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.
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.
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.
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.
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.
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.
|
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.
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 currency other than the functional currency are charged to operations
as incurred. There were no material transaction gains or losses in the periods presented.
Comprehensive
Income
ASC
220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the condensed
consolidated financial statements. During the years ended December 31, 2020 and 2019, the Company’s only component of comprehensive
income was foreign currency translation adjustments.
Contingencies
The
Company follows ASC 450-20, “Loss Contingencies” to report accounting for contingencies. Liabilities for loss contingencies
arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the assessment can be reasonably estimated. There were no loss contingencies as of December 31, 2020
and 2019.
Recent
Accounting Pronouncements
In
May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes nearly all existing
revenue recognition guidance under accounting principles generally accepted in the United States of America. The core principle of this
ASU is that revenue should be recognized for the amount of consideration expected to be received for promised goods or services transferred
to customers. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts, including significant judgments, and assets recognized for costs incurred to obtain or fulfill a contract.
ASU 2014-09 was scheduled to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within
that reporting period. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral
of Effective Date,” which deferred the effective date of ASU 2014-09 by one year and allowed entities to early adopt, but no earlier
than the original effective date. ASU 2014-09 is now effective for public business entities for the annual reporting period beginning
January 1, 2018. This update allows for either full retrospective or modified retrospective adoption. In April 2016, the FASB issued
ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” which
amends guidance previously issued on these matters in ASU 2014-09. The effective date and transition requirements of ASU 2016-10 are
the same as those for ASU 2014-09. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606):
Narrow Scope Improvements and Practical Expedients,” which clarifies certain aspects of the guidance, including assessment of collectability,
treatment of sales taxes and contract modifications, and providing certain technical corrections. The effective date and transition requirements
of ASU 2016-12 are the same as those for ASU 2014-09.
The
Company adopted the new guidance as of January 1, 2018. The Company has evaluated the new guidance and the adoption did not have a significant
impact on the Company’s financial statements and a cumulative effect adjustment under the modified retrospective method of adoption
will not be necessary.
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) which supersedes existing guidance
on accounting for leases in “Leases (Topic 840).” The standard requires lessees to recognize the assets and liabilities that
arise from leases on the balance sheet. A lessee should recognize in the balance sheet a liability to make lease payments (the lease
liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance is effective
for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years. The amendments should be
applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted
as of the beginning of an interim or annual reporting period. The Company evaluated the effects of adopting ASU 2016-02 on its consolidated
financial statements and determined the amount of lease assets and liabilities which was associated with the Bluwire leases. As such,
the company recognized a lease asset of $303,071 and short- term lease liability of $245,207 and long- term lease liability of $59,372
in 2019. The company recognized a lease asset of $52,671 and short- term lease liability of $52,671and long- term lease liability of
zero in 2020.The other leases do not have significant impact on the Company’s consolidated financial statements as of the date
of the filing of this report.
In
January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.”
This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities
is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is
concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The guidance is effective
for fiscal years beginning after December 15, 2018 with early adoption permitted. The Company adopted this standard as of January 1,
2019 and it did not have any material impact on its consolidated financial statements.
Management
has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements
will not have a material effect on the Company’s financial statements.
NOTE
4 – ACQUISITIONS
Acquisitions
Red
Wire Group, LLC
On
February 19, 2019, the Company completed the acquisition of Red Wire Group, LLC. (“RWG”) a Utah limited liability company,
pursuant to a share exchange agreement whereby the Company exchanged shares of the Company’s Series D-5 and Series D-6 Preferred
Stock for 100% of the outstanding equity of RWG. Pursuant to the terms of the exchange agreement, the Company acquired (i) 75% of the
membership interests of RWG in exchange for 54,000 shares of the Company’s Series D-6 Preferred Stock (stated value of $5.00 per
share), and (ii) the remaining 25% of the membership interests of RWG in exchange for 37,500 shares of the Company’s Series D-5
Preferred Stock (stated value of $4.00 per share). The total purchase consideration for the RWG acquisition was $450,000, including the
fair value of D-5 and D-6 Preferred Stock of $420,000 and $30,000 in cash.
The
RWG acquisition was accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values
of the assets acquired and liabilities assumed. These values are subject to change as we perform additional reviews of our assumptions
utilized.
The
following table summarizes the provisional purchase price allocations relating to the RWG acquisition:
|
|
|
Preliminary
|
|
|
|
|
Purchase Price
|
|
|
|
|
Allocation
|
|
|
Cash and cash equivalents
|
|
$
|
10
|
|
|
Inventory
|
|
|
48,000
|
|
|
Fixed assets, net
|
|
|
58,110
|
|
|
Goodwill
|
|
|
480,381
|
|
|
Accounts payable and accrued liabilities
|
|
|
(136,501
|
)
|
|
Net assets acquired
|
|
$
|
450,000
|
|
The
fixed assets acquired are being depreciated over their estimated useful lives of 5 years.
As
of December 31, 2019, the Company determined, based on various qualitative and quantitative factors, that the acquired goodwill had indicators
of impairment and therefore recorded a full impairment charge of $480,381.
RWG’s
results of operations have been included in the Company’s operating results for the period from February 1, 2019. RWG contributed
revenues of $594,735 for the year ended December 31, 2019. The results of RWG for 2020 is consolidated along with the revenues of the
other 12 Retail subsidiaries. On March 6, 2020, Red Wire 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.
Rune
NYC, LLC
Effective
March 14, 2019, the Company completed the acquisition of Rune NYC, LLC (“Rune”), a New York limited liability company, pursuant
to a share exchange agreement whereby the Company exchanged shares of the Company’s Series D-5 Preferred Stock for 92.5% of the
total outstanding equity of Rune and the members of Rune (the “Members”). The Company issued an aggregate of 82,588 shares
of Series D-5 Preferred Stock with a stated value of $4.00 per share, and cash consideration of $49,937, for total purchase consideration
of $380,289.
The
Rune acquisition was accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair
values of the assets acquired, liabilities assumed and fair value of the minority interest. These values are subject to change as we
perform additional reviews of our assumptions utilized.
The
following table summarizes the provisional purchase price allocations relating to the Rune acquisition:
|
|
|
Preliminary
|
|
|
|
|
Purchase Price
|
|
|
|
|
Allocation
|
|
|
Cash and cash equivalents
|
|
$
|
12,914
|
|
|
Accounts receivable, net
|
|
|
23,506
|
|
|
Other current assets
|
|
|
9,750
|
|
|
Goodwill
|
|
|
394,440
|
|
|
Accounts payable and accrued liabilities
|
|
|
(29,487
|
)
|
|
Non-controlling interest
|
|
|
(30,834
|
)
|
|
Net assets acquired
|
|
$
|
380,289
|
|
As
of December 31, 2019, the Company determined, based on various qualitative and quantitative factors, that the acquired goodwill had indicators
of impairment and therefore recorded a full impairment charge of $394,440.
Rune’s
results of operations have been included in the Company’s operating results for the period from March 1, 2019. Rune contributed
revenues of $163,050 in 2019. The results of Rune for 2020 is consolidated along with the revenues of the other 12 Retail subsidiaries.
Bluwire
Group, LLC
On
October 1, 2019, the Company completed the acquisition of Bluwire Group, LLC (“Bluwire”), a Florida limited liability company,
pursuant to a share exchange agreement whereby the Company exchanged shares of the Company’s Series A Preferred Stock for 60.5%
of the outstanding equity of Bluwire. Pursuant to the terms of the exchange agreement, at closing the Company acquired 60.5% of the membership
interests of Bluwire in exchange for 500,000 shares of the Company’s Series A Preferred Stock. The total purchase consideration
for the Bluwire acquisition was $200,000, the fair value of the Series A Preferred Stock issued.
The
Bluwire acquisition was accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair
values of the assets acquired, liabilities assumed and fair value of the minority interest. These values are subject to change as we
perform additional reviews of our assumptions utilized.
The
following table summarizes the provisional purchase price allocations relating to the Bluwire acquisition:
|
|
|
Preliminary
|
|
|
|
|
Purchase Price
|
|
|
|
|
Allocation
|
|
|
Cash and cash equivalents
|
|
$
|
51,530
|
|
|
Accounts receivable, net
|
|
|
62,333
|
|
|
Inventory
|
|
|
212,777
|
|
|
Other assets
|
|
|
179,100
|
|
|
Fixed assets, net
|
|
|
271,449
|
|
|
Security deposit
|
|
|
59,800
|
|
|
Goodwill
|
|
|
623,072
|
|
|
Accounts payable and accrued liabilities
|
|
|
(736,468
|
)
|
|
Due to stockholders
|
|
|
(395,674
|
)
|
|
Non-controlling interest
|
|
|
(127,919
|
)
|
|
Net assets acquired
|
|
$
|
200,000
|
|
The
fixed assets acquired are being depreciated over their estimated useful lives of 5 years, as well as leasehold improvements which are
amortized over the short of the useful lives or lease term. Other assets consist of the preliminary fair value of intangible assets acquired
upon the acquisition, including Bluwire’s trademark and lease assets.
As
of December 31, 2019, the Company determined, based on various qualitative and quantitative factors, that the acquired goodwill had indicators
of impairment and therefore recorded a full impairment charge of $623,072.
Bluwire’s
results of operations have been included in the Company’s operating results for the period from October 1, 2019. Bluwire contributed
revenues of $790,534 in 2019. The results of Bluwire for 2020 is consolidated along with the revenues of the other 12 Retail subsidiaries.
Social
Decay, LLC dba Social Sunday
On
November 20, 2019, the Company completed the acquisition of Social Decay, LLC dba Social Sunday (“Social Sunday”), a New
Jersey limited liability company, pursuant to a share exchange agreement whereby the Company exchanged shares of the Company’s
Series D-6 Preferred Stock for 100% of the total outstanding equity of Social Sunday and the member of Social Sunday (the “Member”).
The Company issued an aggregate of 30,000 shares of Series D-6 Preferred Stock with a stated value of $5.00 per share, and an additional
12,000 shares were issued and held in escrow, for total purchase consideration of $210,000.
The
Social Sunday acquisition was accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary
fair values of the assets acquired, liabilities assumed and fair value of the minority interest. These values are subject to change as
we perform additional reviews of our assumptions utilized.
The
following table summarizes the provisional purchase price allocations relating to the Social Sunday acquisition:
|
|
|
Preliminary
|
|
|
|
|
Purchase Price
|
|
|
|
|
Allocation
|
|
|
Cash and cash equivalents
|
|
$
|
3,418
|
|
|
Accounts receivable, net
|
|
|
13,189
|
|
|
Inventory
|
|
|
55,211
|
|
|
Fixed assets, net
|
|
|
20,529
|
|
|
Goodwill
|
|
|
473,784
|
|
|
Accounts payable and accrued liabilities
|
|
|
(356,131
|
)
|
|
Net assets acquired
|
|
$
|
210,000
|
|
The
fixed assets acquired are being depreciated over their estimated useful lives of 5 years.
As
of December 31, 2019, the Company determined, based on various qualitative and quantitative factors, that the acquired goodwill had indicators
of impairment and therefore recorded a full impairment charge of $473,784.
Social
Sunday’s results of operations have been included in the Company’s operating results for the period from November 1, 2019.
Social Sunday contributed revenues of $55,638 in 2019. The results of Social Sunday for 2020 is consolidated along with the revenues
of the other 12 Retail subsidiaries.
Acquisition
– Other
The
Company acquired these entities to expand their retail operations. In addition, the goodwill in connection with these acquisitions is
not expected to be deductible for tax purposes. Intangibles are amortized over their expected life from one to five years.
Unaudited
Pro Forma Financial Information
The
following unaudited pro forma financial information presents the Company’s financial results as if the RWG, Rune, Bluwire and Social
Sunday’s acquisitions had occurred as of January 1, 2019. The unaudited pro forma financial information is not necessarily indicative
of what the financial results actually would have been had the acquisition been completed on this date. In addition, the unaudited pro
forma financial information is not indicative of, nor does it purport to project the Company’s future financial results. The pro
forma information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result
from the acquisitions:
|
|
|
Pro
forma twelve months ended December 31
|
|
|
|
|
2019
|
|
|
Revenues
|
|
$
|
5,219,301
|
|
|
Cost of revenues
|
|
|
2,845,331
|
|
|
Gross profit
|
|
|
2,373,970
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
$
|
5,799,715
|
|
|
Operating losses
|
|
$
|
(9,204,291
|
)
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(12,630,036
|
)
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
$
|
(0.47
|
)
|
Dispositions
Emotion
Apparel, Inc. & Emotion Fashion Group, Inc.
On
May 1, 2018, the Company completed the acquisition of E-motion Apparel, Inc. (“EAI”) a California corporation, pursuant to
a share exchange agreement whereby the Company exchanged 1.0 million of its common shares for 100% of the outstanding equity of EAI,
in a third-party transaction. The acquisition of EAI was accounted for under ASC 805.
The Original EAI Transaction was accounted for as
follows: The fair value of the 1.0 million shares of common stock issued amounted to $80,000. EAI owned four wholly-owned and majority-owned
subsidiaries: Lexi Luu Designs, Inc, (a Nevada Corporation), Punkz Gear, Inc, (a Wyoming Corporation), Cleo VII, Inc. (a Nevada Corporation)
and Skipjack Dive & Dance Wear, Inc. (a Nevada Corporation), which together owns five microbrands that were included in this transaction
and target specific niche markets: Lexi-Luu Dancewear, Punkz Gear, Cleo VII, Skipjack Dive & Dance Wear, and E-motion Apparel, Inc.
During the fourth quarter of 2018, the Company determined that the goodwill associated with the acquisition should be fully impaired
and recorded an impairment expense of $551,111.
On
July 6, 2018, the Company incorporated a new Emotion Apparel, Inc. in the state of Utah and immediately re-named it as Emotion Fashion
Group, Inc. (“Emotion Fashion Group” or “EFG”) and does business under the brand name, “Emotion Fashions.”
On
September 30, 2019, the Company foreclosed on its liens taking possession of the assets including the brands; Lexi-Luu, Emotion Fashion
Group, Punkz Gear, and retuned the stock in Emotion Apparel, Inc. and its subsidiaries to the Seller. As a result, the Company wrote
off the payables of Emotion Apparel, Inc. to other income, including $511,486 in accounts payable and accrued liabilities and $250,000
in notes payable.
The
Company determined that the disposition of Emotional Apparel did not meet the criteria for discontinued operations reporting.
12
Europe, A.G.
12
Europe A.G. which was acquired in 2017 has underperformed against expectation. 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 $35,000 by the Company. Therefore, this subsidiary is no longer in existence. Management does not consider
this closure as a condition for discontinued operations as master representation agreement between 12 Europe has now been transferred
to 12 Hong Kong and Coppola AG. As such, the software customer in Europe will continue to be supported. As such the total discharged
accounts payable totaled $445,244 and were offset to other income.
The
Company determined that the disposition of 12 Europe A.G. did not meet the criteria for discontinued operations reporting.
NOTE
5 – PREPAID EXPENSE AND OTHER CURRENT ASSETS
Prepaid
expense and other current assets at December 31, 2020 and 2019 consists of the following:
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
Prepaid expense
|
|
$
|
12,920
|
|
|
$
|
7,600
|
|
|
Other current assets
|
|
|
-
|
|
|
|
-
|
|
|
|
|
$
|
12,920
|
|
|
$
|
7,600
|
|
NOTE
6 – FIXED ASSETS, NET
Fixed
assets, net at December 31, 2020 and 2019 consists of the following:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Office equipment
|
|
$
|
280,966
|
|
|
$
|
281,365
|
|
|
Furniture and equipment
|
|
|
58,118
|
|
|
|
58,118
|
|
|
Computer
|
|
|
13,704
|
|
|
|
13,704
|
|
|
Technical equipment
|
|
|
27,492
|
|
|
|
27,492
|
|
|
Truck
|
|
|
-
|
|
|
|
-
|
|
|
Intellectual Property
|
|
|
78,506
|
|
|
|
78,506
|
|
|
Machinery
|
|
|
|
|
|
|
-
|
|
|
|
|
|
458,786
|
|
|
|
458,785
|
|
|
Less: accumulated depreciation
|
|
|
(370,557
|
)
|
|
|
(110,388
|
)
|
|
Equipment
|
|
$
|
88,228
|
|
|
$
|
348,396
|
|
Depreciation
and amortization for the years ended December 31, 2020 and 2019 amounted to $439,269 and $99,107, respectively.
NOTE
7 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at December 31, 2020 and 2019 consists of the following:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,356,812
|
|
|
$
|
1,249,740
|
|
|
Accrued expenses
|
|
|
1,241,850
|
|
|
|
548,920
|
|
|
Accrued Salaries
|
|
|
139,300
|
|
|
|
111,000
|
|
|
Accrued board of director fees
|
|
|
150,000
|
|
|
|
30,000
|
|
|
Accrued interest
|
|
|
299,631
|
|
|
|
191,836
|
|
|
|
|
$
|
3,187,592
|
|
|
$
|
2,167,496
|
|
NOTE
8 - DUE TO STOCKHOLDERS
Due
to stockholders at December 31, 2020 and 2019 consists of the following:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Daniel Monteverde
|
|
|
-
|
|
|
|
1,388
|
|
|
Angelo Ponzetta
|
|
|
11,217
|
|
|
|
10,167
|
|
|
Christopher Burden
|
|
|
172,536
|
|
|
|
172,536
|
|
|
Maurice Ojeda
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
$
|
383,753
|
|
|
$
|
384,091
|
|
During
the year December 31, 2019, the Company converted amounts to Daniele Monteverde and Angelo Ponzetta totaling $723,253 into Series A Preferred
Shares, which was treated as contributed capital.
In
connection with the Bluwire acquisition, the Company assumed liabilities to Bluwire’s members, Christopher Burden and Maurice Ojeda,
totaling $372,536. The amounts do not incur interest and are due on demand. See Note 8 for additional information.
As
of December 31, 2020 and 2019, accounts payable and accrued liabilities included salaries of $139,300 and $111,000, respectively, and
accrued board of director fees of $150,000 and $30,000, respectively.
NOTE
9 – RELATED PARTY NOTES PAYABLE
On
September 30, 2019, the Company foreclosed on its liens taking possession of the assets including the brands; Lexi-Luu, Emotion Fashion
Group, Punkz Gear, and retuned the stock in Emotion Apparel, Inc. and its subsidiaries to the Seller. As a result, the Company wrote
off the payables of Emotion Apparel, Inc. to other income, including $261,486 in accounts payable and accrued liabilities and $250,000
in notes payable.
On
October 3, 2019, Bluwire inaccurate posted a promissory note to a related party $300,000 and it accrued interest of $15,000 in 2019 when
it should have been posted to equity. During 2020, the Company converted this note into equity, and accordingly reclassed $300,000 into
additional paid-in capital.
As
of December 31, 2020 and 2019, there were two demand notes outstanding totaling $31,000.
NOTE 10 – NOTES PAYABLE
On December 21, 2020 the company issued a note
payable to a private investor for $35,000 in exchange for cash. As of December 31, 2020 there was one outstanding note payable for $35,000.
NOTE
11 – SBA AND PPP LOANS
On March 27, 2020, the
Federal Government of the United States of America 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. As a subsequent event, the company applied
and a received a second round of PPP funding from the period January 23, 2021 to April 5, 2021 of $302,602.
In
August 2020, two of the Company’s subsidiaries qualified for the United States Small Business Administration (“SBA”)
Economic Industry Disaster Loans (“EIDL”) and the Company received $325,300 under the program. These loans are unsecured,
have no personal guaranty, carry a 3.75% annual interest rate with aggregate monthly payments of 13 months after receipt of funds. Management
has used these funds to retain key personnel, pay regulatory fees, rent, begin work on a new website for Bluwire, make progress on this
retail APP and acquire product to re-open one of its Bluwire Stores.
NOTE
12 – CONVERTIBLE NOTES PAYABLE
Convertible
notes payable at December 31, 2020 and 2019 consists of the following:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Dated
September 15, 2017
|
|
$
|
318,492
|
|
|
$
|
337,653
|
|
|
Dated
April 25, 2018
|
|
|
40,123
|
|
|
|
40,123
|
|
|
Dated
September 21, 2018
|
|
|
56,714
|
|
|
|
56,714
|
|
|
Dated
October 18, 2018
|
|
|
60,000
|
|
|
|
60,000
|
|
|
Dated
November 28, 2018
|
|
|
33
|
|
|
|
25,443
|
|
|
Dated
November 28, 2018
|
|
|
21,700
|
|
|
|
57,870
|
|
|
Dated
November 29, 2018
|
|
|
25,000
|
|
|
|
25,000
|
|
|
Dated
December 13, 2018
|
|
|
105,000
|
|
|
|
105,000
|
|
|
Dated
January 15, 2019
|
|
|
115,000
|
|
|
|
115,000
|
|
|
Dated
February 7, 2019
|
|
|
111,276
|
|
|
|
132,720
|
|
|
Dated
February 19, 2019
|
|
|
64,500
|
|
|
|
64,500
|
|
|
Dated
February 19, 2019
|
|
|
55,125
|
|
|
|
55,125
|
|
|
Dated
March 13, 2019
|
|
|
55,125
|
|
|
|
55,125
|
|
|
Dated
May 14, 2019
|
|
|
26,500
|
|
|
|
26,500
|
|
|
Dated
May 17, 2019
|
|
|
27,825
|
|
|
|
27,825
|
|
|
Dated
August 1, 2019
|
|
|
56,194
|
|
|
|
56,194
|
|
|
Dated
August 7, 2019
|
|
|
55,125
|
|
|
|
55,125
|
|
|
Dated
October 3, 2019
|
|
|
5,350
|
|
|
|
5,350
|
|
|
Dated
October 25, 2019
|
|
|
6,825
|
|
|
|
6,825
|
|
|
Dated
March 19, 2020
|
|
|
33,600
|
|
|
|
-
|
|
|
Dated
March 25, 2020
|
|
|
33,600
|
|
|
|
-
|
|
|
Total
convertible notes payable
|
|
|
1,273,107
|
|
|
|
1,308,092
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Unamortized debt discount
|
|
|
(4,460
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
convertible notes
|
|
|
1,268,647
|
|
|
|
1,308,092
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
current portion of convertible notes
|
|
|
1,268,647
|
|
|
|
1,308,092
|
|
|
Long-term
convertible notes
|
|
$
|
-
|
|
|
$
|
-
|
|
On
March 18, 2020 the Company entered into a promissory note agreement with Adar Alef, LLC (“Adar”) for loans totaling $33,600.
The consideration to the Company is $30,000 with $3,600 legal fees and OID. The note is convertible after 181 days at a (i) $0.0075 ceiling
or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion date.
On
March 25, 2020 the Company entered into a promissory note agreement with LG Capital Funding, LLC (“LG”) for loans totaling
$33,600. The note is convertible after 181 days at a (i) $0.0075 ceiling or (ii) 60% of the lowest trading price over the past twenty
trading days prior to the conversion date.
During
the years ended December 31, 2020 and 2019, the Company recognized interest expense of $471,579 and $8,995,066,
respectively, which represented the amortization of original issue discounts and debt discounts. As of December 31, 2019, all original
issue and debt discounts pertaining to outstanding convertible notes were fully amortized. As of December 31, 2020, the unamortized debt
discount of $4,460 are related to the new convertible notes issued in 2020.
During
the year ended December 31, 2020, the Company converted principal and unpaid accrued interest totaling $120,300 into an aggregate of
785,026,210 shares of common stock. During the year ended December 31, 2019, the Company converted principal and unpaid accrued interest
totaling $251,521 into an aggregate of 17,803,260 shares of common stock.
The
Company has twenty-one (21) outstanding convertible notes as of December 31, 2020 with a total outstanding principal of $1,273,107.
The 2019 notes matured from January 2020 to May 2020. The 2020 notes matured in September 2020. These notes carry an interest rate
ranging between 8% and 12% per annum. The notes carry an original issue discounts ranging between 10% to 25% of the face value of each
note.
The
notes may be converted into shares of the Company’s common stock at any time on or after the occurrence of an event of default.
The conversion prices of the notes include the conversion price shall be the 60% multiplied by the lowest trading price during the 30
trading days period ending, in holder’s sole discretion on each conversion, on either (i) the last complete trading day prior to
the conversion date or (ii) the conversion date.
For
some notes, the Company agreed to pay a one-time interest charge of 9% of the principal amount for each note. The notes may be converted
at specified times per the respective agreements. The conversion price shall be 75% multiplied by the lowest trading price during the
10 prior trading days period ending on either (i) the last complete trading day prior to conversion date or (ii) the conversion date.
All
terms of the notes, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted
downward if the Company offers more favorable terms to another party, while this note is in effect.
The
notes may be redeemed by the Company at rates ranging from 105% to 130% depending on the redemption date provided that no redemption
is allowed after the 180th day.
The
following table is a rollforward of activity, by each noteholder, for the years ended December 31, 2020 and 2019:
|
|
|
Loan
Holder
|
|
Principal
Amount
|
|
|
Date
|
|
Maturity
|
|
OID
& Financing Costs
|
|
|
Balance
at 12 31 17
|
|
|
Additions
|
|
|
Payments
|
|
|
Conversion
|
|
|
Balance
at 12 31 18
|
|
|
Additions
|
|
|
Payments
|
|
|
Conversion
|
|
|
Balance
at 12 31 19
|
|
|
Additions
|
|
|
Payments
|
|
|
Conversion
|
|
|
Balance
at 12 31 20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
SBI Investment
|
|
$
|
200,000
|
|
|
9/27/2017
|
|
3/15/2018
|
|
|
|
|
|
|
200,000
|
|
|
|
75,000
|
|
|
|
(25,000
|
)
|
|
|
(93,150
|
)
|
|
|
156,850
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,697
|
)
|
|
|
150,153
|
|
|
|
|
|
|
|
|
|
|
$
|
(19,160.78
|
)
|
|
130,992
|
|
1
|
|
SBI Investment
|
|
$
|
187,500
|
|
|
11/14/2017
|
|
5/14/2018
|
|
|
|
|
|
|
187,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
187,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
187,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,500
|
|
2
|
|
LG Capital Funding, LLC
|
|
$
|
185,292
|
|
|
12/8/2017
|
|
6/8/2018
|
|
|
17,646
|
|
|
|
92,646
|
|
|
|
92,646
|
|
|
|
-
|
|
|
|
(133,032
|
)
|
|
|
52,260
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(52,260
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
3
|
|
Cerberus Finance Group Ltd
|
|
$
|
185,292
|
|
|
12/12/2017
|
|
6/8/2018
|
|
|
17,646
|
|
|
|
92,646
|
|
|
|
92,646
|
|
|
|
(25,000
|
)
|
|
|
(53,183
|
)
|
|
|
107,109
|
|
|
|
-
|
|
|
|
(99,684
|
)
|
|
|
(7,425
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
4
|
|
Eagle Equities LLC
|
|
$
|
50,000
|
|
|
3/15/2018
|
|
3/15/2019
|
|
|
2,500
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
(50,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
5
|
|
Adar Capital LLC
|
|
$
|
50,000
|
|
|
3/15/2018
|
|
3/15/2019
|
|
|
2,500
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
(50,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
6
|
|
Bellridge Capital LP
|
|
$
|
60,000
|
|
|
5/17/2018
|
|
5/17/2019
|
|
|
10,000
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
(44,000
|
)
|
|
|
16,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
7
|
|
Auctus
|
|
$
|
100,000
|
|
|
4/27/2018
|
|
4/25/2019
|
|
|
10,000
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
(59,877
|
)
|
|
|
40,123
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,123
|
|
8
|
|
Bellridge Capital LP
|
|
$
|
60,000
|
|
|
9/17/2018
|
|
3/15/2019
|
|
|
10,000
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,286
|
)
|
|
|
56,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,714
|
|
9
|
|
Eagles Equity
|
|
$
|
50,000
|
|
|
9/21/2018
|
|
3/15/2019
|
|
|
2,500
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
(50,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
10
|
|
Adar Bay
|
|
$
|
50,000
|
|
|
10/4/2018
|
|
10/4/2018
|
|
|
2,500
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
(50,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
11
|
|
Bellridge Capital LP
|
|
$
|
60,000
|
|
|
10/18/2018
|
|
10/18/2019
|
|
|
10,000
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
12
|
|
Adar Alef Omnibus
|
|
$
|
64,500
|
|
|
11/28/2018
|
|
11/29/2019
|
|
|
4,125
|
|
|
|
-
|
|
|
|
64,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(39,057
|
)
|
|
|
25,443
|
|
|
|
|
|
|
|
|
|
|
$
|
(25,410.13
|
)
|
|
33
|
|
13
|
|
Adar Alef Debt Purchase
|
|
$
|
25,000
|
|
|
11/28/2018
|
|
11/29/2019
|
|
|
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
(25,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
14
|
|
LG Capital Omnibus
|
|
$
|
64,500
|
|
|
11/28/2018
|
|
11/29/2019
|
|
|
4,125
|
|
|
|
-
|
|
|
|
64,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,630
|
)
|
|
|
57,870
|
|
|
|
|
|
|
|
|
|
|
$
|
(36,170.00
|
)
|
|
21,700
|
|
15
|
|
LG Capital Debt Purchase
|
|
$
|
25,000
|
|
|
11/29/2018
|
|
11/29/2018
|
|
|
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
16
|
|
LG Capital Omnibus
|
|
$
|
105,000
|
|
|
12/13/2018
|
|
12/14/2019
|
|
|
5,000
|
|
|
|
-
|
|
|
|
105,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
105,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
105,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,000
|
|
17
|
|
LG Capital Omnibus
|
|
$
|
115,000
|
|
|
1/15/2019
|
|
1/15/2020
|
|
|
5,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
115,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
115,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,000
|
|
18
|
|
Adar Alef Omnibus
|
|
$
|
132,720
|
|
|
2/7/2019
|
|
2/7/2020
|
|
|
6,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
132,720
|
|
|
|
-
|
|
|
|
-
|
|
|
|
132,720
|
|
|
|
|
|
|
|
|
|
|
$
|
(21,444.27
|
)
|
|
111,276
|
|
19
|
|
Adar Alef Debt Note
|
|
$
|
108,055
|
|
|
2/7/2019
|
|
2/7/2019
|
|
|
8,371
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
108,055
|
|
|
|
-
|
|
|
|
(108,056
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
20
|
|
Adar Alef Omnibus
|
|
$
|
64,500
|
|
|
2/19/2019
|
|
2/19/2020
|
|
|
4,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
64,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,500
|
|
21
|
|
LG Capital Omnibus
|
|
$
|
55,125
|
|
|
2/19/2019
|
|
2/19/2020
|
|
|
2,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
55,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,125
|
|
22
|
|
LG Capital Omnibus
|
|
$
|
55,125
|
|
|
3/13/2019
|
|
3/13/2020
|
|
|
2,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
55,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,125
|
|
23
|
|
Adar Alef Omnibus #2 Back
End
|
|
$
|
26,500
|
|
|
5/14/2019
|
|
2/20/2020
|
|
|
1,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
26,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
26,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,500
|
|
24
|
|
LG Capital Omnibus #5
|
|
$
|
27,825
|
|
|
5/17/2019
|
|
5/15/2020
|
|
|
2,825
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
27,825
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,825
|
|
25
|
|
Adar Alef Omnibus #2 BE
3rd Tranche
|
|
$
|
56,194
|
|
|
8/1/2019
|
|
2/7/2020
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
56,194
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,194
|
|
26
|
|
LG Capital Omnibus #7
|
|
$
|
55,125
|
|
|
8/6/2019
|
|
2/7/2020
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
55,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,125
|
|
27
|
|
Adar Alef Omnibus #2 BE
4th Tranche
|
|
$
|
5,350
|
|
|
10/3/2019
|
|
2/7/2020
|
|
|
5,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
5,350
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,350
|
|
28
|
|
LG Capital Omnibus #8
|
|
$
|
6,825
|
|
|
10/25/2019
|
|
10/26/2020
|
|
|
5,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
6,825
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,825
|
|
29
|
|
Adar Alef Omnibus # 5th
Tranche
|
|
$
|
33,600
|
|
|
3/19/2020
|
|
9/19/2020
|
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,600
|
|
|
|
|
|
|
|
|
|
|
33,600
|
|
30
|
|
LG
Caputal Funding, LLC
|
|
$
|
33,600
|
|
|
3/25/2020
|
|
9/20/2020
|
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,600
|
|
|
|
|
|
|
|
|
|
|
33,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
note total
|
|
|
|
|
|
|
|
|
|
|
214,021
|
|
|
|
572,792
|
|
|
|
1,024,292
|
|
|
|
(50,000
|
)
|
|
|
(608,242
|
)
|
|
|
938,842
|
|
|
|
708,344
|
|
|
|
(99,684
|
)
|
|
|
(239,411
|
)
|
|
|
1,308,092
|
|
|
|
67,200
|
|
|
|
-
|
|
|
|
(102,185
|
)
|
|
1,273,107
|
As additional consideration,
the Company is to issue to Adar Bays Capital shares of common stock with a value equal to 25% of each note, determined at the time of
signing of each note.
As
of December 31, 2020, all were past maturity, in default and due on demand. As such, the Company accelerated the amortization of the
remaining unamortized original issue and debt discounts during 2019.
The
Company calculated a default reserve which represents the additional amount the Company would have to pay to all note holders in the
event of the default. Management calculated the amount utilizing additional premiums, accrued interest and default accrued interest as
per the agreements. As of December 31, 2020 and 2019, the Company recorded a general default reserve of $2,278,658 and $1,769,791, respectively.
NOTE
13 – DERIVATIVE LIABILITIES
The
Company classified certain conversion features in the convertible notes and preferred stock issued as embedded derivative instruments
due to the variable conversion price feature and potential adjustments to conversion prices due to events of default. These conversion
features are recorded as derivative liabilities at fair value in the consolidated financial statements. These fair value estimates were
measured using inputs classified as Level 3 of the fair value hierarchy. The Company develops unobservable Level 3 inputs using the best
information available in the circumstances, which might include its own data, or when it believes inputs based on external data better
reflect the data that market participants would use, its bases its inputs on comparison with similar entities. Due to the existence of
down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, For the 2019 audit,
the Company used a Lattice-Based Simulation model, which incorporates inputs classified as Level 3 was appropriate. During
2020 the Company reconsidered and reverted to the Black-Scholes model.
The
following table present the assumptions used in the Lattice-Based and Black-Scholes Simulation models to determine the fair value of
the derivative liabilities as of December 31, 2020 and 2019:
|
|
|
December 31, 2020
(Black-Scholes)
|
|
|
Risk-free interest rates
|
|
|
0.21
|
%
|
|
Expected life (years)
|
|
|
1.00 year
|
|
|
Expected dividends
|
|
|
0
|
%
|
|
Expected volatility
|
|
|
467
|
%
|
|
|
|
December 31, 2019
(Lattice Model)
|
|
|
Risk-free interest rates
|
|
|
1.74 – 2.63
|
%
|
|
Expected life (years)
|
|
|
0.05 – 1.00 years
|
|
|
Expected dividends
|
|
|
0
|
%
|
|
Expected volatility
|
|
|
226 – 736
|
%
|
The
following table provides a roll-forward of the fair values of the Company’s derivative liabilities for the years ended December
31, 2020 and 2019:
|
|
|
Year Ended
December 31, 2020
|
|
|
Balance – December 31, 2019
|
|
$
|
5,359,442
|
|
|
Additional new conversion option derivatives
|
|
|
7,272
|
|
|
Conversion of note derivatives
|
|
|
(428,733
|
)
|
|
Change in fair market value of derivative liabilities
|
|
|
18,860,260
|
|
|
Balance – December 31, 2020
|
|
$
|
23,798,240
|
|
|
|
|
Year Ended
December 31, 2019
|
|
|
Balance – December 31, 2018
|
|
$
|
2,696,470
|
|
|
Issuance of new derivative liabilities
|
|
|
7,592,844
|
|
|
Conversions to paid-in capital
|
|
|
(822,187
|
|
|
Reclass to additional paid-in capital
|
|
|
(582,824
|
|
|
Change in fair market value of derivative liabilities
|
|
|
(3,524,861
|
|
|
Balance – December 31, 2019
|
|
$
|
5,359,442
|
|
NOTE
14 – MERCHANT FINANCING
On
June 27, 2019, the Company’s Rune subsidiary entered into another future receivable purchase agreement with Vox Funding and received
$19,400. This agreement provides for payment over 7 months and carried a fee of $7,600. This obligation is not convertible under any
terms into Company stock.
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 $35,000 by the Company.
On
September 24, 2019, the Company’s Rune subsidiary entered into another future receivable purchase agreement with Vox Funding and
received $14,550. This agreement provides for payment over 3.5 months and carried a fee of $4,800. This obligation is not convertible
under any terms into Company stock.
On
September 24, 2019, the Company’s Rune subsidiary entered into another future receivable purchase agreement with Vox Funding and
received $17,666. This agreement provides for payment over 9 months and carried a fee of $12,900 and retired a prior obligation of $15,353.
This obligation is not convertible under any terms into Company stock.
On
October 11, 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. The balance of this note is approximately $360,000 as of December 31, 2019.
On
November 4, 2019, the Company’s Bluwire subsidiary entered into a second future receivable purchase agreement with Libertas Funding
and received $145,500. This agreement provides for payment over 6 months and caries a fee of $4,500. This obligation is not convertible
under any terms into Company stock. The balance of this note is approximately $162,000 as of December 31, 2019.
On
December 18, 2019, the Company’s Rune subsidiary entered into another future receivable purchase agreement with Vox Funding and
received $24,279.49. This agreement provides for payment over 8.5 months and carried a fee of $24,759.91 and retired prior obligation
of $29,020.60. This obligation is not convertible under any terms into Company stock.
On
December 23, 2019, the Company’s Red Wire Group subsidiary entered into a future receivable purchase agreement with Vox Funding
and received $24,200. This agreement provides for payment over 5.5 months and carried a fee of $12,050. This obligation is not convertible
under any terms into Company stock.
On
January 4, 2020, the Company’s Rune subsidiary entered into another future receivable purchase agreement with Vox Funding and received
$14,500. This agreement provides for payment over 70 business days and carried a fee of $4,850. This obligation is not convertible under
any terms into Company stock.
On
January 24, 2020, the Company’s Social Sunday subsidiary entered into a first future receivable purchase agreement with Vox Funding
and received $14,500. This agreement provides for payment over 3.5 months and carried a fee of $4,850. This obligation is not convertible
under any terms into Company stock.
On
March 3, 2020, the Company’s Social Sunday subsidiary entered into a second future receivable purchase agreement with Vox Funding
and received $5,605. This agreement provides for payment over 2 months and carried a fee of $1,895. This obligation is not convertible
under any terms into Company stock.
On
March 5, 2020, the Company’s Bluwire subsidiary entered into a third future receivable purchase agreement with Reliant Funding
and received $83,000. This agreement provides for payment over 6 months and caries a fee of $3,000. This obligation is not convertible
under any terms into Company stock.
As
of December 31, 2020, the Company had total merchant financing payables of $412,647 with unamortized discounts of $2,754 for net payable
of $409,892.
As
of December 31, 2019 the Company had total merchant financing payables of $631,664 with unamortized discounts of $158,835 for net payable
of $472,829.
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.
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.
Additional
Working Capital from convertible debt and under the CARES Act.
The
Federal Government of the United States of America on March 27, 2020, passed the Cares Act allowing companies to quality SBA Payroll
Protection Loans (PPP). These loans provide for certain funding based on previous employment which in part may be forgivable under certain
conditions. The remaining portion needs to be repaid over 2 years with a 6-month moratorium on payments and carry a 1% annual interest
rate. These loans require no collateral nor personal guarantees. During the 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, begin work on a new website for Bluwire, make progress on this
retail APP and acquire product to re-open one of its Bluwire Stores.
Beginning
in December 2020 and continuing through the date of this report, as a series of subsequent events, the Company’s 12 Retail subsidiary
has received short term fundings from a private investor ranging between $30,000 and $50,000 in advances that are paid back and renewed
in 45 to 60 day intervals for inventory and special orders for customers.
On
March 18, 2020, the Company received $30,000 from Adar Alef, LLC (“Adar”) from a $33,600 convertible promissory note agreement
including fees and legal expenses of $3,600. The note is convertible after 181 days at a (i) $0.0075 ceiling or (ii) 60% of the lowest
trading price over the past twenty trading days prior to the conversion date.
On
March 25, 2020, the Company received $30,000 from LG Capital, LLC (“LG”) from a $33,600 convertible promissory note agreement
including fees and legal expenses of $3,600. The note is convertible after 181 days at a (i) $0.0075 ceiling or (ii) 60% of the lowest
trading price over the past twenty trading days prior to the conversion date.
On
April 30, 2021 the Company received $30,000 from SBI and an additional $40,000 on May 17, 2021 (see below).
On
April 21, 2021 and May 4 2021 the Company received $50,000 from Adar Alef and on June 1st an additional $50,000.
On
May 6, 2021 the Company received $30,000 as an additional advance from Oasis Capital pursuant to previous agreements with Oasis and on
May 13, 2021 an additional $50,000.
On
May 17, 2021 the Company received an additional $40,000 from SBI.
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.
NOTE
15 - STOCKHOLDERS’ DEFICIT
As
of December 31, 2020 and 2019, the Company’s Articles of Incorporation, as amended and restated, is authorized to issue 8,000,000,000
shares of common stock at par value of $0.0001 and 50,000,000 shares of preferred stock at par value of $0.00001.
Reverse
Stock Split and increased authorized common 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.
The authorized common shares remain at 8 billion authorized common stock. As a subsequent event, as of May 18, 2021 the authorized was
increased to 20,000,000,000 shares of common stock.
Preferred
Stock
The
Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized
to determine and alter the rights, preferences, privileges, and restrictions granted to and imposed upon any wholly unissued series of
Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred
Stock. The Board of Directors may increase or decrease (but not below the number of shares such series then outstanding) the
number of shares of any series subsequent to the issue of shares of that series.
The
Series B Redeemable Convertible Preferred Stock is classified as temporary equity as it is mandatorily redeemable by the holder at a
future date. The Series D-1 and D-2 Preferred Stock are classified as temporary equity as they are redeemable immediately. The Series
D-3 Preferred Stock is also classified as temporary equity due to its put option, which providers the holders the right to put the shares
to the Company for cash if they elect not to convert into shares of common stock.
Series
A Preferred Stock
As
of December 31, 2020 and 2019, there were 10,000,000 designated shares of Series A Preferred Stock.
Liquidation
In
the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series A
Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the
holders of any junior stock by reason of their ownership of such stock an amount per share for each share of Series A Preferred Stock
held by them equal to the sum of the liquidation preference. If upon the liquidation, dissolution or winding up of the Company, the assets
of the Company legally available for distribution to the holders of the Series A Preferred Stock are insufficient to permit the payment
to such Holders of the full amounts specified in this Section then the entire remaining assets of the Company legally available for distribution
shall be distributed with equal priority and pro rata among the holders of the Series A Preferred Stock in proportion to the full amounts
they would otherwise be entitled to receive.
Redemption
The
Series A Preferred Stock shall have no redemption rights.
Conversion
The
“Conversion Ratio” per share of the Series A Preferred Stock in connection with any Conversion shall be at a ratio of 1:20,
meaning every (1) one Preferred A share shall convert into 20 shares of Common Stock of the Company (the “Conversion”). Holders
of Class A Preferred Shares shall have the right, exercisable at any time and from time to time to convert any or all their shares of
the Class A Preferred Shares into Common Stock at the Conversion Ratio.
Voting
The
Holder of each share of Series A Preferred Stock shall have such number of votes as is determined by multiplying (a) the number of shares
of Series A Preferred Stock held by such holder; and, (b) by 20. The holders of Series A Preferred Stock shall vote together with all
other classes and series of common and preferred stock of the Company as a single class on all actions to be taken by the common stock
shareholders of the Company
2020
and 2019 Transactions
During
the year ended December 31, 2020, the Company issued 1,250 shares of Series A preferred stock for total proceeds of $5,000. In 2020,
the Company issued 12,750 shares of Series A preferred stock for a negligible fair value.
During
the year ended December 31, 2019, the Company issued Series A Preferred Stock as follows:
|
-
|
The
Company issued 1,915,151 Series A shares upon conversion of accounts payable, accrued liabilities, board director fees and due to
stockholders totaling $1,154,591.
|
|
|
|
|
-
|
The
Company issued 114,165 Series A shares for compensation and 154,500 shares for professional services for an aggregate fair value
of $103,247.
|
|
|
|
|
-
|
In
October 2019, the Company issued 500,000 Series A shares in connection with the Bluwire acquisition.
-
During the third quarter, 2020 the company issued $12,750 Series A shares in restricted shares to employees under the Employee
Restricted Stock Plan.
-
In December 2020, the company issued $1,250 Series A shares for cash.
-
In March 2021, the company issued 1,250 Series A shares for cash.
-
In April 2021, the company issued 1,250 Series A shares for cash.
-
In April 2021, the company issued 25,000 Series A shares for cash.
|
As
of December 31, 2020 and 2019, there was 9,197,816 and 9,183,816 shares of Series A Preferred Stock deemed issued and outstanding.
Series
B Preferred Stock
As
of December 31, 2020 and 2019, there were 1,000,000 designated shares of Series B Preferred Stock.
Liquidation
Holders
of Series B Preferred Stock shall have a liquidation preference junior to Series A holders.
Conversion
Each
share of Series B Preferred Stock shall be convertible at the option of the holder at any time into shares of common stock at a conversion
price equal to 65% multiplied by lowest average traded price during the ten (10) trading day period ending.
Voting
Series
B Preferred Stock shall be non-voting on any matters requiring shareholder vote.
Dividends
Series
B Preferred Stock will carry an annual cumulative dividend, compounded monthly, payable solely upon redemption, liquidation or conversion.
Redemption
The
Series B Preferred Stock is mandatorily redeemable by the holder 15 months after issuance, and therefore is classified as temporary equity
in the consolidated balance sheet.
2020
and 2019 Transactions
During
the year ended December 31, 2020, the Company issued Series B Preferred Stock as follows:
|
|
-
|
On
January 16, 2020, an existing Series B stockholder purchased 53,000 Series B Preferred shares for proceeds of $53,000 under the same
terms as their prior purchases.
|
|
|
|
|
|
|
-
|
The
holders of 3,600 shares of Series B Preferred Stock converted these shares for 29,353,846 shares of common stock.
|
During
the year ended December 31, 2019, the Company issued Series B Preferred Stock as follows:
|
|
-
|
The
holders of 68,000 shares of Series B Preferred Stock converted these shares for 1,815,742 shares of common stock.
|
|
|
-
|
In
November 2019, the Company issued 68,000 shares of Series B Preferred Stock for $68,000.
|
|
|
-
|
In
December 2019 the company issued 53,000 shares of Series B Preferred Stock for $53,000.
|
Series
C Preferred Stock
As
of December 31, 2020 and 2019, there were two designated shares of Series C Preferred Stock.
The
Series C Preferred Shares have no equity value, no preference in liquidation, is not convertible into common shares and does not accrue
dividends or have redemption rights. Each issued and outstanding share of Series C Preferred Stock authorizes the holder to vote eight
billion (8,000,000,000) votes on any matter that shareholders are entitled to vote for under our Bylaws at a cost of $1.00 per share.
Holders of shares of Series C Preferred Stock shall vote together with the holders of Common Shares as a single class.
As
of December 31, 2020 and 2019, there is one share of S Series C Preferred Stock issued and outstanding.
Series
D Preferred Stock
Series
D Preferred Stock are “Blank Check” Preferred which allows the Board of Directors to subdivide and/or determine the rights,
privileges, and other features of this stock.
The
total number of shares of Series D Preferred Stock the Company is authorized to issue is ten million (10,000,000) shares.
Series
D-1 Preferred Stock
On
July 2, 2018, the Company entered into an Equity Line of Credit agreement with Oasis Capital, LLC (“Oasis Agreement”) and
as a part of that Agreement the Company created a subset Series D-1 Preferred Stock from the authorized Series D Preferred Stock having
special rights and privileges as follows:
As
of December 31, 2020 and 2019, there were 500,000 shares designated as Series D-1 Preferred Stock with a stated value of $2.00
per share (the “Stated Value”).
Liquidation
Holders
of Series D-1 Preferred Stock shall have a liquidation preference junior to Series A, B and C holders. Upon any liquidation, dissolution
or winding-down of the Company, the holders of the shares of Series D-1 Preferred Stock shall be paid in cash an amount for each share
of Series D-1 Preferred Stock held by such holder equal to 140% of the Stated Value plus any dividends accrued but unpaid.
Conversion
Each
share of Series D-1 Preferred Stock, together with accrued but unpaid dividends, shall be convertible at the option of the holder at
any time into shares of common stock as is determined by dividing the Stated Value per share being converted plus accrued and unpaid
dividends by the Series D-1 Conversion Price. The “Series D-1 Conversion Price” per share of Common Stock shall be the lowest
traded price of the Common Stock during the thirty (30) trading day period ending, in Holder’s sole discretion on each conversion,
on either (i) the last complete trading day prior to the Conversion Date or (ii) the Conversion Date.
Voting
Series
D-1 Preferred Stock shall be non-voting except on certain major corporate actions or as required by law. In the event of such a right
to vote, each holder of Series D-1 Preferred Stock shall have the right to the number of votes equal to the number of Conversion Shares
then issuable upon conversion of the Series D-1 Preferred Stock held by such holder.
Dividends
Before
any dividends shall be paid or set aside for payment on any junior security of the Company, each holder of the Series D-1 Preferred Stock
shall be entitled to receive dividends, in the manner provided herein, payable on the Stated Value of the Series D-1 Preferred Stock
at a rate of 8% per annum, which shall be cumulative and be due and payable in shares of common stock on the Conversion Date. Such dividends
shall accrue from the date of issue of each share of Series D-1 Preferred Stock, whether or not declared.
Redemption
Shares
of the Series D-1 Preferred Stock shall be redeemable in cash, at any after the issuance of the respective Series D-1 Preferred Stock
at a price per share equal to 125% of the Stated Value plus the amount of accrued but unpaid dividends, provided, however, that 125%
shall be replaced with 140% if the Company exercises its option to redeem the Series D-1 Preferred Stock after the initial 60 calendar
day period. Therefore, the Series D-1 Preferred Stock is classified as temporary equity in the consolidated balance sheet.
During
the year ended December 31, 2019, the Company issued Series D-1 Preferred Stock as follows:
|
|
-
|
During
the first quarter of 2019, Oasis Capital converted 28,500 shares for 630,000 shares common stock and reduced the principal outstanding
balance by $57,000. As such, the Company recorded a change in derivative liability associated the Series D-1 Preferred Shares of
$86,428.
|
|
|
|
|
|
|
-
|
On
March 14, 2019, the Company executed an agreement with Oasis Capital, whereby the Company agreed to exchange the remaining outstanding
282,750 Series D-1 shares for 282,750 Series D-2 Preferred Shares. In addition, the Company executed an agreement whereby 62,250
outstanding D-1 shares were exchanged for 62,250 Series D-2 preferred shares in exchange of $100,000. In addition, the Company agreed
to pay 1,425 shares of D-2 shares as a finance charge for this agreement. The excess fair value of the shares exchanged was recorded
as additional interest expense.
|
As
of December 31, 2020 and 2019, there are 0 Preferred Series D-1 shares issued and outstanding, respectively.
Series
D-2 Preferred Stock
The
total number of shares of Series D-2 Preferred Stock the Company is authorized to issue 2,500,000 shares, with a stated value of $2.00
per share.
Dividends
Before
any dividends shall be paid or set-side for payment on any junior security, each holder of Series D-2 Preferred Stock shall be entitled
to receive dividends payable on the stated value of the Series D-2 Preferred Stock at a rate of 8% per annum, or 18% per annum following
the occurrence of an event of default, which shall be cumulative and be due and payable in shares of common stock on the conversion date
or in cash on the redemption date. Such dividends shall accrue from the date of issue of each share of Series D-2 Preferred Stock.
Liquidation
Holders
of Series D-2 Preferred Stock shall have a liquidation preference junior to Series A, B, C and D-1 holders.
Conversion
Each
share of Series D-2 Preferred Stock, together with accrued but unpaid dividends, shall be convertible at the option of the holder at
any time into shares of common stock as is determined by dividing the Stated Value per share being converted plus accrued and unpaid
dividends by the Series D-2 Conversion Price. The “Series D-2 Conversion Price” per share of Common Stock shall be the lowest
traded price of the Common Stock during the thirty (30) trading day period ending, in Holder’s sole discretion on each conversion,
on either (i) the last complete trading day prior to the Conversion Date or (ii) the Conversion Date.
Redemption
The
Series D-2 Preferred Stock is classified temporary equity due to the fact that the shares are redeemable immediately.
In
2020, the Company converted an aggregate of 23,000 shares of Series D-2 Preferred Stock with a fair value of $46,000 into 355,142,105
shares of common stock.
The
Company issued 346,625 Series D-2 shares to Oasis Capital with a value of $692,850. On April 1, 2019, Oasis Capital received $103,500
in exchange for 103,500 Series D-2 shares. On May 9, 2019, the Company received $50,000 in exchange for 45,045 Series D-2 Preferred Shares
from Oasis Capital with which the Company had previously executed the PIPE Securities Purchase Agreement in March of 2019. During the
year ended December 31, 2019 Oasis Capital redeemed $127,580 or 63,790 shares of its Series D-2 Preferred shares for 3,000,000 common
shares. In addition, Oasis purchased an additional 9,009 series D-2 Preferred shares for $10,000. For the year ended December 2019, Oasis
redeemed and exchanged $127,580 or 63,790 shares of its D-2 Preferred shares for 10,536,281 commons shares.
On
April 3, 2019, the Company entered into a Securities Exchange Agreement with Mr. D’Alleva and issued him 332,032 Series D-2 Preferred
Shares in exchange for the 6,250,000 common shares that Mr. D’Alleva had previously purchased from the Company.
Mr.
D’Alleva received 318,750 Series D-2 shares in exchange for the 62,500 common shares that he previously purchased for $531,250.
He will also receive an additional 13,282 Series D-2 Preferred shares in the form of debt discount in this share exchange.
On
April 3, 2019, concurrent with the PIPE Securities Purchase Agreement entered into with Mr. D’Alleva, the Company entered into
a PIPE Securities Purchase Agreement with Dominic D’Alleva to sell to Mr. D’Alleva in various $25,000 tranches up to 93,750
Series D-2 Preferred Shares for a commitment of a $150,000 investment into the Company.
Thus
far, Mr. D’Alleva has purchased 15,625 Series D-2 Preferred Shares for $25,000. He has delivered $12,500 and the Company expects
him to deliver the remainder of the purchase price in the current period.
In
addition, on April 3, 2019, the Company entered into a PIPE Securities Purchase Agreement with a key technology vendor where the Company
exchanged 125,000 Series D-2 Preferred Shares for $200,000 of Company debt held by that vendor. An additional $50,000 was expensed as
a result of this transaction. During the fourth quarter Oasis converted 6,040 Series D-2 Preferred shares.
As
of December 31, 2020 the Company had 912,368 Series D-2 Preferred Shares with a redemption value of $2,607,162 and 935,368 Series D-2
Preferred Shares with a redemption value of $2,442,542 as of December 31, 2019.
Series
D-3 Preferred Shares
The
total number of shares of Series D Preferred Stock the Company is authorized to issue is 500,000 shares.
Conversion
The
Holder may convert some, part of all of the Series D-3 shares into common shares of the Company based on the closing market price on
the day before notice of conversion is presented to the Company.
Dividends
The
Company will pay dividends on the Series D-3 Preferred Stock at the rate of 10% per annum and shall pre-pay the Holder the first 12 month’s
dividends from proceeds. After 12 months the Company would pay the pro-rata interest on a monthly basis due the first of each month and
late after the 10th of each month.
Redemption
At
the option of the Holder the Company may be obligated to redeem any non-converted shares of Series D-3 Preferred Stock that are not deemed
to be incentive shares and that are not deemed to be settlement shares through the issuance of a “PUT” to the Company. At
the conclusion of the PUT Notice Period, the Holder may at any time request a redemption of some, part, or all of Holder’s any
non-converted shares of Series D-3 Preferred Stock by providing the Company with a PUT DEMAND. The Company would then be obligated to
redeem any undisputed Securities within 10 business days of receipt of the PUT DEMAND. The Holder may at any time after issuing a PUT
NOTICE rescind the PUT option which could then only be re-instituted through a future PUT NOTICE. The Series D-3 Preferred Stock is classified
as temporary equity due to the existence of the PUT.
As
of December 31, 2020 and 2019, there were 54,840 Preferred Series D-3 shares outstanding at $5.00 par representing a total of $274,234.
There were accrued dividends of $61,977 and $34,482 at December 31, 2020 and 2019, respectively.
Series
D-4 Preferred Stock
In
April 2020, the Company authorized one million (1,000,000) shares of Series D-4 Preferred stock with a face value of $100. The shares
have no dividends, are non-voting, and have a liquidation preference after Series D-3 Preferred Shares. These shares are convertible
into the Company’s common shares at no discount.
Series
D-5 Preferred Stock
The
total number of shares of Series D-5 Preferred Stock the Company is authorized to issue 1,000,000 shares, with a stated value of $4.00
per share.
Liquidation
The
holders shall be paid in cash after the holders of the superior preferred shares (Series A, B, D-1, and D-2), but before any junior securities,
including common shares and other shares have no liquidation preferences.
Conversion
The
holder may convert some or all of its Series D-5 Preferred Shares into common shares of the Company based on the closing market price
on the day of or the day before notice of conversion.
Dividends
Series
D-5 Preferred Stock will carry an annual dividend of 6% which will be paid in arrears.
Voting
Holders
of the shares of Series D-5 Preferred Stock shall not have the right to vote on any matter as to which shareholders are required or permitted
to vote, except as otherwise required by law.
2019
Transactions
On
February 21, 2019, the Company issued 37,500 shares for 25% interest in the Red Wire Group. On March 14, 2019, the Company issued 82,588
shares of Series D-5 Preferred Stock for 92.5% interest in Rune. See Note 4. In addition, the Company issued 2,625 Series D-5 shares
in exchange for professional Services.
As
of December 31, 2020 and 2019, the Company had 128,494 Series D-5 Preferred Shares outstanding with a face value of $513,976. The company
recorded had accrued dividends of $47,400 and $20,452 at December 31, 2020 and 2019, respectively.
Series
D-6 Preferred Stock
The
total number of shares of Series D-6 Preferred Stock the Company is authorized to issue 1,000,000 shares, with a stated value of $5.00
per share.
Liquidation
The
holders shall be paid in cash after the holders of the superior preferred shares (Series A, B, D-1, and D-2), but before any junior securities,
including common shares and other shares have no liquidation preferences.
Conversion
The
holder may convert some or all its Series D-6 Preferred Shares of the Company based on the closing market price on the day of or the
day before notice of conversion.
Dividends
Series
D-6 Preferred Stock shall not declare or accrue any dividends.
Voting
Holders
of the shares of Series D-6 Preferred Stock shall not have the right to vote on any matter as to which shareholders are required or permitted
to vote, except as otherwise required by law
2019
Transactions
-
The Company issued 55,600 shares for an additional 75% interest in the Red Wire Group. See Note 4.
-
The Company issued 7,080 shares as compensation for a value of $35,400.
-
The Company issued 42,000 shares pursuant to the acquisition of Social Sunday. See Note 4.
There
were no shares issued for 2020.
As
of December 31, 2020 and 2019, the Company had 104,680 Series D-6 Preferred Shares with a face value of $523,400.
Common
Stock
2020
Transactions
During
the year ended December 31, 2020, the Company converted principal and unpaid accrued interest totaling $120,300 into an aggregate of
785,026,210 shares of common stock.
During
the year ended December 31, 2020, the Company converted an aggregate of 23,000 shares of Series D-2 Preferred Stock with a fair value
of $46,000 into 355,142,105 shares of common stock.
2019
Transactions
On
October 18, 2019. the Company completed a 100 for 1 reverse common stock split reducing the outstanding common shares to 25,410,391.
All of the above transactions occurred prior to the completion of the Reverse Stock split and with the exception of the authorized common
shares which remain at 8 billion authorized common stock issuances listed here had the effect of being divided by 100.
The
Company issued an aggregate of 17,803,260 shares in exchange of the settlement of convertible debt. The Company issued 12,652,023 common
shares to Geneva Roth and Oasis Capital in exchange for Preferred Shares.
As
of December 31, 2020 and 2019, 1,177,103,618 and 36,935,303 shares of common stock were issued and outstanding, respectively.
NOTE
16 - INCOME TAXES
The
Company operates in the United States and its wholly owned subsidiaries operate in Japan, Hong Kong and Switzerland and files tax returns
in these jurisdictions.
Loss
from continuing operations before income tax expense (benefit) is as follows:
|
|
|
For the Years Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Tax jurisdiction from:
|
|
|
|
|
|
|
|
|
|
- US
|
|
$
|
(22,106,596
|
)
|
|
$
|
(11,180,704
|
)
|
|
- Foreign
|
|
|
|
|
|
|
|
|
|
Hong Kong (HK)
|
|
|
(258,861
|
)
|
|
|
(788,542
|
)
|
|
Japan (JP)
|
|
|
(20,988
|
)
|
|
|
(39,642
|
)
|
|
Switzerland (EU)
|
|
|
404,331
|
|
|
|
(215,687
|
)
|
|
Loss before income taxes
|
|
$
|
(21,940,137
|
)
|
|
$
|
(12,146,948
|
)
|
There
was no provision for income taxes for the years ended December 31, 2020 and 2019, as the Company has tax losses in all jurisdictions.
The expected approximate income tax rate for 2020 and 2019 for United States is 21%, Hong Kong is 16.5%, Japan is 30%, and Switzerland
is 20%, whereas the actual rate was zero. The total income tax benefit differs from the expected income tax benefit principally due to
the valuation allowance recorded against the deferred tax assets which are principally comprised of net operating losses (“NOLs”)
and permanent differences due to a significant amount of non-cash income and expenses.
The
following table sets forth the significant components of the aggregate deferred tax assets of the Company as of December 31, 2020 and
2019:
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
NOL carryforwards
|
|
|
|
|
|
|
|
|
|
United States – current rate
|
|
$
|
3,563,537
|
|
|
$
|
2,917,945
|
|
|
United States – effect of change in statutory rate
|
|
|
-
|
|
|
|
-
|
|
|
-Foreign
|
|
|
682,324
|
|
|
|
728.789
|
|
|
Total
|
|
|
4,246,044
|
|
|
|
3.646,734
|
|
|
Less: valuation allowance
|
|
|
(4,264,044
|
)
|
|
|
(3,646,734
|
)
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company applies the authoritative accounting guidance under ASC 740 for the recognition, measurement, classification, and disclosure
of uncertain tax positions taken or expected to be taken in a tax return. The Company provided a full valuation allowance against its
deferred tax assets as of December 31, 2019 and 2018. This valuation allowance reflects the estimate that it is more likely than not
that the net deferred tax assets may not be realized.
The
Company has approximately $20,500,000 of U.S. and foreign carryforwards, the tax effect of which is approximately $4,200,000 as of December
31, 2020. Certain of these carryforwards begin to expire in 2024.
The
U. S. NOL carryforwards are subject to certain limitations due to the change in control of the Company pursuant to Internal Revenue Code
Section 382. The Company has not performed a study to determine if the NOL carryforwards are subject to these Section 382 limitations.
In addition, the Company has foreign NOLs. The Company is still evaluating the impact of a change in stock ownership and the potential
limitation of foreign NOLs.
A
valuation allowance is recorded on certain deferred tax assets if it has been determined it is more likely than not that all or a portion
of these assets will not be realized. The Company has recorded a full valuation allowance of $4,264,044 and $3,646,734 for deferred
tax assets existing as of December 31, 2020 and 2019, respectively. The change in the valuation allowance was an increase of $617,310
and $2,115,542 for the years ended December 31, 2020 and 2019, respectively. The valuation allowance as of December 31, 2020 and
2019 is attributable to NOL carryforwards in the United States and foreign jurisdictions.
The
Company’s tax returns are subject to examination by tax authorities in the U.S., various state and foreign jurisdictions. The Company
is generally no longer subject to examinations for years prior to 2014. The Company is currently delinquent in its income tax filings.
NOTE
17 - COMMITMENTS
Lease
Commitments
The
Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys
to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for
consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to
obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease
and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets.
Lease expense for variable lease components are recognized when the obligation is probable.
Operating
lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of
lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease
term. The Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount
its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental
borrowing rate. As an implicit interest rate is not readily determinable in the Company’s leases, the incremental borrowing rate
is used based on the information available at commencement date in determining the present value of lease payments.
The
lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered
by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option
to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term
(and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met.
Lease
payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or
rate, and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.
Variable
lease payments not dependent on a rate or index associated with the Company’s leases are recognized when the event, activity, or
circumstance in the lease agreement on which those payments are assessed as probable. Variable lease payments are presented as operating
expenses in the Company’s income statement in the same line item as expense arising from fixed lease payments. As of and during
the year ended December 31, 2020, management determined that there were no variable lease costs.
Right
of Use Asset
In
connection with the Bluwire acquisition, the Company recognized a right of use asset of $52,671. The Company
used an effective borrowing rate of 13% within the calculation. The lease agreement matures in August 2021. Minimum rental payments 2021
are $52,671, respectively.
Operating
Leases
On
August 13, 2020 the Company’s 12 Fashion Group, a division of 12 Retail Corporation, entered into a new office location under a
2 year lease with an option for a third year beginning on August 17, 2020. This new location is 1600 square feet and caries a base monthly
rent of $5651.30 plus a pro-rated expenses for garbage and utilities of $743. Management believes that this additional space is necessary
to manage the consolidation of its fashion brands.
Other
Commitments
The
Company has a significant contract with an independent contractor third party company which plays a critical role to the ongoing operations
of the Company. The contract is for an initial period of five years for which can be cancelled upon six month’s notice and payment
of all outstanding fees. The minimum monthly payment is $35,000 for which additional amounts are to be reimbursed for expenses, etc.
During the years ended December 31, 2020 and 2019, the Company paid $220,975 and $476,037, respectively, under the contract to which
an additional $269,290 was payable as of December 31, 2020. The Company relies upon the third party for obtaining financing, targeting
acquisitions, general corporate guidance, financial reporting, etc. See Note 10 for discussion regarding issuances of Series A and common
stock to the third party.
Contingencies
|
|
●
|
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 claims 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.
|
NOTE
18 – SUBSEQUENT EVENTS
The
Company evaluated all events and transactions that occurred after December 31, 2020 and through the date of this filing in accordance
with FASB ASC 855, “Subsequent Events”. The Company determined that it does have a material subsequent events to disclose
as follows:
Subsequent
Events:
|
|
-
|
On
April 30, 2021 the Company received $30,000 from SBI and an additional $40,000 on May 17,
2021 (see below).
|
|
|
-
|
On
April 21, 2021 and May 4 2021 the Company received $50,000 from Adar Alef and on June 1st
an additional $50,000.
|
|
|
-
|
On
May 6, 2021 the Company received $30,000 as an additional advance from Oasis Capital pursuant
to previous agreements with Oasis and on May 13, 2021 an additional $50,000.
|
|
|
-
|
On
May 17, 2021 the Company received an additional $40,000 from SBI.
|
|
-
|
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.
|