UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2018
OR
[ ] 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.) |
10785 W. Twain Ave, Suite 210 Las Vegas, Nevada |
89135 | |
(Address of principal executive offices) | (Zip Code) |
530-539-4329
Registrant’s telephone number
Securities registered under Section 12(b) of the Act:
none
Securities registered under Section 12(g) of the Act:
Common Stock, par value $.00001 per share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] Emerging Growth Company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The number of shares of common stock ($0.00001 par value) outstanding as of November 19, 2018 was 481,230,265.
Background of the Restatement
On November 19, 2018, due to a misapplication of the Accounting Standards, we concluded that our previously issued Consolidated Financial Statements for period ended June 30, 2018, needed to be restated.
This Amendment No. 1 to our Quarterly Report on Form 10-Q (the “Form 10-Q/A”) amends our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 previously filed on August 19, 2018 (the “Original Filing”). We are filing this Form 10- Q/A to restate our unaudited consolidated financial statements, financial data and related disclosures as of and for the three-month and six-month periods ended June 30, 2018 and 2017 to give effect to the Restatement. In Note 2. “Restatement of Previously Issued Consolidated Financial Statements,” we have included information regarding the Restatement and specific changes to our previously issued unaudited quarterly financial statements, including details of the adjustments to the previously issued unaudited quarterly financial statements as a result of the Restatement.
Explanation of the Restatement
The restatement of our unaudited quarterly financial statements and related disclosures primarily relates to the calculation of a derivative liability not reported in our historical unaudited quarterly financial statements for the quarter ended June 30, 2018. In accordance with accounting guidance presented in ASC 250-10 and SEC Staff Accounting Bulletin No. 99, Materiality, management assessed the materiality of these errors and concluded that they were material to the Company’s previously issued financial statements. The primary errors relate to calculation of a derivative liability associated the convertible notes payable.
The impact of the Restatement on the Consolidated Statements of Income primarily resulted in increase in the expenses for change fair value of derivative liability and increase in interest expense (three and six months ended June 30, 2018), which ultimately resulted in decreases to net income in the six months ended June 30, 2018. The impact of the Restatement on the Consolidated Balance Sheets primarily resulted in an increase of current liabilities in 2018. The impact of the Restatement adjustments on the Consolidated Statements of Cash Flows resulted in an increase of net cash provided by operating activities in the six months ended June 30, 2018.
This Form 10-Q/A amends and restates Items 1, 2, and 4 of Part I and Item 6 of Part II of the Original Filing and no other information included in the Original Filing is amended hereby. Generally, no attempt has been made in this Form 10-Q/A to modify or update the foregoing items, except as required to reflect the effects of the Restatement. Information not affected by the Restatement is unchanged and reflects the disclosures made at the time of the Original Filing. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the Securities and Exchange Commission (“SEC”) subsequent to the Original Filing.
In accordance with applicable SEC rules, this Form 10-Q/A includes new certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2, 32.1 and 32.2. Subsequent to the Original Filing, we appointed a new Chief Financial Officer. Accordingly, these certifications are signed by our Chief Executive Officer and our Chief Financial Officer as of the date of filing this Form 10-Q/A.
12 RETECH CORPORATION
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2018
Index to Report
Page | ||
PART I | FINANCIAL STATEMENTS | |
Item 1. | Condensed Consolidated Balance Sheets | 4 |
Condensed Consolidated Statements of Operations and Comprehensive Loss | 5 | |
Condensed Consolidated Statements of Cash Flows | 6 | |
Notes to Condensed Consolidated Financial Statements | 7 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 39 |
Item 4. | Controls and Procedures | 39 |
PART II | OTHER INFORMATION | 41 |
Item 1. | Legal Proceedings | 41 |
Item 1A. | Risks Factors | 41 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 42 |
Item 3. | Defaults Upon Senior Securities | 42 |
Item 6. | Exhibits | 42 |
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 Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and on Annual 10K.
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. |
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 |
12 ReTech Corporation
Condensed Consolidated Balance Sheets
June
30, 2018 (As Restated) | December 31, 2017 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 38,297 | $ | 100,264 | ||||
Accounts receivable | 3,386 | 2,884 | ||||||
Prepaid expenses | 8,322 | 1,290 | ||||||
Other current assets | 21,451 | 13,878 | ||||||
Total Current Assets | 71,456 | 118,316 | ||||||
Fixed assets, net | 41,159 | 8,615 | ||||||
Goodwill | 551,111 | - | ||||||
Software development | 133,240 | - | ||||||
Security deposit | 3,935 | 5,555 | ||||||
TOTAL ASSETS | $ | 800,901 | $ | 132,486 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 959,373 | $ | 105,904 | ||||
Due to stockholders | 714,521 | 669,126 | ||||||
Notes payable, net of discounts | 149,905 | - | ||||||
Convertible notes payable, net of discounts | 886,457 | 408,247 | ||||||
Derivative liabilities | 933,411 | - | ||||||
Total Current Liabilities | 3,643,667 | 1,183,277 | ||||||
Total Liabilities | 3,643,667 | 1,183,277 | ||||||
Commitments and Contingencies | ||||||||
Series B Preferred Stock, 1,000,000 shares designated; $0.00001 par value $1.00 stated value; 266,000 and 0 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively. Amount is shown net of discounts of $99,533. | 166,467 | - | ||||||
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; 5,000,000 shares issued and outstanding at June 30, 2018 and December 31, 2017 | 50 | 50 | ||||||
Common stock: 1,000,000,000 and 500,000,000 authorized at June 30, 2018 and December 31, 2017, respectively; $0.00001 par value; 93,845,670 and 82,200,000 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively | 938 | 822 | ||||||
Additional paid-in capital | 3,911,047 | 1,267,916 | ||||||
Subscription receivable | (320,000 | ) | - | |||||
Common stock to be issued, 0 and 487,612 shares at June 30, 2018 and December 31, 2017, respectively | - | 92,646 | ||||||
Accumulated other comprehensive income | 6,638 | 1,514 | ||||||
Accumulated deficit | (6,607,906 | ) | (2,413,739 | ) | ||||
Total Stockholders’ Deficit | (3,009,233 | ) | (1,050,791 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 800,901 | $ | 132,486 |
The accompanying notes are an integral part of these consolidated financial statements
4 |
12 ReTech Corporation
Condensed Consolidated Statement of Operations
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2018 (As Restated) | 2017 | 2018 (As Restated) | 2017 | |||||||||||||
Revenues | $ | 16,682 | $ | 9,018 | $ | 25,624 | $ | 43,397 | ||||||||
Cost of revenue | 36 | - | 36 | 451 | ||||||||||||
Gross Profit | 16,646 | 9,018 | 25,588 | 42,946 | ||||||||||||
Operating Expenses | ||||||||||||||||
General and administrative | 760,627 | 70,012 | 1,234,071 | 142,140 | ||||||||||||
Professional fees | 273,421 | 3,093 | 505,050 | 8,827 | ||||||||||||
Depreciation | 1,384 | 2,908 | 2,533 | 6,100 | ||||||||||||
Total Operating Expenses | 1,035,432 | 76,013 | 1,741,654 | 157,067 | ||||||||||||
Loss from operations | (1,018,786 | ) | (66,995 | ) | (1,716,066 | ) | (114,121 | ) | ||||||||
Other Expense | ||||||||||||||||
Loss on debt extinguishment | (50,000 | ) | - | (75,000 | ) | - | ||||||||||
Interest expense | (690,643 | ) | - | (838,593 | ) | - | ||||||||||
Change in fair value of derivative liabilities | (933,411 | ) | - | (933,411 | ) | - | ||||||||||
Net Other Expense | (1,674,054 | ) | - | (1,847,004 | ) | - | ||||||||||
Net Loss | (2,692,840 | ) | (66,995 | ) | (3,563,070 | ) | (114,121 | ) | ||||||||
Net Loss Available for Common Stockholders | $ | (2,692,840 | ) | $ | (66,995 | ) | $ | (3,563,070 | ) | $ | (114,121 | ) | ||||
Comprehensive loss: Net Loss | $ | (2,692,840 | ) | $ | (66,995 | ) | $ | (3,563,070 | ) | $ | (114,121 | ) | ||||
Other comprehensive income- foreign currency translation adjustment | $ | 19,778 | $ | 6,166 | $ | 5,124 | - | |||||||||
Comprehensive Loss | $ | (2,673,062 | ) | $ | (60,829 | ) | $ | (3,557,946 | ) | $ | (114,121 | ) | ||||
Net Loss Per Common Share: Basic and Diluted | $ | (0.03 | ) | $ | (0.00 | ) | $ | (0.04 | ) | $ | (0.00 | ) | ||||
Weighted Average Number of Common Shares Outstanding: Basic and Diluted | 86,059,166 | 50,000,000 | 84,350,585 | 50,000,000 |
The accompanying notes are an integral part of these consolidated financial statements
5 |
12 ReTech Corporation
Condensed Consolidated Statements of Cash Flows
Six Months Ended | ||||||||
June 30, | ||||||||
2018 (As Restated) | 2017 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net Loss | $ | (3,563,070 | ) | $ | (114,121 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 2,533 | 6,100 | ||||||
Stock based compensation | 448,754 | - | ||||||
Amortization of debt discount | 834,966 | - | ||||||
Amortization of embedded derivative | 933,411 | - | ||||||
Loss on debt extinguishment | 75,000 | - | ||||||
Accretion of interest for note payable | 1,854 | |||||||
Accounts receivable | (502 | ) | (64,000 | ) | ||||
Prepaid Expenses | (460 | ) | 33,122 | |||||
Inventory | - | (820 | ) | |||||
Other current assets | (7,573 | ) | - | |||||
Security deposit | 1,620 | - | ||||||
Accounts payable and accrued liabilities | 439,604 | (3,250 | ) | |||||
Net Cash Used in Operating Activities | (833,863 | ) | (142,969 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of property and equipment | (2,412 | ) | (3,116 | ) | ||||
Cash received from acqusition | 779 | - | ||||||
Software development | (133,240 | ) | - | |||||
Net Cash Used in Investing Activities | (134,873 | ) | (3,116 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from due to stockholders | 62,326 | 91,061 | ||||||
Repayment of due to stockholders | (16,931 | ) | - | |||||
Proceeds from convertible notes payable | 418,824 | - | ||||||
Costs of issuance of convertible notes payable | (33,824 | ) | - | |||||
Issuance of common stock for cash | 211,250 | - | ||||||
Issuance of Series B Preferred stock | 266,000 | - | ||||||
Costs of issuance of Series B Preferred stock | (6,000 | ) | - | |||||
Net Cash Provided by Financing Activities | 901,645 | 91,061 | ||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 5,124 | 348 | ||||||
Net decrease in cash and cash equivalents | (61,967 | ) | (54,676 | ) | ||||
Cash and cash equivalents, beginning of period | 100,264 | 56,644 | ||||||
Cash and cash equivalents, end of period | $ | 38,297 | $ | 1,968 | ||||
Supplemental cash flow information | ||||||||
Cash paid for interest | $ | - | $ | - | ||||
Cash paid for taxes | $ | - | $ | - | ||||
Non-cash transactions: | ||||||||
Common stock to be issued in current period | $ | 92,646 | $ | - | ||||
Common stock issued in conjunction with convertible notes | $ | 86,602 | $ | - | ||||
Original isssue discount on convertible notes payable | $ | 26,468 | $ | - | ||||
Beneficial conversion feature for convertible notes payable | $ | 811,205 | $ | - | ||||
Common stock issued for acquisition for E-motion (see Note 3) | $ | 80,000 | $ | - |
The accompanying notes are an integral part of these consolidated financial statements
6 |
12 RETECH CORPORATION
Notes to the Condensed Consolidated Financial Statements
June 30, 2018
(Unaudited)
NOTE 1. NATURE OF BUSINESS
12 Retech Corporation (“we”, “us”, “our”, “12 ReTech”, “RETC”, 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 our Articles of Incorporation to change the name to 12 Retech Corporation. At our core, we are a software company whose technology allows retailers to combat the dual threats of Walmart and Amazon — both online and in physical stores. Our microbrand rollup acquisition strategy allows us to demonstrate the effectiveness of our software, devise and test new products, while providing shareholder value through immediate revenue and earnings growth. The Company operates through our subsidiaries on three continents, Asia, North America and Europe.
Principal subsidiaries
The details of the principal subsidiaries of the Company are set out as follows:
Name of Company | Place of Incorporation | Date of Incorporation | Acquisition Date | Attributable Equity Interest % | Business | |||||
12 Retail Corporation (“12 Retail”) | Arizona, USA | Sept. 18, 2017 | Formed by 12 Retech Corporation | 100% | As a holding Company to execute the Company’s microbrand roll up acquisition strategy as well as to penetrate the North American market with our technology to select retailers. | |||||
12 Hong Kong Limited (“12HK”) | Hong Kong, China | Feb. 2, 2014 | June 27, 2017 | 100% | Development of our technology and sales of our technology applications. | |||||
12 Japan Limited (“12JP”) | Japan | Feb. 12, 2015 | July 31, 2017 | 100% | Consultation and sales of technology applications. | |||||
12 Europe AG (“12EU”) | Switzerland | Aug. 22, 2013 | Oct. 26, 2017 | 100% | Consultation and sales of technology applications. | |||||
E-motion Fashion Brands, Inc.F/K/A Emotion Apparel, Inc, Lexi Luu Designs, Inc, Punkz Gear, Skipjack Dive and Dancewear, Cleo VII |
Re-incorpora-ed, in Utah, USA F/K/I in California, USA |
Sept. 9, 2010.
Reincorpor-ated on July 6, 2018 and changed its name on July 26 , 2018 |
May 1, 2018 | 100% | A subsidiary of 12 Retail and is the first microbrand acquired under the microbrand acquisition roll up strategy. Operates its own production facilities that can be utilized by all of the Company’s future microbrands. |
2. Restatement of Previously Issued Unaudited Interim Consolidated Financial Statements
In connection with the preparation and review of the Company’s unaudited financial statements for the quarter ended ended June 30, 2018, management identified certain errors in the Company’s historical interim unaudited financial statements. As a result, the Company concluded that its previously issued unaudited consolidated financial statements for quarter ended June 30, 2018, need to be restated. Within this report, the Company has included restated unaudited interim consolidated financial statements as of, and for the three and six months ended, June 30, 2018. This Note 2 to the unaudited interim consolidated financial statements discloses the nature of the restatement matters and adjustments and shows the impact of the restatement for the three and six months ended June 30, 2018, respectively.
The restatement corrects errors primarily related to: (1) the derivative liability embedded in the convertible notes payable, as well as the related interest expense and discounts; (2) goodwill associated with the acquisition of Emotion Fashion Group on May 1, 2018 due to additional liabilities identified which were related to this acquisition, and (3) reclassification of Series B preferred shares from permanent equity to mezzanine.
7 |
Adjustments needed to correct errors
(1) Derivative Liability – Under ASC 480, Distinguishing Liabilities from Equity, 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. The Company classified certain conversion features in the convertible notes issued during 2017 and 2018 as embedded derivative instruments due to down-round ratchet provisions and potential adjustments to conversion prices due to events of default in June 2018, for which made the notes immediately convertible, and accordingly measures and carries the conversion features as derivative liabilities in the consolidated financial statements. Also, the Company determined that the certain notes should be measured and carried at fair value in the consolidated financial statements according to ASC 480, as they are settleable in a variable number of shares based on a fixed monetary amount known at inception. Due to the existence of down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, the Company decided a Monte Carlo Simulation model. The company recognized a change in derivative liability of $933,411 for the period ended June 30, 2018.
(2) Goodwill– The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed has been 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. As such the goodwill amount has been adjusted $551,110 at June 30, 2018, as it relates to the acquisitions of Emotion Fashion Group. This amount was adjusted as the company found additional liabilities associated with Emotion Fashion Group which lead to an increase in the amount of Goodwill associated with the acquisition of Emotion Fashion Group.
(3) Reclassification from Permanent Equity to Mezzanine of Series B Preferred Shares– The Series B Redeemable Convertible Preferred Stock has been reclassified as temporary equity, as it is redeemable by the holder at 15 months after issuance. It has thus have been recorded as mezzanine.
8 |
The following summarizes the impact of the Restatement on our previously reported unaudited interim Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income, and Consolidated Statements of Cash Flows for the three and six months ended June 30, 2018.
Consolidated Balance Sheet
June 30, 2018
As previously | ||||||||||||||||
Reported | Adjustment | Restated | Reference | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 38,297 | $ | - | $ | 38,297 | ||||||||||
Accounts receivable | 3,386 | - | 3,386 | |||||||||||||
Prepaid expenses | 8,322 | - | 8,322 | |||||||||||||
Other current assets | 21,451 | - | 21,451 | |||||||||||||
Total Current Assets | 71,456 | - | 71,456 | |||||||||||||
Fixed assets, net | 41,159 | - | 41,159 | |||||||||||||
Goodwill | 274,137 | 276,974 | 551,111 | 2 | ||||||||||||
Software development | 133,240 | - | 133,240 | |||||||||||||
Security deposit | 3,935 | - | 3,935 | |||||||||||||
TOTAL ASSETS | $ | 523,927 | $ | 276,974 | $ | 800,901 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 682,399 | $ | 276,974 | $ | 959,373 | 2 | |||||||||
Due to stockholders | 714,521 | - | 714,521 | |||||||||||||
Notes payable, net of discounts | 149,905 | - | 149,905 | |||||||||||||
Convertible notes payable, net of discounts | 886,457 | - | 886,457 | |||||||||||||
Derivative liabilities | - | 933,411 | 933,411 | 1 | ||||||||||||
Total Current Liabilities | 2,433,282 | 1,210,385 | 3,643,667 | |||||||||||||
Total Liabilities | 2,433,282 | 1,210,385 | 3,643,667 | |||||||||||||
Commitments and Contingencies | ||||||||||||||||
Series B Preferred Stock, 1,000,000 shares designated; $0.00001 par value $1.00 stated value; 266,000 and 0 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively. Amount is shown net of discounts of $99,533. | 3 | 166,464 | 166,467 | 2 | ||||||||||||
Total Commitments and Contingencies | 3 | 166,464 | 166,467 | |||||||||||||
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; 5,000,000 shares issued and outstanding at June 30, 2018 and December 31, 2017 | 50 | - | 50 | |||||||||||||
Common stock: 1,000,000,000 and 500,000,000 authorized at June 30, 2018 and December 31, 2017, respectively; $0.00001 par value; 93,845,670 and 82,200,000 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively | 938 | - | 938 | |||||||||||||
Additional paid-in capital | 3,541,331 | 369,715 | 3,911,046 | 12 | ||||||||||||
Subscription receivable | (320,000 | ) | - | (320,000 | ) | |||||||||||
Common stock to be issued, 0 and 487,612 shares at June 30, 2018 and December 31, 2017, respectively | - | - | - | |||||||||||||
Accumulated other comprehensive income | 6,638 | - | 6,638 | |||||||||||||
Accumulated deficit | (5,138,315 | ) | (1,469,590 | ) | (6,607,905 | ) | ||||||||||
Total Stockholders’ Deficit | (1,909,358 | ) | (1,099,875 | ) | (2,842,766 | ) | ||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 523,927 | $ | 276,974 | $ | 800,901 |
9 |
Consolidated Statement of Operations
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
June 30, 2018 | June 30, 2018 | |||||||||||||||||||||||||||
As previously Reported | Adjustment | Restated | As previously Reported | Adjustment | Restated | Reference | ||||||||||||||||||||||
Revenues | $ | 16,682 | $ | - | $ | 16,682 | $ | 25,624 | $ | - | $ | 25,624 | ||||||||||||||||
Cost of revenue | 36 | - | 36 | 36 | - | 36 | ||||||||||||||||||||||
Gross Profit | 16,646 | 16,646 | 25,588 | 25,588 | ||||||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||
General and administrative | 760,627 | - | 760,627 | 1,246,174 | - | 1,234,071 | ||||||||||||||||||||||
Professional fees | 273,421 | - | 273,421 | 505,050 | - | 505,050 | ||||||||||||||||||||||
Depreciation | 1,384 | - | 1,384 | 2,533 | - | 2,533 | ||||||||||||||||||||||
Total Operating Expenses | 1,035,432 | - | 1,035,432 | 1,753,757 | 1,741,654 | |||||||||||||||||||||||
Loss from operations | (1,018,786 | ) | (1,018,786 | ) | (1,728,169 | ) | (1,716,066 | ) | ||||||||||||||||||||
Other Expense | ||||||||||||||||||||||||||||
Loss on debt extinguishment | (50,000 | ) | - | (50,000 | ) | (75,000 | ) | - | (75,000 | ) | ||||||||||||||||||
Interest expense | (645,560 | ) | 45,083 | (690,643 | ) | (793,510 | ) | 45,083 | (838,593 | ) | 1 | |||||||||||||||||
Change in fair value of derivative liabilities | - | 933,411 | (933,411 | ) | - | 933,411 | (933,411 | ) | 1 | |||||||||||||||||||
Net Other Expense | (695,560 | ) | 978,494 | (1,674,054 | ) | (868,510 | ) | 979,214 | (1,847,004 | ) | ||||||||||||||||||
Net Loss | (1,714,346 | ) | 978,494 | (2,692,840 | ) | (2,596,679 | ) | 979,214 | (3,563,070 | ) | ||||||||||||||||||
Deemed Dividend - Preferred Stock | (140,000 | ) | 140,000 | - | (140,000 | ) | 140,000 | - | ||||||||||||||||||||
Net Loss Available for for Common Stockholders | $ | (1,854,346 | ) | $ | 1,118,494 | $ | (2,692,840 | ) | $ | (2,736,679 | ) | $ | 1,118,494 | $ | (3,563,070 | ) | ||||||||||||
Comprehensive loss: Net Loss | $ | (1,714,346 | ) | $ | 978,494 | $ | (2,692,840 | ) | $ | (2,596,679 | ) | $ | 978,494 | $ | (3,563,070 | ) | ||||||||||||
Other comprehensive income- foreign currency translation adjustment | $ | 19,778 | - | 19,778 | $ | 5,124 | - | 5,124 | ||||||||||||||||||||
Comprehensive Loss | $ | (1,694,568 | ) | $ | 978,494 | $ | (2,673,062 | ) | $ | (2,591,555 | ) | $ | 978,494 | $ | (3,557,946 | ) | ||||||||||||
Net Loss Per Common Share: Basic and Diluted | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.04 | ) | ||||||||||
Weighted Average Number of Common Shares Outstanding: Basic and Diluted | 86,059,166 | 86,059,166 | 86,059,166 | 84,350,585 | 84,350,585 | 84,350,585 |
10 |
Consolidated Statement of Cash Flows
Six Months Ended | ||||||||||||||||
June 30, 2018 | ||||||||||||||||
As previously reported | Adjusted | Restated | Reference | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net Loss | $ | (2,584,576 | ) | $ | (3,563,070 | ) | ||||||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation | 2,533 | - | 2,533 | |||||||||||||
Stock based compensation | 448,754 | - | 448,754 | |||||||||||||
Amortization of debt discount | 273,595 | 561,371 | 834,966 | 1 | ||||||||||||
Amortization of Embedded Derivative | 516,288 | 417,123 | 933,411 | 1 | ||||||||||||
Loss on debt extinguishment | 75,000 | - | 75,000 | |||||||||||||
Accretion of interest for note payable | 1,854 | - | 1,854 | |||||||||||||
Accounts receivable | (502 | ) | - | (502 | ) | |||||||||||
Prepaid Expenses | (460 | ) | - | (460 | ) | |||||||||||
Other current assets | (7,573 | ) | - | (7,573 | ) | |||||||||||
Security deposit | 1,620 | - | 1,620 | |||||||||||||
Accounts payable and accrued liabilities | 439,604 | - | 439,604 | |||||||||||||
Net Cash Used in Operating Activities | (833,863 | ) | (833,863 | ) | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Purchases of property and equipment | (2,412 | ) | - | (2,412 | ) | |||||||||||
Cash received from acqusition | 779 | - | 779 | |||||||||||||
Software development | (133,240 | ) | - | (133,240 | ) | |||||||||||
Net Cash Used in Investing Activities | (134,873 | ) | (134,873 | ) | ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Proceeds from due to stockholders | 62,326 | - | 62,326 | |||||||||||||
Repayment of due to stockholders | (16,931 | ) | - | (16,931 | ) | |||||||||||
Proceeds from convertible notes payable | 418,824 | - | 418,824 | |||||||||||||
Costs of issuance of convertible notes payable | (33,824 | ) | - | (33,824 | ) | |||||||||||
Issuance of common stock for cash | 211,250 | - | 211,250 | |||||||||||||
Issuance of Series B Preferred stock | 266,000 | - | 266,000 | |||||||||||||
Costs of issuance of Series B Preferred stock | (6,000 | ) | - | (6,000 | ) | |||||||||||
Net Cash Provided by Financing Activities | 901,645 | 901,645 | ||||||||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 5,124 | 5,124 | ||||||||||||||
Net decrease in cash and cash equivalents | (61,967 | ) | (61,967 | ) | ||||||||||||
Cash and cash equivalents, beginning of period | 100,264 | 100,264 | ||||||||||||||
Cash and cash equivalents, end of period | $ | 38,297 | $ | 38,297 | ||||||||||||
Supplemental cash flow information | ||||||||||||||||
Cash paid for interest | $ | - | $ | - | ||||||||||||
Cash paid for taxes | $ | - | $ | - | ||||||||||||
Non-cash transactions: | ||||||||||||||||
Common stock to be issued in current period | $ | 92,646 | $ | 92,646 | ||||||||||||
Common stock issued in conjunction with convertible notes | $ | 86,602 | $ | 86,602 | ||||||||||||
Original isssue discount on convertible notes payable | $ | 26,468 | $ | 26,468 | ||||||||||||
Beneficial conversion feature for convertible preferred stock -recognized as deemed dividend | $ | 140,000 | $ | (140,000 | ) | $ | - | 3 | ||||||||
Beneficial conversion feature for convertible notes payable | $ | 634,282 | 176,923 | $ | 811,205 | 1 | ||||||||||
Common stock issued for acquisition for E-motion (see Note 3) | $ | 80,000 | $ | 80,000 |
11 |
NOTE 3. 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 interim financial statements have been prepared on a going concern basis which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of June 30, 2018, the Company has incurred losses totaling approximately $6.6 million since inception, has not yet generated significant revenue from its operations, and will require additional funds to maintain our operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company intends to finance operating costs over the next twelve months through continued financial support from its shareholders, the issuance of debt securities, private placements of common stock and revenues generated from its first mircrobrand acquisition Emotion Fashion Group, Inc. These interim financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4. ACQUISITIONS
The Company accounts for all business combinations in accordance with Financial Accounting Standards Board (“FASB”) ASC 805, “Business Combinations” (“ASC 805”), using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, may be made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period would be recorded as income. Results of operations of the acquired entity are included in the Company’s results from the date of the acquisition onward and include amortization expense arising from acquired assets. The Company expenses all costs as incurred related to an acquisition in the condensed consolidated statements of income.
Emotion Fashion Group, Inc. F/K/A E-motion Apparel, Inc.
On May 1, 2018, the Company completed the acquisition of E-motion Apparel, Inc. (“EAI”) a California corporation, pursuant to a Share Exchange Agreement whereby the Company exchanged 1 million of its common shares for 100% of the equity of EAI in a third-party transaction. The fair value of the 1 million shares of common stock issued amounted to $80,000. EAI owns four wholly-owned and majority –owned subsidiaries: Lexi Luu Designs, Inc, (a Nevada Corporation), Punkz Gear, Inc, (a Wyoming Corporation), Cleo VII, Inc. (a Nevada Corporation) and Skipjack Dive & Dance Wear, Inc. (a Nevada Corporation), which together owns five microbrands that were included in this transaction and target specific niche markets: Lexi-Luu Dancewear, Punkz Gear, Cleo VII, Skipjack Dive & Dance Wear and E-motion Apparel, Inc.
On July 6, 2018, the Company re-incorporated EAI. in the state of Utah, USA and later re-named as Emotion Fashion Group, Inc. and does business under the brand name, “Emotion Fashions.” Going forward, the Company will operate all brands under the single entity, Emotion Fashion Group.
Emotion Fashion Group was founded in 2010 and designs and manufactures women’s apparel and kids dancewear.
The acquisition of Emotion Fashion Group, Inc. was accounted for under ASC 805. The following table summarizes the final allocation of assets acquired and liabilities assumed as of the Acquisition Date at estimated fair value.
Fair value below:
As of May 1, 2018, the assets and net liabilities acquired were as follows:
As Restated | ||||
Cash | $ | 779 | ||
Assets (except cash) | 62,704 | |||
Goodwill | 551,111 |
|||
Liabilities (Restated) |
(534,593 | ) | ||
Net assets | $ | 80,000 |
12 |
The fair values of the net assets acquired were determined using the market approach, which indicates value for a subject asset based on available market pricing for comparable assets. The fair value of the fixed assets of $32,665 has been determined by a third-party valuation firm and is valued at its estimated liquidation price. The fair value of the debt has been determined using an appropriately required yield and comparing against the stated interest rate on the debt.
The purchase price for the acquisition was allocated to the fair value of the assets acquired and liabilities assumed based on the estimates of the fair values at the acquisition date, with the amount exceeding the estimated fair values being recorded as goodwill.
The fixed assets are being depreciated over their estimated useful lives of 5 years. Goodwill recorded will not be amortized, but tested for impairment at least annually.
The Company assumed the liabilities of the Emotion Fashion Group, which included a disputed $250,000 note that bears a 2% annual interest rate. The fair market value of the note of $148,051 has been determined as the present value of the expected cash flow from the note assuming a market rate of interest.
Emotion Fashion Group’ results of operations have been included in the Company’s operating results for the period subsequent to the acquisition on May 1, 2018. Emotion Fashion Group contributed revenues of $897 and a net loss of $22,118 from the date of acquisition through June 30, 2018.
Revenues for Emotion Fashion Group were lower because the company was dormant most of 2017 and first quarter of the 2018. This was partly due to the fact that the company moved operations from Los Angeles, CA to Salt Lake City Utah. In additional the company was re-branded and is gearing for its re-launch that began in June 2018.
The below table sets forth selected unaudited pro forma financial information for the Company as if Emotion Fashion Group was owned for the entire three and six months ended June 30, 2018 and 2017.
Proforma | ||||||||
Six Months Ended | ||||||||
June 30, | ||||||||
2018 (As Restated) | 2017 | |||||||
Revenues | $ | 31,981 | $ | 57,205 | ||||
Net Loss | $ | (3,582,862 | ) | $ | 324,288 | |||
Net Loss Per Share | $ | (0.04 | ) | $ | 0.01 |
13 |
Proforma | ||||||||
Three Months Ended | ||||||||
June 30. | ||||||||
2018
(As Restated) | 2017 | |||||||
Revenues | $ | 23,039 | $ | 22,432 | ||||
Net Loss | $ | (2,710,261 | ) | $ | 383,051 | |||
Net Loss Per Share | $ | (0.03 | ) | $ | 0.01 |
The unaudited pro forma information set forth above is for informational purposes only. The pro forma information should not be considered indicative of actual results that would have been achieved if the EAI acquisition had occurred on January 1, 2017. The unaudited supplemental pro forma financial information was calculated by combining the Company’s results with the stand-alone results of EAI for the identified periods, which were adjusted for certain transactions and other costs that would have been occurred during this pre-acquisition period.
NOTE 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. Notes to the unaudited interim condensed consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2017 have been omitted. This report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2017 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on April 16, 2018.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries 12HK, 12JP, 12EU. 12 Retail and Emotion Fashion Group which includes E-motion 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. We currently have no investments accounted for using the equity or cost methods of accounting.
14 |
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.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current period presentation.
Software Development Costs
At June 30, 2018 and December 31, 2017, software development costs totaled $133,240 and $0, respectively. Capitalized costs related to the software under development are treated as an asset until the development is completed and the software is available for sale. The Company will amortize the software costs on a straight-line basis over the estimated life of the software product’s expected life cycle, commencing when the software is first available for general release to customers.
Goodwill
Goodwill represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. The goodwill amount of $551,111 at June 30, 2018 relates to the acquisitions of Emotion Fashion Group. Goodwill is not amortized, but is tested annually for impairment, or if circumstances occur that more likely than not reduce the fair value of the reporting unit below its carrying amount. The Company has determined that there has been no impairment of goodwill at June 30, 2018.
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606, “Revenue from Contracts with Customers.” The Company has evaluated the new guidance and its 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. The will be no change to the Company’s accounting policies.
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 expected 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.
15 |
Derivative Liabilities and Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Observable inputs are based on market data obtained from sources independent of our company. Unobservable inputs reflect our own assumptions based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels, defined as follows:
Level 1 | — | Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date. | |
Level 2 | — | Inputs other than quoted prices included within Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data. | |
Level 3 | — | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs. Unobservable inputs for the asset or liability that reflect management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability as of the reporting date. |
The Company carries certain derivative financial instruments using inputs classified as “Level 3” in the fair value hierarchy on the Company’s consolidated balance sheets.
The Company classified certain conversion features in the convertible notes issued during 2017 and 2018 as embedded derivative instruments due to down-round ratchet provisions and potential adjustments to conversion prices due to events of default and accordingly measures and carries the conversion features as derivative liabilities in the consolidated financial statements. Also, the Company determined that the certain notes should be measured and carried at fair value in the consolidated financial statements according to ASC 480, as they are settleable in a variable number of shares based on a fixed monetary amount known at inception. These fair value estimates were measured using inputs classified as “level 3” of the fair value hierarchy. We develop unobservable “level 3” inputs using the best information available in the circumstances, which might include our own data, or when we believe inputs based on external data better reflect the data that market participants would use, we base our inputs on comparison with similar entities. Due to the existence of down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, the Company decided a Monte Carlo Simulation model, which incorporates inputs classified as “level 3” was appropriate.
Key inputs used in the Monte Carlo Simulation model to determine the fair value of the embedded derivatives and notes at June 30, 2018 are as follows:
Inputs | |||
Volatility (1) | 139% - 163% | ||
Risk free interest rate | 1.93% - 2.11% | ||
Common stock price | .030 | ||
Conversion price | 25% - 55% discount to common stock price |
(1) | “Level 3” input. |
The “level 3” stock volatility assumption represents the range of the volatility curves used in the valuation analysis based on the actual volatility of the Company’s common stock. The risk-free interest rate is interpolated where appropriate and is based on treasury yields. The valuation model also included a “level 3” assumption the developed as to dates of potential future financings by the Company and potential events of default that may cause a reset of the conversion prices.
Beneficial Conversion Feature
If a conversion feature of convertible debt or preferred stock provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”).
A BCF related to debt is recorded by the Company as a debt discount. In those circumstances, the convertible debt is recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
A BCF related to preferred stock is recorded by the Company as a discount to preferred stock. In those circumstances, the convertible preferred stock is recorded net of the discount related to the BCF.
16 |
Commitments and Contingencies
The Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is redeemable by the holder at a future date. The Series D-1 Preferred Stock will be classified as temporary equity due to the fact that it is redeemable immediately.
Earnings per Share
The Company follows ASC 260, “Earnings per Share” (“EPS”), which requires presentation of basic EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation. In the accompanying financial statements, basic earnings (loss) per share are computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s earnings subject to anti-dilution limitations. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact. For the six and three months ended June 30, 2018 and 2017, potentially dilutive common shares consist of common stock issuable upon the conversion of Series A Preferred Stock and Series B 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.
Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, due to stockholders and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
17 |
NOTE 6 – FIXED ASSETS, NET
Fixed assets, net at June 30, 2018 and December 31, 2017 consist of the following:
June 30, 2018 | December 31, 2017 | |||||||
Office equipment | $ | 7,622 | $ | 7,371 | ||||
Furniture and equipment | 607 | 607 | ||||||
Computer | 14,077 | 12,998 | ||||||
Technical equipment | 23,435 | 23,435 | ||||||
Truck | 6,115 | - | ||||||
Machinery | 35,994 | - | ||||||
87,850 | 44,411 | |||||||
Less: accumulated depreciation | (46,691 | ) | (35,796 | ) | ||||
Equipment | $ | 41,159 | $ | 8,615 |
Depreciation expense for the three months ended June 30, 2018 and 2017 amount to $1,384 and $2,908, respectively. Depreciation expense for the six months ended June 30, 2018 and 2017 amounted to $2,533 and $6,100, respectively.
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at June 30, 2018 and December 31, 2017 consists of the following:
June 30, 2018 | December 31, 2017 | |||||||
Accounts payable | $ | 332,349 | $ | 30,625 | ||||
Accrued expenses | 566,031 | 66,931 | ||||||
Accrued interest | 60,993 | 8,348 | ||||||
$ | 959,373 | $ | 105,904 |
18 |
NOTE 8 - STOCKHOLDER TRANSACTIONS
Due to stockholders at June 30, 2018 and December 31, 2017 consists of the following:
June 30, 2018 | December 31, 2017 | |||||||
Daniel Monteverde | 9,652 | 8,214 | ||||||
Angelo Ponzetta | 547,140 | 500,798 | ||||||
Gianni Ponzetta | 157,729 | 160,114 | ||||||
$ | 714,521 | $ | 669,126 |
On August 12, 2017, Gianni Ponzetta loaned CHF 60,000 ($62,946 at June 30, 2018 and $61,584 at December 31, 2017) to the Company, which is included in the June 30, 2018 and December 31, 2017 totals. The promissory note is unsecured, bears interest at 1% per annum and is due December 31, 2019.
The other amounts due to stockholders are non-interest bearing, unsecured and due on demand.
During the six months ended June 30, 2018 and 2017, total advances and expenses paid directly by stockholders on behalf of the Company were $62,326 and $40,766, respectively, and the Company repaid $16,931 and $0, respectively.
NOTE 9 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable at June 30, 2018 and December 31, 2017 which consists of the following:
June
30, 2018 (As Restated) | December 31, 2017 | |||||||
Dated September 15, 2017 | $ | 462,500 | $ | 387,500 | ||||
Dated December 8, 2017 | 185,292 | 92,646 | ||||||
Dated December 12, 2017 | 185,292 | 92,646 | ||||||
Dated March 15, 2018 | 100,000 | - | ||||||
Dated April 27, 2018 | 100,000 | - | ||||||
Dated May 17, 2018 | 60,000 | - | ||||||
Total convertible notes payable | 1,093,084 | 572,792 | ||||||
Less: Unamortized debt discount | (206,627 | ) | (164,545 | ) | ||||
Total convertible notes | 886,457 | 408,247 | ||||||
Less: current portion of convertible notes | 886,457 | 408,247 | ||||||
Long-term convertible notes | $ | - | $ | - |
For the three months ended June 30, 2018 and 2017, the Company recognized interest expense of $641,933 and $0 respectively, all of which represented the amortization of original issue discounts, debt discounts and beneficial conversion features. The issue discounts and debt discounts are being amortized over the life of the notes using straight line amortization due to the short term nature of the note. Remaining issue discounts and debt discounts of $206,627 will be fully amortized by May 2019.
For the six months ended June 30, 2018 and 2017, the Company recognized interest expense of $789,883 and $0 respectively, all of which represented the amortization of original issue discounts, debt discounts, derivative liabilities, beneficial conversion features and accrued interest.
The following is the change in derivative liability for the six months ended June 30, 2018:
For
the Six Months Ended June 30, 2018 (As Restated) | ||||
Balance - December 31, 2017 | $ | - | ||
Issuance of new derivative liabilities | 933,411 | |||
Conversions to paid-in capital | - | |||
Change in fair market value of derivative liabilities | ||||
Balance - June 30, 2018 | $ | 933,411 |
The Company recognized a change in derivative liability of $933,411 for the period ended June 30, 2018. The derivative liability was determined using the Monte Carlo valuation method as of June 30, 2018.
The Company classified certain conversion features in the convertible notes issued during 2017 and 2018 as embedded derivative instruments due to variable conversion prices without a floor, down-round ratchet provisions and potential adjustments to conversion prices due to events of default and accordingly measures and carries the conversion features as derivative liabilities in the consolidated financial statements. Most derivative liabilities were triggered in June 2018, when the notes first became convertible. Also, the Company determined that the certain notes should be measured and carried at fair value in the consolidated financial statements according to ASC 480, as they are settleable in a variable number of shares based on a fixed monetary amount known at inception. These fair value estimates were measured using inputs classified as “level 3” of the fair value hierarchy. We develop unobservable “level 3” inputs using the best information available in the circumstances, which might include our own data, or when we believe inputs based on external data better reflect the data that market participants would use, we base our inputs on comparison with similar entities. Due to the existence of down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, the Company decided a Monte Carlo Simulation model, which incorporates inputs classified as “level 3” was appropriate.
Key inputs used in the Monte Carlo Simulation model to determine the fair value of the embedded derivatives and notes at June 30, 2018 are as follows:
Inputs | |||
Volatility (1) | 139% - 163% | ||
Risk free interest rate | 1.93% - 2.11% | ||
Common stock price | .030 | ||
Conversion price | 25% - 55% discount to common stock price |
(1) | “Level 3” input. |
The “level 3” stock volatility assumption represents the range of the volatility curves used in the valuation analysis based on the actual volatility of the Company’s common stock. The risk-free interest rate is interpolated where appropriate and is based on treasury yields. The valuation model also included a “level 3” assumption the developed as to dates of potential future financings by the Company and potential events of default that may cause a reset of the conversion prices.
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September 15, 2017 Note
On September 15, 2017, the Company entered into the promissory note agreement with SBI Investments LLC (“SBI”) for loans up to a maximum 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, resulting in a potential original issuance discount (“OID”) of up to $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 into shares of the Company’s common stock at any time on or after the occurrence of an event of default. The conversion price shall be the 60% multiplied by the lowest trading price during the 30 trading days period ending, in holder’s sole discretion on each conversion, on either (i) the last complete trading day prior to the conversion date or (ii) the conversion date. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect.
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 and BCF of $133,333 as debt discounts.
On November 14, 2017, the Company issued an additional promissory note of $187,500 and received cash of $150,000 and recognized OID of $37,500 and a BCF of $125,000 as debt discounts.
On March 30, 2018, the Company entered into an amendment of this note as it was originally due March 15, 2018, which indicates that a $200,000 tranche is now eligible for conversion at a discount to market. The Company agreed to pay $25,000 to SBI for each 30-day extension as consideration. The extension amount is automatically added to the face value of the note after each 30-day period. SBI has agreed to a minimum of a 3-month extension under these same terms. The Company determined this amendment was a debt extinguishment and recognized a total of $50,000 and $75,000 as a loss on debt extinguishment for the three and six months ended June 30, 2018. For the additional $75,000 of principal added to the balance of the note, an additional BCF of $50,000 was recorded as debt discount.
As of June 30, 2018, the Company has determined that there is no reset for the conversion terms of the note. As of the June 30, 2018, the Company recognized a derivative liability of $290,114 and $268,674 on each tranche of the notes respectively. As a subsequent event, on July 12, 2018, SBI converted $19,990 of this note for 510,204 shares of common stock.
December 8, 2017 Note
On December 8, 2017, the Company entered into the promissory note agreement with LG Capital Funding, LLC (“LG”) for loans totaling $185,292. The consideration to the Company is $158,824 resulting in a 15% OID. The maturity As date for each note is six months from the date of issuance. The Company shall pay a one-time interest charge of 9% of the principal amount for each note. The notes may be converted at any time after the maturity date. The conversion price shall be 75% multiplied by the lowest trading price during the 10 prior trading days period ending on either (i) the last complete trading day prior to conversion date or (ii) the conversion date. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect. As additional consideration for the purchase of the notes, the Company issued to LG 121,903 shares of our common stock each on January 13, 2018 and February 1, 2018, for a total of 243,806 shares, with a value equal to $46,323, based on the previous day closing price.
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The first note of $92,646 was issued on December 8, 2017. The Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $28,667 as debt discount. The one-time interest charge of 9% of the principal amount of the note was due on January 1, 2018. In addition, the Company recorded $46,323 as debt discount for the issuance of the common shares.
On January 10, 2018, LG funded their “back end note” which is the second half commitment from the agreements. The Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $61,764 as debt discounts. The one-time interest charge of 9% of principal amount of the note was due on February 1, 2018.
As of June 30, 2018, as a result of reset features the conversion price shall be 60% multiplied by the lowest traded price during the 10 prior trading day period ending on either (i) the last complete trading day prior to the conversion date or (ii) the conversion date.
As of June 30, 2018, the Company recognized a derivative liability of $78,277.
As a subsequent event, on July 12, 2018, LG converted $6,289 of the note for 127,056 shares of common stock and on July 24, 2018, LG converted $6,289 of the note for 239,592 shares of common stock.
December 8, 2017 Note
On December 8, 2017, the Company entered into the promissory note agreement with Cerberus Finance Group Ltd. (“Cerberus”) for loans totaling $185,292. The consideration to the Company is $158,824 resulting in a 15% OID. The maturity date for each note is six months from the date of issuance. The Company shall pay a one-time interest charge of 9% of the principal amount for each note. The notes may be converted at any time after the Maturity Date. The conversion price shall be the 75% multiplied by the lowest trading price during the 10 prior trading days period ending on either (i) the last complete trading day prior to conversion date or (ii) the conversion date. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect. As additional consideration for the purchase of the notes, the Company issued to Cerberus 121,903 shares of our common stock each on January 13, 2018 and February 1, 2018, for a total of 243,806 shares, with a value equal to $46,323, based on the previous day closing price.
The first note of $92,646 was issued on December 8, 2017. The Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $28,667 as debt discounts. The one-time interest charge of 9% of the amount of the Note was due on January 1, 2018. In addition, the Company recorded $46,323 as debt discount for the issuance of the common shares.
On January 11, 2018, Cerberus funded their “back end note” which is the second half commitment from the agreements. The Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $61,764 as debt discounts. The one-time interest charge of 9% of the principal amount of the note was due on February 1, 2018.
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As of June 30, 2018, as a result of reset features the conversion price shall be 60% multiplied by the lowest traded price during the 10 prior trading day period ending on either (i) the last complete trading day prior to the conversion date or (ii) the conversion date.
As of June 30, 2018, the company recognized a derivative liability of $78,277.
As a subsequent event, on July, 24, 2018, Cerberus converted $ 4,533 of the note for 100,740 shares of common stock.
March 15, 2018 Note
On March 14, 2018, the Company entered into a into the promissory note agreement with Eagle Equities, LLC (“Eagle”) for loans totaling $100,000. The consideration to the Company is $95,000 resulting in a 5% OID. The maturity date of each note is one year from the date of issuance. The notes carry an interest rate of 12% per annum and interest payments are to be made in common shares of the Company. The conversion price of the note is 60% multiplied by the lowest trading price of the Common Stock for the ten prior trading days and the holder can convert the note at the earlier of an uncured default or 181 days from issuance. The note may be redeemed by the Company at rates ranging from 105% to 130% depending on the redemption date provided that no redemption is allowed after the 180th day. All terms of the note, including but not limited to interest rate, prepayments 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. As additional consideration, the Company is to issue to Eagle Equities, LLC shares of common stock with a value equal to 25% of each note, determined at the time of signing of each note.
The first note of $50,000 was issued on March 15, 2018. The Company received cash of $47,500 and recognized financing cost of $2,500 and a BCF of $33,333 as debt discounts. The Company issued to Eagle Equities, LLC 137,363 shares of common stock with a value equal to $12,500. The Company recorded $12,500 as debt discount for the issuance of the common shares. Eagle Equities has LLC has not yet funded the back end note for the remaining $50,000 at this time.
As of June 30, 2018, the Company recognized a derivative liability of $40,640.
March 15, 2018 Note
On March 14, 2018, the Company entered into a into the promissory note agreement with with Adar Bays Capital, LLC (“Adar Bays Capital”) for loans totaling totaling $100,000. The consideration to the Company is $95,000 resulting in a 5% OID. The maturity date of each note is one year from the date of issuance. The notes carry an interest rate of 12% per annum and interest payments are to be made in common shares of the Company. The conversion price of the note is 60% multiplied by the lowest trading price of the Common Stock for the ten prior trading days and the holder can convert the note at the earlier of an uncured default or 181 days from issuance. The note may be redeemed by the Company at rates ranging from 105% to 130% depending on the redemption date provided that no redemption is allowed after the 180th day. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward in the Company offers more favorable terms to another party, while this note is in effect. As additional consideration, the Company is to issue to Adar Bays Capital shares of common stock with a value equal to 25% of each note, determine at the time of signing of each note.
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The first note of $50,000 was issued on March 15, 2018. The Company received cash of $47,500 and recognized financing cost of $2,500 and a BCF of $33,333 as debt discounts. The Company issued to Adar Bays Capital 137,363 shares of our common stock with a value equal to $12,500. The Company recorded $12,500 as debt discount for the issuance of the common shares. Adar Bays Capital, LLC has not yet funded the back end note for the remaining $50,000 at this time.
As of June 30, 2018, the Company recognized a derivative liability of $40,640.
April 27, 2018 Note
On April 27, 2018 the Company entered into a Securities Purchase Agreement with Auctus Fund, LLC (“Auctus”) whereby the Company issued to a 9% Convertible Note (“Note”) to Auctus n the principal amount of $100,000 and a maturity date of January 25, 2019. The conversion price of the Note is $0.05 per share, provided, however, that on or after the earlier of an event of default or 181 days after issuance date, the conversion price shall equal the lesser of (i) $0.05 per share, (ii) the lowest trading price during the previous twenty days ending on the last trading day prior to the date of the note, and (iii) 60% of the lowest trading price of the Common stock for the twenty prior trading days prior to the conversion date. Auctus can convert the Note, at any time, after issuance until the maturity date or the date payment of the default amount. All the terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward in the Company offers more favorable terms to another party, while this note is in effect.
The note of $100,000 was issued on April 27, 2018. The Company received cash of $90,000 and recognized financing cost of $10,000 and a BCF of $28,400 as debt discounts. In addition, the Company issued to Auctus 700,000 shares of our common stock with a value equal to $61,600 as a commitment/collateral fee. The Company recorded $61,600 as debt discount for the issuance of the common shares.
As of June 30, 2018, the Company recognized a derivative liability of $46,366.
May 15, 2018 Note
On May 15, 2018 the Company entered into 2018 the Company entered into a Securities Purchase Agreement with Bellridge Capital, LP (“Bellridge”) whereby the Company issued to a 10% Convertible Note (“Note”) to Bellridge in the principal amount of $60,000 and a maturity date of May 15, 2019. The conversion price of the Note is the lower of $0.08 per share or 60% of the lowest trading price during the previous twelve days ending on the last trading prior to the date of the delivery of the notice of conversion. Bellridge can convert the Note at any time after issuance until the maturity date or the date payment of the default amount. The note may be redeemed by the Company at rates ranging from 120% to 150% depending on the redemption date. The conversion price will be reduced to equal the effective price per share of any common stock or common stock equivalent issuances while the note or any amounts accrued remain outstanding.
The note of $60,000 was issued on May 15, 2018. The Company received cash of $50,000 and recognized financing cost of $10,000 and a BCF of $50,000 as debt discounts.
As of June 30, 2018, as a result of the reset features of the note the conversion price is assumed to be $0.01 due to a stock issuance at that price.
As of June 30, 2018, the Company recognized a derivative liability of $90,423.
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NOTE 10 – NOTE PAYBLE
On May 1, 2018, 12 ReTech acquired Emotion Fashion Group, Inc. As part of the acquisition, Emotion Fashion Group was obligated under a note payable to a third party in the amount of $250,000, maturing in July 2027 and bearing a 2% interest rate. The note calls for monthly payments to be made to the third party equal to ten percent (10%) of the gross sales of the Company until paid in full, including accrued interest. When the note was acquired, the Company recorded the note at its fair market value of $148,051. The note discount is being amortized to interest expense through maturity. Debt discount amortized amounted to $1,854 for both the three and six months ended June 30, 2018.
NOTE 11 – PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Amendments to Articles of Incorporation
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. The Board of Directors acted to create new series of preferred stock, entitled Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock.
Effective March 14, 2018, the Company filed a Certificate of Amendment to its Articles of Incorporation with the state of Nevada to increase the number of authorized shares of capital stock to 1,050,000,000 shares. The Company increased the number of authorized shares of common stock to 1,000,000,000. There was no change to the number of shares of authorized preferred stock.
PREFERRED STOCK
The Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to and imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series.
Commitment and Contingencies
The Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is mandatorily redeemable by the holder at a future date. When issued, the Series D-1 Preferred Stock will be classified as temporary Series D-1 as temporary equity due to the fact that redeemable immediately.
Series A Preferred Stock
There were no issuances of the Series A Preferred Stock during the six months ended June 30, 2018
As of June 30, 2018, and December 31, 2017, 5,000,000 shares of Series A Preferred Stock were issued and outstanding.
As a subsequent event, on July 19, 2018, 1,500,000 shares of Series A Preferred Stock were issued as compensation for services.
Series B Preferred Stock
During the six months ended June 30, 2018, the Company issued Series B Preferred Stock as follows,
● | On January 31, 2018, the Company sold 203,000 shares of Series B Preferred Stock to Geneva Roth Remark Holdings, Inc. (“Geneva”) in exchange for $203,000 before fees. The Company recognized a BCF of $107,692 as a deemed dividend. | |
● | On March 20, 2018, Geneva agreed to purchase an additional 63,000 Series B Preferred shares for $63,000 under the same terms as the initial purchase on January 31, 2018. The Company recognized a BCF of $32,308 as a deemed dividend. |
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As of June 30, 2018 and December 31, 2017, 266,000 and 0 shares of Series B Preferred Stock were issued and outstanding and a related discount of $99,533, respectively.
As a subsequent event on, on July 31, 2018 Geneva converted 15,000 shares of Series B preferred shares to 732,783 shares of common stock and on August 14, converted an addition 15,000 shares of Series B preferred shares for 1,500,708.
Series C Preferred Stock
There were no issuances of the Series C Preferred Stock during the six months ended June 30, 2018.
As a subsequent event, 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 has no equity value, no preference in liquidation and is not convertible into common shares, but authorizes the holder to vote one billion votes on any matter that shareholders are entitled to vote for under our Bylaws at a cost of $1.00 per share. The Board believes 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.
Series D Preferred Stock
Series D Preferred stock are Blank Check Preferred which allows the Board of Directors to subdivide and/or determine the rights, privileges and other features of this stock. On July 13, 2018, the Company filed an amended certificate of designations increasing the authorized Series D preferred shares from 1 million to 10 million, as a reallocation of the 50 million Preferred Shares authorized. All of these 10 million Series D preferred shares are part of the 50 million authorized preferred shares. 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 (see below)
Series D-1 Preferred Stock, as a subsequent event on July 2, 2018, the Company entered in to Equity Line of Credit agreement with Oasis Capital, LLC (“Oasis Agreement”) and as a part of that Agreement the Company created a subset series D-1 preferred stock from the authorized series D preferred shares having special rights and privileges as follows:
The total number of shares of Series D-1 Preferred Stock issued was 311,250 shares, with a par value of $0.0001 per share and a stated value of $2.00 per share (the “Stated Value”). The Series D-1 Preferred Stock as a whole, of which Series D-1 is a subset, has such powers, preferences, rights and restrictions which shall be determined by the Company’s Board of Directors in its sole discretion, and which designations and issuances shall not require the approval of the shareholders of the Company.
The Series D-1 Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends and right of liquidation with the Company’s Common Stock, (b) junior with respect to dividends and right of liquidation with the Company’s Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock; and (c) junior with respect to dividends and right of liquidation to all existing and future indebtedness of the Company. Until twelve months following the issuance of the shares, without the prior written consent of 100% of the holders of the outstanding shares of Series D-1 Preferred Stock, the Company may not issue any Preferred Stock that is senior to the Series D-1 Preferred Stock in right of dividends and liquidation. Without the prior written consent of 100% of the holders of the outstanding shares of Series D-1 Preferred Stock, the Company may not issue or incur any indebtedness or other obligation to pay month that is convertible into or exchangeable for shares of Common Stock (or into or for any other security that is convertible into or exchangeable for shares of Common Stock).
Upon any liquidation, dissolution or winding-down of the Company, the holders of the shares of Series D-1 Preferred Stock shall be paid in cash, before any payment shall be paid to the holders of Common Stock, or any other Junior Securities, an amount for each share of Series D-1 Preferred Stock held by such holder equal to 140% of the Stated Value thereof plus any dividends accrued but unpaid thereon.
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Each share of Series D-1 Preferred Stock together with accrued but unpaid dividends thereon shall be convertible at the option of the holder thereof, in whole or in part, at any time, without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Stated Value per share being converted plus accrued and unpaid dividends thereon by the Series D-1 Conversion Price in effect at the time of conversion. The “Series D-1 Conversion Price” per share of Common Stock shall be the lowest traded price of the Common Stock during the thirty (30) trading day period ending, in Holder’s sole discretion on each conversion, on either (i) the last complete trading day prior to the Conversion Date or (ii) the Conversion Date (subject to adjustment as provided therein).
Series D-1 Preferred Stock shall be non-voting except on certain major corporate actions or as required by law. In the event of such a right to vote, each holder of Series D-1 Preferred Stock shall have the right to the number of votes equal to the number of Conversion Shares then issuable upon conversion of the Series D-1 Preferred Stock held by such holder.
Before any dividends shall be paid or set aside for payment on any Junior Security of the Company, each holder of the Series D-1 Preferred Stock shall be entitled to receive dividends, in the manner provided herein, payable on the Stated Value of the Series D-1 Preferred Stock at a rate of 8% per annum, which shall be cumulative and be due and payable in shares of Common Stock on the Conversion Date. Such dividends shall accrue from the date of issue of each share of Series D-1 Preferred Stock, whether or not declared.
Shares of the Series D-1 Preferred Stock shall be redeemable, in whole or in part, at the option of the Company, by resolution of its Board of Directors, in cash, at any time during the initial 60 calendar day period after the issuance of the respective Series D-1 Preferred Stock, subject to the Redemption Notice requirements below, at a price per share equal to 125% of the Stated Value plus the amount of accrued but unpaid dividends thereon, provided, however, that 125% shall be replaced with 140% if the Company exercises its option to redeem the Series D-1 Preferred Stock after the initial 60 calendar day period.
As a subsequent event, on July 2, 2018, the Company reserved of 20,000,000 shares of our common stock to 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 the 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.
As a subsequent event, 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.
As a subsequent event, on August 7, 2018, there were 311,250 shares of Series D Preferred Stock outstanding all, of which are the series D-1 preferred shares at par value of $2 per share total $622,500. The Series D-1 Preferred Stock will be classified Series D-1 as temporary equity due to the fact that redeemable immediately.
There were no other issuances of the Series D or Series D-1 Preferred Stock during the six months ended June 30, 2018.
Common Stock
The Company is authorized to issue 1,000,000,000 shares of common stock at a par value of $0.00001.
Common stock issued for the six months ended June 30, 2018 was as follows:
As described above, the Company issued 1,000,000 shares for the acquisition of EAI.
The Company issued 3,125,000 shares to a stakeholder for total proceeds of $500,000. The Company received $100,000 at issuance and is to receive $400,000 in payments from June 2018 through October 2018. At June 30, 2018, the Company was owed $320,000 and such amount is reflected as a subscription receivable in stockholders’ deficit on the consolidated balance sheet.
In June 2018, the same stakeholder as described above, who joined the advisory board in June 2018, purchased an additional 3,125,000 shares at a discounted price of $0.01 per share. As a result of the discount, the Company recognized stock compensation of $218,750 for both the three and six months ended June 30, 2018.
As discussed above, the Company issued 1,462,338 shares with the convertible debt.
The Company issued 2,933,332 shares to various consultants and recognized stock compensation expense of $230,004 for both the three and six months ended June 30, 2018.
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As of June 30, 2018, and December 31, 2017, 93,845,670 and 82,200,000 shares of common stock were issued and outstanding, respectively.
NOTE 12 - SEGMENTS
The Company does business on three continents (Asia, North America and Europe) in four different jurisdictions (Hong Kong-special economic zone of the People’s Republic of China, Japan, United States of America, and The European common market through Switzerland). These segments are components of the Company about which separate financial information is available and regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The accounting policies of the segments are the same as those described in Note 3, Summary of Significant Accounting Policies.
The following table shows operating activities information by geographic segment for the three and six months ended June 30, 2018 and 2017.
3 months ended June 30, 2018 | ||||||||||||||||
North America | Asia | Europe | Total | |||||||||||||
Revenue | $ | 7,254 | $ | 9,390 | $ | 38 | $ | 16,682 |
3 months ended June 30, 2017 | ||||||||||||||||
North America | Asia | Europe | Total | |||||||||||||
Revenue | $ | - | $ | 9,018 | $ | - | $ | 9,018 |
6 months ended June 30, 2018 | ||||||||||||||||
June 30, 2018 | North America | Asia | Europe | Total | ||||||||||||
Revenue | $ | 7,254 | $ | 18,332 | $ | 38 | $ | 25,624 | ||||||||
June 30, 2018 | North America | Asia | Europe | Total | ||||||||||||
Fixed assets, net | $ | 32,465 | $ | 7,724 | $ | 970 | $ | 41,159 | ||||||||
Total assets | $ | 631,576 | $ | 166,086 | $ | 3,239 | $ | 759,742 |
6 months ended June 30, 2017 | ||||||||||||||||
June 30, 2017 | North America | Asia | Europe | Total | ||||||||||||
Revenue | $ | - | $ | 43,397 | $ | - | $ | 43,397 | ||||||||
June 30, 2017 | North America | Asia | Europe | Total | ||||||||||||
Fixed assets, net | $ | - | $ | 9,095 | $ | 15,029 | $ | 24,125 | ||||||||
Total assets | $ | - | $ | 153,898 | $ | 388 | $ | 154,286 |
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The following table shows assets information by geographic segment at June 30, 2018 and December 31, 2017.
June 30, 2018 | North America | Asia | Europe | Total | ||||||||||||
Fixed assets, net | $ | 32,465 | $ | 7,724 | $ | 970 | $ | 41,159 | ||||||||
Total assets | $ | 590,417 | $ | 166,086 | $ | 3,239 | $ | 759,742 |
December 31, 2017 | North America | Asia | Europe | Total | ||||||||||||
Fixed assets, net | $ | - | $ | 7,383 | $ | 1,232 | $ | 8,615 | ||||||||
Total assets | $ | 20,394 | $ | 84,206 | $ | 27,886 | $ | 132,486 |
NOTE 13 - SUBSEQUENT EVENTS
The Company evaluated all events and transactions that occurred after June 30, 2018 and through the date of this filing in accordance with FASB ASC 855, “Subsequent Events.” The Company determined that it does have a material subsequent events to disclose as follows:
Subsequent Events:
On July 2, 2018, the Company reserved of 20,000,000 shares of our common stock to 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 the 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 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.
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On July 2, 2018, the Board designated three hundred eleven thousand two hundred fifty (311,250) Series D-1 Preferred Shares of which all are currently issued and outstanding and designated and issued as part of the Oasis agreement. The Company filed an amended certificate of designations increasing the authorized Series D preferred shares from 1 million to 10 million. All of these 10 million series D preferred shares are part of the 50 million authorized preferred shares. On July 2, 2018, the company filed a certificate of designation to create a subset of the Series D Preferred Stock designated Series D-1 (see below)
Series D-1 Preferred Stock. As a subsequent event on July 2, 2018 The Company entered in to Equity Line of Credit agreement with Oasis Capital, LLC (“Oasis Agreement”) and as a part of that Agreement the Company created a subset series D-1 preferred stock from the authorized series D preferred shares having special rights and privileges
The total number of shares of Series D-1 Preferred Stock this Company is authorized to issue 311,250 shares, with a par value of $0.0001 per share and a stated value of $2.00 per share (the “Stated Value”). The Series D 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.
The Series D-1 Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends and right of liquidation with the Company’s Common Stock, (b) junior with respect to dividends and right of liquidation with the Company’s Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock; and (c) junior with respect to dividends and right of liquidation to all existing and future indebtedness of the Company. Without the prior written consent of Holders holding a majority of the outstanding shares of Series D-1 Preferred Stock, the Company may not issue any Preferred Stock that is senior to the Series D-1 Preferred Stock in right of dividends and liquidation. Until twelve months following the issuance of the shares, without the prior written consent of 100% of the holders of the outstanding shares of Series D-1 Preferred Stock, the Company may not issue any Preferred Stock that is senior to the Series D-1 Preferred Stock in right of dividends and liquidation. Without the prior written consent of 100% of the holders of the outstanding shares of Series D-1 Preferred Stock, the Company may not issue or incur any indebtedness or other obligation to pay month that is convertible into or exchangeable for shares of Common Stock (or into or for any other security that is convertible into or exchangeable for shares of Common Stock).
Upon any liquidation, dissolution or winding-down of the Company, the holders of the shares of Series D-1 Preferred Stock shall be paid in cash, before any payment shall be paid to the holders of Common Stock, or any other Junior Securities, an amount for each share of Series D-1 Preferred Stock held by such holder equal to 140% of the Stated Value thereof plus any dividends accrued but unpaid thereon.
Each share of Series D-1 Preferred Stock together with accrued but unpaid dividends thereon shall be convertible at the option of the holder thereof, in whole or in part, at any time, without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Stated Value per share being converted plus accrued and unpaid dividends thereon by the Series D-1 Conversion Price in effect at the time of conversion. The “Series D-1 Conversion Price” per share of Common Stock shall be the lowest traded price of the Common Stock during the thirty (30) trading day period ending, in Holder’s sole discretion on each conversion, on either (i) the last complete trading day prior to the Conversion Date or (ii) the Conversion Date (subject to adjustment as provided therein).
Series D-1 Preferred Stock shall be non-voting except on certain major corporate actions or as required by law. In the event of such a right to vote, each holder of Series D-1 Preferred Stock shall have the right to the number of votes equal to the number of Conversion Shares then issuable upon conversion of the Series D-1 Preferred Stock held by such holder.
Before any dividends shall be paid or set aside for payment on any Junior Security of the Company, each holder of the Series D-1 Preferred Stock shall be entitled to receive dividends, in the manner provided herein, payable on the Stated Value of the Series D-1 Preferred Stock at a rate of 8% per annum, which shall be cumulative and be due and payable in shares of Common Stock on the Conversion Date. Such dividends shall accrue from the date of issue of each share of Series D-1 Preferred Stock, whether or not declared.
Shares of the Series D-1 Preferred Stock shall be redeemable, in whole or in part, at the option of the Company, by resolution of its Board of Directors, in cash, at any time during the initial 60 calendar day period after the issuance of the respective Series D-1 Preferred Stock, subject to the Redemption Notice requirements below, at a price per share equal to 125% of the Stated Value plus the amount of accrued but unpaid dividends thereon, provided, however, that 125% shall be replaced with 140% if the Company exercises its option to redeem the Series D-1 Preferred Stock after the initial 60 calendar day period.
On August 6, 2018, the Board of Directors of 12 ReTech corporation issuanced one (1) share of our Series C Preferred Shares to the founder, Angelo Ponzetta, effective August 14, 2018. The series C Preferred Shares has no equity value, no preference in liquidation and is not convertible into common shares, but authorizes the holder to vote one billion votes on any matter that shareholders are entitled to vote for under our Bylaws at a cost of $1.00 per share. The Board believes 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 which, as evidenced by their investment into the Company. To ensure that the founder’s vision is maintained, it is necessary that no outside person or group can gain voting control from the founder as the Company.
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ITEM 2. 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.
The Business:
At our core, we are a software company whose technology allows retailers to combat the dual threats of Walmart and Amazon, both online and in physical stores. Our microbrand rollup acquisition strategy allows us to demonstrate the effectiveness of our software, devise and test new products, while providing shareholder value through immediate revenue and earnings growth. The Company operates through our subsidiaries on three continents: 12 Hong Kong, Limited (“12HK”, “12 Hong Kong, Ltd.”), 12 Japan, Limited (“12JP”, “12 Japan, Ltd.”), 12 Europe A.G. (“12EU”, “12 Europe AG”), and 12 Retail Corporation (“12 Retail”) (and its subsidiary, E-Motion Apparel, Incorporated (“EAI”, “E-Motion Apparel, Inc.”) in North America).
The Subsidiaries:
-12 Hong Kong, Ltd. a corporation organized in the special economic region of Hong Kong. On June 27, 2017 the Company acquired 12 Hong Kong, Ltd. in a share exchange transaction (See Section 7 of the form 10-K for the year ended December 31, 2017 Management Discussion & Analysis). This is the technology company that manages all the Company’s proprietary and licensed technology that is utilized and sold by the other subsidiaries. In addition, this subsidiary serves as an additional marketing and sales hub for Asia, particularly the Chinese market, excluding Japan.
-12 Japan, Ltd. a corporation organized in Japan. The Company acquired 12 Japan, Ltd, located in Tokyo, Japan on July 31, 2017 in a share exchange (See Section 7 of the form 10-K for the year ended December 31, 2017 Management Discussion & Analysis). This subsidiary operates in the country of Japan. It is this subsidiary that services our first customer, Itoya Ltd, where our technology was successfully implemented and proven.
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-12 Europe A.G. a corporation organized in Switzerland. The Company acquired 12 Europe A.G. on October 26, 2017 in a share exchange. (See Section 7 of the form 10-K for the year ended December 31, 2017 Management Discussion & Analysis). This subsidiary markets, sells, and services the Company’s proprietary and licensed technology to retailers in the European market from its base of operations in Zurich, Switzerland. Since its acquisition, this subsidiary has already signed agreements with 4 retailers, consisting of 1 department store and 3 local businesses, to deploy components of our 12 Technology Suite and 12Sconti app (See Section 7 of the form 10-K for the year ended December 31, 2017 Management Discussion & Analysis).
-12 Retail Corporation was formed in the state of Arizona, USA and maintains an office in Scottsdale, Arizona. This subsidiary was formed on Sept. 18, 2017 to execute the Company’s microbrand roll up acquisition strategy as well as to penetrate the North American market with our technology to select retailers. All of the microbrands that are acquired will retain their own brand names and identities although they will share some economies of scale and benefit from the management expertise, resources and capital allocation available as a subsidiary of the Company. The microbrand acquisitions will become subsidiaries of 12 Retail Corporation.
-Emotion Fashion Group, Inc. F/K/A E-motion Apparel, Inc. (“EAI”) which includes E-motion Apparel Inc., Lexi Luu Designs, Inc, Punkz Gear and Skipjack Dive and Dancewear. On March 12, 2018, The Company entered into an agreement to acquire 100% of the equity in EAI., a California corporation which became effective May 1, 2018, though the 12 Retail subsidiary, pursuant to a Share Exchange Agreement which itself owns five microbrands that target specific niche markets: E-motion Apparel, Inc., Lexi-Luu Dancewear Inc., 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 quantities of small production runs of garments, keeping online sales channels fresh. On July 26, 2018 EAI was reincorporated in Utah. EAI changed its name to Emotion Fashion Group, Inc See Form 8–K dated March 15, 2018 & April 27, 2018.
OVERVIEW OF OPPORTUNITY
Brick and mortar retailers continue to struggle against online competition, even though online sites haven’t changed in many years. Consumers are now looking for new ways to purchase products, with a larger focus on individualism and social sharing. Retailers and merchants are searching for new ways to entice consumers through software technologies that engage consumers both online and in the physical store. These disruptive changes are affecting merchants and retailers and all stages of their supply chains from design and manufacture to distribution and logistics.
We believe that although the brick and mortar retailers are not all going to just disappear, they will evolve because consumers shop when they enjoy the shopping experience. Online merchants are forced to adapt as the landscape continues to get more competitive. Both online and physical merchants are learning that as consumer’s shopping habits change, traditional marketing and advertising mediums such as television are much less effective. We call this combination of forces, the “Consumer Shift”. This Consumer Shift is driving a convergence of the online/mobile merchant with the physical retailer, as we have seen with Amazon’s acquisition of Whole Foods, Inc. and their opening of physical book stores, and Walmart’s acquisition of Jet.com. This convergence will continue. Management believes that the Company’s software and technology can benefit almost all retailers. The Company will initially focus on the Apparel and Cosmetics sectors where they believe we can have the biggest impact.
The Company’s business strategy is twofold. First, we design, sell and implement software that helps retailers to improve their physical store and online sales operations. 12 ReTech owns and licenses several technologies that will be useful to the retailer who is looking to survive the current business environment and even allow these new leaders to thrive in their businesses.
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Second, we plan to acquire multiple consumer product microbrands in an effort to take advantage of the current slump in the global retail industry. We will use our technology, our management and operational expertise and working capital to improve the microbrands that we acquire and will demonstrate to the investor community as well as the retail industry that our technology and expertise can create significant uplifted revenue and profit results for our retailer clients. By improving our microbrands and expanding their brand awareness and their operations, we hope to create additional value for 12 ReTech’s investors. By using the Company’s technology to improve the Company’s microbrands, the technology which is licensed to retailer customers will also become more effective for and attractive to outside retailer customers.
We believe that the Company benefits shareholders by generating its revenue and earnings two ways:
1. | The revenue and earnings generated from its microbrands, and | |
2. | The revenue generated through the sale and/or licensing of its proprietary software and technology to third party retailers and merchants. |
The Company’s patent pending proprietary technology products, software and services, as well as management expertise, directly addresses the Consumer Shift with software solutions that engage consumers both in the physical store and online, encourage social sharing, and advertising while lowering retailer and merchants’ operating costs. We will also deploy our technology offerings and management expertise at our microbrands where we demonstrate its effectiveness and develop additional feature sets.
As further outlined in the Company’s Annual 10-K, the software has already been successfully adopted and deployed in the Itoya store in Tokyo and are in talks to install in the Manor A.G. department stores in Switzerland. The Company’s brand new 12Sconti APP has been well received and is being promoted by retailers in Switzerland in advance of its planned May 2018 launch. In the United States, in January 2018 the Company hosted nearly 60 top retail executives in association with the National Retail Foundation where it introduced its technology to favorable reviews, and has received interest from retailer in the U.S., Mexico, and Brazil as well. For additional information please read our Annual 2017 Form 10-K.
Acquisition Strategy:
In addition, management has a clear acquisition strategy as outlined further in the Company’s Annual 2017 Form 10-K to acquire microbrands. Management believes that there is a strong opportunity to acquire microbrands based on industry wide bottom of the trough valuations that, through the deployment of our technology, can produce outsized investment returns and be generally accretive to our business. Each of our microbrands will be complementary to each other and generally benefit from our technologies. With the acquisition of significant profitable microbrands, the Company becomes self-sufficient, and is able to generate its own cash flow to minimize the need to raise additional capital to support its software development, sales and deployment.
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Management formed 12 Retail Corporation in Arizona, U.S.A to acquire microbrands and manage its microbrand strategy. The Company succeeded with its first acquisition of E-motion Apparel, Inc. on March 12, 2018 (“EAI”), a California corporation founded in 2011, which itself owns five microbrands that target specific niche markets: E-motion Apparel, Inc. Lexi-Luu Dancewear Inc., Punkz Gear, Cleo VII and Skipjack Dive & Dance Wear. This company is now located in Salt Lake City, Utah to take advantage of a “pro-business” environment that features a well-educated and eager to work employee market, and operates its own production facility that management believes can be utilized by all of the Company’s future microbrand acquisitions as a competitive advantage to produce many small production runs of garments that can keep online sales channels fresh, as well as speeding up the design and creation of samples such that large scale off-shore production can be implemented more rapidly. However, the effective date of the acquisition of E-motion Apparel is May 1st, 2018. See Form 8-K dated March 15, 2018 & April 27, 2018.
As already mentioned in the Company’s 2017 Form 10-K, the Company has targeted a number of other potential acquisitions and has executed of three Letters of Intent (“LOI”) to acquire: Colorado Trading and Clothing Company d/b/a Active Fashion Group, (“AFG”) The J. Peterman Company, LLC (“JPC”) , and Krazy Larry, Inc. (“KL”) The Company is in the process of performing due diligence and finalizing negotiations. If acquisitions are completed, they would add an additional $45 million in annual revenue. In addition, the Company expects to similarly benefit from the synergies between the other microbrands and the Company’s proprietary technologies.
The Company’s three micro-brand acquisition strategy was designed to take place in sequence with AFG being the first acquisition and with the financial lines of credit available to AFG then acquire JPC and KL. In a subsequent event in July 2018 the Seller of AFG, after reaching terms with the Company, and after suffering a long illness, unexpectedly passed away on or about July 5th, 2018. The Company has been informed that the AFG stock was immediately placed in trust as had been previously arranged by the Seller and the AFG Trustees have indicted a willingness to complete a transaction with the Company. The timing and, details of the final transaction with AFG, should there be one unclear at this time. Management is working closely with AFG representatives to reach a final transaction which has been delayed due to the complications cause by the Sellers untimely death. This situation with AFG has delayed the possible completion of the follow acquisitions (JPC & KL) but the Company is now working with other sources of capital that would allow it so provide the required post acquisition capital needed by the Follow On Acquisitions in case AFG does not close or is further significantly delayed.
Technology Strategy:
Management has developed a software strategy, which creates a fully-integrated shopping experience that utilizes all aspects of social networking. This technology is referred to as the “12 Technology Suite” or “12 ReTech Suite”. The 12 ReTech Suite provides an interactive shopping cart that seamlessly combines shopping and social networking for a fun and unique shopping experience. The 12 ReTech Suite integrates physical store, online, and mobile shopping, while interactive advertising screens provide special offers from shops, restaurants, and service providers. Over the past 36 months, the Company has developed a proprietary technology suite (software, hardware (the 12Mirror), applications for the iPhone, iPad, and Android phones and tablets (12Mobile APP) that integrates traditional shopping, on-line shopping, entertainment and social networking into a “Totally Integrated Retail Platform”.
We deployed our software technology strategy with our first client in a fully-integrated 13 story storefront in Tokyo, Japan. It has been running successfully since early 2016. In the meantime, we have been in active negotiations with a Japanese information technology company for distribution representation in Japan and are now working on an enhancement project focusing our system on Promotion / Advertising activities in nearby vicinities.
The 12 ReTech Experience
USXS – Unifying Shopping eXperience System® - Management believes that the USXS is the solution for all retail problems related to reaching the consumer; the connector of any available technology system and the generator of a truly shopping and entertainment experience for consumers. Our technology is based on the full integration of the 12Mirror / 12ADScreen or 12Display connected with the 12Kiosk, the 12Mobile APP, 12Administrative App and the 12 Online Solutions. This entire set of will enable consumers to shop independently and freely share their shopping experiences with friends.
We call this the “12 Experience”. We believe that the 12 Experience offers both retailers and customers an exciting time saving and efficient way to enjoy and to fully become immersed within the traditional retail environment.
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The 12 ReTech Suite
The 12 ReTech Suite offers a spectrum of smart devices – from mirrors to PR screens to kiosks and more – to help retailers reach new consumers, increase visibility across all channels and provide a better service which includes the following applications: 12Mirror, 12Kiosk, 12ADScreen or 12Display, 12Mobile APP, 12Administrative APP and 12Sconti APP. 12 ReTech brings social media to life in a rich, totally immersive and exciting environment. In the store, consumers can connect instantaneously with any available social networking system like Facebook, Skype, WhatsApp, Line, Instagram, and others. Consumers can share pictures and videos, and can get personal feedback from their families and friends.
For the first stage of our mobile app, we are targeting small and middle level retailers as well as service providers. In stage two, we will target people who have skills and want to provide them privately (Person to Person) generating additional value for consumers. We believe that the concept of allowing the Consumer to have fun, receive special offers and be entertained during their shopping experience is very important. 12 ReTech makes the consumer feel special, important and empowered, allowing them to choose the best offer available right now at the store they are in or at stores in the vicinity.
For an in depth description of each of our technologies and tools included in 12 ReTech Suite, please refer to the Company’s 2017 Annual Form 10-K.
Intellectual Property
The Company has three patents pending covering its Intellectual Property and has patents already owned. This is fully detailed in the Company’s Annual 2017 Form 10-K.
In addition, through the acquisition of E-motion Apparel Inc. the Company acquired the rights to 156 fabric patterns as well as the proprietary process for making the fashion clothing owned and marketed by the Company.
The Company intends to continue its development of its technologies and will continue to apply for patents for future product developments. The Company’s strategy is to protect the technologies with patents in Europe, U.S. and China. Following product development, each product, based on the technologies, will be further protected individually by new patent filings worldwide.
QUARTER ENDED JUNE 30, 2018 COMPARED TO THE QUARTER ENDED JUNE 30, 2017
During the quarter ended June 30, 2018, we incurred of net loss of $2,692,840 compared to a net loss of $66,995 for the quarter ended June 30, 2017. The increase in our net loss for the quarter ended June 30, 2018 over the comparable period of the prior year is primarily due to expense associated with derivative liabilities of $933,411. In addition, the company incurred interest expense, which includes the amortization of debt discounts and beneficial conversion features (“BCF) on our convertible debt. This BCF represented a $516,288 increase in Interest Expense during the quarter ended June 30, 2018 as opposed to zero during the same period ended in 2017. The Company also experienced an increase in general and administrative (G&A) expenses of $690,615 and professional fees of $270,328 compared to the same period in the prior year. The company has also included approximately $276,974 in accounts payable and accrued expenses which was acquired with EFG that is being disputed and management expects with be significant reduced by year end.
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On June 27, 2017 the Company acquired 12 Hong Kong, Ltd which is accounted for as a reverse merger such that the financials of the Company are those of the acquired entity which as a result of this transaction became the public entity. In addition, the subsidiaries 12 Japan Ltd, 12 Europe A.G. and 12 Retail Corporation were added to the Company during the second half of 2017, and therefore the quarter ended June 30, 2018 includes for the first time the operations of these four subsidiaries.
The largest increase in G&A is the increase in compensation expense due to the addition of employees and management in order to execute the Company’s business plan. In addition, the increase was also attributable to trade show and travel expenses associated with the raising of capital and investor relations during the quarter ended June 30, 2018. Whereas there were no capital raising activities and or investor relations activities during the same period in 2017.
The Company also incurred professional fee expenses primarily from legal and consulting services of $273,421 resulting from the Company being publicly listed. There were no such costs during the prior comparable period of 2017.
Lastly, as a result of the debt raised, the Company incurred interest expense of $690,643 during the quarter ended June 30, 2018 as opposed to zero in the prior comparable period of 2017.
Dominic D’Alleva, joined the advisory board in June 2018. In conjunction with his advisory board position, 12 ReTech issued 3,125,000 shares in June, 2018. From 1995 to present time, Mr. D’Alleva has been a principal with D and D Realty Company, LLC, a privately owned New York based New York limited liability company involved in the acquisition and financing of real estate. From 1986 to 1995, he was engaged in residential New York City real estate for his own account and as general counsel to various real estate acquisition firms. From December, 2014 to October 2016, Mr. D’Alleva was Chairman of the Board of Warren Resources, Inc. a publicly traded energy company which was reorganized in 2016. From 1983 to 1985, he served as Executive Vice President, Director and General Counsel of Swanton Corporation which engaged in energy, retail and financial services businesses. From 1980 to 1983, he was Associate Counsel for Damson Oil Corporation. From 1977 to 1980, he was an associate with Simpson, Thatcher & Bartlett specializing in securities and corporate law. Mr. D’Alleva received a Bachelor of Arts degree Summa Cum Laude from Fordham University in 1974 and earned his Juris Doctor degree with honors from Yale University in 1977.
Mr. D’Alleva will be a good fit with 12 ReTech with his background in retail operations, real estate and corporate governance. As 12 ReTech will be looking to establish brick & mortar operations for their 12 Retail operations, his contacts in the New York City retail and real estate industries will prove to be constructive.
Overall, 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 European 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.
SIX MONTH ENDED JUNE 30, 2018 COMPARED TO THE SIX MONTH ENDED JUNE 30, 2017
During the six months ended June 30, 2018, we incurred a net loss of net loss of $3,563,070 compared to a net loss of $114,121 for the six months ended June 30, 2017. The increase in our net loss for the six months ended June 30, 2018 over the comparable period of the prior year is primarily due to expense associated with derivative liabilities of $933,411. In addition, the company incurred interest expense, which includes the amortization of debt discounts and beneficial conversion features (“BCF”) on our convertible debt. This BCF represented a $516,288 increase in interest expense during the six months ended June 30, 2018 as opposed to zero during the same period ended in 2017. The Company also experienced an increase in general and administrative (G&A) expenses of $1,091,931, professional fees of $496,223 compared to the same period in the prior year. The company has also included approximately $276,974 in accounts payable and accrued expenses which was acquired with EFG that is being disputed and management expects with be significant reduced by year end.
On June 27, 2017 the Company acquired 12 Hong Kong, Ltd which is accounted for as a reverse merger such that the financials of the Company are those of the acquired entity which as a result of this transaction became the public entity. In addition, the subsidiaries 12 Japan Ltd, 12 Europe A.G. and 12 Retail Corporation were added to the Company during the second half of 2017, and therefore for six months ended June 30, 2018 includes for the first time the operations of these four subsidiaries.
The largest increase in G&A is the increase in compensation expense due to the addition of employees and management in order to execute the Company’s business plan. In addition, the increase was also attributable to trade show and travel expenses associated with the raising of capital and investor relations during the six months ended June 30, 2018. Whereas there were no capital raising activities and or investor relations activities during the same period in 2017.
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The Company also incurred professional fee expenses primarily from legal and consulting services of $505,050 resulting from the Company being publicly listed. There were no such costs during the prior comparable period of 2017.
Lastly, as a result of the debt raised, the Company incurred interest expense of $838,593 during the six months ended June 30, 2018 as opposed to zero in the prior comparable period of 2017.
Overall, 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 European 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 then the Company currently has. The Company has reserved the right to repurchase these debt-equity interests and preferred stock at a predetermined premium should management determine that this is in the best interests of shareholders at an appropriate future point in time.
Operating expenses for the Company have been paid from revenue as well as from the issuance of debt-equity and preferred stock subscriptions. As of June 30, 2018, the Company had a deficit in working capital (current liabilities in excess of current assets) of $3,572,211. A portion of this working capital deficit has been financed loans from stockholders. As of June 30, 2018, amounts owed to stockholders totaled $714,521. The working capital deficit as of December 31, 2017 was $1,064,961 compared to $3,572,211 as of June 30, 2018. The increase in working capital deficit when compared to December 31, 2017 was principally due to an increase in notes payable (“debt-equity”) and to a lesser extent, an increase in accounts payable and derivative liability.
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 microbrand roll-up acquisition strategy if successful would 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.
On April 12, 2018 engaged with Tellson Securities, Inc. (F/K/A 41 North Securities), a licensed investment bank to raise $5 million in additional preferred equity for the Company’s operations and provide the working capital to improve the operations of future acquisitions, once they are transacted. Tellson Securities, Inc. has also indicated it would like to assist the Company to up-list at the appropriate time to a recognized exchange which management believes would make it easier for the Company to raise additional capital at even more attractive rates. Tellson Securities, Inc. was also hired to, at the appropriate time, to assist the Company for up-listings to a recognized exchange like the NASDAQ Market.
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On June 15, 2018, the Company engaged BMA Securities, LLC (BMA), to provide advisory and investment banking services on a non-exclusive basis for 180 days for initial term. BMA will familiarize itself with the business and conduct exploration of strategic alternatives that may lead to a possible transaction such as a minority in the company or a sale, merger, joint venture otherwise, whether effected in a single transactions or a series of related transactions, BMA will assist in arranging for and obtaining bridge financing. The company shall pay BMA securities via one of 4 possible payment options, including equity financing fee, debt financing fee, credit facility financing fee or a business combination fee.
As a subsequent event, the Company entered in an Equity Purchase Agreement with Oasis Capital on July 2, 2018, to provide longer term capital to the Company. As part of that agreement we reserved of 20,000,000 shares of our common stock to Oasis Capital. Oasis Capital was also 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. The Company filed an S-1 Registration Statement on July 2, 2018 for this Investor which is currently under review with the SEC. Other than the 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.
The Company hopes to generate sufficient revenues from operations in order to eliminate or reduce the need to sell additional equity or obtain additional debt. However, there can be no assurance we will be successful in raising the necessary funds to execute our high growth business plan.
At June 30, 2018, the Cash and Cash Equivalents balance was $38,297 compared to $100,264 as of December 31, 2017. The primary reason for the decrease is a higher level of investment in product development that was paid out in the six- month period ending June 30, 2018.
During the six months ended June 30, 2018, current liabilities increased by $2,460,390 when compared to December 31, 2017. The primary reasons for the increase was an increase in notes payable (“debt-equity”) due liabilities that became obligation of the Company with the acquisition E-motion Apparel, Inc., amounts due to unrelated parties, and amounts due to stockholders. In addition, the Company also incurred interest expense associated with Beneficial Conversion Feature of $516,288 and derivative liability of $933,411.
The Company’s lack of operating history makes predictions of future operating results difficult to ascertain. 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 we cannot include their results in our projection of cash needs.
The Company acquired its first microbrand with the acquisition of Emotion Fashion Group, Inc. F/K/A E-motion Apparel, Inc., on March 12, 2018, however the effective date is May 1, 2018. See our Form 8-K dated April 27, 2018 EAI. will contribute to the revenue and increase the EBITDA in the first twelve months of operations after acquisition. Management believes that this acquisition proves the viability of our accretive share exchange acquisition model and anticipates the ability to announce future acquisitions throughout 2018 and beyond.
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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.
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 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 period ended June 30, 2018. Our total accumulated deficit as of June 30, 2018 was approximately $6.6 million.
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.
Elected Mandatory Filer Status
The Company filed Form 8A-12G with the Securities and Exchange Commission on March 16, 2018 and therefore became a mandatory filer with the Securities and Exchange Commission.
OTCQB
As a subsequent event on July 11, 2018, the Company announced today that its stock started trading on the OTCQB market with the symbol RETC after a successful up-listing from the OTC Pink market.
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 for the period ended June 30, 2018. See Note 4 to the consolidated statements in this Quarterly Report for a complete discussion of our significant accounting policies and estimates.
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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 our 2017 Annual Report for a complete discussion of our significant accounting policies and estimates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item in not applicable as we are currently considered a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures, as of March 31, 2018 were not effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Accounting Officer, as appropriate to allow timely decisions regarding disclosure. A control system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Management’s Quarterly Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management, with the participation of the principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of June 30, 2018. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework. Based on the criteria established by COSO, management concluded that the Company’s internal control over financial reporting was not effective as of June 30, 2018 as a result of the identification of the material weaknesses described below.
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Specifically, management identified the following control deficiencies: (1) The Company has not properly segregated duties as one or two individuals initiate, authorize and complete all transactions. The Company has not implemented measures that would prevent the individuals from overriding the internal control system.; (2) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines and (3) the Company has installed accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and does not provide an adequate audit trail of entries made in the accounting software.
Our Company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending December 31, 2018: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
Accordingly, while the Company has identified certain material weakness in its system of internal control over financial reporting, it believes that is has taken reasonable steps to ascertain that the financial information contained in this report is in accordance with accounting principles generally accepted in the United States of America. Management has determined that current resources would be appropriately applied elsewhere and when resources permit, they will alleviate material weaknesses through various steps.
Changes in Internal Control Over Financial Reporting
As of June 30, 2018, there were no changes in the Company’s internal controls over financial reporting known to the Chief Executive Officer or the Chief Accounting Officer that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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The Company is presently not party to any legal proceedings.
Our investors should consider the risks that could affect us and our business as set forth in Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2017. In addition, the Company believes the following risk factors should be added:
The effectiveness of our disclosure controls and procedures and internal control over
financial reporting
The company has a limited number of personal which may leave to risk of limited controls and procedures. n additional for the aforementioned reason there is a limit on the amount of internal controls during our financial reporting process.
The Company’s CFO is currently the CFO of another company
The Company CFO is also the CFO of another business and therefore may have limited time to work on the business and may experience time conflicts.
Our directors may lack of an independent director on your Board of Directors
Our directors are also on our Board of Directors and as a result the Board of Directors may lack some independence.
The stock ownership of your chief executive officer and the ability to control the Company
The company’s Chief Executive Officer is also one of the most significant shareholder of the company and as a result may control the company.
Small customer base makes on dependent on a few customers
The company currently has a small customer base which makes the the company dependent on this customer base which may affect the ability to continue.
The are a number of shares of common stock underlying your outstanding preferred stock and convertible notes.
The Company has outstanding Preferred Stock and Convertible Notes with possibility of 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 Quarterly Report on Form 10-Q, 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.
41 |
Item 2. Unregistered Sales of equity AND USE OF PROCEEDS
The Company issued 6,250,000 shares of common stock and received proceeds of $211,250. The proceeds will be used for working capital purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
The following documents are included herein:
- | certificate of designation of Series d -1 Preferred Shares filed the on form 8-k on June 28, 2018 |
Number | Description of Exhibit | |
3.01 | Articles of Incorporation filed with the SEC on form S-1 in December 30, 2014 | |
3.01a | Amended and Restated Articles of Incorporation filed with the SEC on form 8-k on June 14, 2017 | |
3.01b | Articles of Amendment filed with the SEC on form 8-k on February 02, 2018 | |
3.01c | Certificate of Designation filed with the SEC on form 8-k on February 02, 2018. | |
3.02 | By-Laws filed with the SEC on form S-1 on December 30, 2014 | |
3.5 | Certificate of Designation filed with the SEC on Form 8-K on June 28, 2018 | |
10.01 | Share Exchange Agreement between Devago, Inc. (12 ReTech Corporation) and 12 Hong Kong, Ltd filed on form 8-k on June 7, 2017 | |
10.02 | Share Exchange Agreement between 12 ReTech Corporation and 12 Japan, Ltd filed with the SEC on form 8-k on August 02, 2017 |
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
12 ReTech Corporation
Date: August 20, 2018 | By: | /s/ Angelo Ponzetta |
Angelo Ponzetta | ||
Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
12 ReTech Corporation
Date: August 20, 2018 | By: | /s/ Angelo Ponzetta |
Angelo Ponzetta | ||
Its: | Chairman, Director, President, Chief Executive Officer, (Principal Executive Officer) | |
By: | /s/ Daniele Monteverde | |
Daniele Monteverde | ||
Its: | Director Secretary Treasurer Chief Operating Officer (Principal Accounting Officer) (Principal Financial Officer) |
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Exhibit 31-1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Angelo Ponzetta, certify that:
1. I have reviewed this Report on Form 10-Q for 12 ReTech Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions);
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
12 ReTech Corporation | ||
Date: December 10, 2018 | By: | /s/ Angelo Ponzetta |
Angelo Ponzetta | ||
Its: | Chairman President Chief Executive Officer Secretary |
Exhibit 31.2
I, Daniele Monteverde, certify that:
1. I have reviewed this Report on Form 10-Q for 12 ReTech Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
12 ReTech Corporation | ||
Date: December 10, 2018 | By: | /s/ Daniele Monteverde |
Daniele Monteverde | ||
Its: | Director Chief Financial Officer Principal Accounting Officer |
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, the Chief Executive Officer and the Chief Accounting Officer of 12 ReTech Corporation. (the “Company”), each certifies that, to his knowledge, on the date of this certification:
1. The quarterly report of the Company for the period ending June 30, 2018 as filed with the Securities and Exchange Commission on this date (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
12 ReTech Corporation | ||
Date Signed: December 10, 2018 | By: | /s/ Angelo Ponzetta |
Angelo Ponzetta | ||
Its: | Chairman President Chief Executive Officer |
Date Signed: December 10, 2018 | By: | /s/ Daniele Monteverde |
Daniele Monteverde | ||
Its: | Director Secretary Treasurer Chief Financial Officer Chief Operating Officer Principal Accounting Officer |
Document and Entity Information - shares |
6 Months Ended | |
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Jun. 30, 2018 |
Nov. 19, 2018 |
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Document And Entity Information | ||
Entity Registrant Name | 12 Retech Corp | |
Entity Central Index Key | 0001627611 | |
Document Type | 10-Q/A | |
Document Period End Date | Jun. 30, 2018 | |
Amendment Flag | true | |
Amendment Description | The restatement of our unaudited quarterly financial statements and related disclosures primarily relates to the calculation of a derivative liability not reported in our historical unaudited quarterly financial statements for the quarter ended June 30, 2018. In accordance with accounting guidance presented in ASC 250-10 and SEC Staff Accounting Bulletin No. 99, Materiality, management assessed the materiality of these errors and concluded that they were material to the Company's previously issued financial statements. The primary errors relate to calculation of a derivative liability associated the convertible notes payable. The impact of the Restatement on the Consolidated Statements of Income primarily resulted in increase in the expenses for change fair value of derivative liability and increase in interest expense (three and six months ended June 30, 2018), which ultimately resulted in decreases to net income in the six months ended June 30, 2018. The impact of the Restatement on the Consolidated Balance Sheets primarily resulted in an increase of current liabilities in 2018. The impact of the Restatement adjustments on the Consolidated Statements of Cash Flows resulted in an increase of net cash provided by operating activities in the six months ended June 30, 2018. This Form 10-Q/A amends and restates Items 1, 2, and 4 of Part I and Item 6 of Part II of the Original Filing and no other information included in the Original Filing is amended hereby. Generally, no attempt has been made in this Form 10-Q/A to modify or update the foregoing items, except as required to reflect the effects of the Restatement. Information not affected by the Restatement is unchanged and reflects the disclosures made at the time of the Original Filing. Accordingly, this Form 10-Q/A should be read in conjunction with our filings made with the Securities and Exchange Commission ("SEC") subsequent to the Original Filing. In accordance with applicable SEC rules, this Form 10-Q/A includes new certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2, 32.1 and 32.2. Subsequent to the Original Filing, we appointed a new Chief Financial Officer. Accordingly, these certifications are signed by our Chief Executive Officer and our Chief Financial Officer as of the date of filing this Form 10-Q/A. | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business Flag | true | |
Entity Emerging Growth Company | false | |
Entity Ex Transition Period | false | |
Entity Common Stock, Shares Outstanding | 481,230,265 | |
Trading Symbol | RETC | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2018 |
Condensed Consolidated Statement of Operations - USD ($) |
3 Months Ended | 6 Months Ended | 46 Months Ended | ||
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Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
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Income Statement [Abstract] | |||||
Revenues | $ 16,682 | $ 9,018 | $ 25,624 | $ 43,397 | |
Cost of revenue | 36 | 36 | 451 | ||
Gross Profit | 16,646 | 9,018 | 25,588 | 42,946 | |
Operating Expenses | |||||
General and administrative | 760,627 | 70,012 | 1,234,071 | 142,140 | |
Professional fees | 273,421 | 3,093 | 505,050 | 8,827 | |
Depreciation | 1,384 | 2,908 | 2,533 | 6,100 | |
Total Operating Expenses | 1,035,432 | 76,013 | 1,741,654 | 157,067 | |
Loss from operations | (1,018,786) | (66,995) | (1,716,066) | (114,121) | |
Other Expense | |||||
Loss on debt extinguishment | (50,000) | (75,000) | |||
Interest expense | (690,643) | (838,593) | |||
Change in fair value of derivative liabilities | (933,411) | (933,411) | |||
Net Other Expense | (1,674,054) | (1,847,004) | |||
Net Loss | (2,692,840) | (66,995) | (3,563,070) | (114,121) | $ 6,600,000 |
Net Loss Available for Common Stockholders | (2,692,840) | (66,995) | (3,563,070) | (114,121) | |
Comprehensive loss: Net Loss | (2,692,840) | (66,995) | (3,563,070) | (114,121) | $ 6,600,000 |
Other comprehensive income- foreign currency translation adjustment | 19,778 | 6,166 | 5,124 | ||
Comprehensive Loss | $ (2,673,062) | $ (60,829) | $ (3,557,946) | $ (114,121) | |
Net Loss Per Common Share: Basic and Diluted | $ (0.03) | $ (0.00) | $ (0.04) | $ (0.00) | |
Weighted Average Number of Common Shares Outstanding: Basic and Diluted | 86,059,166 | 50,000,000 | 84,350,585 | 50,000,000 |
Nature of Business |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Nature of Business |
NOTE 1. NATURE OF BUSINESS
12 Retech Corporation (“we”, “us”, “our”, “12 ReTech”, “RETC”, 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 our Articles of Incorporation to change the name to 12 Retech Corporation. At our core, we are a software company whose technology allows retailers to combat the dual threats of Walmart and Amazon — both online and in physical stores. Our microbrand rollup acquisition strategy allows us to demonstrate the effectiveness of our software, devise and test new products, while providing shareholder value through immediate revenue and earnings growth. The Company operates through our subsidiaries on three continents, Asia, North America and Europe.
Principal subsidiaries
The details of the principal subsidiaries of the Company are set out as follows:
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Restatement of Previously Issued Unaudited Interim Consolidated Financial Statements |
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Accounting Changes and Error Corrections [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restatement of Previously Issued Unaudited Interim Consolidated Financial Statements |
2. Restatement of Previously Issued Unaudited Interim Consolidated Financial Statements
In connection with the preparation and review of the Company’s unaudited financial statements for the quarter ended ended June 30, 2018, management identified certain errors in the Company’s historical interim unaudited financial statements. As a result, the Company concluded that its previously issued unaudited consolidated financial statements for quarter ended June 30, 2018, need to be restated. Within this report, the Company has included restated unaudited interim consolidated financial statements as of, and for the three and six months ended, June 30, 2018. This Note 2 to the unaudited interim consolidated financial statements discloses the nature of the restatement matters and adjustments and shows the impact of the restatement for the three and six months ended June 30, 2018, respectively.
The restatement corrects errors primarily related to: (1) the derivative liability embedded in the convertible notes payable, as well as the related interest expense and discounts; (2) goodwill associated with the acquisition of Emotion Fashion Group on May 1, 2018 due to additional liabilities identified which were related to this acquisition, and (3) reclassification of Series B preferred shares from permanent equity to mezzanine.
Adjustments needed to correct errors
(1) Derivative Liability – Under ASC 480, Distinguishing Liabilities from Equity, 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. The Company classified certain conversion features in the convertible notes issued during 2017 and 2018 as embedded derivative instruments due to down-round ratchet provisions and potential adjustments to conversion prices due to events of default in June 2018, for which made the notes immediately convertible, and accordingly measures and carries the conversion features as derivative liabilities in the consolidated financial statements. Also, the Company determined that the certain notes should be measured and carried at fair value in the consolidated financial statements according to ASC 480, as they are settleable in a variable number of shares based on a fixed monetary amount known at inception. Due to the existence of down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, the Company decided a Monte Carlo Simulation model. The company recognized a change in derivative liability of $933,411 for the period ended June 30, 2018.
(2) Goodwill– The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed has been 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. As such the goodwill amount has been adjusted $551,110 at June 30, 2018, as it relates to the acquisitions of Emotion Fashion Group. This amount was adjusted as the company found additional liabilities associated with Emotion Fashion Group which lead to an increase in the amount of Goodwill associated with the acquisition of Emotion Fashion Group.
(3) Reclassification from Permanent Equity to Mezzanine of Series B Preferred Shares– The Series B Redeemable Convertible Preferred Stock has been reclassified as temporary equity, as it is redeemable by the holder at 15 months after issuance. It has thus have been recorded as mezzanine.
The following summarizes the impact of the Restatement on our previously reported unaudited interim Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income, and Consolidated Statements of Cash Flows for the three and six months ended June 30, 2018.
Consolidated Balance Sheet June 30, 2018
Consolidated Statement of Operations
Consolidated Statement of Cash Flows
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Going Concern |
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Jun. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Going Concern |
NOTE 3. 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 interim financial statements have been prepared on a going concern basis which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of June 30, 2018, the Company has incurred losses totaling approximately $6.6 million since inception, has not yet generated significant revenue from its operations, and will require additional funds to maintain our operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company intends to finance operating costs over the next twelve months through continued financial support from its shareholders, the issuance of debt securities, private placements of common stock and revenues generated from its first mircrobrand acquisition Emotion Fashion Group, Inc. These interim financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. |
Acquisitions |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions |
NOTE 4. ACQUISITIONS
The Company accounts for all business combinations in accordance with Financial Accounting Standards Board (“FASB”) ASC 805, “Business Combinations” (“ASC 805”), using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, may be made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period would be recorded as income. Results of operations of the acquired entity are included in the Company’s results from the date of the acquisition onward and include amortization expense arising from acquired assets. The Company expenses all costs as incurred related to an acquisition in the condensed consolidated statements of income.
Emotion Fashion Group, Inc. F/K/A E-motion Apparel, Inc.
On May 1, 2018, the Company completed the acquisition of E-motion Apparel, Inc. (“EAI”) a California corporation, pursuant to a Share Exchange Agreement whereby the Company exchanged 1 million of its common shares for 100% of the equity of EAI in a third-party transaction. The fair value of the 1 million shares of common stock issued amounted to $80,000. EAI owns four wholly-owned and majority –owned subsidiaries: Lexi Luu Designs, Inc, (a Nevada Corporation), Punkz Gear, Inc, (a Wyoming Corporation), Cleo VII, Inc. (a Nevada Corporation) and Skipjack Dive & Dance Wear, Inc. (a Nevada Corporation), which together owns five microbrands that were included in this transaction and target specific niche markets: Lexi-Luu Dancewear, Punkz Gear, Cleo VII, Skipjack Dive & Dance Wear and E-motion Apparel, Inc.
On July 6, 2018, the Company re-incorporated EAI. in the state of Utah, USA and later re-named as Emotion Fashion Group, Inc. and does business under the brand name, “Emotion Fashions.” Going forward, the Company will operate all brands under the single entity, Emotion Fashion Group.
Emotion Fashion Group was founded in 2010 and designs and manufactures women’s apparel and kids dancewear.
The acquisition of Emotion Fashion Group, Inc. was accounted for under ASC 805. The following table summarizes the final allocation of assets acquired and liabilities assumed as of the Acquisition Date at estimated fair value.
Fair value below:
As of May 1, 2018, the assets and net liabilities acquired were as follows:
The fair values of the net assets acquired were determined using the market approach, which indicates value for a subject asset based on available market pricing for comparable assets. The fair value of the fixed assets of $32,665 has been determined by a third-party valuation firm and is valued at its estimated liquidation price. The fair value of the debt has been determined using an appropriately required yield and comparing against the stated interest rate on the debt.
The purchase price for the acquisition was allocated to the fair value of the assets acquired and liabilities assumed based on the estimates of the fair values at the acquisition date, with the amount exceeding the estimated fair values being recorded as goodwill.
The fixed assets are being depreciated over their estimated useful lives of 5 years. Goodwill recorded will not be amortized, but tested for impairment at least annually.
The Company assumed the liabilities of the Emotion Fashion Group, which included a disputed $250,000 note that bears a 2% annual interest rate. The fair market value of the note of $148,051 has been determined as the present value of the expected cash flow from the note assuming a market rate of interest.
Emotion Fashion Group’ results of operations have been included in the Company’s operating results for the period subsequent to the acquisition on May 1, 2018. Emotion Fashion Group contributed revenues of $897 and a net loss of $22,118 from the date of acquisition through June 30, 2018.
Revenues for Emotion Fashion Group were lower because the company was dormant most of 2017 and first quarter of the 2018. This was partly due to the fact that the company moved operations from Los Angeles, CA to Salt Lake City Utah. In additional the company was re-branded and is gearing for its re-launch that began in June 2018.
The below table sets forth selected unaudited pro forma financial information for the Company as if Emotion Fashion Group was owned for the entire three and six months ended June 30, 2018 and 2017.
The unaudited pro forma information set forth above is for informational purposes only. The pro forma information should not be considered indicative of actual results that would have been achieved if the EAI acquisition had occurred on January 1, 2017. The unaudited supplemental pro forma financial information was calculated by combining the Company’s results with the stand-alone results of EAI for the identified periods, which were adjusted for certain transactions and other costs that would have been occurred during this pre-acquisition period. |
Summary of Significant Accounting Policies |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies |
NOTE 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. Notes to the unaudited interim condensed consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2017 have been omitted. This report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2017 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on April 16, 2018.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries 12HK, 12JP, 12EU. 12 Retail and Emotion Fashion Group which includes E-motion 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. 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.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current period presentation.
Software Development Costs
At June 30, 2018 and December 31, 2017, software development costs totaled $133,240 and $0, respectively. Capitalized costs related to the software under development are treated as an asset until the development is completed and the software is available for sale. The Company will amortize the software costs on a straight-line basis over the estimated life of the software product’s expected life cycle, commencing when the software is first available for general release to customers.
Goodwill
Goodwill represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. The goodwill amount of $551,111 at June 30, 2018 relates to the acquisitions of Emotion Fashion Group. Goodwill is not amortized, but is tested annually for impairment, or if circumstances occur that more likely than not reduce the fair value of the reporting unit below its carrying amount. The Company has determined that there has been no impairment of goodwill at June 30, 2018.
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606, “Revenue from Contracts with Customers.” The Company has evaluated the new guidance and its 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. The will be no change to the Company’s accounting policies.
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 expected term to interest expense in the consolidated statements of operations.
When a convertible preferred stock contains a BCF, after allocating the proceeds to the BCF, the resulting discount is either amortized over the period beginning when the convertible preferred stock is issued up to the earliest date the conversion feature may be exercised, or if the convertible preferred stock is immediately exercisable, the discount is fully amortized at the date of issuance. The amortization is recorded similar to a dividend.
Derivative Liabilities and Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Observable inputs are based on market data obtained from sources independent of our 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:
The Company carries certain derivative financial instruments using inputs classified as “Level 3” in the fair value hierarchy on the Company’s consolidated balance sheets.
The Company classified certain conversion features in the convertible notes issued during 2017 and 2018 as embedded derivative instruments due to down-round ratchet provisions and potential adjustments to conversion prices due to events of default and accordingly measures and carries the conversion features as derivative liabilities in the consolidated financial statements. Also, the Company determined that the certain notes should be measured and carried at fair value in the consolidated financial statements according to ASC 480, as they are settleable in a variable number of shares based on a fixed monetary amount known at inception. These fair value estimates were measured using inputs classified as “level 3” of the fair value hierarchy. We develop unobservable “level 3” inputs using the best information available in the circumstances, which might include our own data, or when we believe inputs based on external data better reflect the data that market participants would use, we base our inputs on comparison with similar entities. Due to the existence of down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, the Company decided a Monte Carlo Simulation model, which incorporates inputs classified as “level 3” was appropriate.
Key inputs used in the Monte Carlo Simulation model to determine the fair value of the embedded derivatives and notes at June 30, 2018 are as follows:
The “level 3” stock volatility assumption represents the range of the volatility curves used in the valuation analysis based on the actual volatility of the Company’s common stock. The risk-free interest rate is interpolated where appropriate and is based on treasury yields. The valuation model also included a “level 3” assumption the developed as to dates of potential future financings by the Company and potential events of default that may cause a reset of the conversion prices.
Beneficial Conversion Feature
If a conversion feature of convertible debt or preferred stock provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”).
A BCF related to debt is recorded by the Company as a debt discount. In those circumstances, the convertible debt is recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
A BCF related to preferred stock is recorded by the Company as a discount to preferred stock. In those circumstances, the convertible preferred stock is recorded net of the discount related to the BCF.
Commitments and Contingencies
The Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is redeemable by the holder at a future date. The Series D-1 Preferred Stock will be classified as temporary equity due to the fact that it is redeemable immediately.
Earnings per Share
The Company follows ASC 260, “Earnings per Share” (“EPS”), which requires presentation of basic EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation. In the accompanying financial statements, basic earnings (loss) per share are computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s earnings subject to anti-dilution limitations. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact. For the six and three months ended June 30, 2018 and 2017, potentially dilutive common shares consist of common stock issuable upon the conversion of Series A Preferred Stock and Series B 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.
Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, due to stockholders and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements. |
Fixed Assets, Net |
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Fixed Assets, Net |
NOTE 6 – FIXED ASSETS, NET
Fixed assets, net at June 30, 2018 and December 31, 2017 consist of the following:
Depreciation expense for the three months ended June 30, 2018 and 2017 amount to $1,384 and $2,908, respectively. Depreciation expense for the six months ended June 30, 2018 and 2017 amounted to $2,533 and $6,100, respectively. |
Accounts Payable and Accrued Liabilities |
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Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Payable and Accrued Liabilities |
NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at June 30, 2018 and December 31, 2017 consists of the following:
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Stockholder Transactions |
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Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Stockholder Transactions |
NOTE 8 - STOCKHOLDER TRANSACTIONS
Due to stockholders at June 30, 2018 and December 31, 2017 consists of the following:
On August 12, 2017, Gianni Ponzetta loaned CHF 60,000 ($62,946 at June 30, 2018 and $61,584 at December 31, 2017) to the Company, which is included in the June 30, 2018 and December 31, 2017 totals. The promissory note is unsecured, bears interest at 1% per annum and is due December 31, 2019.
The other amounts due to stockholders are non-interest bearing, unsecured and due on demand.
During the six months ended June 30, 2018 and 2017, total advances and expenses paid directly by stockholders on behalf of the Company were $62,326 and $40,766, respectively, and the Company repaid $16,931 and $0, respectively. |
Convertible Notes Payable |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Notes Payable |
NOTE 9 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable at June 30, 2018 and December 31, 2017 which consists of the following:
For the three months ended June 30, 2018 and 2017, the Company recognized interest expense of $641,933 and $0 respectively, all of which represented the amortization of original issue discounts, debt discounts and beneficial conversion features. The issue discounts and debt discounts are being amortized over the life of the notes using straight line amortization due to the short term nature of the note. Remaining issue discounts and debt discounts of $206,627 will be fully amortized by May 2019.
For the six months ended June 30, 2018 and 2017, the Company recognized interest expense of $789,883 and $0 respectively, all of which represented the amortization of original issue discounts, debt discounts, derivative liabilities, beneficial conversion features and accrued interest.
The following is the change in derivative liability for the six months ended June 30, 2018:
The Company recognized a change in derivative liability of $933,411 for the period ended June 30, 2018. The derivative liability was determined using the Monte Carlo valuation method as of June 30, 2018.
The Company classified certain conversion features in the convertible notes issued during 2017 and 2018 as embedded derivative instruments due to variable conversion prices without a floor, down-round ratchet provisions and potential adjustments to conversion prices due to events of default and accordingly measures and carries the conversion features as derivative liabilities in the consolidated financial statements. Most derivative liabilities were triggered in June 2018, when the notes first became convertible. Also, the Company determined that the certain notes should be measured and carried at fair value in the consolidated financial statements according to ASC 480, as they are settleable in a variable number of shares based on a fixed monetary amount known at inception. These fair value estimates were measured using inputs classified as “level 3” of the fair value hierarchy. We develop unobservable “level 3” inputs using the best information available in the circumstances, which might include our own data, or when we believe inputs based on external data better reflect the data that market participants would use, we base our inputs on comparison with similar entities. Due to the existence of down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, the Company decided a Monte Carlo Simulation model, which incorporates inputs classified as “level 3” was appropriate.
Key inputs used in the Monte Carlo Simulation model to determine the fair value of the embedded derivatives and notes at June 30, 2018 are as follows:
The “level 3” stock volatility assumption represents the range of the volatility curves used in the valuation analysis based on the actual volatility of the Company’s common stock. The risk-free interest rate is interpolated where appropriate and is based on treasury yields. The valuation model also included a “level 3” assumption the developed as to dates of potential future financings by the Company and potential events of default that may cause a reset of the conversion prices.
September 15, 2017 Note
On September 15, 2017, the Company entered into the promissory note agreement with SBI Investments LLC (“SBI”) for loans up to a maximum 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, resulting in a potential original issuance discount (“OID”) of up to $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 into shares of the Company’s common stock at any time on or after the occurrence of an event of default. The conversion price shall be the 60% multiplied by the lowest trading price during the 30 trading days period ending, in holder’s sole discretion on each conversion, on either (i) the last complete trading day prior to the conversion date or (ii) the conversion date. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect.
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 and BCF of $133,333 as debt discounts.
On November 14, 2017, the Company issued an additional promissory note of $187,500 and received cash of $150,000 and recognized OID of $37,500 and a BCF of $125,000 as debt discounts.
On March 30, 2018, the Company entered into an amendment of this note as it was originally due March 15, 2018, which indicates that a $200,000 tranche is now eligible for conversion at a discount to market. The Company agreed to pay $25,000 to SBI for each 30-day extension as consideration. The extension amount is automatically added to the face value of the note after each 30-day period. SBI has agreed to a minimum of a 3-month extension under these same terms. The Company determined this amendment was a debt extinguishment and recognized a total of $50,000 and $75,000 as a loss on debt extinguishment for the three and six months ended June 30, 2018. For the additional $75,000 of principal added to the balance of the note, an additional BCF of $50,000 was recorded as debt discount.
As of June 30, 2018, the Company has determined that there is no reset for the conversion terms of the note. As of the June 30, 2018, the Company recognized a derivative liability of $290,114 and $268,674 on each tranche of the notes respectively. As a subsequent event, on July 12, 2018, SBI converted $19,990 of this note for 510,204 shares of common stock.
December 8, 2017 Note
On December 8, 2017, the Company entered into the promissory note agreement with LG Capital Funding, LLC (“LG”) for loans totaling $185,292. The consideration to the Company is $158,824 resulting in a 15% OID. The maturity As date for each note is six months from the date of issuance. The Company shall pay a one-time interest charge of 9% of the principal amount for each note. The notes may be converted at any time after the maturity date. The conversion price shall be 75% multiplied by the lowest trading price during the 10 prior trading days period ending on either (i) the last complete trading day prior to conversion date or (ii) the conversion date. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect. As additional consideration for the purchase of the notes, the Company issued to LG 121,903 shares of our common stock each on January 13, 2018 and February 1, 2018, for a total of 243,806 shares, with a value equal to $46,323, based on the previous day closing price.
The first note of $92,646 was issued on December 8, 2017. The Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $28,667 as debt discount. The one-time interest charge of 9% of the principal amount of the note was due on January 1, 2018. In addition, the Company recorded $46,323 as debt discount for the issuance of the common shares.
On January 10, 2018, LG funded their “back end note” which is the second half commitment from the agreements. The Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $61,764 as debt discounts. The one-time interest charge of 9% of principal amount of the note was due on February 1, 2018.
As of June 30, 2018, as a result of reset features the conversion price shall be 60% multiplied by the lowest traded price during the 10 prior trading day period ending on either (i) the last complete trading day prior to the conversion date or (ii) the conversion date.
As of June 30, 2018, the company recognized a derivative liability of $78,277.
As a subsequent event, on July 12, 2018, LG converted $6,289 of the note for 127,056 shares of common stock and on July 24, 2018, LG converted $6,289 of the note for 239,592 shares of common stock.
December 8, 2017 Note
On December 8, 2017, the Company entered into the promissory note agreement with Cerberus Finance Group Ltd. (“Cerberus”) for loans totaling $185,292. The consideration to the Company is $158,824 resulting in a 15% OID. The maturity date for each note is six months from the date of issuance. The Company shall pay a one-time interest charge of 9% of the principal amount for each note. The notes may be converted at any time after the Maturity Date. The conversion price shall be the 75% multiplied by the lowest trading price during the 10 prior trading days period ending on either (i) the last complete trading day prior to conversion date or (ii) the conversion date. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect. As additional consideration for the purchase of the notes, the Company issued to Cerberus 121,903 shares of our common stock each on January 13, 2018 and February 1, 2018, for a total of 243,806 shares, with a value equal to $46,323, based on the previous day closing price.
The first note of $92,646 was issued on December 8, 2017. The Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $28,667 as debt discounts. The one-time interest charge of 9% of the amount of the Note was due on January 1, 2018. In addition, the Company recorded $46,323 as debt discount for the issuance of the common shares.
On January 11, 2018, Cerberus funded their “back end note” which is the second half commitment from the agreements. The Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $61,764 as debt discounts. The one-time interest charge of 9% of the principal amount of the note was due on February 1, 2018.
As of June 30, 2018, as a result of reset features the conversion price shall be 60% multiplied by the lowest traded price during the 10 prior trading day period ending on either (i) the last complete trading day prior to the conversion date or (ii) the conversion date.
As of June 30, 2018, the Company recognized a derivative liability of $78,277.
As a subsequent event, on July, 24, 2018, Cerberus converted $ 4,533 of the note for 100,740 shares of common stock.
March 15, 2018 Note
On March 14, 2018, the Company entered into a into the promissory note agreement with Eagle Equities, LLC (“Eagle”) for loans totaling $100,000. The consideration to the Company is $95,000 resulting in a 5% OID. The maturity date of each note is one year from the date of issuance. The notes carry an interest rate of 12% per annum and interest payments are to be made in common shares of the Company. The conversion price of the note is 60% multiplied by the lowest trading price of the Common Stock for the ten prior trading days and the holder can convert the note at the earlier of an uncured default or 181 days from issuance. The note may be redeemed by the Company at rates ranging from 105% to 130% depending on the redemption date provided that no redemption is allowed after the 180th day. All terms of the note, including but not limited to interest rate, prepayments 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. As additional consideration, the Company is to issue to Eagle Equities, LLC shares of common stock with a value equal to 25% of each note, determined at the time of signing of each note.
The first note of $50,000 was issued on March 15, 2018. The Company received cash of $47,500 and recognized financing cost of $2,500 and a BCF of $33,333 as debt discounts. The Company issued to Eagle Equities, LLC 137,363 shares of common stock with a value equal to $12,500. The Company recorded $12,500 as debt discount for the issuance of the common shares. Eagle Equities has LLC has not yet funded the back end note for the remaining $50,000 at this time.
As of June 30, 2018, the Company recognized a derivative liability of $40,640.
March 15, 2018 Note
On March 14, 2018, the Company entered into a into the promissory note agreement with with Adar Bays Capital, LLC (“Adar Bays Capital”) for loans totaling totaling $100,000. The consideration to the Company is $95,000 resulting in a 5% OID. The maturity date of each note is one year from the date of issuance. The notes carry an interest rate of 12% per annum and interest payments are to be made in common shares of the Company. The conversion price of the note is 60% multiplied by the lowest trading price of the Common Stock for the ten prior trading days and the holder can convert the note at the earlier of an uncured default or 181 days from issuance. The note may be redeemed by the Company at rates ranging from 105% to 130% depending on the redemption date provided that no redemption is allowed after the 180th day. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward in the Company offers more favorable terms to another party, while this note is in effect. As additional consideration, the Company is to issue to Adar Bays Capital shares of common stock with a value equal to 25% of each note, determine at the time of signing of each note.
The first note of $50,000 was issued on March 15, 2018. The Company received cash of $47,500 and recognized financing cost of $2,500 and a BCF of $33,333 as debt discounts. The Company issued to Adar Bays Capital 137,363 shares of our common stock with a value equal to $12,500. The Company recorded $12,500 as debt discount for the issuance of the common shares. Adar Bays Capital, LLC has not yet funded the back end note for the remaining $50,000 at this time.
As of June 30, 2018, the Company recognized a derivative liability of $40,640.
April 27, 2018 Note
On April 27, 2018 the Company entered into a Securities Purchase Agreement with Auctus Fund, LLC (“Auctus”) whereby the Company issued to a 9% Convertible Note (“Note”) to Auctus n the principal amount of $100,000 and a maturity date of January 25, 2019. The conversion price of the Note is $0.05 per share, provided, however, that on or after the earlier of an event of default or 181 days after issuance date, the conversion price shall equal the lesser of (i) $0.05 per share, (ii) the lowest trading price during the previous twenty days ending on the last trading day prior to the date of the note, and (iii) 60% of the lowest trading price of the Common stock for the twenty prior trading days prior to the conversion date. Auctus can convert the Note, at any time, after issuance until the maturity date or the date payment of the default amount. All the terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward in the Company offers more favorable terms to another party, while this note is in effect.
The note of $100,000 was issued on April 27, 2018. The Company received cash of $90,000 and recognized financing cost of $10,000 and a BCF of $28,400 as debt discounts. In addition, the Company issued to Auctus 700,000 shares of our common stock with a value equal to $61,600 as a commitment/collateral fee. The Company recorded $61,600 as debt discount for the issuance of the common shares.
As of June 30, 2018, the Company recognized a derivative liability of $46,366.
May 15, 2018 Note
On May 15, 2018 the Company entered into 2018 the Company entered into a Securities Purchase Agreement with Bellridge Capital, LP (“Bellridge”) whereby the Company issued to a 10% Convertible Note (“Note”) to Bellridge in the principal amount of $60,000 and a maturity date of May 15, 2019. The conversion price of the Note is the lower of $0.08 per share or 60% of the lowest trading price during the previous twelve days ending on the last trading prior to the date of the delivery of the notice of conversion. Bellridge can convert the Note at any time after issuance until the maturity date or the date payment of the default amount. The note may be redeemed by the Company at rates ranging from 120% to 150% depending on the redemption date. The conversion price will be reduced to equal the effective price per share of any common stock or common stock equivalent issuances while the note or any amounts accrued remain outstanding.
The note of $60,000 was issued on May 15, 2018. The Company received cash of $50,000 and recognized financing cost of $10,000 and a BCF of $50,000 as debt discounts.
As of June 30, 2018, as a result of the reset features of the note the conversion price is assumed to be $0.01 due to a stock issuance at that price.
As of June 30, 2018, the Company recognized a derivative liability of $90,423. |
Note Payable |
6 Months Ended |
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Jun. 30, 2018 | |
Debt Disclosure [Abstract] | |
Note Payable |
NOTE 10 – NOTE PAYBLE
On May 1, 2018, 12 ReTech acquired Emotion Fashion Group, Inc. As part of the acquisition, Emotion Fashion Group was obligated under a note payable to a third party in the amount of $250,000, maturing in July 2027 and bearing a 2% interest rate. The note calls for monthly payments to be made to the third party equal to ten percent (10%) of the gross sales of the Company until paid in full, including accrued interest. When the note was acquired, the Company recorded the note at its fair market value of $148,051. The note discount is being amortized to interest expense through maturity. Debt discount amortized amounted to $1,854 for both the three and six months ended June 30, 2018. |
Prefered Stock and Stockholders' Deficit |
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Equity [Abstract] | ||||||||||
Prefered Stock and Stockholders' Deficit |
NOTE 11 – PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
Amendments to Articles of Incorporation
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. The Board of Directors acted to create new series of preferred stock, entitled Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock.
Effective March 14, 2018, the Company filed a Certificate of Amendment to its Articles of Incorporation with the state of Nevada to increase the number of authorized shares of capital stock to 1,050,000,000 shares. The Company increased the number of authorized shares of common stock to 1,000,000,000. There was no change to the number of shares of authorized preferred stock.
PREFERRED STOCK
The Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to and imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series.
Commitment and Contingencies
The Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is mandatorily redeemable by the holder at a future date. When issued, the Series D-1 Preferred Stock will be classified as temporary Series D-1 as temporary equity due to the fact that redeemable immediately.
Series A Preferred Stock
There were no issuances of the Series A Preferred Stock during the six months ended June 30, 2018
As of June 30, 2018, and December 31, 2017, 5,000,000 shares of Series A Preferred Stock were issued and outstanding.
As a subsequent event, on July 19, 2018, 1,500,000 shares of Series A Preferred Stock were issued as compensation for services.
Series B Preferred Stock
During the six months ended June 30, 2018, the Company issued Series B Preferred Stock as follows,
As of June 30, 2018 and December 31, 2017, 266,000 and 0 shares of Series B Preferred Stock were issued and outstanding and a related discount of $99,533, respectively.
As a subsequent event on, on July 31, 2018 Geneva converted 15,000 shares of Series B preferred shares to 732,783 shares of common stock and on August 14, converted an addition 15,000 shares of Series B preferred shares for 1,500,708.
Series C Preferred Stock
There were no issuances of the Series C Preferred Stock during the six months ended June 30, 2018.
As a subsequent event, 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 has no equity value, no preference in liquidation and is not convertible into common shares, but authorizes the holder to vote one billion votes on any matter that shareholders are entitled to vote for under our Bylaws at a cost of $1.00 per share. The Board believes 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.
Series D Preferred Stock
Series D Preferred stock are Blank Check Preferred which allows the Board of Directors to subdivide and/or determine the rights, privileges and other features of this stock. On July 13, 2018, the Company filed an amended certificate of designations increasing the authorized Series D preferred shares from 1 million to 10 million, as a reallocation of the 50 million Preferred Shares authorized. All of these 10 million Series D preferred shares are part of the 50 million authorized preferred shares. 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 (see below)
Series D-1 Preferred Stock, as a subsequent event on July 2, 2018, the Company entered in to Equity Line of Credit agreement with Oasis Capital, LLC (“Oasis Agreement”) and as a part of that Agreement the Company created a subset series D-1 preferred stock from the authorized series D preferred shares having special rights and privileges as follows:
The total number of shares of Series D-1 Preferred Stock issued was 311,250 shares, with a par value of $0.0001 per share and a stated value of $2.00 per share (the “Stated Value”). The Series D-1 Preferred Stock as a whole, of which Series D-1 is a subset, has such powers, preferences, rights and restrictions which shall be determined by the Company’s Board of Directors in its sole discretion, and which designations and issuances shall not require the approval of the shareholders of the Company.
The Series D-1 Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends and right of liquidation with the Company’s Common Stock, (b) junior with respect to dividends and right of liquidation with the Company’s Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock; and (c) junior with respect to dividends and right of liquidation to all existing and future indebtedness of the Company. Until twelve months following the issuance of the shares, without the prior written consent of 100% of the holders of the outstanding shares of Series D-1 Preferred Stock, the Company may not issue any Preferred Stock that is senior to the Series D-1 Preferred Stock in right of dividends and liquidation. Without the prior written consent of 100% of the holders of the outstanding shares of Series D-1 Preferred Stock, the Company may not issue or incur any indebtedness or other obligation to pay month that is convertible into or exchangeable for shares of Common Stock (or into or for any other security that is convertible into or exchangeable for shares of Common Stock).
Upon any liquidation, dissolution or winding-down of the Company, the holders of the shares of Series D-1 Preferred Stock shall be paid in cash, before any payment shall be paid to the holders of Common Stock, or any other Junior Securities, an amount for each share of Series D-1 Preferred Stock held by such holder equal to 140% of the Stated Value thereof plus any dividends accrued but unpaid thereon.
Each share of Series D-1 Preferred Stock together with accrued but unpaid dividends thereon shall be convertible at the option of the holder thereof, in whole or in part, at any time, without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Stated Value per share being converted plus accrued and unpaid dividends thereon by the Series D-1 Conversion Price in effect at the time of conversion. The “Series D-1 Conversion Price” per share of Common Stock shall be the lowest traded price of the Common Stock during the thirty (30) trading day period ending, in Holder’s sole discretion on each conversion, on either (i) the last complete trading day prior to the Conversion Date or (ii) the Conversion Date (subject to adjustment as provided therein).
Series D-1 Preferred Stock shall be non-voting except on certain major corporate actions or as required by law. In the event of such a right to vote, each holder of Series D-1 Preferred Stock shall have the right to the number of votes equal to the number of Conversion Shares then issuable upon conversion of the Series D-1 Preferred Stock held by such holder.
Before any dividends shall be paid or set aside for payment on any Junior Security of the Company, each holder of the Series D-1 Preferred Stock shall be entitled to receive dividends, in the manner provided herein, payable on the Stated Value of the Series D-1 Preferred Stock at a rate of 8% per annum, which shall be cumulative and be due and payable in shares of Common Stock on the Conversion Date. Such dividends shall accrue from the date of issue of each share of Series D-1 Preferred Stock, whether or not declared.
Shares of the Series D-1 Preferred Stock shall be redeemable, in whole or in part, at the option of the Company, by resolution of its Board of Directors, in cash, at any time during the initial 60 calendar day period after the issuance of the respective Series D-1 Preferred Stock, subject to the Redemption Notice requirements below, at a price per share equal to 125% of the Stated Value plus the amount of accrued but unpaid dividends thereon, provided, however, that 125% shall be replaced with 140% if the Company exercises its option to redeem the Series D-1 Preferred Stock after the initial 60 calendar day period.
As a subsequent event, on July 2, 2018, the Company reserved of 20,000,000 shares of our common stock to 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 the 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.
As a subsequent event, 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.
As a subsequent event, on August 7, 2018, there were 311,250 shares of Series D Preferred Stock outstanding all, of which are the series D-1 preferred shares at par value of $2 per share total $622,500. The Series D-1 Preferred Stock will be classified Series D-1 as temporary equity due to the fact that redeemable immediately.
There were no other issuances of the Series D or Series D-1 Preferred Stock during the six months ended June 30, 2018.
Common Stock
The Company is authorized to issue 1,000,000,000 shares of common stock at a par value of $0.00001.
Common stock issued for the six months ended June 30, 2018 was as follows:
As described above, the Company issued 1,000,000 shares for the acquisition of EAI.
The Company issued 3,125,000 shares to a stakeholder for total proceeds of $500,000. The Company received $100,000 at issuance and is to receive $400,000 in payments from June 2018 through October 2018. At June 30, 2018, the Company was owed $320,000 and such amount is reflected as a subscription receivable in stockholders’ deficit on the consolidated balance sheet.
In June 2018, the same stakeholder as described above, who joined the advisory board in June 2018, purchased an additional 3,125,000 shares at a discounted price of $0.01 per share. As a result of the discount, the Company recognized stock compensation of $218,750 for both the three and six months ended June 30, 2018.
As discussed above, the Company issued 1,462,338 shares with the convertible debt.
The Company issued 2,933,332 shares to various consultants and recognized stock compensation expense of $230,004 for both the three and six months ended June 30, 2018.
As of June 30, 2018, and December 31, 2017, 93,845,670 and 82,200,000 shares of common stock were issued and outstanding, respectively. |
Segments |
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segments |
NOTE 12 - SEGMENTS
The Company does business on three continents (Asia, North America and Europe) in four different jurisdictions (Hong Kong-special economic zone of the People’s Republic of China, Japan, United States of America, and The European common market through Switzerland). These segments are components of the Company about which separate financial information is available and regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The accounting policies of the segments are the same as those described in Note 3, Summary of Significant Accounting Policies.
The following table shows operating activities information by geographic segment for the three and six months ended June 30, 2018 and 2017.
The following table shows assets information by geographic segment at June 30, 2018 and December 31, 2017.
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Subsequent Events |
6 Months Ended |
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Jun. 30, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events |
NOTE 13 - SUBSEQUENT EVENTS
The Company evaluated all events and transactions that occurred after June 30, 2018 and through the date of this filing in accordance with FASB ASC 855, “Subsequent Events.” The Company determined that it does have a material subsequent events to disclose as follows:
Subsequent Events:
On July 2, 2018, the Company reserved of 20,000,000 shares of our common stock to 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 the 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 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 July 2, 2018, the Board designated three hundred eleven thousand two hundred fifty (311,250) Series D-1 Preferred Shares of which all are currently issued and outstanding and designated and issued as part of the Oasis agreement. The Company filed an amended certificate of designations increasing the authorized Series D preferred shares from 1 million to 10 million. All of these 10 million series D preferred shares are part of the 50 million authorized preferred shares. On July 2, 2018, the company filed a certificate of designation to create a subset of the Series D Preferred Stock designated Series D-1 (see below)
Series D-1 Preferred Stock. As a subsequent event on July 2, 2018 The Company entered in to Equity Line of Credit agreement with Oasis Capital, LLC (“Oasis Agreement”) and as a part of that Agreement the Company created a subset series D-1 preferred stock from the authorized series D preferred shares having special rights and privileges
The total number of shares of Series D-1 Preferred Stock this Company is authorized to issue 311,250 shares, with a par value of $0.0001 per share and a stated value of $2.00 per share (the “Stated Value”). The Series D 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.
The Series D-1 Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends and right of liquidation with the Company’s Common Stock, (b) junior with respect to dividends and right of liquidation with the Company’s Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock; and (c) junior with respect to dividends and right of liquidation to all existing and future indebtedness of the Company. Without the prior written consent of Holders holding a majority of the outstanding shares of Series D-1 Preferred Stock, the Company may not issue any Preferred Stock that is senior to the Series D-1 Preferred Stock in right of dividends and liquidation. Until twelve months following the issuance of the shares, without the prior written consent of 100% of the holders of the outstanding shares of Series D-1 Preferred Stock, the Company may not issue any Preferred Stock that is senior to the Series D-1 Preferred Stock in right of dividends and liquidation. Without the prior written consent of 100% of the holders of the outstanding shares of Series D-1 Preferred Stock, the Company may not issue or incur any indebtedness or other obligation to pay month that is convertible into or exchangeable for shares of Common Stock (or into or for any other security that is convertible into or exchangeable for shares of Common Stock).
Upon any liquidation, dissolution or winding-down of the Company, the holders of the shares of Series D-1 Preferred Stock shall be paid in cash, before any payment shall be paid to the holders of Common Stock, or any other Junior Securities, an amount for each share of Series D-1 Preferred Stock held by such holder equal to 140% of the Stated Value thereof plus any dividends accrued but unpaid thereon.
Each share of Series D-1 Preferred Stock together with accrued but unpaid dividends thereon shall be convertible at the option of the holder thereof, in whole or in part, at any time, without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Stated Value per share being converted plus accrued and unpaid dividends thereon by the Series D-1 Conversion Price in effect at the time of conversion. The “Series D-1 Conversion Price” per share of Common Stock shall be the lowest traded price of the Common Stock during the thirty (30) trading day period ending, in Holder’s sole discretion on each conversion, on either (i) the last complete trading day prior to the Conversion Date or (ii) the Conversion Date (subject to adjustment as provided therein).
Series D-1 Preferred Stock shall be non-voting except on certain major corporate actions or as required by law. In the event of such a right to vote, each holder of Series D-1 Preferred Stock shall have the right to the number of votes equal to the number of Conversion Shares then issuable upon conversion of the Series D-1 Preferred Stock held by such holder.
Before any dividends shall be paid or set aside for payment on any Junior Security of the Company, each holder of the Series D-1 Preferred Stock shall be entitled to receive dividends, in the manner provided herein, payable on the Stated Value of the Series D-1 Preferred Stock at a rate of 8% per annum, which shall be cumulative and be due and payable in shares of Common Stock on the Conversion Date. Such dividends shall accrue from the date of issue of each share of Series D-1 Preferred Stock, whether or not declared.
Shares of the Series D-1 Preferred Stock shall be redeemable, in whole or in part, at the option of the Company, by resolution of its Board of Directors, in cash, at any time during the initial 60 calendar day period after the issuance of the respective Series D-1 Preferred Stock, subject to the Redemption Notice requirements below, at a price per share equal to 125% of the Stated Value plus the amount of accrued but unpaid dividends thereon, provided, however, that 125% shall be replaced with 140% if the Company exercises its option to redeem the Series D-1 Preferred Stock after the initial 60 calendar day period.
On August 6, 2018, the Board of Directors of 12 ReTech corporation issuanced one (1) share of our Series C Preferred Shares to the founder, Angelo Ponzetta, effective August 14, 2018. The series C Preferred Shares has no equity value, no preference in liquidation and is not convertible into common shares, but authorizes the holder to vote one billion votes on any matter that shareholders are entitled to vote for under our Bylaws at a cost of $1.00 per share. The Board believes 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 which, as evidenced by their investment into the Company. To ensure that the founder’s vision is maintained, it is necessary that no outside person or group can gain voting control from the founder as the Company. |
Summary of Significant Accounting Policies (Policies) |
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation |
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. Notes to the unaudited interim condensed consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2017 have been omitted. This report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2017 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on April 16, 2018. |
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Principles of Consolidation |
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries 12HK, 12JP, 12EU. 12 Retail and Emotion Fashion Group which includes E-motion 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. We currently have no investments accounted for using the equity or cost methods of accounting. |
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Use of Estimates |
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. |
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Reclassifications |
Reclassifications
Certain prior period amounts have been reclassified to conform with the current period presentation. |
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Software Development Costs |
Software Development Costs
At June 30, 2018 and December 31, 2017, software development costs totaled $133,240 and $0, respectively. Capitalized costs related to the software under development are treated as an asset until the development is completed and the software is available for sale. The Company will amortize the software costs on a straight-line basis over the estimated life of the software product’s expected life cycle, commencing when the software is first available for general release to customers. |
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Goodwill |
Goodwill
Goodwill represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. The goodwill amount of $551,111 at June 30, 2018 relates to the acquisitions of Emotion Fashion Group. Goodwill is not amortized, but is tested annually for impairment, or if circumstances occur that more likely than not reduce the fair value of the reporting unit below its carrying amount. The Company has determined that there has been no impairment of goodwill at June 30, 2018. |
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Revenue Recognition |
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606, “Revenue from Contracts with Customers.” The Company has evaluated the new guidance and its 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. The will be no change to the Company’s accounting policies. |
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Convertible Debt and Convertible Preferred Stock |
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. |
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Derivative Liabilities and Fair Value Measurements |
Derivative Liabilities and Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Observable inputs are based on market data obtained from sources independent of our 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:
The Company carries certain derivative financial instruments using inputs classified as “Level 3” in the fair value hierarchy on the Company’s consolidated balance sheets.
The Company classified certain conversion features in the convertible notes issued during 2017 and 2018 as embedded derivative instruments due to down-round ratchet provisions and potential adjustments to conversion prices due to events of default and accordingly measures and carries the conversion features as derivative liabilities in the consolidated financial statements. Also, the Company determined that the certain notes should be measured and carried at fair value in the consolidated financial statements according to ASC 480, as they are settleable in a variable number of shares based on a fixed monetary amount known at inception. These fair value estimates were measured using inputs classified as “level 3” of the fair value hierarchy. We develop unobservable “level 3” inputs using the best information available in the circumstances, which might include our own data, or when we believe inputs based on external data better reflect the data that market participants would use, we base our inputs on comparison with similar entities. Due to the existence of down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, the Company decided a Monte Carlo Simulation model, which incorporates inputs classified as “level 3” was appropriate.
Key inputs used in the Monte Carlo Simulation model to determine the fair value of the embedded derivatives and notes at June 30, 2018 are as follows:
The “level 3” stock volatility assumption represents the range of the volatility curves used in the valuation analysis based on the actual volatility of the Company’s common stock. The risk-free interest rate is interpolated where appropriate and is based on treasury yields. The valuation model also included a “level 3” assumption the developed as to dates of potential future financings by the Company and potential events of default that may cause a reset of the conversion prices. |
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Beneficial Conversion Feature |
Beneficial Conversion Feature
If a conversion feature of convertible debt or preferred stock provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”).
A BCF related to debt is recorded by the Company as a debt discount. In those circumstances, the convertible debt is recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
A BCF related to preferred stock is recorded by the Company as a discount to preferred stock. In those circumstances, the convertible preferred stock is recorded net of the discount related to the BCF. |
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Commitments and Contingencies |
Commitments and Contingencies
The Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is redeemable by the holder at a future date. The Series D-1 Preferred Stock will be classified as temporary equity due to the fact that it is redeemable immediately. |
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Earnings Per Share |
Earnings per Share
The Company follows ASC 260, “Earnings per Share” (“EPS”), which requires presentation of basic EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation. In the accompanying financial statements, basic earnings (loss) per share are computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s earnings subject to anti-dilution limitations. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact. For the six and three months ended June 30, 2018 and 2017, potentially dilutive common shares consist of common stock issuable upon the conversion of Series A Preferred Stock and Series B 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. |
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Financial Instruments |
Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, due to stockholders and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments. |
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Recent Accounting Pronouncements |
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements. |
Nature of Business (Tables) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Principal Subsidiaries |
The details of the principal subsidiaries of the Company are set out as follows:
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Restatement of Previously Issued Unaudited Interim Consolidated Financial Statements (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Changes and Error Corrections [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Restatement to Previously Reported Year Income |
The following summarizes the impact of the Restatement on our previously reported unaudited interim Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income, and Consolidated Statements of Cash Flows for the three and six months ended June 30, 2018.
Consolidated Balance Sheet June 30, 2018
Consolidated Statement of Operations
Consolidated Statement of Cash Flows
|
Acquisitions (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Assets Acquired and Liabilities Assumed |
As of May 1, 2018, the assets and net liabilities acquired were as follows:
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||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Proforma Financial Information |
The below table sets forth selected unaudited pro forma financial information for the Company as if Emotion Fashion Group was owned for the entire three and six months ended June 30, 2018 and 2017.
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Summary of Significant Accounting Policies (Tables) |
6 Months Ended | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | ||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||
Schedule of Fair Value of Embedded Derivatives |
Key inputs used in the Monte Carlo Simulation model to determine the fair value of the embedded derivatives and notes at June 30, 2018 are as follows:
|
Fixed Assets, Net (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fixed Assets, Net |
Fixed assets, net at June 30, 2018 and December 31, 2017 consist of the following:
|
Accounts Payable and Accrued Liabilities (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accounts Payable and Accrued Liabilities |
Accounts payable and accrued liabilities at June 30, 2018 and December 31, 2017 consists of the following:
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Stockholder Transactions (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Due to Stockholders |
Due to stockholders at June 30, 2018 and December 31, 2017 consists of the following:
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Convertible Notes Payable (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Convertible Notes Payable |
Convertible notes payable at June 30, 2018 and December 31, 2017 which consists of the following:
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Schedule of Changes in Derivatives Liabilities |
The following is the change in derivative liability for the six months ended June 30, 2018:
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Schedule of Fair Value of Embedded Derivatives |
Key inputs used in the Monte Carlo Simulation model to determine the fair value of the embedded derivatives and notes at June 30, 2018 are as follows:
|
Segments (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information |
The following table shows operating activities information by geographic segment for the three and six months ended June 30, 2018 and 2017.
The following table shows assets information by geographic segment at June 30, 2018 and December 31, 2017.
|
Nature of Business - Schedule of Principal Subsidiaries (Details) |
6 Months Ended |
---|---|
Jun. 30, 2018 | |
12 Retail Corporation [Member] | |
Name of Company | 12 Retail Corporation |
Place of Incorporation | Arizona, USA |
Date of Incorporation | Sep. 18, 2017 |
Acquisition Date | Formed by 12 Retech Corporation |
Attributable Equity Interest % | 100.00% |
Business | As a holding Company to execute the Company’s microbrand roll up acquisition strategy as well as to penetrate the North American market with our technology to select retailers. |
12 Hong Kong Limited [Member] | |
Name of Company | 12 Hong Kong |
Place of Incorporation | Hong Kong, China |
Date of Incorporation | Feb. 02, 2014 |
Acquisition Date | Jun. 27, 2017 |
Attributable Equity Interest % | 100.00% |
Business | Development of our technology and sales of our technology applications. |
12 Japan Limited [Member] | |
Name of Company | 12 Japan Limited |
Place of Incorporation | Japan |
Date of Incorporation | Feb. 12, 2015 |
Acquisition Date | Jul. 31, 2017 |
Attributable Equity Interest % | 100.00% |
Business | Consultation and sales of technology applications. |
12 Europe AG [Member] | |
Name of Company | 12 Europe AG |
Place of Incorporation | Switzerland |
Date of Incorporation | Aug. 22, 2013 |
Acquisition Date | Oct. 26, 2017 |
Attributable Equity Interest % | 100.00% |
Business | Consultation and sales of technology applications. |
E-motion Fashion Brands, Inc.F/K/A E-motion Apparel, Inc [Member] | |
Name of Company | E-motion Fashion Brands, Inc.F/K/A Emotion Apparel, Inc, Lexi-Luu Designs, Inc, Punkz Gear, Skipjack Dive and Dancewear, Cleo VII |
Place of Incorporation | Re-incorpora-ed, in Utah, USA F/K/I in California, USA |
Date of Incorporation | Sep. 09, 2010 |
Entity re-incorporation description | Reincorpor-ated on July 6, 2018 and changed its name on July 26 8, 2018 |
Acquisition Date | May 01, 2018 |
Attributable Equity Interest % | 100.00% |
Business | A subsidiary of 12 Retail and is the first microbrand acquired under the microbrand acquisition roll up strategy. Operates its own production facilities that can be utilized by all of the Company’s future microbrands. |
Restatement of Previously Issued Unaudited Interim Consolidated Financial Statements (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
May 01, 2018 |
Dec. 31, 2017 |
|
Accounting Changes and Error Corrections [Abstract] | ||||||
Change in derivative liability | $ 933,411 | $ 933,411 | ||||
Goodwill | $ 551,111 | $ 551,111 | $ 551,111 |
Going Concern (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | 46 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||
Net loss | $ (2,692,840) | $ (66,995) | $ (3,563,070) | $ (114,121) | $ 6,600,000 |
Acquisitions (Details Narrative) - USD ($) |
2 Months Ended | 3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|---|
May 01, 2018 |
Jun. 30, 2018 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Estimated useful lives of fixed assets | 5 years | |||||
Liabilities assumed | $ 534,593 | |||||
Revenues | $ 23,039 | $ 22,432 | $ 31,981 | $ 57,205 | ||
Net loss | (2,710,261) | $ 383,051 | (3,582,862) | $ 324,288 | ||
Third Party [Member] | ||||||
Fair value of fixed assets | $ 32,665 | 32,665 | 32,665 | |||
E-motion Apparel, Inc [Member] | ||||||
Number of common shares exchanges for acquisition | 1,000,000 | |||||
Ownership percentage | 100.00% | |||||
Value of shares issued on exchange | $ 80,000 | |||||
Emotion Fashion Group, Inc [Member] | ||||||
Liabilities assumed | $ 250,000 | $ 250,000 | $ 250,000 | |||
Interest rate | 2.00% | 2.00% | 2.00% | 2.00% | ||
Fair market value of notes | $ 148,051 | $ 148,051 | $ 148,051 | |||
Revenues | 897 | |||||
Net loss | $ 22,118 |
Acquisitions - Schedule of Assets Acquired and Liabilities Assumed (Details) - USD ($) |
Jun. 30, 2018 |
May 01, 2018 |
Dec. 31, 2017 |
---|---|---|---|
Business Combinations [Abstract] | |||
Cash | $ 779 | ||
Assets (except cash) | 62,704 | ||
Goodwill | $ 551,111 | 551,111 | |
Liabilities (Restated) | (534,593) | ||
Net assets acquired | $ 80,000 |
Acquisitions - Schedule of Proforma Financial Information (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Business Combinations [Abstract] | ||||
Revenues | $ 23,039 | $ 22,432 | $ 31,981 | $ 57,205 |
Net Loss | $ (2,710,261) | $ 383,051 | $ (3,582,862) | $ 324,288 |
Net Loss Per Share | $ (0.03) | $ 0.01 | $ (0.04) | $ 0.01 |
Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
Jun. 30, 2018 |
May 01, 2018 |
Dec. 31, 2017 |
---|---|---|---|
Accounting Policies [Abstract] | |||
Software development costs | $ 133,240 | ||
Goodwill | $ 551,111 | $ 551,111 |
Summary of Significant Accounting Policies - Schedule of Fair Value of Embedded Derivatives (Details) |
6 Months Ended | |||
---|---|---|---|---|
Jun. 30, 2018
$ / shares
| ||||
Volatility [Member] | Minimum [Member] | ||||
Fair value assumptions, measurement input, percentages | 139.00% | [1] | ||
Volatility [Member] | Maximum [Member] | ||||
Fair value assumptions, measurement input, percentages | 163.00% | [1] | ||
Risk Free Interest Rate [Member] | Minimum [Member] | ||||
Fair value assumptions, measurement input, percentages | 1.93% | |||
Risk Free Interest Rate [Member] | Maximum [Member] | ||||
Fair value assumptions, measurement input, percentages | 2.11% | |||
Common Stock Price [Member] | ||||
Fair value assumptions, measurement input, per share | $ .030 | |||
Conversion Price [Member] | ||||
Embedded derivative liability conversion price description | 25% - 55% discount to common stock price | |||
|
Fixed Assets, Net (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Property, Plant and Equipment [Abstract] | ||||
Depreciation expense | $ 1,384 | $ 2,908 | $ 2,533 | $ 6,100 |
Fixed Assets, Net - Schedule of Fixed Assets, Net (Details) - USD ($) |
Jun. 30, 2018 |
Dec. 31, 2017 |
Jun. 30, 2017 |
---|---|---|---|
Fixed assets gross | $ 87,850 | $ 44,411 | |
Less: accumulated depreciation | (46,691) | (35,796) | |
Fixed assets, net | 41,159 | 8,615 | $ 24,125 |
Office Equipment [Member] | |||
Fixed assets gross | 7,622 | 7,371 | |
Furniture and Equipment [Member] | |||
Fixed assets gross | 607 | 607 | |
Computer [Member] | |||
Fixed assets gross | 14,077 | 12,998 | |
Technical Equipment [Member] | |||
Fixed assets gross | 23,435 | 23,435 | |
Truck [Member] | |||
Fixed assets gross | 6,115 | ||
Machinery [Member] | |||
Fixed assets gross | $ 35,994 |
Accounts Payable and Accrued Liabilities - Schedule of Accounts Payable and Accrued Liabilities (Details) - USD ($) |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Payables and Accruals [Abstract] | ||
Accounts payable | $ 332,349 | $ 30,625 |
Accrued expenses | 566,031 | 66,931 |
Accrued interest | 60,993 | 8,348 |
Accounts payable and accrued liabilities | $ 959,373 | $ 105,904 |
Stockholder Transactions (Details Narrative) - USD ($) |
6 Months Ended | |||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
Aug. 12, 2017 |
|
Due to related parties | $ 62,326 | $ 40,766 | ||
Repayment of related party debt | (16,931) | |||
Gianni Ponzetta [Member] | ||||
Due to related parties | $ 62,946 | $ 61,584 | ||
Debt bearing interest rate | 1.00% | |||
Note payable due date | Dec. 31, 2019 | |||
Gianni Ponzetta [Member] | CHF [Member] | ||||
Due to related parties | $ 60,000 |
Stockholder Transactions - Schedule of Due to Stockholders (Details) - USD ($) |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Due to related parties | $ 714,521 | $ 669,126 |
Daniel Monteverde [Member] | ||
Due to related parties | 9,652 | 8,214 |
Angelo Ponzetta [Member] | ||
Due to related parties | 547,140 | 500,798 |
Gianni Ponzetta [Member] | ||
Due to related parties | $ 157,729 | $ 160,114 |
Convertible Notes Payable - Schedule of Convertible Notes Payable (Details) - USD ($) |
Jun. 30, 2018 |
Dec. 31, 2017 |
Nov. 14, 2017 |
Sep. 15, 2017 |
---|---|---|---|---|
Total convertible notes payable, gross | $ 1,093,084 | $ 572,792 | ||
Less: Unamortized debt discount | (206,627) | (164,545) | $ (37,500) | $ (40,000) |
Total convertible notes | 886,457 | 408,247 | $ 187,500 | $ 200,000 |
Less: current portion of convertible notes payable, net | 886,457 | 408,247 | ||
Long-term convertible notes payable | ||||
September 15, 2017 [Member] | ||||
Total convertible notes payable, gross | 462,500 | 387,500 | ||
December 8, 2017 [Member] | ||||
Total convertible notes payable, gross | 185,292 | 92,646 | ||
December 12, 2017 [Member] | ||||
Total convertible notes payable, gross | 185,292 | 92,646 | ||
March 15, 2018 [Member] | ||||
Total convertible notes payable, gross | 100,000 | |||
April 27, 2018 [Member] | ||||
Total convertible notes payable, gross | 100,000 | |||
May 17, 2018 [Member] | ||||
Total convertible notes payable, gross | $ 60,000 |
Convertible Notes Payable - Schedule of Changes in Derivatives Liabilities (Details) |
6 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Debt Disclosure [Abstract] | |
Balance - December 31, 2017 | |
Issuance of new derivative liabilities | 933,411 |
Conversions to Paid in Capital | |
Change in fair market value of derivative liabilities | |
Balance - September 30, 2018 | $ 933,411 |
Convertible Notes Payable - Schedule of Fair Value of Embedded Derivatives (Details) |
6 Months Ended | |||
---|---|---|---|---|
Jun. 30, 2018
$ / shares
| ||||
Volatility [Member] | Minimum [Member] | ||||
Fair value assumptions, measurement input, percentages | 139.00% | [1] | ||
Volatility [Member] | Maximum [Member] | ||||
Fair value assumptions, measurement input, percentages | 163.00% | [1] | ||
Risk Free Interest Rate [Member] | Minimum [Member] | ||||
Fair value assumptions, measurement input, percentages | 1.93% | |||
Risk Free Interest Rate [Member] | Maximum [Member] | ||||
Fair value assumptions, measurement input, percentages | 2.11% | |||
Common Stock Price [Member] | ||||
Fair value assumptions, measurement input, per share | $ .030 | |||
Conversion Price [Member] | ||||
Embedded derivative liability conversion price description | 25% - 55% discount to common stock price | |||
|
Note Payable (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
May 01, 2018 |
Jun. 30, 2018 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Amortization of discount | $ 834,966 | |||
Emotion Fashion Group, Inc [Member] | ||||
Debt principal amount | $ 250,000 | |||
Debt maturity description | maturing in July 2027 | |||
Debt interest rate | 2.00% | 2.00% | 2.00% | |
Percentage of gross sale | 10.00% | |||
Note fair market value | $ 148,051 | |||
Amortization of discount | $ 1,854 | $ 1,854 |
Segments - Schedule of Segment Reporting Information (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Revenue | $ 16,682 | $ 9,018 | $ 25,624 | $ 43,397 | |
Fixed assets, net | 41,159 | 24,125 | 41,159 | 24,125 | $ 8,615 |
Total assets | 800,901 | 154,286 | 800,901 | 154,286 | 132,486 |
North America [Member] | |||||
Fixed assets, net | 32,465 | 32,465 | |||
Total assets | 631,576 | 631,576 | |||
Asia [Member] | |||||
Fixed assets, net | 7,724 | 9,095 | 7,724 | 9,095 | |
Total assets | 166,086 | 153,898 | 166,086 | 153,898 | |
Europe [Member] | |||||
Fixed assets, net | 970 | 15,029 | 970 | 15,029 | |
Total assets | 3,239 | 388 | 3,239 | 388 | |
Operating Segments [Member] | |||||
Revenue | 16,682 | 9,018 | 25,624 | 43,397 | |
Fixed assets, net | 41,159 | 41,159 | 8,615 | ||
Total assets | 759,742 | 759,742 | 132,486 | ||
Operating Segments [Member] | North America [Member] | |||||
Revenue | 7,254 | 7,254 | |||
Fixed assets, net | 32,465 | 32,465 | |||
Total assets | 590,417 | 590,417 | 20,394 | ||
Operating Segments [Member] | Asia [Member] | |||||
Revenue | 9,390 | 9,018 | 18,332 | 43,397 | |
Fixed assets, net | 7,724 | 7,724 | 7,383 | ||
Total assets | 166,086 | 166,086 | 84,206 | ||
Operating Segments [Member] | Europe [Member] | |||||
Revenue | 38 | 38 | |||
Fixed assets, net | 970 | 970 | 1,232 | ||
Total assets | $ 3,239 | $ 3,239 | $ 27,886 |
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