Item 1A. Risk Factors 17
Item 1B. Unresolved Staff Comments 27
Item 2. Properties 27
Item 3. Legal Proceedings 27
Item 4. Mine Safety Disclosure 28
PART II
Item 6. [RESERVED] 28
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 32
Item 8. Financial Statements and Supplementary Data 32
Item 9A. Controls and Procedures 32
Item 9B. Other Information 32
PART III
Item 10. Directors, Executive Officers and Corporate Governance 33
Item 11. Executive Compensation 34
Item 14. Principal Accountant Fees and Services 38
PART IV
Item 15. Exhibits, Financial Statement Schedules 38
Index to Financial Statements 38
Signatures 40
PART
I
In
this Annual Report on Form 10-K, “we,” “our,” “us,” “ThumzupTM,” and “the
Company” refer to ThumzupTM Media Corporation, unless the context requires otherwise.
Forward-Looking
and Cautionary Statements
This
Annual Report contains forward-looking statements that involve risks, uncertainties and assumptions that, if they never materialize or
prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The
statements contained in this Annual Report that are not purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 2IE of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited
to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,”
“expect, intend,” “may,” “might,” “plan,” “project,” “seek,”
“should,” “target, would” and similar expressions or variations intended to identify forward-looking statements.
Examples of forward-looking statements include, among others, statements we make regarding:
● future financial position;
● business strategy;
● budgets, projected costs, and plans;
● future industry growth;
● financing sources;
● the impact of litigation, government inquiries and investigations; and
These
statements are based on the beliefs and assumptions of our management, which are in turn based on information currently available to
management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results
and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk
Factors” included under Part I, Item 1A below. Furthermore, such forward-looking statements speak only as of the date of this report.
Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after
the date of such statements.
Incorporation
by Reference
The
Commission allows us to incorporate by reference the information we file with it. This means that we can disclose information to you
by referring you to those documents. The documents that have been incorporated by reference are an important part of this annual report,
and you should review that information in order to understand the nature of any investment by you in our common shares.
RISK
FACTOR SUMMARY
Our
business operations are subject to numerous risks and uncertainties, including the risks described in the section titled “Risk
Factors” included under Part I, Item 1A of this Annual Report on Form 10-K, that could cause our business, financial condition
or operating results to be harmed, including risks regarding the following:
Risks
Relating to Our Business
The
Company is a recently formed company with an unproven business plan, has not yet established profitable operations and has generated
minimal revenue.
The
Company was formed in October 2020 and has not yet established profitable operations and has generated nominal revenue.
The
Company expects to continue to incur losses from operations and negative cash flows, which raise substantial doubt about its ability
to continue as a “going concern.”
The Company’s independent registered public accounting firm’s reports have raised substantial doubt as to its ability to
continue as a “going concern.”
The
continuing COVID-19 pandemic may have a significant negative impact on the Company’s business, sales, results of operations and
financial condition.
The Company may not generate sufficient cash flows to cover its operating expenses.
Security breaches and other disruptions could compromise the Company’s information and expose it to liability, which would cause
its business and reputation to suffer.
The Company is dependent on third parties to, among other things, maintain its servers, provide the bandwidth necessary to transmit content,
and utilize the content derived therefrom for the potential generation of revenues.
Because
the Company does not intend to pay any cash dividends on its shares of common stock in the near future, shareholders will not be able
to receive a return on their shares unless and until they sell them.
The Company is dependent on key personnel.
The
Company may not be able to successfully execute the business plan.
The
Company is a new company with a brief operating history, no revenue and an untested business plan which may not be accepted in the markets
in which it intends to operate.
The
Company has not yet established brand identity and customer loyalty.
The
Company cannot assure investors that the Thumzup® App will be accepted.
A
better financed competitor may enter the marketplace, cause the Company’s market share or acceptance rates to plummet and adversely
affect its ability to sustain viable operations.
Although
the Company may own various intellectual property rights, these rights may not provide it with any competitive advantage.
The
Company’s future financial results are uncertain and its operating results may fluctuate, due to, among other things, consumer
trends, the impact of COVID on advertising budgets and App user activity, competition, and changing social media behaviors.
The
Company’s ability to succeed will depend on the ability of its management to control costs.
Key
personnel of the Company do not devote full time to the affairs of the Company and could allocate their time and attention to other business
ventures which may not benefit the Company.
The
Company’s Officers, Directors, and employees are entitled to receive compensation, payments and reimbursements, regardless of whether
it operates at a profit or a loss.
Combination
or “layering” of multiple risk factors may significantly increase the risk of loss on shares of the Company’s common
stock.
Our
business is sensitive to consumer spending, inflation and economic conditions.
Russia’s
Invasion of Ukraine may negatively impact our business.
Several
of our outsourced developers are based in Pakistan and our product development could be impacted by conflict in the Middle East.
We
rely on third-party internal and outsourced software to run our critical development and information systems. As a result, any sudden
loss, disruption or unexpected costs to maintain these systems could significantly increase our operational expense and disrupt the management
of our business operations.
Cyber
security breaches of our systems and information technology could adversely impact our ability to operate.
Risks
Related to our Common Stock
There
can be no assurance that our Common Stock will ever be approved for listing on a national securities exchange. Failure
to develop or maintain an active trading market could negatively affect the value of our common stock and make it difficult or impossible
for investors to sell their shares in a timely manner.
The
Company is controlled by its Chairman/Board of Directors, Chief Executive Officer, President, and additional Officers of the Company.
The
Company’s common stock price may be volatile, which could result in substantial losses to investors and litigation.
The
sale or availability for sale of substantial amounts of the Company’s common stock could adversely affect the market price of the
common stock.
The
Company is controlled by a small group of existing shareholders, whose interests may differ from other shareholders. The Company’s
Officers and Directors will significantly influence its activities, and their interests may differ from an investor’s interests
as a shareholder.
The
Company is an “emerging growth company” under the JOBS Act and it cannot be certain if the reduced disclosure requirements
applicable to emerging growth companies will make the Company’s common stock less attractive to investors.
The
Company’s disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
If
equity research analysts do not publish research or reports about the Company, or if they issue unfavorable commentary or downgrade its
common stock, the market price of its common stock will likely decline.
ITEM
1. BUSINESS.
Overview
General
As
used herein, “we,” “us,” “our,” the “Company,” “ThumzupTM,” means ThumzupTM
Media Corporation unless otherwise indicated. ThumzupTM operates in a single business segment which is social media marketing. ThumzupTM
has a mobile iPhone and Android applications called “ThumzupTM” that connects brands and people who use and love these
brands. For the advertiser, ThumzupTM incentivizes real people to become 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.
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 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.
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 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 is 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
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. Brands
are estimated to spend up to $4.62 billion on influencer marketing in 2023 according to a 2021 Insider Intelligence forecast[7].
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 Simplilearn, nano-influencers have an average engagement rate of 8%, more than 4
times that of accounts with more than 1,000,000 followers and further, as an account’s audience grows, its engagement rate tends
to decrease. 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 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.
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.
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 and its subsidiaries, for the current fiscal year and any other material future period.
ThumzupTM App Workflow
The
Thumzup® system provides Advertisers with quality control by enabling the Advertiser to review posts to make sure that the posts
meet community standards and are commercially useful to the Advertiser. This helps reduce the number of people who may try to game the
system to otherwise not use it properly. Thumzup® Creators can opt-in to receive text message from brands. This opt-in opportunity
is valuable to Advertiser brands because text messages have higher visibility to potential customers than emails.
The
Thumzup® system enables “campaign spend” to be limited by a total dollar amount as determined by the Advertiser. Once
the posts that the Advertiser has paid for have been posted and approved for payment, the campaign expires and the Advertiser incurs
no additional cost until it chooses to increase the amount. It also enables the Advertiser to limit the number of posts made by an individual
Creator by day, week, and month. The Company believes that this feature enables more efficient budgetary control while reducing unintended
cost overruns. This feature may eliminate abuse or saturation by Creators who post more than what may be commercially valuable to Advertisers.
Financing
Plan
In
November 2020, the Company raised an aggregate of $215,000 through issuance of senior secured convertible promissory notes to four holders,
which have since been converted and exchanged
into shares of Common and Preferred Stock, respectively, and are now retired. From January
1, 2021 through December 31, 2022, the Company has raised an additional $1,880,412 and $1,260,000 through the sale of its Common and
Preferred Stock, respectively, to Accredited Investors in private placements pursuant to section 4(a)(2) of the Securities Act of 1933.
These funds have been used to build and beta test the Thumzup® App and to cover operating costs, including other administrative costs
and expenses.
During
the year 2021 the Company was pre-revenue and transitioned into beta testing. The Company has generated minimal revenue in 2022 from
a limited soft launch in Santa Monica and Venice, CA. The Thumzup® App commercial launch began in late 2022 in a geographic region
around the West Side of Los Angeles with expansion into other geographic regions planned for 2023 and beyond.
The
Company is currently conducting an offering under Regulation A+, pursuant
to an Offering Statement on Form 1-A/A filed on December 23, 2022 and qualified on January 9, 2023, through which the Company is offering
up to 2 million shares of common stock at a purchase price of $4.50 per share. The Company currently has subscriptions for 64,894 shares
for an aggregate subscription amount of $292,023 in escrow as fully described in the Company’s Form 1-A/A filed on December 23,
2022.
Competition
The
Company has competitors in influencer marketing software companies as GRIN, #paid, CreatorIQ, Mavrck, Popular Pays, Tribe Dynamics, AspireIQ,
Influenster, Traackr, and Hivency. All of the above-named competitor influencer marketing software is focused on influencers who see
themselves as professional influencers. To the best of the Company’s knowledge, these competitors are not building platforms designed
to turn social media creators into micro-influencers in the manner that the Company seeks to accomplish. Rep is also an app that connects
brands with influencers who are interesting in promoting brands. Rep’s app is different from Thumzup® because it is targeting
people who consider themselves influencers.
The
Company does not currently know of another business that is seeking to build a community of everyday people and empowering them to post
about brands that they love.
Nevertheless,
the influencer marketing industry segments are rapidly evolving and competitive and the Company expects competition to intensify in the
future with the emergence of new technologies and market entrants. The Company’s competitors may enjoy competitive advantages,
such as greater name recognition, longer operating histories, substantially greater market share, established marketing relationships
with, and access to, large existing advertisers and user bases, and substantially greater financial, technical and other resources. These
competitors may use these advantages to offer apps or other products similar to the Company’s at a lower price, develop different
products to compete with the Company’s current solutions and respond more quickly and effectively than the Company does to new
or changing opportunities, technologies, standards or client requirements particularly across different cities and geographical regions.
Certain competitors could also use strong or dominant positions in one or more markets to gain competitive advantage against the Company
in markets in which it operates in the future. The Company believes its ability to compete successfully for users, content, and advertising
and other customers depends upon many factors both within and beyond the Company’s control, including:
● the Company’s marketing and selling efforts, and those of its competitors;
● the Company’s reputation and brand strength relative to its competitors.
Problems
in the market that Thumzup® solves
According
to Inc. Magazine, in 2019, JetBlue Airways did a promotion where it offered free travel to people in exchange for posting about JetBlue
on social media. The promotion was deemed not to be a success because many of the people reportedly deleted the posts after claiming
the reward. JetBlue had no platform for tracking the influencers and holding them accountable. The Thumzup® Platform allows Advertisers
to limit and or cap their advertising spend, as well as allowing the Advertiser to approve individual posts prior to the Creator being
paid.
Employees
As
of December 31, 2022, The Company has four (4) full-time employees, as well as sixteen (16) marketing, sales, and finance
independent contractors. The Company also utilizes the services of approximately seven (7) part-time software developers. All of
these software developers are third-party contractors and are located outside the United States.
Legal
Proceedings
From
time to time, the Company may become involved in litigation or other legal proceedings. The Company is not currently a party to any litigation
or legal proceedings. Regardless of outcome, litigation can have an adverse impact on the Company because of defense and settlement costs,
diversion of management resources and other factors.
Available
Information:
ThumzupTM
is located at 11845 W. Olympic Blvd, Ste 1100W #13, Los Angeles, CA 90064. Our telephone number is (800) 403-6150 and our Internet website
address is www.ThumzupMedia.com.
We
file or furnish electronically with the U.S. Securities and Exchange Commission (“SEC”) annual reports on Form 10-K, quarterly
reports on Form 10- Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Exchange Act. We make copies of these reports available free of charge through our investor relations website as soon as reasonably
practicable after we file or furnish them with the SEC. These reports are also accessible through the SEC website at www.sec.gov. Information
contained on or accessible through our website www.thumzupmedia.com is not incorporated into, and does not form a part of, this Annual
Report or any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references
only.
Item
1A. Risk Factors.
An
investment in our in our common stock involves a high degree of risk. The risks described below include the principal material risks
to our company or to investors that are known to our company. You should carefully consider the risks described below together with the
other information contained in this Form 10-K. If any of the following risks actually occur, our business, financial condition and results
of operations could be materially harmed. As a result, should a trading market develop, as to which no assurance can be given, the trading
price of our common stock could decline, and investors might lose all or part of their investment.
Risks
Relating to Our Business
In
addition to the other information in this Annual Report, you should carefully consider the following factors in evaluating us and our
business. This Annual Report on Form 10-K contains, in addition to historical information, forward-looking statements that involve risks
and uncertainties, some of which are beyond our control. Should one or more of these risks and uncertainties materialize or should underlying
assumptions prove incorrect, our actual results could differ materially. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed below, as well as those discussed elsewhere in this Form 10-K, including the documents incorporated
by reference.
There
are risks associated with investing in companies such as ours who are primarily engaged in research and development. In addition to risks
which could apply to any company or business, you should also consider the business we are in and the following:
The
Company is a recently formed company with an unproven business plan, has not yet established profitable operations and has generated
minimal revenue.
The
Company has principally funded its operations through the sale of equity and equity instruments, including senior secured convertible
promissory notes in the aggregate principal amount of $215,000 (the entirety of which have been converted into either common or preferred
stock), the sale of Common Stock yielding gross proceeds of approximately $1,853,500, and the sale of 28,004 shares of Series A Preferred
for aggregate proceeds of approximately $1,259,995. As the Company moves forward in developing its technology and commercializing the
Thumzup mobile application (the “Thumzup® App” or “App”), or as it responds to potential opportunities and/or
adverse events, the Company’s working capital needs may change. Pending its ability to generate adequate cash flow, as to which
no assurance can be given, the Company likely will continue to incur significant losses in the foreseeable future for various reasons,
including unforeseen expenses, difficulties, complications, and delays, and other unknown events. As a result, the Company will require
additional funding to sustain its ongoing operations and to continue its research and development activities. The Company cannot assure
that its available funds will be sufficient to meet its anticipated needs for working capital and capital expenditures through any period
of twelve months.
The
Company’s ability to generate positive cash flow will be dependent upon its ability to recruit and retain Advertisers and Creators.
The Company can give no assurances it will generate sufficient cash flows in the future to satisfy its liquidity requirements or sustain
continuing operations, or that additional funding, if required, will be available when needed or, if available, on favorable terms.
The
Company was formed in October 2020 and has not yet established profitable operations and has generated nominal revenue.
For
the year ended December 31, 2022, we incurred a net loss available to shareholders of $1,221,765, primarily due to software research and
development expenses of $567,408, marketing expenses of $224,088, and general and administrative expenses of $418,940. For the year ended
December 31, 2021, the Company incurred $857,255 in net losses primarily due to $716,524 in software research and development expenses,
$102,698 in general and administrative expenses, and $17,486 in interest expense.
The
Company expects to continue to incur losses from operations and negative cash flows, which raise substantial doubt about its ability
to continue as a “going concern.”
The
Company anticipates incurring additional losses until such time, if ever, it can obtain adequate Advertiser support and acceptance by
Creators. Substantial additional financing will be needed to fund the Company’s development, marketing and sales activities and
generally to commercialize its technology and develop brand support and Creator acceptance. These factors raise substantial doubt about
the Company’s ability to continue as a going concern.
The
Company will seek to obtain additional capital through the issuance of debt or equity financings or other arrangements to fund operations;
however, there can be no assurance it will be able to raise needed capital under acceptable terms, if at all. The sale of additional
equity may dilute existing shareholders and newly issued shares may contain senior rights and preferences compared to currently outstanding
shares of Common Stock. Should the Company choose to issue debt in the future, such debt securities may contain covenants and limit the
Company’s ability to pay dividends or make other distributions to shareholders. If the Company is unable to obtain such additional
financing, future operations would need to be scaled back or discontinued. Due to the uncertainty in the Company’s ability to raise
capital, the Company believes that there is substantial doubt as to its ability to continue as a going concern.
The
Company’s independent registered public accounting firm’s reports have raised substantial doubt as to its ability to continue
as a “going concern.”
The
Company’s independent registered public accounting firm indicated in its reports on the audited financial statements for the years
ended December 31, 2022 and 2021 that there is substantial doubt about the Company’s ability to continue as a going concern. A
“going concern” opinion indicates that the financial statements have been prepared assuming the business will continue as
a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of
assets, or the amounts and classification of liabilities that may result if the Company does not continue as a going concern. Therefore,
prospective Investors should not rely on the Company balance sheet as an indication of the amount of proceeds that would be available
to satisfy claims of creditors, and potentially be available for distribution to shareholders, in the event of liquidation. The presence
of the going concern note to the Company’s financial statements may have an adverse impact on the relationships the Company is
developing and plan to develop with third parties as it continues the commercialization of its products and could make it challenging
and difficult for the Company to raise additional financing, all of which could have a material adverse impact on the business and prospects
and result in a significant or complete loss of an investment.
There
is no assurance that the Company will ever be profitable or that debt or equity financing will be available to it in the amounts, on
terms, and at times deemed acceptable to the Company, if at all. The issuance of additional equity securities by the Company would result
in a significant dilution in the equity interests of its Shareholders. Obtaining commercial loans, assuming those loans would be available,
would increase the Company’s liabilities and future cash commitments. If the Company is unable to obtain financing in the amounts
and on terms deemed acceptable to it, the Company may be unable to continue the business, as planned, and as a result may be required
to scale back or cease operations, the results of which would be that shareholders would lose some or all of their investment. The financial
statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
The
continuing COVID-19 pandemic may have a significant negative impact on the Company’s business, sales, results of operations and
financial condition.
The
COVID-19 pandemic continues to adversely affect the United States of America and the world, including in the primary regions in which
the Company plans to operate. Additionally, the Company’s liquidity could be negatively impacted if these conditions continue for
a significant period of time. Capital and credit markets have been disrupted by the crisis and the Company’s ability to obtain
any required financing is not guaranteed and largely dependent upon evolving market conditions and other factors. Depending on the continued
impact of the crisis, further actions may be required to improve the Company’s cash position and capital structure.
The
extent to which the COVID-19 outbreak could ultimately impact the Company’s business, sales, results of operations and financial
condition, will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the
duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what
extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has fully subsided, the Company may continue
to experience significant impacts to its business as a result of its global economic impact, including any economic downturn or recession
that has occurred or may occur in the future.
The
Company may not generate sufficient cash flows to cover its operating expenses.
As
noted previously, the Company has incurred operating losses since inception and expects to continue to incur losses as a result of expenses
related to research and continued development of its technology, marketing expense, corporate general and administrative expenses and
interest on the senior secured convertible promissory notes. The Company has principally funded its operations to date through the sale
of senior secured convertible promissory notes in the aggregate principal amount of $215,000 (the entirety of which have been converted
into either common or preferred stock), the sale of Common Stock yielding gross proceeds of approximately $1,886,500, and the sale of
28,004 shares of Series A Preferred Convertible Voting Stock for aggregate proceeds of $1,259,995.
As
of December 31, 2022, the Company had total Shareholders’ equity of $1,069,440, an accumulated deficit of $2,084,707, and cash
and cash equivalents of approximately $1,155,343. Although the Company had cash on hand of $1,155,343 as of December 31, 2022, there
is no assurance that these funds will prove adequate beyond twelve months.
In
the event that the Company is unable to generate sufficient cash from its operating activities or raise additional funds, it may be required
to delay, reduce or severely curtail its operations or otherwise impede the Company’s on-going business efforts, which could have
a material adverse effect on its business, operating results, financial condition and long-term prospects.
Security
breaches and other disruptions could compromise the Company’s information and expose it to liability, which would cause its business
and reputation to suffer.
In
the ordinary course of the Company’s business, it may collect and store sensitive data, including intellectual property, proprietary
business information, proprietary business information of its customers, including, credit card and payment information, and personally
identifiable information of customers and employees. The secure processing, maintenance, and transmission of this information is critical
to the Company’s operations and business strategy. As such, the Company is subject to federal, state, provincial and foreign laws
regarding privacy and protection of data. Some jurisdictions have enacted laws requiring companies to notify individuals of data security
breaches involving certain types of personal data and the Company’s agreements with certain customers require it to notify them
in the event of a security incident. Evolving regulations regarding personal data and personal information, in the European Union and
elsewhere, including, but not limited to, the General Data Protection Regulation (GDPR), and the California Consumer Privacy Act of 2018,
especially relating to classification of IP addresses, machine identification, location data and other information, may limit or inhibit
the Company’s ability to operate or expand its business. Such laws and regulations require or may require the Company or its customers
to implement privacy and security policies, permit consumers to access, correct or delete personal information stored or maintained by
the Company or its customers, inform individuals of security incidents that affect their personal information, and, in some cases, obtain
consent to use personal information for specified purposes.
The
Company intends to take reasonable steps to protect the security, integrity and confidentiality of the information it collects, uses,
stores, and discloses, and it takes steps to strengthen its security protocols and infrastructure, however, the Company’s information
technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions.
The Company also could be negatively impacted by software bugs or other technical malfunctions, as well as employee error or malfeasance.
Advanced cyber-attacks can be multi-staged, unfold over time, and utilize a range of attack vectors with military-grade cyber weapons
and proven techniques, such as spear phishing and social engineering, leaving organizations and users at high risk of being compromised.
Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect
the privacy of personal information, regulatory penalties, a disruption of the Company’s operations, damage to its reputation,
a loss of confidence in the Company’s business, early termination of its contracts and other business losses, indemnification of
its customers, liability for stolen assets or information, increased cybersecurity protection and insurance costs, financial penalties,
litigation, regulatory investigations and other significant liabilities, any of which could materially harm and adversely affect the
Company’s business, revenues, and competitive position.
The
Company is dependent on third parties to, among other things, maintain its servers, provide the bandwidth necessary to transmit content,
and utilize the content derived therefrom for the potential generation of revenues.
The
Company depends on third-party service providers, suppliers, and licensors to supply some of the services, hardware, software, and operational
support necessary to provide some of its products and services. Some of these third parties do not have a long operating history or may
not be able to continue to supply the equipment and services the Company desires in the future. If demand exceeds these vendors’
capacity, or if these vendors experience operating or financial difficulties or are otherwise unable to provide the equipment or services
the Company needs in a timely manner, at its specifications and at reasonable prices, the Company’s ability to provide some products
and services might be materially adversely affected, or the need to procure or develop alternative sources of the affected materials
or services might delay its ability to serve its users. These events could materially and adversely affect the Company’s ability
to retain and attract users, and have a material negative impact on its operations, business, financial results, and financial condition.
Because
the Company does not intend to pay any cash dividends on its shares of common stock in the near future, shareholders will not be able
to receive a return on their shares unless and until they sell them.
The
Company intends to retain a significant portion of any future earnings to finance the development, operation and expansion of its business.
The Company does not anticipate paying any cash dividends on its Common Stock in the near future. The declaration, payment, and amount
of any future dividends will be made at the discretion of the Company Board of Directors, and will depend upon, among other things, the
results of operations, cash flows, and financial condition, operating and capital requirements, and other factors as its Board of Directors
considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with
respect to the amount of any such dividend. Unless the Board of Directors determines to pay dividends, Shareholders will be required
to look to appreciation of the Company’s Common Stock to realize a gain on their investment. There can be no assurance that this
appreciation will occur.
The
Company is dependent on key personnel.
The
Company’s continued success will depend, to a significant extent, on the services of its Directors, executive management team,
and key personnel. If one or more of these individuals were to leave, there is no guarantee the Company could replace them with qualified
individuals in a timely or economically satisfactory manner or at all. The loss or unavailability of any or all of these individuals
could harm the Company’s ability to execute its business plan, maintain important business relationships and complete certain product
development initiatives, which would have a material adverse effect on its business, results of operations and financial conditions.
The
Company may not be able to successfully execute the business plan.
The
Company is raising significant amounts of capital in order to scale its operations. This will allow the Company to expand its operations
and continue to build out its business model. There is no guarantee that the Company will be able to achieve or sustain the foregoing
within the anticipated timeframe, or at all – even though the Company’s Directors and Officers are industry professionals.
The Company may exceed the budget, encounter obstacles in development activities, or be hindered or delayed in implementing the Company’s
plans, any of which could imperil the Company’s ability to execute its business plan.
The