Notes
to the Consolidated Financial Statements
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
|
|
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
|
|
Hong
Kong, China
|
|
Feb.
2, 2014
|
|
June
27 2017
|
|
100%
|
|
Development
of our technology and sales of our technology applications.
|
12
Japan Limited
|
|
Japan
|
|
Feb.
12, 2015
|
|
July
31, 2017
|
|
100%
|
|
Consultation
and sales of technology applications.
|
12
Europe AG
|
|
Switzerland
|
|
Aug.
22, 2013
|
|
Oct.
26,2017
|
|
100%
|
|
Consultation
and sales of technology applications.
|
E-motion
Apparel, Inc.
|
|
Utah,
USA
|
|
2011
|
|
March
12, 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.
|
Change
in Fiscal Year
On
September 13, 2017, our Board of Directors approved a change in our Fiscal Year End from November 30 to December 31. The Company
now operates on a fiscal year ending on December 31.
Stock
Split
Effective June 21, 2017, we effected a 6
for 1 forward stock split of our issued and outstanding common stock (the “Forward Stock Split”). All references
to shares of our common stock in this report on Form 10-K refers to the number of shares of common stock after giving effect to
the Forward Stock Split (unless otherwise indicated).
Share
Exchange and Reorganization
As
of June 27, 2017, and pursuant to a Securities Purchase Agreement, the Company and 12 Hong Kong Limited (“12HK”),
have determined that all conditions necessary to close the Share Exchange Agreement have been satisfied and therefore as of the
date hereof, the Share Exchange Agreement was closed and as such 12HK has become a wholly-owned subsidiary of the Company. As
per the Share Exchange Agreement, the Company acquired Four Million (4,000,000) shares of 12HK, representing 100% of the issued
and outstanding equity of 12HK, from the 12HK shareholders (the “12HK Shares”) and in exchange the Company issued
to the 12HK shareholders an aggregate of Fifty Five Million (55,000,000) shares of stock, consisting of: (i) Fifty Million (50,000,000)
shares of post forward split Company common stock; and, (ii) Five Million (5,000,000) shares of Series A Preferred Stock.
Recapitalization
For
financial accounting purposes, this transaction was treated as a reverse acquisition by 12HK and resulted in a recapitalization
with 12HK being the accounting acquirer and 12 Retech as the acquired company. The consummation of this reverse acquisition resulted
in a change of control. Accordingly, the historical financial statements prior to the acquisition are those of the accounting
acquirer, 12HK and have been prepared to give retroactive effect to the reverse acquisition completed on June 27, 2017 and represent
the operations of 12HK. The consolidated financial statements after the acquisition date, June 27, 2017 include the balance sheets
of both companies at historical cost, the historical results of 12HK and the results of the Company from the acquisition date.
All share and per share information in the accompanying consolidated financial statements and footnotes has been retroactively
restated to reflect the recapitalization.
Acquisitions
12
Japan Limited
On
July 31, 2017, the Company entered into a Share Exchange Agreement with 12 Japan Limited, a corporation duly formed and validly
existing under the laws of Japan (“12JP”), and the Shareholders of 12JP (the “12JP Shareholders”).
Pursuant to the Share Exchange Agreement, the Company acquired 101,000 shares of 12JP, representing 100% of the issued
and outstanding equity of 12JP, from the 12JP shareholders and in exchange the Company issued to the 12JP
Shareholders: (i) 5,000,000 shares of RETC Common Stock; and, (ii) 500,000 shares of RETC Series A Preferred Stock. As a result
of the Share Exchange Agreement, 12JP became a wholly-owned subsidiary of the Company. The Share Exchange Agreement contains
customary representations and warranties. Additionally, the Share Exchange Agreement required that concurrently with closing the
Company’s management facilitate: (i) the cancellation of 5,000,000 shares of RETC Common Stock currently beneficially owned
by the Company’s majority stockholder; and, (ii) the cancellation of 500,000 of RETC Series A Preferred Stock currently
beneficially owned by the Company’s majority stockholder. Collectively, such shares were cancelled and returned to the Company’s
treasury.
12
Europe AG
On
October 26, 2017, the Company entered into a Share Exchange Agreement with 12 Europe AG, a corporation duly formed and validly
existing under the laws of Switzerland (“12EU”), and the Shareholders of 12EU (the “12EU
Shareholders”). Pursuant to the Share Exchange Agreement, the Company acquired 1,000 shares of 12EU, representing 100% of
the issued and outstanding equity of 12EU, from the 12EU shareholders and in exchange the Company issued to the
12EU Shareholders, 3,807,976 shares of the Company’s common stock. As a result of the Share Exchange Agreement, 12EU
became a wholly-owned subsidiary of the Company.
As
a result of those share exchanges, the above companies became 100% owned subsidiaries of the Company. The above companies were
controlled by the same individuals immediately prior to the above exchanges. As such, these acquisitions were deemed to be transactions
between entities under common control.
E-motion
Apparel, Inc,
In
a subsequent event, on March 12, 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. EAI owns three other microbrands which were included in this transaction
which target specific niche markets: Lexi-Luu Dancewear, Punkz Gear, Cleo VII and Skipjack Dive & Dance Wear. See Note
13 for additional information.
NOTE
2. GOING CONCERN
The
Company accounts for going concern matters under the guidance of ASU 2014-15,
“Presentation of Financial Statements –
Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern
(“ASU
2014-15”). The guidance in ASU 2014-15 sets forth management’s responsibility to evaluate whether there is substantial
doubt about an entity’s ability to continue as a going concern as well as required disclosures. ASU 2014-15 indicates that,
when preparing financial statements for interim and annual financial statements, management should evaluate whether conditions
or events, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern for one year
from the date the financial statements are issued or are available to be issued. This evaluation should include consideration
of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are
available to be issued, as well as whether it is probable that management’s plans to address the substantial doubt will
be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt.
These
financial statements have been prepared on a going concern basis which assumes the Company will continue to realize it assets
and discharge its liabilities in the normal course of business. As of December 31, 2017, the Company has incurred losses totaling
$2,413,739 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 and private placements of common stock. These financial
statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
Consolidated Financial Statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). The Financial Statements have been prepared using the accrual basis of accounting
in accordance with accounting principles generally accepted in the United States (“GAAP”) and presented in
US dollars. The fiscal year end is December 31.
Prior
year financial information has been retroactively adjusted for the acquisitions under common control. As the acquisitions of 12JP
and 12EU were deemed to be transactions between entities under common control, the assets and liabilities were transferred at
the historical costs, with prior periods retroactively adjusted to include the historical financial results of the acquired companies
for the period they were under common control, which is all periods presented.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiaries 12HK, 12JP, and 12EU and 12 Retail.
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.
Foreign
Currency Translation and Transactions
The
accompanying financial statements are presented in U.S. dollars (“USD”), the reporting currency. The functional currencies
of the Company’s foreign operations are the Hong Kong Dollar (“HKD”), Japanese Yen (“JPY”), and
Swiss Franc (“CHF”). In accordance with ASC 830,
“Foreign Currency Matters”,
the assets and liabilities
are translated into USD at current exchange rates. Revenue and expenses are translated at average exchange rates for the period.
Resulting translation adjustments are reflected as accumulated other comprehensive income in stockholders’ deficit.
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the
functional currency are charged to operations as incurred. There were no material transaction gains or losses in the periods presented.
Concentrations
During
the year ended December 31, 2017, two customers accounted for 94% of revenues. During the year ended December 31, 2016, three
customers accounted for 100% of revenues. One customer represented 100% of the accounts receivable as of December 31, 2017 and
2016.
Cash
and Cash Equivalents
Cash
and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than
three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are
subject to an insignificant risk of loss in value. The Company had $100,264 and $54,644 in cash and cash equivalents as at December
31, 2017 and 2016, respectively. Government deposit insurance on bank balances range from approximately $5,600 to $250,000.
As at December 31, 2017, the Company had approximately $19,000 not covered by government deposit insurance schemes.
Accounts
receivable
The
Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts
receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and
changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific
identification basis. During the years ended December 31, 2017 and 2016, the Company recognized bad debt of $25,600 and $0, respectively.
Inventory
Inventories,
consisting of a computer application, a mirror with a computer screen and touch monitor, are primarily accounted for using the
first-in-first-out (“FIFO”) method and are valued at the lower of cost or market value. Inventories on hand are evaluated
on an on-going basis to determine if any items are obsolete or in excess of future market needs. Items determined to be obsolete
are reserved for. During the years ended December 31, 2017 and 2016, the Company recognized impairment expenses of $49,538 and
$12,173, respectively.
Financial
Instruments
The Company’s financial instruments
consist primarily of cash, accounts receivable, inventory, prepaid expenses and other current assets, accounts payable
and accrued liabilities, convertible notes payable and due to stockholders. The carrying amounts of such financial instruments
approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these
instruments.
Fixed
Assets
Fixed
assets are recorded at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of the term of the related lease or the estimated useful life of
the asset. The useful lives are as follows:
Office
equipment
|
|
|
3
years
|
|
Furniture
and equipment
|
|
|
6
years
|
|
Computer
|
|
|
4
years
|
|
Technical
equipment
|
|
|
3.3
years
|
|
Maintenance
and repairs are charged to operations as incurred. Expenditures that substantially increase the useful lives of the related assets
are capitalized. When properties are disposed of, the related costs and accumulated depreciation are removed from the accounts
and any gain or loss is reported in the period the transaction takes place.
Accounting
for the impairment of long-lived assets
The
long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as
a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing
the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to
sell. During the years ended December 31, 2017 and 2016, the Company did not impair any long-lived assets.
Stock-Based
Compensation
ASC
718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment
transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue
shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based
payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements
based on their fair values. That expense is recognized over the period during which an employee is required to provide services
in exchange for the award, known as the requisite service period (usually the vesting period).
The
Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC
505-50, “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees
is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments
issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance
completion date.
Stock-based
compensation of $474,000 and $0 were incurred for the years ended December 31, 2017 and 2016, respectively, and is included in
professional fees.
Revenue
Recognition
The
Company recognizes revenue from the sale of products and services in accordance with ASC 605, “Revenue Recognition.”
Revenue is recognized only when all of the following criteria are met: persuasive evidence for an agreement exists, delivery has
occurred, or services have been provided, the price or fee is fixed or determinable, and collection is reasonably assured. However,
contracts subject to percentage-of-completion accounting are subject to specific accounting guidance that may require significant
estimates.
Percentage-of-completion
method
Certain
software development projects and all long-term construction-type contracts require the use of estimates at completion in the
application of the percentage-of-completion accounting method, whereby the determination of revenues and costs on a contract through
its completion can require significant judgment and estimation. Under this method, and subject to the effects of changes in estimates,
we recognize revenue using an estimated margin at completion as contract milestones or other input or output-based measures are
achieved. This can result in costs being deferred as work in process until contractual billing milestones are achieved. Alternatively,
this can result in revenue recognized in advance of billing milestones if output-based or input-based measures are achieved.
The
percentage-of-completion method requires estimates of revenues, costs and profits over the entire term of the contract, including
estimates of resources and costs necessary to complete performance. The cost estimation process is based upon the professional
knowledge and experience of our software and systems engineers, program managers and financial professionals. The Company follows
this method because reasonably dependable estimates of the revenue and costs applicable to various elements of a contract can
be made; however, some estimates are particularly difficult for activities involving state-of-the-art technologies such as system
development projects. Key factors that are considered in estimating the work to be completed and ultimate contract profitability
include the availability and productivity of labor, the nature and complexity of the work to be performed, results of testing
procedures, and progress toward completion. Management regularly reviews project profitability and the underlying estimates. A
significant change in an estimate on one or more contracts could have a material effect on our results of operations. Revisions
in profit estimates are reflected in the period in which the facts that give rise to the revision become evident. We periodically
negotiate modifications to the scope, schedule, and price of contracts accounted for on a percentage-of-completion basis. Accounting
for such changes prior to formal contract modification requires evaluation of the characteristics and circumstances of the effort
completed and assessment of probability of recovery. If recovery is deemed probable, we may, as appropriate, either defer the
costs until the parties have agreed on the contract change or recognize the costs and related revenue as current period contract
performance.
Deferred
Income Taxes and Valuation Allowance
The
Company accounts for income taxes under ASC 740, “Income Taxes”. Under the asset and liability method of ASC 740,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more
likely than not that the Company will not realize tax assets through future operations. At December 31, 2017 and 2016, the Company
recognized a full valuation allowance against the recorded deferred tax assets.
Net
Loss Per Share of Common Stock
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 years ended
December 31, 2017 and 2016, potentially dilutive common shares consist of common stock issuable upon the conversion of Series
A 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.
Contingencies
The
Company follows ASC 450-20, “Loss Contingencies” to report accounting for contingencies. Liabilities for loss contingencies
arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the assessment can be reasonably estimated. There were no loss contingencies as of December
31, 2017 and 2016.
Recent
Accounting Pronouncements
In
May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes nearly
all existing revenue recognition guidance under accounting principles generally accepted in the United States of America. The
core principle of this ASU is that revenue should be recognized for the amount of consideration expected to be received for promised
goods or services transferred to customers. This ASU also requires additional disclosure about the nature, amount, timing and
uncertainty of revenue and cash flows arising from customer contracts, including significant judgments, and assets recognized
for costs incurred to obtain or fulfill a contract. ASU 2014-09 was scheduled to be effective for annual reporting periods
beginning after December 15, 2016, including interim periods within that reporting period. In August 2015, the FASB issued ASU
2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date,” which deferred the effective
date of ASU 2014-09 by one year and allowed entities to early adopt, but no earlier than the original effective date. ASU 2014-09
is now effective for public business entities for the annual reporting period beginning January 1, 2018. This update allows for
either full retrospective or modified retrospective adoption. In April 2016, the FASB issued ASU 2016-10, “Revenue from
Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” which amends guidance previously
issued on these matters in ASU 2014-09. The effective date and transition requirements of ASU 2016-10 are the same as those for
ASU 2014-09. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow Scope
Improvements and Practical Expedients,” which clarifies certain aspects of the guidance, including assessment of collectability,
treatment of sales taxes and contract modifications, and providing certain technical corrections. The effective date and transition
requirements of ASU 2016-12 are the same as those for ASU 2014-09.
The
Company will adopt the new guidance as of January 1, 2018. The Company has evaluated the new guidance and the adoption is not
expected to 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. There will be no change to the Company’s accounting policies.
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) which supersedes existing
guidance on accounting for leases in “Leases (Topic 840).” The standard requires lessees to recognize the assets and
liabilities that arise from leases on the balance sheet. A lessee should recognize in the balance sheet a liability to make lease
payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.
The new guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those
fiscal years. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective
approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently
evaluating the effects of adopting ASU 2016-02 on its consolidated financial statements but the adoption is not expected to have
a significant impact on the Company’s consolidated financial statements as of the date of the filing of this report.
In
January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.”
This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and
activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or
disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business.
This new standard will be effective for the Company on January 1, 2018. The Company will evaluate the effects of adopting the
standard if and when it is deemed to be applicable.
Management
has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements
will not have a material effect on the Company’s financial statements.
NOTE
4 – PREPAID EXPENSE AND OTHER CURRENT ASSETS
Prepaid
expense and other current assets at December 31, 2017 and 2016 consist of the following
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Prepaid
expense
|
|
$
|
1,290
|
|
|
$
|
785
|
|
Short-term
deposit
|
|
|
13,878
|
|
|
|
-
|
|
|
|
$
|
15,168
|
|
|
$
|
785
|
|
NOTE
5 – FIXED ASSETS, NET
Fixed
assets, net at December 31, 2017 and 2016 consist of the following
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Office
equipment
|
|
$
|
7,371
|
|
|
$
|
7,276
|
|
Furniture
and equipment
|
|
|
607
|
|
|
|
607
|
|
Computer
|
|
|
12,998
|
|
|
|
6,249
|
|
Technical
equipment
|
|
|
23,435
|
|
|
|
23,435
|
|
Vehicles
|
|
|
-
|
|
|
|
23,527
|
|
|
|
|
44,411
|
|
|
|
61,094
|
|
Less:
accumulated depreciation
|
|
|
(35,796
|
)
|
|
|
(34,993
|
)
|
Equipment
|
|
$
|
8,615
|
|
|
$
|
26,101
|
|
Depreciation
expense for the year ended December 31, 2017 and 2016 amounted to $16,100 and $20,975, respectively.
NOTE
6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at December 31, 2017 and 2016 consists of the following:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
30,625
|
|
|
$
|
502
|
|
Accrued
expenses
|
|
|
6
6,931
|
|
|
|
8,996
|
|
Accrued
interest
|
|
|
8,348
|
|
|
|
-
|
|
|
|
$
|
105,904
|
|
|
$
|
9,498
|
|
NOTE
7 - STOCKHOLDER TRANSACTIONS
Due
to stockholders at December 31, 2017 and 2016 consists of the following:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Daniel
Monteverde
|
|
|
8,214
|
|
|
|
5,012
|
|
Angelo
Ponzetta
|
|
|
500,798
|
|
|
|
306,105
|
|
Gianni
Ponzetta
|
|
|
160,114
|
|
|
|
101,790
|
|
|
|
$
|
669,126
|
|
|
$
|
412,907
|
|
On
August 12, 2017, Gianni Ponzetta loaned CHF 60,000 ($61,584) to the Company, which is included in the December 31, 2017 total.
The promissory note is unsecured and 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 year ended December 31, 2017 and 2016, total advances and expenses paid directly by stockholders on behalf of the Company
were $185,060 and $234,674, respectively, and the Company repaid $8,130 and $40,093, respectively. In addition, in 2016, the Company
issued 25,000,000 shares of common stock in exchange for $256,000 of amounts due to stockholders.
NOTE
8 – CONVERTIBLE NOTES PAYABLE
Convertible
notes payable at December 31, 2017 and 2016 consists of the following:
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
Dated
September 15, 2017
|
|
$
|
387,500
|
|
|
$
|
-
|
|
Dated
December 8, 2017
|
|
|
92,646
|
|
|
|
-
|
|
Dated
December 12, 2017
|
|
|
92,646
|
|
|
|
-
|
|
Total
convertible notes payable, gross
|
|
|
572,792
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less:
Unamortized debt discount
|
|
|
(164,545
|
)
|
|
|
-
|
|
Total
convertible notes
|
|
|
408,247
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less:
current portion of convertible notes payable, net
|
|
|
408,247
|
|
|
|
-
|
|
Long-term
convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
For
the years ended December 31, 2017 and 2016, the Company recognized interest expense of $8,348 and $0 and amortization of discount,
included in interest expense, of $50,893 and $0, respectively.
September
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.
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.
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 as debt discount.
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 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. As additional consideration for the purchase of the notes, the Company shall
issue to LG shares of our common stock on January 13, 2018 and February 1, 2018, with a value equal to $23,162, 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 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 and common stock to be issued for the shares of common stock
to be issued in 2018. As of the date of the filing of this report, the shares have not been issued.
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. As additional consideration for the purchase of the
Notes, the Company shall issue to Cerberus shares of our common stock on January 13, 2018 and February 1, 2018, with a value equal
to $23,162, 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 as debt discount. 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 and as common stock to be issued for the shares of common stock to be issued
in 2018. As of the date of the filing of this report, the shares have not been issued.
NOTE
9 - STOCKHOLDERS’ EQUITY
Amendments
to Articles of Incorporation
The
Company was authorized to issue 100,000,000 shares of common stock at par value of $0.0001 and 100,000,000 shares of preferred
stock at par value of $0.00001.
Effective
June 7, 2017, 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 550,000,000 shares. The Company increased the number of authorized common
shares to 500,000,000 and decreased the number of authorized preferred shares to 50,000,000.
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.
Series
A Preferred Stock
The
following summary of the Company’s Series A Preferred Stock is merely a summary, we refer you to our Amended and Restated
Articles of Incorporation and the applicable provisions of the Nevada Revised Statutes for a more complete description of the
rights and liabilities of holders of our securities.
Liquidation
Rights:
In
the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Holders of the Series
A Preferred Stock shall be entitled to receive, prior and in preference to any Distribution of any of the assets of the Company
to the Holders of any Junior Stock by reason of their ownership of such stock an amount per share for each share of Series A Preferred
Stock held by them equal to the sum of the Liquidation Preference. If upon the liquidation, dissolution or winding up of the Company,
the assets of the Company legally available for distribution to the Holders of the Series A Preferred Stock are insufficient to
permit the payment to such Holders of the full amounts specified in this Section then the entire remaining assets of the Company
legally available for distribution shall be distributed with equal priority and pro rata among the Holders of the Series A Preferred
Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section.
Redemption
Rights:
The
Series A Preferred Stock shall have no redemption rights.
Conversion:
The
“Conversion Ratio” per share of the Series A Preferred Stock in connection with any Conversion shall be at a ratio
of 1:20, meaning every (1) one Preferred A share shall convert into 20 shares of Common Stock of the Company (the “Conversion”).
Holders of Class A Preferred Shares shall have the right, exercisable at any time and from time to time (unless otherwise prohibited
by law, rule or regulation), to convert any or all their shares of the Class A Preferred Shares into Common Stock at the Conversion
Ratio.
Voting
Rights:
The
Holder of each share of Series A Preferred Stock shall have such number of votes as is determined by multiplying (a) the number
of shares of Series A Preferred Stock held by such holder; and, (b) by 20. Such voting calculation is hereby authorized by the
Company and the Company acknowledges such calculation may result in the total number of possible votes cast by the Series A Holders
and all other classes of the Company’s common stock in any given voting matter exceeding the total aggregate number of shares
which this Company shall have authority to issue. With respect to any shareholder vote, such holder shall have full voting rights
and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders’ meeting in accordance with the Bylaws of this Corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right
to vote. The holders of Series A Preferred Stock shall vote together with all other classes and series of common and preferred
stock of the Company as a single class on all actions to be taken by the Common Stock shareholders of the Company, except to the
extent that voting as a separate class or series is required by law. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series A Preferred
Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).
During
the year ended December 31, 2017, the Company issued Series A Preferred Shares as follows;
|
●
|
5,000,000
shares of preferred stock as partial consideration for the acquisition of 100% of issued and outstanding equity of 12HK (Note
1)
|
|
●
|
500,000
shares of preferred stock as partial consideration for the acquisition of 100% of issued and outstanding of 12JP (Note 1).
|
During
the year ended December 31, 2017, under the terms of the agreement of 12JP, 500,000 shares of preferred stock beneficially owned
by the Company's majority stockholder were cancelled (Note 1).
As of December 31, 2017, 5,000,000 shares
of Series A Preferred Stock were issued and outstanding.
Series
B Preferred Stock
The
following summary of the Company’s Series B Preferred Stock is merely a summary, we refer you to our Amended and Restated
Articles of Incorporation and the applicable provisions of the Nevada Revised Statutes for a more complete description of the
rights and liabilities of holders of our securities.
Designation
and Amount:
The
total number of shares of Series B Preferred Stock this Corporation is authorized to issue is One Million (1,000,000), with a
stated par value of $0.00001 per share. The designations, powers, preferences, rights and restrictions granted or imposed upon
the Series B Preferred Stock and holders thereof are as follows unless otherwise agreed to by agreement between the Corporation
and the purchasers of the Series B Preferred Stock.
Ranking:
The
Series B 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 Corporation’s Common Stock (“Common Stock”),
(b) junior with respect to dividends and right of liquidation with the Corporation’s Series A Preferred Stock; and (c) junior
with respect to dividends and right of liquidation to all existing and future indebtedness of the Corporation. Without the prior
written consent of Holders holding a majority of the outstanding shares of Series B Preferred Stock, the Corporation may not issue
any Preferred Stock that is senior to the Series B Preferred Stock in right of dividends and liquidation.
Liquidation
Preference:
A.
Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provision
for payment of debts and other liabilities of the Corporation, and after payment or provision for any liquidation preference payable
to the holders of any Preferred Stock ranking senior upon liquidation to the Series B Preferred Stock, but prior to any distribution
or payment made to the holders of Common Stock or the holders of any Preferred Stock ranking junior upon liquidation to the Series
B Preferred Stock by reason of their ownership thereof, the Holders of Series B Preferred Stock will be entitled to be paid out
of the assets of the Corporation available for distribution to its stockholders an amount with respect to each share of Series
B Preferred Stock equal to the then Stated Value as adjusted pursuant to the terms hereof (including but not limited to the additional
of any accrued unpaid dividends and the Default Adjustment, if applicable). B. If, upon any liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation will be insufficient to make payment in full to all Holders, then such assets
will be distributed among the Holders at the time outstanding, ratably in proportion to the full amounts to which they would otherwise
be respectively entitled.
Conversion:
A.
Holders of Series B Preferred Stock shall have the right, exercisable at any time and from time to time (unless otherwise prohibited
by law, rule or regulation, or agreement between the Corporation and the holders of the Series B Preferred Stock), to convert
any or all their shares of the Series B Preferred Stock into Common Stock. B. Reservation of Stock Issuable Upon Conversion.
The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely
for the purpose of effecting the conversion of the shares of the Series B Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of the Series B Preferred
Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series B Preferred Stock, the Corporation will within a reasonable time period make a good
faith effort to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. C. Effect of Conversion. On
any Conversion Date, all rights of any Holder with respect to the shares of the Series B Preferred Stock so converted, including
the rights, if any, to receive distributions of the Corporation’s assets (including, but not limited to, the Liquidation
Preference) or notices from the Corporation, will terminate, except only for the rights of any such Holder to receive certificates
(if applicable) for the number of shares of Common Stock into which such shares of the Series B Preferred Stock have been converted.
Voting:
Series
B Preferred Stock shall be non-voting on any matters requiring shareholder vote.
Dividends:
Series
B Preferred Stock will carry an annual cumulative dividend, compounded monthly, payable solely upon redemption, liquidation or
conversion as agreed to by and between the Corporation and the holder of the Series B Preferred Stock.
Redemption:
The
Series B Preferred Stock shall be redeemable by the Corporation as set forth in the agreement by and between the Corporation and
the holder of the Series B Preferred Stock.
Protective
Provisions:
A.
So long as any shares of Series B Preferred Stock are outstanding, the Corporation will not, without the affirmative approval
of the Holders of a majority of the shares of Series B Preferred Stock then outstanding (voting as a class), (i) alter or change
adversely the powers, preferences or rights given to the Series B Preferred Stock or alter or amend this Certificate of Designations,
(ii) authorize or create any class of stock ranking as to distribution of dividends senior to the Series B Preferred Stock, (iii)
amend its articles of incorporation or other charter documents in breach of any of the provisions hereof, (iv) increase the authorized
number of shares of Series B Preferred Stock, (v) liquidate, dissolve or wind-up the business and affairs of the Corporation,
or effect any Deemed Liquidation Event (as defined below), or (vi) enter into any agreement with respect to any of the foregoing.
B. A “Deemed Liquidation Event” will mean: (a) a merger or consolidation in which the Corporation is a constituent
party or a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant
to such merger or consolidation, except any such merger or consolidation involving the Corporation or a subsidiary in which the
shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent,
or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation,
at least a majority, by voting power, of the capital stock of the surviving or resulting corporation or, if the surviving or resulting
corporation is a wholly-owned subsidiary of another corporation immediately following such merger or consolidation, the parent
corporation of such surviving or resulting corporation; or (b) the sale, lease, transfer, exclusive license or other disposition,
in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially
all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise)
of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken
as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition
is to a wholly owned subsidiary of the Corporation. The Corporation shall not have the power to effect a Deemed Liquidation Event
unless the agreement or plan of merger or consolidation for such transaction provides that the consideration payable to the stockholders
of the Corporation will be allocated among the holders of capital stock of the Corporation in accordance hereof.
No
shares of Series B Preferred Stock were issued and outstanding as of December 31, 2017.
Series
C Preferred Stock
The
following summary of the Company’s Series C Preferred Stock is merely a summary, we refer you to our Amended and Restated
Articles of Incorporation and the applicable provisions of the Nevada Revised Statutes for a more complete description of the
rights and liabilities of holders of our securities.
Designation
and Amount:
The
total number of shares of Series C Preferred Stock this Corporation is authorized to issue is two (2) shares, with a stated par
value of $0.00001 per share. The designations, powers, preferences, rights and restrictions granted or imposed upon the Series
C Preferred Stock and holders thereof are as follows unless otherwise agreed to by agreement between the Corporation and the purchasers
of the Series C Preferred Stock. For clarification, issuances of additional authorized shares of Series C Preferred Stock under
the terms herein and as agreed to by and between the Corporation and the holder of such Series C Preferred Stock shall not require
the authorization or approval of the existing shareholders of any other class of preferred stock.
Ranking:
The
Series C 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 Corporation’s Common Stock (“Common Stock”),
(b) junior with respect to dividends and right of liquidation with the Corporation’s Series A Preferred Stock and the Corporation’s
Series B Preferred Stock; and (c) junior with respect to dividends and right of liquidation to all existing and future indebtedness
of the Corporation. Without the prior written consent of Holders holding a majority of the outstanding shares of Series C Preferred
Stock, the Corporation may not issue any Preferred Stock that is senior to the Series C Preferred Stock in right of dividends
and liquidation.
Liquidation
Preference:
The
Series C Preferred Stock shall have no liquidation preference.
Conversion:
The
Series C Preferred Stock shall not be convertible.
Voting:
Each
issued and outstanding shares of Series C Preferred Stock shall be entitled to One Billion (1,000,000,000) 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.
Dividends:
Series
C Preferred Stock shall not accrue dividends.
Redemption:
The
Series C Preferred Stock shall not be redeemable by the Corporation.
No
shares of Series C Preferred Stock were issued and outstanding as of December 31, 2017.
Series
D Preferred Stock
The
following summary of the Company’s Series D Preferred Stock is merely a summary, we refer you to our Amended and Restated
Articles of Incorporation and the applicable provisions of the Nevada Revised Statutes for a more complete description of the
rights and liabilities of holders of our securities.
Designation
and Amount:
The
total number of shares of Series D Preferred Stock this Corporation is authorized to issue is one million (1,000,000) shares,
with a stated par value of $0.00001 per share with such powers, preferences, rights and restrictions which shall be determined
by the Corporation’s Board of Directors in its sole discretion, and which designations and issuances shall not require the
approval of the shareholders of the Corporation.
No
shares of Series D Preferred Stock were issued and outstanding as of December 31, 2017.
Common
Stock
The
Company is authorized to issue 1,000,000,000 shares of common stock at a par value of $0.00001. Subsequent to year end, on
March 14, 2018 the Company increased the authorized Common Shares to 1,000,000,000 (see Note 9).
On
June 27, 2017, pursuant to the Share Exchange Agreement (See Note 1), the Company issued 50,000,000 shares of common stock to
the stockholders of 12HK in exchange for the 12HK Shares. As a result of the reverse acquisition accounting, these
shares issued to the former 12HK stockholders are treated as being outstanding from the date of issuance of the 12HK
Shares.
The
50,000,000 shares of common stock consisted of the following;
|
●
|
25,000,000
shares of common stock were outstanding as of December 31, 2015 (12HK)
|
|
●
|
During
the year ended December 31, 2016, the Company issued another 25,000,000 shares of common stock in settlement of amounts due
to stockholders totaling $256,000 (Note 7) (12HK)
|
These
50,000,000 12HK shares were exchanged for 50,000,000 12 Retech shares on June 27, 2017, but are accounted for as if issued by
the Company due to the reverse merger accounting rules.
Subsequent
to June 27, 2017 and during
the year ended December 31, 2017,
the Company issued common shares as follows;
|
●
|
5,000,000
shares of common stock in connection with the acquisition of 12JP (Note 1)
|
|
●
|
3,807,976
shares of common stock with the acquisition of 12EU (Note 1)
|
|
●
|
2,700,000
shares of commons stock to unrelated parties for services valued at $474,000
|
During
the year ended December 31, 2017, under the terms for the acquisition of 12JP, 5,000,000 shares of common stock beneficially owned
by the Company’s majority stockholder were cancelled (Note 1).
On
July 13, 2017, the Company reached an agreement with a vendor shareholder to return 3,000,000 shares of its common stock to treasury
for cancellation.
As
of December 31, 2017 and 2016, 82,200,000 and 50,000,000 shares of common stock were issued and outstanding, respectively.
NOTE
10 - INCOME TAXES
The
Company operates in the United States and its wholly-owned subsidiaries operate in Japan, Hong Kong and Switzerland and files
tax returns in these jurisdictions.
Loss
from continuing operations before income tax expense (benefit) is as follows:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Tax
jurisdiction from:
|
|
|
|
|
|
|
|
|
-
US
|
|
$
|
(792,206
|
)
|
|
$
|
-
|
|
-
Foreign
|
|
|
|
|
|
|
|
|
Hong
Kong (HK)
|
|
|
(415,435
|
)
|
|
|
(113,009
|
)
|
Japan
(JP)
|
|
|
(159,443
|
)
|
|
|
(74,733
|
)
|
Switzerland
(EU)
|
|
|
(51,671
|
)
|
|
|
6,702
|
|
Loss
before income taxes
|
|
$
|
(1,418,755
|
)
|
|
$
|
(181,040
|
)
|
There
was no provision for income taxes for the years ended December 31, 2017 and 2016, as the Company has tax losses in all jurisdictions.
The expected approximate income tax rate for 2017 and 2016, for United States is 34%, Hong Kong is 16.5%, Japan is 30%, and Switzerland
is 20%, whereas the actual rate was zero. The total income tax benefit differs from the expected income tax benefit principally
due to the valuation allowance recorded against the deferred tax assets which are principally comprised of net operating losses
(“NOLs”).
The
following table sets forth the significant components of the aggregate deferred tax assets of the Company as of December 31, 2017
and 2016:
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
NOL
carryforwards
|
|
|
|
|
|
|
|
|
United
States – current rate
|
|
$
|
266,934
|
|
|
$
|
-
|
|
United
States – effect of change in statutory rate
|
|
|
(102,062
|
)
|
|
|
-
|
|
-Foreign
|
|
|
337,278
|
|
|
|
210,821
|
|
Total
|
|
|
502,150
|
|
|
|
210,821
|
|
Less:
valuation allowance
|
|
|
(502,150
|
)
|
|
|
(210,821
|
)
|
Net
deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
On
December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications
to existing law including lowering the corporate tax rate from 34% to 21%. In addition to applying the new lower corporate tax
rate in 2018 and thereafter to any taxable income we may have, the legislation affects the way we can use and carry forward net
operating losses previously accumulated and results in a revaluation of deferred tax assets and liabilities recorded on our balance
sheet. The Company has completed the accounting for the effects of the Act during the quarter ended December 31, 2017. Given that
current deferred tax assets are offset by a full valuation allowance, these changes will have no impact on the balance sheet.
The
Company applies the authoritative accounting guidance under ASC 740 for the recognition, measurement, classification and disclosure
of uncertain tax positions taken or expected to be taken in a tax return. The Company provided a full valuation allowance against
its deferred tax assets as of December 31, 2017 and 2016. This valuation allowance reflects the estimate that it is more likely
than not that the net deferred tax assets may not be realized.
The
Company has approximately $2,480,000 of U.S. and foreign carryforwards, the tax effect of which is approximately $502,000. These
carryforwards begin to expire in 2024.
The
U. S. NOL carryforwards are subject to certain limitations due to the change in control of the Company pursuant to Internal Revenue
Code Section 382. The Company has not performed a study to determine if the NOL carryforwards are subject to these Section 382
limitations. In addition, the Company has foreign NOLs. The Company is still evaluating the impact of a change in stock ownership
and the potential limitation of foreign NOLs.
A
valuation allowance is recorded on certain deferred tax assets if it has been determined it is more likely than not that all or
a portion of these assets will not be realized. The Company has recorded a full valuation allowance of $502,150 and $210,821 for
deferred tax assets existing as of December 31, 2017 and 2016, respectively. The valuation allowance as of December 31, 2017 and
2016 is attributable to NOL carryforwards in the United States and foreign jurisdictions. There was an increase in the valuation
allowance in the year ended December 31, 2017 of $291,329.
The
Company's tax returns are subject to examination by tax authorities in the U.S., various state and foreign jurisdictions. The
Company is generally no longer subject to examinations for years prior to 2013.
NOTE
11 - COMMITMENTS
The
Company and its subsidiaries have lease commitments as follows:
|
●
|
The
Company is committed to a 12-month lease until December 31, 2018 for office space in New York City at the rates of $2,095
per month
|
|
●
|
12JP
is committed to a two-year lease that expires May 31, 2018 but will automatically renew for 12 additional months at a monthly
lease rate of $715.
|
|
●
|
12HK
rents virtual office space on a yearly lease ending October 1, 2018 for an annual cost of $2,310.
|
|
●
|
12
Retail rents office space where it has access to conference rooms on an as needed basis for a fee.
|
|
●
|
EAI
is committed to a three-year lease which ends on March 31, 2021 but can be extended at a cost of $4,000 per month. This is
a triple net lease whereby the tenant pays all repairs, taxes and common area expenses which total about $600 per month. This
lease has annual increase clauses of 3% per year.
|
Future
minimum annual lease payments as of December 31, 2017 are $30,488 for 2018.
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.
|
|
North
America
|
|
|
Asia
|
|
|
Europe
|
|
|
Total
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
60,787
|
|
|
$
|
-
|
|
|
$
|
60,787
|
|
Depreciation
|
|
$
|
-
|
|
|
$
|
9,351
|
|
|
$
|
6,749
|
|
|
$
|
16,100
|
|
Operating
loss
|
|
$
|
(732,965
|
)
|
|
$
|
(574,878
|
)
|
|
$
|
(51,671
|
)
|
|
$
|
(1,359,514
|
)
|
Interest
expense
|
|
$
|
59,241
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
59,241
|
|
Net
loss
|
|
$
|
(792,206
|
)
|
|
$
|
(574,878
|
)
|
|
$
|
(51,671
|
)
|
|
$
|
(1,418,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
$
|
-
|
|
|
$
|
7,383
|
|
|
$
|
1,232
|
|
|
$
|
8,615
|
|
Total
assets
|
|
$
|
20,394
|
|
|
$
|
84,206
|
|
|
$
|
27,886
|
|
|
$
|
132,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
99,683
|
|
|
$
|
20,306
|
|
|
$
|
119,989
|
|
Depreciation
|
|
$
|
-
|
|
|
$
|
11,228
|
|
|
$
|
9,747
|
|
|
$
|
20,975
|
|
Operating
income (loss)
|
|
$
|
-
|
|
|
$
|
(187,743
|
)
|
|
$
|
6,703
|
|
|
$
|
(181,040
|
)
|
Interest
expense
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Net
loss
|
|
$
|
-
|
|
|
$
|
(187,743
|
)
|
|
$
|
6,703
|
|
|
$
|
(181,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
$
|
-
|
|
|
$
|
11,985
|
|
|
$
|
14,116
|
|
|
$
|
26,101
|
|
Total
assets
|
|
$
|
-
|
|
|
$
|
127,730
|
|
|
$
|
14,650
|
|
|
$
|
142,380
|
|
NOTE
13 - SUBSEQUENT EVENTS
The
Company evaluated all events and transactions that occurred after December 31, 2017 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
January 10, 2018, LG funded their “back end note” which is the second half commitment from the agreements that the
Company executed with LG on December 8, 2017. Therefore, the Company received net funds of $75,000.
On
January 11, 2018, Cerberus funded their “back end note” which is the second half commitment from the agreements that
the Company executed with Cerberus on December 8, 2017. Therefore, the Company received net funds of $ 75,000.
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.
On
March 16, 2018, the Company entered into a $50,000 Funding Agreement with Eagle Equities, LLC. This is the first portion of the
agreement, which provides for a ‘back end note” of equal amount.
On
March 19, 2018, the Company entered into a $50,000 Funding Agreement with Adar Bays Capital, LLC. This is the first portion of
the agreement, which provides for a “back end note” of equal amount.
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.
12
ReTech Corporation Debt Schedule as of March 31, 2018
|
Lender
or Lessor
|
|
Date
of Issuance
|
|
|
Initial
Principal Amount
|
|
|
Funds
Advanced (Received by Company)
|
|
|
Expenses
Associated with Debt (excludes OID)
|
|
|
Balance
Amount @ 20180331
|
|
|
Interest
Rate
|
|
|
Conversion
Date (if applicable)
|
|
|
Maturity
Date
|
|
|
Monthly
Payment, if applicable
|
|
Secured?
If so,
describe security
interests (for leases list leased item)
|
|
Convertible?
If so, describe the structure
|
|
Contingencies?
If so, describe the terms
|
|
|
Partially
or Fully Guaranteed by Another Entity? If so, specify
|
|
Other
Relevant Information
|
LG
Capital
|
|
|
20180108
|
|
|
$
|
92,646.00
|
|
|
$
|
75,000.00
|
|
|
$
|
4,411.75
|
|
|
$
|
100,984.14
|
|
|
|
9%
/ 24%
default
|
|
|
|
On
Default
|
|
|
|
20180708
|
|
|
None
Required
|
|
No
|
|
On
Default/
25%
|
|
|
|
|
|
No
|
|
Convertible
Upon
Default
|
Cerberus
|
|
|
20180108
|
|
|
$
|
92,646.00
|
|
|
$
|
75,000.00
|
|
|
$
|
4,411.75
|
|
|
$
|
100,984.14
|
|
|
|
9%
/ 24%
default
|
|
|
|
On
Default
|
|
|
|
20180708
|
|
|
None
Required
|
|
No
|
|
On
Default /
25%
|
|
|
|
|
|
No
|
|
Convertible
Upon Default
|
Geneva
Roth Remark Holdings
|
|
|
20180129
|
|
|
|
N/A
|
|
|
$
|
200,000.00
|
|
|
$
|
3,000.00
|
|
|
|
N/A
|
|
|
|
12%
/ 22
%
default
|
|
|
|
20180728
|
|
|
|
None
|
|
|
None
Required
|
|
No
|
|
Lesser
of 35% or
$0.20
|
|
|
|
|
|
No
|
|
Preferred
Equity - Series B Preferred - 203,000
|
Eagle
Equities
|
|
|
20180315
|
|
|
$
|
50,000.00
|
|
|
$
|
47,500.00
|
|
|
$
|
2,500.00
|
|
|
$
|
52,776.16
|
|
|
|
12
|
%
|
|
|
20180911
|
|
|
|
None
|
|
|
None
Required
|
|
No
|
|
40%
discount
|
|
|
|
|
|
No
|
|
Convertible
Promissory Note
|
Adar
Bay
|
|
|
20180315
|
|
|
$
|
50,000.00
|
|
|
$
|
47,500.00
|
|
|
$
|
2,500.00
|
|
|
$
|
52,776.16
|
|
|
|
12
|
%
|
|
|
20180911
|
|
|
|
None
|
|
|
None
Required
|
|
No
|
|
40%
discount
|
|
|
|
|
|
No
|
|
Convertible
Promissory Note
|
Geneva
Roth Remark Holdings
|
|
|
20180315
|
|
|
|
N/A
|
|
|
$
|
60,000.00
|
|
|
$
|
3,000.00
|
|
|
|
N/A
|
|
|
|
12%
/ 22
%
default
|
|
|
|
20180911
|
|
|
|
None
|
|
|
None
Required
|
|
No
|
|
Lesser
of 35% or
$0.20
|
|
|
|
|
|
No
|
|
Preferred
Equity - Series B Preferred - 63,000
|
On
March 14, 2018 the company entered into a Securities Purchase Agreement with EMA Financial whereby the Company issued to a 9%
Convertible Note (“Note”) to EMA Financial, LLC (“EMA”) in the principal amount of $100,000. The Company
shall net $89,000. The conversion price of the Note is $0.05 provided however, if certain conditions are triggered the conversion
price shall equal the lower of: (i) the closing sale price of the Common Stock on the Principal Market on the Trading Day immediately
preceding the Closing Date, and (ii) 60% of either the lowest sale price for the Common Stock on the Principal Market during the
twenty (20) consecutive Trading Days including and immediately preceding the Conversion Date, or the closing bid price, whichever
is lower. The Note shall be redeemed at 150% of outstanding principal and interest.
On
March 30, 2018, the Company entered into an amendment to the note with SBI Investments affecting the September 15, 2017 $200,000
tranche that was now eligible for conversion at a discount to market. The Company agreed to pay $25,000 to SBI for each 30-day
extension. The extension amount is automatically added to the face value of the note after each 30-day period. Management determined
that this extension was in the best interest of shareholders allowing the Company to defer cash payment until more substantial
funds were available and/or to delay conversion. SBI has agreed to a minimum of a 3-month extension under these same terms and
has indicated a willingness to extend even beyond that due date.
On
April 12, 2018 and subsequent to the year ended December 31, 2017, the Company entered into an engagement agreement with Tellson
Securities, Inc. F/K/A 41 North Securities (“Tellson”) whereby Tellson was hired to raise $5 million in preferred
equity for the Company to make acquisitions and expand operations and at the appropriate time to assist the Company for up-listings
to a recognized exchange like the NASDAQ Market.