1846 E. Innovation Park Drive,
Oro Valley, Arizona 85755
(Address of principal executive offices, including zip code.)
(520) 318-5578
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Class
Common Stock, $0.00 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o¨ No x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | x |
(Do not check if a smaller reporting company) |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o¨ No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2017,2019, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $6,592,777$44,431,000 (based on the closing price of $0.009$0.0202 on June 30, 20172019 on the OTCQB)OTC Markets).
As of March 31, 2018,22, 2020, the registrant had 1,702,937,9673,504,460,889 shares of its common stock outstanding.
Documents Incorporated by reference: None.
TAUTACHROME, INC.
FORM 10-K
For the Years Ended December 31, 20172019 and 20162018
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PART 1I – FINANCIAL INFORMATION
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements that involve risks and uncertainties. We generally use words such as “believe,” “may,” “could,” “will,” “intend,” “expect,” “anticipate,” “plan,”"believe," "may," "could," "will," "intend," "expect," "anticipate," "plan," and similar expressions to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described below and elsewhere in this report. Although the forward-looking statements herein reflect our focused actual intentions, and although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made, and our future results, levels of activity, performance or achievements may not meet these expectations. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results or to changes in our expectations, except as required by law.
All references in this Annual Report to the “Company,” “we,” “us”"Company," "we," "us" or “our”"our" are to Tautachrome, Inc. and our wholly owned subsidiaries.subsidiary(ies).
Since its public announcement on September 25, 2017 (via SEC form 8-K) that it would be using its Twitter site (@Tautachrome_Inc) (http://twitter.com/tautachrome_inc) to post important Company information, and finding this method of publicizing important Company information both fast and effective, the Company has continued to use this means of public communication almost exclusively, supplemented occasionally with Current Reports via SEC Form 8-Ks. Shareholders are advised to follow us on Twitter to be current on the Company’s disclosures in conformity with Regulation FD.
History
The Company was formed in Delaware on June 5, 2006 as Caddystats, Inc.
On March 3, 2009, the Company acquired all of the voting shares of Roadships Holdings, Inc., a Florida Corporation, and Roadships America, Inc., also a Florida Corporation in exchange for an aggregate of 16,025,000 shares of the Company’s common stock. On March 4, 2009, the Company changed its name to Roadships Holdings, Inc.
On May 26, 2015, the Company acquired all the voting shares of Click Evidence Inc., an Arizona corporation. Effective November 2, 2015, the Company changed its name to Tautachrome Inc.
Our Business
Tautachrome operates in the internet applications space, a large business space we believe to be uniquely able to make possible fast growing and novel business. The iPhone, Google, Facebook, Amazon, Twitter, Android, Uber and numerous other examples are reminders of the ability of the internet applications business space to surprise us with new business universes out“out of nowhere.” A recent surprise was the arrival in the internet applications space ofis blockchain technology, which isa technology empowering enterprises of all sizesentities to create ecosystems of trade based on self-introduced and globally useable cryptocurrencies. The arrival of blockchainsecure trading currencies. Blockchain technology has added a significant new and leading element to Tautachrome’s business plans and activities. In addition, the subsequent development of a new patent pending technology dubbed ARknet technology that exploits augmented reality in a new solution to the purchasing interaction between global consumers and providers has been licensed by the Company for development.
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Tautachrome is currently pursuing twothree main avenues of business activity based on our patented activated imaging technology, (brandedour blockchain trading currency, and the ARknet patent pending technology (together banded “KlickZie” technology):
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| 2. | KlickZie’s blockchain trading currency ecosystem: our recently added activity to create our own KlickZie |
| 3. | KlickZie Activated Digital Imagery business: our longstanding flagship activity to develop and monetize downloadable apps based on our patented KlickZie trusted imaging technology and based on our patented trusted image-based social interactions using the pictures and videos that smartphone users generate on the web using their KlickZie imaging app. |
1. ARk Business Activity
On October 17, 2018, the Company licensed and is now developing the ARknet technology, a Fintech patent pending technology aimed at the global household goods and services market. ARks are floating interactive pictures (ARk Symbols) only visible around you in the Augmented Reality view provided by the ARknet app using the camera imager in your smartphone. ARks are intended for goods and service providers as a way to draw attention to customers in the vicinity of a provider’s ARk Symbol. Shoppers and buyers seeing a Symbol can interact with the provider’s goods or services via the ARk Symbol. The picture above is a shopping mall scene, where two stores, Claire’s on your right, and rue 21 etc! on your left, are shown displaying interactive ARk symbols. Claire’s ARk is a “standard” ARk symbol, while rue 21 etc! uses a picture of their “etc. Gold” perfume product as their ARk symbol. Either way, using their smartphone imager an ARknet app users can touch the store’s ARk Symbol and on their smartphone access the provider’s Ark page containing interest-grabbing information, including pictures or videos of today’s specials, in-ARk purchase and checkout features, reviews, links, menus, social media profiles or anything else the store wants to advertise. |
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Arks may be mobile ARks, using the app user’s mobile device to mobilize the ARk location, or stationary ARks, using a set geo location determined by coordinates or determined by fixing the ARk location by moving the ARk owner’s mobile device to a desired location and setting the stationary ARk’s location there.
Providers may create their ARks, decide on their ARk Symbol, choose their Symbol geolocations and provide for license payment to the Company, using features in the ARk app.
We intend the ARk app to be free to consumers and other users wishing to use the app to survey their environ for the presence of ARk symbols.
We envision a KlickZie ARknet with billions of users and ARks connecting humanity, commerce, information, crypto currency, and innovation in useful ways. Plus, we want to return the ownership of users’ information and valuable items such as images and video, back to where it rightfully belongs, the individual user.
For additional information, visit http://myarknet.io.
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1.2. KlickZie blockchain cryptocurrency based ecosystemtrading currency
In Septemberlate 2017 we formed a development team of providers to develop a KlickZie blockchain (branded the “zChain”) to handle transactions using a cryptographically secured trading currency designated the transactions on a cryptocurrency ecosystem with a cryptotoken designated “KLK.”“KLK” currency. The KLK cryptotoken is intended to be the currency of the imagery trading ecosystem allowing KlickZie users to monetize their pictures and videos and thereby enabling the ability forto conduct widescale buying, selling and licensing of KlickZie pictures and videos.
TheOur development team that was formed, consists of individuals from the blockchain development company Kelecorix, Inc., and individuals from the image storage company Honeycomb Digital, LLC. The team is developinghas developed the software and architecture for the implementation of a simple KlickZie app that seekseeks to implement the ownership properties of KlickZie imaging, which coupled with the blockchain-based ownership of KLK cryptotokens, could then be used to trade and license image ownership.
A monetizing ecosystem for the KlickZie app user aims to provide value to KlickZie users as well as to the Company and its shareholders.imaging.
Like other blockchains, the zChain is intended to run in a decentralized manner without any management or oversight. Its utility to KlickZie app users would come from “smartmanner. “Smart contracts” residing on the zChain implementingwould implement the buying, selling licensing and other trading features on the zChain. Its utility to the CompanySuch smart contracts would come from two sources. The first isimplement a commission on zChain smart contract transactions that involve participation by the Company to complete (for instance the certification of the validity of KlickZie imagery when requested). The second is the use of KLK tokens to provide incentives for smartphone users to download and use the KlickZie app with the aim of encouraging a rapid growth in the KlickZie userbase.
With the KLK token in place we seek to provide a new value to the KlickZie app user through the transfer of additional wealth to the user. Because KlickZie users own the imagery they create, itsthe use of KlickZie imagery by others, including advertises wishing to engage with them,advertisers, could do sobe done through the execution of a smart contract on the zChain transferring KLK currency from the advertiser to the user in exchange for the receipt of advertising imagery from the advertiser.user.
2.3. KlickZie technology-based business activity
Tautachrome’s KlickZie technology addresses two features of the internet age that create a new need and a new opportunity. The first is the need for a way to trust the pictures and videos you see on the web. Right now the trillions of pictures and frames of video on the web are so easily and often falsified that trustability of internet imagery is essentially zero. For this reason we believe that a universally available, downloadable system that turns the everyday pictures and videos we take from our smartphones into imagery that can be completely trustable to any third partyothers seeing it, will have substantial value . With such a systemWe would like to see only two kinds of imagery willcome to exist on the web: On the one hand imagery whose trustworthiness everybody can be certain of, and on the other hand all the rest of the imagery for which the notion of trust is meaningless. The KlickZie system aims to satisfy the requirement of for universal trustability for the ordinary imagery it produces.
The technology required for trustability also opens the door to a new opportunity. This is the opportunity to enable people to use KlickZie pictures and videos on the web to readily and safely interact with each other via the imagery itself. It is frequently the case that when you run across interesting imagery on the web you cannot know anything about it, including who the author is, who else may have seen it, or what others may think or know about it. By allowing people to interact with interesting or important pictures or videos by using the imagery itself as the portal of communication, the KlickZie system can add the viewpoints and the information offerings of interacting people to the richness of the pictures and videos. This can be carried by the system into the future along with the imagery, as an evolving information structure of interaction and imagery.
How KlickZie technology is intended to work: The KlickZie Activationimaging Platform
Users will download KlickZie’s free software into their mobile device (iPhone, Android or other smartphone). The software, an upgrade to the smartphone’s camera software, will activate the pictures and videos taken by their device using proprietary KlickZie marking technology. Behind the scenes, KlickZie will capture the imagery and available metadata related to the imaging event, and mark the imagery and its metadata with advanced and invisible KlickZie marking technology.
KlickZie Activation
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KlickZie activation seeks to add a new utility to ordinary pictures and videos. Other KlickZie users who come across an activated picture can communicate with the author of the picture, or with amenable others who have seen the picture or with the data stored in the picture by clicking or touching the picture (“touch-to-comm”). We intend the picture itself by click or touch to make the communication happen no matter where or how you come across an activated picture..
What happens to an activated picture from its creation onward is intended to be added to the picture’s data for tracking into the future. Activated pictures seek to answer many questions. For example, in a group photo you could ask: Have any of the people in my contacts list interacted with this picture? Are any of them engaging it right now? Who else besides my contacts have already engaged this picture in some way? Who took it? Where? When?
The upshot is that activation seeks to allow effective touch to comm with the authors and viewers of smartphone pictures and videos, from every source, and to ensure that activated pictures and videos can be completely trusted imagery.trusted.
KlickZie Product Rollout
Rolling out KlickZie requires hiring activity to round out the KlickZie Technical Team. Additional required technical staff will include: cloud architects, database engineers, image processing engineers, full stack software engineers, steganography software developers, app development software engineers, and smartphone code defense software engineers.
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| · | Phase 3: Roll out the KlickZie system |
Monetizing
As presently conceived, the KlickZie product aims at revenues from four primary sources:
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Funding
Funding
The KlickZie product rollout requires substantial funding. We plan on, and are now, seekingto continue raising funds to finance KlickZie product rollout.
The Company intends to offer its KLK cryptotokens to the public in an offering to be registered under the Securities Act of 1933, for the purpose of raising up to $100 million in proceeds to further develop our KlickZie trusted imaging technology and our KlickZie high speed zChain blockchain in support of a KLK-based crypto transaction ecosystem. The CompanyOngoing financing is currently plans to effect the proposed offering through a KLK token website managedbeing accomplished by the Company. At present, purchases on the KLK token website will be paid for in Ethereum’s “ether” cryptocoins.
The proposed offering will take place as soon as practicable upon effectiveness of a registration statement to be filed with the SEC. We can give no assurance that the registration statement will ever be effective or that the proposed offering will take place as anticipated or at all.
This disclosure does not constitute an offer to sell or a solicitation of an offer to buy any securities, nor will there be any offer, solicitation orequity sale, of securities, in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any state or jurisdiction
In addition, financing may be accomplished by incurring debt, and by equity sale or through other innovative means. There can be no assurances given that any of our funding efforts will be successful.
First KlickZie revenues
Apart from Company revenues from the sale its KLK cryptotokens to the public as disclosed in the section above, ourOur Plan of Operations for KlickZie based revenue is preparedlooks for first revenues from enterpriseARk business app users coming on line within the first year after the receipt of funding sufficient to round out the KlickZie team. Preparations for other KlickZie revenue are geared for the two year and out timeframe.
Shelved business activity
General app development and digital design activities that were being carried out under our wholly-owned Polybia Studios subsidiary, and our acquisition activities that were being carried out under our Appquisitions Division have been shelved for the time being. Work on our PhotoSweep app has also been shelved for the time being.in preference to a strict focusing on the KlickZie business activity.
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Polybia Studios
Polybia Studios, Pty LTD, is a wholly owned subsidiary of Tautachrome. During 2016, Polybia was staffed with technology graduates of Bond University in Queensland, Australia and operated out of Mermaid Beach, Queensland, Australia. Polybia provided IT support to the Company which included the development of the Company’s websites, the development of the internal software systems, database servers and branding for the Company’s SafeDate App, and for the technical support of the Company’s Appquisitions Division formed in 2016 and of the Company’s wholly owned subsidiary, PhotoSweep, LLC purchased in 2016.
Subsequent to December 31, 2017, all development and support functions formerly performed by Polybia Studios in Australia have been transferred to and are being performed in the United States.
PhotoSweep
PhotoSweep, LLC is a wholly owned subsidiary of the Company located in Oro Valley, Arizona whose single asset is a halted smartphone app named PhotoSweep that requires rework to be relaunched. The Company is currently reviewing the utility of a rework and relaunch of the app.
Competition
With regard to the internet applications in general, competition is intense. For example, accordingAccording to Statista by mid-2015 there were more than three million differentare millions of smartphone applications available to users. We think it is likely that this number has only increased since then. In spaces that are this crowded thethe principal matter of competition is about capturing user mind space, which for a given product consists of elements such as degree of product exposure to users, degree of product apparent desirability, pleasure of product usage, and persisting necessity for the product in a user’s life. These elements of competition are well known to our competitors which include the internet giants Google, Apple, Facebook and Amazon, all of whom have financial resources and operating staffs substantially larger than those of the Company, and all of whom can focus on the optimization of their products towards the same consumer and business arenas upon which we intend to focus.
With regard to the ARknet augmented reality space, while there is no direct competition in the space at the moment, that could change in a heartbeat with an interest taken by any of the internet giants mentioned above.
With regard to KlickZie’s technology for marking, storing and tracking digital imagery, there are many firms who mark, store and track digital imagery. Among these arehave been Digimarc, BatchPhoto, and hirdlightThirdlight who markethave marketed such processes for purposes of protecting intellectual property. To our knowledge none of these is turninghas turned the smartphone into a generally trustable imager or an advanced image-based communicator as envisioned here, whichhere. This requires substantially more talent and development activity than required for marking, storing and tracking digital imagery. However, there is nothing stopping any firm, particularly the internet giants, from entering into similar activity. Moreover Truepic, haswhich entered the arena of smartphone trusted imagery, with patented technology.also has patents related to trusted imagery. We have reviewed Truepic’s patent claims and believe that our planned applications willdo not infringe their claims.
Employees
Tautachrome, Inc. has no employees. Services are currently provided through independent contractors.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are not required to provide the information required under this item.
Item 1B. Unresolved Staff Comments
Not applicable.
Our principal business and corporate address is 1846 E Innovation Park Drive, Oro Valley, Arizona 85755 (Telephone: 520 288 1908). The space is being provided by management on a rent free basis. We have no intention of finding, in the near future, another office space to rent during this stage of the Company.
We do not currently have any investments or interests in any real estate, nor do we have investments or an interest in any real estate mortgages or securities of persons engaged in real estate activities.
Intangible Properties: issued and pending patents
The proprietary nature of, and protection for, our technologies, processes, and know-how are important to our business. Our success could substantially depend upon our ability to protect the proprietary nature of our technologies and know-how, to protect our technology from infringement, misappropriation, discovery and duplication, and to operate without infringing on the proprietary rights of others.
We seek patent protection for our technologies. Our policy is to patent the technology, inventions and improvements that we consider important to the development of our business. We cannot be sure that any of our pending patent applications will be granted, or that any patents or licenses which we own or obtain in the future will fully protect our position. Our patent rights and the patent rights of technology companies in general, are highly uncertain and include complex legal and factual issues. We believe that our existing technology licensing, and the patents which we hold and for which we have applied, do not infringe anyone else’selse's patent rights. We believe our technology and patent rights will provide meaningful protection against others duplicating our proprietary technologies. We cannot be sure of this, however, because of the complexity of the legal and scientific issues that could arise in litigation over these issues.
Despite these measures, any of our intellectual property and proprietary rights could be challenged, invalidated, circumvented, infringed or misappropriated, or such intellectual property and proprietary rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages.
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As of the date of this prospectus,annual report, our patent portfolio includes the patents and applications issued by and filed with the USPTO and the purchase technology licensing as described in the following table:
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| Patent | 62/755589 |
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| 9582843 |
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| 02/28/17 | ||||||||
Authentication |
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| 10019774 |
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Authentication |
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| 10019773 |
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System And Method For Creating, Processing, And Distributing Images That Serve As Portals Enabling Communication With Persons Who Have Interacted With The Images |
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| 9928352 |
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System And Method For Creating, Processing, And Distributing Images That Serve As Portals Enabling Communication With Persons Who Have Interacted With The Images |
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owned by Tautachrome | 15/888381 |
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| 02/05/18 | |||||
Intangible Properties: trade secrets, know-how, and continuing technological innovation
We rely upon unpatented trade secrets, know-how, and continuing technological innovation to develop and maintain our competitive position. We seek to protect our ownership of know-how and trade secrets through an active program of legal mechanism including assignments, confidentiality agreements, material transfer agreements, research collaborations, and licenses.
Employees
Tautachrome, Inc. has no employees. Services are currently provided through independent contractors.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are not required to provide the information required under this item.
Item 1B. Unresolved Staff Comments
Not applicable.
Our principal business and corporate address is 1846 E Innovation Park Drive, Oro Valley, Arizona 85755 (Telephone: 520 318 5578).
We do not currently have any investments or interests in real estate, nor do we have investments or any interest in real estate mortgages or securities of entities engaged in real estate activities.
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The Company is currently involved in the following legal proceedings. Except as provided in this prospectus, we are not aware of any other pending or potential legal actions.
Richard MorganUnited States District Court
On January 9,October 10, 2017, Richard Morgan of Nisswa, Minnesota filed a complaint against the Company inreceived a letter from the Superior Courtlawyer of the State of Arizona in and for the County of PimaEric L McRae (“Morgan v. Tautachrome”McRae”). The complaint stems from a prior complaint filed by Morgan in the same Court on November 19, 2015 (“Morgan v. Click Evidence”) against Click Evidence Inc., a former subsidiary ofperson whose association with the Company (“Click”), seeking damageswas terminated by the Company on June 16, 2017. The letter demanded payment of 850,000,000 unrestricted Tautachrome common shares to forestall his filing a laundry list of complaints in a variety of government agencies including with the US District Court in Kansas with complaints of contract breaches and fraud by silence, with the EEOC with complaints of termination by racial discrimination, with the OSHA with complains of termination for an alleged breach by Clickreasons of his being a written contractwhistleblower under Sarbanes-Oxley provisions, and with Morgan, breachvarious regulatory agencies with accusations of an implied covenant of good faith and fair dealing with Morgan and, in the alternative, unjust enrichment by Click to the impoverishment of Morgan. On December 16, 2016, the Court in Morgan v. Click Evidence entered default judgment in favor of Morgan for the amount $2,377,915.01.
The complaint in Morgan v. Tautachrome alleges that the Company participated in a fraudulent transfer of patents from Click to Tautachrome with intent to hinder, delay and defraud Morgan’s claim in Morgan v. Click Evidence. Morgan seeks avoidance of the transfer of the patents and other remedies necessary to satisfy his claims under the Uniform Fraudulent Transfers Act of Arizona, to levy execution on the patents, and the appointment of a receiver to take charge of the patents for liquidation. The complaint also alleges that the Company is the successor to Click and is therefore liable to Morgan for all debts and liabilities owing to Morgan by Click.
The default judgment in Morgan v. Click Evidence was set aside on October 25, 2017, and a new evidentiary hearing on damages was ordered.
On September 11, 2017, the Court in Morgan v. Tautachrome ordered a stay of all proceedings in the matter until 30 days after entry of a final judgment in Morgan v. Click Evidence.
On February 22, 2018, the Court in Morgan v. Click Evidence issued Findings of Fact and Conclusions of Law in favor of Click and against Morgan on all causes of action in the complaint.
No final judgment in Morgan v. Click evidence has been rendered. As at the date of this prospectus, the matter in Morgan v. Tautachrome remains before the Court.
Eric L. McRae
United States District Courtunspecified nature.
On October 12, 2017, Eric L. McRae of Sedgwick County, Kansas (“McRae”), filed a complaint, later amended twice, against the Company in the United StatesUS District Court for the District ofin Kansas. The complaint was amended on November 14, 2017 and again on December 19, 2017. The amended complaint alleges 1) that the Company breached a written agreement for thein an alleged employment of McRae by failing to pay him 35 million35,000,000 shares of the Company’s common stock and terminating his employmentassociation with the Company on June 16, 2017 without proper notice. The complaint goes on to allege 2) that the Company committed fraud by silence for failing to inform McRae that it intendedhim of an intent to receive the benefit of his services without compensatingwhile harboring an intent to not compensate him, 3) that the Company breached an unwritten agreement with McRaehim to provide him with 185 million185,000,000 shares of the Company’s common stock, and 4) that the Company breached a convertible promissory note for $50,000 by failing and refusing to repay McRae for allhim the principal and accrued interest thereunder. The complaint seeks damagesComplaint number 4 is now moot in excessthe belief of $75,000.
Thethe Company since after the lawsuit was filed the Company continued to repay McRae’s convertible promissory note on schedule with interest due until paid in full on October 1, 2018, thus extinguishing the note and making the matter remainsmoot. These matters remain before the Court.
KHRC and EEOC
On December 12, 2017, McRae filed a complaint againstbrought the Company withbefore the Kansas Human Rights Commission and the U.S. Equal Employment Opportunity Commission (EEOC) alleging that on June 16, 2017 he was terminated from an alleged employment by the Company on the basis of race and for retaliation. The complaint also allegesretaliation, and that the Company discriminated against McRaehim in the terms of histhis alleged employment because of race. The Company has responded to the complaint, denying each of McRae’s allegations and providing its own version of events. The matter is presently stayed pending McRae’s determination as to whether to submit his claim for mediation.
Office of the WhistleblowerKansas Human Rights Commission dismissed this claim.
On December 8, 2017, McRae filed a complaint with the Occupational Safety and Health Administration (the “OSHA”“OSHA”) of the United States Department of Labor,, alleging that his “investigation and reporting” to the Company’s CEO was a contributing factor in the termination of his alleged employment by the Company in violation of Section 806 of the Sarbanes-Oxley Act of 2002.whistleblower’s provisions. On January 2, 2018, the Company delivered its response to the complaint, denying each of McRae’s allegations and providing its own versionpresentation of events.the facts. McRae dismissed the OSHA claim with prejudice, and the matter cannot be brought again.
The Company, believing that allegations made by McRae are completely fabricated and aimed at doing harm, has been vigorously defending itself and believes it will prevail in every instance. Despite this belief, to save legal expense on October 17, 2018 the Company made a good faith settlement offer to McRae, offering him 50,000,000 shares in settlement of all outstanding legal actions against us. McRae declined the offer. However, we re-evaluated the liability on these lawsuits from $49,000 to $250,000 based on the closing price of our common stock on the date of the offer. We recognized a loss on litigation of $201,000 in so doing during 2018.
Although discovery closed on February 28, 2019 McRae involved the Company in a protracted discovery dispute regarding documents contained in the CEO’s laptop computer and in his personal e-mail account. That dispute has been substantively resolved. However, two motions have been filed by McRae. The first seeks sanctions from Tautachrome arising out of the discovery dispute. The second seeks leave to amend the complaint to include CEO personally as a party to McRae’s fraud claims. Tautachrome has opposed both motions.
On January 14, 2020, Eric McRae died unexpectedly, according to his attorney while undergoing a surgical procedure. As a result, the Court has stayed the case in its entirety and denied both pending motions without prejudice. The matter remains beforeis set for a status conference on April 22nd to determine when and how the OSHA.litigation will proceed.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
Our shares trade on the OTCQBOTC PINK under the symbol “TTCM”. The following table sets forth the high and low closing bid prices of our common stock for the last two calendar years, as reported by OTC Markets Group Inc. and represents inter dealer quotations, without retail mark-up, mark-down or commission and may not be reflective of actual transactions:
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December 31, 2017 |
| $ | 0.0219 |
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| $ | 0.0032 |
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September 30, 2017 |
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June 30, 2017 |
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March 31, 2017 |
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December 31, 2016 |
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|
September 30, 2016 |
|
| 0.0129 |
|
|
| 0.0013 |
|
June 30, 2016 |
|
| 0.025 |
|
|
| 0.0088 |
|
March 31, 2016 |
|
| 0.035 |
|
|
| 0.0076 |
|
Quarter Ended |
| High |
|
| Low |
| ||
December 31, 2019 |
| $ | 0.0129 |
|
| $ | 0.0041 |
|
September 30, 2019 |
|
| 0.0289 |
|
|
| 0.0047 |
|
June 30, 2019 |
|
| 0.0088 |
|
|
| 0.0004 |
|
March 31, 2019 |
|
| 0.0016 |
|
|
| 0.0004 |
|
December 31, 2018 |
| $ | 0.0080 |
|
| $ | 0.0010 |
|
September 30, 2018 |
|
| 0.0090 |
|
|
| 0.0035 |
|
June 30, 2018 |
|
| 0.0100 |
|
|
| 0.0076 |
|
March 31, 2018 |
|
| 0.0220 |
|
|
| 0.0075 |
|
At December 31, 2017, there were 1,688,241,976 shares of our common stock issued and outstanding.
Holders
On December 31, 2017,2019, the Company had approximately 575584 stockholders of record. The number of record, holders was determined from the records of our transfer agent and does not includeapproximately 4,691 beneficial owners of shares of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.agencies, for a total of approximately 5,275 beneficial owners of shares of common stock.
Dividends
We have not declared or paid cash dividends on our common stock since inception and do not anticipate paying such dividends in the foreseeable future. The payment of dividends may be made at the discretion of the Board of Directors and will depend upon, among other factors, our operations, capital requirements, and overall financial condition.
Recent Sales of Equity Securities
· | We issued 1,551,562,038 shares in conversion of outstanding convertible promissory notes. | |
· | We issued 3,623,055 shares to a certain Australian individual who made baseless claims against the Company other than two existing convertible promissory notes which the Company acknowledged. | |
· | We issued 12,500,000 shares to a previous supplier to retire trade debts in the amount of $35,000. | |
· | We issued 4,291,886 shares to a consultant to reduce our stock payable. |
| 10 |
| Table of Contents |
Securities Authorized for Issuance under Equity Compensation Plans
None.
Item 6. Selected Financial Data
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 7. Management’s Discussion and Analysis or Plan of Operation
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information for the year ended December 31, 20172019 and December 31, 2016.2018. This MD&A should be read together with our audited consolidated financial statements and the accompanying notes for the fiscal years ended December 31, 20172019 and December 31, 2016.2018.
This discussion contains forward-looking statements that involve certain risks and uncertainties. See “Forward-Looking Statements” elsewhere in this report.
Overall Performance
We are an early stage internet applications company, engaged in advanced technology and business development in the internet applications space. We have incurred general and administrative costs, marketing expenses and research and development costs since we commenced our current operations in May 2015, against novery little revenue.
The Company’s audited consolidated financial statements and the accompanying notes for the years ended December 31, 20172019 and December 31, 2016,2018, have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. We had negative cash flows from operations of $159,416$1,014,724 and $320,156$635,027 for the years ended December 31, 20172019 and 2016,2018, respectively, with recurring losses and negative working capital of $1,442,987$4,329,297 and $3,440,930$2,589,561 as at December 31, 20172019 and 2016,2018, respectively. These conditions raise substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
The continuing operations of the Company are dependent upon our ability to raise adequate financing and to commence profitable operations in the future. The Company may raise additional capital through the sale of its equity securities, through an offering of debt securities, or through loans from related parties. We believe that actions presently being taken to obtain additional funding may provide the opportunity for the Company to continue as a going concern. There is no guarantee, however, that the Company will be successful in achieving these objectives.
Results of Operations for the Years ended December 31, 2017,2019, and 20162018
Net GainComprehensive Loss
The Company realized a net gaincomprehensive loss of $1,720,905$3,388,979 for the year ended December 31, 20172019 compared to a net comprehensive loss of $4,599,284$4,103,126 for the year ended AugustDecember 31, 2016.2018.
Revenue
The Company did not earn anyrecognized $206 in revenue duringfor the yearsyear ended December 31, 2017 or December 31, 2016.2019 versus none in 2018.
| 11 |
| Table of Contents |
Operating Expenses
The Company’s total operating expenses for the year ended December 31, 20172019 were $317,631$1,171,816 compared to $812,134$2,619,916 for the year ended December 31, 2016,2018, a decrease of $494,503 (60.9%$1,448,100 (55%).
For the year ended December 31, 2017,2019, the Company incurred general and administrative expenses of $317,631$1,171,816 compared to $419,534$2,619,916 for the year ended December 31, 2016,2018, a decrease of $101,903 (24.2%$1,448,100 (55%) primarily attributable to cessation of operationsincreased software development activity offset by decreases in Australia.consulting costs . The following table sets out the material components of the Company’s general and administrative expenses for the years ended December 31, 20172019 and 2016.2018.
|
| Year Ended |
|
| Year Ended |
| ||
|
| December 31, 2017 |
|
| December 31, 2016 |
| ||
General and Administrative Expenses |
| ($) |
|
| ($) |
| ||
Legal and Accounting Fees |
|
| 127,454 |
|
|
| 111,844 |
|
Consulting – Stock based compensation |
|
| 84,232 |
|
|
| - |
|
Travel |
|
| 2,717 |
|
|
| 33,217 |
|
Advertising and promotion |
|
| 23,817 |
|
|
| 30,811 |
|
Office expenses |
|
| 39,360 |
|
|
| 85,844 |
|
Wages |
|
| - |
|
|
| 102,281 |
|
Other |
|
| 40,051 |
|
|
| 55,497 |
|
Total |
|
| 317,631 |
|
|
| 419,534 |
|
|
| Year Ended December 31, |
| |||||
Category of General and Administrative Expense |
| 2019 |
|
| 2018 |
| ||
Legal and accounting fees |
| $ | 272,447 |
|
|
| 280,578 |
|
Consulting |
|
| 75,000 |
|
|
| 1,896,741 |
|
Other professional services |
|
| 166,842 |
|
|
| 221,792 |
|
Software research and development |
|
| 553,939 |
|
|
| 136,973 |
|
Office and occupancy costs |
|
| 19,603 |
|
|
| 30,272 |
|
Advertising and promotion |
|
| 49,967 |
|
|
| 22,343 |
|
Other |
|
| 34,018 |
|
|
| 31,217 |
|
Total |
| $ | 1,171,816 |
|
| $ | 2,619,916 |
|
During the year ended December 31, 2017, the Company had no depreciation expense, compared to $92,862 for the year ended December 31, 2016. The decrease is due to the assets of PhotoSweep LLC being fully impaired as at December 31, 2016.
During the year ended December 31, 2017, the Company recorded asset impairment of $0 compared to $299,738 for the year ended December 31, 2017. The decrease is due to the Company’s investment in PhotoSweep LLC being fully impaired as at December 31, 2016.
Other Expenses
On December 15, 2016, a former consultant of the Company obtained default judgment for $2,377,915.01$2,377,915 in damages against a former subsidiary of the Company. The Company recorded the default judgment plus $4,459 in accrued interest as a litigation loss of $2,382,374 for the year ended December 31, 2016. On October 25, 2017, the default judgment was set aside and a new hearing on damages was ordered in the same proceeding, resulting in a litigation gain of $2,426,668 for the year ended December 31, 2017. See “Legal Proceedings – Richard Morgan” and Note 7 to the financial statements elsewhere in this report.
The Company recorded an interest expense of $266,924Additionally, during the year ended December 31, 2017, compared to $317,892we accrued $54,000 for the year ended December 31, 2016, a decrease of $50,968 (16%). The decrease was primarily due to a reduction in recorded beneficial conversion features from convertible notes issued in Australia from $145,366 in 2016 to $0 in 2017, offset by $44,294 in court imposed interest during 2017 (2016: $0).Morgan and McRae lawsuits.
During the year ended December 31, 2016, the Company2018, we recorded a loss on the settlement to Morgan of $1,088,331$55,000.
During the year ended December 31, 2018, we recorded losses of $41,278 on a related-party equity exchange resulting in 1,379,510,380 sharesconversions of debt to equity. During the Company’s common stock being exchanged for 13,795,104 sharesyear ended December 31, 2019, we had $127,031 of the Company’s Series D Preferred Stock. There was no such losslosses.
The Company recorded interest expense of $1,363,437 during the year ended December 31, 2017. See2018 compared to $568,828 for the year ended December 31, 2019, a decrease of $794,609 (58%). The decrease is due to convertible promissory notes issued in 2018 which contained initial derivatives which we accounted for as debt discounts and are amortizing to interest expense.
During the year ended December 31, 2019, we recorded loss on changes in the value of our derivative liabilities in the amount of $1,426,354 compared to a gain of $96,843 for the year ended December 31, 2018.
We issued 3,623,055 shares to a certain Australian individual who made baseless claims against the Company other than two existing convertible promissory notes which the Company acknowledged. Rather than engage in a prolonged international legal matter, we issued these shares in complete satisfaction of any and all claims against the Company. We valued the shares at their grant date fair value of $3,623, reduced unpaid principal and interest in the amount of $4,258 and $695, respectively, and recorded a $1,330 gain on this settlement.
| 12 |
| Table of Contents |
On July 31, 2019, we settled an outstanding trade account payable of $83,343 by agreeing to a cash payment of $35,000. We paid the $35,000 on July 31, 2019 and realized a gain of $48,343.
We issued 12,500,000 shares to a previous supplier to retire trade debts in the amount of $35,000. We valued the shares at the grant date fair value of $185,000 and recorded a reduction of accounts payable of $35,000 and a loss on settlement of $150,000.
During the year ended December 31, 2019, the company entered into an arrangement with a related party whereby the holder of the $100,000 Crypto-note was paid in common shares of a related party (See Note 56 to the financial statements elsewhere in this report.statements). We reclassified the Crypto-note to an advance by the Company to the related party and recognized a gain of $3,333.
Other Comprehensive Loss
At each balance sheet date, transactions and balances that are denominated in a currency other than U.S. dollars are adjusted to reflect the current exchange rate which may give rise to a foreign currency translation adjustment accounted for as a separate component of stockholders’ equity and included in other comprehensive income. The Company recorded a translation lossgain of $(67,208)$80,662 for the year ended December 31, 2017,2018, compared to a gain of $1,447$1,837 for the year ended December 31, 2016.2019. These amounts are included in the Company’s statement of operations as foreign currency gain (loss) for the respective years.
Liquidity and Capital Resources
As of the date of this prospectus,report, the Company has not generated only $206 in revenue and is not profitable. The Company’s operations to date have been funded primarily by private placements of common stock and convertible notes, as well as by loans from its management and controlling stockholders.
As at December 31, 2017,2019, the Company had $9,726$31,366 in cash and $1,452,713$4,361,066 in current liabilities resulting in a working capital deficit of $1,442,987.$4,329,297. The Company is not currently able to maintain its operations through its existing cash balances and internally generated cash flows. Moreover, we have determined that the current capital structure of the Company is not adequate to fund its planned growth.
We intend to secure additional capital to fund the Company’s operations through the issuance of common stock, convertible debt instruments and loans from our management. There can be no assurance that we will be successful in obtaining the capital the Company requires to achieve its business objectives, or that such capital will be available on acceptable terms. Future cash flows are subject to a number of variables, including technology development costs, technology product rollout and support expense and the demand for the Company’s products and services.
Operating Activities
During the year ended December 31, 2017,2019, the Company used net cash of $159,416$1,014,724 in operating activities compared to $320,156$635,027 for the year ended December 31, 2016.2018. The decreaseincrease was primarily attributable to cessation of operations in Australia.increased software development costs.
The Company’s average monthly cash burn rate was $13,285$84,560 during the year ended December 31, 2017,2019, compared to $26,680$52,919 for the year ended December 31, 2016.2018. Subject to the success of the Company’s financing activities, we expect to increase operating activities in the coming year with a concomitant increase in the Company’s monthly burn rate. We will not be able to predict the increase to our burn rate until we have determined the outcomes of our financing activities.
| 13 |
| Table of Contents |
Investing Activities
The Company did not use any net cash for investing activities during the yearyears ended December 31, 2017. During the year ended December 31, 2016, the Company used net cash of $39,000 for the acquisition of certain assets from PhotoSweep, LLC. Subject to the success of our financing activities, over the next three years we expect to make substantial investments in equipment as we develop our proposed KlickZie network2019 and add capacity.2018.
Financing Activities
The Company received net cash of $234,500$1,038,010 from financing activities during the year ended December 31, 2017,2019, consisting primarily from the issuance of $213,040 in proceeds from convertible promissory notes and $53,153 from loans by management, offset by $30,693 in note repayment and $1,000 in loan repayment. During the year ended December 31, 2016, the Company received net cash of $344,131 through its financing activities, consisting of $302,406 in proceeds from convertible promissory notes and $45,282 in management loans, offset by $3,557 in note repayment.notes. We expect to continue our financing activities to fund our operations until such time as the Company’s technologies are commercialized and we generate revenue on a profitable basis.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of the Company’s financial statements is critical to an understanding of its financial statements.
We adopted ASC 606 effective January 1, 2018 using the modified retrospective method. Under this method, the Company follows the five-step model provided by ASC Topic 606 in order to recognize revenue in the following manner: 1) Identify the contract; 2) Identify the performance obligations of the contract; 3) Determine the transaction price of the contract; 4) Allocate the transaction price to the performance obligations; and 5) Recognize revenue. An entity recognizes revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The Company’s revenue recognition policies remained substantially unchanged as a result of the adoption of ASC 606, and there were no significant changes in business processes or systems.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” and subsequent amendments, which replaced existing lease accounting guidance in GAAP and requires lessees to recognize right-of-use assets and corresponding lease liabilities on the balance sheet for all in-scope leases with a term of greater than 12 months and requires disclosure of certain quantitative and qualitative information pertaining to an entity’s leasing arrangements. The Company adopted the standard as of January 1, 2019. The adoption of the standard did not have a material impact on the Company’s consolidated statements of operations or consolidated statements of cash flows.
Use of Estimates
The preparation of these financial statements in conformity with generally accepted accounting principles in the United States requires us 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 and the reported amounts of revenues and expenses during the reporting period. We regularly evaluate estimates and assumptions related to the recoverability of long-lived assets, valuation of convertible debentures, assumptions used to determine the fair value of stock-based compensation and derivative liabilities, and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
| 14 |
| Table of Contents |
Fair Value of Financial Instruments
We adopted the Financial Accounting Standards Board’s (FASB) Accounting Codification Standard No. 820 (“ASC 820), Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. ASC 820 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 - Observable inputs such as quoted prices in active markets;
Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company’s financial instruments consist principally of cash, amounts receivable, accounts payable, and accrued liabilities, due to related parties and convertible notes. Pursuant to ASC 820, the fair value of the Company’s cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of the Company’s other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Subsequent Events
During the three month period ended March 31, 2018, the Company sold five convertible promissory notes for aggregate proceeds of up to $758,000. The Company has received $493,000 of proceeds under the notes, with another $200,000 in proceeds receivable at its option. One of the notes was paid in full during the period for $78,000
Also during the quarter ended March 31, 2018, the Company redeemed a note in the principal amount of $60,000 with an aggregate payment of $78,000 and 15,000,000 shares of the Company’s common stock.
Recent Accounting Pronouncements
We have reviewed the FASB issue Accounting Standards Update, (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the period reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
A smaller reporting company is not required to provide the information required by this item.
| Table of Contents |
Item 8. Financial Statements and Supplemental Data
| Table of Contents |
Stockholders of Tautachrome, Inc.
Opinion on the Financial Statements.Statements
We have audited the accompanying consolidated balance sheets of Tautachrome, Inc. (the Company) as of December 31, 20172019 and 2016,2018, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2017,2019, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017,2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming that the Company will continuecontinues as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are describeddiscussed in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
We have served as the Company’s auditor since 2008.
Houston, TX
March 31, 201830, 2020
| Table of Contents |
TAUTACRHOME, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
|
| 12/31/17 |
| 12/31/16 |
| |||||||||||
|
|
|
|
|
|
| 12/31/2019 |
| 12/31/2018 |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
| |||||||||||
Current assets: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash |
| $ | 9,726 |
|
| $ | 1,850 |
|
| $ | 31,366 |
| $ | 6,243 |
| |
Prepaid expenses |
| 403 |
| - |
| |||||||||||
Total current assets |
|
| 9,726 |
|
|
| 1,850 |
|
|
| 31,769 |
|
|
| 6,243 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
TOTAL ASSETS |
| $ | 9,726 |
|
| $ | 1,850 |
|
| $ | 31,769 |
|
| $ | 6,243 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable and accrued expenses | �� | $ | 356,213 |
| $ | 275,760 |
|
| $ | 411,236 |
| $ | 615,847 |
| ||
Accounts payable – related party |
| 15,515 |
| 25,486 |
| |||||||||||
Accounts payable - related party |
| 257,282 |
| 114,052 |
| |||||||||||
Loans from related parties |
| 100,033 |
| 99,434 |
|
| 103,032 |
| 103,074 |
| ||||||
Convertible notes payable, related party |
| 101,160 |
| 49,160 |
| |||||||||||
Convertible notes payable - related party |
| 111,999 |
| 81,340 |
| |||||||||||
Short-term convertible notes payable, net |
| 705,303 |
| 583,674 |
|
| 814,685 |
| 627,928 |
| ||||||
Notes payable in default |
| 103,298 |
| - |
| |||||||||||
Convertible notes payable in default |
| 32,000 |
| 422,565 |
| |||||||||||
Short-term notes payable |
| 17,191 |
| 15,858 |
|
| 15,465 |
| 15,501 |
| ||||||
Short-term portion of long-term debt |
| - |
| 11,034 |
| |||||||||||
Derivative liability |
| 2,365,367 |
| 365,497 |
| |||||||||||
Court judgment liability |
|
| 54,000 |
|
|
| 2,382,374 |
|
| 250,000 |
| 250,000 |
| |||
Total current liabilities |
| 1,452,713 |
|
| 3,442,780 |
|
|
| 4,361,066 |
|
|
| 2,595,804 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Long-term convertible notes payable, net |
| 5,413 |
| 87,528 |
|
| 158,156 |
| 25,000 |
| ||||||
Long-term notes payable |
|
| - |
|
|
| 19,659 |
| ||||||||
Long-term convertible notes payable, related party, net |
| 84,091 |
| 32,825 |
| |||||||||||
Crypto-currency notes payable |
| - |
| 100,000 |
| |||||||||||
Total non-current liabilities |
|
| 5,413 |
|
|
| 107,187 |
|
|
| 242,247 |
|
|
| 157,825 |
|
|
|
|
|
|
|
| ||||||||||
TOTAL LIABILITIES |
|
| 1,458,126 |
|
|
| 3,549,967 |
|
|
| 4,603,313 |
|
|
| 2,753,629 |
|
|
|
|
|
|
| |||||||||||
STOCKHOLDERS’ DEFICIT |
|
|
|
|
| |||||||||||
Convertible preferred stock, Series D, par value $0.0001. 13,795,104 shares authorized. 13,795,104 issued and outstanding at December 31, 2017 and 2016 |
| 1,380 |
| 1,380 |
| |||||||||||
Common stock, $0.00001 par value. Four billion shares authorized. 1,685,941,636 and 1,642,789,717 issued and outstanding at December 31, 2017 and 2016, respectively |
| 16,860 |
| 16,728 |
| |||||||||||
STOCKHOLDERS' EQUITY (DEFICIT) |
|
|
|
|
| |||||||||||
Series D Convertible Preferred, par value $0.0001. 13,795,104 shares authorized, 13,795,104 shares issued and outstanding at December 31, 2019 and 2018 |
| 1,380 |
| 1,380 |
| |||||||||||
Common stock, $0.00001 par value. Six billion shares authorized. 3,504,460,889 and 1,932,483,910 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively |
| 35,045 |
| 19,325 |
| |||||||||||
Additional paid in capital |
| 3,787,675 |
| 3,421,595 |
|
| 6,095,053 |
| 4,692,609 |
| ||||||
Common stock payable |
| 23,186 |
| 10,586 |
|
| 2,066,584 |
| 1,919,927 |
| ||||||
Accumulated deficit |
| (5,293,041 | ) |
| (7,081,154 | ) |
| (12,867,645 | ) |
| (9,476,829 | ) | ||||
Effect of foreign currency translation |
|
| 15,540 |
|
|
| 82,748 |
| ||||||||
TOTAL STOCKHOLDERS’ DEFICIT |
|
| (1,448,400 | ) |
|
| (3,548,117 | ) | ||||||||
Effect of foreign currency exchange |
| 98,039 |
| 96,202 |
| |||||||||||
TOTAL STOCKHOLDERS' DEFICIT |
|
| (4,571,544 | ) |
|
| (2,747,386 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |
| $ | 9,726 |
|
| $ | 1,850 |
| ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
| $ | 31,769 |
|
| $ | 6,243 |
| ||||||||
The accompanying notes are an integral part of these financial statements.
| Table of Contents |
TAUTACHROME, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Operations
|
| Year Ended December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
|
|
|
|
|
| ||
OPERATING EXPENSES |
|
|
|
|
|
| ||
General and administrative |
| $ | 317,631 |
|
|
| 419,534 |
|
Depreciation, depletion and amortization |
|
| - |
|
|
| 92,862 |
|
Asset impairment |
|
| - |
|
|
| 299,738 |
|
Total operating expenses |
|
| 317,631 |
|
|
| 812,134 |
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (317,631 | ) |
|
| (812,134 | ) |
|
|
|
|
|
|
|
|
|
OTHER INCOME / (EXPENSE) |
|
|
|
|
|
|
|
|
Gain or (loss) on litigation |
|
| 2,372,668 |
|
|
| (2,382,374 | ) |
Interest expense |
|
| (266,924 | ) |
|
| (317,892 | ) |
Loss on equity exchange |
|
| - |
|
|
| (1,088,331 | ) |
Total other income / (expense) |
|
| 2,105,744 |
|
|
| (3,788,597 | ) |
Net income or (loss) |
| $ | 1,788,113 |
|
| $ | (4,600,731 | ) |
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS) |
|
| ||||||
Foreign currency gain (loss) |
|
| (67,208 | ) |
|
| 1,447 |
|
Net comprehensive loss |
| $ | 1,720,905 |
|
| $ | (4,599,284 | ) |
|
|
|
|
|
|
|
|
|
Net (loss) or income per common share |
|
|
|
|
|
|
|
|
Basic |
| $ | 0.00 |
|
| $ | 0.00 |
|
Diluted |
| $ | 0.00 |
|
| $ | 0.00 |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
| 1,685,134,517 |
|
|
| 2,765,506,359 |
|
Diluted |
|
| 1,839,357,467 |
|
|
| 2,765,506,359 |
|
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
REVENUES |
|
|
|
|
|
| ||
Product sales |
| $ | 206 |
|
| $ | - |
|
Net sales |
|
| 206 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
General and administrative |
| $ | 1,171,816 |
|
| $ | 2,619,916 |
|
Total operating expenses |
|
| 1,171,816 |
|
|
| 2,619,916 |
|
Operating loss |
|
| (1,171,610 | ) |
|
| (2,619,916 | ) |
|
|
|
|
|
|
|
|
|
OTHER INCOME / (EXPENSE) |
|
|
|
|
|
|
|
|
Gain or (loss) on litigation |
|
| - |
|
|
| (256,000 | ) |
Gain (loss) on settlement of debt |
|
| (96,993 | ) |
|
| - |
|
Interest expense |
|
| (568,828 | ) |
|
| (1,363,437 | ) |
Change in value of derivatives |
|
| (1,426,354 | ) |
|
| 96,843 |
|
Loss on conversion of debt |
|
| (127,031 | ) |
|
| (41,278 | ) |
Total other |
|
| (2,219,206 | ) |
|
| (1,563,872 | ) |
Net loss |
| $ | (3,390,816 | ) |
| $ | (4,183,788 | ) |
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
Effect of foreign currency exchange |
|
| 1,837 |
|
|
| 80,662 |
|
Net comprehensive income or (loss) |
| $ | (3,388,979 | ) |
| $ | (4,103,126 | ) |
|
|
|
|
|
|
|
|
|
Net (loss) or income per common share |
|
|
|
|
|
|
|
|
Basic and diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
Basic and diluted |
|
| 3,125,254,373 |
|
|
| 1,744,862,020 |
|
The accompanying notes are an integral part of these financial statements.
| Table of Contents |
TAUTACHROME, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)Deficit
From December 31, 20152017 to December 31, 20172019
|
| Common Stock |
|
| Preferred Stock Series D |
|
| Additional Paid in |
|
| Stock |
|
| Other Comprehensive |
|
| Accumulated |
|
| Total Stockholders’ Equity / |
| |||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| Income (Loss) |
|
| Deficit |
|
| (Deficit) |
| |||||||||
Balance, 12/31/15 |
|
| 2,987,633,430 |
|
| $ | 29,876 |
|
|
| - |
|
| $ | - |
|
| $ | 1,539,442 |
|
| $ | - |
|
| $ | 81,301 |
|
| $ | (2,480,423 | ) |
| $ | (829,804 | ) |
Acquisition of PhotoSweep, LLC |
|
| 13,000,000 |
|
|
| 130 |
|
|
| - |
|
|
| - |
|
|
| 353,470 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 353,600 |
|
Beneficial conversion feature of convertible notes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 335,799 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 335,799 |
|
Common stock to preferred stock swap |
|
| (1,379,510,380 | ) |
|
| (13,795 | ) |
|
| 13,795,104 |
|
|
| 1,380 |
|
|
| 1,100,746 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,088,331 |
|
Conversion of debt |
|
| 51,666,667 |
|
|
| 517 |
|
|
| - |
|
|
| - |
|
|
| 60,104 |
|
|
| 10,586 |
|
|
| - |
|
|
| - |
|
|
| 71,207 |
|
Effect of debt modifications |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,760 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,760 |
|
Imputed interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,274 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,274 |
|
Effect of foreign currency exchange |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,447 |
|
|
| - |
|
|
| 1,447 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,600,731 | ) |
|
| (4,600,731 | ) |
Balance, 12/31/16 |
|
| 1,672,789,717 |
|
| $ | 16,728 |
|
|
| 13,795,104 |
|
| $ | 1,380 |
|
| $ | 3,421,595 |
|
| $ | 10,586 |
|
| $ | 82,748 |
|
| $ | (7,081,154 | ) |
| $ | (3,548,117 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for conversion of debt |
|
| 8,493,243 |
|
|
| 85 |
|
|
| - |
|
|
| - |
|
|
| 54,080 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 54,165 |
|
Shares issued for services |
|
| 6,700,000 |
|
|
| 67 |
|
|
| - |
|
|
| - |
|
|
| 84,262 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 84,329 |
|
Shares retired from consultant |
|
| (2,041,324 | ) |
|
| (20 | ) |
|
| - |
|
|
| - |
|
|
| 20 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares earned by consultant |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,600 |
|
|
| - |
|
|
| - |
|
|
| 12,600 |
|
Beneficial conversion feature of convertible notes |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 209,040 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 209,040 |
|
Imputed interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,678 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 18,678 |
|
Effect of foreign currency exchange |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (67,208 | ) |
|
| - |
|
|
| (67,208 | ) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,788,113 |
|
|
| 1,788,113 |
|
Balance, 12/31/17 |
|
| 1,685,941,636 |
|
| $ | 16,860 |
|
|
| 1,380 |
|
| $ | 1,380 |
|
| $ | 3,787,675 |
|
| $ | 23,186 |
|
| $ | 15,540 |
|
| $ | (5,293,041 | ) |
| $ | (1,448,400 | ) |
|
| Common Stock |
|
| Preferred Stock Series D |
|
| Additional Paid in |
|
| Stock |
|
| Other Comprehensive Income |
|
| Accumulated |
|
| Total Stockholders' Equity / |
| |||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| (Loss) |
|
| Deficit |
|
| (Deficit) |
| |||||||||
Balance, 12/31/17 |
|
| 1,685,941,636 |
|
| $ | 16,860 |
|
|
| 13,795,104 |
|
| $ | 1,380 |
|
| $ | 3,787,675 |
|
| $ | 23,186 |
|
| $ | 15,540 |
|
| $ | (5,293,041 | ) |
| $ | (1,448,400 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued with convertible note payable |
|
| 15,000,000 |
|
|
| 150 |
|
|
| - |
|
|
| - |
|
|
| 127,350 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 127,500 |
|
Preferred Series E shares accrued to ARkNet |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,837,000 |
|
|
| - |
|
|
| - |
|
|
| 1,837,000 |
|
Shares issued for conversion of debt |
|
| 221,542,274 |
|
|
| 2,215 |
|
|
| - |
|
|
| - |
|
|
| 373,414 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 375,629 |
|
Shares issued to settle lawsuit |
|
| 10,000,000 |
|
|
| 100 |
|
|
| - |
|
|
| - |
|
|
| 59,900 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 60,000 |
|
Derivative associated with early debt retirement |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 326,339 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 326,339 |
|
Shares earned by consultants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 59,741 |
|
|
| - |
|
|
| - |
|
|
| 59,741 |
|
Imputed interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 17,931 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 17,931 |
|
Effect of foreign currency exchange |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 80,662 |
|
|
| - |
|
|
| 80,662 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,183,788 | ) |
|
| (4,183,788 | ) |
Balance, 12/31/18 |
|
| 1,932,483,910 |
|
| $ | 19,325 |
|
|
| 13,795,104 |
|
| $ | 1,380 |
|
| $ | 4,692,609 |
|
| $ | 1,919,927 |
|
| $ | 96,202 |
|
| $ | (9,476,829 | ) |
| $ | (2,747,386 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for conversion of debt |
|
| 1,551,562,038 |
|
|
| 15,516 |
|
|
| - |
|
|
| - |
|
|
| 686,054 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 701,570 |
|
Shares issued to settle claims |
|
| 16,123,055 |
|
|
| 161 |
|
|
| - |
|
|
| - |
|
|
| 188,462 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 188,623 |
|
Shares issued for stock payable |
|
| 4,291,886 |
|
|
| 43 |
|
|
| - |
|
|
| - |
|
|
| 26,238 |
|
|
| (26,281 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Shares earned by consultants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 172,938 |
|
|
| - |
|
|
| - |
|
|
| 172,938 |
|
Capital contributed |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,750 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,750 |
|
Derivative associated with early debt retirement |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 471,233 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 471,233 |
|
Imputed interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 16,707 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 16,707 |
|
Effect of foreign currency exchange |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,837 |
|
|
| - |
|
|
| 1,837 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,390,816 | ) |
|
| (3,390,816 | ) |
Balance, 12/31/19 |
|
| 3,504,460,889 |
|
| $ | 35,045 |
|
|
| 13,795,104 |
|
| $ | 1,380 |
|
| $ | 6,095,053 |
|
| $ | 2,066,584 |
|
| $ | 98,039 |
|
| $ | (12,867,645 | ) |
| $ | (4,571,544 | ) |
The accompanying notes are an integral part of these financial statements.
| Table of Contents |
TAUTACHROME, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
|
| Year Ended December 31, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
|
|
|
|
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| ||
Net income or (loss) |
| $ | 1,788,113 |
|
| $ | (4,600,731 | ) |
Depreciation and amortization |
|
| - |
|
|
| 92,862 |
|
Stock-based compensation |
|
| 96,929 |
|
|
| - |
|
(Gain) or loss on litigation |
|
| (2,372,668 | ) |
|
| 2,382,374 |
|
Amortization of discounts on convertible notes |
|
| 138,668 |
|
|
| 259,987 |
|
Loss on equity exchange |
|
| - |
|
|
| 1,088,331 |
|
Imputed interest |
|
| 18,678 |
|
|
| 13,274 |
|
Asset impairment |
|
| - |
|
|
| 299,738 |
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
| 170,371 |
|
|
| 125,564 |
|
Accounts payable – related party |
|
| 493 |
|
|
| 18,445 |
|
Net cash used in operating activities |
|
| (159,416 | ) |
|
| (320,156 | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchase of PhotoSweep, LLC |
|
| - |
|
|
| (39,000 | ) |
Net cash used in investing activities |
|
| - |
|
|
| (39,000 | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable |
|
| 213,040 |
|
|
| 302,406 |
|
Principal payments on notes payable |
|
| (30,693 | ) |
|
| (3,557 | ) |
Proceeds from related-party loan |
|
| 53,153 |
|
|
| 45,282 |
|
Principal payments on related-party loans |
|
| (1,000 | ) |
|
| - |
|
Net cash provided by financing activities |
|
| 234,500 |
|
|
| 344,131 |
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange transactions |
|
| (67,208 | ) |
|
| 1,447 |
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash |
|
| 7,876 |
|
|
| (13,578 | ) |
Cash and equivalents - beginning of period |
|
| 1,850 |
|
|
| 15,428 |
|
Cash and equivalents - end of period |
| $ | 9,726 |
|
| $ | 1,850 |
|
TAUTACHROME, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||
|
| 2017 |
| 2016 |
|
| 2019 |
| 2018 |
| ||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
| |||||||||||
Net Loss |
| $ | (3,390,816 | ) |
| $ | (4,183,788 | ) | ||||||||
Stock-based compensation |
| 172,938 |
| 1,896,741 |
| |||||||||||
Loss on conversions |
| 127,031 |
| 41,278 |
| |||||||||||
Loss on litigation |
| - |
| 256,000 |
| |||||||||||
Capital contributed |
| 13,750 |
| - |
| |||||||||||
Change in fair value of derivative |
| 1,426,354 |
| (96,843 | ) | |||||||||||
Gains and losses on debt settlements |
| 96,993 |
| - |
| |||||||||||
Amortization of discounts on notes payable |
| 575,602 |
| 1,088,875 |
| |||||||||||
Imputed interest |
| 16,707 |
| 17,931 |
| |||||||||||
|
|
|
|
|
| |||||||||||
Changes in operating assets and liabilities: |
|
|
|
|
| |||||||||||
Prepaid expenses |
| (403 | ) |
| - |
| ||||||||||
Accounts payable and accrued expenses |
| (87,880 | ) |
| 244,779 |
| ||||||||||
Accrued compensation |
| 35,000 |
| 100,000 |
| |||||||||||
Net cash used in operating activities |
|
| (1,014,724 | ) |
|
| (635,027 | ) | ||||||||
|
|
|
|
|
| |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
| |||||||||||
Proceeds from convertible notes payable |
| 1,092,700 |
| 600,175 |
| |||||||||||
Proceeds from convertible notes payable, related party |
| 123,476 |
| 27,825 |
| |||||||||||
Proceeds from crypto-currency notes payable |
| - |
| 100,000 |
| |||||||||||
Principal payments on convertible notes payable |
| (176,000 | ) |
| (162,298 | ) | ||||||||||
Proceeds from related-party loans |
| 26,000 |
| 7,130 |
| |||||||||||
Principal payments on related-party loans |
| (28,166 | ) |
| (21,950 | ) | ||||||||||
Net cash provided by financing activities |
|
| 1,038,010 |
|
|
| 550,882 |
| ||||||||
|
|
|
|
|
| |||||||||||
Effect of exchange rate changes on cash and cash equivalents |
| 1,837 |
| 80,662 |
| |||||||||||
Net increase/(decrease) in cash |
| 25,123 |
| (3,483 | ) | |||||||||||
Cash and equivalents - beginning of period |
| 6,243 |
| 9,726 |
| |||||||||||
Cash and equivalents - end of period |
| $ | 31,366 |
|
| $ | 6,243 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
SUPPLEMENTARY INFORMATION |
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid for interest |
| $ | 627 |
| $ | 549 |
|
| $ | 40,781 |
| $ | 8,021 |
| ||
Cash paid for income taxes |
| $ | - |
| $ | - |
|
| $ | - |
| $ | - |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING TRANSACTIONS |
|
|
|
|
|
|
|
|
|
| ||||||
Discounts on convertible notes |
| $ | 209,040 |
| $ | 355,799 |
|
| $ | 1,044,749 |
| $ | 664,688 |
| ||
Common stock for PhotoSweep acquisition |
| $ | - |
| $ | 353,600 |
| |||||||||
Convertible note modifications |
| $ | - |
| $ | 23,812 |
| |||||||||
Conversion of debt to common stock |
| $ | 54,165 |
| $ | 71,207 |
|
| $ | 574,539 |
| $ | 334,351 |
| ||
Conversion of common stock to preferred stock |
| $ | - |
| $ | 13,795 |
| |||||||||
Note payable for trade payable |
| $ | - |
| $ | 34,250 |
| |||||||||
Shares returned to treasury |
| $ | 20 |
| $ | - |
| |||||||||
Settlement of derivative liability |
| $ | 471,233 |
| $ | 326,339 |
| |||||||||
Shares issued for settlement of lawsuit |
| $ | - |
| $ | 5,000 |
| |||||||||
Shares issued for settlement of trade debts |
| $ | 38,623 |
| $ | - |
| |||||||||
Shares issued for stock payable |
| $ | 26,281 |
| $ | - |
| |||||||||
The accompanying notes are an integral part of these financial statements.
| Table of Contents |
TAUTACHROME, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies
Organization and Nature of Business
History
Tautachrome, Inc. (formerly Roadships Holdings, Inc.) was formed in Delaware on June 5, 2006 as Caddystats, Inc. (Tautachrome, Inc. and hereinafter be collectively referred to as “Tautachrome”, the “Company”, “we’ or “us”).
The Company adopted the accounting acquirer’s year end, December 31.
Our Business
Tautachrome operates in the internet applications space, a large space we believe to be uniquely able to make possible fast growing and novel business. The iPhone, Google, Facebook, Amazon, Twitter, Android, Uber and numerous other examples are remindersexploiting the technologies of the ability ofAugmented Reality sector, the internet applications spaceblockchain/cryptocurrency sector and the smartphone picture and video technology sector. We have high-speed blockchain concepts under development aiming to surprise uscouple with new business universes out of nowhere. A recent surprise was the arrivalCompany’s revolutionary patents and licensing in the internet applications space of blockchain technology, which is empowering enterprises of all sizes to create ecosystems of trade based on self-introducedaugmented reality, smartphone-image authentication and globally useable cryptocurrencies. The arrival of blockchain technology has added a significant new and leading element to Tautachrome’s business plans and activities.imagery-based social networking interaction.
Tautachrome is currently pursuing twothree main avenues of business activity based on our patented activated imaging technology, (branded “KlickZie”our blockchain cryptocurrency products, and our licensing of the patent pending ARk technology (together banded “KlickZie” technology):
| 1. | |
|
|
|
| 2. | KlickZie’s blockchain cryptocurrency-based ecosystem: The Company has developed its own digital currency (“KLK”), smart contracts using KLKs, and high speed blockchain concepts aimed at supporting fast frictionless transactions within the ARknet as well as incentivizing user download and use of KlickZie |
| 3. | KlickZie Activated Digital Imagery business: |
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The Company’s financial statements are presented in accordance with accounting principles generally accepted (GAAP) in the United States. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein.
Principles of Consolidation
Our consolidated financial statements include Tautachrome, Inc. and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
| 22 |
| Table of Contents |
Use of Estimates
The preparation of these financial statements in conformity with generally accepted accounting principles in the United States requires us 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 and the reported amounts of revenues and expenses during the reporting period. We regularly evaluate estimates and assumptions related to the recoverability of long-lived assets, valuation of convertible debentures, assumptions used to determine the fair value of stock-based compensation and derivative liabilities, and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity of 3 months or less to be cash equivalents. The Company maintains its deposits with high quality financial institutions and, accordingly, believes its credit risk exposure associated with cash is remote. There were no cash equivalents as of December 31, 20172019 and 2016.2018.
Earnings Per Share
Basic earnings per common share is computed by dividing net earnings or loss (the numerator) by the weighted average number of common shares outstanding during each period (the denominator). Diluted earnings per common share is similar to the computation for basic earnings per share, except that the denominator is increased by the dilutive effect of stock options outstanding and unvested restricted shares and share units, computed using the treasury stock method. There are currently no common stock equivalents.
Fair Value of Financial Instruments
We adopted the Financial Accounting Standards Board’s (FASB) Accounting Codification Standard No. 820 (“ASC 820), Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. ASC 820 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 - Observable inputs such as quoted prices in active markets;
Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
| Table of Contents |
The following table presents assets and liabilities that were measured and recognized at fair value as of December 31, 20172019 on a recurring basis:
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total Gains (Losses) |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total Gains (Losses) |
| |||||||||||
Accounts payable and accrued expenses |
| $ | 356,213 |
| $ | - |
| $ | - |
| $ | - |
|
| $ | 411,236 |
| $ | - |
| $ | - |
| $ | - |
| ||||||
Accounts payable - related party |
| 15,515 |
| - |
| - |
| - |
|
| 257,282 |
| - |
| - |
| - |
| ||||||||||||||
Loans from related parties |
| 100,033 |
| - |
| - |
| - |
|
| 103,032 |
| - |
| - |
| - |
| ||||||||||||||
Convertible notes payable - related party |
| 101,160 |
| - |
| - |
| - |
|
| 111,999 |
| - |
| - |
| - |
| ||||||||||||||
Short-term convertible notes payable, net |
| 712,803 |
| - |
| - |
| - |
|
| 814,685 |
| - |
| - |
| - |
| ||||||||||||||
Convertible notes payable in default |
| 95,798 |
| - |
| - |
| - |
|
| 32,000 |
|
|
|
|
|
|
| ||||||||||||||
Short-term notes payable |
| 17,191 |
| - |
| - |
| - |
|
| 15,465 |
| - |
| - |
| - |
| ||||||||||||||
Derivative liability |
| - |
| - |
| 2,365,367 |
| - |
| |||||||||||||||||||||||
Court judgment liability |
| 54,000 |
| - |
| - |
| 2,372,668 |
|
| 250,000 |
| - |
| - |
| - |
| ||||||||||||||
Long-term convertible notes payable, net |
|
| 5,413 |
|
|
| - |
|
|
| - |
|
|
| - |
|
| 158,156 |
| - |
| - |
| - |
| |||||||
Long-term convertible notes payable – related party, net |
| 84,091 |
|
|
|
|
|
|
| |||||||||||||||||||||||
Crypto-currency notes payable |
| - |
| - |
| - |
| - |
| |||||||||||||||||||||||
TOTAL LIABILITIES |
| $ | 1,458,126 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,372,668 |
|
| $ | 2,237,946 |
|
| $ | - |
|
| $ | 2,365,367 |
|
| $ | - |
|
The following table presents assets and liabilities that were measured and recognized at fair value as of December 31, 20162018 on a recurring basis:
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total Gains (Losses) |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total Gains (Losses) |
| |||||||||||
Accounts payable and accrued expenses |
| $ | 275,760 |
| $ | - |
| $ | - |
| $ | - |
|
| $ | 615,847 |
| $ | - |
| $ | - |
| $ | - |
| ||||||
Accounts payable - related party |
| 25,486 |
| - |
| - |
| - |
|
| 114,052 |
| - |
| - |
| - |
| ||||||||||||||
Loans from related parties |
| 99,434 |
| - |
| - |
| - |
|
| 103,074 |
| - |
| - |
| - |
| ||||||||||||||
Convertible notes payable - related party |
| 49,160 |
| - |
| - |
| - |
|
| 81,340 |
| - |
| - |
| - |
| ||||||||||||||
Short-term convertible notes payable, net |
| 583,674 |
| - |
| - |
| - |
|
| 627,928 |
| - |
| - |
| - |
| ||||||||||||||
Convertible notes payable in default |
| 422,565 |
| - |
| - |
| - |
| |||||||||||||||||||||||
Short-term notes payable |
| 15,858 |
| - |
| - |
| - |
|
| 15,501 |
| - |
| - |
| - |
| ||||||||||||||
Derivative liability |
| - |
| - |
| 365,497 |
|
|
| |||||||||||||||||||||||
Court judgment liability |
| 2,382,374 |
| - |
| - |
| (2,382,374 | ) |
| 250,000 |
| - |
| - |
| (256,000 | ) | ||||||||||||||
Short-term portion of long-term debt |
| 11,034 |
| - |
| - |
| - |
| |||||||||||||||||||||||
Long-term convertible notes payable, net |
| 87,528 |
| - |
| - |
| - |
|
| 25,000 |
| - |
|
|
| - |
| ||||||||||||||
Long-term notes payable |
|
| 19,659 |
|
|
| - |
|
|
| - |
|
|
| - |
| ||||||||||||||||
Long-term convertible notes payable – related party, net |
| 32,825 |
| - |
| - |
| - |
| |||||||||||||||||||||||
Crypto-currency notes payable |
|
| 100,000 |
|
|
| - |
|
|
| - |
|
|
| - |
| ||||||||||||||||
TOTAL LIABILITIES |
| $ | 3,549,967 |
|
| $ | - |
|
| $ | - |
|
| $ | (2,382,374 | ) |
| $ | 2,388,132 |
| $ | - |
| $ | 365,497 |
| $ | (256,000 | ) | |||
| 24 |
| Table of Contents |
Income Taxes
We recognize deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates that are expected to be in effect when the differences are expected to be recovered. We provide a valuation allowance for deferred tax assets for which we do not consider realization of such assets to be more likely than not.
See Note 9 for our reconciliation of income tax expense and deferred income taxes as of and for the years ended December 31, 20172019 and 2016.2018.
Recent Accounting Pronouncements
In OctoberNovember 2018, the Financial Accounting Standards Board (the FASB) issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (ASU 2018-18). ASU 2018-18 clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the counterparty is a customer for a distinct good or service (i.e. a unit of account). For units of account that are in the scope of Topic 606, all of the guidance in Topic 606 should be applied, including the guidance on recognition, measurement, presentation and disclosure. ASU 2018-18 also adds a reference in Topic 808 to the unit of account guidance in ASC 606 and requires that it be applied only to assess whether transactions in a collaborative arrangement are in the scope of Topic 606. ASU 2018-18 will preclude entities from presenting amounts related to transactions with a counterparty in a collaborative arrangement that is not a customer as revenue from contracts with customers. ASU 2018-18 is effective for the Company for all interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company adopted the standard effective January 1, 2020. The Company does not expect the adoption of this standard to have a material effect on its financial statements.
In August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. This standard is effective for fiscal years beginning after December 15, 2019, including interim reporting periods within those years, with early adoption permitted. The Company does not expect the adoption of this standard to have a material effect on its financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, (ASU 2017-04). ASU 2017-04 eliminated Step 2 from the goodwill impairment test. Instead, under the amendments in ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for all interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its financial statements.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13) “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. This standard is effective for fiscal years beginning after December 15, 2019, including interim reporting periods within those years and must be adopted using a modified retrospective approach, with certain exceptions. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material effect on its financial statements.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-16, Income TaxesNo. 2016-02, “Leases (Topic 740): Intra-Entity Transfer842)” and subsequent amendments, which replaced existing lease accounting guidance in GAAP and requires lessees to recognize right-of-use assets and corresponding lease liabilities on the balance sheet for all in-scope leases with a term of Assets Othergreater than Inventory (“ASU 2016-16”), which12 months and requires disclosure of certain quantitative and qualitative information pertaining to an entity’s leasing arrangements. The Company adopted the recognitionstandard as of February 3, 2019. The adoption of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-06 will be effective for the Company in its first quarter of 2019.
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplified certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification on the statement of cash flows. ASU 2016-09 will be effective for the Company beginning in its first quarter of 2018.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. ASU 2016-02 will be effective for the Company beginning in its first quarter of 2020, and early adoption is permitted.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 will be effective for the Company beginning in its first quarter of 2019.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 will be effective for the Company beginning in its first quarter of 2021 and early adoption is permitted. The Company doesstandard did not believe the adoption of ASU 2016-13 will have a material impact on itsthe Company’s consolidated financial statements.statements of operations or consolidated statements of cash flows.
The new revenue standards may be applied retrospectively to each prior period presented or retrospectively withThere are no other recently issued accounting pronouncements that the cumulative effect recognized as of the date of adoption. The Company currently expectshas yet to adopt the new revenue standards in its first quarter of 2018 utilizing the full retrospective transition method.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The new standard simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill quantitative impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The standard is effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted. The Company early adopted ASU 2017-04 on January 1, 2017.
In January 2017, the FASB issued ASU 201701, Business Combinations (Topic 805); Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business to help companies evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this update are effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 201711, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 47020, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
The adoption of these standards is not expected to have a material impacteffect on ourits financial position, or results of operations.operations, or cash flows.
| Table of Contents |
Note 2 - Cancellation of plans to fund raise with the sale of registered KLK currency
In 2019, the Company cancelled its plans to raise funds through selling KLK trading currency in an offering to be registered with the SEC.
Note 3 – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, we had negative cash flows from operations of $159,416$1,014,724 and $320,156$635,027 for the years ended December 31, 20172019 and 2016,2018, respectively, and have experienced recurring losses, and negative working capital at December 31, 20172019 and 2016.2018. These conditions raise substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
The Company may raise additional capital through the sale of its equity securities, through an offering of debt securities, or through borrowings from financial institutions or related parties. Management believes that actions presently being taken to obtain additional funding may provide the opportunity for the Company to continue as a going concern. There is no guarantee the Company will be successful in achieving these objectives.
Note 4 – Related Party Transactions
For the yearsyear ended December 31, 2017 and 2016,2019, we hadaccrued $4,848 of interest to the following transactions with the Twenty Second22nd Trust (the “Trust”), the trustee of whom is Sonny Nugent, the son of our major shareholder and former Chief Executive Officer, Micheal Nugent:Nugent. The outstanding balances of unpaid principal and interest at December 31, 2019 and 2018 were $123,393 and $121,359, respectively.
Additionally, we owe the Trust $20,885 in expense advances made in previous fiscal years which are not accruing interest. | ||
According to our agreement with Mr. Nugent, we accrue interest on all unpaid amounts at 5%. Principal and interest are callable at any time. If principal and interest are called and not repaid, the loan is considered in default after which interest is accrued at 10%.
The outstanding balanceOn July 11, 2019, our CEO and Board Chairman contributed $13,750 to the 22nd Trust atcompany which was accounted for as additional paid in capital.
On October 17, 2018, we signed an agreement with Arknet to license certain technologies related to the Klickzie ArK.. The initial license fee is $100,000.
The annual maintenance fees are:
· | $200,000 for the calendar years 2020 and 2021 | |
· | $300,000 for the calendar years 2022 and 2023 and | |
· | $400,000 for the calendar year 2024 and each subsequent calendar year during the term of the agreement. | |
· | 7.5% of net sales. |
| 26 |
| Table of Contents |
As of December 31, 20162019, we have accrued the $100,000 initial license fee.
During the year ended December 31, 2019, the company entered into an arrangement with a ARknet whereby the holder of the Crypto-note was $98,344 and $11,035paid in principal and interest, respectively.common shares of Arknet. We reclassified the $100,000 Crypto-note to an advance by the Company to ARknet.
Convertible note payable, related party
On May 5, 2013 (and on August 8, 2013 with an enlargement amendment) the Company entered into a no interest demand-loan agreement with our current Chairman, Jon N. Leonard under which the Company may borrow such money from Mr.Dr. Leonard as he,Dr. Leonard in his sole discretion is willing to loan. During the years ended December 31, 2017 and 2016, the Company borrowed $53,000 and $27,000, respectively, and owed to Mr. Leonard $101,160 and $49,160 at December 31, 2017 and 2016, respectively.
The terms of the note provide that at the Company’s option, the Company may make repayments in stock, at a fixed share price of $1.00 per share. Also, because this loan is a no interestno-interest loan, an imputed interest expense of $5,023 and $3,199$6,796 was recorded as additional paid-in capital for the yearsyear ended December 31, 2017 and 2016, respectively.2019. The Company evaluated Dr. Leonard’s note for the existence of a beneficial conversion feature and determined that none existed.
On October 20, 2016,During the Company filed a Certificate of Designations withyear ended December 31, 2019, we borrowed $26,000 from and repaid $28,166 to Dr. Leonard. At December 31, 2019, the State of Delaware creating 13,795,104 shares of Series D Preferred Stock (the “Preferred Shares”) to effect the exchange. On October 27, 2016, the Company redeemed 1,379,510,380 common shares by issuing 13,795,104 Preferred Stock Series D Shares to three major shareholders (see Note 5).balanced owed Dr. Leonard is $79,174.
The Company has an employment agreement with Dr. Jon Leonard, the Company’s Chief Executive Officer at a compensation rate of $60,000 (which increases 5% per year) and six weeks per year of paid vacation. Payment and vacation benefits began to accrue in June, 2019. For the year ended December 31, 2019, we accrued $35,000 pursuant to this employment agreement.
On October 10, 2019, we issued a convertible promissory note in the amount of $62,500 to Arknet in exchange for that amount of proceeds. The note bears interest at 5% (10% after maturity), matures 18 months from the date of the note and can covert to common stock at $0.005 per share.
On December 19, 2019, we issued a convertible promissory note in the amount of $60,000 to a related party in exchange for that amount of proceeds. The note bears interest at 5% (10% after maturity), matures 18 months from the date of the note and can covert to common stock at $0.004 per share.
Note 5 – Capital Structure
Common Stock
At December 31, 2015, we had 2,987,633,430 common shares issued and outstanding from a total of four billion authorized.
On January 15, 2016 we issued 13,000,000 common shares to acquire all of the members’ interests in PhotoSweep, LLC. We valued the common stock at the grant date fair value, and included this amount in our acquisition cost of $353,600, or $0.027 per share.
As further discussed in Note 6, on January 1, 2016, we re-negotiated certain convertible promissory notes with certain creditors in order to remove the provisions in the notes which caused the derivative liability. We recorded this renegotiation by removing the derivative liability at December 31, 2015 and recording an increase to Additional Paid in Capital of $18,760.
In October, 2016, we issued 51,666,667 common shares to convert $60,000 of convertible notes payable, and $604 in accrued interest, to common stock.
In November, 2016, we received a Notice of Conversion from a holder of a US Dollar denominated convertible promissory note requesting a conversion of the outstanding principal and interest into the convertible amount of 2,142,857 common shares . We recorded a reduction of principal and interest of $10,000 and $586 of accrued interest, respectively, and we recorded an offsetting common stock payable in the amount of $10,586.
During the year ended December 31, 2017,2018 we issued 8,493,243 common246,542,274 shares to convert $49,249 of convertible notes payable, and $4,916 in accrued interest, to common stock.
Also during the year ended December 31, 2017, we issued 6,700,000 common shares to four consultants for services. We valued the shares at their grant date fair values, charging general and administrative expenses with $84,329.
On October 5, 2017, we received 2,041,324 shares back into the treasury from a consultant. These shares were gifted to the consultant by a major shareholder. We recorded the receipt of these shares at par value.
On October 16, 2017, we signed a consulting agreement to aide us in developing our blockchain-based cryptotokens in five stages, with 700,000 shares accruing at the completion of each stage. Phase 1 was completed on December 12, 2017. We therefore accrued those 700,000 shares at the date they were earned, charging general and administrative expense $12,600.
Preferred Stock
On September 29, 2016, the Company’s principal shareholders (“Principals”), Dr. Jon N. Leonard, Micheal P. Nugent, and Matthew W. Staker, offered to retire 1,379,510,380 of their common shares in exchange for a new series of non-trading preferred shares.
On October 5, 2016, the Board of Directors voted to accept the share retirement offer, and on October 20, 2016, the Company filed a Certificate of Designations with the State of Delaware creating 13,795,104 shares of Series D Preferred Stock (the “Preferred Shares”) to effect the exchange.
Share Exchange ratio and Preservation of Voting Rights
In the share exchange, each principal received 1 Preferred Share for each 100 common shares retired Each share of Preferred Shares entitles the holder to 100 votes (and each 1/100th of a Preferred Share entitles the holder to one vote).
Conversion Rights
A holder may convert Preferred Shares to common under the following conditions:
Automatic conversion – each Preferred Share automatically converts to 100 common shares upon the earlier ofas follows:
| · | |
|
|
|
| · |
Optional conversion - After October 5, 2017, each holder may convert each share into 100 shares of common stock immediately following a period of ten consecutive trading days during which the average closing or last sale price exceeds $3.00 per share. Also, each holder may convert into 110 shares of common stock at any time that the shares are listed on a National exchange (for example, the NYSE or NASDAQ).
Related-Party Stock Exchange
On October 27, 2016, the Company entered into the above outlined Share Exchange Agreement with related-parties
Common stock ownership structure immediately before and after execution of the Share Exchange Agreement was as follows:
|
| Common Stock Ownership |
| |||||||||||||||||
|
| Immediately Before |
|
| Effect of |
|
| Immediately After |
| |||||||||||
|
| Shares |
|
| % |
|
| Agreement |
|
| Shares |
|
| % |
| |||||
Jon Leonard, PhD |
|
| 1,387,829,545 |
|
|
| 46.5 | % |
|
| (1,009,330,578 | ) |
|
| 378,498,967 |
|
|
| 23.5 | % |
Micheal Nugent |
|
| 620,756,473 |
|
|
| 20.8 | % |
|
| (92,613,893 | ) |
|
| 528,142,580 |
|
|
| 32.8 | % |
Matthew Staker |
|
| 346,957,386 |
|
|
| 11.6 | % |
|
| (277,565,909 | ) |
|
| 69,391,477 |
|
|
| 4.3 | % |
Robert McClelland |
|
| 8,403,524 |
|
|
| 0.3 | % |
|
| - |
|
|
| 8,403,524 |
|
|
| 0.5 | % |
Patrick Greene |
|
| 2,093,080 |
|
|
| 0.1 | % |
|
| - |
|
|
| 2,093,080 |
|
|
| 0.1 | % |
Non Affiliates |
|
| 621,593,422 |
|
|
| 20.8 | % |
|
| - |
|
|
| 621,593,422 |
|
|
| 38.7 | % |
Totals |
|
| 2,987,633,430 |
|
|
| 100.0 | % |
|
| (1,379,510,380 | ) |
|
| 1,608,123,050 |
|
|
| 100.0 | % |
Fair Values
The closing price of the common stock on the date of the Share Exchange Agreement was $0.019, resulting in a valuation of the common stock of $26,210,697. We determined that the fair value of the Series D Preferred Shares was $27,299,028 using the following inputs:
|
|
|
| · |
| 27 |
| Table of Contents |
During the year ended December 31, 2019, we issued 1,571,976,979 shares as follows:
· | We issued 1,551,562,038 shares | |
|
|
|
| · | |
|
|
|
| · | |
|
|
|
| · |
We therefore recorded a loss onstock payable to a consultant in the exchangeamount of $1,088,331 computed$172,938 pursuant to our contract with them.
On July 11, 2019, our CEO and Board Chairman contributed $13,750 to the company which was accounted for as the difference between the value of the common and preferred shares.additional paid in capital.
Imputed Interest
Several of our loans were made without any nominal interest. As such, we imputed interest at 8% to these loans, crediting Additional Paid in Capital and charging Interest Expense. For the year ended December 31, 20172019 and 2016,2018, these amounted to $18,678$16,707 and $13,274,$17,931, respectively.
Beneficial Conversion Features of Convertible Promissory NotesPreferred Stock
During the year ended December 31, 2016,2018, we borrowed $193,164 from 26 accredited investorsaccrued $1,837,000 in Australiacosts related to the 40,000 Series E Preferred shares issued in accordance with our ARknet contract (see Note 6) which contained features allowing the holder to convert the principal and accumulated interest into common stock. We evaluated these notes for beneficial conversion features and calculated4) containing a par value of $147,965, all$0.0001. This series of which has been immediately expensed as interest expense aspreferred shares have the notes are due on demand.following rights, limitations, restrictions and privileges:
During the year ended December 31, 2016, we borrowed $109,758 from four accredited investors in the United States (see Note 6). These notes contain features which allow the holder to convert the principal and interest into common stock at various negotiated rates. We evaluated these notes for beneficial conversion features and calculated a value of $187,851, which is accounted for as debt discounts.
· | They are not entitled to dividends, | |
· | They are entitled to no liquidation rights, | |
· | Each share has the voting rights of all other voting shares combined, multiplied by 0.00001, and | |
· | They have no conversion or redemption rights. |
During the year ended December 31, 2017, we borrowed $213,040 from five accredited investors in the United States (see Note 6). These notes contain features which allow the holder to convert the principal and interest into common stock at various negotiated rates. We evaluated these notes for beneficial conversion features and calculated a value of $209,040, which is accounted for as debt discounts.
At December 31, 2017, all outstanding convertible promissory notes issued in Australia can convert to an aggregate of 77,873,300 shares of common stock. All convertible promissory notes issued in the United States can convert to 104,616,628 shares for a total potential dilution of 182,489,928 shares.
| Table of Contents |
Note 6 - Debt
Our debt in certain categories went from $3,243,424$2,023,730 at December 31, 20162018 to $1,086,398$3,934,795 at December 31, 20172019 as follows:
|
| 12/31/19 |
|
| 12/31/18 |
| ||||||||||
|
| 12/31/17 |
|
| 12/31/16 |
|
|
|
|
|
| |||||
Loans from related parties |
| $ | 100,033 |
| $ | 99,434 |
|
| $ | 103,032 |
| $ | 103,074 |
| ||
Convertible notes payable, related party |
| 101,160 |
| 49,160 |
|
| 111,999 |
| 81,340 |
| ||||||
Short-term convertible notes payable, net |
| 705,303 |
| 583,674 |
|
| 814,685 |
| 627,928 |
| ||||||
Convertible notes payable in default |
| 103,298 |
| - |
|
| 32,000 |
| 422,565 |
| ||||||
Short-term notes payable |
| 17,191 |
| 15,858 |
|
| 15,465 |
| 15,501 |
| ||||||
Court Judgment liability |
| 54,000 |
| 2,382,374 |
|
| 250,000 |
| 250,000 |
| ||||||
Long-term notes payable (short term portion) |
| - |
| 11,034 |
| |||||||||||
Long-term notes payable (long term portion) |
| - |
| 19,659 |
| |||||||||||
Long-term convertible notes payable |
|
| 5,413 |
|
|
| 82,231 |
| ||||||||
Derivative liability |
| 2,365,367 |
| 365,497 |
| |||||||||||
Long-term convertible notes payable, net |
| 158,156 |
| 25,000 |
| |||||||||||
Long-term convertible notes payable, related party |
| 84,091 |
| 32,825 |
| |||||||||||
Crypto currency notes payable |
| - |
| 100,000 |
| |||||||||||
Totals |
| $ | 1,086,398 |
|
| $ | 3,243,424 |
|
| $ | 3,934,795 |
|
| $ | 2,023,730 |
|
See Note 4 for a discussion of our related-party debts, including the first two entries in the above table.
Loans from related parties
As is discussed in Note 4, at December 31, 2019 we owed $202,567 in related-party debts consisting of $98,032 and $25,361 in unpaid principal and interest, respectively, to the 22nd Trust and $79,174 owed to our CEO, Dr. Jon Leonard.
We also owe $37,825 to another officer for loans he made to the company, only $32,825 of which has been formalized into convertible notes. The additional $5,000 is treated as an advance. The notes bear interest at 5% and may convert at $0.0025 per share.
Convertible notes payable
During the year ended December 31, 2016, we borrowed $193,164 from 26 accredited investors in Australia. These promissory notes can be converted into shares of our common stock at the rate of AU$0.01 per share. These notes are callable by the makers at any time and accrue interest at 5%. For the year ended December 31, 2016, we accrued $29,343 of interest on these notes and made no interest payments. We evaluated these notes for beneficial conversion features and calculated a value of $147,965, all of which has been immediately expensed as interest expense as the notes are due on demand.
Also during the year ended December 31, 2016,2018, we issued four convertible promissory notes to four accredited investors in exchange for $109,758 in cash. These promissory notes can be converted into shares of our common stock at various separately-negotiated rates.
We evaluated these notes for beneficial conversion features and calculated a value of $77,852 which we are accounting for as debt discounts.
On January 1, 2016, we re-negotiated the eight U.S.-Dollar-denominated promissory notes that were outstanding at December 31, 2015, in order to remove the ratchet provisions which required that we account for those provisions as a derivative liability. The fair value of the derivative liability was the same at January 1, 2016 as it was on December 31, 2015 which was $23,812.
However, in so renegotiating, we granted the creditors new, lower conversion prices, which resulted in new beneficial conversion features of $110,000.
During the year ended December 31, 2016, we amortized $106,628 of debt discounts on convertible promissory notes originating in the United States to interest expense.
During the year ended December 31, 2017 we issued seven new convertible promissory notes in the aggregate amount of $213,040, receiving$633,000, containing original issue discounts totaling $71,688, for net proceeds therefrom of the same amount.$561,313. These convertible notes can convert to common stock at various different prices. We evaluated these convertible notes for beneficial conversion featuresderivatives and calculated a collective value of $209,040 which we are accounting for as debt discounts. The individual notes are discussed in Note 6 to the financial statements filed on Form 10-K for the year ended December 31, 2018 and are hereby incorporated by reference.
During the year ended December 31, 2017,2019 we issued twenty convertible promissory notes in the aggregate amount of $1,283,757, receiving proceeds therefrom of $1,216,176. These convertible notes can convert to common stock at various prices. We evaluated these convertible notes for beneficial conversion features and calculated a collective value of $983,083 which we are accounting for as debt discounts. These convertible notes are discussed below:
· | On January 11, 2019, we issued a convertible note in the amount of $100,000 which accrues interest at 5% (10% for unpaid interest and principal after maturity) and matures on July 8, 2020. This note can convert to 83,333,333 shares. | |
· | On January 23, 2019, we issued a convertible note in the amount of $1,475 which accrues interest at 5% (10% for unpaid interest and principal after maturity) and matures on July 23, 2020. This note can convert to 1,109,023 shares. |
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| Table of Contents |
· | On January 16, 2019, we issued a convertible note in the amount of $4,000 which accrues interest at 5% (10% for unpaid interest and principal after maturity) and matures on July 16, 2020. This note can convert to 3,007,519 shares. | |
· | During the year ended December 31, 2019, we issued four promissory notes to an Australian Superfund in the aggregate amount of $20,331 which accrues interest at 5% (10% for unpaid interest and principal after maturity). These notes mature between October 15, 2020 and November 24, 2020 and can convert to 29,044,286 shares in the aggregate. | |
· | Also, during the year ended December 31, 2019, we issued three convertible promissory notes to a lending institution in the aggregate amount of $176,000, receiving proceeds of $167,000. These notes accrue interest at 12% (22% for unpaid interest and principal after maturity) and mature between April 17, 2020 and June 20, 2020. After 180 days from the note date, these notes may convert at 58% of the lowest two trading prices for the twenty days prior to conversion. These three notes’ interest and principal were all paid off on July 12, 2019. | |
· | On May 13, 2019, we issued a convertible note in the amount of $5,725 which accrues interest at 5% (10% for unpaid interest and principal after maturity) and matures on November 13, 2020. This note can convert to 8,178,571 shares. | |
· | On July 9, 2019, we issued a convertible note in the amount of $320,000, receiving proceeds of $294,500 with an original issue discount of $25,500. The note matures on July 9, 2020 and bears interest at 8% (24% of unpaid interest and principal after maturity). This note may convert to common stock at 63% of the lowest closing bid price for the twenty trading days prior to conversion. On August 2, 2019, we issued 11,392,539 shares in conversion of $35,000 of principal and $169 of interest. | |
· | On July 22, 2019, we issued a convertible note in the amount of $162,750, receiving proceeds of $150,000 with an original issue discount of $12,750. The note matures on July 22, 2020 and bears interest at 8% (24% of unpaid interest and principal after maturity). This note may convert to common stock at 63% of the lowest closing bid price for the twenty trading days prior to conversion. | |
· | On August 6, 2019 we issued a convertible promissory note in the amount of $500,000 to be received in various tranches. Each tranche matures 18 months from the date of funding and bears interest at 5%. As of December 31, 2019, we have received $150,000 pursuant to this note, all of which mature in February, 2021 and can convert to 30,844,098 shares in the aggregate. | |
· | On October 10, 2019, we issued a convertible promissory note in the amount of $62,500 to a related party in exchange for that amount of proceeds. The note bears interest at 5% (10% after maturity), matures 18 months from the date of the note and can covert to common stock at $0.005 per share. | |
· | On October 18, 2019, we issued a convertible promissory note in the amount of $976 to a related party for paying company expenses. The note bears interest at 5% (10% after maturity), matures 18 months from the date of the note and can covert to common stock at $0.0025 per share. | |
· | On November 6, 2019, we issued a convertible note in the amount of $220,000, receiving proceeds of $200,000 with an original issue discount of $20,000. The note matures on November 8, 2020 and bears interest at 8% (24% of unpaid interest and principal after maturity). This note may convert to common stock at 63% of the lowest closing bid price for the twenty trading days prior to conversion. | |
· | On December 19, 2019, we issued a convertible promissory note in the amount of $60,000 to a related party in exchange for that amount of proceeds. The note bears interest at 5% (10% after maturity), matures 18 months from the date of the note and can covert to common stock at $0.004 per share. |
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| Table of Contents |
On January 29, 2019, we issued 3,623,055 to a certain Australian individual who made baseless claims against the Company other than two existing convertible promissory notes which the Company acknowledged. Rather than engage in a prolonged international legal matter, we issued these shares in complete satisfaction of any and all claims against the Company. We valued the shares at their grant date fair values, reduced unpaid principal and interest in the amount of $4,258 and $695, respectively, and recorded a $1,330 gain on this settlement.
During the year ended December 31, 2019, we amortized $138,668$575,602 of debt discounts to interest expense.
Also during the year ended December 31, 2017, we converted two outstanding convertible notes payable to common stock, reducing principal owed by $49,249.expense, accrued $117,035 of interest and paid interest of $40,781 on existing notes.
At December 31, 2017, $95,7982019, $32,000 of our convertible notes payable were in default.
Convertible notes payable (excluding related-party convertible notes which is discussed in Note 4) at December 31, 2019 and 2018 and their classification into long-term, short-term and in-default were as follows:
|
| 12/31/19 |
|
| 12/31/18 |
| ||
|
|
|
|
|
|
| ||
All convertible promissory notes |
|
|
|
|
|
| ||
Unpaid principal |
|
| 1,578,917 |
|
|
| 1,121,243 |
|
Discounts |
|
| (574,076 | ) |
|
| (45,750 | ) |
Convertible notes payable, net |
| $ | 1,004,841 |
|
| $ | 1,075,493 |
|
|
|
|
|
|
|
|
|
|
Classified as short-term |
|
|
|
|
|
|
|
|
Unpaid principal balance |
|
| 1,183,685 |
|
|
| 673,678 |
|
Discounts |
|
| (369,000 | ) |
|
| (45,750 | ) |
Convertible notes payable - short-term, net |
| $ | 814,685 |
|
| $ | 627,928 |
|
|
|
|
|
|
|
|
|
|
Classified as long-term |
|
|
|
|
|
|
|
|
Unpaid principal balance |
|
| 363,232 |
|
|
| 25,000 |
|
Discounts |
|
| (205,076 | ) |
|
| - |
|
Convertible notes payable - short-term, net |
| $ | 158,156 |
|
| $ | 25,000 |
|
|
|
|
|
|
|
|
|
|
Classified as in default |
|
|
|
|
|
|
|
|
Unpaid principal balance |
|
| 32,000 |
|
|
| 422,565 |
|
Discounts |
|
| - |
|
|
| - |
|
Convertible notes payable - short-term, net |
| $ | 32,000 |
|
| $ | 422,565 |
|
On May 2, 2019, the company entered into an amendment to one of the convertible promissory notes issued during 2018. The company allowed the creditor to own a larger percentage of the company’s total shares outstanding in exchange for a waiver of all default interest. As a result, we recorded a reduction of interest payable to this creditor and interest expense of $140,491. On July 19, 2019, we issued 30,414,329 shares to this creditor extinguishing all principal and interest owed to them.
Court Judgment LiabilityCrypto-currency notes payable
Our Court Judgment Liability was reducedOn August 7, 2018, we issued a Crypto Exchange Promissory Note (“the Crypto Note”) in exchange for $100,000 in cash. The Crypto Note accrues interest at 4% until maturity which is 18 months from issue and 10% after maturity. The holder can convert unpaid principal and accrued interest into KLK20 tokens at any time at the rate of $0.25 per token. The holder may, for up to $54,000 from $2,382,374 asnine months after issuance, participate in a resultprice guarantee: if the Company offers the tokens at less than $0.25 per token at any point for up to nine months after issuance, then the holder has the option of the setting aside of the previously-issued default judgmentparticipating in the Morgan matter andoffer at the inclusion of a $49,000 accrual in the McRae matter (See Note 8).lower price.
| Table of Contents |
During the year ended December 31, 2019, the company entered into an arrangement with a related party whereby the holder of the Crypto-note was paid in common shares of a related party. We reclassified the Crypto-note to an advance by the Company to the related party and recorded a gain of $3,334.
On July 31, 2019, we settled an outstanding trade account payable of $83,343 by agreeing to a cash payment of $35,000. We paid the $35,000 on July 31, 2019 and realized a gain of $48,343.
Long-Term Notes PayableDerivative liabilities
Our long-termThe above-referenced convertible promissory notes payable (both long-term and short term portions) went from $30,693 at December 31, 2016 to $0 as this debt was paid in fullissued during the year ended December 31, 2017.
Short-Term Notes Payable
Short-term notes payable went from $15,858 at2019 were analyzed in accordance with EITF 07–05 and ASC 815. EITF 07–5, which is effective for fiscal years beginning after December 31, 201615, 2009, and interim periods within those fiscal years. The objective of EITF 07–5 is to $17,191 at December 31, 2017 owing entirelyprovide guidance for determining whether an equity–linked financial instrument is indexed to exchange rate fluctuations.
Note 7 – Asset Acquisition
Acquisitionan entity’s own stock. This determination is needed for a scope exception under Paragraph 11(a) of PhotoSweep, LLC
On January 15, 2016, we acquiredASC 815 which would enable a derivative instrument to be accounted for under the PhotoSweep asset (“PhotoSweep”), which weaccrual method. The classification of a non–derivative instrument that falls within the scope of EITF 00–19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non–derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. The EITF reached a consensus that would establish a two–step approach in determining whether an asset purchase. PhotoSweep’s assets atinstrument or embedded feature is indexed to an entity’s own stock. First, the pointinstrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of purchase consisted only of a business plan.the instrument's settlement provisions.
UnderDerivative financial instruments should be recorded as liabilities in the termsconsolidated balance sheet and measured at fair value. For purposes of this engagement and report, we utilized fair value as the Acquisition,basis for formulating our opinion which has been defined by the Registrant paid $39,000 and issued 13,000,000 sharesFinancial Accounting Standards Board (“FASB”) as “the amount for which an asset (or liability) could be exchanged in a current transaction between knowledgeable, unrelated willing parties when neither party is acting under compulsion”. The FASB has provided guidance that its definition of its common stock to acquire PhotoSweep from Jeremy Snyder, Sara Snyder, Richard and Candice Snyder, Quazar Enterprises Limited and Carrington Capital Group Limited.fair value is consistent with the definition of fair market value in IRS Rev. Rule 59–60.
We valuedThe Company issued certain fixed-rate convertible Subscription Notes from 2015 through September 30, 2019 in the common stock at the grant date fair value,United States and recorded an acquisition cost of $353,600, or $0.027 per share.
As of December 31, 2016, we amortized $92,862 to expense and at December 31, 2016 we recorded an asset impairment of $299,738Australia These convertible notes have become tainted (“The Tainted Notes”) as a result of the Company’s annual impairment review.issuance of convertible promissory notes issued in the United States since there is a possibility (however remote) that the Company would not have enough shares in the Treasury to satisfy all possible conversions.
The Convertible Note 8derivatives were valued as of issuance; conversion; redemption/settlement; and each quarterly period from March 31, 2018 through December 31, 2019. The following assumptions were used for the valuation of the derivative liability related to the Notes:
· | The stock price of $0.0289 to $0.0115 in this period would fluctuate with the Company projected volatility. | |
· | The notes convert with variable conversion prices based on the percentages of the low or average trades or bids over 20 to 25 trading days. | |
· | The effective discounts rates estimated throughout the periods range from 35% to 42% with potentially an additional discount. | |
· | The Holder would automatically convert the note before maturity if the registration was effective and the company was not in default. | |
· | The projected annual volatility for each valuation period was based on the historic volatility of the company are 190.0% – 277.6% (annualized over the term remaining for each valuation). |
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· | An event of default would occur 0% of the time, increasing 1.00% per month to a maximum of 20%. | |
· | The Holders would redeem the notes (with penalties up to 50% depending on the date and full–partial redemption) based on availability of alternative financing of 0% of the time, increasing 1.00% per month to a maximum of 5%. | |
· | The Holder would automatically convert the note at the maximum of 2 times the conversion price or the stock price on the date of valuation. | |
· | The Holder would automatically convert the note based on ownership or trading volume limitations. |
We recorded the initial derivative as both a derivative liability and a debt discount (or initial reduction in carrying value of the debt). We then amortized the debt discounts using the Effective Interest Method which recognizes the cost of borrowing at a constant interest rate throughout the contractual term of the obligation. The effective interest rates on the six instruments issued during the year ended December 31, 2018 range from 243% to 289%. The effective interest rates for the instruments issued during the nine months ended September 30, 2019 range from 11% to 564%.
At each reporting date, we determine the fair market value for each derivative associated with each of the above instruments. At December 31, 2019, we determined the fair value of these derivatives were $2,365,367.
Changes in outstanding derivative liabilities are as follows:
Balance, December 31, 2018 |
| $ | 365,497 |
|
Changes due to new issuances |
|
| 1,044,749 |
|
Changes due to extinguishments |
|
| (471,233 | ) |
Changes due to adjustment to fair value |
|
| 1,426,354 |
|
Balance, December 31, 2019 |
| $ | 2,365,367 |
|
Note 7 – Litigation Gains and Losses
Morgan Lawsuit
Background
The May 21, 2015 merger of the Company with Click Evidence, Inc. (“Click”) resulted in the transfer of Click’s assets and interests from Click to the Company and in Click becoming an asset-less shell inside the Company and then being disposed of on November 25, 2015. In the November 25, 2015 conveyance of the Click to the new owner, its name was changed to BH Trucking, Inc. (“BH”).
Filing and service
A first lawsuit was filed in the Superior Court of the State of Arizona, Pima County, by a former consultant to Click, Richard Morgan (“Morgan”). This lawsuit was served on December 2, 2015, against Click/BH, with the Company also named in the lawsuit, but not served by it or effectively made aware of it until 2017.
Allegation
The lawsuit claimed that the consultant’s agreement with Click/BH permitted him to recover a finder’s fee for the cashless stock swap that achieved the merger on May 21, 2015. The new owner of Click/BH, the only party served, declined to defend the lawsuit allowing it to go to default.
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Default judgment
On December 16, 2016, the Court issued a default judgment for the plaintiff and against the defendants in the amount of $2,377,915. The Company believes that having not been served or made aware of the lawsuit, it is not a target of the judgment.
Second Lawsuit
On January 23, 2017, the Company and its CEO were served in a second lawsuit by Morgan alleging that the Company’s intellectual property assets that were transferred to it by Click under the May 21, 2015 merger of the Company with Click, were fraudulently removed from Click/BH, and seeks to have them returned to Click/BH.
Charge to the Financial Statements
The Company believes that the second lawsuit is baseless, and is defending itself vigorously against it. The Company also believes that being named but not served, the default judgment in Morgan’s first lawsuit does not apply to the Company. Nevertheless, out of an abundance of caution, we have included in liabilities the default amount of $2,377,915 plus $4,459 interest at 4.5% from December 16, 2016, the date of the judgment, to December 31, 2016.
On August 29, 2017, the Court set aside the judgment in the First Lawsuit resulting in the removal of the liability of $2,377,915 and accrued interest of $4,459 at December 31, 2016, as well as the additional accrued interest recorded during 2017 of $44,294, for a total gain of $2,426,668.
On August 14, 2018, we settled this lawsuit in full by issuing 10 million shares. We valued the shares at their grant date fair values, removing the judgment liability of $5,000 and recording a $55,000 loss on litigation.
McRae Lawsuit
On October 7,10, 2017, the Company received a letter from the lawyer of Eric L.L McRae of Sedgwick County, Kansas (“McRae”) a person whose association with the Company was terminated by the Company on June 16, 2017. The letter demanded payment of 850,000,000 unrestricted Tautachrome common shares to forestall his filing a laundry list of complaints in a variety of government agencies including with the US District Court in Kansas with complaints of contract breaches and fraud by silence, with the EEOC with complaints of termination by racial discrimination, with the OSHA with complains of termination for reasons of his being a whistleblower under Sarbanes-Oxley provisions, and with various regulatory agencies with accusations of an unspecified nature.
On October 12, 2017, McRae filed a complaint, later amended twice, against the Company in the United StatesUS District Court forin Kansas. The amended complaint alleges 1) that the District of Kansas asserting a claim that TautachromeCompany breached a written agreement in an alleged employment by failing to pay him 35,000,000 shares of the Company’s common stock and terminating his association with the Company on June 16, 2017 without proper notice. The complaint goes on to allege 2) that the Company committed fraud by silence for failing to inform him of an intent to receive the employmentbenefit of McRaehis services while harboring an intent to not compensate him, 3) that the Company breached an unwritten agreement with him to provide him with 185,000,000 shares of the Company’s common stock, and seeking an award4) that the Company breached a convertible promissory note by failing and refusing to repay him the principal and accrued interest thereunder. Complaint number 4 is now moot in the belief of damagesthe Company since after the lawsuit was filed the Company continued to repay McRae’s convertible promissory note on schedule with interest due until paid in excess of $75,000.full on October 1, 2018, thus extinguishing the note and making the matter moot. These matters remain before the Court.
Although Tautachrome refutes eachOn December 12, 2017, McRae brought the Company before the Kansas Human Rights Commission and every allegation madethe U.S. Equal Employment Opportunity Commission (EEOC) alleging that on June 16, 2017 he was terminated from an alleged employment by McRaethe Company on the basis of race and for retaliation, and that the Company discriminated against him in the complaint and intends to vigorously defend against it, we have accrued $49,000 to expense againstterms of this contingency.alleged employment because of race. The Kansas Human Rights Commission dismissed this claim.
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On December 8, 2017, McRae filed a complaint with the Occupational Safety and Health Administration (the “OSHA”), alleging that his “investigation and reporting” to the Company’s CEO was a contributing factor in the termination of his alleged employment by the Company in violation of the Sarbanes-Oxley Act whistleblower’s provisions. On January 2, 2018, the Company delivered its response to the complaint, denying each of McRae’s allegations and providing its own presentation of the facts. McRae dismissed the OSHA claim with prejudice, and the matter cannot be brought again.
The Company, believing that allegations made by McRae are completely fabricated and aimed at doing harm, has been vigorously defending itself and believes it will prevail in every instance. Despite this belief, to save legal expense on October 17, 2018 the Company made a good faith settlement offer to McRae, offering him 50,000,000 shares in settlement of all outstanding legal actions against us. McRae declined the offer. However, we re-evaluated the liability on these lawsuits from $49,000 to $250,000 based on the closing price of our common stock on the date of the offer. We recognized a loss on litigation of $201,000 in so doing during 2018.
Although discovery closed on February 28, 2019 McRae involved the Company in a protracted discovery dispute regarding documents contained in the CEO’s laptop computer and in his personal e-mail account. That dispute has been substantively resolved. However, two motions have been filed by McRae. The first seeks sanctions from Tautachrome arising out of the discovery dispute. The second seeks leave to amend the complaint to include CEO personally as a party to McRae’s fraud claims. Tautachrome has opposed both motions.
On January 14, 2020, Eric McRae died unexpectedly, according to his attorney while undergoing a surgical procedure. As a result, the Court has stayed the case in its entirety and denied both pending motions without prejudice. The matter is set for a status conference on April 22nd to determine when and how the litigation will proceed.
Note 98 – Income Taxes
Deferred income taxes reflect the tax consequences on future years of differences between the tax bases:
|
| 12/31/17 |
| 12/31/16 |
|
| 12/31/19 |
| 12/31/18 |
| ||||||
Net operating loss carry-forward |
| $ | 2,103,201 |
| $ | 4,048,660 |
|
| $ | 4,579,500 |
| $ | 3,380,285 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Deferred tax asset at 39% |
| $ | 820,248 |
| $ | 1,578,977 |
| |||||||||
Deferred tax asset |
| $ | 961,695 |
| $ | 709,860 |
| |||||||||
Valuation allowance |
|
| (820,248 | ) |
|
| (1,578,977 | ) |
| (961,695 | ) |
| (709,860 | ) | ||
Net future income taxes |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Deferred taxes for 2019 and 2018 are calculated using a marginal tax rate of 21%.
In assessing the realizability of future tax assets, management considers whether it is more likely than not that some portion or all of the future tax assets will not be realized. The ultimate realization of future tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of future tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Management has provided for a valuation allowance on all of its losses as there is no assurance that future tax benefits will be realized.
Our tax loss carry-forwards will begin to expire in 2022.
Note 109 – Subsequent Events
WeAs of March 5, 2020, we issued an additional 3,243,243 shares for conversion of principal and interest onthree convertible promissory notes issuedto ARknet in the United States.exchange for $35,000 in cash.
We issued five convertible promissory notes whose face value, in the aggregate, equaled $758,000. We collected $493,000 of proceeds pursuant to these notes, and are due an additional $200,000 in proceeds in the future. Additionally, we paid off one of these notes in full totaling 78,000 in principal.
We issued 16,996,331 shares converting debt to common stock.
We have evaluated subsequent events through the date of this report.
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Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Management’s Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017.2018. In making this assessment, our management used the 2013 criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“2013 Framework”) in Internal Control-Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’scompany's annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses.
As of December 31, 2017,2019, we did not maintain effective controls over the control environment. Specifically we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
As of December 31, 2017,2019, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.
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As of December 31, 2017,2019, the Company did not establish a formal written policy for the approval, identification and authorization of related party transactions.
Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2017,2019, based on the criteria established in “Internal"Internal Control-Integrated Framework”Framework" issued by the COSO.
Change in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our last fiscal yearquarterly period ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
None
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The following sets forth our directors, executive officers, promoters and control persons, their ages, and all offices and positions held. Directors are elected for a period of one year and thereafter serve until the stockholders duly elect their successor. Officers serve at the will of the Board.
Name |
| Position(s) |
| Age |
| Held Position(s) Since | |||||
|
|
| |||||||||
Dr. Jon N. Leonard |
| President |
|
|
| May 21, 2015 | |||||
|
| Chief Executive Officer Director |
|
| |||||||
|
| Chief Financial Officer |
|
| |||||||
|
|
| |||||||||
|
| Director |
|
| |||||||
|
| ||||||||||
| |||||||||||
David LaMountain |
| Director |
|
|
|
| |||||
Chief Operations Operator | |||||||||||
Aasim Saied | Director | 38 | April 16, 2018 |
Dr. Jon N. Leonard, Ph.D., M.S., B.S.
Dr. Jon N. Leonard has been the President, CEO, CFO and a director of the Company since May 21, 2015.
From June 2012 until November 2015, Dr. Leonardhe was the President, Chief Executive Officer and a director of Click Evidence Inc., an Arizona companycorporation that he co-founded, which developed our KlickzieKlickZie smartphone trustable imaging technology. Prior to that he directed counterterrorism technology development for smartphones.
From September 2003 through to May 2012, Dr. Leonard held the position of Senior Manager of Programs at Raytheon, working out of the Raytheon Advanced Programs officesMissile Company in Tucson, Arizona and before that was responsible for conceiving and developing novel and advanced counter terrorism technologies for several US military programs. Raytheon services the United States and its allied nations providing air and missile defense systems, radars and other sensors for aircraft, spacecraft and naval ships, cybersecurity products and services and missile systems.
From March 8, 2015 to November 22, 2016, Dr. Leonard was a directorChief Scientist of Novagen Ingenium Inc, an emerging growth company engagedthe Strategic Systems Division of the Hughes Aircraft Company in the development and commercialization of low carbon emission engines and precision engineering services.
Since May 18, 2013, Dr. Leonard has served as the President, Chief Executive Officer and a director of California Molecular Electronics Corp., an Arizona corporation he co-founded that developed the world’s first true molecular switch.
El Segundo, California. Dr. Leonard holds a Ph.D. in mathematics from the University of Arizona, an M.S. in engineering from U.C.L.A. and a B.S. in physics from the University of Arizona.Arizona
Matthew Staker, M.S., B.S.David LaMountain
Matthew StakerMr. LaMountain has been a Tautachrome director and the Corporation’s Chief Operating Officer (COO) since his appointment in October 10, 2019. As COO he is responsible for overseeing the overall business operations strategy for achieving the Company’s global growth and success goals. With great people skills he has directed the Company’s social network activities since November 2016, providing strategic Investor Relations functions integrating communication, marketing and securities compliance enabling effective two-way communication between Tautachrome and its constituencies, contributing to achieving fair valuation of the Company since May 28, 2015. In 2012, he co-founded Click Evidence, Inc. and served as its Chief Engineer and Executive Vice President in addition to being a member of its board of directors until November 2015.
Since 2015,Tautachrome’s shares. Mr. StakerLaMountain has been a technical executivesuccessful business owner and investor/trader in public and private entities since 1999 and is a uniquely talented and driven individual with outstanding work ethics. He is also an inventor on KlickZie’s pending ARk patent.
Aasim Saied
Mr. Aasim Saied has been a Director of Tautachrome, Inc. since April 16, 2018. He is an inventor, entrepreneur and futurist, who developed the Projector Phone technology and various other products and services. He has a successful history in building fast moving and innovative companies and has engineered powerful new patent-pending mobile device technologies and software applications. He has recruited a global team of developers and industry specialists for a leading avionics company, overseeing the developmentsuccessful launch of data acquisition units on commercial aircraft.his Companies.
From April 2006 until December 2014, Mr. Staker was the Director of Technology and Solutions Architecture at Security First Corp. in Rancho Santa Margarita, California, which develops and licenses software-defined data protection solutions that provide deep data security. He was awarded two patents in digital information security as a result of his work at Security First Corp.
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Mr. Staker received an M.S. in Computer Science in 1987 from the University of Southern California, and has a B.S. in Computer Science from the University of Utah.
Family Relationships
There are no family relationships between any of our executive officers and directors.director
Involvement in Certain Legal Proceedings
Except as noted herein or below, during the last ten years none of our directors or officers have:
| 1. | had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
|
| |
| 2. | been convicted in a criminal proceeding or subject to a pending criminal proceeding; | |
|
| |
| 3. | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; | |
|
| |
| 4. | been the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in securities or banking activities, or to be associated with persons engaged in any such activity; | |
| ||
| 5. | been found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated; | |
| 6. | been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated |
| vacated; | |
| 7. | been the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) Any Federal or State securities or commodities law or regulation; or (ii) Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (iii) Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; o |
| 8. | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
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Board of Directors and Committees
At December 31, 2017,2019, our Board of Directors presently consisted of twothree members: Dr. Jon Leonard, David LaMountain and Matthew Staker.Aasim Saied. Our Bylaws generally provide for majority approval of directors in order to adopt resolutions, and provide that the Board of Directors may be expanded by Board action. All executive officer compensation, including payroll expenditures, salaries, stock options, stock incentives, and bonuses, must be approved by the unanimous consent of the Board of Directors. The entire Board of Directors acts as the Audit Committee and the Compensation Committee.
On future compensation matters, the Board will consider and recommend payroll expenditures, salaries, stock options, stock incentive and bonus proposals for our employees (if any). Acting in its audit committee function, the Board reviews, with our independent accountants, our annual financial statements prior to publication, and reviews the work of, and approves non-audit services performed by, such independent accountants. The Board appoints the independent public accountants for the ensuing year. The Board also reviews the effectiveness of the financial and accounting functions and the organization, operation and management of our Company.
Delinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports
The following table identifies each person who, at any time during the fiscal year ended December 31, 2019, was a director, executive officer, or beneficial owner of more than 10% of our common stock that failed to file on a timely basis reports required by Section 16(a) of the Securities Exchange Act during the most recent fiscal year:
Name |
| Number of Late Reports |
| Number of Transactions Not Reported on a Timely Basis |
| Reports Not Filed |
| |||||
Dr. Jon Leonard |
| 1 |
| 1 |
| 0 |
| |||||
David LaMountain |
| 1 |
| 1 |
| 0 | ||||||
Code of 1934 and the rules there under require ourEthics
We do not currently have a Code of Ethics, because we have only limited business operations, have a limited number of officers and directors, and persons who beneficially ownbelieve a Code of Ethics would, at the present time, have limited utility. We intend to adopt such a Code of Ethics as our business operations expand and we have more than ten percent of our common stock to file reports of ownershipdirectors, officers and changes in ownership with the Securities and Exchange Commission and to furnish us with copies.employees.
Based on our reviews of the copies of the Section 16(a) forms received by it, or written representations from certain reporting persons, we believe that, during the last fiscal year, none of our directors or executive officers satisfied their Section 16(a) filing requirements. Such persons are in the process, with the assistance of counsel, to file all required and missing reports.
Procedure for Nominating Directors
We have not made any material changes to the procedures by which security holders may recommend nominees to our board of directors.
The board does not have a written policy or charter regarding how director candidates are evaluated or nominated for the board. Additionally, the board has not created particular qualifications or minimum standards that candidates for the board must meet. Instead, the board considers how a candidate could contribute to the Company’sCompany's business and meet the needs of the Company and the board.
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Indemnification
Under our Articles of Incorporation and Bylaws of the corporation, we may indemnify an officer or director who is made a party to any proceeding, including a law suit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he is to be indemnified, we must indemnify him against all expenses incurred, including attorney’sattorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Delaware.
Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to directors or officers under Delaware law, we are informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable.
Item 11. Executive Compensation
Summary Compensation
DuringExcept for the employment agreement for CEO Dr. Jon N Leonard described below, during the years ended December 31, 20172019 and 2016,2018, no salary, bonus or other compensation was awarded, earned or paid to the Company’s executive officers for any service rendered in any capacity to the Company.
We intend to adopt a compensation plan for executive officers when we have positive and stable cash flows for the purpose of: (a) attracting and retaining talented executive officers who can assist with our business strategy; (b) aligning the interests of those executive officers with those of the Company; and (c) linking individual compensation to the performance of the Company. Any such plan that we may adopt will be designed to provide compensation that is both in line with our fiscal resources and competitive with companies at a similar stage of development.
The elements of compensation to be awarded to, earned by, paid to, or payable to our executive officers are currently expected to be composed of: (i) base salary (or consulting fees); (ii) option-based awards; and (iii) cash bonuses or share-based awards for exceptional performance that results in a significant increase in stockholder value.
Base salary will be a fixed element of compensation payable to executive officers for performing the specific duties of their respective positions. The amount of base salary for each executive officer will be reviewed and set annually by the Board of Directors. While base salary is intended to fit into our overall compensation objectives by serving to attract and retain talented executive officers, the size of the Company and the nature and stage of its business will also impact the level of base salary.
We intend to use option-based awards as a variable element of compensation to attract and reward talented executives and professionals. Option-based awards are intended fit into our overall compensation objectives by aligning the interests of executive officers with those of the Company and linking individual compensation to its performance. The Board of Directors will be responsible for setting and amending any equity incentive plan under which an option based award would be granted. Previous grants of stock options will be taken into account when considering new grants.
We intend to award bonuses at our sole discretion and do not have any pre-existing performance criteria or objectives.
WeAt this time we do not intend to provide medical, dental, pension or other benefits to our executive officers.
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Employment Agreements
ThereThe Company has an employment agreement with Dr. Jon Leonard, the Company’s Chief Executive Officer at a compensation rate of $60,000 (which increases 5% per year) and six weeks per year of paid vacation. Payment and vacation benefits began to accrue in June, 2019.
Other than the agreement in the previous paragraph, there are no employment agreements or arrangements, whether written or unwritten, between the Company and any of its executive officers. We do not contemplate entering into any other employment agreements with our executive officers until the Company has positive and stable cash flows.
Incentive Plans
The Company does not have any plan or arrangement providing compensation to executive officers or directors intended to serve as an incentive for performance to occur over any period.
Equity Compensation Plans
The Company does not have any stock option plans, stock appreciation rights or any other plan, contract, authorization or arrangement pursuant to which the executive officers or directors of the Company may receive equity-based compensation for their services to the Company.
Outstanding Equity Awards
No executive officer or director of the Company had any unexercised option, stock that had not vested or equity incentive plan award as at the end of the Company’s last completed fiscal year.
Pension and Retirement Plans
The Company does not have any plan or arrangement by which to provide pension, retirement or similar benefits to its executive officers or directors, and we do not currently intend to offer such any such plan or arrangement until we have positive and stable cash flows
Termination, Resignation or Change of Control
The Company is not a party to any contract or agreement, and has not entered into any plan or arrangement that may provide for payment to an executive officer or a director at, following, or in connection with the resignation, retirement or other termination of an executive officer or director, or a change of control of the Company or a change in the responsibilities of an executive officer following a change of control.
Compensation of Directors
The members of the Board of Directors do not receive compensation for their services as directors, but they are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. We may pay cash compensation to an executive officer who is also a director, but only in his or her capacity as an executive officer. We do not currently have an established policy to provide compensation to directors for their services in that capacity.
Director Independence
Our Board of Directors has determined that none of our directors is “independent” as defined under the standards set forth in Section 303A.02 of the NYSE Listed Company Manual. In making this determination, the Board of Directors considered all transactions set forth in the section titled “Certain Relationships and Related Transactions,” elsewhere in this prospectus.
| 42 |
| Table of Contents |
The following table sets forth, as of the date of this report, information concerning ownership of our voting shares by (i) each director, (ii) each executive officer, (iii) all directors and executive officers as a group, and (iv) each person known to us to be the beneficial owner of more than five percent of each class. The number and percentage of shares beneficially owned includes any shares as to which the named person has sole or shared voting power or investment power and any shares that the named person has the right to acquire within 60 days.
|
| Shares Beneficially Owned |
|
| Percentage of Total |
| ||||||||||||||
|
| Common Stock |
|
| Preferred Stock(1) |
|
| Voting Power of All |
| |||||||||||
Name of Beneficial Owner |
| Shares |
|
| %(2) |
|
| Shares |
|
| %(3) |
|
| Classes |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
5% Owners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sonny Nugent, as trustee for Twenty Second Trust |
|
| 507,561,720 |
|
|
| 29.8 |
|
|
| 926,139 |
|
|
| 6.7 |
|
|
| 19.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers and Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Jon N. Leonard(4) |
|
| 252,931,670 |
|
|
| 14.9 |
|
|
| 10,093,306 |
|
|
| 73.2 |
|
|
| 45.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matthew Staker |
|
| 69,391,477 |
|
|
| 4.1 |
|
|
| 2,775,659 |
|
|
| 20.1 |
|
|
| 11.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Officers as a Group (2 persons) |
|
| 322,323,147 |
|
|
| 18.9 |
|
|
| 12,868,965 |
|
|
| 93.3 |
|
|
| 56.5 |
|
|
| Common |
|
| Preferred D 1 |
|
| Preferred E 5 |
|
| % Total |
| ||||||||||||||||
Name of Beneficial Owner |
| Shares |
|
| % 2 |
|
| Shares |
|
| % 3 |
|
| Shares |
|
| % 6 |
|
| Voting, All Classes |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
5% Owners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Twenty Second Trust |
|
| 253,428,790 |
|
|
| 7.3 | % |
|
| 926,139 |
|
|
| 6.7 | % |
|
| - |
|
|
| - |
|
|
| 7.1 | % |
Nugent Bros. Trust |
|
| 250,000,000 |
|
|
| 7.2 | % |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5.1 | % |
Arknet, Inc. (AZ Corp.) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 40,000 |
|
|
| 100.0 | % |
|
| 40.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers and Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Jon Leonard 4 |
|
| 379,097,992 |
|
|
| 10.9 | % |
|
| 10,093,306 |
|
|
| 73.2 | % |
|
| - |
|
|
| - |
|
|
| 28.4 | % |
David LaMountain |
|
| 43,280,757 |
|
|
| 1.2 | % |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Officers as a Group |
|
| 422,378,749 |
|
|
| 12.2 | % |
|
| 10,093,306 |
|
|
| 73.2 | % |
|
| - |
|
|
| - |
|
|
| 29.3 | % |
__________
| (1) | Each outstanding share of |
| (2) | Based on an aggregate of |
| 30, 2020. | |
| (3) | Based on an aggregate of 13,795,104 shares of preferred D stock outstanding at March |
| 30, 2020. | |
| (4) | |
| (5) | Each Preferred E share has the voting rights of all other voting shares combined, multiplied by 0.00001. |
| (6) | Based on an aggregate of 40,000 shares of preferred E stock outstanding at March 30, 2020. |
The mailing address for all directors, executive officers and beneficial owners of more than five percent of our common stock is 1846 E. Innovation Park Drive, Oro Valley, Arizona 85755.
Unless otherwise stated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of our common and preferred stock beneficially owned by them. For purposes hereof, a person is considered to be the beneficial owner of securities that can be acquired by such person within 60 days from the date hereof, upon the exercise of warrants or options or the conversion of convertible securities. Each beneficial owner’sowner's percentage ownership is determined by assuming that any such warrants, options or convertible securities that are held by such person (but not those held by any other person) and which can be exercised within 60 days from the date hereof, have been exercised.
| 43 |
| Table of Contents |
Changes in Control
We are not aware of any arrangement, the operation of which may at a subsequent date result in a change of control of the Company.
Item 13. Certain Relationships and Related Transactions, and Director Independence
For the years ended December 31, 20172019 and 2016,2018, certain related parties made cash payments to the Company and the Company made cash payments to the related parties (see Note 4 to the financial statements).
Director Independence
As our common stock is currently traded on the OTC Bulletin Board, we are not subject to the rules of any national securities exchange which require that a majority of a listed company’s directors and specified committees of the board of directors meet independence standards prescribed by such rules.
Item 14. Principal Accountant Fees and Services
Audit and Review Fees. We paid M&K, CPAS, PLLC for audit and review fees of $21,500$32,500 for 20172019 and $20,750$21,100 for 2016.2018.
Tax Fees. We have not paid any money for tax related services.
All Other Fees. We have not paid any money for audit relatedother fees.
Audit Committee pre-approval policies and procedures. The entire Board of Directors, which acts as our audit committee, approved the engagement of M&K, CPAS, PLLC.
| Table of Contents |
Item 15. Exhibits, Financial Statement Schedules, Signatures
_____
*Filed herewith
|
| 45 |
|
|
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Tautachrome, Inc. |
| |
|
|
| |
|
| /s/ Dr. Jon | |
|
| ||
Dr. Jon |
| Date: March 30, 2020 | |
Chairman, Chief Executive Officer and Chief Financial Officer | |||
|
|
| |
/s/ David LaMountain | |||
David LaMountain | Date: March 30, 2020 | ||
Director, Chief |
|
|
In accordance with the Securities Exchange Act of 1934, this report has been duly signed by the following persons on behalf of the Company and in the capacities and on the dates indicated.
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| 46 |
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