RETC 12 Retech Corporation (CE)

Notes to the Condensed Consolidated Financial Statements

September 30, 2018

(Unaudited)

NOTE 1. NATURE OF BUSINESS

12 Retech Corporation (“we”, “us”, “our”, “12 ReTech”, “RETC”, or the “Company”) was incorporated under the laws of the State of Nevada, U.S. as DEVAGO INC. on September 8, 2014. On June 8, 2017, the Company amended our Articles of Incorporation to change the name to 12 Retech Corporation. At our core, we are a software company whose technology allows retailers to combat the dual threats of Walmart and Amazon — both online and in physical stores. Our microbrand rollup acquisition strategy allows us to demonstrate the effectiveness of our software, devise and test new products, while providing shareholder value through immediate revenue and earnings growth. The Company operates through our subsidiaries on three continents, Asia, North America and Europe.

Principal subsidiaries

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

NOTE 2. GOING CONCERN

The Company accounts for going concern matters under the guidance of ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entities Ability to Continue as a” Going Concern ” (“ASU 2014-15”). The guidance in ASU 2014-15 sets forth management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern as well as required disclosures. ASU 2014-15 indicates that, when preparing financial statements for interim and annual financial statements, management should evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern for one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that management’s plans to address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt.

These interim financial statements have been prepared on a going concern basis which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of September 30, 2018, the Company has incurred losses totaling approximately $7.8 million since inception, has not yet generated significant revenue from its operations, and will require additional funds to maintain our operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. The Company intends to finance operating costs over the next twelve months through continued financial support from its shareholders, the issuance of debt securities, private placements of common stock and revenues generated from its first mircrobrand acquisition EFG, Inc. There are no assurances that our plans will be successful. These interim financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 3. ACQUISITIONS

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

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

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

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

Emotion Fashion Group, was then deemed to be founded in 2010 and designs and manufactures women’s apparel and kids’ dancewear.

The acquisition of Emotion Fashion Group was accounted for under ASC 805. The following table summarizes the final allocation of assets acquired and liabilities assumed as of the Acquisition Date at estimated fair value. During the third quarter there was an increase in Goodwill associated with the acquisition due to additional disputed liabilities that were discovered after the date of the acquisition.

Fair value below :

As of May 1, 2018, the assets and net liabilities acquired were as follows:

The fair values of the net assets acquired were determined using the market approach, which indicates value for a subject asset based on available market pricing for comparable assets. The fair value of the fixed assets of $37,687 has been determined by a third-party valuation firm and is valued at its estimated liquidation price. The fair value of the debt has been determined using an appropriately required yield and comparing against the stated interest rate on

the debt.

The purchase price for the acquisition was allocated to the fair value of the assets acquired and liabilities assumed based on the estimates of the fair values at the acquisition date, with the amount exceeding the estimated fair values being recorded as goodwill. The amount of goodwill has increased during the third quarter as due to adding additional disputed liabilities for which were discovered after date of acquisition.

The fixed assets are being depreciated over their estimated useful lives of 5 years. Goodwill recorded will not be amortized but tested for impairment at least annually. The Company performs its annual test during the fourth quarter.

The Company assumed the liabilities of the Emotion Fashion Group, which included a disputed $250,000 note that bears a 2% annual interest rate. The fair market value of the note of $148,051 has been determined as the present value of the expected cash flow from the note assuming a market rate of interest.

Emotion Fashion Group’s results of operations have been included in the Company’s operating results for the period subsequent to the acquisition on May 1, 2018. Emotion Fashion Group contributed revenues of $26,896.

Revenues for Emotion Fashion Group were lower because the company was dormant most of 2017 and first quarter of the 2018. This was partly due to the fact that the company moved operations from Los Angeles, CA to Salt Lake City, Utah. In additional the company was re-branded and is gearing for its re-launch that began in June 2018.

The below table sets forth selected unaudited pro forma financial information for the Company as if Emotion Fashion Group was owned for the nine months ended September 30, 2018 and 2017.

The unaudited pro forma information set forth above is for informational purposes only. The pro forma information should not be considered indicative of actual results that would have been achieved if the Emotion Fashion Group acquisition had occurred on January 1, 2017. The unaudited supplemental pro forma financial information was calculated by combining the Company’s results with the stand-alone results of Emotion Fashion Group. For the identified periods, which were adjusted for certain transactions and other costs that would have been occurred during this pre-acquisition period.

NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. Notes to the unaudited interim condensed consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2017 have been omitted. This report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2017 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on April 16, 2018.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries 12HK, 12JP, 12EU. 12 Retail and Emotion Fashion Group which includes Emotion Group, Inc., Lexi Luu Designs, Inc., Punkz Gear, Skipjack Dive and Dance Wear, Inc. and Cleo VII, Inc, which beginning in the third quarter 2018 are all accounted or under the single Emotion Fashion Group, Inc financials due to the consolidation of Emotion Fashion Group’s subsidiaries. All inter-company accounts and transactions have been eliminated. We currently have no investments accounted for using the equity or cost methods of accounting.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.

Reclassifications

Certain prior period amounts have been reclassified to conform with the current period presentation. This presentation relates to the six months ended June 30, 2018 for which the Company has determined was in error. The Company has reflected changes to the presentation of redeemable preferred stock as of September 30, 2018. In addition, certain derivative liabilities related to the conversion adjustable conversion feature on the Company’s convertible notes payable, of approximately $933,000, were recorded as of June 30, 2018. The effects of which has been retroactively restated as of June 30, 2018 to ensure the statement of operations for the three months ended September 30, 2018 is accurately stated.

Software Development Costs

At September 30, 2018 and December 31, 2017, software development costs totaled $177,270 and $0, respectively. Capitalized costs related to the software under development are treated as an asset until the development is completed and the software is available for licensure under a software as a service arrangements. The Company will amortize the software costs on a straight-line basis over the estimated life of the software product’s expected life cycle, commencing when the software is first available for general release to customers.

Goodwill

Goodwill represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. The goodwill amount of $551,110 at September 30, 2018 relates to the acquisitions of EFG. Goodwill is not amortized, but is tested annually for impairment, or if circumstances occur that more likely than not reduce the fair value of the reporting unit below its carrying amount. The Company has determined that there has been no impairment of goodwill at September 30, 2018. The Company performs its annual test during the fourth quarter.

Revenue Recognition

Effective January 1, 2018, the Company adopted ASC 606, “Revenue from Contracts with Customers.” The Company has evaluated the new guidance and its adoption did not have a significant impact on the Company’s financial statements and a cumulative effect adjustment under the modified retrospective method of adoption will not be necessary. The was no impact to the Company’s revenue recognition under the new guidance.

Convertible Debt and Convertible Preferred Stock

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

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

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

Derivative Liabilities and Fair Value Measurements

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

The Company carries certain derivative financial instruments using inputs classified as “Level 3” in the fair value hierarchy on the Company’s consolidated balance sheets.

The Company classified certain conversion features in the convertible notes issued during 2017 and 2018 as embedded derivative instruments due to down-round ratchet provisions and potential adjustments to conversion prices due to events of default and accordingly measures and carries the conversion features as derivative liabilities in the consolidated financial statements. Also, the Company determined that the certain notes should be measured and carried at fair value in the consolidated financial statements according to ASC 480, as they are settleable in a variable number of shares based on a fixed monetary amount known at inception. These fair value estimates were measured using inputs classified as “level 3” of the fair value hierarchy. We develop unobservable “level 3” inputs using the best information available in the circumstances, which might include our own data, or when we believe inputs based on external data better reflect the data that market participants would use, we base our inputs on comparison with similar entities. Due to the existence of down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, the Company decided a Monte Carlo Simulation model, which incorporates inputs classified as “level 3” was appropriate.

Key inputs used in the Monte Carlo Simulation model to determine the fair value of the embedded derivatives and notes at September 30, 2018 are as follows:

The “level 3” stock volatility assumption represents the range of the volatility curves used in the valuation analysis based on the actual volatility of the Company’s common stock. The risk-free interest rate is interpolated where appropriate and is based on treasury yields. The valuation model also included a “level 3” assumption the developed as to dates of potential future financings by the Company and potential events of default that may cause a reset of the conversion prices.

Commitments and Contingencies

The Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is mandatorily redeemable by the holder at a future date.  The Series D-1 Preferred Stock is classified as temporary equity due to the fact that it redeemable immediately. The Series D-3 Preferred Stock is also classified as temporary equity due to the existence of the PUT.

Earnings per Share

The Company follows ASC 260, “Earnings per Share” (“EPS”), which requires presentation of basic EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation. In the accompanying financial statements, basic earnings (loss) per share are computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the Company’s earnings subject to anti-dilution limitations. In a period in which the Company has a net loss, all potentially dilutive securities are excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact. For the nine and three months ended September 30, 2018 and 2017, potentially dilutive common shares consist of common stock issuable upon the conversion of convertible notes payable, Series A Preferred Stock, Series B Preferred Stock, Series D-1 Preferred Stock and Series D-3 Preferred Stock (using the if converted method). All potentially dilutive securities were excluded from the computation of diluted weighted average number of shares of common stock outstanding as they would have had an anti-dilutive impact.

Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, due to stockholders and notes payable. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

Recent Accounting Pronouncements

Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.

Depreciation expense for the three months ended September 30, 2018 and 2017 amount to $2,552 and $1,347, respectively. Depreciation expense for the nine months ended September 30, 2018 and 2017 amounted to $5,085 and $7,448, respectively.

On August 12, 2017, Gianni Ponzetta loaned CHF 60,000 (approximately $62,946 as of September 30, 2018 and $61,584 at December 31, 2017, to the Company. The promissory note was unsecured, bore an interest at 1% per annum and is due December 31, 2019.

In September 2018, Gianni Ponzetta converted this note and all the due to Gianni Ponzetta payables to Preferred D-3 shares. See Preferred D-3 shares in Note 10 below.

The other amounts due to stockholders are non-interest bearing, unsecured and due on demand.

In September 2018, $20,000 was repaid to Angelo Ponzetta, which offset the amounts due to Angelo Ponzetta.

During the nine months ended September 30, 2018 and 2017, total advances and expenses paid directly by stockholders on behalf of the Company were $62,326 and $40,766, respectively, and the Company repaid $16,931 and $0, respectively.

For the three months ended September 30, 2018 and 2017, the Company recognized interest expense of $49,557 and $0 respectively, all of which represented the amortization of original issue discounts, debt discounts and beneficial conversion features. For the three and the months ended September 30, 2018, the Company reduced the principal by $146,500 of principal and interest of $11,438 through conversions. The issue discounts and debt discounts are being amortized over the life of the notes using straight line amortization due to the short term nature of the note. Remaining issue discounts and debt discounts of $185,814 will be fully amortized by May 2019.

For the nine months ended September 30, 2018 and 2017, the Company recognized interest expense of $986,312 and $0 respectively, all of which represented the amortization of original issue discounts, debt discounts, derivative liabilities, beneficial conversion features and accrued interest.

As a subsequent event, as of November 9, 2018, the principal debt was further reduced by $343,096 of principal and $19,307 of interest.

The following is the change in derivative liability for the nine months ended September 30, 2018:

The company recognized a change in derivative liability of $1,735,027 for the period ended September 30, 2018. The derivative liability was determined using the Monte Carlo valuation method as of September 30, 2018.

The Company classified certain conversion features in the convertible notes issued during 2017 and 2018 as embedded derivative instruments due to variable conversion prices without a floor, down-round ratchet provisions and potential adjustments to conversion prices due to events of default and accordingly measures and carries the conversion features as derivative liabilities in the consolidated financial statements. Most derivative liabilities were triggered in June 2018, when the notes first became convertible. Also, the Company determined that the certain notes should be measured and carried at fair value in the consolidated financial statements according to ASC 480, as they are settleable in a variable number of shares based on a fixed monetary amount known at inception. These fair value estimates were measured using inputs classified as “level 3” of the fair value hierarchy. We develop unobservable “level 3” inputs using the best information available in the circumstances, which might include our own data, or when we believe inputs based on external data better reflect the data that market participants would use, we base our inputs on comparison with similar entities. Due to the existence of down round provisions, which create a path-dependent nature of the conversion prices of the convertible notes, the Company decided a Monte Carlo Simulation model, which incorporates inputs classified as “level 3” was appropriate.

Key inputs used in the Monte Carlo Simulation model to determine the fair value of the embedded derivatives and notes at September 30, 2018 are as follows:

The “level 3” stock volatility assumption represents the range of the volatility curves used in the valuation analysis based on the actual volatility of the Company’s common stock. The risk-free interest rate is interpolated where appropriate and is based on treasury yields. The valuation model also included a “level 3” assumption the developed as to dates of potential future financings by the Company and potential events of default that may cause a

September 15, 2017 Note

On September 15, 2017, the Company entered into the promissory note agreement with SBI Investments LLC (“SBI”) for loans up to a maximum of $1,250,000, together with interest at the rate of 8% per annum. The consideration to the Company for this promissory note is up to $1,000,000, resulting in a potential original issuance discount (“OID”) of up to $250,000. The maturity date for each tranche funded shall be six months from the effective date of the respective payment date. The promissory note may be converted into shares of the Company’s common stock at any time on or after the occurrence of an event of default. The conversion price shall be the 60% multiplied by the lowest trading price during the 30 trading days period ending, in holder’s sole discretion on each conversion, on either (i) the last complete trading day prior to the conversion date or (ii) the conversion date. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect.

An initial promissory note of $200,000 was issued on September 15, 2017 and the Company received cash of $150,000 and recognized OID of $40,000 and financing cost of $10,000 as debt discount and BCF of $133,333 as debt discounts.

On November 14, 2017, the Company issued an additional promissory note of $187,500 and received cash of $150,000 and recognized OID of $37,500 and a BCF of $125,000 as debt discounts.

On March 30, 2018, the Company entered into an amendment of this note as it was originally due March 15, 2018, which indicates that a $200,000 tranche is now eligible for conversion at a discount to market. The Company agreed to pay $25,000 to SBI for each 30-day extension as consideration. The extension amount is automatically added to the face value of the note after each 30-day period. SBI has agreed to a minimum of a 3-month extension under these same terms. The Company determined this amendment was a debt extinguishment and recognized a total of $50,000 and $75,000 as a loss on debt extinguishment for the three and nine months ended September 30, 2018. For the additional $75,000 of principal added to the balance of the note for which was immediately expensed to interest expense.

On July 12, 2018, SBI converted $15,000 of this note for 510,204 shares of common stock.

On August 7, 2018, SBI converted $7,500 of this note for 757,576 shares of common stock.

On August 29, 2018, SBI converted $10,000 of this note for 1,694,915 shares of common stock.

On September 10, 2018, SBI converted $15,000 of this note for 3,488,372 shares of common stock.

On September 18, 2018, SBI converted $10,000 of this note for 3,316,750 shares of common stock.

As of September 30, 2018, the total principal debt reduction as of September 30, 2018 was $57,500.

Also as of September 30, 2018, the Company recognized a derivative liability of $526,661 and $454,018 on each tranche of these notes, respectively.

As a subsequent event, on October 3, 2018, SBI converted $10,000 of this note for 6,535,948 shares of common stock. On October 23, 2018, SBI converted $12,870 of this note for 11,000,000 common stock as well as on October 30, 2018, an additional $12,870 of this note was converted for 11,000,000 common stock. As of November 9, 2018, the total principal debt was reduced by $93,240.

December 8, 2017 Note

On December 8, 2017, the Company entered into the promissory note agreement with LG Capital Funding, LLC (“LG”) for loans totaling $185,292. The consideration to the Company is $158,824 resulting in a 15% OID. The maturity date for each note is six months from the date of issuance. The Company shall pay a one-time interest charge of 9% of the principal amount for each note. The notes may be converted at any time after the maturity date. The conversion price shall be 75% multiplied by the lowest trading price during the 10 prior trading days period ending on either (i) the last complete trading day prior to conversion date or (ii) the conversion date. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect. As additional consideration for the purchase of the notes, the Company issued to LG 154,410 and 142,972 shares of our common stock each on January 13, 2018 and February 1, 2018, respectively, for a total of 297,382 shares, with a value equal to $46,323, based on the previous day closing price.

The first note of $92,646 was issued on December 8, 2017. The Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $28,667 as debt discount. The one-time interest charge of 9% of the principal amount of the note was due on January 1, 2018. In addition, the Company recorded $46,323 as debt discount for the issuance of the common shares.

On January 10, 2018, LG funded their “back end note” which is the second half commitment from the agreements. The Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $61,764 as debt discounts. A one-time interest charge of 9% of principal amount of the note was added to the note in Feb, 2018. The charge was added to the finance charges associated with this note and amortized over the life of the note.

On July 12, 2018, LG converted $6,289 of the note for 127,056 shares of common stock. On July 24, 2018, LG converted $6,289 of the note for 239,592 shares of common stock. On August 9, 2018, LG converted $4,109 of the note for 421,466 shares of common stock. On August 28, 2018, LG converted $5,199 of the note for 436,000 shares of common stock. On September 14, 2018, LG converted $11,739 of the note for 1,647,621 shares of common stock. As of September 30, 2018, the total principal reduction totaled $30,850 and interest of $2,776.

As of September 30, 2018, as a result of reset features the conversion price shall be 60% multiplied by the lowest traded price during the 10 prior trading day period ending on either (i) the last complete trading day prior to the conversion date or (ii) the conversion date. In addition, as of September 30, 2018, the company recognized a derivative liability of $114,991.

As a subsequent event, on October 3, 2018, LG converted $7,379 of the note for 2,893,843 shares of common stock and on October 11, 2018 LG converted $19.376 of the note for 10,830,687 shares. On October 11, 2018, LG converted $21,120 of this note for 10,830,687 shares of common stock, on October 23, 2018 LG converted $13,243 of this note for 6,791,538 of common stock and again on October 26, 2018, they converted $19,121 of this note for 16.350,000 shares of common stock. As of November 9, 2018, the total principal reduction was $110,196 and $9,918.

December 8, 2017 Note

On December 8, 2017, the Company entered into the promissory note agreement with Cerberus Finance Group Ltd. (“Cerberus”) for loans totaling $185,292. The consideration to the Company is $158,824 resulting in a 15% OID. The maturity date for each note is six months from the date of issuance. The Company shall pay a one-time interest charge of 9% of the principal amount for each note. The notes may be converted at any time after the Maturity Date. The conversion price shall be the 75% multiplied by the lowest trading price during the 10 prior trading day period ending on either (i) the last complete trading day prior to conversion date or (ii) the conversion date. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect. As additional consideration for the purchase of the notes, the Company issued to Cerberus 154,410 and 142,972 shares of our common stock each on January 13, 2018 and February 1, 2018, respectively, for a total of 297,382 shares, with a value equal to $46,323, based on the previous day closing price.

The first note of $92,646 was issued on December 8, 2017. The Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $28,667 as debt discounts. The one-time interest charge of 9% of the amount of the Note was due on January 1, 2018. In addition, the Company recorded $46,323 as debt discount for the issuance of the common shares.

On January 11, 2018, Cerberus funded their “back end note” which is the second half commitment from the agreements. The Company received cash of $75,000 and recognized OID of $13,234 and financing cost of $4,412 and a BCF of $61,764 as debt discounts. The one-time interest charge of 9% of the principal amount of the note was due on February 1, 2018.

On July, 24, 2018, Cerberus converted $ 4,533 of the note for 100,740 shares of common stock. On August 21,2018, Cerberus converted $32,679 of the note for 3,351,779 shares of common stock. On September 13, 2018, Cerberus converted $24,274 of the note for 3,406,977 shares of common stock. As of September 30, 2018, the total principal reduction by $53,150 and interest $8,338.

As of September 30, 2018, as a result of reset features the conversion price shall be 60% multiplied by the lowest traded price during the 10 prior trading day period ending on either (i) the last complete trading day prior to the conversion date or (ii) the conversion date. In addition, as of September 30, 2018, the company recognized a derivative liability of $99,375.

March 15, 2018 Note

On March 14, 2018, the Company entered into a promissory note agreement with Eagle Equities, LLC (“Eagle”) for loans totaling $100,000. The consideration to the Company is $95,000 resulting in a 5% OID. The maturity date of each note is one year from the date of issuance. The notes carry an interest rate of 12% per annum and interest payments are to be made in common shares of the Company. The conversion price of the note is 60% multiplied by the lowest trading price of the Common Stock for the ten prior trading days and the holder can convert the note at the earlier of an uncured default or 181 days from issuance. The note may be redeemed by the Company at rates ranging from 105% to 130% depending on the redemption date provided that no redemption is allowed after the 180 ^th day. All terms of the note, including but not limited to interest rate, prepayments terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect. As additional consideration, the Company is to issue to Eagle Equities, LLC shares of common stock with a value equal to 25% of each note, determined at the time of signing of each note.

The first note of $50,000 was issued on March 15, 2018. The Company received cash of $47,500 and recognized financing cost of $2,500 and a BCF of $33,333 as debt discounts. The Company issued to Eagle Equities, LLC 156,250 shares of common stock with a value equal to $12,500. The Company recorded $12,500 as debt discount for the issuance of the common shares. Eagle Equities has LLC has not yet funded the back end note for the remaining $50,000 at this time. This note matured and became convertible during third quarter of 2018 along the terms mentioned above.

On September 26,2018, Eagles Equities converted $5,323.33 for 2,218,054 of common shares.

As of September 30, 2018, the company recognized a derivative liability of $52,663.

As a subsequent event, on October 9,2018, Eagles Equities converted $18,173 for 9,178.283 of common shares and on October 11,2018, Eagles Equities converted $13,975 for 10,830,687 of common shares. and on October 15,2018, Eagles Equities converted $14,994 for 9,611,538 of common shares. On October 17, 2018 converted $19,158 for 12,280,981 of common stock, on October 22, 2018 $13,134 converted into 8,419,442 of common stock and on October 25, 2018 converted $18,204 into 9,787,097 of common stock. As of November 9, 2018, the principal was reduced by $100,000 and interest of $3,962.

March 15, 2018 Note

On March 14, 2018, the Company entered into a into the promissory note agreement with Adar Bays Capital, LLC (“Adar Bays Capital”) for loans totaling $100,000. The consideration to the Company is $95,000 resulting in a 5% OID. The maturity date of each note is one year from the date of issuance. The notes carry an interest rate of 12% per annum and interest payments are to be made in common shares of the Company. The conversion price of the note is 60% multiplied by the lowest trading price of the Common Stock for the ten prior trading days and the holder can convert the note at the earlier of an uncured default or 181 days from issuance. The note may be redeemed by the Company at rates ranging from 105% to 130% depending on the redemption date provided that no redemption is allowed after the 180 ^th day. All terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward in the Company offers more favorable terms to another party, while this note is in effect. As additional consideration, the Company is to issue to Adar Bays Capital shares of common stock with a value equal to 25% of each note, determine at the time of signing of each note.

The first note of $50,000 was issued on March 15, 2018. The Company received cash of $47,500 and recognized financing cost of $2,500 and a BCF of $33,333 as debt discounts. The Company issued to Adar Bays Capital 137,363 shares of our common stock with a value equal to $12,500. The Company recorded $12,500 as debt discount for the issuance of the common shares. Adar Bays Capital, LLC has not yet funded the back end note for the remaining $50,000 at this time. As of September 30, 2018, the company recognized a derivative liability of $56,270.

As a subsequent event, on October 8, 2018 Adar Bays converted $8,000.00 of this note into 3,921,569 shares on common stock, on October 10, 2018 converted $15,000.00 into 9,615,385 shares of common stock, on October 15, 2018 converted $18,392 of this note for 11,789,744 shares of common stock, on October 22, 2018 converted $12,075.81 into 7,740,904 shares of common stock, on October 23, 2018 converted $23,991 into 15,278,846 shares of common stock and on October 25, 2018 converted $26,311.02 into 14,191,489 shares of common stock. As of November 9, 2018, the total principal was reduced by $100,000 and interest of $3,770.

April 27, 2018 Note

On April 27, 2018 the Company entered into a Securities Purchase Agreement with Auctus Fund, LLC (“Auctus”) whereby the Company issued to a 9% Convertible Note (“Note”) to Auctus n the principal amount of $100,000 and a maturity date of January 25, 2019. The conversion price of the Note is $0.05 per share, provided, however, that on or after the earlier of an event of default or 181 days after issuance date, the conversion price shall equal the lesser of (i) $0.05 per share, (ii) the lowest trading price during the previous twenty days ending on the last trading day prior to the date of the note, and (iii) 60% of the lowest trading price of the Common stock for the twenty prior trading days prior to the conversion date. Auctus can convert the Note, at any time, after issuance until the maturity date or the date payment of the default amount. All the terms of the note, including but not limited to interest rate, prepayment terms, conversion discount or look-back period will be adjusted downward in the Company offers more favorable terms to another party, while this note is in effect.

The note of $100,000 was issued on April 27, 2018. The Company received cash of $90,000 and recognized financing cost of $10,000 and a BCF of $28,400 as debt discounts. In addition, the Company issued to Auctus 700,000 shares of our common stock with a value equal to $61,600 as a commitment/collateral fee. The Company recorded $61,600 as debt discount for the issuance of the common shares. As of September 30, 2018, the company recognized a derivative liability of $152,951.

As a subsequent event, on October 30, 2018 Auctus converted $18,668.83 into 17,950,800 shares of common stock and on November 7, 2018 converted $20,088 into 19,315.600 shares of common stock. As of November 9, 2018, the total principal reduction was $33,000 and interest of $4,757.

May 15, 2018 Note

On May 15, 2018 the Company entered into 2018 the Company entered into a Securities Purchase Agreement with Bellridge Capital, LP (“Bellridge”) whereby the Company issued to a 10% Convertible Note (“Note”) to Bellridge in the principal amount of $60,000 and a maturity date of May 15, 2019. The conversion price of the Note is the lower of $0.08 per share or 60% of the lowest trading price during the previous twelve days ending on the last trading prior to the date of the delivery of the notice of conversion. Bellridge can convert the Note at any time after issuance until the maturity date or the date payment of the default amount. The note may be redeemed by the Company at rates ranging from 120% to 150% depending on the redemption date. The conversion price will be reduced to equal the effective price per share of any common stock or common stock equivalent issuances while the note or any amounts accrued remain outstanding.

The note of $60,000 was issued on May 15, 2018. The Company received cash of $50,000 and recognized financing cost of $10,000 and a BCF of $50,000 as debt discounts.

As of September 30, 2018, as a result of the reset features of the note the conversion price is assumed to be $0.01 due to a stock issuance at that price. As of September 30, 2018, the company recognized a derivative liability of $58,936.

September 17, 2018 Note

On May 17, 2018 the Company entered into 2018 the Company entered into a Securities Purchase Agreement with Bellridge Capital, LP (“Bellridge”) whereby the Company issued to a 10% Convertible Note (“Note”) to Bellridge in the principal amount of $60,000 and a maturity date of September 17, 2019. The conversion price of the Note is the lower of $0.01 per share or 60% of the lowest trading price during the previous twelve days ending on the last trading prior to the date of the delivery of the notice of conversion. Bellridge can convert the Note at any time after issuance until the maturity date or the date payment of the default amount. The note may be redeemed by the Company at rates ranging from 120% to 150% depending on the redemption date. The conversion price will be reduced to equal the effective price per share of any common stock or common stock equivalent issuances while the note or any amounts accrued remain outstanding.

The note of $60,000 was issued on September 17, 2018. The Company received cash of $50,000 and recognized financing cost of $10,000 and a BCF of $50,000 as debt discounts.

As of September 30, 2018, as a result of the reset features of the note the conversion price is assumed to be $0.01 due to a stock issuance at that price. As of September 30, 2018, the company recognized a derivative liability of $81,472.

September 21, 2018 Note

On March 15, 2018, the Company entered into a into the promissory note agreement with Eagle Equities, LLC (“Eagle”) for loans totaling $100,000. The consideration to the Company is $95,000 resulting in a 5% OID. The maturity date of each note is one year from the date of issuance. The notes carry an interest rate of 12% per annum and interest payments are to be made in common shares of the Company. The conversion price of the note is 60% multiplied by the lowest trading price of the Common Stock for the ten prior trading days and the holder can convert the note at the earlier of an uncured default or 181 days from issuance. The note may be redeemed by the Company at rates ranging from 105% to 130% depending on the redemption date provided that no redemption is allowed after the 180 ^th day. All terms of the note, including but not limited to interest rate, prepayments terms, conversion discount or look-back period will be adjusted downward if the Company offers more favorable terms to another party, while this note is in effect. As additional consideration, the Company is to issue to Eagle Equities, LLC shares of common stock with a value equal to 25% of each note, determined at the time of signing of each note.

The second note of $50,000 was issued on September 21, 2018. The Company received cash of $47,500 and recognized financing cost of $2,500. The Company issued to Eagle Equities, LLC 156,250 shares of common stock with a value equal to $12,500. The Company recorded $12,500 as debt discount for the issuance of the common shares. As of September 30, 2018, the company recognized a derivative liability of $137,690.

NOTE 9 – NOTE PAYABLE

On May 1, 2018, 12 ReTech acquired Emotion Fashion Group, Inc. As part of the acquisition, Emotion Fashion Group was obligated under a note payable to a third party in the amount of $250,000, maturing in July 2027 and bearing a 2% interest rate. The note calls for monthly payments to be made to the third party equal to ten percent (10%) of the gross sales of the Company until paid in full, including accrued interest. When the note was acquired, the Company recorded the note at its fair market value of $148,051. The note discount is being amortized to interest expense through maturity. Debt discount amortized amounted to $2,780 and $4,634 for both the three and nine months ended September 30, 2018.

NOTE 10 – PREFERRED STOCK AND STOCKHOLDERS DEFICIT

Amendments to Articles of Incorporation

On January 29, 2018, the Company amended its Articles of Incorporation giving its Board of Directors the power to issue up to 50,000,000 shares of Preferred Stock, and to fix the rights, preferences and privileges of each class of preferred stock so created. No shareholder approval is required in connection with the creation of classes of preferred stock under this authority and the setting of the rights, preferences and privileges of such shares. The Board of Directors acted to create new series of preferred stock, entitled Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock.

Effective March 14, 2018, the Company filed a Certificate of Amendment to its Articles of Incorporation with the state of Nevada to increase the number of authorized shares of capital stock to 1,050,000,000 shares. The Company increased the number of authorized shares of common stock to 1,000,000,000. There was no change to the number of shares of authorized preferred stock.

PREFERRED STOCK

The Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to and imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series.

Commitment and Contingencies

The Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is mandatorily redeemable by the holder at a future date.  The Series D-1 Preferred Stock is classified as temporary Series D-1 as temporary equity due to the fact that redeemable immediately. The Series D-3 Preferred Stock is classified as temporary equity due to the existence of the PUT.

Series A Preferred Stock

On July 19, 2018, 1,500,000 shares of Series A Preferred Stock were issued as compensation for services.

There were 1,500,000 shares of the Series A Preferred Stock issued during the nine months ended September 30, 2018.

As of September 30, 2018, and December 31, 2017, 5,000,000 shares of Series A Preferred Stock were issued and outstanding.

Series B Preferred Stock

The Series B Redeemable Convertible Preferred Stock is classified as temporary equity, as it is mandatorily redeemable by the holder 15 months after issuance and thus have been recorded as mezzanine.  During the nine months ended September 30, 2018, the Company issued Series B Preferred Stock as follows,

Series C Preferred Stock

There was a single issuance of the Series C Preferred Stock during the nine months ended September 30, 2018.

On August 6, 2018, the Board of Directors of 12 ReTech corporation authorized the issuance of one (1) share of our Series C Preferred Shares to the founder, Angelo Ponzetta, effective August 14, 2018. The Series C Preferred Shares have no equity value, no preference in liquidation and is not convertible into common shares, but authorizes the holder to vote one billion (1,000,000,000) votes on any matter that shareholders are entitled to vote for under our Bylaws at a cost of $1.00 per share. The Board believes that this was necessary so that the Company maintains a consistent vision going forward that can only be achieved if the Founder’s vision is maintained. This vision is the same vision that all current shareholders bought into as evidenced by their investment into the Company. To ensure that the founder’s vision is maintained, it is necessary that no outsider person or group can gain voting control from the founder as the Company.

Series D Preferred Stock

Series D Preferred Stock are “Blank Check” Preferred which allows the Board of Directors to subdivide and/or determine the rights, privileges and other features of this stock. On July 13, 2018, the Company filed an amended certificate of designation increasing the authorized Series D preferred shares from 1 million (1,000,000) to 10 million (10,000,000), as a reallocation of the 50 million (50,000,000) shares of preferred stock authorized. All of these 10 million (10,000,000) shares of Series D Preferred Stock are part of the 50 million (50,000,000) authorized shares of preferred stock. On July 5, 2018 the Company filed a certificate of designation to create a subset of the Series D Preferred Stock designated Series D-1 (see below)

Series D-1 Preferred Stock, on July 2, 2018, the Company entered in to Equity Line of Credit agreement with Oasis Capital, LLC (“Oasis Agreement”) and as a part of that Agreement the Company created a subset Series D-1 Preferred Stock from the authorized Series D Preferred Stock having special rights and privileges as follows:

The total number of shares of Series D-1 Preferred Stock issued was 311,250 shares, with a par value of $0.0001 per share and a stated value of $2.00 per share (the “Stated Value”). The Series D-1 Preferred Stock as a whole, of which Series D-1 is a subset, has such powers, preferences, rights and restrictions which shall be determined by the Company’s Board of Directors in its sole discretion, and which designations and issuances shall not require the approval of the shareholders of the Company.

The Series D-1 Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends and right of liquidation with the Company’s Common Stock, (b) junior with respect to dividends and right of liquidation with the Company’s Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock; and (c) junior with respect to dividends and right of liquidation to all existing and future indebtedness of the Company. Until twelve months following the issuance of the shares, without the prior written consent of 100% of the holders of the outstanding shares of Series D-1 Preferred Stock, the Company may not issue any Preferred Stock that is senior to the Series D-1 Preferred Stock in right of dividends and liquidation. Without the prior written consent of 100% of the holders of the outstanding shares of Series D-1 Preferred Stock, the Company may not issue or incur any indebtedness or other obligation to pay month that is convertible into or exchangeable for shares of Common Stock (or into or for any other security that is convertible into or exchangeable for shares of Common Stock).

Upon any liquidation, dissolution or winding-down of the Company, the holders of the shares of Series D-1 Preferred Stock shall be paid in cash, before any payment shall be paid to the holders of Common Stock, or any other Junior Securities, an amount for each share of Series D-1 Preferred Stock held by such holder equal to 140% of the Stated Value thereof plus any dividends accrued but unpaid thereon.

Each share of Series D-1 Preferred Stock together with accrued but unpaid dividends thereon shall be convertible at the option of the holder thereof, in whole or in part, at any time, without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the Stated Value per share being converted plus accrued and unpaid dividends thereon by the Series D-1 Conversion Price in effect at the time of conversion. The “Series D-1 Conversion Price” per share of Common Stock shall be the lowest traded price of the Common Stock during the thirty (30) trading day period ending, in Holder’s sole discretion on each conversion, on either (i) the last complete trading day prior to the Conversion Date or (ii) the Conversion Date (subject to adjustment as provided therein).

Series D-1 Preferred Stock shall be non-voting except on certain major corporate actions or as required by law. In the event of such a right to vote, each holder of Series D-1 Preferred Stock shall have the right to the number of votes equal to the number of Conversion Shares then issuable upon conversion of the Series D-1 Preferred Stock held by such holder.

Before any dividends shall be paid or set aside for payment on any Junior Security of the Company, each holder of the Series D-1 Preferred Stock shall be entitled to receive dividends, in the manner provided herein, payable on the Stated Value of the Series D-1 Preferred Stock at a rate of 8% per annum, which shall be cumulative and be due and payable in shares of Common Stock on the Conversion Date. Such dividends shall accrue from the date of issue of each share of Series D-1 Preferred Stock, whether or not declared.

Shares of the Series D-1 Preferred Stock shall be redeemable, in whole or in part, at the option of the Company, by resolution of its Board of Directors, in cash, at any time during the initial 60 calendar day period after the issuance of the respective Series D-1 Preferred Stock, subject to the Redemption Notice requirements below, at a price per share equal to 125% of the Stated Value plus the amount of accrued but unpaid dividends thereon, provided, however, that 125% shall be replaced with 140% if the Company exercises its option to redeem the Series D-1 Preferred Stock after the initial 60 calendar day period.

On July 2, 2018, the Company reserved of 20,000,000 shares of our common stock to Oasis Capital under the Equity Purchase Agreement. In connection with the Equity Purchase Agreement, Oasis Capital was issued 311,250 shares of the Company’s Series D-1 Preferred Stock which is convertible, at the option of Oasis Capital, into shares of our common stock, subject to a beneficial ownership limitation of 4.99% of the then outstanding shares of common stock. Other than the Commitment Shares, the amount and percentage of shares of our common stock that will be beneficially owned by the selling stockholder after completion of the offering assume that they will sell all shares of our common stock being offered pursuant to this prospectus.

On July 13, 2018 the Company increased its authorized Series D Preferred Stock from one million to ten million (10,000,000) authorized shares of stock from the 50 million total authorized preferred shares. These shares are designated as “Blank Check Preferred” allowing the Board of Directors to set the rights privileges and voting as determined by the Board of Directors as well as dividing this Series into other series as the need may arise.

As of July 20, 2018 with the execution of the Oasis Agreement, the Company issued 311,250 shares of Preferred Series D-1 shares. See terms of this agreement are detailed in subsequent events Footnote 13.

There were no other issuances of the Series D-1 during the nine months ended September 30, 2018.

As of August 7, 2018, there were 311,250 shares of Series D Preferred Stock outstanding all, of which are the series D-1 preferred shares at par value of $2 per share total $622,500. 

The Series D-1 Preferred Stock is classified Series D-1 as temporary equity due to the fact that redeemable immediately. As of September 30, 2018, there were 311,250 shares issued and outstanding totaling $622,500 for which was expensed upon issuances as there is no additional performed criteria.

On September 29, 2018, the Board of Directors of 12 ReTech corporation authorized the issuance of twenty thousand (20,000) shares of our Series D-3 Preferred Shares to Gianni Ponzetta effective September 29, 2018 at a price of $5 par value per share in exchange for $100,000. On the same date, 12 ReTech corporation authorized the issuance of four thousand (4,000) shares of our Series D-3 preferred shares to Gianni Ponzetta at $5 par value per share with a value of $20,000 as incentive shares at no additional costs to Gianni Ponzetta. Lastly, 12 ReTech corporation issued 30,840 shares of Series D-3 Preferred Shares to Gianni Ponzetta with par value per share of $5 in exchange of $154,234 which was owed to Gianni Ponzetta. On October 30, 2018, this Certificate of Designation was filed with the Secretary of State in the State of Nevada.

The Company agrees in connection with this subscription created a sub-class of its Series D Preferred shares which are designated as “Blank Check Preferred” which allows the Board of Directors of the Company to designate, without further shareholder approval, the rights, privileges and preferences or some, part or all of the Series D Preferred Shares and/or to create sub-classification of those Series D Preferred Shares as they deem necessary.

The Holder may convert some, part of all of the Securities into common shares of the Company based on the closing market price on the day before notice of conversion is presented to the Company. The Company will pay dividends on the Securities at the rate of 10% per annum and shall pre-pay the Holder the first 12 month’s dividends from proceeds. After 12 months the Company would pay the pro-rata interest on a monthly basis due the first of each month and late after the 10th of each month.

At the option of the Holder the Company may be obligated to redeem any un-converted Securities that are not deemed to be incentive shares and that are not deemed to be settlement shares through the issuance of a “PUT” to the Company. The PUT option is not effective until after May 31, 2019. To effectuate a PUT, the Holder must serve the Company with a notice of intent to institute the PUT option. Once served, the Company will have 15 days after which the PUT option will become effective. At the conclusion of the PUT Notice Period, the Holder may at any time request a redemption of some, part or all of Holder’s un-converted Securities by providing the Company with a PUT DEMAND. The Company would then be obligated to redeem any undisputed Securities within 10 business days of receipt of the PUT DEMAND. The Holder may at any time after issuing a PUT NOTICE rescind the PUT option which could then only be re-instituted through a future PUT NOTICE.

The Series D-3 Preferred Stock is classified as temporary equity due to the existence of the PUT. As of September 30, 2018, there were 54,840 Preferred Series D-3 shares outstanding at $3 par representing a total of $274,230.

Common Stock

The Company is authorized to issue 1,000,000,000 shares of common stock at a par value of $0.00001.

Common stock issued for the nine months ended September 30, 2018 was as follows:

As described above, the Company issued 1,000,000 shares for the acquisition of EAI.

The Company issued 3,125,000 shares to a stakeholder for total proceeds of $500,000. The Company received $100,000 at issuance and was to receive $400,000 in payments from June 2018 through October 2018 at the rate of $80,000 per month. At September 30, 2018, the Company was owed $80,000 and such amount is reflected as a subscription receivable in stockholders’ deficit on the consolidated balance sheet. Subsequent to September 30, 2018 on October 19, 2018 the Company received the final $80,000 payment.

In June 2018, the same stakeholder as described above, who joined the advisory board in June 2018, purchased an additional 3,125,000 shares at a discounted price of $0.01 per share. As a result of the discount, the Company recognized stock compensation of $218,750.

As discussed above, the Company issued 46,367,487 shares with the convertible debt. 

The Company issued 12,157,264 shares to various consultants and recognized stock compensation expense of $391,017 and $609,291 for both the three and nine months September 30, 2018. The stocks were issued for services rendered to the company in the form of consulting and or bought for cash during the period.

As of September 30, 2018, and December 31, 2017, 147,056,747 and 82,200,000 shares of common stock were issued and outstanding, respectively.

NOTE 11 - SEGMENTS

The Company does business on three continents (Asia, North America and Europe) in four different jurisdictions (Hong Kong-special economic zone of the People’s Republic of China, Japan, United States of America, and The European common market through Switzerland). These segments are components of the Company about which separate financial information is available and regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The accounting policies of the segments are the same as those described in Note 3, Summary of Significant Accounting Policies.

The following table shows operating activities information by geographic segment for the three and nine months ended September 30, 2018 and 2017.

3 months ended September 30, 2018

3 months ended September 30, 2017

9 months ended September 30, 2018

9 months ended September 30, 2017

The following table shows assets information by geographic segment at September 30, 2018 and December 31, 2017.