12 RETECH : MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS (form 10-Q) Leave a comment


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.



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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):



                                                             Attributable
  Name of       Place of         Date of      Acquisition       Equity
  Company     Incorporation   Incorporation      Date         Interest %              Business
12 Retail     Arizona, USA    Sept. 18,       Formed by                 100 %   As a holding Company
Corporation                   2017            12 ReTech                         to execute the
("12                                          Corporation                       Company's roll up
Retail")                                                                   
    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      Utah, USA       July 2, 2015    February                  100 %   Operations are
Group, LLC                                    19, 2019                     
    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,     New York, USA   Jan 23, 2013    March 14,                92.5
%   Operated by 12
LLC                                           2019                              Fashion Group, Inc.,
                                                                                an unincorporated
                                                                                division of 12
                                                                                Retail. Operates
                                                                                contemporary women's
                                                                                'Athleisure' brand
                                                                                which is primarily
                                                                                sold to retailers.
Bluwire       Florida, USA    Feb 1, 2010     October 1,               60.5 %   A subsidiary of 12
Group, LLC                                    2019                              Retail with 12 brick
("Bluwire")                                                                

and mortar stores was

acquired.

Social        New Jersey,     Sept 24, 2014   November 1,               100 %   Operated by 12
Decay, LLC    USA                             2019                              Fashion Group Inc., a
dba Social                                                                      division of 12
Sunday                                                                          Retail. Operates a
("Social                                                                        contemporary women's
Sunday")                                                                   
    clothing brand
                                                                                primarily sold to
                                                                                wholesalers.
12 Tech Inc   Arizona, USA    Dec 26,2019     Formed by                 100

% As a holding Company

                                              12 Retech                     

to execute the

Company’s technology

strategy.

12 Hong       Hong Kong,      February 2,     June 27,                  100 %   A subsidiary of 12
Kong          China           2014            2017                              Tech Inc. Development
Limited                                                                         and sales of
("12HK")                                                                        technology
                                                                                applications.
                                                                                Services customers in
                                                                                Asia, including
                                                                                Japan.
12 Japan      Tokyo, Japan    February 12,    July 31,                  100 %   A subsidiary of 12
Limited                       2015            2017                              Tech Inc.
("12JP")                                                                        Consultation and
                                                                                sales of technology
                                                                                applications. As of
                                                                                June 2020, our
                                                                                Japanese customer (s)
                                                                                is serviced by 12
                                                                                Hong Kong.
12 Europe     Switzerland     August 22,      October 26,               100 %   As of September 2019,
AG ("12EU")                   2013            2017                              this company is
                                                                                closed.
12 Fashion    Arizona, USA    June 26, 2020   Formed by                 100 %   Formed as a
Group Inc                                     12 Retech                         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.



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– 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.




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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.



35







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.



36







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 March 31, 2020 and 2019



Revenues



During the three months ended March 31, 2020 our revenue increased to $407,788
from $221,129, an increase of $186,659 or 84%, which is primarily the result of
new acquisitions of Bluwire.



37







Cost of revenues



During the three months ended March 31, 2020 we incurred costs associated with
the delivery of our products in the amount of $195,392, as compared to $147,898
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 three months ended March 31,
2020 were $706,856, an increase of $240,722, compared to $466,134 for the three
months ended March 31, 2019. This is primarily due to salary for personnel
associated with Bluwire stores.



Professional fees



Our professional fees for the three months ended March 31, 2020 decreased by
$58,313 to $191,708, compared to $250,021 for the three months ended March 31,
2019. Our professional fees include expenses related to our external auditors,
legal costs, and consultants.



Other Income and Expense



Our other expenses increased by $9,505,339 to a net other expense of $10,560,398
for the three months ended March 31, 2020 compared to $1,055,059 for the three
months ended March 31, 2019. The majority of the increase is due to an increase
in other income of $206,059, a decrease in interest expense of $216,531 and an
increase in loss on derivative liability of $9,806,763, partially offset by an
increase in general default reserve expense of $121,167.



As detailed in Note 3, the Company effectively closed the Bluwire Denver
locations effective March 31, 2020. As a result, of the debts related to Bluwire
Denver including all accounts payable and accrued expenses were written off
resulting in a gain of $211,564.




In addition, the Company recognized other income from Red Wire Group declaring
bankruptcy on March 6, 2020 whereby all debts of the company were eliminated
with some exceptions in accounts payable resulting in a gain of approximately
$32,000.


There was a decrease in interest expense to $135,799 from $352,330 for the
period ended March 31, 2020 compared to the period March 31, 2019. The decrease
in interest expense is related to the cost of convertible notes and the cost of
convertible preferred stock during the same period.



Net Loss


For the three months ended March 31, 2020, we incurred of a net loss of
$11,364,894 compared to a net loss of $1,702,973 for the three months ended
March 31, 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.



38







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.



39







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 March 31, 2020
and December 31, 2019, the Company had a deficit in working capital (current
liabilities in excess of current assets) of $22,464,949 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
March 31, 2020, amounts owed to stockholders totaled $383,416.



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 March 31, 2020, cash and cash equivalents was $57,182 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.



40







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.



41






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 March 31, 2020. Our total accumulated deficit as
of March 31, 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 March 31, 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 March 31, 2020, the Company did not have any transactions, obligations or
relationships that could be considered off-balance sheet arrangements.

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