10-Q: Two Hands Corporation Reports First Quarter 2024 Results with Increased Net Loss

Two Hands Corporation's Q1 2024 results show a net loss of $782,146, an increase compared to the $505,484 loss in Q1 2023, despite consistent sales and gross profit percentages.

Summary

• Two Hands Corporation reported a net loss of $782,146 for the quarter ended March 31, 2024, compared to a net loss of $505,484 for the same period in 2023.
• Sales for the quarter were $163,477, a decrease from $175,445 in the first quarter of 2023.
• The company's gross profit was $14,989, slightly down from $15,449 in the prior year's first quarter.
• Operating expenses totaled $305,190, a decrease from $365,706 in the same quarter of the previous year, primarily due to a $60,000 recovery on a service contract.
• The company experienced a significant loss on the settlement of non-redeemable convertible notes, amounting to $450,135 in Q1 2024, compared to $117,550 in Q1 2023.
• The company's cash used in operating activities was $134,196 for the quarter, compared to $198,659 in the same period last year.
• As of March 31, 2024, the company had a working capital deficiency of $1,966,532 and total liabilities of $2,951,567.
• The company's financial statements have been prepared assuming it will continue as a going concern, but there is substantial doubt about its ability to do so.
• The company is dependent on raising additional capital through the placement of its common stock to implement its business plan.

Sentiment

Score: 2

Explanation: The document indicates a very negative outlook due to increased losses, a significant working capital deficiency, and substantial doubt about the company's ability to continue as a going concern. The reliance on related party transactions and the lack of effective internal controls further contribute to the negative sentiment.

Positives

• Operating expenses decreased by $60,516 compared to the same quarter last year, primarily due to a $60,000 recovery on a service contract.
• The company is focusing on improving cash flows by reducing incentives, diversifying suppliers, accelerating collections, and managing payables.
• The company is attempting to compensate contractors with stock-based compensation to conserve cash.

Negatives

• The company's net loss increased by $276,662 compared to the same quarter last year.
• The company experienced a significant loss of $450,135 on the settlement of non-redeemable convertible notes.
• The company has a substantial working capital deficiency of $1,966,532.
• There is substantial doubt about the company's ability to continue as a going concern.
• The company is heavily reliant on related party transactions and financing.
• The company's sales decreased by $11,968 compared to the same quarter last year.

Risks

• The company's ability to continue as a going concern is in doubt due to recurring losses and a significant accumulated deficit.
• The company is dependent on raising additional capital, and there is no guarantee it will be successful.
• The company's reliance on related party transactions and financing poses a risk.
• The company's internal controls over financial reporting are not effective due to material weaknesses.
• The company's revenue is concentrated with a few customers and suppliers.
• The company's operations are subject to foreign exchange risk due to its Canadian operations and US dollar reporting.

Future Outlook

The company plans to continue expanding its reach to additional customers and geographies across Canada while enhancing its product line with a focus on Italian staples. The company also plans to expand storage and warehousing, expand warehouse staff, add more delivery trucks and expand the delivery area. The company expects to spend approximately $368,000 in cash for operations, legal, accounting and related services over the next 12 months.

Management Comments

• Management believes the company has sufficient liquidity to meet its cash requirements for the next twelve months.
• Management is focused on improving cash flows from operations by reducing incentives to customers, making purchases from different suppliers, accelerating the collection of accounts receivable, reducing expenses, managing accounts payable balances and by paying our officers, directors, consultants and staff with our stock.

Industry Context

The company operates in the competitive grocery and food distribution market. The shift from online delivery to wholesale distribution reflects a strategic change in response to market conditions. The company's focus on Italian staples aligns with a growing consumer interest in specialty foods.

Comparison to Industry Standards

• The company's financial performance is weak compared to industry standards, with a significant net loss and working capital deficiency.
• The company's reliance on related party transactions and financing is not typical of established companies in the food distribution sector.
• The company's gross profit margin of approximately 9% is low compared to industry averages, which can range from 20% to 40% for grocery and food distribution businesses.
• The company's high operating expenses, particularly in consulting and professional fees, are a concern compared to industry benchmarks.
• The company's significant loss on the settlement of non-redeemable convertible notes is unusual and indicates potential financial instability.
• The company's cash flow from operations is negative, which is a significant concern compared to industry standards where companies typically aim for positive cash flow.

Related Party Transactions

• As of March 31, 2024, advances and accrued salary of $805,273 were due to Nadav Elituv, the company's Chief Executive Officer.
• The company issued common stock to settle $296,000 of accrued salary and expenses due to Nadav Elituv.
• The company entered into a consulting agreement with 2130555 Ontario Limited, a company controlled by Nadav Elituv.
• The company paid Linus Creative Services, a business controlled by Bradley Southam, a director of the company, $0 for advertising services during the quarter.

Stakeholder Impact

• Shareholders face significant risk due to the company's financial instability and potential dilution from stock issuances.
• Employees may be impacted by the company's financial difficulties and potential restructuring.
• Customers may experience changes in service or product offerings due to the company's strategic shift.
• Suppliers may face increased credit risk due to the company's financial challenges.
• Creditors face increased risk of non-payment due to the company's financial instability.

Next Steps

• The company plans to expand its reach to additional customers and geographies across Canada.
• The company plans to enhance its product line with a focus on Italian staples.
• The company plans to expand storage and warehousing, expand warehouse staff, add more delivery trucks and expand the delivery area.
• The company plans to implement changes to improve internal controls over financial reporting, subject to obtaining additional financing.

Key Dates

Keywords

financial results, net loss, convertible notes, going concern, working capital, related party, operating expenses, revenue, stock issuance, liquidity