Quantum X Inc 10-Q for FY2020 Q2
Quantum X Inc. (QUTX)
About this 10-Q
Quantum X Inc filed this 10-Q on August 14, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).
Headline figures
Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $7993
- Net loss
- $1.51M
- compared with a net loss of $1.02M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number: 333-167667
TWO HANDS CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 42-1770123 | |
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) | |
|
33 Davies Avenue, Level 2 Toronto, Ontario, Canada (Address of Principal Executive Offices) |
M4M 2A9 (Zip Code)
| |
(416) 357-0399
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| Non-accelerated filer | x | Smaller reporting company | x |
| Emerging growth company | x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of August 12, 2020, the issuer had 177,337,121 shares of its common stock issued and outstanding, par value $0.0001 per share.
| 1 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains "forward-looking statements" that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in our Form 10-K filed on March 27, 2020, and other filings we make with the Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.
The following discussion and analysis of financial condition and results of operations is based upon and should be read in conjunction with our audited financial statements and related notes thereto included elsewhere in this report, and in our Form 10-K filed on March 27, 2020.
| 2 |
TWO HANDS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2020
TABLE OF CONTENTS
| PART I | PAGE | |
| Item 1. | Financial Statements (Unaudited) | 4 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 24 |
| Item 4. | Controls and Procedures | 24 |
| PART II | ||
| Item 1. | Legal Proceedings | 25 |
| Item 1A. | Risk Factors | 25 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25 |
| Item 3. | Defaults Upon Senior Securities | 25 |
| Item 4. | Mining Safety Disclosures | 25 |
| Item 5. | Other Information | 25 |
| Item 6. | Exhibit | 26 |
| Signatures | 27 |
| 3 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
| TWO HANDS CORPORATION |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
June 30, 2020 | December 31, 2019 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current assets | ||||||||
| Cash | $ | 7,889 | $ | 293 | ||||
| Taxes receivable | 11,234 | 9,250 | ||||||
| Prepaid expense | 1,030,493 | 1,759,481 | ||||||
| Total current assets | 1,049,616 | 1,769,024 | ||||||
| Property and equipment, net | 4,120 | 2,697 | ||||||
| Total assets | $ | 1,053,736 | $ | 1,771,721 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 56,732 | $ | 65,888 | ||||
| Non-redeemable convertible notes, net | 70,585 | 66,078 | ||||||
| Due to related party | 54,978 | 17,840 | ||||||
| Notes payable | 81,572 | 48,461 | ||||||
| Convertible note, net | 6,555 | 19,752 | ||||||
| Derivative liabilities | 240,103 | 452,549 | ||||||
| Total current liabilities | 510,525 | 670,568 | ||||||
| Long-term liabilities | ||||||||
| Promissory note | 81,983 | 78,170 | ||||||
| Promissory notes - related party | 185,842 | 177,197 | ||||||
| Non-redeemable convertible notes, net | 727,719 | 661,885 | ||||||
| Total long-term liabilities | 995,544 | 917,252 | ||||||
| Total liabilities | 1,506,069 | 1,587,820 | ||||||
| Commitments and Contingencies | — | — | ||||||
| Temporary equity | ||||||||
| Series A convertible preferred stock; $0.01 par value; 200,000 shares authorized, 30,000 shares issued and outstanding, respectively | 33,000 | 33,000 | ||||||
| Series B convertible preferred stock; $0.01 par value; 100,000 shares authorized, 4,000 shares issued and outstanding, respectively | 1,520,000 | 1,520,000 | ||||||
| Total temporary equity | 1,553,000 | 1,553,000 | ||||||
| Stockholder's deficit | ||||||||
| Preferred stock; $0.001 par value; 1,000,000 shares authorized, 0 issued and outstanding | — | — | ||||||
| Common stock; $0.0001 par value; 3,000,000,000 shares authorized, 90,098,315 and 6,267,340 shares issued and outstanding, respectively | 9,010 | 627 | ||||||
| Additional paid-in capital | 40,179,020 | 36,857,580 | ||||||
| Accumulated deficit | (42,193,363 | ) | (38,227,306 | ) | ||||
| Total stockholders' deficit | (2,005,333 | ) | (1,369,099 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 1,053,736 | $ | 1,771,721 | ||||
| The accompanying footnotes are an integral part of these financial statements. | ||||||||
| 4 |
| TWO HANDS CORPORATION |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| (Unaudited) |
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Sales | $ | 7,993 | $ | — | $ | 7,993 | $ | — | ||||||||
| Cost of goods | 6,037 | — | 6,037 | — | ||||||||||||
| Gross profit | 1,956 | — | 1,956 | — | ||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | 1,195,530 | 621,789 | 3,062,533 | 1,213,619 | ||||||||||||
| Total operating expenses | 1,195,530 | 621,789 | 3,062,533 | 1,213,619 | ||||||||||||
| Loss from operations | (1,193,574 | ) | (621,789 | ) | (3,060,577 | ) | (1,213,619 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Amortization of debt discount and interest expense | (47,763 | ) | (36,782 | ) | (78,373 | ) | (66,587 | ) | ||||||||
| Loss on settlement of debt | (369,693 | ) | (259,480 | ) | (1,009,383 | ) | (996,580 | ) | ||||||||
| Initial derivative expense | (43,847 | ) | — | (144,401 | ) | (274,717 | ) | |||||||||
| Change in fair value of derivative liabilities | 141,110 | (99,818 | ) | 326,677 | (105,338 | ) | ||||||||||
| Total other income (expense) | (320,193 | ) | (396,080 | ) | (905,480 | ) | (1,443,222 | ) | ||||||||
| Net loss | $ | (1,513,767 | ) | $ | (1,017,869 | ) | $ | (3,966,057 | ) | $ | (2,656,841 | ) | ||||
| Net loss per common share - basic and diluted | $ | (0.02 | ) | $ | (6.03 | ) | $ | (0.09 | ) | $ | (16.38 | ) | ||||
| Weighted average number of common shares outstanding - basic and diluted | 68,356,633 | 168,765 | 42,042,063 | 162,218 | ||||||||||||
| The accompanying footnotes are an integral part of these financial statements. | ||||||||||||||||
| 5 |
| TWO HANDS CORPORATION | ||||||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT | ||||||||||||||||||||||||
| For the three and six months ended June 30, 2020 and 2019 | ||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||
| Shares | Amount | Shares to be Issued | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders' Deficit | |||||||||||||||||||
| Balance, March 31, 2020 | 35,782,340 | $ | 3,579 | $ | — | $ | 38,927,637 | $ | (40,679,596 | ) | $ | (1,748,380 | ) | |||||||||||
| Stock issued for conversion of non-redeemable convertible notes | 16,204,864 | 1,620 | — | 299,394 | — | 301,014 | ||||||||||||||||||
| Stock issued for warrant liability settlement | 2,000,000 | 200 | — | 111,600 | — | 111,800 | ||||||||||||||||||
| Stock issued for prepaid | 11,111,111 | 1,111 | — | 198,889 | — | 200,000 | ||||||||||||||||||
| Stock issued for consulting | 17,000,000 | 1,700 | — | 465,500 | — | 467,200 | ||||||||||||||||||
| Stock issued for officer and director compensation | 8,000,000 | 800 | — | 176,000 | — | 176,800 | ||||||||||||||||||
| Net loss | (1,513,767 | ) | (1,513,767 | ) | ||||||||||||||||||||
| Balance, June 30, 2020 | 90,098,315 | $ | 9,010 | $ | — | $ | 40,179,020 | $ | (42,193,363 | ) | $ | (2,005,333 | ) | |||||||||||
| Common Stock | ||||||||||||||||||||||||
| Shares | Amount | Shares to be Issued | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders' Deficit | |||||||||||||||||||
| Balance, December 31, 2019 | 6,267,340 | $ | 627 | $ | — | $ | 36,857,580 | $ | (38,227,306 | ) | $ | (1,369,099 | ) | |||||||||||
| Stock issued for conversion of non-redeemable convertible notes | 22,524,864 | 2,252 | — | 890,986 | — | 893,238 | ||||||||||||||||||
| Stock issued for conversion of convertible notes | 2,695,000 | 270 | — | 208,015 | — | 208,285 | ||||||||||||||||||
| Stock issued for warrant liability settlement | 2,000,000 | 200 | — | 111,600 | — | 111,800 | ||||||||||||||||||
| Stock issued for prepaid | 11,111,111 | 1,111 | — | 198,889 | — | 200,000 | ||||||||||||||||||
| Stock issued for consulting | 19,500,000 | 1,950 | — | 577,750 | — | 579,700 | ||||||||||||||||||
| Stock issued for officer and director compensation | 26,000,000 | 2,600 | — | 1,334,200 | — | 1,336,800 | ||||||||||||||||||
| Net loss | (3,966,057 | ) | (3,966,057 | ) | ||||||||||||||||||||
| Balance, June 30, 2020 | 90,098,315 | $ | 9,010 | $ | — | $ | 40,179,020 | $ | (42,193,363 | ) | $ | (2,005,333 | ) | |||||||||||
| 6 |
| Common Stock | ||||||||||||||||||||||||
| Shares | Amount | Shares to be Issued | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders' Deficit | |||||||||||||||||||
| Balance, March 31, 2019 | 161,199 | $ | 16 | $ | 630,546 | $ | 32,633,258 | $ | (34,189,842 | ) | $ | (926,022 | ) | |||||||||||
| Common stock issued for conversion of notes | 5,200 | 1 | — | 259,999 | — | 260,000 | ||||||||||||||||||
| Stock issued for consulting | 200 | — | (8,000 | ) | 15,000 | — | 7,000 | |||||||||||||||||
| Stock issued for officer and director compensation | 30,000 | 3 | (622,546 | ) | 902,997 | — | 280,454 | |||||||||||||||||
| Stock issued for cash | 410 | — | — | 20,500 | — | 20,500 | ||||||||||||||||||
| Net loss | — | — | — | — | (1,017,869 | ) | (1,017,869 | ) | ||||||||||||||||
| Balance, June 30, 2019 | 197,009 | $ | 20 | $ | — | $ | 33,831,754 | $ | (35,207,711 | ) | $ | (1,375,937 | ) | |||||||||||
| Common Stock | ||||||||||||||||||||||||
| Shares | Amount | Shares to be Issued | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders' Deficit | |||||||||||||||||||
| Balance, December 31, 2018 | 152,199 | $ | 16 | $ | 345,174 | $ | 31,895,258 | $ | (32,550,870 | ) | $ | (310,422 | ) | |||||||||||
| Common stock issued for conversion of notes | 14,200 | 1 | — | 997,999 | — | 998,000 | ||||||||||||||||||
| Stock issued for consulting | 200 | — | (8,000 | ) | 15,000 | — | 7,000 | |||||||||||||||||
| Stock issued for officer and director compensation | 30,000 | 3 | (337,174 | ) | 902,997 | — | 565,826 | |||||||||||||||||
| Stock issued for cash | 410 | — | — | 20,500 | 20,500 | |||||||||||||||||||
| Net loss | — | — | — | — | (2,656,841 | ) | (2,656,841 | ) | ||||||||||||||||
| Balance, June 30, 2019 | 197,009 | $ | 20 | $ | — | $ | 33,831,754 | $ | (35,207,711 | ) | $ | (1,375,937 | ) | |||||||||||
| The accompanying footnotes are an integral part of these financial statements. | ||||||||||||||||||||||||
| 7 |
| TWO HANDS CORPORATION |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| For the six months ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (3,966,057 | ) | $ | (2,656,841 | ) | ||
| Adjustments to reconcile net loss | ||||||||
| to cash used in operating activities | ||||||||
| Depreciation and amortization | 806 | 640 | ||||||
| Amortization of prepaid expense | 931,688 | — | ||||||
| Stock-based compensation | 1,916,500 | 572,826 | ||||||
| Amortization of debt discount and interest expense | 78,373 | 66,588 | ||||||
| Loss on settlement of debt | 1,009,383 | 996,580 | ||||||
| Initial derivative expense | 144,401 | 274,717 | ||||||
| Change in fair value of derivative liabilities | (326,677 | ) | 105,338 | |||||
| Change in operating assets and liabilities | ||||||||
| Taxes receivable | (1,984 | ) | (5,920 | ) | ||||
| Prepaid expense | (2,700 | ) | 304,142 | |||||
| Accounts payable and accrued liabilities | (9,158 | ) | 101,034 | |||||
| Net cash used in operating activities | (225,425 | ) | (240,896 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | (2,229 | ) | (1,616 | ) | ||||
| Net cash used in investing activities | (2,229 | ) | (1,616 | ) | ||||
| Cash flow from financing activities | ||||||||
| Advance by related party | 60,954 | 77,226 | ||||||
| Repayment of advances to related party | (23,815 | ) | (20,338 | ) | ||||
| Proceeds from notes payable | 122,281 | 94,302 | ||||||
| Repayments of notes payable | (89,170 | ) | (72,065 | ) | ||||
| Proceeds from convertible note | 165,000 | 175,000 | ||||||
| Proceeds from issuance of common stock | — | 20,500 | ||||||
| Net cash provided by financing activities | 235,250 | 274,625 | ||||||
| Net change in cash | 7,596 | 32,113 | ||||||
| Cash, beginning of the period | 293 | 2,729 | ||||||
| Cash, end of the period | $ | 7,889 | $ | 34,842 | ||||
| Cash paid during the year | ||||||||
| Interest paid | $ | — | $ | — | ||||
| Income taxes paid | $ | — | $ | — | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Issue of non-redeemable convertible notes to settle notes payable | $ | — | $ | 127,853 | ||||
| Issue of shares to settle non-redeemable convertible notes | $ | 893,238 | $ | 998,000 | ||||
| Issue of shares to settle shares to be issued | $ | — | $ | 911,000 | ||||
| Issue of shares to settle convertible note | $ | 208,285 | $ | — | ||||
| Issue of shares for prepaids | $ | 200,000 | $ | — | ||||
| Initial debt discount from derivative | $ | 165,000 | $ | — | ||||
| Stock issued for warrant liability | $ | 111,800 | $ | — | ||||
| The accompanying footnotes are an integral part of these financial statements. | ||||||||
| 8 |
TWO HANDS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Two Hands Corporation (formerly Innovative Product Opportunities Inc.) (the "Company") was incorporated on April 3, 2009 in the State of Delaware and established a fiscal year end of December 31.
Our business is a research and product development firm. Over the past few years we have specialized in computer vision and gesture recognition technologies. We have leveraged our relationship with our product development team of programmers and designers to implement our vision for building a state of the art co-parenting application.
The Two Hands Application launched on July 25, 2018.
In February 2019, we launched, a phone application called “Two Hands Gone” which is available on the Apple App Store and Google Play and allows users to send encrypted messages directly from their phone, combining military-grade security, confidentiality and privacy. We currently offer the application for free and have over 300 registered users. We are exploring way to monetize it.
The Company is also in the business of assisting clients in developing brand strategies. The Company executes and/or oversees the research, planning, pricing, creative development, tracking and deployment of all digital advertising projects needed to promote client products and services.
The GoCart online grocery delivery application was released in early June 2020.
The operations of the business are carried on by a 100% owned subsidiary, I8 Interactive Corporation, a company incorporated under the laws of Canada.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements of Two Hands Corporation have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The financial statements should be read in conjunction with the annual financial statements for the year ended December 31, 2019 of Two Hands Corporation in our Form 10-K filed on March 27, 2020.
The interim financial statements present the balance sheets, statements of operations, stockholders’ deficit and cash flows of Two Hands Corporation. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States.
The interim financial information is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position as of June 30, 2020 and the results of operations and cash flows presented herein have been included in the financial statements. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results of operations for the full year.
COVID-19
The recent outbreak of the coronavirus COVID-19 has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the coronavirus continue to rapidly evolve and government authorities have implemented emergency measures to mitigate the spread of the virus. The outbreak and the related mitigation measures have had and will continue to have a material adverse impact on global economic conditions as well as on the Company's business activities. The extent to which COVID-19 may impact the Company's business activities will depend on future developments, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in the Canada, United States and other countries to contain and treat the disease. These events are highly uncertain and, as such, the Company cannot determine their financial impact at this time. No adjustments have been made to the amounts reported in these condensed consolidated financial statements as a result of this matter.
| 9 |
GOING CONCERN
The Company's financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. During the six months ended June 30, 2020, the Company incurred a net loss of $3,966,057 and used cash in operating activities of $225,425, and at June 30, 2020, had stockholders’ deficit of $2,005,333. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. The Company will be dependent upon the raising of additional capital through placement of its common stock in order to implement its business plan. There can be no assurance that the Company will be successful in this situation. The Company is unable to predict the effect, if any, that the coronavirus COVID-19 global pandemic may have on its access to the financing markets. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might result from this uncertainty. We are currently funding our operations by way of cash advances from our Chief Executive Officer, note holders, shareholders and others; however, we do not have any oral or written agreements with them or others to loan or advance funds to us. There can be no assurances that we will be able to receive loans or advances from them or other persons in the future.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, I8 Interactive Corporation. All intercompany transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES AND ASSUMPTIONS
Preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, less accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense when incurred, while renewals and betterments that materially extend the life of an asset are capitalized.
The costs of assets sold, retired, or otherwise disposed of, and the related allowance for depreciation, are eliminated from the accounts, and any resulting gain or loss is recognized in the results from operations. Depreciation is provided over the estimated useful lives of the assets, which are as follows:
Computer equipment 50% declining balance over a three year useful life
In the year of acquisition, one half the normal rate of depreciation is provided.
REVENUE RECOGNITION
In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process by which we determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which we expect to be entitled in exchange for those goods or services. ASC 606 requires us to apply the following steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, we satisfy the performance obligation.
RESEARCH AND DEVELOPMENT COSTS
We incurred research and development costs primarily to the development of Two Hands gone application. Research and development costs are comprised primarily of contract labor and services.
| 10 |
Software development costs are included in research and development and are expensed as incurred. FASB ASC Topic 350 Intangibles—Goodwill and Other requires that software development costs incurred subsequent to reaching technological feasibility be capitalized, if material. If the process of developing a new product or major enhancement does not include a detailed program design, technological feasibility is determined only after completion of a working model. To date, the period between achieving technological feasibility and the general availability of such software has been short, and the software development costs qualifying for capitalization have been insignificant. The Company recorded research and development expense of $0 and $0 for the six months ended June 30, 2020 and 2019, respectively.
DEBT DISCOUNT AND DEBT ISSUANCE COSTS
Debt discounts and debt issuance costs incurred in connection with the issuance of convertible notes are capitalized and amortized to interest expense based on the related debt agreements using the effective interest rate method. Unamortized discounts are netted against convertible notes.
DERIVATIVE LIABILITY
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Paragraph 815-15-25-1 the conversion feature and certain other features are considered embedded derivative instruments, such as a conversion reset provision, a penalty provision and redemption option, which are to be recorded at their fair value as its fair value can be separated from the convertible note and its conversion is independent of the underlying note value. The Company records the resulting discount on debt related to the conversion features at initial transaction and amortizes the discount using the effective interest rate method over the life of the debt instruments. The conversion liability is then marked to market each reporting period with the resulting gains or losses shown in the statements of operations.
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
The Company follows ASC Section 815-40-15 (“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.
The Company evaluates its convertible debt, options, warrants or other contracts, if any, to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 and Section 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then that the related fair value is reclassified to equity.
The Company utilizes the binomial option pricing model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The binomial option pricing model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time equal to the remaining contractual term of the instrument granted.
INCOME TAXES
The Company accounts for income taxes in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("FASB ASC") 740, Income Taxes. Under the assets and liability method of FASB ASC 740, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
NET LOSS PER SHARE
Basic net income (loss) per share includes no dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding for the period increased to include the number of additional common shares that would have been outstanding if potentially dilutive securities had been issued. At June 30, 2020 and 2019, we excluded the common stock issuable upon conversion of non-redeemable convertible notes, convertible notes, stock payable and warrants of 8,413,211,233 shares and 7,137,647,280 shares, respectively, as their effect would have been anti-dilutive. At June 30, 2020, common stock equivalents exceed authorized shares of common stock of the Company.
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FOREIGN CURRENCY TRANSLATION
The financial statements are presented in the Company’s functional currency which is the United States dollars. In accordance with FASB ASC 830, Foreign Currency Matters, foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Non-monetary assets and liabilities are translated at exchange rates prevailing at the transaction date. Revenue and expenses are translated at average rates of exchange during the periods presented. Related translation adjustments are reported as a separate component of stockholders' deficit, whereas gains or losses resulting from foreign currency transactions are included in results of operations.
STOCK-BASED COMPENSATION
The Company accounts for stock incentive awards issued to employees and non-employees in accordance with FASB ASC 718, Stock Compensation. Accordingly, stock-based compensation is measured at the grant date, based on the fair value of the award. Stock-based awards to employees are recognized as an expense over the requisite service period, or upon the occurrence of certain vesting events. Additionally, stock-based awards to non-employees are expensed over the period in which the related services are rendered.
FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC Topic 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
Included in the ASC Topic 820 framework is a three level valuation inputs hierarchy with Level 1 being inputs and transactions that can be effectively fully observed by market participants spanning to Level 3 where estimates are unobservable by market participants outside of the Company and must be estimated using assumptions developed by the Company. The Company discloses the lowest level input significant to each category of asset or liability valued within the scope of ASC Topic 820 and the valuation method as exchange, income or use. The Company uses inputs which are as observable as possible and the methods most applicable to the specific situation of each company or valued item.
The Company’s financial instruments such as cash, accounts payable and accrued liabilities, non-redeemable convertible notes, notes payable and due to related parties are reported at cost, which approximates fair value due to the short-term nature of these financial instruments.
Derivative liabilities are measured at fair value on a recurring basis using Level 3 inputs.
The following table presents assets and liabilities that are measured and recognized at fair value as of June 30, 2020 on a recurring basis:
| Level 1 | Level 2 | Level 3 | ||||||||||
| Description | $ | $ | $ | |||||||||
| Derivative liabilities | — | — | 240,103 | |||||||||
RECENT ACCOUNTING PRONOUNCEMENTS
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.
NOTE 3 – NON-REDEEMABLE CONVERTIBLE NOTES
On June 10, 2014, the Company agreed to amend and add certain terms to unsecured, non-interest bearing, due on demand notes payable issued to The Cellular Connection Ltd. during the period from February 22, 2013 to June 10, 2014 with a total carrying value $42,189. The issue price of the Note is $42,189 with a face value of $54,193 and the Note has an original maturity date of December 31, 2014 which is subject to automatic renewal. At the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face value of the Note. If the Note is not paid on the maturity date, the outstanding face amount of the Note shall increase by 20% on January 1, 2015. The outstanding face value of the Note shall increase by another 20% on January 1, 2016 and again on each one-year anniversary of the Note until the Note has been paid in full. During the six months ended June 30, 2020, the Company elected to convert $2,252 of principal and interest into 22,524,864 shares of common stock of the Company at a fixed conversion price of $0.0001 per share. These conversions resulted in a loss on debt settlement of $890,986 due to the requirement to record the share issuance at fair value on the date the shares were issued. The condensed consolidated statement of operations includes interest expense of $376 and $1,179 for the six months ended June 30, 2020 and 2019, respectively and $282 and $593 for the three months ended June 30, 2020 and 2019, respectively. At June 30, 2020 and December 31, 2019, the carrying amount of the Note is $0 and $1,878 (face value of $1,878 less $0 unamortized discount), respectively.
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On September 1, 2016, Doug Clark, former Chief Executive Officer and related party, assigned the Side Letter Agreement (“Note”) dated June 10, 2014 with a total carrying value $382,016 to DC Design Inc. (“DC Design”). On September 1, 2016, the Company entered into an amended Side Letter Agreement with DC Design to amend and add certain terms to the Side Letter Agreement and advances from the period from June 25, 2014 to December 24, 2014. Under the terms of the amended Side Letter Agreement, the issue price of the Note is $174,252 with an interest rate 20% per annum and an original maturity date of December 31, 2017 which is subject to automatic renewal. In addition, on September 30, 2019, the Company and DC Design entered into an Agreement to change the original maturity date of the Note to December 31, 2021. At the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.003 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face value of the note. If the Note is not paid on the maturity date, the outstanding face amount of the Note shall increase by 20% on January 1, 2022. The outstanding face value of the Note shall increase by another 20% on January 1, 2023 and again on each one-year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement of operations includes interest expense of $2,736 and $2,274 for the six months ended June 30, 2020 and 2019, respectively and $1,368 and $1,143 for the three months ended June 30, 2020 and 2019, respectively. At June 30, 2020 and December 31, 2019, the carrying amount of the Note is $30,244 (face value of $33,010 less $2,766 unamortized discount) and $27,508 (face value of $27,508 less $0 unamortized discount), respectively.
On January 8, 2018, the Company entered into a Side Letter Agreement (“Note”) with The Cellular Connection Ltd., to amend and add certain terms to unsecured, non-interest bearing, due on demand notes payable totaling $14,930 issued by the Company during the period of June 2014 and December 2017. The issue price of the Note is $14,930 with a face value of $17,916 and the Note has an original maturity date of December 31, 2018 which is subject to automatic renewal. On September 30, 2019, the Company and The Cellular Connection Ltd. entered into an Agreement to change the original maturity date of the Note to December 31, 2021. At the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face value of the Note. If the Note is not paid on the maturity date, the outstanding face amount of the Note shall increase by 20% on January 1, 2022. The outstanding face value of the Note shall increase by another 20% on January 1, 2023 and again on each one-year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement of operations includes interest expense of $2,138 and $1,777 for the six months ended June 30, 2020 and 2019, respectively and $1,081 and $903 for the three months ended June 30, 2020 and 2019, respectively. At June 30, 2020 and December 31, 2019, the carrying amount of the Note is $23,637 (face value of $25,799 less $2,162 unamortized discount) and $21,499 (face value of $21,499 less $0 unamortized discount), respectively.
On January 8, 2018, the Company entered into a Side Letter Agreement (“Note”) with Stuart Turk, to amend and add certain terms to unsecured, non-interest bearing, due on demand notes payable totaling $244,065 issued by the Company during the period of July 2014 and December 2017. The issue price of the Note is $244,065 with a face value of $292,878 and the Note has an original maturity date of December 31, 2018 which is subject to automatic renewal. On September 30, 2019, the Company and Stuart Turk entered into an Agreement to change the original maturity date of the Note to December 31, 2021. At the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face value of the Note. If the Note is not paid on the maturity date, the outstanding face amount of the Note shall increase by 20% on January 1, 2022. The outstanding face value of the Note shall increase by another 20% on January 1, 2023 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement of operations includes interest expense of $34,953 and $29,047 for the six months ended June 30, 2020 and 2019, respectively and $17,477 and $14,604 for the three months ended June 30, 2020 and 2019, respectively. At June 30, 2020 and December 31, 2019, the carrying amount of the Note is $386,407 (face value of $421,744 less $35,337 unamortized discount) and $351,454 (face value of $351,454 less $0 unamortized discount), respectively.
On April 12, 2018, the Company entered into a Side Letter Agreement (“Note”) with Jordan Turk to amend and add certain terms to unsecured, non-interest bearing, due on demand notes payable totaling $45,000 issued by the Company during the period of March 19, 2018 to April 12, 2018. The issue price of the Note is $45,000 with a face value of $54,000 and the Note has an original maturity date of December 31, 2018 which is subject to automatic renewal. At the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face value of the Note. If the Note is not paid on the maturity date, the outstanding face amount of the Note shall increase by 20% on January 1, 2019. The outstanding face value of the Note shall increase by another 20% on January 1, 2020 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement of operations includes interest expense of $6,385 and $5,356 for the six months ended June 30, 2020 and 2019, respectively and $3,192 and $2,693 for the three months ended June 30, 2020 and 2019, respectively. At June 30, 2020 and December 31, 2019, the carrying amount of the Note is $70,585 (face value of $77,040 less $6,455 unamortized discount) and $64,200 (face value of $64,200 less $0 unamortized discount), respectively.
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On May 10, 2018, the Company entered into a Side Letter Agreement (“Note”) with Jordan Turk to amend and add certain terms to unsecured, non-interest bearing, due on demand notes payable totaling $35,000 issued by the Company on May 9, 2018. The issue price of the Note is $35,000 with a face value of $42,000 and the Note has an original maturity date of December 31, 2018 which is subject to automatic renewal. On September 30, 2019, the Company and Jordan Turk entered into an Agreement to change the original maturity date of the Note to December 31, 2021. At the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face value of the Note. If the Note is not paid on the maturity date, the outstanding face amount of the Note shall increase by 20% on January 1, 2022. The outstanding face value of the Note shall increase by another 20% on January 1, 2023 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement of operations includes interest expense of $5,012 and $4,165 for the six months ended June 30, 2020 and 2019, respectively and $2,506 and $2,094 for the three months ended June 30, 2020 and 2019, respectively. At June 30, 2020 and December 31, 2019, the carrying amount of the Note is $55,412 (face value of $60,480 less $5,068 unamortized discount) and $50,400 (face value of $50,400 less $0 unamortized discount), respectively.
On September 13, 2018, the Company entered into a Side Letter Agreement (“Note”) with Jordan Turk to amend and add certain terms to unsecured, non-interest bearing, due on demand notes payable totaling $40,000 issued by the Company during the period of July 10 to September 13, 2018. The issue price of the Note is $40,000 with a face value of $48,000 and the Note has an original maturity date of December 31, 2018 which is subject to automatic renewal. On September 30, 2019, the Company and Jordan Turk entered into an Agreement to change the original maturity date of the Note to December 31, 2021. At the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face value of the Note. If the Note is not paid on the maturity date, the outstanding face amount of the Note shall increase by 20% on January 1, 2022. The outstanding face value of the Note shall increase by another 20% on January 1, 2023 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement of operations includes interest expense of $5,728 and $4,761 for the six months ended June 30, 2020 and 2019, respectively and $2,864 and $2,393 for the three months ended June 30, 2020 and 2019, respectively. At June 30, 2020 and December 31, 2019, the carrying amount of the Note is $63,329 (face value of $69,120 less $5,791 unamortized discount) and $57,600 (face value of $57,600 less $0 unamortized discount), respectively.
On January 31, 2019, the Company entered into a Side Letter Agreement (“Note”) with Stuart Turk to amend and add certain terms to unsecured, non-interest bearing, due on demand notes payable totaling $106,968 issued by the Company during the period of January 3, 2018 to December 28, 2018. The issue price of the Note is $106,968 with a face value of $128,362 and the Note has an original maturity date of December 31, 2019 which is subject to automatic renewal. On September 30, 2019, the Company and Stuart Turk entered into an Agreement to change the original maturity date of the Note to December 31, 2021. At the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face value of the Note. If the Note is not paid on the maturity date, the outstanding face amount of the Note shall increase by 20% on January 1, 2022. The outstanding face value of the Note shall increase by another 20% on January 1, 2023 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement of operations includes interest expense of $12,766 and $9,608 for the six months ended June 30, 2020 and 2019, respectively and $6,383 and $5,829 for the three months ended June 30, 2020 and 2019, respectively. At June 30, 2020 and December 31, 2019, the carrying amount of the Note is $141,128 (face value of $154,034 less $12,906 unamortized discount) and $128,362 (face value of $128,362 less $0 unamortized discount), respectively.
On January 31, 2019, the Company entered into a Side Letter Agreement (“Note”) with The Cellular Connection Ltd. to amend and add certain terms to unsecured, non-interest bearing, due on demand notes payable totaling $20,885 issued by the Company during the period of January 23, 2018 to October 16, 2018. The issue price of the Note is $20,885 with a face value of $25,062 and the Note has an original maturity date of December 31, 2019 which is subject to automatic renewal. On September 30, 2019, the Company and The Cellular Connection Ltd. entered into an Agreement to change the original maturity date of the Note to December 31, 2021. At the option of the Company, the Company may convert principal and interest at a fixed conversion price of $0.0001 per share of the Company’s common stock. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face value of the Note. If the Note is not paid on the maturity date, the outstanding face amount of the Note shall increase by 20% on January 1, 2022. The outstanding face value of the Note shall increase by another 20% on January 1, 2023 and again on each one year anniversary of the Note until the Note has been paid in full. The condensed consolidated statement of operations includes interest expense of $2,499 and $1,882 for the six months ended June 30, 2020 and 2019, respectively and $1,250 and $1,141 for the three months ended June 30, 2020 and 2019, respectively. At June 30, 2020 and December 31, 2019, the carrying amount of the Note is $27,562 (face value of $30,075 less $2,513 unamortized discount) and $25,062 (face value of $25,062 less $0 unamortized discount), respectively.
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NOTE 4 – NOTES PAYABLE
As of June 30, 2020 and December 31, 2019, notes payable due to Stuart Turk, Jordan Turk and The Cellular Connection Limited, a corporation controlled by Stuart Turk, totaling $81,572 and $48,461, respectively, were outstanding. The balances are non-interest bearing, unsecured and have no specified terms of repayment. During the six months ended June 30, 2020, notes payable were issued for $108,702 expenses paid on behalf of the Company and $13,579 cash advanced to the Company and notes payable were repaid by the Company with $89,170 of cash.
NOTE 5 – PROMISSORY NOTES
Promissory Note
As of June 30, 2020 and December 31, 2019, a promissory note of $81,983 (principal $76,263 and interest of $5,720) and $78,170 (principal $76,263 and interest of $1,907), respectively, was outstanding. The promissory note bears interest of 10% per annum, is unsecured and matures on December 31, 2021.
Promissory Notes – Related Party
As of June 30, 2020 and December 31, 2019, promissory notes – related party of $185,842 (principal $172,876 and interest of $12,966) and $177,197 (principal $172,876 and interest of $4,321), respectively, were outstanding. The promissory notes – related party bear interest of 10% per annum, are unsecured, mature on December 31, 2021 and are due to Nadav Elituv, the Company's Chief Executive Officer.
NOTE 6 – CONVERTIBLE NOTE
Firstfire Global Opportunities Fund, LLC
On March 1, 2019, the Company entered into a Securities Purchase Agreement with Firstfire Global Opportunities Fund, LLC, (“Holder”) relating to the issuance and sale of a Senior Convertible Note (the “Note”) with an original principal amount of $200,000 less an original issue discount of $20,000 and transaction costs of $5,000 bearing a 7% annual interest rate and maturing September 1, 2020 for $175,000 in cash. The Note and accrued interest, at the option of the Holder, is convertible into common shares of the Company at $0.10 per share. After 180 days after the issue date, the Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at the lessor of (i) $0.10 per share or (ii) a variable conversion price calculated at 65% of the market price defined as the lowest trading price during the ten trading day period ending on the latest trading day prior to the conversion date. The Company may prepay the Note in cash, if repaid within 90 days of date of issue, at 115% of the original principal amount plus interest, between 90 days and 120 days at 120% of the original principal amount plus interest and between 120 days and 180 days at 130% of the original principal amount plus interest. Thereafter, the Company does not have the right of prepayment. During the six months ended June 30, 2020, the Holder converted 2,695,000 shares of common stock of the Company with a fair value of $208,285 to settle principal and interest of $106,232 ($94,232 of principal and $12,000). The conversions resulted in the settlement of derivative liabilities of $153,668 and a loss on settlement of debt of $48,097. At June 30, 2020 and December 31, 2019, the Note was recorded at amortized cost of $0 and $19,752 (comprised of principal of $94,232 plus accrued interest of $10,284 less debt discount of $84,764), respectively. The Note was fully repaid on March 12, 2020.
Power Up Lending Group Ltd.
On February 3, 2020 the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Holder”) relating to the issuance and sale of a Senior Convertible Note (the “Note”) with an original principal amount of $103,000 less transaction costs of $3,000 bearing a 8% annual interest rate and maturing July 31, 2021 for $100,000 in cash. After 180 days after the issue date, the Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price defined as the lowest three average trading price during the ten trading day period ending on the latest trading day prior to the conversion date. The Company may prepay the Note in cash, if repaid within 90 days of date of issue, at 118% of the original principal amount plus interest, between 91 days and 120 days at 123% of the original principal amount plus interest, between 121 days and 180 days at 129% of the original principal amount plus interest and after 181 days 175% of the original principal amount plus interest. At June 30, 2020 and December 31, 2019, the Note was recorded at amortized cost of $5,185 (comprised of principal of $103,000 plus accrued interest of $3,341 less debt discount of $101,156) and $0, respectively.
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On April 14, 2020 the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Holder”) relating to the issuance and sale of a Senior Convertible Note (the “Note”) with an original principal amount of $68,000 less transaction costs of $3,000 bearing a 8% annual interest rate and maturing October 14, 2021 for $65,000 in cash. After 180 days after the issue date, the Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price defined as the lowest three average trading price during the ten trading day period ending on the latest trading day prior to the conversion date. The Company may prepay the Note in cash, if repaid within 90 days of date of issue, at 118% of the original principal amount plus interest, between 91 days and 120 days at 123% of the original principal amount plus interest, between 121 days and 180 days at 129% of the original principal amount plus interest and after 181 days 175% of the original principal amount plus interest. At June 30, 2020 and December 31, 2019, the Note was recorded at amortized cost of $1,370 (comprised of principal of $68,000 plus accrued interest of $1,148 less debt discount of $67,778) and $0, respectively
NOTE 7 - CONVERTIBLE PROMISSORY NOTE DERIVATIVE LIABILITIES
The Senior Convertible Notes with Power Up Lending Group Ltd. with an issue dates of February 3, 2020 and April 14, 2020, respectively, are accounted for under ASC 815. The variable conversion price is not considered predominantly based on a fixed monetary amount settleable with a variable number of shares due to the volatility and trading volume of the Company’s common stock. The Company’s convertible promissory note derivative liabilities have been measured at fair value at December 31, 2019, February 3, 2020, April 14, 2020 and June 30, 2020 using the binomial model.
The inputs into the binomial models are as follows:
| December 31, 2019 | February 3. 2020 | April 14, 2020 | June 30, 2020 | |||||||||||||
| Closing share price | $ | 0.20 | $ | 0.115 | $ | 0.0559 | $ | 0.0139 | ||||||||
| Conversion price | $ | 0.0683 | $ | 0.0587 | $ | 0.0338 | $ | 0.0091 | ||||||||
| Risk free rate | 1.60 | % | 1.60 | % | 2.40 | % | 0.16 | % | ||||||||
| Expected volatility | 294 | % | 434 | % | 330 | % | 283% - 286% | |||||||||
| Dividend yield | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
| Expected life | 0.67 years | 1.49 years | 1.50 years | 1.08 – 1.29 years | ||||||||||||
The fair value of the convertible promissory note derivative liability related to the Note issued to Power Up Lending Group Ltd. on February 3, 2020 and April 14, 2020 was $309,401, of which $165,000 was recorded as a debt discount and the remainder of $144,401 was recorded as initial derivative expense. During the six months ended June 30, 2020, the convertible promissory note derivative liability was reduced by $153,668 for settlement of derivative liabilities due to conversion of the Note into common stock by the Holder. The decrease (increase) in the fair value of the conversion option derivative liability of $182,618 and $(106,993), respectively is recorded as a gain in the consolidated statements of operations for the six months ended June 30, 2020 and 2019, respectively. The fair value of the convertible promissory note derivative liabilities is $240,103 and $266,989 at June 30, 2020 and December 31, 2019, respectively.
NOTE 8 – WARRANT LIABILITY
In conjunction with the issuance of the Senior Convertible Note with Firstfire Global Opportunities Fund, LLC (the “Note”) on March 1, 2019, the Company issued 1,000,000 warrants with an exercise price of $0.20 and a term of two years. The warrants are subject to down round and other anti-dilution protections. The warrant is tainted and classified as a liability as a result of the issuance of the Note since there is a possibility during the life of the warrant the Company would not have enough authorized shares available if the warrant is exercised. The Company’s warrant liability has been measured at fair value at December 31, 2019 and April 14, 2020 using the binomial model.
The inputs into the binomial models are as follows:
| December 31, 2019 | April 14, 2020 | |||||||
| Closing share price | $ | 0.20 | $ | 0.0559 | ||||
| Exercise price | $ | 0.20 | $ | 0.20 | ||||
| Risk free rate | 1.59 | % | 1.59 | % | ||||
| Expected volatility | 338 | % | 310 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Expected life | 1.17 years | 0.88 years | ||||||
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The decrease (increase) in the fair value of the warrant liability of $144,059 and $1,655 is recorded as a gain (loss) in the consolidated statements of operations for the six months ended June 30, 2020 and 2019, respectively. The fair value of the warrant liability is $0 and $185,560 at June 30, 2020 and December 31, 2019, respectively.
On April 14, 2020, the Company issued 2,000,000 shares of common stock with a fair value of $111,800 to fully settle the 1,000,000 warrants issued in conjunction with the issuance of the Senior Convertible Note with Firstfire Global Opportunities Fund, LLC on March 1, 2019. The issue of the shares resulting in a loss on settlement of warrant liability of $70,299.
NOTE 9 – RELATED PARTY TRANSACTIONS
As of June 30, 2020, and December 31, 2019, advances and accrued salary of $54,978 and $17,840, respectively, were due to Nadav Elituv, the Company's Chief Executive Officer. The balance is non-interest bearing, unsecured and have no specified terms of repayment. During the six months ended June 30, 2020, the Company issued advances due to related party of $55,758 for expenses paid on behalf of the Company, cash received of $5,195, and Company repaid advance due to related party with $23,815 in cash.
Employment Agreements
On September 10, 2018, the Company executed an employment agreement for the period from July 1, 2018 to June 30, 2019 with Nadav Elituv, the Chief Executive Officer of the Company whereby the Company shall pay 50,000 shares of Common Stock of the Company and an annual salary of $151,200 payable monthly on the first day of each month from available funds.
On September 10, 2019, the Company executed an employment agreement for the period from July 1, 2019 to June 30, 2020 with Nadav Elituv, the Chief Executive Officer of the Company whereby the Company shall pay 50,000 shares of Common Stock of the Company and an annual salary of $151,200 payable monthly on the first day of each month from available funds. On November 1, 2019, this employment agreement was amended to include additional stock-based compensation comprising of 30,000 shares of Series A Convertible Preferred Stock. On December 20, 2019, January 29, 2020, February 28, 2020, March 30, 2020 and April 30, 2020 the employment agreement was further amended to include additional stock-based compensation comprising of 873,609 shares, 1,000,000 shares, 1,000,000 shares, 2,500,000 shares and 2,000,000 shares of common stock of the Company, respectively.
Stock-based compensation – salaries expense related to these employment agreements for the six months ended June 30, 2020 and 2019 is $334,200 and $557,826, respectively. Stock-based compensation – salaries expense was recognized ratably over the requisite service period.
NOTE 10 – PREFERRED STOCK
Each share of Series A Convertible Preferred Stock (“Series A Stock”) is (i) convertible into one thousand (1,000) shares of common stock of the Company and (ii) entitled to the number of votes equal to the aggregate number of shares of common stock into which the Holder’s share of Series A Stock is convertible, multiplied by one hundred (100).
After a one year holding period, each share of Series B Convertible Preferred Stock (“Series B Stock”) is convertible into one thousand (1,000) shares of common stock of the Company. Series B Stock is non-voting.
Series A Stock and Series B Stock has been classified as temporary equity (outside of permanent equity) on the consolidated balance sheets at June 30, 2020 and December 31, 2019 because other tainting contracts such as the convertible note and warrant potentially have inadequate available authorized shares of the Company for settlement.
NOTE 11 - STOCKHOLDERS' EQUITY
The Company is authorized to issue an aggregate of 3,000,000,000 common shares with a par value of $0.0001 per share and 1,000,000 shares of preferred stock with a par value of $0.0001 per share.
From January 1, 2020 to June 30, 2020, the Company elected to convert $2,252 of principal and interest of non-redeemable convertible notes into 22,524,864 shares of common stock of the Company with a fair value of $893,238 resulting in a loss of extinguishment of debt of $890,986.
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From January 1, 2020 to June 30, 2020, the Holder of the Senior Convertible Note issued on March 1, 2019 elected to convert $94,232 of principal and $12,000 of interest into 2,695,000 shares of common stock of the Company with a fair value of $208,285 resulting in a loss on extinguishment of debt of $48,097.
From January 1, 2020 to June 30, 2020, the Company issued 19,500,000 shares of common stock for stock-based compensation for consulting services with a fair value of $579,700.
From January 1, 2020 to June 30, 2020, the Company issued 26,000,000 shares of common stock for stock-based compensation due to officer and directors with a fair value of $1,336,800.
On April 14, 2020, the Company issued 2,000,000 shares of common stock with a fair value of $111,800 to fully settle the 1,000,000 warrants issued in conjunction with the issuance of the Senior Convertible Note with Firstfire Global Opportunities Fund, LLC on March 1, 2019. The issue of the shares resulting in a loss on settlement of warrant liability of $70,299.
On May 7, 2020, The Company issued 11,111,111 shares of common stock with a fair value of $200,000 for a one year subscription to an online marketing platform to support the GoCart grocery delivery application.
2015 Stock Option Plan
On April 28, 2015, the Board of Directors of the Company approved of the Company’s 2015 Stock Option Plan (the “2015 Plan”) to attract and retain the best available personnel, to provide additional incentive to employees, directors and consultants, and to promote the success of the Company's business. Pursuant to the 2015 Plan, the Board may grant incentive stock options, non-qualified stock options and stock appreciation rights to eligible persons. The maximum aggregate number of shares of common stock with respect to which awards granted under the Plan shall not exceed 1 (as adjusted for the 1-for-2,000, 1-for-500 and 1-for-1,000 reverse stock split on September 1, 2016, September 10, 2018 and December 12, 2019, respectively). On May 6, 2015, the Company filed a Registration Statement on Form S-8 (File No: 333-203889) registering the shares of common stock issuable pursuant to the 2015 Plan under the Securities Act.
NOTE 12 - SUBSEQUENT EVENTS
From July 1, 2020 to August 12, 2020, the Company elected to convert $1,700 of principal and interest of non-redeemable convertible notes into 17,000,000 shares of common stock of the Company with a fair value of $188,700 resulting in a loss of extinguishment of debt of $187,000.
From July 1, 2020 to August 12, 2020, the Holder of the Senior Convertible Note issued on February 3, 2020 elected to convert $47,000 of principal of interest into 7,238,806 shares of common stock of the Company with a fair value of $68,596.
From July 1, 2020 to August 12, 2020, the Company issued 33,000,000 shares of common stock for stock-based compensation for consulting services with a fair value of $351,300.
From July 1, 2020 to August 12, 2020, the Company issued 30,000,000 shares of common stock for stock-based compensation due to officer and directors with a fair value of $315,000.
Power Up Lending Group Ltd.
On July 13, 2020 the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Holder”) relating to the issuance and sale of a Senior Convertible Note (the “Note”) with an original principal amount of $53,000 less transaction costs of $3,000 bearing a 8% annual interest rate and maturing October 14, 2021 for $50,000 in cash. After 180 days after the issue date, the Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price defined as the lowest three average trading price during the ten trading day period ending on the latest trading day prior to the conversion date. The Company may prepay the Note in cash, if repaid within 90 days of date of issue, at 118% of the original principal amount plus interest, between 91 days and 120 days at 123% of the original principal amount plus interest, between 121 days and 180 days at 129% of the original principal amount plus interest and after 181 days 175% of the original principal amount plus interest.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Two Hands Corporation (formerly Innovative Product Opportunities Inc.) (the "Company") was incorporated on April 3, 2009 in the State of Delaware and established a fiscal year end of December 31.
Our business is a research and product development firm. Over the past few years we have specialized in computer vision and gesture recognition technologies. We have leveraged our relationship with our product development team of programmers and designers to implement our vision for building a state-of-the-art co-parenting application.
The Two Hands Application launched on July 25, 2018.
On February 20, 2019, the Company announced the launch of its application, Two Hands Gone, a new encrypted messaging app.
The Company is also in the business of assisting clients in developing brand strategies. The Company executes and/or oversees the research, planning, pricing, creative development, tracking and deployment of all digital advertising projects needed to promote client products and services.
The operations of the business are carried on by a 100% owned subsidiary, I8 Interactive Corporation, a company incorporated under the laws of Canada.
Management's Plan of Operation
We strive to create a complete co-parenting solution. It is our ultimate goal to improve the lives of families especially the lives of children that are affected by a divorce.
“Two Hands” is the product of years of searching for the ideal solution that will reduce the stress and worries of co-parenting. Our application fulfills our mission and vision that focuses on organization and communication to improve family relationships despite a divorce.
We would like to be recognized as the company that improves family relationships and improved organization and communication between family members.
Our mission is to equip parents with the best tools to be able to communicate with each other in a divorced or separated household. “Two Hands App” began as an idea to help ease the worries of parents when it comes to co-parenting after a divorce or a separation.
A personal experience has led the creator of the app to come up with a better solution that uses the internet foremost to provide better communication and organization between divorced parties.
After years of collaborating with fellow parents and co-parents, and through the help of our designers and programmers, “Two Hands App” was conceived. It has all the important features that any parent, co-parent or caregiver would ever need to deal with any kind of activity concerning children. “Two Hands App” focuses on reducing the stress of parents and their children.
“Two Hands App” is accessed primarily through the internet which makes it easier to connect to people and manage one or two households at the same time. We have made it possible for the application to be accessed from all kinds of devices and have made it easier to understand even for someone who is not tech savvy.
Our team of designers and developers understand that along with constant changes in technology, the lives of families and children are also changing as well. There is no doubt that we keep abreast with life’s constant changes to provide the best service for co-parents everywhere.
The Two Hands Application launched on July 25, 2018 and currently has approximately 13,000 pre-registered users. We are on-boarding the pre-registered users and new customers. We continue to further refine the Application for direct use by family law professionals and mediators.
Our user fees for the Two Hands Application are $14.96 per month or $119.88 per year or $215.76 per two-year period. We anticipate earning revenue as users finish their initial 14 free trial period.
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“Two Hands App” is under development. Our team of designers and developers understand that along with constant changes in technology, the lives of families and children are also changing as well. There is no doubt that we keep abreast with life’s constant changes to provide the best service for co-parents everywhere.
On February 20, 2019, the Company announced the launch of its application, Two Hands Gone, a new encrypted messaging app.
Our Cannabis Strategy
We have discontinued our cannabis strategy.
On January 17, 2019, the Company entered into an agreement to purchase a 100% interest in the Colombian License held by Plantro Inc S.A.S. The Company believes that it is unlikely that the transaction will be consummated due to the coronavirus COVID-19 global pandemic which is causing restrictions in international commerce, reduction in expected revenue from the License and uncertainty to the availability and type of financing for the Company.
GoCart Applications
The GoCart online grocery delivery application was released in early June 2020. The GoCart Online Grocery set of applications will be rolled out in stages to meet the growing demand for online grocery delivery.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Financial Statements and accompanying notes. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts, inventories, impairment of long-term assets, stock-based compensation, income taxes and loss contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies, among others, may be impacted significantly by judgment, assumptions and estimates used in the preparation of the Financial Statements:
Stock-based Compensation
The Company accounts for stock incentive awards issued to employees and non-employees in accordance with FASB ASC 718, Stock Compensation. Accordingly, stock-based compensation is measured at the grant date, based on the fair value of the award. Stock-based awards to employees are recognized as an expense over the requisite service period, or upon the occurrence of certain vesting events. Additionally, stock-based awards to non-employees are expensed over the period in which the related services are rendered.
In June 2018, the FASB issued ASU 2018-07—Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, subject to certain exceptions. The Company early adopted ASU 2018-07 with respect to grants of shares of common stock of the Company made in June 2018. The early adoption of ASU 2018-07 did not have a material impact on the consolidated financial statements.
Prior to the early adoption of ASU 2018-07 in June 2018, stock-based awards granted to non-employees were accounted for in accordance with ASU 505-50 – Equity-Based Payments to Non-Employees (“ASU 505-50”). ASU 505-50 measures stock-based compensation at either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is completed.
Derivative Liability
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Paragraph 815-15-25-1 the conversion feature and certain other features are considered embedded derivative instruments, such as a conversion reset provision, a penalty provision and redemption option, which are to be recorded at their fair value as its fair value can be separated from the convertible note and its conversion is independent of the underlying note value. The Company records the resulting discount on debt related to the conversion features at initial transaction and amortizes the discount using the effective interest rate method over the life of the debt instruments. The conversion liability is then marked to market each reporting period with the resulting gains or losses shown in the statements of operations.
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In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
The Company follows ASC Section 815-40-15 (“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.
The Company evaluates its convertible debt, options, warrants or other contracts, if any, to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 and Section 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then that the related fair value is reclassified to equity.
The Company utilizes the binomial option pricing model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The binomial option pricing model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time equal to the remaining contractual term of the instrument granted.
Revenue Recognition
In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process by which we determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which we expect to be entitled in exchange for those goods or services. ASC 606 requires us to apply the following steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, we satisfy the performance obligation.
RESULTS OF OPERATIONS
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2020 AND 2019
REVENUES
Our revenue for three months ended June 30, 2020 was $7,993, compared to $0 for the three months ended June 30, 2019. Revenue comprises $4,312 from the CoCart Online Grocery application and $3,681 from the sale of computer equipment.
COST OF GOODS SOLD
Our cost of goods sold for the three months ended June 30, 2020 was $6,037, compared to $0 for the three months ended June 30, 2019. Cost of goods sold comprises of purchase of groceries and computer equipment of $2,568 and $3,469, respectively.
OPERATING EXPENSES
Our operating expenses for the three months ended June 30, 2020 was $1,195,530, compared to $621,789 for the three months ended June 30, 2019, respectively. The increase in general and administrative expense is primarily due to consulting and stock-based compensation to officers and directors.
General and administrative expense includes stock-based compensation for the three months ended June 30, 2020 and 2019 which comprises of 17,000,000 and 200 shares of common stock issued valued at $467,200 and $15,000, respectively for consulting services.
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General and administrative expense also includes stock-based compensation for the three months ended June 30, 2020 and 2019 which comprises of 8,000,000 and 30,000 shares of common stock issued valued at $176,800 and $280,454, respectively, for salaries and compensation for our officers and directors.
OTHER INCOME (EXPENSE)
Amortization of debt discount and interest expense for the three months ended June 30, 2020 was $47,763, compared to $36,782 for the three months ended June 30, 2020. Amortization of debt discount and interest expense relates to the issuance of non-redeemable convertible notes, convertible notes and promissory notes.
During the three months ended June 30, 2020 and 2019, the Company elected to convert $1,620 and $520 of principal and interest of a non-redeemable convertible note into 16,204,864 and 5,200 shares of common stock of the Company resulting in a loss on settlement of debt of $299,394 and $259,480, respectively.
On April 14, 2020, the Company issued 2,000,000 shares of common stock with a fair value of $111,800 to fully settle the 1,000,000 warrants issued in conjunction with the issuance of the Senior Convertible Note with Firstfire Global Opportunities Fund, LLC on March 1, 2019. The issue of the shares resulting in a loss on settlement of warrant liability of $70,299.
Initial derivative expense of $43,847 for the three months ended June 30, 2020 represents the difference between the fair value of the total embedded derivative liability of $108,847 and the cash received of $65,000 for the convertible note issued on April 14, 2020.
During the three months ended June 30, 2020 and 2019, the gain (loss) due to the change in fair value of derivative liabilities was $141,110 and $(99,818), respectively.
NET INCOME/LOSS
Our net loss for three months ended June 30, 2020 was $1,513,767, compared to $1,017,869 for the three months ended June 30, 2019, respectively. Our losses during the three months ended June 30, 2020 and 2019 are primarily due to costs associated with professional fees, our transfer agent, investor relations, stock-based compensation for salaries, loss on settlement of debt and the issuance of a convertible notes on March 1, 2019, February 3, 2020 and April 14, 2020..
COMPARISON OF RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
REVENUES
Our revenue for six months ended June 30, 2020 was $7,993, compared to $0 the six months ended June 30, 2019. Revenue comprises $4,312 from the CoCart Online Grocery application and $3,681 from the sale of computer equipment.
COST OF GOODS SOLD
Our cost of goods sold for the six months ended June 30, 2020 was $6,037, compared to $0 for the three months ended June 30, 2019. Cost of goods sold comprises of purchase of groceries and computer equipment of $2,568 and $3,469, respectively.
OPERATING EXPENSES
Our operating expenses for the six months ended June 30, 2020 was $3,062,533, compared to $1,213,619 for the six months ended June 30, 2019, respectively. The increase in general and administrative expense is primarily due to consulting and stock-based compensation to officers and directors.
General and administrative expense includes stock-based compensation for the six months ended June 30, 2020 and 2019 which comprises of 19,500,000 and 200 shares of common stock issued valued at $579,700 and $15,000, respectively for consulting services.
General and administrative expense also includes stock-based compensation for the six months ended June 30, 2020 and 2019 which comprises of 26,000,000 and 30,000 shares of common stock issued valued at $1,336,800 and $565,826, respectively, for salaries and compensation for our officers and directors.
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OTHER INCOME (EXPENSE)
Amortization of debt discount and interest expense for the six months ended June 30, 2020 was $78,373, compared to $66,587 for the six months ended June 30, 2020. Amortization of debt discount and interest expense relates to the issuance of non-redeemable convertible notes, convertible notes and promissory notes.
During the six months ended June 30, 2020 and 2019, the Company elected to convert $2,252 and $1,420 of principal and interest of a non-redeemable convertible note into 22,524,864 and 14,200 shares of common stock of the Company resulting in a loss on settlement of debt of $890,986 and $996,580, respectively.
The Holder of the Firstfire Global Opportunities Fund, LLC convertible note also elected to convert 2,695,000 shares of the Company with a fair value of $208,285 resulting in a loss on settlement of debt of $48,097.
On April 14, 2020, the Company issued 2,000,000 shares of common stock with a fair value of $111,800 to fully settle the 1,000,000 warrants issued in conjunction with the issuance of the Senior Convertible Note with Firstfire Global Opportunities Fund, LLC on March 1, 2019. The issue of the shares resulting in a loss on settlement of warrant liability of $70,299.
Initial derivative expense of $144,401 for the six months ended June 30, 2020 represents the difference between the fair value of the total embedded derivative liability of $309,401 and the cash received of $165,000 for the convertible note issued on February 3, 2020 and April 14, 2020.
Initial derivative expense of $274,717 for the six months ended June 30, 2019 represents the difference between the fair value of the total embedded derivative liability of $449,717 and the cash received of $175,000 for the convertible note issued on March 1, 2019.
During the six months ended June 30, 2020 and 2019, the gain (loss) due to the change in fair value of derivative liabilities was $326,677 and $(105,338), respectively.
NET INCOME/LOSS
Our net loss for six months ended June 30, 2020 was $3,966,057, compared to $2,656,841 for the six months ended June 30, 2019, respectively. Our losses during the six months ended June 30, 2020 and 2019 are primarily due to costs associated with professional fees, our transfer agent, investor relations, stock-based compensation for salaries, loss on settlement of debt and the issuance of a convertible notes on March 1, 2019, February 3, 2020 and April 14, 2020.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2020, we had cash of $7,889 and total liabilities of $1,506,069. Our current cash balance and cash flow from operating activities will not be sufficient to fund our operations during the next 12 months. We are completely dependent upon the willingness of our management to fund our initial operations by way of loans from our Chief Executive Officer, shareholders and others.
The Company’s financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the six months ended June 30, 2020, the Company incurred a net loss of $3,966,057 and used cash in operating activities of $225,425, and at June 30, 2020, had stockholders’ deficit of $2,005,333. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. The Company’s independent registered public accounting firm, in their report on the Company’s financial statements for the year ending December 31, 2019, expressed substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty should we be unable to continue as a going concern.
Over the next 12 months we expect to expend approximately $50,000 in cash for legal, accounting and related services and an additional $300,000 in cash to implement our business plan. We hope to be able to compensate our independent contractors with stock-based compensation, which will not require us to use our cash, although there can be no assurances that we will be successful in these efforts.
We expect to be able to secure capital through advances from our Chief Executive Officer, note holders, shareholders and others in order to pay expenses such as organizational costs, filing fees, accounting fees and legal fees, however, we do not have any written or oral agreements with any third parties which require them to fund our operations and there can be no assurances that we will be able to obtain such funds. We believe it will be difficult to secure capital in the future because we have no assets to secure debt and there is currently no trading market for our securities. The Company is unable to predict the effect, if any, that the coronavirus COVID-19 global pandemic may have on its access to the financing markets. We will need additional capital in the next twelve months and if we cannot raise such capital on acceptable terms, we may have to curtail our operations or terminate our business entirely.
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The inability to obtain financing or generate sufficient cash from operations could require us to reduce or eliminate expenditures for developing products and services, or otherwise curtail or discontinue our operations, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, to the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If we raise additional funds through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of our common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we may seek to compensate providers of services by issuing stock in lieu of cash, which may also result in dilution to existing stockholders.
OPERATING CAPITAL AND CAPITAL EXPENDITURE REQUIREMENTS
We are currently funding our operations by way of cash advances from our Chief Executive Officer, note holders, shareholders and others. We hope to be able to compensate our independent contractors with stock-based compensation, which will not require us to use our cash, although there can be no assurances that we will be successful in these efforts. We expect that we will be required to raise an additional $200,000 in cash by issuing new debt or equity for operating costs in order to implement our business plan in the next twelve months. The funds are loaned to the Company as required to pay amounts owed by the Company. As such, our operating capital is currently limited to the personal resources of our Chief Executive Officer, note holders, shareholders and others. The loans from our Chief Executive Officer, note holders, shareholders and others are unsecured and non-interest bearing and have no set terms of repayment. Our common stock started trading over the counter and has been quoted on the Over-The Counter Bulletin Board since February 17, 2011. The stock currently trades under the symbol “TWOH.OB.”
OFF-BALANCE SHEET TRANSACTIONS
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a Smaller Reporting Company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.
ITEM 4T. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As required by Rule 13a-15 of the Securities Exchange Act of 1934, our principal executive officer and principal financial officer evaluated our company's disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period covered by this report, these disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission and to ensure that such information is accumulated and communicated to our company's management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the presence of the following material weaknesses in internal control over financial reporting which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both United States generally accepted accounting principles and Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.
We plan to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending December 31, 2020, subject to obtaining additional financing: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out above are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
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Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2020 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We may be involved from time to time in ordinary litigation, negotiation and settlement matters that will not have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against our Company or our officers and directors in their capacity as such that could have a material impact on our operations or finances.
ITEM 1A. RISK FACTORS
A smaller reporting company is not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
From April 1, 2020 to June 30, 2020, the Company elected to convert $1,620 of principal and interest of non-redeemable convertible notes into 16,204,864 shares of common stock of the Company with a fair value of $301,014 resulting in a loss of extinguishment of debt of $299,394.
From April 1, 2020 to June 30, 2020, the Company issued 17,000,000 shares of common stock for stock-based compensation for consulting services with a fair value of $467,200.
From April 1, 2020 to June 30, 2020, the Company issued 8,000,000 shares of common stock for stock-based compensation due to officer and directors with a fair value of $176,800.
On April 14, 2020, the Company issued 2,000,000 shares of common stock with a fair value of $111,800 to fully settle the 1,000,000 warrants issued in conjunction with the issuance of the Senior Convertible Note with Firstfire Global Opportunities Fund, LLC on March 1, 2019. The issue of the shares resulting in a loss on settlement of warrant liability of $70,299.
On May 7, 2020, The Company issued 11,111,111 shares of common stock with a fair value of $200,000 for a one year subscription to an online marketing platform to support the GoCart grocery delivery application.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
During the quarter ended June 30, 2020, we did not have any defaults upon senior securities.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION.
On July 13, 2020 the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Holder”) relating to the issuance and sale of a Senior Convertible Note (the “Note”) with an original principal amount of $53,000 less transaction costs of $3,000 bearing a 8% annual interest rate and maturing October 14, 2021 for $50,000 in cash. After 180 days after the issue date, the Note together with any unpaid accrued interest is convertible into shares of common stock of the Company at the Holder’s option at a variable conversion price calculated at 65% of the market price defined as the lowest three average trading price during the ten trading day period ending on the latest trading day prior to the conversion date. The Company may prepay the Note in cash, if repaid within 90 days of date of issue, at 118% of the original principal amount plus interest, between 91 days and 120 days at 123% of the original principal amount plus interest, between 121 days and 180 days at 129% of the original principal amount plus interest and after 181 days 175% of the original principal amount plus interest. The foregoing descriptions of the Securities Purchase Agreement and Note and of all of the parties’ rights and obligations under the Securities Purchase Agreement and the Note are qualified in its entirety by reference to the Securities Purchase Agreement and the Note, copies of which are filed as Exhibits 10.9 and 10.10 respectively to this Quarterly Report on Form 10-Q, and of which are incorporated herein by reference.
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ITEM 6. EXHIBITS
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| Incorporated by reference | |||
Exhibit | Exhibit Description | Filed herewith | Form | Period ending | Exhibit | Filing date |
Certificate of Incorporation, dated April 3, 2009 | S-1 |
| 3.1 | 6/22/2010 | ||
Bylaws, dated April 3, 2009 | S-1 |
| 3.2 | 6/22/2010 | ||
Certificate of Amendment to the Certificate of Incorporation, dated August 8, 2013 | 10-Q | 6/30/2013 | 3.3 | 8/14/2013 | ||
Specimen Stock Certificate | S-1 |
| 4.1 | 6/22/2010 | ||
Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock, dated August 6, 2013 |
| 10-Q | 6/30/2013 | 4.2 | 8/14/2013 | |
Innovative Product Opportunities Inc. Trust Agreement |
| S-1 |
| 10.1 | 6/22/2010 | |
Side Letter Agreement, The Cellular Connection Ltd., dated January 8, 2018 |
| 10-K | 12/31/2017 | 10.2 | 3/29/2018 | |
Side Letter Agreement, Stuart Turk, dated January 8, 2018 |
| 10-K | 12/31/2017 | 10.3 | 3/29/2018 | |
Side Letter Agreement, Jordan Turk, dated April 12, 2018 |
| 10-Q | 3/31/2018 | 10.4 | 5/21/2018 | |
Side Letter Agreement, Jordan Turk, dated May 10, 2018 |
| 10-Q | 3/31/2018 | 10.5 | 5/21/2018 | |
| 10.6 | Side Letter Agreement, Jordan Turk, dated September 13, 2018 | 10-K | 12/31/2018 | 10.6 | 4/1/2019 | |
| 10.7 | Side Letter Agreement, Cellular Connection Ltd., dated January 31, 2019 | 10-K | 12/31/2018 | 10.7 | 4/1/2019 | |
| 10.8 | Side Letter Agreement, Stuart Turk, dated January 31, 2019 | 10-K | 12/31/2018 | 10.8 | 4/1/2019 | |
| 10.9 | Securities Purchase Agreement, dated July 13, 2020, by and between Two Hands Corporation and Power Up Lending Group Ltd. | X | ||||
| 10.10 | Convertible Promissory Note, dated July 13, 2020, by and between Two Hands Corporation and Power Up Lending Group Ltd. | X | ||||
| 31.1
| Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X |
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| 32.1
| Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X |
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101.INS | XBRL Instance Document | * |
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101.SCH | XBRL Taxonomy Extension Schema Document | * |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | * |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document | * |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | * |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Definition | * |
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* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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TWO HANDS CORPORATION
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| August 14, 2020 |
By: /s/ Nadav Elituv Nadav Elituv, President, Chief Executive Officer and Director (Principal Executive Officer) |
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By: /s/ Steven Gryfe Steven Gryfe, Chief Financial Officer (Principal Financial and Accounting Officer) |
| 27 |
EXHIBIT 31.1
TWO HANDS CORPORATION
OFFICER'S CERTIFICATE PURSUANT TO SECTION 302
I, Nadav Elituv, certify that:
1. I have reviewed this Form 10-Q of TWO HANDS CORPORATION;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: August 14, 2020
By: /s/ Nadav Elituv
Name: Nadav Elituv
Title: President, Chief Executive Officer and Director
(Principal Executive Officer)
| 1 |
EXHIBIT 31.2
TWO HANDS CORPORATION
OFFICER'S CERTIFICATE PURSUANT TO SECTION 302
I, Steven Gryfe, certify that:
1. I have reviewed this Form 10-Q of TWO HANDS CORPORATION;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: August 14, 2020
By: /s/ Steven Gryfe
Name: Steven Gryfe
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
| 2 |
EXHIBIT 32.1
TWO HANDS CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of TWO HANDS CORPORATION (the Registrant) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Nadav Elituv, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Nadav Elituv and will be retained by TWO HANDS CORPORATION and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: August 14, 2020
By: /s/ Nadav Elituv
Name: Nadav Elituv
Title: President, Chief Executive Officer and Director
(Principal Executive Officer)
| 1 |
EXHIBIT 32.2
TWO HANDS CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of TWO HANDS CORPORATION (the Registrant) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Steven Gryfe, Principal Financial and Accounting Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Steven Gryfe and will be retained by TWO HANDS CORPORATION and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: August 14, 2020
By: /s/ Steven Gryfe
Name: Steven Gryfe
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
| 2 |
