12 RETECH CORPORATION 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", "12ReTech 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. InOctober 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 inthe 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; 12Tech, Inc. , formed inArizona onDecember 26, 2019 ("12 Tech") and 12Retail Corporation , formed onSeptember 17th, 2017 ("12 Retail"), and the 12Fashion Group, Inc formed onJune 26, 2020 . 12 Retail operates its own retail outlet(s) as well as those ofBluwire 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, allBluwire 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. 12Fashion Group, Inc anArizona Corporation was formed-in onJune 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 inAsia . We are planning to deploy our solutions inthe United States retail markets, which serve the world's largest consumer economy. While we continue to operate inAsia , we have consolidated our international units, which were focused on our technology deployment ("12Japan " and "12 Europe"), and consolidated our software development company 12Hong Kong, Ltd ("12 HK"), under 12 Tech to further streamline our own operations. 30 Principal subsidiaries The details of the principal subsidiaries of the Company as ofDecember 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.
31
12Retail Corporation : a subsidiary of 12 ReTech Corporation Operates its own retail store (as ofMarch 2021 as a subsequent event) and manages two main subsidiaries each of which have multiple subsidiaries; 12Fashion Group, Inc andBluwire Group, LLC .
12
OnFebruary 19, 2019 we acquiredRed Wire Group, LLC . ("RWG") aUtah 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 inSalt Lake City, Utah . As of the end ofNovember 30, 2019 , we closed the factory inUtah while 12Fashion Group retained the customers by completing the orders in process. We were able to produce the products through 3rd party factories inNew York City andLos Angeles for less than it cost us to produce the products in our own factory inSalt Lake City, Utah . OnMarch 6, 2020 , the company filed a Chapter 11 Bankruptcy filing inPhoenix 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 aboutSeptember 2020 and all debts were extinguished. 12Fashion Group continues to service those customers acquired as well as obtaining new accounts by marketing under the d/b/a Red Wire Designs. 32
- One
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
continued uninterrupted in
key employees as the leading part of 12 Fashion Group .
- On
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
the additional 12,000 D-6 Shares held in escrow as a performance incentive.
The D-6 shares have a face value of
the Company's common shares. Subsequent to year end in
print factory was closed in part due to the COVID-19 Pandemic. Social's
products are marketing and manufactured by the staff of 12
33
-
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
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
Corporation
- 12
and has a number of subsidiaries ("12Tech"). On
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
acquired 12
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
Japan , formerly managed by 12Japan Ltd.
- 12
the initial acquisition of 12
2018 the Company made several acquisitions including 12
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
the third quarter 2019 it was determined by management that the costs of
continuing to support the expenses of an independent 12
unsupportable. Therefore, the Company reaffirmed its previous master
representation agreement between 12
software customers in
operations in
discharged all of its debts associated with 12
completion of the 12
benefit payments still owed approximately
subsidiary is no longer in existence.
34
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 lateNovember 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 ourFashion 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, 12Tech 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 byJune 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. InJapan 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 withOasis 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 theSEC . 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 inthe 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
Revenues During the three months endedMarch 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 endedMarch 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 endedMarch 31, 2020 were$706,856 , an increase of$240,722 , compared to$466,134 for the three months endedMarch 31, 2019 . This is primarily due to salary for personnel associated with Bluwire stores. Professional fees Our professional fees for the three months endedMarch 31, 2020 decreased by$58,313 to$191,708 , compared to$250,021 for the three months endedMarch 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 endedMarch 31, 2020 compared to$1,055,059 for the three months endedMarch 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
In addition, the Company recognized other income fromRed Wire Group declaring bankruptcy onMarch 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 endedMarch 31, 2020 compared to the periodMarch 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
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 12Fashion 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 outsourceRed Wire Group's manufacturing operations to qualified third parties has increased the potential for profitability of the 12Fashion 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 theRed 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. 12Fashion 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 12Fashion 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 ifRed 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 12Fashion 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 12Fashion 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 12Fashion Group will allow the business to grow and generate profits over the next 12 months and beyond. Beginning in earlyMarch 2020 , the apparel business of 12Fashion Group was affected by the business shutdowns of geographies in theUSA 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, 12Fashion 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 received2 million yen ($18,000 ) from the government ofJapan as a grant which management plans to use to try to expand our business inJapan . 39Bluwire 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 aboutMarch 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. AtMarch 31, 2020 andDecember 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 ofMarch 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 ofBluwire Group, LLC , onOctober 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, onOctober 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, onNovember 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 theMarch 16, 2020 Covid shut down, all payment ceased by verbal mutual agreement. InMay 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. OnMarch 18, 2020 , the Company entered into a back end promissory note agreement withAdar 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, onMarch 25, 2020 , the Company entered into a back end promissory note agreement withLG 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. OnMarch 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 sinceApril 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
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 inthe 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 byUS Government's business shutdowns and stay at home orders related to COVID-19. We derive most of our revenue from our 12Retail Corporation which is itself composed of two Operating units: 12Fashion Group andBluwire Group, LLC . In response to the President's "stay at home orders" onMarch 16, 2020 , we promptly laid off almost all of our 12Fashion Group employees and contractors. 12Fashion 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 inNewark airport ,Dallas airport , and JFK international airport were temporarily closed on or aboutMarch 17, 2020 . Our Casino location was temporarily closed on or aboutMarch 17, 2020 when theMohegan 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 itsU.S. operating Companies, and is in the process of analyzing if it would qualify for similar governmental assistance for its reduced operating unit inJapan (12Japan 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
As a direct result of the COVID-19 shutdowns and travel restrictions, theSEC 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 inHong Kong andJapan , 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 tothe United States at this time as they are inHong Kong andJapan respectively. Therefore, we filed for a 45 day and 15-day NT10-KA Filing extensions in reliance on theMarch 25, 2020 , order and have further been in communication with theSEC 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 onApril 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 inthe 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 endedMarch 31, 2020 . Our total accumulated deficit as ofMarch 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 inthe 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 endedMarch 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
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