the terms and conditions of an underwriting agreement
between us and the representative, we have agreed to sell to the underwriters, and the underwriters have agreed to purchase, at the public
offering price less the underwriting discounts set forth on the cover page of this prospectus, the number of shares of common stock listed
next to its name in the following table:
|
|
Number
of Units
|
|
EF Hutton, division of Benchmark Investments,
LLC
|
|
|
US Tiger Securities, Inc.
|
|
|
Total
|
|
The underwriters are committed to purchase all of
the securities offered by us other than those covered by the over-allotment option described below, if it purchases any securities. The
obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore,
pursuant to the underwriting agreement, the underwriters’ obligations are subject to customary conditions, representations and
warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.
We have agreed to indemnify the underwriters against
specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required
to make in respect thereof.
The underwriters are offering the above securities,
subject to prior sale, when, as and if issued to and accepted by it, subject to approval of legal matters by its counsel and other conditions
specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.
Over-Allotment Option
We have granted a 45-day option to the underwriters, exercisable one or
more times in whole or in part, to purchase up to an additional an additional 427,585 shares of common stock and/or Series A Warrants
at an assumed price of $4.65 per unit, less, in each case, the underwriting discounts and commissions, to cover over-allotments, if any.
Discounts
The following table shows the per unit and total
underwriting discounts and commissions to be paid to the underwriters. Such amounts are shown assuming both no exercise and full exercise
of the underwriters’ option to purchase additional Shares and Series A Warrants.
|
|
|
|
|
|
|
Total
|
|
|
|
|
Per
unit(2)
|
|
|
Without Over-Allotment
Option
|
|
With Over-Allotment
Option
|
|
Initial public offering price
|
|
|
$
|
|
|
$
|
|
$
|
Underwriting discounts and commissions
(8%)
|
|
|
$
|
|
|
$
|
|
$
|
|
Non-accountable
expense allowance (1%)(1)
|
|
|
$
|
|
|
$
|
|
$
|
|
Proceeds, before expenses, to us
|
|
|
$
|
|
|
$
|
|
$
|
|
(1)
|
The non-accountable expense allowance of 1% is not payable with respect to the units sold upon
exercise of the underwriters’ over-allotment option.
|
|
(2)
|
At an assumed offering price of $4.65 per unit, which is the mid-price of the $4.15 to $5.15 range.
|
The underwriters propose to offer the securities
offered by us to the public at the public offering price set forth on the cover of this prospectus. In addition, the underwriters may
offer some of the securities to other securities dealers at such price less an expected concession of 4% of the purchase price per unit.
If all of the units offered by us are not sold at the public offering price, the Representative may change the offering price and other
selling terms by means of a supplement to this prospectus.
We have agreed to pay the Representative a non-accountable
expense allowance of 1% of the public offering price at the closing, excluding any amount sold pursuant to the over-allotment option.
We have also agreed to pay the following expenses
of the Representative relating to the offering: (a) all filing fees and communication expenses associated with the review of this offering
by FINRA; (b) all fees, expenses and disbursements relating to background checks of our officers and directors in an amount not to exceed
$15,000 in the aggregate; (c) all fees, expenses and disbursements relating to the registration, qualification or exemption of securities
offered under the securities laws of foreign jurisdictions designated by the Representative, including the reasonable fees and expenses
of the Representative’s blue sky counsel; (d) up to $20,000 of the Representative’s actual accountable road show expenses
for the offering; (e) fees for underwriter’s counsel, not to exceed $150,000; (f) the $29,500 cost associated with the Underwriters’
use of Ipreo’s book building, prospectus tracking and compliance software for the offering; and (g) the costs associated with bound
volumes of the public offering materials as well as commemorative mementos and lucite tombstones in an aggregate amount not to exceed
$5,000.
We estimate that the total expenses of the offering payable by us, excluding
the total underwriting discount and non-accountable expense allowance, will be approximately $633,595.
Discretionary Accounts
The underwriters do not intend to confirm sales of
the securities offered hereby to any accounts over which it has discretionary authority.
Representative’s Warrants
In addition, we have agreed to issue to the representative
or its designees warrants to purchase a number of shares of common stock equal to eight percent (8%) of the aggregate number of shares
of common stock in the units sold in this offering, excluding the over-allotment option and any shares underlying the Series A Warrants.
The representative’s warrants will be exercisable six months from the effective date of this registration statement and will expire
five years from the effective date thereof. Pursuant to FINRA Rule 5110(e), the representative’s warrants and any shares issued
upon exercise of the representative’s warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject
of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the securities
by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of this offering, except
the transfer of any security: (i) by operation of law or by reason of our reorganization; (ii) to any FINRA member firm participating
in the offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction set
forth above for the remainder of the time period; (iii) if the aggregate amount of our securities held by the underwriter or related
persons do not exceed 1% of the securities being offered; (iv) that is beneficially owned on a pro-rata basis by all equity owners of
an investment fund, provided that no participating member manages or otherwise directs investments by the fund and the participating
members in the aggregate do not own more than 10% of the equity in the fund; or (v) the exercise or conversion of any security, if all
securities remain subject to the lock-up restriction set forth above for the remainder of the time period. The representative’s
warrants are registered in the registration statement of which this prospectus is a part.
In addition, the warrants provide for registration
rights upon request, in certain cases. The demand registration right provided will be exercisable one time and will not be greater than
five years from the effective date of the offering in compliance with FINRA Rule 5110(g)(8)(C). The piggyback registration right provided
will not be greater than seven years from the effective date of the offering in compliance with FINRA Rule 5110(g)(8)(D).
Lock-Up Agreements
We, our executive officers and directors have agreed
pursuant to “lock-up” agreements not to, without the prior written consent of the Representative, directly or indirectly,
offer to sell, sell, pledge or otherwise transfer or dispose of any of shares of (or enter into any transaction or device that is designed
to, or could be expected to, result in the transfer or disposition by any person at any time in the future of) our common stock, enter
into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks
of ownership of shares of our common stock, make any demand for or exercise any right or cause to be filed a registration statement,
including any amendments thereto, with respect to the registration of any shares of common stock or securities convertible into or exercisable
or exchangeable for shares of common stock or any other of our securities or publicly disclose the intention to do any of the foregoing,
subject to customary exceptions, for a period of 180 days from the date of this prospectus. The representative may, in its sole discretion
and at any time or from time to time before the termination of the lock-up period release all or any portion of the securities subject
to lock-up agreements; provided, however, that, subject to limited exceptions, at least three business days before the release or waiver
or any lock-up agreement, the representative must notify us of the impending release or waiver and we will be required to announce the
impending release or waiver through a major news service at least two business days before the release or waiver.
Lock-Up/Leak Out Agreements
Certain
of our securityholders holding an aggregate of 138,250 shares have agreed with the underwriters not
to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible into
common stock for 45 days after the date of this prospectus and will thereafter each be permitted to sell, pledge or otherwise dispose
of, directly or indirectly, $15,000 shares of common stock per month until 180 days after the date of this prospectus.
Indemnification
We have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required
to make for these liabilities.
Price Stabilization, Short Positions, and Penalty
Bids
In connection with this offering, each underwriter
may engage in transactions that stabilize, maintain or otherwise affect the price of our securities. Specifically, such underwriter may
over-allot in connection with this offering by selling more securities than are set forth on the cover page of this prospectus. This
creates a short position in our securities for such underwriter’s own accounts. The short position may be either a covered short
position or a naked short position. In a covered short position, the number of securities over-allotted by such underwriter is not greater
than the number of securities that it may purchase in the over-allotment option. In a naked short position, the number of securities
involved is greater than the number of securities in the over-allotment option. To close out a short position, such underwriter may elect
to exercise all or part of the over-allotment option. Such underwriter may also elect to stabilize the price of our securities or reduce
any short position by bidding for, and purchasing, securities in the open market.
The underwriters may also impose a penalty bid. This
occurs when a particular underwriter or dealer repays selling concessions allowed to it for distributing a security in this offering
because the underwriter repurchases that security in stabilizing or short covering transactions.
Finally, each underwriter may bid for, and purchase,
shares of our securities in market-making transactions, including “passive” market-making transactions as described below.
These activities may stabilize or maintain the market
price of our securities at a price that is higher than the price that might otherwise exist in the absence of these activities. The underwriters
are not required to engage in these activities and may discontinue any of these activities at any time without notice. These transactions
may be affected on Nasdaq, in the over-the-counter market, or otherwise.
In connection with this offering, the underwriters
and selling group members, if any, or their affiliates may engage in passive market-making transactions in our common stock immediately
prior to the commencement of sales in this offering, in accordance with Rule 103 of Regulation M under the Exchange Act. Rule 103 generally
provides that:
|
|
●
|
a passive market maker may not affect transactions or display bids for our securities in excess of the highest
independent bid price by persons who are not passive market makers;
|
|
|
|
|
|
|
●
|
net purchases by a passive market maker on each day are generally limited
to 30% of the passive market maker’s average daily trading volume in our common stock during a specified two-month prior period
or 200 shares, whichever is greater, and must be discontinued when that limit is reached; and
|
|
|
|
|
|
|
●
|
passive market-making bids must be identified as such.
|
Electronic Distribution
This prospectus in electronic format may be made
available on websites or through other online services maintained by the underwriters, or by their affiliates. Other than this prospectus
in electronic format, the information on the underwriters’ websites and any information contained in any other websites maintained
by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved
and/or endorsed by us or the underwriters in their capacity as underwriter, and should not be relied upon by investors.
Other than the prospectus in electronic or printed
format, the information on the underwriters’ website and any information contained in any other website maintained by an underwriter
is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed
by us or the underwriters in their capacity as underwriters and should not be relied upon by investors.
Certain Relationships
The representative and its affiliates have engaged
in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our
affiliates. The representative has received, or may in the future receive, customary fees and commissions for these transactions.
Offers Outside the United States
Other than in the United States, no action has been
taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction
where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly,
nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities
be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules
and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and
to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer
or a solicitation is unlawful.
Listing
We have applied
to list our common stock and Series A Warrants on the Nasdaq Capital Market under the symbol “DATS / DATSW”.
LEGAL MATTERS
The validity of the issuance of the securities offered
hereby will be passed upon for us by Sheppard, Mullin, Richter & Hampton LLP, New York, New York. Certain legal matters will be passed
upon for the underwriter by Jolie Kahn, Esq., New York, New York.
EXPERTS
The financial statements included in this prospectus
have been audited by D. Brooks and Associates CPAs, P.A., an independent registered public
accounting firm, as stated in their report appearing herein, which report expresses an unqualified opinion on the financial statements
and includes an explanatory paragraph referring to the ability of the Company to continue as a going concern. Such financial statements
have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission
a Registration Statement on Form S-1 under the Securities Act with respect to the common stock offered by this prospectus. This
prospectus, which is part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in
the registration statement. For further information pertaining to us and our common stock, reference is made to the registration statement
and the exhibits and schedules to the registration statement. Statements contained in this prospectus as to the contents or provisions
of any documents referred to in this prospectus are not necessarily complete, and in each instance where a copy of the document has been
filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matters involved.
Registration statements and certain other filings
made with the Securities and Exchange Commission electronically are publicly available through the Securities and Exchange Commission’s
website at http://www.sec.gov. The registration statement, including all exhibits and amendments to the registration statement,
has been filed electronically with the Securities and Exchange Commission.
DATCHAT, INC.
FINANCIAL STATEMENTS
December 31, 2020 and 2019
DATCHAT, INC.
INDEX TO FINANCIAL STATEMENTS
December 31, 2020 and 2019
CONTENTS
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
|
|
|
|
|
|
|
Financial Statements:
|
|
|
|
|
|
Balance Sheets - As of December 31, 2020 and 2019
|
|
|
F-3
|
|
|
|
|
|
|
|
|
Statements of Operations - For the Years ended December 31, 2020 and 2019
|
|
|
F-4
|
|
|
|
|
|
|
|
Statements of Changes in Stockholders’ Equity (Deficit) -
For the Years
Ended December 31, 2020 and 2019
|
|
|
F-5
|
|
|
|
|
|
|
|
Statements of Cash Flows –
For the Years Ended December 31, 2020 and
2019
|
|
|
F-6
|
|
|
|
|
|
|
|
|
Notes to Financial Statements
|
|
|
F-7
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of DatChat, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets
of DatChat, Inc. (the Company) as of December 31, 2020 and 2019, and the related statements of operations, stockholders’ equity
(deficit), and cash flows for the years ended December 31, 2020 and 2019, and the related notes to the financial statements (collectively
referred to as the financial statements).
In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations
and its cash flows for the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the
United States of America.
Substantial Doubt Regarding Going Concern
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company
has incurred operating losses, has incurred negative cash flows from operations and has a significant accumulated deficit. These and
other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding
these matters are also described in Note 1 to the financial statements. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
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.
D. Brooks and Associates CPAs, P.A.
We have served as the Company’s auditors since
2016.
Palm Beach Gardens, Florida
March 19, 2021, except for the common
share, per share and loss per share presentation on a post-reverse split based dated July 28, 2021
DATCHAT, INC.
BALANCE SHEETS
|
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
690,423
|
|
|
$
|
70,774
|
|
|
Prepaid expenses
|
|
|
25,260
|
|
|
|
6,000
|
|
|
Advance deposit
|
|
|
—
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
715,683
|
|
|
|
176,774
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use asset, net
|
|
|
28,632
|
|
|
|
52,580
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
744,315
|
|
|
$
|
229,354
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
119,622
|
|
|
$
|
186,469
|
|
|
Convertible note payable
|
|
|
—
|
|
|
|
300,000
|
|
|
Note payable
|
|
|
4,045
|
|
|
|
—
|
|
|
Notes payable - related party
|
|
|
7,500
|
|
|
|
16,500
|
|
|
Operating lease liability, current portion
|
|
|
28,632
|
|
|
|
23,948
|
|
|
Due to related party
|
|
|
194
|
|
|
|
13,685
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
159,993
|
|
|
|
540,602
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
Note payable, less current portion
|
|
|
1,997
|
|
|
|
—
|
|
|
Operating lease liability, less current portion
|
|
|
—
|
|
|
|
28,632
|
|
|
Total long-term liabilities:
|
|
|
1,997
|
|
|
|
28,632
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
161,990
|
|
|
|
569,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies - (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
|
Common stock ($0.0001 par value; 180,000,000 shares authorized;
12,727,821 and 13,175,356 shares issued and outstanding at December 31, 2020 and 2019, respectively)
|
|
|
1,274
|
|
|
|
1,318
|
|
|
Common stock to be issued 52,782 and 125 shares, at December 31, 2020 and 2019,
respectively)
|
|
|
5
|
|
|
|
—
|
|
|
Additional paid-in capital
|
|
|
17,342,558
|
|
|
|
15,440,844
|
|
|
Accumulated deficit
|
|
|
(16,761,512
|
)
|
|
|
(15,782,042
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity (Deficit)
|
|
|
582,325
|
|
|
|
(339,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders'
Equity (Deficit)
|
|
$
|
744,315
|
|
|
$
|
229,354
|
|
See accompanying notes to the financial statements.
DATCHAT, INC.
STATEMENT OF OPERATIONS
|
|
|
For the Year Ended December 31,
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
NET REVENUES
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
Compensation and related expenses
|
|
|
494,002
|
|
|
|
502,277
|
|
|
Professional and consulting
|
|
|
263,245
|
|
|
|
167,468
|
|
|
General and administrative
|
|
|
327,184
|
|
|
|
310,854
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,084,431
|
|
|
|
980,599
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(45,499
|
)
|
|
|
(176,218
|
)
|
|
Gain (loss) from extinguishment of debt
|
|
|
143,353
|
|
|
|
(5,400,569
|
)
|
|
Other income
|
|
|
7,000
|
|
|
|
—
|
|
|
Interest income
|
|
|
107
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
104,961
|
|
|
|
(5,576,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(979,470
|
)
|
|
$
|
(6,557,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.07
|
)
|
|
$
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER
|
|
|
|
|
|
|
|
|
|
OF COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
13,245,088
|
|
|
|
12,762,576
|
|
See accompanying notes to the financial statements.
DATCHAT, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
|
|
|
|
|
|
Stockholders'
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
to be issued
|
|
Paid-in
|
|
Subscription
|
|
Accumulated
|
|
Equity
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Receivable
|
|
Deficit
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
11,920,303
|
|
|
$
|
1,192
|
|
|
|
40,116
|
|
|
$
|
4
|
|
|
$
|
9,221,797
|
|
|
$
|
(207,497
|
)
|
|
$
|
(9,224,706
|
)
|
|
$
|
(209,210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock, net of offering costs
|
|
|
—
|
|
|
|
—
|
|
|
|
135,101
|
|
|
|
14
|
|
|
|
52,461
|
|
|
|
5
|
|
|
|
708,581
|
|
|
|
—
|
|
|
|
—
|
|
|
|
708,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
2,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collection of subscription receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
207,497
|
|
|
|
—
|
|
|
|
207,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for common stock issuable
|
|
|
|
|
|
|
—
|
|
|
|
92,452
|
|
|
|
9
|
|
|
|
(92,452
|
)
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with forbearance and exchange agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
1,025,000
|
|
|
|
103
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,500,466
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,500,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended December 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,557,336
|
)
|
|
|
(6,557,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
13,175,356
|
|
|
|
1,318
|
|
|
|
125
|
|
|
|
—
|
|
|
|
15,440,844
|
|
|
$
|
—
|
|
|
|
(15,782,042
|
)
|
|
|
(339,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock, net of offering costs
|
|
|
—
|
|
|
|
—
|
|
|
|
436,354
|
|
|
|
44
|
|
|
|
51,268
|
|
|
|
5
|
|
|
|
1,881,626
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,881,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,999
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cashless exercise of stock warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
111,111
|
|
|
|
11
|
|
|
|
1,389
|
|
|
|
—
|
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of repurchase common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,000,000
|
)
|
|
|
(100
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended December 31, 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(979,470
|
)
|
|
|
(979,470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
12,727,821
|
|
|
$
|
1,274
|
|
|
|
52,782
|
|
|
$
|
5
|
|
|
$
|
17,342,558
|
|
|
$
|
—
|
|
|
$
|
(16,761,512
|
)
|
|
$
|
582,325
|
|
See accompanying notes to the financial statements.
DATCHAT, INC.
STATEMENTS OF CASH FLOWS
|
|
|
For the Year Ended December 31,
|
|
|
|
2020
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net loss
|
|
$
|
(979,470
|
)
|
|
$
|
(6,557,336
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
—
|
|
|
|
22,192
|
|
|
(Gain) loss from extinguishment of debt
|
|
|
(143,353
|
)
|
|
|
5,400,569
|
|
|
Stock-based forbearance fee
|
|
|
—
|
|
|
|
100,000
|
|
|
Stock-based compensation
|
|
|
20,000
|
|
|
|
10,000
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(19,260
|
)
|
|
|
—
|
|
|
Advance deposits
|
|
|
—
|
|
|
|
(100,000
|
)
|
|
Accounts payable and accrued expenses
|
|
|
26,506
|
|
|
|
86,103
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(1,095,577
|
)
|
|
|
(1,038,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Advances from a related party
|
|
|
265,623
|
|
|
|
236,783
|
|
|
Payments on related party advances
|
|
|
(279,114
|
)
|
|
|
(229,387
|
)
|
|
Proceeds from notes payable
|
|
|
6,042
|
|
|
|
—
|
|
|
Payments on convertible note payable
|
|
|
(150,000
|
)
|
|
|
—
|
|
|
Repayment of notes payable - related parties
|
|
|
(9,000
|
)
|
|
|
(13,500
|
)
|
|
Collection of subscription receivable
|
|
|
—
|
|
|
|
207,497
|
|
|
Proceeds from sale of common
|
|
|
|
|
|
|
|
|
|
and common stock to be issued
|
|
|
1,881,675
|
|
|
|
708,600
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
1,715,226
|
|
|
|
909,993
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
619,649
|
|
|
|
(128,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH - beginning of year
|
|
|
70,774
|
|
|
|
199,253
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH - end of year
|
|
$
|
690,423
|
|
|
$
|
70,774
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
1,500
|
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use asset and operating lease liability
recorded upon adoption of ASC 842
|
|
$
|
—
|
|
|
$
|
72,609
|
|
|
Advance deposit applied towards repayment of convertible note
payable pursuant to the Securities Purchase Agreement
|
|
$
|
100,000
|
|
|
$
|
—
|
|
See accompanying notes to the financial statements.
DATCHAT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2019
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization
DatChat, Inc. (the “Company”) was incorporated
in the State of Nevada on December 4, 2014 under the name of YssUp, Inc. On March 4, 2015, the Company’s corporate name was changed
to Dat Chat, Inc. In August 2016, the Board of Directors of the Company approved to change the name of the Company from Dat Chat, Inc.
to DatChat, Inc. The Company established a fiscal year end of December 31. The Company’s principal business is focused on its mobile
messaging application that provides a traditional messaging platform, while providing users with complete privacy and control features
for their sent messages. The Company’s mobile messaging application is called DatChat Messenger which is currently a free messaging
application. Once the Company achieves critical mass of users, the Company will offer new features and will charge fees and generate
revenues from the added features.
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. 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 Stock Split.
Basis of presentation and going concern
As reflected in the accompanying financial statements,
the Company has incurred a net loss of $979,470 and net cash used in operations of $1,095,277 for the year ended December 31, 2020. Additionally,
the Company has an accumulated deficit of $16,761,512 at December 31, 2020 and has not generated revenues since inception. These circumstances
cause substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a
going concern is dependent on the Company’s ability to further implement its business plan, raise capital, and generate revenues.
Currently, management is seeking capital to implement its business plan. Management believes that the actions presently
being taken provide the opportunity for the Company to continue as a going concern. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
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 financial statements and during the
reporting period. Actual results could materially differ from these estimates. Significant estimates include the valuation of deferred
tax assets, valuation of warrants issued with debt, and the value of stock-based compensation expenses.
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.
The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000.
At December 31, 2020, the Company had cash in excess of FDIC limits of approximately $440,000 and at December 31, 2019, the Company had
no cash in excess of FDIC limits. 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.
DATCHAT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2019
Fair value measurements and fair value of financial instruments
The carrying value of certain financial instruments,
including cash, accounts payable and accrued expenses, convertible notes payable, notes payable – related parties 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.
Revenue recognition
The Company will recognize 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 will further analyze its revenue recognition policy when it enters into revenue producing customer
contracts.
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 when the first time
the advertising takes place. Advertising costs were $211,956 and $197,358 for the years ended December 31, 2020 and 2019, respectively,
and are included in general and administrative expenses on the statement of operations.
Leases
In February 2016, the Financial Accounting Standards
Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets
and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease
components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual
periods beginning after December 15, 2018.
On January 1, 2019, the Company adopted ASU No.
2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected
to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing
leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract
is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified
asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and
(3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease
component based on its relative stand-alone price to determine the lease payments.
Operating lease right of use assets (“ROU”)
assets 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.
DATCHAT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2019
Income taxes
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 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.
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 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.
DATCHAT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2019
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. In periods where the Company
has a net loss, all dilutive securities are excluded.
|
|
|
December 31,
|
|
|
|
2020
|
|
2019
|
|
Common stock equivalents:
|
|
|
|
|
|
|
|
|
|
Stock warrants
|
|
|
62,500
|
|
|
|
1,312,500
|
|
|
Convertible notes payable
|
|
|
—
|
|
|
|
750,000
|
|
|
Total
|
|
|
62,500
|
|
|
|
2,062,500
|
|
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.
NOTE 2 – 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 is subject to annual increases beginning the
2nd and 3rd 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 January 1, 2019, upon adoption of ASC Topic 842,
the Company recorded right-of-use assets and lease liabilities of $72,609.
Right-of- use assets are
summarized below:
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Office lease (36 months)
|
|
$
|
72,609
|
|
|
$
|
72,609
|
|
|
Less accumulated amortization
|
|
|
43,977
|
|
|
|
20,029
|
|
|
Right-of-use asset, net
|
|
$
|
28,632
|
|
|
$
|
52,580
|
|
DATCHAT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2019
Operating Lease liabilities
are summarized below:
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Office lease
|
|
$
|
72,609
|
|
|
$
|
72,609
|
|
|
Reduction of lease liability
|
|
|
(43,977
|
)
|
|
|
(20,029
|
)
|
|
Total lease liability
|
|
|
28,632
|
|
|
|
52,580
|
|
|
Less: current portion
|
|
|
28,632
|
|
|
|
(23,948
|
)
|
|
Long term portion of lease liability
|
|
$
|
—
|
|
|
$
|
28,632
|
|
Minimum
lease payments under non-cancelable operating lease at December 31, 2020 are as follows:
|
Year ended December 31, 2021
|
|
|
32,200
|
|
|
Total
|
|
$
|
32,200
|
|
|
Less: present value discount
|
|
|
(3,568
|
)
|
|
Total operating lease liability
|
|
$
|
28,632
|
|
NOTE 3 – RELATED PARTY TRANSACTIONS
Due to Related Party
The Company’s officer, Mr. Darin Myman, from
time to time, provides advances to the Company for working capital purposes. At December 31, 2020 and December 31, 2019, the Company
had a payable to the officer of $194 and $13,685, respectively. These advances are short-term in nature and non-interest bearing. During
the years ended December 31, 2020 and 2019, respectively, Mr. Myman provided advances to the Company for working capital purposes for
a total of $265,623 and $236,783 the Company repaid $279,114 and $229,387 of these advances.
Notes Payable – Related Party
On May 29, 2015, the Company entered into a promissory
note agreement, providing for the issuance of a note in the principal amount of $30,000 to a principal stockholder of the Company. The
note was due on July 29, 2015. The annual interest rate for the loan is 10%. The Company defaulted to repay the note when it was due.
On February 25, 2016, the Company entered into an extension agreement with the lender to extend the maturity date of the note to December
31, 2016. In accordance with the extension agreement, the Company and the lender agree to increase the amount of the principal amount
of the note by $5,000 as penalty for the Company’s failure to repay the note on July 29, 2015. In connection with the increase
in principal amount of $5,000, the Company recorded non-cash interest expense of $5,000 on February 25, 2016. On October 25, 2017, the
Company agreed to pay an additional $5,000 as penalty fee for the extension of maturity date to June 30, 2018. Between October 2018 and
November 2018, the Company paid a total principal amount of $10,000. Between March 2019 and December 2019, the Company paid a total principal
amount of $13,500. During the year ended December 31, 2020, the Company paid a total principal amount of $9,000. As of December 31, 2020
and 2019, the principal balance of this note was $7,500 and $16,500, respectively. This note is currently in default. The Company fully
paid the principal amount of $7,500 in February 2021 (see Note 9).
DATCHAT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2019
As of December 31, 2020 and December 31, 2019, accrued
interest related to the note payable – related party above amounted to $16,282 and $14,924, respectively, and is included in accounts
payable and accrued expenses on the accompanying balance sheets.
NOTE 4 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted of the following:
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Convertible notes payable
|
|
$
|
—
|
|
|
$
|
300,000
|
|
|
Debt discount
|
|
|
—
|
|
|
|
—
|
|
|
Total convertible notes payable
|
|
$
|
—
|
|
|
$
|
300,000
|
|
On January 26, 2018, the Company issued a senior
convertible promissory note to an unrelated party for a principal amount of $300,000. The senior convertible promissory note and all
accrued interest were due on January 26, 2019. The Company paid issuance costs of $60,000 in connection with this note payable which
is being amortized over the term of the note. Any amount of principal or interest on this note which was not paid when due would bear
interest at the rate of 18% per annum from the due date thereof until the same was paid. The note holder had the right from the date
of issuance of this note to convert any outstanding unpaid principal amount and accrued interest into the Company’s common stock
at a conversion price equal to $0.20 per share. The conversion price, however, was subject to full ratchet anti-dilution in the event
that the Company issues any securities at a per share price lower than the conversion price then in effect. Additionally, in connection
with the issuance of this note, the Company had granted the note holder 750,000 five-year warrants to purchase shares of the Company’s
common stock at an exercise price of $0.40 per share subject to applicable adjustments including full ratchet anti-dilution in the event
that the Company issue any securities at a per share price lower than the exercise price then in effect. The Company recorded amortization
of debt discount and original issuance cost of $0 and $22,192 during the year ended December 31, 2020 and 2019, respectively, and has
been included in interest expense on the statement of operations.
On January 26, 2019, the Company entered into a Forbearance
and Exchange Agreement (the “Agreement”), whereby the Company failed to repay a convertible note issued on January 26, 2018
for $300,000 and the Company obtained a forbearance of the maturity date default. The note holder agreed to forbear from declaring a
breach of transaction, declaring an occurrence of any event of default and demanding any amounts due until the earlier of February 5,
2019. In exchange for the forbearance, the Company agreed to cancel the previously issued detached warrant to acquire 750,000 shares
of common stock and reissue four-year new warrants to acquire 1,125,000 shares of common stock at an exercise price of $0.40 per share
subject to full ratchet anti-dilution in the event that the Company issues any securities at a per share price lower than the exercise
price then in effect.
On April 5, 2019, the Company entered into a Second
Forbearance and Exchange Agreement (the “Second Agreement”) whereby the Company agreed to exchange the original note for
a new note with a principal amount of $300,000 and 1,000,000 shares of the Company’s common stock (see Note 6). The new note holder
is Spherix Incorporated (“Spherix”). If the Company failed to pay the outstanding principal and accrued interest under the
new note by August 26, 2019, then the principal of the new note shall be increased to an amount equal to 150% of the then principal amount
or equal to $450,000. The Company did not make the payment by August 26, 2019 however, the Company and Spherix entered into a new agreement
(Securities and Purchase Agreement) on October 1, 2019 as discussed below.
DATCHAT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2019
As such, the 150% increase in principal did not occur.
The annual interest rate for the new note is 18%. The note holder shall have the right to convert any outstanding unpaid principal amount
and accrued interest under the new note into the Company’s common stock at a conversion price equal to $0.40 per share. The conversion
price, however, is subject to full ratchet anti-dilution in the event that the Company issues any securities at a per share price lower
than the conversion price then in effect. Pursuant to the Second Agreement, the Company also granted the note holder a put to require
the Company to purchase 100,000 shares of common stock from the note holder for a price of $3.00 upon the occurrence of a certain events
such as the sales of any assets, grants of any licenses, consummates any offering in exchange for cash or other consideration or otherwise
any event in which the Company receives any cash payment or consideration as defined in the Second Agreement.
The Company valued the 1,000,000 shares of common
of stock at the fair value of $4,000,000 or $4.00 per share based on the recent sales price of
common stock in a private placement during that time. Additionally, the Company determined any incremental expense from the warrant
modification which resulted in an additional grant of 375,000 warrants with the same terms as the original warrant issuance. Each additional
warrant was valued on the grant date at approximately $3.74 per warrant or a total of $1,400,569 using a Black-Scholes option pricing
model with the following assumptions: stock price at valuation date of $4.00 based on recent sales
price of common stock in a private placement during that time, exercise price of $0.20, dividend yield of zero, expected term of 4.00
years, a risk-free rate of 2.47%, and expected volatility of 89% using volatilities of similar companies. In connection with the
Second Agreement, the Company accounted for the fair value of the issuance of 1,000,000 shares of common stock and 375,000 additional
warrants using guidance in ASC 407-50-40 Debt Modification and Extinguishments and recorded loss on debt extinguishment of $5,400,569
during the year ended December 31, 2019.
Additionally, in accordance with ASU 2017-11, the
down round feature relating to the conversion feature whereby the conversion price is subject to full ratchet anti-dilution in the event
that the Company issues any securities at a per share price lower than the conversion price then in effect is no longer classified as
a liability and embedded conversion option with down round features are no longer bifurcated. The Company shall recognize the value of
the effect of a down round feature in an equity-classified freestanding financial instrument each time it is triggered.
On October 1, 2019, the Company entered into a Securities
Purchase Agreement with Spherix. The Company agreed to purchase back the 1,125,000 warrants and 1,000,000 shares of the Company's common
stock owned by Spherix and pay-off the $300,000 convertible note (collectively "Securities") in consideration for cash purchase
price of $250,000 to be paid in five equal installments of $50,000 at the end of each calendar month commencing October 31, 2019. As
continuing collateral security for the Company's obligation to pay the purchase price installments, the Company pledged and assigned
to Spherix a continuing security interest in the Securities. The Company paid a total of $100,000 towards this agreement which was recorded
as an advance deposit on the balance sheet as of December 31, 2019. Additionally, Spherix agreed to defer the December 31, 2019 installment
payment at the Company's request in exchange for the issuance of 25,000 shares of the Company's common stock (see Note 6). The December
31, 2019 installment payment was paid in February 2020 and the remaining balance of $100,000 was paid in October 2020. Accordingly, the
Company fully paid the $250,000 purchase price by October 2020 which resulted in the cancellation of the Securities (see Note 6) previously
owned by Spherix, and the pay-off of the principal amount of the convertible note for $300,000 including accrued interest of $93,353.
As such, the Company recorded gain from extinguishment of debt of $143,353 during the year ended December 31, 2020.
As of December 31, 2020 and 2019, accrued interest
related to the convertible note payable amounted to $0 and $50,005, respectively, and was included in accounts payable and accrued expenses
in the accompanying balance sheets.
DATCHAT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2019
NOTE 5 – NOTES PAYABLE
Notes payable to unrelated
parties is summarized below:
|
|
|
As of
December 31, 2020
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
Principal amount
|
|
$
|
6,042
|
|
|
$
|
—
|
|
|
Less: current portion
|
|
|
(4,045
|
)
|
|
|
—
|
|
|
Notes payable - long term portion
|
|
$
|
1,997
|
|
|
$
|
—
|
|
Minimum principal payments under notes payable to
unrelated parties at December 31, 2020 are as follows:
|
Year ended December 31, 2021
|
|
$
|
4,045
|
|
|
Year ended December 31, 2022
|
|
|
1,697
|
|
|
Total principal payments
|
|
$
|
6,042
|
|
Paycheck Protection Program Funding
On May 4, 2020, the Company received federal funding
in the amount of $6,042 through the Paycheck Protection Program (the “PPP”). PPP funds have certain restrictions on use of
the funding proceeds, and generally must be repaid within two (2) years at 1% interest. The PPP loan may, under circumstances, be forgiven.
There shall be no payment due by the Company during the six months period beginning on the date of this note (“Deferral Period”).
Commencing one month after the expiration of the Deferral Period, the Company shall pay the lender monthly payments of principal and
interest, each in equal amount required to fully repay by the maturity date. If a payment on this note is more than ten days late, the
lender shall charge a late fee of up to 5% of the unpaid portion of the regularly scheduled payment. As of December 31, 2020, the principal
balance of this note amounted to $6,042 and accrued interest of $40. During the year ended December 31, 2020, the Company recognized
$40 of interest expense.
NOTE 6 – STOCKHOLDERS’ DEFICIT
Shares Authorized
In August 2016, the Board of Directors of the Company
approved and authorized an amendment to its articles of incorporation to designate 20,000,000 shares of preferred stock. Consequently,
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.
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
vote. The Series A Preferred Stock does not convert into equity of the Company. The Series A Preferred Stock does not contain any redemption
provision.
DATCHAT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2019
Common stock
Sale of Common Stock
During the year ended December 31, 2020, the Company
sold 487,622 shares of its common stock at $4.00 per common share for gross proceeds of $1,950,486 and net proceeds of $1,881,675 after
escrow fees related to private placement sale. In connection with these sales of common stock, the Company issued 436,354 shares of common
stock and there were 51,268 shares of commons stock to be issued as of December 31, 2020.
Common stock for services
On June 11, 2020, the Company entered into a six-month
Advisory Board Agreement with an individual who will act as a member to the Company’s Advisory Board. In accordance with this agreement
the Company issued 5,000 shares of its common stock as consideration for the services provided. The Company valued these common shares
at the fair value of $20,000 or $4.00 per common share based on sales of common stock in the recent private placement. The Company recorded
stock-based consulting of $20,000 and was included in professional and consulting as reflected in the accompanying statements of operations
for the year ended December 31, 2020.
Common stock issued upon cashless exercise of warrants
In March 2020, the Company issued 111,111 shares
of its common stock and 1,389 shares of common stock to be issued as of December 31, 2020 in connection with the cashless exercise of
125,000 warrants with an exercise price of $0.40 per share.
Cancellation of common stock and stock warrants
In October 2020, the Company fully paid the $250,000
purchase price in connection with the Securities Purchase Agreement with Spherix entered into in October 2019 (see Note 4) which resulted
in the cancellation of 1,000,000 shares of the Company’s common stock and 1,125,000 common stock warrants previously owned by Spherix.
As of December 31, 2020 and 2019, there were a total
of 52,782 and 125 shares of common stock to be issued, respectively.
Common Stock Warrants
A summary of the Company’s outstanding stock
warrants is presented below:
|
|
|
Number of
Warrants
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Balance
at December 31, 2018
|
|
|
|
937,500
|
|
|
$
|
0.40
|
|
|
|
3.97
|
|
|
|
Canceled
|
|
|
|
(750,000
|
)
|
|
|
0.40
|
|
|
|
—
|
|
|
|
Granted
|
|
|
|
1,125,000
|
|
|
|
0.40
|
|
|
|
4.00
|
|
|
|
Balance
at December 31, 2019
|
|
|
|
1,312,500
|
|
|
|
0.40
|
|
|
|
3.00
|
|
|
|
Exercise
|
|
|
|
(125,000
|
)
|
|
|
0.40
|
|
|
|
2.26
|
|
|
|
Canceled
|
|
|
|
(1,125,000
|
)
|
|
|
0.40
|
|
|
|
2.24
|
|
|
|
Balance
at December 31, 2020
|
|
|
|
62,500
|
|
|
|
0.40
|
|
|
|
1.59
|
|
|
|
Warrants
exercisable at December 31, 2020
|
|
|
|
62,500
|
|
|
$
|
0.40
|
|
|
|
1.59
|
|
DATCHAT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2019
NOTE 7 – COMMITMENTS AND CONTINGENCIES
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 from a monthly base rent of
$2,567 plus a pro rata share of operating expenses beginning January 2019 (see Note 2). The base rent is subject to annual increases
beginning the 2nd and 3rd lease year as defined in the lease agreement. As of December 31, 2020 and 2019 rent expense
was $36,169 and $35,200, respectively, and was included in general and administrative expenses as reflected in the accompanying statements
of operations.
On October 1, 2019, the Company entered into a Securities
Purchase Agreement with Spherix (see Note 4). The Company agreed to purchase back the 1,125,000 warrants and 1,000,000 shares of the
Company’s common stock owned by Spherix and pay-off the $300,000 convertible note (collectively “Securities”) in consideration
for cash purchase price of $250,000 to be paid in five equal installments of $50,000 at the end of each calendar month commencing October
31, 2019. The Company had pledged and assigned to Spherix a continuing security interest in the Securities until the full payment of
the purchase price. In October 2020, the Company fully paid the $250,000 purchase price in connection with the Securities Purchase Agreement
with Spherix.
NOTE 8 – 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 at December 31, 2020 and 2019 consist of net operating
loss carryforwards.
The Company has incurred aggregate net operating
losses of approximately $4,464,229 for income tax purposes as of December 31, 2020. 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, 2020 and 2019 were as follows:
|
|
|
Year
Ended
December
31, 2020
|
|
Year
Ended
December
31, 2019
|
|
Income tax benefit at U.S. statutory rate
|
|
$
|
(205,689
|
)
|
|
$
|
(1,377,040
|
)
|
|
Income tax benefit - State
|
|
|
(48,973
|
)
|
|
|
(327,867
|
)
|
|
Non-deductible (income) expenses
|
|
|
(32,073
|
)
|
|
|
1,438,518
|
|
|
Change in valuation allowance
|
|
|
286,735
|
|
|
|
266,389
|
|
|
Total provision for income tax
|
|
$
|
—
|
|
|
$
|
—
|
|
DATCHAT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2019
The Company’s approximate net deferred tax asset at December 31,
2020 and 2019 was as follows:
|
Deferred Tax Asset:
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Net operating loss carryforward
|
|
$
|
1,163,300
|
|
|
$
|
876,565
|
|
|
Valuation allowance
|
|
|
(1,163,300
|
)
|
|
|
(876,565
|
)
|
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
Of the $4,474,229 of available net operating losses,
$1,403,306 begin to expire in 2034 and $3,070,923 which were generated after the Act’s effective date 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, 2020 and 2019 because it was not known whether future taxable income
will be sufficient to utilize the loss carryforward. The increase in the allowance was $286,735 and $266,389 in years 2020 and 2019.
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 2018, 2019 and 2020 Corporate Income Tax Returns are subject
to Internal Revenue Service examination.
NOTE 9 – SUBSEQUENT EVENTS
Between January 1, 2021 and March 15, 2021, the Company
sold 398,499 shares of its common stock at $4.00 per common share for gross proceeds of $1,593,996 related to the private placement sale.
On February 1, 2021, the Company entered into an
Engagement Agreement (the “Agreement”) with a consulting company which will act as an exclusive lead underwriter, financial
advisor, placement agent and investment banker of the Company, whereby the consultant will assist 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 this agreement or ii) the final closing if any of the Offering.
The consultant will prepare 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
stock. 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 February 15, 2021, the Company entered into a
one-year Advisory Board Agreement with an individual who will act as a member to the Company’s Advisory Board. In accordance with
this agreement the Company shall either issue 100,000 shares of common stock or 100,000 warrants to purchase shares of common stock at
an exercise price of $4.00 per share and shall be decided by the advisor. The advisor opted to receive 100,000 five-year warrant to purchase
shares of common stock at an exercise price of $4.00 per share.
Effective February 12, 2021, the Company entered
into a Branding and Marketing Services Agreement with a consultant to provide branding and digital marketing strategy for the Company.
The term of the agreement is for a one-year period. Either party may terminate the agreement by giving a 30-day written notice. The Company
shall pay a flat fee of $18,500 for the initial marketing services and $7,500 per month for the six-month branding and marketing management
services.
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. 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 Stock Split.
DATCHAT, INC.
FINANCIAL STATEMENTS
March 31, 2021 and December 31, 2020
DATCHAT, INC.
INDEX TO FINANCIAL STATEMENTS
March 31, 2021 and December 31, 2020
CONTENTS
|
Financial Statements:
|
|
|
|
|
|
Condensed Balance Sheets - As of March 31, 2021 and December 31, 2020 (Unaudited)
|
|
F-20
|
|
|
|
|
|
|
|
|
Condensed Statements of Operations - For the three months ended March
31, 2021 and 2020 (Unaudited)
|
|
F-21
|
|
|
|
|
|
|
|
|
Condensed Statements of Changes in Stockholders' Equity (Deficit) -
For the three months ended March 31, 2021 and 2020 (Unaudited)
|
|
F-22
|
|
|
|
|
|
|
|
|
Condensed Statements of Cash Flows - For the three months ended March
31, 2021 and 2020 (Unaudited)
|
|
F-23
|
|
|
|
|
|
|
|
|
Notes to Unaudited Condensed Financial Statements
|
|
|
F-24
|
|
DATCHAT, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
|
|
|
March 31,
|
|
December 31,
|
|
|
|
2021
|
|
2020
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,628,100
|
|
|
$
|
690,423
|
|
|
Prepaid expenses
|
|
|
169,073
|
|
|
|
25,260
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
1,797,173
|
|
|
|
715,683
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use asset, net
|
|
|
21,946
|
|
|
|
28,632
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,819,119
|
|
|
$
|
744,315
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
139,975
|
|
|
$
|
119,622
|
|
|
Note payable, current portion
|
|
|
5,362
|
|
|
|
4,045
|
|
|
Note payable - related party
|
|
|
—
|
|
|
|
7,500
|
|
|
Operating lease liability
|
|
|
21,946
|
|
|
|
28,632
|
|
|
Due to related party
|
|
|
2,630
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
169,913
|
|
|
|
159,993
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
Note payable, less current
|
|
|
680
|
|
|
|
1,997
|
|
|
Total long-term liabilities:
|
|
|
680
|
|
|
|
1,997
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
170,593
|
|
|
|
161,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies - (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock ($0.0001 par value; 20,000,000 shares authorized)
Series
A Preferred stock ($0.0001 Par Value; 1 Share Authorized;
none issued and outstanding at March
31, 2021 and December 31, 2020)
|
|
|
—
|
|
|
|
—
|
|
Common stock ($0.0001 par value; 180,000,000 shares authorized;
13,389,083
and 12,727,820 shares issued and outstanding
at March 31, 2021 and December 31, 2020,
respectively)
|
|
|
1,339
|
|
|
|
1,273
|
|
Common stock to be issued 3,314 and 52,782 shares,
at
March 31, 2021 and December 31, 2020, respectively)
|
|
|
—
|
|
|
|
5
|
|
|
Additional paid-in capital
|
|
|
19,405,470
|
|
|
|
17,342,559
|
|
|
Accumulated deficit
|
|
|
(17,758,283
|
)
|
|
|
(16,761,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
|
|
1,648,526
|
|
|
|
582,325
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders'
Equity
|
|
$
|
1,819,119
|
|
|
$
|
744,315
|
|
See accompanying notes to the financial statements.
DATCHAT, INC.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
March
31, 2021
|
|
|
|
March
31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
NET REVENUES
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
Compensation and related expenses
|
|
|
279,135
|
|
|
|
79,601
|
|
|
Professional and consulting expenses
|
|
|
604,036
|
|
|
|
32,405
|
|
|
General and administrative expenses
|
|
|
113,637
|
|
|
|
81,781
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
996,808
|
|
|
|
193,787
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(97
|
)
|
|
|
(14,176
|
)
|
|
Interest income
|
|
|
134
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
37
|
|
|
|
(14,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(996,771
|
)
|
|
$
|
(207,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER
|
|
|
|
|
|
|
|
|
|
OF COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
12,963,374
|
|
|
|
13,206,345
|
|
See accompanying notes to the financial statements.
DATCHAT, INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’
EQUITY (DEFICIT)
For the Three Months Ended March 31, 2021
and 2020
(Unaudited)
|
|
|
Preferred
Stock
|
|
Common Stock
|
|
Common
Stock
to be issued
|
|
Additional
Paid-in
|
|
Accumulated
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
12,727,820
|
|
|
$
|
1,273
|
|
|
|
52,782
|
|
|
$
|
5
|
|
|
$
|
17,342,559
|
|
|
$
|
(16,761,512
|
)
|
|
$
|
582,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock, net of offering costs
|
|
|
—
|
|
|
|
—
|
|
|
|
403,024
|
|
|
|
40
|
|
|
|
1,675
|
|
|
|
—
|
|
|
|
1,592,932
|
|
|
|
—
|
|
|
|
1,592,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for common stock issuable
|
|
|
|
|
|
|
—
|
|
|
|
51,018
|
|
|
|
5
|
|
|
|
(51,143
|
)
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
—
|
|
|
|
—
|
|
|
|
205,000
|
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
469,959
|
|
|
|
—
|
|
|
|
470,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(996,771
|
)
|
|
|
(996,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
|
—
|
|
|
$
|
—
|
|
|
|
13,389,083
|
|
|
$
|
1,339
|
|
|
|
3,314
|
|
|
$
|
—
|
|
|
$
|
19,405,470
|
|
|
$
|
(17,758,283
|
)
|
|
$
|
1,648,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
|
Common
Stock
|
|
|
|
Common
Stock
to be issued
|
|
|
|
Additional
Paid-in
|
|
|
|
Accumulated
|
|
|
|
Total
Stockholders'
|
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Capital
|
|
|
|
Deficit
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
13,175,356
|
|
|
$
|
1,318
|
|
|
|
125
|
|
|
$
|
—
|
|
|
$
|
15,440,844
|
|
|
$
|
(15,782,042
|
)
|
|
|
(339,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock, net of offering costs
|
|
|
—
|
|
|
|
—
|
|
|
|
70,475
|
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
281,792
|
|
|
|
—
|
|
|
|
281,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cashless exercise of stock warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
111,111
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(207,962
|
)
|
|
|
(207,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
13,356,942
|
|
|
$
|
1,336
|
|
|
|
125
|
|
|
$
|
—
|
|
|
$
|
15,722,625
|
|
|
$
|
(15,990,004
|
)
|
|
$
|
(266,043
|
)
|
See accompanying notes to the financial statements.
DATCHAT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
For the Three Months Ended
|
|
|
|
March 31, 2021
|
|
March 31, 2020
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(996,771
|
)
|
|
$
|
(207,962
|
)
|
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
used in operating activities:
|
|
|
|
|
|
|
|
|
|
Amortization of ROU asset
|
|
|
6,686
|
|
|
|
5,592
|
|
|
Stock-based compensation
|
|
|
470,000
|
|
|
|
—
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(143,813
|
)
|
|
|
—
|
|
|
Advance deposits
|
|
|
—
|
|
|
|
(50,000
|
)
|
|
Accounts payable and accrued expenses
|
|
|
20,353
|
|
|
|
(12,609
|
)
|
|
Operating lease liability
|
|
|
(6,686
|
)
|
|
|
(5,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(650,231
|
)
|
|
|
(270,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Advances from a related party
|
|
|
95,143
|
|
|
|
64,015
|
|
|
Payments on related party advances
|
|
|
(92,707
|
)
|
|
|
(69,905
|
)
|
|
Repayment of notes payable - related party
|
|
|
(7,500
|
)
|
|
|
(1,000
|
)
|
|
Net proceeds from sale of common stock
|
|
|
|
|
|
|
|
|
|
and common stock to be issued
|
|
|
1,592,972
|
|
|
|
281,799
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
1,587,908
|
|
|
|
274,909
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
|
|
|
937,677
|
|
|
|
4,338
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH - beginning of period
|
|
|
690,423
|
|
|
|
70,774
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH - end of period
|
|
$
|
1,628,100
|
|
|
$
|
75,112
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
See accompanying notes to the financial statements.
DATCHAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021 and 2020
(Unaudited)
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization
DatChat, Inc. (the “Company”) was incorporated
in the State of Nevada on December 4, 2014 under the name of YssUp, Inc. On March 4, 2015, the Company’s corporate name was changed
to Dat Chat, Inc. In August 2016, the Board of Directors of the Company approved to change the name of the Company from Dat Chat, Inc.
to DatChat, Inc. The Company established a fiscal year end of December 31. The Company’s principal business is focused on its mobile
messaging application that provides a traditional messaging platform, while providing users with complete privacy and control features
for their sent messages. The Company’s mobile messaging application is called DatChat Messenger which is currently a free messaging
application. Once the Company achieves critical mass of users, the Company will offer new features and will charge fees and generate
revenues from the added features.
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. 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 unaudited condensed consolidated financial statements to reflect the Reverse Stock Split.
Basis of presentation and going concern
Management acknowledges its responsibility for the
preparation of the accompanying unaudited condensed financial statements which reflect all adjustments, consisting of normal recurring
adjustments, considered necessary in its opinion for a fair statement of its financial position and the results of its operations for
the periods presented. The accompanying condensed unaudited financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States of America (the “U.S. GAAP”) for interim financial information
and with the instructions of Article 8-03 of Regulation S-X. Operating results for interim periods are not necessarily indicative of
results that may be expected for the fiscal year as a whole. Certain information and note disclosures normally included in financial
statements prepared in accordance with U.S. GAAP has been condensed or omitted from these statements pursuant to such accounting principles
and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements. These unaudited
condensed financial statements should be read in conjunction with the summary of significant accounting policies and notes to the financial
statements for the year ended December 31, 2020 of the Company which were included in the Company’s current report on Form 1-K
as filed with the Securities and Exchange Commission and attached herein.
As reflected in the accompanying unaudited condensed
financial statements, the Company has incurred a net loss of $996,771 and net cash used in operations of $650,231, for the three months
ended March 31, 2021. Additionally, the Company has an accumulated deficit of $17,758,283 at March 31, 2021 and has not generated
revenues since inception. These circumstances cause substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business
plan, raise capital, and generate revenues. Currently, management is seeking capital to implement its business plan. Management
believes that the actions presently being taken provide the opportunity for the Company to continue as a going concern. The financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
DATCHAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021 and 2020
(Unaudited)
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
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 financial statements and during the
reporting period. Actual results could materially differ from these estimates. Significant estimates include the valuation of deferred
tax assets, and the value of stock-based compensation expenses.
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. At March 31, 2021 and December
31, 2020, the Company had cash in excess of FDIC limits of approximately $1,378,000 and $440,000, respectively. To reduce its risk associated
with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which
it holds deposits.
Fair value measurements and fair value of financial instruments
The carrying value of certain financial instruments,
including cash, accounts payable and accrued expenses, notes payable, notes payable – related parties 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.
Revenue recognition
The Company will recognize 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 will further analyze its revenue recognition policy when it enters into revenue producing customer
contracts.
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 $44,948 and $50,745 for the three months ended March 31, 2021 and 2020, respectively, and are included in general
and administrative expenses on the statement of operations.
DATCHAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021 and 2020
(Unaudited)
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Leases
On January 1, 2019, the Company adopted ASC Topic
842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit it not to reassess under
the new standard its prior conclusions about lease identification, lease classification and initial direct costs (see Note 2). In addition,
the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. Operating lease right of use assets
(“ROU”) assets 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.
Income taxes
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 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.
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.
DATCHAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021 and 2020
(Unaudited)
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Stock-based compensation
Stock-based compensation is accounted for based on
the requirements of ASC 718 – “Compensation–Stock Compensation”, which requires recognition in the financial
statements of the cost of employee, non-employee and director services received in exchange for an award of equity instruments over the
period the employee 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.
|
|
|
March 31,
|
|
|
|
2021
|
|
2020
|
|
Common stock equivalents:
|
|
|
|
|
|
|
|
|
|
Stock warrants
|
|
|
62,500
|
|
|
|
1,312,500
|
|
|
Total
|
|
|
62,500
|
|
|
|
1,312,500
|
|
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.
NOTE 2 – 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 is subject to annual increases beginning the
2nd and 3rd 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.
DATCHAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021 and 2020
(Unaudited)
NOTE 2 – OPERATING LEASE RIGHT-OF-USE ASSETS
AND OPERATING LEASE LIABILITIES (CONTINUED)
Right-of- use assets are
summarized below:
|
|
|
March 31, 2021
|
|
December 31,2020
|
|
Office lease (36 months)
|
|
$
|
72,609
|
|
|
$
|
72,609
|
|
|
Less accumulated amortization
|
|
|
50,663
|
|
|
|
43,977
|
|
|
Right-of-use asset, net
|
|
$
|
21,946
|
|
|
$
|
28,632
|
|
Operating Lease liabilities
are summarized below:
|
|
|
March 31, 2021
|
|
December 31,
2020
|
|
Office lease
|
|
$
|
72,609
|
|
|
$
|
72,609
|
|
|
Reduction of lease liability
|
|
|
(50,663
|
)
|
|
|
(43,977
|
)
|
|
Total lease liability
|
|
|
21,946
|
|
|
|
28,632
|
|
|
Less: current portion
|
|
|
21,946
|
|
|
|
28,632
|
|
|
Long term portion of lease liability
|
|
$
|
—
|
|
|
$
|
—
|
|
Minimum lease payments under
non-cancelable operating lease at March 31, 2021 are as follows:
|
Year ended December 31, 2021
|
|
|
24,150
|
|
|
Total
|
|
$
|
24,150
|
|
|
Less: present value discount
|
|
|
(2,204
|
)
|
|
Total operating lease liability
|
|
$
|
21,946
|
|
NOTE 3 – RELATED PARTY TRANSACTIONS
Due to Related Party
The Company’s officer, Mr. Darin Myman, from
time to time, provides advances to the Company for working capital purposes. At March 31, 2021 and December 31, 2020, the Company had
a payable to the officer of $2,630 and $194, respectively. These advances are short-term in nature and non-interest bearing. During the
three months ended March 31, 2021 and 2020, respectively, Mr. Myman provided advances to the Company for working capital purposes for
a total of $95,143 and $64,015. The Company repaid $92,707 and $69,905 of these advances.
DATCHAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021 and 2020
(Unaudited)
NOTE 3 – RELATED PARTY TRANSACTIONS (CONTINUED)
Notes Payable – Related Party
On May 29, 2015, the Company entered into a promissory
note agreement, providing for the issuance of a note in the principal amount of $30,000 to a principal stockholder of the Company. The
note was due on July 29, 2015. The annual interest rate for the loan is 10%. The Company defaulted to repay the note when it was due.
On February 25, 2016, the Company entered into an extension agreement with the lender to extend the maturity date of the note to December
31, 2016. In accordance with the extension agreement, the Company and the lender agree to increase the amount of the principal amount
of the note by $5,000 as penalty for the Company’s failure to repay the note on July 29, 2015. In connection with the increase
in principal amount of $5,000, the Company recorded non-cash interest expense of $5,000 on February 25, 2016. On October 25, 2017, the
Company agreed to pay an additional $5,000 as penalty fee for the extension of maturity date to June 30, 2018. Between October 2018 and
November 2018, the Company paid a total principal amount of $10,000. Between March 2019 and December 2019, the Company paid a total principal
amount of $13,500. During the year ended December 31, 2020, the Company paid a total principal amount of $9,000. The Company fully paid
the principal amount of $7,500 in February 2021. As of March 31, 2021 and December 31, 2020, the principal balance of this note was $0
and $7,500, respectively.
As of March 31, 2021 and December 31, 2020, accrued
interest related to the note payable – related party above amounted to $16,364 and $16,282, respectively, and is included in accounts
payable and accrued expenses on the accompanying unaudited condensed balance sheets.
NOTE 4 – NOTES PAYABLE
Notes payable to unrelated
parties is summarized below:
|
|
|
As
of
March 31,
2021
|
|
As
of
December 31,
2020
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Principal amount
|
|
$
|
6,042
|
|
|
$
|
6,042
|
|
|
Less: current portion
|
|
|
(5,362
|
)
|
|
|
(4,045
|
)
|
|
Notes payable - long term portion
|
|
$
|
680
|
|
|
$
|
1,997
|
|
Minimum principal payments under notes payable to
unrelated parties at March 31, 2021 are as follows:
|
Year ended December 31, 2021
|
|
$
|
5,362
|
|
|
Year ended December 31, 2022
|
|
|
680
|
|
|
Total principal payments
|
|
$
|
6,042
|
|
DATCHAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021 and 2020
(Unaudited)
NOTE 4 – NOTES PAYABLE (CONTINUED)
Paycheck Protection Program Funding
On May 4, 2020, the Company received federal funding
in the amount of $6,042 through the Paycheck Protection Program (the “PPP”). PPP funds have certain restrictions on use of
the funding proceeds, and generally must be repaid within two (2) years at 1% interest. The PPP loan may, under circumstances, be forgiven.
There shall be no payment due by the Company during the six months period beginning on the date of this note (“Deferral Period”).
Commencing one month after the expiration of the Deferral Period, the Company shall pay the lender monthly payments of principal and
interest, each in equal amount required to fully repay by the maturity date. If a payment on this note is more than ten days late, the
lender shall charge a late fee of up to 5% of the unpaid portion of the regularly scheduled payment. As of December 31, 2020, the principal
balance of this note amounted to $6,042 and accrued interest of $40. During the three months ended March 31, 2021, the Company recognized
$15 of interest expense. As of March 31, 2021, the principal balance of this note amounted to $6,042 and accrued interest of $55.
NOTE 5 – STOCKHOLDERS’ EQUITY
Shares Authorized
In August 2016, the Board of Directors of the Company
approved and authorized an amendment to its articles of incorporation to designate 20,000,000 shares of preferred stock. Consequently,
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.
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
vote. The Series A Preferred Stock does not convert into equity of the Company. The Series A Preferred Stock does not contain any redemption
provision.
Common stock
Sale of Common Stock
During the three months ended March 31, 2021, the
Company sold an aggregate of 404,699 shares of its common stock at $4.00 per common share for gross proceeds of $1,618,796 and net proceeds
of $1,592,972 after escrow fees related to private placement sale. In connection with these sales of common stock, the Company issued
403,024 shares of common stock and there were 1,675 shares of common stock to be issued as of March 31, 2021.
DATCHAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021 and 2020
(Unaudited)
NOTE 5 – STOCKHOLDERS’ EQUITY (CONTINUED)
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 unaudited condensed statements of
operations for the three months ended March 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 $50,000 which was included in professional and consulting expenses in the accompanying unaudited condensed
statements of operations for the three months ended March 31, 2021 and the remaining balance of $350,000 as of March 31, 2021 will be
amortized into expense over the term of the agreement.
As of March 31, 2021 and 2020, there were a total
of 3,314 and 125 shares of common stock to be issued, respectively.
Common Stock Warrants
A summary of the Company’s outstanding stock
warrants is presented below:
|
|
|
Number of
Warrants
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Balance at December 31,
2020
|
|
|
|
62,500
|
|
|
$
|
0.40
|
|
|
|
1.59
|
|
|
|
Balance
at March 31, 2021
|
|
|
|
62,500
|
|
|
$
|
0.40
|
|
|
|
1.34
|
|
|
|
Warrants
exercisable at March 31, 2021
|
|
|
|
62,500
|
|
|
$
|
0.40
|
|
|
|
1.34
|
|
DATCHAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021 and 2020
(Unaudited)
NOTE 6 – COMMITMENTS AND CONTINGENCIES
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 from a monthly base rent of
$2,567 plus a pro rata share of operating expenses beginning January 2019 (see Note 2). The base rent is subject to annual increases
beginning the 2nd and 3rd lease year as defined in the lease agreement. As of March 31, 2021 and 2020 rent expense
was $15,790 and $9,181, respectively, and was included in general and administrative expenses on the accompanying unaudited condensed
statements of operations.
On February 1, 2021, the Company entered into an
Engagement Agreement (the “Agreement”) with a consulting company which will act as an exclusive lead underwriter, financial
advisor, placement agent and investment banker of the Company, whereby the consultant will assist 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.
The consultant will prepare 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
stock. 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.
Effective February 12, 2021, the Company entered
into a Branding and Marketing Services Agreement with a consultant to provide branding and digital marketing strategy for the Company.
The term of the agreement is for a one-year period. Either party may terminate the agreement by giving a 30-day written notice. The Company
shall pay a flat fee of $18,500 for the initial marketing services and $7,500 per month for the six-month branding and marketing management
services.
NOTE 7 – SUBSEQUENT EVENTS
In April 2021, the Company sold 125 shares of its
common stock at $4.00 per common share for gross proceeds of $500 related to the private placement sale.
2,850,569 Units
Common Stock
Series A Warrants
PROSPECTUS
|
Lead
Book Running Manager
EF HUTTON
division of Benchmark Investments, LLC
|
Joint
Book Running Manager
TIGER BROKERS
|
Until , 2021 (25 days after the date of this
prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligation to deliver a prospectus when acting
as an underwriter and with respect to their unsold allotments or subscriptions.
, 2021
PART II—INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth an estimate of the
fees and expenses relating to the issuance and distribution of the securities being registered hereby, other than underwriting discounts
and commissions, all of which shall be borne by the selling stockholders. All of such fees and expenses, except for the SEC Registration
Fee, are estimated:
|
SEC registration fee
|
|
$
|
1,091
|
|
|
FINRA filing fee
|
|
$
|
2,000
|
|
|
Nasdaq Capital Market initial listing fee
|
|
$
|
55,000
|
|
|
Legal fees and expenses
|
|
$
|
475,000
|
|
|
Printing fees and expenses
|
|
$
|
10,000
|
|
|
Accounting fees and expenses
|
|
$
|
60,000
|
|
|
Miscellaneous fees and expenses
|
|
$
|
4,000
|
|
|
Total
|
|
$
|
633,595
|
|
Item 14. Indemnification of Directors and Officers
Section 78.7502(1) of the Nevada Revised Statutes
provides that a corporation may indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (except in an action brought by or
on behalf of the corporation) if that person is or was a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against expenses, including
attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by that person in connection
with such action, suit or proceeding, if that person acted in good faith and in a manner which that person reasonably believed to be
in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceedings, had no reasonable
cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction
or upon a plea of nolo contendere or its equivalent, alone, does not create a presumption that the person did not act in good faith and
in a manner which the person reasonably believed to be in, or not opposed to, the best interests of the corporation, and that, with respect
to any criminal action or proceeding, the person had reasonable cause to believe his action was unlawful.
Section 78.7502(2) of the Nevada Revised Statutes
provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit brought by or on behalf of the corporation to procure a judgment in its favor because the person acted in
any of the capacities set forth above, against expenses, including amounts paid in settlement and attorneys’ fees, actually and
reasonably incurred by that person in connection with the defense or settlement of such action or suit, if the person acted in accordance
with the standard set forth above, except that no indemnification may be made in respect of any claim, issue or matter as to which such
person shall have been adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom to be liable to the corporation
or for amounts paid in settlement to the corporation unless and only to the extent that the court in which such action or suit was brought
or other court of competent jurisdiction determines that, in view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
Section 78.7502(3) of the Nevada Revised Statutes
further provides that, to the extent a director or officer of a corporation has been successful on the merits or otherwise in the defense
of any action, suit or proceeding referred to in subsections 1 and 2 thereof, or in the defense of any claim, issue or matter therein,
that person shall be indemnified by the corporation against expenses (including attorneys’ fees) actually and reasonably incurred
by that person in connection therewith.
Section 78.751 of the Nevada Revised Statutes provides
that unless indemnification is ordered by a court, the determination to provide indemnification must be made by the stockholders, by
a majority vote of a quorum of the board of directors who were not parties to the action, suit or proceeding, or in specified circumstances
by independent legal counsel in a written opinion. In addition, the articles of incorporation, bylaws or an agreement made by the corporation
may provide for the payment of the expenses of a director or officer of the expenses of defending an action as incurred upon receipt
of an undertaking to repay the amount if it is ultimately determined by a court of competent jurisdiction that the person is not entitled
to indemnification. Section 78.751 of the Nevada Revised Statutes further provides that the indemnification provided for therein shall
not be deemed exclusive of any other rights to which the indemnified party may be entitled and that the scope of indemnification shall
continue as to directors, officers, employees or agents who have ceased to hold such positions, and to their heirs, executors and administrators.
Section 78.752 of the Nevada Revised Statutes provides
that a corporation may purchase and maintain insurance on behalf of a director, officer, employee or agent of the corporation against
any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation
would have the authority to indemnify him against such liabilities and expenses.
Amended and Restated Articles of Incorporation
Our Amended and Restated Articles of Incorporation
provide that the Company shall, to the fullest extent permitted by the provisions of Section 78.751 of the Nevada Revised Statutes, indemnify
any and all persons whom it shall have the power to indemnify under such section.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions,
or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in such
Act and is, therefore, unenforceable.
Item 15. Recent Sales of Unregistered Securities
Between January 1, 2021 and March 15, 2021, the Company
sold 398,499 shares of its common stock at $4.00 per common share for gross proceeds of $1,593,996 related to the private placement sale.
During the year ended December 31, 2020, in connection
with a private placement, the Company issued 487,622 shares of its common stock at $4.00 per common share to accredited investors for
aggregate gross proceeds of approximately $1,950,486 and net proceeds of $1,881,675 after escrow fees
On June 11, 2020, the Company entered into a six-month
Advisory Board Agreement with an individual who will act as a member to the Company’s Advisory Board. In accordance with this agreement
the Company issued 5,000 shares of its common stock as consideration for the services provided. The Company valued these common shares
at the fair value of $20,000 or $4.00 per common share based on sales of common stock in the recent private placement. The Company recorded
stock-based consulting of $20,000 and was included in professional and consulting as reflected in the accompanying statements of operations
for the year ended December 31, 2020.
In March 2020, the Company issued 111,111 shares
of its common stock and 1,389 shares of common stock to be issued as of December 31, 2020 in connection with the cashless exercise of
125,000 warrants with an exercise price of $0.40 per share.
During the year ended December 31, 2019, in connection
with a private placement, the Company issued 187,562 shares of its common stock at $4.00 per common share to accredited investors for
aggregate gross proceeds of approximately $750,246 and net proceeds of $708,600 after escrow fees
During the year ended December 31, 2018, in connection
with a private placement, the Company issued 83,942 shares of its common stock at $4.00 per common share to accredited investors for
aggregate gross proceeds of $335,766 and net proceeds of $328,910 after escrow fees.
On September 23, 2016, we filed an Offering Statement
on Form 1-A pursuant to Tier II of Regulation A under the Securities Act of 1933, as amended (the “Securities Act”),
with the Securities and Exchange Commission (“SEC”) and subsequent amendments thereto on December 7, 2016, January 12, 2017,
January 25, 2017 and January 31, 2017 (the “Offering Statement”). The Offering Statement was qualified by the SEC on February
2, 2017. Pursuant to the Regulation A offering, as of March 31, 2021, we have sold an aggregate of 1,230,701 shares of our common stock,
$0.0001 par value per share, at a purchase price of $4.00 per share, resulting in aggregate gross proceeds of $4,922,804, before deducting
offerings expenses of $794,790.
Item 16. Exhibits and Financial Statement Schedules
EXHIBIT INDEX
* Previously filed.
+ Indicates
a management contract or any compensatory plan, contract or arrangement.
Item 17. Undertakings
The undersigned registrant hereby
undertakes:
|
|
(1)
|
To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
|
|
|
(i)
|
To include any prospectus required by section 10(a)(3) of the Securities
Act;
|
|
|
|
|
|
|
(ii)
|
To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more
than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the
effective registration statement.
|
|
|
|
|
|
|
(iii)
|
To include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material change to such information in the registration statement;
|
|
|
(2)
|
That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
|
|
|
|
|
|
(3)
|
To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of the offering.
|
|
|
(4)
|
That, for the purpose of determining liability under the Securities
Act of 1933 to any purchaser, if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of
a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first
use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such date of first use.
|
|
|
|
|
|
|
(5)
|
That, for the purpose of determining liability of the registrant under
the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in
a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting
method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
|
|
|
(i)
|
Any preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule 424;
|
|
|
|
|
|
|
(ii)
|
Any free writing prospectus relating to the offering prepared by or
on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
|
|
|
|
|
|
|
(iii)
|
The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant;
and
|
|
|
|
|
|
|
(iv)
|
Any other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
|
Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant
to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby
undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and
registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
The undersigned registrant hereby
undertakes that:
|
|
(1)
|
For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared effective.
|
|
|
|
|
|
|
(2)
|
For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
|
SIGNATURES
Pursuant to the requirements
of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form S-1 to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of New Brunswick, State of New Jersey, on the 9th
day of August, 2021.
|
|
DATCHAT, INC.
|
|
|
|
|
|
By:
|
/s/ Darin Myman
|
|
|
|
Name: Darin Myman
|
|
|
|
Title: Chief Executive Officer, and Director
|
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS,
that each person whose signature appears below constitutes and appoints Darin Myman, his or her true and lawful attorney-in-fact and
agent with full power of substitution and re-substitution, for him/her and in his or her name, place and stead, in any and all capacities
to sign any or all amendments (including, without limitation, post-effective amendments) to this Registration Statement, any related
Registration Statement filed pursuant to Rule 462(b) under the Securities Act of 1933 and any or all pre- or post-effective
amendments thereto, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming that said attorney-in-fact and agent, or any substitute or substitutes for him, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements
of the Securities Act of 1933, the following persons in the capacities and on the dates indicated have signed this Registration Statement
below.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ Darin Myman
|
|
Chief Executive Officer and Director
|
|
August 9, 2021
|
|
Darin Myman
|
|
(Principal Executive Officer and Principal Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
UNDERWRITING AGREEMENT
between
DATCHAT, INC.
and
EF HUTTON,
division of Benchmark Investments, LLC.,
as Representative of the Several Underwriters
DATCHAT, INC.
UNDERWRITING AGREEMENT
New York, New York
__________, 2021
EF Hutton,
division of Benchmark Investments, LLC.
as Representative of the several Underwriters named
on Schedule 1 attached hereto
590 Madison Avenue, 39th Floor
New York, NY 10022
Ladies and Gentlemen:
The undersigned, DatChat, Inc.,
a corporation formed under the laws of the State of Nevada (collectively with its subsidiaries and affiliates, including, without limitation,
all entities disclosed or described in the Registration Statement (as hereinafter defined) as being subsidiaries, the “Company”),
hereby confirms its agreement (this “Agreement”) with EF Hutton, division of Benchmark Investments, LLC(hereinafter
referred to as “you” (including its correlatives) or the “Representative”), and with the other underwriters
named on Schedule 1 hereto for which the Representative is acting as representative (the Representative and such other
underwriters being collectively called the “Underwriters” or, individually, an “Underwriter”) as
follows:
1. Purchase and Sale of Units.
1.1 Firm Securities.
1.1.1. Nature and Purchase
of Firm Securities.
(i) On
the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to the several Underwriters, an aggregate of ___________ units (the “Firm Units”), with each
Firm Unit consisting of one (1) authorized but unissued common share of the Company, no par value per share (the “Common Shares”),
together with a Series A Warrant to purchase one (1) Common Share, in the form filed as an exhibit to the Registration Statement (as hereinafter
defined) (the “Firm Warrants”, and collectively with the Firm Units and Common Shares, the “Firm Securities”).
Each Common Share and Firm Warrant and will be immediately separable upon issuance of the Firm Units and listing on the Exchange (as defined
below). The Underwriters, severally and not jointly, agree to purchase from the Company the number of Firm Units set forth opposite their
respective names on Schedule 1 attached hereto and made a part hereof, at a purchase price of $____ per Firm Unit (92%
of the public offering price for each Firm Unit). The Firm Securities are to be offered initially to the public at the offering price
set forth on the cover page of the Prospectus (as defined in Section 2.1.1 hereof).
1.1.2. Payment and Delivery
of Securities.
(i) Delivery and payment for the
Firm Securities shall be made at 10:00 a.m., Eastern time, on the second (2nd) Business Day following the effective date (the
“Effective Date”) of the Registration Statement (as defined in Section 2.1.1 below) (or the third (3rd)
Business Day following the Effective Date if the Registration Statement is declared effective after 4:01 p.m., Eastern time) or at such
earlier time as shall be agreed upon by the Representative and the Company, at the offices of Jolie Kahn, Esq. 12 E. 49th Street,
11th floor, New York, NY 10017 (“Representative Counsel”), or at such other place (or remotely by facsimile
or other electronic transmission) as shall be agreed upon by the Representative and the Company. The hour and date of delivery and payment
for the Firm Securities is called the “Closing Date.”
(ii) Payment for the Firm Securities
shall be made on the Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery of the
certificates (in form and substance satisfactory to the Underwriters) representing the Firm Securities, or through the facilities of the
Depository Trust Company (“DTC”) for the account of the Underwriters. The Firm Securities shall be registered in such
name or names and in such authorized denominations as the Representative may request in writing at least one (1) Business Day prior to
the Closing Date. The Company shall not be obligated to sell or deliver the Firm Securities except upon tender of payment by the Representative
for all of the Firm Securities. The term “Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial
banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”,
“non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the
direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial
banks in The City of New York generally are open for use by customers on such day.
1.2 Over-allotment Option.
1.2.1. Option Securities.
For the purposes of covering any over-allotments in connection with the distribution and sale of the Firm Securities, the Company hereby
grants to the Underwriters an option to purchase up to ________ additional units (the “Option Units”) each consisting
of one Common Share and one Series A Warrant to purchase one (1) Common Share (the “Option Warrants”, and collectively
with the Option Units and applicable Common Shares, the “Option Securities”), representing fifteen percent (15%) of
the Firm Units sold in the offering, from the Company (the “Over-allotment Option”, and the exercise thereof, the “Over-allotment
Exercise”). The purchase price to be paid per Option Unit shall be equal to the price per Firm Unit set forth in Section 1.1.1
hereof. The Common Shares into which the Warrants are exercisable are hereinafter referred to as the “Warrant Shares.”
The Firm Securities and the Option Securities are hereinafter collectively referred to as the “Primary Securities.”
The Primary Securities and Warrant Shares are hereinafter collectively referred to as the “Public Securities.” The
offering and sale of the Primary Securities is hereinafter referred to as the “Offering.” Notwithstanding anything
to the contrary in the foregoing, in any Over-Allotment Exercise, the Underwriters may purchase full Option Units, or only Option Shares
and/or Option Warrants, or any combination of Option Shares and Option Warrants. If Option Shares are purchased, the price shall equal
the price per Firm Unit set forth in Section 1.1.1 above less $0.01, and the purchase price per Option Warrant shall be $0.01.
1.2.2. Exercise of Option.
The Over-allotment Option granted pursuant to Section 1.2.1 hereof may be exercised by the Representative as to all (at any time) or
any part (from time to time) of the Option Securities within 45 days after the Effective Date. The Underwriters shall not be under any
obligation to purchase any Option Securities prior to the exercise of the Over-allotment Option. Notwithstanding anything to the contrary
in the foregoing, in any Over-allotment Exercise, the Underwriters may purchase full Option Units, or only Option Shares and/or Option
Warrants, or any combination of Option Shares and Option Warrants. If Option Shares are purchased, the price shall equal the price per
Firm Unit set forth in Section 1.1.1 above less $0.01, and the purchase price per Option Warrant shall be $0.01.The Over-allotment Option
granted hereby may be exercised by the giving of oral notice to the Company from the Representative, which must be confirmed in writing
by overnight mail or facsimile or other electronic transmission setting forth the number of Option Units to be purchased and the date
and time for delivery of and payment for the Option Securities (the “Option Closing Date”), which shall not be later
than one (1) Business Day after the date of the notice or such other time as shall be agreed upon by the Company and the Representative,
at the offices of Representative Counsel or at such other place (including remotely by facsimile or other electronic transmission) as
shall be agreed upon by the Company and the Representative. If such delivery and payment for the Option Securities does not occur on
the Closing Date, the Option Closing Date will be as set forth in the notice. Upon exercise of the Over-allotment Option with respect
to all or any portion of the Option Securities, subject to the terms and conditions set forth herein, (i) the Company shall become obligated
to sell to the Underwriters the number of Option Units specified in such notice and (ii) each of the Underwriters, acting severally and
not jointly, shall purchase that portion of the total number of Option Units then being purchased as set forth in Schedule 1 opposite
the name of such Underwriter.
1.2.3. Payment and Delivery.
Payment for the Option Securities shall be made on the Option Closing Date by wire transfer in Federal (same day) funds, payable to the
order of the Company upon delivery to you of certificates (in form and substance satisfactory to the Underwriters) representing the Option
Securities, or through the facilities of DTC, for the account of the Underwriters. The Option Securities shall be registered in such name
or names and in such authorized denominations as the Representative may request in writing at least one (1) Business Day prior to the
Option Closing Date. The Company shall not be obligated to sell or deliver the Option Securities except upon tender of payment by the
Representative for applicable Option Securities.
1.3 Representative’s
Warrants.
1.3.1. Purchase Warrants.
The Company hereby agrees to issue and sell to the Representative (and/or its designees) on the Closing Date an option (“Representative’s
Warrants”) for the purchase of an aggregate of [●] Common Shares, representing 8.0% of the number of Common Shares included
in the Firm Units (not including any Common Shares into which the Firm Warrants are exercisable), for an aggregate purchase price of $100.00.
The agreement(s) representing the Representative’s Warrants, in the form attached hereto as Exhibit A (the “Representative’s
Warrant Agreement”), shall be exercisable, in whole or in part, commencing on the six month anniversary of the Effective Date
and expiring on the five-year anniversary of the Effective Date at an initial exercise price per Common Shares of $[●], which is
equal to 110.0% of the initial public offering price of the Firm Units. The Representative’s Warrant Agreement and the Common Shares
issuable upon exercise thereof are hereinafter referred to together as the “Representative’s Securities.” The
Representative understands and agrees that there are significant restrictions pursuant to FINRA Rule 5110 against transferring the Representative’s
Warrant Agreement and the underlying Common Shares during the one hundred eighty (180) days after the Effective Date and by its acceptance
thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Representative’s Warrant Agreement, or any
portion thereof, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective
economic disposition of such securities for a period of one hundred eighty (180) days following the Effective Date to anyone other than
(i) an Underwriter or a selected dealer in connection with the Offering, or (ii) a bona fide officer or partner of the Representative
or of any such Underwriter or selected dealer; and only if any such transferee agrees to the foregoing lock-up restrictions.
1.3.2. Delivery. Delivery
of the Representative’s Warrant Agreement shall be made on the Closing Date and shall be issued in the name or names and in such
authorized denominations as the Representative may request.
2. Representations and Warranties of the Company.
The Company represents and warrants to the Underwriters as of the Applicable Time (as defined below), as of the Closing Date and as of
the Option Closing Date, if any, as follows:
2.1 Filing of Registration
Statement.
2.1.1. Pursuant to the
Securities Act. The Company has filed with the U.S. Securities and Exchange Commission (the “Commission”) a registration
statement, and an amendment or amendments thereto, on Form S-1 (File No. 333-______), including any related prospectus or prospectuses,
for the registration of the Public Securities and the Representative’s Securities under the Securities Act of 1933, as amended
(the “Securities Act”), which registration statement and amendment or amendments have been prepared by the Company
in conformity with the requirements of the Securities Act and the rules and regulations of the Commission promulgated thereunder (the
“Securities Act Regulations”), and contains and, with respect to filings after the date hereof, will contain all material
statements that are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations. Except as
the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration
statement became effective (including the Preliminary Prospectus included in the registration statement, financial statements, schedules,
exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of
the Effective Date pursuant to paragraph (b) of Rule 430A of the Securities Act Regulations (the “Rule 430A Information”)),
is referred to herein as the “Registration Statement.” If the Company files any registration statement pursuant to
Rule 462(b) of the Securities Act Regulations, then after such filing, the term “Registration Statement” shall include
such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on
the date hereof.
Each prospectus used prior to
the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness
and prior to the execution and delivery of this Agreement, is herein called a “Preliminary Prospectus.” The Preliminary
Prospectus, subject to completion, dated __________, 2021, that was included in the Registration Statement immediately prior to the Applicable
Time is hereinafter called the “Pricing Prospectus.” The final prospectus in the form first furnished to the Underwriters
for use in the Offering, that includes the Rule 430A Information, is hereinafter called the “Prospectus.” Any reference
to the “most recent Preliminary Prospectus” shall be deemed to refer to the latest Preliminary Prospectus included in the
Registration Statement.
“Applicable Time”
means 4:30 p.m., Eastern time, on the date of this Agreement.
“Issuer Free Writing
Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the Securities Act Regulations
(“Rule 433”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the
Securities Act Regulations) relating to the Public Securities that is (i) required to be filed with the Commission by the Company, (ii)
a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed
with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of
the Public Securities or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed
with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).
“Issuer General Use Free
Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors
(other than a “bona fide electronic road show,” as defined in Rule 433 (the “Bona Fide Electronic Road
Show”)), as evidenced by its being specified in Schedule 2-B hereto.
“Issuer Limited Use Free
Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.
“Pricing Disclosure Package”
means any Issuer General Use Free Writing Prospectus issued at or prior to the Applicable Time, the Pricing Prospectus and the information
included on Schedule 2-A hereto, all considered together.
2.1.2. Pursuant to the Exchange
Act. The Company has filed with the Commission a Form 8-A (File Number [__]) providing for the registration of the Common Shares and
the Warrants (the “Form 8-A Registration Statement”). The Common Shares and the Warrants are registered pursuant to
Section 12(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Form 8-A Registration
Statement was declared effective by the Commission on or prior to the date hereof. The Company has taken no action designed to, or likely
to have the effect of, terminating the registration of the Common Shares and the Warrants under the Exchange Act, nor has the Company
received any notification that the Commission is contemplating terminating such registration.
2.2 Stock Exchange Listing.
The Common Shares and Warrants have each been approved for listing on the Nasdaq Capital Market (the “Exchange”), and
the Company has taken no action designed to, or likely to have the effect of, delisting the Common Shares or Warrants from the Exchange,
nor has the Company received any notification that the Exchange is contemplating terminating such listing except as described in the Registration
Statement, the Pricing Disclosure Package and the Prospectus.
2.3 No Stop Orders, etc.
Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any order preventing or suspending
the use of the Registration Statement, any Preliminary Prospectus or the Prospectus or has instituted or, to the Company’s knowledge,
threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission
for additional information.
2.4 Disclosures in Registration
Statement.
2.4.1. Compliance with Securities
Act and 10b-5 Representation.
(i) Each of the Registration
Statement and any post-effective amendment thereto, at the time it became effective, complied with the requirements of the Securities
Act and the Securities Act Regulations. Each Preliminary Prospectus, including the prospectus filed as part of the Registration Statement
as originally filed or as part of any amendment or supplement thereto, and the Prospectus, at the time each was filed with the Commission,
complied with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus delivered to the
Underwriters for use in connection with this Offering and the Prospectus was or will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to the Commission’s EDGAR filing system (“EDGAR”), except to the
extent permitted by Regulation S-T promulgated under the Securities Act (“Regulation S-T”).
(ii) Neither the Registration
Statement nor any amendment thereto, at its effective time, as of the Applicable Time, at the Closing Date or at any Option Closing Date
(if any), contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material
fact required to be stated therein or necessary to make the statements therein not misleading.
(iii) The Pricing Disclosure Package,
as of the Applicable Time, at the Closing Date or at any Option Closing Date (if any), did not, does not and will not include an untrue
statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and each Issuer Limited Use Free Writing Prospectus hereto does not conflict with the information
contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each such Issuer Limited
Use Free Writing Prospectus, as supplemented by and taken together with the Pricing Prospectus as of the Applicable Time, did not include
an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply
to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company with respect
to the Underwriters by the Representative expressly for use in the Registration Statement, the Pricing Prospectus or the Prospectus or
any amendment thereof or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of any Underwriter
consists solely of the following disclosure contained in the “Underwriting” section of the Prospectus: names of the Underwriters,
the information in the first paragraph under the subheading titled “Discounts” and the sub-sections under the subheadings
titled “Stabilization” and “Electronic Offer, Sale and Distribution of Shares” (the “Underwriters’
Information”).
(iv) Neither the Prospectus nor
any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission
pursuant to Rule 424(b), at the Closing Date or at any Option Closing Date, included, includes or will include an untrue statement of
a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply
to the Underwriters’ Information.
2.4.2. Disclosure of Agreements.
The agreements and documents described in the Registration Statement, the Pricing Disclosure Package and the Prospectus conform in all
material respects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities
Act and the Securities Act Regulations to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus
or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed. Without
limiting the foregoing, all loan agreements or otherwise evidencing indebtedness of the Company required to be disclosed (other than
short-term trade payables in the ordinary course of business) are described in the Registration Statement, the Pricing Disclosure Package
and the Prospectus. Each agreement or other instrument
(however characterized or described) to which the Company is a party or by which it is or may be bound or affected and (i) that is referred
to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or (ii) is material to the Company’s business,
has been duly authorized and validly executed by the Company, is in full force and effect in all material respects and is enforceable
against the Company and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally,
(y) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and
(z) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses
and to the discretion of the court before which any proceeding therefor may be brought. None of such agreements or instruments
has been assigned by the Company, and neither the Company nor, to the Company’s knowledge, any other party is in default thereunder
and, to the Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute
a default thereunder. Performance by the Company of the material provisions of such agreements or instruments will not result in a violation
of any existing applicable law, rule, regulation, judgment, order or decree of any governmental or regulatory agency, authority, body,
entity or court, domestic or foreign, having jurisdiction over the Company or any of its assets or businesses (each, a “Governmental
Entity”), including, without limitation, those relating to environmental laws and regulations.
2.4.3. Prior Securities
Transactions. No securities of the Company have been sold by the Company or by or on behalf of, or for the benefit of, any person
or persons controlling, controlled by or under common control with the Company, except as disclosed in the Registration Statement, the
Pricing Disclosure Package and the Preliminary Prospectus.
2.4.4. Regulations.
The disclosures in the Registration Statement, the Pricing Disclosure Package and the Prospectus concerning the effects of federal, state,
local and all foreign laws, rules and regulations relating to the Offering and the Company’s business as currently conducted or
contemplated are correct and complete in all material respects and no other such laws, rules or regulations are required to be disclosed
in the Registration Statement, the Pricing Disclosure Package and the Prospectus which are not so disclosed.
2.4.5. No Other Distribution
of Offering Materials. The Company has not, directly or indirectly, distributed and will not distribute any offering material
in connection with the Offering other than any Preliminary Prospectus, any Issuer Free Writing Prospectus, the Prospectus and other materials,
if any, permitted under the Securities Act and consistent with Section 3.2 below.
2.5 Changes After Dates
in Registration Statement.
2.5.1. No Material Adverse
Change. Since the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package
and the Prospectus, except as otherwise specifically stated therein: (i) there has been no material adverse change in the financial position
or results of operations of the Company or its Subsidiaries, nor any change or development that, singularly or in the aggregate, would
involve a material adverse change or a prospective material adverse change, in or affecting the condition (financial or otherwise), results
of operations, business, assets or prospects of the Company or its Subsidiaries (a “Material Adverse Change”); (ii)
there have been no material transactions entered into by the Company or its Subsidiaries, other than as contemplated pursuant to this
Agreement; and (iii) no officer or director of the Company has resigned from any position with the Company.
2.5.2. Recent Securities
Transactions, etc. Subsequent to the respective dates as of which information is given in the Registration Statement, the Pricing
Disclosure Package and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed in the Registration
Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities or incurred any liability
or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or made any other distribution on or in
respect to its share capital.
2.6 [Reserved]
2.7 Independent Accountants.
To the knowledge of the Company, Marcum LLP (the “Auditor”), whose report is filed with the Commission as part of the
Registration Statement, the Pricing Disclosure Package and the Prospectus, is an independent registered public accounting firm as required
by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board. The Auditor has not, during
the periods covered by the financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus,
provided to the Company any non-audit services, as such term is used in Section 10A(g) of the Exchange Act.
2.8 Financial Statements,
etc. The financial statements, including the notes thereto and supporting schedules included in the Registration Statement, the Pricing
Disclosure Package and the Prospectus, fairly present the financial position and the results of operations of the Company at the dates
and for the periods to which they apply; and such financial statements have been prepared in conformity with U.S. generally accepted accounting
principles (“GAAP”), consistently applied throughout the periods involved (provided that unaudited interim financial
statements are subject to year-end audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes
required by GAAP); and the supporting schedules included in the Registration Statement present fairly the information required to be stated
therein. Except as included therein, no historical or pro forma financial statements are required to be included in the Registration Statement,
the Pricing Disclosure Package or the Prospectus under the Securities Act or the Securities Act Regulations. The pro forma and pro forma
as adjusted financial information and the related notes, if any, included in the Registration Statement, the Pricing Disclosure Package
and the Prospectus have been properly compiled and prepared in accordance with the applicable requirements of the Securities Act and the
Securities Act Regulations and present fairly the information shown therein, and the assumptions used in the preparation thereof are reasonable
and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. Each of the
Registration Statement, the Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements,
obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that
may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations,
liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration
Statement, the Pricing Disclosure Package and the Prospectus, (a) neither the Company nor any of its direct and indirect subsidiaries,
including each entity disclosed or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus as being
a subsidiary of the Company (each, a “Subsidiary” and, collectively, the “Subsidiaries”), has incurred
any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course
of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its share capital,
(c) there has not been any change in the share capital of the Company or any of its Subsidiaries, or, other than in the ordinary course
of business, any grants under any share compensation plan, and (d) there has not been any material adverse change in the Company’s
long-term or short-term debt.
2.9 Authorized Capital;
Options, etc. The Company had, at the date or dates indicated in the Registration Statement, the Pricing Disclosure Package and the
Prospectus, the duly authorized, issued and outstanding capitalization as set forth therein. Based on the assumptions stated in the Registration
Statement, the Pricing Disclosure Package and the Prospectus, the Company will have on the Closing Date the adjusted capitalization set
forth therein. Except as set forth in, or contemplated by, the Registration Statement, the Pricing Disclosure Package and the Prospectus,
on the Effective Date, as of the Applicable Time and on the Closing Date and any Option Closing Date, there will be no share options,
warrants, or other rights to purchase or otherwise acquire any authorized, but unissued Common Shares of the Company or any security convertible
or exercisable into Common Shares of the Company, or any contracts or commitments to issue or sell Common Shares or any such options,
warrants, rights or convertible securities.
2.10 Valid Issuance of
Securities, etc.
2.10.1. Outstanding Securities.
All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement have been duly authorized
and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission or the ability to force the
Company or any of its Subsidiaries to repurchase such securities with respect thereto, and are not subject to personal liability by reason
of being such holders; and none of such securities were issued in violation of the preemptive rights, rights of first refusal or rights
of participation of any holders of any security of the Company or similar contractual rights granted by the Company. The authorized Common
Shares conform in all material respects to all statements relating thereto contained in the Registration Statement, the Pricing Disclosure
Package and the Prospectus. The offers and sales of the outstanding Common Shares, options, warrants and other outstanding securities
for Common Shares, and were at all relevant times either registered to the purchasers of such securities under the Securities Act and
the applicable state securities or “blue sky” laws or, based in part on the representations and warranties of the purchasers
of such Common Shares, exempt from such registration requirements. The description of the Company’s share option, share bonus and
other related plans or arrangements, and the units, options and/or other rights granted thereunder, as described in the Registration Statement,
the Pricing Disclosure Package and the Prospectus, accurately and fairly present, in all material respects, the information required to
be shown with respect to such plans, arrangements, options and rights.
2.10.2. Securities Sold
Pursuant to this Agreement. The Public Securities and Representative’s Securities have been duly authorized for issuance and
sale and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be
subject to personal liability by reason of being such holders; the Public Securities and Representative’s Securities are and will
be free from all preemptive or similar rights, mortgages, defects, claims, liens, pledges, charges, taxes, rights of first refusal, encumbrances,
security interests and other encumbrances with respect to the issuance thereof, or similar contractual rights granted by the Company;
and all corporate action required to be taken for the authorization, issuance and sale of the Public Securities and Representative’s
Securities has been duly and validly taken. The Warrants, when issued and paid for pursuant to this Agreement and the Warrant Agency Agreement
(as defined below), will constitute valid and binding obligations of the Company to issue and sell, upon exercise thereof and payment
therefor, the Warrant Shares. The Representative’s Warrant Agreement, when issued and paid for pursuant to this Agreement, will
constitute valid and binding obligations of the Company to issue and sell, upon exercise thereof and payment therefor, the underlying
Common Shares. The Public Securities and Representative’s Securities conform in all material respects to all statements with respect
thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. All corporate action required to be
taken for the authorization, issuance and sale of the Representative’s Warrant Agreement has been duly and validly taken; the Common
Shares issuable upon exercise of the Representative’s Warrant have been duly authorized and reserved for issuance by all necessary
corporate action on the part of the Company and when paid for and issued in accordance with the Representative’s Warrant and the
Representative’s Warrant Agreement, such Common Shares will be validly issued, fully paid and nonassessable; the holders thereof
are not and will not be subject to personal liability by reason of being such holders; and such Common Shares are not and will not be
subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company.
2.11 Registration Rights
of Third Parties. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no holders
of any securities of the Company or any options, warrants, rights or other securities exercisable for or convertible or exchangeable into
securities of the Company have the right to require the Company to register any such securities of the Company under the Securities Act
or to include any such securities in the Registration Statement or any other registration statement to be filed by the Company.
2.12 Validity and Binding
Effect of Agreements. The execution, delivery and performance of this Agreement, the Warrants, and the Representative’s Warrant
Agreement have been duly and validly authorized by the Company, and, when executed and delivered, will constitute, the valid and binding
agreements of the Company, enforceable against the Company in accordance with their respective terms, except: (i) as such enforceability
may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; (ii) as enforceability
of any indemnification or contribution provision may be limited under the federal and state securities laws; and (iii) that the remedy
of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
2.13 No
Conflicts, etc. The execution, delivery and performance by the Company of this Agreement, the Warrants, the Representative’s
Warrant Agreement, and all ancillary documents, the consummation by the Company of the transactions herein and therein contemplated and
the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the lapse
of time or both: (i) result in a material breach of, or conflict with any of the terms and provisions of, or constitute a material default
under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets
of the Company pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement or any other agreement or instrument to
which the Company is a party or as to which any property of the Company is a party; (ii) result in any violation of the provisions of
the Company’s Articles of Incorporation (as the same have been amended or restated from time to time, the “Charter”)
; or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Entity as of the date
hereof, except in the case of clauses (i) and (iii) for such breach, conflict, default or violation
which would not reasonably be expected to cause a Material Adverse Change.
2.14 No Defaults; Violations.
No material default exists in the due performance and observance of any term, covenant or condition of any material license, contract,
indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for
borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company may be bound or
to which any of the properties or assets of the Company is subject
2.15 Corporate Power;
Licenses; Consents.
2.15.1. Conduct of Business.
Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has all requisite corporate
power and authority, and has all necessary consents, authorizations, approvals, licenses, certificates, clearances, permits and orders
and supplements and amendments thereto (collectively, “Authorizations”) of and from all Governmental Entities that
it needs as of the date hereof to conduct its business purpose as described in the Registration Statement, the Pricing Disclosure Package
and the Prospectus.
2.15.2. Transactions Contemplated
Herein. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions
hereof, and all Authorizations required in connection therewith have been obtained. No Authorization of, and no filing with, any Governmental
Entity, the Exchange or another body is required for the valid issuance, sale and delivery of the Public Securities and the consummation
of the transactions and agreements contemplated by this Agreement and the Representative’s Warrant Agreement and as contemplated
by the Registration Statement, the Pricing Disclosure Package and the Prospectus, except (A) the necessary filings and approvals from
the Exchange to list the Public Securities, (B) such consents, approvals, authorizations, registrations or qualifications as may be required
under state or foreign securities or Blue Sky laws and the rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”)
in connection with the purchase and distribution of the Public Securities by the several Underwriters, (C) such consents and approvals
as have been obtained and are in full force and effect, and (D) such consents, approvals, orders, authorizations and filings the failure
of which to make or obtain is not reasonably likely to result in a Material Adverse Change.
2.16 D&O Questionnaires.
To the Company’s knowledge, all information contained in the questionnaires (the “Questionnaires”) completed
by each of the Company’s directors and officers immediately prior to the Offering (the “Insiders”) as supplemented
by all information concerning the Insiders as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus
provided to the Underwriters, is true and correct in all material respects and the Company has not become aware of any information which
would cause the information disclosed in the Questionnaires to become materially inaccurate and incorrect.
2.17 Litigation; Governmental
Proceedings. There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding pending
or, to the Company’s knowledge, threatened against, or involving the Company or, to the Company’s knowledge, any executive
officer or director which has not been disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or
in connection with the Company’s listing application for the listing of the Public Securities on the Exchange, that, individually
or in the aggregate, would not reasonably be expected to result in a Material Adverse Change or materially and adversely affect the power
or ability of the Company to perform its obligations under this Agreement or to consummate the transactions contemplated by each of the
Registration Statement, the Pricing Disclosure Package and the Prospectus or (ii) that are required to be described in the Registration
Statement, the Pricing Disclosure Package or the Prospectus and are not so described.
2.18 Good Standing.
The Company has been duly organized and is validly existing as a corporation and is in good standing under the laws of the State of Nevada
as of the date hereof, and is duly qualified to do business and is in good standing in each other jurisdiction in which its ownership
or lease of property or the conduct of business requires such qualification, except where the failure to qualify, singularly or in the
aggregate, would not have or reasonably be expected to result in a Material Adverse Change.
2.19 Insurance. The
Company carries or is entitled to the benefits of insurance (including, without limitation, as to directors and officers insurance coverage),
with reputable insurers, in such amounts and covering such risks which the Company believes are adequate, and all such insurance is in
full force and effect. The Company has no reason to believe that it will not be able (i) to renew its existing insurance coverage as and
when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct
its business as now conducted and at a cost that would not result in a Material Adverse Change.
2.20 Transactions Affecting
Disclosure to FINRA.
2.20.1. Finder’s Fees.
Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no claims, payments, arrangements,
agreements or understandings relating to the payment of a finder’s, consulting or origination fee by the Company or any Insider
with respect to the sale of the Public Securities hereunder or any other arrangements, agreements or understandings of the Company or,
to the Company’s knowledge, any of its shareholders that may affect the Underwriters’ compensation, as determined by FINRA.
2.20.2. Payments Within
Twelve (12) Months. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company
has not made any direct or indirect payments (in cash, securities or otherwise) to: (i) any person, as a finder’s fee, consulting
fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or
provided capital to the Company; (ii) any FINRA member; or (iii) any person or entity that has any direct or indirect affiliation or association
with any FINRA member, within the twelve (12) months prior to the Effective Date, other than the payment to the Underwriters as provided
hereunder in connection with the Offering.
2.20.3. Use of Proceeds.
None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates, except as specifically
authorized herein.
2.20.4. FINRA
Affiliation. To the Company’s knowledge, there is no (i)
officer or director of the Company, (ii) beneficial owner of 5% or more of any class of the Company’s securities or (iii) beneficial
owner of the Company’s unregistered equity securities which were acquired during the 180-day period immediately preceding the filing
of the Registration Statement that is an affiliate or associated person of a FINRA member participating in the Offering (as determined
in accordance with the rules and regulations of FINRA).
2.20.5. Information.
All information provided by the Company in its FINRA questionnaire to Representative Counsel specifically for use by Representative Counsel
in connection with its Public Offering System filings (and related disclosure) with FINRA is true, correct and complete in all material
respects.
2.21 Foreign Corrupt Practices
Act. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate
of the Company and its Subsidiaries or any other person acting on behalf of the Company and its Subsidiaries, has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of
business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any Governmental Entity (domestic
or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position
to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that (i) might subject
the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might
have had a Material Adverse Change or (iii) if not continued in the future, might adversely affect the assets, business, operations or
prospects of the Company. The Company has taken reasonable steps to ensure that its accounting controls and procedures are sufficient
to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended, and any similar legislation
applicable to the Company.
2.22 Compliance with OFAC.
None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of
the Company and its Subsidiaries or any other person acting on behalf of the Company and its Subsidiaries, is currently subject to any
U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”),
and the Company will not, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise make available
such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person
currently subject to any U.S. sanctions administered by OFAC.
2.23 Money Laundering
Laws. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial
recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering
statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines,
issued, administered or enforced by any Governmental Entity (collectively, the “Money Laundering Laws”); and no action,
suit or proceeding by or before any Governmental Entity involving the Company with respect to the Money Laundering Laws is pending or,
to the best knowledge of the Company, threatened.
2.24 Officers’ Certificate.
Any certificate signed by any duly authorized officer of the Company and delivered to you or to Representative Counsel shall be deemed
a representation and warranty by the Company to the Underwriters as to the matters covered thereby.
2.25 Lock-Up Agreements. Schedule
3 hereto contains a complete and accurate list of the Company’s officers, directors and each owner of 5% or more of the
Company’s outstanding Common Shares (or securities convertible or exercisable into Common Shares) (collectively, the “Lock-Up
Parties”). The Company has caused each of the Lock-Up Parties to deliver to the Representative an executed Lock-Up Agreement,
in a form substantially similar to that attached hereto as Exhibit A (the “Lock-Up Agreement”),
prior to the execution of this Agreement.
2.26 Subsidiaries.
All direct and indirect Subsidiaries of the Company are duly organized and in good standing under the laws of the place of organization
or incorporation, and each Subsidiary is in good standing in each jurisdiction in which its ownership or lease of property or the conduct
of business requires such qualification, except where the failure to qualify would not have a material adverse effect on the assets, business
or operations of the Company taken as a whole. The Company’s ownership and control of each Subsidiary is as described in the Registration
Statement, the Pricing Disclosure Package and the Prospectus.
2.27 Related Party Transactions.
There are no business relationships or related party transactions involving the Company or any other person required to be described in
the Registration Statement, the Pricing Disclosure Package and the Prospectus that have not been described as required.
2.28 Board of Directors.
The Board of Directors of the Company is comprised of the persons set forth under the heading of the Pricing Prospectus and the Prospectus
captioned “Management.” The qualifications of the persons serving as board members and the overall composition of the board
comply with the Exchange Act, the Exchange Act Regulations, the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder (the
“Sarbanes-Oxley Act”) applicable to the Company and the listing rules of the Exchange. At least one member of the
Audit Committee of the Board of Directors of the Company qualifies as an “audit committee financial expert,” as such term
is defined under Regulation S-K and the listing rules of the Exchange. In addition, at least a majority of the persons serving on the
Board of Directors qualify as “independent,” as defined under the listing rules of the Exchange.
2.29 Sarbanes-Oxley Compliance.
2.29.1. Disclosure Controls.
The Company has developed and currently maintains disclosure controls and procedures that will comply with Rule 13a-15 or 15d-15 under
the Exchange Act Regulations, and such controls and procedures are effective to ensure that all material information concerning the Company
will be made known on a timely basis to the individuals responsible for the preparation of the Company’s Exchange Act filings and
other public disclosure documents.
2.29.2. Compliance.
The Company is and at the Applicable Time and on the Closing Date will be, in compliance with the provisions of the Sarbanes-Oxley Act
applicable to it, and has implemented or will implement such programs and has taken reasonable steps to ensure the Company’s future
compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the provisions of the Sarbanes-Oxley
Act.
2.30 Accounting Controls.
The Company and its Subsidiaries maintain systems of “internal control over financial reporting” (as defined under Rules 13a-15
and 15d-15 under the Exchange Act Regulations) that comply with the requirements of the Exchange Act and have been designed by, or under
the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access
to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company is not aware of any
material weaknesses in its internal controls. The Company’s auditors and the Audit Committee of the Board of Directors of the Company
have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial
reporting which are known to the Company’s management and that have adversely affected or are reasonably likely to adversely affect
the Company’s ability to record, process, summarize and report financial information; and (ii) any fraud known to the Company’s
management, whether or not material, that involves management or other employees who have a significant role in the Company’s internal
controls over financial reporting.
2.31 No Investment Company
Status. The Company is not and, after giving effect to the Offering and the application of the proceeds thereof as described in the
Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be, required to register as an “investment
company,” as defined in the Investment Company Act of 1940, as amended.
2.32 No Labor Disputes.
No labor dispute with the employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is imminent.
The Company is not aware that any director, officer, key employee or significant group of employees of the Company plans to terminate
employment with the Company or resign from their position with the Company.
2.33 Intellectual Property
Rights. The Company and each of its Subsidiaries owns or possesses or has valid rights to use all patents, patent applications, trademarks,
service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and
similar rights (“Intellectual Property Rights”) necessary for the conduct of the business of the Company and each
of its Subsidiaries as currently carried on and as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus
adverse effect on the Company. To the knowledge of the Company,
no action or use by the Company or any of its Subsidiaries necessary for the conduct of its business as currently carried on and as described
in the Registration Statement and the Prospectus will involve or give rise to any infringement of, or license or similar fees for, any
Intellectual Property Rights of others. Neither the Company nor any of its Subsidiaries has received any notice alleging any such infringement,
fee or conflict with asserted Intellectual Property Rights of others. Except as would not reasonably be expected to result, individually
or in the aggregate, in a Material Adverse Change: (A) to the knowledge of the Company, there is no infringement, misappropriation or
violation by third parties of any of the Intellectual Property Rights owned by the Company; (B) there is no pending or, to the knowledge
of the Company, threatened action, suit, proceeding or claim by others challenging the rights of the Company in or to any such Intellectual
Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim, that would, individually
or in the aggregate, together with any other claims in this Section 2.33, reasonably be expected to result in a Material Adverse Change;
(C) the Intellectual Property Rights owned by the Company and, to the knowledge of the Company, the Intellectual Property Rights licensed
to the Company have not been adjudged by a court of competent jurisdiction invalid or unenforceable, in whole or in part, and there is
no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope
of any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim
that would, individually or in the aggregate, together with any other claims in this Section 2.33, reasonably be expected to result in
a Material Adverse Change; (D) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim
by others that the Company infringes, misappropriates or otherwise violates any Intellectual Property Rights or other proprietary rights
of others, the Company has not received any written notice of such claim and the Company is unaware of any other facts which would form
a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.33,
reasonably be expected to result in a Material Adverse Change; and (E) to the Company’s knowledge, no employee of the Company is
in or has ever been in violation in any material respect of any term of any employment contract, patent disclosure agreement, invention
assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or
with a former employer where the basis of such violation relates to such employee’s employment with the Company, or actions undertaken
by the employee while employed with the Company and could reasonably be expected to result, individually or in the aggregate, in a Material
Adverse Change. To the Company’s knowledge, all material technical information developed by and belonging to the Company which
has not been patented has been kept confidential. The Company is not a party to or bound by any options, licenses or agreements with
respect to the Intellectual Property Rights of any other person or entity that are required to be set forth in the Registration Statement,
the Pricing Disclosure Package and the Prospectus and are not described therein. The Registration Statement, the Pricing Disclosure Package
and the Prospectus contain in all material respects the same description of the matters set forth in the preceding sentence. None of
the technology employed by the Company has been obtained or is being used by the Company in violation of any contractual obligation binding
on the Company or, to the Company’s knowledge, any of its officers, directors or employees, or otherwise in violation of the rights
of any persons.
2.34 Taxes. Each of
the Company and its Subsidiaries has filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to
the date hereof or has duly obtained extensions of time for the filing thereof. Each of the Company and its Subsidiaries has paid all
taxes (as hereinafter defined) shown as due on such returns that were filed and has paid all taxes imposed on or assessed against the
Company or such respective Subsidiary. The provisions for taxes payable, if any, shown on the financial statements filed with or as part
of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including
the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriters, (i) no issues have been raised
(and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company or
its Subsidiaries, and (ii) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by
or requested from the Company or its Subsidiaries. There are no tax liens against the assets, properties or business of the Company or
its Subsidiaries. The term “taxes” means all federal, state, local, foreign and other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges
of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto. The term
“returns” means all returns, declarations, reports, statements and other documents required to be filed in respect
to taxes.
2.35 ERISA Compliance.
The Company and any “employee benefit plan” (as defined under the Employee Retirement Income Security Act of 1974, as amended,
and the regulations and published interpretations thereunder (collectively, “ERISA”)) established or maintained by
the Company or its “ERISA Affiliates” (as defined below) are in compliance in all material respects with ERISA. “ERISA
Affiliate” means, with respect to the Company, any member of any group of organizations described in Sections 414(b), (c),
(m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the “Code”)
of which the Company is a member. No “reportable event” (as defined under ERISA) has occurred or is reasonably expected to
occur with respect to any “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates.
No “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates, if such “employee
benefit plan” were terminated, would have any “amount of unfunded benefit liabilities” (as defined under ERISA). Neither
the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any material liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any “employee benefit plan” or (ii) Sections 412, 4971, 4975 or
4980B of the Code. Each “employee benefit plan” established or maintained by the Company or any of its ERISA Affiliates that
is intended to be qualified under Section 401(a) of the Code is so qualified and, to the knowledge of the Company, nothing has occurred,
whether by action or failure to act, which would cause the loss of such qualification.
2.36 Pension and Benefit
Plan Compliance. The Company and any employee benefit plan and related trust, insurance contract or fund established or maintained
by the Company or its Subsidiaries are in compliance in all material respects with all applicable statutes, rules, or regulations. All
material reports, returns and other documents that are required to have been filed with any governmental authority in any jurisdiction,
or distributed to participants or beneficiaries of any employee benefit plan, have been filed or delivered on a timely basis. No employee
benefit plan is currently under audit or examination (nor has any notice of any potential audit or examination been received by the Company
or its Subsidiaries) by any governmental authority. Neither the Company nor its Subsidiaries have received any communication from any
governmental authority questioning or challenging the compliance of any employee benefit plan with any applicable statutes, rules, or
regulations.
2.37 Compliance with Laws.
Each of the Company and each Subsidiary: (A) is and at all times has been in compliance with all statutes, rules, or regulations applicable
to the ownership, testing, development, manufacture, packaging, processing, use, distribution, marketing, labeling, promotion, sale, offer
for sale, storage, import, export or disposal of any product manufactured or distributed by the Company as currently conducted (“Applicable
Laws”), except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Change; (B)
has not received any warning letter, untitled letter or other correspondence or notice from any Governmental Entity alleging or asserting
noncompliance with any Applicable Laws or any Authorizations; (C) possesses all material Authorizations and such Authorizations are valid
and in full force and effect and are not in material violation of any term of any such Authorizations; (D) has not received notice of
any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any Governmental Entity or
third party alleging that any product, operation, or activity conducted by the Company is in violation of any Applicable Laws or Authorizations
and has no knowledge that any such Governmental Entity or third party is considering any such claim, litigation, arbitration, action,
suit, investigation or proceeding that if brought, would result in a Material Adverse Result; (E) has not received notice that any Governmental
Entity has taken, is taking or intends to take action to limit, suspend, modify or revoke any Authorizations and has no knowledge that
any such Governmental Entity is considering such action; and (F) has filed, obtained, maintained or submitted all material reports, documents,
forms, notices, applications, records, claims, submissions and supplements or amendments as required by any Applicable Laws or Authorizations
and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete
and correct on the date filed (or were corrected or supplemented by a subsequent submission).
2.38 Emerging Growth
Company. From the time of the initial submission of the Registration Statement to the Commission (or, if earlier, the first date
on which the Company engaged directly in or through any Person authorized to act on its behalf in any Testing-the Waters Communication)
through the date hereof, the Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities
Act (an “Emerging Growth Company”). “Testing-the-Waters Communication” means any oral or written communication
with potential investors undertaken in reliance on Section 5(d) of the Securities Act. The Company has not (i) alone engaged in any Testing-the-Waters
Communications, other than Testing-the-Waters Communications with the written consent of the Representative and with entities that are
qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors
within the meaning of Rule 501 under the Securities Act and (ii) authorized anyone other than the Representative to engage in Testing-the-Waters
Communications. The Company confirms that the Representative has been authorized to act on its behalf in undertaking Testing-the-Waters
Communications.
2.39 Environmental Laws.
The Company is in compliance with all foreign, federal, state and local rules, laws and regulations relating to the use, treatment, storage
and disposal of hazardous or toxic substances or waste and protection of health and safety or the environment which are applicable to
their businesses (“Environmental Laws”), except where the failure to comply would not, singularly or in the aggregate,
result in a Material Adverse Change. There has been no storage, generation, transportation, handling, treatment, disposal, discharge,
emission, or other release of any kind of toxic or other wastes or other hazardous substances by, due to, or caused by the Company (or,
to the Company’s knowledge, any other entity for whose acts or omissions the Company is or may otherwise be liable) upon any of
the property now or previously owned or leased by the Company, or upon any other property, in violation of any law, statute, ordinance,
rule, regulation, order, judgment, decree or permit or which would, under any law, statute, ordinance, rule (including rule of common
law), regulation, order, judgment, decree or permit, give rise to any liability, except for any violation or liability which would not
have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Change; and there has been no disposal,
discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or
other wastes or other hazardous substances with respect to which the Company has knowledge, except for any such disposal, discharge, emission,
or other release of any kind which would not have, singularly or in the aggregate with all such discharges and other releases, a Material
Adverse Change. In the ordinary course of business, the Company conducts periodic reviews of the effect of Environmental Laws on its business
and assets, in the course of which they identify and evaluate associated costs and liabilities (including, without limitation, any capital
or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or governmental permits issued
thereunder, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such reviews,
the Company has reasonably concluded that such associated costs and liabilities would not have, singularly or in the aggregate, a Material
Adverse Change.
2.40 Title to Property.
Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its Subsidiaries
have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real or personal property
which are material to the business of the Company and its Subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances,
security interests, claims and defects that do not, singly or in the aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the Company or its Subsidiaries; and all of the leases and subleases
material to the business of the Company and its Subsidiaries, considered as one enterprise, and under which the Company or any of its
Subsidiaries holds properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, are in full
force and effect, and neither the Company nor any Subsidiary has received any notice of any material claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting
or questioning the rights of the Company or any Subsidiary to the continued possession of the leased or subleased premises under any
such lease or sublease.
2.41 Contracts Affecting
Capital. There are no transactions, arrangements or other relationships between and/or among the Company, any of its affiliates (as
such term is defined in Rule 405 of the Securities Act Regulations) and any unconsolidated entity, including, but not limited to, any
structured finance, special purpose or limited purpose entity that could reasonably be expected to materially affect the Company’s
or its Subsidiaries’ liquidity or the availability of or requirements for their capital resources required to be described or incorporated
by reference in the Registration Statement, the Pricing Disclosure Package and the Prospectus which have not been described or incorporated
by reference as required.
2.42 Loans to Directors
or Officers. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business)
or guarantees or indebtedness by the Company or its Subsidiaries to or for the benefit of any of the officers or directors of the Company,
its Subsidiaries, or any of their respective family members, except as disclosed in the Registration Statement, the Pricing Disclosure
Package and the Prospectus.
2.43 Ineligible Issuer.
At the time of filing the Registration Statement and any post-effective amendment thereto, at the Effective Date and at the time of any
amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the
meaning of Rule 164(h)(2) of the Securities Act Regulations) of the Public Securities and at the Effective Date, the Company was not and
is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant
to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
2.44 Smaller Reporting
Company. As of the time of filing of the Registration Statement, the Company was a “smaller reporting company,” as defined
in Rule 12b-2 of the Exchange Act Regulations.
2.45 Industry Data.
The statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus
are based on or derived from sources that the Company reasonably and in good faith believes are reliable and accurate or represent the
Company’s good faith estimates that are made on the basis of data derived from such sources.
2.46 Electronic Road Show.
The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) of the Securities Act Regulations
such that no filing of any “road show” (as defined in Rule 433(h) of the Securities Act Regulations) is required in connection
with the Offering.
2.47[Reserved].
2.48 Dividends
and Distributions. Except as disclosed in the Pricing Disclosure Package, Registration Statement and the Prospectus, no Subsidiary of
the Company is currently prohibited or restricted, directly or indirectly, from paying any dividends to the Company, from making any
other distribution on such Subsidiary’s share capital (to the extent that any such prohibition or restriction on dividends and/or
distributions would have a material effect to the Company), from repaying to the Company any loans or advances to such Subsidiary from
the Company or from transferring any of such Subsidiary’s property or assets to the Company or any other Subsidiary of the Company,
except as may otherwise be provided in current loan or mortgage-related documents.
2.49 Forward-Looking Statements.
No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in
the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or
has been disclosed other than in good faith.
2.50 Integration.
Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers
or sales of any security or solicited any offers to buy any security, under circumstances that would cause the Offering to be integrated
with prior offerings by the Company for purposes of the Securities Act that would require the registration of any such securities under
the Securities Act.
2.51 Confidentiality and
Non-Competitions. To the Company’s knowledge, no director, officer, key employee or consultant of the Company or any Subsidiary
is subject to any confidentiality, non-disclosure, non-competition agreement or non-solicitation agreement with any employer (other than
the Company) or prior employer that could materially affect his or her ability to be and act in his or her respective capacity of the
Company or such Subsidiary or be expected to result in a Material Adverse Change.
2.52 Corporate Records.
The minute books of the Company have been made available to the Representative and Representative Counsel and such books (i) contain minutes
of all material meetings and actions of the Board of Directors (including each board committee) and shareholders of the Company, and (ii)
reflect all material transactions referred to in such minutes.
2.53 Diligence Materials.
The Company has provided to the Representative and Representative Counsel all materials required or necessary to respond in all material
respects to the diligence request submitted to the Company or Company Counsel by the Representative.
2.54 [Reserved].
3. Covenants of the Company. The Company
covenants and agrees as follows:
3.1 Amendments to Registration
Statement. The Company shall deliver to the Representative, at least five (5) Business Days (or such shorter time mutually agreed
by the parties hereto) prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after
the Effective Date and not file any such amendment or supplement to which the Representative shall reasonably object in writing.
3.2 Federal Securities
Laws.
3.2.1. Compliance. The
Company, subject to Section 3.2.2, shall comply with the requirements of Rule 430A of the Securities Act Regulations, and will notify
the Representative promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall
become effective or any amendment or supplement to the Prospectus shall have been filed; (ii) of its receipt of any comments from the
Commission; (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information; (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any Preliminary Prospectus
or the Prospectus, or of the suspension of the qualification of the Public Securities and Representative’s Securities for offering
or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant
to Section 8(d) or 8(e) of the Securities Act concerning the Registration Statement; or (v) if the Company becomes the subject of a proceeding
under Section 8A of the Securities Act in connection with the Offering of the Public Securities and Representative’s Securities.
The Company shall effect all filings required under Rule 424(b) of the Securities Act Regulations, in the manner and within the time period
required by Rule 424(b) (without reliance on Rule 424(b)(8)), and shall take such steps as it deems necessary to ascertain promptly whether
the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was
not, it will promptly file such prospectus. The Company shall use its
3.2.2. Continued Compliance.
The Company shall comply with the Securities Act, the Securities Act Regulations, the Exchange Act and the Exchange Act Regulations so
as to permit the completion of the distribution of the Public Securities as contemplated in this Agreement and in the Registration Statement,
the Pricing Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Public Securities is (or, but for
the exception afforded by Rule 172 of the Securities Act Regulations (“Rule 172”), would be) required by the Securities
Act to be delivered in connection with sales of the Public Securities, any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of Representative Counsel or Company Counsel, to (i) amend the Registration Statement in order
that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading; (ii) amend or supplement the Pricing Disclosure Package
or the Prospectus in order that the Pricing Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement
of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser; or (iii) amend the Registration Statement or amend or supplement
the Pricing Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the Securities Act
or the Securities Act Regulations, the Company will promptly (A) give the Representative notice of such event; (B) prepare any amendment
or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the Pricing Disclosure
Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish
the Representative with copies of any such amendment or supplement; and (C) file with the Commission any such amendment or supplement;
provided that the Company shall not file or use any such amendment or supplement to which the Representative or Representative Counsel
shall reasonably object. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters
may reasonably request. The Company has given the Representative notice of any filings made pursuant to the Exchange Act or the Exchange
Act Regulations within two (2) Business Days prior to the Applicable Time. The Company shall give the Representative notice of its intention
to make any such filing from the Applicable Time until the later of the Closing Date and the exercise in full or expiration of the Over-allotment
Option specified in Section 1.2 hereof and will furnish the Representative with copies of the related document(s) a reasonable amount
of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representative or
Representative Counsel shall reasonably object.
3.2.3. [Reserved].
3.2.4. Free Writing Prospectuses.
The Company agrees that, unless it obtains the prior written consent of the Representative, it shall not make any offer relating to the
Public Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,”
or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that
the Representative shall be deemed to have consented to each Issuer General Use Free Writing Prospectus set forth in Schedule
2-B. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed
consented to, by the Representative as an “issuer free writing prospectus,” as defined in Rule 433, and that it has complied
and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where
required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs
an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained
in the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a
material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time,
not misleading, the Company will promptly notify the Representative and will promptly amend or supplement, at its own expense, such Issuer
Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
3.2.5. Testing-the-Waters
Communications. If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs
an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement
of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of
the circumstances existing at that subsequent time, not misleading, the Company shall promptly notify the Representative and shall promptly
amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or
omission.
3.3 Delivery to the Underwriters
of Registration Statements. The Company has delivered or made available or shall deliver or make available to the Representative and
Representative Counsel, without charge, signed copies of the Registration Statement as originally filed and each amendment thereto (including
exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to each Underwriter, without
charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) upon receipt
of a written request therefor from such Underwriter. The copies of the Registration Statement and each amendment thereto furnished to
the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
3.4 Delivery to the Underwriters
of Prospectuses. The Company has delivered or made available or will deliver or make available to each Underwriter, without charge,
as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of
such copies for purposes permitted by the Securities Act. The Company will furnish to each Underwriter, without charge, during the period
when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations,
would be) required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as
such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will
be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
3.5 Effectiveness and
Events Requiring Notice to the Representative. The Company shall use its best efforts to cause the Registration Statement to remain
effective with a current prospectus for at least nine (9) months after the Applicable Time, and shall notify the Representative immediately
and confirm the notice in writing: (i) of the effectiveness of the Registration Statement and any amendment thereto; (ii) of the issuance
by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that purpose; (iii) of the issuance
by any state securities commission of any proceedings for the suspension of the qualification of the Public Securities for offering or
sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the mailing and delivery
to the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus; (v) of the receipt of any comments
or request for any additional information from the Commission; and (vi) of the happening of any event during the period described in
this Section 3.5 that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement, the
Pricing Disclosure Package or the Prospectus untrue or that requires the making of any changes in (a) the Registration Statement in order
to make the statements therein not misleading, or (b) in the Pricing Disclosure Package or the Prospectus in order to make the statements
therein, in light of the circumstances under which they were made, not misleading. If the Commission or any state securities commission
shall enter a stop order or suspend such qualification at any time, the Company shall make every reasonable effort to obtain promptly
the lifting of such order.
3.6 [Reserved].
3.7 Listing. The Company
shall use its best efforts to maintain the listing of the Securities on the Exchange until at least three (3) years after the date of
this Agreement.
3.8 Financial Public Relations.
As of the Effective Date, the Company shall have retained a financial public relations firm reasonably acceptable to the Representative
and the Company, which shall initially be Crescendo Communications, LLC, which firm shall be experienced in assisting issuers in initial
public offerings of securities and in their relations with their security holders, and shall retain such firm or another firm reasonably
acceptable to the Representative for a period of not less than two (2) years after the Effective Date.
3.9 [Reserved].
3.10 Payment of Expenses
3.10.1. General
Expenses Related to the Offering. The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date, if any,
to the extent not paid at the Closing Date, all expenses incident to the performance of the obligations of the Company under this Agreement,
including, but not limited to: (a) all filing fees and expenses relating to the registration of the Public Securities and shares
of Common Stock issuable upon exercise of the Representative’s Warrant Agreement with the Commission; (b) all fees and expenses
relating to the listing of the Public Securities and shares of Common Stock issuable upon exercise of the Representative’s Warrant
Agreement on the Exchange; (c) all fees, expenses and disbursements relating to the registration or qualification of the Public
Securities under the “blue sky” securities laws of such states and other jurisdictions as the Representative may reasonably
designate (including, without limitation, all filing and registration fees, and the reasonable fees and disbursements of the Company’s
“blue sky” counsel, which will be the Representative’s counsel); (d) all fees, expenses and disbursements relating
to the registration, qualification or exemption of the Public Securities under the securities laws of such foreign jurisdictions as the
Representative may reasonably designate; (e) the costs of all mailing and printing of the underwriting documents (including, without
limitation, the Underwriting Agreement, any Blue Sky Surveys, if any, and, if appropriate, any Agreement Among Underwriters, Selected
Dealers’ Agreement, Underwriters’ Questionnaire and Power of Attorney), Registration Statements, Prospectuses and all amendments,
supplements and exhibits thereto and as many preliminary and final Prospectuses as the Representative may reasonably deem necessary;
(f) stock transfer and/or stamp taxes, if any, payable upon the transfer of the Public Securities from the Company to the Underwriters;
(g) the fees and expenses of the Company’s accountants; (h) a maximum of $150,000 for fees and expenses including “road
show,” diligence and reasonable legal fees and disbursements for the Representative’s counsel; (i) all Public Filing
System filing fees associated with the review of the Offering by FINRA; and (j) the fees and expenses of the Company’s legal
counsel and other agents and representatives. The Representative may deduct from the net proceeds of the Offering payable to the Company
on the Closing Date, or the Option Closing Date, if any, the expenses set forth herein to be paid by the Company to the Underwriters.
3.10.2. Non-accountable
Expenses. The Company further agrees that, in addition to the expenses payable pursuant to Section 3.10.1, on the Closing Date, it
shall pay to the Representative through the flow of funds memo at Closing, by deduction from the net proceeds of the Offering contemplated
herein, a non-accountable expense allowance equal to one percent (1%) of the gross proceeds received by the Company from the sale of the
Firm Securities (but not the Option Securities).
3.11 Application of Net
Proceeds. The Company shall apply the net proceeds from the Offering received by it in a manner consistent with the application thereof
described under the caption “Use of Proceeds” in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
3.12 Delivery of Earnings
Statements to Security Holders. The Company shall make generally available to its security holders as soon as practicable, but not
later than the first day of the fifteenth (15th) full calendar month following the date of this Agreement, an earnings statement
(which need not be certified by an independent registered public accounting firm unless required by the Securities Act or the Securities
Act Regulations, but which shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Securities Act) covering a period of
at least twelve (12) consecutive months beginning after the date of this Agreement.
3.13 Stabilization.
Neither the Company nor, to its knowledge, any of its employees, directors or shareholders has taken or shall take, directly or indirectly,
any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange
Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Public
Securities.
3.14 Internal Controls.
The Company shall maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions
are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary in order
to permit preparation of financial statements in accordance with GAAP and to maintain accountability for assets; (iii) access to assets
is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
3.15 Accountants.
As of the date of this Agreement, the Company has retained an independent registered public accounting firm, as required by the Securities
Act and the Securities Act Regulations and the Public Company Accounting Oversight Board, reasonably acceptable to the Representative,
and the Company shall continue to retain a nationally recognized independent registered public accounting firm for a period of at least
three (3) years after the date of this Agreement. The Representative acknowledges that the Auditor is acceptable to the Representative
3.16 FINRA.
For a period of 60 days from the later of the Closing Date or the Option Closing Date,
the Company shall advise the Representative (who shall make an appropriate filing with FINRA) if it is or becomes aware that (i) any
officer or director of the Company, (ii) any beneficial owner of 5% or more of any class of the Company’s securities or (iii) any
beneficial owner of the Company’s unregistered equity securities which were acquired during the 180 days immediately preceding
the filing of the Registration Statement is or becomes an affiliate or associated person of a FINRA member participating in the Offering
(as determined in accordance with the rules and regulations of FINRA).
3.17 No Fiduciary Duties.
The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual in nature and that
none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes
any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by
this Agreement.
3.18 Company Lock-Up
Agreements. The Company, on behalf of itself and any successor entity, agrees that, without the prior written consent of the Representative,
it will not, for a period of one hundred eighty (180) days after the date of this Agreement (the “Lock-Up Period”),
(i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any share capital of the Company
or any securities convertible into or exercisable or exchangeable for share capital of the Company; (ii) file or cause to be filed any
registration statement with the Commission relating to the offering of any shares of capital stock of the Company or any securities convertible
into or exercisable or exchangeable for share capital of the Company other than a registration statement on Form S-4 or S-8; (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 share
capital of the Company, whether any such transaction described in clause (i), (ii), (iii), or (iv) above is to be settled by delivery
of any share capital of the Company or such other securities, in cash or otherwise.
The restrictions contained in
this Section 3.18 shall not apply to (i) the Primary Securities to be sold hereunder, as well as the Representative’s
Warrants and any Common Shares into which the Warrants and Representative’s Warrants are exercisable; (ii) the issuance by the Company
of Common Shares upon the exercise of a share option or warrant or the conversion of a security, in each case outstanding on the date
hereof, provided that such options, warrants, securities and Letter Agreement are disclosed in the Registration Statement, the Pricing
Disclosure Package or the Prospectus and have not been amended since the date of this Agreement to increase the number of such securities
or to decrease the exercise price, exchange price or conversion price of such securities or to extend the term of such securities, or
(iii) the issuance by the Company of any Common Shares or standard options to purchase Common Shares to directors, officers or employees
of the Company in their capacity as such pursuant to an Approved Stock Plan (as defined below), provided that (A) all such issuances (taking
into account the Common Shares issuable upon exercise of such options) after the date hereof pursuant to this clause (iii) do not, in
the aggregate, exceed more than 5% of the Common Shares issued and outstanding immediately prior to the date hereof and (B) the exercise
price of any such options is not lowered and none of such options are amended to increase the number of shares issuable thereunder; provided
that in each of (ii) and (iii) above, the underlying shares shall not vest and shall otherwise be restricted from sale during the Lock-Up
Period. “Approved Stock Plan” means any employee benefit plan which has been approved by the board of directors of the Company
prior to or subsequent to the date hereof pursuant to which Common Shares and standard options to purchase Common Shares may be issued
to any employee, officer or director for services provided to the Company in their capacity as such.
3.19 Release of D&O
Lock-up Period. If the Representative, in its sole discretion, agrees to release or waive the restrictions set forth in the Lock-Up
Agreements described in Section 2.25 hereof for an officer or director of the Company and provides the Company with notice of the impending
release or waiver at least three (3) Business Days before the effective date of the release or waiver, the Company agrees to announce
the impending release or waiver by a press release substantially in the form of Exhibit B hereto through a major news
service at least two (2) Business Days before the effective date of the release or waiver.
3.20 Blue Sky Qualifications.
The Company shall use its best efforts, in cooperation with the Underwriters, if necessary, to qualify the Public Securities for offering
and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representative may
designate and to maintain such qualifications in effect so long as required to complete the distribution of the Public Securities; provided,
however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject.
3.21 Reporting Requirements.
The Company, during the period when a prospectus relating to the Public Securities is (or, but for the exception afforded by Rule 172,
would be) required to be delivered under the Securities Act, will file all documents required to be filed with the Commission pursuant
to the Exchange Act within the time periods required by the Exchange Act and Exchange Act Regulations. Additionally, the Company shall
report the use of proceeds from the issuance of the Public Securities as may be required under Rule 463 under the Securities Act Regulations.
3.22 Emerging Growth Company
Status. The Company shall promptly notify the Representative if the Company ceases to be an Emerging Growth Company at any time prior
to the later of (i) completion of the distribution of the Public Securities within the meaning of the Securities Act and (ii) fifteen
(15) days following the completion of the Lock-Up Period.
3.23 Press Releases.
Prior to the Closing Date and any Option Closing Date, the Company shall not issue any press release or other communication directly or
indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs
or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past
practices of the Company and of which the Representative is notified), without the prior written consent of the Representative, which
consent shall not be unreasonably withheld, unless in the judgment of the Company and its counsel, and after notification to the Representative,
such press release or communication is required by law.
3.24 Sarbanes-Oxley.
The Company shall at all times comply with all applicable provisions of the Sarbanes-Oxley Act in effect from time to time.
3.25 IRS Forms. If
requested by the Representative, the Company shall deliver to each Underwriter (or its agent), prior to or at the Closing Date, a properly
completed and executed Internal Revenue Service (“IRS”) Form W-9 or an IRS Form W-8, as appropriate, together with
all required attachments to such form.
3.26 Warrant Agent.
For so long as the Warrants are outstanding, the Company will maintain the Warrant Agency Agreement in full force and effect with VStock
Transfer, LLC or a transfer agent of similar competence and quality. The Firm Warrants and, if applicable, Option Warrants will be issued
in accordance with the Warrant Agency Agreement.
4. Conditions of Underwriters’ Obligations.
The obligations of the Underwriters to purchase and pay for the Public Securities, as provided herein, shall be subject to (i) the continuing
accuracy of the representations and warranties of the Company as of the date hereof and as of each of the Closing Date and the Option
Closing Date, if any; (ii) the accuracy of the statements of officers of the Company made pursuant to the provisions hereof; (iii) the
performance by the Company of its obligations hereunder; and (iv) the following conditions:
4.1 Regulatory Matters.
4.1.1. Effectiveness of
Registration Statement; Rule 430A Information. The Registration Statement has become effective not later than 5:30 p.m., Eastern time,
on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative, and, at each of the
Closing Date and any Option Closing Date, no stop order suspending the effectiveness of the Registration Statement or any post-effective
amendment thereto shall have been issued under the Securities Act, no order preventing or suspending the use of any Preliminary Prospectus
or the Prospectus shall have been issued and no proceedings for any of those purposes shall have been instituted or are pending or, to
the Company’s knowledge, contemplated by the Commission. The Company has complied with each request (if any) from the Commission
for additional information. A prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner
and within the time frame required by Rule 424(b) under the Securities Act Regulations (without reliance on Rule 424(b)(8)) or a post-effective
amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements
of Rule 430A under the Securities Act Regulations.
4.1.2. FINRA Clearance.
On or before the date of this Agreement, the Representative shall have received clearance from FINRA as to the amount of compensation
allowable or payable to the Underwriters as described in the Registration Statement.
4.1.3. Exchange Clearance.
On the Closing Date, the Common Shares and Warrants shall have been approved for listing on the Exchange, subject only to official notice
of issuance.
4.2 Company Counsel Matters.
4.2.1. Closing Date Opinion
of Counsel. On the Closing Date, the Representative shall have received the favorable opinion and negative assurance letter of Sheppard,
Mullin, Richter & Hampton LLP. (“Company Counsel”), counsel to the Company, dated the Closing Date and addressed
to the Representative, in form and substance satisfactory to the Representative.
4.2.2. Option Closing Date
Opinions of Counsel. On the Option Closing Date, if any, the Representative shall have received the favorable opinions and negative
assurance letter of Company Counsel listed in Section 4.2.1, dated the Option Closing Date, addressed to the Representative and in form
and substance reasonably satisfactory to the Representative, confirming as of the Option Closing Date, the statements made by such counsel
in its opinion delivered on the Closing Date.
4.2.3. Reliance. The opinion of Jolie Kahn, Esq. and any opinion relied upon by Jolie Kahn, Esq. shall include a statement to the effect that it may be relied upon in its opinion delivered to the Underwriters.
4.3 Comfort Letters.
4.3.1. Comfort Letter.
At the time this Agreement is executed the Representative shall have received a cold comfort letter from the Auditor containing statements
and information of the type customarily included in accountants’ comfort letters with respect to the financial statements and certain
financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus, addressed to the Representative
and in form and substance satisfactory in all respects to the Representative and to Representative Counsel from the Auditor, dated as
of the date of this Agreement.
4.3.2. Bring-down Comfort
Letter. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received from the Auditor
a letter, dated as of the Closing Date or the Option Closing Date, as applicable, to the effect that the Auditor reaffirms the statements
made in the letter furnished pursuant to Section 4.3.1.
4.4 Officers’ Certificates.
4.4.1. Officers’
Certificate. The Company shall have furnished to the Representative a certificate, dated the Closing Date and any Option Closing
Date (if such date is other than the Closing Date), of its Chief Executive Officer or President, and its Chief Financial Officer stating
that (i) such officers have carefully examined the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus
and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto, as of the Applicable Time and as of
the Closing Date (or any Option Closing Date if such date is other than the Closing Date) did not include any untrue statement of a material
fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading,
and the Pricing Disclosure Package, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is
other than the Closing Date), any Issuer Free Writing Prospectus as of its date and as of the Closing Date (or any Option Closing Date
if such date is other than the Closing Date), the Prospectus and each amendment or supplement thereto, as of the respective date thereof
and as of the Closing Date, did not include any untrue statement of a material fact and did not omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, (ii) since the effective
date of the Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the Registration
Statement, the Pricing Disclosure Package or the Prospectus, (iii) to the best of their knowledge after reasonable investigation, as
of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the representations and warranties of the
Company in this Agreement are true and correct and the Company has complied with all agreements and satisfied all conditions on its part
to be performed or satisfied hereunder at or prior to the Closing Date (or any Option Closing Date if such date is other than the Closing
Date), and (iv) there has not been, subsequent to the date of the most recent audited financial statements included in the Pricing Disclosure
Package, a Material Adverse Change.
4.4.2. Secretary’s
Certificate. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received a certificate
of the Company signed by the Secretary of the Company, dated the Closing Date or the Option Closing Date, as the case may be, respectively,
certifying: (i) that each of the Charter is true and complete, has not been modified and is in full force and effect; (ii) that the resolutions
of the Company’s Board of Directors relating to the Offering are in full force and effect and have not been modified; (iii) as to
the accuracy and completeness of all correspondence between the Company or its counsel and the Commission; and (iv) as to the incumbency
of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate.
4.5 No Material Changes.
Prior to and on each of the Closing Date and each Option Closing Date, if any: (i) there shall have been no Material Adverse Change in
the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such
condition is set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (ii) no action, suit or proceeding,
at law or in equity, shall have been pending or threatened against the Company or any Insider before or by any court or federal or state
commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may reasonably be expected to cause
a Material Adverse Change, except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (iii)
no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by
the Commission; and (iv) the Registration Statement, the Pricing Disclosure Package and the Prospectus and any amendments or supplements
thereto shall contain all material statements which are required to be stated therein in accordance with the Securities Act and the Securities
Act Regulations and shall conform in all material respects to the requirements of the Securities Act and the Securities Act Regulations,
and neither the Registration Statement, the Pricing Disclosure Package nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were made, not misleading.
4.6 No Material Misstatement
or Omission. The Underwriters shall not have discovered and disclosed to the Company on or prior to the Closing Date and any Option
Closing Date that the Registration Statement or any amendment or supplement thereto contains an untrue statement of a fact which, in the
opinion of Representative Counsel, is material or omits to state any fact which, in the opinion of such counsel, is material and is required
to be stated therein or is necessary to make the statements therein not misleading, or that the Registration Statement, the Pricing Disclosure
Package, any Issuer Free Writing Prospectus or the Prospectus or any amendment or supplement thereto contains an untrue statement of fact
which, in the opinion of Representative Counsel, is material or omits to state any fact which, in the opinion of Representative Counsel,
is material and is necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading.
4.7 [Reserved].
4.8 Lock-Up Agreements.
On or before the date of this Agreement, the Company shall have delivered to the Representative executed copies of the Lock-Up Agreements
from each of the persons listed in Schedule 3 hereto.
4.9 Warrant Agency Agreement.
On or before the date of this Agreement, the Company shall have entered into a Warrant Agency Agreement between the Company and VStock
Transfer, LLC, as warrant agent with respect to the Warrants, in the form filed as an exhibit to the Registration Statement (the “Warrant
Agency Agreement”), or if applicable, as otherwise directed by the Underwriters.
4.10 Additional Documents.
At the Closing Date and at each Option Closing Date (if any) Representative Counsel shall have been furnished with such documents and
opinions as they may require for the purpose of enabling Representative Counsel to deliver an opinion to the Underwriters, or in order
to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Company in connection with the issuance and sale of the Public Securities and Representative’s
Securities as herein contemplated shall be satisfactory in form and substance to the Representative and Representative Counsel.
5. Indemnification.
5.1 Indemnification of
the Underwriters.
5.1.1. General. The
Company shall indemnify and hold harmless each Underwriter, its affiliates and each of its and their respective directors, officers, members,
employees, representatives, partners, shareholders, affiliates, counsel and agents and each person, if any, who controls any such Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively the “Underwriter Indemnified
Parties,” and each an “Underwriter Indemnified Party”), against any and all loss, liability, claim, damage
and expense whatsoever (including but not limited to any and all legal or other expenses reasonably incurred in investigating, preparing
or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of
the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise)
to which they or any of them may become subject under the Securities Act, the Exchange Act or any other statute or at common law or otherwise
or under the laws of foreign countries, (i) arising out of or based upon any untrue statement or alleged untrue statement of a material
fact contained in (A) the Registration Statement, the Pricing Disclosure Package, the Preliminary Prospectus, the Prospectus or any Issuer
Free Writing Prospectus or in any Written Testing-the-Waters Communication (as from time to time each may be amended and supplemented);
(B) any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the
Offering, including any “road show” or investor presentations made to investors by the Company (whether in person or electronically);
or (C) any application or other document or written communication (in this Section 5, collectively called “application”)
executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Public
Securities and Representative’s Securities under the securities laws thereof or filed with the Commission, any state securities
commission or agency, the Exchange or any other national securities exchange; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were
made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, the Underwriters’ Information;
or (ii) otherwise arising in connection with or allegedly in connection with the Offering. The Company also agrees that it will reimburse
each Underwriter Indemnified Party for all fees and expenses (including but not limited to any and all legal or other expenses reasonably
incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising
out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties
and any third party, or otherwise) (collectively, the “Expenses”), and further agrees wherever and whenever possible
to advance payment of Expenses as they are incurred by an Underwriter Indemnified Party in investigating, preparing, pursuing or defending
any Claim.
5.1.2. Procedure. If
any action is brought against an Underwriter Indemnified Party in respect of which indemnity may be sought against the Company pursuant
to Section 5.1.1, such Underwriter Indemnified Party shall promptly notify the Company in writing of the institution of such action and
the Company shall assume the defense of such action, including the employment and fees of counsel (subject to the reasonable approval
of such Underwriter Indemnified Party) and payment of actual expenses if an Underwriter Indemnified Party requests that the Company do
so. Such Underwriter Indemnified Party shall have the right to employ its or their own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of the Company, and shall be advanced by the Company. The Company shall not be liable for any
settlement of any action effected without its consent (which shall not be unreasonably withheld). In addition, the Company shall not,
without the prior written consent of the Underwriters, settle, compromise or consent to the entry of any judgment in or otherwise seek
to terminate any pending or threatened action in respect of which advancement, reimbursement, indemnification or contribution may be
sought hereunder (whether or not such Underwriter Indemnified Party is a party thereto) unless such settlement, compromise, consent or
termination (i) includes an unconditional release of each Underwriter Indemnified Party, acceptable to such Underwriter Indemnified Party,
from all liabilities, expenses and claims arising out of such action for which indemnification or contribution may be sought and (ii)
does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Underwriter Indemnified
Party.
5.2 Indemnification of
the Company. Each Underwriter, severally and not jointly, shall indemnify and hold harmless the Company, its directors, its officers
who signed the Registration Statement and persons who control the Company within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from the Company
to the several Underwriters, as incurred, but only with respect to untrue statements or omissions made in the Registration Statement,
any Preliminary Prospectus, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or in any application,
in reliance upon, and in strict conformity with, the Underwriters’ Information. In case any action shall be brought against the
Company or any other person so indemnified based on any Preliminary Prospectus, the Registration Statement, the Pricing Disclosure Package
or Prospectus or any amendment or supplement thereto or any application, and in respect of which indemnity may be sought against any
Underwriter, such Underwriter shall have the rights and duties given to the Company, and the Company and each other person so indemnified
shall have the rights and duties given to the several Underwriters by the provisions of Section 5.1.2. The Company agrees promptly to
notify the Representative of the commencement of any litigation or proceedings against the Company or any of its officers, directors
or any person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, in connection with the issuance and sale of the Public Securities or in connection with the Registration Statement, the Pricing
Disclosure Package, the Prospectus, any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication.
5.3 Contribution.
5.3.1. Contribution Rights.
If the indemnification provided for in this Section 5 shall for any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 5.1 or 5.2 in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein,
then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall
be appropriate to reflect the relative benefits received by the Company, on the one hand, and each of the Underwriters, on the other
hand, from the Offering, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company,
on the one hand, and the Underwriters, on the other, with respect to the statements or omissions that resulted in such loss, claim, damage
or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by
the Company, on the one hand, and the Underwriters, on the other, with respect to such Offering shall be deemed to be in the same proportion
as the total net proceeds from the Offering purchased under this Agreement (before deducting expenses) received by the Company, and the
total underwriting discount and commissions received by the Underwriters in connection with the Offering, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault of the Company, on the one hand, and the Underwriters, on the other,
shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or the Underwriters, on
the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue
statement, omission, act or failure to act. The Company and the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 5.3.1 were to be determined by pro rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss,
claim, damage, expense, liability, action, referred to above in this Section 5.3.1 shall be deemed to include, for purposes of this Section
5.3.1, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, defending against
or appearing as a third party witness in respect of, or otherwise incurred in connection with, any such loss, claim, damage, expense,
liability, action, investigation or proceeding. Notwithstanding the provisions of this Section 5.3.1 no Underwriter shall be required
to contribute any amount in excess of the total discount and commission received by such Underwriter in connection with the Offering
less the amount of any damages which such Underwriter has otherwise paid or becomes liable to pay by reason of any untrue or alleged
untrue statement, omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
5.3.2. Contribution Procedure.
Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (“contributing
party”), notify the contributing party of the commencement thereof, but the failure to so notify the contributing party will not
relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit
or proceeding is brought against any party, and such party notifies a contributing party or its representative of the commencement thereof
within the aforesaid 15 days, the contributing party will be entitled to participate therein with the notifying party and any other contributing
party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement
of any claim, action or proceeding affected by such party seeking contribution without the written consent of such contributing party.
The contribution provisions contained in this Section 5.3.2 are intended to supersede, to the extent permitted by law, any right to contribution
under the Securities Act, the Exchange Act or otherwise available. The Underwriters’ obligations to contribute as provided in this
Section 5.3 are several and in proportion to their respective underwriting obligation, and not joint.
6. Default by an Underwriter.
6.1 Default Not Exceeding
10% of Firm Securities or Option Securities. If any Underwriter or Underwriters shall default in its or their obligations to purchase
the Firm Securities or the Option Securities, if the Over-allotment Option is exercised hereunder, and if the number of the Firm Securities
or Option Securities with respect to which such default relates does not exceed in the aggregate 10% of the number of Firm Units or Option
Units that all Underwriters have agreed to purchase hereunder, then such Firm Securities or Option Securities to which the default relates
shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder.
6.2 Default Exceeding
10% of Firm Securities or Option Securities. In the event that the default addressed in Section 6.1 relates to more than 10% of the
number of Firm Units or Option Units, the Representative may in its discretion arrange for itself or for another party or parties to purchase
such Firm Securities or Option Securities to which such default relates on the terms contained herein. If, within one (1) Business Day
after such default relating to more than 10% of the number of Firm Units or Option Units, the Representative does not arrange for the
purchase of such Firm Securities or Option Securities, then the Company shall be entitled to a further period of one (1) Business Day
within which to procure another party or parties satisfactory to the Representative to purchase said Firm Securities or Option Securities
on such terms. In the event that neither the Representative nor the Company arrange for the purchase of the Firm Securities or Option
Securities to which a default relates as provided in this Section 6, this Agreement will automatically be terminated by the Representative
or the Company without liability on the part of the Company (except as provided in Sections 3.10 and 5 hereof) or the several Underwriters
(except as provided in Section 5 hereof); provided, however, that if such default occurs with respect to the Option Securities, this Agreement
will not terminate as to the Firm Securities; and provided, further, that nothing herein shall relieve a defaulting Underwriter of its
liability, if any, to the other Underwriters and to the Company for damages occasioned by its default hereunder.
6.3 Postponement of Closing
Date. In the event that the Firm Securities or Option Securities to which the default relates are to be purchased by the non-defaulting
Underwriters, or are to be purchased by another party or parties as aforesaid, you or the Company shall have the right to postpone the
Closing Date or Option Closing Date for a reasonable period, but not in any event exceeding five (5) Business Days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement, the Pricing Disclosure Package or the Prospectus or in
any other documents and arrangements, and the Company agrees to file promptly any amendment to the Registration Statement, the Pricing
Disclosure Package or the Prospectus that in the opinion of Representative Counsel may thereby be made necessary. The term “Underwriter”
as used in this Agreement shall include any party substituted under this Section 6 with like effect as if it had originally been a party
to this Agreement with respect to such Firm Securities or Option Securities.
7. Additional Covenants.
7.1 Board Composition
and Board Designations. The Company shall ensure as of the Closing Date and the Option Closing Date, if any, that: (i) the qualifications
of the persons serving as members of the Board of Directors and the overall composition of the Board of Directors comply with the Sarbanes-Oxley
Act, the Exchange Act and the listing rules of the Exchange or any other national securities exchange, as the case may be, in the event
the Company seeks to have any of its securities listed on another exchange or quoted on an automated quotation system, and (ii) if applicable,
at least one member of the Audit Committee of the Board of Directors qualifies as an “audit committee financial expert,” as
such term is defined under Regulation S-K and the listing rules of the Exchange.
7.2 Prohibition on Press
Releases and Public Announcements. The Company shall not issue press releases or engage in any other publicity, without the Representative’s
prior written consent, for a period ending at 5:00 p.m., Eastern time, on the first (1st) Business Day following the fortieth
(40th) day after the Closing Date, other than normal and customary releases issued in the ordinary course of the Company’s
business.
8. Effective Date of this Agreement and Termination
Thereof.
8.1 Effective Date.
This Agreement shall become effective when both the Company and the Representative have executed the same and delivered counterparts
of such signatures to the other party.
8.2 Termination. The
Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic or international
event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially disrupt, general securities
markets in the United States; or (ii) if trading on the New York Stock Exchange or the Nasdaq Stock Market LLC shall have been suspended
or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall
have been required by FINRA or by order of the Commission or any other government authority having jurisdiction; or (iii) if the United
States shall have become involved in a new war or an increase in major hostilities; or (iv) if a banking moratorium has been declared
by a New York State or federal authority; or (v) if a moratorium on foreign exchange trading has been declared which materially adversely
impacts the United States securities markets; or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in your
opinion, make it inadvisable to proceed with the delivery of the Firm Securities or Option Securities; or (vii) if the Company is in material
breach of any of its representations, warranties or covenants hereunder; or (viii) if the Representative shall have become aware after
the date hereof of a Material Adverse Change, or an adverse material change in general market conditions as in the Representative’s
judgment would make it impracticable to proceed with the offering, sale and/or delivery of the Public Securities or to enforce contracts
made by the Underwriters for the sale of the Public Securities.
8.3 Expenses. Notwithstanding
anything to the contrary in this Agreement, except in the case of a default by the Underwriters, pursuant to Section 6.2 above, in the
event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein or any extensions thereof
pursuant to the terms herein, the Company shall be obligated to pay to the Underwriters their actual and accountable out-of-pocket expenses
related to the transactions contemplated herein then due and payable (including the fees and disbursements of Representative Counsel)
up to $100,000, and upon demand the Company shall pay the full amount thereof to the Representative on behalf of the Underwriters; provided,
however, that such expense cap in No way limits or impairs the indemnification and contribution provisions of this Agreement.
8.4 Indemnification.
Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether
or not this Agreement is otherwise carried out, the provisions of Section 5 shall remain in full force and effect and shall not be in
any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part hereof.
8.5 Representations, Warranties,
Agreements to Survive. All representations, warranties and agreements contained in this Agreement or in certificates of officers of
the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by
or on behalf of any Underwriter or its affiliates or selling agents, any person controlling any Underwriter, its officers or directors
or any person controlling the Company or (ii) delivery of and payment for the Public Securities.
9. Miscellaneous.
9.1 Notices. All communications
hereunder, except as herein otherwise specifically provided, shall be in writing and shall be mailed (registered or certified mail, return
receipt requested), personally delivered or sent by facsimile transmission and confirmed and shall be deemed given when so delivered or
emailed and confirmed (which may be by email) or if mailed, two (2) days after such mailing.
If to the Representative:
EF
Hutton,
division of Benchmark Investments,
LLC.
as Representative of the several
Underwriters named on Schedule 1 attached hereto
590 Madison Avenue, 39th
Floor
New York, NY 10022
Attn: Joseph T. Rallo
with a copy (which shall not constitute notice) to:
Jolie Kahn, Esq.
12 E. 49th Street, 11th Floor
New York, NY 10017
Email: joliekahnlaw@sbcglobal.net
If to the Company:
DatChat, Inc.
65 Church Street, 2nd Floor
New Brunswick, NJ 08901
Attention: Darin Myman, CEO
Email: dmyman@datchats.com
with a copy (which shall not constitute notice) to:
Sheppard,
Mullin, Richter & Hampton LLP
30 Rockefeller Plaza
New York, New York 10112
Attn: Richard A. Friedman, Esq.
Email: rafriedman@sheppardmullin.com
9.2 Headings. The
headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or
interpretation of any of the terms or provisions of this Agreement.
9.3 Amendment. This
Agreement may only be amended by a written instrument executed by each of the parties hereto.
9.4 Entire Agreement.
This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with this Agreement) constitutes
the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersedes all prior agreements
and understandings of the parties, oral and written, with respect to the subject matter hereof.
9.5 Binding Effect.
This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the Underwriters, the Company and the
controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors, legal representatives,
heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect
of or by virtue of this Agreement or any provisions herein contained. The term “successors and assigns” shall not include
a purchaser, in its capacity as such, of securities from any of the Underwriters.
9.6 Governing Law; Consent
to Jurisdiction; Trial by Jury. This Agreement shall be governed by and construed and enforced in accordance with the laws of the
State of New York, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding
or claim against it arising out of, or relating in any way to this Agreement shall be brought and enforced in the New York Supreme Court,
County of New York, or in the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction,
which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent
an inconvenient forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9.1 hereof. Such mailing
shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company agrees
that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’
fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its
behalf and, to the extent permitted by applicable law, on behalf of its shareholders and affiliates) and each of the Underwriters hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising
out of or relating to this Agreement or the transactions contemplated hereby.
9.7 Execution in Counterparts.
This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which
shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective
when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Delivery
of a signed counterpart of this Agreement by facsimile or email/pdf transmission shall constitute valid and sufficient delivery thereof.
9.8 Waiver, etc. The
failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to
be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof or the right of any
of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance or non-fulfillment
of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties
against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall
be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
[Signature Page Follows]
If the foregoing correctly sets
forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon
this letter shall constitute a binding agreement between us.
|
|
Very truly yours,
|
|
|
|
|
|
|
DATCHAT, INC.
|
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
Title:
|
|
Confirmed as of the date first written above mentioned,
on behalf of itself and as Representative of the several
Underwriters named on Schedule 1 hereto:
EF HUTTON,
division of Benchmark Investments, LLC
[Signature
Page]
DatChat, Inc.
– Underwriting Agreement
SCHEDULE 1
|
Underwriter
|
|
Total Number of Firm Units to be Purchased
|
|
|
Number of Additional Option Units to be Purchased
if the Over-Allotment Option
is Fully Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
SCHEDULE 2-A
Pricing Information
Number of Firm Units:
Number of Option Units:
Public Offering Price per Unit:
Underwriting Discount per Unit:
Proceeds to Company per Unit (before expenses):
SCHEDULE 2-B
Issuer General Use Free Writing Prospectuses
SCHEDULE 3
List of Lock-Up Parties
EXHIBIT A
Form of Lock-Up Agreement
Lock-Up Agreement
____________, 2021
EF Hutton,
division of Benchmark Investments, LLC.
as Representative of the several Underwriters named
on Schedule 1 attached hereto
590 Madison Avenue, 39th Floor
New York, NY 10022
Ladies and Gentlemen:
The undersigned understands that
EF Hutton, division of Benchmark Investments, LLC (the “Representative”) proposes to enter into an Underwriting Agreement
(the “Underwriting Agreement”) with DatChat, Inc., a Nevada corporation (the “Company”), providing
for the public offering (the “Public Offering”) of units (the “Units”) each consisting of one (1)
Common Share of the Company, par value $0.001 per share (the “Common Shares”), and a Series A Warrant to purchase one
(1) Common Share (the “Warrants”, and collectively with the Units and Common Shares, the “Securities”).
To induce the Representative
to continue its efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent
of the Representative, the undersigned will not, during the period commencing on the date hereof and ending [90]/[180]1 days
after the date of the final prospectus (the “Prospectus”) relating to the Public Offering (the “Lock-Up Period”),
(1) offer, pledge, sell, contract to sell, grant, lend, or otherwise transfer or dispose of, directly or indirectly, any Securities or
any securities convertible into or exercisable or exchangeable for the Securities, whether now owned or hereafter acquired by the undersigned
or with respect to which the undersigned has or hereafter acquires the power of disposition (collectively, the “Lock-Up Securities”);
(2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership
of the Lock-Up Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Lock-Up
Securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to the registration of any Lock-Up Securities;
or (4) publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge
or other arrangement relating to any Lock-Up Securities. Notwithstanding the foregoing, and subject to the conditions below, the undersigned
may transfer Lock-Up Securities without the prior written consent of the Representative in connection with (a) transactions relating
to Lock-Up Securities acquired in open market transactions after the completion of the Public Offering; provided that
no filing under Section 13 or Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
or other public announcement shall be required or shall be voluntarily made during the Lock-Up Period in connection with subsequent sales
of Lock-Up Securities acquired in such open market transactions; (b) transfers of Lock-Up Securities as a bona fide gift,
by will or intestacy or to a family member or trust for the benefit of a family member (for purposes of this lock-up agreement, “family
member” means any relationship by blood, marriage or adoption, not more remote than first cousin); (c) transfers of Lock-Up Securities
to a charity or educational institution; (d) if the undersigned, directly or indirectly, controls a corporation, partnership, limited
liability company or other business entity, any transfers of Lock-Up Securities to any shareholder, partner or member of, or owner of
similar equity interests in, the undersigned, as the case may be; provided that in the case of any transfer pursuant
to the foregoing clauses (b), (c) or (d), (i) it shall be a condition to any such transfer that (i) the transferee/donee agrees to be
bound by the terms of this lock-up agreement (including, without limitation, the restrictions set forth in the preceding sentence) to
the same extent as if the transferee/donee were a party hereto; and (ii) each party (donor, donee, transferor or transferee) shall not
be required by law (including without limitation the disclosure requirements of the Securities Act of 1933, as amended (the “Securities
Act”), and the Exchange Act) to make, and shall agree to not voluntarily make, any filing or public announcement of the transfer
or disposition prior to the expiration of the Lock-Up Period; (e) (i) the transfer of Lock-Up Securities that occurs by operation of
law, such as pursuant to a qualified domestic order or in connection with a divorce settlement, provided that the transferee agrees
to sign and deliver a lock-up agreement substantially in the form of this lock-up agreement for the balance of the Lock-Up Period, and
provided further, that any filing under Section 13 or Section 16(a) of the Exchange Act that is required to be made during the
Lock-Up Period as a result of such transfer shall include a statement that such transfer has occurred by operation of law; and (f) the
transfer of Lock-Up Securities pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made
to all holders of the Common Shares involving a change of control (as defined below) of the Company after the closing of the Public Offering
and approved by the Company’s board of directors; provided that in the event that the tender offer, merger, consolidation
or other such transaction is not completed, the Lock-Up Securities owned by the undersigned shall remain subject to the restrictions
contained in this lock-up agreement. For purposes of clause (j) above, “change of control” shall mean the consummation of
any bona fide third party tender offer, merger, amalgamation, consolidation or other similar transaction the result of which is that
any “person” (as defined in Section 13(d)(3) of the Exchange Act), or group of persons, becomes the beneficial owner (as
defined in Rules 13d-3 and 13d-5 of the Exchange Act) of a majority of total voting power of the voting stock of the Company.
1 180-day period for directors and
executive officers and other owners of 5% or more of the Company’s outstanding Common Shares.
In addition, the foregoing restrictions
shall not apply to (i) the exercise of share options granted pursuant to the Company’s equity incentive plans; provided that it
shall apply to the undersigned’s Common Shares issued upon such exercise, (ii) exercise of warrants; provided that it shall apply
to any of the undersigned’s Common Shares issued upon such exercise, or (iii) the establishment of any new plan (a “Plan”)
that satisfies all of the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act; provided that no sales of the undersigned’s
Securities shall be made pursuant to such new Plan prior to the expiration of the Lock-Up Period (as such may have been extended pursuant
to the provisions hereof), and such a Plan may only be established if no public announcement of the establishment or existence thereof
and no filing with the Securities and Exchange Commission or other regulatory authority in respect thereof or transactions thereunder
or contemplated thereby, by the undersigned, the Company or any other person, shall be required, and no such announcement or filing is
made voluntarily, by the undersigned, the Company or any other person, prior to the expiration of the Lock-Up Period (as such may have
been extended pursuant to the provisions hereof).
The undersigned also agrees and
consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the
undersigned’s securities subject to this this lock-up agreement except in compliance with this this lock-up agreement.
If the undersigned is an officer
or director of the Company, (i) the undersigned agrees that the foregoing restrictions shall be equally applicable to any Securities
that the undersigned may purchase in the Public Offering; (ii) the Representative agrees that, at least three (3) business days before
the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Lock-Up Securities, the Representative
will notify the Company of the impending release or waiver; and (iii) the Company has agreed in the Underwriting Agreement to announce
the impending release or waiver by press release through a major news service at least two (2) business days before the effective date
of the release or waiver. Any release or waiver granted by the Representative hereunder to any such officer or director shall only be
effective two (2) business days after the publication date of such press release. The provisions of this paragraph will not apply if
(a) the release or waiver is effected solely to permit a transfer of Lock-Up Securities not for consideration and (b) the transferee
has agreed in writing to be bound by the same terms described in this lock-up agreement to the extent and for the duration that such
terms remain in effect at the time of such transfer.
The undersigned understands that
the Company and the Representative are relying upon this lock-up agreement in proceeding toward consummation of the Public Offering. The
undersigned further understands that this lock-up agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal
representatives, successors and assigns.
The undersigned understands that,
if the Underwriting Agreement is not executed by _______, 2021 or if the Underwriting Agreement (other than the provisions thereof which
survive termination) shall terminate or be terminated prior to payment for and delivery of the Common Shares to be sold thereunder, then
this lock-up agreement shall be void and of no further force or effect.
Whether or not the Public Offering
actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting
Agreement, the terms of which are subject to negotiation between the Company and the Representative.
Delivery of a signed copy of this
lock-up agreement by facsimile, electronic signature or e-mail/.pdf transmission shall be effective as the delivery of the original hereof.
This lock-up agreement shall be
governed by, and construed in accordance with, the laws of the State of New York.
|
|
Very truly yours,
|
|
|
|
|
|
|
|
|
(Name - Please Print)
|
|
|
|
|
|
|
|
|
(Signature)
|
|
|
|
|
|
|
|
|
(Name of Signatory, in the case of entities - Please Print)
|
|
|
|
|
|
|
|
|
(Title of Signatory, in the case of entities - Please Print)
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
EXHIBIT B
Form of Press Release
DATCHAT, INC.
[Date]
DatChat, Inc. (the “Company”) announced
today that EF Hutton, division of Benchmark Investments, LLC., acting as representative for the underwriters in the Company’s recent
public offering of _______ units comprised of the Company’s Common Shares and Series A Warrants, is [waiving] [releasing] a lock-up
restriction with respect to _______ Common Shares and accompanying Warrants held by [certain officers or directors] [an officer or director]
of the Company. The [waiver] [release] will take effect on _______, 20___, and such Common Shares and Warrants may be sold on or after
such date.
This press release is not an offer or sale of the
securities in the United States or in any other jurisdiction where such offer or sale is prohibited, and such securities may not be offered
or sold in the United States absent registration or an exemption from registration under the Securities Act of 1933, as amended.
COMMON STOCK PURCHASE WARRANT
[__________
Warrant Shares: [_______ Initial Issue Date: ____ __, 2021
THIS COMMON STOCK PURCHASE
WARRANT (the “Warrant”) certifies that, for value received, _____________ or its assigns (the “Holder”)
is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after
the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on [______________[1]
(the “Termination Date”) but not thereafter, to subscribe for and purchase from DatChat, Inc., a Nevada corporation
(the “Company”), up to ______ shares (as subject to adjustment hereunder, the “Warrant Shares”)
of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in
Section 2(b).
Section 1. Definitions.
Capitalized terms are used as defined herein.
Section 2. Exercise.
a)
Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any
time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed
facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice
of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement
Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise
Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States
bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original
Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of
Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this
Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised
in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the
date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a
portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant
Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall
maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection
to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this
Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant
Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated
on the face hereof.
b)
Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $__[2],
subject to adjustment hereunder (the “Exercise Price”). T
c)
Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus
contained therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole
or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant
Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = as applicable:
(i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1)
both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant
to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of
Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP
on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the Bid Price of the Common Stock on the
principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the Holder’s execution
of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day
and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours”
on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such
Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof after the
close of “regular trading hours” on such Trading Day;
(B) = the Exercise
Price of this Warrant, as adjusted hereunder; and
(X) = the number
of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were
by means of a cash exercise rather than a cashless exercise.
If
Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the
Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The Company
agrees not to take any position contrary to this Section 2(c).
“Bid Price”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City
time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed
or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization
or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in
all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by
the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses
of which shall be paid by the Company.
“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not
then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a
similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock
so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the Company.
Notwithstanding anything
herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this
Section 2(c).
|
|
d)
|
Mechanics of Exercise.
|
i.
Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer
Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust
Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such
system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the
Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate,
registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which
the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is
the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day after
delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement Period
after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”). Upon delivery
of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment
of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) two (2) Trading
Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the
Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery
Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject
to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing
to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant
Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer
agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard
Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary
Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise. Notwithstanding the foregoing,
with respect to any Notice(s) of Exercise delivered on or prior to 12:00 p.m. (New York City time) on the Initial Exercise Date, which
may be delivered at any time after the time of execution of the Purchase Agreement, the Company agrees to deliver the Warrant Shares
subject to such notice(s) by 4:00 p.m. (New York City time) on the Initial Exercise Date and the Initial Exercise Date shall be the Warrant
Share Delivery Date for purposes hereunder, provided that payment of the aggregate Exercise Price (other than in the case of a cashless
exercise) is received by such Warrant Share Delivery Date.
ii.
Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request
of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new
Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.
iii.
Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant
to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv.
Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available
to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions
of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required
by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares
of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon
such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x)
the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds
(y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection
with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B)
at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise
was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares
of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating
the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares
of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v.
No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company
shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied
by the Exercise Price or round up to the next whole share.
vi.
Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer
tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the
Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder;
provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and
the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.
The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository
Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of
the Warrant Shares.
vii.
Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise
of this Warrant, pursuant to the terms hereof.
Holder’s Exercise Limitations. The Company
shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant
to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice
of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any
of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation
(as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and
its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with
respect to which such determination is being made, but shall exclude the number ofshares of Common Stock which would be issuable upon
(i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution
Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including,
without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding
sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to
the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any
schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the
determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates
and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission
of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to
other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable,
in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy
of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining
the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected
in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public
announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares
of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally
and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares
of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant,
by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was
reported. The “Beneficial Ownership Limitation” shall be [9.99/4.99%] of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder,
upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that
the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section
2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day
after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise
than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective
or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable
to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
Section 3. Certain
Adjustments.
a)
Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise
of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way
of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares
of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the
number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this
Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or re-classification.
b)
Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding,
shall sell, enter into an agreement to sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose
of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents,
at an effective price per share less than the Exercise Price then in effect (such lower price, the “Base Share Price”
and such issuances collectively, a “Dilutive Issuance”) (it being understood and agreed that if the holder of the Common
Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such
issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance at such effective price),
[then simultaneously with the consummation (or, if earlier, the announcement) of each Dilutive Issuance the Exercise Price shall be reduced
and only reduced to equal the Base Share Price [and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate
Exercise Price payable hereunder, after taking into account the decrease in
the Exercise Price, shall be equal to
the aggregate Exercise Price prior to such adjustment, provided that the Base Share Price shall not be less than $___[3]
(subject to adjustment for reverse and forward stock splits, recapitalizations and similar transactions following the date of the Purchase
Agreement). Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt
Issuance. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance or deemed issuance of
any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable
reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”).
For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the
occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless
of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. If the Company enters into a Variable Rate
Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible price, conversion
price or exercise price at which such securities may be issued, converted or exercised.
c)
Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants,
issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had
held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise
hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares
of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the
extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership
Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such
shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance
for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
d)
Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend
or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital
or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend,
spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”),
at
any time after the issuance of this Warrant,
then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have
participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without
regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the
date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares
of Common Stock are to be determined for the participation in such Distribution (provided, however, that, to the extent
that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation,
then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares
of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the
benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership
Limitation). To the extent that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion
of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.
e)
Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in
one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company or
any Subsidiary, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all
or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender
offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted
to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of
the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related
transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group
acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or
other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase
agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of
this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately
prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e)
on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if
it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a
result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately
prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes
of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and
the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value
of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash
or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the
event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable
at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the
public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount
of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation
of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company's control,
including not approved by the Company's Board of Directors, Holder shall only be entitled to receive from the Company or any Successor
Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of
this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction,
whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given
the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided,
further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction,
such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following
such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant
based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of
consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding
to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction
and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function
on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement
of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the
sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such
Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding the announcement
of the applicable
Fundamental Transaction (or the consummation
of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section
3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction
and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately
available funds (or such other consideration) within the later of (i) five Business Days of the Holder’s election and (ii) the date
of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the
Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under
this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements
in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental
Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity
evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding
number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable
and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental
Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account
the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock,
such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant
immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to
the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring
to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall
assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor
Entity had been named as the Company herein.
f)
Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share,
as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given
date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
g)
Notice to Holder.
i. Adjustment
to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall
promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any
resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii.
Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form)
on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the
Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with
any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any
sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into
other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding
up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its
last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders
of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close,
and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange;
provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains,
material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with
the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing
on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
h)
Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time
during the term of this Warrant, subject to the prior written consent of the Holder, reduce the then current Exercise Price to any amount
and for any period of time deemed appropriate by the board of directors of the Company.
Section 4. Transfer
of Warrant.
a)
Transferability. This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable,
in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written
assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient
to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall
execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required
to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall
surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the
Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for
the purchase of Warrant Shares without having a new Warrant issued.
b)
New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office
of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by
the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division
or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of
this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c)
Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose
(the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat
the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.
Section 5. Miscellaneous.
a)
No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights,
dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly
set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant
to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be
required to net cash settle an exercise of this Warrant.
b)
Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares,
and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant,
shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the
Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant
or stock certificate.
c)
Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right
required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding
Business Day.
d)
Authorized Shares.
The Company covenants
that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the
necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action
as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation,
or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares
which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented
by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).
Except and to the
extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate
of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate
to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the
Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior
to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts
to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary
to enable the Company to perform its obligations under this Warrant.
Before taking any action
which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.
e)
Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall
be determined in accordance with the provisions of the Purchase Agreement.
f)
Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered,
and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g)
Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other
provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this
Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings,
incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h)
Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase Agreement.
i)
Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant
to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the
Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
j)
Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby
agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k)
Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted
assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant Shares.
l)
Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company
and the Holder.
m)
Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
n)
Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
********************
(Signature Page Follows)
IN WITNESS WHEREOF, the Company
has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
|
DATCHAT, INC.
|
|
By:__________________________________________
Name:
Title:
|
NOTICE OF EXERCISE
To: DATCHAT,
INC.
(1)
The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes,
if any.
(2)
Payment shall take the form of (check applicable box):
[ ] in lawful money
of the United States; or
[ ] [if permitted the
cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise
this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in
subsection 2(c).
(3)
Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the following
DWAC Account Number:
_______________________________
_______________________________
_______________________________
[SIGNATURE
OF HOLDER]
Name of Investing Entity: ________________________________________________________________________
Signature of Authorized Signatory of Investing
Entity: _________________________________________________
Name of Authorized Signatory: ___________________________________________________________________
Title of Authorized Signatory: ____________________________________________________________________
Date: ________________________________________________________________________________________
EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing
Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the
foregoing Warrant and all rights evidenced thereby are hereby assigned to
|
Name:
|
|
|
|
(Please Print)
|
|
Address:
|
|
|
Phone Number:
Email Address:
|
(Please Print)
______________________________________
______________________________________
|
|
Dated: _______________ __, ______
|
|
|
Holder’s Signature:
|
|
|
Holder’s Address:
|
|
[1]
Insert the date that is the five year anniversary of the Initial Exercise Date, provided that, if such date is not a Trading Day, insert
the immediately following Trading Day.
[2]
Insert the amount which is 120% of the IPO Unit price.
[3]
greater of (i) $0.10 and (ii) 20% of the closing bid price of the Common Stock on the date prior to the execution of the Purchase Agreement.
COMMON STOCK PURCHASE WARRANT
__________
Warrant Shares: _______ Issue Date: [_______, 2021
THIS COMMON STOCK PURCHASE
WARRANT (the “Warrant”) certifies that, for value received, _____________ or its assigns (the “Holder”)
is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after
the six month anniversary of the Issue Date (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City
time) on ______________[1] (the “Termination
Date”) but not thereafter, to subscribe for and purchase from DatChat, Inc., a Nevada corporation (the “Company”),
up to ______ shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock of the Company (“Common
Stock”). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined
in Section 2(b).
Section 1. Definitions.
Capitalized terms are used as defined herein.
Section 2. Exercise.
a)
Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any
time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed
facsimile copy or PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice
of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement
Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise
Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States
bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original
Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of
Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this
Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised
in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the
date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a
portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant
Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall
maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection
to any Notice of Exercise within one (1) business day in which commercial banks are open for business in New York, NY (“Business
Day”) of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that,
by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant
Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b)
Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $[_____[2],
subject to adjustment hereunder (the “Exercise Price”).
c)
Cashless Exercise. [If at the time of exercise hereof there is no effective registration statement registering, or the prospectus
contained therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may also be exercised, in whole
or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant
Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = as applicable:
(i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1)
both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant
to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(68) of
Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the VWAP
on the Trading Day immediately preceding the date of the applicable Notice of Exercise or (z) the bid price (“Bid Price”)
of the Common Stock on the principal trading market as reported by Bloomberg L.P. (“Bloomberg”) as of the time of the
Holder’s execution of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours”
on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading
hours” on a Trading Day) pursuant to Section 2(a) hereof or (iii) the VWAP on the date of the applicable Notice of Exercise if the
date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) hereof
after the close of “regular trading hours” on such Trading Day;
(B) = the Exercise
Price of this Warrant, as adjusted hereunder; and
(X) = the number
of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were
by means of a cash exercise rather than a cashless exercise.
If
Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the
Securities Act, the Warrant Shares shall take on the registered characteristics of the Warrants being exercised. The Company
agrees not to take any position contrary to this Section 2(c).
“Bid Price”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City
time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed
or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization
or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in
all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by
the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses
of which shall be paid by the Company.
“VWAP”
means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not
then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a
similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock
so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser
selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the
Company, the fees and expenses of which shall be paid by the Company.
Notwithstanding
anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant
to this Section 2(c).
|
|
d)
|
Mechanics of Exercise.
|
i.
Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted
by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository
Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant
in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale
of the Warrant Shares by Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a
certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares
to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date
that is the earliest of (i) two (2) Trading Days after the delivery to the Company of the Notice of Exercise, (ii) one (1) Trading Day
after delivery of the aggregate Exercise Price to the Company and (iii) the number of Trading Days comprising the Standard Settlement
Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”).
Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of
the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares,
provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received
within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following
delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the
Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in
cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the
Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading
Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares
are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the
FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period”
means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect
to the Common Stock as in effect on the date of delivery of the Notice of Exercise. Notwithstanding
the foregoing, with respect to any Notice(s) of Exercise delivered on or prior to 12:00 p.m. (New York City time) on the Initial Exercise
Date, which may be delivered at any time after the time of execution of the Purchase Agreement, the Company agrees to deliver the Warrant
Shares subject to such notice(s) by 4:00 p.m. (New York City time) on the Initial Exercise Date and the Initial Exercise Date shall be
the Warrant Share Delivery Date for purposes hereunder, provided that payment of the aggregate Exercise Price (other than in the case
of a cashless exercise) is received by such Warrant Share Delivery Date.
ii.
Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request
of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new
Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.
iii.
Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant
to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv.
Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available
to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions
of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required
by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares
of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such
exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained
by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise
at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the
Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in
which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with
an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the
Company shall be required to pay the Holder $1,000.
The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the
amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
v.
No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise
of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company
shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied
by the Exercise Price or round up to the next whole share.
vi.
Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer
tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the
Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder;
provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and
the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.
The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and
all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day
electronic delivery of the Warrant Shares.
vii.
Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise
of this Warrant, pursuant to the terms hereof.
Holder’s Exercise Limitations.
The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant,
pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable
Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the
Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess
of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common
Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares ofCommon Stock issuable
upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder
or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties.
Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that
the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder
is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in
this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder
together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion
of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant
is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which
portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation
to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall
be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes
of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding
shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the
case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer
Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company
shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.
In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which
such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99%
of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable
upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions
of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the
Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not
be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed
and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph
shall apply to a successor holder of this Warrant.
Section 3. Certain
Adjustments.
a)
Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise
of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way
of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares
of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the
number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this
Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or re-classification.
b)
Intentionally Omitted.
c)
Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company
grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to
the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if
the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations
on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders
of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however,
that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the
Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial
ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall
be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial
Ownership Limitation).
d)
Pro Rata Distributions. During such time as this Warrant is outstanding, if the
Company shall declare or make any noncash dividend or other distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar
transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall
be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had
held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise
hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for
such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined
for the participation in such Distribution (provided, however, that, to the extent that the Holder's right to participate in any such
Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate
in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to
such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as
its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). [[Nasdaq issuer only] To the extent
that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion of the Distribution shall
be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.
e)
Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in
one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly
or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of
its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange
their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock,
(iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization
of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for
other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock
or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off,
merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of
the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business
combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall
have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence
of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this
Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation,
and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction
by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction
(without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination
of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price
among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.
If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor
(the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance
with the provisions of this Section 3(e) pursuant to written agreements prior to such Fundamental Transaction and shall, at the option
of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock
of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise
price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares
of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital
stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation
of such Fundamental Transaction. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and
be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the
“Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume
all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company
herein outstanding, a Fundamental Transaction occurs, pursuant to the terms of this Section 3(d).
f)
Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share,
as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given
date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
g)
Notice to Holder.
i.
Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company
shall promptly deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting
adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii.
Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever
form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock,
(C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with
any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or
substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or
property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be delivered by facsimile or email to the Holder at its last facsimile number
or email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record
or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock
of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date
as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock
for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange;
provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains,
material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice
with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period
commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly
set forth herein.
h)
Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time
during the term of this Warrant, subject to the prior written consent of the Holder, reduce the then current Exercise Price to any amount
and for any period of time deemed appropriate by the board of directors of the Company.
Section 4. Transfer
of Warrant.
a)
Transferability. Pursuant to FINRA Rule 5110(e)(1), neither this Warrant nor any Warrant Shares issued upon exercise of
this Warrant shall be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative,
put, or call transaction that would result in the effective economic disposition of the Securities by any person for a period of 180 days
immediately following the commencement of sales of the Securities in connection with the Offering pursuant to which this Warrant is being
issued, except:
|
|
i.
|
by operation of law or by reason of reorganization of the Company;
|
|
|
ii.
|
to any FINRA member firm participating in the Offering and the officers, partners, registered persons
or affiliates thereof, if all securities so transferred remain subject to the lock-up restriction in this Section 4(a) for the remainder
of the time period;
|
|
|
iii.
|
if the aggregate amount of securities of the Company held by the Holder or FINRA member firm participating
in the Offering do not exceed 1% of the Securities being offered;
|
|
|
iv.
|
that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that
no participating FINRA member manages or otherwise directs investments by the fund, and participating FINRA members in the aggregate do
not own more than 10% of the equity in the fund;
|
|
|
v.
|
of an issuer that meets the registration requirements of Commission Forms S-3, F-3 or F-10;
|
|
|
vi.
|
if such Warrant or Warrant Shares are considered a non-convertible or non-exchangeable debt security acquired
in a transaction related to the Offering;
|
|
|
vii.
|
if such Warrant or Warrant Shares are considered a derivative instrument acquired in connection with a
hedging transaction related to the Offering and at a fair price;
|
|
|
viii.
|
if such Warrant or Warrant Shares were acquired in a transaction meeting the requirements of FINRA Rule
5110(d);
|
|
|
ix.
|
if such Warrant or Warrant Shares are “actively-traded” (as defined in Rule 101(c)(1) of Regulation
M promulgated by the Commission);
|
|
|
x.
|
if such Warrant or Warrant Shares were received as underwriting compensation, and are registered and sold
as part of a firm commitment offering;
|
|
|
xi.
|
if such Warrant or Warrant Shares are transferred or sold back to the Company in a transaction exempt
from registration with the Commission; or
|
|
|
xii.
|
for the exercise of this Warrant, if such Warrant and any Warrant Shares remain subject to the lock-up
restriction in this Section 4(a) for the remainder of the time period.
|
Subject to the foregoing
and compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof ,this Warrant and all rights hereunder
(including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the
principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making
of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants
in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment,
and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly
be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to
the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company
within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full.
The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without
having a new Warrant issued.
b)
New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office
of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed
by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division
or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of
this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c)
Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose
(the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat
the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.
Section 5. Miscellaneous.
a)
No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights,
dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly
set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant
to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be
required to net cash settle an exercise of this Warrant.
b)
Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares,
and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant,
shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the
Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant
or stock certificate.
c)
Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right
required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding
Business Day.
d)
Authorized Shares.
The Company covenants
that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of
issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable
action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all
Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than
taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent
as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate
of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate
to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the
Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior
to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts
to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary
to enable the Company to perform its obligations under this Warrant.
Before taking any action
which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.
e)
Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall
be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles
of conflicts of law thereof. The Company and the Holder each agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Warrant (whether brought against the Company or the Holder or their respective affiliates,
directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts
sitting in the City of New York. The Company and the Holder each hereby irrevocably submits to the exclusive jurisdiction of the state
and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is improper or is an inconvenient venue for such proceeding. The Company and the Holder each hereby irrevocably waives
personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to
it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. Notwithstanding
the foregoing, nothing in this paragraph shall limit or restrict the federal district court in which a Holder may bring a claim under
the federal securities laws.
f)
Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered,
and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g)
Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder
shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other
provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in
any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses
including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting
any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h)
Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder including, without
limitation, any Notice of Exercise, shall be in writing and delivered personally, by e-mail, or sent by a nationally recognized overnight
courier service, addressed to the Company, 65 Church Street, 2nd Floor, New Brunswick, NJ 08901, Attention: Darren Myman,
CEO; e-mail address: dmyman@datchats.com, or such other email address or address as the Company may specify for such purposes by notice
to the Holder. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing
and delivered personally, by e-mail, or sent by a nationally recognized overnight courier service addressed to each Holder at the e-mail
address or address of the Holder appearing on the books of the Company. Any notice or other communication or deliveries hereunder shall
be deemed given and effective on the earliest of (a) the time of transmission, if such notice or communication is delivered via e-mail
attachment at the email addresses described above at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading
Day after the date of transmission, if such notice or communication is delivered via e-mail attachment at the e-mail addresses described
above on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading
Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the
party to whom such notice is required to be given. To the extent that any notice provided hereunder constitutes, or contains, material,
non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission
pursuant to a Current Report on Form 8-K.
i)
Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant
to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the
Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
j)
Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to
assert the defense in any action for specific performance that a remedy at law would be adequate.
k)
Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted
assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant Shares.
l)
Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company
and the Holder.
m)
Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining
provisions of this Warrant.
n)
Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
********************
(Signature Page Follows)
IN WITNESS WHEREOF, the Company
has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
|
DATCHAT, INC.
|
|
By:__________________________________________
Name:
Title:
|
NOTICE OF EXERCISE
To: Datchat,
inc.
(1)
The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes,
if any.
(2)
Payment shall take the form of (check applicable box):
[ ] in lawful money
of the United States; or
[ ] [if permitted the
cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise
this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in
subsection 2(c).
(3)
Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the following
DWAC Account Number:
_______________________________
_______________________________
_______________________________
[SIGNATURE
OF HOLDER]
Name of Investing Entity: ________________________________________________________________________
Signature of Authorized Signatory of Investing
Entity: _________________________________________________
Name of Authorized Signatory: ___________________________________________________________________
Title of Authorized Signatory: ____________________________________________________________________
Date: ________________________________________________________________________________________
EXHIBIT B
ASSIGNMENT FORM
(To assign the foregoing
Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the
foregoing Warrant and all rights evidenced thereby are hereby assigned to
|
Name:
|
|
|
|
(Please Print)
|
|
Address:
|
|
|
Phone Number:
Email Address:
|
(Please Print)
______________________________________
______________________________________
|
|
Dated: _______________ __, ______
|
|
|
Holder’s Signature:
|
|
|
Holder’s Address:
|
|
[1]
Insert the date that is the five (5) year anniversary of the Initial Exercise Date, provided that, if such date is not a Trading Day,
insert the immediately following Trading Day.
[2]
110% of the purchase price of a share of Common Stock and a Series A Warrant in the Company’s public offering of which this warrant
is a part.
Exhibit 5.1
|
Sheppard, Mullin, Richter & Hampton LLP
30 Rockefeller Plaza
New York, New York 10112-0015
212.653.8700 main
212.653.8701 fax
www.sheppardmullin.com
|
August 9, 2021
VIA ELECTRONIC
MAIL
DatChat, Inc.
65 Church Street, 2nd Floor
New Brunswick,
NJ
|
Re:
|
Registration Statement on Form S-1
|
Ladies and Gentlemen:
We have acted as counsel to DatChat,
Inc., a Nevada corporation (the “Company”), in connection with the offering, pursuant to a Registration Statement on
Form S-1 under the Securities Act of 1933, as amended (the “Securities Act”), originally filed with the Securities
and Exchange Commission (the “Commission”) on July 2, 2021 (Registration No. 333-257688), as amended to date (the “Registration
Statement”), of (A) up to $15,243,419.50 of units of the
Company’s securities (the “Units”), with each Unit consisting of (i) one share of the Company’s common
stock, par value $0.001 per share (the “Shares”), and (ii) one warrant to purchase one share of common stock (the “Warrants”);
and (B) a warrant to purchase up to $1,116,452 of Shares sold to investors
granted to EF Hutton, division of Benchmark Investments, LLC, as representative of the several Underwriters (the “Underwriters”),
by the Company (the “Underwriters’ Warrants”). The shares of common stock issuable upon exercise of the Offering
Warrants described in clause (A)(ii) of the preceding sentence and the shares of common stock issuable upon exercise of the Underwriter
Warrants described in clause (B) of the preceding sentence, are collectively referred to herein as the “Warrant Shares.”
The Units, the Shares, the Warrants and the Warrant Shares are referred to herein collectively as the “Securities.”
The opinion expressed herein is
limited exclusively to (i) the Nevada Revised Statutes (the “NRS”) and (ii) the laws of the State of New York, in each
case as in effect on the date hereof, and we have not considered, and express no opinion on, any other laws or the laws of any other jurisdiction.
In rendering the opinions expressed
herein, we have examined and relied upon the originals, or copies certified to our satisfaction, of (i) the Registration Statement and
the prospectus included therein (the “Prospectus”), and all exhibits thereto; (ii) the Company’s Amended and
Restated Articles of Incorporation, as amended; (iii) the Company’s Amended and Restated Bylaws; (iv) the resolutions of the Company’s
board of directors with respect to the authorization of the issuance of the Securities covered by the Registration Statement and related
matters thereto; (v) the form of Underwriting Agreement pursuant to which the Securities are to be sold (the “Underwriting Agreement”),
(vi) the form of Warrant Agent Agreement (including the form of Offering Warrant contained therein), (vii) the form of Underwriters’
Warrant, (viii) the form of Common Stock certificate, and (ix) such other records, documents and instruments as we have deemed necessary
for the expression of the opinions stated herein.
In making the foregoing examinations,
we have assumed the genuineness of all signatures (other than those of the Company), the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies thereof and the
authenticity of the originals of such latter documents. As to all questions of fact material to this opinion, where such facts have not
been independently established, we have relied, to the extent we have deemed reasonably appropriate, upon representations or certificates
of officers of the Company or governmental officials and representations of the Company.
Based upon and subject to the
foregoing, we are of the opinion that:
I. the Securities have
been duly authorized for issuance by all necessary corporate action by the Company;
II. the Shares, when
issued and sold as described in the Registration Statement, will be validly issued, fully paid and non-assessable;
III. provided that the
Warrants and Underwriters’ Warrants have been duly executed and delivered by the Company and duly delivered to the purchasers or
underwriters, such Warrants and Underwriters’ Warrants, when issued as contemplated in the Registration Statement, will be valid
and binding obligations of the Company; and
IV. the Warrant Shares,
upon payment to the Company of the required consideration, and when issued and sold by the Company and paid for in accordance with the
terms of the Warrants or Underwriters’ Warrants, as applicable, and as described in the Registration Statement, will be validly
issued, fully paid and non-assessable.
Our opinions set forth above with
respect to the validity or binding effect of any security or obligation may be limited by (i) bankruptcy, insolvency, reorganization,
fraudulent conveyance, marshaling, moratorium or other similar laws affecting the enforcement generally of the rights and remedies of
creditors and secured parties or the obligations of debtors, (ii) general principles of equity (whether considered in a proceeding in
equity or at law), including but not limited to principles limiting the availability of specific performance or injunctive relief, and
concepts of materiality, reasonableness, good faith and fair dealing, (iii) the possible unenforceability under certain circumstances
of provisions providing for indemnification, contribution, exculpation, release or waiver that may be contrary to public policy or violative
of federal or state securities laws, rules or regulations, and (iv) the effect of course of dealing, course of performance, oral agreements
or the like that would modify the terms of an agreement or the respective rights or obligations of the parties under an agreement.
We hereby consent to the filing
of this opinion with the Commission as Exhibit 5.1 to the Registration Statement and any abbreviated registration statements relating
thereto that may be filed to register additional securities identical to those covered by the Registration Statement (including a registration
statement filed pursuant to Rule 462(b) under the Securities Act), and to the reference to our firm under the caption “Legal Matters”
in the prospectus constituting part of such Registration Statement. In giving such consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities Act.
|
|
Respectfully submitted,
|
|
|
|
|
|
/s/ Sheppard, Mullin, Richter & Hampton LLP
|
|
|
Sheppard, Mullin, Richter & Hampton LLP
|
DATCHAT, INC.
2021 OMNIBUS EQUITY INCENTIVE PLAN
Section
1.
Purpose of Plan.
The name of the Plan is the DatChat, Inc. (the
“Company” or “DatChat”) 2021 Omnibus Equity Incentive Plan (the “Plan”).The purposes
of the Plan are to (i) provide an additional incentive to selected employees, directors, and independent contractors of the Company
or its Affiliates whose contributions are essential to the growth and success of the Company, (ii) strengthen the commitment of such
individuals to the Company and its Affiliates, (iii) motivate those individuals to faithfully and diligently perform their responsibilities
and (iv) attract and retain competent and dedicated individuals whose efforts will result in the long-term growth and profitability
of the Company. To accomplish these purposes, 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.
Section
2.
Definitions.
For purposes of the Plan, the following terms
shall be defined as set forth below:
(a)
“Administrator” means the Board, or, if and to the extent the Board does not administer the Plan, the Committee
in accordance with Section 3 hereof.
(b)
“Affiliate” means a Person that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person specified as of any date of determination.
(c)
“Applicable Laws” means the applicable requirements under U.S. federal and state corporate laws, U.S. federal
and state securities laws, including the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and
the applicable laws of any other country or jurisdiction where Awards are granted under the Plan, as are in effect from time to time.
(d)
“Award” means any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit or Other Stock-Based
Award granted under the Plan.
(e)
“Award Agreement” means any written notice, agreement, contract or other instrument or document evidencing an
Award, including through electronic medium, which shall contain such terms and conditions with respect to an Award as the Administrator
shall determine, consistent with the Plan.
(f)
“Beneficial Owner” (or any variant thereof) has the meaning defined in Rule 13d-3 under the Exchange Act.
(g)
“Board” means the Board of Directors of the Company.
(h)
“Bylaws” mean the bylaws of the Company, as may be amended and/or restated from time to time.
(i)
“Cause” has the meaning assigned to such term in any individual service, employment or severance agreement or
Award Agreement with the Participant or, if no such agreement exists or if such agreement does not define “Cause,” then “Cause”
means (i) the conviction, guilty plea or plea of “no contest” by the Participant to any felony or a crime involving moral
turpitude or the Participant’s commission of any other act or omission involving dishonesty or fraud, (ii) the substantial
and
repeated failure of the Participant to perform duties of the office
held by the Participant, (iii) the Participant’s gross negligence, willful misconduct or breach of fiduciary duty with respect
to the Company or any of its Subsidiaries or Affiliates, (iv) any breach by the Participant of any restrictive covenants to which
the Participant is subject, and/or (v) the Participant’s engagement in any conduct which is or can reasonably be expected to
be materially detrimental or injurious to the business or reputation of the Company or its Affiliates. Any voluntary termination of employment
or service by the Participant in anticipation of an involuntary termination of the Participant’s employment or service, as applicable,
for Cause shall be deemed to be a termination for Cause.
(j)
“Change in Capitalization” means any (i) merger, consolidation, reclassification, recapitalization, spin-off,
spin-out, repurchase or other reorganization or corporate transaction or event, (ii) special or extraordinary dividend or other extraordinary
distribution (whether in the form of cash, Common Stock or other property), stock split, reverse stock split, share subdivision or consolidation,
(iii) combination or exchange of shares or (iv) other change in corporate structure, which, in any such case, the Administrator
determines, in its sole discretion, affects the Shares such that an adjustment pursuant to Section 5 hereof is appropriate.
(k)
“Change in Control” means the first occurrence of an event set forth in any one of the following paragraphs
following the Effective Date:
(1)
any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including the securities
Beneficially Owned by such Person which were acquired directly from the Company or any Affiliate thereof) representing more than fifty
percent (50%) of the combined voting power of the Company’s then outstanding securities, excluding any Person who becomes such a
Beneficial Owner in connection with a transaction described in clause (i) of paragraph (3) below; or
(2)
the date on which individuals who constitute the Board as of the Effective Date and any new director (other than a director whose
initial assumption of office is in connection with an actual or threatened election contest, including, but not limited to, a consent
solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election
by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved
or recommended cease for any reason to constitute a majority of the number of directors serving on the Board; or
(3)
there is consummated a merger or consolidation of the Company or any direct or indirect Subsidiary with any other corporation or
other entity, other than (i) a merger or consolidation (A) which results in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any Subsidiary, fifty percent (50%) or more of the combined voting
power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation
and (B) following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board
of directors of the Company, the entity surviving such merger or consolidation or, if the Company or the entity surviving such merger
or consolidation is then a Subsidiary, the ultimate parent thereof, or (ii) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of
the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its
Affiliates) representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities;
or
(4)
the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than (A) a
sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, more than fifty percent (50%)
of the combined voting power of the voting securities of which are
owned by stockholders of the Company following the completion of such transaction in substantially the same proportions as their ownership
of the Company immediately prior to such sale or (B) a sale or disposition of all or substantially all of the Company’s assets
immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board
of directors of the entity to which such assets are sold or disposed or, if such entity is a subsidiary, the ultimate parent thereof.
Notwithstanding the foregoing, (i) a Change in Control shall
not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following
which the holders of Common Stock immediately prior to such transaction or series of transactions continue to have substantially the same
proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction
or series of transactions and (ii) to the extent required to avoid accelerated taxation and/or tax penalties under Section 409A of
the Code, a Change in Control shall be deemed to have occurred under the Plan with respect to any Award that constitutes deferred compensation
under Section 409A of the Code only if a change in the ownership or effective control of the Company or a change in ownership of a substantial
portion of the assets of the Company shall also be deemed to have occurred under Section 409A of the Code. For purposes of this definition
of Change in Control, the term “Person” shall not include (i) the Company or any Subsidiary thereof, (ii) a trustee
or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary thereof, (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their ownership of shares of the Company.
(l)
“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.
(m)
“Committee” means any committee or subcommittee the Board may appoint to administer the Plan. Subject to the
discretion of the Board, the Committee shall be composed entirely of individuals who meet the qualifications of a “non-employee
director” within the meaning of Rule 16b-3 under the Exchange Act and any other qualifications required by the applicable stock
exchange on which the Common Stock is traded.
(n)
“Common Stock” means the common stock of the Company, par value $0.0001.
(o)
“Company” means DatChat, Inc., a Delaware corporation (or any successor company, except as the term “Company”
is used in the definition of “Change in Control” above).
(p)
“Disability” has the meaning assigned to such term in any individual service, employment or severance agreement
or Award Agreement with the Participant or, if no such agreement exists or if such agreement does not define “Disability,”
then “Disability” means that a Participant, as determined by the Administrator in its sole discretion, (i) is unable
to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected
to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason
of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a
continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months
under an accident and health plan covering employees of the Company or an Affiliate thereof.
(q)
“Effective Date” has the meaning set forth in Section 17 hereof.
(r)
“Eligible Recipient” means an employee, director or independent contractor of the Company or any Affiliate of
the Company who has been selected as an eligible participant by the Administrator; provided, however, to the extent required
to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, an Eligible Recipient of an Option or a Stock Appreciation
Right means an employee, non-employee director or independent contractor of the Company or any Affiliate of the Company with respect to
whom the Company is an “eligible issuer of service recipient stock” within the meaning of Section 409A of the Code.
(s)
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.
(t)
“Exempt Award” shall mean the following:
(1)
An Award granted in assumption of, or in substitution for, outstanding awards previously granted by a corporation or other entity
acquired by the Company or any of its Subsidiaries or with which the Company or any of its Subsidiaries combines by merger or otherwise.
The terms and conditions of any such Awards may vary from the terms and conditions set forth in the Plan to the extent the Administrator
at the time of grant may deem appropriate, subject to Applicable Laws.
(2)
An award that an Eligible Recipient purchases at Fair Market Value (including awards that an Eligible Recipient elects to receive
in lieu of fully vested compensation that is otherwise due) whether or not the Shares are delivered immediately or on a deferred basis.
(u)
“Exercise Price” means, (i) with respect to any Option, the per share price at which a holder of such Option
may purchase Shares issuable upon exercise of such Award, and (ii) with respect to a Stock Appreciation Right, the base price per
share of such Stock Appreciation Right.
(v)
“Fair Market Value” of a share of Common Stock or another security as of a particular date shall mean the fair
market value as determined by the Administrator in its sole discretion; provided, that, (i) if the Common Stock or other security
is admitted to trading on a national securities exchange, the fair market value on any date shall be the closing sale price reported on
such date, or if no shares were traded on such date, on the last preceding date for which there was a sale of a share of Common Stock
on such exchange, or (ii) if the Common Stock or other security is then traded in an over-the-counter market, the fair market value
on any date shall be the average of the closing bid and asked prices for such share in such over-the-counter market for the last preceding
date on which there was a sale of such share in such market.
(w)
“Free Standing Rights” has the meaning set forth in Section 8.
(x)
“Good Reason” has the meaning assigned to such term in any individual service, employment or severance agreement
or Award Agreement with the Participant or, if no such agreement exists or if such agreement does not define “Good Reason,”
“Good Reason” and any provision of this Plan that refers to “Good Reason” shall not be applicable to such Participant.
(y)
“Incentive Compensation” means annual cash bonus and any Award.
(z)
“ISO” means an Option intended to be and designated as an “incentive stock option” within the meaning
of Section 422 of the Code.
(aa)
“Nonqualified Stock Option” shall mean an Option that is not designated as an ISO.
(bb)
“Option” means an option to purchase shares of Common Stock granted pursuant to Section 7 hereof. The term “Option”
as used in the Plan includes the terms “Nonqualified Stock Option” and “ISO.”
(cc)
“Other Stock-Based Award” means a right or other interest granted pursuant to Section 10 hereof that may be
denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Common Stock, including, but
not limited to, unrestricted Shares, dividend equivalents or performance units, each of which may be subject to the attainment of performance
goals or a period of continued provision of service or employment or other terms or conditions as permitted under the Plan.
(dd)
“Participant” means any Eligible Recipient selected by the Administrator, pursuant to the Administrator’s
authority provided for in Section 3 below, to receive grants of Awards, and, upon his or her death, his or her successors, heirs, executors
and administrators, as the case may be.
(ee)
“Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof.
(ff)
“Plan” means this 2020 Omnibus Equity Incentive Plan.
(gg)
“Related Rights” has the meaning set forth in Section 8.
(hh)
“Restricted Stock” means a Share granted pursuant to Section 9 below subject to certain restrictions that lapse
at the end of a specified period (or periods) of time and/or upon attainment of specified performance objectives.
(ii)
“Restricted Period” has the meaning set forth in Section 9.
(jj)
“Restricted Stock Unit” means the right granted pursuant to Section 9 hereof to receive a Share at the end of
a specified restricted period (or periods) of time and/or upon attainment of specified performance objectives.
(kk)
“Rule 16b-3” has the meaning set forth in Section 3.
(ll)
“Section 16 Officer” means any officer of the Company whom the Board has determined is subject to the reporting
requirements of Section 16 of the Exchange Act, whether or not such individual is a Section 16 Officer at the time the determination to
recoup compensation is made.
(mm)
“Shares” means Common Stock reserved for issuance under the Plan, as adjusted pursuant to the Plan, and any
successor (pursuant to a merger, consolidation or other reorganization) security.
(nn)
“Stock Appreciation Right” means a right granted pursuant to Section 8 hereof to receive an amount equal to
the excess, if any, of (i) the aggregate Fair Market Value, as of the date such Award or portion thereof is surrendered, of the Shares
covered by such Award or such portion thereof, over (ii) the aggregate Exercise Price of such Award or such portion thereof.
(oo)
“Subsidiary” means, with respect to any Person, as of any date of determination, any other Person as to which
such first Person owns or otherwise controls, directly or indirectly, more than 50% of the voting shares or other similar interests or
a sole general partner interest or managing member or similar interest of such other Person.
(pp)
“Transfer” has the meaning set forth in Section 15.
Section
3.
Administration.
(a)
The Plan shall be administered by the Administrator and shall be administered, to the extent applicable, in accordance with Rule
16b-3 under the Exchange Act (“Rule 16b-3”).
(b)
Pursuant to the terms of the Plan, the Administrator, subject, in the case of any Committee, to any restrictions on the authority
delegated to it by the Board, shall have the power and authority, without limitation:
(1)
to select those Eligible Recipients who shall be Participants;
(2)
to determine whether and to what extent Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Other Stock-Based
Awards or a combination of any of the foregoing, are to be granted hereunder to Participants;
(3)
to determine the number of Shares to be covered by each Award granted hereunder;
(4)
to determine the terms and conditions, not inconsistent with the terms of the Plan, of each Award granted hereunder (including,
but not limited to, (i) the restrictions applicable to Restricted Stock or Restricted Stock Units and the conditions under which
restrictions applicable to such Restricted Stock or Restricted Stock Units shall lapse, (ii) the performance goals and periods applicable
to Awards, (iii) the Exercise Price of each Option and each Stock Appreciation Right or the purchase price of any other Award, (iv) the
vesting schedule and terms applicable to each Award, (v) the number of Shares or amount of cash or other property subject to each
Award and (vi) subject to the requirements of Section 409A of the Code (to the extent applicable) any amendments to the terms and
conditions of outstanding Awards, including, but not limited to, extending the exercise period of such Awards and accelerating the payment
schedules of such Awards and/or, to the extent specifically permitted under the Plan, accelerating the vesting schedules of such Awards);
(5)
to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments
evidencing Awards;
(6)
to determine the Fair Market Value in accordance with the terms of the Plan;
(7)
to determine the duration and purpose of leaves of absence which may be granted to a Participant without constituting termination
of the Participant’s service or employment for purposes of Awards granted under the Plan;
(8)
to adopt, alter and repeal such administrative rules, regulations, guidelines and practices governing the Plan as it shall from
time to time deem advisable;
(9)
to construe and interpret the terms and provisions of, and supply or correct omissions in, the Plan and any Award issued under
the Plan (and any Award Agreement relating thereto), and to otherwise supervise the administration of the Plan and to exercise all powers
and authorities either specifically granted under the Plan or necessary and advisable in the administration of the Plan; and
(10)
to prescribe, amend and rescind rules and regulations relating to sub-plans established for the purpose of satisfying applicable
non-United States laws or for qualifying for favorable tax treatment under applicable non-United States laws, which rules and regulations
may be set forth in an appendix or appendixes to the Plan.
(c)
Subject to Section 5, neither the Board nor the Committee shall have the authority to (i) reprice or cancel and regrant any Award
at a lower exercise, base or purchase price or cancel any Award with an exercise, base or purchase price in exchange for cash, property
or other Awards without first obtaining the approval of the Company’s stockholders; or (ii) accelerate the vesting of any Awards
(except pursuant to Section 11).
(d)
All decisions made by the Administrator pursuant to the provisions of the Plan shall be final, conclusive and binding on all Persons,
including the Company and the Participants.
(e)
The expenses of administering the Plan shall be borne by the Company and its Affiliates.
(f)
If at any time or to any extent the Board shall not administer the Plan, then the functions of the Administrator specified in the
Plan shall be exercised by the Committee. Except as
otherwise provided in the Articles of Incorporation or Bylaws of
the Company, any action of the Committee with respect to the administration of the Plan shall be taken by a majority vote at a meeting
at which a quorum is duly constituted or unanimous written consent of the Committee’s members.
Section
4.
Shares Reserved for Issuance Under the Plan.
(a)
Subject to Section 5 hereof, the number of shares of Common Stock that are reserved and available for issuance pursuant to Awards
granted under the Plan shall be equal to 2.0 million shares; provided, that, shares of Common Stock issued under the Plan
with respect to an Exempt Award shall not count against such share limit.
(b)
Shares issued under the Plan may, in whole or in part, be authorized but unissued Shares or Shares that shall have been or may
be reacquired by the Company in the open market, in private transactions or otherwise. If an Award entitles the Participant to receive
or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of
such Award against the aggregate number of Shares available for granting Awards under the Plan. If any Shares subject to an Award are
forfeited, cancelled, exchanged or surrendered or if an Award otherwise terminates or expires without a distribution of Shares to the
Participant, the Shares with respect to such Award shall, to the extent of any such forfeiture, cancellation, exchange, surrender, termination
or expiration, again be available for granting Awards under the Plan. Notwithstanding the foregoing, Shares surrendered or withheld as
payment of either the Exercise Price of an Award (including Shares otherwise underlying a Stock Appreciation Right that are retained by
the Company to account for the Exercise Price of such Stock Appreciation Right) and/or withholding taxes in respect of an Award shall
no longer be available for grant under the Plan. In addition, (i) to the extent an Award is denominated in shares of Common Stock,
but paid or settled in cash, the number of shares of Common Stock with respect to which such payment or settlement is made shall again
be available for grants of Awards pursuant to the Plan and (ii) shares of Common Stock underlying Awards that can only be settled
in cash shall not be counted against the aggregate number of shares of Common Stock available for Awards under the Plan. Upon the exercise
of any Award granted in tandem with any other Awards, such related Awards shall be cancelled to the extent of the number of Shares as
to which the Award is exercised and, notwithstanding the foregoing, such number of Shares shall no longer be available for grant under
the Plan.
(c)
No more than 2.0 million Shares shall be issued pursuant to the exercise of ISOs.
Section
5.
Equitable Adjustments.
In the event of any Change in Capitalization,
an equitable substitution or proportionate adjustment shall be made in (i) the aggregate number and kind of securities reserved for
issuance under the Plan pursuant to Section 4, (ii) the kind, number of securities subject to, and the Exercise Price subject to
outstanding Options and Stock Appreciation Rights granted under the Plan, (iii) the kind, number and purchase price of Shares or
other securities or the amount of cash or amount or type of other property subject to outstanding Restricted Stock, Restricted Stock Units
or Other Stock-Based Awards granted under the Plan; and/or (iv) the terms and conditions of any outstanding Awards (including, without
limitation, any applicable performance targets or criteria with respect thereto); provided, however, that any fractional
shares resulting from the adjustment shall be eliminated. Such other equitable substitutions or adjustments shall be made as may be determined
by the Administrator, in its sole discretion. Without limiting the generality of the foregoing, in connection with a Change in Capitalization,
the Administrator may provide, in its sole discretion, but subject in all events to the requirements of Section 409A of the Code, for
the cancellation of any outstanding Award granted hereunder in exchange for payment in cash or other property having an aggregate Fair
Market Value equal to the Fair Market Value of the Shares, cash or other property covered by such Award, reduced by the aggregate Exercise
Price or purchase price thereof, if any; provided, however, that if the Exercise Price or purchase price of any outstanding
Award is equal to or greater than the Fair Market Value of the shares of Common Stock, cash or other property covered by such Award, the
Administrator may cancel such Award without the payment of any consideration to the Participant. Further, without limiting the generality
of the foregoing, with respect to Awards subject to foreign laws, adjustments made hereunder shall be made in compliance with applicable
requirements.
Except to the extent determined by the Administrator, any adjustments
to ISOs under this Section 5 shall be made only to the extent not constituting a “modification” within the meaning of Section 424(h)(3)
of the Code. The Administrator’s determinations pursuant to this Section 5 shall be final, binding and conclusive.
Section
6.
Eligibility.
The Participants in the Plan shall be selected
from time to time by the Administrator, in its sole discretion, from those individuals that qualify as Eligible Recipients.
Section
7.
Options.
(a)
General. Options granted under the Plan shall be designated as Nonqualified Stock Options or ISOs. Each Participant who
is granted an Option shall enter into an Award Agreement with the Company, containing such terms and conditions as the Administrator shall
determine, in its sole discretion, including, among other things, the Exercise Price of the Option, the term of the Option and provisions
regarding exercisability of the Option, and whether the Option is intended to be an ISO or a Nonqualified Stock Option (and in the event
the Award Agreement has no such designation, the Option shall be a Nonqualified Stock Option). The provisions of each Option need not
be the same with respect to each Participant. More than one Option may be granted to the same Participant and be outstanding concurrently
hereunder. Options granted under the Plan shall be subject to the terms and conditions set forth in this Section 7 and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable and set forth
in the applicable Award Agreement.
(b)
Exercise Price. The Exercise Price of Shares purchasable under an Option shall be determined by the Administrator in its
sole discretion at the time of grant, but in no event shall the exercise price of an Option be less than one hundred percent (100%) of
the Fair Market Value of a share of Common Stock on the date of grant.
(c)
Option Term. The maximum term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more
than ten (10) years after the date such Option is granted. Each Option’s term is subject to earlier expiration pursuant to the applicable
provisions in the Plan and the Award Agreement. Notwithstanding the foregoing, subject to Section 4(d) of the Plan, the Administrator
shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as the Administrator,
in its sole discretion, deems appropriate.
(d)
Exercisability. Each Option shall be exercisable at such time or times and subject to such terms and conditions, including
the attainment of performance goals, as shall be determined by the Administrator in the applicable Award Agreement. The Administrator
may also provide that any Option shall be exercisable only in installments, and the Administrator may waive such installment exercise
provisions at any time, in whole or in part, based on such factors as the Administrator may determine in its sole discretion.
(e)
Method of Exercise. Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying
the number of whole Shares to be purchased, accompanied by payment in full of the aggregate Exercise Price of the Shares so purchased
in cash or its equivalent, as determined by the Administrator. As determined by the Administrator, in its sole discretion, with respect
to any Option or category of Options, payment in whole or in part may also be made (i) by means of consideration received under any
cashless exercise procedure approved by the Administrator (including the withholding of Shares otherwise issuable upon exercise), (ii) in
the form of unrestricted Shares already owned by the Participant which have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which such Option shall be exercised, (iii) any other form of consideration approved
by the Administrator and permitted by Applicable Laws or (iv) any combination of the foregoing.
(f)
ISOs. The terms and conditions of ISOs granted hereunder shall be subject to the provisions of Section 422 of the Code and
the terms, conditions, limitations and administrative procedures
established by the Administrator from time to time in accordance
with the Plan. At the discretion of the Administrator, ISOs may be granted only to an employee of the Company, its “parent corporation”
(as such term is defined in Section 424(e) of the Code) or a Subsidiary of the Company.
(1)
ISO Grants to 10% Stockholders. Notwithstanding anything to the contrary in the Plan, if an ISO is granted to a Participant
who owns shares representing more than ten percent (10%) of the voting power of all classes of shares of the Company, its “parent
corporation” (as such term is defined in Section 424(e) of the Code) or a Subsidiary of the Company, the term of the ISO shall not
exceed five (5) years from the time of grant of such ISO and the Exercise Price shall be at least one hundred and ten percent (110%) of
the Fair Market Value of the Shares on the date of grant.
(2)
$100,000 Per Year Limitation For ISOs. To the extent the aggregate Fair Market Value (determined on the date of grant) of
the Shares for which ISOs are exercisable for the first time by any Participant during any calendar year (under all plans of the Company)
exceeds $100,000, such excess ISOs shall be treated as Nonqualified Stock Options.
(3)
Disqualifying Dispositions. Each Participant awarded an ISO under the Plan shall notify the Company in writing immediately
after the date the Participant makes a “disqualifying disposition” of any Share acquired pursuant to the exercise of such
ISO. A “disqualifying disposition” is any disposition (including any sale) of such Shares before the later of (i) two
years after the date of grant of the ISO and (ii) one year after the date the Participant acquired the Shares by exercising the ISO.
The Company may, if determined by the Administrator and in accordance with procedures established by it, retain possession of any Shares
acquired pursuant to the exercise of an ISO as agent for the applicable Participant until the end of the period described in the preceding
sentence, subject to complying with any instructions from such Participant as to the sale of such Shares.
(g)
Rights as Stockholder. A Participant shall have no rights to dividends, dividend equivalents or distributions or any other
rights of a stockholder with respect to the Shares subject to an Option until the Participant has given written notice of the exercise
thereof, and has paid in full for such Shares and has satisfied the requirements of Section 15 hereof.
(h)
Termination of Employment or Service. Treatment of an Option upon termination of employment of a Participant shall be provided
for by the Administrator in the Award Agreement.
(i)
Other Change in Employment or Service Status. An Option shall be affected, both with regard to vesting schedule and termination,
by leaves of absence, including unpaid and un-protected leaves of absence, changes from full-time to part-time employment, partial Disability
or other changes in the employment status or service status of a Participant, in the discretion of the Administrator.
Section
8.
Stock Appreciation Rights.
(a)
General. Stock Appreciation Rights may be granted either alone (“Free Standing Rights”) or in conjunction
with all or part of any Option granted under the Plan (“Related Rights”). Related Rights may be granted either at or
after the time of the grant of such Option. The Administrator shall determine the Eligible Recipients to whom, and the time or times at
which, grants of Stock Appreciation Rights shall be made. Each Participant who is granted a Stock Appreciation Right shall enter into
an Award Agreement with the Company, containing such terms and conditions as the Administrator shall determine, in its sole discretion,
including, among other things, the number of Shares to be awarded, the Exercise Price per Share, and all other conditions of Stock Appreciation
Rights. Notwithstanding the foregoing, no Related Right may be granted for more Shares than are subject to the Option to which it relates.
The provisions of Stock Appreciation Rights need not be the same with respect to each Participant. Stock Appreciation Rights granted under
the Plan shall be subject to the following terms and conditions set forth in this Section 8 and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable, as set forth in the applicable Award
Agreement.
(b)
Awards; Rights as Stockholder. A Participant shall have no rights to dividends or any other rights of a stockholder with
respect to the shares of Common Stock, if any, subject to a Stock Appreciation Right until the Participant has given written notice of
the exercise thereof and has satisfied the requirements of Section 15 hereof.
(c)
Exercise Price. The Exercise Price of Shares purchasable under a Stock Appreciation Right shall be determined by the Administrator
in its sole discretion at the time of grant, but in no event shall the exercise price of a Stock Appreciation Right be less than one hundred
percent (100%) of the Fair Market Value of a share of Common Stock on the date of grant.
(d)
Exercisability.
(1)
Stock Appreciation Rights that are Free Standing Rights shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Administrator in the applicable Award Agreement.
(2)
Stock Appreciation Rights that are Related Rights shall be exercisable only at such time or times and to the extent that the Options
to which they relate shall be exercisable in accordance with the provisions of Section 7 hereof and this Section 8 of the Plan.
(e)
Payment Upon Exercise.
(1)
Upon the exercise of a Free Standing Right, the Participant shall be entitled to receive up to, but not more than, that number
of Shares equal in value to the excess of the Fair Market Value as of the date of exercise over the Exercise Price per share specified
in the Free Standing Right multiplied by the number of Shares in respect of which the Free Standing Right is being exercised.
(2)
A Related Right may be exercised by a Participant by surrendering the applicable portion of the related Option. Upon such exercise
and surrender, the Participant shall be entitled to receive up to, but not more than, that number of Shares equal in value to the excess
of the Fair Market Value as of the date of exercise over the Exercise Price specified in the related Option multiplied by the number of
Shares in respect of which the Related Right is being exercised. Options which have been so surrendered, in whole or in part, shall no
longer be exercisable to the extent the Related Rights have been so exercised.
(3)
Notwithstanding the foregoing, the Administrator may determine to settle the exercise of a Stock Appreciation Right in cash (or
in any combination of Shares and cash).
(f)
Termination of Employment or Service. Treatment of a Stock Appreciation Right upon termination of employment of a Participant
shall be provided for by the Administrator in the Award Agreement.
(g)
Term.
(1)
The term of each Free Standing Right shall be fixed by the Administrator, but no Free Standing Right shall be exercisable more
than ten (10) years after the date such right is granted.
(2)
The term of each Related Right shall be the term of the Option to which it relates, but no Related Right shall be exercisable more
than ten (10) years after the date such right is granted.
(h)
Other Change in Employment or Service Status. Stock Appreciation Rights shall be affected, both with regard to vesting schedule
and termination, by leaves of absence, including unpaid and un-protected leaves of absence, changes from full-time to part-time employment,
partial Disability or other changes in the employment or service status of a Participant, in the discretion of the Administrator.
Section
9.
Restricted Stock and Restricted Stock Units.
(a)
General. Restricted Stock or Restricted Stock Units may be issued under the Plan. The Administrator shall determine the
Eligible Recipients to whom, and the time or times at which, Restricted Stock or Restricted Stock Units shall be made. Each Participant
who is granted Restricted Stock or Restricted Stock Units shall enter into an Award Agreement with the Company, containing such terms
and conditions as the Administrator shall determine, in its sole discretion, including, among other things, the number of Shares to be
awarded; the price, if any, to be paid by the Participant for the acquisition of Restricted Stock or Restricted Stock Units; the period
of time restrictions, performance goals or other conditions that apply to Transferability, delivery or vesting of such Awards (the “Restricted
Period”); and all other conditions applicable to the Restricted Stock and Restricted Stock Units. If the restrictions, performance
goals or conditions established by the Administrator are not attained, a Participant shall forfeit his or her Restricted Stock or Restricted
Stock Units, in accordance with the terms of the grant. The provisions of the Restricted Stock or Restricted Stock Units need not be the
same with respect to each Participant.
(b)
Awards and Certificates. Except as otherwise provided below in Section 9(c), (i) each Participant who is granted an
Award of Restricted Stock may, in the Company’s sole discretion, be issued a share certificate in respect of such Restricted Stock;
and (ii) any such certificate so issued shall be registered in the name of the Participant, and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to any such Award. The Company may require that the share certificates,
if any, evidencing Restricted Stock granted hereunder be held in the custody of the Company until the restrictions thereon shall have
lapsed, and that, as a condition of any Award of Restricted Stock, the Participant shall have delivered a share transfer form, endorsed
in blank, relating to the Shares covered by such Award. Certificates for shares of unrestricted Common Stock may, in the Company’s
sole discretion, be delivered to the Participant only after the Restricted Period has expired without forfeiture in such Restricted Stock
Award. With respect to Restricted Stock Units to be settled in Shares, at the expiration of the Restricted Period, share certificates
in respect of the shares of Common Stock underlying such Restricted Stock Units may, in the Company’s sole discretion, be delivered
to the Participant, or his legal representative, in a number equal to the number of shares of Common Stock underlying the Restricted Stock
Units Award. Notwithstanding anything in the Plan to the contrary, any Restricted Stock or Restricted Stock Units to be settled in Shares
(at the expiration of the Restricted Period, and whether before or after any vesting conditions have been satisfied) may, in the Company’s
sole discretion, be issued in uncertificated form. Further, notwithstanding anything in the Plan to the contrary, with respect to Restricted
Stock Units, at the expiration of the Restricted Period, Shares, or cash, as applicable, shall promptly be issued (either in certificated
or uncertificated form) to the Participant, unless otherwise deferred in accordance with procedures established by the Company in accordance
with Section 409A of the Code, and such issuance or payment shall in any event be made within such period as is required to avoid the
imposition of a tax under Section 409A of the Code.
(c)
Restrictions and Conditions. The Restricted Stock or Restricted Stock Units granted pursuant to this Section 9 shall be
subject to the following restrictions and conditions and any additional restrictions or conditions as determined by the Administrator
at the time of grant or, subject to Section 409A of the Code where applicable, thereafter:
(1)
The Administrator may, in its sole discretion, provide for the lapse of restrictions in installments and may accelerate or waive
such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine, in its sole discretion,
including, but not limited to, the attainment of certain performance goals, the Participant’s termination of employment or service
with the Company or any Affiliate thereof, or the Participant’s death or Disability. Notwithstanding the foregoing, upon a Change
in Control, the outstanding Awards shall be subject to Section 11 hereof.
(2)
Except as provided in the applicable Award Agreement, the Participant shall generally have the rights of a stockholder of the Company
with respect to Restricted Stock during the Restricted Period; provided, however, that dividends declared during the Restricted
Period with respect to an Award, shall only become payable if (and to the extent) the underlying Restricted Stock vests. Except as provided
in the applicable Award Agreement, the Participant shall generally not have the rights of a
stockholder with respect to Shares subject to Restricted Stock Units
during the Restricted Period; provided, however, that, subject to Section 409A of the Code, an amount equal to dividends
declared during the Restricted Period with respect to the number of Shares covered by Restricted Stock Units shall, unless otherwise set
forth in an Award Agreement, be paid to the Participant at the time (and to the extent) Shares in respect of the related Restricted Stock
Units are delivered to the Participant. Certificates for Shares of unrestricted Common Stock may, in the Company’s sole discretion,
be delivered to the Participant only after the Restricted Period has expired without forfeiture in respect of such Restricted Stock or
Restricted Stock Units, except as the Administrator, in its sole discretion, shall otherwise determine.
(3)
The rights of Participants granted Restricted Stock or Restricted Stock Units upon termination of employment or service as a director
or independent contractor to the Company or to any Affiliate thereof terminates for any reason during the Restricted Period shall be set
forth in the Award Agreement.
(d)
Form of Settlement. The Administrator reserves the right in its sole discretion to provide (either at or after the grant
thereof) that any Restricted Stock Unit represents the right to receive the amount of cash per unit that is determined by the Administrator
in connection with the Award.
Section
10.
Other Stock-Based Awards.
Other Stock-Based Awards may be issued under the
Plan. Subject to the provisions of the Plan, the Administrator shall have sole and complete authority to determine the individuals to
whom and the time or times at which such Other Stock-Based Awards shall be granted. Each Participant who is granted an Other Stock-Based
Award shall enter into an Award Agreement with the Company, containing such terms and conditions as the Administrator shall determine,
in its sole discretion, including, among other things, the number of shares of Common Stock to be granted pursuant to such Other Stock-Based
Awards, or the manner in which such Other Stock-Based Awards shall be settled (e.g., in shares of Common Stock, cash or other property),
or the conditions to the vesting and/or payment or settlement of such Other Stock-Based Awards (which may include, but not be limited
to, achievement of performance criteria) and all other terms and conditions of such Other Stock-Based Awards. In the event that the Administrator
grants a bonus in the form of Shares, the Shares constituting such bonus shall, as determined by the Administrator, be evidenced in uncertificated
form or by a book entry record or a certificate issued in the name of the Participant to whom such grant was made and delivered to such
Participant as soon as practicable after the date on which such bonus is payable. Notwithstanding anything set forth in the Plan to the
contrary, any dividend or dividend equivalent Award issued hereunder shall be subject to the same restrictions, conditions and risks of
forfeiture as apply to the underlying Award.
Section
11.
Change in Control.
Unless otherwise determined by the Administrator
and evidenced in an Award Agreement, in the event that (a) a Change in Control occurs, and (b) the Participant is employed by the
Company or any of its Affiliates immediately prior to the consummation of such Change in Control then upon the consummation of such Change
in Control, the Administrator, in its sole and absolute discretion, may:
(a)
provide that any unvested or unexercisable portion of any Award carrying a right to exercise become fully vested and exercisable;
and
(b)
cause the restrictions, deferral limitations, payment conditions and forfeiture conditions applicable to an Award granted under
the Plan to lapse and such Awards shall be deemed fully vested and any performance conditions imposed with respect to such Awards shall
be deemed to be fully achieved at target performance levels.
If the Administrator determines in its discretion
pursuant to Section 3(b)(4) hereof to accelerate the vesting of Options and/or Share Appreciation Rights in connection with a Change in
Control, the Administrator shall also have discretion in connection with such action to provide that all Options
and/or Stock Appreciation Rights outstanding immediately prior to
such Change in Control shall expire on the effective date of such Change in Control.
Section
12.
Amendment and Termination.
The Board may amend, alter or terminate the Plan
at any time, but no amendment, alteration or termination shall be made that would impair the rights of a Participant under any Award theretofore
granted without such Participant’s consent. The Board shall obtain approval of the Company’s stockholders for any amendment
that would require such approval in order to satisfy the requirements of any rules of the stock exchange on which the Common Stock is
traded or other Applicable Law. Subject to Section 3(c), the Administrator may amend the terms of any Award theretofore granted, prospectively
or retroactively, but, subject to Section 5 of the Plan and the immediately preceding sentence, no such amendment shall materially impair
the rights of any Participant without his or her consent.
Section
13.
Unfunded Status of Plan.
The Plan is intended to constitute an “unfunded”
plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall
give any such Participant any rights that are greater than those of a general creditor of the Company.
Section
14.
Withholding Taxes.
Each Participant shall, no later than the date
as of which the value of an Award first becomes includible in the gross income of such Participant for purposes of applicable taxes, pay
to the Company, or make arrangements satisfactory to the Administrator regarding payment of an amount up to the maximum statutory tax
rates in the Participant’s applicable jurisdiction with respect to the Award, as determined by the Company. The obligations of the
Company under the Plan shall be conditional on the making of such payments or arrangements, and the Company shall, to the extent permitted
by Applicable Laws, have the right to deduct any such taxes from any payment of any kind otherwise due to such Participant. Whenever cash
is to be paid pursuant to an Award, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any applicable
withholding tax requirements related thereto. Whenever Shares or property other than cash are to be delivered pursuant to an Award, the
Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any related taxes
to be withheld and applied to the tax obligations; provided, that, with the approval of the Administrator, a Participant
may satisfy the foregoing requirement by either (i) electing to have the Company withhold from delivery of Shares or other property,
as applicable, or (ii) delivering already owned unrestricted shares of Common Stock, in each case, having a value not exceeding the
applicable taxes to be withheld and applied to the tax obligations. Such already owned and unrestricted shares of Common Stock shall be
valued at their Fair Market Value on the date on which the amount of tax to be withheld is determined and any fractional share amounts
resulting therefrom shall be settled in cash. Such an election may be made with respect to all or any portion of the Shares to be delivered
pursuant to an award. The Company may also use any other method of obtaining the necessary payment or proceeds, as permitted by Applicable
Laws, to satisfy its withholding obligation with respect to any Award.
Section
15.
Transfer of Awards.
Until such time as the Awards are fully vested
and/or exercisable in accordance with the Plan or an Award Agreement, no purported sale, assignment, mortgage, hypothecation, transfer,
charge, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in
or lien on, any Award or any agreement or commitment to do any of the foregoing (each, a “Transfer”) by any holder
thereof in violation of the provisions of the Plan or an Award Agreement will be valid, except with the prior written consent of the Administrator,
which consent may be granted or withheld in the sole discretion of the Administrator. Any purported Transfer of an Award or any economic
benefit or interest therein in violation of the Plan or an Award Agreement shall be null and void ab initio and shall not create
any obligation or liability of the Company, and any Person purportedly acquiring any Award or any economic benefit or interest therein
transferred in violation of the Plan or an Award Agreement shall not be entitled to be recognized as a holder of such Shares or other
property underlying such Award. Unless
otherwise determined by the Administrator in accordance with the
provisions of the immediately preceding sentence, an Option or a Stock Appreciation Right may be exercised, during the lifetime of the
Participant, only by the Participant or, during any period during which the Participant is under a legal Disability, by the Participant’s
guardian or legal representative.
Section
16.
Continued Employment or Service.
Neither the adoption of the Plan nor the grant
of an Award shall confer upon any Eligible Recipient any right to continued employment or service with the Company or any Affiliate thereof,
as the case may be, nor shall it interfere in any way with the right of the Company or any Affiliate thereof to terminate the employment
or service of any of its Eligible Recipients at any time.
Section
17.
Effective Date.
The Plan was approved by the Board on July 28,
2021 and shall be adopted and become effective on the date that it is approved by the Company’s stockholders (the “Effective
Date”).
Section
18.
Electronic Signature.
Participant’s electronic signature of an
Award Agreement shall have the same validity and effect as a signature affixed by hand.
Section
19.
Term of Plan.
No Award shall be granted pursuant to the Plan
on or after the tenth anniversary of the Effective Date, but Awards theretofore granted may extend beyond that date.
Section
20.
Securities Matters and Regulations.
(a)
Notwithstanding anything herein to the contrary, the obligation of the Company to sell or deliver Shares with respect to any Award
granted under the Plan shall be subject to all Applicable Laws, rules and regulations, including all applicable federal and state securities
laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Administrator.
The Administrator may require, as a condition of the issuance and delivery of certificates evidencing shares of Common Stock pursuant
to the terms hereof, that the recipient of such shares make such agreements and representations, and that such certificates bear such
legends, as the Administrator, in its sole discretion, deems necessary or advisable.
(b)
Each Award is subject to the requirement that, if at any time the Administrator determines that the listing, registration or qualification
of Shares is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with, the grant of an Award or the issuance of Shares, no such Award
shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval
has been effected or obtained free of any conditions not acceptable to the Administrator.
(c)
In the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement
under the Securities Act and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent
required by the Securities Act or regulations thereunder, and the Administrator may require a Participant receiving Common Stock pursuant
to the Plan, as a condition precedent to receipt of such Common Stock, to represent to the Company in writing that the Common Stock acquired
by such Participant is acquired for investment only and not with a view to distribution.
Section 21.
Section 409A of the Code.
The Plan as well as payments and benefits under
the Plan are intended to be exempt from, or to the extent subject thereto, to comply with Section 409A of the Code, and, accordingly,
to the maximum extent permitted, the Plan shall be interpreted in accordance therewith. Notwithstanding anything contained herein to the
contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, the
Participant shall not be considered to have terminated employment or service with the Company for purposes of the Plan and no payment
shall be due to the Participant under the Plan or any Award until the Participant would be considered to have incurred a “separation
from service” from the Company and its Affiliates within the meaning of Section 409A of the Code. Any payments described in
the Plan that are due within the “short term deferral period” as defined in Section 409A of the Code shall not be treated
as deferred compensation unless Applicable Law requires otherwise. Notwithstanding anything to the contrary in the Plan, to the extent
that any Awards (or any other amounts payable under any plan, program or arrangement of the Company or any of its Affiliates) are payable
upon a separation from service and such payment would result in the imposition of any individual tax and penalty interest charges imposed
under Section 409A of the Code, the settlement and payment of such awards (or other amounts) shall instead be made on the first business
day after the date that is six (6) months following such separation from service (or death, if earlier). Each amount to be paid or
benefit to be provided under this Plan shall be construed as a separate identified payment for purposes of Section 409A of the Code.
The Company makes no representation that any or all of the payments or benefits described in this Plan will be exempt from or comply with
Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to any such payment. The
Participant shall be solely responsible for the payment of any taxes and penalties incurred under Section 409A.
Section
22.
Notification of Election Under Section 83(b) of the Code.
If any Participant shall, in connection with the
acquisition of shares of Common Stock under the Plan, make the election permitted under Section 83(b) of the Code, such Participant
shall notify the Company of such election within ten (10) days after filing notice of the election with the Internal Revenue Service.
Section
23.
No Fractional Shares.
No fractional shares of Common Stock shall be
issued or delivered pursuant to the Plan. The Administrator shall determine whether cash, other Awards, or other property shall be issued
or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
Section
24.
Beneficiary.
A Participant may file with the Administrator
a written designation of a beneficiary on such form as may be prescribed by the Administrator and may, from time to time, amend or revoke
such designation. If no designated beneficiary survives the Participant, the executor or administrator of the Participant’s estate
shall be deemed to be the Participant’s beneficiary.
Section
25.
Paperless Administration.
In the event that the Company establishes, for
itself or using the services of a third party, an automated system for the documentation, granting or exercise of Awards, such as a system
using an internet website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Participant
may be permitted through the use of such an automated system.
Section
26.
Severability.
If any provision of the Plan is held to be invalid
or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision
had not been included in the Plan.
Section
27.
Clawback.
(a)
If the Company is required to prepare a financial restatement due to the material non-compliance of the Company with any financial
reporting requirement, then the Committee may require any Section 16 Officer to repay or forfeit to the Company, and each Section 16
Officer agrees to so repay or forfeit, that part of the Incentive Compensation received by that Section 16 Officer during the three-year
period preceding the publication of the restated financial statement that the Committee determines was in excess of the amount that such
Section 16 Officer would have received had such Incentive Compensation been calculated based on the financial results reported in
the restated financial statement. The Committee may take into account any factors it deems reasonable in determining whether to seek recoupment
of previously paid Incentive Compensation and how much Incentive Compensation to recoup from each Section 16 Officer (which need
not be the same amount or proportion for each Section 16 Officer), including any determination by the Committee that a Section 16
Officer engaged in fraud, willful misconduct or committed grossly negligent acts or omissions which materially contributed to the events
that led to the financial restatement. The amount and form of the Incentive Compensation to be recouped shall be determined by the Committee
in its sole and absolute discretion, and recoupment of Incentive Compensation may be made, in the Committee’s sole and absolute
discretion, through the cancellation of vested or unvested Awards, cash repayment or both.
(b)
Notwithstanding any other provisions in this Plan, any Award which is subject to recovery under any Applicable Laws, government
regulation or stock exchange listing requirement, will be subject to such deductions and clawback as may be required to be made pursuant
to such Applicable Law, government regulation or stock exchange listing requirement (or any policy adopted by the Company pursuant to
any such law, government regulation or stock exchange listing requirement).
Section
28.
Governing Law.
The Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without giving effect to principles of conflicts of law of such state.
Section
29.
Indemnification.
To the extent allowable pursuant to applicable
law, each member of the Board and the Administrator and any officer or other employee to whom authority to administer any component of
the Plan is designated shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed
upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or
she may be a party or in which he or she may be a party or in which he or she may be involved by reason of any action or failure to act
pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or
proceeding against him or her; provided, however, that he or she gives the Company an opportunity, at its own expense, to handle and defend
the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not
be exclusive of any other rights of indemnification to which such individuals may be entitled pursuant to the Company’s Articles
of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
Section
30.
Titles and Headings, References to Sections of the Code or Exchange Act.
The titles and headings of the sections in the
Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings,
shall control. References to sections of the Code or the Exchange Act shall include any amendment or successor thereto.
Section
31.
Successors.
The obligations of the Company under the Plan
shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the
Company, or upon any successor corporation or organization succeeding
to substantially all of the assets and business of the Company.
Section
32.
Relationship to other Benefits.
No payment pursuant to the Plan shall be taken
into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare, or other benefit
plan of the Company or any Affiliate except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
Exhibit A
datchat,
inc.
2021 Equity Incentive Plan
Exercise
Notice
DatChat, Inc.
Attention: Corporate Secretary
1. Exercise of Option.
Effective as of the Exercise Effective Date set forth in the signature page below, the undersigned individual (“Participant”)
hereby elects to exercise Participant’s option (the “Option”) to purchase the number of shares of the
Common Stock reflected in the signature page below (the “Shares”) of DatChat, Inc. (the “Company”)
under and pursuant to, and be subject to the terms and conditions of, the 2021 Equity Incentive Plan (the “Plan”),
the Stock Option Agreement and this Exercise Notice.
2. Delivery of Payment.
Participant herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement, and any and
all withholding taxes due in connection with the exercise of the Option.
3. Representations of
Participant. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Stockholder.
Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent
of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Common Stock
subject to an Award, notwithstanding the exercise of the Option. The Shares shall be issued to Participant as soon as practicable after
the Option is exercised in accordance with the Option Agreement. No adjustment shall be made for a dividend or other right for which the
record date is prior to the date of issuance except as provided in Section 13 of the Plan.
5. Market Standoff.
If requested by the Company and an underwriter of Common Stock (or other securities) of the Company, Participant shall not sell or otherwise
transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same
economic effect as a sale, of any Common Stock (or other securities) of the Company held by such stockholder (other than those included
in the registration) during the period from the filing of a registration statement of the Company filed under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act through
the end of the 180-day period following the effective date of the registration statement (or such other period as may be requested by
the Company or an underwriter to accommodate regulatory restrictions including, but not limited to, FINRA Rule 2241, if applicable, or
any similar or successor provisions or amendments thereto).
Participant agrees, as a condition
of acquiring such Shares, to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter
which are consistent with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company
or the representative of the underwriters of Common Stock (or other securities) of the Company, Participant shall provide, within 10 days
of such request, such information as may be required by the Company or such representative in connection with the completion of any public
offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations described
in this Section 5 shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8
or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms
that may be promulgated in the future. The Company may impose stop-transfer instructions and may stamp each such certificate with the
third legend set forth in Section 8 with respect to the shares of Common
Stock (or other securities) subject to the foregoing
restriction until the end of such 180-day (or other) period. Participant agrees that any transferee of the Shares shall be bound by this Section
5.
6. Transfer Restrictions.
(a) Compliance with
Agreement. Participant shall not transfer, assign, encumber, gift or otherwise dispose of any Shares except in compliance with the
terms herein and applicable securities laws. The Company shall not be required (i) to transfer on its books any Shares that have been
sold or otherwise transferred in violation of any of the provisions of the Plan or this Exercise Notice or (ii) to treat as owner of such
Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
(b) Transfer Notice
and Requirements. Participant, and any subsequent transferee of any of the Shares, (each a “Holder”) agrees
to comply in all respects with the provisions of this Section. Each Holder agrees not to transfer all or any portion of the
Shares, or any beneficial interest therein, unless and until the transferee thereof has agreed in writing for the benefit of the Company
to take and hold such Shares subject to, and to be bound by, the provisions of the Plan and as set forth herein, and:
(i) there is then
in effect a registration statement under the Securities Act covering such proposed disposition and the disposition is made in accordance
with the registration statement; or
(ii) the holder shall have
given prior written notice to the Company of the Holder’s intention to make such disposition and shall have furnished the Company
with a detailed description of the manner and circumstances of the proposed disposition, and, if requested by the Company, such Holder
shall have furnished the Company, at such Holder’s expense, with (A) an opinion of counsel or other evidence reasonably satisfactory
to the Company that such disposition will not require registration of such Shares under the Securities Act, or (B) a “no action”
letter from the U.S. Securities and Exchange Commission (the “SEC”) to the effect that the transfer of such
securities without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto,
whereupon the Holder of such Shares shall be entitled to transfer such Shares in accordance with the terms of the notice delivered by
such Holder to the Company. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule
144 except in unusual circumstances.
(c) Company’s
Right of First Refusal. Before any Shares held by Participant or any Holder may be sold or otherwise transferred (including transfer
by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and
conditions set forth in this Section 6 (the “Right of First Refusal”).
(i) Notice
of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the “Notice”)
stating: (A) the Holder’s bona fide intention to sell or otherwise transfer such Shares; (B) the name of each proposed
purchaser or other transferee (“Proposed Transferee”); (C) the number of Shares to be transferred to each
Proposed Transferee; and (D) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares
(the “Offered Price”), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s).
(ii) Exercise of
Right of First Refusal. At any time within 30 days after receipt of the Notice, the Company and/or its assignee(s) may, by giving
written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more
of the Proposed Transferees, at the purchase price determined in accordance with subsection (iii) below.
(iii) Purchase
Price. The purchase price (“Purchase Price”) for the Shares purchased by the Company or its assignee(s)
under this Section 6 shall be the Offered Price. If the Offered Price includes consideration other than cash, the
cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.
(iv) Payment.
Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all
or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in the manner and at the times set forth in the Notice.
(v) Holder’s
Right to Transfer. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section 6, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer
is consummated within 120 days after the date of the Notice, that any such sale or other transfer is effected in accordance with any applicable
securities laws, all of the requirements of the Plan and as set forth herein, and that the Proposed Transferee agrees in writing that
all of the restrictions set forth in the Plan and herein, including but not limited to the provisions of this Section 6,
shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred
to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall
again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for
Certain Family Transfers. Anything to the contrary contained in this Section 6 notwithstanding, the transfer
of any or all of the Shares during the Participant’s lifetime or on the Participant’s death by will or intestacy to the Participant’s
immediate family or a trust for the benefit of the Participant’s immediate family shall be exempt from the provisions of this Section 6.
“Immediate Family” as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In
such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section 6,
and there shall be no further transfer of such Shares except in accordance with the terms of this Section 6.
(vii) Termination
of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares upon the earlier of (i) the first sale of Common
Stock of the Company to the general public, or (ii) a Change in Control in which the successor corporation has equity securities that
are publicly traded.
(viii) Stop Transfer
Instructions. The Company may impose stop-transfer instructions and stamp each stock certificate representing the Shares with the
second legend set forth in Section 8.
7. Tax Consultation.
Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s purchase or disposition
of the Shares. Participant represents that Participant has consulted with any tax consultants Participant deems advisable in connection
with the purchase or disposition of the Shares and that Participant is not relying on the Company for any tax advice.
8. Restrictive Legends
and Stop-Transfer Orders.
(a) Legends. Participant
understands and agrees that, in addition to any other legends that may be required pursuant to agreements that the Participant is or becomes
party to, the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s)
evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities
laws:
THE SECURITIES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES,
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S)
AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
THE SHARES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD OF TIME FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC
OFFERING OF THE COMPANY’S SECURITIES SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES AND MAY
NOT BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER PRIOR TO THE EXPIRATION OF SUCH PERIOD WITHOUT THE CONSENT OF THE COMPANY OR THE MANAGING
UNDERWRITER.
(b) Stop-Transfer Notices.
Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop
transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer.
The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation
of any of the provisions of this Exercise Notice or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends
to any purchaser or other transferee to whom such Shares shall have been so transferred.
9. Successors and Assigns.
The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure
to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice
shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.
10. Interpretation.
Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Participant or by the Company forthwith to the
Administrator, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall
be final and binding on all parties.
11. Governing Law; Severability.
This Exercise Notice is governed by the internal substantive laws, but not the choice of law rules, of Delaware. In the event that any
provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Exercise Notice
shall continue in full force and effect.
12. Entire Agreement.
The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement and the Investment
Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, and may not be
modified adversely to the Participant’s interest except by means of a writing signed by the Company and Participant.
13. Stockholder Agreements.
From time to time the Company may enter into agreements pursuant to which it is required to cause its stockholders to become party to
such agreements. Among other things, such agreements may include provisions that include additional restrictions on transfer, rights of
first refusal and/or co-sale, the obligation to vote for directors that are designated by others, and the obligation to vote in favor
of (and not exercise any dissenters or appraisal rights in respect of) and otherwise take such actions as are necessary to complete, an
acquisition of the Company (whether by way of stock purchase, merger, sale of assets or otherwise). It shall be a condition to the exercise
of the Option that the Participant enter into all
such agreements upon request by the Company, copies
of which will be provided prior to the effectiveness of the exercise.
IN WITNESS WHEREOF, the
Company and the Participant have executed this Exercise notice with respect to the exercise and purchase of __________ shares
of Common Stock (the “Shares”) pursuant to that certain Stock Option Agreement dated _______________________ (the
“Stock Option Agreement”).
|
Submitted by:
|
Accepted by:
|
|
|
|
|
PARTICIPANT (“Participant”)
|
DATCHAT, INC.
|
|
|
|
|
|
|
|
Signature
|
Signature
|
|
|
|
|
|
|
|
Print Name
|
Print Name
|
|
|
|
|
|
|
|
|
Title
|
|
|
|
|
Mailing Address:
|
Mailing Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Email address:
|
|
|
|
|
|
|
___________, 20___
|
|
|
|
|
|
Date Received (the “Effective Date”)
|
Stockholder Agreements:
Exhibit
B
Investment
Representation Statement
In connection with the purchase of the Securities
listed below, the undersigned Participant represents to the Company the following:
1. Participant is aware of the
Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities. Participant is acquiring these Securities for investment for Participant’s
own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of
the Securities Act of 1933, as amended (the “Securities Act”).
2. Participant acknowledges and
understands that the Securities constitute “restricted securities” under the Securities Act and have not been registered under
the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature
of Participant’s investment intent as expressed herein. In this connection, Participant understands that, in the view of the Securities
and Exchange Commission, the statutory basis for such exemption may be unavailable if Participant’s representation was predicated
solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred
sale, for or until an increase or decrease in the market price of the Securities, or for a period of 1 year or any other fixed period
in the future. Participant further understands that the Securities must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available. Participant further acknowledges and understands that the Company
is under no obligation to register the Securities. Participant understands that the certificate evidencing the Securities shall be imprinted
with any legend required under applicable state securities laws.
3. Participant is familiar with
the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public
resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public offering subject
to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the
grant of the Option to Participant, the exercise shall be exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, 90 days thereafter (or
such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to
the satisfaction of the applicable conditions specified by Rule 144, including in the case of affiliates (a) the availability
of certain public information about the Company, (b) the amount of Securities being sold during any 3 month period not exceeding
specified limitations, (c) the resale being made in an unsolicited “broker’s transaction”, transactions directly
with a “market maker” or “riskless principal transactions” (as those terms are defined under the Securities Exchange
Act of 1934) and (d) the timely filing of a Form 144, if applicable.
In the event that the Company
does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances
subject to the provisions of Rule 144, which may require (i) the availability of current public information about the Company;
(ii) the resale to occur more than a specified period after the purchase and full payment (within the meaning of Rule 144) for
the Securities; and (iii) in the case of the sale of Securities by an affiliate, the satisfaction of the conditions set forth in
subsections (b), (c) and (d) of the paragraph immediately above.
4. Participant further understands
that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act,
compliance with Regulation A, or some other registration exemption shall be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 shall have a substantial
burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk. Participant understands that no assurances can be given
that any such other registration exemption shall be available in such event.
5. This Investment Representation
Statement is given with respect to the acquisition by the Participant of ___________ Shares (the “Securities”)
of Common Stock of DatChat, Inc. on or about the date set forth below.
|
PARTICIPANT
|
|
|
|
|
|
Signature
|
|
|
|
|
|
Print Name
|
|
|
|
|
|
Date
|
|
|
|
Mailing Address:
|
|
|
|
Email Address:
|
DATCHAT,
INC.
2021 EQUITY
INCENTIVE PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein,
the terms defined in the 2021 Equity Incentive Plan (the “Plan”) shall have the same defined meanings in this Stock Option
Agreement (the “Option Agreement”).
I. NOTICE OF STOCK OPTION GRANT
Name:
Address:
The undersigned Participant has
been granted an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement,
as follows:
|
|
Date of Grant:
|
|
|
|
|
|
|
|
Vesting Commencement Date:
|
|
|
|
|
|
|
|
Exercise Price per Share:
|
$
|
|
|
|
|
|
|
Total Number of Shares Granted:
|
|
|
|
|
|
|
|
Total Exercise Price :
|
$
|
|
|
|
|
|
|
Type of Option:
|
_________ Incentive Stock Option
|
|
|
|
|
|
|
|
_________ Nonstatutory Stock Option
|
|
|
|
|
|
|
Term/Expiration Date:
|
|
Vesting Schedule:
This Option shall be exercisable,
in whole or in part, according to the following vesting schedule:
[Twenty-five percent (25%) of
the Shares subject to the Option shall vest on the one (1) year anniversary of the Vesting Commencement Date, and one forty-eighth (1/48th)
of the Shares subject to the Option shall vest each month thereafter on the same day of the month as the Vesting Commencement Date (or
if there is no corresponding day, on the last day of the month), subject to Participant continuing to be a Service Provider through each
such date.]
Termination Period:
This Option shall be exercisable
for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s death or
Disability, in which case this Option shall be exercisable for twelve (12) months after Participant ceases to be a Service Provider. Notwithstanding
the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided above and this Option may
be subject to earlier termination as provided in Section 13(c) of the Plan.
II. AGREEMENT
1. Grant of Option.
The Administrator of the Company hereby grants to the Participant named in the Notice of Stock Option Grant in Part I of this Agreement,
an Option to purchase the number of Shares set forth in the Notice of Stock Option Grant, at the exercise price per Share set forth in
the Notice of Stock Option Grant (the “Exercise Price”), and subject to the terms and conditions of the Plan, which is incorporated
herein by reference. Subject to Section 18(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan
and this Option Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Stock
Option Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as an Incentive Stock Option as defined
in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option
shall be treated as a Nonstatutory Stock Option (“NSO”). Further, if for any reason this Option (or portion thereof) shall
not qualify as an ISO, then, to the extent of such nonqualification, such Option (or portion thereof) shall be regarded as a NSO granted
under the Plan. In no event shall the Administrator, the Company or any Parent or Subsidiary or any of their respective employees or directors
have any liability to Participant (or any other person) due to the failure of the Option to qualify for any reason as an ISO.
2. Exercise of Option.
(a) Right to Exercise.
This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and
with the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise.
This Option shall be exercisable by delivery of an Exercise Notice in the form attached as Exhibit A to the Plan
or in a manner and pursuant to such procedures as the Administrator may determine, which shall state the election to exercise the Option,
the number of Shares with respect to which the Option is being exercised (the “Exercised Shares”), and such other representations
and agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price
as to all Exercised Shares, together with any applicable tax withholding. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price, together with any applicable tax withholding.
No Shares shall be issued pursuant
to the exercise of an Option unless such issuance and such exercise comply with Applicable Laws. Assuming such compliance, for income
tax purposes the Shares shall be considered transferred to Participant on the date on which the Option is exercised with respect to such
Shares.
3. Participant’s
Representations. In the event the Shares have not been registered under the Securities Act, at the time this Option is exercised,
Participant shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company
his or her Investment Representation Statement in the form attached hereto as Exhibit B to the Plan.
4. Lock-Up Period.
Participant hereby agrees that Participant shall not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership of any Common Stock (or other securities) of the Company
held by Participant (other than those included in the registration) for a period specified by the representative of the underwriters of
Common Stock (or other securities) of the Company not to exceed 180-days following the effective date of any registration statement of
the Company filed under the Securities Act (or such other period as may be requested by the Company or an underwriter to accommodate regulatory
restrictions including, but not limited to, FINRA Rule 2241, if applicable, or any similar or successor provisions or amendments thereto).
Participant agrees to execute and
deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing
or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters
of Common Stock (or other securities) of the Company, Participant shall provide, within ten
(10) days of such request, such information as may
be required by the Company or such representative in connection with the completion of any public offering of the Company’s securities
pursuant to a registration statement filed under the Securities Act. The obligations described in this Section 4 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future,
or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future.
The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing
restriction until the end of said 180-day (or other) period. Participant agrees that any transferee of the Option or shares acquired pursuant
to the Option shall be bound by this Section 4.
5. Method of Payment.
Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Participant:
(a) cash;
(b) check;
(c) consideration received
by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) surrender of other Shares
which (i) shall be valued at its Fair Market Value on the date of exercise, and (ii) must be owned free and clear of any liens, claims,
encumbrances or security interests, if accepting such Shares, in the sole discretion of the Administrator, shall not result in any adverse
accounting consequences to the Company.
6. Restrictions on Exercise.
This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company, or if the issuance
of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability
of Option.
(a) This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of
Participant only by Participant. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators,
heirs, successors and assigns of Participant.
(b) Further, until the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, or after the Administrator determines that it
is, will, or may no longer be relying upon the exemption from registration of Options under the Exchange Act as set forth in Rule 12h-1(f)
promulgated under the Exchange Act (the “Reliance End Date”), Participant shall not transfer this Option or, prior to exercise,
the Shares subject to this Option, in any manner other than (i) to persons who are “family members” (as defined in Rule 701(c)(3)
of the Securities Act) through gifts or domestic relations orders, or (ii) to an executor or guardian of Participant upon the death or
disability of Participant. Until the Reliance End Date, the Options and, prior to exercise, the Shares subject to this Option, may not
be pledged, hypothecated or otherwise transferred or disposed of, including by entering into any short position, any “put equivalent
position” or any “call equivalent position” (as defined in Rule 16a-1(h) and Rule 16a-1(b) of the Exchange Act, respectively),
other than as permitted in clauses (i) and (ii) of this paragraph.
8. Term of Option.
This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised during such term only
in accordance with the Plan and the terms of this Option Agreement.
9. Tax Obligations.
(a) Tax Withholding.
Participant agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Participant)
for the satisfaction of all Federal, state, local and foreign income and employment tax withholding requirements applicable to the Option
exercise. Participant acknowledges and agrees that
the Company may refuse to honor the exercise and refuse to deliver the Shares if such withholding amounts are not delivered at the time
of exercise.
(b) Notice of Disqualifying
Disposition of ISO Shares. If the Option granted to Participant herein is an ISO, and if Participant sells or otherwise disposes of
any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after the Date of Grant, or (ii) the
date one (1) year after the date of exercise, Participant shall immediately notify the Company in writing of such disposition. Participant
agrees that Participant may be subject to income tax withholding by the Company on the compensation income recognized by Participant.
(c) Code Section 409A. Under
Code Section 409A, an Option that vests after December 31, 2004 (or that vested on or prior to such date but which was materially modified
after October 3, 2004) that was granted with a per Share exercise price that is determined by the Internal Revenue Service (the “IRS”)
to be less than the Fair Market Value of a Share on the date of grant (a “discount option”) may be considered “deferred
compensation”. An Option that is a “discount option” may result in (i) income recognition by Participant prior to the
exercise of the Option, (ii) an additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges.
The “discount option” may also result in additional state income, penalty and interest tax to the Participant. Participant
acknowledges that the Company cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals
or exceeds the Fair Market Value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines
that the Option was granted with a per Share exercise price that was less than the Fair Market Value of a Share on the date of grant,
Participant shall be solely responsible for Participant’s costs related to such a determination.
10. Entire Agreement;
Governing Law. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company
and Participant with respect to the subject matter hereof, and may not be modified adversely to the Participant’s interest except
by means of a writing signed by the Company and Participant. This Option Agreement is governed by the internal substantive laws but not
the choice of law rules of Delaware.
11. No Guarantee of Continued
Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY
CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) AND NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE
OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH
PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
Participant acknowledges receipt
of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option
subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Participant hereby
agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under
the Plan or this Option. Participant further agrees to notify the Company upon any change in the residence address indicated below.
|
PARTICIPANT
|
DATCHAT, INC.
|
|
|
|
|
|
|
|
Signature
|
Signature
|
|
|
|
|
|
|
|
Print Name
|
Print Name
|
|
|
|
|
|
|
|
|
Title
|
|
|
|
|
Mailing Address:
|
Mailing Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Email address:
|
|
|
|
|
|
|
___________, 20___
|
|
|
|
|
|
Date Received (the “Effective Date”)
|
Exhibit 23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
DatChat, Inc.
We hereby consent to the incorporation by reference in this
Registration Statement of DatChat, Inc. on Form S-1/A to be filed on or about August 9, 2021 of our report dated March 19,
2021, except for common share and loss per share presentation on a post-reverse split basis dated July 28, 2021, on our audits
of DatChat, Inc.’s financial statements as of December 31, 2020 and 2019 and for each of the years then ended. Our report
includes an explanatory paragraph about the existence of the substantial doubt concerning the Company’s ability to continue as
a going concern.
D. Brooks and Associates CPAs, P.A.
Palm Beach Gardens, FL
August 9, 2021
Exhibit 99.1
CONSENT OF DIRECTOR
NOMINEE
In accordance with
Rule 438 under the Securities Act of 1933, as amended, the undersigned hereby consents to being named as a nominee to the board of directors
of DatChat, Inc., a Delaware corporation (the “Company”), in the Company’s registration statement on Form S-1 and in all
amendments thereto, including post-effective amendments (the “Registration Statement”), in connection with
the initial public offering of the Company’s common stock and warrants. The undersigned also consents to the filing of this consent
as an exhibit to such Registration Statement and any amendments thereto.
Dated: August 9, 2021
|
|
|
/s/ Pete Shelus
|
|
Pete Shelus
|
Exhibit 99.2
CONSENT OF DIRECTOR
NOMINEE
In accordance with
Rule 438 under the Securities Act of 1933, as amended, the undersigned hereby consents to being named as a nominee to the board of directors
of DatChat, Inc., a Delaware corporation (the “Company”), in the Company’s registration statement on Form S-1 and in all
amendments thereto, including post-effective amendments (the “Registration Statement”), in connection with
the initial public offering of the Company’s common stock and warrants. The undersigned also consents to the filing of this consent
as an exhibit to such Registration Statement and any amendments thereto.
Dated: August 9, 2021
|
|
|
/s/ Wayne D. Linsley
|
|
Wayne D. Linsley
|
Exhibit 99.3
CONSENT OF DIRECTOR
NOMINEE
In accordance with
Rule 438 under the Securities Act of 1933, as amended, the undersigned hereby consents to being named as a nominee to the board of directors
of DatChat, Inc., a Delaware corporation (the “Company”), in the Company’s registration statement on Form S-1 and in all
amendments thereto, including post-effective amendments (the “Registration Statement”), in connection with
the initial public offering of the Company’s common stock and warrants. The undersigned also consents to the filing of this consent
as an exhibit to such Registration Statement and any amendments thereto.
Dated: August 9, 2021
|
|
|
/s/ Joseph Nelson
|
|
Joseph Nelson
|
Exhibit 99.4
CONSENT OF DIRECTOR
NOMINEE
In accordance with
Rule 438 under the Securities Act of 1933, as amended, the undersigned hereby consents to being named as a nominee to the board of directors
of DatChat, Inc., a Delaware corporation (the “Company”), in the Company’s registration statement on Form S-1 and in all
amendments thereto, including post-effective amendments (the “Registration Statement”), in connection with
the initial public offering of the Company’s common stock and warrants. The undersigned also consents to the filing of this consent
as an exhibit to such Registration Statement and any amendments thereto.
Dated: August 9, 2021
|
|
|
/s/ Carly Schumer
|
|
Carly Schumer
|