UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

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

 

FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2020

 

OR

 

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

 

Commission file number: 000-55915

 

12 ReTech Corporation

(Exact name of registrant as specified in its charter)

 

Nevada   38-3954047

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

515 E, Grant St.

Suite 515

Phoenix, Arizona

 

 

 

85004

(Address of principal executive offices)   (Zip Code)

 

530-539-4329

Registrant’s telephone number

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]
     
Non-accelerated filer [  ]   Smaller reporting company [X]
     
    Emerging Growth Company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on
which registered
Common Shares   RETC   OTC: PINK

 

The number of shares of common stock ($0.00001 par value) outstanding as of June 1, 2021 was 5,593,994,474.

 

 

 

 

 

 

12 RETECH CORPORATION

FOR THE THREE AND SIX MONTHS ENDED

June 30, 2020

 

Index to Report

 

    Page
PART I FINANCIAL STATEMENTS (unaudited) 4
     
Item 1. Condensed Consolidated Balance Sheets 4
  Condensed Consolidated Statements of Operations and Comprehensive Loss 5
  Condensed Consolidated Statements of Stockholders Deficit 6
  Condensed Consolidated Statements of Cash Flow 7
  Notes to Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
Item 3. Quantitative and Qualitative Disclosures About Market Risk 36
Item 4. Controls and Procedures 37
     
PART II OTHER INFORMATION 39
     
Item 1. Legal Proceedings 39
Item 1A. Risks Factors 40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 41
Item 3. Defaults Upon Senior Securities 41
Item 4. Other Information 41
Item 5. Exhibits 41

 

2

 

 

FORWARD-LOOKING STATEMENTS

 

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

 

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

 

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

 

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

the unavailability of funds for capital expenditures.

 

- Our lack of cash due to the shutdown of operations due to the pandemic.

 

- Our late disclosure filings caused by a lack of funding due to the impact of the pandemic on our operations.

 

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

 

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

 

3

 

 

PART I

 

ITEM 1. FINANCIAL STATEMENTS

 

12 ReTech Corporation

Condensed Consolidated Balance Sheets

(unaudited)

 

    June 30,     December 31,  
    2020     2019  
ASSETS                
Current Assets:                
Cash and cash equivalents   $ 67,665     $ 118,860  
Accounts receivable     10,711       131,605  
Inventory     156,355       241,987  
Prepaid expenses     11,100       7,600  
Total Current Assets     245,831       500,051  
                 
Fixed assets, net     229,732       348,396  
ROU Asset     152,519       303,071  
Other Asset     102,343       179,100  
Security deposit     194,143       60,824  
TOTAL ASSETS   $ 924,568     $ 1,391,442  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current Liabilities:                
Accounts payable and accrued liabilities   $ 2,732,451     $ 2,167,496  
Due to stockholders     383,627       384,091  
Related Party Notes payable, net of discounts     31,000       346,000  
Convertible notes payable, net of discounts     1,278,486       1,308,092  
Derivative liabilities     14,101,095       5,359,442  
General default reserve     2,006,744       1,769,791  
Lease liability     99,025       245,207  
Bank loans     249,937       233,250  
Merchant cash advances, net of discounts     412,612       472,829  
Total Current Liabilities     21,294,976       12,286,198  
                 
Lease Liability     59,372       59,372  
PPP Loan     294,882          
Total Long - Term Liabilities     354,254       59,372  
                 
Total Liabilities     21,649,230       12,345,570  
                 
Commitments and Contingencies                
Series B Preferred Stock, 1,000,000 shares designated; $0.00001 par value, $1.00 stated value; 170,400 shares and 121,000 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively. Liquidation preference $170,400     170,400       121,000  
Series D-1 Preferred Stock, 500,000 shares designated; $0.00001 par value $2.00 stated value; 0 shares issued and outstanding at June 30, 2020 and December 31, 2019. Liquidation preference $0 as of June 30, 2020     -       -  
Series D-2 Preferred Stock, 2,500,000 shares designated; $0.00001 par value, $2.00 stated value; 919,868 shares and 935,368 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively. Liquidation preference $2,511,548     2,511,548       2,442,542  
Series D-3 Preferred Stock, 500,000 shares designated; $0.00001 par value $5.00 stated value; 54,840 shares issued and outstanding at June 30, 2020 and December 31, 2019. Liquidation preference $274,234     274,234       274,234  
                 
Stockholders’ Deficit:                
Preferred stock: 50,000,000 authorized; $0.00001 par value:                
Series A Preferred Stock, 10,000,000 shares designated; $0.00001 par value; 9,183,816 and 9,183,816 shares issued and outstanding at June 30, 2020 and December 31, 2019     92       92  
Series C Preferred Stock, 2 share designated; $0.00001 par value; 1 shares issued and outstanding at June 30, 2020 and December 31, 2019     1       1  
Series D-5 Preferred Stock, 1,000,000 shares designated; $0.00001 par value, $4.00 stated value; 128,494 shares and 0 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively     513,976       513,976  
Series D-6 Preferred Stock, 1,000,000 shares designated; $0.00001 par value $5.00 stated value; 104,680 shares issued and outstanding at June 30, 2020 and December 31, 2019.     523,400       523,400  
Common stock: 8,000,000,000 authorized, $0.00001 par value; 755,657,804 and 36,935,303 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively     7,553       369  
Additional paid-in capital     9,055,279       8,341,811  
Minority interest     (567,573 )     (412,753 )
Accumulated other comprehensive income     (1,496 )     (2,455 )
Accumulated deficit     (33,212,076 )     (22,756,345 )
Total Stockholders’ Deficit     (23,680,844 )     (13,791,904 )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 924,568     $ 1,391,442  

 

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

 

4

 

 

12 ReTech Corporation

Condensed Consolidated Statements of Operations

(unaudited)

 

    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2020     2019     2020     2019  
                         
Revenues   $ 114,974     $ 238,131     $ 522,762     $ 459,260  
Cost of revenue     75,769       165,480       271,161       313,378  
Gross Profit     39,205       72,651       251,601       145,882  
                                 
Operating Expenses                                
General and administrative   $ 351,717     $ 301,409     $ 1,058,573     $ 767,543  
Professional fees     142,794       279,577       334,502       529,498  
Depreciation     76,156       5,497       195,422       11,122  
Impairment loss     -       -       -       -  
Total Operating Expenses     570,667       586,383       1,588,497       1,308,163  
                                 
Loss from operations     (531,462 )     (513,732 )     (1,336,896 )     (1,162,281 )
                                 
Other Expense                                
Other income   $ (14,324 )   $ 220     $ 199,166     $ 7,650  
Reserve Expense     (103,386 )     (1,545,174 )     (224,553 )     (1,545,174 )
Loss on debt extension     -       -       -       -  
Interest expense     (100,788 )     (5,352,564 )     (236,587 )     (6,099,644 )
Loss on exchange of equity instruments     -       (132,812 )     -       (132,812 )
Loss on impairment of goodwill     -       -       -       -  
Loss on impairment of software development cost     -       (513,601 )     -       (513,601 )
Gain/loss on derivative liability     1,505,242       (653,170 )     (9,011,680 )     (968,579 )
Net Other Income (Expense)     1,286,744       (8,197,102 )     (9,273,654 )     (9,252,160 )
                                 
Net Loss   755,282       (8,710,834 )     (10,610,550 )     (10,414,441 )
                                 
Deemed Dividend - Preferred Stock             -               (11,419 )
                                 
Net Loss   $ 755,282     $ (8,710,834 )   $ (10,610,550 )   $ (10,425,860 )
                                 
Comprehensive loss: Net Loss   $ 755,282     $ (8,710,834 )   $ (10,610,550 )   $ (10,437,279 )
                                 
Other comprehensive income- foreign currency translation adjustment     21       (12,053 )     959       (11,419 )
                                 
Comprehensive Loss   $ 755,303     $ (8,722,887 )   $ (10,609,591 )   $ (10,437,279 )
                                 
Minority Interest   $ (102,438 )   $ (4,464 )   $ (154,819 )   $ (4,594 )
                                 
Net Loss to 12 ReTech Corporation     857,741       (8,718,423 )     (10,454,772 )     (10,432,685 )
                                 
Net Loss Per Common Share: Basic and Diluted   $ 0.00     $ (0.75 )   $ (0.04 )   $ (0.69 )
                                 
Weighted Average Number of Common Shares Outstanding: Basic and Diluted     517,660,296       11,582,511       272,248,774       15,058,330  

 

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

 

5

 

 

12 ReTech Corporation

Condensed Consolidated Statement of Stockholder’s Deficit

Three and six months ended June 30, 2020 and 2019

(unaudited)

 

                                                                Additional           Other           Total  
    Series A Preferred Stock     Series C Preferred Stock     Series D-5 Preferred Stock     Series D-6 Preferred Stock     Common Stock     Paid-in     Minority     Comprehensive     Accumulated     Stockholders’  
    Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Capital     Interest     Income     Deficit     Deficit  
                                                                                           
Balance - December 31, 2018     6,500,000     $ 65       1     $ 1       -     $ -       -     $ -       6,542,520     $ 65     $ 5,330,500     $     $ 1,295     $ (11,180,903 )   $ (5,842,500 )
                                                                                                                         
Common stock issued for conversion of notes payable and accrued interest     -       -       -       -       -       -       -       -       1,898,597       19       183,855       -       -       -       183,874  
Common stock issued for Preferred Shares conversion     -       -       -       -       -       -       -       -       1,500,412       15       97,006       -       -       -       97,021  
Preferred Stock issued with acquisition     -       -       -       -       120,088       480,352       55,600       278,000       -       -       -       30,834       -       -       789,186  
Exchange series A preferred stock for related party and third party liabilities     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Relief of derivative through conversion and issuance of preferred stock derivatives     -       -       -       -       -       -       -       -       -       -       (533,604 )     -       -       -       (533,604 )
Net loss     -       -       -       -       -       -       -       -       -       -       -       (130 )     634       (1,703,477 )     (1,702,975 )
                                                                                                                         
Balance - March 31, 2019     6,500,000       65       1       1       120,088       480,352       55,600       278,000       9,941,529       99       5,077,756       30,704       1,929       (12,884,380 )     (7,008,998 )
                                                                                                                         
Common stock issued for conversion of notes payable and accrued interest     -       -       -       -       -       -       -       -       6,881,349       29       142,720       -       -       -       142,749  
Common stock issued for Preferred Shares conversion     -       -       -       -       -       -       -       -       3,525,330       74       118,053       -       -       -       118,127  
Preferred Stock issued with conversion     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Series D-2 shares exchnage for common stock     -       -       -       -       -       -       -       -       (62,500 )     (1 )     (523,436 )     -       -       -       (523,437 )
Relief of derivative through conversion and issuance of preferred stock derivatives     -       -       -       -       -       -       -       -       -       -       447,925       -       -       -       447,925  
Net loss     -       -       -       -       -       -       -       -       -       -               (4,464 )     (12,053 )     (8,706,369 )     (8,722,887 )
                                                                                                                         
Balance - June 30, 2019     8,529,316       85       1       1       120,088       480,352       55,600       278,000       25,410,374       254       5,263,018       20,302       (10,124 )     (21,590,749 )     (15,546,520 )
                                                                                                                         
Balance - December 31, 2019     9,183,816       92       1       1       128,494       513,976       104,680       523,400       36,935,303       369       8,341,811       (412,753 )     (2,455 )     (22,756,345 )     (13,791,905 )
                                                                                                                         
Common stock issued for conversion of notes payable and accrued interest     -       -       -       -       -       -       -       -       133,414,631       1,332       64,768       -       -       -       66,101  
Common stock issued for Preferred Shares conversion     -       -       -       -       -       -       -       -       25,642,105       255       10,643       -       -       -       10,898  
Series D-2 shares exchanged for common stock     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Preferred shares issued for Cash     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Preferred shares issued for compensation     -       -       -       -       -       -       -       -       -       -       (1,930 )     -       -       -       (1,930 )
Relief of derivative through conversion and issuance of preferred stock derivatives     -       -       -       -       -       -       -       -       -       -               -       -       -       -  
Dividends     -       -       -       -       -       -       -       -       -       -       306,837       -       -       -       306,837  
Net loss     -       -       -       -       -       -       -       -       -       -       146,290       (52,381 )     938       (11,313,452 )     (11,218,605 )
                                                                                                                         
Balance March 31, 2020     9,183,816       92       1       1       128,494       513,976       104,680       523,400       195,992,039       1,957       8,868,418       (465,134 )     (1,517 )     (34,069,797 )     (24,628,603 )
                                                                                                                         
Common stock issued for conversion of notes payable and accrued interest     -       -       -       -       -       -       -       -               -       -       -       -       -       -  
Common stock issued for Preferred Shares conversion     -       -       -       -       -       -       -       -       380,165,765       3,803       30,711       -       -       -       34,513  
Series D-2 shares exchanged for common stock     -       -       -       -       -       -       -       -       179,500,000       1,795       18,305       -       -       -       20,099  
Preferred shares issued for Cash     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Preferred shares dividends     -       -       -       -       -       -       -       -       -       -       6,836       -       -       -       6,836  
Relief of derivative through conversion and issuance of preferred stock derivatives     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Dividends     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Net loss     -       -       -       -       -       -       -       -       -       -       131,008       (102,439 )     21       857,721       886,311  
                                                                                                                         
Balance June 30, 2020     9,183,816       92       1       1       128,494       513,976       104,680       523,400       755,657,804       7,555       9,055,279       (567,573 )     (1,496 )     (33,212,076 )     (23,680,844 )

 

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

 

6

 

 

12 ReTech Corporation

Condensed Consolidated Statements of Cash Flow

(unaudited)

 

    Six Months Ended  
    June 30,  
    2020     2019  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net Loss   $ (10,610,550 )   $ (10,414,441 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     195,422       11,122  
Stock based compensation     -       -  
Amortization of debt discount     -       441,950  
Gain/loss on derivative liability and additional interest expense recorded on issuance     9,011,680       6,107,762  
Increase in notes payable and Series D-2 for defaults     224,553       1,545,174  
Excess fair market value of common shares over liabilities settled     101,952       196,711  
Impairment of software development cost             513,601  
Accrual of dividends on preferred stock     13,673       666,626  
Loss on exchange and issuance of preferred stock     -       -  
Right of use lease     4,370       -  
Accounts receivable     120,894       (12,833 )
Prepaid Expenses     (3,500 )     (3,236 )
Inventory     85,632       (6,777 )
Security deposit     -       793  
Other current assets     76,757       107,294  
Accounts payable and accrued liabilities     564,955       510,825  
Net Cash Provided By (Used in) Operating Activities     (214,162 )     (335,429 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
                 
Purchase of property and equipment     399       (18,457 )
Cash received from acquisition     -       12,924  
Cash paid on acquisition     -       (79,937 )
Software development costs     -       (142,483 )
Security deposit     (133,319 )     -  
Net Cash Used in Investing Activities     (132,920 )     (227,953 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds (repayments) from stockholders     (464 )        
Proceeds from convertible notes payable     60,000       427,740  
Proceeds from Series B Preferred Stock     -       135,136  
Repayments of related party notes payable     (15,000 )     -  
Proceeds from merchant financing     -       -  
Payments on merchant financing     (60,217 )     -  
Proceeds from SBA and PPP loans     294,882          
Proceeds from bank loans     16,687       -  
Net Cash Provided by Financing Activities     295,887       562,876  
                 
Effect of Exchange Rate Changes on Cash and Cash Equivalents     959       (11,419 )
                 
Net decrease in cash and cash equivalents     (51,195 )     (506 )
Cash and cash equivalents, beginning of period     118,860       37,721  
Cash and cash equivalents, end of period   $ 67,665     $ 25,796  
                 
Supplemental cash flow information                
Cash paid for interest   $ -     $    
Cash paid for taxes   $ -     $    
                 
Non-cash transactions:                
Discounts on convertible notes payable   $ 9.739     $ 452,528  
Conversions of convertible notes payable, accrued interest and derivatives   $ 100,614     $ 969,411  
Conversion of preferred stock in common stock   $ 30,997     $ 758,352  
Reduction of APIC related to derivative recorded on Preferred Stock in equity   $ -     $ 850,695  
Conversions of Series B and D-2 preferred stock into common stock   $ -     $ 539,157  
Exchange of preferred stock for different series   $ -     $ 1,145,938  
Issuance of Series D-2 for accounts payable   $ -     $ 200,000  

 

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

 

7

 

 

12 RETECH CORPORATION

Notes to the Condensed Consolidated Financial Statements

June 30, 2020

(Unaudited)

 

NOTE 1 - NATURE OF BUSINESS

 

12 ReTech Corporation is a holding company with subsidiaries that develop, sell, and install software that we believe enhance the shopping experience for shoppers and retailers. As a holding company, we also acquire synergistic operating companies that manufacture and sell fashion and other products to other retailers as well as selling these products online. In October 2019, we acquired retail stores in airport terminals and casinos, solidifying us as a true Omni-Channel retailer. Owning our own brick and mortar stores will allow us to deploy our cutting-edge software and Apps in the United States, to demonstrate its effectiveness at attracting shoppers and inducing them to purchase. In our own stores, we plan to test, in real time, new software products which should delight consumers and generate incremental revenues and profits for our stores. If we can show incremental revenues and profits for ourselves, we believe that other retailers may follow our example and deploy our software solutions themselves.

 

With the intended future launch of our social shopping app which is in development in 2021 (see subsequent events), we intend to associate with other retailers on a new shopping platform that will benefit both consumers and retailers in new and exciting ways.

 

During the 4th quarter 2019 and continuing in the first quarter 2020 amid the effects of the pandemic created by COVID-19, the Company chose to consolidate its operations around three operating entities; 12 Tech, Inc., formed in Arizona on December 26, 2019 (“12 Tech”) and 12 Retail Corporation, formed on September 17th, 2017 (“12 Retail”), and the 12 Fashion Group, Inc formed on June 26, 2020.

 

12 Retail operates its own retail outlet(s) as well as those of Bluwire Group, LLC (“Bluwire”), that operates retail stores in airports (mainly in international terminals) and casinos. Because of their locations mainly in international terminals of airports, all Bluwire Company owned stores and all but one royalty store remains closed due to Covid-19. 12 Retail will also serve to demonstrate the effectiveness of the software technology created by 12 Tech in improving revenues and profits for retailers as well as providing access to other retailers through our soon to be launched social shopping app, and through our wholesale fashion business relationships.

 

12 Fashion Group, Inc., an Arizona Corporation, was formed on June 26, 2020, and operates our fashion wholesale and direct to consumer brands, including Rune NYC, Social Sunday, and Red Wire Design, as well as consolidating remaining operations from our other smaller fashion acquisitions.

 

Today, 12 Tech aims to provide technology solutions both online and inside retail brick and mortar that helps retailers acquire customers, reduce overhead expenses, streamline operations, and gain incremental revenues and profits. Existing 12 Tech solutions are deployed mainly in Asia. We are planning to deploy our solutions in the United States retail markets, which serve the world’s largest consumer economy. While we continue to operate in Asia, we have consolidated our international units, which were focused on our technology deployment (“12 Japan” and “12 Europe”), and consolidated our software development company 12 Hong Kong, Ltd (“12 HK”), under 12 Tech to further streamline our own operations.

 

As the retail environment continues to evolve, we as both retailers and technologists, will evolve with it. We believe our developed software, both current and in development, will delight consumers, provide contactless experiential shopping, and assist retailers with the recapture of their revenues as they combat the dual threats of Amazon and Walmart. Our software, once fully deployed and implemented, may provide retailers with another effective online and mobile sales channel besides their current options of Google, Amazon, and/or Facebook/Instagram.

 

As an innovative retail technology company that has been built through acquisitions and ideas, we will continue to search for additional synergistic acquisitions that bring incremental revenues and profitability and/or provide innovative software solutions.

 

8

 

 

Principal subsidiaries 

 

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

 

Name of Company   Place of Incorporation   Date of Incorporation   Acquisition Date  

Attributable Equity

Interest %

    Business
12 Retail Corporation (“12 Retail”)   Arizona, USA   Sept. 18, 2017   Formed by 12 ReTech Corporation     100 %   As a holding Company to execute the Company’s roll up acquisition strategy as well as to penetrate the North American market with our technology to select retailers. Separated into two division: 12 Fashion Group, Inc., and Bluwire Group, LLC.
                         
Red Wire Group, LLC   Utah, USA   July 2, 2015   February 19, 2019     100 %   Operations are consolidated into 12 Fashion Group, and this company is closed, and we filed a Chapter 11 Subsection V on March 6, 2020. This was discharged on or about September 2020 and. is permanently closed
                         
Rune NYC, LLC   New York, USA   Jan 23, 2013   March 14, 2019     92.5 %   Operated by 12 Fashion Group, Inc., an unincorporated division of 12 Retail. Operates contemporary women’s ‘Athleisure’ brand which is primarily sold to retailers.
                         
Bluwire Group, LLC (“Bluwire”)   Florida, USA   Feb 1, 2010   October 1, 2019     60.5 %   A subsidiary of 12 Retail with 12 brick and mortar stores was acquired.
                         
Social Decay, LLC dba Social Sunday (“Social Sunday”)   New Jersey, USA   Sept 24, 2014   November 1, 2019     100 %   Operated by 12 Fashion Group Inc., a division of 12 Retail. Operates a contemporary women’s clothing brand primarily sold to wholesalers.
                         
12 Tech Inc   Arizona, USA   Dec 26,2019   Formed by 12 Retech     100 %   As a holding Company to execute the Company’s technology strategy.
                         
12 Hong Kong Limited (“12HK”)   Hong Kong, China   February 2, 2014   June 27, 2017     100 %   A subsidiary of 12 Tech Inc. Development and sales of technology applications. Services customers in Asia, including Japan.
                         
12 Japan Limited (“12JP”)   Tokyo, Japan   February 12, 2015   July 31, 2017     100 %   A subsidiary of 12 Tech Inc. Consultation and sales of technology applications. As of June 2020, our Japanese customer (s) is serviced by 12 Hong Kong.
                         
12 Europe AG (“12EU”)   Switzerland   August 22, 2013   October 26, 2017     100 %   As of September 2019, this company is closed.
                         
12 Fashion Group Inc   Arizona, USA   June 26, 2020   Formed by 12 Retech     100 %   Formed as a subsidiary of 12 Retech to hold and operate the wholesale and Retail fashion and apparel operations.

 

9

 

 

Reverse Stock Split and increase in authorized shares

 

On October 18, 2019, the Company completed a 100-for-1 reverse common stock split reducing the outstanding common shares to 25,410,391. Upon the stock split, the Company’s authorized common shares of 8,000,000,000 did not change. The reverse split has been retroactively applied to share amounts in these consolidated financial statements. As a subsequent event, as of May 18, 2021 the authorized common stock was increased to 20,000,000,000 shares of common stock.

 

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 interim financial statements have been prepared on a going concern basis which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of June 30, 2020, the Company had a total accumulated deficit totaling $23,680,844 since inception, has not yet generated significant revenue from its operations, and will require additional funds to maintain our operations. As of June 30, 2020, the Company had a working capital deficit of $21,059,145. 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.

 

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. Notes to the unaudited interim condensed consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2018 have been omitted. This report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2019 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on June 18, 2020.

 

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries 12HK, 12JP, 12EU. 12 Retail, Rune NYC, LLC, Red Wire Group, LLC (“RWG”), Bluwire Group, LLC, Social Decay LLC dba Social Sunday (“Social Sunday”) and Emotion Fashion Group which included the brands Emotion Apparel, Inc., Lexi Luu Designs, Inc., Punkz Gear, Skipjack Dive and Dance Wear, Inc. and Cleo VII, Inc. All inter-company accounts and transactions have been eliminated on consolidation. 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. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, stock-based compensation, derivate instruments, accounting for preferred stock, and the valuation of acquired assets and liabilities. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

 

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 $67,665 and $118,860 in cash and cash equivalents as at June 30, 2020 and December 31, 2019, respectively.

 

10

 

 

Revenue Recognition

 

Under Financial Accounting Standards Board (“FASB”) Topic 606, “Revenue from Contacts with Customers” (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation.

 

The Company’s revenue consists primarily of product sales from our retail stores operating in airport terminals and casinos. Revenue for retail customers is recognized upon completion of the transaction in the point-of-sale system and satisfaction of the sale by providing the corresponding inventory at the retail location. Revenue is recognized upon transfer of control of promised products to customers, generally as risk of loss pass, in an amount that reflects the consideration the Company expects to receive in exchange for those products. Shipping and handling costs are expensed as incurred and are included in cost of revenue. Sales taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue.

 

The Company earns ancillary revenue including royalty payments and software licensing fees.

 

Business Combinations

 

The Company accounts for all business combinations in accordance with FASB ASC 805, “Business Combinations” (“ASC 805”), using the acquisition method of accounting. Under this method, assets and liabilities, including any 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 consolidated statements of operations.

 

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. As of June 30, 2020 and December 31, 2019, the Company did not have an allowance for doubtful accounts.

 

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. As of June 30, 2020 and December 31, 2019, all inventory on hand is pursuant to our Bluwire (see Note 4).

 

Goodwill

 

Goodwill represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.

 

11

 

 

Impairment of Long-Lived Assets

 

The Company reviews its long-lived assets (property and equipment) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.

 

Goodwill is tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.

 

As of December 31, 2019, the Company performed its annual impairment test on all reporting units and determined that each unit had indicating factors of impairment due to failure to meet respective sales projections. As a result, the Company fully impaired the goodwill from each 2019 acquisition.

 

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.

 

Financial Instruments and Fair Value Measurements

 

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.

 

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

 

  Level 1 Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.

 

12

 

 

  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. Refer to Note 11 for detail on the derivative liability.

 

Further, 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.

 

Net Loss 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. On October 18, 2019, the Company successfully completed its reverse stock split and reduced its common stock outstanding by a ratio of one hundred for one. Per ASC 505-10, if a reverse split occurs after the date of the latest reported balance sheet but before the release of the financial statements, then such changes in the capital structure must be given retroactive effect in the balance sheet. As such, the reverse split has been retroactively applied to these financial statements.

 

Diluted earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s earnings subject to anti-dilution limitations. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact. For the three months ended June 30, 2020, potentially dilutive common shares consist of common stock issuable upon the conversion of convertible notes payable, Series A Preferred Stock, Series B Preferred Stock, Series D-2 Preferred Stock, Series D-3 Preferred Stock, Series D-5 Preferred Stock and Series D-6 Preferred Stock (using the if converted method). For the three months ended June 30, 2020, potentially dilutive common shares consist of common stock issuable upon the conversion of convertible notes payable, Series A Preferred Stock, Series B Preferred Stock, Series D-2 Preferred Stock and Series D-3 Preferred Stock (using the if converted method).

 

All potentially dilutive securities were excluded from the computation of diluted weighted average number of shares of common stock outstanding as they would have had an anti-dilutive impact. At June 30, 2020, if all dilutive securities were converted the Company would be in excess of their authorized shares of common stock.

 

13

 

 

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 June 30, 2020 and December 31, 2019.

 

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 – ACQUISITIONS

 

Acquisitions

 

Red Wire Group, LLC

 

On February 19, 2019, the Company completed the acquisition of Red Wire Group, LLC. (“RWG”) a Utah limited liability company, pursuant to a share exchange agreement whereby the Company exchanged shares of the Company’s Series D-5 and Series D-6 Preferred Stock for 100% of the outstanding equity of RWG. Pursuant to the terms of the exchange agreement, the Company acquired (i) 75% of the membership interests of RWG in exchange for 54,000 shares of the Company’s Series D-6 Preferred Stock (stated value of $5.00 per share), and (ii) the remaining 25% of the membership interests of RWG in exchange for 37,500 shares of the Company’s Series D-5 Preferred Stock (stated value of $4.00 per share). The total purchase consideration for the RWG acquisition was $450,000, including the fair value of D-5 and D-6 Preferred Stock of $420,000 and $30,000 in cash. RWG’s results of operations have been included in the Company’s operating results for the period from February 1, 2019.

 

The RWG acquisition was accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed. These values are subject to change as we perform additional reviews of our assumptions utilized. For more information, please see filed 2019 10K.

 

March 16, 2020, as part of the Company’s streamlining operations and partially because of COVID-19, the Company filed a Chapter 11 Reorganization of Red Wire Group, LLC. The Company’s 12 Fashion Group continues to service Red Wire Group customers under the trade name Red Wire Design. The bankruptcy was discharged on or about September 2020 and all debts were extinguished. 12 Fashion Group continues to service those customers acquired as well as obtaining new accounts by marketing under the d/b/a Red Wire Designs.

 

14

 

 

Rune NYC, LLC

 

Effective March 14, 2019, the Company completed the acquisition of Rune NYC, LLC (“Rune”), a New York limited liability company, pursuant to a share exchange agreement whereby the Company exchanged shares of the Company’s Series D-5 Preferred Stock for 92.5% of the total outstanding equity of Rune and the members of Rune (the “Members”). The Company issued an aggregate of 82,588 shares of Series D-5 Preferred Stock with a stated value of $4.00 per share, and cash consideration of $49,937, for total purchase consideration of $380,289. Rune’s results of operations have been included in the Company’s operating results for the period from March 1, 2019. For more information, please see 2019 10K.

 

Bluwire Group, LLC

 

On October 1, 2019, the Company completed the acquisition of Bluwire Group, LLC (“Bluwire”), a Florida limited liability company, pursuant to a share exchange agreement whereby the Company exchanged shares of the Company’s Series A Preferred Stock for 60.5% of the outstanding equity of Bluwire. Pursuant to the terms of the exchange agreement, at closing the Company acquired 60.5% of the membership interests of Bluwire in exchange for 500,000 shares of the Company’s Series A Preferred Stock. The total purchase consideration for the Bluwire acquisition was $200,000, the fair value of the Series A Preferred Stock issued. Bluwire’s results of operations have been included in the Company’s operating results for the period from October 1, 2019. For more information, please see company’s 2019 10K.

 

Social Decay, LLC dba Social Sunday

 

On November 20, 2019, the Company completed the acquisition of Social Decay, LLC dba Social Sunday (“Social Sunday”), a New Jersey limited liability company, pursuant to a share exchange agreement whereby the Company exchanged shares of the Company’s Series D-6 Preferred Stock for 100% of the total outstanding equity of Social Sunday and the member of Social Sunday (the “Member”). The Company issued an aggregate of 30,000 shares of Series D-6 Preferred Stock with a stated value of $5.00 per share, and an additional 12,000 shares were issued and held in escrow, for total purchase consideration of $210,000. Social Sunday’s results of operations have been included in the Company’s operating results for the period from November 1, 2019. See company 2019 filed 10K.

 

All acquisitions were accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired, liabilities assumed and fair value of the minority interest. These values are subject to change as we perform additional reviews of our assumptions utilized.

 

15

 

 

NOTE 5 – FIXED ASSETS, NET

 

Fixed assets at June 30, 2020 and December 31, 2019 consisted of the following:

 

    June 30,     December 31,  
    2020     2019  
             
Office equipment   $ 280,966     $ 281,365  
Furniture and equipment     58,118       58,118  
Computer     13,704       13,704  
Technical equipment     27,492       27,492  
Truck     -       -  
Intellectual Property     78,506       78,506  
Machinery             -  
      458,786       458,785  
Less: accumulated depreciation     (229,052 )     (110,388 )
Equipment   $ 229,732     $ 348,396  

 

Depreciation expense for the three months ended June 30, 2020 and 2019 was $76,156 (depreciation and amortization expense) and $5,497, respectively.

 

16

 

 

NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities at June 30, 2020 and December 31, 2019 consisted of the following:

 

    June 30,     December 31,  
    2020     2019  
             
Accounts payable   $ 1,251,677     $ 1,249,740  
Accrued expenses     1,010,646       548,920  
Accrued Salaries     139,300       111,000  
Accrued board of director fees     90,000       30,000  
Accrued interest     240,828       191,836  
    $ 2,732,451     $ 2,167,496  

 

NOTE 7 - DUE TO STOCKHOLDERS

 

Due to stockholders at June 30, 2020 and December 31, 2019 consists of the following:

 

    June 30,     December 31,  
    2020     2019  
Daniel Monteverde     648       1,388  
Angelo Ponzetta     10,443       10,167  
Christoper Burden     172,536       172,536  
Maurice Ojeda     200,000       200,000  
                 
    $ 383,627     $ 384,091  

 

During the three months ended June 30, 2020 and 2019, in connection with the Bluwire acquisition, the Company assumed liabilities to Bluwire’s members, Christopher Burden and Maurice Ojeda, totaling $372,536. The amounts do not incur interest and are due on demand.

 

As of June 30, 2020 and December 31, 2019, accounts payable and accrued liabilities included salaries of $139,300 and $111,000, respectively, and accrued board of director fees of $90,000 and $30,000, respectively.

 

NOTE 8 – NOTES RELATED PARTY PAYABLE

 

As of June 30, 2020 and December 31, 2019, there were two demand notes outstanding totaling $31,000.

 

17

 

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable at June 30, 2020 and December 31, 2019 consists of the following:

 

    June 30,     December 31,  
    2020     2019  
Dated September 15, 2017   $ 324,710     $ 337,653  
Dated December 8, 2017                
Dated December 8, 2017     -       -  
Dated April 25, 2018     40,123       40,123  
Dated September 21, 2018     56,714       56,714  
Dated October 18, 2018     60,000       60,000  
Dated November 28, 2018     33       25,443  
Dated November 28, 2018     30,600       57,870  
Dated November 29, 2018     25,000       25,000  
Dated December 13, 2018     105,000       105,000  
Dated January 15, 2019     115,000       115,000  
Dated February 7, 2019     111,276       132,720  
Dated February 19, 2019     64,500       64,500  
Dated February 19, 2019     55,125       55,125  
Dated March 13, 2019     55,125       55,125  
Dated May 14, 2019     26,500       26,500  
Dated May 17, 2019     27,825       27,825  
Dated August 1, 2019     56,194       56,194  
Dated August 7, 2019     55,125       55,125  
Dated October 3, 2019     5,350       5,350  
Dated October 25, 2019     6,825       6,825  
Dated March 19, 2020     33,600          
Dated March 25, 2020     33,600          
                 
Total convertible notes payable     1,288,226       1,308,092  
                 
Less: Unamortized debt discount     (9,739 )     -  
                 
Total convertible notes     1,278,486       1,308,092  
                 
Less: current portion of convertible notes     1,278,486       1,308,092  
Long-term convertible notes   $ 0     $ (0 )

 

On March 18, 2020 the Company entered into a promissory note agreement with Adar Alef, LLC (“Adar”) for loans totaling $33,600. The consideration to the Company is $30,000 with $3,600 legal fees and OID. 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 March 25, 2020 the Company entered into a promissory note agreement with LG Capital Funding, LLC (“LG”) for loans totaling $33,600. 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.

 

During the three months ended June 30, 2020 and 2019, the Company recognized interest expense of $100,788 and $352,330, respectively, which represented the amortization of original issue discounts and debt discounts. As of December 31, 2019, all original issue and debt discounts pertaining to outstanding convertible notes were fully amortized. As of June 30, 2020, the unamortized debt discount of $9,739 are related to the new convertible notes issued during the first quarter of 2020.

 

During the three months and six months ended June 30, 2020, the Company converted principal and unpaid accrued interest totaling $30,912 and $97,015 into an aggregate of 350,811,919 and 484,226,550 shares of common stock.

 

The Company has twenty-one (21) outstanding convertible notes as of June 30, 2020 with a total outstanding principal of $1,278,486. The 2019 notes mature from January 2020 to May 2020. The 2020 notes mature in September 2020. These notes carry an interest rate ranging between 8% and 12% per annum. The notes carry an original issue discounts ranging between 10% to 25% of the face value of each note.

 

18

 

 

The notes may be converted into shares of the Company’s common stock at any time on or after the occurrence of an event of default. The conversion prices of the notes include 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.

 

For some notes, the Company agreed to pay a one-time interest charge of 9% of the principal amount for each note. The notes may be converted at specified times per the respective agreements. 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 notes, 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 notes 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 180th day.

 

The following table is a rollforward of activity, by each noteholder, for the six months ended June 30, 2020:

 

    Loan Holder   Principal Amount     Date   Maturity   OID & Financing Costs     Balance at 12 31 17     Additions     Payments     Conversion     Balance at 12 31 18     Additions     Payments     Conversion     Balance at 12 31 19     Additions     Payments     Conversion     Balance at 6 30 20
1   SBI Investment   $ 200,000     9/27/2017   3/15/2018             200,000       75,000       (25,000 )     (93,150 )     156,850       -       -       (6,697 )     150,153                 $ (12,942.75 )   137,210
1   SBI Investment   $ 187,500     11/14/2017   5/14/2018             187,500       -       -       -       187,500       -       -       -       187,500                             187,500
2   LG Caputal Funding, LLC   $ 185,292     12/8/2017   6/8/2018     17,646       92,646       92,646       -       (133,032 )     52,260       -       -       (52,260 )     0                             -
3   Cerberus Finance Group Ltd   $ 185,292     12/12/2017   6/8/2018     17,646       92,646       92,646       (25,000 )     (53,183 )     107,109       -       (99,684 )     (7,425 )     -                             -
4   Eagle Equities LLC   $ 50,000     3/15/2018   3/15/2019     2,500       -       50,000       -       (50,000 )     -       -       -       -       -                             -
5   Adar Capital LLC   $ 50,000     3/15/2018   3/15/2019     2,500       -       50,000       -       (50,000 )     -       -       -       -       -                             -
6   Bellridge Capital LP   $ 60,000     5/17/2018   5/17/2019     10,000       -       60,000       -       (44,000 )     16,000       -       -       (16,000 )     -                             -
7   Auctus   $ 100,000     4/27/2018   4/25/2019     10,000       -       100,000       -       (59,877 )     40,123       -       -       -       40,123                             40,123
8   Bellridge Capital LP   $ 60,000     9/17/2018   3/15/2019     10,000       -       60,000       -       -       60,000       -       -       (3,286 )     56,714                             56,714
9   Eagles Equity   $ 50,000     9/21/2018   3/15/2019     2,500       -       50,000       -       (50,000 )     -       -       -       -       -                             -
10   Adar Bay   $ 50,000     10/4/2018   10/4/2018     2,500       -       50,000       -       (50,000 )     -       -       -       -       -                             -
11   Bellridge Capital LP   $ 60,000     10/18/2018   10/18/2019     10,000       -       60,000       -       -       60,000       -       -       -       60,000                             60,000
12   Adar Alef Omnibus   $ 64,500     11/28/2018   11/29/2019     4,125       -       64,500       -       -       64,500       -       -       (39,057 )     25,443                       (25,410 )   33
13   Adar Alef Debt Purchase   $ 25,000     11/28/2018   11/29/2019             -       25,000       -       (25,000 )     -       -       -       -       -                             -
14   LG Capital Omnibus   $ 64,500     11/28/2018   11/29/2019     4,125       -       64,500       -       -       64,500       -       -       (6,630 )     57,870                       (27,270 )   30,600
15   LG Capital Debt Purchase   $ 25,000     11/29/2018   11/29/2018             -       25,000       -       -       25,000       -       -       -       25,000                             25,000
16   LG Capital Omnibus   $ 105,000     12/13/2018   12/14/2019     5,000       -       105,000       -       -       105,000       -       -       -       105,000                             105,000
17   LG Capital Omnibus   $ 115,000     1/15/2019   1/15/2020     5,750       -       -       -       -               115,000       -       -       115,000                             115,000
18   Adar Alef Omnibus   $ 132,720     2/7/2019   2/7/2020     6,000       -       -       -       -               132,720       -       -       132,720                       (21,444 )   111,276
19   Adar Alef Debt Note   $ 108,055     2/7/2019   2/7/2019     8,371       -       -       -       -               108,055       -       (108,056 )     -                             -
20   Adar Alef Omnibus   $ 64,500     2/19/2019   2/19/2020     4,125       -       -       -       -               64,500       -       -       64,500                             64,500
21   LG Capital Omnibus   $ 55,125     2/19/2019   2/19/2020     2,500       -       -       -       -               55,125       -       -       55,125                             55,125
22   LG Capital Omnibus   $ 55,125     3/13/2019   3/13/2020     2,500       -       -       -       -               55,125       -       -       55,125                             55,125
23   Adar Alef Omnibus #2 Back End   $ 26,500     5/14/2019   2/20/2020     1,500       -       -       -       -               26,500       -       -       26,500                             26,500
24   LG Capital Omnibus #5   $ 27,825     5/17/2019   5/15/2020     2,825       -       -       -       -               27,825       -       -       27,825                             27,825
25   Adar Alef Omnibus #2 BE 3rd Tranche   $ 56,194     8/1/2019   2/7/2020     50,000       -       -       -       -               56,194       -       -       56,194                             56,194
26   LG Capital Omnibus #7   $ 55,125     8/6/2019   2/7/2020     50,000       -       -       -       -               55,125       -       -       55,125                             55,125
27   Adar Alef Omnibus #2 BE 4th Tranche   $ 5,350     10/3/2019   2/7/2020     5,000       -       -       -       -               5,350       -       -       5,350                             5,350
28   LG Capital Omnibus #8   $ 6,825     10/25/2019   10/26/2020     5,000       -       -       -       -               6,825       -       -       6,825                             6,825
29   Adar Alef Omnibus #  5th Tranche   $ 33,600     3/19/2020   9/19/2020     3,600                                                                             $ 33,600                     33,600
30   LG Caputal Funding, LLC   $ 33,600     3/25/2020   9/20/2020     3,600                                                                             $ 33,600                     33,600
                                                                                                                             
Convertible note total                         214,021       572,792       1,024,292       (50,000 )     (608,242 )     938,842       708,344       (99,684 )     (239,411 )     1,308,092       67,200                    -       (87,067 )   1,288,225

 

As of December 31, 2019, several notes were past maturity, in default and due on demand. As such, the Company accelerated the amortization of the remaining unamortized original issue and debt discounts. As of June 30, 2020 the notes remained in default and due on demand.

 

The Company calculated a default reserve which represents the additional amount the Company would have to pay to all note holders in the event of the default. Management calculated the amount utilizing additional premiums, accrued interest and default accrued interest as per the agreements. As of June 30, 2020 and December 31, 2019, the Company recorded a general default reserve of $2,006,744 and $1,769,791respectively.

 

NOTE 10 – DERIVATIVE LIABILITIES

 

The Company classified certain conversion features in the convertible notes and preferred stock issued as embedded derivative instruments due to the variable conversion price feature and potential adjustments to conversion prices due to events of default. These conversion features are recorded as derivative liabilities at fair value in the consolidated financial statements. These fair value estimates were measured using inputs classified as Level 3 of the fair value hierarchy. The Company develops unobservable Level 3 inputs using the best information available in the circumstances, which might include its own data, or when it believes inputs based on external data better reflect the data that market participants would use, its bases its inputs on comparison with similar entities. Due to the existence of down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, the Company decided a Lattice-Based Simulation model, which incorporates inputs classified as Level 3 was appropriate.

 

19

 

 

The following table present the assumptions used in Black-Scholes Simulation model to determine the fair value of the derivative liabilities as of June 30, 2020:

 

For the three months ended June 30, 2020:

 

Derivative Liabilities at March 31, 2020   $ 15,737,346  
Additional new conversion option derivatives   $ -  
Conversion of note derivatives   $ (131,008 )
Change in fair value   $ (1,505,242 )
Derivative Liabilities at June 30, 2020     14,101,096  

 

For the six months ended June 30, 2020:

 

Derivative Liabilities at December 31, 2019   $ 5,359,442  
Additional new conversion option derivatives   $ 7,272  
Conversion of note derivatives   $ (277,298 )
Change in fair value   $ 9,011,680  
Derivative Liabilities at June 30, 2020     14,101,096  

 

During the three and six months ended June 30, 2020, the Company recorded new derivative liabilities of $0 and $7,272 related to the issuance of convertible notes payable and Series D-2 Preferred Stock and converted $131,008 and $277,298 in derivative liability to additional paid-in capital due to conversions of notes payable and Series D-2 Preferred Stock into common stock.

 

NOTE 11 – MERCHANT FINANCING

 

On January 4, 2020, the Company’s Rune subsidiary entered into another future receivable purchase agreement with Vox Funding and received $14,500. This agreement provides for payment over 70 business days and carried a fee of $4,850. This obligation is not convertible under any terms into Company stock.

 

On January 24, 2020, the Company’s Social Sunday subsidiary entered into a first future receivable purchase agreement with Vox Funding and received $14,500. This agreement provides for payment over 3.5 months and carried a fee of $4,850. This obligation is not convertible under any terms into Company stock.

 

On March 3, 2020, the Company’s Social Sunday subsidiary entered into a second future receivable purchase agreement with Vox Funding and received $5,605. This agreement provides for payment over 2 months and carried a fee of $1,895. This obligation is not convertible under any terms into Company stock.

 

On March 5, 2020, the Company’s Bluwire subsidiary entered into a second future receivable purchase agreement with Reliant Funding and received $83,000. This agreement provides for payment over 6 months and carries a fee of $3,000. This obligation is not convertible under any terms into Company stock.

 

On March 16, 2020, the President of the United States of America issued a stay-at-home instructions and business closure directive in response to COVID-19 pandemic. Management took steps to promptly close all its Bluwire stores and Fashion Group operations, laying off the vast majority of its employees. The Company’s landlords and Libertas, Vox and Reliant have all agreed to collections deferment of an indeterminant duration (see note above regarding individual agreements). The Fashion Group continues limited operations in creating and producing PPE materials.

 

As a consequence of the Covid-19 shutdowns as of March 16, 2020 the Company’s Bluwire Group subsidiary also suspended making any payments on its Merchant Cash Advance facility to Libertas Funding. Merchant Cash Advances are based on the collection of “future receivables” and with the businesses being closed no future payments were due. Libertas has accepted that position and has voluntarily ceased all collection activity.

 

As of June 30, 2020 the Company had total merchant financing payables of $431,398 with unamortized discounts of $18,786 for net payable of $412,612. As of December 31, 2019 the Company had total merchant financing payables of $631,664 with unamortized discounts of $158,835 for net payable of $472,829.

 

As a subsequent event, in May 2021, the Company entered into a verbal agreement with Vox to repay $250 per week and all collection efforts are put on hold and forbearance on other receivable holders

 

As a subsequent event, the Company entered into a verbal agreement with Reliant Funding has been in forbearance. Since April 2021, and the Company pays $10 per week until Bluwire Newark is re-opened.

 

Additional Working Capital from convertible debt and under the CARES Act.

 

The Federal Government of the United States of America on March 27, 2020, passed the Cares Act allowing companies to quality SBA Payroll Protection Loans (PPP). These loans provide for certain funding based on previous employment which in part may be forgivable under certain conditions. The remaining portion needs to be repaid over 2 years with a 6-month moratorium on payments and carry a 1% annual interest rate. These loans require no collateral nor personal guarantees. During the subsequent period from May 5, 2020 to May 22, 2021, the Company’s subsidiaries quality and received an aggregate of $294,882 in 2020 and $302,602 in 2021 in PPP loans.

 

20

 

 

In the subsequent period beginning in August 2020, two of the Company’s subsidiaries qualified for the United States Small Business Administration (“SBA”) Economic Industry Disaster Loans (“EIDL”) and the Company received $325,300 under the program. These loans are unsecured, have no personal guaranty, carry a 3.75% annual interest rate with aggregate monthly payments of 13 months after receipt of funds. Management has used these funds to retain key personnel, pay regulatory fees, rent, begin work on a new website for Bluwire, make progress on this retail APP and acquire product to re-open one of its Bluwire Stores.

 

Beginning in the subsequent month of December 2020 and continuing , as a further series of subsequent events, the Company’s 12 Retail subsidiary has received short term fundings from a private investor ranging between $30,000 and $50,000 in advances that are paid back and renewed in 45 to 60 day intervals for inventory and special orders for customers.

 

On March 18, 2020, the Company received $30,000 from Adar Alef, LLC (“Adar”) from a $33,600 convertible promissory note agreement including fees and legal expenses of $3,600. 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 March 25, 2020, the Company received $30,000 from LG Capital, LLC (“LG”) from a $33,600 convertible promissory note agreement including fees and legal expenses of $3,600. 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 April 30, 2021 the Company received $30,000 from SBI and an additional $40,000 on May 17, 2021 (see below).

 

On as a subsequent event April 21, 2021 and May 4 2021 the Company received $50,000 from Adar Alef and on June 1st an additional $50,000.

 

On May 6, 2021 the Company received $30,000 as an additional advance from Oasis Capital pursuant to previous agreements with Oasis and on May 13, 2021 an additional $50,000, as subsequent events

 

On May 17, 2021 the Company received an additional $40,000 from SBI, as a subsequent event

 

In May 2021, as a subsequent event, advisory board member, Richard Berman invested $50,000 in exchange for preferred shares with the option to invest a further $100,000 over the next few months.

 

NOTE 12 - STOCKHOLDERS’ DEFICIT

 

Reverse Stock Split

 

On October 18, 2019, the Company completed a 100 for 1 reverse common stock split reducing the outstanding common shares to 25,410,391. As a subsequent event, as of May 18, 2021 the authorized was increased to 20,000,000,000 shares of common 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 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.

 

21

 

 

The Series B Redeemable Convertible Preferred Stock is classified as temporary equity as it is mandatorily redeemable by the holder at a future date. The Series D-1 and D-2 Preferred Stock are classified as temporary equity as they are redeemable immediately. The Series D-3 Preferred Stock is also classified as temporary equity due to its put option, which providers the holders the right to put the shares to the Company for cash if they elect not to convert into shares of common stock.

 

2020 Transactions

 

On January 16, 2020, an existing Series B stockholder purchased 53,000 Series B Preferred shares for proceeds of $53,000 under the same terms as their prior purchases.

 

In June, 2020 the holders of 3,600 shares of Series B Preferred Stock converted these shares for 29,353,846 shares of common stock.

 

During the three and six months ended June 30, 2020, Oasis Capital converted 10,050 and 15,500 Series D-2 Preferred shares with a value of $20,100 and $31,000 into 179,500,000 and 205,142,105 common shares.

 

During the remainder of 2020, the Company converted an aggregate of 7,500 shares of Series D-2 Preferred Stock with a fair value of $15,003 into 150,000,000 shares of common stock.

 

1. As a subsequent event, during the third quarter, 2020 the company issued $12,750 Series A shares in restricted shares to employees under the Employee Restricted Stock Plan.

 

2. As a subsequent event, in December 2020, the company issued $1,250 Series A shares for cash.

 

3. As a subsequent event, in March 2021, the company issued 1,250 Series A shares for cash.

 

4. As a subsequent event, in April 2021, the company issued 1,250 Series A shares for cash.

 

5. As a subsequent event, in April 2021, the company issued 25,000 Series A shares for cash.

 

2019 Transactions

 

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

 

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

 

On March 14, 2019, the Company executed an agreement with Oasis Capital, whereby the Company agreed to exchange the remaining outstanding of Series D-1 Preferred Shares of 282,750 for 282,750 Series D-2 Preferred Shares. In addition, the Company executed an agreement whereby 62,250 outstanding D-1 shares for 62,250 Series D-2 preferred shares in exchange of $100,000. In addition, the Company agreed to pay 1,425 shares of D-2 shares as a finance charge for this agreement. The excess fair value of the shares exchanged was recorded as additional interest expense.

 

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

 

On February 21, 2019, the Company issued 37,500 Series D-5 and 54,00 Series D-6 shares pursuant to the RWG acquisition.

 

On March 14, 2019, the Company issued 82,588 shares of Series D-5 Preferred Stock for a 92.5% interest in Rune.

 

Common Stock

 

2020 Transactions

 

During the three months and six months ended June 30, 2020, LG converted $7,170 and $27,270 of principal and $1,417 and $3,690 of interest of its outstanding convertible note into 90,613,000 and 217,990,427 shares of common stock.

 

During the three months and six months ended June 30, 2020, SBI Investments converted $880 and $10,774 of principal of the outstanding convertible note into 9,780,003 and 27,432,378 shares of common stock.

 

During the three months and six months ended June 30, 2020, Adar Alef converted $21,444 and $40,559 of principal and $4,659 of interest of the outstanding convertible note into 250,418,916 and 334,419,870 shares of common stock.

 

During the three and six months ended June 30, 2020, Oasis Capital converted 10,050 and 15,500 Series D -2 Preferred shares with a value of $16,500 and $27,400 into 179,500,000 and 205,142,105 shares of common stock.

 

During the remainder of 2020, LG converted $8,900 of principal and $3,458 of interest of its outstanding convertible note into 202,356,666 shares of common stock.

 

During the remainder of 2020, SBI Investments converted $6,218 of principal of the outstanding convertible note into 69,089,148 shares of common stock.

 

During the remainder of 2020, Adar Alef did not convert any principal of the outstanding convertible note into shares of common stock.

 

During the remainder of 2020, the Company converted an aggregate of 7,500 shares of Series D-2 Preferred Stock with a fair value of $18,603 into 150,000,000 shares of common stock.

 

22

 

 

2019 Transactions

 

During the three months ended March 31, 2019, the Company converted notes payable including principal and accrued interest of $183,874 into 189,859,704 shares of common stock.

 

During the three months ended March 31, 2019, the Company converted 40,020 Series D-1 Preferred shares and 28,500 Series D-1 Preferred shares into an aggregate of 150,041,209 shares of common stock.

 

NOTE 13 - COMMITMENTS

 

Lease Commitments

 

The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components are recognized when the obligation is probable.

 

Operating lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company’s leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.

 

The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met.

 

Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.

 

Variable lease payments not dependent on a rate or index associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company’s income statement in the same line item as expense arising from fixed lease payments. As of and during the year ended December 31, 2020, management determined that there were no variable lease costs.

 

Right of Use Asset

 

In connection with the Bluwire acquisition, the Company recognized a right of use asset of $152,519. The Company used an effective borrowing rate of 13% within the calculation. The lease agreement matures in August 2021. Minimum remaining rental payments in 2020 and 2021 are $99,059 and $59,372, respectively.

 

Operating Leases

 

The Company and its subsidiaries have various short-term leases that mature in 2020.

 

During the second and third quarters up and until the date of this filing the Company has been making post-Covid moves in closing various historically non-profitable Bluwire locations primarily Denver airport, and one location in JFK international airports, or moving this JFK location inside the terminal, redesigning its signature App for a post Covid world, and renegotiating its minimum base rental commitments for all of its retail stores. In all cases there is a rent moratorium until October 1st, 2020. For the Casino store, we did a soft opening on September 11, 2020 and then closed for a two week period in November 2019 to hire and train new staff and management. The store reopened in full on November 29, 2020 in time for Cyber Monday. Management continues to monitor the situation in our prime airport locations or Newark and Dulles airports for reopening. Base monthly rent on the Mohegan Sun store was $6,916, plus a percentage rent equal to 8% of the gross sales that exceeds $86,450 per month until January 2021. The lease expires on April 14, 2021. This lease has been renegotiated and taken over by a different subsidiary of the company that was able to fully stock the store with inventory. and management believes that it will be successful eliminating the minimum base rental feature in all of its retail locations before that date.

 

As a subsequent event, On August 13, 2020 the Company’s 12 Fashion Group, a division of 12 Retail Corporation, entered into a new office location under a 2 year lease with an option for a third year beginning on August 17, 2020. This new location is 1600 square feet and caries a base monthly rent of $5651.30 plus a pro-rated expenses for garbage and utilities of $743. Management believes that this additional space is necessary to manage the consolidation of its fashion brands.