Trade tensions with China

A. There are ups and downs in all trading relationships.  It is the nature of international trade. The benefit we have as a start-up is that we do not have heavy investment in assets or long-term relationships that require us to do things ‘as they have always been done’.  We are able to pivot quickly and find new suppliers to meet changing requirements.
In addition:

• In 2019 the President of China stated publicly several times that China needs to embrace blockchain technology to ensure safe food.
• The Chinese people are very positive about Australian produce, regarding it as a safe, high-quality food.
• Our chef contacts in Shanghai have told us the Two Hands offering resonates strongly because it avoids the wet markets and provides transparency all the way back to the primary producer.

Two Hands is delivering what the Chinese people need and deserve - high quality food with an unprecedented level of safety using blockchain technology.

Impact of COVID-19

A. We believe Two Hands is an idea whose time has come.  The Executive Chef of the Waldorf Astoria in Shanghai told us recently “The whole world knows coronavirus started in a fish market.”  As a result, Two Hands becomes compelling.  Two Hands avoids the fish markets and delivers authenticated provenance and safe food.

From an operations standpoint, our shipments into China stopped with a closure of restaurants and air flights.  Chefs are telling us orders are likely to restart in late May or early June.  However, strategically coronavirus presents a significant opportunity for Two Hands to set a new standard and way of doing business – in transparency, food safety and ethically.  

So we have been very busy during the COVID-19 lockdown to leverage our advantage as China reopens:

• Our China team has been presenting the Two Hands opportunity to other Shanghai chefs (and gaining valuable insights) who were not otherwise occupied due to restaurant closures.
• Our Australian-based team have been busy expanding our protein list in preparation for resuming shipments post COVID-19, along with progressing our technology base.
• An agreement was signed with Aglive, an Australian livestock traceability platform to bring beef into the Two Hands digital marketplace.
• We have expanded our relationships with Australian oyster, abalone, salmon and crab fishers to provide their produce once shipments resume.
• On the technology side, we have signed an agreement with GoChain, a leading Silicon Valley-based international blockchain technology company, to assist in developing our public registry strategy to create the ultimate immutable blockchain solution.

A lack of transparency and ethics in food supply chains enabled coronavirus, Bird flu and SARS.  It can’t be business as usual.  Two Hands provides a solution to this crisis.

Primary school kids today cannot envisage a world where smart phones did not exist.  Equally, when infants of today reach primary school, they will be incredulous previous generations did not know who the producer was nor that food was handled ethically.  These future primary school kids will feel safe knowing food supply chains will not enable another COVID-19, SARS or bird flu.

Financial

A. Revenue generated during FY19 was under a different business model - traditional exporting of Australian seafood products to China. The reason we did this was to develop each of the different elements that would eventually comprise today’s technical solution and business model. This FY19 development allowed us to overcome many technical issues and build relationships with key restaurants and logistics partners. For all of FY20 we have concentrated on progressing our ‘product market fit’ with the new business model (i.e. blockchain authenticated product, direct to restaurant). The revenue generated so far this year has essentially only been from late November to late January. And we have a strong pipeline for revenue growth for FY21.

A. The doubtful debts expense does not relate to operational revenue collection. Rather this was our auditor’s requirement to provision $454,300 against a loan to our Chinese subsidiary - a conservative approach given we are not yet generating a profit. The Company has collected all revenue billed.

Post Crowdfunding

A. The Company's board has had four meetings with the Australian Securities Exchange (ASX) regarding a possible initial public offering (IPO), which subject to meeting the various eligibility criteria and any additional listing requirements, the Company aims to achieve within the next 12 months.
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Based on discussions with ASX, the specific requirements identified that Two Hands must address prior to listing include: appointment of a director with experience as a board member of an ASX listed company; appointment of a broker to manage the IPO;and, achievement of a range of financial milestones, including successful execution of the Company's 6-month business plan. 
Historically, pre-IPO funding rounds, which are generally at materially lower valuations to a Company's ultimate IPO share price, have been distributed among networks of wholesale and professional investors. Retail "mum and dad" investors rarely have the opportunity to invest at the early stage of a business, which can represent a profitable investment if the business is ultimately successful and achieves a listing on the ASX. Two Hands has chosen to fund a portion of its pre-IPO round through this CSF offer, and to provide this opportunity to retail investors. 

While it is the board's' wish to complete the IPO and ASX listing within 12 months, there are a range of factors that may affect the Company's ability to achieve this,including fulfilment of the prerequisite matters identified by ASX (listed above), the Company's business performance, and prevailing market conditions,among other things. Accordingly, there can be no assurance or guarantee that the Company will achieve its goal of an ASX listing within the next 12 months,or at all.

A. Greg (our Managing Director and Founder) sends monthly updates to all our shareholders.  You will know what is going on and, hopefully, you will feel an intimate part of our journey. As a public unlisted company, we are required to be audited and hold an Annual General Meeting once per year.  You will receive the audited statements and be invited to the AGM. You have Greg’s email address from the monthly communications if you wish to reach out to him directly at any time for information.

A. This is covered in the Offer Document in Section 3.2 (page 41).  Briefly, crowdfunding will deliver our future by expanding our food offering, expanding our restaurants and expanding our technology.

About the Offer

A. Our valuation represents a ~25% discount versus our last round in late 2019, when the company was valued at ~$22m. At that time we were only moving Southern Rock Lobster, whereas we have spent the recent downtime expanding our protein offering (in response to our restaurants’ feedback/demand). That said, the discount recognises that we are not immune to the impact of COVID-19, and is therefore broadly in-line with equity revaluations over the same time. We believe the business is now well-placed to capitalise on safe Australia-China food trade given the spotlight on food safety. Should the business deliver on our restaurant, protein and technology development pipeline over the coming months, we expect the Company to exceed its previous valuation.

Furthermore, our ~$17.1m pre-money valuation (i.e. before CSF proceeds are received) reflects;

• A favourable multiple of our pipeline annualised revenue, even despite the impact of Covid-19 on demand; and
• A favourable valuation versus market comparables.

A. The current investment market presents both uncertainties and opportunities. Ultimately, we are looking to raise a total of $3m, in order to fund our strategic objectives for the next 12 to 18 months. This is likely to come from multiple sources, including crowdfunding, institutional, and venture capital (VC) investors. Therefore we set the maximum subscription for our offer at $3m in order to; a) give us flexibility if one or more institutional/VC investors participate in this round, and b) provide transparency to incoming investors on the dilutionary impact should the CSF raise less than $3m, as we will continue to pursue that additional investment (refer Table 3 in the Offer Document for proforma cap table at min/max subscriptions).

About the Platform

A. Although we don’t outline our geographic expansion intent beyond Asia in the Offer document, we fully intend to come ‘full circle’ and offer our digital marketplace to Australian restaurants.  Our focus on China and Asia initially is primarily due to their ability to achieve great economies of scale by going where the bulk of our Australian seafood and meats are sold.

We also plan to make the Two Hands marketplace available for consumers to be able to order seafoods, meats and other fresh produce direct from the producer to their homes, much like people currently order other products online currently via Amazon, Alibaba and other digital platforms.  Again, our marketplace will be different, in that all purchases will be direct between the consumer and the producer they select to buy from – Two Hands will merely be the facilitator of these transactions.  And every purchase will come with blockchain authentication and proof of provenance.  We can’t give a specific timeline on this at the moment, but it is very much in our future plans.

A. The efficiencies of our marketplace pay for the commission.  We have reinvented the supply chain enabling a number of middlemen to be eliminated, saving about 20% in supply chain costs.  Consequently, our supply chain savings pay for the commission.

A. The Two Hands team, based in Melbourne, Adelaide, Shanghai and Silicon Valley, is one the first in the world to monetise blockchain technology to solve a critical real-world issue.  We have been able to accomplish this through a combination of technology implementation and critically, a Next Generation way of doing business that creates a collaborative and transparent working relationship between all parties in the supply chain.  This unique combination of factors creates a huge “moat” around Two Hands, along with our commitment to branding, which is unusual in the unprocessed food space.  We discuss this in the Offer Document under Section 2.2.6 (pages 17-18).

A. CaroMel is an Australian company that operates under the Two Hands brand name.  A well-known example is the Google brand is owned by a company called Alphabet.