Acquisitions

9 Months Ended

Sep. 30, 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.

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 RWG 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 RWG 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 $529,201 for the nine months ended September 30, 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.

RuneNYC, LLC.

On March 14, 2019, the Company completed the acquisition of RuneNYC, 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)		41,586
Goodwill		394,440
Liabilities		(37,817	)
Net consideration provided	$	411,123

Rune’s results of operations have been included in the Company’s operating results for the period subsequent to it’s acquisition on February 1, 2019. Rune contributed revenues of $123,168 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 and unreviewed pro forma financial information for the Company for 2018 compared to 12 ReTech as if RWG and Rune was owned for the nine months ended September 30, 2019 and 2018.

	Proforma
	Nine months ended
	September 30,
	2019			2018
Revenues	$	705,058		$	1,180,989
Cost of revenues		466,393			805,532
Gross profit		238,665			375,457

Operating expenses	$	1.924,922		$	491,487
Operating losses	$	(1,686,257	)	$	(116,030	)

Net Loss	$	(15,450,614	)	$	(2,698,846	)

Earnings Per Share	$	(0.97	)	$	(3.14	)

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 RWG and 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.

Emotion Apparel, Inc. & Emotion Fashion Group, 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. (This company shed this subsidiary as of September 30th, 2019 see below).

The Original EAI Transaction was accounted for as follows: 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. The acquisition of EAI 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.

On July 6, 2018, the Company incorporated an new Emotion Apparel, Inc. in the state of Utah and immediately re-named it as Emotion Fashion Group, Inc. (“Emotion Fashion Group” or “EFG”) and does business under the brand name, “Emotion Fashions.”

The EAI share exchange agreement included terms that the Company would provide funding of at least $200,000 in the first 12 months after acquisition and the Seller, who remained as manager, would produce revenues in excess of $1.3 million dollars over that period. The Company secured its investment with a secured line of credit and a landlord’s lien through one of its other subsidiaries. Those liens covered all of the intellectual property and physical assets of Emotion Apparel, Inc. On September 30, 2019 the Company effectively foreclosed on its liens taking possession of the assets including the brands; Lexi-Luu, Emotion Fashion Group, Punkz Gear and retuned the stock in Emotion Apparel, Inc. and its subsidiaries to the Seller. In the 4th quarter 2019 the Company plans to market those brands under new management as part of its consolidation of its acquisitions and utilize its Emotion Fashion Group, Inc, subsidiary that was incorporated in Utah in July 2018. As a result, the related accounts payable and accrued expenses which were payable by Emotion Apparel, Inc. which totaled $511,486 including $250,000 Note Payable, were offset to other income. For further details see Note 6 Accounts Payable and Accrued Expenses and 9 Notes Payable for further details.

12 Japan, LTD.

After the initial acquisition of 12 Hong Kong, LTD during 2017 and the first half of 2018 the Company made several acquisitions including; 12 Japan, LTD. Subsequent to this acquisitions the Company took steps to consolidate the assets and streamline operations that effectively by the end the 3rd quarter 2019, this Company’s no longer function as independent subsidiaries.

12 Japan LTD, in order to streamline operations in the third quarter the Company closed the physical offices in Japan and while revenues continue to be generated in Japan through its flagship customer ITOYA it is serviced under a licensing agreement by 12 Hong Kong Ltd. Management believes that these changes will result in a profit for the Company, from operations in Japan beginning in the 4th quarter of 2019.

12 Europe, A.G.

12 Europe A.G. which was acquired in 2017 has underperformed against expectation. In the third quarter 2019 it was determined by management that the costs of continuing to support the expenses of an independent 12 Europe A.G., were unsupportable. Therefore, the Company reaffirmed its previous master representation agreement between 12 Hong Kong, LTD and Coppola, AG so that the software customers in Europe can continue to be supported and then closed its operations in Europe. On August 20, 2019, the Company had successfully discharged all of its debts associated with 12 Europe A.G., as part of the completion of the 12 Europe A.G., bankruptcy filing except for certain social benefit payments still owed approximately $35K by the Company. Therefore, this subsidiary is no longer in existence. Management does not consider this closure as a condition for discontinued operations as master representation agreement between 12 Europe is now been transferred to 12 Hong Kong and Coppola AG. As such, software customer in Europe will continue to be supported.

Bluwire Group, LLC.

On October 1, 2019, the Company acquired a retailer with 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 Group, LLC and its subsidiaries (“Bluwire”). The Sellers retained 30% of Bluwire and 19% is reserved for 12 months for potential equity investors into Bluwire. Any of this equity reserve not used to raise capital for Bluwire over that period would be divided equally between the Company and the Sellers. The Sellers will continue to manage Bluwire under consulting agreements. See filed 8K between the Company and Bluwire Group, LLC on October 16, 2019.

The Company is expected to consolidate this acquisition effective October 1, 2019, under ASC 805 purchase accounting. However, the accounting impact of this acquisition, including the purchase price and fair value of assets and liabilities acquired, is still being determined and will the result of an independent valuation and will be shown as part of the Company’s 2019 10-K.

The below table sets forth selected unaudited and unreviewed pro forma financial information for the Company for 2018 compared to 12 ReTech as if Bluwire Group, Redwire and Rune were owned for the nine months ended September 30, 2019 and 2018.

	Proforma
	Nine months ended
	September 30,
	2019			2018
Revenues	$	3,838,793		$	5,873,098
Cost of revenues		1,881,970			2,744,412
Gross profit		1,956,823			3,128,686

Operating expenses	$	3,969,923		$	2,958,089
Operating loss	$	(2,013,100	)	$	170,597

Net Loss	$	(15,777,457	)	$	(2,528,249	)

Earnings (Loss) Per Share	$	(0.99	)	$	(2.82	)

The unaudited proforma information set forth above is for informational purposes only. The proforma information should not be considered indicative of actual results that would have been achieved if the Bluwire Group, LLC 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 Bluwire Group, LLC. For the identified periods.