10-K: Two Hands Corporation Reports Full Year 2023 Results, Focuses on Wholesale Food Distribution

Two Hands Corporation's 2023 annual report highlights a strategic shift towards wholesale food distribution through Cuore Food Services, following the sale of its gocart.city and Grocery Originals branches.

Summary

• Two Hands Corporation is now focused on the wholesale grocery market through its Cuore Food Services branch.
• The company sold its gocart.city and Grocery Originals branches on May 1, 2023.
• Cuore Food Services provides bulk delivery of goods to food service businesses.
• The company's inventory includes produce, meats, pantry items, bakery goods, gluten-free, and organic items.
• For the year ended December 31, 2023, the company reported sales of $783,489 and a net loss of $8,163,662.
• The company's operating expenses decreased significantly from $17,845,327 in 2022 to $1,341,299 in 2023.
• The company had cash of $24,351 and total liabilities of $2,915,781 as of December 31, 2023.
• The company's independent auditors have expressed substantial doubt about its ability to continue as a going concern.
• The company is funding its operations through loans from its CEO and others, and through the issuance of common shares for services.

Sentiment

Score: 2

Explanation: The document presents a very negative outlook due to significant losses, a going concern warning, and reliance on related-party funding. The company's financial health is precarious, and its future is highly uncertain.

Positives

• The company's gross profit percentage increased from 6.7% in 2022 to 7.9% in 2023 due to improved management of purchases and inventory.
• Operating expenses decreased significantly, primarily due to a decrease in expenditure for prepaid advertising credits and stock-based compensation.
• The company received $50,695 from the sale of gocart.city assets.

Negatives

• The company incurred a significant net loss of $8,163,662 for the year ended December 31, 2023.
• The company's independent auditors have expressed substantial doubt about its ability to continue as a going concern.
• The company had a working capital deficiency of $(1,989,138) as of December 31, 2023.
• The company has limited cash on hand, with only $24,351 as of December 31, 2023.
• The company is heavily reliant on loans from its CEO and others to fund operations.
• The company has a significant accumulated deficit of $92,086,178.

Risks

• The company faces intense competition from other food distribution companies and non-traditional competitors.
• The company's ability to generate revenue and achieve positive cash flow is dependent on market acceptance, competition, technology risks, economic conditions, and regulatory requirements.
• The company's future performance depends on attracting and retaining key personnel.
• The company may fail to attract customers, which would result in business failure.
• The company may encounter difficulties managing its planned growth.
• Material weaknesses in the company's internal control over financial reporting may adversely affect its common shares.
• The company may fail to protect its proprietary technology and intellectual property rights.
• The company is subject to potential liabilities related to product defects, food safety, and security.
• The company is exposed to supply chain disruptions and errors.
• The company may be subject to unexpected events and natural hazards.
• The company could incur substantial costs due to claims of infringement of another party's intellectual property rights.
• The company's failure to protect personal information adequately and breaches in cyber security could have an adverse effect on its business.
• The company's stock is thinly traded, and investors may be unable to sell their shares at the price they would like.
• The company does not intend to pay any cash dividends on its common shares in the near future.
• The company's securities are subject to the SEC's penny stock rules, which may make buying or selling the company's securities difficult.
• The company's stock price is likely to be highly volatile due to several factors, including a limited public float.
• The company has a substantial number of authorized but unissued shares, which could cause dilution.
• The company may face difficulties in the future engaging service providers, consultants or employees who are willing to be compensated with equity of the Company rather than cash.

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.

Management Comments

• Management is focused exclusively on the grocery market through its on-demand grocery business: Cuore Food Services.
• Management plans to continue expanding its reach to additional customers and geographies across Canada while enhancing its product line.
• Management monitors cash flow requirements and future cash flow forecasts to ensure it has access to funds to meet operational and financial obligations.

Industry Context

The company operates in a competitive food distribution market, facing challenges from larger, more established companies with greater resources. The shift to focus on wholesale distribution reflects a strategic response to the competitive landscape.

Comparison to Industry Standards

• The company's financial performance, particularly the significant net loss and working capital deficiency, is concerning when compared to industry standards.
• The company's reliance on loans from its CEO and others is not typical for established companies in the food distribution sector.
• The company's small cash balance and going concern warning from its auditors are significant red flags when compared to industry benchmarks.
• The company's operating expenses, while reduced, are still high relative to its revenue, indicating a need for further cost management.
• The company's gross profit margin of 7.9% is low compared to industry averages, suggesting potential issues with pricing or cost of goods sold.

Related Party Transactions

• As of December 31, 2023, advances and accrued salary of $883,534 were due to Nadav Elituv, the company's Chief Executive Officer.
• During the year ended December 31, 2023, the company issued advances due to related party for $108,383 for expenses paid on behalf of the company.
• During the year ended December 31, 2023, the company accrued salary of $808,076 due to Nadav Elituv.
• On February 2, 2023, the company issued common stock to settle due to related party with a carrying value of $188,871.
• During the years ended December 31, 2023 and 2022, the company paid Linus Creative Services, a business controlled by Bradley Southam, a director of the company, $2,714 and $26,307, respectively, for advertising services.

Stakeholder Impact

• Shareholders face significant risk due to the company's financial instability and going concern warning.
• Employees may be concerned about job security due to the company's financial difficulties.
• Customers may be affected by potential disruptions in service due to the company's financial challenges.
• Suppliers may face increased credit risk due to the company's financial instability.
• Creditors face a higher risk of non-payment due to the company's financial difficulties.

Next Steps

• The company plans to expand storage and warehousing, expand warehouse staff, add more delivery trucks and expand the delivery area.
• The company plans to continue to expand its reach to additional customers and geographies across Canada and continue to enhance its product offering with fresh, natural and organic foods.
• The company hopes to be able to compensate its independent contractors with stock-based compensation.
• The company plans to take steps to enhance and improve the design of its internal control over financial reporting.

Key Dates

Keywords

wholesale food distribution, Cuore Food Services, grocery market, financial results, going concern, operating expenses, net loss, stock-based compensation, convertible notes, risk factors