Notes
to the Condensed Consolidated Financial Statements
March
31, 2019
(Unaudited)
Note
1 – Nature of the Business
At
our core, we are a software Company whose technology allows retailers to combat the dual threats of Walmart and Amazon —
both online and in physical stores. Our Brand rollup acquisition strategy allows us to demonstrate the effectiveness of our software
and devise and test new products, while providing shareholder value through immediate revenue and earnings growth. The
Company operates through our subsidiaries on three continents: 12 Hong Kong, Limited (“12HK”, “12 Hong Kong,
Ltd.”), 12 Japan, Limited (“12JP”, “12 Japan, Ltd.”), 12 Europe A.G. (“12EU”, “12
Europe AG”), and 12 Retail Corporation (“12 Retail”) which, with its subsidiaries, designs, manufactures, and
sells primarily fashion products through all channels including online, wholesale to retailers, and in our own store(s) from North
America. 12 Retail’s subsidiaries include: Emotion Fashion Group, Inc. (acquired May 2018), Red Wire Group, LLC (Acquired
February 2019) and Rune NYC, LLC (Acquired March 2019).
Principal
subsidiaries
The
details of the principal subsidiaries of the Company are set out as follows:
Name
of Company
|
|
Place
of Incorporation
|
|
|
Date
of Incorporation
|
|
|
Acquisition
Date
|
|
|
Attributable
Equity
Interest
%
|
|
|
Business
|
|
12
Retail Corporation (“12 Retail”)
|
|
|
Arizona,
USA
|
|
|
|
Sept.
18, 2017
|
|
|
|
Formed
by 12 ReTech Corporation
|
|
|
|
100
|
%
|
|
As
a holding Company to execute the Company’s roll up acquisition strategy as well as to penetrate the North American market
with our technology to select retailers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Hong Kong Limited (“12HK”)
|
|
|
Hong
Kong, China
|
|
|
|
February
2
, 2014
|
|
|
|
June
27, 2017
|
|
|
|
100
|
%
|
|
Development
and sales of technology applications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Japan Limited (“12JP”)
|
|
|
Japan
|
|
|
|
February
12, 2015
|
|
|
|
July
31, 2017
|
|
|
|
100
|
%
|
|
Consultation
and sales of technology applications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Europe AG (“12EU”)
|
|
|
Switzerland
|
|
|
|
August
22, 2013
|
|
|
|
October
26, 2017
|
|
|
|
100
|
%
|
|
Consultation
and sales of technology applications.
|
|
E-motion
Fashion Group, Inc. F/K/A Emotion Apparel, Inc,
Lexi Luu Designs, Inc, Punkz Gear, Skipjack Dive and Dancewear, Cleo VII
|
|
|
Re-incorporated,
in Utah, USA F/K/I in California,
USA
|
|
|
|
September
9, 2010
Reincorporated on July 6, 2018 and changed its name on
July 26, 2018
|
|
|
|
May
1, 2018
|
|
|
|
100
|
%
|
|
A
subsidiary of 12 Retail and is the first microbrand acquired under the microbrand acquisitions roll up strategy. Operates
its own production facilities that can be utilized by all of the Company’s future microbrands.
|
|
Red
Wire Group, LLC
|
|
|
Utah
|
|
|
|
July
2, 2015
|
|
|
|
February
19, 2019
|
|
|
|
|
|
|
A
subsidiary of 12 Retail and is the second acquisition in the brand acquisition strategy. Operates its own “cut
& sew for independent third parties’ contract to produce clothes
|
|
Rune
NYC, LLC
|
|
|
New
York
|
|
|
|
Jan
23, 2013.
|
|
|
|
March
14, 2019
|
|
|
|
100
|
%
|
|
A
subsidiary of 12 Retail and is the third in the brand acquisition. Operates contemporary women’s ‘Athleisure’
brand which is primarily sold to retailers
|
|
Note
2 – Going Concern
The
Company accounts for going concern matters under the guidance of ASU 2014-15,
“Presentation of Financial Statements –
Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entities Ability to Continue as a” Going Concern
”
(“ASU 2014-15”). The guidance in ASU 2014-15 sets forth management’s responsibility to evaluate whether there
is substantial doubt about an entity’s ability to continue as a going concern as well as required disclosures. ASU 2014-15
indicates that, when preparing financial statements for interim and annual financial statements, management should evaluate whether
conditions or events, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern
for one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration
of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are
available to be issued, as well as whether it is probable that management’s plans to address the substantial doubt will
be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt.
Under
the terms of the acquisition of the Red Wire Group, certain members received Series D-5 with a PUT option with a face value of
$150,000. If those members so elect to not convert those shares to common stock, they have the right to PUT those shares to the
Company for cash. This would be an additional cash constraint on the company. For additional detail, See Note 3 Acquisitions.
These
interim financial statements have been prepared on a going concern basis which assumes the Company will continue to realize its
assets and discharge its liabilities in the normal course of business. As of March 31, 2019, the Company had a total accumulated
deficit totaling approximately $12,884,380 since inception, has not yet generated significant revenue from its operations,
and will require additional funds to maintain its normal operations. These factors raise substantial doubt regarding the
Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent
upon its ability to generate future profitable operations and/or obtain the necessary financing to meet its obligations and repay
its liabilities arising from normal business operations when they become due. These interim financial statements do not include
any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
Note
3 – Acquisitions
The
Company accounts for all business combinations in accordance with Financial Accounting Standards Board (“FASB”) ASC
805, “Business Combinations” (“ASC 805”), using the acquisition method of accounting. Under this method,
assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition.
The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and is recognized as goodwill.
Certain adjustments to the assessed fair values of the assets, liabilities, may be made subsequent to the acquisition date, but
within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to
the measurement period would be recorded as income. Results of operations of the acquired entity are included in the Company’s
results from operations from the date of the acquisition onward and include amortization expense arising from acquired assets.
The Company expenses all costs as incurred related to an acquisition in the condensed consolidated statements of operations.
Emotion
Fashion Group, Inc. F/K/A E-motion Apparel, Inc.
On
May 1, 2018, the Company completed the acquisition of E-motion Apparel, Inc. (“EAI”) a California corporation, pursuant
to a share exchange agreement whereby the Company exchanged 1.0 million of its common shares for 100% of the outstanding
equity of EAI, in a third-party transaction. The fair value of the 1.0 million shares of common stock issued amounted
to $80,000. EAI owned four wholly-owned and majority –owned subsidiaries: Lexi Luu Designs, Inc, (a Nevada Corporation),
Punkz Gear, Inc, (a Wyoming Corporation), Cleo VII, Inc. (a Nevada Corporation) and Skipjack Dive & Dance Wear, Inc. (a Nevada
Corporation), which together owns five microbrands that were included in this transaction and target specific niche markets: Lexi-Luu
Dancewear, Punkz Gear, Cleo VII, Skipjack Dive & Dance Wear, and E-motion Apparel, Inc.
On
July 6, 2018, the Company re-incorporated EAI in the state of Utah and later re-named it as Emotion Fashion Group, Inc. (“Emotion
Fashion Group” or “EFG”) and does business under the brand name, “Emotion Fashions.” Going forward,
and as part of the re-incorporation as Emotion Fashion Group, the Company has consolidated all of its subsidiaries and the Company
now operates all brands under the single entity, Emotion Fashion Group.
Emotion
Fashion Group was then deemed to be founded in 2010 and designs and manufactures women’s apparel and kids’ dancewear.
The acquisition of Emotion Fashion Group was accounted for under ASC 805 where purchase price was allocated based on assets
acquired and liabilities assumed as of the acquisition date May 1, 2018, at the estimated fair value. During the fourth
quarter of 2018, the Company determined that the goodwill associated with the acquisition should be fully
impaired, and as such was expensed during the fourth quarter of 2018. For further details, please see Company’s
Form 10-K filed on April 19, 2019.
Red
Wire Group, LLC.
On
February 19, 2019, the Company completed the acquisition of Red Wire Group, LLC. (“RWG”) a Utah limited liability
company, pursuant to a share exchange agreement whereby the Company exchanged the Company’s Series D-5
and Series D-6 for 100% of the outstanding equity of RWG. Pursuant to the terms of the exchange agreement, the Company
acquired (i) 75% of the membership interests of Red Wire in exchange for 54,000 shares of the Company’s Series
D-6 Preferred Stock (stated value of $5.00 per share), and (ii) the remaining 25% of the membership interests of Red Wire
in exchange for 37,500 shares of the Company’s Series D-5 Preferred Stock (stated value of $4.00 per
share).
The
powers, preferences and rights, and the qualifications, limitations and restrictions of the Series D-5 and Series D-6 Preferred
Stock are set forth in the Company’s Current Report on Form 8-K and exhibits attached thereto previously filed with
the Securities and Exchange Commission on January 11, 2019.
RWG
continued
its operations uninterrupted following the closing
and retained key employees. The exchange agreement included customary representations, warranties and covenants
of the parties. The closing of the Exchange Agreement is subject to certain closing conditions, including that the Members have
not materially misrepresented any of the representations contained in the Exchange Agreement and its exhibits.
The
Company has consolidated the acquisition effective February 1, 2019 to simplify the accounting under ASC 805 purchase accounting
as it pertains to the acquisition of the RWG.
The
assets and net liabilities acquired (based on fair values) were as follows:
Cash
|
|
$
|
10
|
|
Other
assets
(except cash)
|
|
|
106,110
|
|
Goodwill
|
|
|
480,381
|
|
Liabilities
|
|
|
(136,501
|
)
|
Net
consideration provided
|
|
$
|
450,000
|
|
The
fair values of the net assets acquired were determined using the market approach, which indicates value for a subject asset based
on available market pricing for comparable assets. The fair value of the fixed assets of $58,110 has been determined by a third-party
valuation firm and is valued at its estimated sale price. The Company also capitalized assets of approximately $48,000.
The fair value of the debt has been determined using an appropriately required payment amount.
The
purchase price for the acquisition was allocated to the fair value of the assets acquired and liabilities assumed based on the
estimates of the fair values at the acquisition date, with the amount exceeding the estimated fair values being recorded as goodwill.
The
fixed assets are being depreciated over their estimated useful lives of 5 years. Goodwill recorded will not be amortized but tested
for impairment at least annually, which will occur during the fourth quarter of the current year. The Company assumed
the liabilities of the RWG of $136,501.
RWG
results of operations have been included in the Company’s operating results for the period subsequent to the February
1, 2019. RWG contributed revenues of $180,881 for the three months ended March 31, 2019. The Company is still evaluating
the total assets and liabilities at the date of acquisition and further adjustments might be made to the purchase price.
Rune
NYC, LLC.
On
March 14, 2019, the Company completed the acquisition of Rune NYC, LLC. (“Rune”), a New York limited
liability company, pursuant to a share exchange agreement whereby the Company exchanged the Company’s Series
D-5 shares for 92.5% of the total outstanding equity of Rune and the members of Rune (the “Members”). Pursuant
to the terms of the exchange agreement, the Members of Rune (the “Members”) representing 92.5% of the
membership interests have agreed to tender their interests to the Company, and the Company closed the tender offer
period on March 14, 2019 at which time the exchange agreement became effective. Accordingly, pursuant to the terms
of the exchange agreement, at closing the Company acquired 92.5% of the membership interests of Rune were exchange
for 82,588 shares of the Company’s Series D-5 Preferred Stock with a stated value of $4.00 per share.
The
powers, preferences and rights, and the qualifications, limitations and restrictions of the Series D-5 Preferred Stock are set
forth in the Corporation’s Current Report on Form 8-K and exhibits attached thereto previously filed with the Securities
and Exchange Commission on January 11, 2019.
Rune
continued its operations uninterrupted during closing and retained certain key employees. The exchange
agreement included customary representations, warranties and covenants of the parties. The closing of the exchange agreement
was subject to certain closing conditions, including that the Members have not materially misrepresented any of the representations
contained in the exchange agreement and its exhibits.
The
Company has consolidated the acquisition effective February 1, 2019 to simplify the accounting under ASC 805 purchase accounting
as it pertains to the acquisition of the Rune.
The
assets and net liabilities acquired (based on fair
values) were as follows:
Cash
|
|
$
|
12,914
|
|
Other
assets (except cash)
|
|
|
33,256
|
|
Goodwill
|
|
|
399,959
|
|
Liabilities
|
|
|
(35,006
|
)
|
Net
consideration provided
|
|
$
|
411,123
|
|
The
purchase price for the acquisition was allocated to the fair value of the assets acquired and liabilities assumed based on the
estimates of the fair values at the acquisition date, with the amount exceeding the estimated fair values being recorded as goodwill. The
company also recorded a minority interest of $30,834 which represents 7.5% of the net assets acquired.
Rune
results of operations have been included in the Company’s operating results for the period subsequent to the acquisition
on February 1, 2019. Rune contributed revenues of $26,831 in 2019.
The Company is still evaluating the
total assets and liabilities at the date of acquisition and further adjustments might be made to the purchase price.
The
below table sets forth selected unaudited pro forma financial information for the Company for 2018 compared to 12 ReTech
as if RWG and Rune was owned for the three months ended March 31, 2018 and 2018.
|
|
Proforma
|
|
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
301,129
|
|
|
$
|
463,059
|
|
Cost
of revenues
|
|
|
187,898
|
|
|
|
348,616
|
|
Gross
profit
|
|
|
113,231
|
|
|
|
114,444
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(1,663,608
|
)
|
|
$
|
(983,030
|
)
|
|
|
|
|
|
|
|
|
|
Earnings
Per Share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
The
unaudited pro forma information set forth above is for informational purposes only. The pro forma information should not be considered
indicative of actual results that would have been achieved if the Rune acquisition had occurred on January 1, 2018. The unaudited
supplemental pro forma financial information was calculated by combining the Company’s results with the stand-alone results
of Rune. For the identified periods, which were adjusted for certain transactions and other costs that would have been occurred
during this pre-acquisition period.
Note
4 – Summary of Significant Accounting Policies
Basis
of Presentation
The
accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of
Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2019. Notes to the unaudited interim condensed consolidated financial statements
that would substantially duplicate the disclosures contained in the audited condensed consolidated financial statements
for fiscal year 2018 have been omitted. This report should be read in conjunction with the audited condensed consolidated
financial statements and the footnotes thereto for the fiscal year ended December 31, 2018 included in the Company’s Form
10-K as filed with the Securities and Exchange Commission on April 16, 2019.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiaries 12HK, 12JP, 12EU. 12 Retail, Rune NYC,
LLC, Red Wire Group, LLC, and Emotion Fashion Group which includes Emotion Apparel, Inc., Lexi Luu Designs, Inc., Punkz
Gear, Skipjack Dive and Dance Wear, Inc. and Cleo VII, Inc, which beginning in the third quarter 2018 are all accounted for
under the single Emotion Fashion Group, Inc financials due to the consolidation of Emotion Fashion Group’s subsidiaries.
Since January 2019, the consolidation includes both Rune and RWG which were acquired in the first quarter 2019.
All inter-company accounts and transactions have been eliminated. We currently have no investments accounted for using the equity
or cost methods of accounting.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the
reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith
estimates and judgments.
Software
Development Costs
At
March 31, 2019 and December 31, 2018 software development costs totaled $496,075 and $371,118, respectively. Capitalized costs
related to the software under development are treated as an asset until the development is completed and the software is available
for licensure under a software-as-a-service (“SaaS”) arrangement. The Company will amortize the software costs on
a straight-line basis over the estimated life of the software product’s expected life cycle, commencing when the software
is first available for general release to customers.
Goodwill
Goodwill
represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired.
The
goodwill amount of $480,381 related to the acquisition of RWG and $399,959 related to the acquisition of Rune as
of March 31, 2019. Goodwill is not amortized, but is tested annually for impairment, or if circumstances occur that more likely
than not reduce the fair value of the reporting unit below its carrying amount. The Company has determined that there has been
no impairment of goodwill at March 31, 2019. The Company performs its annual test during the fourth quarter.
Revenue
Recognition
The
Company recognizes revenue from the sale of products and services in accordance with ASC 606, “Revenue from Contracts with
Customers”. Revenue is recognized when the earnings process is complete typically when services or products are provided
to the customer.
Convertible
Debt and Convertible Preferred Stock
When
the Company issues convertible debt or convertible preferred stock, it first evaluates the balance sheet classification of the
convertible instrument in its entirety to determine whether the instrument should be classified as a liability under ASC 480,
Distinguishing Liabilities from Equity, and second whether the conversion feature should be accounted for separately from the
host instrument. A conversion feature of a convertible debt instrument or certain convertible preferred stock would be separated
from the convertible instrument and classified as a derivative liability if the conversion feature, were it a standalone instrument,
meets the definition of an “embedded derivative” in ASC 815, Derivatives and Hedging. Generally, characteristics that
require derivative treatment include, among others, when the conversion feature is not indexed to the Company’s equity,
as defined in ASC 815-40, or when it must be settled either in cash or by issuing stock that is readily convertible to cash. When
a conversion feature meets the definition of an embedded derivative, it would be separated from the host instrument and classified
as a derivative liability carried on the consolidated balance sheet at fair value, with any changes in its fair value recognized
currently in the consolidated statements of operations.
If
a conversion feature does not meet the conditions to be separated and accounted for as an embedded derivative liability, the Company
then determines whether the conversion feature is “beneficial”. A conversion feature would be considered beneficial
if the conversion feature is “in the money” when the host instrument is issued or, under certain circumstances, later.
If convertible debt contains a beneficial conversion feature (“BCF”), the amount of the amount of the proceeds allocated
to the BCF reduces the balance of the convertible debt, creating a discount which is amortized over the debt’s term to interest
expense in the consolidated statements of operations.
When
a convertible preferred stock contains a BCF, after allocating the proceeds to the BCF, the resulting discount is either amortized
over the period beginning when the convertible preferred stock is issued up to the earliest date the conversion feature may be
exercised, or if the convertible preferred stock is immediately exercisable, the discount is fully amortized at the date of issuance.
The amortization is recorded similar to a dividend.
Derivative
Liabilities and Fair Value Measurements
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether
the inputs are observable in the market and the degree that the inputs are observable. Inputs refer broadly to the assumptions
that market participants would use in pricing the asset or liability, including assumptions about risk. Observable inputs are
based on market data obtained from sources independent of the Company. Unobservable inputs reflect our own assumptions
based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs used to measure
fair value into three broad levels, defined as follows:
|
Level
1
|
—
|
Inputs
are quoted prices in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
|
|
Level
2
|
—
|
Inputs
other than quoted prices included within Level 1, such as quoted prices for similar assets and liabilities in active markets;
quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable
or can be corroborated with observable market data.
|
|
|
|
|
|
Level
3
|
—
|
Unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable
inputs. Unobservable inputs for the asset or liability that reflect management’s own assumptions about the assumptions
that market participants would use in pricing the asset or liability as of the reporting date.
|
The
Company carries certain derivative financial instruments using inputs classified as “Level 3” in the fair value hierarchy
on the Company’s consolidated balance sheets.
The
Company classified certain conversion features in the convertible notes issued during 2019 and 2018 as embedded derivative instruments
due to down-round ratchet provisions and potential adjustments to conversion prices due to events of default and accordingly measures
and carries the conversion features as derivative liabilities in the consolidated financial statements. Also, the Company determined
that the certain notes should be measured and carried at fair value in the consolidated financial statements according to ASC
480, as they are settleable in a variable number of shares based on a fixed monetary amount known at inception. These fair value
estimates were measured using inputs classified as “Level 3” of the fair value hierarchy. The Company
develops unobservable “Level 3” inputs using the best information available in the circumstances, which
might include its own data, or when it believes inputs based on external data better reflect the data that
market participants would use, its bases its inputs on comparison with similar entities. Due to the existence of
down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, the Company decided
a Black Scholes Simulation model, which incorporates inputs classified as “Level 3” was appropriate.
The
conversion feature was recognized as an embedded derivative and was valued using a Black Scholes model that resulted in a derivative
liability of $4,392,762 and $2,696,470 at March 31, 2019 and December 31, 2018, respectively.
|
|
March
31, 2019
|
|
Risk-free
interest rates
|
|
|
2.40
- 2.57
|
%
|
Expected
life (years)
|
|
|
0.13
- 1.00 years
|
|
Expected
dividends
|
|
|
0
|
%
|
Expected
volatility
|
|
|
226
- 370
|
%
|
In
connection with convertible notes payable, the Company records derivative liabilities for the conversion feature. During the year
ended December 31, 2018, the Company recorded initial derivative liabilities of $3,229,344. Upon initial valuation, the derivative
liability exceeded the face value certain of the convertible note payables by approximately $1,637,572, which was recorded as
a day one loss on derivative liability. On December 31, 2018, the derivative liabilities were revalued at $2,696,470 resulting
in a loss of $760,508 related to the change in fair market value of the derivative liabilities during the year ended December
31, 2018.
In
connection with convertible notes, as disclosed in Note 8, the Company reclassified derivative liabilities with a fair value of
$1,418,516 to additional paid-in capital during year ended December 31, 2018. The Company revalued the derivative liabilities
at each conversion date recording the pro-rata portion of the derivative liability as compared to the portion of the convertible
note converted to the pre-conversion carrying value to additional paid-in capital.
In connection with convertible notes payable,
the Company records derivative liabilities for the conversion feature. During three months ended March 31, 2019, the Company recorded
initial derivative liabilities of $354,413 related to convertible notes payable and $850,695 related to various series of preferred
stock. On March 31, 2019, the derivative liabilities were revalued at $4,392,762 resulting in a loss of $315,409 related to the
change in fair market value of the derivative liabilities during the period ended March 31, 2019.
|
|
For the
Three Months Ended
March 31, 2019
|
|
Balance – December 31, 2018
|
|
$
|
2,696,470
|
|
Issuance of new derivative liabilities
|
|
|
1,697,972
|
|
Conversions to paid-in capital
|
|
|
(317,090
|
)
|
Change in fair market value of derivative liabilities
|
|
|
315,410
|
|
Balance – March 31, 2019
|
|
$
|
4,392,762
|
|
Management
views these convertible notes, due to their conversion feature to be viewed as equity, and the expenses associated through
derivative calculations to be estimates that are only finalized once the actual conversion has been consummated. For the
balance outstanding, please see Note 8.
Commitments
and Contingencies
The
Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is mandatorily redeemable by the holder
at a future date. The Series D-2 Preferred Stock is classified as temporary equity due to the fact that it redeemable immediately.
The Series D-3 Preferred Stock is also classified as temporary equity due to the existence of the PUT. Under the terms of the
acquisition of the Red Wire Group, certain members received Series D-5 with a PUT option with a face value of $150,000. If those
members so elect, to not convert those shares to common stock, they have the right to PUT those shares to the Company for cash.
This would be an additional cash constraint on the company. For additional detail, See Note 3 Acquisitions.
Earnings
per Share
The
Company follows ASC 260,
“Earnings per Share”
(“EPS”), which requires presentation of basic EPS
on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation. In the accompanying financial statements, basic earnings (loss) per share are computed
by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
Diluted
earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock
or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s
earnings subject to anti-dilution limitations. In a period in which the Company has a net loss, all potentially dilutive securities
are excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact. For the three months
ended March 31, 2019, potentially dilutive common shares consist of common stock issuable upon the conversion of convertible notes
payable, Series A Preferred Stock, Series B Preferred Stock, Series D-2 Preferred Stock and Series D-3 Preferred Stock (using
the if converted method). All potentially dilutive securities were excluded from the computation of diluted weighted average number
of shares of common stock outstanding as they would have had an anti-dilutive impact. If all dilutive securities were converted
the Company would be in excess of their authorized shares of common stock.
Financial
Instruments
The
Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, prepaid expenses and
other current assets, accounts payable and accrued liabilities, due to stockholders and notes payable. The carrying amounts of
such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate
market interest rates of these instruments.
Recent
Accounting Pronouncements
Management
has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements
will not have a material effect on the Company’s financial statements.
Note
5 – Fixed Assets
Fixed
assets at March 31, 2019 and December 31, 2018 consisted of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Office
equipment
|
|
$
|
90,111
|
|
|
$
|
32,107
|
|
Furniture
and equipment
|
|
|
607
|
|
|
|
607
|
|
Computer
|
|
|
13,704
|
|
|
|
13,704
|
|
Technical
equipment
|
|
|
27,492
|
|
|
|
27,492
|
|
Intellectual
Property
|
|
|
65,487
|
|
|
|
65.487
|
|
|
|
|
197,401
|
|
|
|
139,397
|
|
Less:
accumulated depreciation
|
|
|
(41,153
|
)
|
|
|
(41,102
|
)
|
Equipment
|
|
$
|
156,248
|
|
|
$
|
98,295
|
|
Depreciation
expense for the three months ended March 31, 2019 and three months ended March 31, 2018 amount to $6,625 and $1,149,
respectively.
Note
6 – Accounts Payable and Accrued Liabilities
Accounts
payable and accrued liabilities at March 31, 2019 and December 31, 2018 consists of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
282,029
|
|
|
$
|
379,448
|
|
Accrued
expenses
|
|
|
642,383
|
|
|
|
495,785
|
|
Accrued
salaries
|
|
|
438,879
|
|
|
|
206,031
|
|
Accrued
board of director fees
|
|
|
132,500
|
|
|
|
74,295
|
|
Accrued
interest
|
|
|
103,058
|
|
|
|
79,153
|
|
|
|
$
|
1,598,849
|
|
|
$
|
1,234,712
|
|
Note
7 – Stockholder Transactions
Amounts
due
to stockholders at March 31, 2019 and December 31, 2018
consists of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Daniel
Monteverde
|
|
$
|
173,195
|
|
|
$
|
143,195
|
|
Angelo
Ponzetta
|
|
|
623,549
|
|
|
|
623,201
|
|
Gianni
Ponzetta
|
|
|
-
|
|
|
|
|
|
|
|
$
|
796,744
|
|
|
$
|
766,397
|
|
On
August 12, 2017, Gianni Ponzetta loaned CHF 60,000. The promissory note was unsecured, bore an interest at 1% per annum and is
due December 31, 2019.
In
September 2018, Gianni Ponzetta converted this note and all the due to Gianni Ponzetta payables to Preferred D-3 shares. See Preferred
D-3 shares in Note 10 below.
A
mounts
due to stockholders are non-interest bearing, unsecured and due on demand.
During
the three months ended March 31, 2019 and 2018, total advances and expenses paid directly by stockholders on behalf of the Company
were $0 and $185,060, respectively, and the Company repaid $0 and $36,931, respectively.
Note
8 – Convertible Notes Payable
Convertible
notes payable at March 31, 2019 and December 31, 2018 consists of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
September
15, 2017
|
|
$
|
337,653
|
|
|
$
|
344,262
|
|
December 8,
2017
|
|
|
-
|
|
|
|
52,260
|
|
December 12,
2017
|
|
|
33,398
|
|
|
|
107,109
|
|
March 15,
2018
|
|
|
40,123
|
|
|
|
40,123
|
|
April 27,
2018
|
|
|
-
|
|
|
|
16,000
|
|
May 17, 2018
|
|
|
60,000
|
|
|
|
60,000
|
|
September
17, 2018
|
|
|
60,000
|
|
|
|
60,000
|
|
September
21, 2018
|
|
|
64,500
|
|
|
|
64,500
|
|
November 28,
2018
|
|
|
64,500
|
|
|
|
64,500
|
|
November 28,
2018
|
|
|
25,000
|
|
|
|
25,000
|
|
December 13,
2018
|
|
|
105,000
|
|
|
|
105,000
|
|
January 15,
2019
|
|
|
115,000
|
|
|
|
-
|
|
February 7,
2019
|
|
|
132,720
|
|
|
|
-
|
|
February 7,
2019
|
|
|
76,693
|
|
|
|
-
|
|
February 19,
2019
|
|
|
64,500
|
|
|
|
-
|
|
February 19,
2019
|
|
|
55,125
|
|
|
|
-
|
|
March
13, 2019
|
|
|
55,125
|
|
|
|
-
|
|
Total
|
|
$
|
1,289,337
|
|
|
$
|
938,754
|
|
|
|
|
|
|
|
|
|
|
Less:
unamortized debt discount
|
|
|
(667,999
|
)
|
|
|
(313,909
|
)
|
|
|
|
|
|
|
|
|
|
Total
convertible notes
|
|
$
|
621,338
|
|
|
$
|
624,845
|
|
For the three months ended March 31, 2019,
the Company recognized interest expense of $352,330, all of which represented the amortization of original issue discounts, debt
discounts and beneficial conversion features. For the three and the twelve months ended March 31, 2019 and December 31, 2018,
the Company reduced the principal by $80,347 and $608,242 principal and interest of $3,529 and $36,450, respectively,
through conversion through the issuance of 189,859,704 shares of common stock. The issue discounts and debt discounts are
being amortized over the life of the convertible notes using straight line amortization due to the short-term nature of the note.
During the three months ended March 31, 2019, the Company recorded amortization of discounts of $196,382 to interest related
to the convertible notes. Remaining issue discounts and debt discounts of $667,999 will be fully amortized by March
2020.
The
Company has fifteen (15) outstanding convertible notes as of March 31, 2019, with a total outstanding balance of $1,289,337.
All the notes have matured that were entered into prior to 2019. The 2019 notes mature from January 2020 to March 2020.
These notes carry an interest rate ranging between 8% and 12% per annum. The notes carry an original issue discounts ranging
between 10% to 25% of the face value of each note.
The
notes may be converted into shares of the Company’s common stock at any time on or after the occurrence of an event of default.
The conversion price shall be the 60% multiplied by the lowest trading price during the 30 trading days period ending, in holder’s
sole discretion on each conversion, on either (i) the last complete trading day prior to the conversion date or (ii) the conversion
date. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period
will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect.
For
some notes, the Company agreed to pay a one-time interest charge of 9% of the principal amount for each note. The notes may be
converted at any time after the maturity date. The conversion price shall be 75% multiplied by the lowest trading price during
the 10 prior trading days period ending on either (i) the last complete trading day prior to conversion date or (ii) the conversion
date. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period
will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect.
The
note may be redeemed by the Company at rates ranging from 105% to 130% depending on the redemption date provided that no redemption
is allowed after the 180
th
day. All terms of the note, including but not limited to interest rate, prepayment terms,
conversion discount or look-back period will be adjusted downward in the Company offers more favorable terms to another party,
while this note is in effect. As additional consideration, the Company is to issue to Adar Bays Capital shares of common stock
with a value equal to 25% of each note, determine at the time of signing of each note.
See
summary of outstanding notes payable by debt holder with related change in derivative liability and amortization of debt discount
for the period ended March 31, 2019.
|
|
Loan
Holder
|
|
Principal
Amount
|
|
|
Date
|
|
Maturity
|
|
OID
& Financing Costs
|
|
|
Balance
at
12 31 18
|
|
|
Additions
|
|
|
Payments
|
|
|
Conversion
|
|
|
Balance
at
3 31 19
|
|
1
|
|
SBI
Investment
|
|
$
|
200,000
|
|
|
9/27/2017
|
|
3/15/2018
|
|
|
|
|
|
|
156,850
|
|
|
|
|
|
|
|
|
|
|
|
(6,697
|
)
|
|
150,153
|
|
1
|
|
SBI
Investment
|
|
$
|
187,500
|
|
|
11/14/2017
|
|
5/14/2018
|
|
|
|
|
|
|
187,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,500
|
|
2
|
|
LG
Capital Funding, LLC
|
|
$
|
185,292
|
|
|
12/8/2017
|
|
6/8/2018
|
|
|
17,646
|
|
|
|
52,260
|
|
|
|
|
|
|
|
|
|
|
|
(18,862
|
)
|
|
33,398
|
|
3
|
|
Cerberus
Finance Group Ltd
|
|
$
|
185,292
|
|
|
12/12/2017
|
|
6/8/2018
|
|
|
17,646
|
|
|
|
107,109
|
|
|
|
|
|
|
|
(99,684
|
)
|
|
|
(7,425
|
)
|
|
-
|
|
6
|
|
Bellridge
Capital LP
|
|
$
|
60,000
|
|
|
5/17/2018
|
|
5/17/2019
|
|
|
10,000
|
|
|
|
16,000
|
|
|
|
|
|
|
|
|
|
|
|
(16,000
|
)
|
|
-
|
|
7
|
|
Auctus
|
|
$
|
100,000
|
|
|
4/27/2018
|
|
4/25/2019
|
|
|
10,000
|
|
|
|
40,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,123
|
|
8
|
|
Bellridge
Capital LP
|
|
$
|
60,000
|
|
|
9/17/2018
|
|
3/15/2019
|
|
|
10,000
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
11
|
|
Bellridge
Capital LP
|
|
$
|
60,000
|
|
|
10/18/2018
|
|
10/18/2019
|
|
|
10,000
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
12
|
|
Adar
Alef Omnibus
|
|
$
|
64,500
|
|
|
11/28/2018
|
|
11/29/2019
|
|
|
4,125
|
|
|
|
64,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,500
|
|
13
|
|
Adar
Alef Debt Purchase
|
|
$
|
25,000
|
|
|
11/28/2018
|
|
11/29/2019
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
14
|
|
LG
Capital Omnibus
|
|
$
|
64,500
|
|
|
11/28/2018
|
|
11/29/2019
|
|
|
4,125
|
|
|
|
64,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,500
|
|
15
|
|
LG
Capital Debt Purchase
|
|
$
|
25,000
|
|
|
11/29/2018
|
|
11/29/2018
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
16
|
|
LG
Capital Omnibus
|
|
$
|
105,000
|
|
|
12/13/2018
|
|
12/14/2019
|
|
|
5,000
|
|
|
|
105,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,000
|
|
17
|
|
LG
Capital Omnibus
|
|
$
|
115,000
|
|
|
1/15/2019
|
|
1/15/2020
|
|
|
5,750
|
|
|
|
|
|
|
|
115,000
|
|
|
|
|
|
|
|
|
|
|
115,000
|
|
18
|
|
Adar
Alef Omnibus
|
|
$
|
132,720
|
|
|
2/7/2019
|
|
2/7/2020
|
|
|
6,000
|
|
|
|
|
|
|
|
132,720
|
|
|
|
|
|
|
|
|
|
|
132,720
|
|
19
|
|
Adar
Alef Debt Note
|
|
$
|
108,055
|
|
|
2/7/2019
|
|
2/7/2019
|
|
|
8,371
|
|
|
|
|
|
|
|
108,055
|
|
|
|
|
|
|
|
(31,363
|
)
|
|
76,693
|
|
20
|
|
Adar
Alef Omnibus
|
|
$
|
64,500
|
|
|
2/19/2019
|
|
2/19/2020
|
|
|
4,125
|
|
|
|
|
|
|
|
64,500
|
|
|
|
|
|
|
|
|
|
|
64,500
|
|
21
|
|
LG
Capital Omnibus
|
|
$
|
55,125
|
|
|
2/19/2019
|
|
2/19/2020
|
|
|
2,500
|
|
|
|
|
|
|
|
55,125
|
|
|
|
|
|
|
|
|
|
|
55,125
|
|
22
|
|
LG
Capital Omnibus
|
|
$
|
55,125
|
|
|
3/13/2019
|
|
3/13/2020
|
|
|
2,500
|
|
|
|
|
|
|
|
55,125
|
|
|
|
|
|
|
|
|
|
|
55,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
note total
|
|
|
|
|
|
|
|
|
|
|
92,496
|
|
|
|
938,842
|
|
|
|
530,525
|
|
|
|
(99,684
|
)
|
|
|
(80,347
|
)
|
|
1,289,337
|
|
Note
9 – Note Payable
On
May 1, 2018, 12 ReTech acquired Emotion Fashion Group, Inc. As part of the acquisition, Emotion Fashion Group was obligated under
a disputed note payable to a third party in the amount of $250,000, maturing in July 2027 and bearing an interest
rate of 2% per annum. The note calls for monthly payments to be made to the third party equal to ten percent (10%) of the
gross sales of the Company until paid in full, including accrued interest. When the note was acquired, the Company recorded the
note at its fair market value of $156,014. The note discount is being amortized to interest expense through maturity.
As of March 31, 2019 the total payments
made under the note payable were $0. Amortization of debt discount amortized amounted to $2,780 for the three months ended March
31, 2019. The remaining discount will be amortized over the remaining term of the note.
Note
10 – Common and Preferred Stock
Capitalization
The
Company has authorized shares of common stock of 8,000,000,000 at a par value of $0.00001, and 50,000,000 shares of Preferred
Stock as described below.
Preferred
Stock
The
Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized
to determine and alter the rights, preferences, privileges and restrictions granted to and imposed upon any wholly unissued series
of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of
Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board
of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number
of shares such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series.
Commitment
and Contingencies
The
Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is mandatorily redeemable by the holder
at a future date. The Series D-1 Preferred Stock is classified as temporary Series D-1 as temporary equity due to the fact that
redeemable immediately. The Series D-3 Preferred Stock is classified as temporary equity due to the existence of the PUT. Under
the terms of the acquisition of the Red Wire Group, certain members received Series D-5 with a PUT option with a face value of
$150,000. If those members so elect to not convert those shares to common stock, they have the right to PUT those shares to the
Company for cash. This would be an additional cash constraint on the company. For additional detail, See Note 3 Acquisitions.
Series
A Preferred Stock
On
July 19, 2018, 1,500,000 shares of Series A Preferred Stock were issued as compensation for services.
There
were 1,500,000 shares of the Series A Preferred Stock were deemed issued during 2018 although will not be delivered
until August 2019.
As
of March 31, 2019 and December 31, 2018, including the shares deemed issued is 6,500,000 shares of Series A Preferred Stock
were issued and outstanding.
Series
B Preferred Stock
The
Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is mandatorily redeemable by the holder
15 months after issuance and thus have been recorded as mezzanine. During the three months ended March 31, 2019, the Company issued
Series B Preferred Stock and converted to common shares the following Series B Preferred shares as follow:
|
●
|
During
the three months ended March 31, 2019, holders of Series B Redeemable Convertible Preferred Stock converted 40,020
shares and reduced the principal by $20,164 and interest of $2,400 through the issuance of 87,041,209 shares
of common stock.
|
|
●
|
As
of March 31, 2019 and December 31, 2018, 27,980 and 68,000 shares of Series B Preferred
Stock were issued and outstanding at $1.00 par value, respectively. The Company
recognized the change in derivative liability of $58,003 interest expense of $10,354.
|
Series
C Preferred Stock
There
was a single issuance of the Series C Preferred Stock during the years ended December 31, 2018. There have been no additional
Series C Preferred Stock issued during the three months ended March 31, 2019.
On
August 6, 2018, the Board of Directors of 12 ReTech corporation authorized the issuance of one (1) share of our Series C Preferred
Shares to the founder, Angelo Ponzetta, effective August 14, 2018.
The
Series C Preferred Shares have no equity value, no preference in liquidation and is not convertible into common shares, but authorizes
the holder to vote eight billion (8,000,000,000) votes on any matter that shareholders are entitled to vote for under our Bylaws
at a cost of $1.00 per share. Please note, original 1 share of Series C Preferred shares authorized the holder to vote one billion
(1,000,000,000) votes on any matter that shareholders are entitled to vote but was modified on January 14, 2019 to be eight billion
(8,000,000,000) votes per share.
The
Board believes that this was necessary so that the Company maintains a consistent vision going forward that can only be achieved
if the Founder’s vision is maintained. This vision is the same vision that all current shareholders bought into as evidenced
by their investment into the Company. To ensure that the founder’s vision is maintained, it is necessary that no outsider
person or group can gain voting control from the founder as the Company.
There
is one share of Series C Preferred Stock issued and outstanding as of March 31, 2019 and December 31, 2018.
Series
D Preferred Stock
Series
D Preferred Stock are “Blank Check” Preferred which allows the Board of Directors to subdivide and/or determine the
rights, privileges and other features of this stock.
The
total number of shares of Series D Preferred Stock the Company is authorized to issue is one million (1,000,000) shares,
with a stated par value of $0.00001 per share with such powers, preferences, rights and restrictions which shall be determined
by the Company’s Board of Directors in its sole discretion, and which designations and issuances shall not require
the approval of the shareholders of the Corporation.
Series
D Preferred Stock are “Blank Check Preferred” which allows the Board of Directors to subdivide and/or determine the
rights, privileges and other features of this stock. On July 13, 2018, the Company filed an amended certificate of designation
increasing the authorized Series D preferred shares from 1 million (1,000,000) to 10 million (10,000,000), as a reallocation of
the 50 million (50,000,000) shares of preferred stock authorized. All of these 10 million (10,000,000) shares of Series D Preferred
Stock are part of the 50 million (50,000,000) authorized shares of preferred stock.
Series
D-1 Preferred Stock
On
July 5, 2018 the Company filed a certificate of designation to create a subset of the Series D Preferred Stock designated Series
D-1.
On
July 2, 2018, the Company entered into an equity line of credit agreement with Oasis Capital, LLC (“Oasis Agreement”)
and as a part of that Agreement the Company created a subset Series D-1 Preferred Stock from the authorized Series D Preferred
Stock having special rights and privileges as follows:
The
total number of shares of Series D-1 Preferred Stock issued was 311,250 shares, with a par value of $0.0001 per share and a stated
value of $2.00 per share (the “Stated Value”). The Series D-1 Preferred Stock as a whole, of which Series D-1 is a
subset, has such powers, preferences, rights and restrictions which shall be determined by the Company’s Board of Directors
in its sole discretion, and which designations and issuances shall not require the approval of the shareholders of the Company.
For additional information on Series D-1 Preferred Stock, please see Company’s 10_K filed April 16, 2019.
As
of December 31, 2018 with the execution of the Oasis Agreement, the Company issued 311,250 shares of Preferred Series D-1 shares
which are at par value of $2 per share total $622,500. The Company recorded a derivative liability of approximately $700,000
associated with Series D-1 Preferred Shares. The Series D-1 Preferred Stock is classified Series D-1 as temporary equity due to
the fact that redeemable immediately.
During
the three months ended March 31, 2019 Oasis Capital converted 28,500 shares for 63,000,000 common stock and reduced the
principal outstanding balance by $28,500. As such, the Company recorded a change in derivative liability associated
the Series D-1 Preferred Shares of approximately ($86,428).
On March 14, 2019, the Company executed an
agreement with Oasis Capital, whereby the Company agreed to exchange the remaining outstanding of Series D-1 Preferred Shares
of 282,750 for 282,750 Series D-2 Preferred Shares. In addition, the Company executed an agreement whereby 62,250 outstanding
D-1 shares for 62,250 Series D-2 preferred shares in exchange of $100,000. In addition, the Company agreed to pay 1,425 shares
of D-2 shares as a finance charge for this agreement. The excess fair value of the shares exchanged was recorded as additional
interest expense. As of March 31, 2019 there are no Preferred Series D-1 shares outstanding.
Series
D-2 Preferred Stock
The
Company designated Series D-2 Preferred Stock. The following summary of the Company’s 8% Series D-2 Preferred Stock. The
Series D Preferred Stock as a whole, of which Series D-2 is a subset, has such powers, preferences, rights and restrictions which
shall be determined by the Company’s Board of Directors in its sole discretion, and which designations and issuances shall
not require the approval of the stockholders of the Company. Before any dividends shall be paid or set-side for payment on any
Junior Security Corporation, each holder of Series D-2 Preferred Stock shall be entitled to receive dividends, in the manner provided
herein, payable on the stated value of the Series D-2 Preferred Stock at a rate of 8% per annum, or 18% per annum following the
occurrence of an Event of Default, which shall be cumulative and be due and payable in shares of Common Stock on the Conversion
date or in cash on the Redemption Date. Such dividends shall accrue from the date of issue of each share of Series D-2 Preferred
Stock.
The
total number of shares of Series D-2 Preferred Stock this Company is authorized to issue 2,500,000 shares, with a par value of
$0.00001 per share and a stated value of $2.00 per share
.
The
Company issued 346,625 Series D-2 shares to Oasis Capital with a value of $692,850. The Series D-2 Preferred Stock is classified
temporary equity due to the fact that the shares are redeemable immediately. As such, the Company recorded an associated derivative
liability of $177,323.
As
a
subsequent
event, on April 3, 2019 the Company agreed to issue 15,625 Series D-2 for $25,000 in cash received from Dominic D’Alleva.
In addition, the Company agreed to exchange Dominic D’Alleva’s previously issued common shares to Series D-2
preferred shares. Mr. D’Alleva received 318,750 Series D-2 shares in exchange for the 6,250,000 common shares that he previously
purchased for $531,250. He will also receive an additional 13,282 Series D-2 Preferred shares in the form of debt discount in
this share exchange.
Series
D-3 Preferred Shares
On
September 29, 2018, the Board of Directors of 12 ReTech corporation authorized the issuance of twenty thousand (20,000) shares
of Series D-3 Preferred Shares to Gianni Ponzetta at a price of $5.00 par value in exchange for $100,000. On the same date,
12 ReTech corporation authorized the issuance of four thousand (4,000) shares of its Series D-3 preferred shares to Gianni
Ponzetta at $5.00 par value with a value of $20,000 as incentive shares at no additional costs to Gianni Ponzetta. Lastly,
12 ReTech corporation issued 30,840 shares of Series D-3 Preferred Shares to Gianni Ponzetta with par value per share of $5.00
in exchange of $154,234 which was owed to Gianni Ponzetta. On October 30, 2018, this Certificate of Designation was filed
with the Secretary of State in the State of Nevada.
The
Company agrees in connection with this subscription created a sub-class of its Series D Preferred shares which are designated
as “Blank Check Preferred” which allows the Board of Directors of the Company to designate, without further shareholder
approval, the rights, privileges and preferences or some, part or all of the Series D Preferred Shares and/or to create sub-classification
of those Series D Preferred Shares as they deem necessary. The Holder may convert some, part of all of the Securities into common
shares of the Company based on the closing market price on the day before notice of conversion is presented to the Company. The
Company will pay dividends on the Securities at the rate of 10% per annum and shall pre-pay the Holder the first 12 month’s
dividends from proceeds. After 12 months the Company would pay the pro-rata interest on a monthly basis due the first of each
month and late after the 10th of each month. For additional information of Series D-3 Preferred Shares, please see the Company’s
filed 10-K from April 16, 2019.
The
Series D-3 Preferred Stock is classified as temporary equity due to the existence of the PUT. As of March 31, 2019, there were
54,846 Preferred Series D-3 shares outstanding at $3.00 par representing a total of $274,234.
Series
D-5 Preferred Stock
The
Company designated Series D-5 Preferred Stock, which consists of one million (1,000,000) shares of stock that are designated
as the Series D-5 Convertible Preferred Stock. The par value of each issued share of Series D-5 Preferred Stock is $0.00001
per share, and the stated value of each issued share of Series D-5 Preferred Stock is deemed to be $4.00. Series D-5 Preferred
Stock carries an annual dividend of 6% which will be paid in arrears. Holders of the shares of Series D-5 Preferred Stock
shall not have the right to vote on any matter as to which shareholders are required or permitted to vote, except as otherwise
required by law. On February 21, 2019, the Company issued 37,500 shares for 25% minority interest in the Red Wire Group.
On March 14, 2019, the Company issued 82,588 shares of Series D-5 Preferred Stock for 92.5% interest in Rune. See
Note 3, Acquisitions for additional information. The company recorded as associated derivative liability of $424,753.
Series
D-6 Preferred Stock
The
Company designated Series D-6 Convertible Preferred Stock, which consists of one million (1,000,000) shares of stock. The
par value of each issued share of Series D-6 Preferred Stock is $0.00001 per share, and the stated value of each share
is $5.00. On February 21, 2019, the Company issued 54,000 shares for 75% minority interest in the Red Wire Group.
See Note 3, Acquisitions for additional information.
The
Company issued 55,600 Series D-6 shares related to the acquisitions of RWG (54,000 shares) and another individual (1,600 shares)
with a value of $278,000. The Company recorded as associated derivative liability of $248,618.
Common
Stock
The
Company is authorized to issue 8,000,000,000 shares of common stock at a par value of $0.00001.
Common
stock issued for the three months ended March 31, 2019 was as follows:
The
Company issued 189,859,704 shares with the convertible debt. The Company issued 150,041,209 common shares to Geneva Roth and Oasis
Capital in exchange for Preferred shares.
As
of March 31, 2019, and December 31, 2018, 994,152,866 and 654,251,953 shares of common stock were issued and outstanding, respectively.
Note
11 – Segment Data
The
Company does business on three continents (North America, Asia, and Europe) in four different jurisdictions (Hong Kong-special
economic zone of the People’s Republic of China, Japan, United States of America, and the European common market
through Switzerland). These segments are components of the Company about which separate financial information is available and
regularly evaluated by the Chief Executive Officer decision maker in deciding how to allocate resources and in assessing
performance. The accounting policies of the segments are the same as those described in Note 3, Summary of Significant Accounting
Policies.
The
following table shows operating activities information by geographic segment for the three months ended March 31, 2019 and 2018.
3
months ended March 31, 2019
March
31, 2019
|
|
North
America
|
|
|
Asia
|
|
|
Europe
|
|
|
Total
|
|
Revenue
|
|
$
|
212,279
|
|
|
$
|
8,758
|
|
|
$
|
93
|
|
|
$
|
221,129
|
|
March
31, 2019
|
|
North
America
|
|
|
Asia
|
|
|
Europe
|
|
|
Total
|
|
Fixed
assets, net
|
|
$
|
75,620
|
|
|
$
|
77,069
|
|
|
$
|
3,558
|
|
|
$
|
156,248
|
|
3
months ended March 31, 2018
March
31, 2018
|
|
North
America
|
|
|
Asia
|
|
|
Europe
|
|
|
Total
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
8,942
|
|
|
$
|
-
|
|
|
$
|
8,942
|
|
March
31, 2018
|
|
North
America
|
|
|
Asia
|
|
|
Europe
|
|
|
Total
|
|
Fixed
assets, net
|
|
$
|
-
|
|
|
$
|
6,845
|
|
|
$
|
1,133
|
|
|
$
|
7,978
|
|
Note
12 – Subsequent Events
The
Company evaluated all events and transactions that occurred after March 31, 2019 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:
The
Company obtained additional working capital from the following sources:
●
|
on
April 3, 2019, 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.
|
|
|
|
As
a subsequent event and concurrent with the PIPE Securities Purchase Agreement entered into with Mr. D’Alleva, the Company
entered into a Securities Exchange Agreement with Mr. D’Alleva and issued him 332,031 Series D-2 Preferred Shares in
exchange for the 6,250,000 common shares that Mr. D’Alleva had previously purchased from the Company.
|
●
|
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.
|
|
|
●
|
On
May 9, 2019, the Company received $50,000 from the institutional investor with which the Company had previously executed the
PIPE Securities Purchase Agreement in March of 2019. The Company delivered 45,045 Series D-2 Preferred Shares to this institutional
investor.
|
●
|
On
May 14, 2019 the Company entered into a back end promissory note agreement with Adar Alef, LLC (“Adar”) for loans
totaling $26,500. The consideration to the Company was $25,000 with $1,500 of legal fees.
|
|
|
●
|
On
May 16, 2019 the Company entered into a promissory note agreement with LG Capital Funding, LLC (“LG”) for loans
totaling $28,250. The consideration to the Company is $25,000 with $1,500 legal fees and a $1,325 OID.
|
Subsequent
to March 31, 2019, the Company reduced its debt to its debt holders by $80,401 and paid $4,129 through conversion
of its common stock pursuant to its agreements with various debt holders as indicated below:
●
|
Bellridge
redeemed $3,286 of principal and $648 of interest for in return for the issuance of 13,171,120 common shares.
|
|
|
●
|
Adar
Alef redeemed $59,845 of principal in return for the issuance of 187,490,034 of common shares.
|
|
|
●
|
LG
Capital Funding redeemed $17,998 of principal and $3,399 of interest for in return for the issuance of 106,472,466 common
shares.
|
Subsequent
to March 31, 2019, Geneva Roth redeemed Series B Preferred Shares from its third purchases for common shares
at a value of $68,000. Geneva Roth converted $27,980 of their Series B Preferred Shares for 94,563,029 common
shares.
Subsequent
to March 31, 2019, Oasis Capital redeemed $48,000 or 24,000 shares of its Series D-2 Preferred shares for 108,000,000 common shares.
Geneva Rother converted $27,980 Series B Preferred Shares for 94,563,029 common shares.