UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2020

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-55915

12 ReTech Corporation

(Exact name of registrant as specified in its charter)

Nevada |  | 38-3954047
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

515 E, Grant St. Suite 515 Phoenix, Arizona |  | 85004
(Address of principal executive offices) |  | (Zip Code)

530-539-4329

Registrant’s telephone number

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] |  | Accelerated filer [ ]
Non-accelerated filer [ ] |  | Smaller reporting company [X]
|  | Emerging Growth Company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Shares |  | RETC |  | OTC: PINK

The number of shares of common stock ($0.00001 par value) outstanding as of June 1, 2021 was 5,593,994,474.

12 RETECH CORPORATION

FOR THE THREE AND NINE MONTHS ENDED

September 30, 2020

Index to Report

|  | Page
PART I | FINANCIAL STATEMENTS (unaudited) | 4
Item 1. | Condensed Consolidated Balance Sheets | 4
| Condensed Consolidated Statements of Operations and Comprehensive Loss | 5
| Condensed Consolidated Statements of Stockholders Deficit | 6
| Condensed Consolidated Statements of Cash Flow | 7
| Notes to Financial Statements | 8
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 37
Item 4. | Controls and Procedures | 38
PART II | OTHER INFORMATION | 40
Item 1. | Legal Proceedings | 40
Item 1A. | Risks Factors | 41
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 42
Item 3. | Defaults Upon Senior Securities | 42
Item 4. | Other Information | 42
Item 5. | Exhibits | 42

2

FORWARD-LOOKING STATEMENTS

This document contains “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not intend, and undertake no obligation, to update any forward-looking statement. You should, however, consult further disclosures we make in future filings of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Although we believe the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

| - | our current lack of working capital;
| - | inability to raise additional financing;
| - | that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require our management to make estimates about matters that are inherently uncertain;
| - | deterioration in general or regional economic conditions;
| - | adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;
| - | inability to efficiently manage our operations;
| - | inability to achieve future sales levels or other operating results; and
| - | the unavailability of funds for capital expenditures.
| - | Our lack of cash due to the shutdown of operations due to the pandemic.
| - | Our late disclosure filings caused by a lack of funding due to the impact of the pandemic on our operations.

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see “Item 1A. Risk Factors” in this document.

Throughout this Quarterly Report references to “we”, “our”, “us”, “12 ReTech”, “RETC”, “the Company”, and similar terms refer to 12 ReTech Corporation.

3

PART I

ITEM 1. FINANCIAL STATEMENTS

12 ReTech Corporation

Condensed Consolidated Balance Sheets

(unaudited)

|  | September 30, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
ASSETS |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 42,826 |  |  | $ | 118,860 |
Accounts receivable |  |  | 22,989 |  |  |  | 131,605 |
Inventory |  |  | 199,250 |  |  |  | 241,987 |
Prepaid expenses |  |  | 12,005 |  |  |  | 7,600 |
Total Current Assets |  |  | 277,070 |  |  |  | 500,051 |
Fixed assets, net |  |  | 198,853 |  |  |  | 348,396 |
ROU asset |  |  | 77,243 |  |  |  | 303,071 |
Other asset |  |  | 63,964 |  |  |  | 179,100 |
Security deposit |  |  | 236,250 |  |  |  | 60,824 |
TOTAL ASSETS |  | $ | 853,380 |  |  | $ | 1,391,442 |
LIABILITIES AND STOCKHOLDERS’ DEFICIT |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  | $ | 2,859,705 |  |  | $ | 2,167,496 |
Due to stockholders |  |  | 383,856 |  |  |  | 384,091 |
Related Party Notes payable, net of discounts |  |  | 31,000 |  |  |  | 346,000 |
Convertible notes payable, net of discounts |  |  | 1,274,907 |  |  |  | 1,308,092 |
Derivative liabilities |  |  | 7,390,863 |  |  |  | 5,359,442 |
General default reserve |  |  | 2,140,995 |  |  |  | 1,769,791 |
Lease liability |  |  | 22,669 |  |  |  | 245,207 |
Bank loans |  |  | 249,937 |  |  |  | 233,250 |
Merchant cash advances, net of discounts |  |  | 410,012 |  |  |  | 472,829 |
Total Current Liabilities |  |  | 14,763,943 |  |  |  | 12,286,198 |
Lease Liability |  |  | 59,372 |  |  |  | 59,372 |
SBA and PPP Loans |  |  | 485,782 |  |  |  | - |
Total Long - Term Liabilities |  |  | 545,154 |  |  |  | 59,372 |
Total Liabilities |  |  | 15,309,097 |  |  |  | 12,345,570 |
Commitments and Contingencies |  |  |  |  |  |  |  |
Series B Preferred Stock, 1,000,000 shares designated; $0.00001 par value, $1.00 stated value; 174,000 shares and 27,980 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively. Liquidation preference $170,400 |  |  | 170,400 |  |  |  | 121,000 |
Series D-1 Preferred Stock, 500,000 shares designated; $0.00001 par value $2.00 stated value; 0 shares issued and outstanding at September 30, 2020 and December 31, 2019. Liquidation preference $0 as of September 30, 2020 |  |  | - |  |  |  | - |
Series D-2 Preferred Stock, 2,500,000 shares designated; $0.00001 par value, $2.00 stated value; 929,918 shares and 915,968 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively. Liquidation preference $2,503,748 |  |  | 2,557,812 |  |  |  | 2,442,542 |
Series D-3 Preferred Stock, 500,000 shares designated; $0.00001 par value $5.00 stated value; 54,840 shares issued and outstanding at September 30, 2020 and December 31, 2019. Liquidation preference $274,234 |  |  | 274,234 |  |  |  | 274,234 |
Stockholders’ Deficit: |  |  |  |  |  |  |  |
Preferred stock: 50,000,000 authorized; $0.00001 par value: |  |  |  |  |  |  |  |
Series A Preferred Stock, 10,000,000 shares designated; $0.00001 par value; 9,196,316 and 9,064,316 shares issued and outstanding at September 30, 2020 and December 31, 2019 |  |  | 93 |  |  |  | 92 |
Series C Preferred Stock, 2 share designated; $0.00001 par value; 1 shares issued and outstanding at September 30, 2020 and December 31, 2019 |  |  | 1 |  |  |  | 1 |
Series D-5 Preferred Stock, 1,000,000 shares designated; $0.00001 par value, $4.00 stated value; 128,494 shares and 0 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively |  |  | 513,976 |  |  |  | 513,976 |
Series D-6 Preferred Stock, 1,000,000 shares designated; $0.00001 par value $5.00 stated value; 104,680 shares issued and outstanding at September 30, 2020 and December 31, 2019. |  |  | 523,400 |  |  |  | 523,400 |
Common stock: 8,000,000,000 authorized, $0.00001 par value; 902,746,952 and 36,935,303 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively |  |  | 9,024 |  |  |  | 369 |
Additional paid-in capital |  |  | 9,096,420 |  |  |  | 8,341,811 |
Minority interest |  |  | (566,546 | ) |  |  | (412,753 | )
Accumulated other comprehensive income |  |  | (1,493 | ) |  |  | (2,455 | )
Accumulated deficit |  |  | (27,033,039 | ) |  |  | (22,756,345 | )
Total Stockholders’ Deficit |  |  | (17,458,164 | ) |  |  | (13,791,904 | )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |  | $ | 853,379 |  |  | $ | 1,391,442 |

The accompanying notes are an integral part of these condensed consolidated financial statements

4

12 ReTech Corporation

Condensed Consolidated Statements of Operations

(unaudited)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Revenues |  | $ | 68,052 |  |  | $ | 165,798 |  |  | $ | 590,814 |  |  | $ | 625,058 |
Cost of revenue |  |  | 33,539 |  |  |  | 113,015 |  |  |  | 304,700 |  |  |  | 426,393 |
Gross Profit |  |  | 34,513 |  |  |  | 52,783 |  |  |  | 286,114 |  |  |  | 198,665 |
Operating Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
General and administrative |  | $ | 366,783 |  |  | $ | 300,673 |  |  |  | 1,425,356 |  |  |  | 1,068,216 |
Professional fees |  |  | 94,179 |  |  |  | 311,113 |  |  |  | 428,681 |  |  |  | 840,611 |
Depreciation |  |  | 69,256 |  |  |  | 4,973 |  |  |  | 264,678 |  |  |  | 16,095 |
Total Operating Expenses |  |  | 530,218 |  |  |  | 616,759 |  |  |  | 2,118,715 |  |  |  | 1,924,922 |
Loss from operations |  |  | (495,705 | ) |  |  | (563,976 | ) |  |  | (1,832,601 | ) |  |  | (1,726,257 | )
Other Expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other income |  | $ | 217,052 |  |  | $ | 1,027,306 |  |  |  | 416,218 |  |  |  | 1,034,956 |
Reserve Expense |  |  | (131,131 | ) |  |  | (142,354 | ) |  |  | (355,684 | ) |  |  | (1,687,528 | )
Loss on debt extension |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Interest expense |  |  | (98,752 | ) |  |  | (2,196,459 | ) |  |  | (335,339 | ) |  |  | (8,296,103 | )
Loss on exchange of equity instruments |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (132,812 | )
Loss on impairment of goodwill |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Loss on impairment of software development cost |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (513,601 | )
Gain/loss on derivative liability |  |  | 6,688,600 |  |  |  | (3,200,690 | ) |  |  | (2,323,080 | ) |  |  | (4,169,269 | )
Net Other Expense |  |  | 6,675,769 |  |  |  | (4,512,198 | ) |  |  | (2,597,885 | ) |  |  | (13,764,357 | )
Net Loss |  |  | 6,180,064 |  |  |  | (5,076,174 | ) |  |  | (4,430,486 | ) |  |  | (15,490,614 | )
Deemed Dividend - Preferred Stock |  |  |  |  |  |  | - |  |  |  |  |  |  |  | - |
Net Loss |  | $ | 6,180,064 |  |  | $ | (5,076,174 | ) |  | $ | (4,430,486 | ) |  | $ | (15,490,614 | )
Other comprehensive income- foreign currency translation adjustment |  |  | 3 |  |  |  | 7,804 |  |  |  | 962 |  |  |  | (3,615 | )
Comprehensive Loss |  | $ | 6,180,067 |  |  | $ | (5,068,370 | ) |  | $ | (4,429,524 | ) |  | $ | (15,494,229 | )
Minority Interest |  | $ | 1,027 |  |  | $ | (5,939 | ) |  | $ | (153,792 | ) |  | $ | (10,533 | )
Net Loss to 12 ReTech Corporation |  |  | 6,179,040 |  |  |  | (5,062,431 | ) |  |  | (4,275,732 | ) |  |  | (15,483,696 | )
Net Loss Per Common Share: Basic and Diluted |  | $ | 0.04 |  |  | $ | (0.21 | ) |  | $ | (0.09 | ) |  | $ | (0.98 | )
Weighted Average Number of Common Shares Outstanding: Basic and Diluted |  |  | 146,341,243 |  |  |  | 24,128,911 |  |  |  | 47,357,790 |  |  |  | 15,860,943 |

The accompanying notes are an integral part of these condensed consolidated financial statements

5

12 ReTech Corporation

Condensed Consolidated Statement of Stockholder’s Deficit

Three and nine months ended September 30, 2020 and 2019

(unaudited)

|  | Series A Preferred Stock |  |  | Series C Preferred Stock |  |  | Series D-5 Preferred Stock |  |  | Series D-6 Preferred Stock |  |  | Common Stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Number of Shares |  |  | Amount |  |  | Number of Shares |  |  | Amount |  |  | Number of Shares |  |  | Amount |  |  | Number of Shares |  |  | Amount |  |  | Number of Shares |  |  | Amount |  |  | Additional Paid-in Capital |  |  | Minority Interest |  |  | Other Comprehensive Income |  |  | Accumulated Deficit |  |  | Total Stockholders’ Deficit |
Balance - June 30, 2019 |  |  | 6,500,000 |  |  |  | 65 |  |  |  | 1 |  |  |  | 1 |  |  |  | 120,088 |  |  |  | 480,352 |  |  |  | 55,600 |  |  |  | 278,000 |  |  |  | 25,410,374 |  |  |  | 254 |  |  |  | 5,263,018 |  |  |  | 26,240 |  |  |  | (10,124 | ) |  |  | (21,590,749 | ) |  |  | (15,546,520 | )
Common stock issued for conversion of notes payable and accrued interest |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,124,667 |  |  |  | 21 |  |  |  | 10,623 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 10,645 |
Common stock issued for Preferred Shares conversion |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,000,000 |  |  |  | 30 |  |  |  | 27,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 27,030 |
Preferred Stock issued with for services |  |  | 114,615 |  |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 62,999 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 62,999 |
Series D-2 shares exchange for common stock |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Exchange Series A preferred stock for related party and third party liabilities |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,179,663 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,179,663 |
Relief of derivative through conversion and issuance of preferred stock derivatives |  |  | 1,915,151 |  |  |  | 19 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 51,676 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 51,676 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (5,938 | ) |  |  | 7,804 |  |  |  | 5,070,236 |  |  |  | (5,068,370 | )
Balance - September 30, 2019 |  |  | 8,529,316 |  |  |  | 85 |  |  |  | 1 |  |  |  | 1 |  |  |  | 120,088 |  |  |  | 480,352 |  |  |  | 55,600 |  |  |  | 278,000 |  |  |  | 25,410,374 |  |  |  | 254 |  |  |  | 6,556,277 |  |  |  | 20,302 |  |  |  | (2,320 | ) |  |  | (26,660,984 | ) |  |  | (19,302,877 | )
Balance - December 31, 2018 |  |  | 6,500,000 |  |  | $ | 65 |  |  |  | 1 |  |  | $ | 1 |  |  |  | - |  |  | $ | - |  |  |  | - |  |  | $ | - |  |  |  | 6,542,520 |  |  | $ | 65 |  |  | $ | 5,336,977 |  |  | $ |  |  |  | $ | 1,295 |  |  | $ | (11,180,903 | ) |  | $ | (5,842,500 | )
Common stock issued for conversion of notes payable and accrued interest |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 10,904,612 |  |  |  | 109 |  |  |  | 303,364 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 303,484 |
Common stock issued for Preferred Shares conversion |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 8,025,742 |  |  |  | 80 |  |  |  | 255,733 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 255,814 |
Preferred stock issued with acquisition |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 120,088 |  |  |  | 480,352 |  |  |  | 55,600 |  |  |  | 278,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 30,834 |  |  |  | - |  |  |  | - |  |  |  | 789,272 |
Preferred Stock issued with for services |  |  | 114,165 |  |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 62,999 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 62,999 |
Series D-2 shares exchange for common stock |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (62,500 | ) |  |  | (1 | ) |  |  | (523,374 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (523,376 | )
Exchange Series A preferred stock for related party and third party liabilities |  |  | 1,915,151 |  |  |  | 19 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,179,663 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,179,663 |
Relief of derivative through conversion and issuance of preferred stock derivatives |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (34,004 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (34,004 | )
Net loss |  |  | - |  |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | (10,532 | ) |  |  | (3,615 | ) |  |  | (15,480,081 | ) |  |  | (15,494,229 | )
Balance - September 30, 2019 |  |  | 8,529,316 |  |  |  | 85 |  |  |  | 1 |  |  |  | 1 |  |  |  | 120,088 |  |  |  | 480,352 |  |  |  | 55,600 |  |  |  | 278,000 |  |  |  | 25,410,374 |  |  |  | 254 |  |  |  | 6,556,277 |  |  |  | 20,302 |  |  |  | (2,320 | ) |  |  | (26,660,984 | ) |  |  | (19,302,877 | )
Balance June 30, 2020 |  |  | 9,183,816 |  |  |  | 92 |  |  |  | 1 |  |  |  | 1 |  |  |  | 128,494 |  |  |  | 513,976 |  |  |  | 104,680 |  |  |  | 523,400 |  |  |  | 755,657,804 |  |  |  | 7,555 |  |  |  | 9,055,278 |  |  |  | (567,572 | ) |  |  | (1,496 | ) |  |  | (33,212,076 | ) |  |  | (23,680,844 | )
Common stock issued for conversion of notes payable and accrued interest |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 69,089,148 |  |  |  | 691.00 |  |  |  | 5,527 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 6,218 |
Common stock issued for Preferred Shares conversion |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 78,000,000 |  |  |  | 780 |  |  |  | 7,020 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7,799 |
Series D-2 shares exchanged for common stock |  |  |  |  |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1 | )
Preferred shares issued for Cash |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Preferred shares issued for compensation |  |  | 12,750 |  |  |  | 0 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 51 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 51 |
Relief of derivative through conversion and issuance of preferred stock derivatives |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Dividends |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 6,912 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 6,912 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 21,632 |  |  |  | 1,026 |  |  |  | 3 |  |  |  | 6,179,037 |  |  |  | 6,201,700 |
Balance September 30, 2020 |  |  | 9,196,566 |  |  |  | 92 |  |  |  | 1 |  |  |  | 1 |  |  |  | 128,494 |  |  |  | 513,976 |  |  |  | 104,680 |  |  |  | 523,400 |  |  |  | 902,746,952 |  |  |  | 9,026 |  |  |  | 9,096,420 |  |  |  | (566,546 | ) |  |  | (1,493 | ) |  |  | (27,033,039 | ) |  |  | (17,458,164 | )
Balance - December 31, 2019 |  |  | 9,183,816 |  |  |  | 92 |  |  |  | 1 |  |  |  | 1 |  |  |  | 128,494 |  |  |  | 513,976 |  |  |  | 104,680 |  |  |  | 523,400 |  |  |  | 1,315,323,569 |  |  |  | 13,153 |  |  |  | 18,256,846 |  |  |  | (722,391 | ) |  |  | (537 | ) |  |  | (77,737,604 | ) |  |  | (58,574,075 | )
Common stock issued for conversion of notes payable and accrued interest |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 202,503,779 |  |  |  | 2,023 |  |  |  | 70,295 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 72,318 |
Common stock issued for Preferred Shares conversion |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 483,807,870 |  |  |  | 4,838 |  |  |  | 48,374 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 53,211 |
Series D-2 shares exchanged for common stock |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 179,500,000 |  |  |  | 1,795 |  |  |  | 18,305 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 20,099 |
Preferred shares issued for Cash |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Preferred shares issued for compensation |  |  | 12,750 |  |  |  | 0 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,957 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,957 |
Relief of derivative through conversion and issuance of preferred stock derivatives |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Dividends |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 313,749 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 313,749 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 298,931 |  |  |  | (153,793 | ) |  |  | 962 |  |  |  | (4,276,694 | ) |  |  | (4,130,592 | )
Balance September 30, 2020 |  |  | 9,196,566 |  |  |  | 92 |  |  |  | 1 |  |  |  | 1 |  |  |  | 128,494 |  |  |  | 513,976 |  |  |  | 104,680 |  |  |  | 523,400 |  |  |  | 902,746,952 |  |  |  | 9,026 |  |  |  | 9,096,420 |  |  |  | (566,546 | ) |  |  | (1,493 | ) |  |  | (27,033,039 | ) |  |  | (17,458,164 | )

The accompanying notes are an integral part of these condensed consolidated financial statements

6

12 ReTech Corporation

Condensed Consolidated Statements of Cash Flow

(unaudited)

|  | Nine Months Ended |
|  | September 30, |
|  | 2020 |  |  | 2019 |
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |  |  |
Net Loss |  | $ | (4,430,486 | ) |  | $ | (15,490,614 | )
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 264,678 |  |  |  | 16,095 |
Stock based compensation |  |  | - |  |  |  | 63,000 |
Amortization of debt discount |  |  | - |  |  |  | 674,210 |
Gain/loss on derivative liability and additional interest expense recorded on issuance |  |  | 2,323,080 |  |  |  | 11,199,339 |
Increase in notes payable and Series D-2 for defaults |  |  | 355,684 |  |  |  | 1,687,528 |
Excess fair market value of common shares over liabilities settled |  |  | 123,375 |  |  |  | 196,711 |
Impairment of software development cost |  |  |  |  |  |  | 513,601 |
Relief of notes payable and other liabilities through rescindment of Emotion acquisition |  |  |  |  |  |  | (163,805 | )
Accrual of dividends on preferred stock |  |  | 20,661 |  |  |  | - |
Loss on exchange and issuance of preferred stock |  |  | - |  |  |  | 674,644 |
Right of use lease |  |  | 3,290 |  |  |  | - |
Accounts receivable |  |  | 108,616 |  |  |  | (11,363 | )
Prepaid Expenses |  |  | (4,405 | ) |  |  | (2,716 | )
Inventory |  |  | 42,737 |  |  |  | 23,140 |
Security deposit |  |  |  |  |  |  | 793 |
Other current assets |  |  | 115.136 |  |  |  | 108,600 |
Accounts payable and accrued liabilities |  |  | 692,210 |  |  |  | 115,724 |
Net Cash Provided By (Used in) Operating Activities |  |  | (385,424 | ) |  |  | (395,111 | )
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |
Purchase of property and equipment |  |  | 400 |  |  |  | (16,146 | )
Cash received from acquisition |  |  | - |  |  |  | 12,924 |
Cash paid on acquisition |  |  | - |  |  |  | (79,937 | )
Software development costs |  |  | - |  |  |  | (142,483 | )
Security deposit |  |  | (175,426 | ) |  |  | 5,519 |
Net Cash Used in Investing Activities |  |  | (175,026 | ) |  |  | (220,123 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |
Proceeds (repayments) from stockholders |  |  | (235 | ) |  |  | 52,646 |
Proceeds from convertible notes payable |  |  | 60,000 |  |  |  | 527,740 |
Proceeds from Preferred Stock |  |  | - |  |  |  | 10,000 |
Proceeds from notes payable |  |  | - |  |  |  | 31,000 |
Repayments of related party notes payable |  |  | (15,000) |  |  |  | - |
Proceeds from SBA and PPP loan |  |  | 485,782 |  |  |  |  |
Proceeds from merchant financing |  |  | - |  |  |  | - |
Payments on merchant financing |  |  | (62,817 | ) |  |  | - |
Proceeds from bank loans |  |  | 16,687 |  |  |  | - |
Net Cash Provided by Financing Activities |  |  | 484,416 |  |  |  | 621,386 |
Effect of Exchange Rate Changes on Cash and Cash Equivalents |  |  | 962 |  |  |  | (3,615 | )
Net decrease in cash and cash equivalents |  |  | (76,034 | ) |  |  | 6,152 |
Cash and cash equivalents, beginning of period |  |  | 118,860 |  |  |  | 37,721 |
Cash and cash equivalents, end of period |  | $ | 42,826 |  |  | $ | 40,258 |
Supplemental cash flow information |  |  |  |  |  |  |  |
Cash paid for interest |  | $ | - |  |  | $ |  |
Cash paid for taxes |  | $ | - |  |  | $ |  |
Non-cash transactions: |  |  |  |  |  |  |  |
Discounts on convertible notes payable |  | $ | 7.099 |  |  | $ | 452,528 |
Conversions of convertible notes payable, accrued interest and derivatives |  | $ | 106,833 |  |  | $ | 1,020,790 |
Conversion of preferred stock in common stock |  | $ | 38,799 |  |  | $ | 758,352 |
Reduction of APIC related to derivative recorded on Preferred Stock in equity |  | $ | - |  |  | $ | 850,695 |
Conversions of Series B and D-2 preferred stock into common stock |  | $ | - |  |  | $ | 509,157 |
Exchange of preferred stock for different series |  | $ | - |  |  | $ | 1,145,938 |
Issuance of Series A for liabilities |  | $ |  |  |  | $ | 431,338 |
Issuance of Series D-2 for accounts payable |  | $ | - |  |  | $ | 200,000 |

The accompanying notes are an integral part of these condensed consolidated financial statements

7

12 RETECH CORPORATION

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

(Unaudited)

NOTE 1 - NATURE OF BUSINESS

12 ReTech Corporation is a holding company with subsidiaries that develop, sell, and install software that we believe enhance the shopping experience for shoppers and retailers. As a holding company, we also acquire synergistic operating companies that manufacture and sell fashion and other products to other retailers as well as selling these products online. In October 2019, we acquired retail stores in airport terminals and casinos, solidifying us as a true Omni-Channel retailer. Owning our own brick and mortar stores will allow us to deploy our cutting-edge software and Apps in the United States, to demonstrate its effectiveness at attracting shoppers and inducing them to purchase. In our own stores, we plan to test, in real time, new software products which should delight consumers and generate incremental revenues and profits for our stores. If we can show incremental revenues and profits for ourselves, we believe that other retailers may follow our example and deploy our software solutions themselves.

With the intended future launch of our social shopping app which is in development in 2021 (see subsequent events), we intend to associate with other retailers on a new shopping platform that will benefit both consumers and retailers in new and exciting ways.

During the 4th quarter 2019 and continuing in the first quarter 2020 amid the effects of the pandemic created by COVID-19, the Company chose to consolidate its operations around three operating entities; 12 Tech, Inc., formed in Arizona on December 26, 2019 (“12 Tech”) and 12 Retail Corporation, formed on September 17th, 2017 (“12 Retail”), and the 12 Fashion Group, Inc formed on June 26, 2020.

12 Retail operates its own retail outlet(s) as well as those of Bluwire Group, LLC (“Bluwire”), that operates retail stores in airports (mainly in international terminals) and casinos. Because of their locations mainly in international terminals of airports, all Bluwire Company owned stores and all but one royalty store remains closed due to Covid-19. 12 Retail will also serve to demonstrate the effectiveness of the software technology created by 12 Tech in improving revenues and profits for retailers as well as providing access to other retailers through our soon to be launched social shopping app, and through our wholesale fashion business relationships.

12 Fashion Group, Inc., an Arizona Corporation, was formed on June 26, 2020, and operates our fashion wholesale and direct to consumer brands, including Rune NYC, Social Sunday, and Red Wire Design, as well as consolidating remaining operations from our other smaller fashion acquisitions.

Today, 12 Tech aims to provide technology solutions both online and inside retail brick and mortar that helps retailers acquire customers, reduce overhead expenses, streamline operations, and gain incremental revenues and profits. Existing 12 Tech solutions are deployed mainly in Asia. We are planning to deploy our solutions in the United States retail markets, which serve the world’s largest consumer economy. While we continue to operate in Asia, we have consolidated our international units, which were focused on our technology deployment (“12 Japan” and “12 Europe”), and consolidated our software development company 12 Hong Kong, Ltd (“12 HK”), under 12 Tech to further streamline our own operations.

As the retail environment continues to evolve, we as both retailers and technologists, will evolve with it. We believe our developed software, both current and in development, will delight consumers, provide contactless experiential shopping, and assist retailers with the recapture of their revenues as they combat the dual threats of Amazon and Walmart. Our software, once fully deployed and implemented, may provide retailers with another effective online and mobile sales channel besides their current options of Google, Amazon, and/or Facebook/Instagram.

As an innovative retail technology company that has been built through acquisitions and ideas, we will continue to search for additional synergistic acquisitions that bring incremental revenues and profitability and/or provide innovative software solutions.

8

Principal subsidiaries

The details of the principal subsidiaries of the Company are set out as follows:

Name of Company |  | Place of Incorporation |  | Date of Incorporation |  | Acquisition Date |  | Attributable Equity Interest % |  |  | Business
12 Retail Corporation (“12 Retail”) |  | Arizona, USA |  | Sept. 18, 2017 |  | Formed by 12 ReTech Corporation |  |  | 100 | % |  | As a holding Company to execute the Company’s roll up acquisition strategy as well as to penetrate the North American market with our technology to select retailers. Separated into two division: 12 Fashion Group, Inc., and Bluwire Group, LLC.
Red Wire Group, LLC |  | Utah, USA |  | July 2, 2015 |  | February 19, 2019 |  |  | 100 | % |  | Operations are consolidated into 12 Fashion Group, and this company is closed, and we filed a Chapter 11 Subsection V on March 6, 2020. This was discharged on or about September 2020 and. is permanently closed
Rune NYC, LLC |  | New York, USA |  | Jan 23, 2013 |  | March 14, 2019 |  |  | 92.5 | % |  | Operated by 12 Fashion Group, Inc., an unincorporated division of 12 Retail. Operates contemporary women’s ‘Athleisure’ brand which is primarily sold to retailers.
Bluwire Group, LLC (“Bluwire”) |  | Florida, USA |  | Feb 1, 2010 |  | October 1, 2019 |  |  | 60.5 | % |  | A subsidiary of 12 Retail with 12 brick and mortar stores was acquired.
Social Decay, LLC dba Social Sunday (“Social Sunday”) |  | New Jersey, USA |  | Sept 24, 2014 |  | November 1, 2019 |  |  | 100 | % |  | Operated by 12 Fashion Group Inc., a division of 12 Retail. Operates a contemporary women’s clothing brand primarily sold to wholesalers.
12 Tech Inc |  | Arizona, USA |  | Dec 26,2019 |  | Formed by 12 Retech |  |  | 100 | % |  | As a holding Company to execute the Company’s technology strategy.
12 Hong Kong Limited (“12HK”) |  | Hong Kong, China |  | February 2, 2014 |  | June 27, 2017 |  |  | 100 | % |  | A subsidiary of 12 Tech Inc. Development and sales of technology applications. Services customers in Asia, including Japan.
12 Japan Limited (“12JP”) |  | Tokyo, Japan |  | February 12, 2015 |  | July 31, 2017 |  |  | 100 | % |  | A subsidiary of 12 Tech Inc. Consultation and sales of technology applications. As of June 2020, our Japanese customer (s) is serviced by 12 Hong Kong.
12 Europe AG (“12EU”) |  | Switzerland |  | August 22, 2013 |  | October 26, 2017 |  |  | 100 | % |  | As of September 2019, this company is closed.
12 Fashion Group Inc |  | Arizona, USA |  | June 26, 2020 |  | Formed by 12 Retech |  |  | 100 | % |  | Formed as a subsidiary of 12 Retech to hold and operate the wholesale and Retail fashion and apparel operations.

9

Reverse Stock Split and increase in authorized shares

On October 18, 2019, the Company completed a 100-for-1 reverse common stock split reducing the outstanding common shares to 25,410,391. Upon the stock split, the Company’s authorized common shares of 8,000,000,000 did not change. The reverse split has been retroactively applied to share amounts in these consolidated financial statements. As a subsequent event, as of May 18, 2021 the authorized common stock was increased to 20,000,000,000 shares of common stock.

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 interim financial statements have been prepared on a going concern basis which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of September 30, 2020, the Company had a total accumulated deficit totaling $27,033,039 since inception, has not yet generated significant revenue from its operations, and will require additional funds to maintain our operations. As of September 30, 2020, the Company had a working capital deficit of $14,486,873. 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 accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. Notes to the unaudited interim condensed consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2018 have been omitted. This report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2019 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on June 18, 2020.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries 12HK, 12JP, 12EU. 12 Retail, Rune NYC, LLC, Red Wire Group, LLC (“RWG”), Bluwire Group, LLC, Social Decay LLC dba Social Sunday (“Social Sunday”) and Emotion Fashion Group which included the brands Emotion Apparel, Inc., Lexi Luu Designs, Inc., Punkz Gear, Skipjack Dive and Dance Wear, Inc. and Cleo VII, Inc. All inter-company accounts and transactions have been eliminated on consolidation. 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. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, stock-based compensation, derivate instruments, accounting for preferred stock, and the valuation of acquired assets and liabilities. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

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 $42,826 and $118,860 in cash and cash equivalents as at September 30, 2020 and December 31, 2019, respectively.

10

Revenue Recognition

Under Financial Accounting Standards Board (“FASB”) Topic 606, “Revenue from Contacts with Customers” (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation.

The Company’s revenue consists primarily of product sales from our retail stores operating in airport terminals and casinos. Revenue for retail customers is recognized upon completion of the transaction in the point-of-sale system and satisfaction of the sale by providing the corresponding inventory at the retail location. Revenue is recognized upon transfer of control of promised products to customers, generally as risk of loss pass, in an amount that reflects the consideration the Company expects to receive in exchange for those products. Shipping and handling costs are expensed as incurred and are included in cost of revenue. Sales taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from revenue.

The Company earns ancillary revenue including royalty payments and software licensing fees.

Business Combinations

The Company accounts for all business combinations in accordance with FASB ASC 805, “Business Combinations” (“ASC 805”), using the acquisition method of accounting. Under this method, assets and liabilities, including any 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 consolidated statements of operations.

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. As of September 30, 2020 and December 31, 2019, the Company did not have an allowance for doubtful accounts.

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. As of September 30, 2020 and December 31, 2019, all inventory on hand is pursuant to our Bluwire (see Note 4).

Goodwill

Goodwill represents the excess of the purchase price of an acquired entity over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed in a business combination.

11

Impairment of Long-Lived Assets

The Company reviews its long-lived assets (property and equipment) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value.

Goodwill is tested annually at December 31 for impairment and upon the occurrence of certain events or substantive changes in circumstances.

As of December 31, 2019, the Company performed its annual impairment test on all reporting units and determined that each unit had indicating factors of impairment due to failure to meet respective sales projections. As a result, the Company fully impaired the goodwill from each 2019 acquisition.

Convertible Debt and Convertible Preferred Stock

When the Company issues convertible debt or convertible preferred stock, it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether the instrument should be classified as a liability under ASC 480, Distinguishing Liabilities from Equity, and second whether the conversion feature should be accounted for separately from the host instrument. A conversion feature of a convertible debt instrument or certain convertible preferred stock would be separated from the convertible instrument and classified as a derivative liability if the conversion feature, were it a standalone instrument, meets the definition of an “embedded derivative” in ASC 815, Derivatives and Hedging. Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not indexed to the Company’s equity, as defined in ASC 815-40, or when it must be settled either in cash or by issuing stock that is readily convertible to cash. When a conversion feature meets the definition of an embedded derivative, it would be separated from the host instrument and classified as a derivative liability carried on the consolidated balance sheet at fair value, with any changes in its fair value recognized currently in the consolidated statements of operations.

If a conversion feature does not meet the conditions to be separated and accounted for as an embedded derivative liability, the Company then determines whether the conversion feature is “beneficial”. A conversion feature would be considered beneficial if the conversion feature is “in the money” when the host instrument is issued or, under certain circumstances, later. If convertible debt contains a beneficial conversion feature (“BCF”), the amount of the amount of the proceeds allocated to the BCF reduces the balance of the convertible debt, creating a discount which is amortized over the debt’s term to interest expense in the consolidated statements of operations.

When a convertible preferred stock contains a BCF, after allocating the proceeds to the BCF, the resulting discount is either amortized over the period beginning when the convertible preferred stock is issued up to the earliest date the conversion feature may be exercised, or if the convertible preferred stock is immediately exercisable, the discount is fully amortized at the date of issuance. The amortization is recorded similar to a dividend.

Financial Instruments and Fair Value Measurements

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.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Observable inputs are based on market data obtained from sources independent of the Company. Unobservable inputs reflect our own assumptions based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels, defined as follows:

| Level 1 | — | Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.

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| Level 2 | — | Inputs other than quoted prices included within Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.
| Level 3 | — | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs. Unobservable inputs for the asset or liability that reflect management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability as of the reporting date.

The Company carries certain derivative financial instruments using inputs classified as Level 3 in the fair value hierarchy on the Company’s consolidated balance sheets. Refer to Note 11 for detail on the derivative liability.

Further, the Company determined that the certain notes should be measured and carried at fair value in the consolidated financial statements according to ASC 480, as they are settleable in a variable number of shares based on a fixed monetary amount known at inception.

Net Loss per Share

The Company follows ASC 260, “Earnings per Share” (“EPS”), which requires presentation of basic EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation. In the accompanying financial statements, basic earnings (loss) per share are computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. On October 18, 2019, the Company successfully completed its reverse stock split and reduced its common stock outstanding by a ratio of one hundred for one. Per ASC 505-10, if a reverse split occurs after the date of the latest reported balance sheet but before the release of the financial statements, then such changes in the capital structure must be given retroactive effect in the balance sheet. As such, the reverse split has been retroactively applied to these financial statements.

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 three months ended September 30, 2020, potentially dilutive common shares consist of common stock issuable upon the conversion of convertible notes payable, Series A Preferred Stock, Series B Preferred Stock, Series D-2 Preferred Stock, Series D-3 Preferred Stock, Series D-5 Preferred Stock and Series D-6 Preferred Stock (using the if converted method). For the three months ended September 30, 2020, potentially dilutive common shares consist of common stock issuable upon the conversion of convertible notes payable, Series A Preferred Stock, Series B Preferred Stock, Series D-2 Preferred Stock and Series D-3 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. At September 30, 2020, if all dilutive securities were converted the Company would be in excess of their authorized shares of common stock.

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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 September 30, 2020 and December 31, 2019.

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 – ACQUISITIONS

Acquisitions

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 shares of the Company’s Series D-5 and Series D-6 Preferred Stock 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 total purchase consideration for the RWG acquisition was $450,000, including the fair value of D-5 and D-6 Preferred Stock of $420,000 and $30,000 in cash. RWG’s results of operations have been included in the Company’s operating results for the period from February 1, 2019.

The RWG acquisition was accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed. These values are subject to change as we perform additional reviews of our assumptions utilized. For more information, please see filed 2019 10K.

March 16, 2020, as part of the Company’s streamlining operations and partially because of COVID-19, the Company filed a Chapter 11 Reorganization of Red Wire Group, LLC. The Company’s 12 Fashion Group continues to service Red Wire Group customers under the trade name Red Wire Design. The bankruptcy was discharged on or about September 2020 and all debts were extinguished. 12 Fashion Group continues to service those customers acquired as well as obtaining new accounts by marketing under the d/b/a Red Wire Designs.

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Rune NYC, LLC

Effective 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 shares of the Company’s Series D-5 Preferred Stock for 92.5% of the total outstanding equity of Rune and the members of Rune (the “Members”). The Company issued an aggregate of 82,588 shares of Series D-5 Preferred Stock with a stated value of $4.00 per share, and cash consideration of $49,937, for total purchase consideration of $380,289. Rune’s results of operations have been included in the Company’s operating results for the period from March 1, 2019. For more information, please see 2019 10K.

Bluwire Group, LLC

On October 1, 2019, the Company completed the acquisition of Bluwire Group, LLC (“Bluwire”), a Florida limited liability company, pursuant to a share exchange agreement whereby the Company exchanged shares of the Company’s Series A Preferred Stock for 60.5% of the outstanding equity of Bluwire. Pursuant to the terms of the exchange agreement, at closing the Company acquired 60.5% of the membership interests of Bluwire in exchange for 500,000 shares of the Company’s Series A Preferred Stock. The total purchase consideration for the Bluwire acquisition was $200,000, the fair value of the Series A Preferred Stock issued. Bluwire’s results of operations have been included in the Company’s operating results for the period from October 1, 2019. For more information, please see company’s 2019 10K.

Social Decay, LLC dba Social Sunday

On November 20, 2019, the Company completed the acquisition of Social Decay, LLC dba Social Sunday (“Social Sunday”), a New Jersey limited liability company, pursuant to a share exchange agreement whereby the Company exchanged shares of the Company’s Series D-6 Preferred Stock for 100% of the total outstanding equity of Social Sunday and the member of Social Sunday (the “Member”). The Company issued an aggregate of 30,000 shares of Series D-6 Preferred Stock with a stated value of $5.00 per share, and an additional 12,000 shares were issued and held in escrow, for total purchase consideration of $210,000. Social Sunday’s results of operations have been included in the Company’s operating results for the period from November 1, 2019. See company 2019 filed 10K.

All acquisitions were accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired, liabilities assumed and fair value of the minority interest. These values are subject to change as we perform additional reviews of our assumptions utilized.

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NOTE 5 – FIXED ASSETS, NET

Fixed assets at September 30, 2020 and December 31, 2019 consisted of the following:

|  | September 30, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Office equipment |  | $ | 280,965 |  |  | $ | 281,365 |
Furniture and equipment |  |  | 58,118 |  |  |  | 58,118 |
Computer |  |  | 13,704 |  |  |  | 13,704 |
Technical equipment |  |  | 27,492 |  |  |  | 27,492 |
Truck |  |  | - |  |  |  | - |
Intellectual Property |  |  | 78,506 |  |  |  | 78,506 |
Machinery |  |  |  |  |  |  | - |
|  |  | 458,785 |  |  |  | 458,785 |
Less: accumulated depreciation |  |  | (259,931 | ) |  |  | (110,388 | )
Equipment |  | $ | 198,853 |  |  | $ | 348,396 |

Depreciation expense for the three months ended September 30, 2020 and 2019 was $69,256 (depreciation and amortization) and $4,973, respectively.

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NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at September 30, 2020 and December 31, 2019 consisted of the following:

|  | September 30, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Accounts payable |  | $ | 1,291,311 |  |  | $ | 1,249,740 |
Accrued expenses |  |  | 1,037,068 |  |  |  | 548,920 |
Accrued Salaries |  |  | 139,300 |  |  |  | 111,000 |
Accrued board of director fees |  |  | 120,000 |  |  |  | 30,000 |
Accrued interest |  |  | 272,026 |  |  |  | 191,836 |
|  | $ | 2,859,705 |  |  | $ | 2,167,496 |

NOTE 7 - DUE TO STOCKHOLDERS

Due to stockholders at September 30, 2020 and December 31, 2019 consists of the following:

|  | September 30, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Daniel Monteverde |  |  | 402 |  |  |  | 1,388 |
Angelo Ponzetta |  |  | 10,918 |  |  |  | 10,167 |
Christoper Burden |  |  | 172,536 |  |  |  | 172,536 |
Maurice Ojeda |  |  | 200,000 |  |  |  | 200,000 |
|  | $ | 383,856 |  |  | $ | 384,091 |

During the three months ended September 30, 2020 and 2019, in connection with the Bluwire acquisition, the Company assumed liabilities to Bluwire’s members, Christopher Burden and Maurice Ojeda, totaling $372,536. The amounts do not incur interest and are due on demand.

As of September 30, 2020 and December 31, 2019, accounts payable and accrued liabilities included salaries of $139,300 and $111,000, respectively, and accrued board of director fees of $120,000 and $30,000, respectively.

NOTE 8 – NOTES RELATED PARTY PAYABLE

As of September 30, 2020 and December 31, 2019, there were two demand notes outstanding totaling $31,000.

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NOTE 9 – CONVERTIBLE NOTES PAYABLE

Convertible notes payable at September 30, 2020 and December 31, 2019 consists of the following:

|  | September 30, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Dated September 15, 2017 |  | $ | 318,492 |  |  | $ | 337,653 |
Dated December 8, 2017 |  |  |  |  |  |  |  |
Dated December 8, 2017 |  |  | - |  |  |  | - |
Dated April 25, 2018 |  |  | 40,123 |  |  |  | 40,123 |
Dated September 21, 2018 |  |  | 56,714 |  |  |  | 56,714 |
Dated October 18, 2018 |  |  | 60,000 |  |  |  | 60,000 |
Dated November 28, 2018 |  |  | 33 |  |  |  | 25,443 |
Dated November 28, 2018 |  |  | 30,600 |  |  |  | 57,870 |
Dated November 29, 2018 |  |  | 25,000 |  |  |  | 25,000 |
Dated December 13, 2018 |  |  | 105,000 |  |  |  | 105,000 |
Dated January 15, 2019 |  |  | 115,000 |  |  |  | 115,000 |
Dated February 7, 2019 |  |  | 111,276 |  |  |  | 132,720 |
Dated February 19, 2019 |  |  | 64,500 |  |  |  | 64,500 |
Dated February 19, 2019 |  |  | 55,125 |  |  |  | 55,125 |
Dated March 13, 2019 |  |  | 55,125 |  |  |  | 55,125 |
Dated May 14, 2019 |  |  | 26,500 |  |  |  | 26,500 |
Dated May 17, 2019 |  |  | 27,825 |  |  |  | 27,825 |
Dated August 1, 2019 |  |  | 56,194 |  |  |  | 56,194 |
Dated August 7, 2019 |  |  | 55,125 |  |  |  | 55,125 |
Dated October 3, 2019 |  |  | 5,350 |  |  |  | 5,350 |
Dated October 25, 2019 |  |  | 6,825 |  |  |  | 6,825 |
Dated March 19, 2020 |  |  | 33,600 |  |  |  |  |
Dated March 25, 2020 |  |  | 33,600 |  |  |  |  |
Total convertible notes payable |  |  | 1,282,007 |  |  |  | 1,308,092 |
Less: Unamortized debt discount |  |  | (7,099 | ) |  |  | - |
Total convertible notes |  |  | 1,274,907 |  |  |  | 1,308,092 |
Less: current portion of convertible notes |  |  | 1,274,907 |  |  |  | 1,308,092 |
Long-term convertible notes |  | $ | 0 |  |  | $ | (0 | )

On March 18, 2020 the Company entered into a promissory note agreement with Adar Alef, LLC (“Adar”) for loans totaling $33,600. The consideration to the Company is $30,000 with $3,600 legal fees and OID. The note is convertible after 181 days at a (i) $0.0075 ceiling or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion date.

On March 25, 2020 the Company entered into a promissory note agreement with LG Capital Funding, LLC (“LG”) for loans totaling $33,600. The note is convertible after 181 days at a (i) $0.0075 ceiling or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion date.

During the three months ended September 30, 2020 and 2019, the Company recognized interest expense of $98,752 and $352,330, respectively, which represented the amortization of original issue discounts and debt discounts. As of December 31, 2019, all original issue and debt discounts pertaining to outstanding convertible notes were fully amortized. As of September 30, 2020, the unamortized debt discount of $7,099 are related to the new convertible notes issued during the first quarter of 2020.

During the three months and nine months ended September 30, 2020, the Company converted principal and unpaid accrued interest totaling $6,218 and $93,285 into an aggregate of 69,089,148 and 553,2315,698 shares of common stock.

The Company has twenty-one (21) outstanding convertible notes as of September 30, 2020 with a total outstanding principal of $1,274,907. The 2019 notes mature from January 2020 to May 2020. The 2020 notes mature in September 2020. These notes carry an interest rate ranging between 8% and 12% per annum. The notes carry an original issue discounts ranging between 10% to 25% of the face value of each note.

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The notes 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 prices of the notes include 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.

For some notes, the Company agreed to pay a one-time interest charge of 9% of the principal amount for each note. The notes may be converted at specified times per the respective agreements. The conversion price shall be 75% multiplied by the lowest trading price during the 10 prior trading days period ending on either (i) the last complete trading day prior to conversion date or (ii) the conversion date.

All terms of the notes, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect.

The notes may be redeemed by the Company at rates ranging from 105% to 130% depending on the redemption date provided that no redemption is allowed after the 180th day.

The following table is a rollforward of activity, by each noteholder, for the three months ended September 30, 2020:

| Loan Holder |  | Principal Amount |  |  | Date |  |  | Maturity |  |  | OID & Financing Costs |  |  | Balance at 12 31 17 |  |  | Additions |  |  | Payments |  |  | Conversion |  |  | Balance at 12 31 18 |  |  | Additions |  | Payments |  |  | Conversion |  | Balance at 12 31 19 |  |  | Additions |  | Payments |  | Conversion |  | Balance at 9 30 20
1 |  | SBI Investment |  | $ | 200,000 |  |  |  | 9/27/2017 |  |  |  | 3/15/2018 |  |  |  |  |  |  |  | 200,000 |  |  |  | 75,000 |  |  |  | (25,000 | ) |  |  | (93,150 | ) |  |  | 156,850 |  |  |  | - |  |  |  | - |  |  |  | (6,697 | ) |  |  | 150,153 |  |  |  |  |  |  |  |  |  | $ | (19,160.78 | ) |  | 130,992
1 |  | SBI Investment |  | $ | 187,500 |  |  |  | 11/14/2017 |  |  |  | 5/14/2018 |  |  |  |  |  |  |  | 187,500 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 187,500 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 187,500 |  |  |  |  |  |  |  |  |  |  |  |  |  | 187,500
2 |  | LG Caputal Funding, LLC |  | $ | 185,292 |  |  |  | 12/8/2017 |  |  |  | 6/8/2018 |  |  |  | 17,646 |  |  |  | 92,646 |  |  |  | 92,646 |  |  |  | - |  |  |  | (133,032 | ) |  |  | 52,260 |  |  |  | - |  |  |  | - |  |  |  | (52,260 | ) |  |  | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  | 0
3 |  | Cerberus Finance Group Ltd |  | $ | 185,292 |  |  |  | 12/12/2017 |  |  |  | 6/8/2018 |  |  |  | 17,646 |  |  |  | 92,646 |  |  |  | 92,646 |  |  |  | (25,000 | ) |  |  | (53,183 | ) |  |  | 107,109 |  |  |  | - |  |  |  | (99,684 | ) |  |  | (7,425 | ) |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |  | -
4 |  | Eagle Equities LLC |  | $ | 50,000 |  |  |  | 3/15/2018 |  |  |  | 3/15/2019 |  |  |  | 2,500 |  |  |  | - |  |  |  | 50,000 |  |  |  | - |  |  |  | (50,000 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |  | -
5 |  | Adar Capital LLC |  | $ | 50,000 |  |  |  | 3/15/2018 |  |  |  | 3/15/2019 |  |  |  | 2,500 |  |  |  | - |  |  |  | 50,000 |  |  |  | - |  |  |  | (50,000 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |  | -
6 |  | Bellridge Capital LP |  | $ | 60,000 |  |  |  | 5/17/2018 |  |  |  | 5/17/2019 |  |  |  | 10,000 |  |  |  | - |  |  |  | 60,000 |  |  |  | - |  |  |  | (44,000 | ) |  |  | 16,000 |  |  |  | - |  |  |  | - |  |  |  | (16,000 | ) |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |  | -
7 |  | Auctus |  | $ | 100,000 |  |  |  | 4/27/2018 |  |  |  | 4/25/2019 |  |  |  | 10,000 |  |  |  | - |  |  |  | 100,000 |  |  |  | - |  |  |  | (59,877 | ) |  |  | 40,123 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 40,123 |  |  |  |  |  |  |  |  |  |  |  |  |  | 40,123
8 |  | Bellridge Capital LP |  | $ | 60,000 |  |  |  | 9/17/2018 |  |  |  | 3/15/2019 |  |  |  | 10,000 |  |  |  | - |  |  |  | 60,000 |  |  |  | - |  |  |  | - |  |  |  | 60,000 |  |  |  | - |  |  |  | - |  |  |  | (3,286 | ) |  |  | 56,714 |  |  |  |  |  |  |  |  |  |  |  |  |  | 56,714
9 |  | Eagles Equity |  | $ | 50,000 |  |  |  | 9/21/2018 |  |  |  | 3/15/2019 |  |  |  | 2,500 |  |  |  | - |  |  |  | 50,000 |  |  |  | - |  |  |  | (50,000 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |  | -
10 |  | Adar Bay |  | $ | 50,000 |  |  |  | 10/4/2018 |  |  |  | 10/4/2018 |  |  |  | 2,500 |  |  |  | - |  |  |  | 50,000 |  |  |  | - |  |  |  | (50,000 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |  | -
11 |  | Bellridge Capital LP |  | $ | 60,000 |  |  |  | 10/18/2018 |  |  |  | 10/18/2019 |  |  |  | 10,000 |  |  |  | - |  |  |  | 60,000 |  |  |  | - |  |  |  | - |  |  |  | 60,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 60,000 |  |  |  |  |  |  |  |  |  |  |  |  |  | 60,000
12 |  | Adar Alef Omnibus |  | $ | 64,500 |  |  |  | 11/28/2018 |  |  |  | 11/29/2019 |  |  |  | 4,125 |  |  |  | - |  |  |  | 64,500 |  |  |  | - |  |  |  | - |  |  |  | 64,500 |  |  |  | - |  |  |  | - |  |  |  | (39,057 | ) |  |  | 25,443 |  |  |  |  |  |  |  |  |  | $ | (25,410.13 | ) |  | 33
13 |  | Adar Alef Debt Purchase |  | $ | 25,000 |  |  |  | 11/28/2018 |  |  |  | 11/29/2019 |  |  |  |  |  |  |  | - |  |  |  | 25,000 |  |  |  | - |  |  |  | (25,000 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |  | -
14 |  | LG Capital Omnibus |  | $ | 64,500 |  |  |  | 11/28/2018 |  |  |  | 11/29/2019 |  |  |  | 4,125 |  |  |  | - |  |  |  | 64,500 |  |  |  | - |  |  |  | - |  |  |  | 64,500 |  |  |  | - |  |  |  | - |  |  |  | (6,630 | ) |  |  | 57,870 |  |  |  |  |  |  |  |  |  | $ | (27,270.00 | ) |  | 30,600
15 |  | LG Capital Debt Purchase |  | $ | 25,000 |  |  |  | 11/29/2018 |  |  |  | 11/29/2018 |  |  |  |  |  |  |  | - |  |  |  | 25,000 |  |  |  | - |  |  |  | - |  |  |  | 25,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 25,000 |  |  |  |  |  |  |  |  |  |  |  |  |  | 25,000
16 |  | LG Capital Omnibus |  | $ | 105,000 |  |  |  | 12/13/2018 |  |  |  | 12/14/2019 |  |  |  | 5,000 |  |  |  | - |  |  |  | 105,000 |  |  |  | - |  |  |  | - |  |  |  | 105,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 105,000 |  |  |  |  |  |  |  |  |  |  |  |  |  | 105,000
17 |  | LG Capital Omnibus |  | $ | 115,000 |  |  |  | 1/15/2019 |  |  |  | 1/15/2020 |  |  |  | 5,750 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | 115,000 |  |  |  | - |  |  |  | - |  |  |  | 115,000 |  |  |  |  |  |  |  |  |  |  |  |  |  | 115,000
18 |  | Adar Alef Omnibus |  | $ | 132,720 |  |  |  | 2/7/2019 |  |  |  | 2/7/2020 |  |  |  | 6,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | 132,720 |  |  |  | - |  |  |  | - |  |  |  | 132,720 |  |  |  |  |  |  |  |  |  | $ | (21,444.27 | ) |  | 111,276
19 |  | Adar Alef Debt Note |  | $ | 108,055 |  |  |  | 2/7/2019 |  |  |  | 2/7/2019 |  |  |  | 8,371 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | 108,055 |  |  |  | - |  |  |  | (108,056 | ) |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |  | -
20 |  | Adar Alef Omnibus |  | $ | 64,500 |  |  |  | 2/19/2019 |  |  |  | 2/19/2020 |  |  |  | 4,125 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | 64,500 |  |  |  | - |  |  |  | - |  |  |  | 64,500 |  |  |  |  |  |  |  |  |  |  |  |  |  | 64,500
21 |  | LG Capital Omnibus |  | $ | 55,125 |  |  |  | 2/19/2019 |  |  |  | 2/19/2020 |  |  |  | 2,500 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | 55,125 |  |  |  | - |  |  |  | - |  |  |  | 55,125 |  |  |  |  |  |  |  |  |  |  |  |  |  | 55,125
22 |  | LG Capital Omnibus |  | $ | 55,125 |  |  |  | 3/13/2019 |  |  |  | 3/13/2020 |  |  |  | 2,500 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | 55,125 |  |  |  | - |  |  |  | - |  |  |  | 55,125 |  |  |  |  |  |  |  |  |  |  |  |  |  | 55,125
23 |  | Adar Alef Omnibus #2 Back End |  | $ | 26,500 |  |  |  | 5/14/2019 |  |  |  | 2/20/2020 |  |  |  | 1,500 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | 26,500 |  |  |  | - |  |  |  | - |  |  |  | 26,500 |  |  |  |  |  |  |  |  |  |  |  |  |  | 26,500
24 |  | LG Capital Omnibus #5 |  | $ | 27,825 |  |  |  | 5/17/2019 |  |  |  | 5/15/2020 |  |  |  | 2,825 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | 27,825 |  |  |  | - |  |  |  | - |  |  |  | 27,825 |  |  |  |  |  |  |  |  |  |  |  |  |  | 27,825
25 |  | Adar Alef Omnibus #2 BE 3rd Tranche |  | $ | 56,194 |  |  |  | 8/1/2019 |  |  |  | 2/7/2020 |  |  |  | 50,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | 56,194 |  |  |  | - |  |  |  | - |  |  |  | 56,194 |  |  |  |  |  |  |  |  |  |  |  |  |  | 56,194
26 |  | LG Capital Omnibus #7 |  | $ | 55,125 |  |  |  | 8/6/2019 |  |  |  | 2/7/2020 |  |  |  | 50,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | 55,125 |  |  |  | - |  |  |  | - |  |  |  | 55,125 |  |  |  |  |  |  |  |  |  |  |  |  |  | 55,125
27 |  | Adar Alef Omnibus #2 BE 4th Tranche |  | $ | 5,350 |  |  |  | 10/3/2019 |  |  |  | 2/7/2020 |  |  |  | 5,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | 5,350 |  |  |  | - |  |  |  | - |  |  |  | 5,350 |  |  |  |  |  |  |  |  |  |  |  |  |  | 5,350
28 |  | LG Capital Omnibus #8 |  | $ | 6,825 |  |  |  | 10/25/2019 |  |  |  | 10/26/2020 |  |  |  | 5,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | 6,825 |  |  |  | - |  |  |  | - |  |  |  | 6,825 |  |  |  |  |  |  |  |  |  |  |  |  |  | 6,825
29 |  | Adar Alef Omnibus # 5th Tranche |  | $ | 33,600 |  |  |  | 3/19/2020 |  |  |  | 9/19/2020 |  |  |  | 3,600 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 33,600 |  |  |  |  |  |  |  |  |  | 33,600
30 |  | LG Caputal Funding, LLC |  | $ | 33,600 |  |  |  | 3/25/2020 |  |  |  | 9/20/2020 |  |  |  | 3,600 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 33,600 |  |  |  |  |  |  |  |  |  | 33,600
Convertible note total |  |  |  |  |  |  |  |  | 214,021 |  |  |  | 572,792 |  |  |  | 1,024,292 |  |  |  | (50,000) |  |  |  | (608,242) |  |  |  | 938,842 |  |  |  | 708,344 |  |  |  | (99,684) |  |  |  | (239,411) |  |  |  | 1,308,092 |  |  |  | 67,200 |  |  |  | - |  |  | (93,285) |  |  | 1,282,007

As of December 31, 2019, several notes were past maturity, in default and due on demand. As such, the Company accelerated the amortization of the remaining unamortized original issue and debt discounts. As of September 30, 2020 the notes remained in default and due on demand.

The Company calculated a default reserve which represents the additional amount the Company would have to pay to all note holders in the event of the default. Management calculated the amount utilizing additional premiums, accrued interest and default accrued interest as per the agreements. As of September 30, 2020 and December 31, 2019, the Company recorded a general default reserve of $2,140,995 and $1,769,791, respectively.

NOTE 10 – DERIVATIVE LIABILITIES

The Company classified certain conversion features in the convertible notes and preferred stock issued as embedded derivative instruments due to the variable conversion price feature and potential adjustments to conversion prices due to events of default. These conversion features are recorded as derivative liabilities at fair value in the consolidated financial statements. These fair value estimates were measured using inputs classified as Level 3 of the fair value hierarchy. The Company develops unobservable Level 3 inputs using the best information available in the circumstances, which might include its own data, or when it believes inputs based on external data better reflect the data that market participants would use, its bases its inputs on comparison with similar entities. Due to the existence of down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, the Company decided a Lattice-Based Simulation model, which incorporates inputs classified as Level 3 was appropriate.

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The following table present the assumptions used in Black-Scholes Simulation model to determine the fair value of the derivative liabilities as of September 30, 2020:

For the three months ended September 30, 2020:

Derivative Liabilities at June 30, 2020 |  | $ | 14,101,095 |
Additional new conversion option derivatives |  | $ | - |
Conversion of note derivatives |  | $ | (21,631 | )
Change in fair value |  | $ | (6,688,600 | )
Derivative Liabilities at September 30, 2020 |  |  | 7,390,864 |

For the nine months ended September 30, 2020:

Derivative Liabilities at December 31, 2019 |  | $ | 5,359,442 |
Additional new conversion option derivatives |  | $ | 7,272 |
Conversion of note derivatives |  | $ | (298,929 | )
Change in fair value |  | $ | 2,323,080 |
Derivative Liabilities at September 30, 2020 |  |  | 7,390,863 |

During the three and nine months ended September 30, 2020, the Company recorded new derivative liabilities of $0 and $7,272 related to the issuance of convertible notes payable and Series D-2 Preferred Stock and converted $21,631 and $298,929 in derivative liability to additional paid-in capital due to conversions of notes payable and Series D-2 Preferred Stock into common stock.

NOTE 11 – MERCHANT FINANCING

On January 4, 2020, the Company’s Rune subsidiary entered into another future receivable purchase agreement with Vox Funding and received $14,500. This agreement provides for payment over 70 business days and carried a fee of $4,850. This obligation is not convertible under any terms into Company stock.

On January 24, 2020, the Company’s Social Sunday subsidiary entered into a first future receivable purchase agreement with Vox Funding and received $14,500. This agreement provides for payment over 3.5 months and carried a fee of $4,850. This obligation is not convertible under any terms into Company stock.

On March 3, 2020, the Company’s Social Sunday subsidiary entered into a second future receivable purchase agreement with Vox Funding and received $5,605. This agreement provides for payment over 2 months and carried a fee of $1,895. This obligation is not convertible under any terms into Company stock.

On March 5, 2020, the Company’s Bluwire subsidiary entered into a second future receivable purchase agreement with Reliant Funding and received $83,000. This agreement provides for payment over 6 months and carries a fee of $3,000. This obligation is not convertible under any terms into Company stock.

On March 16, 2020, the President of the United States of America issued a stay-at-home instructions and business closure directive in response to COVID-19 pandemic. Management took steps to promptly close all its Bluwire stores and Fashion Group operations, laying off the vast majority of its employees. The Company’s landlords and Libertas, Vox and Reliant have all agreed to collections deferment of an indeterminant duration. (see note above regarding individual agreements. The Fashion Group continues limited operations in creating and producing PPE materials.

As a consequence of the Covid-19 shutdowns as of March 16, 2020 the Company’s Bluwire Group subsidiary also suspended making any payments on its Merchant Cash Advance facility to Libertas Funding. Merchant Cash Advances are based on the collection of “future receivables” and with the businesses being closed no future payments were due. Libertas has accepted that position and has voluntarily ceased all collection activity.

As of September 30, 2020 the Company had total merchant financing payables of $415,981 with unamortized discounts of 5,968 for net payable of $410,012. As of December 31, 2019 the Company had total merchant financing payables of $631,664 with unamortized discounts of $158,835 for net payable of $472,829.

As a subsequent event, in May 2021, the Company entered into a verbal agreement with Vox to repay $250 per week and all collection efforts are put on hold and forbearance on other receivable holders

As a subsequent event, the Company entered into a verbal agreement with Reliant Funding has been in forbearance. Since April 2021, and the Company pays $10 per week until Bluwire Newark is re-opened.

Additional Working Capital from convertible debt and under the CARES Act.

The Federal Government of the United States of America on March 27, 2020, passed the Cares Act allowing companies to quality SBA Payroll Protection Loans (PPP). These loans provide for certain funding based on previous employment which in part may be forgivable under certain conditions. The remaining portion needs to be repaid over 2 years with a 6-month moratorium on payments and carry a 1% annual interest rate. These loans require no collateral nor personal guarantees. During the subsequent period from May 5, 2020 to May 22, 2021, the Company’s subsidiaries quality and received an aggregate of $294,882 in 2020 and $302,602 in 2021 in PPP loans.

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Beginning in August 2020, two of the Company’s subsidiaries qualified for the United States Small Business Administration (“SBA”) Economic Industry Disaster Loans (“EIDL”) and the Company received $325,300 under the program. These loans are unsecured, have no personal guaranty, carry a 3.75% annual interest rate with aggregate monthly payments of 13 months after receipt of funds. Management has used these funds to retain key personnel, pay regulatory fees, rent, begin work on a new website for Bluwire, make progress on this retail APP and acquire product to re-open one of its Bluwire Stores.

Beginning in the subsequent month of December 2020 and continuing , as a further series of subsequent events, the Company’s 12 Retail subsidiary has received short term fundings from a private investor ranging between $30,000 and $50,000 in advances that are paid back and renewed in 45 to 60 day intervals for inventory and special orders for customers.

On March 18, 2020, the Company received $30,000 from Adar Alef, LLC (“Adar”) from a $33,600 convertible promissory note agreement including fees and legal expenses of $3,600. The note is convertible after 181 days at a (i) $0.0075 ceiling or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion date.

On March 25, 2020, the Company received $30,000 from LG Capital, LLC (“LG”) from a $33,600 convertible promissory note agreement including fees and legal expenses of $3,600. The note is convertible after 181 days at a (i) $0.0075 ceiling or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion date.

As a subsequent event on April 30, 2021 the Company received $30,000 from SBI and an additional $40,000 on May 17, 2021 (see below).

On as a subsequent event April 21, 2021 and May 4 2021 the Company received $50,000 from Adar Alef and on June 1st an additional $50,000.

On May 6, 2021 the Company received $30,000 as an additional advance from Oasis Capital pursuant to previous agreements with Oasis and on May 13, 2021 an additional $50,000, as subsequent event.

On May 17, 2021 the Company received an additional $40,000 from SBI, as a subsequent event

In May 2021, as a subsequent event, advisory board member, Richard Berman invested $50,000 in exchange for preferred shares with the option to invest a further $100,000 over the next few months.

NOTE 12 - STOCKHOLDERS’ DEFICIT

Reverse Stock Split

On October 18, 2019, the Company completed a 100 for 1 reverse common stock split reducing the outstanding common shares to 25,410,391. As a subsequent event, as of May 18, 2021 the authorized was increased to 20,000,000,000 shares of common 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 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.

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The Series B Redeemable Convertible Preferred Stock is classified as temporary equity as it is mandatorily redeemable by the holder at a future date. The Series D-1 and D-2 Preferred Stock are classified as temporary equity as they are redeemable immediately. The Series D-3 Preferred Stock is also classified as temporary equity due to its put option, which providers the holders the right to put the shares to the Company for cash if they elect not to convert into shares of common stock.

2020 Transactions

On January 16, 2020, an existing Series B stockholder purchased 53,000 Series B Preferred shares for proceeds of $53,000 under the same terms as their prior purchases.

In June, 2020 the holders of 3,600 shares of Series B Preferred Stock converted these shares for 29,353,846 shares of common stock.

During the three and nine months ended September 30, 2020, Oasis Capital converted 3,900 and 23,300 Series D-2 Preferred shares with a value of $7,800 and $38,800 into 78,000,000 and 283,142,105 common shares.

During the remainder of 2020, the Company converted an aggregate of 3,600 shares of Series D-2 Preferred Stock with a fair value of $17,203 into 72,000,000 shares of common stock.

During the third quarter, 2020 the company issued $12,750 Series A shares in restricted shares to employees under the Employee Restricted Stock Plan .

1. | As a subsequent event, in December 2020, the company issued $1,250 Series A shares for cash.

2. | As a subsequent event, in March 2021, the company issued 1,250 Series A shares for cash.

3. | As a subsequent event, in April 2021, the company issued 1,250 Series A shares for cash.

4. | As a subsequent event, in April 2021, the company issued 25,000 Series A shares for cash.

2019 Transactions

During the three months ended March 31, 2019, holders of Series B Preferred Stock converted 40,020 shares and reduced the principal by $20,164 and interest of $2,400 through the issuance of 87,041,209 shares of common stock.

During the three months ended March 31, 2019 Oasis Capital converted 28,500 Series D-1 Preferred shares for 63,000,000 shares of common stock and reduced the principal outstanding balance by $28,500. As such, the Company recorded a change in derivative liability associated the Series D-1 Preferred Shares of $86,428.

On March 14, 2019, the Company executed an agreement with Oasis Capital, whereby the Company agreed to exchange the remaining outstanding of Series D-1 Preferred Shares of 282,750 for 282,750 Series D-2 Preferred Shares. In addition, the Company executed an agreement whereby 62,250 outstanding D-1 shares for 62,250 Series D-2 preferred shares in exchange of $100,000. In addition, the Company agreed to pay 1,425 shares of D-2 shares as a finance charge for this agreement. The excess fair value of the shares exchanged was recorded as additional interest expense.

22

The Company issued 346,625 Series D-2 shares to Oasis Capital with a value of $692,850. The Series D-2 Preferred Stock is classified temporary equity due to the fact that the shares are redeemable immediately. As such, the Company recorded an associated derivative liability of $177,323.

On February 21, 2019, the Company issued 37,500 Series D-5 and 54,00 Series D-6 shares pursuant to the RWG acquisition.

On March 14, 2019, the Company issued 82,588 shares of Series D-5 Preferred Stock for a 92.5% interest in Rune.

Common Stock

2020 Transactions

During the three months and nine months ended September 30, 2020, LG converted $0 and $27,270 of principal and $0 and $3,690 of interest of its outstanding convertible note into zero and 217,990,427 shares of common stock.

During the three months and nine months ended September 30, 2020, SBI Investments converted $6,218 and $16,992 of principal of the outstanding convertible note into 69,089,148 and 96,521,526 shares of common stock.

During the three months and nine months ended September 30, 2020, Adar Alef converted $0 and $40,559 of principal $0 and $4,659 of interest of the outstanding convertible note into zero and 334,419,870 shares of common stock.

During the three and nine months ended September 30, 2020, Oasis Capital converted 3,900 and 19,400 Series D -2 Preferred shares with a value of $7,800 and $35,200 into 78,000,000 and 283,142,105 shares of common stock.

During the remainder of 2020, LG converted $8,900 of principal and $3,458 of interest of its outstanding convertible note into 202,356,666 shares of common stock.

During the remainder of 2020, SBI Investments did not convert any principal of the outstanding convertible note into shares of common stock.

During the remainder of 2020, Adar Alef did not convert any principal of the outstanding convertible note into shares of common stock.

During the remainder of 2020, the Company converted an aggregate of 3,600 shares of Series D-2 Preferred Stock with a fair value of $10,803 into 72,000,000 shares of common stock.

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2019 Transactions

During the three months ended March 31, 2019, the Company converted notes payable including principal and accrued interest of $183,874 into 189,859,704 shares of common stock.

During the three months ended March 31, 2019, the Company converted 40,020 Series D-1 Preferred shares and 28,500 Series D-1 Preferred shares into an aggregate of 150,041,209 shares of common stock.

NOTE 13 - COMMITMENTS

Lease Commitments

The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company has elected to account for as a single lease component for all classes of underlying assets. Lease expense for variable lease components are recognized when the obligation is probable.

Operating lease right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Operating lease payments are recognized as lease expense on a straight-line basis over the lease term. The Company primarily leases buildings (real estate) which are classified as operating leases. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As an implicit interest rate is not readily determinable in the Company’s leases, the incremental borrowing rate is used based on the information available at commencement date in determining the present value of lease payments.

The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Options for lease renewals have been excluded from the lease term (and lease liability) for the majority of the Company’s leases as the reasonably certain threshold is not met.

Lease payments included in the measurement of the lease liability are comprised of fixed payments, variable payments that depend on index or rate, and amounts probable to be payable under the exercise of the Company option to purchase the underlying asset if reasonably certain.

Variable lease payments not dependent on a rate or index associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed as probable. Variable lease payments are presented as operating expenses in the Company’s income statement in the same line item as expense arising from fixed lease payments. As of and during the year ended December 31, 2020, management determined that there were no variable lease costs.

Right of Use Asset

In connection with the Bluwire acquisition, the Company recognized a right of use asset of $77,243. The Company used an effective borrowing rate of 13% within the calculation. The lease agreement matures in August 2021. Minimum remaining rental payments in 2020 and 2021 are $22,669 and $59,372, respectively.

Operating Leases

The Company and its subsidiaries have various short-term leases that mature in 2020.

During the second and third quarters up and until the date of this filing the Company has been making post-Covid moves in closing various historically non-profitable Bluwire locations primarily Denver airport, and one location in JFK international airports, or moving this JFK location inside the terminal, redesigning its signature App for a post Covid world, and renegotiating its minimum base rental commitments for all of its retail stores. In all cases there is a rent moratorium until October 1st, 2020. For the Casino store, we did a soft opening on September 11, 2020 and then closed for a two week period in November 2019 to hire and train new staff and management. The store reopened in full on November 29, 2020 in time for Cyber Monday. Management continues to monitor the situation in our prime airport locations or Newark and Dulles airports for reopening. Base monthly rent on the Mohegan Sun store was $6,916, plus a percentage rent equal to 8% of the gross sales that exceeds $86,450 per month until January 2021. The lease expires on April 14, 2021. This lease has been renegotiated and taken over by a different subsidiary of the company that was able to fully stock the store with inventory. and management believes that it will be successful eliminating the minimum base rental feature in all of its retail locations before that date.

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On August 13, 2020 the Company’s 12 Fashion Group, a division of 12 Retail Corporation, entered into a new office location under a 2 year lease with an option for a third year beginning on August 17, 2020. This new location is 1600 square feet and caries a base monthly rent of $5651.30 plus a pro-rated expenses for garbage and utilities of $743. Management believes that this additional space is necessary to manage the consolidation of its fashion brands.

Other Commitments

The Company has a significant contract with an independent contractor third party company which plays a critical role to the ongoing operations of the Company. The contract is for an initial period of five years for which can be cancelled upon six months’ notice and payment of all outstanding fees. The minimum monthly payment is $35,000 for which additional amounts are to be reimbursed for expenses, etc. During the three months ended March 31, 2020, the Company paid $60,800 under the contract to which an additional $192,035 was payable as of March 31, 2020. The Company relies upon the third party for obtaining financing, targeting acquisitions, general corporate guidance, financial reporting, etc.

Legal & Contingencies

| ● | Auctus Fund Management (“Auctus”) vs. 12 ReTech Corporation. Auctus Filed suit in August 2019 claiming breach of contract on a convertible promissory note dated April 25, 2018, which had a remaining principal balance of nearly $40,000. Auctus claimed damages totaling over $482,000. The Company had entered into a settlement agreement with Auctus that required the Company to make a cash payment of $117,000 and which was dependent on the Company receiving funding from a foreign investor. That investment did not occur, and the Company was unable to perform. Upon information and belief, management believes that Auctus will at some point re-institute that lawsuit. Management has reserved on its financial statements a sum in excess of $482,000 in regards to this claim. To the best of management’s knowledge, Auctus has not taken other actions.

| ● | Bellridge Capital, LP, one of the Company’s convertible debt providers has sued the Company for non-performance and has obtained a default judgment in the amount of $214,195.74 in the southern district of New York. The Company maintains that service of process is defective, and the Company will also assert lack of jurisdiction if any collection effort is ever undertaken among other potential legal claims and defenses

| ● | J&S properties sued the Company in regards to a lease for a subsidiary in-the State of Utah that was never guaranteed by the Company and obtained a default judgement in Salt Lake County. The Company maintains that it was never properly served and has, it believes, substantial defenses that it will raise should J&S properties ever try to enforce the judgment.

| ● | RedWire Group, LLC (“RedWire Group”) filed for bankruptcy under Chapter 11 subsection V on March 6, 2020, and the case in ongoing. The Company has funded the initial costs, as well as some ongoing storage costs for RedWire Group equipment. The Company plans to liquidate the equipment and some other assets to pay creditors. This Chapter 11 was converted by the Court to a Chapter 7 and discharged. The equipment was liquidated in 2021, and the Bank (Bank of American Fork) has been paid in full and all other debts have been discharged.

| ● | Leider Enterprises, Inc. D/b/a SM Distribution Inc a Florida corporation sued Bluwire Sun, LLC in Florida. Bluwire Sun never received any product from this company and is defending this lawsuit in Florida.

| ● | Rottenberg, Meril, Solomon, Bertiger & Guttilla (“Rottenberg”) sued the Company in Bergen County New Jersey and obtained a default judgement because the Company was never served. The Company believes it has substantial counterclaims and defenses should Rottenberg ever tries to enforce this judgement.

| ● | PCG Advisory Group (PSG) obtained a default judgement of $63,350 in New York because, we believe, it never properly served the Company and has tried to domesticate that judgement in Arizona. The Arizona Court refused to domesticate the judgment and has given PSG some time to prove proper service. That period has expired.

| ● | VXB & Orfwid d/b/a Lost + Wander sued the Company’s Social Decay d/b/a Social Sunday subsidiary and also named the Company for invoices. The Company never guaranteed obligations for Social Sunday and intends to vigorously defend this lawsuit as meritless.

| ● | Tessco Technologies V Bluwire filed suit in Maryland. The Company has not been properly served and if served would dispute jurisdiction as well as other defenses on behalf of its Bluwire subsidiary.

| ● | George Sharpe, In May 2021 sued the Company in Nevada to try to obtain custodianship of the Company. This was defeated and the Company will be filing for attorney fees, although there are no guarantees the court will award us our attorney fees or other outcomes.

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NOTE 14 – SUBSEQUENT EVENTS

The Company evaluated all events and transactions that occurred after March 31, 2020 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:

| - | On March 27, 2020, the Federal Government of the United States of America passed the Cares Act allowing companies access to quality SBA Payroll Protection Loans (PPP). These loans provide for certain funding based on previous employment which in part may be forgivable under certain conditions. The remaining portion needs to be repaid over 2 years with a 6-month moratorium on payments and carry a 1% annual interest rate. These loans require no collateral nor personal guarantees. During the period from May 5, 2020 to May 22, 2021, the Company’s subsidiaries quality and received an aggregate of $294,882 in 2020 and $302,602 in 2021 in PPP loans. During the remainder of 2020, LG converted $8,900 of principal and $3,458 of interest of its outstanding convertible note into 202,356,666 shares of common stock. During the remainder of 2020, SBI Investments did not convert any principal of the outstanding convertible note into shares of common stock. During the remainder of 2020, Adar Alef did not convert any principal of the outstanding convertible note into shares of common stock. During the remainder of 2020, the Company converted an aggregate of 3,600 shares of Series D-2 Preferred Stock with a fair value of $10,803 into 72,000,000 shares of common stock.
| - | In April 2020, the Company authorized one million (1,000,000) shares of Series D-4 Preferred stock with a face value of $100. The shares have no dividends, are non-voting, and have a liquidation preference after Series D-3 Preferred Shares. These shares are convertible into the Company’s common shares at no discount.

| - | Mid-September 2020. The Company has taken steps to re-open its Bluwire retail store inside the Mohegan Sun Casino location. Due to Covid-19 management was able to negotiate concession from the casino regarding rent and use clauses allowing additional kinds of products in the store. Since Mohegan Sun re-opened the casino in June, traffic has been very good and management believes that by increasing inventory in the Bluwire Mohegan Sun store we are optimistic that unit sales volume will increase significantly. We did a soft opening on September 11, 2020 and then closed for a two week period on November 2019 to hire and train new staff and management. The tore reopened in Full on November 29, 2020 in time for Cyber Monday. Management continues to monitor the situation in our prime airport locations or Newark and Dulles airports for reopening.
| - | As of April 1, 2020 the Company closed its unprofitable company owned Bluwire Store in JFK terminal 4 but may re-open at a different location inside the terminal. The company still maintains two Royalty stores operated by others under the Bluwire Brand in Terminal 5 at JFK international airport in NYC.
| - | The lease for the Company’s Rune NYC. LLC subsidiary ended on March 31, 2020 in the middle of the Covid-19 enforced closures and New York City’s moratorium on evictions. Rune NYC, LLC began paying on a month-by-month basis for June 2020. On August 13, 2020 the Company’s 12 Fashion Group, a division of 12 Retail Corporation, entered into a new office location under a 2 year lease with an option for a third year beginning on August 17, 2020. This new location is 1600 square feet and caries a base monthly rent of $5651.30 plus a pro-rated expenses for garbage and utilities of $743. Management believes that this additional space is necessary to manage the consolidation of its fashion brands.

| - | During August and September 2020, three of the Company’s subsidiaries qualified for the United States Small Business Administration (“SBA”) Economic Industry Disaster Loans (“EIDL”) and the Company received $325,300 under the program. These loans are unsecured, have no personal guaranty, carry a 3.75% annual interest rate with aggregate monthly payments of $1,588, thirteen months after receipt of funds. Management has used these funds to retain key personnel, pay regulatory fees, rent, begin work on a new website for Bluwire, make progress on this retail APP and acquire product to re-open one of its Bluwire Stores which management hopes to accomplish before the third quarter is ended. Management is working hard to obtain EDIL approval for its other subsidiaries and is optimistic in achieving this within the next 6 weeks.
| - | In August 2020 Management elected to restructure its equity cap table. First taking advantage of Nevada statutes that allow a business to reduce its authorized and its outstanding stock by the same ratio without special notice to stockholders and the Company performed a 500 to 1 reverse. This effectively reduced the Company’s authorized stock to 16 million common shares and its outstanding shares to approximately 1.6 million common shares. Then on August 15th, 2020 management exercised its authority granted by stockholders on 8/16/19 by consent with notice to all shareholders to increase the authorized common shares to 20 billion (See 14-C filed on August 16, 2019 and 8-Ks filed on August 17 and August 18 for more information). Preferred shares are unaffected. These changes will be effective upon approval by FINRA. This change will not occur until the Company becomes current in its filings either with the SEC or AND with the State of Nevada.

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| - | During the second and third quarters up and until the date of this filing the Company has been making post-Covid moves in closing various historically non-profitable Bluwire locations primarily Denver airport, and one location in JFK international airports which may be moved within the terminal, redesigning its signature App for a post Covid world, and renegotiating its minimum base rental commitments for all of its retail stores. In all cases there is a rent moratorium until October 1st, 2020 and management believes that it will be successful eliminating the minimum base rental feature in all of its retail locations before that date. During the first quarter of 2021, the company applied and qualified for the second round of PPP Loans and received $177,300 for its companies as of 3/2/2021. As of the date of this filing the Company believes that these loans will also all qualify for forgiveness but the Company has not yet applied. The U.S. Congress and Senate is to reconvene and both houses have expressed a desire to expand the CARES act and make the PPP loans automatically forgivable. Management will review whether or not to apply for the forgiveness at the end of the third quarter.

On April 30, 2021 the Company received $30,000 from SBI and an additional $40,000 on May 17, 2021 (see below).

On April 21, 2021 and May 4 2021 the Company received $50,000 from Adar Alef and on June 1st an additional $50,000.

On May 6, 2021 the Company received $30,000 as an additional advance from Oasis Capital pursuant to previous agreements with Oasis and on May 13, 2021 an additional $50,000.

On May 17, 2021 the Company received an additional $40,000 from SBI.

On May 18, 2021, the Company filed its required filings with the State of Nevada and became current and increased its authorized common shares from 8 Billion to 20 Billion common shares.

In May 2021, advisory board member, Richard Berman invested $50,000 in exchange for preferred shares with the option to invest a further $100,000 over the next few months.

On May 18, 2021, the Company filed its required filings with the State of Nevada and became current and increased its authorized common shares from 8 Billion to 20 Billion common shares. While this filing was accepted on May 18, 2021 If became effective with the original filing due date of August, 2020 by Nevada Law.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this quarterly report. References in the following discussion and throughout this annual report to “we”, “our”, “us”, “12 ReTech Corporation”, “12 ReTech”, “RETC”, “the Company”, and similar terms refer to, 12 ReTech Corporation. unless otherwise expressly stated or the context otherwise requires. This discussion contains forward-looking statements that involve risks and uncertainties. 12 ReTech Corporation actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this filing.

Company

12 ReTech Corporation is a holding company with subsidiaries that develop, sell, and install software that we believe enhance the shopping experience for shoppers and retailers. As a holding company we also acquire synergistic operating companies that manufacture and sell fashion and other products to other retailers as well as selling these products online. In October 2019, we acquired retail stores in airport terminals and casinos solidifying us as a true Omni-Channel retailer. Owning our own brick and mortar stores will allow us to deploy our cutting-edge software and Apps in the United States, to demonstrate its effectiveness at attracting shoppers and inducing them to purchase. In our own stores, we plan to test in real time new software products which should delight consumers and generate incremental revenues and profits for our stores. If we can show incremental revenues and profits for ourselves, we believe that other retailers may follow our example and deploy our software solutions themselves.

With the intended future launch of our social shopping app which is in development in 2021 (see subsequent events) we intend to associate with other retailers on a new shopping platform that will benefit both consumers and retailers in new and exciting ways.

During the 4th quarter 2019 and continuing in the first quarter 2020, amid the effects of the pandemic created by COVID-19, the Company chose to consolidate its operations around three operating entities; 12 Tech, Inc., formed in Arizona on December 26, 2019 (“12 Tech”) and 12 Retail Corporation, formed on September 17th, 2017 (“12 Retail”), and the 12 Fashion Group, Inc formed on June 26, 2020.

12 Retail operates its own retail outlet(s) as well as those of Bluwire Group, LLC (“Bluwire”) that operates retail stores in airports (mainly in international terminals) and casinos. Because of their locations mainly in international terminals of airports, all Bluwire Company owned stores and all but one royalty store remains closed due to Covid-19. 12 Retail will also serve to demonstrate the effectiveness of the software technology created by 12 Tech in improving revenues and profits for retailers, as well as providing access to other retailers through our soon to be launched social shopping app and through our wholesale fashion business relationships.

12 Fashion Group, Inc an Arizona Corporation was formed-in on June 26, 2020, and it operates our fashion wholesale and direct to consumer brands including Rune NYC, Social Sunday, and Red Wire Design, as well as consolidating remaining operations from our other smaller fashion acquisitions.

Today, 12 Tech aims to provide technology solutions both online and inside retail brick and mortar that helps retailers acquire customers, reduce overhead expenses, streamline operations, and gain incremental revenues and profits. Existing 12 Tech solutions are deployed mainly in Asia. We are planning to deploy our solutions in the United States retail markets, which serve the world’s largest consumer economy. While we continue to operate in Asia, we have consolidated our international units, which were focused on our technology deployment (“12 Japan” and “12 Europe”), and consolidated our software development company 12 Hong Kong, Ltd (“12 HK”), under 12 Tech to further streamline our own operations.

Principal subsidiaries

The details of the principal subsidiaries of the Company as of December 31, 2019, are set out as follows (additional consolidation may occur in the future):

Name of Company |  | Place of Incorporation |  | Date of Incorporation |  |  | Acquisition Date |  | Attributable Equity Interest % |  |  | Business
12 Retail Corporation (“12 Retail”) |  | Arizona, USA |  |  | Sept. 18, 2017 |  |  | Formed by 12 ReTech Corporation |  |  | 100 | % |  | As a holding Company to execute the Company’s roll up acquisition strategy as well as to penetrate the North American market with our technology to select retailers. Separated into two division: 12 Fashion Group, Inc., and Bluwire Group, LLC.
Red Wire Group, LLC |  | Utah, USA |  |  | July 2, 2015 |  |  | February 19, 2019 |  |  | 100 | % |  | Operations are consolidated into 12 Fashion Group, and this company is closed, and we filed a Chapter 11 Subsection V on March 6, 2020. This was discharged on or about September 2020 and. is permanently closed
Rune NYC, LLC |  | New York, USA |  |  | Jan 23, 2013 |  |  | March 14, 2019 |  |  | 92.5 | % |  | Operated by 12 Fashion Group, Inc., an unincorporated division of 12 Retail. Operates contemporary women’s ‘Athleisure’ brand which is primarily sold to retailers.
Bluwire Group, LLC (“Bluwire”) |  | Florida, USA |  |  | Feb 1, 2010 |  |  | October 1, 2019 |  |  | 60.5 | % |  | A subsidiary of 12 Retail with 12 brick and mortar stores was acquired.
Social Decay, LLC dba Social Sunday (“Social Sunday”) |  | New Jersey, USA |  |  | Sept 24, 2014 |  |  | November 1, 2019 |  |  | 100 | % |  | Operated by 12 Fashion Group Inc., a division of 12 Retail. Operates a contemporary women’s clothing brand primarily sold to wholesalers.
12 Tech Inc |  | Arizona, USA |  |  | Dec 26,2019 |  |  | Formed by 12 Retech |  |  | 100 | % |  | As a holding Company to execute the Company’s technology strategy.
12 Hong Kong Limited (“12HK”) |  | Hong Kong, China |  |  | February 2, 2014 |  |  | June 27, 2017 |  |  | 100 | % |  | A subsidiary of 12 Tech Inc. Development and sales of technology applications. Services customers in Asia, including Japan.
12 Japan Limited (“12JP”) |  | Tokyo, Japan |  |  | February 12, 2015 |  |  | July 31, 2017 |  |  | 100 | % |  | A subsidiary of 12 Tech Inc. Consultation and sales of technology applications. As of June 2020, our Japanese customer (s) is serviced by 12 Hong Kong.
12 Europe AG (“12EU”) |  | Switzerland |  |  | August 22, 2013 |  |  | October 26, 2017 |  |  | 100 | % |  | As of September 2019, this company is closed.
12 Fashion Group Inc |  | Arizona, USA |  |  | June 26, 2020 |  |  | Formed by 12 Retech |  |  | 100 | % |  | Formed as a subsidiary of 12 Retech to hold and operate the wholesale and Retail fashion and apparel operations.

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12 Retail Corporation: a subsidiary of 12 ReTech Corporation Operates its own retail store (as of March 2021 as a subsequent event) and manages two main subsidiaries each of which have multiple subsidiaries; 12 Fashion Group, Inc and Bluwire Group, LLC.

12 Fashion Group Inc; A subsidiary of 12 retail, Inc. has the following subsidiaries;

On February 19, 2019 we acquired Red Wire Group, LLC. (“RWG”) a Utah Limited Liability company pursuant to a Share Exchange Agreement whereby the Company exchanged and the members of RWG (the “Members”) Pursuant to the terms of the Exchange Agreement, the Company will acquire (i) 75% of the membership interests of RWG in exchange for 54,000 shares of the Corporation’s Series D-6 Preferred Stock and with a stated value of $5.00 (ii) the remaining 25% of the membership interests of RWG in exchange for 37,500 shares of the Corporation’s Series D-5 Preferred Stock with a stated value of $4.00 per share, RWG operates its own “cut & sew” operation for independent third parties contract to produce cloths operating out of its factory in Salt Lake City, Utah.

As of the end of November 30, 2019, we closed the factory in Utah while 12 Fashion Group retained the customers by completing the orders in process. We were able to produce the products through 3rd party factories in New York City and Los Angeles for less than it cost us to produce the products in our own factory in Salt Lake City, Utah. On March 6, 2020, the company filed a Chapter 11 Bankruptcy filing in Phoenix Arizona. This filing allowed us to sell the equipment we no longer need, pay off the secured creditors and shed all of Red Wire’s debt from our balance sheet. The bankruptcy was discharged on or about September 2020 and all debts were extinguished. 12 Fashion Group continues to service those customers acquired as well as obtaining new accounts by marketing under the d/b/a Red Wire Designs.

| - | One March 14, 2019 we acquired Rune NYC, LLC. (“Rune”) a New York Corporation pursuant to a Share Exchange Agreement whereby the Company exchanged with the members of Rune (the “Members”), the members of representing 92.5% of the membership interests have agreed to tender their interests to the Corporation, and the Corporation closed out the tender offer period and the Exchange Agreement became effective. Accordingly, pursuant to the terms of the Exchange Agreement, at closing the Company acquired 92.5% of the membership interests of Rune in exchange for 82,588 shares of the Corporation’s Series D-5 Preferred Stock with a stated value of $4.00 per share. Rune’s operations continued uninterrupted in New York City following the closing and retained key employees as the leading part of 12 Fashion Group.

| - | On November 20, 2019 Social Decay, LLC d/b/a Sunday, (“Social”) a New Jersey Limited liability company, was acquired by the Company pursuant to a share exchange agreement whereby the Company exchanged the Company’s 30,000 D-6 Shares for 100% of the total outstanding equity of Social and the member of Social (the “Member”). That Member was retained by the Company, but subsequent to the year end on April 15, 2020 she resigned and as a consequence, forfeited the additional 12,000 D-6 Shares held in escrow as a performance incentive. The D-6 shares have a face value of $5.00 per share, and are convertible into the Company’s common shares. Subsequent to year end in March 2020, Social’s print factory was closed in part due to the COVID-19 Pandemic. Social’s products are marketing and manufactured by the staff of 12 Fashion Group.

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| - | Bluwire Group, LLC. On October 1, 2019 the Company acquired the 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 that equity not used to raise capital for Bluwire over that period would be divided equally between the Company and the Sellers. No capital was raised for Bluwire Group and this 19% was issued to 12 ReTech Corporation

| - | 12 Tech, Inc. An Arizona corporation is a subsidiary of 12 ReTech Corporation and has a number of subsidiaries (“12Tech”). On December 26, 2019, the Company formed 12 Tech to spearhead the Company’s software technology development and to focus more effort on the largest retail market in the world: the United States of America. The Company then closed or consolidated under 12 Tech all its other software technology companies and maintains the following subsidiaries;

| - | 12 Hong Kong, Ltd., a corporation organized in the special economic region of Hong Kong is a subsidiary of 12 Tech, Inc. On June 27, 2017 the Company acquired 12 Hong Kong, Ltd. in a share exchange transaction. Originally this is the Company that managed all the Company’s proprietary and licensed technology that is utilized and sold by the other subsidiaries. With the formation of 12 Tech that role is now being managed by 12 Tech. Today, 12 HK operates as a subsidiary of 12 Tech and serves as the marketing and sales hub for Asia, particularly the Chinese market and now services our customers in Japan, formerly managed by 12 Japan Ltd.

| - | 12 Japan, LTD. Organized in Japan and is a subsidiary of 12 Tech inc. 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 acquisition, the Company took steps to consolidate the assets and streamline operations that effectively by the end the 3rd quarter 2019, this Company no longer functions as independent subsidiary. In the third quarter of 2019 the Company closed the offices of 12 Japan, and its flagship customer ITOYA and the revenue generated will be serviced and managed by 12 Hong Kong.

| - | 12 Europe, A.G. 12 Europe A.G. was acquired in 2017, and underperformed. 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.

Business and Operations

12 ReTech Corporation is a Technology company that is creating software that management believes will create new platforms and tools for smaller retailers to compete with major companies like Amazon and Walmart and delight consumers. To better understand the entire retail environment the Company has acquired operating companies that sell direct to consumers online and in physical stores as well as to other retailers. These acquisitions, in addition to providing current revenue to the Company management believes that they will provide entree to other retailers for the sale and or licensing of our technology solutions.

From an operating perspective, 12 ReTech Corporation is a holding company with three main operating companies that themselves may now and/or in the future own other subsidiaries. They are: 12 Retail Corporation which now operates our casino stores and subsidiaries Bluwire Group, LLC, 12 Fashion Group, Inc, and others, and 12 Tech Inc that designed and develops our retail software.

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The Company has earned money from four different revenue streams (in declining order): Retail Sales, Wholesale and Online sales of Fashion products, Royalty Payments for 3rd party licensing of the Bluwire name, and technology sales.

Effects on us of the Covid-19 Pandemic

2020 was an unusual year, in that at nearly the same time the entire world was in the grip of the Covid-19 pandemic with unprecedented closings of businesses, a virtual cessation of most business and personal travel, lockdown, and stay at home orders. As a Company centered on retail and which derives the most significant portion of its revenue from retail stores in airports and casinos, we were hit particularly hard. In retail, the 1st quarter of every year is the slowest revenue quarter of any year, and even before that first quarter ended all of our retail stores were closed due to the pandemic. Only the casino store was able to be re-opened in late November 2020 to lackluster sales. Supply chains were interrupted, and it became difficult to re-stock our retail store for the holiday season which also delayed its re-opening to mid-December, after an aborted restart in September. The supply chain problems also delayed the receipt of fabric and other products needed by our Fashion Group as they began to re-emerge from under the pandemic closures. Our fashion group, being based-in NYC was closed for many months and only reopened in July to produce masks. All of the stores our fashion group would sell to were also closed. Our technology division, 12 Tech Inc, was also hard hit. Not only were retailers closed and conserving cash like we were, but it became apparent that consumers would no longer interact with public touchscreens, which was the corner stone of our technology. In other words, our technology was made obsolete in the blink of an eye.

The Company managed survival during the pandemic by squirreling cash and obtaining PPP and or EIDL loans from the SBA. We attempted to retain all of our key employees utilizing these funds, but as a subsequent event by June 2021 most have found other jobs once the PPP money ran out. This presents challenges for our airport stores re-openings, as it is a long process to get employees certified (“badged”) to work in airports. This will further slow our re-openings during 2021. We also renegotiated various leases and commitments to make us more streamlined and efficient as we re-open and expand. In Japan we renegotiated out licensing arrangement with ITOYA whereby they managed more of the day-to-day software for a smaller fee and we eliminated virtually all of our costs there. We also learned that the App we had developed there was strongly used by Japanese consumers of ITOYA and we could re-develop it for the U.S. market. This process is well on the way and management believes will create the next great shopping platform.

For more information about our existing technology please visit our website at www.12retech.com. We do not, however, assure that our website is or can always remain current or complete or without errors in terms of information.

Financing and Convertible Debt

To finance our operations, the Company has historically resorted to a number of convertible debt providers (see Note 10). These debt providers have in many cases exercised their rights to convert their debt into the Company’s common stock at a discount to market. They then sell that stock to recover their investment and profits. This has over time depressed the value of our Company’s common stock and caused a significant dilution to our shareholders. This could not be avoided, and management believes it was necessary in order to provide continuation of the Company’s business so that we could make significant acquisitions. The Company has been building revenue momentum through these acquisitions and is no longer exclusively reliant on this form of fund raising. The vast majority of the funds the Company has received over the last 4 months have been sourced through non-convertible debt incurred by our operating subsidiaries. There is, however, still a considerable amount of convertible debt that needs to be retired over the near term. Management is working closely with the convertible note holders to find less dilutive alternatives and management believes that in first half of 2021 it will arrive at a solution that will involve less dilution, may require some cash payments from other sources including an equity offering and/or debt offerings through one or more of its subsidiaries as well as leak out provisions negotiated with the convertible debt holders themselves.

The Company had also entered into a $12 million dollar Equity Line of Credit with Oasis Capital which it has been unable to access due to some delays in the audits of one of its acquired subsidiaries. That has been resolved and Management has been in talks with Oasis on amending that original offering, so that the Company may refile the S-1 required with the SEC. The equity line of credit is ineffective at the current share price, and we will not be able to reinstitute at current share price levels.

In addition, Management has received tentative commitments for preferred Equity Funding that if completed would allow the Company to fully retire the convertible debt. Management, however, cautions readers that while promising no Equity or Debt funding can truly be counted upon until the money is in the bank. The exact amount of the final funding and timing have not been fully determined at this time.

However, Management believes that now that the Company has significant and growing revenue, has streamlined operations, is set to launch its software products in its own stores in the United States, and has access to more standard debt capital, that the issues associated with the convertible debt have become more manageable and therefore will be resolved more favorably to the Company than was previously observed.

Results of Operations

Three Months Ended September 30, 2020 and 2019

Revenues

During the three months ended September 30, 2020 our revenue decreased to $68,052 from $165,798, a decrease of $97,746 or 59%, compared to the three months ended September 30, 2019 which is primarily the result of the global pandemic due to COVID 19 on our Bluwire subsidiary and 12 Fashion Group subsidiary. The government forced the closure of all our store locations on March 16, 2020. When allowed, the company was able to re-open one of our store locations in December 2020. We hope to open additional store locations in the near future.

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Cost of revenues

During the three months ended September 30, 2020 we incurred costs associated with the delivery of our products in the amount of $33,539, as compared to $113,015 for the comparable period in 2019. These expenses are related to costs of manufacturing goods. The higher Cost of Revenues as a percentage of Revenues in 2020 is mainly the result of on inventory and production materials due to COVID 19.

General and Administrative

Our general and administrative expenses for the three months ended September 30, 2020 were $366,783, an increase of 66,110, compared to $300,673 for the three months ended September 30, 2019. This is primarily due to salary for personnel associated with Bluwire store off by impact due to COVID 19 and forced closure of operations during many months.

Professional fees

Our professional fees for the three months September 30, 2020 decreased by $216,934 to $94,179, compared to $311,113 for the three months ended September 30, 2019. Our professional fees include expenses related to our external auditors, legal costs, and consultants. In order to preserve our subsidiaries operations, the company conserved on spending from the period of closure on March 16, 2020 until September 30, 2020.

Depreciation and amortization

Our depreciation expense for the three months ended September 30, 2020 were $69,256 an increase of $64,283 or 1293% when, compared to $4,973 for the three months ended September 30, 2019. Our depreciation and amortization expense includes intangibles and leasehold improvements added October 1, 2019 as part of the Bluwire acquisition. As such the company had three months of depreciation and amortization as opposed to zero on these new assets which were added during the fourth quarter of 2019.

Other Income and Expense

Our other expenses increased by $11,187,967 to a net other expense of $6,675,769 for the three months ended September 30, 2020 compared to net other income $4,512,198 for the three months ended September 30, 2019. There are three main components of the increase of the 2020 Other Expense category:

1. A increase in loss on derivative liability of $9,889,290 to $6,688,600 from gain of $3,200,690 which is the result of the calculation of derivative liability using Black-Scholes.

2. A decrease in interest expense of $2,097,707. There was a decrease in interest expense to $98,752 from $2,196,459 for the period ended September 30, 2020 compared to the period September 30, 2019. This is related to the cost of convertible notes and the cost of convertible preferred stock during the same period.

3. A decrease in Other income to $1,027,306 from $217,052.

Net Loss

For the three months ended September 30, 2020, we incurred of net loss of $6,180,067 compared to a net gain of $5,068,370 for the three months ended September 30, 2019. This decrease in net loss is primarily the result of the decrease in net other expense.

The Company is expending working capital to further their business plan. This includes the further development, refinement, and improvement of their software and its adaptation to various European languages and geography. The Company is also expending working capital on the development of new technology which is designed to further enhance the attractiveness of their offerings to their target customer base in the new post Covid-19 contactless environment.

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Nine Months Ended September 30, 2020 and 2019

Revenue

During the nine months ended September 30, 2020 our revenue decreased to $590,814 from $625,058, a decrease of $34,244 or 5%, compared to the six months ended September 30, 2019. The decrease was due to the additional revenues from Bluwire acquisition during the fourth quarter of 2019 offset by the result of the global pandemic due to COVID 19 on our Bluwire subsidiary and 12 Fashion Group subsidiary. The government forced the closure of all our store locations on March 16, 2020. When allowed, the company was able to re-open one of our store locations in December 2020. We hope to open additional store locations in the near future.

Cost of revenue

During the nine months ended September 30, 2020 we incurred costs associated with the delivery of our products in the amount of $304,700 compared to $426,393 for the comparable period in 2019. These expenses are related to costs of manufacturing goods.

General and Administrative

Our general and administrative expenses for the nine months ended September 30, 2020 were $1,425,356, an increase of $357,140, compared to $1,068,216 for the nine months ended September 30, 2020. This increase primarily due to salary for personnel associated with Bluwire store off by impact due to COVID 19 and forced closure of operations during many months.

Professional fees

Our professional fees for the nine months ended September 30, 2020 decreased by $411,930 to $428,681, compared to $840,611 for the nine months ended September 30, 2019. Our professional fees include expenses related to our external auditors, legal costs, and consultants. In order to preserve our subsidiaries operations, the company conserved on spending from the period of closure on March 16, 2020 until December 31, 2020.

Depreciation and amortization

Our depreciation expense for the nine months ended September 30, 2020 were $264,678 an increase of $248,583 or 1544% when, compared to $16,095 for the nine months ended September 30, 2019. Our depreciation and amortization expense includes intangibles and leasehold improvements added October 1, 2019 as part of the Bluwire acquisition. As such the company had three months of depreciation and amortization as opposed to zero on these new assets which were added during the fourth quarter of 2019.

Other Income and Expense

Our other expenses decreased by $11,166,472 to a net other expense of $2,597,885 for the nine months ended September 30, 2020 compared to $13,764,357 for the nine months ended September 30, 2019. There are three main components of the decrease of the 2020 Other Expense category:

1. A decrease in loss on derivative liability of $1,846,189 to $2,323,080 from $4,169,269 which is the result of the calculation of derivative liability using Black-Scholes.

2. A decrease in interest expense of $7,960,764. There was a decrease in interest expense to $335,339 from $8,296,103 for the period ended September 30, 2020 compared to the period September 30, 2019. This is related to the cost of convertible notes and the cost of convertible preferred stock during the same period.

3. A decrease in reserve expense of $1,331,844 to $355,684 from $1,687.528 for the nine months ended September 30, 2020 compared to September 30, 2019.

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Net Loss

As a result of the foregoing, for the nine months ended September 30, 2020, we incurred of a net loss of $4,429,524 compared to a comprehensive net loss of $15,494,229 for the nine months ended September 30, 2019. This decrease in net loss is primarily the result of the decrease in net other expense.

The Company is expending working capital to further their business plan. This includes the further development, refinement and improvement of their software and its adaptation to various European languages and geography. The Company is also expending working capital on the development of new technology which is designed to further enhance the attractiveness of their offerings to their target customer base.

Consolidation of Operations

In order to achieve cost synergies, the Company continues to take steps to reduce and eliminate redundant and unnecessary costs in its operations. Management recently created the 12 Fashion Group division of 12 Retail to house and operate its fashion brand operations. The operations of Rune NYC, Red Wire Group and Social Sunday were combined, and steps were taken to reduce expenses while still working to expand the business.

Management’s recent decision in the 1st quarter of 2020 to outsource Red Wire Group’s manufacturing operations to qualified third parties has increased the potential for profitability of the 12 Fashion Group’s DIFY (“Do it For You”) apparel design and apparel manufacturing Today, we no longer operate our own factory but still service existing customers and recruit new customers. As a result, we have cut expenses dramatically and no longer have a manufacturing factory’s expenses such as payroll and rent. We have increased the customer base and conduct our business providing design and project management services to our client base. We have also decided to put the Red Wire Group into bankruptcy protection which will eventually allow us to eliminate the debts of the former operation. This may result in future gains in net income as well as allowing the successor business to operate with a cost structure that does not need to scale up with operational expansion and potentially earn a profit.

During the transition, Red Wire Design had a number of customer projects where they had taken deposits (typically 50% of total project revenues) and could not finish the project in its own factory. 12 Fashion Group found manufacturing partners who were willing to finish each and every unfinished project. The completed projects were to be invoiced for the remainder of the balances due and the resultant payments would be used to pay the manufacturing partners for their services. Some of these projects still remain unfinished at the time of the filing this report due to the government mandated closures. Through our efforts and good communication most of these customer relationships were salvaged, and we can expect that 12 Fashion Group will continue to receive business from these former customers of Red Wire Design.

This salvage operation allowed the Company to recognize revenues and expenses as it would have done if Red Wire Group had completed their projects on their own. However, there was a negative cash flow effect as all the resultant collected accounts receivables generated by these projects went out to pay the manufacturing partners. Management expects this to negatively affect gross margins for the Company in the upcoming financial reports of the 1st quarter of 2020. Going forward in the second half of 2020, Management expects gross margins to return to levels of between 30% and 40% for the 12 Fashion Group business.

Social Sunday’s operations are also being restructured. Management has taken steps to reduce cash outflows while it makes a decision regarding the future of the Social Sunday operation. In the meantime, this business has been stood still and it may be that we will use the bankruptcy laws to eliminate the debts.

Rune’s business has also been consolidated into the 12 Fashion Group Division with Rune’s President, Emily Santamore, installed as President for the 12 Fashion Group’s operation. Rune’s business continues to service existing clients and recruit new clients. It is Management’s strategy that the improved cost structures of the 12 Fashion Group will allow the business to grow and generate profits over the next 12 months and beyond.

Beginning in early March 2020, the apparel business of 12 Fashion Group was affected by the business shutdowns of geographies in the USA related to the COVID-19 pandemic. Manufacturing partners had to shut down their operations unless they were producing products such as face masks or hospital gowns that were deemed essential to the fight against this infectious disease. As such, 12 Fashion Group and select manufacturing partners got into the face mask business. So far, this business has produced quantities of product and revenues that are approximately a third of what management would consider normal business activity levels. Management does not expect business activities of the fashion industry to return to normal levels until the following year.

In another consolidation of operations and expenses, Management partially consolidated the operations of 12 Japan into 12 Hong Kong. In so doing, we are eliminating much of the overhead expenses of one of the Asian operations while retaining the ability to service our existing customer base. As a subsequent event, we have also received 2 million yen ($18,000) from the government of Japan as a grant which management plans to use to try to expand our business in Japan.

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Bluwire Group, which provided the bulk of the revenue growth of the 4th quarter of 2019, has also been impacted by the COVID-19 pandemic. On or about March 16, 2020, every one of the Bluwire stores was shut down by local government mandate. Stores were shuttered and our staff was laid off. We are staying in close communication with our landlords and the various airport authorities where we have stores located. At this point, Management still does not have a timeline for the reopening of these business operations. This shutdown has negatively impacted the Company’s revenues and cash flow. As a subsequent event, we have applied for and received CARES Act Payment Protection Program funding and EIDL for some of the stores. These funds will help Bluwire get back on its feet when the airport and casino stores are allowed to reopen. Management predicts that it will likely be the following year before airport traffic levels get back to normal if not longer. We are currently expecting to report large negative impacts to the Bluwire business in terms of revenues for the balance of this year.

Liquidity and Capital Resources

The Company has met its current capital requirements primarily through the issuance of debt-equity and preferred stock. Management views the working capital that is raised through debt-equity or preferred equity offerings as being equivalent to raising working capital via common equity subscriptions, but with the added bonus of allowing the common equity value to rise through the passage of time and simultaneous achievement of the Company’s business goals. Any conversion of debt into equity could occur at a higher equity valuation then the Company currently has. The Company has reserved the right to repurchase these debt-equity interests and preferred stock at a predetermined premium should management determine that this is in the best interests of shareholders at an appropriate future point in time.

Operating expenses for the Company have been paid from revenue as well as from the issuance of debt-equity and preferred stock subscriptions. At September 30, 2020 and December 31, 2019, the Company had a deficit in working capital (current liabilities in excess of current assets) of $14,486,873 and $11,786,147, respectively. The increase in working capital deficit was principally due to an increase in accounts payable due to the acquisition of Bluwire. A portion of this working capital deficit has been financed loans from stockholders. As of September 30, 2020, amounts owed to stockholders totaled $383,856.

The Company has financed our cash flow requirements through the issuance of debt-equity and preferred stock. As the Company expands, we may continue to experience net negative cash flows from operations, pending generation of significant revenues. Additionally, we anticipate obtaining additional financing to fund operations through debt-equity and preferred stock offerings to the extent available or to obtain additional financing to the extent necessary to augment our working capital balances.

Management believes that our acquisition strategy will successfully provide significant revenues, potential profits as well as access to traditional bank and asset-based credit lines. In addition, Management believes that existing shareholders, lenders, and prospective new investors will provide the additional cash needed to meet our obligations as they become due.

In connection with the acquisition of Bluwire Group, LLC, on October 3, 2019, one of the Sellers of Bluwire provided $300,000 capital contribution to its Bluwire. This obligation is not convertible into Company stock under any terms. This capital contribution to Bluwire has not been adequately documented. In Addition, on October 15, 2019, the Company’s Bluwire subsidiary entered into a future receivable purchase agreement with Libertas Funding and received $343,000. This agreement provides for payment over 8 months and caries a fee of $7,000. This obligation is not convertible under any terms into Company stock. Lastly, on November 5, 2019, the Company’s Rune subsidiary entered into a future receivables purchase agreement with Vox funding and received gross proceeds for $145,500 which were used in part to retire a previous and smaller obligation to Vox Funding. The Agreement provided for payment over 6 months and carries a fee of $4,500. This obligation is not convertible under any terms into Company Stock. After the March 16, 2020 Covid shut down, all payment ceased by verbal mutual agreement. In May 2021, the Company entered into a verbal agreement with Vox to repay $250 per week and all collection efforts are put on hold and forbearance on other receivable holders.

On March 18, 2020, the Company entered into a back end promissory note agreement with Adar Alef, LLC (“Adar”) for loans totaling $33,600. The consideration to the Company was $30,000 with $3,600 of legal fees. As a subsequent event, on March 25, 2020, the Company entered into a back end promissory note agreement with LG Capital, LLC (“LG”) for loans totaling $33,600. The consideration to the Company was $30,000 with $3,600 of legal fees. The note is convertible after 181 days at a (i) $0.0075 ceiling or (ii) 60% of the lowest trading price over the past twenty trading days prior to the conversion date.

On March 5, 2020, the Company’s Bluwire subsidiary entered into a second future receivable purchase agreement with Reliant Funding and received $83,000. This agreement provides for payment over 6 months and carries a fee of $3,000. This obligation is not convertible under any terms into Company stock. This agreement has been in forbearance since April 2021, and the Company pays $10 per week until Bluwire Newark is re-opened.

In the future we will need to generate sufficient revenues from operations in order to eliminate or reduce the need to sell additional stock or obtain additional loans. However, there can be no assurance we will be successful in raising the necessary funds to execute our high growth business plan.

At September 30, 2020, cash and cash equivalents was $42,826 compared to $118,860 at December 31, 2019.

It is likely that the Company will need to obtain additional working capital through debt-equity and preferred stock capital raises until the Company can generate sufficiently profitable revenues to sustain the cash burn rate that the Company’s business plan calls for.

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Although, our business plan calls for high growth, we anticipate that we may continue to incur operating losses during the next twelve months. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies at our stage, particularly companies in new and rapidly evolving markets. Our roll up acquisition strategy seeks to mitigate some of those risks, but until more acquisitions can be completed, consolidated, and we reap the benefits of consolidation, we cannot accurately include their results in our projection of cash needs.

Risks include, but are not limited to, an evolving and unpredictable business model and the management of growth and the consummation and assimilation of multiple acquisitions. These factors raise substantial doubt about our ability to continue as a going concern. To address these risks, we must, among other things, increase our customer base, implement and successfully execute our business and marketing strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition, and results of operations.

Impact of COVID-19

Like most other business in the United States, our businesses have been severely impacted by the COVID-19 Pandemic. While the first quarter of any calendar year is historically the slowest quarter of the year for revenues for our main operating subsidiaries the first quarter of 2020 was severely impacted by US Government’s business shutdowns and stay at home orders related to COVID-19. We derive most of our revenue from our 12 Retail Corporation which is itself composed of two Operating units: 12 Fashion Group and Bluwire Group, LLC.

In response to the President’s “stay at home orders” on March 16, 2020, we promptly laid off almost all of our 12 Fashion Group employees and contractors. 12 Fashion Group retained three employee/contractors and focused on producing and selling of washable reusable masks, both wholesale and direct to consumer online.

Our Bluwire retail stores in Newark airport, Dallas airport, and JFK international airport were temporarily closed on or about March 17, 2020. Our Casino location was temporarily closed on or about March 17, 2020 when the Mohegan Sun Casino itself was closed. We laid off all of our Bluwire employee/contractors except for two members of the headquarters staff who continued to source innovative products for our stores when they re-open, some of which will be uniquely desired by consumers due to changing buying habits due to COVID-19. We have since accepted the resignation of all of the employees and contractors of our casino store and have rebuilt the team in anticipation of future store operations. The financial effects of these closures are reflected in the Management Discussion and Analysis.

The Cares Act and the Payroll Protection Program SBA Loans (PPP Loans)

As a subsequent event, the Company has applied for PPP Loans for all of its U.S. operating Companies, and is in the process of analyzing if it would qualify for similar governmental assistance for its reduced operating unit in Japan (12 Japan Ltd). The Company has qualified for an aggregate of $294,882 of PPP Loans for its operating companies. These funds are being used to re-hire previously laid off personnel where appropriate and hire new personal that management believes better fits the post COVID-19 shut down environment. The Company is hiring personnel that will help the operating units generate revenues in a more contactless environment and to create changes to our cutting-edge retail software to help our stores and well as other retailers attract consumers in this new environment. The Cares Act provides very favorable terms for the repayment or forgiveness of the monies lent to qualifying businesses like ours. While the final rules are not yet formalized, the initial guidelines allow for complete forgiveness for monies spent on approved expenses such as payroll and labor with non- approved expenses to be paid back over 2 years at 1% annual interest with no payments for the first 6 months after receipt. No collateral was pledged for these loans and management did not have to sign any personal guarantees. Management will make every effort to utilize these PPP loan funds in a manner that may allow for complete forgiveness of the loan(s) while providing the best opportunity for the continuity and growth of the business.

During the COVID-19 shutdown period management sourced new products and vendors for its businesses and is now optimistic that it will shortly obtain additional funding of debt or preferred equity to grow our business.

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Reliance on the SEC’s March 25, 2019 order regarding extension of filing deadlines due to COVID-19

As a direct result of the COVID-19 shutdowns and travel restrictions, the SEC provided for any public company impacted by COVID-19 to extend its filing of its 10-K or 10-Q or other required filings for 45 additional days and would still be eligible for the further normal extensions of 15 and 5 days respectively. As noted herein, we have been extremely impacted on an operational level, delayed in obtaining information from our foreign subsidiaries in Hong Kong and Japan, as well as being delayed in our ability to obtain capital for the professional fees to complete our filings, and further compromised by the fact that our CEO and CFO are both restricted from travel to the United States at this time as they are in Hong Kong and Japan respectively. Therefore, we filed for a 45 day and 15-day NT10–KA Filing extensions in reliance on the March 25, 2020, order and have further been in communication with the SEC for additional consideration for timely filing under these extraordinary circumstances.

However, due to cash restraints with all of our closed operations, the Company was unable to meet any deadline to complete this audit and the quarterly reports (forms 10-Q) in a timely fashion during 2020 and the first quarter 2021. The Company retained auditor BF Borgers on April 28, 2021 and will complete all delinquent filings in the second quarter 2021. With our businesses reopening and revenues being generated, Management believes that it can continue to make timely filings in the future.

Going Concern

The Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Since the Company has not generated significant revenue or gross profits adequate to cover operating costs, has negative cash flows from operations, and negative working capital, the Company has included a reference to the substantial doubt about our ability to continue as a going concern in connection with our consolidated financial statements for the period ended September 30, 2020. Our total accumulated deficit as of September 30, 2020 was approximately $24 million.

The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, reduce the scope of or eliminate one or more of the Company’s research and development activities or commercialization efforts or perhaps even cease the operation of its business. The ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. There is substantial doubt about the ability of the Company to continue as a going concern for one year from the issuance of the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, and expenses and the disclosure of contingent assets and liabilities. We use assumptions that we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. We believe there have been no significant changes in accounting policies for the period ended September 30, 2020. See Note 3 to the consolidated statements in this Quarterly Report for a complete discussion of our significant accounting policies and estimates.

Recently Issued Accounting Standards

The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its consolidated financial statements. See Note 3 to the consolidated statements in our 2019 Annual Report for a complete discussion of our significant accounting policies and estimates.

Off-Balance Sheet Transactions

At September 30, 2020, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item 3.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Management, with the participation of our Chief Executive Officer and Chief Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures, as of September 30, 2020 were not effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Accounting Officer, as appropriate to allow timely decisions regarding disclosure. A control system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Management’s Quarterly Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.

In connection with our completed acquisitions of significant operating companies during the first three quarters of 2019, Management has begun to institute some financial controls. The first area management is improving is cash and expense payment controls. Management has implemented a segregation of duties and authorities in this area:

| 1. | Revenues are deposited in 98% of all cases electronically whether by our credit card processors or factors.
| 2. | The accounting department does not make any direct payments and all invoices are approved by the management of the operating companies, reviewed by the accounting department and representatives of senior management.
| 3. | Weekly, the managers of each operating company reviews with representatives of senior management which payments are to be made from the accounts payable listing.
| 4. | The payments are then made by a third-party payments person directed by senior management and recorded by the accounting department. Payments are mostly made by check, or automatic bill payment from the bank.
| 5. | The accounting department then verifies and reports to senior management that the payments were made as approved by serious management.
| 6. | Future improvements as the accounting staff will grow will be to segregate posting of entries from the person who can make journal entries.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

Our management, with the participation of the principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework. Based on the criteria established by COSO, management concluded that the Company’s internal control over financial reporting was not effective as of September 30, 2020 as a result of the identification of the material weaknesses described below.

Specifically, management identified the following control deficiencies: (1) The Company has not properly segregated duties as two or three individuals initiate, authorize, and complete all transactions. The Company has not implemented measures that would prevent the individuals from overriding the internal control system; (2) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines and (3) the Company has installed accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and does not provide an adequate audit trail of entries made in the accounting software.

Our Company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending December 31, 2020: (i) adopt sufficient written policies and procedures for accounting and financial reporting, (ii) complete the implementation of QuickBooks Enterprise solution for consistent recording and accounting of all transactions across all business groups started in 2019. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

Accordingly, while the Company has identified certain material weakness in its system of internal control over financial reporting, it believes that is has taken reasonable steps to ascertain that the financial information contained in this report is in accordance with generally accepted accounting principles generally accepted in the United States of America. Management has determined that current resources would be appropriately applied elsewhere and when resources permit, they will alleviate material weaknesses through various steps.

Changes in Internal Control Over Financial Reporting

As of September 30, 2020, there were no changes in the Company’s internal controls over financial reporting known to the Chief Executive Officer or the Chief Accounting Officer that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

During the ordinary course of business, and as a result of quickly completing multiple acquisitions and the business disruption due to the Covid-19 Pandemic the Company has become involved in some litigation, has some disputed claims and possible contingencies as follows:

Claims and Litigation:

| ● | Auctus Fund Management (“Auctus”) vs. 12 ReTech Corporation. Auctus Filed suit in August 2019 claiming breach of contract on a convertible promissory note dated April 25, 2018, which had a remaining principal balance of nearly $40,000. Auctus claimed damages totaling over $482,000. The Company had entered into a settlement agreement with Auctus that required the Company to make a cash payment of $117,000 and which was dependent on the Company receiving funding from a foreign investor. That investment did not occur, and the Company was unable to perform. Upon information and belief, management believes that Auctus will at some point re-institute that lawsuit. Management has reserved on its financial statements a sum in excess of $482,000 in regards to this claim. To the best of management’s knowledge, Auctus has not taken other actions.

| ● | Bellridge Capital, LP, one of the Company’s convertible debt providers has sued the Company for non-performance and has obtained a default judgment in the amount of $214,195.74 in the southern district of New York. The Company maintains that service of process is defective and the Company will also assert lack of jurisdiction if any collection effort is ever undertaken among other potential legal cleans and defenses

| ● | J&S properties sued the Company in regards to a lease for a subsidiary in-the State of Utah that was never guaranteed by the Company and obtained a default judgement in Salt Lake County. The Company maintains that it was never properly served and has, it believes, substantial defenses that it will raise should J&S properties ever try to enforce the judgment.

| ● | RedWire Group, LLC (“RedWire Group”) filed for bankruptcy under Chapter 11 subsection V on March 6, 2020, and the case in ongoing. The Company has funded the initial costs, as well as some ongoing storage costs for RedWire Group equipment. The Company plans to liquidate the equipment and some other assets to pay creditors. This Chapter 11 was converted by the Court to a Chapter 7 and discharged. The equipment was liquidated in 2021, and the Bank (Bank of American Fork) has been paid in full and all other debts have been discharged.

| ● | Leider Enterprises, Inc. D/b/a SM Distribution Inc a Florida corporation sued Bluwire Sun, LLC in Florida. Bluwire Sun never received any product from this company and is defending this lawsuit in Florida.

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| ● | Rottenberg, Meril, Solomon, Bertiger & Guttilla (“Rottenberg”) sued the Company in Bergen County New Jersey and obtained a default judgement because the Company was never served. The Company believes it has substantial counterclaims and defenses should Rottenberg ever tries to enforce this judgement.

| ● | PCG Advisory Group (PSG) obtained a default judgement of $63,350 in New York because, we believe, it never properly served the Company and has tried to domesticate that judgement in Arizona. The Arizona Court refused to domesticate the judgment and has given PSG some time to prove proper service. That period has expired.

| ● | VXB & Orfwid d/b/a Lost + Wander sued the Company’s Social Decay d/b/a Social Sunday subsidiary and also named the Company for invoices. The Company never guaranteed obligations for Social Sunday and intends to vigorously defend this lawsuit as meritless.

| ● | Tessco Technologies V Bluwire filed suit in Maryland. The Company has not been properly served and if served would dispute jurisdiction as well as other defenses on behalf of its Bluwire subsidiary.

| ● | George Sharpe, In May 2021 sued the Company in Nevada to try to obtain custodianship of the Company. This was defeated and the Company will be filing for attorney fees, although there are no guarantees the court will award us our attorney fees or other outcomes.

Item 1A. Risk Factors

The Company’s investors should consider the risks that could affect its business as set forth in Item 1A, Risk Factors, of its most recent Annual Report on Form 10-K.

The effectiveness of our disclosure controls and procedures and internal control over financial reporting

The Company has a limited number of personnel which may lead to a risk limited controls and procedures. As a result of the aforementioned reason there is a limit on the amount of internal controls during our financial reporting process.

The Company’s Chief Financial Officer is currently the Chief Financial Officer of another company

The Company Chief Financial Officer is also the Chief Financial Officer of another business and therefore may have limited time to work on the business and may experience time conflicts.

Our directors may lack of an independent director on your Board of Directors

Our directors are also on our Board of Directors and as a result the Board of Directors may lack some independence.

The Chief Executive Officer and the ability to control the Company

The Company’s Chief Executive Officer is also one of the most significant shareholders of the Company and as a result may control the Company.

Small customer base makes us dependent on a few customers

The Company currently has a small base of customers from which it derives its revenue. This could adversely affect the Company as it is dependent on a few customers for its current revenue.

There are a number of shares of common stock underlying the outstanding preferred stock and convertible notes

The Company has outstanding preferred stock and convertible notes which are potentially convertible into common stock. Should all of these convertible instrument convert into common stock, the number of common shares issued would lead to substantial dilution of the current common shareholders.

Although we have attempted to discuss meaningful factors, our investors need to be aware that other factors and risks may become important in the future. New risks may emerge at any time. We cannot predict such risks or estimate the extent to which they may affect our operations and financial performance. Investors should carefully consider the discussion of risks and the other information included in this Quarterly Report on Form 10-Q, including the Cautionary Information Regarding Forward-Looking Information provided above in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Other Information

None.

Item 5. Exhibits

Number |  | Description of Exhibit
31.1 |  | 8K- Amendment to Articles of Incorporation filed October 18, 2019.
31.2 |  | 8K- Share Exchange Agreement between 12 ReTech and Bluwire Group, LLC filed on October, 16 2019.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

12 ReTech Corporation

Date: June 28, 2021 | By: | /s/ Angelo Ponzetta
|  | Angelo Ponzetta
|  | Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

12 ReTech Corporation

Date: June 28, 2021 | By: | /s/ Angelo Ponzetta
|  | Angelo Ponzetta
| Its: | Chief Executive Officer,
| By: | /s/ Daniele Monteverde
|  | Daniele Monteverde
| Its: | Chief Financial Officer

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