Our unaudited interim consolidated financial statements for the nine months ended form part of this quarterly report. They are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
*: retroactively adjusted for forward stock split at a ratio of 6 for 1, effective June 8, 2017
Notes to the Consolidated Financial Statements (Unaudited)
NOTE 1. NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS
12 Retech Corporation (“we”, “us”, “our”, “12 ReTech”, or the “Company”) was incorporated under the laws of the State of Nevada, U.S. as DEVAGO INC. on September 8, 2014. On June 8, 2017, the Company amended their Articles of Incorporation to change the name to 12 Retech Corporation. We are a start-up stage company and engaged in the creation of mobile software applications, or “Apps.” Our strategic initiative includes developing and marketing our current mobile application, as well as expanding our mobile application portfolio through the acquisition of third party mobile applications and mobile application development companies.
Principal subsidiaries
The details of the principal subsidiaries of the Company are set out as follows:
Name of Company
|
|
Place of incorporation
|
|
Date of incorporation
|
|
Attributable equity interest %
|
|
Business
|
|
|
|
|
|
|
|
|
|
12 Hong Kong Limited
|
|
Hong Kong, China
|
|
February 2, 2014
|
|
100%
|
|
Development, consultation and sales of technology applications
|
|
|
|
|
|
|
|
|
|
12 Japan Limited
|
|
Japan
|
|
February 12, 2015
|
|
100%
|
|
Development, consultation and sales of technology applications
|
Change in Fiscal Year
On September 13, 2017, our Board of Directors approved a change in our Fiscal Year End from November 30 to December 31. The change in fiscal year end became effective for our 2017 fiscal year, which began December 1, 2016 and ends on December 31, 2017. Since the Company elected to not file a Transition Report on Form 10-Q for the one-month transition period from December 1, 2016 to December 31, 2016 (the “Transition Period”), the Company has included its unaudited financial statements for the Transition Period in this report on Form 10-Q. Additionally, as the Company is filing this Form 10-Q for the new reporting period ended September 30, 2017, we are including the one month period June 1, 2017 to June 30, 2017, in this report on Form 10-Q. The Company now operates on a fiscal year ending on December 31, 2017.
Stock Split
Effective June 21, 2016, we effected a 1 for 6 forward stock split of our issued and outstanding common stock (the “Forward Stock Split”). All references to shares of our common stock in this report on Form 10-Q refers to the number of shares of common stock after giving effect to the Forward Stock Split (unless otherwise indicated).
Share Exchange and Reorganization
As of the Effective Date and pursuant to a Securities Purchase Agreement dated June 27, 2017, the Company and 12 Hong Kong Limited (“12HK”), have determined that all conditions necessary to close the Share Exchange Agreement have been satisfied and therefore as of the date hereof, the Share Exchange Agreement was closed and as such 12HK has become a wholly-owned subsidiary of the Company. As per 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”) and in exchange the Company issued to 12HK an aggregate of Fifty Five Million (55,000,000) shares of common stock, consisting of: (i) Fifty Million (50,000,000) shares of post forward split Company common stock; and, (ii) Five Million (5,000,000) shares of a to be designated Series A Preferred Stock.
Recapitalization
For financial accounting purposes, this transaction was treated as a reverse acquisition by 12HK, and resulted in a recapitalization with 12HK being the accounting acquirer and 12 Retech as the acquired company. The consummation of this reverse acquisition resulted in a change of control. Accordingly, the historical financial statements prior to the acquisition are those of the accounting acquirer, 12HK and have been prepared to give retroactive effect to the reverse acquisition completed on June 27, 2017, and represent the operations of 12HK. The consolidated financial statements after the acquisition date, June 27, 2017 include the balance sheets of both companies at historical cost, the historical results of 12HK and the results of the Company from the acquisition date. All share and per share information in the accompanying consolidated financial statements and footnotes has been retroactively restated to reflect the recapitalization.
NOTE 2. 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 Generally Accepted Accounting Principles (“GAAP”) of the United States 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 12 Hong Kong Limited and 12 Japan Limited. All intercompany accounts and transactions have been eliminated. We currently have no investments accounted for using the equity or cost methods of accounting.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.
Foreign Currency Translation and Re-measurement
The accompanying financial statements are presented in U.S. dollars (“USD”). In accordance with ASC 830,
”Foreign Currency Matters",
the Company’s foreign operations whose functional currency is the Hong Kong Dollar (“HKD”) and Japanese Yen (“JPY”), the assets and liabilities are translated into USD at current exchange rates. Resulting translation adjustments are reflected as other comprehensive income (loss) in stockholders’ equity. Revenue and expenses are translated at average exchange rates for the period. 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.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Spot HKD:USD exchange rate
|
|
$
|
0.129
|
|
|
$
|
0.129
|
|
Average HKD:USD exchange rate
|
|
$
|
0.129
|
|
|
$
|
0.129
|
|
Spot JPY:USD exchange rate
|
|
$
|
0.0089
|
|
|
$
|
-
|
|
Average JPY:USD exchange rate
|
|
$
|
0.0091
|
|
|
$
|
-
|
|
Concentrations
During the nine months ended September 30, 2017, revenue was comprised of two labor contracts. An unrelated customer represented 74% of the revenue of the Company. This same unrelated party represented 90% of the accounts receivable and a related party represented the remaining 10% as of September 30, 2017. The related party represented 100% of the accounts receivable as of December 31, 2016.
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 $92,513 and $15,043 in cash and cash equivalents as at September 30, 2017 and December 31, 2016, respectively.
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. During the nine months ended September 30, 2017 and 2016, the Company recognized no allowance for uncollectible amounts.
Accounts receivable at September 30, 2017 and December 31, 2016 consists of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Non- related party
|
|
$
|
25,800
|
|
|
$
|
-
|
|
Related party
|
|
|
2,884
|
|
|
|
38,700
|
|
|
|
$
|
28,684
|
|
|
$
|
38,700
|
|
Inventory
Inventories, consisting of a computer application, a mirror with a computer screen and touch monitor, are primarily accounted for using the first-in-first-out (“FIFO”) method and are valued at the lower of cost or market value. Inventories on hand are evaluated on an on-going basis to determine if any items are obsolete or in excess of future market needs. Items determined to be obsolete are reserved for. During the nine months ended September 30, 2017 and 2016, the Company recognized no impairment loss.
Financial Instruments
The Company follows ASC 820,
“Fair Value Measurements and Disclosures",
which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are described below:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist primarily of cash, accounts receivable, inventory, prepaid expenses, accounts payable and accrued liabilities, and due to related parties. 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.
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.
Accounting for the impairment of long-lived assets
The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the interim period (unaudited), the year and the period, the Company did not impair any long-lived assets.
Goodwill
We account for goodwill in accordance with ASC 350
“Intangibles-Goodwill and Other”
(“ASC 350”). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. In addition, ASC 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units; assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates.
We completed an evaluation of goodwill at September 30, 2017, and recognized an impairment loss of $7,811,650 during the nine months ended September 30, 2017.
Revenue Recognition
The Company will recognize revenue from the sale of products and services in accordance with ASC 605,
“Revenue Recognition.”
Revenue will be recognized only when all of the following criteria are met: persuasive evidence for an agreement exists, delivery has occurred, or services have been provided, the price or fee is fixed or determinable, and collection is reasonably assured. However, contracts subject to percentage-of-completion accounting are subject to specific accounting guidance that may require significant estimates.
Percentage-of-completion method
Certain software development projects and all long-term construction-type contracts require the use of estimates at completion in the application of the percentage-of-completion accounting method, whereby the determination of revenues and costs on a contract through its completion can require significant judgment and estimation. Under this method, and subject to the effects of changes in estimates, we recognize revenue using an estimated margin at completion as contract milestones or other input or output-based measures are achieved. This can result in costs being deferred as work in process until contractual billing milestones are achieved. Alternatively, this can result in revenue recognized in advance of billing milestones if output-based or input-based measures are achieved.
The percentage-of-completion method requires estimates of revenues, costs and profits over the entire term of the contract, including estimates of resources and costs necessary to complete performance. The cost estimation process is based upon the professional knowledge and experience of our software and systems engineers, program managers and financial professionals. The Company follows this method because reasonably dependable estimates of the revenue and costs applicable to various elements of a contract can be made; however, some estimates are particularly difficult for activities involving state-of-the-art technologies such as system development projects. Key factors that are considered in estimating the work to be completed and ultimate contract profitability include the availability and productivity of labor, the nature and complexity of the work to be performed, results of testing procedures, and progress toward completion. Management regularly reviews project profitability and the underlying estimates. A significant change in an estimate on one or more contracts could have a material effect on our results of operations. Revisions in profit estimates are reflected in the period in which the facts that give rise to the revision become evident.
We periodically negotiate modifications to the scope, schedule, and price of contracts accounted for on a percentage-of-completion basis. Accounting for such changes prior to formal contract modification requires evaluation of the characteristics and circumstances of the effort completed and assessment of probability of recovery. If recovery is deemed probable, we may, as appropriate, either defer the costs until the parties have agreed on the contract change or recognize the costs and related revenue as current period contract performance.
Deferred Income Taxes and Valuation Allowance
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. No deferred tax assets or liabilities were recognized as at September 30, 2017 and December 31, 2016.
Net Loss Per Share of Common Stock
The Company has adopted ASC Topic 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.
The Company has no potentially dilutive securities, such as options or warrants, currently issued and outstanding.
Commitments and 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 commitments or contingencies as of September 30, 2017 and December 31, 2016.
Recent Accounting Pronouncements
In September 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-13,
“Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.”
The amendments in ASU No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09 and ASU No. 2016-02. Both of the below entities may still adopt using the public company adoption guidance in the related ASUs, as amended. The effective date is the same as the effective date and transition requirements for the amendments for ASU 2014-09 and ASU 2016-02.
In May 2014, the FASB issued an accounting standards update that modifies the requirements for identifying, allocating, and recognizing revenue related to the achievement of performance conditions under contracts with customers. This update also requires additional disclosure related to the nature, amount, timing, and uncertainty of revenue that is recognized under contracts with customers. This guidance is effective for fiscal and interim periods beginning after December 15, 2017 and is required to be applied retrospectively to all revenue arrangements. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements.
In January 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-04,
“Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”
These amendments eliminate Step 2 from the goodwill impairment test. The annual or interim goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Effective for public business entities that are a SEC filers for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis.
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. This new standard will be effective for the Company on January 1, 2018, however, early adoption is permitted with prospective application to any business development transaction.
In December 2016, the FASB has issued Accounting Standards Update (ASU) No. 2016-20
, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.”
The amendments affect narrow aspects of the guidance issued in ASU 2014-09 including Loan Guarantee Fees, Contract Costs, Provisions for Losses on Construction-Type and Production-Type Contracts, Disclosure of Remaining Performance Obligations, Disclosure of Prior Period Performance Obligations, Contract Modifications, Contract Asset vs. Receivable, Refund Liability, Advertising Costs, Fixed Odds Wagering Contracts in the Casino Industry, and Costs Capitalized for Advisors to Private Funds and Public Funds. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements for FASB Accounting Standards Codification Topic 606. Public entities should apply Topic 606 (and related amendments) for annual reporting periods beginning after December 15, 2017, including interim-reporting periods therein.
The Company is currently evaluating the method of adoption and the potential impact that Topic 606 may have on our financial position and results of operations.
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 3. GOING CONCERN
The Company’s consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet had sufficient revenues to cover its operating cost, and requires additional capital to commence its operating plan. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The Company has incurred a loss since inception (February 11, 2014) resulting in an accumulated deficit of $8,520,753 as of September 30, 2017, and has a net loss of $8,081,528 and net cash used in operating activities of $287,600 for the nine months ended September 30, 2017 and further losses are anticipated in the development of its business. These factors raise substantial doubt about its ability to continue as a going concern.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan to obtain such resources for the Company include: sales of equity instruments; traditional financing, such as loans; and obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.
There is no assurance that the Company will be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory to the Company. In addition, profitability will ultimately depend upon the level of revenues received from business operations. However, there is no assurance that the Company will attain profitability. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 4. ACQUISITION
12 JAPAN Limited
On July 31, 2017, 12 the Company (“RETC”) entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with 12 Japan Limited, a corporation duly formed and validly existing under the laws of Japan (“12 Japan”), and the Shareholders of 12 Japan (the “12 Japan Shareholders”). Pursuant to the Share Exchange Agreement, the Company will acquire One Hundred One Thousand (101,000) shares of 12 Japan, representing 100% of the issued and outstanding equity of 12 Japan, from the 12 Japan shareholders and in exchange the Company shall issue to 12 Japan: (i) Five Million (5,000,000) shares of RETC Common Stock; and, (ii) Five Hundred Thousand (500,000) shares of RETC Series A Preferred Stock. As a result of the Share Exchange Agreement, 12 Japan shall become a wholly owned subsidiary of the Company. The Share Exchange Agreement contains customary representations and warranties. Additionally, the Share Exchange Agreement required that concurrently with closing the Company’s management facilitate: (i) the cancellation of Five Million (5,000,000) of RETC Common Stock currently beneficially owned by the Company’s officers and directors; and, (ii) the cancellation of Five Hundred Thousand (500,000) of RETC Series A Preferred Stock currently beneficially owned by the Company’s officers and directors. Collectively, such shares shall be cancelled and returned to the Company’s treasury.
Management determined that the Company was the acquirer in the business combination in accordance with FASB ASC Topic 805,
“Business Combinations,”
based on the following factors: (i) there was a change in control of 12 Japan; (ii) the Company was the entity in the transaction that issued its equity instruments, and in a business combination, the acquirer usually is the entity that issues its equity interests; (iii) the Company’s pre-transaction directors retained the largest relative voting rights of the Company post-transaction; (iv) the composition of the Company’s current board of directors and management was the result of the appointment by the Company’s pre-transaction directors.
The following table summarizes the fair value of the consideration paid by the Company and the fair value amounts assigned to the assets acquired on the acquisition date:
|
|
July 31,
|
|
Fair Value of Consideration:
|
|
2017
|
|
|
|
|
|
5,000,000 shares of common stock
|
|
$
|
2,600,000
|
|
500,000 Series A Preferred shares
|
|
|
5,200,000
|
|
Total Purchase Price
|
|
$
|
7,800,000
|
|
|
|
July 31,
|
|
Fair Value of Consideration:
|
|
2017
|
|
|
|
|
|
Assets
|
|
$
|
157,240
|
|
Liabilities assumed
|
|
|
(168,890
|
)
|
Goodwill
|
|
|
7,811,650
|
|
Fair value of total assets
|
|
$
|
7,800,000
|
|
Revenues of $8,845 and net loss of $18,611 since the acquisition date are included in the consolidated statements of operations and comprehensive income (loss) for the nine months ended September 30, 2017.
Unaudited proforma results of operations for the nine months ended September 30, 2017 and 2016 as though the Company acquired 12 Japan on the first day of January 1, 2016:
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
52,933
|
|
|
$
|
76,294
|
|
Cost of revenues
|
|
|
(503
|
)
|
|
|
(35,153
|
)
|
Gross profit
|
|
|
52,430
|
|
|
|
41,141
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(8,198,626
|
)
|
|
|
(181,425
|
)
|
Operating loss
|
|
|
(8,146,196
|
)
|
|
|
(140,284
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(3,244
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(8,149,440
|
)
|
|
|
(140,278
|
)
|
NOTE 5 – EQUIPMENT
Equipment at September 30, 2017 and December 31, 2016 consist of the following
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Office equipment
|
|
$
|
4,580
|
|
|
$
|
4,580
|
|
Furniture and equipment
|
|
|
3,436
|
|
|
|
611
|
|
Computer
|
|
|
9,438
|
|
|
|
6,298
|
|
Technical equipment
|
|
|
23,618
|
|
|
|
23,618
|
|
|
|
|
41,072
|
|
|
|
35,107
|
|
Less: accumulated depreciation
|
|
|
(33,297
|
)
|
|
|
(25,781
|
)
|
Equipment
|
|
$
|
7,775
|
|
|
$
|
9,326
|
|
Depreciation expense for the nine months ended September 30, 2017 and 2016 amounted to $7,283 and $8,415, respectively.
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable at September 30, 2017 and December 31, 2016 consists of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,857
|
|
|
$
|
2,618
|
|
Accrued expenses
|
|
|
2,838
|
|
|
|
-
|
|
Accrued interest
|
|
|
701
|
|
|
|
-
|
|
Other payable
|
|
|
4,568
|
|
|
|
-
|
|
|
|
$
|
11,964
|
|
|
$
|
2,618
|
|
NOTE 7 – NOTE PAYABLE
Note payable at September 30, 2017 and December 31, 2016 consists of the following:
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September 30,
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December 31,
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2017
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2016
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September 2017 Note
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$
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200,000
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$
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-
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Less: Unamortized debt discount
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(45,580
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)
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-
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Total note payable
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154,420
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-
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Less: current portion of note payable
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154,420
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-
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Long-term note payable
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$
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-
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$
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-
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During the nine months ended September 30, 2017 and 2016, the Company recognized interest expense of $701 and $0 and amortization of discount, included in interest expense, of $4,420 and $0, respectively.
September 2017 Note
On September 15, 2017, the Company entered into the promissory note agreement with SBI Investments LLC, the principal sum of $1,250,000, together with interest at the rate of 8% per annum. The consideration to the company for this promissory note is up to $1,000,000, due to the prorated original issuance discount (“OID”) of $250,000. The maturity date for each tranche funded shall be six months from the effective date of the respective payment date. The promissory note may be converted at any time on or after the occurrence of an event of default. The conversion price shall be the 60% multiplied by the lowest trading price during the 30 trading days period ending, in holder’s sole discretion on each conversion, on either (i) the last complete trading day prior to the conversion date or (ii) the conversion date.
An initial promissory note of $200,000 was issued on September 15, 2017 and the Company received cash of $150,000 and recognized OID of $40,000 and financing cost of $10,000 as debt discount.
NOTE 8 - RELATED PARTY TRANSACTIONS
Due from Shareholder
Shareholder receivable is non-interest bearing, unsecured and due on demand. As at September 30, 2017 and December 31, 2016, the Company had shareholder receivable balance of $1,212 and $11,465, respectively.
Due to related parties
As at September 30, 2017 and December 31, 2016, the Company had due to related parties balance of $227,632 and $39,190, respectively, which represents advances from our CEO of $221,341 for financing the operating activities of the Company and advances from our CFO of $6,291. The amounts are non-interest bearing, unsecured and due on demand.
NOTE 9 - STOCKHOLDERS’ EQUITY
On June 8, 2017, the Company filed with the State of Nevada Amended and Restated Articles of Incorporation, reflecting an increase in the Company’s authorized shares of Common Stock from 100,000,000 to 500,000,000 and decreases its authorized shares of undesignated Preferred Stock from 100,000,000 to 50,000,000.
Effective June 8, 2017, the Company approved a forward stock split on the common stock, par value $0.00001 per share at a ratio of 6 for 1 of each share issued and outstanding on the effective date. These financial statements retroactively reflect the forward stock split for all periods presented.
The Company’s authorized capital consists of 500,000,000 shares of common stock with a par value of $0.00001 and 50,000,000 shares of preferred stock with a par value of $0.00001.
Preferred Stock
Series A Preferred Stock
The following summary of the Company’s Series A Preferred Stock is merely a summary, we refer you to our Amended and Restated Articles of Incorporation and the applicable provisions of the Nevada Revised Statutes for a more complete description of the rights and liabilities of holders of our securities.
Liquidation Rights:
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any Distribution of any of the assets of the Company to the Holders of any Junior Stock by reason of their ownership of such stock an amount per share for each share of Series A Preferred Stock held by them equal to the sum of the Liquidation Preference. If upon the liquidation, dissolution or winding up of the Company, the assets of the Company legally available for distribution to the Holders of the Series A Preferred Stock are insufficient to permit the payment to such Holders of the full amounts specified in this Section then the entire remaining assets of the Company legally available for distribution shall be distributed with equal priority and pro rata among the Holders of the Series A Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section.
Redemption Rights:
The Series A Preferred Stock shall have no redemption rights.
Conversion:
The “Conversion Ratio” per share of the Series A Preferred Stock in connection with any Conversion shall be at a ratio of 1:20, meaning every (1) one Preferred A share shall convert into 20 shares of Common Stock of the Company (the “Conversion”). Holders of Class A Preferred Shares shall have the right, exercisable at any time and from time to time (unless otherwise prohibited by law, rule or regulation), to convert any or all their shares of the Class A Preferred Shares into Common Stock at the Conversion Ratio.
Voting Rights:
The Holder of each share of Series A Preferred Stock shall have such number of votes as is determined by multiplying (a) the number of shares of Series A Preferred Stock held by such holder; and, (b) by 20. Such voting calculation is hereby authorized by the Company and the Company acknowledges such calculation may result in the total number of possible votes cast by the Series A Holders and all other classes of the Company’s common stock in any given voting matter exceeding the total aggregate number of shares which this Company shall have authority to issue. With respect to any shareholder vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders’ meeting in accordance with the Bylaws of this Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. The holders of Series A Preferred Stock shall vote together with all other classes and series of common and preferred stock of the Company as a single class on all actions to be taken by the Common Stock shareholders of the Company, except to the extent that voting as a separate class or series is required by law. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series A Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).
During the nine months ended September 30, 2017, the Company issued preferred shares as follows;
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5,000,000 shares of preferred stock for the acquisition of 100% of issued and outstanding equity of 12 Hong Kong Limited (Note 1)
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500,000 shares of preferred stock with fair value of $5,200,000 in connection with the acquisition of 12 Japan Limited (Note 4)
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During the nine months ended September 30, 2017, 500,000 shares of preferred stock beneficially owned by the Company’s officer and director were cancelled (Note 4).
As of September 30, 2017, 5,000,000 shares of Series A Preferred Stock were issued.
Common stock
During the nine months ended September 30, 2017, the Company issued common shares as follows;
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50,000,000 shares of common stock for the acquisition of 100% of issued and outstanding equity of 12 Hong Kong Limited (Note 1)
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5,000,000 shares of common stock with fair value of $2,600,000 in connection with the acquisition of 12 Japan Limited (Note 4)
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During the nine months ended September 30, 2017, 123,000,000 shares of common stock beneficially owned by the Company’s officer and director were cancelled (Note 1 and 4).
On July 13, 2017, the Company has reached an agreement with a vendor shareholder to return 3,000,000 shares of its common stock to treasury for cancellation.
As of September 30, 2017 and December 31, 2016, 75,692,024 and 147,492,024 shares of common stock were issued, respectively.
NOTE 10 - SUBSEQUENT EVENTS
On October 26, 2017 the Company acquired 12 Europe A.G. in a share exchange whereby the Company exchanged 3,807,976 of its newly issued restricted common shares for the same number of shares of 12 Europe A.G. representing 100% of the equity of 12 Europe A.G. which then became a wholly owned subsidiary of the Company.
On or about October 19, 2017 the Company issued a $100,000 convertible promissory note. This note comes due on April 12, 2018 and carries an 8% interest rate. This note may be converted at the option of the Holder on or after April 12, 2018 together with all accumulated interest at the prevailing market price at the date of conversion.