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; 13 ● 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. 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 nine 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 September 30, 2023 and 2022, we incurred $1,067,974 and $292,935 in net losses due primarily to software research and development expenses along with general and administrative expenses in both periods. For the nine months ended September 30, 2023 and 2022, we incurred $2,903,643 and $792,445 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 specializes in the domain of social media marketing. Thumzup’s flagship product, the Thumzup® App, available on both iPhone and Android operating systems, serves as a symbiotic bridge between brands and their enthusiasts. For advertisers, Thumzup® incentivizes real people, referred to as content creators (“Creators”), to generate 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 various sectors including ride sharing, hospitality, finance and other industries. The Thumzup® suite of tools are designed to facilitate and expedite this democratization trend for consumers and advertisers within the online advertising space. 14 Leveraging advanced technology, the Company has built a community around its Thumzup® App that resonates with the ethos of the influencer and gig economy. This technology and community are designed to generate scalable authentic product posts, endorsements, and recommendations for advertisers on social media. It is designed to connect advertisers with individuals who are willing to tell their friends and family about the advertisers’ products both on 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. By selecting the brand and capturing an image using the Thumzup® App, Thumzup® Creators can automatically share the content, complete with captions, to their social channels. 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 receive genuine user-generated promotions, moving beyond the often-ignored traditional banner ads. 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 . 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 the potential of innovative social media platforms like Thumzup®, furnished with the right blend of user experience and value, to captivate Creators and command significant time investments. The Company is an early-stage entity building a new real-time platform to support the gig economy. The guiding philosophy is simple: empower individuals to monetize their authentic social media engagements. The Thumzup® App is envisioned as a nexus where advertisers can foster direct consumer connections. However, the platform’s success hinges on securing a critical mass of advertisers to ensure its viability and scalability, and to perpetuate Creator engagement. It’s pertinent to note that while the Company is dedicated to this mission, there’s no definitive guarantee of achieving the envisioned outcomes. 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 (CAGR), the online advertising market is 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 present descriptions of market size and penetration are indirectly applicable. As Thumzup® matures, the Company anticipates other competitors will emerge in this new market, capitalizing on the payment model to non-professional advocates to tell their friends about products they love on social media at the point-of-sale. Currently, “influencer marketing” stands as the most analogous segment to Thumzup®’s niche, witnessing substantial growth with the rise of social media influencers. 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 authentically post on social media is valuable. Most existing paid influencer marketing platforms were designed for professional and semi-professional online personas. Some of these platforms have expanded to accommodate “micro-influencers,” those boasting 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. 15 Recent findings from TapInfluence highlighted 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. Thumzup®’s own data indicates that as an influencer’s total follower count rises, the rate of engagement (likes and comments) with followers decreases. The data showed that those with less than 1,000 followers, also referred to as “nano-influencers,” generally received likes on their posts 8% of the time. There 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 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 those who may not be professional influencers but are genuinely enthusiastic about the products and services. With a design philosophy echoing Apple’s quintessential simplicity, both the Thumzup® App and its advertiser dashboard seamlessly integrate into existing social media usage patterns, ensuring nearly effortless use. The Company’s first product—Thumzup® App The Company specializes in the domain of social media marketing, primarily through its mobile iPhone and Android application called “Thumzup®.” The application connects brands, products, and services to the people who use and love these brands, products, and services. For advertisers, Thumzup® catalyzes authentic user-generated content, from real product reviews and testimonials, by amplifying brand visibility and facilitating a direct, efficient connection with target consumers, ultimately boosting promotions and traffic to their offerings. The Company is building an influencer and gig economy community around the Thumzup® App. This initiative aims to foster authentic product posts and recommendations on social media. The App and advertiser dashboard are designed to connect advertisers with individuals who are willing to promote their products and services online and offline. At its core, the Thumzup® App aims to simplify and elevate person-to-person advertising, ensuring it’s not only effective, but highly scalable and economic for Thumzup® advertisers. 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. Additionally, the Company owns the copyrighted and proprietary source code for the Thumzup® App’s backend system, responsible for administrating the Thumzup® App, tracking payments and monitoring advertising campaigns. The distinct Thumzup® thumb logo is a registered trademark owned by Thumzup® Media Corporation with 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 the Creator, with monetary amounts that range from $1.00 to $1,000.00 per approved post. The Thumzup® platform enables the advertiser to screen and filter posts so that the advertiser only pays for posts that are commercially valuable, ensuring Creators are rewarded for posts that have images and text that represent the advertiser in a positive manner. 16 Per Post Fee Structure: Thumzup® advertisers are charged a ‘Per Post Fee’ model. By way of illustration, if an advertiser purchases 100,000 posts at a rate of $10 per post to Thumzup® Creators, the total cost would be $13.00 per post or $1,300,000. From this, Creators in this illustration would receive a total of $1,000,000 and Thumzup® would retain $300,000 as its service fee. The Thumzup® platform would then facilitate 100,000 endorsed posts for the advertiser from Thumzup® Creators sharing with their followers about their endorsed products on social media. Value Proposition The Thumzup® App is designed to generate scalable, genuine social media content for advertisers, bridging the gap between advertisers and 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®. Envision a gig economy driver endorsing a diner they’ve just visited or a gig economy freelance designer at a cafe doing a graphic design project from a gig economy site who takes a moment to post about the coffee shop – all via Thumzup®. The Company believes that Thumzup® not only can readily provide supplemental income for this existing pool of gig economy workers, but also ensures advertisers receive quality content worthy of their ad spend. 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 September 30, 2023 and December 31, 2022, the Company had a cash balance of $146,240 and $1,155,343, respectively, and the Company used $1,911,767 and $573,356 to fund operating activities for the nine months ended September 30, 2023 and 2022, respectively. The Company has an accumulated deficit at September 30, 2023 and December 31, 2022 of $5,317,073 and $2,367,623 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 SEPTEMBER 30, 2023 AND 2022 The following table sets forth certain selected unaudited statement of operations data for the three months ended September 30, 2023 and 2022. For the Three Months ended Sept 30, 2023 Sept 30, 2022 $ Change %Change Revenues $ 72 $ 1,632 $ (1,560 ) (95.59 )% Operating Expenses 718,517 294,567 423,950 143.92 % Loss from Operations (718,445 ) (292,935 ) (425,510 ) 145.26 % Other Income (Expense) (392,665 ) - (392,665 ) - % Net Income (Loss) Available to Common Stockholders $ (1,111110 ) $ (292,935 ) $ (818,175 ) 279.30 % Revenues The Company generated revenues of $72 and $1,632 for the three months ended September 30, 2023 and 2022, respectively, a decrease of $1,560. 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 platform activity during the three months ended September 30, 2023. Operating expenses For the three months ended September 30, 2023 and 2022, the Company incurred operating expenses of $718,517 and $294,567, respectively, an increase of $423,950. The increase in operating expenses was caused by: marketing expenses increasing $163,937 from $64,748 during the three months ended September 30, 2022 to $228,685 during the same period in 2023, general and administrative expenses increasing $220,452 from $100,900 during the three months ended September 30, 2022 to $321,352 during the same period in 2023, depreciation and amortization expenses increasing $8,020 from $540 during the three months ended September 30, 2022 to $8,560 during the same period in 2023, software research development expenses increasing $33,441 from $126,479 during the three months ended September 30, 2022 to $159,920 during the same period in 2023, and cost of revenues decreasing $1,900 from $1,900 during the three months ended September 30, 2022 to $0 during the same period in 2023. The increases in operating expenses were caused by the Company expanding operations during the three months ended September 30, 2023 to accelerate the platform’s growth. Net Loss from operations The Company realized a net loss from operations of $718,445 and $292,935 for the three months ended September 30, 2023 and 2022, respectively, an increase of $425,510 for the reasons stated above. Other expenses For the three months ended September 30, 2023 and 2022, the Company had $364,729 and $0 in expenses for liquidated damages related to the Company’s equity offerings, respectively. For the three months ended September 30, 2023 and 2022, the Company had $27,937 and $0 in interest expense, respectively, related to liquidated damages and debt notes, respectively. The debt notes were retired by converting and exchanging to equity in September 2022. Net Loss available to common shareholders The Company realized a net loss available to common shareholders of $1,111,110 and $292,935 for the three months ended September 30, 2023 and 2022, respectively, an increase of $818,175 for the reasons stated above. 18 NINE MONTHS ENDED SEPTMEBER 30, 2023 AND 2022 The following table sets forth certain selected unaudited statement of operations data for the nine months ended September 30, 2023 and 2022. For the Nine Months ended Sept 30, 2023 Sept 30, 2022 $ Change %Change Revenues $ 2,422 $ 6,524 $ (4,102 ) (62.88 )% Operating Expenses 2,149,445 790,083 1,359,362 172.05 % Loss from Operations (2,147,023 ) (783,559 ) (1,363,464 ) 174.01 % Other Income (Expense) (794,813 ) (8,886 ) (785,927 ) 8,844.55 % Net Income (Loss) Available to Common Stockholders $ (2,941,836 ) $ (792,445 ) $ (2,149,391 ) 271.24 % Revenues The Company generated revenues of $2,422 and $6,524 for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $4,102. 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 platform activity during the nine months ended September 30, 2023. Operating expenses For the nine months ended September 30, 2023 and 2022, the Company incurred operating expenses of $2,149,445 and $790,083, respectively, an increase of $1,359,362. The increase in operating expenses was caused by: costs of revenues decreasing by $1,784 from $1,900 during the nine months ended September 30, 2022 to $116 during the same period in 2023, marketing expenses increasing $620,252 from $130,107 during the nine months ended September 30, 2022 to $750,359 during the same period in 2023, general and administrative expenses increasing $660,427 from $243,979 during the nine months ended September 30, 2022 to $904,406 during the same period in 2023, depreciation and amortization expenses increasing $15,037 from $1,620 during the nine months ended September 30, 2022 to $16,657 during the same period in 2023, and software research development expenses of $65,429 from $412,477 during the nine months ended September 30, 2022 to $477,906 during the same period in 2023. The increases in the operating expenses were caused by the Company expanding operations during the nine months ended September 30, 2023 to accelerate the platform’s growth. Net Loss from operations The Company realized a net loss from operations of $2,147,023 and $783,559 for the nine months ended September 30, 2023 and 2022, respectively, an increase of $1,363,464 for the reasons stated above. Other expenses For the nine months ended September 30, 2023 and 2022, the Company had $794,811 and $0 in expenses for liquidated damages for certain of the Company’s equity offerings, respectively. For the nine months ended September 30, 2023 and 2022, the Company had $63,161 and $8,886 in interest expense, respectively, related to liquidated damages and debt notes, respectively. The debt notes were retired by converting and exchanging to equity in September 2022. Net Loss available to common shareholders The Company realized a net loss available to common shareholders of $2,941,836 and $792,445 for the nine months ended September 30, 2023 and 2022, respectively, an increase of $2,149,391 for the reasons stated above. 19 Liquidity and capital resources As of September 30, 2023 and December 31, 2022, the Company had cash in the amount of $146,240 and $1,155,343, respectively. As of September 30, 2023 and December 31, 2022, the Company had stockholders’ equity of $255,089 and $786,524, respectively. The Company’s accumulated deficit was $5,317,073 and $2,367,623 as of September 30, 2023 and December 31, 2022, respectively. The Company used net cash in operations of $1,911,767 and $851,984 for the nine months ended September 30, 2023 and 2022, respectively. Net cash used in investing activities for nine months ending September 30, 2023 and 2022 was $114,640 and $0, respectively. During the nine months ended September 30, 2023, there were $108,313 in capitalized development costs and $6,327 used for the purchase of equipment. Net cash provided by financing activities was $1,017,304 for the nine months ended September 30, 2023, comprised of $33,000 from the sale of common stock related to the sale of common stock in a prior period and $984,304 from the Company’s offering under Regulation A+, net offering costs of $9,946. Net cash provided by financing activities was $1,527,300 for the nine months ended September 30, 2022, with $737,000 generated from the sale of common stock, $300 in loan proceeds, and $790,000 from the sale of the Company’s Series A preferred 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.