Datacentrex, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This quarterly report including this Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”, “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this quarterly report, those results may not be indicative of results or developments in subsequent periods. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following: ● risks related to the impact of the COVID-19 global pandemic, such as the scope and duration of the outbreak, government actions and restrictive measures implemented in response, material delays and cancellations of projects, and other impacts to the business; ● our ability to raise capital when needed and on acceptable terms and conditions; ● our ability to manage credit and debt structures from debt holders; ● our ability to generate revenues and manage the growth of our business; ● competitive pressures; ● general economic conditions; ● our ability to attract and retain management, and to integrate and maintain technical information and management information systems. ● compliance with laws and regulations, including those relating to corporate governance matters and tax matters, as well as any future changes to such laws and regulations. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above-mentioned factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance. 13 INTRODUCTION Thumzup Media Corporation (“Thumzup” or “Company”) was incorporated on October 27, 2020, under the laws of the State of Nevada, and its headquarters is located in Los Angeles. The Company’s primary business is software as a service provider dedicated to connecting businesses with consumers and allowing the business to incentivize consumers to post about their experience on social media. Thumzup mission is to democratize social media marketing by connecting advertisers with non-professional people, who can be paid for their posts about products and services they love through its technology which utilizes a proprietary mobile app (“App”). The App generates scalable word-of-mouth product posts and recommendations for advertisers on social media and is designed to connect advertisers with individuals who are willing to promote their products online. The Thumzup App enables users to select a brand they want to post about on social media. Once the Thumzup user selects the brand and takes a photo (using the App), the App will post the photo and a caption to the user’s social media account(s). As of the date of this filing, Instagram is the Company’s initial social media platform that is being used, due to its wide acceptance and its great functionality using photographs. The Company expects to add other social media platforms in the future. For the advertiser, the Thumzup system enables brands to get real people to promote products to their friends, rather than displaying banner ads that consumers now mostly ignore, or contracting with expensive professional influencers. The Company has recorded nominal revenues during the first three months of 2023 and continues with the development of enhancements to its App and marketing efforts. The Company is an “emerging growth company” as that term is used in the Jumpstart our Business Startups Act of 2012, and as such, has elected to comply with certain reduced public company reporting requirements. OVERVIEW We were formed in October 2020 and have not yet established profitable operations and have generated minimal revenue. For the three months ended March 31, 2023 and 2022, we incurred $722,752 and $224,372 in net losses due primarily to software research and development expenses along with general and administrative expenses in both periods. Thumzup® Products and Services The Company operates in a single business segment which is social media marketing. The Thumzup® App works on both iPhone and Android mobile operating systems and connects brands and people who use and love these brands. For the advertiser, Thumzup® incentivizes real people to become content creators (“Creators”) and post authentic valuable posts on social media about the advertiser and its products. The Company seeks to capitalize on industry-wide gig economy and business democratization trends. Immense value and opportunity have been created through the democratization of ride sharing, hospitality, finance and other industries. The Thumzup® tools are designed to facilitate this democratization trend for the consumer and the advertiser within the online advertising space. The Company has built the technology to support an influencer and “gig” economy community around its Thumzup® App. This technology and community are designed to generate scalable authentic product posts and recommendations for advertisers on social media. It is designed to connect advertisers with individuals who are willing to tell their friends about the advertisers’ products online and offline. Social Media Marketing Software Technology The Thumzup® mobile App enables Creators, to select from brands advertising on the App and get paid to post about the advertiser on social media. Once the Thumzup® Creator selects the brand and takes a photo using the Thumzup® App, the Thumzup® App posts the photo and a caption to the creator’s social media accounts. The advertiser then reviews and approves the post for payment and the Creator can cash out whenever they choose through popular digital payment systems. For the advertiser, the Thumzup® system enables brands to get real people to promote their products to their friends, rather than displaying banner ads that people are tuning out. 14 A recent Nielsen report found more than 83% of consumers believe friends and family are the most reliable sources of information about products. According to a Pixlee article, 64% of millennials recommend a product at least once a month , and according to a 2019 Morning Consult survey, 86% of Gen Z and millennials would post content for monetary compensation . The average American adult was expected to spend 8 hours and 11 minutes per day using digital media in 2022 according to Insider Intelligence. The amount of daily usage has increased significantly over the past several years, again according to Insider Intelligence, and the Company believes such usage will continue to accelerate. The Company empowers businesses that want to interact with these Creators and provides tools and data so they can increase consumer awareness and expand their customer bases. In the past decade, social media platforms like Instagram, Facebook, Twitter, Pinterest, and TikTok have achieved mass worldwide consumer acceptance and created hundreds of billions of dollars in shareholder value. This worldwide viral growth demonstrates that compelling new social media platforms which present the right combination of experience and value, will attract Creators who will invest significant amounts of time on the platforms. The Company is an early-stage entity building a new real-time platform to support the gig economy. The Company believes that acceptance of its App and revenue growth can be driven by empowering everyday people to make money by posting about what they find to be enjoyable or attractive on social media. The Company believes that the Thumzup® App is a conduit for advertisers to connect directly with consumers. The Company will need to secure enough advertisers to make the App an attractive platform for adoption and scalability, and to ensure that the platform is interesting enough for the Creators to return to on a regular basis. No assurance can be given that the Company will be able to achieve these results. The Industry—Online Advertising Growing at a 16.5% compound annual growth rate, the online advertising market was set to grow from $208 billion in 2022 to $354.9 billion in 2026 according to a 2021 Reportlinker.com study. The Company believes that it is developing a new form of social media marketing that does not currently exist, therefore existing descriptions of market size and penetration are not directly applicable. As Thumzup® matures, the Company believes there will be other competitors in this new market of paying non-professional advocates to tell their friends about products they love on social media at the point-of-sale. The closest existing market that is similar to Thumzup’s market is the rapidly growing subset of online advertising called “influencer marketing.” As social media influencers become more plentiful and proven, advertising spending has increased in this space. . We believe major brands recognize that having their happy customers post on social media is valuable. Most existing paid influencer marketing platforms were designed for professional and semi-professional online personalities. Some of these platforms have expanded to accommodate “micro-influencers” – people with 5,000 to 30,000 social media followers. In the Company’s opinion, none of these influencer platforms has entered the public consciousness and found mass adoption. Recent research conducted by TapInfluence has found that influencer marketing content delivers 11 times higher return on investment than traditional forms of digital marketing, and approximately 66% of marketing firms now deploy influencer marketing according to a 2018 Association of National Advertisers survey. A recent Nielsen report found more than 80% of consumers believe friends and family are the most reliable sources of information about products. According to an analysis of Thumzup’s data, as an influencer’s follower total rises, the rate of engagement (likes and comments) with followers decreases. Those with less than 1,000 followers, also referred to as “nano-influencers,” generally received likes on their posts 8% of the time according to an analysis of Thumzup’s data. There thus appears to be, in the Company’s view, a clear downward correlation between follower sizes and post likes. Around 66% of marketers now use influencers and nearly half of U.S. marketers plan to increase their influencer budgets according to a 2018 Association of National Advertisers survey. According to a Pixlee article, 64% of millennials recommend a product at least once a month , and according to a 2019 Morning Consult survey, 86% of Gen Z and millennials would post content for monetary compensation . The Company has designed Thumzup® “from the ground up” to make it easy for brands and service providers to activate people who are not professional influencers but who are passionate about the products, services, or establishments they enjoy or frequent and then are willing to relate those experiences to their friends and other social media followers. The Company has designed the Thumzup App and advertiser dashboard with Apple-style simplicity and intuitive features to make participation by all individuals seamless with their existing use of social media. 15 The Company’s first product—Thumzup® App The Company operates in a single business segment, which is social media marketing. The Company’s mobile iPhone and Android applications called “Thumzup®” connects brands, products, and services to the people who use and love these brands, products, and services. For advertisers, Thumzup® activates real people to post real product reviews and testimonials on social media with the intention of enhancing brand awareness and reaching targeted consumers more directly and effectively while driving profitable traffic to the advertisers’ products and services. The Company is building an influencer and gig economy community around the Thumzup® mobile App that will generate scalable authentic product posts and recommendations for advertisers on social media and create a technology platform making person-to-person advertising easy, cost-effective, and scalable. The App and advertiser dashboard are designed to connect advertisers with individuals who are willing to promote their products and services online and offline. Social Media Marketing Software Technology The Company’s Services The Thumzup® mobile App enables Creators to select from brands advertising on the App and get paid to post about the advertiser on social media. Once the Thumzup® Creator selects the brand and takes a photo using the Thumzup® App, the Thumzup® App posts the photo and a caption to the Creator’s social media accounts. The advertiser then reviews and approves the post for payment and the Creator can cash out whenever they choose through popular digital payment systems. For the advertiser, the Thumzup® system enables brands to get real people to promote their products and services to their friends, rather than displaying banner ads that social media users are tuning out. With the Thumzup® App, the Company is targeting and seeking to sign up everyday people and gig economy workers who like specific brands and present them with opportunities to be paid for posting about the brands on social media. The Company believes that its management team has the sales relationships, legal, and technology expertise for its current level of development. The Company will need to add additional staff to rapidly grow the business. All source code, development work, and intellectual property performed under independent development or employment contracts paid for by the Company are assigned to and owned by Thumzup®. Intellectual Property The Company owns the copyrights to the source code for the Thumzup® App on the iPhone iOS and Android operating mobile operating systems as used on the majority of mobile phone and tablet devices. The Company also owns the copyrighted source code for the “backend” system that administrates the Thumzup® App, tracks payments and advertising campaigns. The Thumzup® thumb logo is a registered trademark owned by Thumzup® Media Corporation, Reg. No. 6,842,424, registered Sep. 13, 2022. On April 13, 2021, the Company filed a trademark application ser. No. 90642789 with the U.S. Patent and Trademark Office (“USPTO”) for the word mark THUMZUP, which was granted registration on June 21, 2022, resulting in reg. no. 6764158. Also on April 13, 2021, the Company filed a trademark application ser. No. 90642848 for the Thumzup® logo, featuring a stylized hand with an upwardly extended thumb. Meta Platforms, Inc. (which owns and operates Facebook and Instagram) initially filed opposition to the logo on June 30, 2022. Thumzup® agreed to not use the logo as a reaction to a post and Meta Platforms, Inc. subsequently withdrew their opposition on August 5, 2022 and it was dismissed without prejudice. Business Model Advertisers purchase a campaign on the Thumzup® website. Once the advertiser approves a post for payment, the platform facilitates the payment to Creators a monetary amount per screened post which may range from $1.00 to $1,000.00. The Thumzup® platform enables the advertiser to screen posts so that the advertiser only pays for posts that are commercially valuable and rewards Creators for posts that have images and text that represent the advertiser in a positive manner. 16 Per Post Fee . Thumzup® advertisers are charged a “Per Post Fee.” By way of illustration, an advertiser that buys 100,000 posts from Thumzup®, to pay out $10 per post to Thumzup® Creators, would purchase the posts for $13.00 each or $1,300,000. The Creators in this illustration would receive a total of $1,000,000 and Thumzup® would retain $300,000 for its services. The Thumzup® platform would facilitate 100,000 posts for the advertiser from Thumzup® Creators sharing with their friends about their endorsed products on social media. Value Proposition The Thumzup® App is designed to generate scalable social media authentic social media content for advertisers. It is designed to connect advertisers with individuals who are willing to authentically promote their products online. The Company envisions that many gig economy workers will be ideal candidates to become Creators posting on Thumzup®. Imagine a gig economy driver waiting for their next fare who takes a moment to post about the good experience they had at their lunch spot where they are waiting. Imagine a gig economy worker on a laptop at a coffee shop doing a graphic design project from a gig economy site who takes a moment to post about the coffee shop where they are working on Thumzup®. The Company believes that Thumzup® can readily provide extra income for this existing pool of gig economy workers. The Company believes these gig economy workers will be able to provide quality Thumzup® posts on social media for which advertisers will be willing to pay. Regulatory Compliance The Federal Trade Commission regulates and requires certain disclosures by social media influencers, specifying when disclosure is required, and how the disclosure should be presented. These rules are codified in the Code of Federal Regulations, 16 CFR Part 255. Specifically, the FTC requires that influencers disclose any financial, employment, personal, or family relationship with a brand. Influencers must disclose financial relationships and consideration paid including any money, discounted products or other benefits paid to the influencer. Creators on the Thumzup platform are being paid to post about Thumzup advertisers. Thumzup puts #ad in each post made on its platform to disclose that the creator has been paid to make the post. The Company does not believe its compliance with existing FTC regulations will have a material effect on capital expenditures, earnings and competitive position of the Company for the current fiscal year and any other material future period. GOING CONCERN The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company was only recently formed, has not yet established profitable operations and has incurred losses since inception. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management is proposing to raise additional funds not provided by operations through loans or through sales of its common stock. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. The Company is a beginning revenue, software and services company that has relied on short-term debt and equity funding for its operations. At March 31, 2023 and December 31, 2022, the Company had a cash balance of $528,330 and $1,155,343, respectively, and the Company used $607,725 and $222,969 to fund operating activities for the three months ended March 31, 2023 and 2022, respectively. The Company has an accumulated deficit at March 31, 2023 and December 31, 2022 of $2,807,459 and $2,084,707, respectively, and the Company may need to raise additional funding in order to continue as a going concern. 17 RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2023 AND 2022 The following table sets forth certain selected unaudited statement of operations data for the three months ended March 31, 2023 and 2022. For the Three Months ended 31-Mar-23 31-Mar-22 $ Change %Change Revenues $ 1,770 $ 3,494 $ (1,724) (49.34) % Operating Expenses 722,075 223,423 498,652 223.19 % Loss from Operations (720,305) (219,929 ) (500,376) 227.52 % Other Income (Expense) - (4,443 ) 4,443 (100.00) % Net Income (Loss) Available to Common Stockholders $ (722,752) $ (224,372 ) $ (498,380) 222.12 % Revenues The Company generated revenues of $1,770 and $3,494 for the three months ended March 31, 2023 and 2022, respectively, a decrease of $1,724. The Company updated its revenue recognition policy for the year ended December 31, 2022, resulting in the Company reporting net revenue, which caused revenue to decrease despite a significant increase in advertiser activity during the three months ended March 31, 2023. Operating expenses For the three months ended March 31, 2023 and 2022, the Company incurred operating expenses of $722,075 and $223,423, respectively, an increase of $498,652. The increase in operating expenses was caused by: costs of revenues increasing by $116 from $0 during the three months ended March 31, 2022 to $116 during the same period in 2023, marketing expenses increasing $253,856 from $14,861 during the three months ended March 31, 2022 to $268,717 during the same period in 2023, general and administrative expenses increasing $262,978 from $61,976 during the three months ended March 31, 2022 to $324,954 during the same period in 2023, depreciation and amortization expenses increasing $1,867 from $540 during the three months ended March 31, 2022 to $2,407 during the same period in 2023, offset by a decrease in software research development expenses of $20,165 from $146,046 during the three months ended March 31, 2022 to $125,881 during the same period in 2023. The decline in software research and development expenses is attributable to the Company capitalizing certain software development costs, while the increases in the remaining operating expenses was caused by the Company expanding operations during the three months ended March 31, 2023 to accelerate the platform’s growth. Net Loss from operations The Company realized a net loss from operations of $720,305 and $219,929 for the three months ended March 31, 2023 and 2022, respectively, an increase of $500,376 for the reasons stated above. Other expenses For the three months ended March 31, 2023 and 2022, the Company had $0 and $4,443 in interest expense, respectively, related to debt notes. The debt notes and accrued interest were retired by converting to equity in September 2022. Net Loss available to common shareholders The Company realized a net loss available to common shareholders of $722,752 and $224,372 for the three months ended March 31, 2023 and 2022, respectively, an increase of $498,380 for the reasons stated above. 18 Liquidity and capital resources As of March 31, 2023 and December 31, 2022, the Company had cash in the amount of $528,330 and $1,155,343, respectively. As of March 31, 2023 and December 31, 2022, the Company had stockholders’ equity of $514,135 and $1,069,799, respectively. The Company’s accumulated deficit was $2,807,459 and $2,084,707 as of March 31, 2023 and December 31, 2022, respectively. The Company used net cash in operations of $607,725 and $222,969 for the three months ended March 31, 2023 and 2022, respectively. Net cash used in investing activities for three months ending March 31, 2023 and 2022 was $52,288 and $0 used for software development and to purchase computer equipment, respectively. Net cash provided by financing activities was $33,000 for the three months ended March 31, 2023, comprised of $33,000 from stock subscription receivable related to the sale of common stock in a prior period. Net cash provided by financing activities was $123,800 for the three months ended March 31, 2022 from the sale of common stock. Inflation The Company’s results of operations have not been affected by inflation and management cannot predict the impact, if any, inflation might have on its operations in the future. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company is not required to provide the information required by this Item as it is a smaller reporting company.