Quantum X Inc S-1, filed Jan 21, 2020
Quantum X Inc. (QUTX)
As filed with the Securities and Exchange Commission on January 21, 2020
Registration No. ________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TWO HANDS CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 7389 | 42-1770123 | ||
|
(State or other jurisdiction of
incorporation or organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer Identification No.) |
33 Davis Ave.
Toronto, Ontario, Canada
M4M 2A9
(416) 357-0399
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Nadav Elituv
Chief Executive Officer
Two Hands Corporation
33 Davis Ave.
Toronto, Ontario M4M 2A9
Canada
(416) 357-0399
(Name, address and telephone number of agent for service)
With copies to:
Philip Magri, Esq.
Magri Law, PLLC
2642 NE 9th Ave.
Ft. Lauderdale, FL 33401
(954) 303-8027
Approximate date of proposed sale to the public: From time to time after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
| 1 |
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company”. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
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 to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Aggregate Offering Price Per Share | Proposed Maximum Aggregate Offering Price (1) | Amount of Registration Fee | ||||||||||||
| Common Stock, $0.0001 par value per share | 2,000,000 | (2) | $ | 0.193 | (3) | $ | 386,000 | $ | 50.10 | (4) | ||||||
| (1) | Estimated pursuant to Rule 457(a) of the Securities Act of 1933, as amended (the “Securities Act”) solely for purposes of calculating the registration fee. |
| (2) | Represents shares of common stock, par value $0.0001 per share, of the Registrant offered for resale by Crown Bridge Partners, LLC, a New York limited liability company (the “Selling Stockholder”), which shares are issuable by Two Hands Corporation (the “Company”) pursuant to the Equity Purchase Agreement, dated as of January 20, 2020 (“Equity Line”), between the Company and the Selling Stockholder. |
| 2 |
| (3) | This offering price has been estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of the Securities Act with respect to the shares of common stock registered hereunder, based upon the price of $0.195, which was the average of the high and low prices for the Company’s common share on January 17, 2020, as reported on the OTC Market Group, Inc.’s OTC Pinks tier. |
| (4) | Computed in accordance with Section 6(b) of the Securities Act. |
In accordance with Rule 416(a) under the Securities Act, the Registrant is also registering hereunder an indeterminate number of shares that may be issued and resold resulting from stock splits, stock dividends or similar transactions.
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a) may determine.
| 3 |
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION, DATED JANUARY 21, 2020 |
2,000,000 SHARES OF COMMON STOCK
TWO HANDS CORPORATION
This Prospectus (this “Prospectus”) relates to the offer and sale from time to time of up to 2,000,000 shares of common stock, par value $0.0001, of Two Hands Corporation, a Delaware corporation (the “Company”), by Crown Bridge Partners, LLC, a New York limited liability company (the “Selling Stockholder”). We are registering the resale of up to 48,286,830 shares of common stock issuable under an equity line in the amount of $5,000,000 (the “Equity Line”) established by the Equity Purchase Agreement, dated as of January 20, 2020 (“Equity Purchase Agreement”), between us and the Selling Stockholder, as more fully described in this Prospectus. The resale of the shares by the Selling Stockholder pursuant to this Prospectus is referred to as the “Offering.”
We are not selling any securities under this Prospectus and will not receive any of the proceeds from the sale of the shares by the Selling Stockholder. We will, however, receive proceeds from our sale of our shares of common stock under the Equity Line to the Selling Stockholder pursuant to the Equity Purchase Agreement.
The Equity Purchase Agreement provides that Selling Stockholder is committed to purchase up to $5,000,000 (“Maximum Commitment Amount”) of our common stock over the course of its term. The term of the Equity Purchase Agreement commenced on January 20, 2020 and will end on the earlier of (i) the date on which the Selling Stockholder has purchased common stock from us pursuant to the Equity Purchase Agreement equal to the Maximum Commitment Amount, (ii) January 20, 2022, or (iii) written notice of termination by us. We may draw on the Equity Line from time to time, as and when we determine appropriate in accordance with the terms and conditions of the Equity Purchase Agreement. The 2,000,000 shares of common stock included in this Prospectus represent a portion of the common stock issuable to the Selling Stockholder under the Equity Purchase Agreement.
The Selling Stockholder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act. The Selling Stockholder may sell the shares of common stock described in this Prospectus in a number of different ways and at varying prices. See “Plan of Distribution” for more information about how the Selling Stockholder may sell the shares of common stock being registered pursuant to this Prospectus.
We will pay the expenses incurred in registering the shares of common stock, including legal and accounting fees. See “Plan of Distribution.”
| 4 |
Our principal executive offices are located at 33 Davies Avenue, Level 2, Toronto, Ontario M4M 2A9, Canada. Our common stock is currently quoted on the OTC Market Group, Inc.’s OTC Pink tier under the symbol “TWOH.” On January 17, 2020, the last reported sale price of our common stock was $0.18.
Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 15 of this Prospectus.
Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this Prospectus is _________, 2020.
| 5 |
TABLE OF CONTENTS
| 6 |
You should rely only on the information contained in this Prospectus. We have not authorized anyone to provide you with information that is different from that contained in this Prospectus. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. The information in this Prospectus is complete and accurate only as of the date on the front cover regardless of the time of delivery of this Prospectus or of any sale of our securities.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included and incorporated by reference in this Prospectus constitute “forward-looking statements” within the meaning of the within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21B of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Words such as “may,” “should,” “anticipate,” “estimate,” “expect,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance, identify forward-looking statements. Forward-looking statements represent management’s present judgment regarding future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks include, but are not limited to, risks and uncertainties relating to our current cash position and our need to raise additional capital in order to be able to continue to fund our operations; our ability to retain our managerial personnel and to attract additional personnel; competition; our ability to protect intellectual property rights, and any and other factors, including the risk factors identified in the documents we have filed, or will file, with the Securities and Exchange Commission. Please also see the discussion of risks and uncertainties under the caption “Risk Factors,” beginning on page 15 of this Prospectus.
In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Prospectus or in any document incorporated herein by reference might not occur. Investors are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the respective dates of this Prospectus or the date of the document incorporated by reference in this Prospectus. We expressly disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by federal securities laws.
You should rely only on the information contained in or incorporated by reference in this Prospectus we have authorized to be delivered to you in connection with this offering. We have not authorized anyone to provide you with information that is different. The information contained or incorporated by reference in this Prospectus we authorize to be delivered to you in connection with this offering is accurate only as of the respective dates thereof, regardless of the time of delivery of this Prospectus or of any sale of our securities offered hereby. It is important for you to read and consider all information contained in this Prospectus we authorize to be delivered to you in connection with this offering, including the documents incorporated by reference therein, in making your investment decision. You should also read and consider the information in the documents to which we have referred you under the captions “Where You Can Find More Information.”
| 7 |
We are responsible for the disclosure in this Prospectus. However, this Prospectus includes industry data that we obtained from internal surveys, market research, publicly available information and industry publications. The market research, publicly available information and industry publications that we use generally state that the information contained therein has been obtained from sources believed to be reliable. The information therein represents the most recently available data from the relevant sources and publications that we believe remains reliable. We did not fund and are not otherwise affiliated with any of the sources cited in this Prospectus. Forward-looking information obtained from these sources is subject to the same qualifications and additional uncertainties regarding the other forward-looking statements in this Prospectus.
We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products and the formulations for such products. This Prospectus may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this Prospectus is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this Prospectus are listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trade names and trademarks. All other trademarks are the property of their respective owners.
| 8 |
This summary highlights material information concerning our business and this Offering. This summary does not contain all of the information that you should consider before making your investment decision. You should carefully read the entire Prospectus and the information incorporated by reference into this Prospectus, including the information presented under the section entitled “Risk Factors” and the financial data and related notes, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from future results contemplated in the forward-looking statements as a result of factors such as those set forth in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” Unless otherwise indicated, except for our financial statements and the notes thereto, all references to our common stock, share data, per share data and related information have been adjusted to reflect the 1-for-1,000 reverse stock split of the Company’s outstanding common stock on December 10, 2019.
In this Prospectus, unless the context indicates otherwise, “Two Hands Corporation,” the “Company,” “we,” “our,” “ours” or “us” refer to Two Hands Corporation, a Delaware corporation, and its wholly-owned subsidiary, I8 Interactive Corporation, a company incorporated under the laws of Canada (“I8 Interactive”).
Overview
Through our operating subsidiary, I8 Interactive, we are engaged in the digital media, application development, secure messaging and an organic hemp-based CBD cultivator and that strives to offer the highest quality CBD extract derivatives to be exported under Two Hands CBD Lab brand described below.
Description of Businesses
The Company is a software application development company that strives to create a complete co-parenting cloud-based solution. The Company is a designer and developer of an innovative co-parenting application. The Company’s flagship product “TwoHandsApp” 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. “TwoHandsApp” 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 types of computing devices and have made it easier to understand even for someone who is not tech savvy.
Applications
In July 2018, we launched our flagship application, TwoHandsApp, available on the internet at www.twohandsapp.com, to ease the worries when it comes to co-parenting after a divorce or separation.
| 9 |
Our user fees for the application are $14.96 per month, $119.88 per year or $215.76 per two-year period. The application has the following features:
| • |
Dashboard: A dashboard to see all important information at a glance;
| |
| • |
Shared Schedule: A shared schedule for keeping track of events and shared visitation;
| |
| • |
Shared Task Manager: A shared task manager for important tasks;
| |
| • |
Shared Journal: A shared journal that allows co-parents and others to view events in the child’s life;
| |
| • |
Expense Log: An expense log to split and share expenses;
| |
| • |
Messaging: A private messaging module to communicate with others you invite to the application;
| |
| • |
Photo Library: A photo library that can be shared with others you invite to the application;
| |
| • |
Time Tracking: Time tracking and reporting of visitation schedules;
| |
| • |
Secured Storage: Secure storage of Passwords and important information; and
| |
| • | GPS: GPS drop off and pick up confirmation through cell phone | |
Over the course of the next 12 months, we intend to bring the following additional features to market:
| ||
| • |
A platform for family lawyers and mediators;
| |
| • |
Expanded GEO location services;
| |
| • |
Expanded messaging services; and
| |
| • | Expanded payment system | |
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 1,000 registered users. We are exploring ways to monetize it.
CBD License in Colombia
On January 17, 2019, entered into a binding letter of intent (“LOI”) with Plantro Inc. S.A.S ., a vertically integrated organic hemp-based CBD license holder located in Madrid, Colombia (“Plantro”), to purchase a 100% interest in Plantro’s license to grow hemp from Colombia (“Plantro License”) in consideration for 10 million shares of common stock and a 15% net income royalty fee. Plantro receipt of the Plantro License and the consummation of the Company’s acquisition of the Plantro License is currently subject to the review and results of the Colombian government’s inspection of the test plants and is anticipated to be in the 1st quarter of 2020.
| 10 |
Should the Company complete a definitive agreement with Plantro (the “Definitive Agreement”), as contemplated by the LOI, the Company anticipates these operations will represent 30% to 50% of its business. Until such time, however, the Company’s focus remains 100% on its software application development and its flagship product, TwoHandsApp.
Our vision is to produce the highest quality, low cost hemp-based oil as it has unlocked the future of health and wellness and be at the forefront. We intend to focus on CBD-based derivatives to take advantage of the greater percentage of the cannabis market focused on health and wellness (70% vs. 30 % THC and recreational). We feel that this limits our downside with a strong focus towards natural products in the health and wellness consumer category. Moreover, CBD crops do not require as precise growing conditions as they essentially are being extracted to produce a raw material compared to being consumed without refinement. CBD is becoming globally accepted and recognized as a “Super Food” and we believe this is going to continue to gain traction, given its usefulness for inflammation, insomnia, migraines, seizures and more. While THC is still seen as a scheduled narcotic and onerous to import/export. We intend to distribute our high-grade hemp-based oil primarily through Latin America and Australia. Once countries allow for importation, we will expand our reach.
We are currently engaged in building out our infrastructure in concert of receiving a final sign off from Colombia’s justice department and ICA (Ministry of Agriculture). At present, we have built out two greenhouses each 5,000 square feet in size, and a GMP Certified Seed Storage and propagation facility, both have now been approved. We have submitted our test plants for our Agronomist Evaluation Unit which is where a test harvest is grown, and the results are evaluated by a laboratory for the government to characterize the seeds in their database making them legal to grow a commercial harvest. We anticipate being into full harvest by the third quarter of 2019. Our management understands that CBD is a relatively new market and will face price compression as more farms globally come on line. In anticipation, our goal is to become industrial in size in short order, while maintaining GAP (good agricultural practices) as well as processing at GMP (good manufacturing practice) or EU GMP standards. We feel this high-level care and standard will be a differentiating factor compared to other low-price producers allowing us to charge a premium to its competitors globally. If necessary, the Company is looking to augment its cultivation by exploiting the concept of hiring contract farms to plant and cultivate on behalf of the Company in order to further reduce costs and based on supply requirements.
Our strategy is to be an industrial scale white label supplier of CBD distillate (oil) and isolate (powder) through harvests of industrial hemp which will be used as a base ingredient in either joint ventures with established branded products (e.g., water, gummies, honey, shampoo, pet treats, etc.) to create CBD products or selling the products to contract manufactures to utilize. We will in turn use the profits from these sales to further expand and develop our cultivation site, by adding greenhouses to increase our supply of extractable plant material.
| 11 |
Summary of Risk Factors
Our business is subject to numerous risks and uncertainties, including those in the section entitled “Risk Factors” and elsewhere in this Prospectus. These risks include, but are not limited to, the following:
| ● | our history of losses; | |
| ● | our inability to attract sufficient demand for our services and products; | |
| ● | our limited visibility into the timing and certainty of future projects; | |
| ● | our ability to successfully execute our growth and acquisition strategy and manage effectively our growth; | |
| ● | changes in the competitive environment in our industry and the markets we serve, and our ability to compete effectively; | |
| ● | our dependence on a strong brand image; | |
| ● | our cash needs and the adequacy of our cash flows and earnings; | |
| ● | our dependence upon our executive officers, founders and key employees; | |
| ● | our ability to attract and retain qualified personnel; | |
| ● | the effects of restrictions imposed by our indebtedness on our current and future operations; | |
| ● | our reliance on our technology systems, the impact of technological changes and cybersecurity risks; | |
| ● | our ability to protect our trademarks or other intellectual property rights; | |
| ● | potential litigation from competitors or customers; and | |
| ● | the business risks of both domestic U.S. and international operations. |
In addition, the report of our independent registered public accounting firm for the two years ended December 31, 2018 contains a statement with respect to substantial doubt as to our ability to continue as a going concern as a result of recurring losses from operations and negative cash flows.
General Corporate History
Two Hands Corporation (formerly Innovative Product Opportunities Inc.) was incorporated on April 3, 2009 in the State of Delaware. I8 Interactive Corporation was incorporated under the laws of Canada on February 7, 2014. On December 10, 2019, we effected a 1-for-1,000 reverse stock split of our outstanding common stock. Unless otherwise indicated, except for our financial statements and
| 12 |
the notes thereto, all references to our common stock, share data, per share data and related information have been adjusted to reflect the 1-for-1,000 reverse stock split.
SUMMARY HISTORICAL FINANCIAL DATA
The following table presents our summary historical financial data for the periods indicated. The selected historical consolidated financial data for the years ended December 31, 2018 and 2017 and the balance sheet data as of December 31, 2018 and 2017 are derived from the audited financial statements. The selected historical financial data for the nine months ended September 30, 2019 and 2018 and the balance sheet data as of September 30, 2019 are derived from our unaudited financial statements.
Historical results are included for illustrative and informational purposes only and are not necessarily indicative of results we expect in future periods, and results of interim periods are not necessarily indicative of results for the entire year. The summary financial data presented below should be read in conjunction with, and are qualified in their entirety by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes thereto included elsewhere in this Prospectus.
| Year
Ended December 31, 2018 | Year
Ended December 31, 2017 | Nine
Months Ended September 30, 2019 | Nine
Months Ended September 30, 2018 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Statement of Operations Data | ||||||||||||||||
| Total revenues | $ | 390,381 | $ | 43,466 | $ | — | $ | 352,788 | ||||||||
| Total operating expenses | 4,889,637 | 892.549 | 2,413,793 | 3,751,131 | ) | |||||||||||
| Loss from operations | (4,499,256 | ) | (849,083 | ) | (2,413,793 | ) | (3,398,343 | ) | ||||||||
| Total other income (expense) | (3,597,152 | ) | (28,784 | ) | (1,394,923 | ) | (2,303,593 | ) | ||||||||
| Loss for the period | $ | (8,096,408 | ) | $ | (877,867 | ) | $ | (3,808,716 | ) | $ | (5,701,936 | ) | ||||
| Net loss per share, basic and diluted | $ | (177.18 | ) | $ | (1,081.12 | ) | $ | (21.09 | ) | $ | (504.91 | ) | ||||
| Balance Sheet Data (at period end) | ||||||||||||||||
| Cash | $ | 2,729 | $ | 18,771 | $ | 2,394 | ||||||||||
| Working capital (deficit) (1) | $ | (312,722 | ) | $ | (698,400 | ) | $ | (402,831 | ) | |||||||
| Total assets | $ | 429,774 | $ | 20,465 | $ | 13,492 | ||||||||||
| Total liabilities | $ | 740,196 | $ | 717,171 | $ | 1,295,984 | ||||||||||
| Stockholders’ equity (deficit) | $ | (310,422 | ) | $ | (696,706 | ) | $ | (1,282,492 | ) | |||||||
| (1) | Working capital (deficit) represents total current assets less total current liabilities. |
| 13 |
| Securities Offered by the Selling Stockholder: | 2,000,000 shares of common stock | |
| Common Stock Outstanding before Offering: | 6,512,340 shares | |
| Common Stock Outstanding after Offering: | 8,267,340 shares, assuming all 2,000,000 shares are sold to the Selling Stockholder under the Equity Line. If we sell less shares of common stock to the Selling Stockholder under the Equity Line, we will have substantially less common stock outstanding after the Offering. | |
| Use of Proceeds: | We will not receive any of the proceeds from the sale of the common stock registered hereunder. We will receive proceeds from our sales of common stock to the Selling Stockholder under the Equity Line. We intend to use such proceeds, if any, as set forth under “Use of Proceeds” beginning on page 33. | |
| Risk Factors: | An investment in our securities involves a high degree of risk and could result in a loss of your entire investment. Further, the issuance to, or sale by, the Selling Stockholder of a significant amount of shares being registered in this Registration Statement at any given time could cause the market price of our common stock to decline and to be highly volatile and we do not have the right to control the timing and amount of any sales by the Selling Stockholder of such shares. Prior to making an investment decision, you should carefully consider all of the information in this Prospectus and, in particular, you should evaluate the risk factors set forth under the caption “Risk Factors” beginning on page 15. | |
| Trading Symbol: | TWOH | |
| 14 |
An investment in our securities involves a high degree of risk. Before you invest in our securities, you should give careful consideration to the following risk factors, in addition to the other information included in this Prospectus, including our financial statements and related notes, before deciding whether to invest in our securities. The occurrence of any of the adverse developments described in the following risk factors could materially and adversely harm our business, financial condition, results of operations or prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to our Business
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.
As of September 30, 2019, we had cash of $2,394 and total liabilities of $1,295,984. During the nine months ended September 30, 2019, the Company incurred a net loss of $3,808,716 and used cash in operating activities of $403,718, and at September 30, 2019, had a stockholders’ deficit of $1,282,492. We are currently funding our initial operations by way of loans from our Chief Executive Officer and others and through the issuance of common stock in exchange for services. 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, 2018, expressed substantial doubt about the Company’s ability to continue as a going concern.
If we are unable to raise enough capital in this offering or obtain additional financing, we may not be able to fulfill our business plan.
At September 30, 2019, we only had $2,394 cash on hand. To date, we have funded our operations by way of cash advances from our Chief Executive Officer, noteholders, stockholders and others on a “as-needed” basis. As such, our operating capital is currently limited to the personal resources of our Chief Executive Officer, noteholders, stockholders and others. If we unsuccessful at achieving a sufficient amount of net proceeds from this offering, we will continue to rely on loans from our Chief Executive Officer, noteholders, stockholders and others although they are under no obligation to loan any money to us. We may also raise capital in the future by relying on loans from third party lending sources. However, 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 active trading market for our securities. Our 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.
| 15 |
Because our principal executive officer, Nadav Elituv, currently devotes only a limited amount of his time to our operations, our business could fail if he is unable or unwilling to devote a sufficient amount of time to our business.
The responsibility of developing our core business, securing the financing necessary to fully execute our business plan and fulfilling the reporting requirements of a public company all fall upon our principal executive officer, Mr. Nadav Elituv. Mr. Elituv presently dedicates approximately 75% of his professional time to Company, or 30 hours per week. In the event Mr. Elituv is unable or unwilling to fulfill any aspect of his duties, we may experience a shortfall or complete lack of revenue resulting in little or no profits and the eventual closure of our business, whereby you may lose your entire investment. The loss of Mr. Elituv would have a material adverse effect on our business.
We may fail to attract, train and retain skilled and qualified employees, which could impair our ability to generate revenue, effectively service our clients and execute our growth strategy.
Our business depends in large part upon our ability to attract and retain sufficient numbers of highly qualified individuals. We compete for such qualified personnel with other companies and such competition is intense. Personnel with the requisites skills and qualifications may be in short supply or generally unavailable. If we are unable to recruit and retain a sufficient number of qualified employees, our ability to maintain and grow our business and to effectively service our clients could be limited and our future revenue and results of operations could be materially and adversely affected. Furthermore, to the extent that we are unable to make necessary permanent hires to appropriately service our clients, we could be required to engage larger numbers of contracted personnel, which could reduce our profit margins.
If we fail to successfully manage our new product development or if we fail to anticipate the issues associated with such development or expansion, our business may suffer.
We have only developed two applications. Our ability to anticipate and manage a variety of issues associated with any new product development or market expansion, such as market acceptance and effective management of our applications and other products. Our business would suffer if we fail to successfully anticipate and manage these issues associated with product development publishing and you may lose all or part of your investment.
If we cannot attract customers we will not generate revenues and our business will fail.
As of the date of this Prospectus, we have not generated any profit. All of our 2018 revenue was derived from brand awareness services we provided for one customer’s products pursuant to an agreement that ended in November 2018. Going forward, we intend to generate revenues from our apps and if approved by the Colombian government, our cannabis license. We may not be able to successfully attract or maintain customers, resulting in our business failing. If our business fails, you will lose all or part of your investment.
We may encounter difficulties managing our planned growth, which would adversely affect our business and could result in increasing costs as well as a decrease in our stock price.
| 16 |
We intend to establish a customer base and develop new products for them. To manage our anticipated growth, we must continue to improve our operational and financial systems and expand, train, retain and manage our employee base to meet new opportunities. Because of the registration of our securities, we are subject to reporting and disclosure obligations, and we anticipate that we will hire additional finance and administrative personnel to address these obligations. In addition, the anticipated growth of our business will place a significant strain on our existing managerial and financial resources. If we cannot effectively manage our growth, our business may be harmed.
Because we do not have an audit committee, shareholders will have to rely on the directors, who are not independent, to perform these functions.
We do not have an audit or compensation committee comprised of independent directors. These functions are performed by the board of directors as a whole. The members of the Board of Directors are not independent directors. Thus, there is a potential conflict in that the board members are also engaged in management and participate in decisions concerning management compensation and audit issues that may affect management performance.
Material weaknesses in our internal control over financial reporting may adversely affect our common stock.
As an SEC reporting company, we are subject to the reporting requirements of the Exchange Act and governance requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition, proxy statement, and other information. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective disclosure controls and procedures and internal controls and procedures for financial reporting. Section 404 of the Sarbanes-Oxley Act requires that we include a report of management on our internal control over financial reporting in our annual report on Form 10-K. That report must contain an assessment by management of the effectiveness of our internal control over financial reporting and must include disclosure of any material weaknesses in internal control over financial reporting that we have identified. Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. We have not performed an in-depth analysis to determine if historical un-discovered failures of internal controls exist and may in the future discover areas of our internal control that need improvement. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.
Failure to protect our proprietary technology and intellectual property rights could substantially harm our business and results of operations.
Our success depends to a significant degree on our ability to protect our proprietary technology, methodologies, know-how and our brand. We will rely on a combination of contractual restrictions, and other intellectual property laws and confidentiality procedures to establish and protect our proprietary rights. However, the steps we will take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our technology and our business may be harmed. In addition, defending our intellectual property rights might entail significant expense. We may be unable to prevent third parties from acquiring domain names or trademarks that are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights.
| 17 |
As we grow our business, our plan is to enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other parties. No assurance can be given that these agreements will be effective in controlling access to and distribution of our proprietary information. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management, and could result in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our products, impair the functionality of our products, delay introductions of new products, result in our substituting inferior or more costly technologies into our products, or injure our reputation.
We could incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights.
In recent years, there has been significant litigation involving patents and other intellectual property rights in the software industry. Companies providing software are increasingly bringing and becoming subject to suits alleging infringement of proprietary rights, particularly patent rights, we face a higher risk of being the subject of intellectual property infringement claims. We do not currently have a patent portfolio, which could prevent us from deterring patent infringement claims through our own patent portfolio, and our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. The risk of patent litigation has been amplified by the increase in the number of a type of patent holder, which we refer to as a non-practicing entity, whose sole business is to assert such claims and against whom our own intellectual property portfolio may provide little deterrent value. We could incur substantial costs in prosecuting or defending any intellectual property litigation. If we sue to enforce our rights or are sued by a third party that claims that our solution infringes its rights, the litigation could be expensive and could divert our management resources. As of the date of this Prospectus, we have not received any written notice of an infringement claim, invitation to license, or other intellectual property infringement action.
Any intellectual property litigation to which we might become a party, or for which we are required to provide indemnification, may require us to do one or more of the following:
| ● | Cease selling or using products that incorporate the intellectual property that we allegedly infringe; |
| ● | Make substantial payments for legal fees, settlement payments or other costs or damages; |
| ● | Obtain a license, which may not be available on reasonable terms or at all, to sell or use the relevant technology; or |
| ● | Redesign the allegedly infringing products to avoid infringement, which could be costly, time-consuming or impossible. |
| 18 |
If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement claims against us or any obligation to indemnify our customers for such claims, such payments or actions could harm our business.
Our failure to protect personal information adequately could have an adverse effect on our business.
A wide variety of provincial, state, national, and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data. These data protection and privacy-related laws and regulations are evolving and being tested in courts and may result in ever-increasing regulatory and public scrutiny as well as escalating levels of enforcement and sanctions. Any actual or perceived loss, improper retention or misuse of certain information or alleged violations of laws and regulations relating to privacy, data protection and data security, and any relevant claims, could result in enforcement action against us, including fines, imprisonment of company officials and public censure, claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill (both in relation to existing customers and prospective customers), any of which could have an adverse effect on our operations, financial performance, and business. Evolving and changing definitions of personal data and personal information, within the European Union, the United States, and elsewhere, especially relating to classification of IP addresses, machine identification, location data, and other information, may limit or inhibit our ability to operate or expand our business, including limiting strategic partnerships that may involve the sharing of data. Any perception of privacy or security concerns or an inability to comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal obligations, even if unfounded, may result in additional cost and liability to us, harm our reputation and inhibit adoption of our products by current and future customers, and adversely affect our business, financial condition, and operating results.
We have implemented and maintain security measures intended to protect personally identifiable information. However, our security measures remain vulnerable to various threats posed by hackers and criminals. If our security measures are overcome and any personally identifiable information that we collect or store becomes subject to unauthorized access, we may be required to comply with costly and burdensome breach notification obligations. We may also be subject to investigations, enforcement actions and private lawsuits. In addition, any data security incident is likely to generate negative publicity and have a negative effect on our business.
Limitations of Director Liability and Indemnification of Directors and Officers and Employees.
Our Certificate of Incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for any:
| ● | breach of their duty of loyalty to us or our stockholders; |
| ● | act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; |
| ● | unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or |
| ● | transactions for which the directors derived an improper personal benefit. |
| 19 |
These limitations of liability do not apply to liabilities arising under the federal or state securities laws and do not affect the availability of equitable remedies such as injunctive relief or rescission. Our Bylaws provide that we will indemnify our directors, officers and employees to the fullest extent permitted by law. Our Bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding. We believe that these Bylaw provisions are necessary to attract and retain qualified persons as directors and officers. The limitation of liability in our Certificate of Incorporation and Bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might provide a benefit to us and our stockholders. Our results of operations and financial condition may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Limitation on remedies; indemnification.
Our Certificate of Incorporation, as amended from time to time, provides that officers, directors, employees and other agents and their affiliates shall only be liable to the Company and its shareholders for losses, judgments, liabilities and expenses that result from the fraud or other breach of fiduciary obligations. Additionally, we intend to enter into corporate indemnification agreements with each of our officers and directors consistent with industry practice. Thus, certain alleged errors or omissions might not be actionable by the Company. Our governing instruments also provide that, under the broadest circumstances allowed under law, we must indemnify its officers, directors, employees and other agents and their affiliates for losses, judgments, liabilities, expenses and amounts paid in settlement of any claims sustained by them in connection with the Company, including liabilities under applicable securities laws.
CBD/Hemp Extract Risk Factors
Our purchase of Plantro’s cannabis license may not be approved.
In January 2019, we entered into an agreement with Plantro Inc. S.A.S., a vertically integrated organic hemp-based CBD license holder located in Madrid, Colombia (“Plantro”), to purchase a 100% interest in Plantro’s license (the “License”) to grow and export cannabis and cannabidiol (“CBD”) derivatives from Colombia in consideration for 10 million (10,000,000) shares of our common stock and a 15% net income royalty fee. The consummation of the Company’s acquisition of Plantro’s license is currently pending the results of the Colombian government’s review of the test plants and is anticipated to be in first quarter of 2020. In the event the Colombian government does not review the test plants in the first quarter of 2020, our agreement with Plantro may be extended. If the Colombian government does not approve of the test plants, we will need to grow another test crop or terminate the deal.
Our CBD initiative is in its early stages and may not materialize or develop as planned due to business and regulatory factors.
| 20 |
Our CBD line of business is in its early stages, and my not materialize or develop as planned due a myriad of business and regulatory factors. For example, many companies are entering the CBD space and competition for market share and acceptance of new products we will be significant. Many details concerning our planned launch remain under development and the pilot test may not be as successful as planned.
Negative press from having a hemp or cannabis-related line of business could have a material adverse effect on our business, financial condition, and results of operations.
There is a misconception that hemp and marijuana, which both belong to the cannabis family, are the same thing, but industrial hemp is roughly defined as a cannabis plant with not more than 0.3 percent THC content on a dry-weight basis. Any hemp oil or hemp derivative we use will comport with this definition of less than 0.3% THC. Despite this, we may still receive negative attention from the press, business clients, or partners, grounded in these broad misconceptions, and this in turn can materially adversely affect our business.
Possible yet unanticipated changes in federal law could cause our products which include cannabis/industrial hemp CBD extracts to be illegal, or could otherwise prohibit, limit or restrict our business and products, forcing us to abandon our business activities or reduce our financial prospects.
The move toward ending hemp prohibition and the re-emergence of a hemp economy began with the 2014 Farm Bill, which provided states with opportunities to create pilot programs for hemp research. The Agricultural Improvement Act of 2018 (“2018 Bill”) was signed into law at the end of December 2018 and expands on the 2014 Farm Bill. The 2018 Bill removes “hemp” from the definition of “Marijuana” in the Controlled Substances Act, decriminalizes the plant and its components, and as a result, transfers oversight of the cultivation and sale of the crop from the Drug Enforcement Administration to the Department of Agriculture. The net result of the 2018 Bill’s passage is that farmers and entrepreneurs gain several significant benefits, in addition to ending the uncertainty of criminal exposure for growing, processing or selling hemp:
| ● | federal licensing for farmers wishing to grow hemp in states that don’t have a pilot program; |
| ● | clarification that interstate commerce in hemp is permitted; |
| ● | placing oversight of hemp with the USDA; and |
| ● | including hemp in the Federal Crop Insurance Act. |
These provisions will go a long way toward helping the industry by clarifying existing gray areas of law, creating certainty around transport and interstate sale, and normalizing hemp as an industrial crop. However, there can be no assurance that Federal laws ending hemp prohibition will not be modified or repealed. In the event of either repeal of Federal regulations, or of amendments thereto which are averse to our business and products, we may be required to cease operations or restrict or limit our products or the distribution thereof, which could be expected to have adverse consequences to our business, operations, revenues and profitability, in which event you may lose your entire investment.
Sources of our key ingredient, CBD extracts from cannabis/industrial hemp plants depend upon legality of cultivation, processing, marketing and sales of products derived from those plants.
Our key ingredient is CBD extracts derived from cannabis/industrial hemp plants. CBD may be legally produced in states which have laws and regulations that qualify under 7 US Code §5940 for implementation of “agricultural pilot programs to study the growth, cultivation or marketing of industrial hemp”, apart from state laws legalizing and regulating medical and recreational cannabis or marijuana which remains illegal under federal law. In addition, federal licensing for farmers wishing to grow hemp in states that don’t have a pilot program is now available as a result of the 2018 Bill. Currently, we intend to utilize our purchased license to grow and manufacture CBD products in Colombia. However, if we were required to find new sources of raw ingredients and were unsuccessful in arranging any new sources of supply of our raw ingredients, or if our raw ingredients were to become legally unavailable, our business and operations could be limited, restricted or entirely prohibited, which could be expected to have adverse consequences to our business, operations, revenues and profitability, in which event you may lose your entire investment.
| 21 |
We may have difficulty accessing the service of banks which may make it difficult for us to operate.
Many banks have not historically accepted deposits from and credit card processors will not clear transactions for businesses involved with the broadly defined cannabis industry, notwithstanding the legality of cannabis/industrial hemp derived products. While the 2018 Bill is expected to alleviate this hindrance, we may still have difficulty finding a bank and credit card processor willing to accept our business. The inability to open or maintain bank accounts or accept credit card payments from customers could be expected to cause us difficulty processing transactions in the ordinary course of business, including paying suppliers, employees and landlords, which could have a significant negative effect on our operations and your investment in our common stock.
Risks Related to this Offering and Our Common Stock
We have the ability to issue additional shares of our common stock and shares of preferred stock without asking for stockholder approval, which could cause your investment to be diluted.
Our Certificate of Incorporation authorizes the Board of Directors to issue up to 3 billion shares of common stock and up to 1 million shares of “blank check” preferred stock. The power of the Board of Directors to issue shares of common stock, preferred stock or warrants or options to purchase shares of common stock or preferred stock is generally not subject to stockholder approval. Accordingly, any additional issuance of our common stock, or preferred stock that may be convertible into common stock, may have the effect of diluting your investment, and the new securities may have rights, preferences and privileges senior to those of our common stock.
Substantial sales of our stock may impact the market price of our common stock.
Future sales of substantial amounts of our common stock, including shares that we may issue upon exercise of options and warrants, could adversely affect the market price of our common stock. Further, if we raise additional funds through the issuance of common stock or securities convertible into or exercisable for common stock, the percentage ownership of our stockholders will be reduced, and the price of our common stock may fall.
Our common stock is thinly traded, and investors may be unable to sell some or all of their shares at the price they would like, or at all, and sales of large blocks of shares may depress the price of our common stock.
Our common stock has historically been sporadically or “thinly-traded,” meaning that the number of persons interested in purchasing shares of our common stock at prevailing prices at any given time may be relatively small or nonexistent. As a consequence, there may be periods of several days or more when trading activity in shares of our common stock is minimal or non-existent, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price.
| 22 |
This could lead to wide fluctuations in our share price. Investors may be unable to sell their common stock at or above their purchase price, which may result in substantial losses. Also, as a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of shares of our common stock in either direction. The price of shares of our common stock could, for example, decline precipitously in the event a large number of shares of our common stock are sold on the market without commensurate demand, as compared to a seasoned issuer that could better absorb those sales without adverse impact on its share price.
We do not intend to pay any cash dividends on our shares of common stock in the near future, so our stockholders will not be able to receive a return on their shares unless they sell their shares.
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell such shares.
“Penny stock” rules may make buying or selling our securities difficult which may make our stock less liquid and make it harder for investors to buy and sell our shares.
Trading in our securities is subject to the SEC’s “penny stock” rules and it is anticipated that trading in our securities will continue to be subject to the penny stock rules for the foreseeable future. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our securities to persons other than prior customers and accredited investors must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by these requirements may discourage broker-dealers from recommending transactions in our securities, which could severely limit the liquidity of our securities and consequently adversely affect the market price for our securities.
The Financial Industry Regulatory Authority (FINRA) sales practice requirements may also limit a stockholder’s ability to buy and sell our common stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority, which we refer to as FINRA, has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our common stock and have an adverse effect on the market for shares of our common stock.
Our control stockholders hold a significant percentage of our outstanding voting securities, which could reduce the ability of minority stockholders to effect certain corporate actions.
| 23 |
Our control stockholders currently own or control approximately 93.12% of the voting power of the Company. As a result of this ownership, they possess and can continue to possess significant influence over our Board of Directors and corporate transactions. Their ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer. In the event we do not sell a sufficient number of shares in this Offering, they will continue to own a significant portion of our outstanding common stock and may have significant influence on our Company.
The preparation of our consolidated financial statements involves the use of estimates, judgments and assumptions, and our consolidated financial statements may be materially affected if such estimates, judgments or assumptions prove to be inaccurate.
Financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) typically require the use of estimates, judgments and assumptions that affect the reported amounts. Often, different estimates, judgments and assumptions could reasonably be used that would have a material effect on such financial statements, and changes in these estimates, judgments and assumptions may occur from period to period over time. Significant areas of accounting requiring the application of management’s judgment include, but are not limited to, determining the fair value of assets and the timing and amount of cash flows from assets. These estimates, judgments and assumptions are inherently uncertain and, if our estimates were to prove to be wrong, we would face the risk that charges to income or other financial statement changes or adjustments would be required. Any such charges or changes could harm our business, including our financial condition and results of operations and the price of our securities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the accounting estimates, judgments and assumptions that we believe are the most critical to an understanding of our consolidated financial statements and our business.
If securities industry analysts do not publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our common stock could be negatively affected.
Any trading market for our common stock will be influenced in part by any research reports that securities industry analysts publish about us. We do not currently have and may never obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of us, the market price and market trading volume of our common stock could be negatively affected. In the event we are covered by analysts, and one or more of such analysts downgrade our securities, or otherwise reports on us unfavorably, or discontinues coverage or us, the market price and market trading volume of our common stock could be negatively affected.
Our stock price is likely to be highly volatile because of several factors, including a limited public float.
The market price of our common stock has been volatile in the past and the market price of our common stock is likely to be highly volatile in the future. You may not be able to resell shares of our common stock following periods of volatility because of the market’s adverse reaction to volatility.
Other factors that could cause such volatility may include, among other things:
| ● | actual or anticipated fluctuations in our operating results; |
| ● | the absence of securities analysts covering us and distributing research and recommendations about us; |
| 24 |
| ● | we may have a low trading volume for a number of reasons, including that a large portion of our stock is closely held; |
| ● | overall stock market fluctuations; |
| ● | announcements concerning our business or those of our competitors; |
| ● | actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms; |
| ● | conditions or trends in the industry; |
| ● | litigation; |
| ● | changes in market valuations of other similar companies; |
| ● | future sales of common stock; |
| ● | departure of key personnel or failure to hire key personnel; and |
| ● | general market conditions. |
Any of these factors could have a significant and adverse impact on the market price of our common stock and/or warrants. In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock and/or warrants, regardless of our actual operating performance.
The issuance of a large number of shares of our common stock could significantly dilute existing stockholders and negatively impact the market price of our common stock.
On January 20, 2020 (“Effective Date”), the Company entered into an Equity Purchase Agreement, dated as of January 20, 2020, with Crown Bridge Partners, LLC, a New York limited liability company (“Selling Stockholder”) providing that, upon the terms and subject to the conditions thereof, Selling Stockholder is committed to purchase, on an unconditional basis, shares of common stock (“Put Shares”) at an aggregate price of up to $5,000,000 over the course of its term. Pursuant to the terms of the equity purchase agreement, the purchase price for each of the Put Shares equals 82% of the lesser of the (i) “Market Price,” which is defined as the lowest traded price for any trading day during the ten (10) trading days immediately preceding the respective Put Date, or (ii) “Valuation Price,” which is defined as the lowest traded price during the seven trading days following the clearing date associated with the applicable put notice (“Put Notice”). As a result, if we sell shares of common stock under the equity purchase agreement, we will be issuing common stock at below market prices, which could cause the market price of our common stock to decline, and if such issuances are significant in number, the amount of the decline in our market price could also be significant. In general, we are unlikely to sell shares of common stock under the Equity Purchase Agreement at a time when the additional dilution to stockholders would be substantial unless we are unable to obtain capital to meet our financial obligations from other sources on better terms at such time. However, if we do, the dilution that could result from such issuances could have a material adverse impact on existing stockholders and could cause the price of our common stock to fall rapidly based on the amount of such dilution.
| 25 |
The Selling Stockholder may sell a large number of shares, resulting in substantial diminution to the value of shares held by existing stockholders.
Pursuant to the Equity Purchase Agreement, we are prohibited from delivering a Put Notice to the Selling Stockholder to the extent that the issuance of shares would cause the Selling Stockholder to beneficially own more than 4.99% of our then-outstanding shares of common stock. These restrictions; however, do not prevent the Selling Stockholder from selling shares of common stock received in connection with the Equity Line and then receiving additional shares of common stock in connection with a subsequent issuance. In this way, the Selling Stockholder could sell more than 4.99% of the outstanding shares of common stock in a relatively short time frame while never holding more than 4.99% at any one time. As a result, existing stockholders and new investors could experience substantial diminution in the value of their shares of common stock. Additionally, we do not have the right to control the timing and amount of any sales by the Selling Stockholder of the shares issued under the Equity Line.
Certain provisions of the General Corporation Law of the State of Delaware may have anti-takeover effects, which may make an acquisition of our company by another company more difficult.
We are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a Delaware corporation from engaging in any business combination, including mergers and asset sales, with an interested stockholder (generally, a 15% or greater stockholder) for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The operation of Section 203 may have anti-takeover effects, which could delay, defer or prevent a takeover attempt that a holder of our common stock might consider in its best interest.
Provisions of our Certificate of Incorporation and Bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders.
Provisions of our Certificate of Incorporation and our Bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. Further, our certificate of incorporation, as amended, authorize the issuance of up to 1,000,000 shares of preferred stock with such rights and preferences as may be determined from time to time by our board of directors in their sole discretion. Our board of directors may, without stockholder approval, issue series of preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock.
We do not expect to pay dividends in the foreseeable future.
We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their common stock, and stockholders may be unable to sell their shares on favorable terms. We cannot assure you of a positive return on investment or that you will not lose the entire amount of your investment in our common stock.
Historical Development
Two Hands Corporation (formerly Innovative Product Opportunities Inc.) was incorporated on April 3, 2009 in the State of Delaware.
| 26 |
Our Business
The Company’s common stock is quoted on the OTC Market’s Pinks tier under the symbol “TWOH.”
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.
We are in the business of building brand awareness campaigns for clients and their products. The Company provides assistance in building brand awareness for the products it sells through its internet website, out-of-home, mobile, online and other media outlets as required. Additionally, the Company develops the creative media to support the client’s media buys. The Company also assists clients in developing and assisting in matters of developing brand strategies and discussions pertaining thereof. The Company executes and/or oversee the research, planning, pricing, creative development, tracking and deployment of all online and out-of-home advertising projects needed to promote client products and services.
Over the past few years 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.
Our vision is to produce the highest quality, low cost hemp-based oil as it has unlocked the future of health and wellness and be at the forefront.
The operations of the business are carried on by a 100% owned subsidiary, I8 Interactive Corporation, a company incorporated under the laws of Canada.
Research and Development
We incurred research and development costs of $361,200 during the fiscal year ended December 31, 2018 for the development of the Two Hands gone application, a new encrypted messaging app which was launched on February 20, 2019. We did not incur any research and development costs during the fiscal year ended December 31, 2017.
Customers
We intend to market our services via trade and industry publications as well as internet marketing efforts. Many products developed are new and innovative that requires public recognition to realize potential. Where possible we plan to merge our efforts for both design and publishing to maximize our opportunities.
Competition
We compete with other software developers and systems integrators who offer one or more services competitive with the service we intend to sell. The co-parenting application technology is competitive, characterized by the frequent introduction of new products and includes numerous domestic and foreign competitors, some of which are substantially larger and have greater financial and other resources than we do. We compete principally on the basis of offering quality products. Our competition includes:
| · | 2Houses |
| · | Our Family Wizard |
| 27 |
| · | Coparently |
| · | Custody X Change |
| · | Custody Junction |
Product Development
The Two Hands co-parenting Application launched on July 25, 2018. We have continued to work on building a mobile version in addition to our responsive web application of our co-operating platform and expect to launch that in the summer of 2019. We recently launched our Two Hands Gone Application, an encrypted private messaging application that can be downloaded from either the apple app store or Google play store. We are continuing to develop both applications adding new features and capabilities.
Applications Development
We are a custom application development company that strives to create complete solutions. Our ultimate goal is to provide quality products that are innovative and meet and exceed the needs of our customers.
In July 2018, we launched our flagship application, TwoHandsApp, to ease the worries when it comes to co-parenting after a divorce or separation. Our user fees for the application are $14.96 per month, $119.88 per year or $215.76 per two-year period. The application has the following features:
| • |
Dashboard: A dashboard to see all important information at a glance;
| |
| • |
Shared Schedule: A shared schedule for keeping track of events and shared visitation;
| |
| • |
Shared Task Manager: A shared task manager for important tasks;
| |
| • |
Shared Journal: A shared journal that allows co-parents and others to view events in the child’s life;
| |
| • |
Expense Log: An expense log to split and share expenses;
| |
| • |
Messaging: A private messaging module to communicate with others you invite to the application;
| |
| • |
Photo Library: A photo library that can be shared with others you invite to the application;
| |
| • |
Time Tracking: Time tracking and reporting of visitation schedules;
| |
| • |
Secured Storage: Secure storage of Passwords and important information; and
| |
| • | GPS: GPS drop off and pick up confirmation through cell phone |
Over the course of the next 12 months, the Company intends to bring the following additional features to market:
| • |
A platform for family lawyers and mediators;
| |
| • |
Expanded GEO location services;
| |
| • |
Expanded messaging services; and
| |
| • | Expanded payment system |
| 28 |
In February 2019, we launched, a phone application called “Two Hands Gone” which is available on the Apple App Store or Google Play and allows users to send encrypted messages right 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.
Manufacturing and Product Sourcing
Most supplies used in the manufacturing process are readily available from any number of local and international suppliers, at competitive prices. Delivery of product will vary depending on source and quantity required.
Colombian Cannabis License
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 transaction is subject to the Company’s satisfaction that it can acquire the license free and clear of all encumbrances, completion of due diligence, receipt of any third-party consents and there being no material adverse change in the License. The Company has agreed to issue ten million (10,000,000) restricted shares of its common stock and pay a royalty of 15% of net income, calculated in accordance with US GAAP, earned from the License to Plantro Inc. S.A.S. The consummation of the Company’s acquisition of Plantro’s license is currently pending the results of the Colombian government’s review of the test plants and is anticipated to be in second quarter of 2019.
Our Cannabis Strategy
Our vision is to produce the highest quality, low cost hemp-based oil as it has unlocked the future of health and wellness and be at the forefront.
We intend to focus on CBD-based derivatives to take advantage of the greater percentage of the cannabis market focused on health and wellness (70% vs. 30 % THC and recreational). We feel that this limits our downside with a strong focus towards natural products in the health and wellness consumer category. Moreover, CBD crops do not require as precise growing conditions as they essentially are being extracted to produce a raw material compared to being consumed without refinement. CBD is becoming globally accepted and recognized as a “Super Food” and we believe this is going to continue to gain traction, given its usefulness for inflammation, insomnia, migraines, seizures and more. While THC is still seen as a scheduled narcotic and onerous to import/export. We intend to distribute our high-grade hemp-based oil primarily through Latin America and Australia. Once countries allow for importation, we will expand our reach.
Our strategy is to be an industrial scale white label supplier of CBD distillate (oil) and isolate (powder) through harvests of industrial hemp which will be used as a base ingredient in either joint ventures with established branded products (e.g., water, gummies, honey, shampoo, pet treats, etc.) to create CBD products or selling the products to contract manufactures to utilize. We will in turn use the profits from these sales to further expand and develop our cultivation site, by adding greenhouses to increase our supply of extractable plant material.
U.S. Government Regulations
On December 12, 2018, Congress passed the 2018 Farm Bill (the “Agriculture Improvement Act of 2018” or the “Bill”), which includes provisions that exempt Cannabis plants with lower than 0.3% THC content (also called “Hemp”) from the Controlled Substances Act (CSA). Once signed into law, the Farm Bill effectively legalizes the production, commercialization, and interstate shipment and sale of hemp and hemp-derived products like cannabidiol or “CBD”. Each state (including Indian Tribes and U.S. Territories) will eventually be able to regulate hemp production like any other agricultural commodity, as long as the U.S. Department of Agriculture (USDA) approves its plan to monitor and regulate the plant’s production.
| 29 |
Hemp production and sale in a U.S. state will not be lawful until a U.S. state receives approval from the USDA of its plan to regulate hemp. To be approved, a state’s plan must establish (i) a mechanism for tracking and maintaining information regarding land where hemp is produced in the state; (ii) a procedure for testing THC content; (iii) a procedure for disposing of plants and products produced in violation of the Bill; (iv) enforcement procedures for complying with the Bill; (v) a procedure for conducting random, annual inspections of hemp producers within the state; (vi) a procedure for submitting required information to the USDA; and (vii) certification that the state has the resources and personnel to carry out the plan. Once submitted, the Department will have 60 days to approve or deny the state’s plan. If the state’s plan complies with all of the requirements listed, the USDA must approve the plan. If not, the state may amend its plan to comply with the requirements, or it will be unlawful to produce hemp in that state.
The USDA will develop a plan to issue licenses to hemp producers in states with approved plans—licenses will be required in order to lawfully produce and sell hemp and its derivatives. The Bill also provides a mechanism by which licensed hemp producers who grow cannabis plants that exceed the THC limitation of 0.3% can submit a plan to correct the violation, rather than being charged with a crime or losing their license.
Licenses and Regulatory Framework in Colombia
In 2016, Colombia’s Congress adopted Law 1787 with the purpose of creating a regulatory framework allowing the safe and informed access to medical and scientific use of cannabis and its derivatives within the Colombian territory. Law 1787 granted authority to the Colombian Government to control and regulate the activities of cultivation, processing, fabrication, acquisition, import, export, transport and commercialization of cannabis and its derivatives for medicinal and scientific purposes. Law 1787 amended articles 375, 376 and 377 of the Colombian Criminal Code to remove sanctions against the medical and scientific use of cannabis used under a license duly granted by the relevant authorities according to Colombian laws. This amendment was required given that the Colombian Criminal Code expressly provided a general prohibition to the cultivation, conservation or financing of marijuana plantations among other related activities. Based on Law 1787 of 2016, the Colombian Government-issued Decree 613 of 2017, whereby it defined the different types of licenses that may be granted in respect of permissible activities related to medical cannabis including: (i) cultivation of psychoactive cannabis plants, (ii) cultivation of non-psychoactive cannabis plants, (iii) use of seeds for planting and (iv) manufacturing of cannabis derivatives. Decree 613 also sets out the requirements and criteria for the assignment of quotas for cultivation of psychoactive cannabis plants and manufacturing of cannabis derivatives in favor of holders of licenses and other related activities including the main obligations to be complied with by the licensees.
The administration of the law and its related regulations is overseen by several governmental bodies including the Ministry of Health and Social Protection (the “Colombia Ministry of Health”), the Ministry of Justice and Law (the “Colombia Ministry of Justice”), and the National Narcotics Fund. The Colombia Ministry of Health is the entity responsible for granting licenses for the production of cannabis derivatives, while the Colombia Ministry of Justice is the entity responsible for granting licenses for the use of seeds for planting, cultivation of psychoactive cannabis plants, and cultivation of non-psychoactive cannabis plants. In addition, the Colombian Agricultural Institute (“ICA”) is the entity regulating the registration, protection and use of cannabis seeds, and the National Institute for Medicines and Food Overseeing (“Invima”) is the entity overseeing the production of medicines for human consumption.
The Colombia Ministry of Justice established three resolutions, namely:
| 30 |
| (i) | Resolution No. 577 of 2017 setting forth the rules for the supervision and monitoring of the licenses for the (a) sowing of cannabis seeds; (b) cultivation of psychoactive cannabis plants; and (c) cultivation of non-psychoactive cannabis plants. Resolution 577 also regulates the basis upon which a license may be amended, the security protocol in harvest areas, and the production and manufacturing quotas; |
| (ii) | Resolution No. 578 of 2017, setting the tariffs applicable to the different processes concerning the cannabis licenses, such as applications, modifications, extraordinary authorizations, and allocation of additional production and manufacturing quotas. These tariffs were updated by the Colombia Ministry of Justice by regulations dated January 2, 2019; and |
| (iii) | Resolution No. 579 of 2017, defining that small and medium licensed growers are those who grow or cultivate cannabis in an area of 0.5 hectares or less. In an effort to ensure the sustainability of small-scale growers, holders of cannabis derivative production licenses, except in the research modality, are required to process at least 10% of their assigned annual cannabis quota from a small or medium licensed grower. |
In addition, the Colombia Ministry of Health issued Resolution No. 2891 of 2017 and Resolution No. 2892 of 2017. Resolution No. 2891 establishes the tariff manual for evaluation, monitoring and control applicable to licenses for the manufacture of cannabis derivatives for medicinal and scientific use. Resolution No. 2892 sets out technical regulations for the granting of the license to manufacture cannabis by-products, including additional obligations of the licensee, grounds for modification of the license, and rules related to the production and manufacturing quotas.
The first licenses were issued in Colombia in 2016 (under the prior applicable legal regime set forth in Decree 2467 of 2015). As of November 22, 2018, 170 licenses have been issued by the Colombia Ministry of Justice for the cultivation of psychoactive and non-psychoactive plants, as well as for the use of seeds. As of January 28, 2019, 84 licenses have been issued by the Colombia Ministry of Health for the manufacturing of cannabis derivatives. Colombia’s Congress has not indicated any intention of considering the legalization of adult-use cannabis at this time.
Financing Transaction Related to the Offering
The Equity Line
On January 20, 2020 (the “Effective Date”), the Company entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with Crown Bridge Partners, LLC (“Selling Stockholder”), dated as of January 20, 2020, pursuant to which, upon the terms and subject to the conditions thereof, the Selling Stockholder is committed to purchase shares of the Company’s common stock (the “Put Shares”) at an aggregate price of up to $5,000,000 (the “Maximum Commitment Amount”) over the course of its term. The term of the Equity Purchase Agreement commenced on the Effective Date and will end on the earlier of (i) the date on which the Selling Stockholder has purchased Put Shares pursuant to the Equity Purchase Agreement equal to the Maximum Commitment Amount, (ii) January 20, 2022, or (iii) written notice of termination by the Company.
From time to time over the term of the Equity Purchase Agreement, commencing on the date on which a registration statement registering the Put Shares (the “Registration Statement”) becomes effective, the Company may, in its sole discretion, provide the Selling Stockholder with a put notice (each a “Put Notice”) to purchase a specified number of the Put Shares (each a “Put Amount Requested”) subject to the limitations discussed below and contained in the Equity Purchase Agreement. Upon delivery of a Put Notice, the Company must deliver the Put Amount Requested as Deposit Withdrawal at Custodian (DWAC) shares to Selling Stockholder within two trading days.
| 31 |
The actual amount of proceeds the Company receives pursuant to each Put Notice (each, the “Put Amount”) is to be determined by multiplying the Put Amount Requested by the applicable purchase price. The purchase price for each of the Put Shares equals 82% of the lesser of the (i) “Market Price,” which is defined as the lowest traded price for any trading day during the 10 trading days immediately preceding the respective date of the put, or (ii) “Valuation Price,” which is defined as the lowest traded price during the seven trading days following the clearing date associated with the applicable Put Notice. Within four trading days following the end of the valuation periods, the Buyer will deliver the Put Amount to the Company via wire transfer.
The Put Amount Requested pursuant to any single Put Notice must have an aggregate value of at least $10,000 and cannot exceed the lesser of (i) $175,000, and (ii) 200% of the average daily trading value of the common stock in the 10 trading days immediately preceding the Put Notice.
In order to deliver a Put Notice, certain conditions set forth in the Equity Purchase Agreement must be met, as provided therein. In addition, the Company is prohibited from delivering a Put Notice if: (i) the sale of Put Shares pursuant to such Put Notice would cause the Company to issue and sell to Selling Stockholder, or Selling Stockholder to acquire or purchase, a number of shares of the Company’s common stock that, when aggregated with all shares of common stock purchased by Selling Stockholder pursuant to all prior Put Notices issued under the Equity Purchase Agreement, would exceed the Maximum Commitment Amount; or (ii) the issuance of the Commitment Shares pursuant to a request for the Commitment Shares would cause the Company to issue and sell to Selling Stockholder, or Selling Stockholder to acquire or purchase, an aggregate number of shares of common stock that would result in Selling Stockholder beneficially owning more than 4.99% of the issued and outstanding shares of the Company’s common stock.
Registration Rights Agreement
On the Effective Date, the Company also entered into a registration rights agreement (the “Registration Rights Agreement”) with Selling Stockholder pursuant to which the Company is obligated to file the Registration Statement to register the resale of the Commitment Shares and Put Shares. Pursuant to the Registration Rights Agreement, the Company must (i) file the Registration Statement within 45 calendar days from the Effective Date, (ii) use reasonable efforts to cause the Registration Statement to be declared effective under the Securities Act of 1933, as amended, as promptly as possible after the filing thereof, and (iii) use its reasonable efforts to keep such Registration Statement continuously effective under the Securities Act until all of the Commitment Shares and Put Shares have been sold thereunder or pursuant to Rule 144.
Employees
As of January 20, 2020, we had two employee, Nadav Elituv, the Chief Executive Officer and Board member of the Company and Steven Gryfe, our Chief Financial Officer. We believe that our relations with our employee is good. All other services to the Company are provided by contractors who are primarily paid with stock-based compensation. Personnel will be added on an as-needed basis and based on available funds.
Legal Proceedings
We may from time to time be involved in various claims and legal proceedings of a nature we believe are normal and incidental to temporary employee staffing business. These matters may include product liability, intellectual property, employment, personal injury cause by our employees, and other general] claims. We will accrue for contingent liabilities when it is probable that a liability has been incurred and the amount can be reasonably estimated. We are not presently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
| 32 |
Our executive offices are located at 33 Davies Ave, Toronto, Ontario, Canada M4M 2A9. We are provided this office space free of charge by our Chief Executive Officer.
Upon our purchase of the Lease from Plantro, Plantro will assign that certain lease agreement, dated October 16, 2018, to us for 100,000 square meters (approximately 24.7 acres or 10 hectares) located in the center of Bogota Savannah in Madrid, Colombia. Our sublease will begin once we start growing hemp and will be a month-to-month lease for a rent $2,500 per month for the first 12 months and increased each year thereafter in correlation to the increase in the Consumer Price Index (CPI).
We believe that these facilities are adequate for our current and near-term future needs.
This Prospectus relates to shares of our common stock that may be offered and sold from time to time by the Selling Stockholder. We will receive no proceeds from the sale of shares of common stock by the Selling Stockholder in this Offering. The proceeds from the sales will belong to the Selling Stockholder. However, we will receive proceeds from the sale of the Put Shares to the Selling Stockholder pursuant to the Equity Purchase Agreement.
We intend to use the proceeds that we may receive from the sale of Put Shares for general corporate purposes and working capital requirements. There can be no assurance that we will sell any of the Put Shares.
We cannot provide any assurance that we will be able to draw down any or all of the Maximum Commitment Amount, such that the proceeds received would be a source of financing for us.
We intend to raise additional capital through equity and debt financing, as needed, though there cannot be any assurance that such funds will be available to us on acceptable terms, on an acceptable schedule, or at all.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Trading Price History
Our shares of common stock have traded over the counter and has been quoted on the OTCBB since February 17, 2011. The stock currently trades under the symbol "TWOH.OB." The following table sets forth the monthly high and low bid prices for our shares of common stock for the last twelve (12) months, so far as information is reported, as quoted on the OTCBB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
| 33 |
|
2018 |
High (USD$) |
Low (USD$) |
Volume |
| December | 130.00 | 51.00 | 738 |
|
2019 |
|||
| January | 160.00 | 90.00 | 1,591 |
| February | 129.90 | 65.00 | 1,646 |
| March | 85.00 | 65.00 | 598 |
| April | 183.80 | 56.00 | 13,399 |
| May | 59.90 | 45.00 | 4,095 |
| June | 77.00 | 44.00 | 7,323 |
| July | 65.00 | 39.00 | 19,635 |
| August | 39.00 | 21.00 | 14,290 |
| September | 33.00 | 3.00 | 53,719 |
| October | 3.10 | 0.90 | 119,085 |
| November | 0.90 | 0.30 | 318,648 |
| December | 0.75 | 0.11 | 137,260 |
| 2019 | |||
| January(1) | 0.20 | 0.075 | 463,630 |
Notes:
| (1) | From January 1, 2020 to January 20, 2020. |
Shareholders of Record
As of January 20, 2020, there were 48 stockholders of record, not including holders who hold their shares in street name.
Dividends
We have never declared or paid a cash dividend. At this time, we do not anticipate paying dividends in the future. We are under no legal or contractual obligation to declare or to pay dividends, and the timing and amount of any future cash dividends and distributions is at the discretion of our Board of Directors and will depend, among other things, on our future after-tax earnings, operations, capital requirements, borrowing capacity, financial condition and general business conditions. We plan to retain any earnings for use in the operation of our business and to fund future growth. You should not purchase our common stock on the expectation of future dividends.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information called for by Item 304 of Regulation S-K.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Overview
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.
| 34 |
From inception (April 3, 2009) until June 30, 2014 our business was a product development firm creating products designed, prototyped and produced in numerous industries including consumer and household goods, office products, furniture, and toys.
On March 1, 2012 the Company entered into a license agreement with Szar International, Inc. (dba Cigar & Spirits Magazine) (“Cigar & Spirits”). The agreement granted the Company the right to market the products of Cigar & Spirits including but not limited to the sales, promotion, and advertising vehicles of the Magazine. On July 8, 2013, The Company received written notice that Cigar & Spirits will cancel the license agreement on August 1, 2013.
Since July 1, 2014, 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.
| 35 |
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.
“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.
Colombian Cannabis License
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 transaction is subject to the Company’s satisfaction that it can acquire the License free and clear of all encumbrances, completion of due diligence, receipt of any third-party consents and there being no material adverse change in the License. The Company has agreed to issue ten million (10,000,000) restricted shares of its common stock and pay a royalty of 15% of net income, calculated in accordance with US GAAP, earned from the License to Plantro Inc S.A.S. The transaction was originally expected to close on February 15, 2019. On February 27, 2019, the Company announced the closing of the transaction was extended to the week of April 4, 2019 to satisfy the conditions placed on Plantro Inc S.A.S. We currently believe that the transaction will close by the end of the first quarter of 2020.
Our Cannabis Strategy
Our vision is to produce the highest quality, low cost hemp-based oil as it has unlocked the future of health and wellness and be at the forefront.
| 36 |
We intend to focus on CBD-based derivatives to take advantage of the greater percentage of the cannabis market focused on health and wellness (70% vs. 30 % THC and recreational). We feel that this limits our downside with a strong focus towards natural products in the health and wellness consumer category. Moreover, CBD crops do not require as precise growing conditions as they essentially are being extracted to produce a raw material compared to being consumed without refinement. CBD is becoming globally accepted and recognized as a “Super Food” and we believe this is going to continue to gain traction, given its usefulness for inflammation, insomnia, migraines, seizures and more. While THC is still seen as a scheduled narcotic and onerous to import/export. We intend to distribute our high-grade hemp-based oil primarily through Latin America and Australia. Once countries allow for importation we will expand our reach.
We are currently engaged in building out our infrastructure in concert of receiving final sign off from Colombia’s justice department and ICA (Ministry of Agriculture). At present, we have built out two greenhouses each 5,000 square feet in size, and a GMP Certified Seed Storage and propagation facility both have been approved. We have submitted test plants for our Agronomist Evaluation Unit which is where a test harvest is grown and the results are evaluated by a laboratory for the government to characterize the seeds in their database making them legal to grow a commercial harvest. We anticipate being into full harvest by the third quarter of 2019. Our management understands that CBD is a relatively new market and will face price compression as more farms globally come on line. In anticipation, our goal is to become industrial in size in short order, while maintaining GAP (good agricultural practices) as well as processing at GMP (good manufacturing practice) or EU GMP standards. We feel this high level care and standard will be a differentiating factor compared to other low price producers allowing us to charge a premium to its competitors globally. If necessary, the Company is looking to augment its cultivation by exploiting the concept of hiring contract farms to plant and cultivate on behalf of the Company in order to further reduce costs and based on supply requirements.
Our strategy is to be an industrial scale white label supplier of CBD distillate (oil) and isolate (powder) through harvests of industrial hemp which will be used as a base ingredient in either joint ventures with established branded products (e.g., water, gummies, honey, shampoo, pet treats, etc.) to create CBD products or selling the products to contract manufactures to utilize. We will in turn use the profits from these sales to further expand and develop our cultivation site, by adding greenhouses to increase our supply of extractable plant material.
Results of Operations
Fiscal Year Ended December 31, 2018 Compared to Fiscal Year Ended December 31, 2017.
| Revenues |
Our revenue for the year ended December 31, 2018 was $390,381, compared to $43,466 for the year ended December 31, 2017. The increase in revenue was due to services provided for brand awareness campaigns for a client and their products. During the year ended December 31, 2018, 100% of revenue was earned from one customer. The contract with the customer ended in November 2018.
Operating Expenses
| 37 |
Our general and administrative expense for the years ended December 31, 2018 was $4,889,637, compared to $892,549 for the year ended December 31, 2017, respectively. The increase in general and administrative expense is primarily due to an increase in consulting, salary, investor relations, professional and travel. Included in general and administrative expense for the year ended December 31, 2018 is salary expense of $75,600 for our Chief Executive Officer.
General and administrative expense includes:
| 1) |
Stock-based compensation – services for the year ended December 31, 2018 and 2017 which comprises of 58,000 and 0 shares of common stock valued at $1,745,800 ($30.10 per share) and $0, respectively, for consulting services and director fees.
| |
| 2) | Stock-based compensation – salaries for the year ended December 31, 2018 and 2017 which comprises of 20,000 and 0 shares of common stock valued at $602,000 ($30.10 per share) and $0, respectively for salaries to our Chief Executive Officer. Also, included in general and administrative expenses are shares to be issued for the year ended December 31, 2018 and 2017 valued at $808,174 and $463,750, respectively, for salaries to our Chief Executive Officer. |
Research and Development
Research and development costs of $361,200 were incurred during 2018 for the development of the Two Hands gone application, a new encrypted messaging app which was launched on February 20, 2019.
Other Income (Expense)
Interest expense for the year ended December 31, 2018 was $108,752, compared to $28,784 for the year ended December 31, 2017. The increase in interest expense is primarily due to the issuance of five non-redeemable convertible notes on January 1, 2018, January 8, 2018, April 12, 2018, May 10, 2018 and September 13, 2018 with a total issue price of $378,995.
On February 7, 2018, the Company elected to convert $2,000 of principal and interest of a non-redeemable convertible note into 40 shares of common stock of the Company resulting in a loss on settlement of debt of $150,000.
On May 22, 2018, the Company elected to convert $2,600 of principal and interest of a non-redeemable convertible note into 52 shares of common stock of the Company resulting in a loss on settlement of debt of $114,400.
On May 22, 2018, the Company elected to convert $120,000 of principal and interest of a non-redeemable convertible note into 80 shares of common stock of the Company resulting in a loss on settlement of debt of $60,000.
On September 10, 2018, the Company elected to convert $1,100 of principal and interest of a non-redeemable convertible note into 11,000 shares of common stock of the Company resulting in a loss on settlement of debt of $330,000.
On September 10, 2018, the Company elected to convert $36,000 of principal and interest of a non-redeemable convertible note into 12,000 shares of common stock of the Company resulting in a loss on settlement of debt of $325,200.
| 38 |
On September 25, 2018, the Company elected to convert $500 of principal and interest of a non-redeemable convertible note into 5,000 shares of common stock of the Company resulting in a loss on settlement of debt of $1,249,500.
On November 27, 2018, the Company elected to convert $700 of principal and interest of a non-redeemable convertible note into 7,000 shares of common stock of the Company resulting in a loss on settlement of debt of $1,259,300.
Net Income/Loss
Our net loss for the year ended December 31, 2018 was $8,096,408, compared to $877,867 for the year ended December 31, 2017, respectively. Our losses during the years ended December 31, 2018 and 2017 are due to costs associated with professional fees, our transfer agent, investor relations, stock-based compensation for services and loss on settlement of debt.
Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018
| Revenues |
Our revenue for three months ended September 30, 2019 was $0, compared to $77,631 the three months ended September 30, 2018. During the year ended December 31, 2018, 100% of revenue was earned from one customer. The contract with the customer ended in November 2018.
Operating Expenses
Our general and administrative expense for the three months ended September 30, 2019 was $1,200,174, compared to $2,889,262 for the three months ended September 30, 2018, respectively. The decrease in general and administrative expense is primarily due to a decrease in consulting and stock-based compensation.
General and administrative expense includes stock-based compensation – salaries for the three months ended September 30, 2019 and 2018 which comprises of 50,000 and 22,048 shares of common stock valued at $765,000 and $663,638, respectively for salaries to our Chief Executive Officer. An additional 24,387 shares of common stock were issued to the Chief Executive Officer to settled $151,200 of salary due for the period from July 1, 2019 to June 30, 2020.
General and administrative expense also includes stock-based compensation – consulting for the three months ended September 30, 2019 and 2018 which comprises of 0 and 58,000 shares of common stock to be issued valued at $0 and $1,745,800, respectively for legal services.
Other Income (Expense)
Amortization of debt discount and interest expense for the three months ended September 30, 2019 was $41,416, compared to $28,754 for the three months ended September 30, 2018. The increase in interest expense is primarily due to the issuance of two non-redeemable convertible notes on January 31, 2019 with a total issue price of $127,853 and the issuance of a convertible note on March 1, 2019 for $175,000 in cash.
During the three months ended September 30, 2019 the Company elected to convert $1,000 of principal and interest of a non-redeemable convertible note into 10,000 shares of common stock of the Company resulting in a loss on settlement of debt of $132,600. The Holder of the convertible note also elected to convert 8,600 shares of the Company with a fair value of $63,160 resulting in a gain on settlement of debt of $921.
| 39 |
The other income from the change in fair value of derivative liability of $221,394 represents the decrease in the fair value of derivative liabilities between July 1, 2019 and September 30, 2019.
Net Income/Loss
Our net loss for three months ended September 30, 2019 was $1,151,875, compared to $4,745,085 for the three months ended September 30, 2018, respectively. Our losses during the three months ended September 30, 2019 and 2018 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 note on March 1, 2019.
Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018
| Revenues |
Our revenue for nine months ended September 30, 2019 was $0, compared to $352,788 the nine months ended September 30, 2018. During the year ended December 31, 2018, 100% of revenue was earned from one customer. The contract with the customer ended in November 2018.
Operating Expenses
Our operating expenses for the nine months ended September 30, 2019 was $2,413,793, compared to $3,751,131 for the nine months ended September 30, 2018, respectively. The decrease in general and administrative expense is primarily due to a decrease in consulting and stock-based compensation.
General and administrative expense includes stock-based compensation – salaries for the nine months ended September 30, 2019 and 2018 which comprises of 80,000 and 22,058 shares of common stock to be issued valued at $1,322,826 and $1,126,638, respectively for salaries to our Chief Executive Officer. An additional 24,387 shares of common stock were issued to the Chief Executive Officer to settled $151,200 of salary due for the period from July 1, 2019 to June 30, 2020.
General and administrative expense also includes stock-based compensation – consulting for the nine months ended September 30, 2019 and 2018 which comprises of 200 and 58,000 shares of common stock to be issued valued at $15,000 for legal services and $1,745,800 for consulting services, respectively.
Other Income (Expense)
Amortization of debt discount and interest expense for the nine months ended September 30, 2019 was $108,003, compared to $74,493 for the nine months ended September 30, 2018. The increase in interest expense is primarily due to the issuance of two non-redeemable convertible notes on January 31, 2019 with a total issue price of $127,853 and the issuance of a convertible note on March 1, 2019 for $175,000 in cash.
During the nine months ended September 30, 2019 the Company elected to convert $2,420 of principal and interest of a non-redeemable convertible note into 24,200 shares of common stock of the Company resulting in a loss on settlement of debt of $1,129,180. The Holder of the convertible note also elected to convert 8,600 shares of the Company with a fair value of $63,160 resulting in a gain on settlement of debt of $921.
| 40 |
Initial derivative expense of $274,717 represents the difference between the fair value of the total embedded derivative and warrant liability of $449,717 and the cash received of $175,000 for the convertible note issued on March 1, 2019.
The other income from the change in fair value of derivative liability of $116,056 represents the decrease in the fair value of derivative liabilities between March 1, 2019 and September 30, 2019.
Net Income/Loss
Our net loss for nine months ended September 30, 2019 was $3,808,716, compared to $5,701,936 for the nine months ended September 30, 2018, respectively. Our losses during the nine months ended September 30, 2019 and 2018 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 note on March 1, 2019.
Liquidity and Capital Resources
As of September 30, 2019, we had cash of $2,394 and total liabilities of $1,295,984. 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 nine months ended September 30, 2019, the Company incurred a net loss of $3,808,716 and used cash in operating activities of $403,718, and at September 30, 2019, had a stockholders’ deficit of $1,282,492. 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, 2018, 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 $150,000 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.
On May 8, 2019, the Company filed an offering statement on Form 1-A (File No. 024-10985) to offer and sell up to 200 million shares of common stock for $0.05 per share under Tier 2 of Regulation A promulgated under the Securities Act. The offering statement was deemed qualified by the SEC on June 10, 2019. The Company sold an aggregate of 2,230 shares of common stock pursuant to the offering statement and has since abandoned the offering statement.
On January 20, 2020 (“Effective Date”), the Company entered into an Equity Purchase Agreement, dated as of January 20, 2020, with Crown Bridge Partners, LLC, a New York limited liability company (“Selling Stockholder”), providing that, upon the terms and subject to the conditions thereof, Selling Stockholder is committed to purchase, on an unconditional basis, shares of common stock (“Put Shares”) at an aggregate price of up to $5,000,000. Pursuant to the terms of the equity purchase agreement, the purchase price for each of the Put Shares equals 82% of the lesser of the (i) “Market Price,” which is defined as the lowest traded price for any trading day during the ten (10) trading days immediately preceding the respective Put Date, or (ii) “Valuation Price,” which is defined as the lowest traded price during the seven trading days following the clearing date associated with the applicable put notice (“Put Notice”). The term of the Equity Purchase Agreement commenced on the Effective Date and ends on the earlier of (i) the date on which the Selling Stockholder purchases all of the Put Shares; (ii) December 30, 2022, or (iii) written notice of termination by the Company to the Selling Stockholder (which shall not occur at any time that the Selling Stockholder holds any of the Put Shares). We believe that if we raise at least $200,000 under the Equity Purchase Agreement, we will be able to fund our operations for the next 12 months.
| 41 |
Historically, we have 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. 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.
As of September 30, 2019 and December 31, 2018, promissory notes with principal and interest totaling $249,137 and $0, respectively, were outstanding. Promissory notes bear interest of 10% per annum, unsecured and mature on December 31, 2021. Included in promissory notes is principal and interest of $172,874 due to Nadav Elituv, the Company's Chief Executive Officer.
| · | 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 $15,501 and $0 for the nine months ended September 30, 2019 and 2018, respectively and $5,893 and $0 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying amount of the Note is $122,469 (face value of $128,362 less $5,893 unamortized discount) and $0, 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 $3,036 and $0 for the nine months ended September 30, 2019 and 2018, respectively and $1,154 and $0 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying amount of the Note is $23,921 (face value of $25,062 less $1,141 unamortized discount) and $0, respectively. |
| 42 |
| · | 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 three and nine months ended September 30, 2019, the Holder converted 8,600 shares of common stock with a fair value of $63,160 of the Company to settle principal of $40,314. At September 30, 2019, the Note was recorded at amortized cost of $14,578 comprised of principal of $159,686 plus accrued interest of $7,938 less debt discount of $153,046. |
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.
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.
| 43 |
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.
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.
| 44 |
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.
During the nine months ended September 30, 2019 and 2018, the Company had revenue of $0 and $352,788, respectively. During 2018 100% of revenue was earned from one customer. The contract with this customer ended in November 2018. The Company recognized revenue from services provided for brand awareness campaigns for the client and their products. Revenue is recognized based on time spent on the project at an agreed upon hourly rate and as recoverable disbursements are incurred.
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.
DIRECTORS AND EXECUTIVE OFFICERS
Board of Directors and Executive Officers
Our bylaws state the number of the directors of the Company shall be determined by resolution of the Board of Directors. The Board of Directors currently consists of three (3) directors who are expected to hold office until our nest meeting of the shareholders. Each director is elected at our annual meeting of shareholders and holds office until the next annual meeting of shareholders, or until his successor is elected and qualified, or his earlier death, resignation or removal. Officers are elected by and serve at the discretion of the Board of Directors.
The following table sets forth information regarding our executive officers, directors and significant employees, including their ages as of the date of this Prospectus:
| 45 |
The names of our director and executive officers as of the date of this Prospectus, their respective ages, positions, and biographies are set forth below. Our executive officers are appointed by, and serve at the discretion of, our board of directors.
| Name | Age | Position(s) | ||||
| Nadav Elituv | 56 |
CEO, President., Secretary, Treasurer and Director (Principal Executive Officer) | ||||
| Steven Gryfe | 50 |
Chief Financial Officer (Principal Financial and Accounting Officer) | ||||
| Ryan Wilson | 44 | Director | ||||
| Bradley Southam | 47 | Director | ||||
Professional Experience
The biographies of each executive officer below contain information regarding the person’s service as an executive officer, business experience, director positions held currently or at any time during the last five years, and information regarding involvement in certain legal or administrative proceedings, if applicable.
A description of the principal occupation for the past five years and summary of the experience of the directors and officers of the Company is as follows:
Nadav Elituv, President, Secretary, Treasurer & Director
Nadav Elituv has been serving as our Chief Executive Officer, President, Secretary, Treasurer and as a member of the Board of Directors since June 2014. Since August 2008, Mr. Elituv has served as the President and Founder of Imagin8. Imagin8 is a startup and leading developer of hand and body motion-based interactive digital technologies that are designed to enhance new consumer experiences from touch-screens to floor-screens. Mr. Elituv is the results-driven leader of an innovative digital technology enterprise, for over 20 years. With a track record for building, developing and motivating high-performance teams and is an expert in high-tech systems. This includes the design and implementation of computer-vision and gesture-recognition software. Mr. Elituv has solid career experience driving strategic initiatives and meeting critical business mandates.
Steven Gryfe, Chief Financial Officer
Steven Gryfe was appointed Chief Financial Officer on June 18, 2019. Mr. Gryfe has had a career over 20 years in the technology field in the roles of sales and marketing and as Chief Operating Officer of On the Go Technologies Group (“OTG”). While at OTG Mr. Gryfe was instrumental in its growth from revenue of $91,584 in 2003 to over $30 million in 2006. Mr. Gryfe was also President and CEO of HCQ Technologies from 2008 until 2011. He has also had an active role in community serving as President and GM of Toronto Avenue Road Hockey Association.
Ryan Wilson, Director
Ryan Wilson has been serving as a member of our Board of Directors since January 31, 2019. Mr. Wilson has an extensive career in the digital field spanning more than 20 years of his career advancing digital initiatives, with a track record that speaks for itself, including digital marketing, digital strategy and digital transformation through innovation for financial services. Most recently acting as Principal Consultant for e-commerce digital innovation at msg Global Solutions, starting back in May 2017, msg specializes in SAP enterprise implementations. Prior to that, Ryan spent over 4 years defining the digital experiences for Ontario Teachers’ Pension Plan from March 2013 to May 2017 primarily influencing leadership teams and building implementation teams for site and app development. From developer to director Mr. Wilson has been involved in all aspects of digital development. Currently focusing on technologies such as Block Chains, NLP (natural language processing), AI and machine learning, at an insurrect innovation lab. Using design thinking methodologies and an agile approach, Mr. Wilson’s career has centered around implementing pilot projects, planning migrations, post implementation iterations, risk planning, and digital transformation. As an avid investor, Mr. Wilson focuses heavily on the Cannabis sector, and follows the big 5 producers/ cultivators closely. With a broad knowledge for the CBD industry and a solid understanding of ancillary product lines ranging from oils to edibles. With a focus on the future Mr. Wilson sees a bright diverse need for both CBD products and THC based offerings for medicinal/ recreational use.
| 46 |
Bradley Southam, Director
Bradley Southam was appointed to the Board of Directors on June 11, 2019. Mr. Southam has a career for over 19 years in the digital marketing, strategy and design services industry. Most recently he has been the owner and creative director of Linus Creative Services. Mr. Southam is the vice chair of the Cambridge Arts and culture advisory committee, and a board member of the grand river film festival. Previously Mr. Southam was creative director with “Go Motion and Design” a division of On the Go Technologies Group, which was a publicly traded company on the US OTC from 2005 to 2008. Mr. Southam follows the CBD industry and has a solid understanding of ancillary product lines, Mr. Southam sees a need for both CBD products for medicinal use.
Family Relationships
There are no family relationships between any of our officers and directors.
Significant Employees
We do not have any significant employees other than our current executive officers named in this Prospectus.
Involvement in Certain Legal Proceedings
Our directors and executive officers have not been personally involved in any of the following events during the past ten years:
| ● | any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
| ● | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| ● | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; | |
| ● | being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; | |
| ● | being subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| ● | being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
| 47 |
Conflicts of Interest
Investors should be aware of the following potential conflicts of interest:
| ● | None of our officers and directors is required to commit their full time to our affairs and, accordingly, they may have conflicts of interest in allocating their time among various business activities. |
Board Leadership Structure and the Board’s Role in Risk Oversight
The Board of Directors currently does not have an independent Chairman. Our Chief Executive Officer acts as the Chairman of the Board. The Board determined that in the best interest of the Company the most effective leadership structure at this time is not to separate the roles of Chairman and Chief Executive Officer. A combined structure provides the Company with a single leader who represents the Company to our stockholders, regulators, business partners and other stakeholders, among other reasons set forth below. Should the Board conclude otherwise, the Board will separate the roles and appoint an independent Chairman.
| ● | This structure creates efficiency in the preparation of the meeting agendas and related Board materials as the Company’s Chief Executive Officer works directly with those individuals preparing the necessary Board materials and is more connected to the overall daily operations of the Company. Agendas are also prepared with the permitted input of the full Board of Directors allowing for any concerns or risks of any individual director to be discussed as deemed appropriate. The Board believes that the Company has benefited from this structure, and Mr. Elituv’s continuation in the combined role of the Acting Chairman and Chief Executive Officer is in the best interest of the stockholders. |
| ● | The Company believes that the combined structure is necessary and allows for efficient and effective oversight, given the Company’s relatively small size, its corporate strategy and focus. |
The Board of Directors does not have a specific role in risk oversight of the Company. The Chairman, President and Chief Executive Officer and other executive officers and employees of the Company provide the Board of Directors with information regarding the Company’s risks.
| 48 |
Independent Directors
Our Board of Directors has determined that Ryan Wilson and Bradley Southam are “independent directors” within the meaning of NASDAQ Marketplace Rule 5605(a)(2). As of January 20, 2020, our common stock is quoted on the OTC Pinks tier of the OTC Markets.
Committees of the Board
The Board of Directors has the responsibility for establishing broad corporate policies and reviewing our overall performance rather than day-to-day operations. The Board's primary responsibility is to oversee management of our company and, in so doing, serve the best interests of our company and our stockholders. Our full Board of Directors performs all of the functions normally designated to an Audit Committee, Compensation Committee and Nominating Committee.
Audit Committee
We do not have a separately-designated standing audit committee. The entire Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board when performing the functions of what would generally be performed by an audit committee. The Board approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor. Our Board of Directors, which performs the functions of an audit committee, does not have a member who would qualify as an “audit committee financial expert” within the definition of Item 407(d)(5)(ii) of Regulation S-K.
Procedure of Nominating Directors
There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.
The Board of Directors will consider candidates for director positions that are recommended by any of our stockholders. The recommended candidate should be submitted to us in writing addressed to 33 Davies Ave., Toronto, Ontario M4M 2A9, Canada. The recommendation shall include the following information: name of candidate; address, phone, and fax number of candidate; a statement signed by the candidate certifying that the candidate wishes to be considered for nomination to our Board of Directors and stating why the candidate believes that he or she meets the director qualification criteria and would otherwise be a valuable addition to our Board of Directors; a summary of the candidate's work experience for the prior five years and the number of shares of our stock beneficially owned by the candidate.
The Board will evaluate the recommended candidate and will determine whether or not to proceed with the candidate in accordance with our procedures. We reserve the right to change our procedures at any time to comply with the requirements of applicable laws.
Code of Ethics
We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We will provide a copy of our Code of Ethics to any person, free of charge, upon written request to Nadav Elituv at Two Hands Corporation, 33 Davies Ave., Toronto, Ontario M4M 2A9, Canada.
| 49 |
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Summary Compensation
The following table provides information as to the compensation of our “named executive officers” for the past two fiscal years under Item 402(m) of Regulation S-K.
| SUMMARY COMPENSATION TABLE | ||||||||||||||||||||||||||||||||||||
| Nonqualified | ||||||||||||||||||||||||||||||||||||
| Non-Equity | Deferred | |||||||||||||||||||||||||||||||||||
| Stock | Option | Incentive Plan | Compensation | All Other | ||||||||||||||||||||||||||||||||
| Name and | Salary | Bonus | Awards | Awards | Compensation | Earnings | Compensation | Total | ||||||||||||||||||||||||||||
| principal position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||
| Nadav Elituv | 2018 | $ | 75,600 | $ | 0 | $ | 1,410,174 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 1,485,774 | |||||||||||||||||||
| (President and Chief Executive Officer) | 2017 | $ | 180,000 | $ | 0 | $ | 463,750 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ |
643,750 |
|||||||||||||||||||
| Steven Gryfe | 2018 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||||||
| (Chief Financial Officer) (1) | 2017 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||||||
(1) Mr. Gryfe was appointed as Chief Financial Officer on June 18, 2019.
Stock Option Grants
We have not granted any stock options to the executive officers or directors since our inception.
Outstanding Equity Awards at Fiscal Year-End
At December 31, 2018, there were no unexercised options and no equity incentive plan awards for each name executive officer. At December 31, 2018, there were 18,532 shares of common stock of the Company, under the Chief Executive Officer’s employment agreement, which were not vested.
We do not have any qualified or non-qualified defined benefit plans or nonqualified defined contribution plans or other deferred compensation plans. There are no contracts, agreements, plans or arrangements that provide for payment to our named executive officer following or in connection with the resignation, retirement or termination of the named executive officer, a change in control of our Company, or a change in the named executive officer's responsibilities following a change in control.
Employment Agreements
On July 1, 2016, the Company executed an employment agreement for the period from July 1, 2016 to June 30, 2017 with Nadav Elituv, the Chief Executive Officer of the Company whereby the Company shall pay 0.015 shares of Common Stock of the Company with a fair value of $1,500 ($100,000 per share) and an annual salary of $360,000 payable monthly on the first day of each month from available funds.
On July 1, 2017, the Company executed an employment agreement for the period from July 1, 2017 to June 30, 2018 with Nadav Elituv, the Chief Executive Officer of the Company whereby the Company shall pay 20 shares of Common Stock of the Company with a fair value of $926,000 ($46,300 per share).
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.
| 50 |
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 $151,200 payable monthly on the first day of each month from available funds.
Compensation of Directors
The following table summarizes compensation paid to all of our directors who were not our named executive officers during the fiscal year ended December 31, 2018:
| Name | Fees Earned of Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | |||||||||||||||
| Brandon Milner (Former Director) | $ | 0 | $ | 481,600 | $ | 0 | $ | 0 | $ | 481,600 | ||||||||||
| Grant Stummer (Former Director) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
On September 10, 2018, the Company issued 16,000 shares of common stock valued at $481,600 ($30.10 per share) to the Brandon Milner, a Director of the Company.
Director Compensation
We did not provide any cash compensation to directors for their service as directors during the last fiscal year.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 20, 2020, as to shares of our shares of common stock beneficially owned by: (1) each person who is known by us to own beneficially more than 5% of our shares of common stock, (2) our named executive officer listed in the summary compensation table, (3) each of our directors and (4) all of our directors and executive officers as a group.
| 51 |
We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
| Common Stock | Series A Convertible Preferred Stock | |||||||
| Beneficial Owner (1) | Number of Shares Beneficially Owned | Percentage of Class (2) | Number of Shares Beneficially Owned | Percentage of Class (3) | ||||
| Nadav Elituv, Chief Executive Officer and Director | 31,000,000 (4) | 84.90% | 30,000 (5) | 100% | ||||
| Ryan Wilson, Director | 1,000,000 | 15.36% | 0 | - | ||||
| Bradley Southam, Director | 1,000,000 | 15.36% | 0 | - | ||||
| Steven Gryfe, CFO | 1,000,000 | 15.36% | 0 | - | ||||
| All directors and executive officers (4 persons) | 34,000,000 (4) | 93.12% | 30,000 | 100% | ||||
Notes:
| (1) | Unless otherwise noted, the address of the reporting person is c/o Two Hands Corporation, 33 Davies Ave., Toronto, Ontario M4M 2A9, Canada. |
| (2) | Based on 6,512,340 shares of common stock outstanding as of January 20, 2020 and shares of common stock that the reporting person has the right to acquire within 60 days from the date thereof. |
| (3) | Based on 30,000 shares of Series A Convertible Preferred Stock outstanding as of January 20, 2020. |
| (4) | Includes 30,000,000 shares of common stock issuable up on the conversion of 30,000 shares of Series A Convertible Preferred Stock. Each share of our Series A Convertible Preferred Stock converts into 1,000 shares of our common stock. |
| (5) | Holders of our Series A Convertible Preferred Stock have such number of votes as is determined by multiplying: (a) the number of shares of Series A Convertible Preferred Stock held by such holder; (b) 1,000 (number which each share of our Series A Convertible Preferred Stock converts into our common stock); and (c) 100. Accordingly, on any shareholders vote, Nadav Elituv has a total of 3,001,000,000 votes, and greater than 99% of the issued and outstanding voting stock of the Company. |
Securities Authorized for Issuance Under Equity Compensation Plans
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). As of December 31, 2018, awards for 1 share of common stock have been granted under the 2015 Plan and awards for 1 share of common stock remain available for grant. 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.
Disclosure of Commission Position of Indemnification for Securities Act Liabilities
In accordance with the provisions in our articles of incorporation, we will indemnify an officer, director, or former officer or director, to the full extent permitted by law.
| 52 |
Insofar as indemnification for liabilities arising under the U.S. Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the U.S. Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of us in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the U.S. Securities Act and will be governed by the final adjudication of such issue.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our Policy Concerning Transactions with Related Persons
Under Item 404 of SEC Regulation S-K, a related person transaction is any actual or proposed transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business, to which we or our subsidiaries were or are a party, or in which we or our subsidiaries were or are a participant, in which the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years and in which any of our directors, nominees for director, executive officers, beneficial owners of more than 5% of any class of our voting securities (a “significant shareholder”), or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest.
We recognize that transactions between us and any of our Directors or Executives or with a third party in which one of our officers, directors or significant shareholders has an interest can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than the best interests of our Company and stockholders.
The Board of Directors is charged with responsibility for reviewing, approving and overseeing any transaction between the Company and any related person (as defined in Item 404 of Regulation S-K), including the propriety and ethical implications of any such transactions, as reported or disclosed to the Committee by the independent auditors, employees, officers, members of the Board of Directors or otherwise, and to determine whether the terms of the transaction are not less favorable to us than could be obtained from an unaffiliated party.
Transactions
As of December 31, 2018 and 2017, advances of $52,671 and $41,734, 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. The advances were used to pay for operational costs and services.
Our policy with regard to transactions with related persons or entities is that such transactions must be on terms no less favorable than could be obtained from non-related persons.
The above related party transactions are not necessarily indicative of the amounts that would have been incurred had a comparable transaction been entered into with an independent party. The terms of these transactions were more favorable than would have been attained if the transactions were negotiated at arm's length.
| 53 |
Director Independence
Our Board of Directors has determined that Ryan Wilson and Bradley Southam are “independent directors” within the meaning of NASDAQ Marketplace Rule 5605(a)(2). As of January 20, 2020, our common stock is quoted on the OTC Pinks tier of the OTC Markets.
Indemnification
In accordance with the provisions in our Certificate of Incorporation, we will indemnify an officer, director, or former officer or director, to the full extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Act”) may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of us in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The following description of our capital stock is based upon our certificate of incorporation, as amended, our bylaws and applicable provisions of law, in each case as currently in effect. This discussion does not purport to be complete and is qualified in its entirety by reference to our articles of incorporation, as amended, and our bylaws, copies of which are filed with the SEC as exhibits to the registration statement of which this Prospectus is a part.
The Company filed a Certificate of Amendment to Certificate of Incorporation of the Company with the Secretary of State of Delaware on August 27, 2018 (the “Amendment”) thereby amending the authorized capitalization of the Company to consist of three billion (3,000,000,000) shares of common stock, par value $0.0001 per share, and 1 million (1,000,000) shares of “blank check” preferred stock par value $0.001 per share (the “Preferred Stock”) with such designations, rights and preferences as may be determined from time to time by the Board of Directors of the Company without stockholder approval.
As of January 20, 2020, the Company had 6,512,340 shares of common stock and 30,000 shares of Series A Convertible Preferred Stock outstanding, and 4,000 shares of Series B Convertible Preferred Stock outstanding.
Common Stock
Each share of common stock entitles the holder to one vote, either in person or by proxy, at meetings of stockholders. The holders are not permitted to vote their shares cumulatively. Accordingly, the stockholders of our common stock who hold, in the aggregate, more than fifty percent of the total voting rights can elect all of our directors and, in such event, the holders of the remaining minority shares will not be able to elect any of such directors. The vote of the holders of a majority of the issued and outstanding shares of common stock entitled to vote thereon is sufficient to authorize, affirm, ratify or consent to such act or action, except as otherwise provided by law. Stockholders may take action by written consent of over 50% of the issued and outstanding common stock of the Company.
| 54 |
Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available. We have not paid any dividends since our inception, and we presently anticipate that all earnings, if any, will be retained for development of our business. Any future disposition of dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, operating and financial condition, capital requirements, and other factors.
Holders of our common stock have no pre-emptive rights or other subscription rights, conversion rights, redemption or sinking fund provisions. Upon our liquidation, dissolution or winding up, the holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities. There are not any provisions in our Certificate of Incorporation, as amended, or our Bylaws that would prevent or delay change in our control.
Preferred Stock
Under the terms of our Certificate of Incorporation, as amended, our Board of Directors is authorized to issue shares of Preferred Stock in one or more series without stockholder approval. Our Board of Directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of Preferred Stock.
The purpose of authorizing our Board of Directors to issue Preferred Stock and determination its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of Preferred Stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock.
Series A Convertible Preferred Stock
On August 6, 2013, the Company filed a Certificate of Designation with the Delaware Secretary of State thereby designating 2 hundred thousand (200,000) shares as Series A Convertible Preferred Stock (the “Series A Preferred Stock”).
On November 1, 2019, the Company issued 30,000 shares of Series A Preferred Stock for stock based compensation due to Nadav Elituv, the Chief Executive Officer of the Company.
Below is a summary of our Series A Preferred Stock. A copy of the Certificate of Designation is filed as an exhibit to the Registration Statement of which this Prospectus forms a part and is incorporated by reference herein.
| Voting Rights: | Our Series A Preferred Stock has voting rights equal to a 1:100 basis, such that each share of Series A Preferred Stock is entitled to 100 votes in any vote of the Company’s common stockholders. | |
| Dividends: | Holders of Series A Preferred Stock are not entitled to dividends. Such dividends are payable only as and if declared by the Company’s Board of Directors. | |
| 55 |
| Liquidation Rights: | Holders of Series A Preferred Stock are entitled to receive the amount payable in cash equal to the original purchase price paid by such holder for its shares of Series A Preferred Stock. After the payment of such amounts, remaining assets of the Company shall be distributed ratably to the holders of the Series A Preferred Stock and common stock of the Company. | |
| Conversion: | Subject to certain conditions, our Series A Preferred Stock is entitled to conversion in to shares of common stock, at a ratio of 1 share of Series A Preferred Stock to 1,000 shares of common stock. | |
| Protective Provisions: | Holders of Series A Preferred Stock are entitled to certain protective provisions relating to potential issuances of new shares of Series A Preferred Stock. | |
| Ranking: | The Series A Preferred Stock shall, with respect to distribution rights on liquidation, winding up and dissolution, (i) rank senior to any of the shares of common stock of the Company, and any other class or series of stock of the Company which by its terms shall rank junior to the Series A Preferred Stock, and (ii) rank junior to any other series or class of Preferred Stock of the Company and any other class or series of stock of the Corporation which by its term shall rank senior to the Series A Preferred Stock. |
Series B Convertible Preferred Stock
On December 13, 2019, the Company filed a Certificate of Designation with the Delaware Secretary of State that has the effect of designating 100,000 shares of preferred stock as Series B Convertible Preferred Stock (the “Series B Preferred Stock”).
On December 19, 2019, the Company issued 4,000 shares of Series B Preferred Stock to Douglas Clark, Steve Roy and Michael Levine for business development services.
Each share of Series B Preferred Stock is convertible into 1,000 shares of common stock after the Series B Preferred Stock has been held for a period of not less than 1 year from the date of issuance. The Series B Preferred Stock does not have any voting rights.
Market Price, Dividends, and Related Stockholder Matters
Market
Our common stock currently trades on the OTC Pinks under the symbol “TWOH” and the closing bid price of our common stock on January 17, 2020 was $0.198. Our common stock currently trades on a sporadic and limited basis.
Record Holders
As of the date of this Prospectus, there were 47 stockholders of record.
Cash Dividends
As of the date of this Prospectus, we have not paid any cash dividends to stockholders. The declaration of any future cash dividend will be at the discretion of our Board of Directors and will depend upon our earnings, if any, our capital requirements and financial position, the general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
| 56 |
Transfer Agent
The transfer agent and registrar, for our common stock and Series A Convertible Preferred Stock is Transhare Corporation. The transfer agent’s address is 2849 Executive Drive, Suite 200 Clearwater, FL 33762 and its telephone number is (303) 662-1112.
Options and Warrants
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). As of December 31, 2018, awards for 1 share of common stock have been granted under the 2015 Plan and awards for 1 share of common stock remain available for grant. 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.
On March 1, 2019, the Company issued a Common Stock Purchase Warrant (the “Warrant”) to purchase 1,0000,000 shares of common stock of the Company from the date of issuance until March 1, 2021, for an exercise price of $0.20 per share, to Firstfire Global Opportunities Fund, LLC, a Delaware limited liability company (the “Buyer”), in accordance with and in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D as promulgated by the SEC under the Securities Act. The Warrant was issued pursuant to a Securities Purchase Agreement with between the Company and the Buyer. relating to the issuance and sale of a Senior Convertible Note (the “Note”) of $200,000 in principal amount including $175,000 actual payment of purchase price with interest accruing on the outstanding principal amount of the Note at the rate of 7% per annum with accrual commencing on the date that the Note is fully funded. On March 12, 2019, the Company received $175,000 from the Buyer.
Anti-takeover Provisions
Summarized in the following paragraphs are provisions included in our Certificate of Incorporation, as amended, and our Bylaws that may have the effect of discouraging, delaying or preventing a change in control or an unsolicited acquisition proposal that a stockholder might consider favorable, including a proposal that might result in the payment of a premium over the market price for the shares held by our stockholders.
| · | Effects of authorized but unissued common stock and blank check preferred stock. One of the effects of the existence of authorized but unissued common stock and undesignated preferred stock may be to enable our Board to make more difficult or to discourage an attempt to obtain control of our company by means of a merger, tender offer, proxy contest or otherwise, and thereby to protect the continuity of management. If the Board were to determine that a takeover proposal was not in our best interest, such shares could be issued by the Board without stockholder approval in one or more transactions that might prevent or render more difficult or costly the completion of the takeover transaction by diluting the voting or other rights of the proposed acquirer or insurgent stockholder group, by putting a substantial voting block in institutional or other hands that might undertake to support the position of the incumbent board of directors, by effecting an acquisition that might complicate or preclude the takeover, or otherwise.
In addition, our Certificate of Incorporation, as amended, grants our Board broad power to establish the rights and preferences of authorized and unissued shares of additional series of preferred stock. The creation and issuance of one or more additional series of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of common stock. The issuance also may adversely affect the rights and powers, including voting rights, of those holders and may have the effect of delaying, deterring or preventing a change in control of our company. |
| 57 |
| · | Cumulative Voting. Our Certificate of Incorporation, as amended, does not provide for cumulative voting in the election of directors which would allow holders of less than a majority of the voting stock to elect some directors. |
| · | Vacancies. Section 223 of the Delaware General Corporation Law and our bylaws provide that all vacancies, including newly created directorships, may be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum. |
| · | Special Meeting of Stockholders. A special meeting of stockholders may be called by our Board or the Chairman of our Board and must be called by our Secretary at the request in writing of holders of record of a majority of our outstanding capital stock entitled to vote. The requirement that a majority of our outstanding capital stock is required to call a special meeting means that small stockholders will not have the power to call a special meeting to, for example, elect new directors. |
| · | Bylaws. Our bylaws authorize the board of directors to adopt, repeal, alter or amend our bylaws without shareholder approval. |
| · | Removal. Except as otherwise provided, a director may be removed from office with or without cause at any special meeting of stockholders by the affirmative vote of at least a majority of the voting power and outstanding stock entitled to vote. |
Registration Rights
Equity Line
On January 20, 2020 (“Effective Date”), the Company entered into that certain Registration Rights Agreement, dated as of January 20, 2020, with Crown Bridge Partners, LLC (the “Selling Stockholder”), pursuant to which the Company is obligated to file the Registration Statement to register the resale of the Commitment Shares and Put Shares. Pursuant to the Registration Rights Agreement, the Company must (i) file the Registration Statement within 45 calendar days from the Effective Date, (ii) use reasonable efforts to cause the Registration Statement to be declared effective under the Securities Act of 1933, as amended, as promptly as possible after the filing thereof, and (iii) use its reasonable efforts to keep such Registration Statement continuously effective under the Securities Act until all of the Commitment Shares and Put Shares have been sold thereunder or pursuant to Rule 144.
We will pay all reasonable expenses incurred in connection with the registrations described above. However, we will not be responsible for any broker or similar concessions or any legal fees or other costs of the Selling Stockholder.
| 58 |
Common Stock Underlying Warrants
The holders of 1,000,000 shares of common stock underlying our outstanding warrants or their permitted transferees, are entitled to piggyback registration rights. If we register any of our securities either for our own account or for the account of other security holders, the holders of these shares are entitled to include their shares in the registration. Subject to certain exceptions, we and the underwriters may limit the number of shares included in the underwritten offering if the underwriters believe that including these shares would adversely affect the offering.
This Prospectus relates to the possible resale from time to time by the Selling Stockholder named in the table below of any or all of the common stock that has been or may be issued by us to the Selling Stockholder under the Equity Purchase Agreement. For additional information regarding the transaction relating to the issuance of common stock covered by this Prospectus, see “Management’s Discussion and Analysis of Results of Operation and Financial Condition – Liquidity and Capital Resources – Equity Purchase Agreement and Registration Rights Agreement” above. We are registering the common stock pursuant to the provisions of the Registration Rights Agreement in order to permit the Selling Stockholder to offer the shares for resale from time to time.
The table below presents information regarding the Selling Stockholder and the common stock that it may offer from time to time under the Equity Purchase Agreement under this Prospectus. This table is prepared based on information supplied to us by the Selling Stockholder and reflects holdings as of January 20, 2020. As used in this Prospectus, the term “Selling Stockholder” includes the Selling Stockholder, and any donees, pledgees, transferees, or other successors-in-interest selling shares received after the date of this Prospectus from the Selling Stockholder as a gift, pledge, or other non-sale related transfer. The number of shares in the column “Maximum Number of Common Stock to be Offered Pursuant to this Prospectus” represents all of the common stock that the Selling Stockholder may offer under this Prospectus. The Selling Stockholder may sell some, all or none of its shares offered by this Prospectus. We do not know how long the Selling Stockholder will hold the shares before selling them, and we currently have no agreements, arrangements, or understandings with the Selling Stockholder regarding the sale of any of the shares.
Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act and includes common stock with respect to which the Selling Stockholder has voting and investment power. With respect to the Equity Line with the Selling Stockholder, because the purchase price of the common stock issuable under the Equity Purchase Agreement is determined on each settlement date, the number of shares that may actually be sold by us under the Equity Purchase Agreement may be fewer than the number of shares being offered by this Prospectus. The fourth column assumes the sale of all of the shares offered by the Selling Stockholder pursuant to this Prospectus.
|
Maximum Number of Shares of Common Stock to be Offered |
||||||||||||||||||
|
Name of Selling Stockholder |
Number
of Common Stock |
Number of Common Stock Owned after Offering |
||||||||||||||||
| Number | Percent | Number (1) | Percent | |||||||||||||||
| Crown Bridge Partners, LLC (2) | 2,000,000 | 0 | (3) | 0 | % | |||||||||||||
| 59 |
| (1) | Assumes the sale of all shares being offered pursuant to this Prospectus. |
| (2) | The Selling Stockholder’s principal business is that of a private investment firm. We have been advised that the Selling Stockholder is not an independent broker-dealer, and that neither the Selling Stockholder nor any of its affiliates is an affiliate or an associated person of any independent broker-dealer. We have been further advised that Seth Adhoot of the Selling Stockholder, has sole voting and dispositive powers with respect to the common stock being registered for sale by the Selling Stockholder. |
| (3) | Based on 6,512,340 shares of common stock outstanding on the date of this Prospectus. |
The Selling Stockholder, including any of its pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby which were acquired under the Equity Purchase Agreement on the OTC Pinks or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at market prices prevailing at the time of sale, prices related to prevailing market prices, fixed prices or negotiated prices. The Selling Stockholder may use any one or more of the following methods when selling securities:
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| ● | block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| 60 |
| ● | exchange distributions in accordance with the rules of the applicable exchange; |
| ● | privately negotiated transactions; |
| ● | settlements of short sales; |
| ● | transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security; |
| ● | writings or settlements of options or other hedging transactions, whether through an options exchange or otherwise; |
| ● | combinations of any such methods of sale; or |
| ● | any other methods permitted pursuant to applicable law. |
The Selling Stockholder may also sell securities under Rule 144 under the Securities Act, if available, rather than under this Prospectus.
Broker-dealers engaged by the Selling Stockholder may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholder (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the securities or interests therein, the Selling Stockholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholder may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this Prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this Prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholder and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Stockholder against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Because the Selling Stockholder may be deemed to be an “underwriter” within the meaning of the Securities Act, it will be subject to the Prospectus delivery requirements of the Securities Act including Rule 172 thereunder. In addition, any securities covered by this Prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this Prospectus. The Selling Stockholder has advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the Selling Stockholder.
| 61 |
We have agreed to keep this Prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholder without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) the sale of all of the securities pursuant to this Prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by the Selling Stockholder or any other person. We will make copies of this Prospectus available to the Selling Stockholder and have informed it of the need to deliver a copy of this Prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act.
SHARES ELIGIBLE FOR FUTURE SALE
We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. The availability for sale of a substantial number of shares of our common stock acquired through the exercise of outstanding warrants could materially adversely affect the market price of our common stock. In addition, sales of our common stock in the public market after the restrictions lapse as described below, or the perception that those sales may occur, could cause the prevailing market price to decrease or to be lower than it might be in the absence of those sales or perceptions.
Sale of Restricted Shares
As of January 20, 2020, there were 6,512,340 shares of common stock outstanding. The 2,000,000 shares of common stock being offered by this Prospectus will be freely tradable, other than those purchased by any of our “affiliates,” as defined in Rule 144(a) under the Securities Act, without restriction or registration under the Securities Act. In addition, 430 outstanding shares of common stock were issued and sold by us in private transactions and those shares are, or will be, eligible for public sale if registered under the Securities Act or sold in accordance with Rule 144 under the Securities Act. These remaining shares are “restricted securities” within the meaning of Rule 144 under the Securities Act.
Rule 144
In general, under Rule 144, as currently in effect, a person (or persons whose shares are required to be aggregated), including a person who may be deemed an “affiliate” of a company, who has beneficially owned restricted securities for at least six months may sell, within any three-month period, a number of shares that does not exceed the greater of: (1) 1% of the then-outstanding shares of common stock, or (2) if and when the common stock is listed on a national securities exchange, the average weekly trading volume of the common stock during the four calendar weeks preceding the date on which notice of such sale was filed under Rule 144. Sales under Rule 144 are also subject to certain requirements as to the manner of sale, notice, and availability of current public information about our company. A person who is not deemed to have been an affiliate of us at any time during the 90 days preceding a sale by such person, and who has beneficially owned the restricted shares for at least one year, is entitled to sell such shares under Rule 144 without regard to any of the restrictions described above.
| 62 |
We cannot estimate the number of shares of our common stock that our existing stockholders will elect to sell under Rule 144.
Certain legal matters with respect to the shares of common stock offered hereby will be passed upon by Philip Magri of Magri Law, LLC, Fort Lauderdale, FL 33334.
Our balance sheets as of December 31, 2018 and December 31, 2017 and the related statement of operations, stockholders’ equity and cash flows for the years ended December 31, 2018 and 2017 included in this Prospectus have been audited by Sadler, Gibb & Associates, LLC, independent registered public accounting firm, as indicated in their report with respect thereto, and have been so included in reliance upon the report of such firm given on their authority as experts in accounting and auditing.
DISCLOSURE OF COMMISSION’S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by one of our directors, officers or controlling persons in the successful defense of any action, suit or proceeding) is asserted by that director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether that indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of that issue.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC the registration statement on Form S-1 under the Securities Act for the common stock offered for resale by this Prospectus. This Prospectus, which is a part of the registration statement, does not contain all of the information in the registration statement and the exhibits filed with it, portions of which have been omitted as permitted by SEC rules and regulations. For further information relating to us and our common stock, reference is made to the registration statement, including its exhibits and schedules. Statements made in this Prospectus relating to any contract or other document are not necessarily complete and you should refer to the exhibits attached to or incorporated by reference into the registration statement for copies of the actual contract or document.
| 63 |
The registration statement on Form S-1, of which this Prospectus forms a part, including exhibits, is available at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file with, or furnish to, the SEC at its public reference facilities:
Public Reference Room Office
100 F Street, N.E.
Room 1580
Washington, D.C. 20549
You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Callers in the United States can also call (202) 551-8090 for further information on the operations of the public reference facilities.
| 64 |
TWO HANDS CORPORATION
INDEX
December 31, 2018 and 2017
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 65 |
| Consolidated Balance Sheets | 66 |
| Consolidated Statements of Operations | 67 |
| Consolidated Statement of Stockholders’ Deficit | 68 |
| Consolidated Statements of Cash Flows | 69 |
| Notes to Consolidated Financial Statements | 70 |
| 65 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Two Hands Corporation:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Two Hands Corporation (“the Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2018 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph Regarding Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Sadler, Gibb & Associates, LLC
We have served as the Company’s auditor since 2017.
Salt Lake City, UT
April 1, 2019
(January 21, 2020 to reflect the retroactive effect of the reverse stock split as disclosed in Note 7)
| 66 |
| TWO HANDS CORPORATION |
| CONSOLIDATED BALANCE SHEETS |
| December 31, 2018 | December 31, 2017 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 2,729 | $ | 18,771 | ||||
| Prepaid expense | 424,745 | — | ||||||
| Total current assets | 427,474 | 18,771 | ||||||
| Property and equipment, net | 2,300 | 1,694 | ||||||
| Total assets | $ | 429,774 | $ | 20,465 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 70,062 | $ | 251,679 | ||||
| Non-redeemable convertible notes, net | 489,610 | 164,763 | ||||||
| Notes payable | 127,853 | 258,995 | ||||||
| Due to related party | 52,671 | 41,734 | ||||||
| Total current liabilities | 740,196 | 717,171 | ||||||
| Total liabilities | 740,196 | 717,171 | ||||||
| Commitments and Contingencies | — | — | ||||||
| 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, 152,199 and 812 shares issued and outstanding, respectively | 16 | — | ||||||
| Shares to be issued | 345,174 | 469,218 | ||||||
| Additional paid-in capital | 31,895,258 | 23,288,538 | ||||||
| Accumulated deficit | (32,550,870 | ) | (24,454,462 | ) | ||||
| Total stockholders' deficit | (310,422 | ) | (696,706 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 429,774 | $ | 20,465 | ||||
| The accompanying footnotes are an integral part of these financial statements. | ||||||||
| 67 |
| TWO HANDS CORPORATION |
| CONSOLIDATED STATEMENTS OF OPERATIONS |
| For the year ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| Sales | $ | 390,381 | $ | 43,466 | ||||
| Operating expenses | ||||||||
| General and administrative | 4,528,437 | 892,549 | ||||||
| Research and development | 361,200 | — | ||||||
| Total expenses | 4,889,637 | 892,549 | ||||||
| Loss from operations | (4,499,256 | ) | (849,083 | ) | ||||
| Other income (expense) | ||||||||
| Amortization of debt discount and interest expense | (108,752 | ) | (28,784 | ) | ||||
| Loss on settlement of debt | (3,488,400 | ) | — | |||||
| Total other income (expense) | (3,597,152 | ) | (28,784 | ) | ||||
| Net loss | $ | (8,096,408 | ) | $ | (877,867 | ) | ||
| Net loss per common share - basic and diluted | $ | (177.18 | ) | $ | (1,081.12 | ) | ||
| Weighted average number of common shares outstanding - basic and diluted | 45,695 | 812 | ||||||
| The accompanying footnotes are an integral part of these financial statements. | ||||||||
| 68 |
| TWO HANDS CORPORATION | ||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT | ||||||||||||||||||||||||||||||||
| For the years ended December 31, 2018 and 2017 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Shares | Additional | Total Stockholders’ | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | to be Issued | Paid-in Capital | Accumulated Deficit | Equity (Deficit) | |||||||||||||||||||||||||
| Balance, December 31, 2016 | — | $ | — | 812 | $ | — | $ | 5,468 | $ | 23,288,538 | $ | (23,576,595 | ) | $ | (282,589 | ) | ||||||||||||||||
| Stock-based compensation - officer | — | — | — | — | 463,750 | — | — | 463,750 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (877,867 | ) | (877,867 | ) | ||||||||||||||||||||||
| Balance, December 31, 2017 | — | — | 812 | — | 469,218 | 23,288,538 | (24,454,462 | ) | (696,706 | ) | ||||||||||||||||||||||
| Rounding at reverse split | — | — | 2 | |||||||||||||||||||||||||||||
| Common stock issued for stock payable | — | — | 20 | — | (932,218 | ) | 932,218 | — | ||||||||||||||||||||||||
| Common stock issued to settle accounts payables and accrued liabilities | — | — | 73 | — | — | 237,618 | 237,618 | |||||||||||||||||||||||||
| Common stock issued for prepaid services | — | — | 38,120 | 4 | — | 1,437,796 | 1,437,800 | |||||||||||||||||||||||||
| Common stock issued for services | — | — | 42,000 | 4 | — | 1,264,196 | 1,264,200 | |||||||||||||||||||||||||
| Common stock issued for officer and director compensation | — | — | 36,000 | 4 | — | 1,083,596 | 1,083,600 | |||||||||||||||||||||||||
| Common stock issued for conversion of notes | — | — | 35,172 | 4 | — | 3,651,296 | 3,651,300 | |||||||||||||||||||||||||
| Stock-based compensation - officer | — | — | — | — | 808,174 | — | — | 808,174 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (8,096,408 | ) | (8,096,408 | ) | |||||||||||||||||||||||
| Balance, December 31, 2018 | — | $ | — | 152,199 | $ | 16 | $ | 345,174 | $ | 31,895,258 | $ | (32,550,870 | ) | $ | (310,422 | ) | ||||||||||||||||
| The accompanying footnotes are an integral part of these financial statements. | ||||||||||||||||||||||||||||||||
| 69 |
| TWO HANDS CORPORATION |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| Year ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (8,096,408 | ) | $ | (877,867 | ) | ||
| Adjustments to reconcile net loss | ||||||||
| to cash (used in) provided by operating activities | ||||||||
| Depreciation and amortization | 1,138 | 283 | ||||||
| Stock-based compensation | 3,155,974 | 463,750 | ||||||
| Amortization of debt discount | 108,752 | 28,784 | ||||||
| Loss on settlement of debt | 3,488,400 | — | ||||||
| Change in operating assets and liabilities | ||||||||
| Accounts receivable | — | 10,188 | ||||||
| Prepaid expense | 1,013,055 | — | ||||||
| Accounts payable and accrued liabilities | 93,800 | 213,448 | ||||||
| Net cash used in operating activities | (235,289 | ) | (161,414 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | (1,743 | ) | (1,977 | ) | ||||
| Net cash used in investing activities | (1,743 | ) | (1,977 | ) | ||||
| Cash flow from financing activities | ||||||||
| Advance by related party | 127,043 | 39,881 | ||||||
| Repayment of advances to related party | (153,906 | ) | (12,946 | ) | ||||
| Proceeds from notes payable | 247,853 | 153,947 | ||||||
| Net cash provided by financing activities | 220,990 | 180,882 | ||||||
| Net change in cash | (16,042 | ) | 17,491 | |||||
| Cash, beginning of the year | 18,771 | 1,280 | ||||||
| Cash, end of the year | $ | 2,729 | $ | 18,771 | ||||
| Cash paid during the year | ||||||||
| Interest paid | $ | — | $ | — | ||||
| Income taxes paid | $ | — | $ | — | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Issue of share for prepaid expense | $ | 1,437,800 | $ | — | ||||
| Issue of shares to settle accounts payable and accrued liabilities | $ | 237,618 | $ | — | ||||
| Issue of convertible notes to settle notes payable | $ | 378,995 | $ | — | ||||
| Issue of shares to settle non-redeemable convertible notes | $ | 162,900 | $ | — | ||||
| Issue of shares to settle shares to be issued | $ | 932,218 | $ | — | ||||
| The accompanying footnotes are an integral part of these financial statements. | ||||||||
| 70 |
Two Hands Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 1 - NATURE 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.
From inception (April 3, 2009) until June 30, 2014 our business was a product development firm creating products designed, prototyped and produced in numerous industries including consumer and household goods, office products, furniture, and toys.
On March 1, 2012 the Company entered into a license agreement with Szar International, Inc. (dba Cigar & Spirits Magazine) (“Cigar & Spirits”). The agreement granted the Company the right to market the products of Cigar & Spirits including but not limited to the sales, promotion, and advertising vehicles of the Magazine. On July 8, 2013, The Company received written notice that Cigar & Spirits will cancel the license agreement on August 1, 2013.
Since July 1, 2014, 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 working with other independent contractors to build brand awareness campaigns for clients and their products. The Company provides assistance in building brand awareness for the products it sells through its internet website, out-of-home, mobile, online and other media outlets as required. Additionally, the Company develops the creative media to support the client’s media buys. The Company also assists Clients in developing and assisting in matters of developing brand strategies and discussions pertaining thereof. The Company executes and/or oversee the research, planning, pricing, creative development, tracking and deployment of all online and out-of-home 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements present the balance sheets and statements of operations, stockholders' equity and cash flows of the Company. These financial statements are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States.
| 71 |
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 year ended December 31, 2018, the Company incurred a net loss of $8,096,408 and used cash in operating activities of $235,289, and at December 31, 2018, had a stockholders’ deficit of $310,422. 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. Accordingly, these factors raise substantial doubt as to the Company's ability to continue as a going concern. 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. The Company is funding its initial operations by way of loans from its Chief Executive Officer and others, and the use of equity to pay some operating expenses. The Company's officers and directors have not committed to advancing certain operating costs of the Company.
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.
| 72 |
During the years ended December 31, 2018 and 2017, the Company had revenue of $390,381 and $43,466, respectively. During 2018 100% of revenue was earned from one customer. The contract with this customer ended in November 2018. The Company recognized revenue from services provided for brand awareness campaigns for the client and their products. Revenue is recognized based on time spent on the project at an agreed upon hourly rate and as recoverable disbursements are incurred.
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.
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 $361,200 and $0 for the years ended December 31, 2018 and 2017, respectively.
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 December 31, 2018 and 2017, we excluded the common stock issuable upon conversion of convertible promissory notes of 4,674,514,415 shares and 206,301,000 shares, respectively, as their effect would have been anti-dilutive.
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.
| 73 |
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company does not anticipate a material impact to its consolidated financial statements on adopting ASU 2016-02. However, the ultimate impact of adopting ASU 2016-02 will depend on the Company’s lease portfolio as of the adoption date.
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. ASC 2018-07 expands the scope of ASC Topic 718, Compensation-Stock Compensation (“ASC 718”) to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505-50 by moving it to ASC 718. This amendment is effective beginning January 1, 2019. Early adoption is permitted, but no earlier than an entity’s adoption date of ASC 606. The Company early adopted ASU 2018-07 with respect to grants of shares of common stock of the Company made in June 2018.
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 a maturity date of December 31, 2014. 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 2014, 2015 and 2016, the Company elected to convert $56,182 of principal and interest into 41 shares of the Company’s common stock. During 2018, the Company elected to convert $6,900 of principal and interest into 23,092 shares of common stock of the Company at a fixed conversion prices of $0.10 per share. This conversion resulted in a loss on debt settlement of $3,103,200 due to the requirement to record the share issuance at fair value on the date the shares were issued. The consolidated statement of operations includes interest expense of $3,132 and $2,610 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017 the carrying amount of the Note is $11,892 (face value of $11,892 less $0 unamortized discount) and $15,660 (face value of $15,660 less $0 unamortized discount), respectively.
| 74 |
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”). In addition 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 maturity date of December 31, 2017. 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 modification of the Note has been accounted for as debt extinguishment and the issuance of a new debt instrument. Accordingly, in connection with extinguishment of the original debt, the Company recognized a $207,764 gain with a related party as an increase in additional paid-in capital in the consolidated statement of equity. 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, 2018. The outstanding face value of the Note shall increase by another 20% on January 1, 2019 and again on each one year anniversary of the Note until the Note has been paid in full. During 2016, the Company elected to convert $60,000 of principal and interest of the non-redeemable convertible note due to DC Design into 40 shares of common stock of the Company. During 2018, the Company elected to convert $156,000 of principal and interest of a non-redeemable convertible note due to DC Design into 12,080 shares of common stock of the Company. These conversion resulted in a loss on debt settlement of $385,200 due to the requirement to record the share issuance at fair value on the date the shares were issued. The consolidated statement of operations includes interest expense of $29,821 and $26,173 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017 the carrying amount of the Note is $22,923 (face value of $22,923 less $0 unamortized discount) and $149,102 (face value of $149,102 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 a maturity date of December 31, 2018. 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 consolidated statement of operations includes interest expense of $2,986 and $0 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017 the carrying amount of the Note is $17,916 (face value of $17,916 less $0 unamortized discount) and $0, 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 a maturity date of December 31, 2018. 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 consolidated statement of operations includes interest expense of $48,813 and $0 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017 the carrying amount of the Note is $292,879 (face value of $292,879 less $0 unamortized discount) and $0, 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 a maturity date of December 31, 2018. 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 consolidated statement of operations includes interest expense of $9,000 and $0 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017 the carrying amount of the Note is $54,000 (face value of $54,000 less $0 unamortized discount) and $0, respectively.
| 75 |
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 a maturity date of December 31, 2018. 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 consolidated statement of operations includes interest expense of $7,000 and $0 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017 the carrying amount of the Note is $42,000 (face value of $42,000 less $0 unamortized discount) and $0, 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 a maturity date of December 31, 2018. 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 consolidated statement of operations includes interest expense of $8,000 and $0 for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 and 2017 the carrying amount of the Note is $48,000 (face value of $48,000 less $0 unamortized discount) and $0, respectively.
NOTE 4 - NOTES PAYABLE
As of December 31, 2018 and 2017, notes payable due to Stuart Turk, Jordan Turk and The Cellular Connection Limited, a corporation controlled by Stuart Turk, totaling $127,853 and $258,995, respectively, were outstanding. The balances are non-interest bearing, unsecured and have no specified terms of repayment.
NOTE 5 – DUE TO RELATED PARTY
As of December 31, 2018 and 2017, advances of $52,671 and $41,734, 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.
Employment Agreements
On July 1, 2016, the Company executed an employment agreement for the period from July 1, 2016 to June 30, 2017 with Nadav Elituv, the Chief Executive Officer of the Company whereby the Company shall pay 0.015 shares of Common Stock of the Company with a fair value of $1,500 ($100,000 per share) and an annual salary of $360,000 payable monthly on the first day of each month from available funds.
On July 1, 2017, the Company executed an employment agreement for the period from July 1, 2017 to June 30, 2018 with Nadav Elituv, the Chief Executive Officer of the Company whereby the Company shall pay 20 shares of Common Stock of the Company with a fair value of $926,000 ($46,300 per share).
| 76 |
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.
Stock-based compensation – salaries expense related to these employment agreements for the years ended December 31, 2018 and 2017 is $1,410,174 and $463,750, respectively. Stock-based compensation – salaries expense is recognized ratably over the requisite service period. At December 31, 2018, 18,532 shares of common stock under the September 10, 2018 employment agreement has not vested.
NOTE 6 - INCOME TAXES
A reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax
expense as reported is as follows:
| 2018 | 2017 | |||||||
| Net loss before income taxes per consolidated financial statements | $ | (8,096,408 | ) | $ | (877,867 | ) | ||
| Income tax rate | 21 | % | 35 | % | ||||
| Income tax recovery | (1,700,300 | ) | (307,300 | ) | ||||
| Non-deductible share-based payments | 662,800 | 162,300 | ||||||
| Non-deductible interest | 22,800 | 10,100 | ||||||
| Loss on settlement of debt | 732,600 | — | ||||||
| Valuation allowance change | 282,100 | 134,900 | ||||||
| Income tax expense (recovery) | $ | — | $ | — | ||||
The significant component of deferred income tax assets at December 31, 2018 and 2017 is as follows:
| 2018 | 2017 | |||||||
| Net operating loss carry-forward | $ | 588,900 | $ | 306,800 | ||||
| Valuation allowance | (588,900 | ) | (306,800 | ) | ||||
| Net deferred income tax asset | $ | — | $ | — | ||||
During the ended December 31, 2017, the deferred tax asset was decreased by $201,400 for the reduction in the enacted U.S Federal corporate tax rate from 35% in 2017 to 21% in 2018.
The amount taken into income as deferred income tax assets must reflect that portion of the income tax loss carry forwards that is more likely-than-not to be realized from future operations. The Company has chosen to provide a full valuation allowance against all available income tax loss carry forwards. The Company has recognized a valuation allowance for the deferred income tax asset since the Company cannot be assured that it is more likely than not that such benefit will be utilized in future years. The valuation allowance is reviewed annually. When circumstances change and which cause a change in management’s judgment about the realizability of deferred income tax assets, the impact of the change on the valuation allowance is generally reflected in current income.
As of December 31, 2018 and 2017 the Company has no unrecognized income tax benefits. The Company’s policy for classifying interest and penalties associated with unrecognized income tax benefits is to include such items as tax expense. No interest or penalties have been recorded during the year ended December 31, 2018 and 2017 and no interest or penalties have been accrued as of December 31, 2018 and 2017. As of December 31, 2018 and 2017, the Company did not have any amounts recorded pertaining to uncertain tax positions.
The tax years from 2009 and forward remain open to examination by federal and state authorities due to net operating loss and credit carryforwards. The Company is currently not under examination by the Internal Revenue Service or any other taxing authorities.
NOTE 7 - STOCKHOLDERS' EQUITY
| 77 |
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. On August 6, 2013, the Company filed a Certificate of Designation with the Delaware Secretary of State thereby designating two hundred thousand (200,000) shares as Series A Convertible Preferred Stock. No preferred shares have been issued.
On August 20, 2018, pursuant to stockholder consent, our Board of Directors authorized an amendment (the "Amendment") to our Certificate of Incorporation, as amended, to affect a reverse stock split of the issued and outstanding shares of our common stock, par value $0.0001, on a 1 for 500 basis. We filed the Amendment with the Delaware Secretary of State on August 27, 2018. On September 7, 2018 the Financial Industry Regulatory Authority, Inc. notified us that the reverse stock split would take effect on September 10, 2018. All common stock share and per-share amounts for all periods presented in these consolidated financial statements have been adjusted retroactively to reflect the reverse stock split.
On November 5, 2019, pursuant to stockholder consent, our Board of Directors authorized an amendment (the "Amendment") to our Certificate of Incorporation, as amended, to affect a reverse stock split of the issued and outstanding shares of our common stock, par value $0.0001, on a 1 for 1,000 basis. We filed the Amendment with the Delaware Secretary of State on November 18, 2019. On December11, 2019 the Financial Industry Regulatory Authority, Inc. notified us that the reverse stock split would take effect on December 12, 2019. All common stock share and per-share amounts for all periods presented in these consolidated financial statements have been adjusted retroactively to reflect the reverse stock split.
During 2018, the Company elected to convert $162,900 of principal and interest of non-redeemable convertible notes into 35,172 shares of common stock of the Company valued at $3,651,300. The conversions resulted in a loss on settlement of debt of $3,488,400.
On February 7, 2018, the Company issued 50 shares of common stock valued at $190,000 ($3,800 per share) to settle accrued liabilities for salary of $180,000 and shares to be issued of $10,000 due to the Nadav Elituv, the Chief Executive Officer of the Company.
On May 22, 2018, the Company issued 17 shares of common stock to settle shares to be issued (stock payable) valued at $922,218, which has been recorded over the contract period ended June 30, 2018, for stock based compensation due to the Nadav Elituv, the Chief Executive Officer of the Company.
On May 22, 2018, the Company issued 26 shares of common stock valued at $57,618 ($2,250 per share) for accounts payable of $57,618.
On June 26, 2018, the Company issued 120 shares of common stock valued at $294,000 ($2,450 per share) for the services to be provided in a period of June 26, 2018 to December 31, 2018.
On September 10, 2018, the Company issued 20,000 shares of common stock valued at $602,000 ($30.10 per share) to the Nadav Elituv, the Chief Executive Officer of the Company for officer compensation.
On September 10, 2018, the Company issued 16,000 shares of common stock valued at $481,600 ($30.10 per share) to the Brandon Milner, a Director of the Company.
On September 10, 2018, the Company issued 18,000 shares of common stock valued at $541,800 ($30.10 per share) for the services to be provided in a period of September 10, 2018 to December 31, 2018.
On September 10, 2018, the Company issued 20,000 shares of common stock valued at $602,000 ($30.10 per share) for the services to be provided in a period of September 10, 2018 to September 10, 2019.
On September 10, 2018, the Company issued 42,000 shares of common stock valued at $1,264,200 ($30.10 per share) for the consulting services.
Shares to be issued
As at December 31, 2018 and 2017, the Company had total shares to be issued for 11,468 shares of common stock and 11 shares of common stock, respectively, for stock-based compensation –salaries (see Note 5).
| 78 |
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. Under the plan, a total of 1 share of authorized common stock have been reserved for issuance pursuant to grants approved by the Board of Directors. The plan requires stock options to have a maximum term of ten years and may be subject to certain vesting requirements. Stock options are to be priced at no less than 70% of the market value of the Company's common stock on the option's grant date. If a grant to a person who own shares representing more than 10% of the voting power of all classes of shares of the Company, stock options are to be priced at no less than 100% of the market value of the Company's common stock on the option's grant date. No stock options have been granted since the inception of the 2015 Plan. During the years ended December 31, 2016 and 2015, awards for 433 shares of common stock were granted and on December 31, 2018 a total of 1 share of common stock were available for grant. At December 31, 2018 and 2017, there were no outstanding stock awards.
NOTE 8 – SUBSEQUENT EVENTS
License
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 transaction is subject to the Purchaser’s satisfaction that it can acquire the License free and clear of all encumbrances, completion of due diligence, receipt of any third-party consents and there being no material adverse change in the License. The Company agreed to pay 10,000,000 (Ten Million) Restricted common shares of Two Hands Corporation and pay a Royalty of 15% of net income, calculated in accordance with US GAAP, earned from the License to Plantro Inc S.A.S. The Transaction was expected to close on February 15, 2019. On February 27, 2019, the Company announced the closing of the Transaction was extended to the week of April 4, 2019 to satisfy conditions placed on Plantro Inc S.A.S.
Non-redeemable Convertible Notes
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 a maturity date of December 31, 2019. 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, 2020. The outstanding face value of the Note shall increase by another 20% on January 1, 2021 and again on each one year anniversary of the Note until the Note has been paid in full.
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 a maturity date of December 31, 2019. 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, 2020. The outstanding face value of the Note shall increase by another 20% on January 1, 2021 and again on each one year anniversary of the Note until the Note has been paid in full.
Convertible Note
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. In conjunction with the issuance of the Note, 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.
Common Stock
On February 25, 2019, the Company elected to convert $900 of principal and interest of a non-redeemable convertible note due to The Cellular Connection Ltd. into 9,000 shares of common stock of the Company valued at $765,000 ($85.00 per share) at a fixed conversion price of $0.10 per share. The conversion resulted in a loss on settlement of debt of $764,100.
| 79 |
| TWO HANDS CORPORATION |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| September 30, 2019 | December 31, 2018 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current assets | ||||||||
| Cash | $ | 2,394 | $ | 2,729 | ||||
| Taxes receivable | 8,131 | — | ||||||
| Prepaid expense | — | 424,745 | ||||||
| Total current assets | 10,525 | 427,474 | ||||||
| Property and equipment, net | 2,967 | 2,300 | ||||||
| Total assets | $ | 13,492 | $ | 429,774 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 54,220 | $ | 70,062 | ||||
| Non-redeemable convertible notes, net | 73,329 | 489,610 | ||||||
| Due to related party | — | 52,671 | ||||||
| Notes payable | — | 127,853 | ||||||
| Convertible note, net | 14,578 | — | ||||||
| Derivative liabilities | 271,229 | — | ||||||
| Total current liabilities | 413,356 | 740,196 | ||||||
| Long-term liabilities | ||||||||
| Promissory note | 76,263 | — | ||||||
| Promissory notes - related party | 172,874 | — | ||||||
| Non-redeemable convertible notes, net | 633,491 | — | ||||||
| Total long-term liabilities | 882,628 | — | ||||||
| Total liabilities | 1,295,984 | 740,196 | ||||||
| Commitments and Contingencies | — | — | ||||||
| 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, 299,250 and 152,199 shares issued and outstanding, respectively | 31 | 16 | ||||||
| Shares to be issued | — | 345,174 | ||||||
| Additional paid-in capital | 35,077,063 | 31,895,258 | ||||||
| Accumulated deficit | (36,359,586 | ) | (32,550,870 | ) | ||||
| Total stockholders' deficit | (1,282,492 | ) | (310,422 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 13,492 | $ | 429,774 | ||||
| The accompanying footnotes are an integral part of these condensed financial statements. | ||||||||
| 80 |
| TWO HANDS CORPORATION |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| (Unaudited) |
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Sales | $ | — | $ | 77,631 | $ | — | $ | 352,788 | ||||||||
| Operating expenses | ||||||||||||||||
| Bad debts | — | — | — | 6,200 | ||||||||||||
| General and administrative | 1,200,174 | 2,889,262 | 2,413,793 | 3,744,931 | ||||||||||||
| Total expenses | 1,200,174 | 2,889,262 | 2,413,793 | 3,751,131 | ||||||||||||
| Loss from operations | (1,200,174 | ) | (2,811,631 | ) | (2,413,793 | ) | (3,398,343 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Amortization of debt discount and interest expense | (41,416 | ) | (28,754 | ) | (108,003 | ) | (74,493 | ) | ||||||||
| Loss on settlement of debt | (131,679 | ) | (1,904,700 | ) | (1,128,259 | ) | (2,229,100 | ) | ||||||||
| Initial derivative expense | — | — | (274,717 | ) | — | |||||||||||
| Change in fair value of derivative liabilities | 221,394 | — | 116,056 | — | ||||||||||||
| Total other income (expense) | 48,299 | (1,933,454 | ) | (1,394,923 | ) | (2,303,593 | ) | |||||||||
| Net loss | $ | (1,151,875 | ) | $ | (4,745,085 | ) | $ | (3,808,716 | ) | $ | (5,701,936 | ) | ||||
| Net loss per common share - basic and diluted | $ | (5.32 | ) | $ | (149.74 | ) | $ | (21.09 | ) | $ | (504.91 | ) | ||||
| Weighted average number of common shares outstanding - basic and diluted | 216,707 | 31,688 | 180,581 | 11,293 | ||||||||||||
| The accompanying footnotes are an integral part of these condensed financial statements. | ||||||||||||||||
| 81 |
| TWO HANDS CORPORATION | ||||||||||||||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT | ||||||||||||||||||||||||||||||||
| For the three and nine months ended September 30, 2019 and 2018 | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Shares | Additional | Total | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | to be Issued | Paid-in Capital | Accumulated Deficit | Stockholders' Deficit | |||||||||||||||||||||||||
| Balance, December 31, 2017 | — | $ | — | 812 | $ | — | $ | 469,218 | $ | 23,288,538 | $ | (24,454,462 | ) | $ | (696,706 | ) | ||||||||||||||||
| Rounding at reverse split | — | — | 2 | — | — | — | — | — | ||||||||||||||||||||||||
| Common stock issued for stock payable | — | — | 20 | — | (932,218 | ) | 932,218 | — | — | |||||||||||||||||||||||
| Common stock issued to settle accounts payables and accrued liabilities | — | — | 73 | — | — | 237,618 | — | 237,618 | ||||||||||||||||||||||||
| Common stock issued for prepaid | — | — | 38,120 | 4 | — | 1,437,796 | — | 1,437,800 | ||||||||||||||||||||||||
| Common stock issued for services | — | — | 42,000 | 4 | — | 1,264,196 | — | 1,264,200 | ||||||||||||||||||||||||
| Common stock issued for officer and director compensation | — | — | 36,000 | 4 | — | 1,083,596 | — | 1,083,600 | ||||||||||||||||||||||||
| Common stock issued for conversion of notes | — | — | 28,172 | 3 | — | 2,391,297 | — | 2,391,300 | ||||||||||||||||||||||||
| Stock-based compensation - officer | — | — | — | — | 524,638 | — | — | 524,638 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (5,701,936 | ) | (5,701,936 | ) | ||||||||||||||||||||||
| Balance, September 30, 2018 | — | $ | — | 145,199 | $ | 15 | $ | 61,638 | $ | 30,635,259 | $ | (30,156,398 | ) | $ | 540,514 | |||||||||||||||||
| Preferred Stock | Common Stock | Shares | Additional | Total | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | to be Issued | Paid-in Capital | Accumulated Deficit | Stockholders' Deficit | |||||||||||||||||||||||||
| Balance, June 30, 2018 | — | $ | — | 1,197 | $ | — | $ | — | $ | 25,201,374 | $ | (25,411,313 | ) | $ | (209,939 | ) | ||||||||||||||||
| Rounding at reverse split | — | — | 2 | — | — | — | — | — | ||||||||||||||||||||||||
| Common stock issued for prepaid | — | — | 38,000 | 4 | — | 1,143,796 | — | 1,143,800 | ||||||||||||||||||||||||
| Common stock issued for services | — | — | 42,000 | 4 | — | 1,264,196 | — | 1,264,200 | ||||||||||||||||||||||||
| Common stock issued for officer and director compensation | — | — | 36,000 | 4 | — | 1,083,596 | — | 1,083,600 | ||||||||||||||||||||||||
| Common stock issued for conversion of notes | — | — | 28,000 | 3 | — | 1,942,297 | — | 1,942,300 | ||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 61,638 | — | — | 61,638 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (4,745,085 | ) | (4,745,085 | ) | ||||||||||||||||||||||
| Balance, September 30, 2018 | — | $ | — | 145,199 | $ | 15 | $ | 61,638 | $ | 30,635,259 | $ | (30,156,398 | ) | $ | 540,514 | |||||||||||||||||
| 82 |
| Preferred Stock | Common Stock | Shares | Additional | Total | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | to be Issued | Paid-in Capital | Accumulated Deficit | 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 non-redeemable convertible notes | — | — | 24,200 | 2 | — | 1,131,598 | — | 1,131,600 | ||||||||||||||||||||||||
| Common stock issued for conversion of convertible notes | — | — | 8,600 | 1 | — | 63,159 | — | 63,160 | ||||||||||||||||||||||||
| Stock based compensation - consulting | — | — | 200 | — | (8,000 | ) | 15,000 | — | 7,000 | |||||||||||||||||||||||
| Stock issued for debt settlement | — | — | 5,910 | 1 | — | 31,911 | — | 31,912 | ||||||||||||||||||||||||
| Stock issued for debt settlement - officer | — | — | 1,524 | — | — | 9,448 | — | 9,448 | ||||||||||||||||||||||||
| Stock based compensation - officer | — | — | 104,387 | 11 | (337,174 | ) | 1,819,189 | — | 1,482,026 | |||||||||||||||||||||||
| Stock issued for cash | — | — | 2,230 | — | — | 111,500 | — | 111,500 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (3,808,716 | ) | (3,808,716 | ) | ||||||||||||||||||||||
| Balance, September 30, 2019 | — | $ | — | 299,250 | $ | 31 | $ | — | $ | 35,077,063 | $ | (36,359,586 | ) | $ | (1,282,492 | ) | ||||||||||||||||
| Preferred Stock | Common Stock | Shares | Additional | Total | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | to be Issued | Paid-in Capital | Accumulated Deficit | Stockholders' Deficit | |||||||||||||||||||||||||
| Balance, June 30, 2019 | — | $ | — | 197,009 | $ | 21 | $ | — | $ | 33,831,753 | $ | (35,207,711 | ) | $ | (1,375,937 | ) | ||||||||||||||||
| Common stock issued for conversion of non-redeemable convertible notes | — | — | 10,000 | 1 | — | 133,599 | — | 133,600 | ||||||||||||||||||||||||
| Common stock issued for conversion of convertible notes | 8,600 | 1 | 63,159 | 63,160 | ||||||||||||||||||||||||||||
| Stock issued for debt settlement | — | — | 5,910 | 1 | — | 31,911 | — | 31,912 | ||||||||||||||||||||||||
| Stock issued for debt settlement - officer | — | — | 1,524 | — | — | 9,448 | — | 9,448 | ||||||||||||||||||||||||
| Stock based compensation - officer | — | — | 74,387 | 7 | — | 916,193 | — | 916,200 | ||||||||||||||||||||||||
| Stock issued for cash | — | — | 1,820 | — | — | 91,000 | — | 91,000 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (1,151,875 | ) | (1,151,875 | ) | ||||||||||||||||||||||
| Balance, September 30, 2019 | — | $ | — | 299,250 | $ | 31 | $ | — | $ | 35,077,063 | $ | (36,359,586 | ) | $ | (1,282,492 | ) | ||||||||||||||||
| The accompanying footnotes are an integral part of these condensed financial statements. | ||||||||||||||||||||||||||||||||
| 83 |
| TWO HANDS CORPORATION |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| Nine months ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (3,808,716 | ) | $ | (5,701,936 | ) | ||
| Adjustments to reconcile net loss | ||||||||
| to cash (used in) provided by operating activities | ||||||||
| Depreciation and amortization | 949 | 808 | ||||||
| Bad debt | — | 6,200 | ||||||
| Stock-based compensation | 1,489,026 | 2,872,438 | ||||||
| Amortization of debt discount | 108,003 | 74,493 | ||||||
| Loss on settlement of debt | 1,128,259 | 2,229,100 | ||||||
| Initial derivative expense | 274,717 | — | ||||||
| Change in fair value of derivative liabilities | (116,056 | ) | — | |||||
| Change in operating assets and liabilities | ||||||||
| Accounts receivable | (8,131 | ) | (40,032 | ) | ||||
| Prepaid expense | 424,744 | 285,335 | ||||||
| Accounts payable and accrued liabilities | 103,487 | 73,610 | ||||||
| Net cash used in operating activities | (403,718 | ) | (199,984 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | (1,616 | ) | (1,743 | ) | ||||
| Net cash used in investing activities | (1,616 | ) | (1,743 | ) | ||||
| Cash flow from financing activities | ||||||||
| Advance by related party | 93,488 | 59,668 | ||||||
| Repayment of advances to related party | (51,253 | ) | (66,990 | ) | ||||
| Proceeds from notes payable | 183,644 | 195,691 | ||||||
| Repayments of notes payable | (107,380 | ) | — | |||||
| Proceeds from convertible note | 175,000 | — | ||||||
| Proceeds from issuance of common stock | 111,500 | — | ||||||
| Net cash provided by financing activities | 404,999 | 188,369 | ||||||
| Net change in cash | (335 | ) | (13,358 | ) | ||||
| Cash, beginning of the period | 2,729 | 18,771 | ||||||
| Cash, end of the period | $ | 2,394 | $ | 5,413 | ||||
| Cash paid during the year | ||||||||
| Interest paid | $ | — | $ | — | ||||
| Income taxes paid | $ | — | $ | — | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Issue of shares for prepaid expense | $ | — | $ | 1,437,800 | ||||
| Issue of shares to settle accounts payable and accrued liabilities | $ | 41,360 | $ | 237,616 | ||||
| Issue of non-redeemable convertible notes to settle notes payable | $ | 127,853 | $ | 378,995 | ||||
| Issue of shares to settle non-redeemable convertible notes | $ | 1,131,600 | $ | 162,220 | ||||
| Issue of shares to settle convertible note | $ | 63,160 | $ | — | ||||
| Issue of shares to settle shares to be issued | $ | 911,000 | $ | 932,218 | ||||
| Transfer of trade accounts payable to due to related party | $ | 11,817 | $ | — | ||||
| Transfer of accrued compensation to promissory note | $ | 103,952 | $ | — | ||||
| Transfer of advances to promissory note | $ | 68,924 | $ | — | ||||
| Transfer of notes payable to promissory note | $ | 76,263 | $ | — | ||||
| Initial debt discount from derivative | $ | 175,000 | $ | — | ||||
| The accompanying footnotes are an integral part of these condensed financial statements. | ||||||||
| 84 |
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.
From inception (April 3, 2009) until June 30, 2014 our business was a product development firm creating products designed, prototyped and produced in numerous industries including consumer and household goods, office products, furniture, and toys.
On March 1, 2012 the Company entered into a license agreement with Szar International, Inc. (dba Cigar & Spirits Magazine) (“Cigar & Spirits”). The agreement granted the Company the right to market the products of Cigar & Spirits including but not limited to the sales, promotion, and advertising vehicles of the Magazine. On July 8, 2013, The Company received written notice that Cigar & Spirits will cancel the license agreement on August 1, 2013.
Since July 1, 2014, 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.
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 transaction is subject to the Company’s satisfaction that it can acquire the License free and clear of all encumbrances, completion of due diligence, receipt of any third-party consents and there being no material adverse change in the License. The Company has agreed to issue ten million (10,000,000) restricted shares of its common stock and pay a royalty of 15% of net income, calculated in accordance with US GAAP, earned from the License to Plantro Inc S.A.S. The transaction was originally expected to close on February 15, 2019. On February 27, 2019, the Company announced the closing of the transaction was extended to the week of April 4, 2019 to satisfy the conditions placed on Plantro Inc S.A.S. We currently believe that the transaction will close by the end of the first quarter of 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, 2018 of Two Hands Corporation in our Form 10-K filed on April 1, 2019.
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.
| 85 |
The interim financial information is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position as of September 30, 2019 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.
Reclassification
On the condensed consolidated statements of operations for the nine months ended September 30, 2018, stock-based compensation – salaries and stock-based compensation - services previously reported separately were combined and reported as general and administration expense.
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 nine months ended September 30, 2019, the Company incurred a net loss of $3,808,716 and used cash in operating activities of $403,718, and at September 30, 2019, had a stockholders’ deficit of $1,282,492 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. 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 condensed 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
| 86 |
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.
During the nine months ended September 30, 2019 and 2018, the Company had revenue of $0 and $275,157, respectively. During 2018 100% of revenue was earned from one customer. The contract with this customer ended in November 2018. The Company recognized revenue from services provided for brand awareness campaigns for the client and their products. Revenue is recognized based on time spent on the project at an agreed upon hourly rate and as recoverable disbursements are incurred.
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.
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 nine months ended September 30, 2019 and 2018, 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.
| 87 |
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 September 30, 2019 and 2018, we excluded the common stock issuable upon conversion of non-redeemable convertible notes, convertible notes, stock payable and warrants of 7,120,538,388 shares and 4,674,514,415 shares, respectively, as their effect would have been anti-dilutive. At September 30, 2019, common stock equivalents exceeds authorized shares of common stock of the Company.
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.
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.
| 88 |
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 September 30, 2019 on a recurring basis:
| Level 1 | Level 2 | Level 3 | ||||||||||
| Description | $ | $ | $ | |||||||||
| Derivative liabilities | — | — | 271,229 | |||||||||
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 nine months ended September 30, 2019, the Company elected to convert $1,820 of principal and interest into 18,200 shares of common stock of the Company at a fixed conversion prices of $0.10 per share. This conversion resulted in a loss on debt settlement of $1,092,580 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 $1,779 and $2,343 for the nine months ended September 30, 2019 and 2018, respectively and $599 and $789 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying amount of the Note is $11,851 (face value of $12,450 less $599 unamortized discount) and $11,892 (face value of $11,892 less $0 unamortized discount), respectively.
| 89 |
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 $3,429 and $7,516 for the nine months ended September 30, 2019 and 2018, respectively and $1,156 and $22,304 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying amount of the Note is $26,352 (face value of $27,508 less $1,156 unamortized discount) and $22,923 (face value of $22,923 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 $2,680 and $2,219 for the nine months ended September 30, 2019 and 2018, respectively and $903 and $767 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying amount of the Note is $20,596 (face value of $21,499 less $903 unamortized discount) and $17,916 (face value of $17,916 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 $43,811 and $36,269 for the nine months ended September 30, 2019 and 2018, respectively and $14,764 and $12,544 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying amount of the Note is $336,690 (face value of $351,454 less $14,764 unamortized discount) and $292,879 (face value of $292,879 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. During the nine months ended September 30, 2019, the Company elected to convert $600 of principal and interest into 6,000 shares of common stock of the Company at a fixed conversion prices of $0.10 per share. This conversion resulted in a loss on debt settlement of $36,600 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 $8,078 and $5,851 for the nine months ended September 30, 2019 and 2018, respectively and $2,722 and $3,149 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying amount of the Note is $61,478 (face value of $64,200 less $2,722 unamortized discount) and $54,000 (face value of $54,000 less $0 unamortized discount), respectively.
| 90 |
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 $2,117 and $4,259 for the nine months ended September 30, 2019 and 2018, respectively and $6,283 and $2,741 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying amount of the Note is $48,283 (face value of $50,400 less $2,117 unamortized discount) and $42,000 (face value of $42,000 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 $7,180 and $1,248 for the nine months ended September 30, 2019 and 2018, respectively and $2,420 and $1,248 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying amount of the Note is $55,180 (face value of $57,600 less $2,420 unamortized discount) and $48,000 (face value of $48,000 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 $15,501 and $0 for the nine months ended September 30, 2019 and 2018, respectively and $5,893 and $0 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying amount of the Note is $122,469 (face value of $128,362 less $5,893 unamortized discount) and $0, 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 $3,036 and $0 for the nine months ended September 30, 2019 and 2018, respectively and $1,154 and $0 for the three months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and December 31, 2018, the carrying amount of the Note is $23,921 (face value of $25,062 less $1,141 unamortized discount) and $0, respectively.
| 91 |
NOTE 4 – NOTES PAYABLE
As of September 30, 2019 and December 31, 2018, notes payable due to Stuart Turk, Jordan Turk and The Cellular Connection Limited, a corporation controlled by Stuart Turk, totaling $0 and $127,853, respectively, were outstanding. The balances are non-interest bearing, unsecured and have no specified terms of repayment. On September 30, 2019, the Company issued promissory notes to settle notes payable of $76,263 (See Note 5).
NOTE 5 – PROMISSORY NOTES
As of September 30, 2019 and December 31, 2018, promissory notes with principal and interest totaling $249,137 and $0, respectively, were outstanding. Promissory notes bear interest of 10% per annum, are unsecured and mature on December 31, 2021. Included in promissory notes is principal and interest of $172,874 due to Nadav Elituv, the Company's Chief Executive Officer.
NOTE 6 – CONVERTIBLE NOTE
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 three and nine months ended September 30, 2019, the Holder converted 8,600 shares of common stock of the Company with a fair value of $63,160 to settle principal of $40,314. The conversions resulted in the settlement of derivative liabilities of $63,432 and a gain on settlement of debt of $921. At September 30, 2019, the Note was recorded at amortized cost of $14,578 comprised of principal of $159,686 plus accrued interest of $7,938 less debt discount of $153,046.
NOTE 7 - CONVERTIBLE PROMISSORY NOTE DERIVATIVE LIABILITY
The Senior Convertible Note with Firstfire Global Opportunities Fund, LLC with an issue date of March 1, 2019 was 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 March 1, 2019, June 30, 2019 and September 30, 2019 using the binomial model.
| 92 |
The inputs into the binomial models are as follows:
March 1, 2019 | June 30, 2019 | September 30, 2019 | ||||||||||
| Closing share price | $ | 90.00 | $ | 69.00 | $ | 3.10 | ||||||
| Conversion price | $ | 36.40 | $ | 28.40 | $ | 1.80 | ||||||
| Risk free rate | 2.55 | % | 2.00 | % | 2.00 | % | ||||||
| Expected volatility | 403 | % | 407 | % | 317 | % | ||||||
| Dividend yield | 0 | % | 0 | % | 0 | % | ||||||
| Expected life | 1.51 years | 1.18 years | 0.92 years | |||||||||
The fair value of the conversion option derivative liability was $380,919, of which $175,000 was recorded as a debt discount and the remainder of $205,919 was recorded as initial derivative expense, and $268,310 at March 1, 2019 and September 30, 2019, respectively. The decrease in the fair value of the conversion option derivative liability of $112,609 is recorded as a gain in the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2019.
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 March 1, 2019 and September 30, 2019 using the binomial model.
The inputs into the binomial models are as follows:
March 1, 2019 | June 30, 2019 | September 30, 2019 | ||||||||||
| Closing share price | $ | 70.00 | $ | 69.00 | $ | 3.10 | ||||||
| Exercise price | $ | 0.20 | $ | 0.20 | $ | 0.20 | ||||||
| Risk free rate | 2.27 | % | 2.00 | % | 2.00 | % | ||||||
| Expected volatility | 364 | % | 376 | % | 402 | % | ||||||
| Dividend yield | 0 | % | 0 | % | 0 | % | ||||||
| Expected life | 2.0 years | 1.68 years | 1.42 years | |||||||||
The fair value of the warrant liability is $68,798, which was recorded as initial derivative expense, and $2,919 at March 1, 2019 and September 30, 2019, respectively. The decrease in the fair value of the warrant liability of $65,879 is recorded as a gain in the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2019.
NOTE 9 – RELATED PARTY TRANSACTIONS
As of September 30, 2019 and 2018, advances and accrued salary of $0 and $52,671, 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. On September 30, 2019, the Company issued promissory notes to settle advances and accrued salary of $172,874 (See Note 5).
Employment Agreements
On July 1, 2017, the Company executed an employment agreement for the period from July 1, 2017 to June 30, 2018 with Nadav Elituv, the Chief Executive Officer of the Company whereby the Company shall pay 20 shares of Common Stock of the Company with a fair value of $926,000 ($46,300 per share).
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.
| 93 |
Stock-based compensation – salaries expense related to these employment agreements for the nine months ended September 30, 2019 and 2018 is $1,474,026 and $1,126,638, respectively. Stock-based compensation – salaries expense was recognized ratably over the requisite service period.
NOTE 10 - STOCKHOLDERS’ DEFICIT
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.
On August 6, 2013, the Company filed a Certificate of Designation with the Delaware Secretary of State thereby designating two hundred thousand (200,000) shares as Series A Convertible Preferred Stock (“Series A Stock”). Each share of 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).
On November 5, 2019, pursuant to stockholder consent, our Board of Directors authorized an amendment (the "Amendment") to our Certificate of Incorporation, as amended, to affect a reverse stock split of the issued and outstanding shares of our common stock, par value $0.0001, on a 1 for 1,000 basis. We filed the Amendment with the Delaware Secretary of State on November 18, 2019. On December 11, 2019 the Financial Industry Regulatory Authority, Inc. notified us that the reverse stock split would take effect on December 12, 2019. All common stock share and per-share amounts for all periods presented in these consolidated financial statements have been adjusted retroactively to reflect the reverse stock split.
During the nine months ended September 30, 2019, the Company elected to convert $2,420 of principal and interest of non-redeemable convertible notes into 24,200 shares of common stock of the Company valued at $1,131,600. The conversions resulted in a loss on settlement of debt of $1,129,180.
During the nine months ended September 30, 2019, the Holder of the Convertible Note elected to convert $40,314 of principal and debt discount of $38,665 into 8,600 shares of common stock of the Company with a fair value of $63,160. The conversions resulted in the settlement of derivative liabilities of $62,432 and a gain on settlement of debt of $921.
During the nine months ended September 30, 2019, the Company issued 100 shares of common stock to settle shares to be issued (stock payable) valued at $8,000 ($80.00 per share).
During the nine months ended September 30, 2019, the Company issued 100 shares of common stock valued at $7,000 ($70.00 per share) for the services.
During the nine months ended September 30, 2019, the Company issued 5,910 shares of common stock valued at $31,912 ($5.40 per share), to settle accounts payable.
During the nine months ended September 30, 2019, the Company issued 30,000 shares of common stock to settle shares to be issued (stock payable) valued at $903,000 ($30.10 per share), which has been recorded ratably over the contract period of July 1, 2018 to June 30, 2019, for stock based compensation due to Nadav Elituv, the Chief Executive Officer of the Company.
During the nine months ended September 30, 2019, the Company issued 24,387 shares of common stock valued at $151,200 ($6.20 per share), to fully settle salary payable, for the period July 1, 2019 to June 30, 2020, due to Nadav Elituv, the Chief Executive Officer of the Company.
During the nine months ended September 30, 2019, the Company issued 50,000 shares of common stock valued at $765,000 ($15.30 per share) for stock based compensation due to Nadav Elituv, the Chief Executive Officer of the Company.
During the nine months ended September 30, 2019, the Company issued 1,524 shares of common stock valued at $9,448 ($6.20 per share), to settle advances payable due to Nadav Elituv, the Chief Executive Officer of the Company.
During the nine months ended September 30, 2019, the Company issued 2,230 shares of common stock for $111,500 in cash.
| 94 |
Shares to be issued
As at September 30, 2019 and December 31, 2018, the Company had an obligation to issue 0 shares of common stock and 11,468 shares of common stock, respectively, for stock-based compensation –salaries (see Note 9).
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. Under the plan, a total of 1 share of authorized common stock have been reserved for issuance pursuant to grants approved by the Board of Directors. The plan requires stock options to have a maximum term of ten years and may be subject to certain vesting requirements. Stock option are to be priced at no less than 70% of the market value of the Company's common stock on the option's grant date. If a grant to a person who own shares representing more than 10% of the voting power of all classes of shares of the Company, stock option are to be priced at no less than 100% of the market value of the Company's common stock on the option's grant date. No stock options have been granted since the inception of the 2015 Plan. During the years ended December 31, 2016 and 2015, awards for 433 shares of common stock were granted and on September 30, 2019 a total of 1 share of common stock available for grant. At September 30, 2019, there were no outstanding stock awards.
NOTE 11 - SUBSEQUENT EVENTS
From October 1, 2019 to November 8, 2019, the Company elected to convert $10,550 of principal and interest of non-redeemable convertible notes into 105,500 shares of common stock of the Company with a fair value of $170,150.
From October 1, 2019 to November 8, 2019, the Holder of the Convertible note elected to convert $41,130 of principal into 62,000 shares of common stock of the Company with a fair value of $80,800.
On November 1, 2019, the Company issued 30,000 shares of Series A Convertible Preferred Stock for stock based compensation due to Nadav Elituv, the Chief Executive Officer of the Company.
| 95 |
Two Hands Corporation
2,000,000 Shares of
Common Stock
PROSPECTUS
_____________, 2020
Until ____________, 2020, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a Prospectus. This is in addition to the dealers’ obligation to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
| 96 |
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable by us in connection with the issuance and distribution of the securities being registered hereunder. No expenses will be borne by the Selling Stockholder. All of the amounts shown are estimates, except for the SEC registration fee.
| Type | Amount | |||
| SEC registration fee | $ | 50.00 | ||
| Accounting fees and expenses* | 3,000.00 | |||
| Legal fees and expenses* | 5,000.00 | |||
| Printing expenses* | 100.00 | |||
| Miscellaneous fees and expenses* | 250.00 | |||
| Total expenses* | $ | 8,400.00 | ||
| * | Estimated |
Item 14. Indemnification of Directors and Officers
Articles 7 and 8 of our Certificate of Incorporation, as amended, provide as follows:
SEVENTH: No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by director as a director. Notwithstanding the foregoing sentence, director shall be liable to the extent provided by applicable law, (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article Seventh shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.
EIGHTH: The Corporation shall have the right to Indemnify any and all directors and officers to the fullest extent permitted by the Delaware General Corporation Law.
Also, our Bylaws provide the following:
ARTICLE XI - INDEMNITY
The Corporation shall indemnify to the full extent authorized by law any person made or threatened to be made a party to an action or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer or employee or agent of the Corporation or any predecessor of the Corporation or serves or served any other enterprise as a director, officer or employee or agent at the request of the corporation or any predecessor of the Corporation.
| 97 |
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us pursuant to the foregoing provisions or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities
The following is a summary of transactions by us within the past three years involving sales or our securities that were not registered under the Securities Act.
During the period from January 1, 2020 through January 20, 2020 the Company:
| ● | Issued 245,000 shares of common stock, with a fair value of $18,375, for conversion of convertible notes. |
During the period from January 1, 2019 through December 31, 2019 the Company:
| ● | Issued 354,700 shares of common stock, with a fair value of $1,351,700, for conversion of non-redeemable convertible notes. | |
| ● | Issued 337,600 shares of common stock, with a fair value of $208,551, for conversion of convertible notes. | |
| ● | Issued 200 shares of common stock, with a fair value of $15,000, for stock-based compensation – consulting. | |
| ● | Issued 5,910 shares of common stock, with a fair value of $31,912, for debt settlement. | |
| ● | Issued 1,524 shares of common stock, with a fair value of $9,448, debt settlement – officer. | |
| ● | Issued 3,938,055 shares of common stock, with a fair value of $2,940,548, for stock-based compensation – officer. | |
| ● | Issued 1,471,369 shares of common stock, with a fair value of $294,274, for stock-based compensation. | |
|
●
|
Issued 30,000 shares of Series A Convertible Preferred Stock, with a fair value of $33,000, for stock-based compensation – officer. | |
| ● | Issued 4,000 shares of Series B Convertible Preferred Stock, with a fair value of $1,520,000 |
During the year ended December 31, 2018 the Company:
| ● | Issued 20 shares of common stock, with a fair value of $932,218, to settle stock payable. | |
| ● | Issued 73 shares of common stock, with a fair value of $237,618, to settle accounts payable and accrued liabilities. | |
| ● | Issued 38,120 shares of common stock, with a fair value of $1,437,800, for prepaid services. |
| 98 |
| ● | Issued 42,000 shares of common stock, with a fair value of $1,264,200, for services. | |
| ● | Issued 36,000 shares of common stock, with a fair value of $1,083,600, for officer and director compensation. | |
| ● | Issued 35,172 shares of common stock, with a fair value of $3,651,300, for conversion of notes |
During the year ended December 31, 2017 the Company did not issue securities that were not registered under the Securities Act.
During the year ended December 31, 2016 the Company:
| ● | Issued 240 shares of common stock, with a fair value of $256,000, for services. | |
| ● | Issued 160 shares of common stock, with a fair value of $111,214, to settle notes payable. | |
| ● | Issued 410 shares of common stock, with a fair value of $511,046, to settle officer compensation payable. |
Unless otherwise provided, the issuances of the foregoing shares were exempt from the registration requirements of the Securities Act under Rule 506(b) of Regulation D and/or Section 4(a)(2) of the Securities Act. The certificates representing the foregoing shares were endorsed with the customary Securities Act restrictive legend.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.
(b) Financial Statement Schedules.
None.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any Prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
| 99 |
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(4) That, for purposes of determining liability under the Securities Act to any purchaser:
(i) If the registrant is relying on Rule 430B:
(A) Each Prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed Prospectus was deemed part of and included in the registration statement; and
(B) Each Prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) (§ 230.424(b)(2), (b)(5), or (b)(7) of this chapter) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) (§ 230.415(a)(1)(i), (vii), or (x) of this chapter) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of Prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the Prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that Prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or Prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or Prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or Prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
| 100 |
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the registrant pursuant to Rule 424(b) or under the securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities as that time shall be deemed to be the initial bona fide offering thereof.
| 101 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Toronto, Ontario, on January 21, 2020.
| TWO HANDS CORPORATION | ||
| By: | /s/ Nadav Elituv | |
| Nadav Elituv | ||
|
President and Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ Steven Gryfe | |
| Steven Gryfe | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Nadav Elituv and Steven Gryfe, and each of them severally, as his true and lawful attorney in fact and agent, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post effective amendments) to the Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and all post effective amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, each acting alone, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Nadav Elituv |
President, Secretary and Treasurer and Director (Principal Executive Officer) |
January 21, 2020 | ||
| Nadav Elituv | ||||
| /s/ Steven Gryfe |
Chief Financial Officer (Principal Financial and Accounting Officer) |
January 21, 2020 | ||
| Steven Gryfe | ||||
| /s/ Ryan Wilson | Director | January 21, 2020 | ||
| Ryan Wilson | ||||
| /s/ Bradley Southam | Director | January 21, 2020 | ||
| Bradley Southam |
| 102 |
PART III – EXHIBITS
Index to Exhibit
† Includes management contracts and compensation plans and arrangements
| 103 |
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of January 20, 2020, by and between TWO HANDS CORPORATION, a Delaware corporation (the "Company"), and CROWN BRIDGE PARTNERS, LLC, a New York limited liability company (together with it permitted assigns, the “Buyer”). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the equity purchase agreement by and between the parties hereto, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Purchase Agreement").
WHEREAS:
The Company has agreed, upon the terms and subject to the conditions of the Purchase Agreement, to sell to the Buyer up to Five Million Dollars ($5,000,000.00) of Put Shares and to induce the Buyer to enter into the Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "Securities Act"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Buyer hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following meanings:
a. "Investor" means the Buyer, any transferee or assignee thereof to whom a Buyer assigns its rights under this Agreement in accordance with Section 9 and who agrees to become bound by the provisions of this Agreement, and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement in accordance with Section 9 and who agrees to become bound by the provisions of this Agreement.
b. "Person" means any individual or entity including but not limited to any corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.
c. "Register," "registered," and "registration" refer to a registration effected by preparing and filing one or more registration statements of the Company in compliance with the Securities Act and/or pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such registration statement(s) by the United States Securities and Exchange Commission (the "SEC").
d. "Registrable Securities" means all of the Put Shares which have been, or which may, from time to time be issued, including without limitation all of the shares of common stock which have been issued or will be issued to the Investor under the Purchase Agreement (without regard to any limitation or restriction on purchases), and any and all shares of capital stock issued or issuable with respect to the Put Shares, shares of common stock issued to the Investor as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitation on purchases under the Purchase Agreement.
| 1 |
e. "Registration Statement" means one or more registration statements of the Company covering only the sale of the Registrable Securities.
2. REGISTRATION.
a. Mandatory Registration. The Company shall, on or before the date which is forty-five (45) calendar days after the date of this Agreement, file with the SEC an initial Registration Statement covering the maximum number of Registrable Securities as shall be permitted to be included thereon in accordance with applicable SEC rules, regulations and interpretations so as to permit the resale of such Registrable Securities by the Investor, including but not limited to under Rule 415 under the Securities Act at then prevailing market prices (and not fixed prices), as mutually determined by both the Company and the Investor in consultation with their respective legal counsel, subject to the aggregate number of authorized shares of the Company’s Common Stock then available for issuance in its Certificate of Incorporation. The initial Registration Statement shall register only the Registrable Securities. The Investor and its counsel shall have a reasonable opportunity to review and comment upon such Registration Statement and any amendment or supplement to such Registration Statement and any related prospectus prior to its filing with the SEC, and the Company shall give due consideration to all reasonable comments. The Investor shall furnish all information reasonably requested by the Company for inclusion therein. The Company shall use its reasonable best efforts to have the Registration Statement and any amendment declared effective by the SEC at the earliest possible date (in any event, within ninety (90) calendar days after the date of this Agreement). The Company shall use reasonable best efforts to keep the Registration Statement effective, including but not limited to pursuant to Rule 415 promulgated under the Securities Act and available for the resale by the Investor of all of the Registrable Securities covered thereby at all times until the earlier of (i) the date as of which the Investor may sell all of the Registrable Securities without restriction pursuant to Rule 144 promulgated under the Securities and (ii) the date on which the Investor shall have sold all the Registrable Securities covered thereby and no Available Amount remains under the Purchase Agreement (the "Registration Period"). The Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading.
b. Rule 424 Prospectus. The Company shall, as required by applicable securities regulations, from time to time file with the SEC, pursuant to Rule 424 promulgated under the Securities Act, the prospectus and prospectus supplements, if any, to be used in connection with sales of the Registrable Securities under the Registration Statement. The Investor and its counsel shall have a reasonable opportunity to review and comment upon such prospectus prior to its filing with the SEC, and the Company shall give due consideration to all such comments. The Investor shall use its reasonable best efforts to comment upon such prospectus within one (1) Business Day from the date the Investor receives the final pre-filing version of such prospectus.
c. Sufficient Number of Shares Registered. In the event the number of shares available under the Registration Statement is insufficient to cover all of the Registrable Securities, the Company shall amend the Registration Statement or file a new Registration Statement (a “New Registration Statement”), so as to cover all of such Registrable Securities (subject to the limitations set forth in Section 2(a)) as soon as practicable, but in any event not later than ten (20) Business Days after the necessity therefor arises, subject to any limits that may be imposed by the SEC pursuant to Rule 415 under the Securities Act. The Company shall use it reasonable best efforts to cause such amendment and/or New Registration Statement to become effective as soon as practicable following the filing thereof. In the event that any of the Put Shares are not included in the Registration Statement, or have not been included in any New Registration Statement and the Company files any other registration statement under the Securities Act (other than on Form S-4, Form S-8, or with respect to other employee related plans or rights offerings) (“Other Registration Statement”) then the Company shall include in such Other Registration Statement all of such Put Shares that have not been previously registered, and third any other securities the Company wishes to include in such Other Registration Statement. The Company agrees that it shall not file any such Other Registration Statement unless all of the Put Shares have been included in such Other Registration Statement or otherwise have been registered for resale as described above.
| 2 |
d. Offering. If the staff of the SEC (the “Staff”) or the SEC seeks to characterize any offering pursuant to a Registration Statement filed pursuant to this Agreement as constituting an offering of securities that does not permit such Registration Statement to become effective and be used for resales by the Investor under Rule 415 at then-prevailing market prices (and not fixed prices), or if after the filing of the initial Registration Statement with the SEC pursuant to Section 2(a), the Company is otherwise required by the Staff or the SEC to reduce the number of Registrable Securities included in such initial Registration Statement, then the Company shall reduce the number of Registrable Securities to be included in such initial Registration Statement (with the prior consent, which shall not be unreasonably withheld, of the Investor and its legal counsel as to the specific Registrable Securities to be removed therefrom) until such time as the Staff and the SEC shall so permit such Registration Statement to become effective and be used as aforesaid. In the event of any reduction in Registrable Securities pursuant to this paragraph, the Company shall file one or more New Registration Statements in accordance with Section 2(c) until such time as all Registrable Securities have been included in Registration Statements that have been declared effective and the prospectus contained therein is available for use by the Investor. Notwithstanding any provision herein or in the Purchase Agreement to the contrary, the Company’s obligations to register Registrable Securities (and any related conditions to the Investor’s obligations) shall be qualified as necessary to comport with any requirement of the SEC or the Staff as addressed in this Section 2(d).
3. RELATED OBLIGATIONS.
With respect to the Registration Statement and whenever any Registrable Securities are to be registered pursuant to Section 2 including on any New Registration Statement, the Company shall use its reasonable best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations:
a. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to any registration statement and the prospectus used in connection with such registration statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep the Registration Statement or any New Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement or any New Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such registration statement.
b. The Company shall permit the Investor to review and comment upon the Registration Statement or any New Registration Statement and all amendments and supplements thereto usinging its best efforts to provide at least two (2) Business Days prior to their filing with the SEC, and not file any document in a form to which Investor reasonably objects. The Investor shall use its reasonable best efforts to comment upon the Registration Statement or any New Registration Statement and any amendments or supplements thereto within two (2) Business Days from the date the Investor receives the final version thereof. The Company shall furnish to the Investor, without charge any correspondence from the SEC or the staff of the SEC to the Company or its representatives relating to the Registration Statement or any New Registration Statement if the Investor’s input is required.
| 3 |
c. Upon request of the Investor, the Company shall furnish to the Investor, (i) promptly after the same is prepared and filed with the SEC, at least one copy of such registration statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits, (ii) upon the effectiveness of any registration statement, a copy of the prospectus included in such registration statement and all amendments and supplements thereto (or such other number of copies as the Investor may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus, as the Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by the Investor. For the avoidance of doubt, any filing available to the Investor via the SEC’s live EDGAR system shall be deemed “furnished to the Investor” hereunder.
d. The Company shall use reasonable best efforts to (i) register and qualify the Registrable Securities covered by a registration statement under such other securities or "blue sky" laws of such jurisdictions in the United States as the Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify the Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose.
e. As promptly as practicable after becoming aware of such event or facts, the Company shall notify the Investor in writing of the happening of any event or existence of such facts as a result of which the prospectus included in any registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare a supplement or amendment to such registration statement to correct such untrue statement or omission, and deliver a copy of such supplement or amendment to the Investor (or such other number of copies as the Investor may reasonably request). The Company shall also promptly notify the Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a registration statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to the Investor by email or facsimile on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to any registration statement or related prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate.
f. The Company shall use its reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of any registration statement, or the suspension of the qualification of any Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Investor of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.
| 4 |
g. The Company shall (i) cause all the Registrable Securities to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure designation and quotation of all the Registrable Securities on the Principal Market. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section.
h. The Company shall cooperate with the Investor to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to any registration statement and enable such certificates to be in such denominations or amounts as the Investor may reasonably request and registered in such names as the Investor may request.
i. The Company shall at all times provide a transfer agent and registrar with respect to its Common Stock.
j. If reasonably requested by the Investor, the Company shall (i) immediately incorporate in a prospectus supplement or post-effective amendment such information as the Investor believes should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities; (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as practicable upon notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any registration statement.
k. The Company shall use its reasonable best efforts to cause the Registrable Securities covered by any registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.
l. Within two (2) Business Day after any registration statement which includes the Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investor) confirmation that such registration statement has been declared effective by the SEC in the form attached hereto as Exhibit A. Thereafter, if requested by the Buyer at any time, the Company shall require its counsel to deliver to the Buyer a written confirmation whether or not the effectiveness of such registration statement has lapsed at any time for any reason (including, without limitation, the issuance of a stop order) and whether or not the registration statement is current and available to the Buyer for sale of all of the Registrable Securities.
m. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investor of Registrable Securities pursuant to any registration statement.
| 5 |
4. OBLIGATIONS OF THE INVESTOR.
a. The Company shall notify the Investor in writing of the information the Company reasonably requires from the Investor in connection with any registration statement hereunder. The Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.
b. The Investor agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any registration statement hereunder.
c. The Investor agrees that, upon receipt of any notice from the Company of the happening of any event or existence of facts of the kind described in Section 3(f) or the first sentence of 3(e), the Investor will immediately discontinue disposition of Registrable Securities pursuant to any registration statement(s) covering such Registrable Securities until the Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or the first sentence of 3(e). Notwithstanding anything to the contrary, the Company shall cause its transfer agent to promptly deliver shares of Common Stock without any restrictive legend in accordance with the terms of the Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investor's receipt of a notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of Section 3(e) and for which the Investor has not yet settled.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than sales or brokerage commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company, shall be paid by the Company.
6. INDEMNIFICATION.
a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Investor, each Person, if any, who controls the Investor, the members, the directors, officers, partners, employees, agents, representatives of the Investor and each Person, if any, who controls the Investor within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act") (each, an "Indemnified Person"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint or several, (collectively, "Claims") incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("Indemnified Damages"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in the Registration Statement, any New Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which Registrable Securities are offered ("Blue Sky Filing"), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in the final prospectus (as
| 6 |
amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to the Registration Statement or any New Registration Statement or (iv) any material violation by the Company of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, "Violations"). The Company shall reimburse each Indemnified Person promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information about the Investor furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement, any New Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(c) or Section 3(e); (ii) with respect to any superseded prospectus, shall not inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the superseded prospectus was corrected in the revised prospectus, as then amended or supplemented, if such revised prospectus was timely made available by the Company pursuant to Section 3(c) or Section 3(e), and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified Person, notwithstanding such advice, used it; (iii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(c) or Section 3(e); and (iv) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investor pursuant to Section 9.
b. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party
| 7 |
shall be liable for any settlement of any action, claim or proceeding effectuated without its written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.
c. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.
d. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS AND DISCLOSURE UNDER THE SECURITIES ACTS.
With a view to making available to the Investor the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Investor to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees, at the Company’s sole expense, to:
a. make and keep public information available, as those terms are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144;
c. furnish to the Investor so long as the Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting and or disclosure provisions of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
| 8 |
recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration; and
d. take such additional action as is requested by the Investor to enable the Investor to sell the Registrable Securities pursuant to Rule 144, including, without limitation, delivering all such legal opinions, consents, certificates, resolutions and instructions to the Company’s Transfer Agent as may be requested from time to time by the Investor and otherwise fully cooperate with Investor and Investor’s broker to effect such sale of securities pursuant to Rule 144.
The Company agrees that damages may be an inadequate remedy for any breach of the terms and provisions of this Section 8 and that Investor shall, whether or not it is pursuing any remedies at law, be entitled to equitable relief in the form of a preliminary or permanent injunctions, without having to post any bond or other security, upon any breach or threatened breach of any such terms or provisions.
| 9. | ASSIGNMENT OF REGISTRATION RIGHTS. |
The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investor. The Investor may not assign its rights under this Agreement without the written consent of the Company.
10. AMENDMENT OF REGISTRATION RIGHTS.
No provision of this Agreement may be amended or waived by the parties from and after the date that is one Business Day immediately preceding the initial filing of the Registration Statement with the SEC. Subject to the immediately preceding sentence, no provision of this Agreement may be (i) amended other than by a written instrument signed by both parties hereto or (ii) waived other than in a written instrument signed by the party against whom enforcement of such waiver is sought. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile or email (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses for such communications shall be:
| 9 |
If to the Company:
Two Hands Corporation
33 Davies Ave., Level 2
Toronto, Ontario Canada M4M 2A9
Email: ir@twohandsapp.com
Attention: Nadav Elituv, Chief Executive Officer
If to the Investor:
Crown Bridge Partners, LLC
1173a 2nd Avenue, Suite 126
New York, NY 10065
E-mail: Info@CrownBridgeCapital.com
or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine or email account containing the time, date, recipient facsimile number or email address, as applicable, and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
c. The corporate laws of the State of Delaware shall govern all issues concerning this Agreement. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Delaware. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in New York, NY, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
d. This Agreement and the Purchase Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the Purchase Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.
| 10 |
e. Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties hereto.
f. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
g. This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission or by e-mail in a “.pdf” format data file of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
h. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
i. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.
j. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
* * * * * *
| 11 |
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of day and year first above written.
THE COMPANY:
TWO HANDS CORPORATION
By: /s/ Nadav Elituv
Name: Nadav Elituv
Title: Chief Executive Officer
INVESTOR:
CROWN BRIDGE PARTNERS, LLC
By: /s/ Seth Ahdoot
Name: Seth Ahdoot
Title: Member
| 12 |
EXHIBIT A
TO REGISTRATION RIGHTS AGREEMENT
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
______, 2020
TranShare Corporation
2849 Executive Drive, Suite 200
Clearwater, FL 33762
Re: [__________]
Ladies and Gentlemen:
We are counsel to TWO HANDS CORPORATION, a Delaware corporation (the “Company”), and have represented the Company in connection with that certain Purchase Agreement, dated as of January 20, 2020 (the “Purchase Agreement”), entered into by and between the Company and Crown Bridge Partners, LLC (the “Buyer”) pursuant to which the Company has agreed to issue to the Buyer shares of the Company's Common Stock, $0.0001 par value (the “Common Stock”), in an amount up to Five Million Dollars ($5,000,000.00) (the “Put Shares”), in accordance with the terms of the Purchase Agreement. In connection with the transactions contemplated by the Purchase Agreement, the Company has registered with the U.S. Securities & Exchange Commission the following shares of Common Stock:
| (1) | __________ Put Shares to be issued to the Buyer upon purchase from the Company by the Buyer from time to time in accordance with the Purchase Agreement. |
Pursuant to the Purchase Agreement, the Company also has entered into a Registration Rights Agreement, of even date with the Purchase Agreement with the Buyer (the “Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to register the Put Shares under the Securities Act of 1933, as amended (the “Securities Act”). In connection with the Company's obligations under the Purchase Agreement and the Registration Rights Agreement, on [_____], 2020, the Company filed a Registration Statement (File No. 333-[_________]) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the resale of the Put Shares.
In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the Securities Act at [_____] [A.M./P.M.] on [__________], 2020 and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Put Shares are available for resale under the Securities Act pursuant to the Registration Statement and may be issued without any restrictive legend.
Very truly yours,
[Company Counsel]
By:____________________
cc: Crown Bridge Partners, LLC
| 13 |
| Philip Magri, Esq. |
January 21, 2020
Two Hands Corporation
33 Davis Avenue, Level 2
Toronto, ONT M4M 2A9
Attn: Board of Directors
Re: 2,000,000 shares of Common Stock
Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to Two Hands Corporation, a Delaware corporation (the “Company”), in connection with the preparation and filing with the U.S. Securities and Exchange Commission (the “Commission”) of a Registration Statement on Form S-1 (the “Registration Statement”). The Company is filing the Registration Statement in connection with the offering from time to time, pursuant to Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), by Crown Bridge Partners, LLC, a New York limited liability company (the “Selling Stockholder”), of up to 2 million (2,000,000) shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), issuable to Selling Stockholder pursuant to the terms of that certain Equity Purchase Agreement, dated January 20, 2020 (the “Agreement”), between the Company and the Selling Stockholder (the “Shares”).
The offering of the Shares by the Selling Stockholder will be as set forth in the prospectus contained in the Registration Statement, as amended, and deemed effective under the Securities Act by the Commission.
In rendering these opinions, we have examined the Company’s Certificate of Incorporation and Bylaws, both as amended and currently in effect, the Registration Statement, and the exhibits thereto, including but not limited to, the Agreement, and such other records, instruments and documents as we have deemed advisable in order to render these legal opinions. In such examination, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photo static copies and the authenticity of the originals of such latter documents. In providing these opinions, we have further relied as to certain matters on information obtained from officers of the Company.
| 1 |
As a result of and subject to the foregoing, we are of the opinion that upon their issuance to Selling Stockholder pursuant to the terms and conditions of the Agreement, the Shares will be validly issued, fully paid and non-assessable shares of Common Stock of the Company.
The foregoing opinions are qualified to the extent that the enforceability of any applicable agreement, document, or instrument discussed herein may be limited by or subject to bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors’ rights generally, and general equitable or public policy principles.
We have relied as to certain matters on information obtained from officers and directors of the Company, and other sources believed by us to be responsible.
Our opinion letter is expressly limited to the matters set forth above, and we render no opinion, whether by implication or otherwise, as to any other matters relating to the Company, the shares of Common Stock or the agreements and instruments addressed herein, or in the Registration Statement. This opinion is based upon currently existing statutes, regulations, rules and judicial decisions, and we disclaim any obligation to advise you of any change in any of these sources of law or subsequent legal or factual developments which might affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to this firm under the caption “Legal Matters” in the Prospectus which is a part of the Registration Statement.
| Very truly yours, | |
| /s/ Magri Law, LLC | |
| Magri Law, LLC |
| 2 |
EQUITY PURCHASE AGREEMENT
This equity purchase agreement is entered into as of January 20, 2020 (this "Agreement"), by and between Two Hands Corporation, a Delaware corporation (the "Company"), and Crown Bridge Partners, LLC, a New York limited liability company (the "Investor").
WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Investor, from time to time as provided herein, and the Investor shall purchase up to Five Million Dollars ($5,000,000.00) of the Company’s Common Stock (as defined below);
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings specified or indicated (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
"Agreement" shall have the meaning specified in the preamble hereof.
“Average Daily Trading Value” shall mean the average trading volume of the Company’s Common Stock in the ten (10) Trading Days immediately preceding the respective Put Date (the “Pricing Period”) multiplied by the lowest traded price of the Company’s Common Stock in the ten (10) Trading Days immediately preceding the respective Put Date.
“Bankruptcy Law” means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors.
"Claim Notice" shall have the meaning specified in Section 9.3(a).
“Clearing Costs” shall mean all of the Investor’s brokerage firm, clearing firm, and Transfer Agent fees relating to the Put Shares, as well as legal fees of $500 per Put.
“Clearing Date” shall be the date on which the Investor receives the Put Shares as DWAC Shares in its brokerage account.
"Closing" shall mean one of the closings of a purchase and sale of shares of Common Stock pursuant to Section 2.3.
"Closing Certificate" shall mean the closing certificate of the Company in the form of Exhibit B hereto.
| 1 |
“Closing Date” shall mean the date of any Closing hereunder.
“Commitment Note” shall mean the convertible promissory note in the principal amount of $25,000.00, attached as Exhibit D hereto, issued by the Company to the Investor on January 20, 2020.
"Commitment Period" shall mean the period commencing on the Execution Date, and ending on the earlier of (i) the date on which the Investor shall have purchased Put Shares pursuant to this Agreement equal to the Maximum Commitment Amount, (ii) January 20, 2022, or (iii) written notice of termination by the Company to the Investor (which shall not occur at any time that the Investor holds any of the Put Shares).
"Common Stock" shall mean the Company's common stock, $0.0001 par value per share, and any shares of any other class of common stock whether now or hereafter authorized, having the right to participate in the distribution of dividends (as and when declared) and assets (upon liquidation of the Company).
“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
"Company" shall have the meaning specified in the preamble to this Agreement.
“Custodian” means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.
"Damages" shall mean any loss, claim, damage, liability, cost and expense (including, without limitation, reasonable attorneys' fees and disbursements and costs and expenses of expert witnesses and investigation).
"Dispute Period" shall have the meaning specified in Section 9.3(a).
“DTC” shall mean The Depository Trust Company, or any successor performing substantially the same function for the Company.
“DTC/FAST Program” shall mean the DTC’s Fast Automated Securities Transfer Program.
“DWAC” shall mean Deposit Withdrawal at Custodian as defined by the DTC.
“DWAC Eligible” shall mean that (a) the Common Stock is eligible at DTC for full services pursuant to DTC’s Operational Arrangements, including, without limitation, transfer through DTC’s DWAC system, (b) the Company has been approved (without revocation) by the DTC’s underwriting department, (c) the Transfer Agent is approved as an agent in the DTC/FAST Program, (d) the Put Shares, as applicable, are otherwise eligible for delivery via DWAC, and (e) the Transfer Agent does not have a policy prohibiting or limiting delivery of the Put Shares, as applicable, via DWAC.
| 2 |
“DWAC Shares” means shares of Common Stock that are (i) issued in electronic form, (ii) freely tradable and transferable and without restriction on resale and (iii) timely credited by the Company to the Investor’s or its designee’s specified DWAC account with DTC under the DTC/FAST Program, or any similar program hereafter adopted by DTC performing substantially the same function.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exchange Cap” shall have the meaning set forth in Section 7.1(c).
"Execution Date" shall mean the date of this Agreement.
"FINRA" shall mean the Financial Industry Regulatory Authority, Inc.
"Investment Amount" shall mean the Put Shares referenced in the Put Notice multiplied by the Purchase Price minus the Clearing Costs.
"Indemnified Party" shall have the meaning specified in Section 9.2.
"Indemnifying Party" shall have the meaning specified in Section 9.2.
"Indemnity Notice" shall have the meaning specified in Section 9.3(e).
"Investor" shall have the meaning specified in the preamble to this Agreement.
“Lien” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
"Market Price" shall mean the one (1) lowest traded price on the Principal Market for any Trading Day during the Pricing Period, as reported by Bloomberg Finance L.P or other reputable source, subject to adjustment herein.
"Material Adverse Effect" shall mean any effect on the business, operations, properties, or financial condition of the Company and the Subsidiaries that is material and adverse to the Company and the Subsidiaries and/or any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to enter into and perform its obligations under any Transaction Document.
"Maximum Commitment Amount" shall mean Five Million Dollars ($5,000,000.00).
| 3 |
"Person" shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
"Principal Market" shall mean any of the national exchanges (i.e. NYSE, NYSE AMEX, Nasdaq), or principal quotation systems (i.e. OTCQX, OTCQB, OTC Pink, the OTC Bulletin Board), or other principal exchange or recognized quotation system which is at the time the principal trading platform or market for the Common Stock.
"Purchase Price" shall mean 80% of the lesser of the (i) Market Price on such date on which the Purchase Price is calculated in accordance with the terms and conditions of this Agreement. or (ii) Valuation Price on such date on which the Purchase Price is calculated in accordance with the terms and conditions of this Agreement.
"Put" shall mean the right of the Company to require the Investor to purchase shares of Common Stock, subject to the terms and conditions of this Agreement.
"Put Date" shall mean any Trading Day during the Commitment Period that a Put Notice is deemed delivered pursuant to Section 2.2(b).
"Put Notice" shall mean a written notice, substantially in the form of Exhibit A hereto, to Investor setting forth the Put Shares which the Company intends to require Investor to purchase pursuant to the terms of this Agreement.
"Put Shares" shall mean all shares of Common Stock issued, or that the Company shall be entitled to issue, per any applicable Put Notice in accordance with the terms and conditions of this Agreement.
"Registration Statement" shall have the meaning specified in Section 6.4.
"Regulation D" shall mean Regulation D promulgated under the Securities Act.
“Required Minimum” shall mean, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, ignoring any beneficial ownership limitations set forth therein.
"Rule 144" shall mean Rule 144 under the Securities Act or any similar provision then in force under the Securities Act.
"SEC" shall mean the United States Securities and Exchange Commission.
“SEC Documents” shall have the meaning specified in Section 4.5.
“Securities" means, collectively, the Put Shares, Commitment Note, and the Underlying Shares.
| 4 |
"Securities Act" shall mean the Securities Act of 1933, as amended.
“Short Sales” shall mean all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act.
“Subsidiary” means any Person the Company wholly-owns or controls, or in which the Company, directly or indirectly, owns a majority of the voting stock or similar voting interest, in each case that would be disclosable pursuant to Item 601(b)(21) of Regulation S-K promulgated under the Securities Act.
"Third Party Claim" shall have the meaning specified in Section 9.3(a).
“Trading Day” shall mean a day on which the Principal Market shall be open for business.
“Transaction Documents” shall mean this Agreement, the Commitment Note, and all schedules and exhibits hereto and thereto.
"Transfer Agent" shall mean TranShare Corporation, the current transfer agent of the Company, and any successor transfer agent of the Company.
“Transfer Agent Instruction Letter” means the letter from the Company to the Transfer Agent which instructs the Transfer Agent to issue the Put Shares and the Underlying Shares pursuant to the Transaction Documents, in the form of Exhibit C attached hereto.
“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion of the Commitment Note in accordance with the terms of the Commitment Note.
"Valuation Period" shall mean the period of five (5) Trading Days following the Clearing Date associated with the applicable Put Notice.
“Valuation Price” shall mean the lowest traded price of the Company’s common stock during the respective Valuation Period.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK
Section 2.1 PUTS. Upon the terms and conditions set forth herein (including, without limitation, the provisions of Article VII), the Company shall have the right, but not the obligation, to direct the Investor, by its delivery to the Investor of a Put Notice from time to time, to purchase Put Shares (i) in a minimum amount not less than $10,000.00 and (ii) in a maximum amount up to the lesser of (a) $150,000.00 or (b) 200% of the Average Daily Trading Value.
| Section 2.2 | MECHANICS. |
| 5 |
(a) PUT NOTICE. At any time and from time to time during the Commitment Period, except as provided in this Agreement, the Company may deliver a Put Notice to Investor, subject to satisfaction of the conditions set forth in Section 7.2 and otherwise provided herein. The Company shall deliver, or cause to be delivered, the Put Shares as DWAC Shares to the Investor within two (2) Trading Days following the Put Date.
(b) DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall be deemed delivered on (i) the Trading Day it is received by email by the Investor if such notice is received on or prior to 8:30 a.m. EST or (ii) the immediately succeeding Trading Day if it is received by email after 8:30 a.m. EST on a Trading Day or at any time on a day which is not a Trading Day. The Company shall not deliver another Put Notice to the Investor within Five Trading Days of the Clearing Date associated with the immediately prior Put Notice.
Section 2.3 CLOSINGS. If the value of the Put Shares delivered to the Investor causes the Company to exceed the Maximum Commitment Amount, then the Investor shall return to the Company the surplus amount of Put Shares associated with such Put and the Purchase Price with respect to such Put shall be reduced by any Clearing Costs related to the return of such Put Shares. The Closing of a Put shall occur within three (3) Trading Days following the end of the respective Valuation Period, whereby the Investor shall deliver the Investment Amount by wire transfer of immediately available funds to an account designated by the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section 3.1 INTENT. The Investor is entering into this Agreement for its own account and the Investor has no present arrangement (whether or not legally binding) at any time to sell the Securities to or through any Person in violation of the Securities Act or any applicable state securities laws; provided, however, that the Investor reserves the right to dispose of the Securities at any time in accordance with federal and state securities laws applicable to such disposition.
Section 3.2 NO LEGAL ADVICE FROM THE COMPANY. The Investor acknowledges that it has had the opportunity to review this Agreement and the transactions contemplated by this Agreement with its own legal counsel and investment and tax advisors. The Investor is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.
Section 3.3 ACCREDITED INVESTOR. The Investor is an accredited investor as defined in Rule 501(a)(3) of Regulation D, and the Investor has such experience in business and financial matters that it is capable of evaluating the merits and risks of an investment in the Securities. The Investor acknowledges that an investment in the Securities is speculative and involves a high degree of risk.
| 6 |
Section 3.4 AUTHORITY. The Investor has the requisite power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action and no further consent or authorization of the Investor is required. Each Transaction Document to which it is a party has been duly executed by the Investor, and when delivered by the Investor in accordance with the terms hereof, will constitute the valid and binding obligation of the Investor enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.
Section 3.5 NOT AN AFFILIATE. The Investor is not an officer, director or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of the Company.
Section 3.6 ORGANIZATION AND STANDING. The Investor is an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by this Agreement and the other Transaction Documents.
Section 3.7 ABSENCE OF CONFLICTS. The execution and delivery of this Agreement and the other Transaction Documents, and the consummation of the transactions contemplated hereby and thereby and compliance with the requirements hereof and thereof, will not (a) violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Investor, (b) violate any provision of any indenture, instrument or agreement to which the Investor is a party or is subject, or by which the Investor or any of its assets is bound, or conflict with or constitute a material default thereunder, (c) result in the creation or imposition of any lien pursuant to the terms of any such indenture, instrument or agreement, or constitute a breach of any fiduciary duty owed by the Investor to any third party, or (d) require the approval of any third-party (that has not been obtained) pursuant to any material contract, instrument, agreement, relationship or legal obligation to which the Investor is subject or to which any of its assets, operations or management may be subject.
Section 3.8 DISCLOSURE; ACCESS TO INFORMATION. The Investor had an opportunity to review copies of the SEC Documents filed on behalf of the Company and has had access to all publicly available information with respect to the Company.
Section 3.9 MANNER OF SALE. At no time was the Investor presented with or solicited by or through any leaflet, public promotional meeting, television advertisement or any other form of general solicitation or advertising.
| 7 |
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that, except as disclosed in the SEC Documents or except as set forth in the disclosure schedules hereto:
Section 4.1 ORGANIZATION OF THE COMPANY. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in a Material Adverse Effect and no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
Section 4.2 AUTHORITY. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents. The execution and delivery of this Agreement and the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors or stockholders is required. Each of this Agreement and the other Transaction Documents has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.
Section 4.3 CAPITALIZATION. Except as set forth on Schedule 4.3 and the Form S-1 filed in conjunction with this Equity Purchase Agreement, the Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act , other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as set forth on Schedule 4.3 and except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Investor) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.
| 8 |
Section 4.4 LISTING AND MAINTENANCE REQUIREMENTS. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the SEC is contemplating terminating such registration. The Company has not, in the twelve (12) months preceding the date hereof, received notice from the Principal Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Principal Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.
Section 4.5 SEC DOCUMENTS; DISCLOSURE. Except as set forth on Schedule 4.5, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the one (1) year preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Documents”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Documents prior to the expiration of any such extension. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and other federal laws, rules and regulations applicable to such SEC Documents, and none of the SEC Documents when filed contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents comply as to form and substance in all material respects with applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto or (b) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments). Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided the Investor or its agents or counsel with any information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms that the Investor will rely on the foregoing representation in effecting transactions in securities of the Company.
| 9 |
Section 4.6 VALID ISSUANCES. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid, and non-assessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.
Section 4.7 NO CONFLICTS. The execution, delivery and performance of this Agreement and the other Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Put Shares and the Underlying Shares, do not and will not: (a) result in a violation of the Company’s or any Subsidiary’s certificate or articles of incorporation, by-laws or other organizational or charter documents, (b) conflict with, or constitute a material default (or an event that with notice or lapse of time or both would become a material default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, instrument or any "lock-up" or similar provision of any underwriting or similar agreement to which the Company or any Subsidiary is a party, or (c) result in a violation of any federal, state or local law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or any Subsidiary or by which any property or asset of the Company or any Subsidiary is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect) nor is the Company otherwise in violation of, conflict with or in default under any of the foregoing. The business of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental entity, except for possible violations that either singly or in the aggregate do not and will not have a Material Adverse Effect. The Company is not required under federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or the other Transaction Documents (other than any SEC, FINRA or state securities filings that may be required to be made by the Company subsequent to any Closing or any registration statement that may be filed pursuant hereto); provided that, for purposes of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of Investor herein.
| 10 |
Section 4.8 NO MATERIAL ADVERSE CHANGE. No event has occurred that would have a Material Adverse Effect on the Company that has not been disclosed in subsequent SEC filings.
Section 4.9 LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the SEC Documents or as set forth on Schedule 4.9, there are no actions, suits, investigations, inquiries or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties, nor has the Company received any written or oral notice of any such action, suit, proceeding, inquiry or investigation, which would have a Material Adverse Effect. No judgment, order, writ, injunction or decree or award has been issued by or, to the knowledge of the Company, requested of any court, arbitrator or governmental agency which would have a Material Adverse Effect. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the Company, any Subsidiary or any current or former director or officer of the Company or any Subsidiary.
Section 4.10 REGISTRATION RIGHTS. Except as set forth on Schedule 4.10, no Person (other than the Investor) has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.
ARTICLE V
COVENANTS OF INVESTOR
Section 5.1 COMPLIANCE WITH LAW; TRADING IN SECURITIES. The Investor's trading activities with respect to shares of Common Stock will be in compliance with all applicable state and federal securities laws and regulations and the rules and regulations of FINRA and the Principal Market.
Section 5.2 SHORT SALES AND CONFIDENTIALITY. Neither the Investor, nor any affiliate of the Investor acting on its behalf or pursuant to any understanding with it, will execute any Short Sales during the period from the date hereof to the end of the Commitment Period. For the purposes hereof, and in accordance with Regulation SHO, the sale after delivery of a Put Notice of such number of shares of Common Stock reasonably expected to be purchased under a Put Notice shall not be deemed a Short Sale. The Investor shall, until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company in accordance with the terms of this Agreement, maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 RESERVATION OF COMMON STOCK. The Company shall maintain a reserve from its duly authorized shares of Common Stock equal to 300% of the Required Minimum to satisfy its obligation to issue the Put Shares in accordance with the terms of this Agreement as well as satisfy the reserve obligations in the Commitment Note.
| 11 |
Section 6.2 LISTING OF COMMON STOCK. The Company shall promptly secure the listing of all of the Put Shares and Underlying Shares to be issued to the Investor hereunder on the Principal Market (subject to official notice of issuance) and shall use commercially reasonable best efforts to maintain, so long as any shares of Common Stock shall be so listed, the listing of all such Put Shares and Underlying Shares from time to time issuable hereunder. The Company shall use its commercially reasonable efforts to continue the listing and trading of the Common Stock on the Principal Market (including, without limitation, maintaining sufficient net tangible assets) and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of FINRA and the Principal Market.
Section 6.3 [Intentionally Omitted].
Section 6.4 FILING OF CURRENT REPORT AND REGISTRATION STATEMENT . The Company agrees that it shall file a Current Report on Form 8-K, including the Transaction Documents as exhibits thereto, with the SEC within the time required by the Exchange Act, relating to the transactions contemplated by, and describing the material terms and conditions of, the Transaction Documents (the “Current Report”). The Company shall permit the Investor to review and comment upon the final pre-filing draft version of the Current Report at least two (2) Trading Days prior to its filing with the SEC, and the Company shall give reasonable consideration to all such comments. The Investor shall use its reasonable best efforts to comment upon the final pre-filing draft version of the Current Report within one (1) Trading Day from the date the Investor receives it from the Company. The Company shall also file with the SEC, on or before the date which is forty-five (45) calendar days after the date of this Agreement, a new registration statement (the “Registration Statement”) covering only the resale of the Put Shares.
ARTICLE VII
CONDITIONS TO DELIVERY OF
PUT NOTICES AND CONDITIONS TO CLOSING
Section 7.1 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO ISSUE AND SELL PUT SHARES. In addition to the other terms of this Agreement, the right of the Company to issue and sell the Put Shares to the Investor is subject to the satisfaction of each of the conditions set forth below:
(a) [Intentionally Omitted].
(b) [Intentionally Omitted].
(c) PRINCIPAL MARKET REGULATION. The Company shall not issue any Put Shares, and the Investor shall not have the right to receive any Put Shares, if the issuance of such Put Shares would exceed the aggregate number of shares of Common Stock which the Company may issue without breaching the Company’s obligations under the rules or regulations of the Principal Market (the “Exchange Cap”).
| 12 |
Section 7.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES. The obligation of the Investor hereunder to purchase Put Shares is subject to the satisfaction of each of the following conditions:
(a) EFFECTIVE REGISTRATION STATEMENT. The Registration Statement, and any amendment or supplement thereto, shall remain effective for the resale by the Investor of the Put Shares and (i) neither the Company nor the Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to such Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of such Registration Statement, either temporarily or permanently, or intends or has threatened to do so and (ii) no other suspension of the use of, or withdrawal of the effectiveness of, such Registration Statement or related prospectus shall exist.
(b) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company shall be true and correct in all material respects as of the date of this Agreement and as of the date of each Closing (except for representations and warranties specifically made as of a particular date).
(c) PERFORMANCE BY THE COMPANY. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company.
(d) NO INJUNCTION. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or adopted by any court or governmental authority of competent jurisdiction that prohibits or directly and materially adversely affects any of the transactions contemplated by the Transaction Documents, and no proceeding shall have been commenced that may have the effect of prohibiting or materially adversely affecting any of the transactions contemplated by the Transaction Documents.
(e) ADVERSE CHANGES. Since the date of filing of the Company's most recent SEC Document, no event that had or is reasonably likely to have a Material Adverse Effect has occurred.
(f) NO DEFAULT. An Event of Default (as defined in the Commitment Note) shall not have occurred since the date of this Agreement.
(g) BENEFICIAL OWNERSHIP LIMITATION. The number of Put Shares then to be purchased by the Investor shall not exceed the number of such shares that, when aggregated with all other shares of Common Stock then owned by the Investor beneficially or deemed beneficially owned by the Investor, would result in the Investor owning more than the Beneficial Ownership Limitation (as defined below), as determined in accordance with Section 16 of the Exchange Act and the regulations promulgated thereunder. For purposes of this Section 7.2(g), in the event that the amount of Common Stock outstanding, as determined in accordance with Section 16 of the Exchange Act and the regulations promulgated thereunder, is greater on a Closing Date than on the date upon which the Put Notice associated with such Closing Date is given, the amount of Common Stock outstanding on such Closing Date shall govern for purposes of determining whether the Investor, when aggregating all purchases of Common Stock made pursuant to this Agreement, would own more than the Beneficial Ownership Limitation following such Closing Date. The “Beneficial Ownership Limitation” shall be 4.9% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable pursuant to a Put Notice.
| 13 |
(h) PRINCIPAL MARKET REGULATION. The issuance of the Put Shares shall not exceed the Exchange Cap.
(i) NO KNOWLEDGE. The Company shall have no knowledge of any event more likely than not to have the effect of causing the Registration Statement to be suspended or otherwise ineffective (which event is more likely than not to occur within the fifteen (15) Trading Days following the Trading Day on which such Put Notice is deemed delivered).
(j) NO VIOLATION OF SHAREHOLDER APPROVAL REQUIREMENT. The issuance of the Put Shares shall not violate the shareholder approval requirements of the Principal Market.
(k) OFFICER’S CERTIFICATE. On the date of delivery of each Put Notice, the Investor shall have received the Closing Certificate executed by an executive officer of the Company and to the effect that all the conditions to such Closing shall have been satisfied as of the date of each such certificate.
(l) DWAC ELIGIBLE. The Common Stock must be DWAC Eligible and not subject to a “DTC chill.”
(m) SEC DOCUMENTS. All reports, schedules, registrations, forms, statements, information and other documents required to have been filed by the Company with the SEC pursuant to the reporting requirements of the Exchange Act shall have been filed with the SEC within the applicable time periods prescribed for such filings under the Exchange Act.
(n) TRANSFER AGENT INSTRUCTION LETTER. The Transfer Agent Instruction Letter shall have been executed and delivered by the Company to the Transfer Agent and acknowledged and agreed to in writing by the Transfer Agent.
(o) RESERVE. The Company shall have reserved sufficient shares of its Common Stock for the Investor, pursuant to the terms of this Agreement and all other contracts between the Company and Investor.
(p) MINIMUM PRICING. The lowest traded price of the Common Stock in the twenty-five (25) Trading Days immediately preceding the respective Put Date must exceed $0.001 per share (the “Minimum Pricing”).
| 14 |
(q) CURRENT INFORMATION. The Company must be subject to the Exchange Act and current in all of its filing obligations under the Exchange Act.
ARTICLE VIII
LEGENDS
Section 8.1 NO RESTRICTIVE STOCK LEGEND. No restrictive stock legend shall be placed on the share certificates representing the Put Shares.
Section 8.2 INVESTOR'S COMPLIANCE. Nothing in this Article VIII shall affect in any way the Investor's obligations hereunder to comply with all applicable securities laws upon the sale of the Common Stock.
ARTICLE IX
NOTICES; INDEMNIFICATION
Section 9.1 NOTICES. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (a) personally served, (b) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (c) delivered by reputable air courier service with charges prepaid, or (d) transmitted by hand delivery, telegram, or email as a PDF, addressed as set forth below or to such other address as such party shall have specified most recently by written notice given in accordance herewith. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (i) upon hand delivery or delivery by email at the address designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (ii) on the second business day following the date of mailing by express courier service or on the fifth business day after deposited in the mail, in each case, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
If to the Company:
Two Hands Corporation
33 Davies Ave., Level 2
Toronto, Ontario Canada M4M 2A9
Email: ir@twohandsapp.com
Attention: Nadav Elituv, CEO
| 15 |
If to the Investor:
Crown Bridge Partners, LLC
1173a 2nd Avenue, Suite 126
New York, NY 10065
Email: Info@CrownBridgeCapital.com
Either party hereto may from time to time change its address or email for notices under this Section 9.1 by giving at least ten (10) days' prior written notice of such changed address to the other party hereto.
Section 9.2 INDEMNIFICATION. Each party (an “Indemnifying Party”) agrees to indemnify and hold harmless the other party along with its officers, directors, employees, and authorized agents, and each Person or entity, if any, who controls such party within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (an “Indemnified Party”) from and against any Damages, joint or several, and any action in respect thereof to which the Indemnified Party becomes subject to, resulting from, arising out of or relating to (i) any misrepresentation, breach of warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of the Indemnifying Party contained in this Agreement, (ii) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or supplement thereto, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in the light of the circumstances under which the statements therein were made, not misleading, or (iv) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation under the Securities Act, the Exchange Act or any state securities law, as such Damages are incurred, except to the extent such Damages result primarily from the Indemnified Party's failure to perform any covenant or agreement contained in this Agreement or the Indemnified Party's negligence, recklessness or bad faith in performing its obligations under this Agreement; provided, however, that the foregoing indemnity agreement shall not apply to any Damages of an Indemnified Party to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made by an Indemnifying Party in reliance upon and in conformity with written information furnished to the Indemnifying Party by the Indemnified Party expressly for use in the Registration Statement, any post-effective amendment thereof or supplement thereto, or any preliminary prospectus or final prospectus (as amended or supplemented).
Section 9.3 METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All claims for indemnification by any Indemnified Party under Section 9.2 shall be asserted and resolved as follows:
| 16 |
(a) In the event any claim or demand in respect of which an Indemnified Party might seek indemnity under Section 9.2 is asserted against or sought to be collected from such Indemnified Party by a Person other than a party hereto or an affiliate thereof (a "Third Party Claim"), the Indemnified Party shall deliver a written notification, enclosing a copy of all papers served, if any, and specifying the nature of and basis for such Third Party Claim and for the Indemnified Party's claim for indemnification that is being asserted under any provision of Section 9.2 against an Indemnifying Party, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such Third Party Claim (a "Claim Notice") with reasonable promptness to the Indemnifying Party. If the Indemnified Party fails to provide the Claim Notice with reasonable promptness after the Indemnified Party receives notice of such Third Party Claim, the Indemnifying Party shall not be obligated to indemnify the Indemnified Party with respect to such Third Party Claim to the extent that the Indemnifying Party's ability to defend has been prejudiced by such failure of the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party as soon as practicable within the period ending thirty (30) calendar days following receipt by the Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined below) (the "Dispute Period") whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party under Section 9.2 and whether the Indemnifying Party desires, at its sole cost and expense, to defend the Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Indemnified Party with respect to the Third Party Claim pursuant to this Section 9.3(a), then the Indemnifying Party shall have the right to defend, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, such Third Party Claim by all appropriate proceedings, which proceedings shall be vigorously and diligently prosecuted by the Indemnifying Party to a final conclusion or will be settled at the discretion of the Indemnifying Party (but only with the consent of the Indemnified Party in the case of any settlement that provides for any relief other than the payment of monetary damages or that provides for the payment of monetary damages as to which the Indemnified Party shall not be indemnified in full pursuant to Section 9.2). The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that the Indemnified Party may, at the sole cost and expense of the Indemnified Party, at any time prior to the Indemnifying Party's delivery of the notice referred to in the first sentence of this clause (i), file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate to protect its interests; and provided, further, that if requested by the Indemnifying Party, the Indemnified Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnifying Party in contesting any Third Party Claim that the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this clause (i), and except as provided in the preceding sentence, the Indemnified Party shall bear its own costs and expenses with respect to such participation. Notwithstanding the foregoing, the Indemnified Party may takeover the control of the defense or settlement of a Third Party Claim at any time if it irrevocably waives its right to indemnity under Section 9.2 with respect to such Third Party Claim.
| 17 |
(ii) If the Indemnifying Party fails to notify the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Third Party Claim pursuant to Section 9.3(a), or if the Indemnifying Party gives such notice but fails to prosecute vigorously and diligently or settle the Third Party Claim, or if the Indemnifying Party fails to give any notice whatsoever within the Dispute Period, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party, the Third Party Claim by all appropriate proceedings, which proceedings shall be prosecuted by the Indemnified Party in a reasonable manner and in good faith or will be settled at the discretion of the Indemnified Party(with the consent of the Indemnifying Party, which consent will not be unreasonably withheld). The Indemnified Party will have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that if requested by the Indemnified Party, the Indemnifying Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnified Party and its counsel in contesting any Third Party Claim which the Indemnified Party is contesting. Notwithstanding the foregoing provisions of this clause (ii), if the Indemnifying Party has notified the Indemnified Party within the Dispute Period that the Indemnifying Party disputes its liability or the amount of its liability hereunder to the Indemnified Party with respect to such Third Party Claim and if such dispute is resolved in favor of the Indemnifying Party in the manner provided in clause (iii) below, the Indemnifying Party will not be required to bear the costs and expenses of the Indemnified Party's defense pursuant to this clause (ii) or of the Indemnifying Party's participation therein at the Indemnified Party's request, and the Indemnified Party shall reimburse the Indemnifying Party in full for all reasonable costs and expenses incurred by the Indemnifying Party in connection with such litigation. The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this clause (ii), and the Indemnifying Party shall bear its own costs and expenses with respect to such participation.
(iii) If the Indemnifying Party notifies the Indemnified Party that it does not dispute its liability or the amount of its liability to the Indemnified Party with respect to the Third Party Claim under Section 9.2 or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party with respect to such Third Party Claim, the amount of Damages specified in the Claim Notice shall be conclusively deemed a liability of the Indemnifying Party under Section 9.2 and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying Party has timely disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that if the dispute is not resolved within thirty (30) days after the Claim Notice, the Indemnifying Party shall be entitled to institute such legal action as it deems appropriate.
(b) In the event any Indemnified Party should have a claim under Section 9.2 against the Indemnifying Party that does not involve a Third Party Claim, the Indemnified Party shall deliver a written notification of a claim for indemnity under Section 9.2 specifying the nature of and basis for such claim, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such claim (an "Indemnity Notice") with reasonable promptness to the Indemnifying Party. The failure by any Indemnified Party to give the Indemnity Notice shall not impair such party's rights hereunder except to the extent that the Indemnifying Party demonstrates that it has been irreparably prejudiced thereby. If the Indemnifying Party notifies the Indemnified Party that it does not dispute the claim or the amount of the claim described in such Indemnity Notice or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes the claim or the amount of the claim described in such Indemnity Notice, the amount of Damages specified in the Indemnity Notice will be conclusively deemed a liability of the Indemnifying Party under Section 9.2 and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying Party has timely disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that if the dispute is not resolved within thirty (30) days after the Claim Notice, the Indemnifying Party shall be entitled to institute such legal action as it deems appropriate.
| 18 |
(c) The Indemnifying Party agrees to pay the Indemnified Party, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim.
(d) The indemnity provisions contained herein shall be in addition to (i) any cause of action or similar rights of the Indemnified Party against the Indemnifying Party or others, and (ii) any liabilities the Indemnifying Party may be subject to.
ARTICLE X
MISCELLANEOUS
Section 10.1 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware without regard to the principles of conflicts of law. Each of the Company and the Investor hereby submits to the exclusive jurisdiction of the United States federal and state courts located in New York, NY, with respect to any dispute arising under the Transaction Documents or the transactions contemplated thereby.
Section 10.2 JURY TRIAL WAIVER. The Company and the Investor hereby waive a trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other in respect of any matter arising out of or in connection with the Transaction Documents.
Section 10.3 ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Company and the Investor and their respective successors. Neither this Agreement nor any rights of the Investor or the Company hereunder may be assigned by either party to any other Person.
| 19 |
Section 10.4 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the Company and the Investor and their respective successors, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as set forth in Section 9.3.
Section 10.5 TERMINATION. The Company may terminate this Agreement at any time by written notice to the Investor, except during any Valuation Period. In addition, this Agreement shall automatically terminate on the earlier of (i) the end of the Commitment Period; (ii) the date that the Company sells and the Investor purchases the Maximum Commitment Amount; (iii) the date in which the Registration Statement is no longer effective; (iv) the date on which the trading of the Common Stock shall have been suspended by the SEC, the Principal Market or FINRA, or otherwise halted for any reason, or the Common Stock shall have been delisted from the Principal Market; or (v) the date that, pursuant to or within the meaning of any Bankruptcy Law, the Company commences a voluntary case or any Person commences a proceeding against the Company, a Custodian is appointed for the Company or for all or substantially all of its property or the Company makes a general assignment for the benefit of its creditors; provided, however, that the provisions of Articles III, IV, V, VI, IX and the agreements and covenants of the Company and the Investor set forth in Article X shall survive the termination of this Agreement.
Section 10.6 ENTIRE AGREEMENT. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the Company and the Investor with respect to the matters covered herein and therein and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
Section 10.7 FEES AND EXPENSES. Except as expressly set forth in the Transaction Documents or any other writing to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Investor. Upon execution of this Agreement, the Company shall issue the Commitment Note to Investor for its commitment to enter into this Agreement. The Commitment Note shall be earned in full upon the execution of this Agreement, and the issuance of the Commitment Note is not contingent upon any other event or condition, including but not limited to the effectiveness of the Registration Statement or the Company’s submission of a Put Notice to the Investor. In addition, the Investor shall withhold $2,500.00 from the Investment Amount with respect to the first Put under this Agreement for reimbursement of Investor’s expenses relating to the preparation of this Agreement.
| 20 |
Section 10.8 COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. This Agreement may be delivered to the other parties hereto by email of a copy of this Agreement bearing the signature of the parties so delivering this Agreement.
Section 10.9 SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party.
Section 10.10 FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
Section 10.11 NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
Section 10.12 EQUITABLE RELIEF. The Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under this Agreement, any remedy at law may prove to be inadequate relief to the Investor. The Company therefore agrees that the Investor shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.
Section 10.13 TITLE AND SUBTITLES. The titles and subtitles used in this Agreement are used for the convenience of reference and are not to be considered in construing or interpreting this Agreement.
Section 10.14 AMENDMENTS; WAIVERS. No provision of this Agreement may be amended or waived by the parties from and after the date that is one (1) Trading Day immediately preceding the initial filing of the Registration Statement with the SEC. Subject to the immediately preceding sentence, (i) no provision of this Agreement may be amended other than by a written instrument signed by both parties hereto and (ii) no provision of this Agreement may be waived other than in a written instrument signed by the party against whom enforcement of such waiver is sought. No failure or delay in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.
Section 10.15 PUBLICITY. The Company and the Investor shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and no party shall issue any such press release or otherwise make any such public statement, other than as required by law, without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other party with prior notice of such public statement. Notwithstanding the foregoing, the Company shall not publicly disclose the name of the Investor without the prior written consent of the Investor, except to the extent required by law. The Investor acknowledges that this Agreement and all or part of the Transaction Documents may be deemed to be "material contracts," as that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore be required to file such documents as exhibits to reports or registration statements filed under the Securities Act or the Exchange Act. The Investor further agrees that the status of such documents and materials as material contracts shall be determined solely by the Company, in consultation with its counsel.
[Signature Page Follows]
| 21 |
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.
TWO HANDS CORPORATION
By: /s/ Nadav Elituv
Name: Nadav Elituv
Title: Chief Executive Officer
CROWN BRIDGE PARTNERS, LLC
By: /s/ Seth Ahdoot
Name: Seth Ahdoot
Title: Member
[Signature Page to equity purchase agreement]
| 22 |
DISCLOSURE SCHEDULES TO
EQUITY PURCHASE AGREEMENT
Schedule 4.3 – Capitalization
See Form S-1 and subsequent Amendments
Schedule 4.5 – SEC Documents
None.
Schedule 4.9 – Litigation
None.
Schedule 4.10 – Registration Rights
FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC
| 23 |
EXHIBIT A
FORM OF PUT NOTICE
TO: CROWN BRIDGE PARTNERS, LLC
DATE: ____________________
We refer to the equity purchase agreement, dated January 20, 2020 (the “Agreement”), entered into by and between Two Hands Corporation and you. Capitalized terms defined in the Agreement shall, unless otherwise defined herein, have the same meaning when used herein.
We hereby:
1) Give you notice that we require you to purchase Put Shares; and
2) The purchase price per share, pursuant to the terms of the Agreement, is _________; and
3) Certify that, as of the date hereof, the conditions set forth in Section 7.2 of the Agreement are satisfied.
TWO HANDS CORPORATION
By: _________________
Name: Nadav Elituv
Title: Chief Executive Officer
| 1 |
EXHIBIT B
FORM OF OFFICER’S CERTIFICATE
OF TWO HANDS CORPORATION
Pursuant to Section 7.2(k) of that certain equity purchase agreement, dated January 20, 2020 (the “Agreement”), by and between Two Hands Corporation (the “Company”) and Crown Bridge Partners, LLC (the “Investor”), the undersigned, in his capacity as Chief Executive Officer of the Company, and not in his individual capacity, hereby certifies, as of the date hereof (such date, the “Condition Satisfaction Date”), the following:
1. The representations and warranties of the Company are true and correct in all material respects as of the Condition Satisfaction Date as though made on the Condition Satisfaction Date (except for representations and warranties specifically made as of a particular date) with respect to all periods, and as to all events and circumstances occurring or existing to and including the Condition Satisfaction Date, except for any conditions which have temporarily caused any representations or warranties of the Company set forth in the Agreement to be incorrect and which have been corrected with no continuing impairment to the Company or the Investor; and
2. All of the conditions precedent to the obligation of the Investor to purchase Put Shares set forth in the Agreement, including but not limited to Section 7.2 of the Agreement, have been satisfied as of the Condition Satisfaction Date.
Capitalized terms used herein shall have the meanings set forth in the Agreement unless otherwise defined herein.
IN WITNESS WHEREOF, the undersigned has hereunto affixed his hand as of the ______________________.
By: /s/ Nadav Elituv
Name: Nadav Elituv
Title: Chief Executive Officer
| 1 |
EXHIBIT C
FORM OF TRANSFER AGENT INSTRUCTION LETTER
| 1 |
EXHIBIT D
FORM OF COMMITMENT NOTE
NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
| Principal Amount: $25,000.00 | Issue Date: January 20, 2020 |
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, TWO HANDS CORPORATION, a Delaware corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of CROWN BRIDGE PARTNERS, LLC, a New York limited liability company, or registered assigns (the “Holder”) the principal sum of $25,000.00 (the “Principal Amount”), together with interest at the rate of eight percent (8%) per annum (with the understanding that the initial six months of such interest shall be guaranteed), at maturity or upon acceleration or otherwise, as set forth herein (the “Note”). The maturity shall be six (6) months from the Issue Date (the “Maturity Date”), and is the date upon which the principal sum, as well as any accrued and unpaid interest and other fees, shall be due and payable. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note, which is not paid by the Maturity Date, shall bear interest at the rate of twelve percent (12%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into the Borrower’s common stock (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.
| 1 |
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
Holder and Company have entered into that certain equity purchase agreement dated January 20, 2020 for the purchase of up to $5,000,000.00 of the Company’s common stock (“Purchase Agreement”). Pursuant to the Purchase Agreement, the Company issued this Note as a commitment fee to the Holder.
The following additional terms shall apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right at any time to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower or Borrower’s transfer agent by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower or Borrower’s transfer agent before 11:59 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
| 2 |
1.2 Conversion Price.
(a) Calculation of Conversion Price. The Conversion Price shall be the $0.20 per share (the “Fixed Conversion Price”) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events) (also subject to adjustment as further described herein). Each time, while this Note is outstanding, the Borrower enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, in which any 3rd party has the right to convert monies owed to that 3rd party (or receive shares pursuant to a settlement or otherwise) at a discount to market greater than the Variable Conversion Price in effect at that time (prior to all other applicable adjustments in the Note), then the Variable Conversion Price shall be automatically adjusted to such greater discount percentage (prior to all applicable adjustments in this Note) until this Note is no longer outstanding. Each time, while this Note is outstanding, the Borrower enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, in which any 3rd party has a look back period greater than the look back period in effect under the Note at that time, then the Holder’s look back period shall automatically be adjusted to such greater number of days until this Note is no longer outstanding. The Borrower shall give written notice to the Holder, with the adjusted Variable Conversion Price and/or adjusted look back period (each adjustment that is applicable due to the triggering event), within one (1) business day of an event that requires any adjustment described in the two immediately preceding sentences. Holder shall be entitled to deduct $500.00 from the conversion amount in each Notice of Conversion to cover Holder’s deposit fees associated with each Notice of Conversion.
(b) Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note. The Borrower is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations hereunder. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.
| 3 |
If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.
1.3 Method of Conversion
(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 11:59 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within two (2) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof.
| 4 |
(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 11:59 p.m., New York, New York time, on such date.
(f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.
(g) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $500 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.
| 5 |
1.4 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor. Except as otherwise provided (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Borrower so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Borrower does not accept the opinion of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.
| 6 |
1.5 Effect of Certain Events.
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in this Note) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in this Note) or (ii) be treated pursuant to Section 1.5(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section 1.5(b) unless (a) it first gives, to the extent practicable, prior written notice of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.5(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
| 7 |
(d) [Intentionally Omitted].
(e) Purchase Rights. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.5, the Borrower, at the Borrower’s expense and at the option of the Holder, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.
1.6 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note.
| 8 |
ARTICLE II. CERTAIN COVENANTS
2.1 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.
2.2 Restriction on Stock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an “Event of Default”) shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.
3.2 Conversion and the Shares. The Borrower fails to reserve a sufficient amount of shares of common stock as required under the terms of this Note (including Section 1.3 of this Note) and such breach continues for a period of thirty (30) days, fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for two (2) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within five (5) business days of a demand from the Holder, either in cash or as an addition to the balance of the Note, and such choice of payment method is at the discretion of the Borrower.
| 9 |
3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.
3.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note.
3.5 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
3.6 Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing or quotation of the Common Stock on the OTC Pinks, OTCQB, or an equivalent replacement exchange, the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange, or the NYSE MKT.
3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act (including but not limited to becoming late or delinquent in its filings at any time while this Note is outstanding, even if the Borrower subsequently cures such delinquency), and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.
3.10 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
| 10 |
3.11 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due, or any disposition or conveyance of any material asset of the Borrower.
3.12 Financial Statement Restatement. The Borrower replaces its auditor, or any restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note.
3.13 Replacement of Transfer Agent. In the event that the Borrower replaces its transfer agent, and the Borrower fails to provide prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
3.14 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the other financial instrument, including but not limited to all convertible promissory notes, currently issued, or hereafter issued, by the Borrower, to the Holder or any other 3rd party (the “Other Agreements”), after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note, in which event the Holder shall be entitled to apply all rights and remedies of the Holder under the terms of this Note by reason of a default under said Other Agreement or hereunder.
3.15 Inside Information. Any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.
3.16 No bid. At any time while this Note is outstanding, the lowest Trading Price on the OTC Pink, OTCQB, or other applicable principal trading market for the Common Stock is equal to or less than $0.0001.
| 11 |
Upon the occurrence of any Event of Default specified in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, and/or 3.16 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III, the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to 136% multiplied by the then outstanding entire balance of the Note (including principal and accrued and unpaid interest) plus Default Interest, if any, plus any amounts owed to the Holder pursuant to Sections 1.4(g) hereof (collectively, in the aggregate of all of the above, the “Default Sum”), and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity. In addition, upon the occurrence of any Event of Default, the Conversion Price shall mean the lesser of (i) the Fixed Conversion Price and (ii) sixty five percent multiplied by the lowest traded price of the Common Stock during the ten Trading Day period ending on the last complete Trading Day prior to the Conversion Date. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the principal market, principal securities exchange, or other securities market on which the Common Stock is then being traded.
If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect, subject to issuance in tranches due to the beneficial ownership limitations contained in this Note.
ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, facsimile, or electronic mail addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery, upon electronic mail delivery, or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
| 12 |
If to the Borrower, to:
TWO HANDS CORPORATION
33 Davies Ave., Level 2
Toronto, Ontario Canada M4M 2A9
e-mail: Nadav@twohandsapp.com
If to the Holder:
CROWN BRIDGE PARTNERS, LLC
1173a 2nd Avenue, Suite 126
New York, NY 10065
e-mail: Info@CrownBridgeCapital.com
4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Notwithstanding anything to the contrary herein, the rights, interests or obligations of the Borrower hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by the Borrower without the prior signed written consent of the Holder, which consent may be withheld at the sole discretion of the Holder (any such assignment or transfer shall be null and void if the Borrower does not obtain the prior signed written consent of the Holder). This Note or any of the severable rights and obligations inuring to the benefit of or to be performed by Holder hereunder may be assigned by Holder to a third party, in whole or in part, without the need to obtain the Company’s consent thereto. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.
4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.
| 13 |
4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state and/or federal courts of New York City, NY. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
4.7 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
4.8 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
4.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, the Borrower may prepay the entire amount outstanding under this Note, at any time during the initial 180 calendar day period after the issuance of this Note, by making a payment to the Holder of an amount in cash equal to 118% multiplied the entire amount outstanding under this Note. The Borrower may not prepay any amount outstanding under this Note after the 180th calendar day after the issuance of this Note.
4.10 Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable provision shall automatically be revised to equal the maximum rate of interest or other amount deemed interest permitted under applicable law. The Borrower covenants (to the extent that it may lawfully do so) that it shall not seek to claim or take advantage of any law that would prohibit or forgive the Borrower from paying all or a portion of the principal or interest on this Note.
| 14 |
4.11 [Intentionally Omitted].
4.12 Section 3(a)(10) Transactions. If at any time while this Note is outstanding, the Borrower enters into a transaction structured in accordance with, based upon, or related or pursuant to, in whole or in part, Section 3(a)(10) of the Securities Act (a “3(a)(10) Transaction”), then a liquidated damages charge of 25% of the outstanding principal balance of this Note at that time, will be assessed and will become immediately due and payable to the Holder, either in the form of cash payment or as an addition to the balance of the Note, as determined by mutual agreement of the Borrower and Holder.
[signature page to follow]
| 15 |
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this January 20, 2020.
TWO HANDS CORPORATION
By: /s/ Nadav Elituv
Name: Nadav Elituv
Title: Chief Executive Officer
| 16 |
EXHIBIT A -- NOTICE OF CONVERSION
The undersigned hereby elects to convert $ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of TWO HANDS CORPORATION, a Delaware corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of January 20, 2020 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
[ ] The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).
Name of DTC Prime Broker: Account Number:
[ ] The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:
CROWN BRIDGE PARTNERS, LLC
1173a 2nd Avenue, Suite 126 New York, NY 10065
e-mail: Info@CrownBridgeCapital.com
Date of Conversion: ______________
Applicable Conversion Price: $______________
Number of Shares of Common Stock to be Issued
Pursuant to Conversion of the Notes: ______________
Amount of Principal Balance Due remaining
Under the Note after this conversion: ______________
CROWN BRIDGE PARTNERS, LLC
By:______________
Name:______________
Title: _________________
Date: ______________
| 17 |
EXHIBIT 21.1
Two Hands Corporation
Subsidiaries of the Registrant
| Entity Name | Place of Incorporation | |
| I8 Interactive Corporation | Canada | |
| 1 |
Registered with the Public Company Accounting Oversight Board
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors Two Hands Corporation We hereby consent to the use of our report dated April 1, 2019 (January 21, 2020 to reflect the retroactive effect of the reverse stock split as disclosed in Note 10), with respect to the consolidated financial statements of Two Hands Corporation, in its Form S-1, to be filed on or about January 21, 2020. We also consent to the reference of our firm under the caption “experts” in the prospectus.
| /s/ Sadler Gibb & Associates, LLC | |
Salt Lake City, UT
|
|
| January 21, 2020 |
