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. 14 Overview As used herein, “we,” “us,” “our,” the “Company,” “Thumzup®,” means Thumzup® Media Corporation unless otherwise indicated. Thumzup® operates in a single business segment which is social media marketing. Thumzup® has a mobile iPhone and Android application called “Thumzup®” that 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 was incorporated on October 27, 2020, under the laws of the State of Nevada. Its headquarters are located in Los Angeles, CA. The Company has never been the subject of any bankruptcy or receivership. The Company has never engaged in any material reclassification, merger, or consolidation of the Company. The Company has not acquired or disposed of any material amount of assets except in the normal course of business. In February 2022, the Company was admitted to the Over-The-Counter Venture Market quotation system (OTCQB) under the symbol TZUP. We intend to list our common stock on the Nasdaq under the symbol “TZUP”. This offering will not be consummated until we have received Nasdaq approval of our application. There is currently very limited trading of our Common Stock, and an active trading market may never develop. 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. 15 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. 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 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 paid out on 19,182 approved posts to 1,127 Thumzup users regarding 223 advertisers since inception. Thumzup advertisers have grown by a 148% CAGR since May 10, 2023. Since May 10, 2023, the reach of the last 15,605 posts was 25,784,957 followers. Many of these campaigns were promotional campaigns but at list price this would have been $0.006 per reach, which is below many citations for other leading social media advertising costs. The average number of followers for an individual Thumzup user since May 10, 2023 has been about 1,600. Many users with tens of thousands of followers posted about our advertisers, including one with more than 600,000 followers. We find that even though we are targeting the general public, in aggregate a Thumzup campaign can reach an average of more than 1,600 followers per post. 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. 17 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 June 30, 2024 and December 31, 2023, the Company had cash balances of $398,450 and $1,155,343, respectively. For the six months ended June 30, 2024 and 2023, the Company used $675,323 and $1,352,253 in operating activities, respectively. The Company has an accumulated deficit at June 30, 2024 and December 31, 2023 of $6,573,235 and $5,691,803 respectively, and the Company may need to raise additional funding in order to continue as a going concern. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2024 AND 2023 The following table sets forth certain selected unaudited condensed statements of operations data for the three months ended June 30, 2024 and 2023. For the Three Months ended June 30, 2024 June 30, 2023 $ Change %Change Revenues $ 30 $ 580 $ (550 ) (94.83 )% Operating Expenses 529,091 708,853 (179,762 ) (25.36 )% Loss from Operations (529,061 ) (708,273 ) 179,212 (25.30 )% Other Income (Expense) 1,288 (213,662 ) 214,950 (100.60 )% Net Income (Loss) Available to Common Stockholders $ (550,717 ) $ (924,430 ) $ 373,713 (40.43 )% 18 Revenues The Company generated revenues of $30 and $580 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $550. The Company has prioritized expanding its footprint of listed businesses before focusing on converting them to paying clients. Operating expenses For the six months ended June 30, 2024 and 2023, the Company incurred operating expenses of $529,091 and $708,853, respectively, a decrease of $179,762. The decrease in operating expenses was caused by: marketing expenses decreasing $156,283 from $252,957 during the three months ended June 30, 2023 to $96,674 during the same period in 2024, general and administrative expenses increasing $101,726 from $258,101 during the three months ended June 30, 2023 to $359,827 during the same period in 2024, depreciation and amortization expenses increasing $17,235 from $5,690 during the three months ended June 30, 2023 to $22,925 during the same period in 2024, offset by a decrease in software research development expenses of $142,440 from $192,105 during the three months ended June 30, 2023 to $49,665 during the same period in 2024. The decrease in operating expenses is a result of the Company better managing its overhead and cashflows. Net Loss from operations The Company realized a net loss from operations of $529,061 and $708,273 for the three months ended June 30, 2024 and 2023, respectively, an decrease of $179,212 for the reasons stated above. Other expenses For the three months ended June 30, 2024 and 2023, the Company had $0 and $(190,806) in liquidated damages expense, respectively. For the three months ended June 30, 2024 and 2023, the Company had $1,288 and $(22,856) in interest income and expense, respectively, primarily related to interest on the liquidated damages in 2023. Net Loss available to common shareholders The Company realized a net loss available to common shareholders of $550,717 and $924,430 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $373,713 for the reasons stated above. SIX MONTHS ENDED JUNE 30, 2024 AND 2023 The following table sets forth certain selected unaudited condensed statements of operations data for the six months ended June 30, 2024 and 2023. For the Six Months ended June 30, 2024 June 30, 2023 $ Change %Change Revenues $ 435 $ 2,350 $ (1,915 ) (81.49 )% Operating Expenses 857,445 1,430,928 (573,483 ) (40.08 )% Loss from Operations (857,010 ) (1,428,578 ) 571,568 (40.01 )% Other Income (Expense) 1,288 (402,147 ) 403,435 (100.32 )% Net Income (Loss) Available to Common Stockholders $ (881,432 ) $ (1,835,667 ) $ 954,235 (51.98 )% Revenues The Company generated revenues of $435 and $2,350 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $1,915. The Company has prioritized expanding its footprint of listed businesses before focusing on converting them to paying clients. 19 Operating expenses For the three months ended June 30, 2024 and 2023, the Company incurred operating expenses of $857,445 and $1,430,928, respectively, a decrease of $573,483. The decrease in operating expenses was caused by: costs of revenues decreasing by $116 from $116 during the six months ended June 30, 2023 to $0 during the same period in 2024, marketing expenses decreasing $373,234 from $521,674 during the six months ended June 30, 2023 to $148,440 during the same period in 2024, general and administrative expenses decreasing $1,300 from $583,055 during the six months ended June 30, 2023 to $581,755 during the same period in 2024, depreciation and amortization expenses increasing $32,066 from $8,097 during the six months ended June 30, 2023 to $40,163 during the same period in 2024, offset by a decrease in software research development expenses of $230,899 from $317,986 during the six months ended June 30, 2023 to $87,087 during the same period in 2024. The decrease in operating expenses is a result of the Company better managing its overhead and cashflows. Net Loss from operations The Company realized a net loss from operations of $857,010 and $1,428,578 for the six months ended June 30, 2024 and 2023, respectively, an decrease of $571,568 for the reasons stated above. Other expenses For the six months ended June 30, 2024 and 2023, the Company had $0 and $366,923 in liquidated damages expense, respectively. For the six months ended June 30, 2024 and 2023, the Company had $1,288 and $35,224 in interest income and expense, respectively, primarily related to interest on the liquidated damages in 2023. Net Loss available to common shareholders The Company realized a net loss available to common shareholders of $881,432 and $1,835,667 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $954,235 for the reasons stated above. Liquidity and capital resources As of June 30, 2024 and December 31, 2023, the Company had cash in the amount of $398,450 and $259,212, respectively. As of June 30, 2024 and December 31, 2023, the Company had stockholders’ equity of $619,202 and $349,327, respectively. The Company’s accumulated deficit was $6,573,235 and $5,691,803 as of June 30, 2024 and December 31, 2023, respectively. The Company used net cash in operations of $675,323 and $1,352,253 for six three months ended June 30, 2024 and 2023, respectively. Net cash used in investing activities for six months ending June 30, 2024 and 2023 was $126,665 and $73,138, respectively. During the six months ended June 30, 2024, there were $126,665 in capitalized development costs and $0used for the purchase of equipment. During the six months ended June 30, 2023, there were $73,138 in capitalized development costs and $5,105 used for the purchase of equipment. Net cash provided by financing activities was $941,226 for the six months ended June 30, 2024, comprised of $805,000 from the sale of preferred stock – Series B and $161,226 from the sale of common stock , net offering expenses of $25,000 related to the preferred stock – Series B. Net cash provided by financing activities was $668,296 for the six months ended June 30, 2023, comprised of $674,713 from the sale of common stock related to the sale of common stock in a prior period and the Company’s offering under Regulation A+, with offering costs of $6,417. 20 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.