Quarterly Report (10-q)

Date : 05/20/2019 @ 10:32PM
Source : Edgar (US Regulatory)
Stock : 12 Retech Corporation (QB) (RETC)
Quote : 0.0002  -0.0001 (-33.33%) @ 8:13PM

Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2019

 

OR

 

[  ] 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)

 

530-539-4329

Registrant’s telephone number

 

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 fling requirements for the past 90 days.

Yes [X] No [  ]

 

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 pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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 [X]   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]

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on
which registered
Common Shares   RETC   1,449,599,515

 

The number of shares of common stock ($0.00001 par value) outstanding as of May 20, 2019 was 994,152,866.

 

 

 

 
 

 

12 RETECH CORPORATION

FOR THE THREE MONTHS ENDED

MARCH 31, 2019

 

Index to Report

 

    Page
PART I FINANCIAL STATEMENTS (unaudited) 4
     
Item 1. Condensed Consolidated Balance Sheets 4
  Condensed Consolidated Statements of Operations and Comprehensive Loss 5
  Condensed Consolidated Statement of Stockholders Deficit 6
  Condensed Consolidated Statements of Cash Flow 7
  Notes to Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
Item 4. Controls and Procedures 32
     
PART II OTHER INFORMATION 37
     
Item 1. Legal Proceedings 34
Item 1A. Risks Factors 34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
Item 3. Defaults Upon Senior Securities 35
Item 4. Mine Safety Disclosures 35
Item 5. Other Information 35
Item 6. Exhibits 35

 

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;
     
  - 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. FINANCIAL STATEMENTS

 

12 ReTech Corporation

Condensed Consolidated Balance Sheets

(unaudited)

 

   

March 31,

2019

   

December 31,

2018

 
   

     
ASSETS                
Current Assets:                
Cash and cash equivalents   $ 4,536     $ 37,721  
Accounts receivable     8,958       15,609  
Inventory     26,420       23,140  
Prepaid expenses     28,934       4,884  
Other current assets     2,195       19,344  
Total Current Assets     71,043       100,698  
                 
Fixed assets, net     156,248       98,295  
Goodwill     880,340       -  
Software development     496,075       371,118  
Security deposit     12,936       12,936  
TOTAL ASSETS   $ 1,616,642     $ 583,047  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current Liabilities:                
Accounts payable and accrued liabilities   $ 1,638,849     $ 1,234,712  
Due to stockholders     796,744       766,397  
Notes payable, net of discounts     161,025       158,245  
Convertible notes payable, net of discounts     621,338       624,845  
Derivative liabilities     4,392,762       2,696,470  
Series B Preferred Stock, 1,000,000 shares designated; $0.00001 par value, $1.00 stated value; 27,980 shares and 68,000 shares issued and outstanding at March 31, 2019 and  December 31, 2018, respectively. Liquidation preference $27,980     47,836       48,144  
Series D-1 Preferred Stock, 500,000 shares designated; $0.00001 par value, $2.00 stated value; 0 shares and 311,250 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively. Liquidation preference $622,500 at December 31, 2018     -       622,500  
Series D-2 Preferred Stock, 500,000 shares designated; $0.00001 par value, $2.00 stated value; 346,425 shares and 0 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively. Liquidation preference $692,850     692,850       -  
Series D-3 Preferred Stock, 500,000 shares designated; $0.00001 par value, $5.00 stated value; 54,846 shares issued and outstanding at March 31, 2019 and December 31, 2018. Liquidation preference $274,234     274,234       274,234  
Total Current Liabilities     8,625,638       6,425,547  
                 
Total Liabilities    

8,625,638

      6,425,547  
                 
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; 5,000,000 shares issued and outstanding at March 31, 2019 and December 31, 2018     65       65  
Series C Preferred Stock, 2 shares designated; $0.00001 par value; 1 share issued and outstanding at March 31, 2019 and December 31, 2018     1       1  

Series D-5 Preferred Stock, 1,000,000 shares designated; $0.00001 par value, $4.00 stated value; 120,088 shares and 0 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively.

Liquidation preference $480,352  

    480,352       -  

Series D-6 Preferred Stock, 8,000,000 shares designated; $0.00001 par value, $5.00 stated value; 55,600 shares and 0 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively.

Liquidation preference $278,000  

    278,000       -  
Common stock: 1,000,000,000 authorized, $0.00001 par value; 994,152,866 and 654,251,95 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively     9,942       6,542  
Additional paid-in capital     5,074,391       5,330,500  
Minority interest     30,704       -  
Accumulated other comprehensive income     1,929       1,295  
Accumulated deficit     (12,884,380 )     (11,180,903 )
Total Stockholders’ Deficit     (7,008,996 )     (5,842,500 )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 1,616,642     $ 583,047  

 

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

 

4
 

 

12 ReTech Corporation

Condensed Consolidated Statements of Operations

(unaudited)

 

    Three Months Ended  
    March 31,  
    2019     2018  
             
Revenues   $ 221,129     $ 8,942  
Cost of revenue     147,898       -  
Gross Profit     73,231       8,942  
                 
Operating Expenses                
General and administrative     466,134       473,444  
Professional fees     250,021       231,629  
Depreciation     5,625       1,149  
Total Operating Expenses     721,780       706,222  
                 
Loss from operations     (648,549 )     (697,280 )
                 
Other Expense                
Other income     7,431       -  
Loss on debt extension     -       (25,000 )
Interest expense     (352,330 )     (147,950 )
Loss on derivative liability     (710,159 )     -    
                 
Net Other Expense     (1,055,058 )     (172,950 )
                 
Net Loss   $ (1,703,607 )   $ (870,230 )
                 
Other comprehensive income- foreign currency translation adjustment     634       (14,664 )
                 
Comprehensive Loss   $ (1,702,973 )   $ (884,894 )
                 
Minority interest   $ (130 )   $ -  
                 
Net Loss to 12 ReTech Corporation   $ ( 1,702,843 )     $ ( 884,894 )
                 
Net Loss Per Common Share: Basic and Diluted   $ (0.00 )   $ (0.01 )
                 
Weighted Average Number of Common Shares Outstanding: Basic and Diluted     806,807,151       82,623,020  

 

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

 

5
 

 

12 ReTech Corporation

Statement of Stockholders Deficit

Three months ended March 31, 2019 and 2018

(unaudited)

 

    Series A
Preferred Stock
    Series B
Preferred Stock
    Series C
Preferred Stock
    Series D-5
Preferred Stock
    Series D-6
Preferred Stock
    Common Stock     Additional     Common Stock         Other       Total  
    Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Paid-in
Capital
    to be issued     Minority
Interest
    Comprehensive
Income
  Accumulated
Deficit
    Stockholders
Deficit
 
Balance - December 31, 2017     5,000,000     $ 50     $ -     $ -       -     $ -                                       82,200,000     $ 822     $ 1,267,916       92,646       $       $

1,514 

  $ (2,413,739 )   $ (1,050,791 )
                                                                                                                                               
Series B Preferred stock issued for cash                     266,000                                                                               259,997                                     260,000  
Common stock issued as part of funds raised                                                                                     768,338       8       117,638       (92,646 )                           25,000  
Foreign currency translation adjustments                                                                                                                             (14,664 )           (14,664 )
Net Loss                                                                                                                                   (870,230 )     (870,230 )
                                                                                                                                               
Balance - March 31. 2018     5,000,000       50       266,000       -       -       -       -       -       -       -       82,968,338       830       1,645,551       -       -       (13,150 )     (3,283,969 )     (1,650,685 )
                                                                                                                                               
Balance - December 31, 2018     6,500,000     $ 65       68,000     $ 68,000       1     $ 1             $              $       654,251,953     $ 6,542     $ 5,330,500       -       $       $ 1,295   $ (11,180,903 )   $ (5,842,500 )
                                                                                                                                               
Common stock issued for conversion of notes payable and accrued interest                                                                                     189,859,704       1,898       181,976                                     183,874  
Common stock issued for Preferred Shares conversion                     (40,020 )     (20,164 )     -       -                                       150,041,209       1,501       95,520                                     97,021  
Preferred Stock issued with acquisition                                                     120,088       480,352       55,600       278,000                                       30,834                     789,186  
Relief of derivative through conversion and issuance of preferred stock derivatives                                                                                                     (533,604                                     (5,33,604   )  
Net loss                                                                                                                     (130   )       634     (1,703,608 )     (1,702,974 )
                                                                                                                                               
Balance - March 31, 2019     6,500,000       65       27,980       47,836       1       1       120,088       480,352       55,600       278,000       994,152,866       9,941       5,074,391       -       30,704       634     (12,884,511 )     (7,008,997 )

  

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

 

6
 

 

12 ReTech Corporation

Condensed Consolidated Statements of Cash Flow

(unaudited)

 

    Three Months Ended  
    March 31,  
    2019     2018  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net Loss   $ (1,703,607 )   $ (870,230 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     5,625       1,149  
Loss on debt extinguishment      -       25,000  
Amortization of debt discount     199,162       123,119  
Loss on derivative liability     710,159       -  
Loss on exchange of preferred stock     70,350       -  
Excess fair market value of common stock over liabilities settled     196,713       -  
Accounts receivable     6,651          
Prepaid expenses     (24,050 )     (38,203 )
Inventory     (3,280 )     5,160  
Other current assets     106,405       -  
Due to related party             -  
Accounts payable and accrued liabilities     191,404       (242,475 )
Net Cash Used in Operating Activities     (244,46 8 )     (515,006 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
      -       -  
Purchases of property and equipment     (5,468 )     (381 )
Cash received from acquisition     12,924       -  
Cash paid for acquisition     (79,937)          
Software development     (124,957 )     (53,944 )
Net Cash Used in Investing Activities     (197,438 )     (54,325 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Net proceeds (payments) to stockholders     30,347        29,722  
Repayment to stockholders      -       (16,931 )
Proceeds from convertible notes payable     377,740       245,000  
Issuance on Series B Preferred stock           266,000  
Cash paid for capital raise             (6,000 )
Net Cash Provided by Financing Activities     408,087       517,791  
                 
Effect of Exchange Rate Changes on Cash and Cash Equivalents     634        (1,639 )
                 
Net decrease in cash and cash equivalents     (33,185 )     (53,179 )
Cash and cash equivalents, beginning of period     37,721       100,264  
Cash and cash equivalents, end of period   $ 4,536     $ 47,085  
                 
Supplemental cash flow information                
Cash paid for interest   $ -     $ -  
Cash paid for taxes   $ -     $ -  
                 
Non-cash investing and financing transactions:                
Conversion of convertible notes payable, accrued interest and derivative   $ 400,965     $ -  
Discounts on convertible notes payable due to derivatives   $ 452,528     $ -  
Conversion of preferred stock in common stock   $ 197,021     $ -  
Reduction of APIC related to derivatives on preferred stock   $ 850,695     $ -  
Exchange of preferred stock for different series   $ 622,500     $ -  
Common Stock to be issued recognized as debt discount   $       $ 25,000  
Common stock issued in conjunction with convertible notes)   $       $ 92,646  

 

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

 

7
 

 

12 RETECH CORPORATION

Notes to the Condensed Consolidated Financial Statements

March 31, 2019

(Unaudited)

 

Note 1 – Nature of the 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 and 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).

 

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 (“12 Retail”)     Arizona, USA       Sept. 18, 2017       Formed by 12 ReTech Corporation       100 %   As a holding Company to execute the Company’s roll up acquisition strategy as well as to penetrate the North American market with our technology to select retailers.  
                                       
12 Hong Kong Limited (“12HK”)     Hong Kong, China       February 2 , 2014       June 27, 2017       100 %   Development and sales of technology applications  
                                       
12 Japan Limited (“12JP”)     Japan       February 12, 2015       July 31, 2017       100 %   Consultation and sales of technology applications  
                                       
12 Europe AG (“12EU”)     Switzerland       August 22, 2013       October 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
      September 9, 2010

Reincorporated on July 6, 2018 and changed its name on
July 26, 2018
      May 1, 2018       100 %   A 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.  
Red Wire Group, LLC     Utah       July 2, 2015       February 19, 2019             A subsidiary of 12 Retail and is the second acquisition in the brand acquisition strategy. Operates its own “cut & sew for independent third parties’ contract to produce clothes  
Rune NYC, LLC     New York       Jan 23, 2013.       March 14, 2019       100 %   A subsidiary of 12 Retail and is the third in the brand acquisition. Operates contemporary women’s ‘Athleisure’ brand which is primarily sold to retailers  

 

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.

 

Under the terms of the acquisition of the Red Wire Group, certain members received Series D-5 with a PUT option with a face value of $150,000. If those members so elect to not convert those shares to common stock, they have the right to PUT those shares to the Company for cash. This would be an additional cash constraint on the company. For additional detail, See Note 3 Acquisitions.

 

8
 

 

These interim financial statements have been prepared on a going concern basis which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of March 31, 2019, the Company had a total accumulated deficit totaling approximately $12,884,380 since inception, has not yet generated significant revenue from its operations, and will require additional funds to maintain its normal 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. These interim 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.

 

Note 3 – Acquisitions

 

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 1.0 million of its common shares for 100% of the outstanding equity of EAI, in a third-party transaction. The fair value of the 1.0 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 where purchase price was allocated based on assets acquired and liabilities assumed as of the acquisition date May 1, 2018, at the estimated fair value. During the fourth quarter of 2018, the Company determined that the goodwill associated with the acquisition should be fully impaired, and as such was expensed during the fourth quarter of 2018. For further details, please see Company’s Form 10-K filed on April 19, 2019.

 

9
 

 

Red Wire Group, LLC.

 

On February 19, 2019, the Company completed the acquisition of Red Wire Group, LLC. (“RWG”) a Utah limited liability company, pursuant to a share exchange agreement whereby the Company exchanged the Company’s Series D-5 and Series D-6 for 100% of the outstanding equity of RWG. Pursuant to the terms of the exchange agreement, the Company acquired (i) 75% of the membership interests of Red Wire in exchange for 54,000 shares of the Company’s Series D-6 Preferred Stock (stated value of $5.00 per share), and (ii) the remaining 25% of the membership interests of Red Wire in exchange for 37,500 shares of the Company’s Series D-5 Preferred Stock (stated value of $4.00 per share).

 

The powers, preferences and rights, and the qualifications, limitations and restrictions of the Series D-5 and Series D-6 Preferred Stock are set forth in the Company’s Current Report on Form 8-K and exhibits attached thereto previously filed with the Securities and Exchange Commission on January 11, 2019.

 

RWG continued its operations uninterrupted following the closing and retained key employees. The exchange agreement included customary representations, warranties and covenants of the parties. The closing of the Exchange Agreement is subject to certain closing conditions, including that the Members have not materially misrepresented any of the representations contained in the Exchange Agreement and its exhibits.

 

The Company has consolidated the acquisition effective February 1, 2019 to simplify the accounting under ASC 805 purchase accounting as it pertains to the acquisition of the RWG.

 

The assets and net liabilities acquired (based on fair values) were as follows:

 

Cash   $ 10  
Other assets (except cash)     106,110  
Goodwill    

480,381

 
Liabilities     (136,501 )
Net consideration provided   $ 450,000  

 

10
 

 

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 $58,110 has been determined by a third-party valuation firm and is valued at its estimated sale price. The Company also capitalized assets of approximately $48,000. The fair value of the debt has been determined using an appropriately required payment amount.

 

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 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, which will occur during the fourth quarter of the current year. The Company assumed the liabilities of the RWG of $136,501.

 

RWG results of operations have been included in the Company’s operating results for the period subsequent to the February 1, 2019. RWG contributed revenues of $180,881 for the three months ended March 31, 2019. The Company is still evaluating the total assets and liabilities at the date of acquisition and further adjustments might be made to the purchase price.

 

Rune NYC, LLC.

 

On March 14, 2019, the Company completed the acquisition of Rune NYC, LLC. (“Rune”), a New York limited liability company, pursuant to a share exchange agreement whereby the Company exchanged the Company’s Series D-5 shares for 92.5% of the total outstanding equity of Rune and the members of Rune (the “Members”). Pursuant to the terms of the exchange agreement, the Members of Rune (the “Members”) representing 92.5% of the membership interests have agreed to tender their interests to the Company, and the Company closed the tender offer period on March 14, 2019 at which time the exchange agreement became effective. Accordingly, pursuant to the terms of the exchange agreement, at closing the Company acquired 92.5% of the membership interests of Rune were exchange for 82,588 shares of the Company’s Series D-5 Preferred Stock with a stated value of $4.00 per share.

 

The powers, preferences and rights, and the qualifications, limitations and restrictions of the Series D-5 Preferred Stock are set forth in the Corporation’s Current Report on Form 8-K and exhibits attached thereto previously filed with the Securities and Exchange Commission on January 11, 2019.

 

Rune continued its operations uninterrupted during closing and retained certain key employees. The exchange agreement included customary representations, warranties and covenants of the parties. The closing of the exchange agreement was subject to certain closing conditions, including that the Members have not materially misrepresented any of the representations contained in the exchange agreement and its exhibits.

 

The Company has consolidated the acquisition effective February 1, 2019 to simplify the accounting under ASC 805 purchase accounting as it pertains to the acquisition of the Rune.

 

The assets and net liabilities acquired (based on fair values) were as follows:

 

Cash   $ 12,914  
Other assets (except cash)     33,256  
Goodwill     399,959  
Liabilities     (35,006 )
Net consideration provided   $ 411,123  

 

11
 

 

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 company also recorded a minority interest of $30,834 which represents 7.5% of the net assets acquired.

 

Rune results of operations have been included in the Company’s operating results for the period subsequent to the acquisition on February 1, 2019. Rune contributed revenues of $26,831 in 2019. The Company is still evaluating the total assets and liabilities at the date of acquisition and further adjustments might be made to the purchase price.

 

The below table sets forth selected unaudited pro forma financial information for the Company for 2018 compared to 12 ReTech as if RWG and Rune was owned for the three months ended March 31, 2018 and 2018.

 

    Proforma  
    Three months ended  
    March 31,  
    2019     2018  
Revenues   $ 301,129     $ 463,059  
Cost of revenues     187,898       348,616  
Gross profit     113,231       114,444  
                 
Net Loss   $ (1,663,608 )   $ (983,030 )
                 
Earnings Per Share   $ (0.00 )   $ (0.01 )

 

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 Rune acquisition had occurred on January 1, 2018. The unaudited supplemental pro forma financial information was calculated by combining the Company’s results with the stand-alone results of Rune. For the identified periods, which were adjusted for certain transactions and other costs that would have been occurred during this pre-acquisition period.

 

Note 4 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. Notes to the unaudited interim condensed consolidated financial statements that would substantially duplicate the disclosures contained in the audited condensed consolidated financial statements for fiscal year 2018 have been omitted. This report should be read in conjunction with the audited condensed consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2018 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on April 16, 2019.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries 12HK, 12JP, 12EU. 12 Retail, Rune NYC, LLC, Red Wire Group, LLC, and Emotion Fashion Group which includes Emotion 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 for under the single Emotion Fashion Group, Inc financials due to the consolidation of Emotion Fashion Group’s subsidiaries. Since January 2019, the consolidation includes both Rune and RWG which were acquired in the first quarter 2019. All inter-company accounts and transactions have been eliminated. We currently have no investments accounted for using the equity or cost methods of accounting.

 

12
 

 

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.

 

Software Development Costs

 

At March 31, 2019 and December 31, 2018 software development costs totaled $496,075 and $371,118, 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.

 

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 $480,381 related to the acquisition of RWG and $399,959 related to the acquisition of Rune as of March 31, 2019. Goodwill is not amortized, but is tested annually 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 has determined that there has been no impairment of goodwill at March 31, 2019. The Company performs its annual test during the fourth quarter.

 

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.

 

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.

 

13
 

 

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 the 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.
       
  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 2019 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. 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. The Company develops unobservable “Level 3” inputs using the best information available in the circumstances, which might include its own data, or when it believes inputs based on external data better reflect the data that market participants would use, its bases its inputs on comparison with similar entities. Due to the existence of down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, the Company decided a Black Scholes Simulation model, which incorporates inputs classified as “Level 3” was appropriate.

 

The conversion feature was recognized as an embedded derivative and was valued using a Black Scholes model that resulted in a derivative liability of $4,392,762 and $2,696,470 at March 31, 2019 and December 31, 2018, respectively.

 

    March 31, 2019  
Risk-free interest rates     2.40 - 2.57 %
Expected life (years)     0.13 - 1.00 years  
Expected dividends     0 %
Expected volatility     226 - 370 %

 

14
 

 

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 during year ended December 31, 2018. 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.

 

In connection with convertible notes payable, the Company records derivative liabilities for the conversion feature. During three months ended March 31, 2019, the Company recorded initial derivative liabilities of $354,413 related to convertible notes payable and $850,695 related to various series of preferred stock. On March 31, 2019, the derivative liabilities were revalued at $4,392,762 resulting in a loss of $315,409 related to the change in fair market value of the derivative liabilities during the period ended March 31, 2019.

  

    For the
Three Months Ended
March 31, 2019
 
Balance – December 31, 2018   $ 2,696,470  
Issuance of new derivative liabilities     1,697,972  
Conversions to paid-in capital     (317,090 )
Change in fair market value of derivative liabilities     315,410  
Balance – March 31, 2019   $ 4,392,762  

 

Management views these convertible notes, due to their conversion feature to be viewed as equity, and the expenses associated through derivative calculations to be estimates that are only finalized once the actual conversion has been consummated. For the balance outstanding, please see Note 8.

 

Commitments and Contingencies

 

The Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is mandatorily redeemable by the holder at a future date. The Series D-2 Preferred Stock is classified as temporary equity due to the fact that it redeemable immediately. The Series D-3 Preferred Stock is also classified as temporary equity due to the existence of the PUT. Under the terms of the acquisition of the Red Wire Group, certain members received Series D-5 with a PUT option with a face value of $150,000. If those members so elect, to not convert those shares to common stock, they have the right to PUT those shares to the Company for cash. This would be an additional cash constraint on the company. For additional detail, See Note 3 Acquisitions.

 

15
 

 

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 three months ended March 31, 2019, 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-2 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. If all dilutive securities were converted the Company would be in excess of their authorized shares of common stock.

 

Financial Instruments

 

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, due to stockholders and notes payable. 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.

 

Recent Accounting Pronouncements

 

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.

 

16
 

 

Note 5 – Fixed Assets

 

Fixed assets at March 31, 2019 and December 31, 2018 consisted of the following:

 

    March 31, 2019     December 31, 2018  
             
Office equipment   $ 90,111     $ 32,107  
Furniture and equipment     607       607  
Computer     13,704       13,704  
Technical equipment     27,492       27,492  
Intellectual Property     65,487       65.487  
      197,401       139,397  
Less: accumulated depreciation     (41,153 )     (41,102 )
Equipment   $ 156,248     $ 98,295  

 

Depreciation expense for the three months ended March 31, 2019 and three months ended March 31, 2018 amount to $6,625 and $1,149, respectively.

 

Note 6 – Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities at March 31, 2019 and December 31, 2018 consists of the following:

 

    March 31, 2019     December 31, 2018  
             
Accounts payable   $ 282,029     $ 379,448  
Accrued expenses     642,383       495,785  
Accrued salaries     438,879       206,031  
Accrued board of director fees     132,500       74,295  
Accrued interest     103,058       79,153  
    $ 1,598,849     $ 1,234,712  

 

17
 

 

Note 7 – Stockholder Transactions

 

Amounts due to stockholders at March 31, 2019 and December 31, 2018 consists of the following:

 

    March 31, 2019     December 31, 2018  
Daniel Monteverde   $ 173,195     $ 143,195  
Angelo Ponzetta     623,549       623,201  
Gianni Ponzetta     -          
    $ 796,744     $ 766,397  

 

On August 12, 2017, Gianni Ponzetta loaned CHF 60,000. The promissory note was unsecured, bore an interest at 1% per annum and is due December 31, 2019.

 

In September 2018, Gianni Ponzetta converted this note and all the due to Gianni Ponzetta payables to Preferred D-3 shares. See Preferred D-3 shares in Note 10 below.

 

A mounts due to stockholders are non-interest bearing, unsecured and due on demand.

 

During the three months ended March 31, 2019 and 2018, total advances and expenses paid directly by stockholders on behalf of the Company were $0 and $185,060, respectively, and the Company repaid $0 and $36,931, respectively.

 

Note 8 – Convertible Notes Payable

 

Convertible notes payable at March 31, 2019 and December 31, 2018 consists of the following:

 

    March 31, 2019     December 31, 2018  
September 15, 2017   $ 337,653     $ 344,262  
December 8, 2017     -       52,260  
December 12, 2017     33,398       107,109  
March 15, 2018     40,123       40,123  
April 27, 2018     -       16,000  
May 17, 2018     60,000       60,000  
September 17, 2018     60,000       60,000  
September 21, 2018     64,500       64,500  
November 28, 2018     64,500       64,500  
November 28, 2018     25,000       25,000  
December 13, 2018     105,000       105,000  
January 15, 2019     115,000       -  
February 7, 2019     132,720       -  
February 7, 2019     76,693       -  
February 19, 2019     64,500       -  
February 19, 2019     55,125       -  
March 13, 2019     55,125       -  
Total   $ 1,289,337     $ 938,754  
                 
Less: unamortized debt discount    

(667,999

)     (313,909 )
                 
Total convertible notes   $

621,338

    $ 624,845  

 

For the three months ended March 31, 2019, the Company recognized interest expense of $352,330, all of which represented the amortization of original issue discounts, debt discounts and beneficial conversion features. For the three and the twelve months ended March 31, 2019 and December 31, 2018, the Company reduced the principal by $80,347 and $608,242 principal and interest of $3,529 and $36,450, respectively, through conversion through the issuance of 189,859,704 shares of common stock. The issue discounts and debt discounts are being amortized over the life of the convertible notes using straight line amortization due to the short-term nature of the note. During the three months ended March 31, 2019, the Company recorded amortization of discounts of $196,382 to interest related to the convertible notes. Remaining issue discounts and debt discounts of $667,999 will be fully amortized by March 2020.

 

18
 

 

The Company has fifteen (15) outstanding convertible notes as of March 31, 2019, with a total outstanding balance of $1,289,337. All the notes have matured that were entered into prior to 2019. The 2019 notes mature from January 2020 to March 2020. These notes carry an interest rate ranging between 8% and 12% per annum. The notes carry an original issue discounts ranging between 10% to 25% of the face value of each note.

 

The notes may be converted into shares of the Company’s common stock at any time on or after the occurrence of an event of default. The conversion price shall be the 60% multiplied by the lowest trading price during the 30 trading days period ending, in holder’s sole discretion on each conversion, on either (i) the last complete trading day prior to the conversion date or (ii) the conversion date. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect.

 

For some notes, the Company agreed to pay a one-time interest charge of 9% of the principal amount for each note. The notes may be converted at any time after the maturity date. The conversion price shall be 75% multiplied by the lowest trading price during the 10 prior trading days period ending on either (i) the last complete trading day prior to conversion date or (ii) the conversion date. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect.

 

The note may be redeemed by the Company at rates ranging from 105% to 130% depending on the redemption date provided that no redemption is allowed after the 180 th day. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward in the Company offers more favorable terms to another party, while this note is in effect. As additional consideration, the Company is to issue to Adar Bays Capital shares of common stock with a value equal to 25% of each note, determine at the time of signing of each note.

 

See summary of outstanding notes payable by debt holder with related change in derivative liability and amortization of debt discount for the period ended March 31, 2019.

 

    Loan Holder   Principal Amount     Date   Maturity   OID & Financing Costs     Balance at
12 31 18
    Additions     Payments     Conversion     Balance at
3 31 19
 
1   SBI Investment   $ 200,000     9/27/2017   3/15/2018             156,850                       (6,697 )   150,153  
1   SBI Investment   $ 187,500     11/14/2017   5/14/2018             187,500                             187,500  
2   LG Capital Funding, LLC   $ 185,292     12/8/2017   6/8/2018     17,646       52,260                       (18,862 )   33,398  
3   Cerberus Finance Group Ltd   $ 185,292     12/12/2017   6/8/2018     17,646       107,109               (99,684 )     (7,425 )   -  
6   Bellridge Capital LP   $ 60,000     5/17/2018   5/17/2019     10,000       16,000                       (16,000 )   -  
7   Auctus   $ 100,000     4/27/2018   4/25/2019     10,000       40,123                             40,123  
8   Bellridge Capital LP   $ 60,000     9/17/2018   3/15/2019     10,000       60,000                             60,000  
11   Bellridge Capital LP   $ 60,000     10/18/2018   10/18/2019     10,000       60,000                             60,000  
12   Adar Alef Omnibus   $ 64,500     11/28/2018   11/29/2019     4,125       64,500                             64,500  
13   Adar Alef Debt Purchase   $ 25,000     11/28/2018   11/29/2019             -                             -  
14   LG Capital Omnibus   $ 64,500     11/28/2018   11/29/2019     4,125       64,500                             64,500  
15   LG Capital Debt Purchase   $ 25,000     11/29/2018   11/29/2018             25,000                             25,000  
16   LG Capital Omnibus   $ 105,000     12/13/2018   12/14/2019     5,000       105,000                             105,000  
17   LG Capital Omnibus   $ 115,000     1/15/2019   1/15/2020     5,750               115,000                     115,000  
18   Adar Alef Omnibus   $ 132,720     2/7/2019   2/7/2020     6,000               132,720                     132,720  
19   Adar Alef Debt Note   $ 108,055     2/7/2019   2/7/2019     8,371               108,055               (31,363 )   76,693  
20   Adar Alef Omnibus   $ 64,500     2/19/2019   2/19/2020     4,125               64,500                     64,500  
21   LG Capital Omnibus   $ 55,125     2/19/2019   2/19/2020     2,500               55,125                     55,125  
22   LG Capital Omnibus   $ 55,125     3/13/2019   3/13/2020     2,500               55,125                     55,125  
                                                                   
Convertible note total                     92,496       938,842       530,525       (99,684 )     (80,347 )   1,289,337  

 

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Note 9 – Note Payable

 

On May 1, 2018, 12 ReTech acquired Emotion Fashion Group, Inc. As part of the acquisition, Emotion Fashion Group was obligated under a disputed note payable to a third party in the amount of $250,000, maturing in July 2027 and bearing an interest rate of 2% per annum. The note calls for monthly payments to be made to the third party equal to ten percent (10%) of the gross sales of the Company until paid in full, including accrued interest. When the note was acquired, the Company recorded the note at its fair market value of $156,014. The note discount is being amortized to interest expense through maturity.

 

As of March 31, 2019 the total payments made under the note payable were $0. Amortization of debt discount amortized amounted to $2,780 for the three months ended March 31, 2019. The remaining discount will be amortized over the remaining term of the note.

 

Note 10 – Common and Preferred Stock

 

Capitalization

 

The Company has authorized shares of common stock of 8,000,000,000 at a par value of $0.00001, and 50,000,000 shares of Preferred Stock as described below.

 

Preferred Stock

 

The Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to and imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series.

 

Commitment and Contingencies

 

The Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is mandatorily redeemable by the holder at a future date. The Series D-1 Preferred Stock is classified as temporary Series D-1 as temporary equity due to the fact that redeemable immediately. The Series D-3 Preferred Stock is classified as temporary equity due to the existence of the PUT. Under the terms of the acquisition of the Red Wire Group, certain members received Series D-5 with a PUT option with a face value of $150,000. If those members so elect to not convert those shares to common stock, they have the right to PUT those shares to the Company for cash. This would be an additional cash constraint on the company. For additional detail, See Note 3 Acquisitions.

 

Series A Preferred Stock

 

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

 

There were 1,500,000 shares of the Series A Preferred Stock were deemed issued during 2018 although will not be delivered until August 2019.

 

As of March 31, 2019 and December 31, 2018, including the shares deemed issued is 6,500,000 shares of Series A Preferred Stock were issued and outstanding.

 

Series B Preferred Stock

 

The Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is mandatorily redeemable by the holder 15 months after issuance and thus have been recorded as mezzanine. During the three months ended March 31, 2019, the Company issued Series B Preferred Stock and converted to common shares the following Series B Preferred shares as follow:

 

  During the three months ended March 31, 2019, holders of Series B Redeemable Convertible Preferred Stock converted 40,020 shares and reduced the principal by $20,164 and interest of $2,400 through the issuance of 87,041,209 shares of common stock.

 

 

As of March 31, 2019 and December 31, 2018, 27,980 and 68,000 shares of Series B Preferred Stock were issued and outstanding at $1.00 par value, respectively. The Company recognized the change in derivative liability of $58,003 interest expense of $10,354.

 

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Series C Preferred Stock

 

There was a single issuance of the Series C Preferred Stock during the years ended December 31, 2018. There have been no additional Series C Preferred Stock issued during the three months ended March 31, 2019.

 

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 is not convertible into common shares, but authorizes the holder to vote eight billion (8,000,000,000) votes on any matter that shareholders are entitled to vote for under our Bylaws at a cost of $1.00 per share. Please note, original 1 share of Series C Preferred shares authorized the holder to vote one billion (1,000,000,000) votes on any matter that shareholders are entitled to vote but was modified on January 14, 2019 to be eight billion (8,000,000,000) votes 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.

 

There is one share of Series C Preferred Stock issued and outstanding as of March 31, 2019 and December 31, 2018.

 

Series D Preferred Stock

 

Series D Preferred Stock are “Blank Check” Preferred which allows the Board of Directors to subdivide and/or determine the rights, privileges and other features of this stock.

 

The total number of shares of Series D Preferred Stock the Company is authorized to issue is one million (1,000,000) shares, with a stated par value of $0.00001 per share with 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 Corporation.

 

Series D Preferred Stock are “Blank Check Preferred” which allows the Board of Directors to subdivide and/or determine the rights, privileges and other features of this stock. On July 13, 2018, the Company filed an amended certificate of designation increasing the authorized Series D preferred shares from 1 million (1,000,000) to 10 million (10,000,000), as a reallocation of the 50 million (50,000,000) shares of preferred stock authorized. All of these 10 million (10,000,000) shares of Series D Preferred Stock are part of the 50 million (50,000,000) authorized shares of preferred stock.

 

Series D-1 Preferred Stock

 

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 2, 2018, the Company entered into 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 as follows:

 

The total number of shares of Series D-1 Preferred Stock issued was 311,250 shares, with a par value of $0.0001 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. For additional information on Series D-1 Preferred Stock, please see Company’s 10_K filed April 16, 2019.

 

As of December 31, 2018 with the execution of the Oasis Agreement, the Company issued 311,250 shares of Preferred Series D-1 shares which are at par value of $2 per share total $622,500. The Company recorded a derivative liability of approximately $700,000 associated with Series D-1 Preferred Shares. The Series D-1 Preferred Stock is classified Series D-1 as temporary equity due to the fact that redeemable immediately.

 

During the three months ended March 31, 2019 Oasis Capital converted 28,500 shares for 63,000,000 common stock and reduced the principal outstanding balance by $28,500. As such, the Company recorded a change in derivative liability associated the Series D-1 Preferred Shares of approximately ($86,428).

 

On March 14, 2019, the Company executed an agreement with Oasis Capital, whereby the Company agreed to exchange the remaining outstanding of Series D-1 Preferred Shares of 282,750 for 282,750 Series D-2 Preferred Shares. In addition, the Company executed an agreement whereby 62,250 outstanding D-1 shares for 62,250 Series D-2 preferred shares in exchange of $100,000. In addition, the Company agreed to pay 1,425 shares of D-2 shares as a finance charge for this agreement. The excess fair value of the shares exchanged was recorded as additional interest expense. As of March 31, 2019 there are no Preferred Series D-1 shares outstanding.

 

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Series D-2 Preferred Stock

 

The Company designated Series D-2 Preferred Stock. The following summary of the Company’s 8% Series D-2 Preferred Stock. The Series D Preferred Stock as a whole, of which Series D-2 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 stockholders of the Company. Before any dividends shall be paid or set-side for payment on any Junior Security Corporation, each holder of Series D-2 Preferred Stock shall be entitled to receive dividends, in the manner provided herein, payable on the stated value of the Series D-2 Preferred Stock at a rate of 8% per annum, or 18% per annum following the occurrence of an Event of Default, which shall be cumulative and be due and payable in shares of Common Stock on the Conversion date or in cash on the Redemption Date. Such dividends shall accrue from the date of issue of each share of Series D-2 Preferred Stock.

 

The total number of shares of Series D-2 Preferred Stock this Company is authorized to issue 2,500,000 shares, with a par value of $0.00001 per share and a stated value of $2.00 per share .

 

The Company issued 346,625 Series D-2 shares to Oasis Capital with a value of $692,850. The Series D-2 Preferred Stock is classified temporary equity due to the fact that the shares are redeemable immediately. As such, the Company recorded an associated derivative liability of $177,323.

 

As a   subsequent event, on April 3, 2019 the Company agreed to issue 15,625 Series D-2 for $25,000 in cash received from Dominic D’Alleva. In addition, the Company agreed to exchange Dominic D’Alleva’s previously issued common shares to Series D-2 preferred shares. Mr. D’Alleva received 318,750 Series D-2 shares in exchange for the 6,250,000 common shares that he previously purchased for $531,250. He will also receive an additional 13,282 Series D-2 Preferred shares in the form of debt discount in this share exchange.

 

Series D-3 Preferred Shares

 

On September 29, 2018, the Board of Directors of 12 ReTech corporation authorized the issuance of twenty thousand (20,000) shares of Series D-3 Preferred Shares to Gianni Ponzetta at a price of $5.00 par value in exchange for $100,000. On the same date, 12 ReTech corporation authorized the issuance of four thousand (4,000) shares of its Series D-3 preferred shares to Gianni Ponzetta at $5.00 par value 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 $5.00 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.

 

The Company agrees in connection with this subscription created a sub-class of its Series D Preferred shares which are designated as “Blank Check Preferred” which allows the Board of Directors of the Company to designate, without further shareholder approval, the rights, privileges and preferences or some, part or all of the Series D Preferred Shares and/or to create sub-classification of those Series D Preferred Shares as they deem necessary. The Holder may convert some, part of all of the Securities into common shares of the Company based on the closing market price on the day before notice of conversion is presented to the Company. The Company will pay dividends on the Securities at the rate of 10% per annum and shall pre-pay the Holder the first 12 month’s dividends from proceeds. After 12 months the Company would pay the pro-rata interest on a monthly basis due the first of each month and late after the 10th of each month. For additional information of Series D-3 Preferred Shares, please see the Company’s filed 10-K from April 16, 2019.

 

The Series D-3 Preferred Stock is classified as temporary equity due to the existence of the PUT. As of March 31, 2019, there were 54,846 Preferred Series D-3 shares outstanding at $3.00 par representing a total of $274,234.

 

Series D-5 Preferred Stock

 

The Company designated Series D-5 Preferred Stock, which consists of one million (1,000,000) shares of stock that are designated as the Series D-5 Convertible Preferred Stock. The par value of each issued share of Series D-5 Preferred Stock is $0.00001 per share, and the stated value of each issued share of Series D-5 Preferred Stock is deemed to be $4.00. Series D-5 Preferred Stock carries an annual dividend of 6% which will be paid in arrears. Holders of the shares of Series D-5 Preferred Stock shall not have the right to vote on any matter as to which shareholders are required or permitted to vote, except as otherwise required by law. On February 21, 2019, the Company issued 37,500 shares for 25% minority interest in the Red Wire Group. On March 14, 2019, the Company issued 82,588 shares of Series D-5 Preferred Stock for 92.5% interest in Rune. See Note 3, Acquisitions for additional information. The company recorded as associated derivative liability of $424,753.

 

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Series D-6 Preferred Stock

 

The Company designated Series D-6 Convertible Preferred Stock, which consists of one million (1,000,000) shares of stock. The par value of each issued share of Series D-6 Preferred Stock is $0.00001 per share, and the stated value of each share is $5.00. On February 21, 2019, the Company issued 54,000 shares for 75% minority interest in the Red Wire Group. See Note 3, Acquisitions for additional information.

 

The Company issued 55,600 Series D-6 shares related to the acquisitions of RWG (54,000 shares) and another individual (1,600 shares) with a value of $278,000. The Company recorded as associated derivative liability of $248,618.

 

Common Stock

 

The Company is authorized to issue 8,000,000,000 shares of common stock at a par value of $0.00001.

 

Common stock issued for the three months ended March 31, 2019 was as follows:

 

The Company issued 189,859,704 shares with the convertible debt. The Company issued 150,041,209 common shares to Geneva Roth and Oasis Capital in exchange for Preferred shares.

 

As of March 31, 2019, and December 31, 2018, 994,152,866 and 654,251,953 shares of common stock were issued and outstanding, respectively.

 

Note 11 – Segment Data

 

The Company does business on three continents (North America, Asia, and Europe) in four different jurisdictions (Hong Kong-special economic zone of the People’s Republic of China, Japan, United States of America, and the European common market through Switzerland). These segments are components of the Company about which separate financial information is available and regularly evaluated by the Chief Executive Officer decision maker in deciding how to allocate resources and in assessing performance. The accounting policies of the segments are the same as those described in Note 3, Summary of Significant Accounting Policies.

 

The following table shows operating activities information by geographic segment for the three months ended March 31, 2019 and 2018.

 

3 months ended March 31, 2019

 

March 31, 2019   North America     Asia     Europe     Total  
Revenue   $ 212,279     $ 8,758     $ 93     $ 221,129  

 

March 31, 2019   North America     Asia     Europe     Total  
Fixed assets, net   $ 75,620     $ 77,069     $ 3,558     $ 156,248  

 

3 months ended March 31, 2018

 

March 31, 2018   North America     Asia     Europe     Total  
Revenue   $              -     $ 8,942     $           -     $ 8,942  

 

March 31, 2018   North America     Asia     Europe     Total  
Fixed assets, net   $            -     $ 6,845