12 RETECH CORPORATION 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", "12ReTech Corporation ", "12 ReTech", "RETC", "the Company", and similar terms refer to,12 ReTech Corporation . unless otherwise expressly stated or the context otherwise requires. This discussion contains forward-looking statements that involve risks and uncertainties.12 ReTech Corporation actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included elsewhere in this filing. Company
12 ReTech Corporation is a holding company with subsidiaries that develop, sell, and install software that we believe enhance the shopping experience for shoppers and retailers. As a holding company, we also acquire synergistic operating companies that manufacture and sell Fashion products to other retailers as well as selling products online. InOctober 2019 we also acquired retail stores in airport terminals and casinos to create a true Omni-Channel retailer. The plan was this would allow us to deploy our cutting-edge software inthe United States to demonstrate its effectiveness, as well as to test, real time new software products to continue to delight consumers and generate additional revenue and profits for retailers. During the 4th quarter 2019 and continuing in the first quarter 2020 and with the effects of the pandemic created by COVID-19, the Company consolidated operations around two operating entities; 12Tech, Inc. , formed inArizona onDecember 26, 2019 ("12 Tech") and 12Retail Corporation , formed onJune 27th, 2017 ("12 Retail").
12 Retail is itself divided into three operating units; 12 Retail,Bluwire Group, LLC ("Bluwire") that will operate our airport retail stores in airports, 12 Retail itself which will operate our casino store(s), and 12Fashion Group, Inc. that operates our fashion wholesale and direct to consumer brands, including Rune NYC, Social Sunday, Red Wire Design,Emotion Fashion Group . 12 Retail will serve to demonstrate the effectiveness of the software technology created by 12 Tech in improving revenues and profits for emailers as well as providing access to other retailers through our whole fashion business relationships. 12Tech, Inc , provides technology solutions to physical retailers currently mainly inAsia and is now positioned inthe United States market, the world's largest. We have consolidated or shuttered our international units focused on our technology deployment ("12Japan " and "12 Europe"), and consolidated our software company 12Hong Kong, Ltd ("12 HK") under 12 Tech to further streamline operations. As the retail environment continues to evolve, we as retailers and as primarily a technology company will evolve with it. We believe our developed software and those products in development will delight consumers, provide contactless experiential shopping, and bring revenue back to retailers as they combat the dual threat of Amazon and Walmart. Our software, once fully deployed and implemented, may provide retailers with another electronic and effective sales channel other than$1 million in quarterly revenues for the first time ($1,003,549 vs$ 19,105 in 2018). In the first quarter of 2020, the processes discussed here continued and accelerated until our business was interrupted by nationwide closures due to the COVID-19 pandemic. Management used this period once most operations were closed to more swiftly shutter unprofitable retail stores, close the unprofitableUtah factory, and further streamline operations which management believes may make the Company a much stronger player post COVID-19 pandemic. (See Risk Factors). During the 4th quarter of 2019 the company completed the last two acquisitions for the year (Bluwire Group, LLC & Social Decay d/b/a Social Sunday) and began to consolidate them into 12 Retail. 12 Retail was itself divided into two operating segments; Retail and Fashion. Angelo Ponzetta, our CEO who had 25 years of retail experience, was named as the acting CEO of Bluwire, andEmily Santamore , with over 10 years of experience in the fashion industry, was named President of 12Fashion Group, Inc. 21
Principal subsidiaries as
The details of the principal subsidiaries of the Company as ofDecember 31, 2020 , are set out as follows (additional consolidation may occur in the future): Name of Place of Date of Acquisition Attributable Company Incorporation Incorporation Date Equity Interest % Business As a holding Company to execute the Company's roll up acquisition strategy as well as to penetrate the North American market with our
12 Retail technology to select
Corporation Formed by retailers. Separated into two
("12 Sept. 18, 12 ReTech division: 12 Fashion Group,
Retail") Arizona, USA 2017 Corporation
100 % Inc., and
Operations are consolidated
into 12 Fashion Group , and
this company is closed, and we
filed a Chapter 11 Subsection
V on March 6, 2020 . This was
discharged on or aboutRed Wire February September 2020 and. is Group, LLC Utah, USA July 2, 2015 19, 2019
100 % permanently closed
Operated by 12 Fashion Group ,
Inc., an unincorporated
division of 12 Retail.
Operates contemporary women's
Rune NYC, March 14, 'Athleisure' brand which is
LLC New York, USA Jan 23, 2013 2019 92.5 % primarily sold to retailers.
Bluwire A subsidiary of 12 Retail with
Group, LLC October 1, 12 brick and mortar stores was
("Bluwire") Florida, USA Feb 1, 2010 2019 60.5 % acquired.
Social
Decay, LLC Operated by 12 Fashion Group
dba Social Inc., a division of 12 Retail.
Sunday Operates a contemporary
("Social New Jersey, November 1, women's clothing brand
Sunday") USA Sept 24, 2014 2019 100 % primarily sold to wholesalers.
As a holding Company to
Formed by execute the Company's
12 Tech Inc Arizona, USA Dec 26,2019 12 Retech 100 % technology strategy.
A subsidiary of 12 Tech Inc.
12 Hong Development and sales of
Kong technology applications.
Limited Hong Kong, February 2, June 27, Services customers in Asia,
("12HK") China 2014 2017
100 % including
A subsidiary of 12 Tech Inc.
Consultation and sales of
technology applications. As of
12 Japan June 2020, our Japanese
Limited February 12, July 31, customer (s) is serviced by 12
("12JP") Tokyo, Japan 2015 2017 100 % Hong Kong.
12 Europe August 22, October 26, As of September 2019, this
AG ("12EU") Switzerland 2013 2017 100 % company is closed.
Formed as a subsidiary of 12
Retech to hold and operate the
12 Fashion Formed by wholesale and Retail fashion
Group Inc Arizona, USA June 26, 2020 12 Retech 100 % and apparel operations.
12 Retail Corporation : a subsidiary of 12 ReTech Corporation Operates its own
retail store (as of March 2021 as a subsequent event) and manages two main
subsidiaries each of which have multiple subsidiaries; 12 Fashion Group, Inc and
Bluwire Group, LLC .
12
OnFebruary 19, 2019 we acquiredRed Wire Group, LLC . ("RWG") aUtah Limited Liability company pursuant to a Share Exchange Agreement whereby the Company exchanged and the members of RWG (the "Members") Pursuant to the terms of the Exchange Agreement, the Company will acquire (i) 75% of the membership interests of RWG in exchange for 54,000 shares of the Corporation's Series D-6 Preferred Stock and with a stated value of$5.00 (ii) the remaining 25% of the membership interests of RWG in exchange for 37,500 shares of the Corporation's Series D-5 Preferred Stock with a stated value of$4.00 per share, RWG operates its own "cut & sew" operation for independent third parties contract to produce cloths operating out of its factory inSalt Lake City, Utah . As of the end ofNovember 30, 2019 , we closed the factory inUtah while 12Fashion Group retained the customers by completing the orders in process. We were able to produce the products through 3rd party factories inNew York City andLos Angeles for less than it cost us to produce the products in our own factory inSalt Lake City, Utah . OnMarch 6, 2020 , the company filed a Chapter 11 Bankruptcy filing inPhoenix Arizona . This filing allowed us to sell the equipment we no longer need, pay off the secured creditors and shed all of Red Wire's debt from our balance sheet. The bankruptcy was discharged on or aboutSeptember 2020 and all debts were extinguished. 12Fashion Group continues to service those customers acquired as well as obtaining new accounts by marketing under the d/b/a Red Wire Designs. 22
- One
pursuant to a Share Exchange Agreement whereby the Company exchanged with the
members of Rune (the "Members"), the members of representing 92.5% of the
membership interests have agreed to tender their interests to the Corporation,
and the Corporation closed out the tender offer period and the Exchange
Agreement became effective. Accordingly, pursuant to the terms of the Exchange
Agreement, at closing the Company acquired 92.5% of the membership interests
of Rune in exchange for 82,588 shares of the Corporation's Series D-5
Preferred Stock with a stated value of
continued uninterrupted in
key employees as the leading part of 12 Fashion Group .
- On
Limited liability company, was acquired by the Company pursuant to a share
exchange agreement whereby the Company exchanged the Company's 30,000 D-6
Shares for 100% of the total outstanding equity of Social and the member of
Social (the "Member"). That Member was retained by the Company, but subsequent
to the year end on
the additional 12,000 D-6 Shares held in escrow as a performance incentive.
The D-6 shares have a face value of
the Company's common shares. Subsequent to year end in
print factory was closed in part due to the COVID-19 Pandemic. Social's
products are marketing and manufactured by the staff of 12
23
-
11 airport terminal locations and one casino location under an equity exchange
agreement. Under the terms of the Agreement the Company issued to the Sellers
500,000 Series A Preferred Shares in exchange for 51% of the equity in Bluwire
Bluwire and 19% is reserved for 12 months for potential equity investors into
Bluwire. Any of that equity not used to raise capital for Bluwire over that
period would be divided equally between the Company and the Sellers. No
capital was raised for
Corporation
- 12
and has a number of subsidiaries ("12Tech"). On
formed 12 Tech to spearhead the Company's software technology development and
to focus more effort on the largest retail market in the world: the United
States of America. The Company then closed or consolidated under 12 Tech all
its other software technology companies and maintains the following
subsidiaries;
- 12
acquired 12
is the Company that managed all the Company's proprietary and licensed
technology that is utilized and sold by the other subsidiaries. With the
formation of 12 Tech that role is now being managed by 12 Tech. Today, 12 HK
operates as a subsidiary of 12 Tech and serves as the marketing and sales hub
for
Japan , formerly managed by 12Japan Ltd.
- 12
the initial acquisition of 12
2018 the Company made several acquisitions including 12
to this acquisition, the Company took steps to consolidate the assets and
streamline operations that effectively by the end the 3rd quarter 2019, this
Company no longer functions as independent subsidiary. In the third quarter of
2019 the Company closed the offices of 12 Japan, and its flagship customer
ITOYA and the revenue generated will be serviced and managed by 12 Hong Kong.
- 12
the third quarter 2019 it was determined by management that the costs of
continuing to support the expenses of an independent 12
unsupportable. Therefore, the Company reaffirmed its previous master
representation agreement between 12
software customers in
operations in
discharged all of its debts associated with 12
completion of the 12
benefit payments still owed approximately
subsidiary is no longer in existence.
Business and Operations
12 ReTech Corporation is a Technology company that is creating software that
management believes will create new platforms and tools for smaller retailers to
compete with major companies like Amazon and Walmart and delight consumers. To
better understand the entire retail environment the Company has acquired
operating companies that sell direct to consumers online and in physical stores
as well as to other retailers. These acquisitions, in addition to providing
current revenue to the Company management believes that they will provide entree
to other retailers for the sale and or licensing of our technology solutions.
From an operating perspective, 12 ReTech Corporation is a holding company with
two main operating companies that themselves may now and/or in the future own
other subsidiaries. They are: 12 Retail Corporation which now operates our
casino stores and subsidiaries Bluwire Group, LLC , 12 Fashion Group, Inc and
others, and 12 Tech Inc that designs and develops our retail software.
24
The Company has earned money from four different revenue streams (in declining
order): Retail Sales, Wholesale and Online sales of Fashion products, Royalty
Payments for 3rd party licensing of the Bluwire name, and technology sales.Effects on us of the Covid-19 Pandemic
2020 was an unusual year, in that at nearly the same time the entire world was in the grip of the Covid-19 pandemic with unprecedented closings of businesses, a virtual cessation of most business and personal travel, lockdown and stay at home orders. As a Company centered on retail and which derives the most significant portion of its revenue from retail stores in airports and casinos, we were hit particularly hard. In retail, the 1st quarter of every year is the slowest revenue quarter of any year, and even before that first quarter ended all of our retail stores were closed due to the pandemic. Only the casino store was able to be re-opened inmid-December 2020 to lackluster sales. Supply chains were interrupted, and it became difficult to re-stock our retail store for the holiday season which also delayed its re-opening to mid-December, after an aborted restart in September. The supply chain problems also delayed the receipt of fabric and other products needed by ourFashion Group as they began to re-emerge from under the pandemic closures. Our fashion group, being based-in NYC was closed for many months and only reopened in July to produce masks. All of the stores our fashion group would sell to were also closed. Our technology division, 12Tech Inc , was also hard hit. Not only were retailers closed and conserving cash like we were, but it became apparent that consumers would no longer interact with public touchscreens, which was the corner stone of our technology. In other words, our technology was made obsolete in the blink of an eye. The Company managed survival during the pandemic by squirreling cash and obtaining PPP and or EIDL loans from the SBA. We attempted to retain all of our key employees utilizing these funds, but as a subsequent event byJune 2021 most have found other jobs once the PPP money ran out. This presents challenges for our airport stores re-openings, as it is a long process to get employees certified ("badged") to work in airports. This will further slow our re-openings during 2021. We also renegotiated various leases and commitments to make us more streamlined and efficient as we re-open and expand. InJapan , we renegotiated out licensing arrangement with ITOYA whereby they managed more of the day to day software for a smaller fee and we eliminated virtually all of our costs there. We also learned that the App we had developed there was strongly used by Japanese consumers of ITOYA and we could re-develop it for the U.S. market. This process is well on the way and management believes will create the next great shopping platform.
For more information about our existing technology please visit our website at www.12retech.com.
Financing and Convertible Debt
To finance our operations the Company has historically resorted to a number of convertible debt providers (see Note 10). These debt providers have in many cases exercised their rights to convert their debt into the Company's common stock at a discount to market. They then sell that stock to recover their investment and profits. This has over time depressed the value of our Company's common stock and caused a significant dilution to our shareholders. This could not be avoided, and management believes it was necessary in order to provide continuation of the Company's business so that we could make significant acquisitions. The Company has been building revenue momentum through these acquisitions and is no longer exclusively reliant on this form of fund raising. The vast majority of the funds the Company has received over the last 4 months have been sourced through non-convertible debt incurred by our operating subsidiaries. There is, however, still a considerable amount of convertible debt that needs to be retired over the near term. Management is working closely with the convertible note holders to find less dilutive alternatives and management believes that in first half of 2021 it will arrive at a solution that will involve less dilution, may require some cash payments from other sources including an equity offering and/or debt offerings through one or more of its subsidiaries as well as leak out provisions negotiated with the convertible
debt holders themselves. The Company had also entered into a$12 million dollar Equity Line of Credit withOasis Capital which it has been unable to access due to some delays in the audits of one of its acquired subsidiaries. That has been resolved and Management has been in talks with Oasis on amending that original offering, so that the Company may refile the S-1 required with theSEC . The equity line of credit is ineffective at the current share price, and we will not be able to reinstitute at current share price levels. In addition, Management has received tentative commitments for preferred Equity Funding that if completed would allow the Company to fully retire the convertible debt. Management, however, cautions readers that while promising no Equity or Debt funding can truly be counted upon until the money is in the bank. The exact amount of the final funding and timing have not been fully determined at this time.
However, management believes that now that the Company has significant and growing revenue, has streamlined operations, is set to launch its software products in its own stores inthe United States , and has access to more standard debt capital, that the issues associated with the convertible debt have become more manageable and therefore will be resolved more favorably to the Company than was previously observed. 25
YEAR ENDED
Amounts reflected in our financial statements are accounted for under common control accounting (see footnotes).
Revenues
During the year endedDecember 31, 2020 our revenues decreased to$721,312 from$1,628,607 in the prior comparable year. This represents and decrease of$907,295 or 56%, which is primarily the result of the global pandemic due to COVID 19 on our Bluwire subsidiary and 12Fashion Group subsidiary. The government forced the closure of all our store locations onMarch 16, 2020 . When allowed, the company was able to re-open one of our store locations inDecember 2020 . We hope to open additional store locations in the near future. Cost of revenues During the twelve months endedDecember 31, 2020 we incurred Cost of Revenues associated with the delivery of our products in the amount of$385,236 , as compared to$1,122,086 for the comparable period in 2019. These expenses are related to costs of delivering goods. In 2020, our Cost of Revenues as a percentage of Revenues was 53% as compared to 66% in the prior comparable period. The lower cost of revenues as a percentage of Revenues in 2020 is mainly the result of on cutting purchases of inventory and production materials due to COVID 19. General and Administrative Our general and administrative expenses for the year endedDecember 31, 2020 were$1,762,856 , a significant decrease of$361,516 or 17% when compared to$2,124,372 for the year endedDecember 31, 2019 . The decrease is a result of impact due to COVID 19 and forced closure of operations during many months.
Professional fees Our professional fee expenses for the year endedDecember 31, 2020 were$683,251 a decrease of$542,448 or 44% when, compared to$1,225,699 for the year endedDecember 31, 2019 . Our professional fees include expenses related to our external auditors, legal costs, and consultants. In order to preserve our subsidiaries operations, the company conserved on spending from the period of closure onMarch 16, 2020 untilDecember 31, 2020 . Depreciation and amortization
Our depreciation expense for the year endedDecember 31, 2020 were$439,269 an increase of$340,163 or 343% when, compared to$99,107 for the year endedDecember 31, 2019 . Our depreciation and amortization expense includes intangibles and leasehold improvements addedOctober 1, 2019 as part of the Bluwire acquisition. As such the company had twelve months of depreciation and amortization as opposed to three months in 2019. Other Expense
Our Other Expenses increased by$10,187,508 or 110% to$19,391,799 for the year endedDecember 31, 2020 compared to$9,204,291 for the year endedDecember 31, 2019 . There are four main components of the increase of the 2020 Other Expense category:
1. A significant increase in loss of change in derivative liability of
twelve months ended
which is the result of the calculation of derivative liability using
Black-Scholes.
2. A decrease in other income to
compared to
income was primarily the result from the write off of certain debts which was
described in 2019 10K.
3. A decrease in general default reserve expense of for the year ended December
31, 2020 of
4. A decrease in interest expense of
2020 compared to $8,995,066 for the ended December 31, 2019 .
26
See these components described in further detail below.
Other Income During 2019, the Company recognized a loss impairment of software development costs of$513,601 December 31, 2019 without a similar comparable expense during the prior period endingDecember 31, 2019 . Periodically, management reviews its capitalized costs to determine if they are properly valued or should they be impaired. As ofSeptember 30, 2019 . Management had capitalized approximately$513,601 in development costs for its 12 Technology Suite and 12 Sconti APP. While management still believes in the long-term validity of these software applications, the fact remains that adoption by retailers has not met management's expectations. This led management to cut costs in the 12 Europe and 12 Japan operations. Therefore, management believes that the capitalized costs for the software development should be fully impaired during the 4th quarter of 2019. Also, during 2019, the Company recognized other income primarily from 12 Europe declaring bankruptcy onAugust 26, 2019 , whereby all debts of the company were eliminated with the exception of$35,757 in accounts payable resulting in a gain of$445,244 . In addition, as discussed in Note 4, the Company effectively foreclosed on its liens against the assets ofEmotion Apparel, Inc. taking possession of assets including the brands; Lexi-Luu,Emotion Fashion Group , Punkz Gear and retuned the equity ofEmotion Apparel, Inc. and its subsidiaries to the Seller. As a result of the debts related toEmotion Apparel, Inc , which reverted to the Seller including all accounts payable, accrued expenses and notes payable resulting in a gain of$511,486 to the Company. Lastly, after careful review by management, certain accounts payable were determined not to be valid expenses. These payables totaling approximately$68,000 were offset as a gain to other income. In 2020, the company filed for bankruptcy for theRed Wire Group . As a result, the company recognized other income as a result of write off of debt associated withRed Wire Group . In addition, the company also closed its Denver Bluwire store location, as such the company wrote off associated intercompany loans. Interest Expense
There was also a decrease in interest expense of$8,523,487 to$471,579 as ofDecember 31, 2020 compared to$8,995,066 for the period endedDecember 31, 2019 . Decrease in interest expenses is related to decrease in convertible notes' convertible preferred stock during the same period. As well as a significant decrease in interest expense associated with the additional derivative liability and for the general default reserve.
Change in Derivative Liability
There was a loss as a result of the change of derivative liability of
General Reserve Expense The company recognized a general default reserve expense of for the year endedDecember 31, 2020 of$491,897 compared to 2,139,961 as ofDecember 31, 2019 . OnJuly 25, 2019 the Company was served with a lawsuit fromAuctus Fund, LLC ("Auctus"). For additional details, see MD&A including the settlement of$120,375 which is still pending. However, management calculated a default reserve which represents the additional amount management would have to payout to all note holders in the event of the default. Management quantified what this amount would be which includes additional premiums, additional accrued interest and default accrued interest in 2019 and updated these calculations in 2020. The total reserve quantified by management amounted to$2,278,648 as ofDecember 31, 2020 . Net Income During the year endedDecember 31, 2020 , we incurred a net loss of$21,940,137 compared to a net loss of$12,150,698 for the year endedDecember 31, 2019 . This increased loss is primarily the result of the increase in the change in derivative liability and compounded by the significant decrease in revenues as a result of the global pandemic of COVID 19 during 2020. The Company is expending working capital to further their business plan. This includes the further development, refinement and improvement of their software and its adaptation to various languages and geography. The Company is also expending working capital on the development of new technology which is designed to further enhance the attractiveness of their offerings to their target customer base. 27
Significant Acquisitions in 2019
In the first quarter of 2019 the Company made two significant acquisitions as detailed above with the acquisition ofRed Wire Group onFebruary 19, 2019 andRune NYC, LLC onMarch 14, 2019 . the Company gained two revenue-producing operations. As also detailed above onOctober 1, 2019 the Company acquiredBluwire Group, LLC and effectiveNovember 1, 2019 , the Company acquiredSocial Decay, LLC dba Social Sunday. With the combination of these acquisitions, management believes that the Company will benefit, and it will significantly expand the sales channels for all of its brands. As ofDecember 31, 2019 , the Company performed its annual impairment test on all reporting units and determined that each unit had indicating factors of impairment due to failure to meet respective sales projections. For further details, see Note 3. Management believes that these acquisitions are "game changers" for the Company for two more reasons; 1) the wholesale customers acquired sell to are and will become targets for the Company to sell its disruptive retail technology solution to other retailers and 2) is already attracting interest among other companies that would like to join the12 ReTech team either through acquisition or through strategic partnership. While management believes the results of operations for 2019 for the acquired companies are not indicative of the future results for all of the reasons herein above combined with impact of COVID-19, management believes it is important to show how materially the prior year's revenues would have been for the Company had they been acquired at the beginning of 2019 without the material improvements we have made since acquiring them.
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. AtDecember 31, 2020 the Company had a deficit in working capital (current liabilities in excess of current assets) of$31,490,395 . A portion of this working capital deficit has been financed loans from stockholders. As ofDecember 31, 2020 , amounts owed to stockholders totaled$383,753 . AtDecember 31, 2019 , the Company had a deficit in working capital (current liabilities in excess of current assets) of$11,786,147 . A portion of this working capital deficit has been financed loans from stockholders. As ofDecember 31, 2019 , amounts owed to stockholders totaled$384,091 . The increase in working capital deficit when compared toDecember 31, 2019 was principally due to an increase derivative liabilities and to a lesser extent, increase in accounts payable. 28
The Company has financed our cash flow requirements through the issuance of debt-equity and preferred stock. As the Company expands, we may continue to experience net negative cash flows from operations, pending generation of significant revenues. Additionally, we anticipate obtaining additional financing to fund operations through debt-equity and preferred stock offerings to the extent available or to obtain additional financing to the extent necessary to augment our working capital balances. Management believes that our acquisition strategy will successfully provide significant revenues, potential profits as well as access to traditional bank and asset-based credit lines. In addition, Management believes that existing shareholders, lenders and prospective new investors will provide the additional cash needed to meet our obligations as they become due. The Company filed a Certificate of Designation onJanuary 9, 2019 to create 1,000,000 Series D-5 Convertible Preferred Stock with par value$0.00001 and stated value of$4.00 per share. Also onJanuary 9, 2019 , the Company filed a Certificate of Designation to create One Million (1,000,000) Series D-6 Convertible Preferred Stock with par value$0.00001 and stated value of$5.00 per share. The Company filed an amendment onJanuary 11, 2019 to Series C Preferred shares where each issued and outstanding shares of Series C Preferred Stock shall be entitled to 8,000,000,000 votes at each meeting of shareholders of the Company with respect to any and all matters presented to the shareholders of the Company for their action or consideration (by vote or written consent). Holders of shares of Series C Preferred Stock shall vote together with the holders of Common Shares as a single class. The Company also filed with theState of Nevada an Amendment to its Articles of Incorporation onMarch 8, 2018 , that increased it authorized common shares from One billion to eight billion common shares authorized. OnMarch 14, 2019 , the Company entered into a PIPE Equity Purchase Agreement whereby an institutional investor agreed to purchase up to$500,000 worth of the Company's D-2 Preferred Shares with a$2.00 face value at to be determined discount to face value. Concurrent with the execution of this Agreement, the Company sold 103,500 preferred D-2 Preferred Shares and received net proceeds after expenses of$100,000 (Tranche #1). The D-2 Preferred Shares are convertible to common shares after a 6 month or more holding period at market price. (See Form 8-K filed
onMarch 20, 2019 ). Concurrent with the execution of the PIPE Funding Agreement the Company executed an Exchange Agreement with the same institution investor whereby that investor exchange all of its Series D-1 preferred shares for newly issued Series D-2 Preferred Shares. (See Form 8-K filed onMarch 20, 2019 ). In connection with the with PIPE Funding Agreement and the Exchange Agreement listed above the Company filed with theState of Nevada a new Certificate of Designation which took 2.5 million of the blank check preferred shares the Company has and designated them as Series D-2 Preferred Shares. (See Form 8-K filed onMarch 20, 2019 ). OnSeptember 25 . 2019, the Company's Rune subsidiary entered into two separate future receivables purchase agreements with Vox Funding and received gross proceeds for$49,000 which were used in part to retire a previous and smaller obligation to Vox Funding. The Agreements provided for payment over 6 months and carries a fee of$1,470 . This obligation is not convertible under any terms
into Company Stock.
On
29 In connection with the acquisition ofBluwire Group, LLC , onOctober 3, 2019 , one of the Sellers of Bluwire provided$300,000 capital contribution to its Bluwire. This obligation is not convertible into Company stock under any terms. This capital contribution to Bluwire has not been adequately documented. In Addition, onOctober 15, 2019 , the Company's Bluwire subsidiary entered into a future receivable purchase agreement with Libertas Funding and received$343,000 . This agreement provides for payment over 8 months and caries a fee of$7,000 . This obligation is not convertible under any terms into Company stock. Lastly, onNovember 5, 2019 , the Company's Rune subsidiary entered into a future receivables purchase agreement with Vox funding and received gross proceeds for$145,500 which were used in part to retire a previous and smaller obligation to Vox Funding. The Agreement provided for payment over 6 months and carries a fee of$4,500 . This obligation is not convertible under any terms into Company Stock. After theMarch 16, 2020 Covid shut down, all payment ceased by verbal mutual agreement. InMay 2021 , the Company entered into a verbal agreement with Vox to repay$250 per week and all collection efforts are put on hold and forbearance on other receivable holders. OnMarch 18, 2020 , the Company entered into a back end promissory note agreement withAdar Alef, LLC ("Adar") for loans totaling$33,600 . The consideration to the Company was$30,000 with$3,600 of legal fees. As a subsequent event, onMarch 25, 2020 , the Company entered into a back end promissory note agreement withLG Capital, LLC ("LG") for loans totaling$33,600 . The consideration to the Company was$30,000 with$3,600 of legal fees. The note is convertible after 181 days at a (i)$0.0075 ceiling or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion date. OnMarch 5, 2020 , the Company's Bluwire subsidiary entered into a second future receivable purchase agreement with Reliant Funding and received$83,000 . This agreement provides for payment over 6 months and carries a fee of$3,000 . This obligation is not convertible under any terms into Company stock. This agreement has been in forbearance sinceApril 2021 , and the Company pays$10 per week until Bluwire Newark is re-opened. In the future we will need to generate sufficient revenues from operations in order to eliminate or reduce the need to sell additional stock or obtain additional loans. However, there can be no assurance we will be successful in raising the necessary funds to execute our high growth business plan.
At
During the year endedDecember 31, 2020 , the current liabilities increased by$19,409,181 when compared toDecember 31, 2019 . The primary reason for the increase was the increase in derivative liabilities of$18,438,798 to$23,798,240 and accounts payable of$1,020,96 to$3,187,592 as ofDecember 31, 2020 compared to$5,359,422 and$2,167,496 as ofDecember 31, 2019 . Due to Covid 19 pandemic, the company tried to preserve operations and obtained extended terms from most of its creditors.
As discussed earlier, it is likely that the Company will need to obtain additional working capital through debt-equity and preferred stock capital raises until the Company can generate sufficiently profitable revenues to sustain the cash burn rate that the Company's business plan calls for.
Although, our business plan calls for high growth, we anticipate that we may continue to incur operating losses during the next twelve months. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies at our stage, particularly companies in new and rapidly evolving markets. Our roll up acquisition strategy seeks to mitigate some of those risks, but until more acquisitions can be completed, consolidated, and we reap the benefits of consolidation, we cannot accurately include their results in our projection of cash needs. Risks include, but are not limited to, an evolving and unpredictable business model and the management of growth and the consummation and assimilation of multiple acquisitions. These factors raise substantial doubt about our ability to continue as a going concern. To address these risks, we must, among other things, increase our customer base, implement and successfully execute our business and marketing strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition, and results of operations. 30 Impact of COVID-19 Like most other business inthe United States , our businesses have been severely impacted by the COVID-19 Pandemic. While the first quarter of any calendar year is historically the slowest quarter of the year for revenues, for our main operating subsidiaries the first quarter of 2020 was severely impacted byUS Government's business shutdowns and stay at home orders related to COVID-19. We derive most of our revenue from our 12Retail Corporation , which is itself composed of two Operating units: 12Fashion Group andBluwire Group, LLC . In response to the President's "stay at home" orders, onMarch 16, 2020 , we promptly laid off almost all of our 12Fashion Group employees and contractors. 12Fashion Group retained three employee/contractors and focused on producing and selling of washable reusable masks, both wholesale and direct to consumer online. Our Bluwire retail stores inNewark airport ,Dallas airport , and JFK international airport were temporarily closed on or aboutMarch 17, 2020 . Our Casino location was temporarily closed on or aboutMarch 17, 2020 when theMohegan Sun Casino itself was closed. We laid off all of our Bluwire employee/contractors except two members of the headquarters staff who continued to source innovative products for our stores when they re-open, some of which will be uniquely desired by consumers due to changing buying habits due to COVID-19.
The financial effects of these closures are reflected in the Management Discussion and Analysis.
The Cares Act and the Payroll Protection Program SBA Loans (PPP Loans).
The Company has applied for PPP Loans for all of itsU.S. operating Companies, and is in the process of analyzing if it would qualify for similar governmental assistance for its reduced operating unit inJapan (12Japan Ltd ). The Company has qualified and received for an aggregate of$294,882 of PPP Loans for its operating companies. These funds are being used to re-hire previously laid off personnel where appropriate and hire new personal that management believes better fits the post COVID-19 shut down environment. The Company is hiring personnel that will help the operating units generate revenues in a more contactless environment and to create changes to our cutting-edge retail software to help our stores and well as other retailers attract consumers in this new environment. The Cares Act provides very favorable terms for the repayment or forgiveness of the monies lent to qualifying businesses like ours. While the final rules are not yet formalized, the initial guidelines allow for complete forgiveness for monies spent on approved expenses such as payroll and labor with non- approved expenses to be paid back over 2 years at 1% annual interest with no payments for the first 6 months after receipt. No collateral was pledged for these loans and management did not have to sign any personal guarantees. Management will make every effort to utilize these PPP loan funds in a manner that may allow for complete forgiveness of the loan(s) while providing the best opportunity for the continuity and growth of the business. During the COVID-19 shutdown period management sourced new products and vendors for its businesses and is now optimistic that it will shortly obtain additional funding of debt or preferred equity to grow our business.
Reliance on the
As a direct result of the COVID-19 shutdowns and travel restrictions, theSEC provided for any public company impacted by COVID-19 to extend its filing of its 10-K or 10-Q or other required filings for 45 additional days and would still be eligible for the further normal extensions of 15 and 5 days respectively. As noted herein, we have been extremely impacted on an operational level, delayed in obtaining information from our foreign subsidiaries inHong Kong andJapan , as well as being delayed in our ability to obtain capital for the professional fees to complete our filings, and further compromised by the fact that our CEO and CFO are both restricted from travel tothe United States at this time as they are inHong Kong andJapan respectively. Therefore, we filed for a 45 day and 15-day NT10-KA Filing extensions in reliance on theMarch 25, 2020 , order and have further been in communication with theSEC for additional consideration for timely filing under these extraordinary circumstances. However, due to cash restraints with all of our closed operations, the Company was unable to meet any deadline to complete this audit and the quarterly reports (forms 10-Q) in a timely fashion during 2020 and the first quarter 2021. The Company retained auditor BF Borgers onApril 28, 2021 and will complete all delinquent filings in the second quarter 2021. With our businesses reopening and revenues being generated, Management believes that it can continue to make timely filings in the future. Going Concern The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted inthe United States of America , which contemplates continuation of the Company as a going concern. Since we have not yet generated significant revenue, we have negative cash flows from operations, and negative working capital we have included a reference to the substantial doubt about our ability to continue as a going concern in connection with our consolidated financial statements for the year endedDecember 31, 2020 . Our total accumulated deficit atDecember 31, 2020 was$44,475,900 compared to$22,756,345 as ofDecember 31, 2019 . 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.
31
Elected Mandatory Filer Status
The Company filed Form 8A-12G with theSecurities and Exchange Commission onMarch 16, 2018 and therefore became a mandatory filer with theSecurities and Exchange Commission .
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted inthe United States requires us to make estimates and judgments that affect our reported assets, liabilities, and expenses and the disclosure of contingent assets and liabilities. We use assumptions that we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. We believe there have been no significant changes in accounting policies during the year endedDecember 31, 2019 . See Note 3 to the consolidated statements in this Annual Report for a complete discussion of our significant accounting policies and estimates.
Recently Issued Accounting Standards
The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated results of operation, financial position, or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its consolidated financial statements. See Note 3 to the consolidated statements in this Annual Report for a complete discussion of our significant accounting policies and estimates.
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