Acquisitions

12 Months Ended

Dec. 31, 2020

NOTE 4 – ACQUISITIONS

Acquisitions

Red Wire Group, LLC

On February 19, 2019, the Company completed the acquisition of Red Wire Group, LLC. (“RWG”) a Utah limited liability company, pursuant to a share exchange agreement whereby the Company exchanged shares of the Company’s Series D-5 and Series D-6 Preferred Stock for 100% of the outstanding equity of RWG. Pursuant to the terms of the exchange agreement, the Company acquired (i) 75% of the membership interests of RWG in exchange for 54,000 shares of the Company’s Series D-6 Preferred Stock (stated value of $5.00 per share), and (ii) the remaining 25% of the membership interests of RWG in exchange for 37,500 shares of the Company’s Series D-5 Preferred Stock (stated value of $4.00 per share). The total purchase consideration for the RWG acquisition was $450,000, including the fair value of D-5 and D-6 Preferred Stock of $420,000 and $30,000 in cash.

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

The following table summarizes the provisional purchase price allocations relating to the RWG acquisition:

	Preliminary
	Purchase Price
	Allocation
Cash and cash equivalents	$	10
Inventory		48,000
Fixed assets, net		58,110
Goodwill		480,381
Accounts payable and accrued liabilities		(136,501	)
Net assets acquired	$	450,000

The fixed assets acquired are being depreciated over their estimated useful lives of 5 years.

As of December 31, 2019, the Company determined, based on various qualitative and quantitative factors, that the acquired goodwill had indicators of impairment and therefore recorded a full impairment charge of $480,381.

RWG’s results of operations have been included in the Company’s operating results for the period from February 1, 2019. RWG contributed revenues of $594,735 for the year ended December 31, 2019. The results of RWG for 2020 is consolidated along with the revenues of the other 12 Retail subsidiaries. On March 6, 2020, Red Wire Group filed for bankruptcy under Chapter 11 subsection V on March 6, 2020, and the case in ongoing. The Company has funded the initial costs, as well as some ongoing storage costs for RedWire Group equipment. The Company plans to liquidate the equipment and some other assets to pay creditors. This Chapter 11 was converted by the Court to a Chapter 7 and discharged.

Rune NYC, LLC

Effective March 14, 2019, the Company completed the acquisition of Rune NYC, LLC (“Rune”), a New York limited liability company, pursuant to a share exchange agreement whereby the Company exchanged shares of the Company’s Series D-5 Preferred Stock for 92.5% of the total outstanding equity of Rune and the members of Rune (the “Members”). The Company issued an aggregate of 82,588 shares of Series D-5 Preferred Stock with a stated value of $4.00 per share, and cash consideration of $49,937, for total purchase consideration of $380,289.

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

The following table summarizes the provisional purchase price allocations relating to the Rune acquisition:

	Preliminary
	Purchase Price
	Allocation
Cash and cash equivalents	$	12,914
Accounts receivable, net		23,506
Other current assets		9,750
Goodwill		394,440
Accounts payable and accrued liabilities		(29,487	)
Non-controlling interest		(30,834	)
Net assets acquired	$	380,289

Rune’s results of operations have been included in the Company’s operating results for the period from March 1, 2019. Rune contributed revenues of $163,050 in 2019. The results of Rune for 2020 is consolidated along with the revenues of the other 12 Retail subsidiaries.

Bluwire Group, LLC

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

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

The following table summarizes the provisional purchase price allocations relating to the Bluwire acquisition:

	Preliminary
	Purchase Price
	Allocation
Cash and cash equivalents	$	51,530
Accounts receivable, net		62,333
Inventory		212,777
Other assets		179,100
Fixed assets, net		271,449
Security deposit		59,800
Goodwill		623,072
Accounts payable and accrued liabilities		(736,468	)
Due to stockholders		(395,674	)
Non-controlling interest		(127,919	)
Net assets acquired	$	200,000

The fixed assets acquired are being depreciated over their estimated useful lives of 5 years, as well as leasehold improvements which are amortized over the short of the useful lives or lease term. Other assets consist of the preliminary fair value of intangible assets acquired upon the acquisition, including Bluwire’s trademark and lease assets.

Bluwire’s results of operations have been included in the Company’s operating results for the period from October 1, 2019. Bluwire contributed revenues of $790,534 in 2019. The results of Bluwire for 2020 is consolidated along with the revenues of the other 12 Retail subsidiaries.

Social Decay, LLC dba Social Sunday

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

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

The following table summarizes the provisional purchase price allocations relating to the Social Sunday acquisition:

	Preliminary
	Purchase Price
	Allocation
Cash and cash equivalents	$	3,418
Accounts receivable, net		13,189
Inventory		55,211
Fixed assets, net		20,529
Goodwill		473,784
Accounts payable and accrued liabilities		(356,131	)
Net assets acquired	$	210,000

The fixed assets acquired are being depreciated over their estimated useful lives of 5 years.

Social Sunday’s results of operations have been included in the Company’s operating results for the period from November 1, 2019. Social Sunday contributed revenues of $55,638 in 2019. The results of Social Sunday for 2020 is consolidated along with the revenues of the other 12 Retail subsidiaries.

Acquisition – Other

The Company acquired these entities to expand their retail operations. In addition, the goodwill in connection with these acquisitions is not expected to be deductible for tax purposes. Intangibles are amortized over their expected life from one to five years.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the Company’s financial results as if the RWG, Rune, Bluwire and Social Sunday’s acquisitions had occurred as of January 1, 2019. The unaudited pro forma financial information is not necessarily indicative of what the financial results actually would have been had the acquisition been completed on this date. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project the Company’s future financial results. The pro forma information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisitions:

	Pro forma twelve months ended December 31
	2019
Revenues	$	5,219,301
Cost of revenues		2,845,331
Gross profit		2,373,970

Operating expenses	$	5,799,715
Operating losses	$	(9,204,291	)

Net Loss	$	(12,630,036	)

Earnings Per Share	$	(0.47	)

Dispositions

Emotion Apparel, Inc. & Emotion Fashion Group, Inc.

On May 1, 2018, the Company completed the acquisition of E-motion Apparel, Inc. (“EAI”) a California corporation, pursuant to a share exchange agreement whereby the Company exchanged 1.0 million of its common shares for 100% of the outstanding equity of EAI, in a third-party transaction. The acquisition of EAI was accounted for under ASC 805.

The Original EAI Transaction was accounted for as follows: The fair value of the 1.0 million shares of common stock issued amounted to $80,000. EAI owned four wholly-owned and majority-owned subsidiaries: Lexi Luu Designs, Inc, (a Nevada Corporation), Punkz Gear, Inc, (a Wyoming Corporation), Cleo VII, Inc. (a Nevada Corporation) and Skipjack Dive & Dance Wear, Inc. (a Nevada Corporation), which together owns five microbrands that were included in this transaction and target specific niche markets: Lexi-Luu Dancewear, Punkz Gear, Cleo VII, Skipjack Dive & Dance Wear, and E-motion Apparel, Inc. During the fourth quarter of 2018, the Company determined that the goodwill associated with the acquisition should be fully impaired and recorded an impairment expense of $551,111.

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

On September 30, 2019, the Company foreclosed on its liens taking possession of the assets including the brands; Lexi-Luu, Emotion Fashion Group, Punkz Gear, and retuned the stock in Emotion Apparel, Inc. and its subsidiaries to the Seller. As a result, the Company wrote off the payables of Emotion Apparel, Inc. to other income, including $511,486 in accounts payable and accrued liabilities and $250,000 in notes payable.

The Company determined that the disposition of Emotional Apparel did not meet the criteria for discontinued operations reporting.

12 Europe, A.G.

12 Europe A.G. which was acquired in 2017 has underperformed against expectation. In the third quarter 2019 it was determined by management that the costs of continuing to support the expenses of an independent 12 Europe A.G., were unsupportable. Therefore, the Company reaffirmed its previous master representation agreement between 12 Hong Kong, LTD and Coppola, AG so that the software customers in Europe can continue to be supported, and then closed its operations in Europe. On August 20, 2019, the Company had successfully discharged all of its debts associated with 12 Europe A.G., as part of the completion of the 12 Europe A.G. bankruptcy filing, except for certain social benefit payments still owed approximately $35,000 by the Company. Therefore, this subsidiary is no longer in existence. Management does not consider this closure as a condition for discontinued operations as master representation agreement between 12 Europe has now been transferred to 12 Hong Kong and Coppola AG. As such, the software customer in Europe will continue to be supported. As such the total discharged accounts payable totaled $445,244 and were offset to other income.

The Company determined that the disposition of 12 Europe A.G. did not meet the criteria for discontinued operations reporting.

12 Retech Corp 10-K