10-Q: Two Hands Corporation Reports Q3 2024 Results: Revenue Declines Amidst Ongoing Financial Challenges

Two Hands Corporation's Q3 2024 results show a decrease in revenue and a net loss, highlighting the company's ongoing financial difficulties and reliance on debt and equity conversions.

Summary

• Two Hands Corporation reported a net loss of $333,117 for the three months ended September 30, 2024, compared to a net loss of $565,830 for the same period in 2023.
• The company's revenue decreased to $179,502 in Q3 2024 from $212,453 in Q3 2023, primarily due to the sale of the gocart.city online delivery business in May 2023.
• For the nine months ended September 30, 2024, the net loss was $1,610,304, slightly worse than the $1,600,399 loss in the same period of 2023.
• The company's total liabilities stood at $3,342,038 as of September 30, 2024, with a working capital deficiency of $2,535,074.
• Two Hands Corporation continues to rely on debt conversions and related party transactions to fund operations.
• The company's financial statements raise substantial doubt about its ability to continue as a going concern.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including declining revenue, substantial losses, and a going concern warning. While there are some minor improvements, the overall outlook is negative, indicating a high level of risk for investors.

Positives

• The net loss for Q3 2024 was lower than the net loss for Q3 2023, indicating a slight improvement in financial performance.
• The gross margin percentage increased from 14.2% in 2023 to 15.1% in 2024 for the nine-month period, due to improved management of purchases and inventory.
• Operating expenses decreased by 2% in Q3 2024 compared to Q3 2023, and by 3% for the nine-month period, primarily due to a decrease in salaries and benefits and occupancy expenses.

Negatives

• The company experienced a significant decrease in revenue in Q3 2024 compared to Q3 2023.
• The company's gross profit decreased significantly in Q3 2024 compared to Q3 2023.
• The company has a substantial working capital deficiency and high total liabilities.
• The company continues to rely on debt conversions and related party transactions to fund operations.
• The company's financial statements raise substantial doubt about its ability to continue as a going concern.

Risks

• The company's ability to continue as a going concern is in doubt due to ongoing losses and a significant working capital deficiency.
• The company is heavily reliant on debt and equity conversions, which may dilute existing shareholders.
• The company's reliance on related party transactions raises concerns about potential conflicts of interest.
• The company's revenue is concentrated with a few customers and suppliers, which could pose a risk if those relationships are disrupted.
• The company's internal controls over financial reporting are not effective, which could lead to errors or misstatements in the financial statements.
• The company may not be able to secure additional financing to continue operations.

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. However, the company's ability to execute these plans is contingent on securing additional financing.

Management Comments

• Management believes that 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 paying officers, directors, consultants, and staff with 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 focus on Italian staples may be an attempt to carve out a niche in the market. The company's financial challenges are not uncommon for small businesses in this sector, which often face high operating costs and thin margins.

Comparison to Industry Standards

• The company's gross margin of 15.1% for the nine months ended September 30, 2024 is relatively low compared to industry averages for grocery wholesalers, which can range from 20% to 30%.
• The company's reliance on debt and equity conversions is not typical for established companies in the food distribution sector, which usually have access to more conventional financing options.
• The company's negative working capital and accumulated deficit are significant red flags, indicating a high level of financial distress compared to industry benchmarks.
• The company's operating expenses as a percentage of revenue are high, suggesting inefficiencies in operations compared to more established competitors.
• Companies like Sysco and US Foods, which are major players in the food distribution industry, have significantly stronger balance sheets and more diversified revenue streams than Two Hands Corporation.

Related Party Transactions

• Advances and accrued salary of $1,228,735 were due to Nadav Elituv, the Company's Chief Executive Officer, as of September 30, 2024.
• The company issued advances due to related party for $61,748 for expenses paid on behalf of the Company and advances due to related party were repaid by the Company with $25,432 in cash during the nine months ended September 30, 2024.
• The company accrued salary of $609,041 due to Nadav Elituv for services provided during the nine months ended September 30, 2024.
• The company issued common stock to settle due to related party with a carrying value of $296,000 on February 26, 2024.
• The company entered into a consulting agreement with 2130555 Ontario Limited, a Company controlled by Nadav Elituv, for a monthly consulting fee of CAD $24,000.

Stakeholder Impact

• Shareholders face significant risk of dilution due to the company's reliance on equity conversions.
• Employees may be impacted by the company's financial instability and potential restructuring.
• Customers may experience disruptions in service if the company's financial situation worsens.
• Suppliers may face increased credit risk due to the company's financial challenges.
• Creditors face a high risk of non-payment due to the company's high liabilities and negative working capital.

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, quarterly report, revenue, net loss, debt conversion, going concern, related party transactions, promissory notes, convertible notes, working capital, Cuore Food Services, grocery business