Annual Report (10-k)

Date : 04/15/2019 @ 9:12PM
Source : Edgar (US Regulatory)
Stock : 12 Retech Corporation (QB) (RETC)
Quote : 0.0003  0.0 (0.00%) @ 7:41PM

Annual Report (10-k)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2018

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 000-55915

 

12 ReTech Corporation

(Exact name of registrant as specified in its charter)

 

Nevada   38-3954047

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

10785 W. Twain Ave,

Suite 210

Las Vegas, Nevada

  89135
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number: 530-539-4329

 

Securities registered under Section 12(b) of the Act:

 

none

 

Securities registered under Section 12(g) of the Act:

 

Common Stock, par value $.00001 per share

 

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definition 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 [X]
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 pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]

 

The number of shares of common stock ($0.00001 par value) outstanding as of March 29, 2019 was 994,152,866.

 

DOCUMENTS INCORPORATED BY REFERENCE: None.

 

 

 

 
 

 

12 RETECH CORPORATION

FOR THE FISCAL YEAR ENDED

DECEMBER 31, 2018

 

Index to Report

 

    Page
PART I    
     
Item 1. Business 4
Item 1A. Risk Factors 15
Item 2. Properties 20
Item 3. Legal Proceedings 20
     
PART II    
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21
Item 6. Selected Financial Data 22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 28
Item 9A. Controls and Procedures 29
     
PART III    
     
Item 10. Directors, Executive Officers, and Corporate Governance 31
Item 11. Executive Compensation 35
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 38
Item 13. Certain Relationships and Related Transactions, and Director Independence 46
Item 14. Principal Accounting Fees and Services 47
     
PART IV    
     
Item 15. Exhibits and Financial Statement Schedules 48

 

2
 

 

FORWARD-LOOKING STATEMENTS

 

This document contains “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

 

Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not intend, and undertake no obligation, to update any forward-looking statement. You should, however, consult further disclosures we make in future filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

 

Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

 

  - our current lack of working capital;
     
  - inability to raise additional financing;
     
  - the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;
     
  - deterioration in general or regional economic conditions;
     
  - adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
     
  - inability to efficiently manage our operations;
     
  - inability to achieve future sales levels or other operating results; and
     
  - the unavailability of funds for capital expenditures.

 

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Item 1A. Risk Factors” in this document.

 

Throughout this Annual Report references to “we”, “our”, “us”, “12 ReTech”, “RETC”, “the Company”, and similar terms refer to 12 ReTech Corporation.

 

3
 

 

PART I

 

ITEM 1. BUSINESS

 

At our core, we are a software Company whose technology allows retailers to combat the dual threats of Walmart and Amazon — both online and in physical stores. Our Brand rollup acquisition strategy allows us to demonstrate the effectiveness of our software, devise and test new products, while providing shareholder value through immediate revenue and earnings growth. The Company operates through our subsidiaries on three continents: 12 Hong Kong, Limited (“12HK”, “12 Hong Kong, Ltd.”), 12 Japan, Limited (“12JP”, “12 Japan, Ltd.”), 12 Europe A.G. (“12EU”, “12 Europe AG”), and 12 Retail Corporation (“12 Retail”) which, with its subsidiaries, designs, manufactures, and sells primarily fashion products through all channels including online, wholesale to retailers, and in our own store(s) from North America. 12 Retail’s subsidiaries include: Emotion Fashion Group, Inc. (acquired May 2018), Red Wire Group, LLC (Acquired February 2019) and Rune NYC, LLC (Acquired March 2019).

 

Our Subsidiaries :

 

Subsidiaries related to the development, sales and operation of our Software-based technology solutions:

 

-12 Hong Kong, Ltd., a corporation organized in the special economic region of Hong Kong. On June 27, 2017, the Company acquired 12 Hong Kong, Ltd. in a share exchange transaction (See section 7 Management Discussion & Analysis). This is the technology company that manages all the Company’s proprietary and licensed technology that is utilized and sold by the other subsidiaries. In addition, this subsidiary serves as an additional marketing and sales hub for Asia, particularly the Chinese market, excluding Japan.

 

-12 Japan, Ltd., a corporation organized in Japan. The Company acquired 12 Japan, Ltd, located in Tokyo, Japan on July 31, 2017 in a share exchange transaction (see section 7 Management Discussion & Analysis). This subsidiary operates in the country of Japan. It is this subsidiary that services our first customer, Itoya, Ltd, where our technology was successfully implemented and proven. Itoya, Ltd has begun to expand the use of our technology to additional stores. Our operational staff here assists 12 Hong Kong in the maintenance requirements of our software solutions worldwide.

 

-12 Europe A.G., a corporation organized in Switzerland. The Company acquired 12 Europe A.G. on October 26, 2017 in a share exchange transaction. (see section 7 Management Discussion & Analysis). This subsidiary markets, sells, and services the Company’s proprietary and licensed technology to retailers in the European market from its base in Zurich, Switzerland. Since its acquisition, this subsidiary has already signed agreements with 4 retailers, 1 department store, and 3 local businesses to deploy our technology and 12Sconti app (see Our Technology).

 

Subsidiaries primarily involved in our Brand Acquisition Strateg y:

 

-12 Retail Corporation, which is a holding Company, was organized in the state of Arizona, USA, and maintains an office in Scottsdale, Arizona. This subsidiary was formed on Sept. 18, 2017 to execute the Company’s Brand rollup acquisition strategy, as well as to penetrate the North American market with our technology to select retailers. All of the brands that are acquired will retain their own brand name and identity, although they will share some economies of scale and benefit from the management expertise, resources, and capital allocation available as a subsidiary of the Company. The brands will become subsidiaries of 12 Retail Corporation. Each of the brands that transact business with North American retailers will be used as a conduit or entry point for our technology subsidiaries to sell our software solutions.

 

Subsidiaries of 12 Retail Corporation:

 

That manufacture and market our Brands.

 

-Emotion Fashion Group, Inc. (“EFG”) Organized in the State of Utah on July 6, 2018, to consolidate primarily the brand assets from the Company’s acquisition on May 1, 2018 of Emotion Apparel, Inc, subsequent to that consolidation, Emotion Apparel, Inc was closed and abandoned. EFG has 5 brands: Emotion Fashions (contemporary woman’s resort wear), Lexi-Luu Dancewear (children’s dance clothes), Punkz Gear (teenage hip-hop and street wear), Skipjack dance and dive wear (swimwear; currently inactive), and Cleo VII (Accessories; currently inactive) With the acquisition of Red Wire Group, LLC, EFG has turned over all of its manufacturing operations in Salt Lake City, Utah to the efficient operational management team of Red Wire Group, LLC. (See Below).

 

-The Red Wire Group, LLC (RWG) As a subsequent event, the Company acquired 100% of the equity in The Red Wire Group, a Utah limited liability company effective February 20, 2019, through the 12 Retail Subsidiary, pursuant to an Exchange of Equity Agreement (see Section “Subsequent Events”). RWG is an efficient “cut & sew” factory with which independent third parties contract to produce clothes for sale. RWG is located almost directly across from the EFG facility, which allowed the Company to consolidate all clothing manufacturing under expert and highly trained management team of RWG, further streamlining costs. In addition, by merging both manufacturing facilities EFG becomes “just” another contract client for RWG, and RWG greatly increases its capacity to take on additional third party business.

 

-Rune NYC LLC (RUNE) As a subsequent event, on March 14, 2019, the Company acquired the controlling interest (92.5% of the equity) of RUNE, a New York limited liability company , through the 12 Retail Subsidiary, pursuant to an Exchange of Equity Agreement (see Section “Subsequent Events”). Key Management of RUNE remained with the Company to continue to expand the revenues of this contemporary woman’s Activewear and “Athleisure” brand, which is primarily sold to retailers. Its products will now primarily be manufactured in the RWG facilities, significantly lowering the product cost, allowing RUNE to sell to more retailers and begin to market online.

 

The Company continues to search for synergistic acquisitions that provide; immediate revenue, the potential for revenue growth and earnings, and may provide entries to sell our software and technology to other retailers and larger consumer brands.

 

The Opportunity:

 

Brick and mortar retailers continue to struggle against online competition, even though online sites haven’t changed much in 20 years. With consumers looking to purchase products in new ways with a larger focus on individualism and social sharing, retailers and merchants are searching for new ways to entice consumers through software technologies that engage consumers both online and in the physical store. These disruptive changes are affecting not just merchants and retailers, but all stages of their supply channel from design and manufacture to distribution and shipping. Consequently, many of the valuations of retailers, merchants, and their suppliers are in the trough while other retailers have simply gone out of business.

 

4
 

 

However, brick and mortar retailers are not all going to disappear, and we expect the future survivors to evolve, because consumers will shop when they enjoy the shopping experience. Successful online merchants will evolve too as their competitive landscape becomes more crowded. Both online and physical store merchants are learning that as consumer habits change, traditional marketing and advertising channels like television are much less effective. We call this combination of forces the “Consumer Shift”. This Consumer Shift is driving a convergence of the online/mobile merchant with the physical retailer, as we have seen with Amazon’s acquisition of Whole Foods, Inc. and their opening of physical book stores, and Walmart’s acquisition of Jet.com. These convergence trends will continue.

 

World-wide retailing represents approximately $28 trillion in revenues, while in 2018 in the U.S. alone, all forms of retailing represented $5.35 trillion in annual revenues ( according to Statista March 2019 ). While management believes that the Company’s software and technologies can benefit almost all retailers, the Company will initially focus on the Apparel and Cosmetics sectors where they believe we can have the biggest impact and which market generated over $346 billion in 2018 revenues in just the U.S. ( Statista March 2019 ).

 

The Company benefits shareholders by generating its revenue and earnings four ways: 1) Through the revenue and earnings generated from its Brands, and 2) Through the revenues generated through the sale and/or licensing of its proprietary software and technology to third party retailers and merchants, and consumer brands, 3) Through the sale and placement of advertising equipment in retail oriented venues and the placement of advertising content to that equipment, 4) Through the acquisition of synergistic companies that provide immediate revenue and the potential for revenue and earnings growth.

 

Our Technology:

 

The Company’s patented, proprietary technology products, software and services, as well as management expertise, directly addresses the Consumer Shift with software solutions that seamlessly engage consumers both in the physical store and online retailing, encourage social sharing, and advertising while lowering retailer and merchants’ operating costs. We will deploy our technology ourselves at our microbrands where we demonstrate its effectiveness and develop additional feature sets.

 

Adoption and Deployment of our Software:

 

Over the last ten months, the Company has been further developing and refining our proprietary modular software platform, which we have coupled with the latest hardware to further provide engaging experiences for consumers that will allow retailers to sell more products, attract consumers back to their stores, track purchases and consumer interests, and reduce their employee costs. Our improved platform will be available for sale in mid-April 2019, and will be available in multiple languages to support our three continent efforts (English, Japanese, German, and French, with more languages to be added).

 

Retailers have already expressed interest in our software solutions, recognizing that we demonstrate the 3P’s of successful technology: “ P roven, P roprietary, and P atented ”. Itoya has already successfully installed our technology in its 13-story lifestyle store in Tokyo and has begun to add our technology and software solutions in additional stores. We are in various stages of talks with other retailers in Japan and throughout Asia.

 

In Europe, we have entered a partnership, and announced on April 1 st , 2019, the launch of our 12 Sconti App to its customers.

 

In North America, the Company has begun discussions with a number of retailers that we were able to target as a result of our recent acquisition of RUNE.

 

Our Acquisition Strategy:

 

The Company targets for acquisition those synergistic companies that provide immediate revenue, and the potential for growth in revenue and earnings and/or may provide entries to sell our software and technology to other retailers and consumer brands, and/or will provide support services to our existing operations. Therefore, we target brands that can benefit from our technology platform and expertise to grow their operations, brands that can give us entry into other retailers, and support companies for those brands and our technology such as clothing manufacturers and advertising and or marketing firms.

 

Generally, we now look for companies that have annual revenues in excess of $1.0 million where existing, talented Management wishes to remain and grow with us that have been constrained with a lack of capital or expertise. Companies less than $1.0 million in revenue may be acquired if they fit inside the organizational and sales structure of one of our existing operating companies. We are, of course, always looking to acquire larger companies and in fact have been and are still in talks with larger entities, but these are our minimum requirements. Support companies in new industries that can support our existing operations would only be acquired if existing management is retained and whose corporate culture fits with our own.

 

Brand Acquisitions:

 

Our initial efforts for our Brand acquisitions are focused around fashion brands and related products due to the high margins, wide acceptance, and their affinity to benefit from our technology platform. Management defines a target “brand” (“Brand”) as “any brand that generates under $50 million in annual revenue”. With many brick and mortar retail sales in decline due to the Consumer Shift, management believes that there is a strong opportunity to acquire Brands based on their generally reduced trough valuations that, through the deployment of our technologies, can produce outsized returns and be generally accretive to our business. Since these Brands are small, they can be targeted to smaller individual niche demographics, providing the individuality required by the Consumer Shift. Each of our Brands are and will be complementary to each other and generally benefit from our technologies.

 

We have acquired a number of Brands over the last 18 months including EFG, RWG and Rune, and we expect to realize significant revenues from these acquisitions throughout 2019.

 

5
 

 

With the acquisition of significant profitable Brands, the Company may become self-sufficient, able to generate its own cash flow to minimize the need to raise capital to support its software development, sales and deployment.

 

Our Technology Strategy:

 

Management believes that adoption of our software technology and strategies by physical and online retailers and merchants is the only way for them to combat the threats posed by Amazon and Walmart. Additional threats are posed by Google and Facebook (which also owns Instagram), that together with Amazon dominate the vast majority of online searches. Our technology platform will provide some alternatives to the “Big 4” (“Amazon, Walmart, Google, and Facebook”), as well as being better able to utilize the tools and reach of the Big 4.

 

Here’s how:

 

With adoption by major retailers of our 12 Mobile APP, consumers will now be able to shop multiple brands from one platform, get valuable information within the physical stores, fully utilize our interactive 12 Mirrors and 12 AD Screens inside their stores, and share their experiences with others- resulting in building that retailer’s brand. Our engaging software creates experiences for shoppers to get them back into the stores where the retailers can compete much more effectively with the Big 4.

 

For retailers, our API’s can connect the retailer’s ERP systems and payment processing to our administrative APP on our platform. This allows their sales associates to have all the information at their fingertips that a consumer could want to know like: where the product is made, information about the warranty, what colors it comes in, care instructions, and how many are in stock, as well as price. It also provides suggestions of what else to offer the customers directly at the time of purchase to increase the sales ticket and improve consumer satisfaction. This minimizes training time, allows for less sales people on the sales floor while providing superior customer services (no more waiting on lines at a register). These processes increase revenue and lower costs. Our technology encourages consumers to share information about items they like and purchases they made creating engagement with their extended network and friends.

 

Our platform, which we market as the 12 Technology Suite, is modular, and allows each retailer to custom tailor which products or services will best engage their consumers creating experiences unique to their stores. Retailers easily manage all aspects of our platform from the 12 Dashboard , which allows them to add products, change offers, and push offers to consumers on the network easily and efficiently.

 

12 Technology Suite

 

We anticipate that the 12 Technology Suite (“12 Suite”) will be the next disruptive innovator in the retail sector. Simply put, 12 Suite is an interactive shopping cart that seamlessly combines shopping and social networking for a fun and unique shopping experience. 12 Suite integrates in-store, online, and mobile shopping with its smart mirror (“12Mirror”), 12Mobile APP, and 12Kiosk, while an interactive advertising screen, the 12 AD Screen, provides special offers from shops, restaurants, and service providers. Over next 36 months, the Company will be deploying its proprietary 12 Suite (software, hardware (the 12Mirror), applications for the iPhone, iPad, and Android phones and tablets (12Mobile)) that integrates traditional shopping, on-line shopping, entertainment and social networking into a “Totally Integrated Retail Platform”.

 

The first fully-integrated store (13 story lifestyle store) has been fully implemented in Tokyo, Japan and is running successfully since the beginning of 2016. More stores, for the same retailer, are now coming online, and we continue to be approached by other retailers around the world. Our updated and improved software will be available for sale beginning by mid-April 2019.

 

6
 

 

Our Platform is known as USXS

 

USXS – U nifying S hopping e X perience S ystem ® - Management believes that the USXS is the solution for all retail problems related to reaching the consumer; the connector of any available technology system and the generator of a truly shopping and entertainment experience for consumers. Our technology is based on the full integration of the 12Mirror / 12ADScreen connected with 12Kiosk, 12Mobile and e-commerce. The whole technology will enable consumers to be independent and freely share information with friends.

 

We call this the “12 Experience”. We believe that the 12 Experience offers both retailers and customers an exciting, timesaving and efficient way to enjoy and to fully become immersed within the traditional retail environment.

 

We believe that:

 

  12 ReTech will set a new trend in retailing; changing the way shopping and advertising is done
     
  12 ReTech will connect people to business and people to people
     
  12 ReTech will be the first offering a real-time service to consumers wherever they are located
     
  12 ReTech will build on the complete integration of four fundamental retail and entertainment components: Traditional Shopping; Online/Mobile Shopping; Social Networking; PR - Advertising and Entertainment

 

Industry Overview

 

  E-commerce has increased 20% on average each year but remains at only 8% of total commerce.
     
  Many shoppers visit physical shops but purchase online looking for lower a price.
     
  Untrained retailer staff cannot help effectively and can struggle to make consumers happy.
     
  Waiting in line, waiting for fitting rooms, or waiting to pay, can be frustrating and has the potential to make customers exit the store without purchasing.
     
  Small retailers cannot afford to spend significant money on advertising or technology.
     
  Retailers are reluctant to fully embrace the potential of new technologies if it costs them significant money and is difficult to implement the new system.
     
  There is a need to provide an easier way to get special offers to consumers.

 

Disruptive Technology

 

The Company is deploying its technology in traditional retail outlets in order to allow for a seamless and novel approach to traditional retail shopping models. In order to advance our concept, we have identified several key concepts that we believe are the cornerstones of our business in the coming months and years. We believe that consumers want to shop in a seamless way, avoiding long lines and avoiding the frustrations that traditional retail shopping has long since been mired.

 

7
 

 

We firmly believe that the modern shopper:

 

  Wants to evaluate products all the time, not only while shopping.
     
  Likes to learn about a product and get a trusted friend’s recommendation and suggestion through any means available, especially social media.
     
  Wants flexible shopping anywhere; online, mobile or at the store.
     
  Wants flexible ordering and delivery or pick-up at the store.
     
  Wants to receive customized offers and promotions before entering or when they are at the store.
     
  Expects seamless, personalized experience at every touch point – anytime, anywhere.
     
  Wants convenience and value to be assured.

 

What does it bring to Customers?

 

12 ReTech’s technology helps drive more customers to the store and helps to increase sales due to the fact that customers will spend more time in the store browsing and checking products, sales can also be generated after store closure, sales can be generated after the consumer shows the product to friends and speaks with them. The technology allows retailers to receive customized information about customers, learn and understand their behavior and shopping patterns, while providing improved and customized offers to consumers. Customers create free advertising for the retailers through the sharing of pictures taken in the stores.

 

The 12 Technology Suite

 

Our 12 Technology Suite offers a spectrum of smart devices – from mirrors to PR screens to kiosks and more – to help retailers reach new consumers, increasing visibility across all channels and providing a better service.

 

12Mirror    
 

The 12Mirror is a unique in-store application, which is truly different from currently existing magic mirrors. Our 12Mirror is a custom-made interactive mirror with touch capability. It recognizes clothes that a person is fitting, and can take pictures, which can be instantly shared with friends and family.

 

When synchronized with the 12Mobile application, it enables shoppers to transfer 12Mirror images to their smart phones, purchase items with ease, and share their experience with friends online.

 

The 12Mirror detects products, gives information and collects data from consumers and products that are important for the shop, designer and manufacturer.

 

It also offers related products in store and from other stores if available.

     
12Kiosk    
 

The 12Kiosk is an in-store application to browse products, get information and place orders. In the stores, the 12Kiosk can detect products, provide information, and allow the consumer to checkout on this device as a self-checkout point.

 

It collects data from consumers and products, which in turn are important for the shop, designer, and manufacturer.

 

8
 

 

12ADScreen    
 

The 12ADScreen is a custom-made two-way screen with voice and touch capability. It detects people in front of the screen and calls them up by sound or voice. The consumer can get information on special offers at the store and/or can download advertised pictures or videos and then shop directly out of them.

 

The 12ADScreen is a new way of interactive advertising, attracting consumers in a fun and entertaining way.

     

 

12Mobile

   
  The 12Mobile APP is an e-commerce application for iPhone and Android mobile devices. This application can be used to find great offers at nearby member stores, it can make reservations and pay for purchases and services, it can check products in members stores, and it allows the consumer to socialize through the app or share with other social media apps. It allows downloading pictures or videos from the 12Mirror or 12ADScreen, to share with friends. The consumer can receive special offers or coupons from advertisers and can participate in monthly competitions via our app.
     
The Administrative App    
  The 12 Admin APP is an application for retailers, which can be used on smart phones, tablets, or PC’s to communicate with the 12 ReTech technology system, checking product information, inventory and location for a better service to their customers. It also provides product-training sessions for education of the sales staff.
     
12Sconti App    
 

The 12Sconti APP – a new addition to our 12 Suite (only offered in Europe)– was created to help in reducing food waste. This app helps retailers of perishable products to reduce their waste by offering products at reduced prices to 12Sconti’s users. It allows consumers to buy products at a cheaper price from vendors in their vicinities.

 

1% of all revenue will be donated to a charity organization dedicated to help mitigate world hunger.

 

9
 

 

12 ReTech Will Make Shopping a “Truly Social Experience”

 

 

Offers to Consumers

 

  Consumers can enjoy shopping while they socialize with friends, being entertained at all times.
     
  Consumers can check products online, in the store, on the 12Mirror, 12Kiosks or 12Mobile APP.
     
  Consumers can get customized offers on specific products/brands.
     
  Consumers do not need to wait in line for fittings and paying. They can have the flexibility of home delivery or pick-up at the store.
     
  Consumers can get immediate offers and discounts on products, restaurants or services from business that is in the vicinity (within 10 min walking distance).
     
  Consumers can always get the best immediate deal available on various offers.

 

12 ReTech brings social media to life in a rich, totally immersive and exciting environment. In the store, consumers can connect instantaneously with any available social networking system like Facebook, Skype, WhatsApp, Line, Wechat, etc. Consumers can share pictures and videos, and can get opinions from their families and friends. 12 ReTech actively evolves with the rapidly changing “iGeneration.”

 

Advertising and Entertainment

 

In the retail and advertising business, the ideal customer for adopting this concept are department stores, malls or small retailers who want to improve their sales at the shop and online by empowering consumers and providing them with a total experience and also by reaching them with unique offers. For the first stage of our mobile app, we are targeting small and middle level retailers as well as service providers. In stage two we will target people who have skills and want to provide them privately (Person to Person) generating additional value for consumers. We believe that the concept of allowing the Consumer to have fun, receive special offers and being entertained during their shopping experience is very important. 12 ReTech makes the consumer feel special, important and empowered, allowing them to choose the best offer available right now at the store they are in or at stores in the vicinity.

 

Intellectual Property

 

The Company has three patents pending covering its intellectual property. The Company recently hired the internationally known intellectual property law firm Fish and Richardson to process and protect all of the Company’s patent applications- worldwide.

 

1. U.S.A.

 

Patent Application # : 14/101,486

 

Description : The patent application relates to an inventive shopping system with enhanced efficiency, including but not limited to, a customer interaction device for communication between a customer and the shopping system, the customer interaction device interacting with the shopping system to conduct activities in a retail store.

 

Filing Date : December 10, 2013

Being re-applied for.

 

10
 

 

2. P.R. China:

 

Patent Application #: 201410418985.X

 

Description : This patent application claims priority from the US application, and it relates to an inventive shopping system with enhanced efficiency, including but not limited to, a customer interaction device for communication between a customer and the shopping system, the customer interaction device interacting with the shopping system to conduct activities in a retail store.

 

Filing Date : August 24, 2014

 

3. Patent Cooperation Treaty (PCT) Application

 

Patent Application #: PCT/IB2014/066751

 

Description : This patent application claims priority from the US application, and it relates to an inventive shopping system with enhanced efficiency, including but not limited to, a customer interaction device for communication between a customer and the shopping system, the customer interaction device interacting with the shopping system to conduct activities in a retail store.

 

Filing Date : December 10, 2014

 

    Patent Application #   Description   Filing Date
1. USA 14/101,486   Unifying Shopping Experience System   Dec 10, 2013
2. P.R. China 201410418985.X   Unifying Shopping Experience System   Aug 24, 2014
3. E. U. 2014/066751   Unifying Shopping Experience System   Dec 10, 2014

 

In addition, as of the date of the report the Company owned the following Universal Resource Locator(s) (URLs

 

- www.12retech.com

-www.12japan.jp

-www.12hongkong.com

-www.12europe.com

-www.12retail.com

- www.12sconti.com

-www.lexiludancewear.com

-www.lexiluudancewear.com

-www.Emotionapparelinc.com

-www.EmotionFashionGroupInc.com

-www.emotionfashiongroup.com

-www.emotionfashions.com

-www.redwiregroup.com

-www.runenyc.com

 

Other intellectual property:

 

-Through the ownership of various brands, including EFG, RWG and RUNE, the Company acquired the rights to hundreds of patterns as well as the proprietary process for making the fashion clothing owned and marketed by the Company.

 

Future Intellectual Property Strategy

 

The Company intends to continue its development of its technologies and will continue to apply for patents for future product developments. The Company’s strategy is to protect the technologies with patents in Europe, U.S. and China. Following product development, each product, based on the technologies, will be further protected individually by new patent filings worldwide.

 

11
 

 

History & significant events:

 

- The Company was formed in Nevada on September 8, 2014 as Devago Inc. as a start-up Company engaged in the creation of mobile software applications or “apps”.

 

- On March 30, 2017, the Company received an S-1 Notice of Effectiveness from the United States Securities and Exchange Commission (the “SEC”).

 

- On June 7, 2017, we entered into the Share Exchange Agreement with 12 Hong Kong Limited, a Hong Kong Special Administrative Region corporation, and the Shareholders of 12HK (the “12HK Shareholders”).

 

- On June 8, 2017, the Company filed with the State of Nevada Amended and Restated Articles of Incorporation, reflecting: (1) a change the Company’s name from Devago, Inc. to 12 ReTech Corporation; and, (2) an increase in the Company’s authorized shares of Common Stock from 100,000,000 to 500,000,000, and decreases its authorized shares of undesignated Preferred Stock from 100,000,000 to 50,000,000.

 

- On June 21, 2017, the Financial Industry Regulatory Authority (“FINRA”) approved a six-for-one (6:1) forward split of the Company’s common stock. The Company also facilitated the cancellation of 19,800,000 pre-split shares of its restricted common stock and such stock was returned to the Company’s treasury.

 

- On June 27, 2017 the Company completed the acquisition of 12 Hong Kong, Ltd, which became a wholly-owned subsidiary. Pursuant to the Share Exchange Agreement, the Company acquired Four Million (4,000,000) shares of 12HK representing 100% of the issued and outstanding equity of 12HK from the 12HK Shareholders (the “12HK Shares”) in exchange for an aggregate of Fifty Five Million (55,000,000) shares of Company stock, consisting of: (i) Fifty Million (50,000,000) shares of common stock; and, (ii) Five Million (5,000,000) shares of Series A Preferred Stock.

 

- On June 27, 2017, as a result of closing the acquisition of 12HK, the Company was no longer a shell corporation as that term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

 

- On July 31, 2017, the Company acquired all of the outstanding equity of 12 Japan, Ltd., which became a wholly owned subsidiary. Pursuant to the Share Exchange Agreement, the Company acquired One Hundred One Thousand (101,000) shares of 12JP, representing 100% of the issued and outstanding equity of 12JP, from the 12JP shareholders in exchange for; i) Five Million (5,000,000) shares of its Common Stock; and, (ii) Five Hundred Thousand (500,000) shares of its Series A Preferred Stock. As required in the Share Exchange Agreement and concurrently with closing, the Company canceled five million (5,000,000) of its common stock and five hundred thousand (500,000) the Company’s Series A preferred stock beneficially owned by the Company’s majority stockholder, which were returned to the Company’s treasury.

 

- On September 13, 2017 the Company changed its fiscal year from November 30 to December 31.

 

- On September 27, 2017 the Company appointed Daniele Monteverde as the Chief Financial Officer (“CFO”) and director.

 

- On October 26, 2017, pursuant to the Share Exchange Agreement, the Company exchanged Three Million Eight Hundred Seven Thousand Nine Hundred Seventy-Six (3,807,976) of its common shares for One Thousand (1,000) of common shares of 12 Europe A.G., representing 100% of the issued and outstanding equity of 12EU, and 12EU became a wholly-owned subsidiary of the Company.

 

- On January 29, 2018, the Company designated three additional classes of Preferred Shares having the rights, preferences and privileges of each class of preferred stock as indicated; i) The Series B Preferred Stock, which will consist of 1,000,000 shares of Series B Preferred Stock, par value $0.00001 per share with each shares having a value of $1.00 when issued and convertible into common stock at a discount to be agreed between the Company and the indicated shareholder, ii) Series C Preferred Stock, which will consist of two shares of Series C Preferred Stock, par value $0.00001 per share and each share shall each cast 1 billion votes for any matters requiring a vote of shareholders, and shall not be convertible into common stock, and iii) Series D Preferred Stock, par value $0.00001 and shall be deemed Blank Check Preferred allowing the Board of Directors at some future date to determine the rights, privileges and preferences as they may deem appropriate.

 

12
 

 

- On January 29, 2018 and March 14, 2018, the Company sold 203,000 and 63,000 Preferred Series B shares, respectively to Geneva Roth Remark Holdings, Inc., a New York corporation, for $1.00 per share. These shares may be converted by the Holder at a 35% discount to market after being held for six months under a discount formula. These shares also can be redeemed at the option of the Company at any time for a cash amount equal to the defined redemption percentage and carry a mandatory redemption by the Company of all previously unredeemed or unconverted shares fifteen months following the issuance date.

 

- On January 29, 2018, the Company amended its Articles of Incorporation giving its Board of Directors the power to issue up to 50,000,000 shares of Preferred Stock, and to fix the rights, preferences and privileges of each class of preferred stock so created. No shareholder approval is required in connection with the creation of classes of preferred stock under this authority and the setting of the rights, preferences and privileges of such shares. The Board of Directors acted to create new series of preferred stock, entitled Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock.

 

- On March 12, 2018, The Company, through its subsidiary 12 Retail, acquired 100% of the equity in E-motion Apparel, Inc, a California corporation, pursuant to a Share Exchange Agreement (see Section “Subsequent Events”), which itself owns four other microbrands that target specify niche markets: Lexi-Luu Dancewear, Punkz Gear, Cleo VII and Skipjack Dive & Dance Wear. This Company, now located in Salt Lake City, Utah, operates its own production and fulfillment facility that management believes can be utilized by all of the Company’s future microbrand acquisitions as a competitive advantage to quickly produce, market, sell and deliver many smaller quantities of garments, keeping online sales channels fresh.

 

- On March 14, 2018, and upon the written consent of the majority of shareholder votes eligible to vote as of March 14, 2018, the Company increased its common authorized shares from 500 Million (500,000,000) shares to One Billion (1,000,000,000) shares of common stock.

 

- On March 16, 2018 the Company filed Form 8A-12G announcing that the common stock of the Company as described on Form S-1/A, filed on February 10th, 2015 and effective March 30, 2015 incorporated herein by reference are registered. Through this filing, the Company became a Mandatory Filer with the SEC.

 

- On March 20, 2018, Geneva agreed to purchase an additional 68,000 Series B Preferred shares for $68,000 under the same terms as the initial purchase on January 31, 2018.

 

- In June 2018, Dominic D’Alleva joined the advisory board. In conjunction with his advisory board position, 12 ReTech issued 3,125,000 shares in June 2018. From 1995 to present time, Mr. D’Alleva has been a principal with D and D Realty Company, LLC, a privately-owned New York based New York limited liability company involved in the acquisition and financing of real estate. From 1986 to 1995, he was engaged in residential New York City real estate for his own account and as general counsel to various real estate acquisition firms. From December 2014 to October 2016, Mr. D’Alleva was Chairman of the Board of Warren Resources, Inc., a publicly traded energy Company which was reorganized in 2016. From 1983 to 1985, he served as Executive Vice President, Director and General Counsel of Swanton Corporation which engaged in energy, retail, and financial services businesses. From 1980 to 1983, he was Associate Counsel for Damson Oil Corporation. From 1977 to 1980, he was an associate with Simpson, Thatcher & Bartlett specializing in securities and corporate law. Mr. D’Alleva received a Bachelor of Arts degree Summa Cum Laude from Fordham University in 1974 and earned his Juris Doctor degree with honors from Yale University in 1977.

 

13
 

 

- On July 2, 2018, the Company entered in an Equity Line of Credit agreement with Oasis Capital, LLC (“Oasis Agreement”), and as a part of that Agreement the Company created a subset Series D-1 Preferred Stock from the authorized Series D Preferred Stock having special rights and privileges. The total number of shares of Series D-1 Preferred Stock issued was 311,250 shares, with a par value of $0.00001 per share and a stated value of $2.00 per share (the “Stated Value”). The Series D-1 Preferred Stock as a whole, of which Series D-1 is a subset, has such powers, preferences, rights and restrictions which shall be determined by the Company’s Board of Directors in its sole discretion, and which designations and issuances shall not require the approval of the shareholders of the Company

 

- On July 2, 2018, the Company reserved of 100,000,000 shares of our common stock to Oasis Capital under the Equity Purchase Agreement. In connection with the Equity Purchase Agreement, Oasis Capital was issued 311,250 shares of the Company’s Series D-1 Preferred Stock which is convertible, at the option of Oasis Capital, into shares of our common stock, subject to a beneficial ownership limitation of 4.99% of the then outstanding shares of common stock. Other than the Commitment Shares, the amount and percentage of shares of our common stock that will be beneficially owned by the selling stockholder after completion of the offering assume that they will sell all shares of our common stock being offered pursuant to this prospectus.

 

- On July 5, 2018 the Company filed a certificate of designation to create a subset of the Series D Preferred Stock, designated Series D-1.

 

-On July 13, 2018 the Company increased its authorized Series D Preferred Stock from one million to ten million (10,000,000) authorized shares of stock from the 50 million total authorized preferred shares. These shares are designated as “Blank Check Preferred”, allowing the Board of Directors to set the rights, privileges, and voting as determined by the Board of Directors as well as dividing this Series into other series as the need may arise.

 

- On July 19, 2018, 1,500,000 shares of Series A Preferred Stock were issued as compensation for services.

 

- On August 6, 2018, the Board of Directors of 12 ReTech Corporation authorized the issuance of one (1) share of our Series C Preferred Shares to the founder, Angelo Ponzetta, effective August 14, 2018. The Series C Preferred Shares have no equity value, no preference in liquidation, and are not convertible into common shares, but authorizes the holder to vote one billion (1,000,000,000) votes on any matter that shareholders are entitled to vote for under our Bylaws at a cost of $1.00 per share. The Board believes that this was necessary so that the Company maintains a consistent vision going forward that can only be achieved if the Founder’s vision is maintained. This vision is the same vision that all current shareholders bought into as evidenced by their investment into the Company. To ensure that the founder’s vision is maintained, it is necessary that no outsider person or group can gain voting control from the founder as the Company.

 

- On September 29, 2018, the Board of Directors of 12 ReTech Corporation authorized the issuance of twenty thousand (20,000) shares of our Series D-3 Preferred Shares to Gianni Ponzetta effective September 29, 2018 at a price of $5 par value per share in exchange for $100,000. On the same date, 12 ReTech Corporation authorized the issuance of four thousand (4,000) shares of our Series D-3 preferred shares to Gianni Ponzetta at $5 par value per share with a value of $20,000 as incentive shares at no additional costs to Gianni Ponzetta. Lastly, 12 ReTech Corporation issued 30,840 shares of Series D-3 Preferred Shares to Gianni Ponzetta with par value per share of $5 in exchange of $154,234 which was owed to Gianni Ponzetta. On October 30, 2018, this Certificate of Designation was filed with the Secretary of State in the State of Nevada.

 

-As a subsequent event, on January 9, 2019, the Company filed a Certificate of Designation to create One Million (1,000,000) Series D-5 Convertible Preferred Stock with par value $0.00001 and stated value of $4.00 per share.

 

-As a subsequent event, on January 9, 2019, the Company filed a Certificate of Designation to create One Million (1,000,000) Series D-6 Convertible Preferred Stock with par value $0.00001 and stated value of $5.00 per share.

 

-As a subsequent event, on January 11, 2019, the Company filed an amendment to Series C Preferred shares where each issued and outstanding shares of Series C Preferred Stock shall be entitled to Eight Billion (8,000,000,000) votes at each meeting of shareholders of the Company with respect to any and all matters presented to the shareholders of the Company for their action or consideration (by vote or written consent). Holders of shares of Series C Preferred Stock shall vote together with the holders of Common Shares as a single class.

 

14
 

 

-As a subsequent event, on January 24, 2019, subsequent to year ended December 31, 2018, through its 12 Retail subsidiary, the Company acquired Red Wire Group, LLC, a Utah limited liability corporation founded in 2013, which manufactures apparel for multiple brands. This Company is located in Salt Lake City, with highly-trained, experienced employees, which allows the Company to expand is production capacity for its own brands as well as merge its operations with the EFG manufacturing facility and be able cope with the demand for production services from third party clients.

 

- As a subsequent event on March 8, 2019, the Company-filed Form 14C became effective. The Form 14C amended the Company’s Articles of Incorporation to affect an increase in the authorized shares of common stock from 1,000,000,000 shares to 8,000,000,000 shares.

 

- As a subsequent event, on March 14, 2019 the Company acquired 92.5% of the equity of Rune NYC, LLC, a New York limited liability company, through its 12 Retail Subsidiary, pursuant to a Share Exchange Agreement (see Section “Subsequent Events”). The Company, located in New York City, operates its own brand Rune NYC.

 

ITEM 1A. RISK FACTORS

 

An investment in our common stock involves a high degree of risk and should not be made by anyone who cannot afford to lose their entire investment. You should consider carefully the risks set forth in this section, together with the other information contained in this report, before making a decision to invest in our common stock. Our business, operating results, and financial condition could be seriously harmed and you could lose your entire investment if any of the following risks were to occur. This document is not intended to be an offer of any securities nor a solicitation of any offer to buy or sell.

 

Risks Related to Our Business

 

Until the acquisition of our brands, we are a Company with limited operating history, little revenue and still have to rely on our ability to raise capital to fund operations and there can be no assurance we will ever reach profitability or be able to continue to raise capital to fund operations.

 

The Company commenced limited operations in June of 2017, with the acquisition of 12 Hong Kong, Ltd. The Company then acquired 12 Japan, Ltd in August 2017 followed by 12 Europe A.G. in October 2017. 12 Japan, Ltd brought a small portion of revenue, insufficient to fund operations while 12 Europe A.G. brought no revenue but brought a base of operations whereby the Company was able to secure retail customers in Europe that may begin to provide significant revenue in May 2018. The brand acquisitions are too new to provide sufficient working capital to the Company. Therefore, we have limited operating history on which to make an investment decision. Accordingly, the Company has a limited operating history and the business strategy while promising may not be successful. Failure to implement the business strategy could materially adversely affect our business, financial condition and results of operations. Through December 31, 2018, the Company’s business has not shown a profit in operations and has generated little revenues. There can be no assurance we will achieve or attain profitability or be able to raise sufficient capital to stay in business. If we cannot achieve operating profitability or raise capital, we may not be able to meet our working capital requirements, which could have a material adverse effect on our business operating results and financial condition resulting in the loss of an investors’ entire investment in us.

 

15
 

 

We need substantial additional capital to grow and fund our present and planned business and business strategy. Until we have made significant brand acquisitions, the Company’s working capital may not be sufficient for our needs.

 

Our current and planned operations contemplate funding in the future. Failure to meet funding milestones may have a significant adverse effect on our growth and anticipated revenues and we may have to curtail our business strategy. If we receive less funding than planned, we will have to revise our business model and reduce proposed plans. Without significant funding, we will not be able to execute on our business operations and may be forced to cease operations. At this time, there can be no assurance we will be able to obtain the funding we need and even if we obtain such funding that it will be on terms and conditions favorable to us and our existing shareholders. Without funding we will not be able to proceed with planned operations or meet existing obligations.

 

Our independent registered public accounting firm’s report states that there is substantial doubt that we will be able to continue as a going concern. Our possible inability to stay in business could result in a total loss on investment by our shareholders.

 

Our accompanying financial statements have been prepared assuming that we will continue as a “going concern.” As discussed in Note 2 to the Company’s December 31, 2018 consolidated financial statements, we had little revenues, have minimal business operations, have recurring losses and have negative working capital and a stockholders’ deficit. These issues raise substantial doubt about our ability to continue as a “going concern.” Our ability to stay in business will, in part, depend on our ability to raise additional funding or continue to make brand acquisitions. Our financial statements do not include any adjustment that might result from the outcome of this uncertainty.

 

We may experience service failures or interruptions due to defects in the software, infrastructure or processes that comprise our Apps and other software, any of which could adversely affect our business.

 

Our software may contain undetected defects in the software, infrastructure or processes. If these defects lead to failures in our Apps, we could experience delays or lost revenues during the period required to correct the cause of the defects. Furthermore, we cannot be certain that defects will not be found in new software or upgraded existing software or that service disruptions will not occur in the future, resulting in loss of, or delay in, market acceptance, which could have an adverse effect on our business, results of operations and financial condition.

 

If we do not successfully maintain the 12 ReTech brand in our existing markets or successfully market the 12 ReTech brand in new markets, our revenues and earnings could be materially and adversely affected.

 

We believe that developing, maintaining and enhancing the 12 ReTech brand in a cost-effective manner is critical in expanding our customer base. Promotion of our brand will depend largely on continuing our sales and marketing efforts and providing high-quality products and App software to our customers. We cannot be assured that these efforts will be successful in marketing the 12 ReTech brand. If we are unable to successfully promote our brand, or if we incur substantial expenses in attempting to do so, our revenues and earnings could be materially and adversely affected.

 

Our internal systems and operations are untested and may not be adequate and could adversely affect our ability to continue our planned business.

 

Our internal systems and operations are new and unproven at scale. On the technology portion of our business we have not demonstrated the ability to make the large-scale deployments necessary if a large retailer would indicate they wanted to fully implement our solutions. We may need to find an installation partner with the necessary experience to perform these large-scale installations. Our inability to scale or find that experienced partner or vendor could have a material adverse effect upon our business, results of operations and financial condition and could force us to halt our planned operations or continued expansion of those planned operations, causing us to lose any opportunity to gain significant anticipated market share in our industry. Our ability to compete effectively and to manage future growth will require us to continue to improve our operational systems, our organization and our financial and management controls, reporting systems and deployment procedures. We may fail to make these improvements effectively. Additionally, our efforts to make these improvements may divert the focus of our personnel and we may not be able to effectively continue our planned operations, which may materially and adversely affect our business, results of operations and financial condition.

 

16
 

 

Our inability to attract and maintain key personnel required to implement our business strategy could adversely affect our ability to continue our current and planned business resulting in slower growth.

 

While we have so far been able to attract high caliber people, we are competing with many other entities for these services some of whom are better funded then we are. We are trying to grow our effort to provide services and we are still hiring key positions and integrating personnel at all levels into a cohesive team. If executives or other new hires integrate poorly, perform badly, or do not have the anticipated experience or skill sets required, our current and planned business endeavors could be harmed. Planned personnel, management practices and controls may also prove to be inadequate to provide services, acquire customers and partners and operate the business, and any gaps or failures may have a material adverse effect on our business, financial condition and results of operations.

 

Increased competition may have an adverse effect on our ability to continue our current and planned business operations and result in our going out of business and may have a material adverse effect on our business, financial condition and results of operations.

 

We may see increased competition in our markets. On the technology side of our business many players are entering the market place including Hitachi, IBM, and others. While we believe that our solutions are better due to our experience as retailers our competitors are entrenched and very well-funded. The competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements and devote greater resources to develop, promote and sell their products or services. In addition, increased competition could result in reduced fees, reduced margins and loss of market share, any of which could harm our business. We cannot guarantee that we can compete successfully against current or future competitors, many of which have substantially more capital, existing brand recognition, resources and access to additional financing. All these competitive pressures may result in increased marketing costs, or loss of market share or otherwise may materially and adversely affect our business, results of operations and financial condition.

 

We may be unable to protect our patents, may be unable to patent future improvements and/or update our technology.

 

We use technology advancements of our own and from suppliers to provide more advanced services with more efficient economics for our customers. Technology advancement is very fast paced in today’s digital world and can lead to changing standards and new modes of providing services. The advancement of other technology not available to us or within our financial ability to adopt that may make our products or future products unsaleable. Keeping pace with the introduction of new standards, customer requirements or the advancement of other technology may make our products un-competitive or obsolete. The failure to keep pace with these changes and to continue to enhance and improve our products and features could harm our ability to attract and retain customers for our technology.

 

The effectiveness of our disclosure controls and procedures and internal control over financial reporting

 

The Company has a limited number of personnel which may lead to the risk of limited controls and procedures. In additional for the aforementioned reason there is a limit on the quantity of internal controls during our financial reporting process.

 

The Company’s CFO is currently the CEO of another Company

 

The Company CFO is also the CEO of another business and therefore may have limited time to work on the business and may experience time conflicts.

 

Our directors may lack of an independent director on your Board of Directors

 

Our CEO and CFO are also on our Board of Directors and as a result the Board of Directors may lack some independence

 

The stock ownership of your chief executive officer and the ability to control the Company

 

The Company’s Chief Executive Officer is also one of the most significant shareholders of the Company and as a result exercises significant control over the Company.

 

Small customer base makes on dependent on a few customers

 

The Company currently has a small customer base which makes the Company dependent on a limited number of parties for its business growth. Failure of these customers may adversely affect our business, results of operations and financial condition.

 

Risks related to the Retail Industry

 

The retail industry in general is changing. More people are shopping online and there is a general consolidation of major brands and a large number of well-known brands are financially stressed, including former industry giants like Sears, K-Mart and JC Penney. As of the writing of this filing Abercrombie & Fitch is closing 60 more stores, American Apparel has filed for Bankruptcy, BCBG closed 118 stores, Bebe has closed all their stores, Bon-ton has filed Chapter 11, HHGregg is closing 22 stores, the Limited has closed all of their stores, Sports Authority has closed, Toys R Us is liquidating all of their assets and closing all of their American stores, and many more are announcing closings or filing for bankruptcy. While this provides opportunity for new brands, it also provides risk as many of our brands also sell to well-known retailers and any one of them may announce closings or even a Chapter 11 filing. Therefore, there is no guarantee that the changes sweeping the retail industry today may negatively affect our business. With a changing retail environment like we are in today there are no guarantees that management’s strategy will be successful. Further the creditworthiness of many of the retailers most needing our technology products may be suspect and we may be negatively impacted by adverse credit risks associated with our future best customers.

 

17
 

 

Our operating results may be substantially different than that which management projects. The creditworthiness of our customers, changes in the availability of capital due to a downturn in the economy undue regulation and legal uncertainties, all of which would increase our cash requirements which may materially and adversely affect our business, results of operations and financial condition.

 

Therefore, financial results could materially differ from that projected by management. Projections are less and less reliable the further out those projections are made based on all of the above reasons.

 

An increase in laws and regulations could contribute to a decline in the growth of the industry and could decrease demand for our products and services and increase our cost of doing business. Moreover, the applicability of existing laws is uncertain with regard to many issues. Our business, financial condition and results of operations could be seriously impaired by any new legislation or regulation. The application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations and to other services which may materially and adversely affect our business, results of operations and financial condition.

 

Planned acquisitions come with various risks, along with dilution to our shareholders, which could negatively affect our stock prices and may materially and adversely affect our business, results of operations and financial condition.

 

Acquisitions, mergers, and joint ventures entered into by us may have an adverse effect on our business. We expect to engage in acquisitions, mergers, or joint ventures as part of our long-term business strategy. These transactions involve significant challenges and risks including that the transaction does not advance our business strategy, that we do not realize a satisfactory return on our investment, or that we experience difficulty in the integration of new assets, employees, business systems, and technology, or diversion of management’s attention from our other businesses. These events may materially and adversely affect our business, results of operations and financial condition.

 

Risks related to the competition of our current and future brands acquired or to be acquired by our subsidiary, 12 Retail Corporation.

 

Our current and planned brand acquisitions are in the highly competitive fashion industry. Many of those acquisitions will compete directly with better funded and better-known brands. While Management believes that it can compete directly with these larger brands, gambling on the public’s changing attitudes towards “looking the same as everyone else” and wanting individuality and on the Company’s proprietary technology to provide positive results there are no guarantees that the Company will be able to compete effectively.

 

The current and future state of the economy may materially and adversely affect our business, results of operations and financial condition.

 

Our business may be adversely affected by changes in domestic economic conditions, including inflation or deflation, changes in consumer preferences, changes in consumer spending rates, personal bankruptcy and the ability to collect our customer accounts. Changes in economic conditions may adversely affect the demand for our products and make it more difficult to collect customer accounts, thereby negatively affecting our business, operating results and financial condition. The recent disruptions in credit and other financial markets and deterioration of national and global economic conditions could, among other things, impair the financial condition of some of our customers and suppliers, thereby increasing customer bad debts or non-performance by suppliers. If we experience bad debts or slow paying customers in significant quantities, our cash flow will be limited and our ability to pay our own obligations will be questionable. As a small business these issues will affect us more than our larger competitors putting financial strain on our business and threatening our survival particularly since we have limited capital to rely on to overcome cash flow issues of slow paying customers. If our customers are unable to pay or pay slowly it may materially and adversely affect our business, results of operations and financial condition.

 

18
 

 

Future stock issuances could severely dilute our current shareholders’ interests.

 

Our Board of Directors has the authority to issue up to 8,000,000,000 authorized shares of our common stock or stock warrants and options to acquire such common stock. Our Board of Directors has the authority to issue up to 50,000,000 shares of preferred shares that have various rights of conversion to common stock. Refer to Description of Registrant’s Securities below for full details of Series A, Series B, Series C, and Series D Preferred Shares. The future issuance of common stock may result in dilution in the percentage of our common stock held by our existing stockholders. Also, any stock we sell in the future may be valued on an arbitrary basis by us and the issuance of shares of common stock for future services, acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our existing stockholders .

 

We do not expect to pay dividends on our common shares in the near future.

 

We do not expect to declare or pay any dividends on our common stock in the foreseeable future. The declaration and payment in the future of any cash or stock dividends on the common stock will be at the discretion of our Board of Directors and will depend upon a variety of factors, including our ability to service our outstanding indebtedness, if any, and to pay dividends on securities ranking senior to the common stock, our future earnings, if any, capital requirements, financial condition and such other factors as our Board of Directors may consider to be relevant from time to time. Our earnings, if any, are expected to be retained for use in expanding our business.

 

Risks Related to Our Common Stock

 

Our common stock is classified as a “penny stock” under SEC Rules and Regulations, which means there is a very limited trading market for our shares.

 

Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a511 of the SEC. Penny stocks are stocks (i) with a price of less than five dollars per share; (ii) that are not traded on a “recognized” national exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ listed stocks must still meet requirement (i) above); or (iv) in issuers with net tangible assets less than $2,000,000 (if the issuer has been in continuous operation for at least three years); or $5,000,000 (if in continuous operation for less than three years); or with average revenues of less than $6,000,000 for the last three years.

 

Section 15(g) of the Exchange Act and Rule 15g2 of the SEC require broker dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account. Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be “penny stock.”

 

Moreover, Rule 15g9 of the SEC requires broker dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker dealer to (i) obtain from the investor information concerning his, her or its financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor, and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for investors in our common stock to resell their shares to third parties or to otherwise dispose of such shares.

 

19
 

 

Due to the substantial instability in our common stock price, you may not be able to sell your shares at a profit or at all, and as a result, any investment in our shares could be totally lost.

 

The public market for our common stock is very limited. As with the market for many other small companies, any market price for our shares is likely to continue to be very volatile. Our common stock has very limited volume and as a “penny stock,” many brokers will not trade in our stock limiting our stocks’ liquidity. As such it may be difficult to sell shares of our common stock.

 

Our common stock has a limited trading history, and it will be difficult to determine any market trends or prices for our shares and additional shares that become available under Rule 144 could cause the price of our stock to decrease.

 

Our common stock currently is quoted on the OTC Pink Sheets under the symbol “RETC”. However, with very little trading history, a trading market that does not represent an “established trading market”, volatility in the bid and asked prices and the fact that our common stock is very thinly traded, you could lose all or a substantial portion of your funds if you make an investment in us. Additionally, as more shares become available for resale, it is likely there will be negative pressures on our stock price. The sale or potential sale of shares of our common stock that may become publicly tradable under Rule 144 in the future may have a severe adverse impact on any market that develops for our common stock, and you may lose your entire investment or be unable to resell any shares in us that you purchase.

 

There are a number of shares of common stock underlying your outstanding preferred stock and convertible notes .

 

The Company has outstanding Preferred Stock and Convertible Notes with possibility of conversion into a number of common shares. Although we have attempted to discuss meaningful factors, our investors need to be aware that other factors and risks may become important in the future. New risks may emerge at any time. We cannot predict such risks or estimate the extent to which they may affect our operations and financial performance. Investors should carefully consider the discussion of risks and the other information included in this Annual Report on Form 10-K, including the Cautionary Information Regarding Forward-Looking Information provided above in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations .

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.

 

ITEM 2. PROPERTIES

 

-12HK- Rented a virtual office space on a yearly lease which ended October 9, 2018. The annual cost was $795 and was located at Unit 1104, 11/F Crawford House 70 Queens Road Central, Hong Kong.

 

-12JP- The Company leases a small office/showroom of 285.89 square foot at Maison de Ohashi Hanegi, Suite 203 with address at Hanegi 2-41-1, Setagaya-ku, Tokyo 156-0042, The 2-year lease began May 16, 2016 and automatically renewed on May 15, 2018. The monthly rent including administrative fee is $715.00 per month and the Company paid a security deposit of $700.00.

 

-12EU- Rents meeting and office space by the day on an as needed basis at a cost determined by the space needed.

 

-12 Retail- Has office space at 7135 E. Camelback Road Suite 230 Scottsdale Arizona 85251 where the Company has access to conference rooms on an as needed basis for a fee.

 

- Emotion Fashion Group, Inc Effective April 1, 2018 Emotion Fashion Group, Inc. has leased 6,450 square feet of warehouse, offices and production facilities at 2900 South West Temple in Salt Lake City, Utah USA. The monthly rent is $4,000 and is a triple net 3-year lease with 3% annual escalator clauses.

 

-12 ReTech- Leases under 200 square feet of office space at 420 Lexington Avenue Suite 300 New York City, N.Y. 10170 USA for a monthly fee of $2,095. The Lease provides conference room space on an hourly fee basis and is month to month.

 

- Red Wire Group, LLC rents 5,000 square feet of office and production space at 85 W Louise Avenue, Salt Lake City, UT under a lease that expires on July 31, 2020 for a monthly cost of $2,884. This is a triple net lease.

 

- Rune NYC, LLC entered into a 1-year lease to rent 550 square feet on April 1, 2019 for $1,950 per month at 252 West 38 th Street, NY, NY 10018. Rune sublets 50% of the space to another fashion brand for $ 750 per month lowering its monthly rental cost to $1,200.

 

ITEM 3. LEGAL PROCEEDINGS

 

We are subject to litigation, claims, investigations and audits arising from time to time in the ordinary course of our business. However, at this time, we are not aware of any material pending, threatened or unasserted claims.

 

20
 

 

PART II

 

Item 5. Market Information

 

Our common stock was traded under our former name DEVAGO, INC. on the over-the-counter pink market from December 30, 2014 to June 8, 2017 under the symbol “DVGG”. Effective June 8, 2017 the Company changed its name to 12 RETECH CORPORATION and effective on or around June 8, 2017 the quotation symbol was changed to “RETC” where our stock traded on OTC Markets’ over-the-counter pink sheet market. On March 16, 2018, the Company filed Form 8A-12G and became a mandatory filer with the United States Securities and Exchange Commission. The following table sets forth the high and low bid prices for our common stock on the OTC Markets over-the-counter pink market from January 1, 2018 to December 31, 2018. The source of these quotations is www.OTCMarkets.com quarterly market summary. The bid prices are inter-dealer prices, without retail markup, markdown or commission, and may not reflect actual transactions.

 

Quarter Ending   High Bid     Low Bid  
December 31, 2018     0.0013       0.00011  
September 30, 2018     0.0042       0.0034  
June 30, 201 8     0.0834       0.0734  
March 31, 2018     0.0900       0.0845  

 

Holders of Common Stock

 

As of March 29, 2019 the closing price for the Company’s common stock on OTC Markets was $0.0007 per share. We had 1330 stockholders of record of the 994,152,866 shares outstanding.

 

Dividends

 

The payment of dividends on the Company’s Common Stock is subject to the discretion of the Company’s Board of Directors and will depend, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We have not paid nor declared any dividends on our common stock since our inception and, by reason of our present financial status and our contemplated financial requirements do not anticipate paying any dividends in the foreseeable future.

 

We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our Board of Directors, based upon the Board’s assessment of:

 

  our financial condition;
  earnings;
  need for funds;
  capital requirements;
  prior claims of preferred stock to the extent issued and outstanding; and
  other factors, including any applicable laws.

 

Therefore, there can be no assurance that any dividends on the common stock will ever be paid.

 

21
 

 

ITEM 6. SELECT FINANCIAL DATA

 

As a “smaller reporting” as definied in Item 10(f)(1) of SEC Regulation S-K, we are not required to provide the information required by this item. The reader is cautioned to carefully read the “Management’s Discussion & Analysis” below, as well as the financial statements included in this report.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report. References in the following discussion and throughout this annual report to “we”, “our”, “us”, “12 ReTech Corporation”, “12 ReTech”, “RETC”, “the Company”, and similar terms refer to, 12 ReTech Corporation. unless otherwise expressly stated or the context otherwise requires. This discussion contains forward-looking statements that involve risks and uncertainties. 12 ReTech Corporation actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this filing.

 

At our core, 12 ReTech Corporation is a software Company whose technology allows retailers to combat the dual threats of Walmart and Amazon — both online and in physical stores. Our brand rollup acquisition strategy allows us to demonstrate the effectiveness of our software, devise and test new products, while providing shareholder value through immediate revenue and earnings growth. The Company operates through our subsidiaries on three continents: 12 Hong Kong, Ltd. and 12 Japan, Ltd., 12 Europe A.G., 12 Retail Corporation (and subsidiary in North America, E-motion Apparel Inc).

 

The Company’s business strategy is twofold. First, we design, sell, and implement software that helps retailers to improve their physical store and online sales operations. We believe that the current slump of the global retail industry will not last forever. We believe that leading retailers, will emerge as industry leaders because they have adapted to the evolving needs of their customers. 12 ReTech owns and licenses several technologies that will be useful to the retailer who is looking to survive the current business environment and even allow these new leaders to thrive in their businesses.

 

Second, we plan to acquire multiple consumer products brands in an effort to take advantage of the current slump in the global retail industry. We will use our technology, our management and operational expertise and working capital to improve the brands that we acquire and will demonstrate to the investor community as well as the retail industry that our technology and expertise can create significant uplifted revenue and profit results for our retailer clients. By improving our brands and expanding their brand awareness and their operations, we hope to create additional value for 12 ReTech’s investors. By using the Company’s technology to improve the Company’s brands, the technology which is licensed to retailer customers will also become more effective for and attractive to outside retailer customers.

 

22
 

 

12 ReTech Corporation is a holding Company that operates through its subsidiaries:

 

  12 Hong Kong, Ltd. – The technology development arm of the Company which develops and deploys the various technology offerings that the Company sells and/or licenses to their merchant customers.
     
  12 Japan, Ltd. – The Asia located sales organization responsible for recruiting customers in the Asia countries of their territory.
     
  12 Europe, A.G. – The Europe located sales organization responsible for recruiting customers in the European countries of their territory
     
  12 Retail Corporation – The USA based organization which will hold and operate the acquired consumer product brand subsidiaries that result from the Company’s microbrand rollup strategy.
     
  Emotion Fashion Group, Inc. – The Company’s first brand acquisition which was acquired as a subsidiary of 12 Retail Corporation. They own the brands, Lexi-Luu, Emotion Apparel, Punkz Gear, Skipjack Dive and Dancewear and Cleo VII.
     
 

Red Wire Group, LLC- As a subsequent event, the Company’s second operating Company acquisition was acquired on January 24, 2019 as a subsidiary of 12 Retail Corporation. Red Wire Group is an apparel manufacturing Company which allows the Company to expand its existing manufacturing sales capacity and take on new clients.

     
  RUNE NYC LLC- The Company’s latest brand acquisition which was acquired on March 14, 2019 as a subsequent event and as a subsidiary of 12 Retail Corporation. RUNE is a fashion brand operating out of New York city in the women’s athleisure apparel market.

 

There is no assurance that the Company will be able to obtain cash flow from operations or obtain additional financing. If sources of working capital are not available to the Company, the Company may not be able to continue operations. Current funding has come from equity investments. Management views certain debt which due to its convertible nature essentially takes the form of a “PIPE” placement (“ P rivate I nvestment in a P ublic E ntity”) as equity (“debt-equity”) as well as certain preferred share investments as equity and the Company is currently in negotiations with several investment sources for additional equity investment in the Company, which if successful, will satisfy long-term operations and capital expenditures (See Subsequent Events in the footnotes). There are no guarantees that such negotiations will be successful.

 

YEAR ENDED December 31, 2018 COMPARED TO THE YEAR ENDED December 31, 2017

 

Amounts reflected in our financial statements are accounted for under common control accounting (see footnotes).

 

During the year ended December 31, 2018, we incurred a net loss of $8,767,164 compared to a net loss of $1,418,755 for the year ended December 31, 2017. The increase in our net loss for the year ended December 31, 2018 over the comparable period of the prior year is primarily due to $3,595,055 of derivative expenses associated with the convertible notes payable as of December 31, 2018 and $1,295,055 in interest expenses associated with these notes payable. In addition, the Company paid $1,142,127 in professional fees during 2018 compared to $596,927 during 2017. Lastly, the Company impaired the goodwill associated with the acquisition of Emotion Fashion Group in the amount of $551,111. These expenses are mostly associated with the raising of capital and investor relations in 2018 whereas these expenses were only starting to be incurred during the second half of 2017.

 

On June 27, 2017 the Company acquired 12 Hong Kong, Ltd which is accounted for as a reverse merger such that the financials of the Company are those of the acquired entity which as a result of this transaction became the public entity. As such, the Company did not have significant public Company expenses and working capital raising expenses prior to that date. During 2017, $587,969 of expenses were incurred associated with capital raising and investor relations, $474,000 were non-cash expenses paid to various consultants and advisors with the Company’s stock which further aligned them to the goals of the Company as opposed to having paid their fees in cash. The Company also paid cash compensation of $113,969 as part of the expenses associated to obtaining working capital during the course of 2017.

 

In order to execute the Company’s business plan post reverse merger in which was started in fourth quarter of 2017 compared to a full year in 2018. As a result, management and employee compensation costs were significantly higher as a result of management and employee hires who were brought in to pursue the Company’s business plan. The remaining increase in net loss in 2018 was due to an increase in travel expenses, rent, office expenses and marketing costs of the new acquisitions as management, employees and advisors continued to pursue the business plan of the Company in 2018.

 

23
 

 

The Company is expending working capital to further their business plan. This includes the further development, refinement and improvement of their software technology that is currently in operation in Tokyo, Japan at ITOYA, Ltd., but needs to be adapted to various European languages and geography as well as North American languages and geography. The Company is also expending working capital on the development of new technology which is designed to further enhance the attractiveness of their offerings to their target customer base. Finally, to a lesser extent, the Company is increasing their sales and marketing activities in an effort to recruit customers, recruit potential consumer product brands for acquisition and recruit related technologies for acquisition.

 

A portion of the Company’s expenses are related to the costs associated with the pending acquisitions that have been announced and are in various stages of completion.

 

Significant Acquisitions in early 2019.

 

As a subsequent event, in the first quarter of 2019 the Company made two significant acquisitions that management believes will significantly change the financial prospects of the Company. With the acquisition of Red Wire Group, LLC on February 19, 2019 and the acquisition of 92.5% majority control of Rune NYC, LLC on March 14, 2019 the Company gained two revenue-producing operations. By combining these two acquisitions with its previously acquired Emotion Fashion Group, Inc. subsidiary, management believes that the Company will benefit from more efficient manufacturing operation through the combination of the EFG and Red Wire manufacturing operations. In addition, management believes that it will significantly expand the sales channels for all of its EFG brands through Rune’s acquired sales channels.

 

As a subsequent event during the first quarter 2019 the Company has already begun to benefit from the significant cost reductions in personnel and equipment costs of its EFG operations, while greatly increasing the ability to efficiently produce quality apparel. Rune, by having access to its Red Wire operated factory in Salt Lake City operated by Red Wire, has been able to cut is production support staff and reduce its office expenses by more than 50%. By having direct access to the Computer Aided Design facilities and staff sample and pattern makers of Red Wire, Rune has already begun to sell new products to existing customers and is capturing new customers for its brand.

 

Management believes that these acquisitions are “game changers” for the Company for two more reasons; 1) the wholesale customers that Rune and Red Wire sell to are and will become targets for the Company to sell its disruptive retail technology solution to other retailers and 2) is already attracting interest among other companies that would like to join the 12 ReTech team either through acquisition or through strategic partnership.

 

While management believes the results of operations for 2018 for Red Wire and Rune are not indicative of the future results for all of the reasons herein above, management believes it is important to show how materially the prior year’s revenues would have been for the Company had they been acquired at the beginning of 2018 without the material improvements we have made since acquiring them.

 

Select unaudited Pro-forma 2018 Financial Information.

 

The following table will show the unaudited combined revenues, costs of goods sold, and resultant gross margins of the Company together with the two acquisitions as if these acquisitions had been acquired at the beginning of FY2018, without any material improvements from consolidation.

 

Unaudited FY2018 Proforma P&L

 

    12 ReTech     Rune     RWG     Proforma  
                         
Sales     92,831       791,132       675,814       1,559,777  
Cost of Goods Sold     50,558       501,682       499,127       1,051,367  
Gross Profit     42,273       289,450       176,686       508,409  
Total Operating Expenses     3,297,907       310,793       277,188       3,885,888  
Net Operating Income     (3,255,634 )     (21,343 )     (100,501 )     (3,377,478 )
Net Other Income (Expense)     (5,511,530 )     (2,314 )     (784 )     (5,514,628 )
Total Expenses     8,809,438       313,107       277,972       9,400,516  
Net Income     (8,767,164 )     (23,657 )     (101,285 )     (8,892,106 )

 

The two acquisitions would have resulted in significantly larger revenues than the standalone 12 ReTech had generated in FY2018. The gross margins of the Rune NYC brand and the Red Wire Group operations are somewhat smaller than the Company’s own gross margins because a significant portion of the Company’s standalone revenues are the result of the software as a service business model and to a lesser extent, operations as an apparel brand business. Rune NYC has gross margins typical of smaller consumer apparel brands and Red Wire Group has gross margins typical of a domestic USA based apparel manufacturer. Management believes that with the improvements that the combined operation is exhibiting since acquisition that the results for 2019 will be considerably improved from the FY2018 standalone 12 ReTech financial results.

 

Liquidity and Capital Resources

 

Liquidity is a measure of a Company’s ability to meet potential cash requirements. We have historically met our capital requirements through the issuance of debt-equity and preferred stock. Management views the working capital that is raised through debt-equity or preferred equity offerings as being equivalent to raising working capital via common equity subscriptions, but with the added bonus of allowing the common equity value to rise through the passage of time and simultaneous achievement of the Company’s business goals. Any conversion of debt into equity could occur at a higher equity valuation then the Company currently has. The Company has reserved the right to repurchase these debt-equity interests and preferred stock at a predetermined premium should management determine that this is in the best interests of shareholders at an appropriate future point in time.

 

Operating expenses for the Company have been paid from revenue as well as from the issuance of debt-equity and preferred stock subscriptions. At December 31, 2018, the Company had a deficit in working capital (current liabilities in excess of current assets) of $6,324,849. A portion of this working capital deficit has been financed loans from stockholders. As of December 31, 2018, amounts owed to stockholders totaled $766,397. At December 31, 2017, the Company had a deficit in working capital (current liabilities in excess of current assets) of $1,064,961. A portion of this working capital deficit has been financed loans from stockholders. As of December 31, 2017, amounts owed to stockholders totaled $669,126. The increase in working capital deficit when compared to December 31, 2017 was principally due to an increase in notes payable (“debt-equity”) due to unrelated parties, amounts owed to stockholders and to a lesser extent, increase in accounts payable.

 

Since inception, we have financed our cash flow requirements through the issuance of debt-equity and preferred stock. As we expand our activities, we may, and most likely will, continue to experience net negative cash flows from operations, pending generation of significant revenues. Additionally, we anticipate obtaining additional financing to fund operations through debt-equity and preferred stock offerings to the extent available or to obtain additional financing to the extent necessary to augment our working capital. Management believes that our roll-up acquisition strategy if successful would provide significant revenues, potential profits as well as access to traditional bank and asset-based credit lines. In addition, management believes that existing shareholders, lenders and prospective new investors will provide the additional cash needed to meet our obligations as they become due.

 

The Company has also been funded in the amount of $334,000 in 3 tranches of preferred series B equity which provides for a nominal dividend rate of 12% and the ability of the debt holder to convert their preferred stock into common stock at a conversion price that is a 35% discount to market. That institutional investor has indicated a willingness to provide additional funds under the same formula up to $1 million dollars (which is the total amount of the Series B Preferred Shares that are designated.

 

24
 

 

In the future we will need to generate sufficient revenues from operations in order to eliminate or reduce the need to sell additional stock or obtain additional loans. However, there can be no assurance we will be successful in raising the necessary funds to execute our high growth business plan.

 

At December 31, 2018, the Cash and Cash Equivalents balance was $37,721 compared to December 31, 2017, the Cash and Cash Equivalents balance was $100,264.

 

During the year ended December 31, 2018, the current liabilities increased by $5,242,270 when compared to December 31, 2017. The primary reason for the increase was the increase in due to derivative liabilities of $2,696,470 as of December 31, 2018 compared to zero as of December 31, 2017 and increase in accounts payable to independent contractors of $1,128,808 as of December 31, 2018 compared to December 31, 2017, and to a lesser extent, increase in convertible notes payable of $216,598 for the same period. As discussed earlier, it is likely that the Company will need to obtain additional working capital through debt-equity and preferred stock capital raises until the Company can generate sufficiently profitable revenues to sustain the cash burn rate that the Company’s business plan calls for. 

 

Although, our business plan calls for high growth we anticipate that we may continue to incur operating losses during the next twelve months. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies at our stage, particularly companies in new and rapidly evolving markets. Our roll up acquisition strategy seeks to mitigate some of those risks, but until more acquisitions can be completed, we cannot include their results in our projection of cash needs.

 

As a subsequent event, we acquired our second Company with the acquisition of the Red Wire Group, on February 19, 2019, which may contribute as much as $1.5 million in revenue and $150,000 in EBITDA in the next twelve months of operations after acquisition. In addition, management acquired Rune NYC on March 14, 2019, which will contribute as much as $1.2 million in revenues and $125,000 in EBITDA in the next twelve months of operations after acquisition. Management believes that this acquisition again proves the viability of our accretive share exchange acquisition model and anticipates the ability to announce future acquisitions throughout 2019.

 

Risks include, but are not limited to, an evolving and unpredictable business model and the management of growth and the consummation and assimilation of multiple acquisitions. These factors raise substantial doubt about our ability to continue as a going concern. To address these risks, we must, among other things, increase our customer base, implement and successfully execute our business and marketing strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. Since we have not yet generated significant revenue, we have negative cash flows from operations, and negative working capital we have included a reference to the substantial doubt about our ability to continue as a going concern in connection with our consolidated financial statements for the year ended December 31, 2018. Our total accumulated deficit at December 31, 2018 was $11,180,903 compared to $2,413,739 as of December 31, 2017.

 

These consolidated financial statements have been prepared on the going concern basis, which assumes that adequate sources of financing will be obtained as required and that our assets will be realized, and liabilities settled in the ordinary course of business. If we are unable to obtain additional financing, we may cease operations and not be able to execute on operating plans. Accordingly, these consolidated financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.

 

25
 

 

Elected Mandatory Filer Status

 

As a subsequent event, the Company filed Form 8A-12G with the Securities and Exchange Commission on March 16, 2018 and therefore became a mandatory filer with the Securities and Exchange Commission.

 

Critical Accounting Policies and Estimates

 

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, and expenses and the disclosure of contingent assets and liabilities. We use assumptions that we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. We believe there have been no significant changes in accounting policies during the year ended December 31, 2018. See Note 3 to the consolidated statements in this Annual Report for a complete discussion of our significant accounting policies and estimates.

 

Recently Issued Accounting Standards

 

The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its consolidated financial statements. See Note 3 to the consolidated statements in this Annual Report for a complete discussion of our significant accounting policies and estimates.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.

 

26
 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

12 RETECH CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

 

  Page
Report of Independent Registered Public Accounting Firm for the year ended December 31, 2018 F-1
   
Report of Independent Registered Public Accounting Firm for the year ended December 31, 2017 F-2
   
Consolidated Balance Sheets F-3
   
Consolidated Statements of Operations and Comprehensive Loss F-4
   
Consolidated Statement of Changes in Stockholders’ Deficit F-5
   
Consolidated Statements of Cash Flows F-6
   
Notes to the Consolidated Financial Statements F-7

 

27
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

12 ReTech Corporation

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheet of 12 ReTech Corporation and subsidiaries (the “Company”) as of December 31, 2018, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As disclosed in the financial statements, the Company has suffered substantial net losses, has not generated significant revenue from its operations, and will require additional funds to maintain operations, all of which raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are disclosed 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 these financial statements based on our audit. 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 law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit 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, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, 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 audit 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 audit 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/ dbbmckennon  

 

We have served as the Company’s auditors since 2018.

San Diego, California

April 15, 2019

 

  F- 1  

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

12 Retech Corporation

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of 12 ReTech Corporation and subsidiaries (the “Company”) as of December 31, 2017, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As disclosed in the financial statements, the Company has suffered substantial net losses, has not generated significant revenue from its operations, and will require additional funds to maintain operations, all of which raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are disclosed 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 these financial statements based on our audit. 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 law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit 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, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, 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 audit 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 audit 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 audit provide a reasonable basis for our opinion.

 

/s/ Rotenberg Meril Solomon Bertiger & Guttilla, P.C.

 

We have served as the Company’s auditors since 2018.

 

New York, New York

April 16, 2018

 

  F- 2  

 

 

12 RETECH CORPORATION

Consolidated Balance Sheets

 

    December 31, 2018     December 31, 2017  
ASSETS                
Current Assets:                
Cash and cash equivalents   $ 37,721     $ 100,264  
Accounts receivable     15,609       2,884  
Inventory     23,140       -  
Prepaid expenses     4,884       1,290  
Other current assets     19,344       13,878  
Total Current Assets     100,698       118,316  
                 
Fixed assets, net     98,295       8,615  
Software development     371,118       -  
Security deposit     12,936       5,555  
TOTAL ASSETS   $ 583,047     $ 132,486  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current Liabilities:                
Accounts payable and accrued liabilities   $ 1,234,712     $ 105,904  
Due to stockholders     766,397       669,126  
Notes payable, net of discounts     158,245       -  
Convertible notes payable, net of discounts     624,845       408,247  
Derivative liabilities     2,696,470       -  
Series B Preferred Stock, 1,000,000 shares designated; $0.00001 par value $1.00 stated value; 68,000 shares issued and outstanding at December 31, 2018. Liquidation preference $68,000    

48,144

      -  
Series D-1 Preferred Stock, 500,000 shares designated; $0.00001 par value $2.00 stated value;311,250 shares issued and outstanding at December 31, 2018. Liquidation preference $622,500     622,500       -  
Series D-3 Preferred Stock, 500,000 shares designated; $0.00001 par value $5.00 stated value; 54,846 shares issued and outstanding at December 31, 2018. Liquidation preference $274,234     274,234       -  
Total Current Liabilities     6,425,547       1,183,277  
                 
Total Liabilities     6,425,547       1,183,277  
                 
Commitments and Contingencies                
                 
Stockholders’ Deficit:                
Preferred stock: 50,000,000 authorized; $0.00001 par value:                
Series A Preferred Stock, 10,000,000 shares designated; $0.00001 par value; 6,500,000 and 5,000,000 shares issued and outstanding at December 31, 2018 and December 31, 2017     65       50  
Series C Preferred Stock, 2 share designated; $0.00001 par value; 1 shares issued and outstanding at December 31, 2018 and 0 shares December 31, 2017     1       -  
Common stock: 1,000,000,000 and 500,000,000 authorized at December 31, 2018 and December 31, 2017, respectively; $0.00001 par value; 654,251,953 and 82,200,000 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively     6,542       822  
Additional paid-in capital     5,330,500       1,267,916  
Common stock to be issued, 0 and 487,612 shares at December 31, 2018 and December 31, 2017, respectively     -       92,646  
Accumulated other comprehensive income     1,295       1,514  
Accumulated deficit     (11,180,903 )     (2,413,739 )
Total Stockholders’ Deficit     (5,842,500 )     (1,050,791 )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 583,047     $ 132,486  

 

The accompanying notes are an integral part of these consolidated financial statements

 

  F- 3  

 

 

12 RETECH CORPORATION

Consolidated Statements of Operations and Comprehensive Loss

 

    Years Ended  
    December 31,  
    2018     2017  
             
Revenues   $ 92,831     $ 60,787  
Cost of revenue     50,558       49,586  
Gross Profit     42,273       11,201  
                 
Operating Expenses                
General and administrative     2,146,385       757,688  
Professional fees     1,142,127       596,927  
Depreciation     9,395       16,100  
Total Operating Expenses     3,297,907       1,370,715  
                 
Loss from operations     (3,255,634 )     (1,359,514 )
                 
Other Expense                
Other income     4,691          
Loss on debt extension     (75,000 )     -  
Interest expense     (1,295,055 )     (59,241 )
Loss on impairment of goodwill     (551,111 )     -  
Change in derivative liabilities     (3,595,055 )     -  
Net Other Expense     (5,511,530 )     (59,241 )
                 
Net Loss   $ (8,767,164 )   $ (1,418,755 )
                 
Comprehensive loss: Net Loss   $ (8,767,164 )   $ (1,418,755 )
                 
Other comprehensive income- foreign currency translation adjustment   $ (219 )     (18,605 )
                 
Comprehensive Loss   $ (8,767,383 )   $ (1,437,360 )
                 
Net Loss Per Common Share: Basic and Diluted   $ (0.05 )   $ (0.01 )
                 
Weighted Average Number of Common Shares Outstanding: Basic and Diluted     176,642,741       111,433,488  

 

The accompanying notes are an integral part of these consolidated financial statements

 

  F- 4  

 

 

12 RETECH CORPORATION

Consolidated Statements of Changes in Stockholders’ Deficit

 

    Series A
Preferred Stock
    Series C
Preferred Stock
    Common Stock     Additional     Common Stock     Other           Total  
    Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Paid-in Capital     to be issued     Comprehensive Income     Accumulated Deficit     Stockholders’
Deficit
 
                                                                   
Balance - January 1, 2017   5,000,000     $ 50                  -     $ -     50,000,000     $ 500     $ 694,340       -     $ 20,119     $ (994,984 )   $             (280,025 )
                                                                                         
Capital contribution in subsidiary before acquisition     -       -       -       -       -       -       97,752       -       -       -       97,752  
Recapitalization     5,000,000       50       -       -       28,692,024       287       1,859       -       -       -       2,196  
Common stock issued for acquisition of 12 Japan    

500,000

      5       -       -       5,000,000       50       (55 )     -       -       -       -  
Common stock issued for acquisition of 12 Europe     -       -       -       -       3,807,976       38       (38 )     -       -       -       -  
Cancellation of common stock and preferred stock     (500,000 )     (5 )     -       -       (8,000,000 )     (80     85       -       -       -       -  
Common stock issued for services     -       -       -       -       2,700,000       27       473,973       -       -       -       474,000  
Common stock to be issued     -       -       -       -       -       -       -       92,646       -       -       92,646  
Foreign currency translation adjustments     -       -       -       -       -       -       -       -       (18,605 )     -       (18,605 )
Net loss     -       -       -       -       -       -       -       -       -       (1,418,755 )     (1,418,755 )
                                                                                         
December 31, 2017   5,000,000     $ 50     -     $ -     82,200,000     $ 822     $ 1,267,916       92,646     $ 1,514     $ (2,413,739 )   $ (1,050,791 )
                                                                                         
Common stock issued for cash     -       -       -       -       3,125,000       31       499,969       -       -       -       500,000  
Common stock issued for conversion of notes payable and accrued interest     -       -       -       -       469,656,762       4,697       638,063               -       -       642,760  
Common Stock issued with convertible notes     -       -                       1,607,264       16       182,668       (92,646 )                     90,038  
Common stock issued for Preferred Shares conversion     -       -                       75,437,927       754       249,293                               250,047  
Change In Derivative Gain or Loss     -       -                       -               1,418,516                               1,418,516  
Common stock and preferred Stock issued for services     1,500,000       15       -       -       5,000,000       50       39,935       -       -       -       40,000  
Common stock issued for services     -       -                       16,225,000       162       236,700                               236,862  
Common stock issued for acquisition of E-Motion     -       -       -       -       1,000,000       10       79,990       -       -       -       80,000  
Beneficial Conversion feature     -       -       -       -       -       -       717,450                       -       717,450  
Series C preferred stock issued     -       -       1       1       -       -       -                     -       1  
Net loss     -                                                 (219 )     (8,767,164     (8,767,383 )
Balance - December 31, 2018   6,500,000     $ 65     1     $ 1       654,251,953     $ 6,542     $ 5,330,500       -     $ 1,295     $ (11,180,903 )   $ (5,842,500 )

 

The accompanying notes are an integral part of these consolidated financial statements

 

  F- 5  

 

 

12 RETECH CORPORATION

Consolidated Statements of Cash Flows

 

    Years Ended  
    December 31,  
    2018     2017  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net Loss   $ (8,767,164 )   $ (1,418,755 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     9,395       16.100  
Bad debt     -         25,600  
Stock based compensation     857,937       474,000  
Amortization of debt discount     1,188,036       50,893  
Impairment of goodwill     551,111       -  
Impairment of inventory     -       49,538  
Loss on derivative liability     3,595,055       -  
Loss on sale of vehicle     -       610  
Increase in notes payable for extension     75,000       -  
Accounts receivable     (12,725 )     (15,988 )
Prepaid expenses     2,978       (14,355 )
Inventory     (23,140 )     (1,757 )
Other current assets     (5,466 )     -  
Security deposit     (7,381 )     (3,143 )
Accounts payable and accrued liabilities     965,693       76,031  
Due to related party     -       20,000  
Net Cash Used in Operating Activities     (1,570,671 )     (741,226 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
                      
Purchases of property and equipment     (67,960 )     (6,729 )
Sales of property and equipment     -         8,130  
Cash received from acquisition     779       -  
Software development     (371,118 )     -  
Net Cash Provided by (Used in) Investing Activities     (438,299 )     1,401  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from stockholders     331,646       246,644  
Repayment of due to stockholders     -         (8,130 )
Proceeds from convertible notes payable     790,000       450,000  
Proceeds from Series B     325,000       -    
Recapitalization of 12 Japan     -         97,752  
Common stock for cash     500,000       -  
Net Cash Provided by Financing Activities     1,946,646       786,266  
                 
Effect of Exchange Rate Changes on Cash and Cash Equivalents     (219 )     (821 )
                 

Net increase (decrease) in cash and cash equivalents

    (62,324 )     45,620  
Cash and cash equivalents, beginning of period     100,264       54,644  
Cash and cash equivalents, end of period   $ 37,721     $ 100,264  
                 
Supplemental cash flow information                
Cash paid for interest   $ -     $ -  
Cash paid for taxes   $ -     $ -  
                 
Non-cash transactions:                
Discount on convertible notes payable   $ 1,235,174     $ -  
Conversion of convertible notes payable, accrued interest and derivatives   $ 2,061,276     $ -  
Discounts on Series B preferred stock   $ 179,846     $ -  
Conversion of Series B preferred stock in common stock   $ 266,000     $ -  
Relief of due to stockholders with Series D-3 preferred stock   $ 234,375     $ -  
Common stock to be issued recognized as debt discount   $ -     $ 92,646  
Fair market value of common stock issued for Emotion acquisition   $ 80,000     $ -  
Net liabilities assumed from Emotion acquisition   $ 551,111     $ -  

 

The accompanying notes are an integral part of these consolidated financial statements

 

  F- 6  

 

 

12 RETECH CORPORATION

Notes to the Consolidated Financial Statements

 

NOTE 1. NATURE OF BUSINESS

 

12 ReTech Corporation (“we”, “us”, “our”, “12 ReTech”, “RETC”, or the “Company”) was incorporated under the laws of the State of Nevada, U.S. as DEVAGO INC. on September 8, 2014. On June 8, 2017, the Company amended our Articles of Incorporation to change the name to 12 ReTech Corporation. At our core, we are a software Company whose technology allows retailers to combat the dual threats of Walmart and Amazon — both online and in physical stores. Our microbrand rollup acquisition strategy allows us to demonstrate the effectiveness of our software, devise and test new products, while providing shareholder value through immediate revenue and earnings growth. The Company operates through our subsidiaries on three continents, Asia, North America and Europe.

 

Principal subsidiaries

 

The details of the principal subsidiaries of the Company are set out as follows:

 

Name of

Company

  Place of Incorporation   Date of Incorporation   Acquisition Date  

Attributable Equity

Interest %

    Business
12 Retail Corporation   Arizona, USA   Sept. 18, 2017   Formed by 12 ReTech Corporation            100 %   As a holding Company to execute the Company’s microbrand roll up acquisition strategy as well as to penetrate the North American market with our technology to select retailers.
12 Hong Kong Limited   Hong Kong, China   Feb. 2, 2014   June 27 2017     100 %   Development of our technology and sales of our technology applications.
12 Japan Limited   Japan   Feb. 12, 2015   July 31, 2017     100 %   Consultation and sales of technology applications.
12 Europe AG   Switzerland   Aug. 22, 2013   Oct. 26,2017     100 %   Consultation and sales of technology applications.
E-motion Fashion Group, Inc. F/K/A Emotion Apparel, Inc,
Lexi Luu Designs, Inc, Punkz Gear, Skipjack Dive and Dancewear, Cleo VII
  Re-incorporated, in Utah, USA F/K/I in California,
USA
  Sept. 9, 2010.
Reincorporated on July 6,
2018 and changed its name on
July 26, 2018
  May 1, 2018     100 %   subsidiary of 12 Retail and is the first microbrand acquired under the microbrand acquisitions roll up strategy. Operates its own production facilities that can be utilized by all of the Company’s future microbrands.

 

Change in Fiscal Year

 

On September 13, 2017, our Board of Directors approved a change in our fiscal year end from November 30 to December 31. The Company now operates on a fiscal year ending on December 31. The financial statement presented reflect a full year of operations.

 

Stock Split

 

Effective June 21, 2017, we effected a 6 for 1 forward stock split of our issued and outstanding common stock (the “Forward Stock Split”). All references to shares of our common stock in this report on Form 10-K refers to the number of shares of common stock after giving effect to the Forward Stock Split (unless otherwise indicated).

 

  F- 7  

 

 

Share Exchange and Reorganization

 

As of June 27, 2017, and pursuant to a Securities Purchase Agreement, the Company and 12 Hong Kong Limited (“12HK”), have determined that all conditions necessary to close the Share Exchange Agreement have been satisfied and therefore as of the date hereof, the Share Exchange Agreement was closed and as such 12HK has become a wholly-owned subsidiary of the Company. As per the Share Exchange Agreement, the Company acquired Four Million (4,000,000) shares of 12HK, representing 100% of the issued and outstanding equity of 12HK, from the 12HK shareholders (the “12HK Shares”) and in exchange the Company issued to the 12HK shareholders an aggregate of Fifty Five Million (55,000,000) shares of stock, consisting of: (i) Fifty Million (50,000,000) shares of post forward split Company common stock; and, (ii) Five Million (5,000,000) shares of Series A Preferred Stock.

 

Recapitalization

 

For financial accounting purposes, this transaction was treated as a reverse acquisition by 12HK and resulted in a recapitalization with 12HK being the accounting acquirer and 12 ReTech as the acquired Company. The consummation of this reverse acquisition resulted in a change of control. Accordingly, the historical financial statements prior to the acquisition are those of the accounting acquirer, 12HK and have been prepared to give retroactive effect to the reverse acquisition completed on June 27, 2017 and represent the operations of 12HK. The consolidated financial statements after the acquisition date, June 27, 2017 include the balance sheets of both companies at historical cost, the historical results of 12HK and the results of the Company from the acquisition date. All share and per share information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the recapitalization.

 

Acquisitions

 

12 Japan Limited

 

On July 31, 2017, the Company entered into a Share Exchange Agreement with 12 Japan Limited, a corporation duly formed and validly existing under the laws of Japan (“12JP”), and the Shareholders of 12JP (the “12JP Shareholders”). Pursuant to the Share Exchange Agreement, the Company acquired 101,000 shares of 12JP, representing 100% of the issued and outstanding equity of 12JP, from the 12JP shareholders and in exchange the Company issued to the 12JP Shareholders: (i) 5,000,000 shares of RETC Common Stock; and, (ii) 500,000 shares of RETC Series A Preferred Stock. As a result of the Share Exchange Agreement, 12JP became a wholly-owned subsidiary of the Company. The Share Exchange Agreement contains customary representations and warranties. Additionally, the Share Exchange Agreement required that concurrently with closing the Company’s management facilitate: (i) the cancellation of 5,000,000 shares of RETC Common Stock currently beneficially owned by the Company’s majority stockholder; and, (ii) the cancellation of 500,000 of RETC Series A Preferred Stock currently beneficially owned by the Company’s majority stockholder. Collectively, such shares were cancelled and returned to the Company’s treasury.

 

12 Europe AG

 

On October 26, 2017, the Company entered into a Share Exchange Agreement with 12 Europe AG, a corporation duly formed and validly existing under the laws of Switzerland (“12EU”), and the Shareholders of 12EU (the “12EU Shareholders”). Pursuant to the Share Exchange Agreement, the Company acquired 1,000 shares of 12EU, representing 100% of the issued and outstanding equity of 12EU, from the 12EU shareholders and in exchange the Company issued to the 12EU Shareholders, 3,807,976 shares of the Company’s common stock. As a result of the Share Exchange Agreement, 12EU became a wholly-owned subsidiary of the Company.

 

  F- 8  

 

 

As a result of those share exchanges, the above companies became 100% owned subsidiaries of the Company. The above companies were controlled by the same individuals immediately prior to the above exchanges. As such, these acquisitions were deemed to be transactions between entities under common control.

 

The Company accounts for all business combinations in accordance with Financial Accounting Standards Board (“FASB”) ASC 805, “Business Combinations” (“ASC 805”), using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, may be made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period would be recorded as income. Results of operations of the acquired entity are included in the Company’s results from operations from the date of the acquisition onward and include amortization expense arising from acquired assets. The Company expenses all costs as incurred related to an acquisition in the condensed consolidated statements of operations.

 

Emotion Fashion Group, Inc. F/K/A E-motion Apparel, Inc.

 

On May 1, 2018, the Company completed the acquisition of E-motion Apparel, Inc. (“EAI”) a California corporation, pursuant to a Share Exchange Agreement whereby the Company exchanged 1 million of its common shares for 100% of the equity of EAI in a third-party transaction. The fair value of the 1 million shares of common stock issued amounted to $80,000. EAI owned four wholly-owned and majority-owned subsidiaries: Lexi Luu Designs, Inc, (a Nevada Corporation), Punkz Gear, Inc, (a Wyoming Corporation), Cleo VII, Inc. (a Nevada Corporation) and Skipjack Dive & Dance Wear, Inc. (a Nevada Corporation), which together owns five microbrands that were included in this transaction and target specific niche markets: Lexi-Luu Dancewear, Punkz Gear, Cleo VII, Skipjack Dive & Dance Wear and E-motion Apparel, Inc.

 

On July 6, 2018, the Company re-incorporated EAI in the state of Utah and later re-named it as Emotion Fashion Group, Inc. (“Emotion Fashion Group” or “EFG”) and does business under the brand name, “Emotion Fashions”. Going forward, and as part of the re-incorporation as Emotion Fashion Group, the Company has consolidated all of its subsidiaries and the Company now operates all brands under the single entity, Emotion Fashion Group.

 

Emotion Fashion Group was then deemed to be founded in 2010 and designs and manufactures women’s apparel and kids’ dancewear.

 

The acquisition of Emotion Fashion Group was accounted for under ASC 805. The following table summarizes the final allocation of assets acquired and liabilities assumed as of the Acquisition Date at estimated fair value. During the third quarter there was an increase in Goodwill associated with the acquisition due to additional disputed liabilities that were discovered after the date of the acquisition.

 

Fair value below :

 

As of May 1, 2018, the assets and net liabilities acquired were as follows:

 

Cash   $ 779  
Assets (except cash)     37,687  
Goodwill     551,111  
Liabilities     (509,577 )
Net assets acquired   $ 80,000  

 

The fair values of the net assets acquired were determined using the market approach, which indicates value for a subject asset based on available market pricing for comparable assets. The fair value of the fixed assets of $37,687 has been valued at its estimated liquidation price. The fair value of the debt has been determined using an appropriately required yield and comparing against the stated interest rate on the debt.

 

The purchase price for the acquisition was allocated to the fair value of the assets acquired and liabilities assumed based on the estimates of the fair values at the acquisition date, with the amount exceeding the estimated fair values being recorded as goodwill. The amount of goodwill has increased during the third quarter as due to adding additional disputed liabilities for which were discovered after date of acquisition.

 

The fixed assets are being depreciated over their estimated useful lives of 5 years. Goodwill recorded will not be amortized but tested for impairment at least annually. The Company performs its annual test during the fourth quarter.

 

The Company tested goodwill for impairment as of December 31, 2018 and determined that the goodwill was impaired based on the various factors. This is based on a number of factors included the fact representation made by management of which were 99% less than realized. In addition, the Company had an agreement in place for a significant amount of purchases but due to international instability regarding tariffs, etc the expected purchase orders under the agreement didn’t materialize. As a result, the CEO of Emotion Fashion Group is expected to forfeit 60% of the purchase price of EFG as is detailed in the Sales Purchase Agreement. As a result, management is in the process of completely retool the entire brand.

 

The Company assumed the liabilities of the Emotion Fashion Group, which included a disputed $250,000 note that bears a 2% annual interest rate. The fair market value of the note of $150,490 has been determined as the present value of the expected cash flow from the note assuming a market rate of interest. The discount is being amortized to the $250,000 face amount using the effective interest method. The note is due in 2027.

 

Emotion Fashion Group’s results of operations have been included in the Company’s operating results for the period subsequent to the acquisition on May 1, 2018. Emotion Fashion Group contributed revenues of $32,180.

 

  F- 9  

 

 

Revenues for Emotion Fashion Group were lower because the Company was dormant most of 2017 and first quarter of the 2018. This was partly due to the fact that the Company moved operations from Los Angeles, CA to Salt Lake City, UT. In addition, the Company was re-branded and is gearing for its re-launch that began in June 2018.

 

The below table sets forth selected unaudited pro forma financial information for the Company as if Emotion Fashion Group was owned for the years ended December 31, 2018 and 2017.

 

    Proforma  
    Year Ended  
    December 31,  
    2018     2017  
Revenues   $ 99,188     $ 137,225  
                 
Net Loss   $ (8,782,740 )   $ (2,884,905 )
                 
Net Loss Per Share   $ (0.10 )   $ (0.03 )

 

The unaudited pro forma information set forth above is for informational purposes only. The pro forma information should not be considered indicative of actual results that would have been achieved if the Emotion Fashion Group acquisition had occurred on January 1, 2017. The unaudited supplemental pro forma financial information was calculated by combining the Company’s results with the stand-alone results of Emotion Fashion Group. For the identified periods, which were adjusted for certain transactions and other costs that would have been occurred during this pre-acquisition period.

 

NOTE 2. GOING CONCERN

 

The Company accounts for going concern matters under the guidance of ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern (“ASU 2014-15”). The guidance in ASU 2014-15 sets forth management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern as well as required disclosures. ASU 2014-15 indicates that, when preparing financial statements for interim and annual financial statements, management should evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that management’s plans to address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt.

 

These financial statements have been prepared on a going concern basis which assumes the Company will continue to realize it assets and discharge its liabilities in the normal course of business. As of December 31, 2018, the Company has incurred losses totaling $11,180,903 since inception, has not yet generated significant revenue from its operations, and will require additional funds to maintain our operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company intends to finance operating costs over the next twelve months through continued financial support from its shareholders, the issuance of debt securities and private placements of common stock. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. However, these concerns are somewhat mitigated by the acquisition of Red Wire Group and Rune NYC as detailed in the subsequent event footnote.

 

  F- 10  

 

 

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Financial Statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“GAAP”) and presented in US dollars. The fiscal year end is December 31.

 

Prior year financial information has been retroactively adjusted for the acquisitions under common control. As the acquisitions of 12JP and 12EU were deemed to be transactions between entities under common control, the assets and liabilities were transferred at the historical costs, with prior periods retroactively adjusted to include the historical financial results of the acquired companies for the period they were under common control, which is all periods presented.

 

The Company accounts for all business combinations in accordance with Financial Accounting Standards Board (“FASB”) ASC 805, “Business Combinations” (“ASC 805”), using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, may be made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period would be recorded as income. Results of operations of the acquired entity are included in the Company’s results from operations from the date of the acquisition onward and include amortization expense arising from acquired assets. The Company expenses all costs as incurred related to an acquisition in the condensed consolidated statements of operations.

 

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Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries 12HK, 12JP, 12EU. 12 Retail and Emotion Fashion Group which includes Emotion Fashion Group, Inc. F/K/A E-Motion Apparel Inc., Lexi Luu Designs, Inc., Punkz Gear, Skipjack Dive and Dance Wear, Inc. and Cleo VII, Inc, which beginning in the third quarter 2018 are all accounted under the single Emotion Fashion Group, Inc financials due to the consolidation of Emotion Fashion Group’s subsidiaries. All inter-Company accounts and transactions have been eliminated. We currently have no investments accounted for using the equity or cost methods of accounting. We currently have no investments accounted for using the equity or cost methods of accounting.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.

 

Foreign Currency Translation and Transactions

 

The accompanying financial statements are presented in U.S. dollars (“USD”), the reporting currency. The functional currencies of the Company’s foreign operations are the Hong Kong Dollar (“HKD”), Japanese Yen (“JPY”), and Swiss Franc (“CHF”). In accordance with ASC 830, “Foreign Currency Matters”, the assets and liabilities are translated into USD at current exchange rates. Revenue and expenses are translated at average exchange rates for the period. Resulting translation adjustments are reflected as accumulated other comprehensive income in stockholders’ deficit. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are charged to operations as incurred. There were no material transaction gains or losses in the periods presented.

 

Concentrations

 

During the year ended December 31, 2018, two customers accounted for 65% of revenues. During the year ended December 31, 2017, two customers accounted for 94% of revenues. One customer represented 100% of the accounts receivable as of December 31, 2017. The loss of these customers would not have a significant impact on the Company’s operations.

 

Software Development Costs

 

At December 31, 2018 and December 31, 2017, software development costs totaled $371,118 and $0, respectively. Capitalized costs related to the software under development are treated as an asset until the development is completed and the software is available for licensure under a software-as-a-service (“SaaS”) arrangement. The Company will amortize the software costs on a straight-line basis over the estimated life of the software product’s expected life cycle, commencing when the software is first available for general release to customers.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. The Company had $37,721 and $100,264 in cash and cash equivalents as at December 31, 2018 and December 31, 2017, respectively. Government deposit insurance on bank balances range from approximately $5,600 to $250,000. As at December 31, 2017, the Company had approximately $19,000 not covered by government deposit insurance schemes. The life is expected to range from three to five years.

 

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Accounts Receivable

 

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. During the years ended December 31, 2018 and 2017, the Company recognized bad debt of $0 and $25,600 respectively.

 

Inventory

 

Inventories, consisting of a computer application, a mirror with a computer screen and touch monitor, are primarily accounted for using the first-in-first-out (“FIFO”) method and are valued at the lower of cost or market value. Inventories on hand are evaluated on an on-going basis to determine if any items are obsolete or in excess of future market needs. Items determined to be obsolete are reserved for. During the years ended December 31, 2018 and 2017, the Company recognized inventory of $23,140 and $0 and impairment expenses of $0 and $49,538, respectively.

 

Financial Instruments

 

The Company’s financial instruments consist primarily of cash, accounts receivable, inventory, prepaid expenses and other current assets, accounts payable and accrued liabilities, convertible notes payable and due to stockholders. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

 

  F- 13  

 

 

Fixed Assets

 

Fixed assets are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the term of the related lease or the estimated useful life of the asset. The useful lives are as follows:

 

Office equipment 3 years
Furniture and equipment 6 years
Computer 4 years
Technical equipment 3.3 years

 

Maintenance and repairs are charged to operations as incurred. Expenditures that substantially increase the useful lives of the related assets are capitalized. When properties are disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is reported in the period the transaction takes place.

 

Accounting for the impairment of long-lived assets

 

The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the years ended December 31, 2018 and 2017, the Company did not impair any long-lived assets.

 

Convertible Debt and Convertible Preferred Stock

 

When the Company issues convertible debt or convertible preferred stock, it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether the instrument should be classified as a liability under ASC 480, Distinguishing Liabilities from Equity, and second whether the conversion feature should be accounted for separately from the host instrument. A conversion feature of a convertible debt instrument or certain convertible preferred stock would be separated from the convertible instrument and classified as a derivative liability if the conversion feature, were it a standalone instrument, meets the definition of an “embedded derivative” in ASC 815, Derivatives and Hedging. Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not indexed to the Company’s equity, as defined in ASC 815-40, or when it must be settled either in cash or by issuing stock that is readily convertible to cash. When a conversion feature meets the definition of an embedded derivative, it would be separated from the host instrument and classified as a derivative liability carried on the consolidated balance sheet at fair value, with any changes in its fair value recognized currently in the consolidated statements of operations.

 

If a conversion feature does not meet the conditions to be separated and accounted for as an embedded derivative liability, the Company then determines whether the conversion feature is “beneficial”. A conversion feature would be considered beneficial if the conversion feature is “in the money” when the host instrument is issued or, under certain circumstances, later. If convertible debt contains a beneficial conversion feature (“BCF”), the amount of the amount of the proceeds allocated to the BCF reduces the balance of the convertible debt, creating a discount which is amortized over the debt’s term to interest expense in the consolidated statements of operations.

 

When a convertible preferred stock contains a BCF, after allocating the proceeds to the BCF, the resulting discount is either amortized over the period beginning when the convertible preferred stock is issued up to the earliest date the conversion feature may be exercised, or if the convertible preferred stock is immediately exercisable, the discount is fully amortized at the date of issuance. The amortization is recorded similar to a dividend.

 

Derivative Liabilities and Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Observable inputs are based on market data obtained from sources independent of our Company. Unobservable inputs reflect our own assumptions based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels, defined as follows:

 

  Level 1 Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.
       
  Level 2 Inputs other than quoted prices included within Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

 

  F- 14  

 

 

  Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs. Unobservable inputs for the asset or liability that reflect management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability as of the reporting date.

 

The Company carries certain derivative financial instruments using inputs classified as “Level 3” in the fair value hierarchy on the Company’s consolidated balance sheets.

 

The Company classified certain conversion features in the convertible notes issued during 2017 and 2018 as embedded derivative instruments due to down-round ratchet provisions and potential adjustments to conversion prices due to events of default and accordingly measures and carries the conversion features as derivative liabilities in the consolidated financial statements. The Company initially recorded derivative liabilities when the notes became convertible or the probability of payback was not probable. Beginning in June 2018, the Company recorded derivative liabilities on all convertible notes due to the probability of all notes becoming convertible due to certain notes being technical defaults. Since, the Company records derivative liabilities, if needed, upon issuance. Also, the Company determined that the certain notes should be measured and carried at fair value in the consolidated financial statements according to ASC 480, as they are settleable in a variable number of shares based on a fixed monetary amount known at inception. These fair value estimates were measured using inputs classified as “Level 3” of the fair value hierarchy. We develop unobservable “Level 3” inputs using the best information available in the circumstances, which might include our own data, or when we believe inputs based on external data better reflect the data that market participants would use, we base our inputs on comparison with similar entities.

 

The conversion feature was recognized as an embedded derivative and was valued using a Black Scholes model that resulted in a derivative liability of $2,696,470 at December 31, 2018.

 

Several convertible note holders elected to convert their notes to stock during the year ended December 31, 2018. The table below provides a reconciliation of the beginning and ending balances for the liabilities measured using fair significant unobservable inputs (Level 3) for the year ended December 31, 2018.

 

The following assumptions were used in calculations of the Black Scholes model for the year ended December 31, 2018.

 

    December 31, 2018  
Risk-free interest rates     2.22 - 2.69 %
Expected life (years)     0.20 - 1.08 years  
Expected dividends     0 %
Expected volatility     270 - 796 %

 

In connection with convertible notes payable, the Company records derivative liabilities for the conversion feature. During the year ended December 31, 2018, the Company recorded initial derivative liabilities of $3,229,344. Upon initial valuation, the derivative liability exceeded the face value certain of the convertible note payables by approximately $1,637,572, which was recorded as a day one loss on derivative liability. On December 31, 2018, the derivative liabilities were revalued at $2,696,470 resulting in a loss of $760,508 related to the change in fair market value of the derivative liabilities during the year ended December 31, 2018.

 

In connection with convertible notes, as disclosed in Note 8, the Company reclassified derivative liabilities with a fair value of $1,418,516 to additional paid-in capital. The Company revalued the derivative liabilities at each conversion date recording the pro-rata portion of the derivative liability as compared to the portion of the convertible note converted to the pre-conversion carrying value to additional paid-in capital.

 

    For the
Year Ended
December 31, 2018
 
Balance - December 31, 2017   $ -  
Issuance of new derivative liabilities     3,229,344  
Conversions to paid-in capital     (1,293,381 )
Change in fair market value of derivative liabilities     760,508  
Balance – December 31, 2018   $ 2,696,470  

 

Commitments and Contingencies

 

The Series B Redeemable Convertible Preferred Stock is classified as a liability, as it is mandatorily redeemable by the holder at a future date. The Series D-1 Preferred Stock is classified as a liability due to the fact that it redeemable immediately. The Series D-3 Preferred Stock is also classified a liability due to the existence of the PUT.

 

Earnings per Share

 

The Company follows ASC 260, “Earnings per Share” (“EPS”), which requires presentation of basic EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation. In the accompanying financial statements, basic earnings (loss) per share are computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.

 

Diluted earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s earnings subject to anti-dilution limitations. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact. For the year ended December 31, 2018 and 2017, potentially dilutive common shares consist of common stock issuable upon the conversion of convertible notes payable, Series A Preferred Stock, Series B Preferred Stock, Series D-1 Preferred Stock and Series D-3 Preferred Stock (using the if converted method). All potentially dilutive securities were excluded from the computation of diluted weighted average number of shares of common stock outstanding as they would have had an anti-dilutive impact.  Due to the voting power of the Series C preferred stock, the Company has the ability to increase the authorized shares, if needed.

 

Stock-Based Compensation

 

ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

 

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.

 

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Goodwill

 

Goodwill represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. The goodwill amount of $551,111 related to the acquisitions of EFG was recorded at the time of the acquisition. Goodwill is not amortized, but was tested for impairment, or if circumstances occur that more likely than not reduce the fair value of the reporting unit below its carrying amount. The Company performed its annual test on December 31, 2018 and found the goodwill to be impaired. See Note 1 for additional information.

 

Revenue Recognition

 

The Company recognizes revenue from the sale of products and services in accordance with ASC 606, “Revenue from Contracts with Customers”. Revenue is recognized when the earnings process is complete typically when services or products are provided to the customer.

 

Deferred Income Taxes and Valuation Allowance

 

The Company accounts for income taxes under ASC 740, “Income Taxes”. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. At December 31, 2018 and 2017, the Company recognized a full valuation allowance against the recorded deferred tax assets.

 

Contingencies

 

The Company follows ASC 450-20, “Loss Contingencies” to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. There were no loss contingencies as of December 31, 2018 and 2017.

 

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Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes nearly all existing revenue recognition guidance under accounting principles generally accepted in the United States of America. The core principle of this ASU is that revenue should be recognized for the amount of consideration expected to be received for promised goods or services transferred to customers. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments, and assets recognized for costs incurred to obtain or fulfill a contract. ASU 2014-09 was scheduled to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date,” which deferred the effective date of ASU 2014-09 by one year and allowed entities to early adopt, but no earlier than the original effective date. ASU 2014-09 is now effective for public business entities for the annual reporting period beginning January 1, 2018. This update allows for either full retrospective or modified retrospective adoption. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” which amends guidance previously issued on these matters in ASU 2014-09. The effective date and transition requirements of ASU 2016-10 are the same as those for ASU 2014-09. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients,” which clarifies certain aspects of the guidance, including assessment of collectability, treatment of sales taxes and contract modifications, and providing certain technical corrections. The effective date and transition requirements of ASU 2016-12 are the same as those for ASU 2014-09.

 

The Company adopted the new guidance as of January 1, 2018. The Company has evaluated the new guidance and the adoption did not have a significant impact on the Company’s financial statements and a cumulative effect adjustment under the modified retrospective method of adoption will not be necessary.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) which supersedes existing guidance on accounting for leases in “Leases (Topic 840).” The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the effects of adopting ASU 2016-02 on its consolidated financial statements, but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements as of the date of the filing of this report.

 

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The Company will evaluate the effects of adopting the standard if and when it is deemed to be applicable.

 

Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.

 

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NOTE 4 – PREPAID EXPENSE AND OTHER CURRENT ASSETS

 

Prepaid expense and other current assets at December 31, 2018 and 2017 consists of the following

 

    December 31, 2018     December 31, 2017  
Prepaid expense   $ 4,884     $ 1,290  
Other current assets     19,344       13,878  
    $ 24,228     $ 15,168  

 

NOTE 5 – FIXED ASSETS, NET

 

Fixed assets, net at December 31, 2018 and 2017 consists of the following

 

    December 31,     December 31,  
    2018     2017  
             
Office equipment   $