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).
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.
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.
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.
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.
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.
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.
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.
|
|
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.
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.
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.
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
|
|
$
|
32,107
|
|
|
$
|
7,371
|
|
Furniture
and equipment
|
|
|
607
|
|
|
|
607
|
|
Computer
|
|
|
13,704
|
|
|
|
12,998
|
|
Technical
equipment
|
|
|
27,492
|
|
|
|
23,435
|
|
Intellectual
Property
|
|
|
65,487
|
|
|
|
-
|
|
|
|
|
139,397
|
|
|
|
44,411
|
|
Less:
accumulated depreciation
|
|
|
(41,102
|
)
|
|
|
(35,796
|
)
|
Equipment
|
|
$
|
98,295
|
|
|
$
|
8,615
|
|
Depreciation
expense for the years ended December 31, 2018 and 2017 amounted to $9,395 and $16,100, respectively.
NOTE
6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at December 31, 2018 and 2017, consists of the following:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
379,448
|
|
|
$
|
30,625
|
|
Accrued
expenses
|
|
|
495,785
|
|
|
|
66,931
|
|
Accrued salaries
|
|
|
206,031
|
|
|
|
-
|
|
Accrued
board of director fees
|
|
|
74,29
5
|
|
|
|
-
|
|
Accrued
interest
|
|
|
79,153
|
|
|
|
8,348
|
|
|
|
$
|
1,234,712
|
|
|
$
|
105,904
|
|
NOTE
7 - STOCKHOLDER TRANSACTIONS
Due
to stockholders at December 31, 2018 and 2017 consists of the following:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Daniel
Monteverde
|
|
$
|
143,195
|
|
|
$
|
8,214
|
|
Angelo
Ponzetta
|
|
|
623,202
|
|
|
|
500,798
|
|
Gianni
Ponzetta
|
|
|
-
|
|
|
|
160,114
|
|
|
|
$
|
766,397
|
|
|
$
|
669,126
|
|
On
August 12, 2017, Gianni Ponzetta loaned CHF 60,000 ($61,584) to the Company, which is included in the December 31, 2017
total. The promissory note is unsecured and bears 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.
The
other amounts due to stockholders are non-interest bearing, unsecured and due on demand.
In
September 2018, $20,000 was repaid to Angelo Ponzetta, which offset the amounts due to Angelo Ponzetta.
During
the years ended December 31, 2018 and 2017, total advances and expenses paid directly by stockholders on behalf of the Company
were $107,326 and $185,060, respectively, and the Company repaid $36,931 and $8,130, respectively.
NOTE
8 – CONVERTIBLE NOTES PAYABLE
Convertible
notes payable at December 31, 2018 and 2017 consists of the following:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Dated September 15, 2017
|
|
$
|
344,262
|
|
|
$
|
387,500
|
|
Dated December 8, 2017
|
|
|
52,260
|
|
|
|
92,646
|
|
Dated December 8, 2017
|
|
|
107,109
|
|
|
|
92,646
|
|
Dated March 15, 2018
|
|
|
40,123
|
|
|
|
-
|
|
Dated April 25, 2018
|
|
|
16,000
|
|
|
|
-
|
|
Dated May 17, 2018
|
|
|
60,000
|
|
|
|
-
|
|
Dated September 17, 2018
|
|
|
60,000
|
|
|
|
-
|
|
Dated September 21, 2018
|
|
|
64,500
|
|
|
|
-
|
|
Dated November 28, 2018
|
|
|
64,500
|
|
|
|
-
|
|
Dated November 28, 2018
|
|
|
25,000
|
|
|
|
-
|
|
Dated December 13, 2018
|
|
|
105,000
|
|
|
|
-
|
|
Total convertible notes payable
|
|
|
938,754
|
|
|
|
572,792
|
|
|
|
|
|
|
|
|
|
|
Less: Unamortized debt discount
|
|
|
(313,909
|
)
|
|
|
(164,545
|
)
|
|
|
|
|
|
|
|
|
|
Total convertible notes
|
|
|
624,845
|
|
|
|
408,247
|
|
|
|
|
|
|
|
|
|
|
Less: current portion of convertible notes
|
|
|
624,845
|
|
|
|
408,247
|
|
Long-term convertible notes
|
|
$
|
-
|
|
|
$
|
-
|
|
For
the year ended December 31, 2018 and 2017, the Company recognized interest expense of $1,295,055 and $59,241 respectively,
all of which represented the amortization of original issue discounts, debt discounts, beneficial conversion features and
interest payable at stated rates. For the year ended December 31, 2018, the Company reduced the principal by $608,242
of principal and interest of $36,450 through conversions. The issue discounts and debt discounts are being amortized over
the life of the notes using straight line amortization due to the short-term nature of the note. Remaining issue discounts and
debt discounts of $313,309 will be fully amortized by May 2019.
As
a subsequent event, as of December 31, 2018, the principal debt was further reduced by $343,096 of principal and $19,307 of interest.
The
following is the change in derivative liability for the year ended December 31, 2018:
|
|
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
|
|
$
|
2,6
96,470
|
|
See
Note 3 for additional information regarding the valuation.
September
2017 Note
On
September 15, 2017, the Company entered into a promissory note agreement with SBI Investments LLC (“SBI”)
for loans up to a maximum of $1,250,000, together with interest at the rate of 8% per annum. The consideration to the Company
for this promissory note is up to $1,000,000, resulting in a potential original issuance discount (“OID”) of up
to $250,000. The maturity date for each tranche funded shall be six months from the effective date of the respective payment date.
The promissory note 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.
An
initial promissory note of $200,000 was issued on September 15, 2017 and the Company received cash of $150,000 and recognized
OID of $40,000 and financing cost of $10,000 as debt discount and BCF of $133,333 as debt discounts.
On
November 14, 2017, the Company issued an additional promissory note of $187,500 and received cash of $150,000 and recognized
OID of $37,500 and a BCF of $125,000 as debt discounts.
On
March 30, 2018, the Company entered into an amendment of this note as it was originally due March 15, 2018, which indicates that
a $200,000 tranche is now eligible for conversion at a discount to market. The Company agreed to pay $25,000 to SBI for each 30-day
extension as consideration. The extension amount is automatically added to the face value of the note after each 30-day period.
SBI has agreed to a minimum of a 3-month extension under these same terms. The Company determined this amendment was a debt extension
and recognized a total of $50,000 and $75,000 as a loss on debt extension for the three ended September
30, 2018. For the additional $75,000 of principal added to the balance of the note for which was immediately expensed to loss
on debt extension.
On
July 12, 2018, SBI converted $15,000 of this note for 510,204 shares of common stock. On August 7, 2018, SBI converted $7,500
of this note for 757,576 shares of common stock. On August 29, 2018, SBI converted $10,000 of this note for 1,694,915 shares of
common stock. On September 10, 2018, SBI converted $15,000 of this note for 3,488,372 shares of common stock. On September 18,
2018, SBI converted $10,000 of this note for 3,316,750 shares of common stock. On October 3, 2018, SBI converted $10,000 of this
note for 6,535,948 shares of common stock. On October 23, 2018, SBI converted $12,870 of this note for 11,000,000 shares of common
stock. On October 30, 2018, SBI converted $12,780 of this note for 11,000,000 shares of common stock.
As
of December 31, 2018, the total principal debt reduction as was $93,150.
Also,
as of December 31, 2018, the Company recognized a derivative liability of $431,377 and $494,105 on each tranche of these notes
and recognized an amortization of debt discount of $161,226 and $152,610 on each tranche of the notes, respectively.
As
a subsequent event, on January 4, 2019, SBI converted $6,697 of this note for 16,536,872 shares of common stock. As of March 29,
2019, the total principal debt was reduced by $99,847.
December
8, 2017 Note
On
December 8, 2017, the Company entered into a promissory note agreement with LG Capital Funding, LLC (“LG”)
for loans totaling $185,292. The consideration to the Company is $158,824 resulting in a 15% OID. The maturity date for
each note is six months from the date of issuance. The Company shall 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 day’s 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. As additional consideration for the purchase of the notes, the Company issued
to LG 154,410 and 142,972 shares of our common stock each on January 13, 2018 and February 1, 2018, respectively, for a total
of 297,382 shares, with a value equal to $46,323, based on the previous day closing price.
The
first note of $92,646 was issued on December 8, 2017. The Company received cash of $75,000 and recognized OID of $13,234
and financing cost of $4,412 and a BCF of $28,677 as debt discount. The one-time interest charge of 9% of the principal
amount of the note was due on January 1, 2018. In addition, the Company recorded $46,323 as debt discount for the issuance
of the common shares.
On
January 8, 2018, LG funded their “back end note” which is the second half commitment from the agreements. The
Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $79,410
as debt discounts. A one-time interest charge of 9% of principal amount of the note was added to the note in February 2018.
The charge was added to the finance charges associated with this note and amortized over the life of the note.
On
July 12, 2018, LG converted $6,289 of the note for 127,056 shares of common stock. On July 24, 2018, LG converted $6,289 of the
note for 239,592 shares of common stock. On August 9, 2018, LG converted $4,109 of the note for 421,466 shares of common stock.
On August 28, 2018, LG converted $5,199 of the note for 436,000 shares of common stock. On September 14, 2018, LG converted $11,739
of the note for 1,647,621 shares of common stock.
On
October 3, 2018, LG converted $7,379 of the note for 2,893,843 shares of common stock and on October 11, 2018 LG converted $21,120
of the note for 10,830,687 shares. On October 18, 2018, LG converted $25,615 of this note for 13,135,897 shares of common stock,
on October 23, 2018 LG converted $13,244 for 6,791,538 common shares, on October 26, 2018 LG converted $19,130 for 16,350,000
common shares and again on December 4, 2018, they converted $13,621 of this note for 25.223,407 shares of common stock. Lastly,
on December 20, 2018 LG converted $11,271 for 27,828,641 for common stock.
On
November 29, 2018, the Company entered into a promissory note agreement with LG Capital, LLC for loans totaling $25,000
with the same terms as SBI original note paid directly to SBI. LG paid $25,000 in total consideration and same maturity date as
the original note with SBI. See November 29, 2018 LG note below for more information.
As
of December 31, 2018, as a result of reset features the conversion price shall be 60% multiplied by the lowest traded price during
the 10 prior trading day period ending on either (i) the last complete trading day prior to the conversion date or (ii) the conversion
date. As of December 31, 2018, the total principal reduction was $133,032 and interest of $11,973. In addition, as of December
31, 2018, the Company recognized a derivative liability of $72,394 and recognized an amortization of debt discount of
$81,835 and $79,410 on the back-end note. The initial derivative liability was recorded in June 2018, when the note first became convertible.
As
a subsequent event, on January 3, 2019, LG converted $8,742 of the note for 21,584,691 shares of common stock As of March 29,
2019, the total principal reduction was $141,052 and interest of $12,695
December
8, 2017 Note
On
December 8, 2017, the Company entered into a promissory note agreement with Cerberus Finance Group Ltd. (“Cerberus”)
for loans totaling $185,292. The consideration to the Company is $158,824 resulting in a 15% OID. The maturity date for
each note is six months from the date of issuance. The Company shall 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 the 75% multiplied
by the lowest trading price during the 10 prior trading day 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. As additional consideration for the purchase of the notes, the Company issued to Cerberus
154,410 and 142,972 shares of our common stock each on January 13, 2018 and February 1, 2018, respectively, for a total of 297,382
shares, with a value equal to $46,323, based on the previous day closing price.
The
first note of $92,646 was issued on December 8, 2017. The Company received cash of $75,000 and recognized OID of $13,234
and financing cost of $4,412 and a BCF of $28,677 as debt discounts. The one-time interest charge of 9% of the amount of
the Note was due on January 1, 2018. In addition, the Company recorded $46,323 as debt discount for the issuance of the
common shares.
On
January 8, 2018, Cerberus funded their “back end note” which is the second half commitment from the agreements.
The Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $79,410
as debt discounts. The one-time interest charge of 9% of the principal amount of the note was due on February 1, 2018.
On
July, 24, 2018, Cerberus converted $ 4,533 of the note for 100,740 shares of common stock. On August 21, 2018, Cerberus converted
$32,680 of the note for 3,351,779 shares of common stock. On September 13, 2018, Cerberus converted $24,275 of the
note for 3,406,977 shares of common stock.
On
November 29, 2018, the Company entered into a promissory note agreement with Adar Alef, LLC for loans totaling $25,000
with the same terms as Cerberus Finance Group paid directly to Cerberus Finance Group, Ltd. Adar Alef paid $25,000 in consideration
and same maturity date as the original note with Cerberus. See November 29, 2018 note below for more information.
As
of December 31, 2018, the total principal reduction by $53,150 and interest $8,338 and recognized an amortization of
debt discount of $84,562 on the first note and $79,410 on the back-end note.
As
of December 31, 2018, as a result of reset features the conversion price shall be 60% multiplied by the lowest traded price during
the 10 prior trading day period ending on either (i) the last complete trading day prior to the conversion date or (ii) the conversion
date. In addition, as of December 31, 2018, the Company recognized a derivative liability of $28,977 on the first note
and $117,742 on the back end note.
As
a subsequent event, Cerberus converted $7,425 for 15,000,000 common shares. Total principal reduction was $85,575 interest of
$8,328.
March
15, 2018 Note
On
March 15, 2018, the Company entered into a promissory note agreement with Eagle Equities, LLC (“Eagle”)
for loans totaling $100,000. The consideration to the Company is $95,000 resulting in a 5% OID. The maturity date of each
note is one year from the date of issuance. The notes carry an interest rate of 12% per annum and interest payments are to be
made in common shares of the Company. The conversion price of the note is 60% multiplied by the lowest trading price of
the Common Stock for the ten prior trading days and the holder can convert the note at the earlier of an uncured default or 181
days from issuance. 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, prepayments 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. As additional consideration, the Company is to issue to Eagle Equities,
LLC shares of common stock with a value equal to 25% of each note, determined at the time of signing of each note.
The
first note of $50,000 was issued on March 15, 2018. The Company received cash of $47,500 and recognized financing cost
of $2,500 and a BCF of $33,333 as debt discounts. The Company issued to Eagle Equities, LLC 156,250 shares of common stock
with a value equal to $12,500. The Company recorded $12,500 as debt discount for the issuance of the common shares. This
note matured and became convertible during third quarter of 2018 along the terms mentioned above.
On
September 26,2018, Eagles Equities converted $5,323 for 2,218,054 common shares. On October 9,2018, Eagles Equities converted
$18,173 for 9,178,283 of common shares and on October 11, 2018, Eagles Equities converted $14,975 for 9,599,571
of common shares. and on October 15,2018, Eagles Equities converted $14,994 for 9,611,538 common shares.
As
of December 31, 2018, the principal of $50,000 and interest of $3,624 was converted and recognized an amortization of debt
discount of $48,333 and as such zero derivative liability was recognized.
March
15, 2018 Note
On
March 15, 2018, the Company entered into a promissory note agreement with Adar Bays, LLC (“Adar Bays”)
for loans totaling $100,000. The consideration to the Company is $95,000 resulting in a 5% OID. The maturity date of each
note is one year from the date of issuance. The notes carry an interest rate of 12% per annum and interest payments are to be
made in common shares of the Company. The conversion price of the note is 60% multiplied by the lowest trading price of
the Common Stock for the ten prior trading days and the holder can convert the note at the earlier of an uncured default or 181
days from issuance. 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 shares of common stock with a value equal to 25% of each note, determine at the time of signing of each note.
The
first note of $50,000 was issued on March 15, 2018. The Company received cash of $47,500 and recognized financing cost
of $2,500 and a BCF of $33,333 as debt discounts. The Company issued to Adar Bays 156,250 shares of our common stock with
a value equal to $12,500. The Company recorded $12,500 as debt discount for the issuance of the common shares.
On
October 8, 2018 Adar Bays converted $8,000 of this note into 3,921,569 shares on common stock, on October 10, 2018 converted $15,000
into 9,615,385 shares of common stock, on October 15, 2018 converted $18,392 of this note for 11,789,744 shares of common stock,
on October 22, 2018 converted $12,075.81 into 7,740,904 shares of common stock,
As
of December 31, 2018, the total principal was reduced by $50,000 and recognized an amortization of debt discount of $48,333
and as such zero derivative liability was recognized as of December 31, 2018.
April
25, 2018 Note
On
April 25, 2018 the Company entered into a Securities Purchase Agreement with Auctus Fund, LLC (“Auctus”)
whereby the Company issued to a 9% Convertible Note (“Note”) to Auctus n the principal amount of $100,000 and
a maturity date of January 25, 2019. The conversion price of the Note is $0.05 per share, provided, however, that on or after
the earlier of an event of default or 181 days after issuance date, the conversion price shall equal the lesser of (i) $0.05 per
share, (ii) the lowest trading price during the previous twenty days ending on the last trading day prior to the date of the note,
and (iii) 60% of the lowest trading price of the Common stock for the twenty prior trading days prior to the conversion date.
Auctus can convert the Note, at any time, after issuance until the maturity date or the date payment of the default amount. All
the 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.
The
note of $100,000 was issued on April 25, 2018. The Company received cash of $90,000 and recognized financing cost
of $10,000 and a BCF of $28,400 as debt discounts. In addition, the Company issued to Auctus 700,000 shares of our common
stock with a value equal to $61,600 as a commitment/collateral fee. The Company recorded $61,600 as debt discount for the
issuance of the common shares.
On
October 30, 2018 Auctus converted $18,669 into 17,950,800 shares of common stock, on November 7, 2018 converted $20,088
into 19,315.600 shares of common stock, on November 20, 2018 Auctus converted $16,092 for 21,173,300 common shares, on
November 30, 2018, Auctus converted $11,526 into 24,013,292 common shares and lastly on December 21, 2018 Auctus converted
$1,245 into 3,457,650 of commons shares.
As
of December 31, 2018, the total principal reduction was $59,877 and interest of $7,743 and recognized an amortization
of debt discount of $100,000 and recognized a derivative liability of $66,638.
May
17, 2018 Note
On
May 17, 2018 the Company entered into a Securities Purchase Agreement with Bellridge Capital, LP (“Bellridge”)
whereby the Company issued to a 10% Convertible Note (“Note”) to Bellridge in the principal amount of $60,000
and a maturity date of May 15, 2019. The conversion price of the Note is the lower of $0.08 per share or 60% of the lowest trading
price during the previous twelve days ending on the last trading prior to the date of the delivery of the notice of conversion.
Bellridge can convert the Note at any time after issuance until the maturity date or the date payment of the default amount. The
note may be redeemed by the Company at rates ranging from 120% to 150% depending on the redemption date. The conversion
price will be reduced to equal the effective price per share of any common stock or common stock equivalent issuances while the
note or any amounts accrued remain outstanding.
The
note of $60,000 was issued on May 17, 2018. The Company received cash of $50,000 and recognized financing cost of
$10,000.
On
November 26, 2018, Bellridge converted $15,768 into 16,425,510 common shares, then on December 12, 2018, Bellridge converted $14,251
into 26,390,407 common shares and lastly on December 27, 2018, Bellridge converted $16,426 into 30,418, 056 shares
of common stock.
As
of December 31, 2018, the Company had reduced principal balance of $44,000 and interest of $928 and recognized an amortization
of debt discount of $35,168 and recognized a derivative liability of $33,184. As a subsequent event, on January 15, 2019,
Bellridge converted $17,039 into 28,398,167 common shares. As such, the Company had reduced the principal balance of $60,000
and interest of $3,484.
September
17, 2018 Note
On
September 17, 2018 the Company entered into a Securities Purchase Agreement with Bellridge Capital, LP (“Bellridge”)
whereby the Company issued to a 10% Convertible Note (“Note”) to Bellridge in the principal amount of $60,000
and a maturity date of September 17, 2019. The conversion price of the Note is the lower of $0.01 per share or 60% of the lowest
trading price during the previous twelve days ending on the last trading prior to the date of the delivery of the notice of conversion.
Bellridge can convert the Note at any time after issuance until the maturity date or the date payment of the default amount. The
note may be redeemed by the Company at rates ranging from 120% to 150% depending on the redemption date. The conversion
price will be reduced to equal the effective price per share of any common stock or common stock equivalent issuances while the
note or any amounts accrued remain outstanding.
The
note of $60,000 was issued on September 17, 2018. The Company received cash of $50,000 and recognized financing cost of
$10,000.
As
of December 31, 2018, as a result of the reset features of the note the conversion price is assumed to be $0.01 due to a stock
issuance at that price. As of December 31, 2018, the Company recognized a derivative liability of $108,621 and total outstanding
principal balance remains at $60,000 and recognized an amortization of debt discount of $17,403.
September
21, 2018 Note
On
March 15, 2018, the Company entered into a promissory note agreement with Eagle Equities, LLC (“Eagle”) for
loans totaling $100,000. The consideration to the Company is $95,000 resulting in a 5% OID. The maturity date of each note is
one year from the date of issuance. The notes carry an interest rate of 12% per annum and interest payments are to be made in
common shares of the Company. The conversion price of the note is 60% multiplied by the lowest trading price of the Common
Stock for the ten prior trading days and the holder can convert the note at the earlier of an uncured default or 181 days from
issuance. 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,
prepayments 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. As additional consideration, the Company is to issue to Eagle Equities, LLC shares
of common stock with a value equal to 25% of each note, determined at the time of signing of each note.
The
second note of $50,000 was issued on September 21, 2018. The Company received cash of $47,500 and recognized financing cost of
$2,500.
On
October 17, 2018 converted $19,158 for 12,280,981 of common stock, on October 22, 2018 $13,134 converted into 8,419,442 of common
stock and on October 25, 2018 converted $18,204 into 9,787,097 of common stock.
As
of December 31, 2018, the principal balance of $50,000 and interest of $497 was converted and recognized an amortization
of debt discount of $8,623 and as such Company recognized a zero-derivative liability.
May
4, 2018 Backend
Note
On
May 4, 2018, the Company entered into a promissory note agreement with Adar Bays, LLC (“Adar Bays”) for loans totaling
$100,000. The consideration to the Company is $95,000 resulting in a 5% OID. The maturity date of each note is one year from the
date of issuance. The notes carry an interest rate of 12% per annum and interest payments are to be made in common shares of the
Company. The conversion price of the note is 60% multiplied by the lowest trading price of the Common Stock for the ten prior
trading days and the holder can convert the note at the earlier of an uncured default or 181 days from issuance. 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 shares of common stock with a value equal
to 25% of each note, determine at the time of signing of each note.
The
second note of $50,000 was issued on October 4, 2018. The Company received cash of $47,500 and recognized financing cost of $2,500.
On
October 23, 2018 converted $23,991 into 15,378,846 shares of common stock and on October 25, 2018 converted $26,009
into 14,191,489 shares of common stock.
As
of December 31, 2018, the total principal was reduced by $50,000 and recognized an amortization of debt discount of $50,000
and as such zero derivative liability was recognized as of year end.
October
17, 2018 Note
On
October 17, 2018 the Company entered into a Securities Purchase Agreement with Bellridge Capital, LP (“Bellridge”)
whereby the Company issued to a 10% Convertible Note (“Note”) to Bellridge in the principal amount of $60,000 and
a maturity date of October 17, 2019. The conversion price of the Note is the lower of $0.01 per share or 60% of the lowest trading
price during the previous twelve days ending on the last trading prior to the date of the delivery of the notice of conversion.
Bellridge can convert the Note at any time after issuance until the maturity date or the date payment of the default amount. The
note may be redeemed by the Company at rates ranging from 120% to 150% depending on the redemption date. The conversion price
will be reduced to equal the effective price per share of any common stock or common stock equivalent issuances while the note
or any amounts accrued remain outstanding.
The
note of $60,000 was issued on October 17, 2018. The Company received cash of $50,000 and recognized financing cost of $10,000.
As
of December 31, 2018, as a result of the reset features of the note the conversion price is assumed to be $0.01 due to a stock
issuance at that price. As of December 31, 2018, the Company recognized a derivative liability of $115,445 and recognized
an amortization of debt discount of $12,329.
November
28, 2018 Note
On
November 28, 2018, the Company entered into a promissory note agreement with Adar Alef Omnibus, LLC (“Adar Alef”)
for loans totaling $64,500 and a maturity date of November 28, 2019. The consideration to the Company is $57,500
resulting in a 5% OID. The maturity date of each note is one year from the date of issuance. The notes carry an interest rate
of 12% per annum and interest payments are to be made in common shares of the Company. The conversion price of the note is 60%
multiplied by the lowest trading price of the Common Stock for the ten prior trading days and the holder can convert the note
at the earlier of an uncured default or 181 days from issuance. 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.
The
note of $64,500 was issued on November 28, 2018, the Company received cash of $57,500 and recognized financing cost of $2,500.
The Company recorded $4,125 as debt discount for the issuance of the common shares. As of December 31, 2018, the Company
recognized a derivative liability of $132,949.
The
total outstanding principal balance as of December 31, 2018 was $64,500 and the Company recognized a derivative liability
of $132,949. As a subsequent event, on February 26, 2019, Adar Alef converted $4,362 into 8,309,752 common shares.
In
addition, on November 28, 2018 Adar Alef, and the Company entered into the promissory note agreement for $25,000. The consideration
to the Company is $25,000 which was paid directly to Cerberus Finance Group. The maturity date note was the same as the maturity
date of the original Cerberus note which was June 8, 2018.
On
December 19, 2018, Adar Alef converted $15,000 for 22,222,222 common shares and again on December 31, 2018 $10,000 was converted
into 13,468,013 common shares. The total outstanding principal balance as of December 31, 2018 was zero and recognized
an amortization of debt discount of $5.832 on the first note and $25,000 on the second note and as such zero derivative liability
was recognized.
November
28, 2018 Note
On
November 28, 2018, the Company entered into a promissory note agreement with LG Capital Funding, LLC (“LG”)
for loans totaling $64,500. The consideration to the Company is $57,500 resulting in a 15% OID. The maturity date the note is
one year from the date of issuance. The Company shall pay a one-time interest charge of 10% 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.
As
of December 31, 2018, as a result of reset features the conversion price shall be 60% multiplied by the lowest traded price during
the 10 prior trading day period ending on either (i) the last complete trading day prior to the conversion date or (ii) the conversion
date. In addition, as of December 31, 2018, the Company recognized a derivative liability of $132,942 and recognized
an amortization of debt discount of $5,389 on the first note and $25,000 respectively.
In
addition, on November 28, 2018 LG Capital and the Company entered into the promissory note agreement for $25,000. The consideration
to the Company is $25,000 which was paid directly to SBI. The maturity date note was the same as the maturity date of the original
SBI note which was March 15, 2018 and recognized a derivative liability of $58,602.
December
13, 2018 Note
On
December 13, 2018, the Company entered into a promissory note agreement with LG Capital Funding, LLC (“LG”)
for loans totaling $105,000. The consideration to the Company is $95,000 resulting in 15 % OID. The maturity date the note is
one year from the date of issuance. The Company shall pay a one-time interest charge of 10% of the principal amount. 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 of $105,000 was issued on December 13, 2018 and the Company received cash of $95,000 and recognized OID of $5,000
and financing cost of $5,000.
As
of December 31, 2018, as a result of reset features the conversion price shall be 60% multiplied by the lowest traded price during
the 10 prior trading day period ending on either (i) the last complete trading day prior to the conversion date or (ii) the conversion
date. In addition, as of December 31, 2018, the Company recognized a derivative liability of $203,495 and recognized
an amortization of debt discount of $5,178.
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 note payable to a third party in the amount of $250,000, maturing in July 2027 and bearing a 2% interest rate. 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 $150,490.
The note discount is being amortized to interest expense through maturity using the effective interest method. Debt
discount amortized amounted to $10,194 during the year ended December 31, 2018. Approximately, amortization of $11,122
will be recorded annually through 2027.
NOTE
10 - STOCKHOLDERS’ EQUITY
Amendments
to Articles of Incorporation
The
Company was authorized to issue 100,000,000 shares of common stock at par value of $0.0001 and 100,000,000 shares of preferred
stock at par value of $0.00001.
Effective
June 7, 2017, the Company filed a Certificate of Amendment to its Articles of Incorporation with the State of Nevada to
increase the number of authorized shares of capital stock to 550,000,000 shares. The Company increased the number of authorized
common shares to 500,000,000 and decreased the number of authorized preferred shares to 50,000,000.
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.
Effective
March 14, 2018, the Company filed a Certificate of Amendment to its Articles of Incorporation with the state of Nevada to increase
the number of authorized shares of capital stock to 1,050,000,000 shares. Effective February 7, 2019 the Company increased
the number of authorized shares of common stock to 8,000,000,000. There was no change to the number of shares of authorized preferred
stock.
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.
Series
A Preferred Stock
The
following summary of the Company’s Series A Preferred Stock is merely a summary, we refer you to our Amended and Restated
Articles of Incorporation and the applicable provisions of the Nevada Revised Statutes for a more complete description of the
rights and liabilities of holders of our securities.
Liquidation
Rights:
In
the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Holders of the Series
A Preferred Stock shall be entitled to receive, prior and in preference to any Distribution of any of the assets of the Company
to the Holders of any Junior Stock by reason of their ownership of such stock an amount per share for each share of Series A Preferred
Stock held by them equal to the sum of the Liquidation Preference. If upon the liquidation, dissolution or winding up of the Company,
the assets of the Company legally available for distribution to the Holders of the Series A Preferred Stock are insufficient to
permit the payment to such Holders of the full amounts specified in this Section then the entire remaining assets of the Company
legally available for distribution shall be distributed with equal priority and pro rata among the Holders of the Series A Preferred
Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section.
Redemption
Rights:
The
Series A Preferred Stock shall have no redemption rights.
Conversion:
The
“Conversion Ratio” per share of the Series A Preferred Stock in connection with any Conversion shall be at a ratio
of 1:20, meaning every (1) one Preferred A share shall convert into 20 shares of Common Stock of the Company (the “Conversion”).
Holders of Class A Preferred Shares shall have the right, exercisable at any time and from time to time (unless otherwise prohibited
by law, rule or regulation), to convert any or all their shares of the Class A Preferred Shares into Common Stock at the Conversion
Ratio.
Voting
Rights:
The
Holder of each share of Series A Preferred Stock shall have such number of votes as is determined by multiplying (a) the number
of shares of Series A Preferred Stock held by such holder; and, (b) by 20. Such voting calculation is hereby authorized by the
Company and the Company acknowledges such calculation may result in the total number of possible votes cast by the Series A Holders
and all other classes of the Company’s common stock in any given voting matter exceeding the total aggregate number of shares
which this Company shall have authority to issue. With respect to any shareholder vote, such holder shall have full voting rights
and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders’ meeting in accordance with the Bylaws of this Corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right
to vote. The holders of Series A Preferred Stock shall vote together with all other classes and series of common and preferred
stock of the Company as a single class on all actions to be taken by the Common Stock shareholders of the Company, except to the
extent that voting as a separate class or series is required by law. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series A Preferred
Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).
During
the year ended December 31, 2017, the Company issued Series A Preferred Shares as follows;
|
●
|
5,000,000
shares of preferred stock as partial consideration for the acquisition of 100% of issued and outstanding equity of 12HK (Note
1)
|
|
|
|
|
●
|
500,000
shares of preferred stock as partial consideration for the acquisition of 100% of issued and outstanding of 12JP (Note 1).
|
|
●
|
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 issued during the year ended December 31, 2018. As of December 31,
2018, and 2017, 6,500,000 and 5,000,000 shares of Series A Preferred Stock were issued and outstanding.
Series
B Preferred Stock
The
following summary of the Company’s Series B Preferred Stock is merely a summary, we refer you to our Amended and Restated
Articles of Incorporation and the applicable provisions of the Nevada Revised Statutes for a more complete description of the
rights and liabilities of holders of our securities.
Designation
and Amount:
The
total number of shares of Series B Preferred Stock this Corporation is authorized to issue is One Million (1,000,000), with a
stated par value of $0.00001 per share. The designations, powers, preferences, rights and restrictions granted or imposed upon
the Series B Preferred Stock and holders thereof are as follows unless otherwise agreed to by agreement between the Corporation
and the purchasers of the Series B Preferred Stock.
Ranking:
The
Series B Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a)
senior with respect to dividends and right of liquidation with the Corporation’s Common Stock (“Common Stock”),
(b) junior with respect to dividends and right of liquidation with the Corporation’s Series A Preferred Stock; and (c) junior
with respect to dividends and right of liquidation to all existing and future indebtedness of the Corporation. Without the prior
written consent of Holders holding a majority of the outstanding shares of Series B Preferred Stock, the Corporation may not issue
any Preferred Stock that is senior to the Series B Preferred Stock in right of dividends and liquidation.
Liquidation
Preference:
A.
Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provision
for payment of debts and other liabilities of the Corporation, and after payment or provision for any liquidation preference payable
to the holders of any Preferred Stock ranking senior upon liquidation to the Series B Preferred Stock, but prior to any distribution
or payment made to the holders of Common Stock or the holders of any Preferred Stock ranking junior upon liquidation to the Series
B Preferred Stock by reason of their ownership thereof, the Holders of Series B Preferred Stock will be entitled to be paid out
of the assets of the Corporation available for distribution to its stockholders an amount with respect to each share of Series
B Preferred Stock equal to the then Stated Value as adjusted pursuant to the terms hereof (including but not limited to the additional
of any accrued unpaid dividends and the Default Adjustment, if applicable). B. If, upon any liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation will be insufficient to make payment in full to all Holders, then such assets
will be distributed among the Holders at the time outstanding, ratably in proportion to the full amounts to which they would otherwise
be respectively entitled.
Conversion:
A.
Holders of Series B Preferred Stock shall have the right, exercisable at any time and from time to time (unless otherwise prohibited
by law, rule or regulation, or agreement between the Corporation and the holders of the Series B Preferred Stock), to convert
any or all their shares of the Series B Preferred Stock into Common Stock. B. Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for
the purpose of effecting the conversion of the shares of the Series B Preferred Stock, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all then outstanding shares of the Series B Preferred Stock;
and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series B Preferred Stock, the Corporation will within a reasonable time period make a good
faith effort to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. C. Effect of Conversion. On
any Conversion Date, all rights of any Holder with respect to the shares of the Series B Preferred Stock so converted, including
the rights, if any, to receive distributions of the Corporation’s assets (including, but not limited to, the Liquidation
Preference) or notices from the Corporation, will terminate, except only for the rights of any such Holder to receive certificates
(if applicable) for the number of shares of Common Stock into which such shares of the Series B Preferred Stock have been converted.
Voting:
Series
B Preferred Stock shall be non-voting on any matters requiring shareholder vote.
Dividends:
Series
B Preferred Stock will carry an annual cumulative dividend, compounded monthly, payable solely upon redemption, liquidation or
conversion as agreed to by and between the Corporation and the holder of the Series B Preferred Stock.
Redemption:
The
Series B Preferred Stock shall be redeemable by the Corporation as set forth in the agreement by and between the Corporation and
the holder of the Series B Preferred Stock.
Protective
Provisions:
A.
So long as any shares of Series B Preferred Stock are outstanding, the Corporation will not, without the affirmative approval
of the Holders of a majority of the shares of Series B Preferred Stock then outstanding (voting as a class), (i) alter or change
adversely the powers, preferences or rights given to the Series B Preferred Stock or alter or amend this Certificate of Designations,
(ii) authorize or create any class of stock ranking as to distribution of dividends senior to the Series B Preferred Stock, (iii)
amend its articles of incorporation or other charter documents in breach of any of the provisions hereof, (iv) increase the authorized
number of shares of Series B Preferred Stock, (v) liquidate, dissolve or wind-up the business and affairs of the Corporation,
or effect any Deemed Liquidation Event (as defined below), or (vi) enter into any agreement with respect to any of the foregoing.
B. A “Deemed Liquidation Event” will mean: (a) a merger or consolidation in which the Corporation is a constituent
party or a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant
to such merger or consolidation, except any such merger or consolidation involving the Corporation or a subsidiary in which the
shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent,
or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation,
at least a majority, by voting power, of the capital stock of the surviving or resulting corporation or, if the surviving or resulting
corporation is a wholly-owned subsidiary of another corporation immediately following such merger or consolidation, the parent
corporation of such surviving or resulting corporation; or (b) the sale, lease, transfer, exclusive license or other disposition,
in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially
all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise)
of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken
as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition
is to a wholly owned subsidiary of the Corporation. The Corporation shall not have the power to effect a Deemed Liquidation Event
unless the agreement or plan of merger or consolidation for such transaction provides that the consideration payable to the stockholders
of the Corporation will be allocated among the holders of capital stock of the Corporation in accordance hereof.
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 twelve months ended December 31, 2018, the Company
issued Series B Preferred Stock as follows,
|
●
|
On
January 31, 2018, the Company sold 203,000 shares of Series B Preferred Stock to Geneva Roth Remark Holdings, Inc. (“Geneva”)
in exchange for $203,000 before fees.
|
|
|
|
|
●
|
On
March 20, 2018, Geneva agreed to purchase an additional 63,000 Series B Preferred shares for $63,000 under the same terms
as the initial purchase on January 31, 2018.
|
|
●
|
On
July 31, 2018, Geneva converted 15,000 Series B Preferred shares into 732,783 shares
of common stock. On August 14, 2018, Geneva converted 15,000 Series B Preferred shares
into 1,500,708 shares of common stock. On August 23, 2018, Geneva converted 20,000 Series
B Preferred shares into 2,058,252 shares of common stock. On September 10, 2018, Geneva
converted 25,000 Series B Preferred shares into 4,173,194 shares of common stock. On
September 13, 2018, Geneva converted 25,000 Series B Preferred shares into 4,274,194
shares of common stock. On September 20, 2018, Geneva converted 25,000 Series B Preferred
shares into 5,257,937 shares of common stock. On September 26, 2018, Geneva converted
20,000 Series B Preferred shares into 5,653,333 shares of common stock.
|
|
|
|
|
●
|
On
September 13, 2018, Geneva converted 25,000 Series B Preferred shares into 4,274,194 shares of common stock. On September
20, 2018, Geneva converted 25,000 Series B Preferred shares into 5,257,937 shares of common stock. On September 26, 2018,
Geneva converted 20,000 Series B Preferred shares into 5,653,333 shares of common stock. On September 13, 2018, Geneva
agreed to purchase an additional 68,000 Series B Preferred shares for $63,000 under the same terms as the initial purchase
on January 31, 2018.
|
|
●
|
On
October 1, 2018, Geneva converted 18,600 Series B Preferred shares for 7,302,222 of common
stock. On October 2, 2018, Geneva converted 17,900 Series B Preferred shares for 7,297,692
of common stock. On October 3, 2018, Geneva converted 17,995 Series B Preferred shares
for 7,336,423 of common stock. On October 4, 2018, Geneva converted 5,905 Series
B Preferred shares for 2,407,423 of common stock. On October 4, 2018, Geneva converted
12,000 Series B Preferred shares for 4,892,308 of common stock. On October 8, 2018, Geneva
converted 17,200 Series B Preferred shares for 7,292,800 of common stock. On October
9, 2018, Geneva converted 33,800 Series B Preferred shares for 15,258,624
of common stock.
|
As
of December 31, 2018 $266,000 of principal was reduced and interest of $7,404 through converting 266,000 of Series
B Preferred Stock.
As
of December 31, 2018 and 2017, 68,000 and 0 shares of Series B Preferred Stock were issued and outstanding at $1 par value,
respectively.
Series
C Preferred Stock
The
following summary of the Company’s Series C Preferred Stock is merely a summary, we refer you to our Amended and Restated
Articles of Incorporation and the applicable provisions of the Nevada Revised Statutes for a more complete description of the
rights and liabilities of holders of our securities.
Designation
and Amount:
The
total number of shares of Series C Preferred Stock this Corporation is authorized to issue is two (2) shares, with a stated par
value of $0.00001 per share. The designations, powers, preferences, rights and restrictions granted or imposed upon the Series
C Preferred Stock and holders thereof are as follows unless otherwise agreed to by agreement between the Corporation and the purchasers
of the Series C Preferred Stock. For clarification, issuances of additional authorized shares of Series C Preferred Stock under
the terms herein and as agreed to by and between the Corporation and the holder of such Series C Preferred Stock shall not require
the authorization or approval of the existing shareholders of any other class of preferred stock.
Ranking:
The
Series C Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a)
senior with respect to dividends and right of liquidation with the Corporation’s Common Stock (“Common Stock”),
(b) junior with respect to dividends and right of liquidation with the Corporation’s Series A Preferred Stock and the Corporation’s
Series B Preferred Stock; and (c) junior with respect to dividends and right of liquidation to all existing and future indebtedness
of the Corporation. Without the prior written consent of Holders holding a majority of the outstanding shares of Series C Preferred
Stock, the Corporation may not issue any Preferred Stock that is senior to the Series C Preferred Stock in right of dividends
and liquidation.
Liquidation
Preference:
The
Series C Preferred Stock shall have no liquidation preference.
Conversion:
The
Series C Preferred Stock shall not be convertible.
Voting:
Each
issued and outstanding shares of Series C Preferred Stock shall be entitled to One Billion (1,000,000,000) 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.
Dividends:
Series
C Preferred Stock shall not accrue dividends.
Redemption:
The
Series C Preferred Stock shall not be redeemable by the Corporation.
There
was a single issuance of the Series C Preferred Stock during the years ended December 31, 2018. 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 were issued and outstanding as of December 31, 2018 and zero shares issued as of December
31, 2017.
Series
D Preferred Stock
The
following summary of the Company’s Series D Preferred Stock is merely a summary, we refer you to our Amended and Restated
Articles of Incorporation and the applicable provisions of the Nevada Revised Statutes for a more complete description of the
rights and liabilities of holders of our securities.
Designation
and Amount:
The
total number of shares of Series D Preferred Stock this Corporation 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 Corporation’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 (see below)
Series
D-1 Preferred Stock, on July 2, 2018, the Company entered in to 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.
The
Series D-1 Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank:
(a) senior with respect to dividends and right of liquidation with the Company’s Common Stock, (b) junior with respect to
dividends and right of liquidation with the Company’s Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock; and (c) junior with respect to dividends and right of liquidation to all existing and future indebtedness of the Company.
Until twelve months following the issuance of the shares, without the prior written consent of 100% of the holders of the outstanding
shares of Series D-1 Preferred Stock, the Company may not issue any Preferred Stock that is senior to the Series D-1 Preferred
Stock in right of dividends and liquidation. Without the prior written consent of 100% of the holders of the outstanding shares
of Series D-1 Preferred Stock, the Company may not issue or incur any indebtedness or other obligation to pay month that is convertible
into or exchangeable for shares of Common Stock (or into or for any other security that is convertible into or exchangeable for
shares of Common Stock).
Upon
any liquidation, dissolution or winding-down of the Company, the holders of the shares of Series D-1 Preferred Stock shall be
paid in cash, before any payment shall be paid to the holders of Common Stock, or any other Junior Securities, an amount for each
share of Series D-1 Preferred Stock held by such holder equal to 140% of the Stated Value thereof plus any dividends accrued but
unpaid thereon.
Each
share of Series D-1 Preferred Stock together with accrued but unpaid dividends thereon shall be convertible at the option of the
holder thereof, in whole or in part, at any time, without the payment of additional consideration by the holder thereof, into
such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Stated Value per share being
converted plus accrued and unpaid dividends thereon by the Series D-1 Conversion Price in effect at the time of conversion. The
“Series D-1 Conversion Price” per share of Common Stock shall be the lowest traded price of the Common Stock during
the thirty (30) trading day 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 (subject to adjustment as provided therein).
Series
D-1 Preferred Stock shall be non-voting except on certain major corporate actions or as required by law. In the event of such
a right to vote, each holder of Series D-1 Preferred Stock shall have the right to the number of votes equal to the number of
Conversion Shares then issuable upon conversion of the Series D-1 Preferred Stock held by such holder.
Before
any dividends shall be paid or set aside for payment on any Junior Security of the Company, each holder of the Series D-1 Preferred
Stock shall be entitled to receive dividends, in the manner provided herein, payable on the Stated Value of the Series D-1 Preferred
Stock at a rate of 8% per annum, which shall be cumulative and be due and payable in shares of Common Stock on the Conversion
Date. Such dividends shall accrue from the date of issue of each share of Series D-1 Preferred Stock, whether or not declared.
Shares
of the Series D-1 Preferred Stock shall be redeemable, in whole or in part, at the option of the Company, by resolution of its
Board of Directors, in cash, at any time during the initial 60 calendar day period after the issuance of the respective Series
D-1 Preferred Stock, subject to the Redemption Notice requirements below, at a price per share equal to 125% of the Stated Value
plus the amount of accrued but unpaid dividends thereon, provided, however, that 125% shall be replaced with 140% if the Company
exercises its option to redeem the Series D-1 Preferred Stock after the initial 60 calendar day period.
On
July 2, 2018, the Company reserved of 20,000,000 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 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.
As
of July 20, 2018, with the execution of the Oasis Agreement, the Company issued 311,250 shares of Preferred Series D-1
shares. See terms of this agreement are detailed in subsequent events Footnote 13.
The
Series D-1 Preferred Stock is classified Series D-1 as liability due to the fact that redeemable immediately. As of December
31, 2018, there were 311,250 shares issued and outstanding totaling $622,500 for which was expensed upon issuances as there is
no additional performed criteria. The Company recorded a derivative liability of $700,000 associated with Series D-1 Preferred
Shares.
As
a subsequent event, on January 11, 2019, Oasis Capital converted $16,500 D-1 Preferred shares for 33,000,000 common shares
and again on February 4, 2019 Oasis converted 16,000 Series D-1 Preferred Shares for 28,398,167 common shares. The principal was
reduced by total of $32,500.
Series
D-2 Preferred Stock
As
a subsequent event, 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 “Stated Value”).
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 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 in loans in which had been previously provided. 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 for which were expensed as stock based compensation.
Lastly, 12 ReTech corporation issued 30,846 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.
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.
At
the option of the Holder the Company may be obligated to redeem any un-converted Securities that are not deemed to be incentive
shares and that are not deemed to be settlement shares through the issuance of a “PUT” to the Company. The PUT option
is not effective until after May 31, 2019. To effectuate a PUT, the Holder must serve the Company with a notice of intent to institute
the PUT option. Once served, the Company will have 15 days after which the PUT option will become effective. At the conclusion
of the PUT Notice Period, the Holder may at any time request a redemption of some, part or all of Holder’s un-converted
Securities by providing the Company with a PUT DEMAND. The Company would then be obligated to redeem any undisputed Securities
within 10 business days of receipt of the PUT DEMAND. The Holder may at any time after issuing a PUT NOTICE rescind the PUT option
which could then only be re-instituted through a future PUT NOTICE.
The
Series D-3 Preferred Stock is classified as a liability due to the existence of the PUT. As of December 31, 2018, there
were 54,846 Preferred Series D-3 shares outstanding at $5 par representing a total of $274,230.
Series
D-5 Preferred Stock
As
a subsequent, Series D-5 Preferred Stock was designed 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 shall be $0.00001
per share, and the stated value of each issued share of Series D-5 Preferred Stock shall be deemed to be $4.00 USD. Series D-5
Preferred Stock will carry 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. As a subsequent event, effective February 21, 2019, the Company issued 37,500 shares for 25% minority interest
in the Red Wire Group. See Subsequent Event Footnote. In addition, effective March 14, 2019, the company issued 82,588
shares of the Corporation’s Series D-5 Preferred Stock for 92.5% interest in Rune.
Series
D-6 Preferred Stock
As
a subsequent, Series D-6 Preferred Stock was designated, which consists of one million (1,000,000) shares of stock that are designated
as the Series D-6 Convertible Preferred Stock. The par value of each issued share of Series D-6 Preferred Stock shall be $0.00001
per share, and the stated value of each issued share of Series D-6 Preferred Stock shall be deemed to be $5.00 USD. As a subsequent
event, effective February 21, 2019, the Company issued 54,000 shares for 75% minority interest in the Red Wire Group. See Subsequent
Event Footnote.
Common
Stock
The
Company is authorized to issue 1,000,000,000 shares of common stock at a par value of $0.00001. On March 14, 2019, the
Company increased the authorized Common Shares to 8,000,000,000 (see Note 9).
On
June 27, 2017, pursuant to the Share Exchange Agreement (See Note 1), the Company issued 50,000,000 shares of common stock to
the stockholders of 12HK in exchange for the 12HK Shares. As a result of the reverse acquisition accounting, these shares issued
to the former 12HK stockholders are treated as being outstanding from the date of issuance of the 12HK Shares.
The
50,000,000 shares of common stock consisted of the following;
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●
|
25,000,000
shares of common stock were outstanding as of December 31, 2015 (12HK)
|
|
|
|
|
●
|
During
the year ended December 31, 2016, the Company issued another 25,000,000 shares of common stock in settlement of amounts due
to stockholders totaling $256,000 (Note 7) (12HK)
|
These
50,000,000 12HK shares were exchanged for 50,000,000 12 ReTech shares on June 27, 2017, but are accounted for as if issued
by the Company due to the reverse merger accounting rules.
Subsequent
to June 27, 2017 and during the year ended December 31, 2017, the Company issued common shares as follows;
|
●
|
5,000,000
shares of common stock in connection with the acquisition of 12JP (Note 1)
|
|
|
|
|
●
|
3,807,976
shares of common stock with the acquisition of 12EU (Note 1)
|
|
|
|
|
●
|
2,700,000
shares of commons stock to unrelated parties for services valued at $474,000
|
During
the year ended December 31, 2017, under the terms for the acquisition of 12JP, 5,000,000 shares of common stock beneficially owned
by the Company’s majority stockholder were cancelled (Note 1).
On
July 13, 2017, the Company reached an agreement with a vendor shareholder to return 3,000,000 shares of its common stock to treasury
for cancellation.
As
described above, the Company issued 1,000,000 shares for the acquisition of EAI.
The
Company issued 3,125,000 shares to a stakeholder for total proceeds of $500,000. The Company received $100,000 at issuance and
was to receive $400,000 in payments from June 2018 through October 2018 at the rate of $80,000 per month.
In
June 2018, the same stakeholder as described above, who joined the advisory board in June 2018, purchased an additional 3,125,000
shares at a discounted price of $0.01 per share. As a result of the discount, the Company recognized stock compensation of $218,750.
As
discussed above, the Company issued 469,656,762 shares with the convertible debt and 75,437,927 shares of common
stock were issued as a result of converted Series B Preferred Stock.
The
Company issued 12,157,264 shares to various consultants and recognized stock compensation expense of $579,927 for
both the year ended December 31, 2018. The stocks were issued for services rendered to the Company in the form
of consulting related to various professional services. The Company recorded the fair market value of the consideration
provided over the service period. The fair market value of the common stock was based upon the closing market price of the
Company’s common stock.
The
company has a significant relationship with an independent third party which provides critical professional services to the Company.
This relationship is compensated with a combination of cash and shares.
As
of December 31, 2018 and 2017, 654,251,953 and 82,200,000 shares of common stock were issued and outstanding, respectively.
NOTE
11 - INCOME TAXES
The
Company operates in the United States and its wholly-owned subsidiaries operate in Japan, Hong Kong and Switzerland and files
tax returns in these jurisdictions.
Loss
from continuing operations before income tax expense (benefit) is as follows:
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Tax jurisdiction from:
|
|
|
|
|
|
|
|
|
- US
|
|
$
|
(7,942,359
|
)
|
|
$
|
(792,206
|
)
|
- Foreign
|
|
|
|
|
|
|
|
|
Hong Kong (HK)
|
|
|
(470,131
|
)
|
|
|
(415,435
|
)
|
Japan (JP)
|
|
|
(71,296
|
)
|
|
|
(159,443
|
)
|
Switzerland (EU)
|
|
|
(283,378
|
)
|
|
|
(51,671
|
)
|
Loss before income taxes
|
|
$
|
(8,767,164
|
)
|
|
$
|
(1,418,755
|
)
|
There
was no provision for income taxes for the years ended December 31, 2018 and 2017, as the Company has tax losses in all jurisdictions.
The expected approximate income tax rate for 2018 and 2017, for United States is 21% for (2018) and 34% for (2017), Hong
Kong is 16.5%, Japan is 30%, and Switzerland is 20%, whereas the actual rate was zero. The total income tax benefit differs from
the expected income tax benefit principally due to the valuation allowance recorded against the deferred tax assets which are
principally comprised of net operating losses (“NOLs”).
The
following table sets forth the significant components of the aggregate deferred tax assets of the Company as of December 31, 2018
and 2017:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL carryforwards
|
|
|
|
|
|
|
|
|
United States – current rate
|
|
$
|
961,780
|
|
|
$
|
266,934
|
|
United States – effect of change in statutory rate
|
|
|
-
|
|
|
|
(102,062
|
)
|
-Foreign
|
|
|
569,412
|
|
|
|
337,278
|
|
Total
|
|
|
1,531,192
|
|
|
|
502,150
|
|
Less: valuation allowance
|
|
|
(1,531,192
|
)
|
|
|
(502,150
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
On
December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications
to existing law including lowering the corporate tax rate from 34% to 21%. In addition to applying the new lower corporate tax
rate in 2018 and thereafter to any taxable income we may have, the legislation affects the way we can use and carry forward net
operating losses previously accumulated and results in a revaluation of deferred tax assets and liabilities recorded on our balance
sheet. The Company has completed the accounting for the effects of the Act during the year ended December 31, 2018.
Given that current deferred tax assets are offset by a full valuation allowance, these changes will have no impact on the balance
sheet.
The
Company applies the authoritative accounting guidance under ASC 740 for the recognition, measurement, classification and disclosure
of uncertain tax positions taken or expected to be taken in a tax return. The Company provided a full valuation allowance against
its deferred tax assets as of December 31, 2018 and 2017. This valuation allowance reflects the estimate that it is more likely
than not that the net deferred tax assets may not be realized.
The Company has approximately $7,500,000
of U.S. and foreign carryforwards, the tax effect of which is approximately $1,500,000 as of December 31, 2018. These
carryforwards begin to expire in 2024.
The
U. S. NOL carryforwards are subject to certain limitations due to the change in control of the Company pursuant to Internal Revenue
Code Section 382. The Company has not performed a study to determine if the NOL carryforwards are subject to these Section 382
limitations. In addition, the Company has foreign NOLs. The Company is still evaluating the impact of a change in stock ownership
and the potential limitation of foreign NOLs.
A valuation allowance is recorded on certain
deferred tax assets if it has been determined it is more likely than not that all or a portion of these assets will not be realized.
The Company has recorded a full valuation allowance of $1,531,192 and $502,150 for deferred tax assets existing as of December
31, 2018 and 2017, respectively. The valuation allowance as of December 31, 2018 and 2017 is attributable to NOL
carryforwards in the United States and foreign jurisdictions. There was an increase in the valuation allowance in the year ended
December 31, 2018 of $1,531,192.
The
Company’s tax returns are subject to examination by tax authorities in the U.S., various state and foreign jurisdictions.
The Company is generally no longer subject to examinations for years prior to 2013.
NOTE
12 - COMMITMENTS
The
Company and its subsidiaries have lease commitments as follows:
|
●
|
The
Company is committed to a 12-month lease until December 31, 2018 for office space in New York City at the rates of $2,095
per month
|
|
|
|
|
●
|
12JP
is committed to a two-year lease that expires May 31, 2018 but will automatically renew for 12 additional months at a monthly
lease rate of $715.
|
|
|
|
|
●
|
12HK
rented virtual office space on a yearly lease ended October 1, 2018 for an annual cost of HK $6,216.
|
|
|
|
|
●
|
12
Retail rents office space where it has access to conference rooms on an as needed basis for a fee.
|
|
|
|
|
●
|
EAI
is committed to a three-year lease which ends on March 31, 2021 but can be extended at a cost of $4,000 per month. This is
a triple net lease whereby the tenant pays all repairs, taxes and common area expenses which total about $600 per month. This
lease has annual increase clauses of 3% per year.
|
|
|
|
|
●
|
The
Company has a significant contract with an independent contractor third party company which plays a critical role to the ongoing
operations of the Company. The contract is for an initial period of five years for which can be cancelled upon six month’s
notice and payment of all outstanding fees. The minimum monthly payment is $35,000 for which additional amounts are to be
reimbursed for expenses, etc. During the year ended December 31, 2018, the Company paid $494,473 under the contract to which
an additional $114,985 was payable as of December 31, 2018. The Company relies upon the third party for obtaining financing,
targeting acquisitions, general corporate guidance, financial reporting, etc. See Note 10 for discussion regarding issuances
of Series A and common stock to the third party.
|
Future
minimum annual lease payments as of December 31, 2018 are $82,038 for 2018.
NOTE
13 - SEGMENTS
The
Company does business on three continents (Asia, North America 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 operating 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.
Segment
- Geographic
12 months ended December 31, 2018
|
|
December 31, 2018
|
|
North America
|
|
|
Asia
|
|
|
Europe
|
|
|
Total
|
|
Revenue
|
|
$
|
32,180
|
|
|
$
|
60,613
|
|
|
$
|
38
|
|
|
$
|
92,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
North
America
|
|
|
|
Asia
|
|
|
|
Europe
|
|
|
|
Total
|
|
Fixed assets, net
|
|
$
|
21,666
|
|
|
$
|
72,572
|
|
|
$
|
4,057
|
|
|
$
|
98,295
|
|
Total assets
|
|
$
|
57,550
|
|
|
$
|
39,029
|
|
|
$
|
4,118
|
|
|
$
|
100,697
|
|
12
months ended December 31, 2017
|
|
December
31, 2017
|
|
North
America
|
|
|
Asia
|
|
|
Europe
|
|
|
Total
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
60,787
|
|
|
$
|
-
|
|
|
$
|
60,787
|
|
Cost
of revenues
|
|
$
|
-
|
|
|
$
|
49,586
|
|
|
$
|
-
|
|
|
$
|
49,586
|
|
Operating
expense
|
|
$
|
732,965
|
|
|
$
|
576,728
|
|
|
$
|
44,922
|
|
|
$
|
1,354,615
|
|
Depreciation
|
|
$
|
-
|
|
|
$
|
9,351
|
|
|
$
|
6,749
|
|
|
$
|
16,100
|
|
Operating
loss
|
|
$
|
(732,965
|
)
|
|
$
|
(574,878
|
)
|
|
$
|
(51,671
|
)
|
|
$
|
(1,359,514
|
)
|
Other
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
59,241
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
59,241
|
|
Net
loss
|
|
$
|
(792,206
|
)
|
|
$
|
(574,878
|
)
|
|
$
|
(51,671
|
)
|
|
$
|
(1,418,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2017
|
|
|
North
America
|
|
|
|
Asia
|
|
|
|
Europe
|
|
|
|
Total
|
|
Fixed
assets, net
|
|
$
|
-
|
|
|
$
|
7,383
|
|
|
$
|
1,232
|
|
|
$
|
8,615
|
|
Total
assets
|
|
$
|
20,394
|
|
|
$
|
84,206
|
|
|
$
|
27,886
|
|
|
$
|
132,486
|
|
NOTE
14 – SUBSEQUENT EVENTS
The
Company evaluated all events and transactions that occurred after December 31, 2018 and through the date of this filing in accordance
with FASB ASC 855, “Subsequent Events”. The Company determined that it does have a material subsequent events to disclose
as follows;
Subsequent
Events:
-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.
-On
January 15, 2019, the Company executed a front end 10% convertible note with LG Capital Funding, LLC at face value of $115,000
and received net proceeds of $104,339.40 The note is convertible after 181 days at a (i) $0.0075 ceiling or (ii) 60% of the lowest
trading price over the past twenty trading days prior to the conversion date.
-On
January 14, 2019, 12 ReTech Corp., a Nevada corporation (the “Corporation”) entered into an Exchange of Equity Agreement
(the “Exchange Agreement”) by and among Red Wire Group, LLC, a Utah limited liability Company (“Red Wire”)
and the members of Red Wire (the “Members”). Pursuant to the terms of the Exchange Agreement, at closing the Corporation
will acquire (i) 75% of the membership interests of Red Wire in exchange for 54,000 shares of the Corporation’s Series D-6
Preferred Stock and (ii) the remaining 25% of the membership interests of Red Wire in exchange for 37,500 shares of the Corporation’s
Series D-5 Preferred Stock.
The
conversion of the Series D-6 Preferred Stock is subject to a leak-out provision whereby the Member has the right but not the obligation
to convert a maximum of twenty-five percent (25%) or no greater than 13,500 shares of Series D-6 Preferred Stock after the 6-month
anniversary of closing and thereafter an additional quantity of no greater than 13,500 shares of Series D-6 Preferred Stock every
six months until all shares of Series D-6 Preferred Stock that are owned by Member have been converted. All Conversions, if any,
are at Market Price with no discount to Market. The conversion of Series D-5 Preferred Stock is available after the 6-month anniversary
of closing, subject to the Corporation’s right of first refusal to purchase the Members’ Series D-5 Preferred Stock
at face value plus accrued dividends within 10 days of receipt of said Members’ notice of exercise of the conversion rights
of the Series D-5 Preferred Stock. The Members holding Series D-5 Preferred Stock have the right but not the obligation to exercise
a put option back to the Corporation or its assignee for any remaining unconverted Series D-5 Preferred Stock at nine months after
closing in the amount of $150,000 in the aggregate less any proceeds from the converted and sold shares that the Members holding
Series D-5 Preferred Stock had received from any conversions. The Corporation will have 30 days from receipt of a PUT demand
to repurchase all such tendered shares. This PUT option expires if unexercised 12 months after closing of the Exchange
Agreement. All conversions, if any, are at Market Price with no discount to Market.
In
no event shall any Member, together with their affiliates, own or have a right to receive more than 9.99% of the issued and outstanding
shares of the Corporation’s common stock at any given time.
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 Corporation’s Current Report on Form 8-K and exhibits attached thereto previously filed with
the Securities and Exchange Commission on January 11, 2019.
Red
Wire will continue its operations uninterrupted following the closing and will retain key employees. The Exchange Agreement includes
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 Exchange Agreement may also be terminated by mutual consent of the parties.
-
On
Feb 8, 2019, 12 ReTech Corp., a Nevada corporation (the “Corporation”) entered into an Exchange of Equity Agreement
(the “Exchange Agreement”) by and among Rune NYC, LLC, a New York limited liability Company (“Rune”)
and the members of Rune (the “Members”). The terms of which allowed the individual members of Rune to individually
tender their interests for a period of time before the Exchange Agreement became effective. In order to be effective at least
51% of the membership interests needed to agree to tender to the Corporation. As of Tuesday, February 19, 2019 members representing
92.5% of the membership interests have agreed to tender their interests to the Corporation, and the Corporation closed
out the tender offer period and the Exchange Agreement became effective. Accordingly, pursuant to the terms of the Exchange Agreement,
at closing the Corporation will acquire 92.5% of the membership interests of Rune in exchange for 82,588 shares of the Corporation’s
Series D-5 Preferred Stock.
All
Conversions of the Series D-5 Preferred Stock, if any, are at Market Price with no discount to Market.
The
conversion of Series D-5 Preferred Stock is available after the 6-month anniversary of closing.
In
no event shall any Member, together with their affiliates, own or have a right to receive more than 9.99% of the issued and outstanding
shares of the Corporation’s common stock at any given time.
The
powers, preferences and rights, and the qualifications, limitations and restrictions of the Series D-5 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
will continue its operations uninterrupted following the closing and will retain key employees. The Exchange Agreement includes
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 Exchange Agreement may also be terminated by mutual consent of the parties.
- As a subsequent event on February
7, 2019 the Company executed a front end 10% convertible note with Adar Alef, LLC at face value of 132,720 and received net proceeds
of $126,400. The note is convertible after 181 days at a (i) $0.0075 ceiling or (ii) 60% of the lowest trading price over the
past twenty trading days prior to the conversion date.
- As a subsequent event on February
19, 2019 Adar Alef, LLC funded their back end 10% convertible note at face value of $64,500 with net proceeds to the Company of
$58,400 The backend note is convertible after 181 days past the November 11, 2018 date of the corresponding front end note at
a (i) $0.0075 ceiling or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion date.
- As a subsequent event on February 19, 2019
the Company executed a front end 10% convertible note with LG Capital Funding, LLC at face value of $55,125 and received net proceeds
of $50,000. The note is convertible after 181 days at a (i) $0.0075 ceiling or (ii) 60% of the lowest trading price over the past
twenty trading days prior to the conversion date.
- As a subsequent event on March 13,
2019 the LG Capital Funding, LLC funded their back end 10% convertible note at face value of $55,125 with net proceeds to the
Company of $52,500 The backend note is convertible after 181 days past the February 19, 2019 date of the corresponding front end
note at a (i) $0.0075 ceiling or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion
date.
-As
a subsequent event on March 8, 2018, the Company filed with the State of Nevada an Amendment to its Articles of Incorporation
that increased it authorized common shares from One billion to eight billion common shares authorized.
-
As a subsequent event on March 14, 2019, the Company entered into a PIPE Equity Purchase Agreement whereby an institutional investor
agreed to purchase up to $500,000 worth of the Company’s D-2 Preferred Shares with a $2.00 face value at to be determined
discount to face value. Concurrent with the execution of this Agreement, the Company sold 103,500 preferred D-2 Preferred Shares
and received net proceeds after expenses of $100,000 (Tranche #1). The D-2 Preferred Shares are convertible to common shares after
a 6 month or more holding period at market price. (See Form 8-K filed on March 20, 2019).
-
As a subsequent Event concurrent with the execution of the PIPE Funding Agreement the Company executed an Exchange Agreement with
the same institution investor whereby that investor exchange all of its Series D-1 preferred shares for newly issued Series D-2
Preferred Shares. (See Form 8-K filed on March 20, 2019).
-
As a subsequent event and in connection with the with PIPE Funding Agreement and the Exchange Agreement listed above the
Company field with the State of Nevada a new Certificate of Designation which took 2.5 million of the blank check preferred
shares the Company has and designated them as Series D-2 Preferred Shares. (See Form 8-K filed on March 20, 2019).