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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

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

 

For the fiscal year ended December 31, 2021

 

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

 

Commission file number: 000-55915

 

12 ReTech Corporation

(Exact name of registrant as specified in its charter)

 

Nevada   38-3954047

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

2828 N. Central Ave,

Suite 831,

Phoenix, AZ

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

 

Registrant’s telephone number: 530-539-4329

 

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

 

none

 

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

 

Common Stock, par value $.00001 per share

 

(Title of Class)

 

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

Yes ☐ No

 

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

Yes ☐ No

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

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

 

  Large accelerated filer ☐   Accelerated filer ☐
       
  Non-accelerated filer   Smaller reporting Company
       
  Emerging Growth Company    

 

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

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

The aggregate market value of the registrant’s common equity held by non-affiliates was approximately $500,000 as of June 30, 2021, based upon the last reported sales price on that date of $0.0008.

 

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

 

The number of shares of common stock ($0.00001 par value) outstanding as of March 31, 2022 was 13,250,857,253.

 

DOCUMENTS INCORPORATED BY REFERENCE: None.

  

 

 

 

 

 

12 RETECH CORPORATION

FOR THE YEAR ENDED

DECEMBER 31, 2021

 

Index to Report

 

    Page
PART I    
     
Item 1. Business 4
Item 1A. Risk Factors 12
Item 1B. Unresolved Staff Comments 17
Item 2. Properties 17
Item 3. Legal Proceedings 18
Item 4. Mine Safety Disclosures  
     
PART II    
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 19
Item 6. Reserved 20
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29
Item 8. Financial Statements and Supplementary Data 30
Items 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 31
Item 9A. Controls and Procedures 31
Item 9B. Other Information 32
Item 9C. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 32
     
PART III    
     
Item 10. Directors, Executive Officers, and Corporate Governance 32
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 40
Item 13. Certain Relationships and Related Transactions, and Director Independence 43
Item 14. Principal Accounting Fees and Services 44
     
PART IV    
     
Item 15. Exhibits and Financial Statement Schedules 45
Item 16. Form 10-K Summary 45

 

2

 

 

FORWARD-LOOKING STATEMENTS

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

 

PART I

 

ITEM 1. BUSINESS

 

12 ReTech Corporation is primarily a technology company focused on the retail experience, both online and in physical stores, for consumers and smaller merchants.

 

Our software, both deployed and in development, is designed to allow the smaller merchants to compete effectively with the retail behemoths like Walmart and Amazon, and to attract, retain, and delight consumers both online and in physical stores, without being dependent on Google, Facebook/Instagram, and Amazon.

 

Our AI Social Shopping platform App, which is currently in development, will allow merchants to connect with consumers directly, and will give merchants tools to protect their brand and lower their marketing costs which will be focused on results not just “looky-loos”.

 

For consumers, the App allows them to support their favourite local businesses and find new merchants that may be of interest to them, while earning money through their social communications and posts.

 

The Company has also acquired retail and wholesale operating companies that will allow us to test our tech on real consumers and demonstrate their success for other merchants while earning revenues for the Company.

 

As an innovative retail technology company that has been built through acquisitions and ideas, we will continue to search for additional synergistic acquisitions that bring incremental revenues and profitability, and access to products that will incentivize both merchants and consumers to quickly adopt our social shopping App.

 

The Opportunity:

 

The Company’s technology solutions are designed to benefit from the latest changes in the world-wide Retail market. Global retail sales were projected to be around 26.7 trillion U.S. dollars by 2022, up from approximately 23.6 trillion U.S. dollars in 2018. The retail industry encompasses the entire journey of a good or service. This typically starts with the manufacturing of a product, and ends with said product being purchased by a consumer from a retailer. Retail establishments come in many forms such as grocery stores, restaurants, and bookstores.

 

As a result of globalization and trade agreements between various markets and countries, many retailers are capable of doing business on a global scale. Many of the world’s leading retailers are American companies; Walmart, Amazon, The Kroger Co., Costco, and Target are examples of such American retailers with global reaches, with Walmart being the largest. The success of U.S. retailers can also be seen through their performance in online retail; the U.S. domestic market is lucrative and it is one in which many companies compete.

 

Our AI Social Shopping platform App is designed to allow smaller merchants to compete directly with these major retail chains without being dependent on “advertising” through competitors like Amazon, Facebook/Instagram, and Google, who ALL have their own shopping solutions.

 

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

 

The company, unlike many others, has weathered the Global storm caused by the Covid-19 Pandemic, and is poised to take advantage of the return to normalcy that is currently occurring in most markets, and assist smaller merchants through their recovery with our AI Social Shopping platform App to attract customers back to their businesses.

 

Our Acquisition Strategy:

 

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

 

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

 

4

 

 

Our Technology Rollout Strategy:

 

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

 

During 2022, as the U.S. beings to re-open, we plan to deploy our technology in our own retail stores. By demonstrating the lift that our technology provides, we will then use our relationships that have been developed from our fashion brands to approach other businesses with these results, in order to license the software to them. However, until we launch our new social shopping app with features to allow users to interact with our screens, our existing technology will not be very effective as we believe that post-Covid, most consumers will be reluctant to touch a public touch-screen.

 

In the fourth quarter of 2022, we plan to announce and launch our new consumer-based AI Social Shopping platform App, to which any consumer-based business can subscribe, in order to reach and interact with consumers easily in fun and innovative ways, and especially contactless.

 

Our intellectual property:

 

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

 

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

 

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

 

-www.12retech.com

-www.12japan.jp

-www.12hongkong.com

-www.12europe.com

-www.12retail.com

-www.12sconti.com

-www.12fgrp.com

-www.lexiludancewear.com

-www.lexiluudancewear.com

-www.emotionfashiongroup.com

-www.emotionfashions.com

-www.redwire.design

-www.runenyc.com

-www.bluwireonline.com

-www.bluwire.shop

-www.socialsunday.com

 

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

 

5

 

 

History & Significant Events:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

- On October 18, 2019, the Company successfully completed its reverse stock split and reduced its common stock outstanding by a ratio of one hundred for one. While the board of directors and a majority of the voting interests of the Company had also approved an increase in the authorized common shares in an amount up to 20 billion common shares within 12 months of July 18, 2019, at this time management has elected to keep the authorized stock at 8 billion common shares.

 

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

 

10

 

 

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

 

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

 

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

 

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

 

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

 

- On May 18, 2021, the Company filed its required filings with the State of Nevada and became current and increased its authorized common shares from 8,000,000,000 to 20,000,000,000 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.

 

- On June 4, 2021, $70,200 of the first round of PPP loans was forgiven by the SBA.

 

- During July 2021, $166,435 of the first and second round PPP loans were also forgiven by the SBA.

 

- On July 27, 2021, the Company issued one additional preferred series C share to the CEO Angelo Ponzetta.

 

- In August 2021, $58,247 of the first and second round PPP loans were also forgiven by the SBA.

 

- In October 2021, the $192,900 of the second round PPP loans were also forgiven by the SBA.

 

- In December 2021, the $109,702 of the second round PPP loans were also forgiven by the SBA.

 

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ITEM 1A. RISK FACTORS

 

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

 

Risks Related to Our Business

 

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

 

The Company commenced limited operations in June of 2017, with the acquisition of 12 Hong Kong, Ltd. The Company then acquired 12 Japan, Ltd in August 2017, followed by 12 Europe A.G. in October 2017. 12 Japan, Ltd brought a small portion of revenue, insufficient to fund operations, while 12 Europe A.G. brought no revenue and was subsequently closed on August 20, 2019. Throughout 2019, we made four acquisitions including Red Wire Group, Rune, Bluwire, and Social Sunday, which together brought significant revenue but not enough profit to offset the costs of being public and developing and launching our core technology initiative. Therefore, we have limited operating history on which to make an investment decision. Accordingly, the Company has a limited operating history and the business strategy, while promising, may not be successful. Failure to implement the business strategy could materially adversely affect our business, financial condition, and results of operations. Through December 31, 2021, the Company’s business has not shown a profit in operations and has generated little revenues. There can be no assurance we will achieve or attain profitability or be able to raise sufficient capital to stay in business. If we cannot achieve operating profitability or raise capital, we may not be able to meet our working capital requirements, which could have a material adverse effect on our business operating results and financial condition resulting in the loss of an investors’ entire investment in us.

 

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

 

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

 

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

 

Our accompanying financial statements have been prepared assuming that we will continue as a “going concern.” As discussed in Note 2 to the Company’s December 31, 2021 consolidated financial statements, we had little revenues, have minimal business operations, have recurring losses and have negative working capital and a stockholders’ deficit. These issues raise substantial doubt about our ability to continue as a “going concern.” Our ability to stay in business will, in part, depend on our ability to raise additional funding or continue to make brand acquisitions. Our financial statements do not include any adjustment that might result from the outcome of this uncertainty.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Our Board of Directors lacks independent directors as members.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Risks to our businesses related to COVID-19

 

The ongoing systemic challenges of the retail and restaurant industries due to changes in consumer habits, online and with mobile Apps, have been further exacerbated and accelerated due to 2020 and continued into 2021 COVID-19 pandemic. The business closures mandated by government agencies around the world, coupled by governmental stay at home orders and consumer fears of infection, may forever significantly change consumer behavior in unforeseen ways. While these challenges provide significant opportunity to market and sell our new technologies as well as our fashion products, at this stage it may be difficult to predict the trend of overall consumer behavior.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Risks Related to the Retail Industry

 

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

 

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

 

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

 

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

 

Risks related to old debts and current and potential litigation.

 

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

 

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Risks of Acquiring Operations.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Risks Related to Our Common Stock

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

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

 

ITEM 2. PROPERTIES

 

As of the date of the filing of this report, the Company leases numerous stores, facilities, and offices for the conduct of its business operations. Set forth below is a summary of the Company’s current leased properties:

 

-12 ReTech Corporate - Leases under 200 square feet of office space at 420 Lexington Avenue Suite 1200 New York City, N.Y. 10170 USA for a monthly fee of $2,095. The Lease provides conference room space on an hourly fee basis and is month to month. In addition, 12 ReTech has access to office and conference room space on an at needed basis at 2828 N. Central Ave, Suite 831, Phoenix, AZ 85004.

 

-12 Retail Corporation- has access to office space and conference facilities at 2828 N Central Avenue, Suite 831 Phoenix, Arizona 85004 that it shares with its parent 12 ReTech Corporation for a use fee as needed. 12 Retail Corporation also operates a variety of facilities through its two divisions of approximately 9,366 square feet for a base monthly rental costs of $51,452. 12 Retail Corporation operates a 3,663 square foot retail location in the Mohegan Sun Casino at a rental cost of $6,916 minimum rent will expire in August, 2023. Management intends to extend this relief based on the current traffic in the Casino. It also maintains the following facilities detailed below:

 

 

12 Fashion Group, Inc. leased approximately 1700 square feet in Long Island City for a Base monthly rental costs of $4,500 per month.

 

12 Fashion Group, Inc. leased approximately 1510 square feet in Long Island City for a Base monthly rental costs of $4,620 per month.

 

Mohegan Sun -3,663 square foot lease with Mohegan Tribal Gaming. Base monthly rent is $6,916, plus a percentage rent equal to 8% of the gross sales that exceeds $86,450 per month until January 2021. Lease expires on August, 2023. This lease has been renegotiated and taken over by a different subsidiary of the company that was able to fully stock the store with inventory

     
  Bluwire Group, LLC leased approximately 2,493 square Feet for a Base monthly rental costs of $35,416, which is detailed below:

 

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

 

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

 

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

 

  Bluwire Newark –Space 20 which is 515 square feet. Base monthly rent was $15,083 plus 15% of gross sales exceeding $100,000 in any given month. Lease agreement is month to month agreement. This location is in abeyance due to the Covid-19 pandemic and the Company has plans to re-open in the third quarter 2022 at which time management believes that the longer term lease will be based solely on a percentage of sales.

 

During the year ended December 31, 2021, the Company permanently shuttered the following facilities to consolidate revenue and decrease expenses (not counted above):

 

In July 2021, the Company closed one its 12 Fashion Group facilities located in Ogden , Utah, eliminating 200 square feet and monthly rent of $1,000.
     
In December 2021 the Company moved out of its 12 Fashion Group 1500 square Feet in NYC eliminating $5,700 per month in rent expense.

 

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ITEM 3. LEGAL PROCEEDINGS

 

During the ordinary course of the Company’s business, it may become involved in litigation, the following sets forth all material pending legal proceedings to which the Company or any of its subsidiaries is a party or of which heir property is the subject::

 

Claims and Litigation:

 

  Auctus Fund Management (“Auctus”) vs. 12 ReTech Corporation. Auctus filed suit in August 2019 claiming breach of contract on a convertible promissory note dated April 25, 2018, which had a remaining principal balance of approximately $40,000. Auctus claimed it had the right to convert all or a portion of the debt into publicly traded shares and asserted damages totalling over $482,000. The Company had entered into a settlement agreement with Auctus that required the Company to make a cash payment of $120,375 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. Auctus had moved to restore the suit to the Court’s active docket. The Court denied the request but said it would entertain a claim based on diversity of citizenship. 12 ReTech has heard nothing more regarding this case, but the possibility of claims remains. In addition, to the claims for $482,000, claims for interest, attorney’s fees, and costs could add substantially to the liability.
     
  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. A judgment was obtained against 12 ReTech Corp. on October 14, 2020 in the amount of $217,195.74, plus 24% accrued interest, from March 21, 2019. The matter has settled, and a satisfaction of judgment has been filed. 12 ReTech is waiting on a determination from Bellridge whether the satisfaction of judgment must be recorded because of the potential of a judgment lien.
     
  J&S Properties sued the Company regarding 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. A default judgment was obtained against 12 ReTech Corp. on February 7, 2020 in the total of $54,124.10, plus attorneys’ fees and costs in the amount of $10,230.10. The Company does not believe it was ever served and believes it has it has substantial defences that it intends to raise if and when J&S tries to domesticate the judgment either in Arizona or Nevada.
     
  RedWire Group, LLC (“RedWire Group”) filed for bankruptcy under Chapter 11 subsection V on March 6, 2020, and the case is ongoing. The Company has funded the initial costs. 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. The cause of action is for Breach of Contract, Account Stated, Unjust Enrichment, Goods Sold and Quantum Meruit. The amount of the claim is for approximately $38,000, plus attorneys’ fees and costs. Bluwire Sun, LLC and 12 ReTech Corp. allege they did not order the goods supposedly sold to them and they did not receive or accept delivery of any of the goods in the state of 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. A judgment was obtained against 12 ReTech Corp. on August 13, 2020 in the amount of $16,975,29. The Company believes it has substantial counterclaims and defenses should Rottenberg ever try to enforce this judgement.
     
  PCG Advisory Group (“PAG”) obtained a default judgement of $63,350 in New York against  the Company 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 PAG 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 named the Company for invoices. 12 ReTech acquired a controlling interest in Social Decay, LLC d/b/a Social Sunday after the time frame of the claimed invoices. 12 ReTech only got notice of this claim on June 1, 2021, and intends to contest on the grounds of service of process and lack of liability for Social Decay’s debts. We have no record of ever guaranteeing payment, assuming the obligations or in any way obligating 12 ReTech for Social Decay’s bills. A default has been entered. A judgment “prove up” will come next. Plaintiff’s complaint says its damages are $41,667.18 and it requests additional attorneys’ fees and costs. 12 ReTech’s lawyers have withdrawn and a hearing is set for March 10, 2022 to determine whether to deem admitted certain requests to admit filed by Plaintiff. 12 ReTech will contest any collection efforts outside the State of California on the grounds that it does no business there.
     
  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. The judge in this matter has ruled against the Plaintiff and in favor of 12 ReTech. There may be further proceedings involving Plaintiff’s claims and 12 ReTech Corp.’s claims for costs and attorneys’ fees. This matter has been resolved.

 

Montoya v. Lexi-Luu Designs, in the State of Arizona, Maricopa County Superior Court. 12 ReTech Corp. was not named on the summons but was served with the complaint. Montoya is suing Lexi-Luu Designs which was formed in 2018 for claims against another company. A Motion to Dismiss the lawsuit was denied. The claims asserted date from 2016, over two years before Lexi-Luu Designs was organized. Plaintiff has not moved the case along.

 

Momentum CFO (“Momentum”) was the contract accounting back-office service used by Social Decay, LLC. Social Decay, LLC had an outstanding balance with Momentum. As stated previously, 12 ReTech purchased the 100% membership interests of Social Decay, LLC, however, the debts of Social Decay, LLC were never assumed by 12 ReTech Corporation in any purchase contract or otherwise. As previously mentioned, the seller of Social Decay, LLC was contracted to remain on and run the business, but instead quit and abandoned the business, and the company has been closed since then. 12 ReTech could possibly make claims for counterclaims or attorneys’ fees but nothing is presently pending.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable

 

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PART II

 

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock is quoted on the OTC Pink under the symbol “RETC.”

 

Holders of Common Stock

 

As of March 1, 2022, the closing price for the Company’s common stock on OTC Markets was $0.0002 per share. We had over 1,900 stockholders of record of the 13,250,857,253 shares outstanding.

 

Dividends

 

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

 

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

 

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

 

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

 

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ITEM 6. RESERVED.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

 

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

 

Company

 

12 ReTech Corporation is primarily a technology company focused on the retail experience, both online and in physical stores, for consumers and smaller merchants.

 

Our software, both deployed and in development, is designed to allow the smaller merchants to compete effectively with the retail behemoths like Walmart and Amazon, and to attract, retain, and delight consumers both online and in physical stores, without being dependent on Google, Facebook/Instagram, and Amazon.

 

Our AI Social Shopping platform App, which is currently in development, will allow merchants to connect with consumers directly, and will give merchants tools to protect their brand and lower their marketing costs, which will be focused on results not just “looky-loos”.

 

For consumers, the App allows them to support their favorite local businesses and find new merchants that may be of interest to them, while earning money through their social communications and posts.

 

The Company has also acquired retail and wholesale operating companies that will allow us to test our tech on real consumers and demonstrate their success for other merchants while earning revenues for the Company.

 

As an innovative retail technology company that has been built through acquisitions and ideas, we intend to continue to search for additional synergistic acquisitions that bring incremental revenues and profitability, and access to products that will incentivize both merchants and consumers to quickly adopt our social shopping App.

 

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Principal subsidiaries as December 31, 2021.

 

The details of the principal subsidiaries of the Company as of December 31, 2021, are set out as follows (additional consolidation may occur in the future):

 

Name of Company   Place of Incorporation   Date of Incorporation     Acquisition Date   Attributable Equity Interest %     Business
12 Retail Corporation (“12 Retail”)   Arizona, USA     Sept. 18, 2017     Formed by 12 ReTech Corporation     100 %   Includes the operations of Bluwire Group, LLC (acquired October 1, 2019), and its subsidiaries and as its own operations
12 Tech Inc.   Arizona, USA     Dec 26,2019     Formed by 12 Retech     100 %   Includes the operations and Intellectual Properties of 12 Japan Limited (acquired July 31, 2017), 12 Hong Kong Limited) acquired July 31, 2017), and 12 Europe AG (acquired October 26, 2017, now defunct), and its own operations.
12 Fashion Group Inc.   Arizona, USA     June 26, 2020     Formed by 12 Retech     100 %   Includes the operations of Red Wire Group, LLC (acquired February 19, 2019, now defunct), Rune NYC, LLC (acquired March 14, 2019), and Social Decay, LLC dba Social Sunday (acquired November 01, 2019) and other brands

 

12 Retail Corporation, a subsidiary of 12 ReTech Corporation, operates its own retail store and manages two main subsidiaries each of which have multiple subsidiaries: 12 Fashion Group, Inc and Bluwire Group, LLC.

 

12 Fashion Group Inc, A subsidiary of 12 Retail Corporation, has the following subsidiaries;

 

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

 

As of the end of November 30, 2019, we closed the factory in Utah, while 12 Fashion Group retained the customers by completing the orders in process. We were able to produce the products through 3rd party factories in New York City and Los Angeles for less than it cost us to produce the products in our own factory in Salt Lake City, Utah. On March 6, 2020, the company filed a Chapter 11 Bankruptcy filing in Phoenix Arizona. This filing allowed us to sell the equipment we no longer needed, pay off the secured creditors, and shed all of Red Wire’s debt from our balance sheet. The bankruptcy was discharged on or about September 2020, and all debts were extinguished. During 2021, there has been no change in the bankruptcy proceedings. 12 Fashion Group continues to service those customers acquired as well as obtaining new accounts by marketing under the d/b/a Red Wire Designs.

 

  - One March 14, 2019 we acquired Rune NYC, LLC. (“Rune”) a New York Corporation pursuant to a Share Exchange Agreement whereby the Company exchanged with the members of Rune (the “Members”), representing 92.5% of the membership interests, and the members agreed to tender their interests to the Corporation, and the Corporation closed out the tender offer period and the Exchange Agreement became effective. Accordingly, pursuant to the terms of the Exchange Agreement, at closing the Company acquired 92.5% of the membership interests of Rune in exchange for 82,588 shares of the Corporation’s Series D-5 Preferred Stock with a stated value of $4.00 per share. Rune’s operations continued uninterrupted in New York City following the closing and retained key employees as the leading part of 12 Fashion Group.
     
  - On November 20, 2019 Social Decay, LLC d/b/a Social Sunday, (“Social”) a New Jersey Limited liability company, was acquired by the Company pursuant to a share exchange agreement whereby the Company exchanged the Company’s 30,000 D-6 Shares for 100% of the total outstanding equity of Social and the member of Social (the “Member”). That Member was retained by the Company, but subsequent to the year end on April 15, 2020, she resigned and as a consequence, forfeited the additional 12,000 D-6 Shares held in escrow as a performance incentive. The D-6 shares have a face value of $5.00 per share, and are convertible into the Company’s common shares. Subsequent to year end in March 2020, Social’s print factory was closed in part due to the COVID-19 Pandemic. Social’s products are marketing and manufactured by the staff of 12 Fashion Group.

 

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  -

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

     
  - 12 Tech, Inc. An Arizona corporation, is a subsidiary of 12 ReTech Corporation, and has a number of subsidiaries (“12Tech”). On December 26, 2019, the Company formed 12Tech to spearhead the Company’s software technology development and to focus more effort on the largest retail market in the world: the United States of America. The Company then closed or consolidated under 12Tech all its other software technology companies and maintains the following three subsidiaries:
     
  - 12 Hong Kong, Ltd., a corporation organized in the special economic region of Hong Kong is a subsidiary of 12 Tech, Inc. On June 27, 2017 the Company acquired 12 Hong Kong, Ltd. in a share exchange transaction. Originally this is the Company that managed all the Company’s proprietary and licensed technology that is utilized and sold by the other subsidiaries. With the formation of 12Tech, that role is now being managed by 12Tech. Today, 12 HK operates as a subsidiary of 12Tech and serves as the marketing and sales hub for Asia, particularly the Chinese market and now services our customers in Japan, formerly managed by 12 Japan Ltd.
     
  - 12 Japan, LTD. Organized in Japan and is a subsidiary of 12 Tech, Inc. After the initial acquisition of 12 Hong Kong, LTD during 2017 and the first half of 2018, the Company made several acquisitions including 12 Japan, LTD. Subsequent to this acquisition, the Company took steps to consolidate the assets and streamline operations that effectively by the end the 3rd quarter 2019, this Company no longer functions as independent subsidiary. In the third quarter of 2019 the Company closed the offices of 12 Japan, and its flagship customer ITOYA and the revenue generated will be serviced and managed by 12 Hong Kong.
     
  - 12 Europe, A.G. 12 Europe A.G. was acquired in 2017, and underperformed. In the third quarter 2019, it was determined by management that the costs of continuing to support the expenses of an independent 12 Europe A.G. were unsupportable. Therefore, the Company reaffirmed its previous master representation agreement between 12 Hong Kong, LTD and Coppola, AG so that the software customers in Europe can continue to be supported and then closed its operations in Europe. On August 20, 2019, the Company had successfully discharged all of its debts associated with 12 Europe A.G., as part of the completion of the 12 Europe A.G. bankruptcy filing except for certain social benefit payments still owed approximately $35K by the Company. Therefore, this subsidiary is no longer in existence.

 

Business and Operations

 

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

 

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

 

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

 

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Effects on us of the Covid-19 Pandemic

 

The time span starting in 2020 and continuing into 2021 was a unusual period in that at nearly at the same time, the entire world was in the grip of the Covid-19 pandemic, with unprecedented closings of businesses, a virtual cessation of most business and personal travel, and lockdown and stay at home orders. As a Company centered around retail, and which derives the most significant portion of its revenue from retail stores in airports and casinos, we were hit particularly hard. In retail, the 1st quarter of every year is the slowest revenue quarter of any year, and even before that first quarter ended, all of our retail stores were closed due to the pandemic. Only the casino store was able to be re-opened in mid-December 2020 to lackluster sales. Supply chains were interrupted, and it became difficult to re-stock our retail store for the holiday season which also delayed its re-opening to mid-December, after an aborted restart in September. The supply chain problems also delayed the receipt of fabric and other products needed by our Fashion Group as they began to re-emerge from under the pandemic closures. Our fashion group, being based-in NYC, was closed for many months and only reopened in July to produce masks. All of the stores our fashion group sold to were also closed. Our technology division, 12 Tech Inc, was also hard hit. Not only were retailers closed and conserving cash like we were, but it became apparent that consumers would no longer interact with public touchscreens, which was the cornerstone of our technology. In other words, our technology was made obsolete in the blink of an eye.

 

The Company managed survival during the pandemic by squirreling cash and obtaining PPP and or EIDL loans from the SBA. We attempted to retain all of our key employees utilizing these funds, but by June 2021 most have found other jobs once the PPP money ran out. This presents challenges for our airport stores’ re-openings, as it is a long process to get employees certified (“badged”) to work in airports. This will further slow our re-openings during 2022. We also renegotiated various leases and commitments to make us more streamlined and efficient as we re-open and expand. In Japan, we renegotiated out licensing arrangement with ITOYA whereby they managed more of the day-to-day software for a smaller fee, and we eliminated virtually all of our costs there. We also learned that the App we had developed there was strongly used by Japanese consumers of ITOYA. and we could re-develop it for the U.S. market. This process is well on the way, and management believes will create the next great shopping platform.

 

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

 

Financing and Convertible Debt

 

During the period June 2017 until July 2021, the Company financed most of its operations, acquisitions, and technology through convertible debt. The issue with convertible debt is the dilution that our shareholders experienced as these debt holders converted their debt to common stock and then sold that common stock into the market.

 

During 2020 and 2021, the Company raised $956,600 in new convertible debt and the existing debt holders converted their older debt in the amount of $ 943,896 into 9,122,400,274 shares of common stock. At December 31, 2021 the Company owed $1,353,447 in convertible debt, held a default reserve of $1,364,204 and maintained a derivative liability reserve of $6,758,937.

 

During 2020, the Company received $294,882 in PPP funds from the SBA under the CARES Act (“ACT”) During June 2021, the Company was able to have the SBA forgive $70,200 in accordance with the ACT requirements. During the third quarter of 2021, the Company was able to have the SBA forgive the remaining $224,682, thereby all of the first round PPP funds have been forgiven.

 

During 2021, the company also received $302,602 in PPP funds. The company also asked for these funds to be forgiven in accordance with CARES ACT, and during the fourth quarter, $302,602 of these loans were forgiven by the SBA.

 

Also, during 2020 the Company received $325,300 in EIDL Funds from the SBA. These funds carry a 3.75% annual interest, and the Company will begin making aggregate monthly payments of $1,588 over the next 360 months.

 

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YEAR ENDED December 31, 2021 COMPARED TO THE YEAR ENDED December 31, 2020

 

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

 

Revenues

 

During the year ended December 31, 2021 our revenues decreased to $ 660,206 from $721,312 in the prior comparable year. This represents a decrease of $61,106 or 8%, which is primarily the result of the continued global pandemic due to COVID 19 on our Bluwire subsidiary and 12 Fashion Group subsidiary during 2021. The government forced the closure of all our store locations on March 16, 2020, and in 2021, we have not yet been able to re-open the remaining Bluwire subsidiary locations following this closure. When allowed, the company was able to re-open only one of our store locations in December 2020. We hope to open additional store locations in the near future.

 

Cost of revenues

 

During the twelve months ended December 31, 2021 we incurred Cost of Revenues associated with the delivery of our products in the amount of $394,394, as compared to $385,236 for the comparable period in 2020. These expenses are related to costs of delivering goods. In 2021, our Cost of Revenues as a percentage of Revenues was 60% as compared to 53% in the prior comparable period. The slightly higher cost of revenues as a percentage of Revenues in 2021 is mainly the result of increased costs associated with purchases of inventory and production materials due to COVID 19.

 

General and Administrative

 

Our general and administrative expenses for the year ended December 31, 2021 were $1,447,357, a significant decrease of $315,499 or 18% when compared to $1,762,856 for the year ended December 31, 2020. The decrease is a result of impact due to COVID 19 and forced closure of operations during many months.

 

Professional fees

 

Our professional fee expenses for the year ended December 31, 2021 were $744,112 an increase of $60,861 or 9% when, compared to $683,251 for the year ended December 31, 2020. Our professional fees include expenses related to our external auditors, legal costs, and consultants. In order to preserve our subsidiaries operations, the company conserved on spending from the period of closure on March 16, 2020 until December 31, 2021.

 

Depreciation and amortization

 

Our depreciation expenses for the year ended December 31, 2021 were $42,600, a decrease of $396,669 or 90% when compared to $439,269 for the year ended December 31, 2020. Our depreciation and amortization expense includes intangibles and leasehold improvements added October 1, 2019 as part of the Bluwire acquisition. However, these assets were fully depreciated by March 2021.

 

Other Expense

 

Our Other Expenses decreased by $16,099,158 or 83% to $3,292,641 for the year ended December 31, 2021 compared to $19,391,799 for the year ended December 31, 2020. There are four main components of the increase of the 2021 Other Expense category:

 

  1. A significant decrease in the loss of change in derivative liability to $1,792,072 for the year ended December 31, 2021 compared to $18,860,260 for twelve months ended December 31, 2020, resulting in a decrease of $17,068,188 which is the result of the calculation of derivative liability using Black-Scholes.
     
  2. An increase in other income to $598,809 for the year ended December 31, 2021 compared to $431,937 for twelve months ended December 31, 2020. Other income was primarily the result of the PPP loans being forgiven during 2021.
     
  3. An increase in general default reserve expense of for the year ended December 31, 2021 to $429,048, compared to gain of $491,897 as of December 31, 2020.
     
  4. A significant increase in interest expense of $2,056,847 to $2,528,426 as of December 31, 2021 compared to $471,579 for the ended December 31, 2020.

 

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See these components described in further detail below.

 

Other Income

 

An increase in other income to $598,809 for the year ended December 31, 2021 compared to $431,937 for twelve months ended December 31, 2020. During 2020 the Company received $294,882 in PPP funds from the SBA under the CARES Act (“ACT”). By September 30, 2021, the Company was able to have the SBA forgive $294,882 of first round PPP loans from 2021. During 2021, the company also received $302,602 in PPP funds. During the third and fourth quarter of 2021, the $302,602 of the second round PPP loans which were also forgiven by the SBA. This represents the majority of the other income recognized by the company in 2021.

 

Interest Expense

 

There was an increase in interest expense of $2,056,847 to $2,528,426 as of December 31, 2021 compared to $471,579 for the period ended December 31, 2020. The increase in interest expenses is primarily related to increase in convertible notes’ convertible preferred stock during the same period, as well as a significant increase in interest expense associated with the additional derivative liability and for the general default reserve.

 

Change in Derivative Liability

 

There was a gain as a result of the change of derivative liability of $1,792,072 as of December 31, 2021 compared to gain of $18,860,260 for the period ended December 31, 2020. The reason for the change was because of a change in the calculation method from Lattice model to Black-Scholes model.

 

General Reserve Expense

 

The company recognized a general default reserve gain of for the year ended December 31, 2021 of $429,048 compared to a general default expense of $491,897 as of December 31, 2020. On July 25, 2019 the Company was served with a lawsuit from Auctus Fund, LLC (“Auctus”). Since 2019 and thereafter, management calculated a default reserve which represents the additional amount management would have to pay out to all note holders in the event of the default. Management quantified what this amount would be which includes additional premiums, additional accrued interest and default accrued interest in 2019 and 2020 and updated these calculations in 2021. The total reserve quantified by management amounted to $1,364,204 and $2,278,648 as of December 31, 2021 and 2020.

 

Net Income

 

During the year ended December 31, 2021, we incurred a net loss of $5,260,898 compared to a net loss of $21,941,099 for the year ended December 31, 2020. The decreased loss is primarily the result of the increase in the change in derivative liability.

 

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

 

Liquidity and Capital Resources

 

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

 

Operating expenses for the Company have been paid from revenue as well as from the issuance of debt-equity and preferred stock subscriptions. At December 31, 2021 the Company had a deficit in working capital (current liabilities in excess of current assets) of $14,794,099. A portion of this working capital deficit has been financed loans from stockholders. As of December 31, 2021, amounts owed to stockholders totalled $386,773. At December 31, 2020, the Company had a deficit in working capital (current liabilities in excess of current assets) of $31,490,395. A portion of this working capital deficit has been financed loans from stockholders. As of December 31, 2020, amounts owed to stockholders totalled $383,753. The decrease in working capital deficit when compared to December 31, 2020 was principally due to a decrease derivative liabilities and offset to a lesser extent, increase in accounts payable.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

26

 

 

In connection with the acquisition of Bluwire Group, LLC, on October 3, 2019, one of the Sellers of Bluwire provided $300,000 capital contribution to Bluwire. This obligation is not convertible into Company stock under any terms. This capital contribution to Bluwire has not been adequately documented. In Addition, on October 15, 2019, the Company’s Bluwire subsidiary entered into a future receivable purchase agreement with Libertas Funding and received $343,000. This agreement provides for payment over 8 months and caries a fee of $7,000. This obligation is not convertible under any terms into Company stock. Lastly, on November 5, 2019, the Company’s Rune subsidiary entered into a future receivables purchase agreement with Vox funding and received gross proceeds for $145,500 which were used in part to retire a previous and smaller obligation to Vox Funding. The Agreement provided for payment over 6 months and carries a fee of $4,500. This obligation is not convertible under any terms into Company Stock. After the March 16, 2020 Covid shut down, all payment ceased by verbal mutual agreement. In May 2021, the Company entered into a verbal agreement with Vox to repay $250 per week and all collection efforts are put on hold and forbearance on other receivable holders.

 

On March 18, 2020, the Company entered into a back-end promissory note agreement with Adar Alef, LLC (“Adar”) for loans totalling $33,600. The consideration to the Company was $30,000 with $3,600 of legal fees. As a subsequent event, on March 25, 2020, the Company entered into a back end promissory note agreement with LG Capital, LLC (“LG”) for loans totalling $33,600. The consideration to the Company was $30,000 with $3,600 of legal fees. The note is convertible after 181 days at a (i) $0.0075 ceiling or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion date.

 

On March 5, 2020, the Company’s Bluwire subsidiary entered into a second future receivable purchase agreement with Reliant Funding and received $83,000. This agreement provides for payment over 6 months and carries a fee of $3,000. This obligation is not convertible under any terms into Company stock. This agreement has been in forbearance since April 2021, and the Company pays $10 per week until the Bluwire store at Newark international airport is re-opened.

 

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

 

As of December 31, 2021, the Cash and Cash Equivalents balance was $12,786 compared to December 31, 2020, the Cash and Cash Equivalents balance was $11,784.

 

During the year ended December 31, 2021, the current liabilities decreased by $16,759,204 when compared to December 31, 2020. The primary reason for the decrease was the decrease in derivative liabilities of $17,039,303 to $6,758,937 offset by increase in accounts payable of $980,012 to $4,167,604 as of December 31, 2021 compared to $23,798,240 in derivative liabilities and $3,187,592 in accounts payable as of December 31, 2020. Due to Covid 19 pandemic, the company tried to preserve operations and obtained extended terms from most of its creditors.

 

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

 

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

 

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

 

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Impact of COVID-19

 

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

 

In response to the President’s “stay at home” orders, on March 16, 2020, we promptly laid off almost all of our 12 Fashion Group employees and contractors. 12 Fashion Group retained three employee/contractors and focused on producing and selling of washable reusable masks, both wholesale and direct to consumer online. With the continued impact of COVID 19, 12 Fashion Group has not hired any additional employees and is maintaining it revenue channels despite the significant impact on the environment.

 

Our Bluwire retail stores in Newark airport, Dallas airport, and JFK international airport were temporarily closed on or about March 17, 2020. Our Casino location was temporarily closed on or about March 17, 2020 when the Mohegan Sun Casino itself was closed. We laid off all of our Bluwire employee/contractors except two members of the headquarters staff who continued to source innovative products for our stores when they re-open, some of which will be uniquely desired by consumers due to changing buying habits due to COVID-19. During 2021, the Company has not yet been able to reopen these locations.

 

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

 

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

 

The Company has applied for PPP Loans for all of its U.S. operating Companies, and is in the process of analyzing if it would qualify for similar governmental assistance for its reduced operating unit in Japan (12 Japan Ltd). The Company has qualified and received for an aggregate of $294,882 in 2020 and $302,602 in 2021 in PPP loans for its operating companies. On June 4, 2021, $70,200 of the first round of PPP loans was forgiven by the SBA. During the third quarter of 2021, an additional $224,682 of the first and second round PPP loans were also forgiven by the SBA. During the fourth quarter, an additional $302,602 in the PPP loans were also forgiven by the SBA.

 

These funds were used to re-hire previously laid off personnel where appropriate and hire new personal that management believes better fits the post COVID-19 shut-down environment. The Company hired personnel that helps the operating units generate revenues in a more contactless environment and to create changes to our cutting-edge retail software to help our stores and well as other retailers attract consumers in this new environment.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. Since we have not yet generated significant revenue, we have negative cash flows from operations, and negative working capital we have included a reference to the substantial doubt about our ability to continue as a going concern in connection with our consolidated financial statements for the year ended December 31, 2021. Our total accumulated deficit at December 31, 2021 was $49,709,916 compared to $$44,475,900 as of December 31, 2020.

 

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

 

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Critical Accounting Policies and Estimates

 

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, and expenses and the disclosure of contingent assets and liabilities. We use assumptions that we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. We believe there have been no significant changes in accounting policies during the year ended December 31, 2021. See Note 3 to the consolidated statements in this Annual Report for a complete discussion of our significant accounting policies and estimates.

 

Recently Issued Accounting Standards

 

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

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

12 RETECH CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

 

  Page
   
Report of Independent Registered Public Accounting Firm for the year ended December 31, 2020 and 2021 PCAOB ID NO: 5041 F-1
   
Consolidated Balance Sheets F-2
   
Consolidated Statements of Operations and Comprehensive Loss F-3
   
Consolidated Statement of Changes in Stockholders’ Deficit F-4
   
Consolidated Statements of Cash Flows F-5
   
Notes to the Consolidated Financial Statements F-6

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the shareholders and the board of directors of 12 ReTech Corporation

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of 12 ReTech Corporation as of December 31, 2021 and 2020, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

 

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

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

 

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

 

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

 

Critical Audit Matter

 

Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

 

We determined that there are no critical audit matters.

 

/S/ BF Borgers CPA PC

We have served as the Company’s auditor since 2021

Lakewood, CO

March 31, 2022

 

F- 1
 

 

12 ReTech Corporation

Consolidated Balance Sheets

(audited)

 

    December 31,     December 31,  
    2021     2020  
ASSETS                
Current Assets:                
Cash and cash equivalents   $ 12,786     $ 11,784  
Accounts receivable     11,637       3,108  
Inventory     104,153       177,172  
Prepaid expenses     13,500       12,920  
Total Current Assets     142,076       204,984  
                 
Fixed assets, net     45,627       88,228  
ROU Asset     355,882       52,671  
Other Assets     89,000       -  
Security deposit     231,310       241,250  
TOTAL ASSETS   $ 863,895     $ 587,133  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current Liabilities:                
Accounts payable and accrued liabilities   $ 4,167,604     $ 3,187,592  
Due to stockholders     386,773       383,753  
Related Party Notes payable, net of discounts     31,000       31,000  
Notes payables, net of discounts     -       35,000  
Convertible notes payable, net of discounts     1,212,926       1,268,647  
Derivative liabilities     6,758,937       23,798,240  
General default reserve     1,364,204       2,278,648  
Lease liability     179,349       52,671  
Bank loans     249,937       249,937  
Merchant cash advances, net of discounts     585,446       409,892  
Total Current Liabilities     14,936,175       31,695,379  
                 
Lease Liability     176,533          
SBA EIDL Loans     325,099       620,182  
Total Long-Term Liabilities     501,632       620,182  
                 
Total Liabilities   $ 15,437,807     $ 32,315,561  
                 
Commitments and Contingencies     -          
Series B Preferred Stock, 1,000,000 shares designated; $0.00001 par value, $1.00 stated value; 0 shares and 170,400 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively. Liquidation preference $0.     -       170,400  
Series D-1 Preferred Stock, 500,000 shares designated; $0.00001 par value $2.00 stated value; 0 shares issued and outstanding at December 31, 2021 and December 31, 2020. Liquidation preference $0     -       -  
Series D-2 Preferred Stock, 2,500,000 shares designated; $0.00001 par value, $2.00 stated value; 754,410 shares and 912,368 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively. Liquidation preference $1,508,820     2,218,653       2,607,162  
Series D-3 Preferred Stock, 500,000 shares designated; $0.00001 par value $5.00 stated value; 54,840 shares issued and outstanding at December 31, 2021 and December 31, 2020. Liquidation preference $274,234     274,234       274,234  
                 
Stockholders’ Deficit:                
Preferred stock: 50,000,000 authorized; $0.00001 par value:                
Series A Preferred Stock, 10,000,000 shares designated; $0.00001 par value; 9,429,525 and 9,197,566 shares issued and outstanding at December 31, 2021 and December 31, 2020     95       93  
Series C Preferred Stock, 2 shares designated; $0.00001 par value; 2 shares issued and outstanding at December 30, 2021 and December 31, 2020     2       1  
Series D-5 Preferred Stock, 1,000,000 shares designated; $0.00001 par value, $4.00 stated value; 128,494 shares and 128,494 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively     513,976       513,976  
Series D-6 Preferred Stock, 1,000,000 shares designated; $0.00001 par value $5.00 stated value; 92,680 shares issued and outstanding at December 31, 2021 and 104,680 as of December 31, 2020.     463,400       523,400  
Common stock: 20,000,000,000 authorized, $0.00001 par value; 12,862,508,315 and 1,177,103,618 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively     128,625       11,768  
Additional paid-in capital     32,202,280       9,282,228  
Minority interest     (661,179 )     (634,297 )
Accumulated other comprehensive income     (4,082 )     (1,493 )
Accumulated deficit     (49,709,916 )     (44,475,900 )
Total Stockholders’ Deficit     (17,066,799 )     (34,780,224 )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 863,895     $ 587,133  

 

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

 

F- 2
 

 

12 ReTech Corporation

Consolidated Statements of Operations

(audited)

 

             
    Twelve Months Ended  
    December 31,  
    2021     2020  
             
Revenues   $ 660,206     $ 721,312  
Cost of revenue     394,394       385,236  
Gross Profit     265,812       336,076  
                 
Operating Expenses                
General and administrative   $ 1,447,357     $ 1,762,856  
Professional fees     744,112       683,251  
Depreciation     42,600       439,269  
Total Operating Expenses     2,234,069       2,885,376  
                 
Operating Income (Loss)     (1,968,257 )     (2,549,300 )
                 
Other Expense                
Other income   $ 598,809     $ 431,937  
Reserve Expense     429,048       (491,897 )
Interest expense     (2,528,426 )     (471,579 )
Gain/ (loss) on derivative liability     (1,792,072 )     (18,860,260 )
Net Other Income (Expense)     (3,292,641 )     (19,391,799 )
                 
Net Gain (Loss)   $ (5,260,898 )   $ (21,941,099 )
                 
Other comprehensive income- foreign currency translation adjustment     (2,589)        962  
                 
Comprehensive Gain (Loss)   $ (5,263,487 )   $ (21,940,137 )
                 
Minority Interest   $ (26,882 )   $ (221,544 )
                 
Net Gain (Loss) to 12 ReTech Corporation     (5,236,605 )     (21,718,593 )
                 
Net Gain (Loss) Per Common Share: Basic and Diluted   $ (0.00 )   $ (0.03 )
                 
Weighted Average Number of Common Shares Outstanding: Basic and Diluted     7,139,048,844       641,140,917  

 

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

 

F- 3
 

 

12 ReTech

Statement of Stockholders Deficit

Twelve months ended December 31, 2021 and 2020

(audited)

 

    Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Capital     Interest     Income     Deficit     Deficit
    Series A Preferred Stock     Series C Preferred Stock     Series D-5 Preferred Stock     Series D-6 Preferred Stock      Common Stock    

Additional

Paid-in

    Minority    

 

Other Comprehensive

    Accumulated    

Total

Stockholders’

    Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Number of Shares     Amount     Capital     Interest     Income     Deficit     Deficit
                                                                                                                       
Balance - December 31, 2019     9,183,816     $ 92       1     $ 1       128,494     $ 513,976       104,680     $ 523,400       36,935,303     $ 369     $ 8,341,811     $ (412,753 )   $ (2,455 )   $ (22,756,345 )     $(13,791,905)
                                                                                                                   
Common stock issued for conversion of notes payable and accrued interest     -       -       -       -       -       -       -       -       786,026,210       7,850.00       111,124       -       -       -       118,974
Common stock issued for Preferred Shares conversion     -       -       -       -       -       -       -       -       355,142,105       3,550       42,448       -       -       -       45,998
Series D-2 shares exchanged for common stock     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -
Preferred shares issued for Cash     13,750       -       -       -       -       -       -       -       -       -       5,051       -       -       -       5,051
Preferred shares issued for compensation     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -
Relief of derivative through conversion and issuance of preferred stock derivatives     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -
Dividends     -       -       -       -       -       -       -       -       -       -       781,793       -       -       -       781,793
Net loss     -       -       -       -       -       -       -       -       -       -       -       (221,543 )     962       (21,719,555 )     (21,940,137)
                                                                                                                   
Balance December 31, 2020     9,197,566     $ 92       1     $ 1       128,494     $ 513,976       104,680     $ 523,400       1,177,103,618     $ 11,768     $ 9,282,228     $ (634,296 )   $ (1,493 )   $ (44,475,900 ) $ (34,780,224)
                                                                                                                   
Balance December 31, 2020     9,197,566     $ 92       1     $ 1       128,494     $ 513,976       104,680     $ 523,400       1,177,103,618     $ 11,768     $ 9,282,228     $ (634,296 )   $ (1,493 )   $ (44,475,900 ) $ (34,780,224)
                                                                                                                   
Common stock issued for conversion of notes payable and accrued interest     -       -       -       -       -       -       -       -       9,545,231,620       95,452       965,664       -       -       -       1,061,117
Common stock issued for Preferred Shares conversion     -       -       -       -       -       -       -       -       2,140,173,077       21,403       1,163,247       -       -       -       1,184,650
Series D-2 shares exchanged for common stock     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -
Preferred shares issued for Cash     27,500       1       -       -       -       -       -       -       -       -       59,999       -       -       -       60,001
Preferred shares cancelled     -       -       -       -       -       -       (12,000 )     (60,000 )     -       -       -       -       -       -       (60,000)
Preferred shares issued for compensation     204,459       2       1       1       -       -       -       -       -       -       (15 )     -       -       -       (12)
Relief of derivative through conversion and issuance of preferred stock derivatives     -       -       -       -       -       -       -       -       -       -       20,170,988       -       -       -       20,170,989
Dividends     -       -       -       -       -       -       -       -       -       -       560,170       -       -       -       560,170
Net loss     -       -       -       -       -       -       -       -       -       -       -       (26,883 )     (2,589 )     (5,234,016 )     (5,263,487)
                                                                                                                   
Balance December 31, 2021     9,429,525     $ 95       2     $ 2       128,494     $ 513,976       92,680     $ 463,400       12,862,508,315     $ 128,625     $ 32,202,280     $ (661,179 )   $ (4,082 )   $ (49,709,916 )     $(17,066,799)

 

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

 

F- 4
 

 

12 ReTech Corporation

Condensed Consolidated Statement of Cash Flows

(audited)

 

                 
    Twelve Months Ended  
    December 31,  
    2021     2020  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net Loss   $ (5,260,898 )   $ (21,941,099 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     42,600       439,269  
Increase in notes payable and Series D-2 for defaults     -       491,897  
Excess fair market value of common shares over liabilities settled     -       -  
Accrual of dividends on preferred stock     -       41,243  
Change in fair value of derivative liability     1,669,945       -  
Gain/loss on derivative liability and additional interest expense recorded on issuance     1,774,217       18,860,260  
Loss on exchange and issuance of preferred stock     -       109,080  
Amortization of debt discount     342,738       4,460  
Preferred stock dividends     27,420       -  
Stock compensation     1,585       -  
Right of use lease     (176,533 )      -  
Accounts receivable     (8,529 )     128,497  
Prepaid Expenses     (580 )     (5,320 )
Inventory     73,019       64,815  
Other current assets     -       179,100  
Accounts payable and accrued liabilities     978,709       1,020,096  
Lease liability     -       (1,508 )
Net Cash Provided By (Used in) Operating Activities   $ (536,307 )   $ (609,210 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
                 
Purchase of property and equipment     -       399  
Cash received from acquisition     -       -  
Cash paid on acquisition     -       -  
Software development costs     (88,999 )     (180,426 )
Security deposit     9,940       -  
Net Cash Used in Investing Activities   $ (79,059 )   $ (180,027 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds (repayments) from stockholders     3,021       (338 )
Proceeds from convertible notes payable and notes payable     637,875       80,000  
Proceeds from Preferred Series Stock     190,001       5,000  
Preferred Series Stock Cancelled     (60,000 )        
Repayments of related party notes payable     (35,000 )     -  
Proceeds from PPP and SBA loans     (295,083 )     620,182  
Payments on merchant financing     175,554       (62,937 )
Proceeds from bank loans     -       16,687  
Net Cash Provided by Financing Activities     616,368       658,593  
                 
Effect of Exchange Rate Changes on Cash and Cash Equivalents -     -       (962 ) 
                 
Net decrease in cash and cash equivalents     1,002     (130,644 )
Cash and cash equivalents, beginning of period     11,784       118,860  
Cash and cash equivalents, end of period   $ 12,786     11,784
                 
Supplemental cash flow information                
Cash paid for interest   $ -     $    
Cash paid for taxes   $ -     $    
                 
Non-cash transactions:                
Discounts on convertible notes payable   $ 220,889     $ -  
Conversions of convertible notes payable, accrued interest and derivatives   $ 21,230,520     $ 120,300  
Conversion preferred stock into common stock   $ 1,184,559     $ -  
Reduction of APIC related to derivative recorded on Preferred stock in equity   $ -     $ 428,735  
Conversion of Series B and D-2 preferred stock to common stock   $ -     $ 45,300  

 

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

 

F- 5
 

 

12 RETECH CORPORATION

Notes to the Consolidated Financial Statements

 

NOTE 1. NATURE OF BUSINESS

 

12 ReTech Corporation is primarily a technology company focused on the retail experience, both online and in physical stores, for consumers and smaller merchants.

 

Our software, both deployed and in development, is designed to allow the smaller merchants to compete effectively with the retail behemoths like Walmart and Amazon, and to attract, retain, and delight consumers both online and in physical stores, without being dependent on Google, Facebook/Instagram, and Amazon.

 

Our AI Social Shopping platform App, which is currently in development, will allow merchants to connect with consumers directly, and will give merchants tools to protect their brand and lower their marketing costs which will be focused on results not just “looky-loos”.

 

For consumers, the App allows them to support their favorite local businesses and find new merchants that may be of interest to them, while earning money through their social communications and posts.

 

The Company has also acquired retail and wholesale operating companies that will allow us to test our tech on real consumers and demonstrate their success for other merchants while earning revenues for the Company.

 

As an innovative retail technology company that has been built through acquisitions and ideas, we will continue to search for additional synergistic acquisitions that bring incremental revenues and profitability, and access to products that will incentivize both merchants and consumers to quickly adopt our social shopping App.

 

The Company’s technology solutions are designed to benefit from the latest changes in the world-wide Retail market. Global retail sales were projected to be around 26.7 trillion U.S. dollars by 2022, up from approximately 23.6 trillion U.S. dollars in 2018. The retail industry encompasses the entire journey of a good or service. This typically starts with the manufacturing of a product, and ends with said product being purchased by a consumer from a retailer. Retail establishments come in many forms such as grocery stores, restaurants, and bookstores.

 

As a result of globalization and trade agreements between various markets and countries, many retailers are capable of doing business on a global scale. Many of the world’s leading retailers are American companies; Walmart, Amazon, The Kroger Co., Costco, and Target are examples of such American retailers with global reaches, with Walmart being the largest. The success of U.S. retailers can also be seen through their performance in online retail; the U.S. domestic market is lucrative and it is one in which many companies compete.

 

Our AI Social Shopping platform App is designed to allow smaller merchants to compete directly with these major retail chains without being dependent on “advertising” through competitors like Amazon, Facebook/Instagram, and Google, who ALL have their own shopping solutions.

 

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

 

The company, unlike many others, has weathered the Global storm caused by the Covid-19 Pandemic, and is poised to take advantage of the return to normalcy that is currently occurring in most markets, and assist smaller merchants through their recovery with our AI Social Shopping platform App to attract customers back to their businesses.

 

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

 

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

 

Reverse Stock Split and increase in authorized shares

 

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

 

F- 6
 

 

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, 2021, the Company has incurred losses totalling $49,709,916 since inception, has not yet generated significant revenue from its operations, and will require additional funds to maintain our operations. As of December 31, 2021, the Company had a working capital deficit of $14,794,099. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company intends to finance operating costs over the next twelve months through continued financial support from its shareholders, the issuance of debt securities and private placements of common stock. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The consolidated financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“GAAP”) and presented in US dollars. The fiscal year end is December 31.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its subsidiaries 12HK, 12JP, 12EU. 12 Retail, Rune NYC, LLC (“Rune”), Red Wire Group, LLC (“RWG”), Bluwire Group, LLC (“Bluwire”), Social Decay LLC dba Social Sunday (“Social Sunday”) and Emotion Fashion Group which included Emotion Apparel, Inc., Lexi Luu Designs, Inc., Punkz Gear, Skipjack Dive and Dance Wear, Inc. and Cleo VII, Inc. All inter-company accounts and transactions have been eliminated on consolidation. We currently have no investments accounted for using the equity or cost methods of accounting.

 

F- 7
 

 

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 $12,786 and $11,784 in cash and cash equivalents as at December 31, 2021 and 2020, 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 Contracts with Customers” (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation.

 

F- 8
 

 

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, 2021 and 2020, the Company did not have an allowance for doubtful accounts.

 

Inventory

 

Inventories, 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, 2021, all inventory on hand is pursuant to our Bluwire and Rune acquisitions (see Note 4).

 

Fixed Assets

 

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

 

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

 

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

 

F- 9
 

 

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 be impaired

 

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 it’s 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 it’s 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, 2020 and 2021, 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 and 2021.

 

F- 10
 

 

Convertible Debt and Convertible Preferred Stock

 

When the Company issues convertible debt or convertible preferred stock, it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether the instrument should be classified as a liability under ASC 480, Distinguishing Liabilities from Equity, and second whether the conversion feature should be accounted for separately from the host instrument. A conversion feature of a convertible debt instrument or certain convertible preferred stock would be separated from the convertible instrument and classified as a derivative liability if the conversion feature, were it a standalone instrument, meets the definition of an “embedded derivative” in ASC 815, Derivatives and Hedging. Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not indexed to the Company’s equity, as defined in ASC 815-40, or when it must be settled either in cash or by issuing stock that is readily convertible to cash. When a conversion feature meets the definition of an embedded derivative, it would be separated from the host instrument and classified as a derivative liability carried on the consolidated balance sheet at fair value, with any changes in its fair value recognized currently in the consolidated statements of operations.

 

If a conversion feature does not meet the conditions to be separated and accounted for as an embedded derivative liability, the Company then determines whether the conversion feature is “beneficial”. A conversion feature would be considered beneficial if the conversion feature is “in the money” when the host instrument is issued or, under certain circumstances, later. If convertible debt contains a beneficial conversion feature (“BCF”), the amount of the amount of the proceeds allocated to the BCF reduces the balance of the convertible debt, creating a discount which is amortized over the debt’s term to interest expense in the consolidated statements of operations.

 

When a convertible preferred stock contains a BCF, after allocating the proceeds to the BCF, the resulting discount is either amortized over the period beginning when the convertible preferred stock is issued up to the earliest date the conversion feature may be exercised, or if the convertible preferred stock is immediately exercisable, the discount is fully amortized at the date of issuance. The amortization is recorded similar to a dividend.

 

Financial Instruments and Fair Value Measurements

 

The Company’s financial instruments consist primarily of cash, accounts receivable, inventory, prepaid expenses and other current assets, accounts payable and accrued liabilities, convertible notes payable and due to stockholders. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

 

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

 

  Level 1 Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.
       
  Level 2 Inputs other than quoted prices included within Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.
       
  Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs. Unobservable inputs for the asset or liability that reflect management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability as of the reporting date.

 

F- 11
 

 

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, 2021 and 2020, 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, 2021 and 2020, potentially dilutive common shares consist of common stock issuable upon the conversion of convertible notes payable, Series A Preferred Stock, Series B Preferred Stock, Series D-2 Preferred Stock, Series D-3 Preferred Stock, Series D-5 Preferred Stock and Series D-6 Preferred Stock (using the if converted method). All potentially dilutive securities were excluded from the computation of diluted weighted average number of shares of common stock outstanding as they would have had an anti-dilutive impact.

 

F- 12
 

 

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, 2021 and 2020, 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, 2021 and 2020.

 

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.

 

F- 13
 

 

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 $355,882 and short- term lease liability of $179,349 and long- term lease liability of $176,533 in 2021. 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 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, and the case is ongoing. The Company has funded the initial costs. This Chapter 11 was converted by the Court to a Chapter 7 and discharged. The Red Wire Group assets have been liquidated and the Company’s expects the case to be closed by the Trustee in the future.

 

F- 14
 

 

Rune NYC, LLC

 

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

 

The results of Rune for 2021 and 2020 are 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 results of Bluwire for 2021 and 2020 are 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 results of Social Sunday for 2021 and 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.

 

Dispositions

 

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. 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.

 

F- 15
 

 

NOTE 5 – PREPAID EXPENSE AND OTHER CURRENT ASSETS

 

Prepaid expense and other current assets at December 31, 2021 and 2020 consists of the following:

 

                 
    December 31, 2021     December 31, 2020  
Prepaid expense   $ 13,500     $ -  
Other current assets   $ 89,000       12,920  
Total prepaid expense and other current assets   $ 102,500     $ 12,920  

 

NOTE 6 – FIXED ASSETS, NET

 

Fixed assets, net at December 31, 2021 and 2020 consists of the following:

 

                 
    December 31,     December 31,  
    2021     2020  
             
Office equipment   $ 280,966     $ 280,966  
Furniture and equipment     58,118       58,118  
Computer     13,704       13,704  
Technical equipment     27,492       27,492  
Intellectual Property     78,506       78,506  
Machinery     -       -  
Subtotal Fixed Assets     458,786       458,786  
Less: accumulated depreciation     (413,158 )     (370,557 )
Equipment   $ 45,627     $ 88,228  

 

Depreciation and amortization for the years ended December 31, 2021 and 2020 amounted to $42,600 and $439,269, respectively.

 

NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities at December 31, 2021 and 2020 consists of the following:

 

                 
    December 31,  
    2021     2020  
             
Accounts payable   $ 1,750,308     $ 1,356,812  
Accrued expenses     1,661,313       1,241,850  
Accrued Salaries     139,300       139,300  
Accrued board of director fees     270,000       150,000  
Accrued interest     346,683       299,631  
Accounts payable and accrued liabilities   $ 4,167,604     $ 3,187,592  

 

NOTE 8 - DUE TO STOCKHOLDERS

 

Due to stockholders at December 31, 2021 and 2020 consists of the following:

 

                 
    December 31,  
    2021     2020  
Daniel Monteverde     -       -  
Angelo Ponzetta     14,237       11,217  
Christopher Burden     172,536       172,536  
Maurice Ojeda     200,000       200,000  
Due to stockholders   $ 386,773     $ 383,753  

 

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, 2021 and 2020, accounts payable and accrued liabilities included salaries of $139,300 and $139,300, respectively, and accrued board of director fees of $270,000 and $150,000, respectively.

 

F- 16
 

 

NOTE 9 – RELATED PARTY NOTES PAYABLE

 

On October 3, 2019, Bluwire inaccurately 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, 2021 and 2020, there were two demand notes outstanding totalling $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, 2021 there were no longer any notes payable outstanding.

 

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. During 2021, all first round and second round of PPP loans were forgiven by SBA.

 

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 their retail APP, and acquire product to re-open one of its Bluwire Stores.

 

NOTE 12 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable at December 31, 2021 and 2020 consists of the following:

 

             
    December 31,  
    2021     2020  
Dated September 15, 2017   $ 16,152     $ 318,492  
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  
Dated November 28, 2018     10,383       21,700  
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  
Dated February 19, 2019     -       64,500  
Dated February 19, 2019     55,125       55,125  
Dated March 13, 2019     55,125       55,125  
Dated May 14, 2019     -       26,500  
Dated May 17, 2019     27,825       27,825  
Dated August 1, 2019     -       56,194  
Dated August 7, 2019     55,125       55,125  
Dated October 3, 2019     -       5,350  
Dated October 25, 2019     6,825       6,825  
Dated March 19, 2020     -       33,600  
Dated March 25, 2020     33,600       33,600  
Dated April 21, 2021     28,875       -  
Dated April 30, 2021     33,000       -  
Dated May 4, 2021     28,875       -  
Dated May 12, 2021     55,125       -  
Dated May 17, 2021     44,000       -  
Dated May 28, 2021     55,125       -  
Dated June 9, 2021     55,125       -  
Dated June 24, 2021     27,500       -  
Dated June 25, 2021     55,125       -  
Dated July 12, 2021     55,125       -  
Dated July 13, 2021     55,125       -  
Dated August 3, 2021     66,150       -  
Dated August 24, 2021     66,150       -  
Dated September 14, 2021     66,150       -  
Total convertible notes payable     1,353,447       1,273,107  
                 
Less: Unamortized debt discount     (140,522 )     (4,460 )
                 
Total convertible notes     1,212,926       1,268,647  
                 
Less: current portion of convertible notes     1,212,926       1,268,647  
Long-term convertible notes   $ -     $ -  

 

F- 17
 

 

On April 21, 2021 the Company entered into a promissory note agreement with Adar Alef, LLC (“Adar”) for loans totalling $28,875. The consideration to the Company is $25,000 with $3,875 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 May 4, 2021 the Company entered into a promissory note agreement with Adar Alef, LLC (“Adar”) for loans totalling $28,875. The consideration to the Company is $25,000 with $3,875 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 May 12, 2021 the Company entered into a promissory note agreement with Adar Alef, LLC (“Adar”) for loans totalling $55,125. The consideration to the Company is $50,000 with $5,125 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 May 28, 2021 the Company entered into a promissory note agreement with Adar Alef, LLC (“Adar”) for loans totalling $55,125. The consideration to the Company is $50,000 with $5,125 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 June 9, 2021 the Company entered into a promissory note agreement with Adar Alef, LLC (“Adar”) for loans totalling $55,125. The consideration to the Company is $50,000 with $5,125 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 June 25, 2021 the Company entered into a promissory note agreement with Adar Alef, LLC (“Adar”) for loans totalling $55,125. The consideration to the Company is $50,000 with $5,125 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.

 

During the second quarter 2021, beginning on April 30, 2021 and ending June 24, 2021 the Company received a series of additional loans from SBI Investments under the original convertible note agreement dated November 14, 2017 totalling $104,500 in exchange for $95,000 in cash. 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 July 9, 2021, the Company received $50,000 from Adar Alef, LLC (“Adar”) from a $55,125 convertible promissory note agreement including fees and legal expenses of $5,125. The note is convertible after 181 days at a (i) $0.0035 ceiling or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion date.

 

F- 18
 

 

On July 12, 2021, the Company received $50,000 from Adar Alef, LLC (“Adar”) from a $55,125 convertible promissory note agreement including fees and legal expenses of $5,125. The note is convertible after 181 days at a (i) $0.0035 ceiling or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion date.

 

On August 3, 2021, the Company received $60,000 from Adar Alef, LLC (“Adar”) from a $66,150 convertible promissory note agreement including fees and legal expenses of $6,150. The note is convertible after 181 days at a (i) $0.0035 ceiling or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion date.

 

On August 24, 2021, the Company received $60,000 from Adar Alef, LLC (“Adar”) from a $66,150 convertible promissory note agreement including fees and legal expenses of $6,150. The note is convertible after 181 days at a (i) $0.0035 ceiling or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion date.

 

On September 14, 2021, the Company received $60,000 from Adar Alef, LLC (“Adar”) from a $66,150 convertible promissory note agreement including fees and legal expenses of $6,150. The note is convertible after 181 days at a (i) $0.0035 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, 2021 and 2020, the Company recognized interest expense of $2,528,426 and $471,579, respectively, which represented the amortization of original issue discounts and debt discounts. As of December 31, 2020, As of December 31, 2021 and , the unamortized debt discount of $140,522 and $4,460 are related to the new convertible notes issued in 2021 and 2020.

 

During the year ended December 31, 2021, the Company converted principal and unpaid accrued interest totaling $730,658 into an aggregate of 9,815,281,620 shares of common stock. During the year ended December 31, 2020, the Company converted principal and unpaid accrued interest totalling $120,300 into an aggregate of 785,026,210 shares of common stock.

 

The Company has twenty-one (28) outstanding convertible notes as of December 31, 2021 with a total outstanding principal of $1,353,447. The 2020 notes matured in September 2020. The 2021 notes mature between April and September 2022. These notes carry an interest rate ranging between 8% and 12% per annum. The notes carry 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 included in the conversion price shall be: 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.

 

F- 19
 

 

The following table is a rollforward of activity, by each noteholder, for the years ended December 31, 2021 and 2020:

 

  Loan Holder     Principal Amount     Date     Maturity     OID & Financing Costs     Balance at 12 31 17     Additions     Payments     Conversion     Balance at 12 31 18     Additions     Payments     Conversion     Balance at 12 31 19     Additions     Payments     Conversion     Balance at 12 31 20     Additions     Payments     Conversion     Balance at 12 31 21  
                                                                                                                                   
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       -       -       (19,161 )     130,992       -       (90 )     (37,125 )     -  
1   SBI Investment     $ 187,500       11/14/2017       5/14/2018       -       187,500       -       -       -       187,500       -       -       -       187,500       -