UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

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

 

For the fiscal year ended December 31, 2020

 

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 150

Phoenix, AZ

  85004
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number: 530-539-4329

 

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

 

none

 

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

 

Common Stock, par value $.00001 per share

 

(Title of Class)

 

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

Yes [  ] No [X]

 

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

Yes [  ] No [X]

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

DOCUMENTS INCORPORATED BY REFERENCE: None.

 

 

 

 

 

 

12 RETECH CORPORATION

FOR THE YEAR ENDED

DECEMBER 31, 2020

 

Index to Report

 

    Page
PART I    
     
Item 1. Business 4
Item 1A. Risk Factors 13
Item 2. Properties 18
Item 3. Legal Proceedings 19
     
PART II    
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 20
Item 6. Selected Financial Data 21
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 32
Item 8. Financial Statements and Supplementary Data 33
Item 9. Controls and Procedures 34
     
PART III    
     
Item 10. Directors, Executive Officers, and Corporate Governance 36
Item 11. Executive Compensation 40
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 43
Item 13. Certain Relationships and Related Transactions, and Director Independence 46
Item 14. Principal Accounting Fees and Services 47
     
PART IV    
     
Item 15. Exhibits and Financial Statement Schedules 48

 

2

 

 

FORWARD-LOOKING STATEMENTS

 

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

 

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

 

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

 

  - our current lack of working capital;
     
  - inability to raise additional financing;
     
  - the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;
     
  - deterioration in general or regional economic conditions;
     
  - adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
     
  - inability to efficiently manage our operations;
     
  - inability to achieve future sales levels or other operating results; and
     
  - the unavailability of funds for capital expenditures.
     
  - Underestimating the long-term effects of the COVID-19 pandemic to our business.
     
  - The failure of shoppers to return to old shopping habits and buying patterns due to the disruption from COVID-19.
     
  - The failure of the economy to recover such that unemployment declines significantly enough.

 

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

 

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

 

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PART I

 

ITEM 1. 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.

 

The Opportunity:

 

Brick and mortar retailers continue to struggle against online competition and the largest big box retailers. This struggle was not made any easier with the advent of the COVID-19 pandemic in 2020. We believe the enforced lock-down and social distancing restrictions will change consumer behaviors, maybe permanently, in ways that no one could have predicted in 2019.

 

Throughout history, great change also provides great opportunity. 12 ReTech believes that our software solutions for business will provide effective tools that businesses can and will use to entice consumers back to their businesses to purchase products and services in new ways. As restrictions become more and more a part of the new normal, consumers will be anxious to get out of their homes to enjoy life again. We believe that each business must provide information and resources to allow consumers to feel safe shopping in stores, dining in restaurants and traveling.

 

4

 

 

Management believes that consumers will want assurances that the business has taken steps to ensure their safety and protect them from COVID-19, the flu, and the next virus that may come along, but they will want to be engaged and find their shopping, dining, and travel to also be experiential, entertaining, fun, and safe.

 

Businesses will need to be able to contact and engage with consumers from a distance, whether at their homes, offices (to a lesser extent), online, and through mobile apps, as well as in their physical stores. We believe that our technology solutions allow consumers to get product or service information, share their choices with their social network, and purchase or reserve products and services in physical locations and online, so consumers can choose to be contactless.

 

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

 

Management believes that the fallout from COVID-19 will provide a tremendous opportunity for those developers, like our Company, that quickly adapt their software and create new applications to provide solutions that consumers and business need. While businesses were reluctant to change before this pandemic, they are all now forced to look for new solutions, which we intend to provide. Many of our applications, with some additional development, as well as new software solutions, will quickly solve these problems. For example:

 

We were contactless before it was cool!™ In 2018, we launched our 12 Sconti App in Europe which, among other things, allowed the consumers to receive offers from participating nearby retailers that the consumer could purchase right from their smart phone, walk into the retailer and pick up their goods, just by showing their QR code. What we learned from this app is being applied to our new social shopping app, which is now in development.

 

Our Acquisition Strategy:

 

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

 

We now target for acquisition those companies with at least $3 million in annual sales, that have existing management teams which complement our own. We will also acquire smaller companies that, when added to our own, allows us to leverage our existing operations without significantly increasing our costs. Other candidates would be companies with existing software for our technology subsidiary or companies where we can demonstrate the effectiveness of our technology. We are, of course, always looking to acquire larger companies or brands. We in fact have been and are still in talks with larger entities, but these are our minimum requirements.

 

5

 

 

Our Technology Rollout Strategy:

 

Our subsidiary 12 Tech has, through 12 Japan and 12 Hong Kong, already deployed and tested our existing USXS software applications at ITOYA LTD in Japan. Using the knowledge that we gained from that real-world experience and adapting it to the post COVID-19 reality, we have begun to demonstrate some of our solutions in the United States of America.

 

During 2021, as the U.S. beings to re-open, we plan to deploy our technology in our retail stores. By demonstrating the lift that our technology achieves, we will then use our relationships that have been developed from our fashion brands to approach other businesses with this information to license the software to them. However, until we launch our new social shopping app with features to allow users to interact with our screens, our existing technology will not be very effective as we believe that post Covid most consumers will be reluctant to touch a public touch screen.

 

In the fourth quarter of 2021, we plan to announce and launch our new consumer-based social shopping mobile App that any consumer-based business can subscribe to in order to reach and interact with consumers easily in fun and innovative ways, and especially contactless.

 

For more information about our individual software technology offerings visit our website for the most up-to date information at www.12retech.com

 

Our intellectual property:

 

The Company’s intellectual property consists of the logos, trademarks, Universal Resource Locator(s) (URLs), software applications, signage, proprietary processes and procedures, exclusive software licenses from others, functional specifications, software, hundreds of fashion patterns owned by the parent as well as its subsidiaries.

 

In addition, the Company’s Bluwire Group subsidiary licenses its name, trademark, and proprietary store processes to two external licensees who each operate two stores in airport terminals (Minneapolis-St. Paul and John F. Kennedy airports).

 

As of the date of this report, the Company owns many Universal Resource Locator(s) (URLs) including but not limited to:

 

-www.12retech.com

-www.12japan.jp

-www.12hongkong.com

-www.12europe.com

-www.12retail.com

-www.12sconti.com

-www.12fgrp.com

-www.lexiludancewear.com

-www.lexiluudancewear.com

-www.emotionfashiongroup.com

-www.emotionfashions.com

-www.redwire.design

-www.runenyc.com

-www.bluwireonline.com

-www.bluwire.shop

-www.socialsunday.com

 

Future Intellectual Property Strategy

 

The Company intends to continue its development of its technologies and will continue to apply for patents for future product developments including our social shopping app now in development. The Company’s strategy is to protect the technologies with patents in Europe, the United States, and Japan. Following product development, each product, based on the technologies, will be further protected individually by new patent filings worldwide.

 

6

 

 

History & Significant Events:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

- On September 17, 2017, the Company formed 12 Retail Corporation an Arizona corporation, to be a holding company for its operating companies in retail and fashion.

 

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

 

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

 

- On October 30, 2017, Richard J. Berman joined the advisory board.

 

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

 

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

 

7

 

 

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

 

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

 

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

 

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

 

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

 

- In June 2018, Dominic D’Alleva joined the advisory board. In conjunction with his advisory board position, 12 ReTech issued 3,125,000 shares to him on July 19, 2018.

 

8

 

 

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

 

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

 

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

 

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

 

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

 

9

 

 

- On September 29, 2018, the Company issued a total of 54,840 shares of our Series D-3 Preferred Shares to a related party at a price of $5 par value in exchange for various considerations as discussed in the Notes section of this filing.

 

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

 

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

 

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

 

-On January 14, 2019, the Company acquired Red Wire Group, LLC a Utah limited liability Company (“Red Wire”) pursuant to an Exchange of Equity Agreement (the “Exchange Agreement”) with the members of Red Wire (the “Members) in exchange for (i) 75% of the membership interests of Red Wire in exchange for 54,000 shares of the Corporation’s Series D-6 Preferred Stock and (ii) the remaining 25% of the membership interests of Red Wire in exchange for 37,500 shares of the Corporation’s Series D-5 Preferred Stock.

 

-On February 19, 2019, the Company acquired 92.5% of the membership interest Rune NYC, LLC, a New York limited liability Company (“Rune”) in exchange for 82,588 shares of the Corporation’s Series D-5 Preferred Stock pursuant to an Exchange of Equity Agreement.

 

- On March 8, 2019, the Company increased its authorized shares of common stock from 1 billion (1,000,000,000) shares to 8 billion (8,000,000,000) shares pursuant to the effectiveness of its filed Form 14C.

 

- On March 14, 2019, the Company entered into a PIPE Equity Purchase Agreement whereby an institutional investor agreed to purchase up to $500,000 worth of the Company’s D-2 Preferred Shares with a $2.00 face value and purchase at a discount to face value. In the first tranche, the Company sold 103,500 D-2 Preferred Shares and received net proceeds after expenses of $100,000. The D-2 Preferred Shares are convertible to common shares after a 6 month or longer holding period at market price. (See Form 8-K filed on March 20, 2019). Concurrent with the execution of the PIPE Equity Purchase Agreement, the Company executed an Exchange Agreement with the same institution investor allowing that investor to exchange all its Series D-1 Preferred Shares for newly issued Series D-2 Preferred Shares. (See Form 8-K filed on March 20, 2019). The Company then filed with the State of Nevada a new Certificate of Designation authorizing 2.5 million Series D-2 Preferred Shares from their blank check Preferred Shares. (See Form 8-K filed on March 20, 2019).

 

- On August 20, 2019, the Company had successfully discharged all of its debts associated with 12 Europe A.G., as part of the completion of the 12 Europe A.G., bankruptcy filing except for certain social benefit payments still owed of approximately $35K by the Company.

 

10

 

 

- Beginning in the third quarter 2019 continuing in 2020, the Company began to consolidate and streamline its operations. The first step, on September 30, 2019, the Company foreclosed on its liens on E-motion Apparel Inc., taking possession of assets and brands and returning E-motion Apparel, Inc. equity to the Seller. This action resulted in the Company recognized other income of $511,489 which is discussed in further detail in the Notes of this filing.

 

- On October 1, 2019, the Company acquired 51% of Bluwire Group, LLC a Florida limited liability company, a retailer with 11 airport terminal locations and one casino location under an equity exchange agreement. The Company issued 500,000 of its Series A Preferred Shares to the sellers, who retained 30% of Bluwire. Nineteen percent (19%) is reserved for 12 months for potential equity investors into Bluwire. Any of the equity not used to raise capital for Bluwire over that period would be divided equally between the Company and the Sellers. The Sellers will continue with Bluwire under consulting agreements.

 

- 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. While the board of directors and a majority of the voting interests of the Company had also approved an increase in the authorized common shares in an amount up to 20 billion common shares within 12 months of July 18, 2019, at this time management has elected to keep the authorized stock at 8 billion common shares.

 

- On November 20, 2019, the Company acquired 100% of equity of Social Decay, LLC dba Social Sunday (“Social Sunday”), a New Jersey limited liability company for 30,000 of the Company’s Series D-6 Preferred Shares. An additional 12,000 Series D-6 Preferred Shares were issued to the Seller (but held in escrow for performance-based award) on same day.

 

11

 

 

- On January 16, 2020, Geneva Roth agreed to purchase an additional 53,000 Series B Preferred shares for $53,000 under the same terms as their prior purchases.

 

- On 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.

 

- 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.

 

- The Federal Government of the United States of America on March 27, 2020, passed the Cares Act allowing companies access 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 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.

 

- 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, began work on a new website for Bluwire, make progress on their retail app, and acquire product to re-open one of its Bluwire Stores.

 

- On May 18, 2021, the Company filed its required filings with the State of Nevada and became current and increased its authorized common shares from 8 Billion to 20 Billion common shares.

 

- In May 2021, 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.

 

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ITEM 1A. RISK FACTORS

 

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

 

Risks Related to Our Business

 

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

 

The Company commenced limited operations in June of 2017, with the acquisition of 12 Hong Kong, Ltd. The Company then acquired 12 Japan, Ltd in August 2017, followed by 12 Europe A.G. in October 2017. 12 Japan, Ltd brought a small portion of revenue, insufficient to fund operations, while 12 Europe A.G. brought no revenue and was subsequently closed on August 20, 2019. Throughout 2019, we made four acquisitions including Red Wire Group, Rune, Bluwire, and Social Sunday, which together brought significant revenue but not enough profit to offset the costs of being public and developing and launching our core technology initiative. Therefore, we have limited operating history on which to make an investment decision. Accordingly, the Company has a limited operating history and the business strategy while promising may not be successful. Failure to implement the business strategy could materially adversely affect our business, financial condition, and results of operations. Through December 31, 2019, the Company’s business has not shown a profit in operations and has generated little revenues. There can be no assurance we will achieve or attain profitability or be able to raise sufficient capital to stay in business. If we cannot achieve operating profitability or raise capital, we may not be able to meet our working capital requirements, which could have a material adverse effect on our business operating results and financial condition resulting in the loss of an investors’ entire investment in us.

 

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

 

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

 

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

 

Our accompanying financial statements have been prepared assuming that we will continue as a “going concern.” As discussed in Note 2 to the Company’s December 31, 2020 consolidated financial statements, we had little revenues, have minimal business operations, have recurring losses and have negative working capital and a stockholders’ deficit. These issues raise substantial doubt about our ability to continue as a “going concern.” Our ability to stay in business will, in part, depend on our ability to raise additional funding or continue to make brand acquisitions. Our financial statements do not include any adjustment that might result from the outcome of this uncertainty.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Our Board of Directors lacks independent directors as members.

 

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

 

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

 

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

 

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There are a large number of shares of common stock underlying the outstanding preferred stock and convertible notes

 

The Company has outstanding preferred stock and convertible notes which are potentially convertible into common stock. Should all these convertible instruments convert into common stock, the number of common shares issued would lead to substantial dilution of the current common shareholders.

 

Although we have attempted to discuss meaningful factors, our investors need to be aware that other factors and risks may become important in the future. New risks may emerge at any time. We cannot predict such risks or estimate the extent to which they may affect our operations and financial performance. Investors should carefully consider the discussion of risks and the other information included in this Report, including the Cautionary Information Regarding Forward-Looking Information provided above in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The effects of this worldwide pandemic on our business have not been fully determined at this time. Since March 16, 2020, the world was affected by a pandemic virus called COVID-19, and all our businesses were affected by closures and/or reductions in volume. Businesses around the world were closed, as well as airports and casinos, and consumers were told to shelter at home. The long-term effect of this on the psyche of consumers and the worldwide economy are unknown. Their short- and long-term effects on our business is undetermined at the time of this report.

 

Risks to our businesses related to COVID-19

 

The ongoing systemic challenges of the retail and restaurant industries due to changes in consumer habits, online and with mobile Apps, have been further exacerbated and accelerated due to 2020’s COVID-19 pandemic. The business closures mandated by government agencies around the world, coupled by governmental stay at home orders and consumer fears of infection, may forever significantly change consumer behavior in unforeseen ways. While these challenges provide significant opportunity to market and sell our new technologies as well as our fashion products, at this stage it may be difficult to predict the trend of overall consumer behavior.

 

Due to COVID-19, the solvency of our potential customers for our technology and products may be in doubt and their ability to make payments to us may be at risk. For example, see recent post COVID-19 bankruptcies such as J. C. Penney Company, Inc, J.Crew, Pier 1 Imports, Modell’s Sporting Goods, Food First Global Restaurants, Neiman Marcus, and Garden Fresh Restaurants, to name a few.

 

Also due to COVID-19, there has been an extreme reduction in travel, thereby significantly affecting the number of customers in our Company owned stores, thereby further potentially reducing revenue for those stores. This reduction in traffic through retail stores and restaurants in airports and casinos may also further reduce our ability to gain additional subscribers for our technologies.

 

Another impact of COVID-19 on our operations, that our vendors are operating at reduced capacity or have closed, which could impact our flow of inventory or raw materials for an indeterminate amount of time until such time as those vendors can be replaced or resume operations at full capacity.

 

We may face challenges rehiring some or all of the workforce that was laid off due to COVID-19 and may have to recruit and hire replacement employees in the future for our businesses. As a result, management expects to face additional costs to get back our operations at full capacity.

 

For more information about our response to COVID-19, see our specific COVID-19 disclosures.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Risks Related to the Retail Industry

 

The retail industry has been reeling ever since 2008 related to less shoppers, and more purchases being done online. This has led to such venerable names as Sears Roebuck and Co, and J.C. Penney, and many others filing bankruptcy, and some disappearing forever, such as BCBG-MAXAZRIA, which no longer has any brick-and-mortar retail locations. With COVID-19, we believe this trend will accelerate. Our Management believes that only those retailers that are able to find new ways to attract consumers to the stores and learn how to sell through new channels, such as mobile apps and online, will survive.

 

Our business is dependent on the ability of our fashion brands to sell to brick-and-mortar retailers, as well as to sell products to online retailers and to successfully market our products on mobile apps and online. The seismic transition occurring in the retail industry may impair our ability to be successful in these efforts.

 

Our technology division intends to sell and license our technology solutions to brick and mortar retailers and restaurants whose financial health and ability to raise capital will determine if they will even be able to afford our solutions. We face collection risks and client retention risks in selling to retailers and restaurants who may not remain in business.

 

Extending credit in this environment where our technology or fashion group will be difficult, and we may suffer losses because of it. These risks may impede our ability to prosper.

 

Risks related to old debts and current and potential litigation.

 

Due to the number of operations acquired and the impact of the Covid-19 Pandemic, the Company has fallen behind on many of the obligations of certain subsidiaries. Some of these have resulted in litigation (see litigation section).

 

16

 

 

Risks of Acquiring Operations.

 

We face risks of successfully integrating acquired businesses into our operations.

 

An acquired business may require additional capital infusions to survive. Capital raising is difficult in any environment especially in a post COVID-19 world. Failing to successfully raise a sufficient amount of capital is a risk to the continuation of the acquired businesses operations.

 

We will need to integrate the acquired businesses back office accounting into our own systems in order to successfully continue to execute our SEC mandated reporting duties. Failing to do so is a risk to our ongoing SEC fully reporting status.

 

We will need to integrate the acquired businesses personnel into our own teams whether they be operational or back office. Failing to do so is a risk to the ongoing operations of an acquired operation. Sellers or existing management that may be retained after the acquisitions may not perform well in the new environment. This may impede our ability to rapidly grow or even maintain management of the acquisitions. In consolidating our acquisitions, we may find difficulties merging different teams that have different cultures, and therefore we may not fully realize the benefits anticipates.

 

We may experience unforeseen challenges in realizing the cost-saving synergies and business expansion benefits of any or all acquisitions.

 

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

 

Our Board of Directors has the authority to issue up to 20,000,000,000 authorized shares of our common stock or stock warrants and options to acquire such common stock. Our Board of Directors has the authority to issue up to 50,000,000 shares of preferred shares that have various rights of conversion to common stock. Refer to Description of Registrant’s Securities below for full details of Series A, Series B, Series C, and Series D Preferred Shares. The future issuance of common stock may result in dilution in the percentage of our common stock held by our existing stockholders. Also, any stock we sell in the future may be valued on an arbitrary basis by us and the issuance of shares of common stock for future services, acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our existing stockholders.

 

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

 

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

 

Risks Related to Our Common Stock

 

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

 

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

 

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

 

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

 

17

 

 

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

 

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

 

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

 

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

 

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

 

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

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

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

 

ITEM 2. PROPERTIES

 

As of the date of the filing of this report, the Company leases numerous stores, facilities, and offices for itself and its subsidiaries, which in total is 7,206 square feet for a Base monthly rent of $79,882, as detailed below:

 

-12 ReTech Corporate - Leases under 200 square feet of office space at 420 Lexington Avenue Suite 1200 New York City, N.Y. 10170 USA for a monthly fee of $2,095. The Lease provides conference room space on an hourly fee basis and is month to month. In addition, 12 ReTech has access to office and conference room space on an at needed basis at 515 E. Grant Street #150 Phoenix, Arizona 85004.

 

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

 

-12 Retail Corporation- has access to office space and conference facilities at 515 E. Grant Street, Suite 150 Phoenix, Arizona 85004 that it shares with its parent 12 ReTech Corporation for a use fee as needed. 12 Retail Corporation also operates a variety of facilities through its two divisions of approximately 7,006 square feet for a base monthly rental costs of $76,992. 12 Retail Corporation operates a 3,663 square foot retail location in the Mohegan Sun Casino at a rental cost of 8% per month which lease read from minimum guaranteed rent will expire in June, 2021. Management intends to extend this relief based on the current traffic in the Casino. It also maintains the following facilities detailed below:

 

  12 Fashion Group, Inc. leased approximately 1500 square Feet in NYC for a Base monthly rental costs of $5,700 and maintains 200 square feet of design space in Ogden Utah for a monthly rent of $1000 per month

 

  -Bluwire Group, LLC leased approximately 6,156 square Feet for a Base monthly rental costs of $42,332, which is detailed below:

 

  Bluwire Denver- Had three Kiosk locations, 2002K which is 120 Square feet, 2014B 34 Square feet, 4008B 34 square feet. Base monthly rent was $20,960. Two of the kiosks were closed permanently on November 1, 2019. The remaining kiosk was closed permanently effective February 1, 2020.

 

  Bluwire Dulles A and B –Space A is number 32 which is 877 square feet and Space B number 59A which is 593 square feet. Base monthly rent is $20,333. Lease is scheduled to expire November 2020. The cancellation has been held in abeyance due to the Covid-19 Pandemic until we are ready to open.

 

  Bluwire JFK –Space 23S.C. which is 320 Square feet. We have a 6-year lease that expires April 30, 2020. Base monthly rent was $10,600 per month. This lease has not been renewed. However, we have been in talks with the landlord to lease different space that would be more advantageous to the Company without endangering the locations run by our royalty stores.

 

  Bluwire Newark –Space 20 which is 515 square feet. Base monthly rent was $15,083 plus 15% of gross sales exceeding $100,000 in any given month. Lease agreement is month to month agreement. This location is in abeyance due to the Covid-19 pandemic and the Company has plans to re-open in the third quarter 2021 at which time management believes that the longer term lease will e based solely on a percentage of sales.

 

  -Bluwire Mohegan Sun -3,663 square foot lease with Mohegan Tribal Gaming. Base monthly rent is $6,916, plus a percentage rent equal to 8% of the gross sales that exceeds $86,450 per month until January 2021. 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.

 

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During the year ended December 31, 2020, the Company permanently shuttered the following facilities to consolidate revenue and decrease expenses (not counted above):

 

In December 2019, the Company closed its Red Wire Group facility located at 85 W. Louise Avenue, Salt Lake City Utah eliminating 5,000 square feet and monthly rent of $2,884.

 

In July 2019 the Company moved out of its Emotion Fashion Group Facilities eliminating the operation and the lease expense for the leased location that was Executed by a former company of a similar name which was used by Emotion Fashion Group in Salt Lake City, Utah USA. This eliminated 6,450 square feet and $4,000 per month in rent expense.

 

ITEM 3. LEGAL PROCEEDINGS

 

During the ordinary course of business, and as a result of quickly completing multiple acquisitions and the business disruption due to the Covid-19 Pandemic the Company has become involved in some litigation, has some disputed claims and possible contingencies as follows:

 

Claims and Litigation:

 

  Auctus Fund Management (“Auctus”) vs. 12 ReTech Corporation. Auctus Filed suit in August 2019 claiming breach of contract on a convertible promissory note dated April 25, 2018, which had a remaining principal balance of nearly $40,000. Auctus claimed damages totaling over $482,000. The Company had entered into a settlement agreement with Auctus that required the Company to make a cash payment of $117,000 and which was dependent on the Company receiving funding from a foreign investor. That investment did not occur, and the Company was unable to perform. Upon information and belief, management believes that Auctus will at some point re-institute that lawsuit. Management has reserved on its financial statements a sum in excess of $482,000 in regards to this claim. To the best of management’s knowledge, Auctus has not taken other actions.
     
 

Bellridge Capital, LP, one of the Company’s convertible debt providers has sued the Company for non-performance and has obtained a default judgment in the amount of $214,195.74 in the southern district of New York. The Company maintains that service of process is defective and the Company will also assert lack of jurisdiction if any collection effort is ever undertaken among other potential legal cleans and defenses

     
 

J&S properties sued the Company in regards to a lease for a subsidiary in-the State of Utah that was never guaranteed by the Company and obtained a default judgement in Salt Lake County. The Company maintains that it was never properly served and has, it believes, substantial defenses that it will raise should J&S properties ever try to enforce the judgment.

     
  RedWire Group, LLC (“RedWire Group”) filed for bankruptcy under Chapter 11 subsection V on March 6, 2020, and the case in ongoing. The Company has funded the initial costs, as well as some ongoing storage costs for RedWire Group equipment. The Company plans to liquidate the equipment and some other assets to pay creditors. This Chapter 11 was converted by the Court to a Chapter 7 and discharged. The equipment was liquidated in 2021, and the Bank (Bank of American Fork) has been paid in full and all other debts have been discharged.
     
 

Leider Enterprises, Inc. D/b/a SM Distribution Inc a Florida corporation sued Bluwire Sun, LLC in Florida. Bluwire Sun never received any product from this company and is defending this lawsuit in Florida.

     
    Rottenberg, Meril, Solomon, Bertiger & Guttilla (“Rottenberg”) sued the Company in Bergen County New Jersey and obtained a default judgement because the Company was never served. The Company believes it has substantial counterclaims and defenses should Rottenberg ever tries to enforce this judgement.
     
    PCG Advisory Group (PSG) obtained a default judgement of $63,350 in New York because, we believe, it never properly served the Company and has tried to domesticate that judgement in Arizona. The Arizona Court refused to domesticate the judgment and has given PSG some time to prove proper service. That period has expired.
     
    VXB & Orfwid d/b/a Lost + Wander sued the Company’s Social Decay d/b/a Social Sunday subsidiary and also named the Company for invoices. The Company never guaranteed obligations for Social Sunday and intends to vigorously defend this lawsuit as meritless.
     
    Tessco Technologies V Bluwire filed suit in Maryland. The Company has not been properly served and if served would dispute jurisdiction as well as other defenses on behalf of its Bluwire subsidiary.
     
    George Sharpe, In May 2021 sued the Company in Nevada to try to obtain custodianship of the Company. This was defeated and the Company will be filing for attorney fees, although there are no guarantees the court will award us our attorney fees or other outcomes.

 

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PART II

 

Item 5. Market Information

 

Our common stock was traded under our former name DEVAGO, INC. on the over-the-counter pink market from December 30, 2014 to June 8, 2017 under the symbol “DVGG”. Effective June 8, 2017, the Company changed its name to 12 RETECH CORPORATION and effective on or around June 8, 2017 the quotation symbol was changed to “RETC” where our stock traded on OTC Markets’ over-the-counter pink sheet market. On March 16, 2018, the Company filed Form 8A-12G and became a mandatory filer with the United States Securities and Exchange Commission. The following table sets forth the high and low bid prices for our common stock on the OTC Markets over-the-counter pink market from January 1,2020 to December 31,2020. The source of these quotations is www.OTCMarkets.com quarterly market summary. The bid prices are inter-dealer prices, without retail markup, markdown, or commission, and may not reflect actual transactions.

 

Quarter Ending   High Bid     Low Bid  
December 31, 2020     0.0007       0.0003  
September 30, 2020     0.0003       0.0001  
June 30, 2020     0.0003       0.0001  
March 31, 2020     0.0006       0.0007  

 

Holders of Common Stock

 

As of June 1, 2021, the closing price for the Company’s common stock on OTC Markets was $0.0012 per share. We had over 1,900 stockholders of record of the 5,593,994,474 shares outstanding.

 

Dividends

 

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

 

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

 

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

 

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

 

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ITEM 6. SELECT FINANCIAL DATA

 

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

 

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

 

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

 

Company

 

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 products to other retailers as well as selling products online. In October 2019 we also acquired retail stores in airport terminals and casinos to create a true Omni-Channel retailer. The plan was this would allow us to deploy our cutting-edge software in the United States to demonstrate its effectiveness, as well as to test, real time new software products to continue to delight consumers and generate additional revenue and profits for retailers.

 

During the 4th quarter 2019 and continuing in the first quarter 2020 and with the effects of the pandemic created by COVID-19, the Company consolidated operations around two operating entities; 12 Tech, Inc., formed in Arizona on December 26, 2019 (“12 Tech”) and 12 Retail Corporation, formed on June 27th, 2017 (“12 Retail”).

 

12 Retail is itself divided into three operating units; 12 Retail, Bluwire Group, LLC (“Bluwire”) that will operate our airport retail stores in airports, 12 Retail itself which will operate our casino store(s), and 12 Fashion Group, Inc. that operates our fashion wholesale and direct to consumer brands, including Rune NYC, Social Sunday, Red Wire Design, Emotion Fashion Group. 12 Retail will serve to demonstrate the effectiveness of the software technology created by 12 Tech in improving revenues and profits for emailers as well as providing access to other retailers through our whole fashion business relationships.

 

12 Tech, Inc, provides technology solutions to physical retailers currently mainly in Asia and is now positioned in the United States market, the world’s largest. We have consolidated or shuttered our international units focused on our technology deployment (“12 Japan” and “12 Europe”), and consolidated our software company 12 Hong Kong, Ltd (“12 HK”) under 12 Tech to further streamline operations.

 

As the retail environment continues to evolve, we as retailers and as primarily a technology company will evolve with it. We believe our developed software and those products in development will delight consumers, provide contactless experiential shopping, and bring revenue back to retailers as they combat the dual threat of Amazon and Walmart. Our software, once fully deployed and implemented, may provide retailers with another electronic and effective sales channel other than Google, Amazon, and/or Facebook/Instagram.

 

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

 

Throughout 2019, the Company made a number of acquisitions for its 12 Retail subsidiary. The criteria management used in selecting and completing these acquisitions was; 1) Each acquisition had significant revenue, 2) management identified that the acquisition could at some point assist in the deployment of our retail software technology, 3) the business could benefit from expense consolidation and better management controls, and 4) be able to be acquired and managed within the resources available to the Company.

 

In each case, after acquisition, we looked for ways to streamline operations, and shed expensive facilities, reduce labor and material costs, while maintaining and/or growing the revenue and increasing the margins. This process can appear to be messy to an outsider but is a process that management believes will ultimately yield the biggest rewards for our shareholders over time. In most cases each acquisition was followed by a larger acquisition as the Company built momentum. Consequently, the Company had its largest revenue quarter in the 4th quarter of 2019 when it topped $1 million in quarterly revenues for the first time ($1,003,549 vs $ 19,105 in 2018).

 

In the first quarter of 2020, the processes discussed here continued and accelerated until our business was interrupted by nationwide closures due to the COVID-19 pandemic. Management used this period once most operations were closed to more swiftly shutter unprofitable retail stores, close the unprofitable Utah factory, and further streamline operations which management believes may make the Company a much stronger player post COVID-19 pandemic. (See Risk Factors).

 

During the 4th quarter of 2019 the company completed the last two acquisitions for the year (Bluwire Group, LLC & Social Decay d/b/a Social Sunday) and began to consolidate them into 12 Retail. 12 Retail was itself divided into two operating segments; Retail and Fashion. Angelo Ponzetta, our CEO who had 25 years of retail experience, was named as the acting CEO of Bluwire, and Emily Santamore, with over 10 years of experience in the fashion industry, was named President of 12 Fashion Group, Inc.

 

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Principal subsidiaries as December 31, 2020.

 

The details of the principal subsidiaries of the Company as of December 31, 2020, are set out as follows (additional consolidation may occur in the future):

 

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.

 

12 Retail Corporation: a subsidiary of 12 ReTech Corporation Operates its own retail store (as of March 2021 as a subsequent event) and manages two main subsidiaries each of which have multiple subsidiaries; 12 Fashion Group, Inc and Bluwire Group, LLC.

 

12 Fashion Group Inc; A subsidiary of 12 retail, Inc. has the following subsidiaries;

 

On February 19, 2019 we acquired Red Wire Group, LLC. (“RWG”) a Utah Limited Liability company pursuant to a Share Exchange Agreement whereby the Company exchanged and the members of RWG (the “Members”) Pursuant to the terms of the Exchange Agreement, the Company will acquire (i) 75% of the membership interests of RWG in exchange for 54,000 shares of the Corporation’s Series D-6 Preferred Stock and with a stated value of $5.00 (ii) the remaining 25% of the membership interests of RWG in exchange for 37,500 shares of the Corporation’s Series D-5 Preferred Stock with a stated value of $4.00 per share, RWG operates its own “cut & sew” operation for independent third parties contract to produce cloths operating out of its factory in Salt Lake City, Utah.

 

As of the end of November 30, 2019, we closed the factory in Utah while 12 Fashion Group retained the customers by completing the orders in process. We were able to produce the products through 3rd party factories in New York City and Los Angeles for less than it cost us to produce the products in our own factory in Salt Lake City, Utah. On March 6, 2020, the company filed a Chapter 11 Bankruptcy filing in Phoenix Arizona. This filing allowed us to sell the equipment we no longer need, pay off the secured creditors and shed all of Red Wire’s debt from our balance sheet. 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.

 

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  - One March 14, 2019 we acquired Rune NYC, LLC. (“Rune”) a New York Corporation pursuant to a Share Exchange Agreement whereby the Company exchanged with the members of Rune (the “Members”), the members of representing 92.5% of the membership interests have agreed to tender their interests to the Corporation, and the Corporation closed out the tender offer period and the Exchange Agreement became effective. Accordingly, pursuant to the terms of the Exchange Agreement, at closing the Company acquired 92.5% of the membership interests of Rune in exchange for 82,588 shares of the Corporation’s Series D-5 Preferred Stock with a stated value of $4.00 per share. Rune’s operations continued uninterrupted in New York City following the closing and retained key employees as the leading part of 12 Fashion Group.

 

  - On November 20, 2019 Social Decay, LLC d/b/a Sunday, (“Social”) a New Jersey Limited liability company, was acquired by the Company pursuant to a share exchange agreement whereby the Company exchanged the Company’s 30,000 D-6 Shares for 100% of the total outstanding equity of Social and the member of Social (the “Member”). That Member was retained by the Company, but subsequent to the year end on April 15, 2020 she resigned and as a consequence, forfeited the additional 12,000 D-6 Shares held in escrow as a performance incentive. The D-6 shares have a face value of $5.00 per share, and are convertible into the Company’s common shares. Subsequent to year end in March 2020, Social’s print factory was closed in part due to the COVID-19 Pandemic. Social’s products are marketing and manufactured by the staff of 12 Fashion Group.

 

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  - Bluwire Group, LLC. On October 1, 2019 the Company acquired the retailer with 11 airport terminal locations and one casino location under an equity exchange agreement. Under the terms of the Agreement the Company issued to the Sellers 500,000 Series A Preferred Shares in exchange for 51% of the equity in Bluwire Group, LLC and its subsidiaries (“Bluwire”). The Sellers retained 30% of Bluwire and 19% is reserved for 12 months for potential equity investors into Bluwire. Any of that equity not used to raise capital for Bluwire over that period would be divided equally between the Company and the Sellers. No capital was raised for Bluwire Group and this 19% was issued to 12 ReTech Corporation

 

  - 12 Tech, Inc. An Arizona corporation is a subsidiary of 12 ReTech Corporation and has a number of subsidiaries (“12Tech”). On December 26, 2019, the Company formed 12 Tech to spearhead the Company’s software technology development and to focus more effort on the largest retail market in the world: the United States of America. The Company then closed or consolidated under 12 Tech all its other software technology companies and maintains the following subsidiaries;

 

  - 12 Hong Kong, Ltd., a corporation organized in the special economic region of Hong Kong is a subsidiary of 12 Tech, Inc. On June 27, 2017 the Company acquired 12 Hong Kong, Ltd. in a share exchange transaction. Originally this is the Company that managed all the Company’s proprietary and licensed technology that is utilized and sold by the other subsidiaries. With the formation of 12 Tech that role is now being managed by 12 Tech. Today, 12 HK operates as a subsidiary of 12 Tech and serves as the marketing and sales hub for Asia, particularly the Chinese market and now services our customers in Japan, formerly managed by 12 Japan Ltd.

 

  - 12 Japan, LTD. Organized in Japan and is a subsidiary of 12 Tech inc. After the initial acquisition of 12 Hong Kong, LTD during 2017 and the first half of 2018 the Company made several acquisitions including 12 Japan, LTD. Subsequent to this acquisition, the Company took steps to consolidate the assets and streamline operations that effectively by the end the 3rd quarter 2019, this Company no longer functions as independent subsidiary. In the third quarter of 2019 the Company closed the offices of 12 Japan, and its flagship customer ITOYA and the revenue generated will be serviced and managed by 12 Hong Kong.

 

  - 12 Europe, A.G. 12 Europe A.G. was acquired in 2017, and underperformed. In the third quarter 2019 it was determined by management that the costs of continuing to support the expenses of an independent 12 Europe A.G., were unsupportable. Therefore, the Company reaffirmed its previous master representation agreement between 12 Hong Kong, LTD and Coppola, AG so that the software customers in Europe can continue to be supported and then closed its operations in Europe. On August 20, 2019, the Company had successfully discharged all of its debts associated with 12 Europe A.G., as part of the completion of the 12 Europe A.G., bankruptcy filing except for certain social benefit payments still owed approximately $35K by the Company. Therefore, this subsidiary is no longer in existence.

 

Business and Operations

 

12 ReTech Corporation is a Technology company that is creating software that management believes will create new platforms and tools for smaller retailers to compete with major companies like Amazon and Walmart and delight consumers. To better understand the entire retail environment the Company has acquired operating companies that sell direct to consumers online and in physical stores as well as to other retailers. These acquisitions, in addition to providing current revenue to the Company management believes that they will provide entree to other retailers for the sale and or licensing of our technology solutions.

 

From an operating perspective, 12 ReTech Corporation is a holding company with two main operating companies that themselves may now and/or in the future own other subsidiaries. They are: 12 Retail Corporation which now operates our casino stores and subsidiaries Bluwire Group, LLC, 12 Fashion Group, Inc and others, and 12 Tech Inc that designs and develops our retail software.

 

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The Company has earned money from four different revenue streams (in declining order): Retail Sales, Wholesale and Online sales of Fashion products, Royalty Payments for 3rd party licensing of the Bluwire name, and technology sales.

 

Effects on us of the Covid-19 Pandemic

 

2020 was an unusual year, in that at nearly the same time the entire world was in the grip of the Covid-19 pandemic with unprecedented closings of businesses, a virtual cessation of most business and personal travel, lockdown and stay at home orders. As a Company centered on retail and which derives the most significant portion of its revenue from retail stores in airports and casinos, we were hit particularly hard. In retail, the 1st quarter of every year is the slowest revenue quarter of any year, and even before that first quarter ended all of our retail stores were closed due to the pandemic. Only the casino store was able to be re-opened in mid-December 2020 to lackluster sales. Supply chains were interrupted, and it became difficult to re-stock our retail store for the holiday season which also delayed its re-opening to mid-December, after an aborted restart in September. The supply chain problems also delayed the receipt of fabric and other products needed by our Fashion Group as they began to re-emerge from under the pandemic closures. Our fashion group, being based-in NYC was closed for many months and only reopened in July to produce masks. All of the stores our fashion group would sell to were also closed. Our technology division, 12 Tech Inc, was also hard hit. Not only were retailers closed and conserving cash like we were, but it became apparent that consumers would no longer interact with public touchscreens, which was the corner stone of our technology. In other words, our technology was made obsolete in the blink of an eye.

 

The Company managed survival during the pandemic by squirreling cash and obtaining PPP and or EIDL loans from the SBA. We attempted to retain all of our key employees utilizing these funds, but as a subsequent event by June 2021 most have found other jobs once the PPP money ran out. This presents challenges for our airport stores re-openings, as it is a long process to get employees certified (“badged”) to work in airports. This will further slow our re-openings during 2021. We also renegotiated various leases and commitments to make us more streamlined and efficient as we re-open and expand. In Japan, we renegotiated out licensing arrangement with ITOYA whereby they managed more of the day to day software for a smaller fee and we eliminated virtually all of our costs there. We also learned that the App we had developed there was strongly used by Japanese consumers of ITOYA and we could re-develop it for the U.S. market. This process is well on the way and management believes will create the next great shopping platform.

 

For more information about our existing technology please visit our website at www.12retech.com.

 

Financing and Convertible Debt

 

To finance our operations the Company has historically resorted to a number of convertible debt providers (see Note 10). These debt providers have in many cases exercised their rights to convert their debt into the Company’s common stock at a discount to market. They then sell that stock to recover their investment and profits. This has over time depressed the value of our Company’s common stock and caused a significant dilution to our shareholders. This could not be avoided, and management believes it was necessary in order to provide continuation of the Company’s business so that we could make significant acquisitions. The Company has been building revenue momentum through these acquisitions and is no longer exclusively reliant on this form of fund raising. The vast majority of the funds the Company has received over the last 4 months have been sourced through non-convertible debt incurred by our operating subsidiaries. There is, however, still a considerable amount of convertible debt that needs to be retired over the near term. Management is working closely with the convertible note holders to find less dilutive alternatives and management believes that in first half of 2021 it will arrive at a solution that will involve less dilution, may require some cash payments from other sources including an equity offering and/or debt offerings through one or more of its subsidiaries as well as leak out provisions negotiated with the convertible debt holders themselves.

 

The Company had also entered into a $12 million dollar Equity Line of Credit with Oasis Capital which it has been unable to access due to some delays in the audits of one of its acquired subsidiaries. That has been resolved and Management has been in talks with Oasis on amending that original offering, so that the Company may refile the S-1 required with the SEC. The equity line of credit is ineffective at the current share price, and we will not be able to reinstitute at current share price levels.

 

In addition, Management has received tentative commitments for preferred Equity Funding that if completed would allow the Company to fully retire the convertible debt. Management, however, cautions readers that while promising no Equity or Debt funding can truly be counted upon until the money is in the bank. The exact amount of the final funding and timing have not been fully determined at this time.

 

However, management believes that now that the Company has significant and growing revenue, has streamlined operations, is set to launch its software products in its own stores in the United States, and has access to more standard debt capital, that the issues associated with the convertible debt have become more manageable and therefore will be resolved more favorably to the Company than was previously observed.

 

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YEAR ENDED December 31, 2020 COMPARED TO THE YEAR ENDED December 31, 2019

 

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

 

Revenues

 

During the year ended December 31, 2020 our revenues decreased to $721,312 from $1,628,607 in the prior comparable year. This represents and decrease of $907,295 or 56%, which is primarily the result of the global pandemic due to COVID 19 on our Bluwire subsidiary and 12 Fashion Group subsidiary. The government forced the closure of all our store locations on March 16, 2020. When allowed, the company was able to re-open one of our store locations in December 2020. We hope to open additional store locations in the near future.

 

Cost of revenues

 

During the twelve months ended December 31, 2020 we incurred Cost of Revenues associated with the delivery of our products in the amount of $385,236, as compared to $1,122,086 for the comparable period in 2019. These expenses are related to costs of delivering goods. In 2020, our Cost of Revenues as a percentage of Revenues was 53% as compared to 66% in the prior comparable period. The lower cost of revenues as a percentage of Revenues in 2020 is mainly the result of on cutting purchases of inventory and production materials due to COVID 19.

 

General and Administrative

 

Our general and administrative expenses for the year ended December 31, 2020 were $1,762,856, a significant decrease of $361,516 or 17% when compared to $2,124,372 for the year ended December 31, 2019. The decrease is a result of impact due to COVID 19 and forced closure of operations during many months.

 

Professional fees

 

Our professional fee expenses for the year ended December 31, 2020 were $683,251 a decrease of $542,448 or 44% when, compared to $1,225,699 for the year ended December 31, 2019. Our professional fees include expenses related to our external auditors, legal costs, and consultants. In order to preserve our subsidiaries operations, the company conserved on spending from the period of closure on March 16, 2020 until December 31, 2020.

 

Depreciation and amortization

 

Our depreciation expense for the year ended December 31, 2020 were $439,269 an increase of $340,163 or 343% when, compared to $99,107 for the year ended December 31, 2019. Our depreciation and amortization expense includes intangibles and leasehold improvements added October 1, 2019 as part of the Bluwire acquisition. As such the company had twelve months of depreciation and amortization as opposed to three months in 2019.

 

Other Expense

 

Our Other Expenses increased by $10,187,508 or 110% to $19,391,799 for the year ended December 31, 2020 compared to $9,204,291 for the year ended December 31, 2019. There are four main components of the increase of the 2020 Other Expense category:

 

  1. A significant increase in loss of change in derivative liability of $18,860,260 for the year ended December 31, 2020 compared to $3,524,861 for twelve months ended December 31, 2019 resulting in an increase of $22,385,121 which is the result of the calculation of derivative liability using Black-Scholes.
     
  2. A decrease in other income to $431,937 for the year ended December 31, 2020 compared to $1,023,965 for twelve months ended December 31, 2019. Other income was primarily the result from the write off of certain debts which was described in 2019 10K.
     
  3. A decrease in general default reserve expense of for the year ended December 31, 2020 of $491,897 as of December 31, 2020 compared to $2,139,961 as of December 31, 2019.
     
  4. A decrease in interest expense of $8,523,487 to $471,579 as of December 31, 2020 compared to $8,995,066 for the ended December 31, 2019.

 

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See these components described in further detail below.

 

Other Income

 

During 2019, the Company recognized a loss impairment of software development costs of $513,601 December 31, 2019 without a similar comparable expense during the prior period ending December 31, 2019. Periodically, management reviews its capitalized costs to determine if they are properly valued or should they be impaired. As of September 30, 2019. Management had capitalized approximately $513,601 in development costs for its 12 Technology Suite and 12 Sconti APP. While management still believes in the long-term validity of these software applications, the fact remains that adoption by retailers has not met management’s expectations. This led management to cut costs in the 12 Europe and 12 Japan operations. Therefore, management believes that the capitalized costs for the software development should be fully impaired during the 4th quarter of 2019.

 

Also, during 2019, the Company recognized other income primarily from 12 Europe declaring bankruptcy on August 26, 2019, whereby all debts of the company were eliminated with the exception of $35,757 in accounts payable resulting in a gain of $445,244. In addition, as discussed in Note 4, the Company effectively foreclosed on its liens against the assets of Emotion Apparel, Inc. taking possession of assets including the brands; Lexi-Luu, Emotion Fashion Group, Punkz Gear and retuned the equity of Emotion Apparel, Inc. and its subsidiaries to the Seller. As a result of the debts related to Emotion Apparel, Inc, which reverted to the Seller including all accounts payable, accrued expenses and notes payable resulting in a gain of $511,486 to the Company. Lastly, after careful review by management, certain accounts payable were determined not to be valid expenses. These payables totaling approximately $68,000 were offset as a gain to other income.

 

In 2020, the company filed for bankruptcy for the Red Wire Group. As a result, the company recognized other income as a result of write off of debt associated with Red Wire Group. In addition, the company also closed its Denver Bluwire store location, as such the company wrote off associated intercompany loans.

 

Interest Expense

 

There was also a decrease in interest expense of $8,523,487 to $471,579 as of December 31, 2020 compared to $8,995,066 for the period ended December 31, 2019. Decrease in interest expenses is related to decrease in convertible notes’ convertible preferred stock during the same period. As well as a significant decrease in interest expense associated with the additional derivative liability and for the general default reserve.

 

Change in Derivative Liability

 

There was a loss as a result of the change of derivative liability of $18,860,260 as of December 31, 2020 compared to gain of $3,524,861 for the period ended December 31, 2019. The reason for the change was because of a change in the calculation method from Lattice model to Black-Scholes model.

 

General Reserve Expense

 

The company recognized a general default reserve expense of for the year ended December 31, 2020 of $491,897 compared to 2,139,961 as of December 31, 2019. On July 25, 2019 the Company was served with a lawsuit from Auctus Fund, LLC (“Auctus”). For additional details, see MD&A including the settlement of $120,375 which is still pending. However, management calculated a default reserve which represents the additional amount management would have to payout to all note holders in the event of the default. Management quantified what this amount would be which includes additional premiums, additional accrued interest and default accrued interest in 2019 and updated these calculations in 2020. The total reserve quantified by management amounted to $2,278,648 as of December 31, 2020.

 

Net Income

 

During the year ended December 31, 2020, we incurred a net loss of $21,940,137 compared to a net loss of $12,150,698 for the year ended December 31, 2019. This increased loss is primarily the result of the increase in the change in derivative liability and compounded by the significant decrease in revenues as a result of the global pandemic of COVID 19 during 2020.

 

The Company is expending working capital to further their business plan. This includes the further development, refinement and improvement of their software and its adaptation to various languages and geography. The Company is also expending working capital on the development of new technology which is designed to further enhance the attractiveness of their offerings to their target customer base.

 

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Significant Acquisitions in 2019

 

In the first quarter of 2019 the Company made two significant acquisitions as detailed above with the acquisition of Red Wire Group on February 19, 2019 and Rune NYC, LLC on March 14, 2019. the Company gained two revenue-producing operations. As also detailed above on October 1, 2019 the Company acquired Bluwire Group, LLC and effective November 1, 2019, the Company acquired Social Decay, LLC dba Social Sunday. With the combination of these acquisitions, management believes that the Company will benefit, and it will significantly expand the sales channels for all of its brands. 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. For further details, see Note 3.

 

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

 

While management believes the results of operations for 2019 for the acquired companies are not indicative of the future results for all of the reasons herein above combined with impact of COVID-19, management believes it is important to show how materially the prior year’s revenues would have been for the Company had they been acquired at the beginning of 2019 without the material improvements we have made since acquiring them.

 

Liquidity and Capital Resources

 

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

 

Operating expenses for the Company have been paid from revenue as well as from the issuance of debt-equity and preferred stock subscriptions. At December 31, 2020 the Company had a deficit in working capital (current liabilities in excess of current assets) of $31,490,395. A portion of this working capital deficit has been financed loans from stockholders. As of December 31, 2020, amounts owed to stockholders totaled $383,753. At December 31, 2019, the Company had a deficit in working capital (current liabilities in excess of current assets) of $11,786,147. A portion of this working capital deficit has been financed loans from stockholders. As of December 31, 2019, amounts owed to stockholders totaled $384,091. The increase in working capital deficit when compared to December 31, 2019 was principally due to an increase derivative liabilities and to a lesser extent, increase in accounts payable.

 

28

 

 

The Company has financed our cash flow requirements through the issuance of debt-equity and preferred stock. As the Company expands, we may continue to experience net negative cash flows from operations, pending generation of significant revenues. Additionally, we anticipate obtaining additional financing to fund operations through debt-equity and preferred stock offerings to the extent available or to obtain additional financing to the extent necessary to augment our working capital balances.

 

Management believes that our acquisition strategy will successfully provide significant revenues, potential profits as well as access to traditional bank and asset-based credit lines. In addition, Management believes that existing shareholders, lenders and prospective new investors will provide the additional cash needed to meet our obligations as they become due.

 

The Company filed a Certificate of Designation on January 9, 2019 to create 1,000,000 Series D-5 Convertible Preferred Stock with par value $0.00001 and stated value of $4.00 per share. Also on January 9, 2019, the Company filed a Certificate of Designation to create One Million (1,000,000) Series D-6 Convertible Preferred Stock with par value $0.00001 and stated value of $5.00 per share.

 

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

 

The Company also filed with the State of Nevada an Amendment to its Articles of Incorporation on March 8, 2018, that increased it authorized common shares from One billion to eight billion common shares authorized. On March 14, 2019, the Company entered into a PIPE Equity Purchase Agreement whereby an institutional investor agreed to purchase up to $500,000 worth of the Company’s D-2 Preferred Shares with a $2.00 face value at to be determined discount to face value. Concurrent with the execution of this Agreement, the Company sold 103,500 preferred D-2 Preferred Shares and received net proceeds after expenses of $100,000 (Tranche #1). The D-2 Preferred Shares are convertible to common shares after a 6 month or more holding period at market price. (See Form 8-K filed on March 20, 2019).

 

Concurrent with the execution of the PIPE Funding Agreement the Company executed an Exchange Agreement with the same institution investor whereby that investor exchange all of its Series D-1 preferred shares for newly issued Series D-2 Preferred Shares. (See Form 8-K filed on March 20, 2019).

 

In connection with the with PIPE Funding Agreement and the Exchange Agreement listed above the Company filed with the State of Nevada a new Certificate of Designation which took 2.5 million of the blank check preferred shares the Company has and designated them as Series D-2 Preferred Shares. (See Form 8-K filed on March 20, 2019).

 

On September 25. 2019, the Company’s Rune subsidiary entered into two separate future receivables purchase agreements with Vox Funding and received gross proceeds for $49,000 which were used in part to retire a previous and smaller obligation to Vox Funding. The Agreements provided for payment over 6 months and carries a fee of $1,470. This obligation is not convertible under any terms into Company Stock.

 

On September 26, 2019, the Company sold 9,009 Series D-2 Convertible Shares to Oasis Capital and received $10,000.

 

29

 

 

In connection with the acquisition of Bluwire Group, LLC, on October 3, 2019, one of the Sellers of Bluwire provided $300,000 capital contribution to its Bluwire. This obligation is not convertible into Company stock under any terms. This capital contribution to Bluwire has not been adequately documented. In Addition, on October 15, 2019, the Company’s Bluwire subsidiary entered into a future receivable purchase agreement with Libertas Funding and received $343,000. This agreement provides for payment over 8 months and caries a fee of $7,000. This obligation is not convertible under any terms into Company stock. Lastly, on November 5, 2019, the Company’s Rune subsidiary entered into a future receivables purchase agreement with Vox funding and received gross proceeds for $145,500 which were used in part to retire a previous and smaller obligation to Vox Funding. The Agreement provided for payment over 6 months and carries a fee of $4,500. This obligation is not convertible under any terms into Company Stock. After the March 16, 2020 Covid shut down, all payment ceased by verbal mutual agreement. 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.

 

On March 18, 2020, the Company entered into a back end promissory note agreement with Adar Alef, LLC (“Adar”) for loans totaling $33,600. The consideration to the Company was $30,000 with $3,600 of legal fees. As a subsequent event, on March 25, 2020, the Company entered into a back end promissory note agreement with LG Capital, LLC (“LG”) for loans totaling $33,600. The consideration to the Company was $30,000 with $3,600 of legal fees. 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 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. This agreement has been in forbearance since April 2021, and the Company pays $10 per week until Bluwire Newark is re-opened.

 

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

 

At December 31, 2020, the Cash and Cash Equivalents balance was $11,784 compared to December 31, 2019, the Cash and Cash Equivalents balance was $118,860.

 

During the year ended December 31, 2020, the current liabilities increased by $19,409,181 when compared to December 31, 2019. The primary reason for the increase was the increase in derivative liabilities of $18,438,798 to $23,798,240 and accounts payable of $1,020,96 to $3,187,592 as of December 31, 2020 compared to $5,359,422 and $2,167,496 as of December 31, 2019. Due to Covid 19 pandemic, the company tried to preserve operations and obtained extended terms from most of its creditors.

 

As discussed earlier, it is likely that the Company will need to obtain additional working capital through debt-equity and preferred stock capital raises until the Company can generate sufficiently profitable revenues to sustain the cash burn rate that the Company’s business plan calls for.

 

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

 

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

 

30

 

 

Impact of COVID-19

 

Like most other business in the United States, our businesses have been severely impacted by the COVID-19 Pandemic. While the first quarter of any calendar year is historically the slowest quarter of the year for revenues, for our main operating subsidiaries the first quarter of 2020 was severely impacted by US Government’s business shutdowns and stay at home orders related to COVID-19. We derive most of our revenue from our 12 Retail Corporation, which is itself composed of two Operating units: 12 Fashion Group and Bluwire Group, LLC.

 

In response to the President’s “stay at home” orders, on March 16, 2020, we promptly laid off almost all of our 12 Fashion Group employees and contractors. 12 Fashion Group retained three employee/contractors and focused on producing and selling of washable reusable masks, both wholesale and direct to consumer online.

 

Our Bluwire retail stores in Newark airport, Dallas airport, and JFK international airport were temporarily closed on or about March 17, 2020. Our Casino location was temporarily closed on or about March 17, 2020 when the Mohegan Sun Casino itself was closed. We laid off all of our Bluwire employee/contractors except two members of the headquarters staff who continued to source innovative products for our stores when they re-open, some of which will be uniquely desired by consumers due to changing buying habits due to COVID-19.

 

The financial effects of these closures are reflected in the Management Discussion and Analysis.

 

The Cares Act and the Payroll Protection Program SBA Loans (PPP Loans).

 

The Company has applied for PPP Loans for all of its U.S. operating Companies, and is in the process of analyzing if it would qualify for similar governmental assistance for its reduced operating unit in Japan (12 Japan Ltd). The Company has qualified and received for an aggregate of $294,882 of PPP Loans for its operating companies. These funds are being used to re-hire previously laid off personnel where appropriate and hire new personal that management believes better fits the post COVID-19 shut down environment. The Company is hiring personnel that will help the operating units generate revenues in a more contactless environment and to create changes to our cutting-edge retail software to help our stores and well as other retailers attract consumers in this new environment. The Cares Act provides very favorable terms for the repayment or forgiveness of the monies lent to qualifying businesses like ours. While the final rules are not yet formalized, the initial guidelines allow for complete forgiveness for monies spent on approved expenses such as payroll and labor with non- approved expenses to be paid back over 2 years at 1% annual interest with no payments for the first 6 months after receipt. No collateral was pledged for these loans and management did not have to sign any personal guarantees. Management will make every effort to utilize these PPP loan funds in a manner that may allow for complete forgiveness of the loan(s) while providing the best opportunity for the continuity and growth of the business.

 

During the COVID-19 shutdown period management sourced new products and vendors for its businesses and is now optimistic that it will shortly obtain additional funding of debt or preferred equity to grow our business.

 

Reliance on the SEC’s March 25, 2019 order regarding extension of filing deadlines due to COVID-19

 

As a direct result of the COVID-19 shutdowns and travel restrictions, the SEC provided for any public company impacted by COVID-19 to extend its filing of its 10-K or 10-Q or other required filings for 45 additional days and would still be eligible for the further normal extensions of 15 and 5 days respectively. As noted herein, we have been extremely impacted on an operational level, delayed in obtaining information from our foreign subsidiaries in Hong Kong and Japan, as well as being delayed in our ability to obtain capital for the professional fees to complete our filings, and further compromised by the fact that our CEO and CFO are both restricted from travel to the United States at this time as they are in Hong Kong and Japan respectively. Therefore, we filed for a 45 day and 15-day NT10–KA Filing extensions in reliance on the March 25, 2020, order and have further been in communication with the SEC for additional consideration for timely filing under these extraordinary circumstances.

 

However, due to cash restraints with all of our closed operations, the Company was unable to meet any deadline to complete this audit and the quarterly reports (forms 10-Q) in a timely fashion during 2020 and the first quarter 2021. The Company retained auditor BF Borgers on April 28, 2021 and will complete all delinquent filings in the second quarter 2021. With our businesses reopening and revenues being generated, Management believes that it can continue to make timely filings in the future.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. Since we have not yet generated significant revenue, we have negative cash flows from operations, and negative working capital we have included a reference to the substantial doubt about our ability to continue as a going concern in connection with our consolidated financial statements for the year ended December 31, 2020. Our total accumulated deficit at December 31, 2020 was $44,475,900 compared to $22,756,345 as of December 31, 2019.

 

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

 

31

 

 

Elected Mandatory Filer Status

 

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

 

Critical Accounting Policies and Estimates

 

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, and expenses and the disclosure of contingent assets and liabilities. We use assumptions that we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. We believe there have been no significant changes in accounting policies during the year ended December 31, 2019. See Note 3 to the consolidated statements in this Annual Report for a complete discussion of our significant accounting policies and estimates.

 

Recently Issued Accounting Standards

 

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

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

32

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

12 RETECH CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

 

  Page
Report of Independent Registered Public Accounting Firm for the year ended December 31, 2019 F-1
   
Report of Independent Registered Public Accounting Firm for the year ended December 31, 2020 F-2
   
Consolidated Balance Sheets F-3
   
Consolidated Statements of Operations and Comprehensive Loss F-4
   
Consolidated Statement of Changes in Stockholders’ Deficit F-5
   
Consolidated Statements of Cash Flows F-6
   
Notes to the Consolidated Financial Statements F-7

 

33

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

12 ReTech Corporation

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheet of 12 ReTech Corporation and subsidiaries (the “Company”) as of December 31, 2019 and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As disclosed in the financial statements, the Company has suffered substantial net losses, has not generated significant revenue from its operations, and will require additional funds to maintain operations, all of which raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are disclosed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.

 

/s/ dbbmckennon  

 

We have served as the Company’s auditors from 2019 to 2020.

San Diego, California

June 18, 2020

 

F- 1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

12 ReTech Corporation

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheet of 12 ReTech Corporation and subsidiaries (the “Company”) as of December 31, 2020 and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As disclosed in the financial statements, the Company has suffered substantial net losses, has not generated significant revenue from its operations, and will require additional funds to maintain operations, all of which raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are disclosed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.

 

/s/ BF Borgers  

 

We have served as the Company’s auditors since 2021

Lakewood, Colorado

June 28, 2021

 

F- 2

 

 

12 RETECH CORPORATION

Consolidated Balance Sheets

 

    December 31,     December 31,  
    2020     2019  
ASSETS                
Current Assets:                
Cash and cash equivalents   $ 11,784     $ 118,860  
Accounts receivable     3,108       131,605  
Inventory     177,172       241,987  
Prepaid expenses     12,920       7,600  
Total Current Assets     204,984       500,051  
                 
Fixed assets, net     88,228       348,396  
ROU Asset     52,671       303,071  
Other Asset     -       179,100  
Security deposit     241,250       60,824  
TOTAL ASSETS   $ 587,133     $ 1,391,442  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current Liabilities:                
Accounts payable and accrued liabilities   $ 3,187,592     $ 2,167,496  
Due to stockholders     383,753       384,091  
Related Party Notes payable, net of discounts     31,000       346,000  
Convertible notes payable, net of discounts     1,268,647       1,308,092  
Derivative liabilities     23,798,240       5,359,442  
General default reserve     2,278,648       1,769,791  
Notes payable, net of discounts    

35,000

      -  
Lease liability     52,671       245,207  
Bank loans     249,937       233,250  
Merchant cash advances, net of discounts     409,892       472,829  
Total Current Liabilities     31,695,379       12,286,198  
                 
Lease Liability             59,372  
SBA and PPP Loans     620,182       -  
Total Long - Term Liabilities     620,182       59,372  
                 
Total Liabilities     32,315,561       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 December 31, 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 December 31, 2020 and December 31, 2019. Liquidation preference $0 as of December 31, 2020     -       -  
Series D-2 Preferred Stock, 2,500,000 shares designated; $0.00001 par value, $2.00 stated value; 912,368 shares and 935,368 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively. Liquidation preference $2,607,162     2,607,162       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 December 31, 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; 9,197,566 and 9,183,816 shares issued and outstanding at December 31, 2020 and December 31, 2019     93       92  
Series C Preferred Stock, 2 shares designated; $0.00001 par value; 1 share issued and outstanding at December 31, 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 128,494 shares issued and outstanding at December 31, 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 December 31, 2020 and December 31, 2019.     523,400       523,400  
Common stock: 8,000,000,000 authorized, $0.00001 par value; 1,177,103,618 and 36,935,303 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively     11,768       369  
Additional paid-in capital     9,282,228       8,341,811  
Minority interest     (634,297 )     (412,753 )
Accumulated other comprehensive income     (1,493 )     (2,455 )
Accumulated deficit     (44,475,900 )     (22,756,345 )
Total Stockholders’ Deficit     (34,780,224 )     (13,791,904 )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 587,133     $ 1,391,442  

 

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

 

F- 3

 

 

12 RETECH CORPORATION

Consolidated Statements of Operations

 

    Twelve Months Ended  
    December 31,  
    2020     2019  
             
Revenues   $ 721,312     $ 1,628,607  
Cost of revenue     385,236       1,122,086  
Gross Profit     336,076       506,521  
                 
Operating Expenses                
General and administrative     1,762,856       2,124,372  
Professional fees     683,251       1,225,699  
Depreciation and amortization     439,269       99,107  
Total Operating Expenses     2,885,376       3,449,178  
                 
Loss from operations     (2,549,300 )     (2,942,657 )
                 
Other Expense                
Other income     431,937       1,023,965  
Reserve Expense     (491,897 )     (2,139,961 )
Interest expense     (471,579 )     (8,995,066 )
Gain/loss on derivative liability     (18,860,260 )     3,524,861  
Net Other Expense     (19,391,799 )     (9,204,291 )
                 
Net Loss   $ (21,941,099 )   $ (12,146,948 )
                 
Other comprehensive income- foreign currency translation adjustment     962       (3,750 )
                 
Comprehensive Loss   $ (21,940,137 )   $ (12,150,698 )
                 
Minority Interest   $ (221,544 )   $ (571,506 )
                 
Net Loss to 12 ReTech Corporation     (21,718,593 )     (11,579,192 )
                 
Net Loss Per Common Share: Basic and Diluted   $ (0.03 )   $ (0.45 )
                 
Weighted Average Number of Common Shares Outstanding: Basic and Diluted     641,140,917       26,837,252  

 

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

 

F- 4

 

 

12 RETECH CORPORATION

Consolidated Statements of Stockholders Deficit

 

Years ended December 31, 2020 and 2019

 

    Series A Preferred Stock     Series C Preferred Stock     Series D-5 Preferred Stock     Series D-6 Preferred Stock     Common Stock                      
    Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Paid-in Capital     Minority Interest     Comprehensive Income     Accumulated Deficit     Stockholders’ Deficit  
                                                                                                                                          
Balance - December 31, 2018     6,500,000     $ 65       1     $ 1       -     $ -       -     $ -       6,542,520     $ 65     $ 5,336,977     $     $ 1,295     $ (11,180,903 )   $ (5,842,500 )
                                                                                                                         
Common stock issued for conversion of notes payable and accrued interest     -       -       -       -       -       -       -       -       17,803,260       178       251,344       -       -       -       251,522  
Common stock issued for Preferred Shares conversion     -       -       -       -       -       -       -       -       12,652,023       127       357,102       -       -       -       357,229  
Preferred Stock issued with acquisition     500,000       5       -       -       120,088       480,352       97,600       488,000       -       -       199,995       158,753       -       -       1,327,105  
Preferred Stock issued for services     114,165       1       -       -       -       -       -       -       -       -       62,999       -       -       -       63,000  
Series D-2 shares exchanged for common stock     -       -       -       -       -       -       -       -       (62,500 )     (1 )     (523,438 )     -       -       -       (523,439 )
Exchange series A preferred stock for related party and third party liabilities     1,915,151       19       -       -       -       -       -       -       -       -       1,154,572       -       -       -       1,154,591  
Relief of derivative through conversion and issuance of preferred stock derivatives     -       -       -       -       -       -       -       -       -       -       1,427,533       -       -       -       1,427,533  
Preferred shares issued for compensation     154,500       2       -       -       8,406       33,624       7,080       35,400       -       -       40,245       -       -       -       109,271  
Dividends     -       -       -       -       -       -       -       -       -       -       34,482       -       -       -       34,482  
Net loss     -       -       -       -       -       -       -       -       -       -       -       (571,506 )     (3,750 )     (11,575,442 )     (12,150,698 )
                                                                                                                         
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 )     (13,791,904 )
                                                                                                                         
Common stock issued for conversion of notes payable and accrued interest     -       -       -       -       -       -       -       -       785,026,210       7,850       111,124       -       -       -      

118,974

 
Common stock issued for Preferred Shares conversion     -       -       -       -       -       -       -       -       355,142,105       3,550       42,448       -       -       -       45,998  
Series D-2 shares exchanged for common stock     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Preferred shares issued for Cash     13,750       -       -       -       -       -       -       -       -       -       5,051       -       -       -       5,051  
Preferred shares issued for compensation     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Relief of derivative through conversion and issuance of preferred stock derivatives     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -  
Dividends and Paid in Capital     -       -       -       -       -       -       -       -       -       -       354,990       -       -       -       354,990  
Net loss     -       -       -       -       -       -       -       -       -       -       426,803       (221,543 )     962       (21,719,555 )    

(21,513,334

)
                                                                                                                         
Balance December 31, 2020     9,197,566       92       1       1       128,494       513,976       104,680       523,400       1,177,103,618       11,770       9,282,228       (634,296 )     (1,493 )     (44,475,900 )     (34,780,225 )

 

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

 

F- 5

 

 

12 RETECH CORPORATION

Consolidated Statements of Cash Flows

 

    Twelve Months Ended  
    December 31,  
    2020     2019  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net Loss   $ (21,941,099 )   $ (12,146,948 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     439,269       99,107  
Stock based compensation     -       207,271  
Amortization of debt discount     4,460       1,068,669  
Impairment of goodwill     -       1,971,677  
Increase in notes payable and Series D-2 for defaults     491,897       2,139,961  
Accrual of dividends on preferred stock     41,243       201,636  
Impairment of software development cost     -       513,601  
Gain/loss on derivative liability and additional interest expense recorded on issuance     18,860,260       3,524,862  
Loss on exchange and issuance of preferred stock     109,080       674,644  
Excess fair market value of common shares over liabilities settled     -       196,713  
Relief of notes payable and other liabilities through rescindment of emotion acquisition     -       (163,805 )
Accounts receivable     128,497     (40,474 )
Prepaid Expenses     (5,320 )     (2,716 )
Inventory     64,815       49,141  
Other current assets     179,100     114,119  
Lease liability     (1,508 )     1,508  
Security deposit     -       11,913  
Accounts payable and accrued liabilities     1,020,096       509,541  
Net Cash Provided By (Used in) Operating Activities     (609,211 )     (1,069,580 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
                 
Purchase of property and equipment     399       (16,146 )
Cash received from acquisition     -       67,872  
Cash paid on acquisition     -       (79,937 )
Software development costs     -       (142,483 )
Security deposit     (180,426 )     -  
Net Cash Used in Investing Activities     (180,027 )     (170,694 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds (repayments) from stockholders     (338 )     29,646  
Proceeds from convertible notes payable and notes payable     80,000       539,915  
Repayment of convertible notes payable     -       (99,684 )
Proceeds from preferred and common stock     5,000       131,000  
Proceeds from related party notes payable     -       331,000  
Proceeds from SBA and PPP loans     620,182          
Proceeds on merchant financing     -       566,000  
Payments on merchant financing     (62,937 )     (170,244 )
Proceeds from bank loans     16,687          
Net Cash Provided by Financing Activities     658,593       1,497,877  
                 
Effect of Exchange Rate Changes on Cash and Cash Equivalents     (962 )     (3,750 )
                 
Net decrease in cash and cash equivalents     (130,644 )     84,889  
Cash and cash equivalents, beginning of period     118,860       37,721  
Cash and cash equivalents, end of period   $ 11,784     $ 118,860  
                 
Supplemental cash flow information                
Cash paid for interest   $ -     $ -  
Cash paid for taxes   $ -     $ -  
                 
Non-cash transactions:                
Discounts on convertible notes payable   $ -     $ 539,915  
Conversions of convertible notes payable, accrued interest and derivatives   $ 120,300     $ 1,072,707  
Reduction of APIC related to derivative recorded on Preferred Stock in equity   $ 428,735     $ 582,824  
Preferred stock issued for acquisitions   $ -     $ 1,327,105  
Conversion of Series B and D-2 preferred stock to common stock   $ 45,300      $ 357,229  
Issuance of Series D-2 for accounts payable   $ -     $ 200,000  
Issuance of Series A for liabilities and related party payables   $ -     $ 1,154,491  
Net liabilities acquired from Emotion acquisition   $ -     $ 734,388  
Exchange of common and preferred stock for different series   $ -     $ 53,439  

 

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

 

F- 6

 

 

12 RETECH CORPORATION

Notes to the Consolidated Financial Statements

 

NOTE 1. NATURE OF BUSINESS

 

12 ReTech Corporation 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 it 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.

 

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 was increased to 20,000,000,000 shares of common stock.

 

F- 7

 

 

NOTE 2. GOING CONCERN

 

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

 

These financial statements have been prepared on a going concern basis which assumes the Company will continue to realize it assets and discharge its liabilities in the normal course of business. As of December 31, 2020, the Company has incurred losses totaling $44,475,900 since inception, has not yet generated significant revenue from its operations, and will require additional funds to maintain our operations. As of December 31, 2020, the Company had a working capital deficit of $31,490,395. 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 consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“GAAP”) and presented in US dollars. The fiscal year end is December 31.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries 12HK, 12JP, 12EU. 12 Retail, Rune NYC, LLC (“Rune”), Red Wire Group, LLC (“RWG”), Bluwire Group, LLC (“Bluwire”), Social Decay LLC dba Social Sunday (“Social Sunday”) and Emotion Fashion Group which included 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.

 

F- 8

 

 

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 $11,784 and $118,860 in cash and cash equivalents as at December 31, 2020 and 2019, respectively.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company deposits its cash in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

 

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.

 

F- 9

 

 

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 December 31, 2020 and 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 December 31, 2020, all inventory on hand is pursuant to our Bluwire and Rune acquisitions (see Note 4).

 

Fixed Assets

 

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

 

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

 

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

 

F- 10

 

 

Software Development Costs

 

Under ASC 350-40, capitalized costs related to the software under development are treated as an asset until the development is completed and the software is available for licensure under a software-as-a-service (“SaaS”) arrangement. Periodically, management reviews its capitalized costs to determine if they are properly valued or should they be impaired. During the year ended December 31, 2019, the Company fully impaired $513,601 in development costs for its 12 Technology suite and 12 Sconti APP, which is included in other expenses in the consolidated statements of operations.

 

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.

 

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.

 

The Company accounts for the impairment of goodwill under the provisions of ASU 2011-08 (“ASU 2011-08”), “Intangibles Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” ASU 2011-08 updated the guidance on the periodic testing of goodwill for impairment. The updated guidance gives companies the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

 

The Company performs impairment testing for goodwill using a three-step approach. Step “zero” of the annual goodwill impairment test allows for the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. An entity may choose to perform the qualitative assessment on none, some or all of its reporting units or an entity may bypass the qualitative assessment for any reporting unit and proceed directly to step “one” of the quantitative impairment test. If it is determined, on the basis of qualitative factors, that the fair value of a reporting unit is, more likely than not, less than its carrying value, the quantitative impairment test is required. Step “one” of the quantitative impairment test compares the net assets of the of the relevant reporting entity to its carrying value. Step “two” of the quantitative impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill.

 

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 as follows:

 

Redwire   $ 480,381  
Rune     394,440  
Bluwire     623,072  
Social Decay     473,784  
    $ 1,971,677  

 

The impairment expense is included in other expense in the consolidated statements of operations.

 

As of December 31, 2020, the company had fully amortized all remaining long-term assets and intellectual property during 2020. As a result, there were no longer any assets to impair as of December 31, 2020.

 

F- 11

 

 

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.
       
  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.

 

F- 12

 

 

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.

 

Stock-Based Compensation

 

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

 

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

 

Income Taxes

 

The Company accounts for income taxes under ASC 740, “Income Taxes”. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. At December 31, 2020 and 2019, the Company recognized a full valuation allowance against the recorded deferred tax assets.

 

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 years ended December 31, 2020 and 2019, potentially dilutive common shares consist of common stock issuable upon the conversion of convertible notes payable, Series A Preferred Stock, Series B Preferred Stock, Series D-2 Preferred Stock, Series D-3 Preferred Stock, Series D-5 Preferred Stock and Series D-6 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.

 

F- 13

 

 

Discontinued Operations

 

In accordance with ASU 2014-08, the Company considers discontinued operations a disposal of a component that represents a strategic shift or will have a major effect on an entity’s operations and financial results.

 

Foreign Currency Translation

 

The accompanying financial statements are presented in U.S. dollars (“USD”), the reporting currency. The functional currencies of the Company’s foreign operations are the Hong Kong Dollar (“HKD”), Japanese Yen (“JPY”), and Swiss Franc (“CHF”). In accordance with ASC 830, “Foreign Currency Matters”, the assets and liabilities are translated into USD at current exchange rates. Revenue and expenses are translated at average exchange rates for the period. Resulting translation adjustments are reflected as accumulated other comprehensive income in stockholders’ deficit. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a curr