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 2024 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, 2024 and 2023, we incurred $330,712 and $911,237 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 and advertising. 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 ordinary people to become paid content Creators and post authentic valuable posts on social media about the Advertiser and its products. The Company seeks to capitalize on nationwide-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 marketing and 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. In 2023, $148 billion was spent on digital display ads in the United States and while 43% of marketers consider display ads to be the least effective channel, 84% of marketers were still investing in them (1). We feel this demonstrates a significant need among advertisers for new methods of messaging to potential customers. We believe Thumzup’s ability to scale brand messages from the general population on social media could be part of addressing this substantial need in the market. 14 A recent Nielsen report found 81% of consumers believe friends and family are the most reliable sources of information about products (2). According to a Emplifi article, 64% of millennials recommend a product at least once a month (3), and according to a 2019 Morning Consult survey, 86% of Gen Z and millennials would post content for monetary compensation (4). Further, according to a 2020 IZEA Insights Study, 67% of social media consumers aspire to be paid social media influencers (5). According to a 2023 Bankrate, 48% of social media users have impulsively purchased a product seen on social media (6). Lastly, 85% of Gen Z says social media impacts purchase decisions according to a 2023 Retail Dive Survey (7). The average American adult spent 7 hours and 58 minutes per day using digital media in 2020 according to a 2020 eMarketer Report (8). The amount of daily usage has increased significantly since 2019, again according to an eMarketer Report (8), 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 which enables Advertisers to pay their customers and fans cash for their positive social media posts about their products and services, which in turn supports those individuals who earn money from various gig economy opportunities. The Company believes that acceptance of its App and subsequent revenue growth can be driven by empowering everyday people to make money by posting about brands and services that they already find enjoyable and 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. (1) https://meetanshi.com/blog/display-advertising-statistics/) (2) https://www.nielsen.com/news-center/2015/still-recommended-by-friends-and-relatives-the-most-authentic-advertising-according-to-consumers-the-most-trusted-on-brand-websites/ (3) https://emplifi.io/resources/blog/the-user-generated-content-stats-you-need-to-know?utm_source=pixlee.com (4) https://morningconsult.com/wp-content/uploads/2019/11/The-Influencer-Report-Engaging-Gen-Z-and-Millennials.pdf (5) https://www.cnn.com/business/newsfeeds/globenewswire/7812666.html (6) https://www.bankrate.com/personal-finance/social-media-survey/ (7) https://www.retaildive.com/news/generation-z-social-media-influence-shopping-behavior-purchases-tiktok-instagram/652576/ (8) https://www.emarketer.com/content/us-time-spent-with-media-2021-update The Industry – Social Media Marketing and Advertising 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.” More than 75% of brands have a dedicated budget for influencer marketing according to a 2022 Harvard Business Review Study (9). As social media influencers become more plentiful and proven, advertising spending has increased in this space. According to Allied Research, the influencer marketing market generated $16.5 billion in 2022 and is estimated to reach $199.6 billion by 2032, exhibiting a CAGR of 28.6% from 2023 to 2032 (10). While influencer marketing is new, it is here to stay. Harvard Business Review did a study to prove this and stated, “the strategy can in fact yield positive ROI (9). ” 15 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”, which are widely considered as individuals with 5,000 to 30,000 social media followers. In the Company’s opinion, none of these influencer platforms have entered the public consciousness and found mass adoption. 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. 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. (9) https://hbr.org/2022/11/does-influencer-marketing-really-pay-off (10) https://www.prnewswire.com/news-releases/influencer-marketing-market-to-reach-199-6-billion-globally-by-2032-at-28-6-cagr-allied-market-research-301987451.html 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 the general public (everyday people) who are not professional influencers to promote their products and services to their friends, rather than display ads which marketers realize are less effective. With the Thumzup® App, the Company is targeting and signing up the general public 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®. 16 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 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 an ad campaign on the Thumzup® advertiser dashboard 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. 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. The Thumzup® App can also facilitate digital word of mouth recommendations of products and services from people who do not need to make extra money doing gigs, who are in fact quite affluent. The Company believes that many people who are well off may also use the App to recommend products and services to their network of friends on social media, many of whom may also be affluent. Key Metrics as of May 10, 2024 Thumzup has had paid out on 20,120 approved posts to 1,171 Thumzup users regarding 294 advertisers. Thumzup advertisers have grown by a 149% CAGR over the last year. Over the last year, the reach of the last 15,476 posts was 24,326,153 followers. Many of these campaigns were promotional campaigns but at list price this would have been $0.0064 per reach, which is below many citations for other leading social media advertising costs. 17 The average number of followers over the last year has been 1,624. We find that even though we are targeting the general public, in aggregate a Thumzup campaign captures 1,624 followers. So, a Thumzup campaign combines the high trust factor of the general public with. less followers and also draws in some professional influencers who post because they like the product at a lower cost per post than if they were hired as an influencer. 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. 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 primarily relied on equity funding for its operations. At March 31, 2024 and December 31, 2023, the Company had cash balances of $225,673 and $1,155,343, respectively. For the three months ended March 31, 2024 and 2023, the Company used $328,352 and $607,725 in operating activities, respectively. The Company has an accumulated deficit at March 31, 2024 and December 31, 2023 of $6,022,516 and $2,367,623 respectively, and the Company may need to raise additional funding in order to continue as a going concern. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2024 AND 2023 The following table sets forth certain selected unaudited statement of operations data for the three months ended March 31, 2024 and 2023. For the Three Months ended March 31, 2024 March 31, 2023 $ Change %Change Revenues $ 405 $ 1,770 $ (1,365 ) (77.12 )% Operating Expenses 328,352 722,075 (393,723 ) (54.53 )% Loss from Operations (327,947 ) (720,305 ) 392,358 (54.47 )% Other Income (Expense) (2,76 5) (188,485 ) 185,720 (98.53 )% Net Income (Loss) Available to Common Stockholders $ (330,712 ) $ (911,237 ) $ 580,525 (63.71 )% 18 Revenues The Company generated revenues of $405 and $1,770 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $1,365. The Company has prioritized expanding its footprint of listed businesses before focusing on converting them to paying clients. Operating expenses For the three months ended March 31, 2024 and 2023, the Company incurred operating expenses of $328,352 and $722,075, respectively, a decrease of $393,723. The decrease in operating expenses was caused by: costs of revenues increasing by $116 from $116 during the three months ended March 31, 2023 to $0 during the same period in 2024, marketing expenses decreasing $216,952 from $268,717 during the three months ended March 31, 2023 to $51,765 during the same period in 2024, general and administrative expenses decreasing $103,028 from $324,954 during the three months ended March 31, 2023 to $221,926 during the same period in 2024, depreciation and amortization expenses increasing $14,831 from $2,407 during the three months ended March 31, 2023 to $17,238 during the same period in 2024, offset by a decrease in software research development expenses of $88,458 from $125,881 during the three months ended March 31, 2023 to $37,423 during the same period in 2024. Net Loss from operations The Company realized a net loss from operations of $327,947 and $720,305 for the three months ended March 31, 2024 and 2023, respectively, an decrease of $392,358 for the reasons stated above. Other expenses For the three months ended March 31, 2024 and 2023, the Company had $0 and $176,117 in liquidated damages expense, respectively. For the three months ended March 31, 2024 and 2023, the Company had $2,765 and $12,368 in interest expense, respectively, primarily related to liquidated damages in 2023. Net Loss available to common shareholders The Company realized a net loss available to common shareholders of $330,712 and $911,237 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $580,525 for the reasons stated above. Liquidity and capital resources As of March 31, 2024 and December 31, 2023, the Company had cash in the amount of $225,673 and $259,212, respectively. As of March 31, 2024 and December 31, 2023, the Company had stockholders’ equity of $480,318 and $349,327, respectively. The Company’s accumulated deficit was $6,022,516 and $5,691,803 as of March 31, 2024 and December 31, 2023, respectively. The Company used net cash in operations of $322,857 and $607,725 for the three months ended March 31, 2024 and 2023, respectively. Net cash used in investing activities for three months ending March 31, 2024 and 2023 was $60,900 and $52,288, respectively, for capitalized development costs. Net cash provided by financing activities was $350,217 for the three months ended March 31, 2024, comprised of $190,000 from the sale of preferred stock and $161,846 from the sale of common stock , net offering expenses of $1,789. 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. 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. 19 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.