Acquisitions

3 Months Ended

Mar. 31, 2019

Note 3 – Acquisitions

The Company accounts for all business combinations in accordance with Financial Accounting Standards Board (“FASB”) ASC 805, “Business Combinations” (“ASC 805”), using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, may be made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period would be recorded as income. Results of operations of the acquired entity are included in the Company’s results from operations from the date of the acquisition onward and include amortization expense arising from acquired assets. The Company expenses all costs as incurred related to an acquisition in the condensed consolidated statements of operations.

Emotion Fashion Group, Inc. F/K/A E-motion Apparel, Inc.

On May 1, 2018, the Company completed the acquisition of E-motion Apparel, Inc. (“EAI”) a California corporation, pursuant to a share exchange agreement whereby the Company exchanged 1.0 million of its common shares for 100% of the outstanding equity of EAI, in a third-party transaction. The fair value of the 1.0 million shares of common stock issued amounted to $80,000. EAI owned four wholly-owned and majority –owned subsidiaries: Lexi Luu Designs, Inc, (a Nevada Corporation), Punkz Gear, Inc, (a Wyoming Corporation), Cleo VII, Inc. (a Nevada Corporation) and Skipjack Dive & Dance Wear, Inc. (a Nevada Corporation), which together owns five microbrands that were included in this transaction and target specific niche markets: Lexi-Luu Dancewear, Punkz Gear, Cleo VII, Skipjack Dive & Dance Wear, and E-motion Apparel, Inc.

On July 6, 2018, the Company re-incorporated EAI in the state of Utah and later re-named it as Emotion Fashion Group, Inc. (“Emotion Fashion Group” or “EFG”) and does business under the brand name, “Emotion Fashions.” Going forward, and as part of the re-incorporation as Emotion Fashion Group, the Company has consolidated all of its subsidiaries and the Company now operates all brands under the single entity, Emotion Fashion Group.

Emotion Fashion Group was then deemed to be founded in 2010 and designs and manufactures women’s apparel and kids’ dancewear. The acquisition of Emotion Fashion Group was accounted for under ASC 805 where purchase price was allocated based on assets acquired and liabilities assumed as of the acquisition date May 1, 2018, at the estimated fair value. During the fourth quarter of 2018, the Company determined that the goodwill associated with the acquisition should be fully impaired, and as such was expensed during the fourth quarter of 2018. For further details, please see Company’s Form 10-K filed on April 19, 2019.

Red Wire Group, LLC.

On February 19, 2019, the Company completed the acquisition of Red Wire Group, LLC. (“RWG”) a Utah limited liability company, pursuant to a share exchange agreement whereby the Company exchanged the Company’s Series D-5 and Series D-6 for 100% of the outstanding equity of RWG. Pursuant to the terms of the exchange agreement, the Company acquired (i) 75% of the membership interests of Red Wire in exchange for 54,000 shares of the Company’s Series D-6 Preferred Stock (stated value of $5.00 per share), and (ii) the remaining 25% of the membership interests of Red Wire in exchange for 37,500 shares of the Company’s Series D-5 Preferred Stock (stated value of $4.00 per share).

The powers, preferences and rights, and the qualifications, limitations and restrictions of the Series D-5 and Series D-6 Preferred Stock are set forth in the Company’s Current Report on Form 8-K and exhibits attached thereto previously filed with the Securities and Exchange Commission on January 11, 2019.

RWG continued its operations uninterrupted following the closing and retained key employees. The exchange agreement included customary representations, warranties and covenants of the parties. The closing of the Exchange Agreement is subject to certain closing conditions, including that the Members have not materially misrepresented any of the representations contained in the Exchange Agreement and its exhibits.

The Company has consolidated the acquisition effective February 1, 2019 to simplify the accounting under ASC 805 purchase accounting as it pertains to the acquisition of the RWG.

The assets and net liabilities acquired (based on fair values) were as follows:

Cash	$	10
Other assets (except cash)		106,110
Goodwill		480,381
Liabilities		(136,501	)
Net consideration provided	$	450,000

The fair values of the net assets acquired were determined using the market approach, which indicates value for a subject asset based on available market pricing for comparable assets. The fair value of the fixed assets of $58,110 has been determined by a third-party valuation firm and is valued at its estimated sale price. The Company also capitalized assets of approximately $48,000. The fair value of the debt has been determined using an appropriately required payment amount.

The purchase price for the acquisition was allocated to the fair value of the assets acquired and liabilities assumed based on the estimates of the fair values at the acquisition date, with the amount exceeding the estimated fair values being recorded as goodwill.

The fixed assets are being depreciated over their estimated useful lives of 5 years. Goodwill recorded will not be amortized but tested for impairment at least annually, which will occur during the fourth quarter of the current year. The Company assumed the liabilities of the RWG of $136,501.

RWG results of operations have been included in the Company’s operating results for the period subsequent to the February 1, 2019. RWG contributed revenues of $180,881 for the three months ended March 31, 2019. The Company is still evaluating the total assets and liabilities at the date of acquisition and further adjustments might be made to the purchase price.

Rune NYC, LLC.

On March 14, 2019, the Company completed the acquisition of Rune NYC, LLC. (“Rune”), a New York limited liability company, pursuant to a share exchange agreement whereby the Company exchanged the Company’s Series D-5 shares for 92.5% of the total outstanding equity of Rune and the members of Rune (the “Members”). Pursuant to the terms of the exchange agreement, the Members of Rune (the “Members”) representing 92.5% of the membership interests have agreed to tender their interests to the Company, and the Company closed the tender offer period on March 14, 2019 at which time 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 were exchange for 82,588 shares of the Company’s Series D-5 Preferred Stock with a stated value of $4.00 per share.

The powers, preferences and rights, and the qualifications, limitations and restrictions of the Series D-5 Preferred Stock are set forth in the Corporation’s Current Report on Form 8-K and exhibits attached thereto previously filed with the Securities and Exchange Commission on January 11, 2019.

Rune continued its operations uninterrupted during closing and retained certain key employees. The exchange agreement included customary representations, warranties and covenants of the parties. The closing of the exchange agreement was subject to certain closing conditions, including that the Members have not materially misrepresented any of the representations contained in the exchange agreement and its exhibits.

The Company has consolidated the acquisition effective February 1, 2019 to simplify the accounting under ASC 805 purchase accounting as it pertains to the acquisition of the Rune.

The assets and net liabilities acquired (based on fair values) were as follows:

Cash	$	12,914
Other assets (except cash)		33,256
Goodwill		399,959
Liabilities		(35,006	)
Net consideration provided	$	411,123

Rune results of operations have been included in the Company’s operating results for the period subsequent to the acquisition on February 1, 2019. Rune contributed revenues of $26,831 in 2019. The Company is still evaluating the total assets and liabilities at the date of acquisition and further adjustments might be made to the purchase price.

The below table sets forth selected unaudited pro forma financial information for the Company for 2018 compared to 12 ReTech as if RWG and Rune was owned for the three months ended March 31, 2018 and 2018.

	Proforma
	Three months ended
	March 31,
	2019			2018
Revenues	$	301,129		$	463,059
Cost of revenues		187,898			348,616
Gross profit		113,231			114,444

Net Loss	$	(1,663,608	)	$	(983,030	)

Earnings Per Share	$	(0.00	)	$	(0.01	)

The unaudited pro forma information set forth above is for informational purposes only. The pro forma information should not be considered indicative of actual results that would have been achieved if the Rune acquisition had occurred on January 1, 2018. The unaudited supplemental pro forma financial information was calculated by combining the Company’s results with the stand-alone results of Rune. For the identified periods, which were adjusted for certain transactions and other costs that would have been occurred during this pre-acquisition period.