SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d ) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM ___________ TO _____________.

 

Commission file number: 000-55721

   

TAUTACHROME, INC.

(Exact name of registrant as specified in its charter)

   

Delaware

 

84-2340972

(State or other Jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

1846 e. Innovation Park Drive, Oro Valley, AZ 85755

(Address of principal executive offices)

 

(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 Symbols

 

Name of Exchange on Which Registered

Not applicable

 

Not applicable

 

Not applicable

 

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 preceding 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 ☒ 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). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

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. o

 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes o No ☒

 

The number of shares of the registrant’s common stock outstanding as of August 4, 2020, was 4,120,475,247.

 

 

 

TAUTACHROME, INC.

FORM 10-Q

 

INDEX

  

PART I – FINANCIAL INFORMATION

 

 

3

 

 

 

 

 

 

 

Item 1 –

Consolidated Financial Statements

 

 

3

 

Item 2 –

Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

 

 

17

 

Item 3 –

Quantitive And Qualitative Disclosures About Market Risk

 

 

19

 

Item 4 –

Controls and Procedures

 

 

19

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

21

 

 

 

 

 

 

 

Item 1 –

Legal Proceedings

 

 

21

 

Item 2 –

Unregistered Sale of Equity Securities

 

 

21

 

Item 3 –

Defaults Upon Senior Securities

 

 

21

 

Item 4 –

Mine Safety Disclosures

 

 

21

 

Item 5 –

Other Information

 

 

21

 

Item 6 –

Exhibits

 

 

22

 

Signatures

 

 

23

 

      

 
2

Table of Contents

 

PART I – FINANCIAL INFORMATION

 

ITEM 1 – CONSOLIDATED FINANCIAL STATEMENTS

 

TAUTACHROME, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

6/30/2020

 

 

12/31/2019

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$ 16,136

 

 

$ 31,366

 

Prepaid expenses

 

 

65

 

 

 

403

 

Total current assets

 

 

16,201

 

 

 

31,769

 

TOTAL ASSETS

 

$ 16,201

 

 

$ 31,769

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$ 372,648

 

 

$ 411,236

 

Accounts payable - related party

 

 

378,756

 

 

 

257,282

 

Loans from related parties

 

 

102,676

 

 

 

103,032

 

Convertible notes payable - related party, net

 

 

117,433

 

 

 

111,999

 

Short-term convertible notes payable, net

 

 

754,963

 

 

 

814,685

 

Convertible notes payable in default

 

 

32,000

 

 

 

32,000

 

Short-term notes payable

 

 

15,157

 

 

 

15,465

 

Derivative liability

 

 

683,049

 

 

 

2,365,367

 

Court judgment liability

 

 

-

 

 

 

250,000

 

Total current liabilities

 

 

2,456,682

 

 

 

4,361,066

 

 

 

 

 

 

 

 

 

 

Long-term convertible notes payable, net

 

 

-

 

 

 

158,156

 

Long-term convertible notes payable, related party, net

 

 

470,826

 

 

 

84,091

 

Total non-current liabilities

 

 

470,826

 

 

 

242,247

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

2,927,508

 

 

 

4,603,313

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Series D Convertible Preferred, par value $0.0001. 13,795,104 shares authorized, 13,795,104 shares issued and outstanding at June 30, 2020 and December 31, 2019

 

 

1,380

 

 

 

1,380

 

Series E Convertible Preferred Stock, par value $0.0001. 40,000,000 shares authorized, 40,000 and zero shares outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

4

 

 

 

-

 

Common stock, $0.00001 par value. 4.5 billion shares authorized. 4,120,475,247 and 3,504,460,889 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

41,205

 

 

 

35,045

 

Additional paid in capital

 

 

9,734,133

 

 

 

6,095,053

 

Common stock payable

 

 

273,884

 

 

 

2,066,584

 

Accumulated deficit

 

 

(13,076,089 )

 

 

(12,867,645 )

Effect of foreign currency exchange

 

 

114,176

 

 

 

98,039

 

TOTAL STOCKHOLDERS’ DEFICIT

 

 

(2,911,307 )

 

 

(4,571,544 )

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

$ 16,201

 

 

$ 31,769

 

  

The accompanying notes are an integral part of these consolidated financial statements.

   

 
3

Table of Contents

 

TAUTACHROME, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 Six Months Ended June 30,

 

 

 Three Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

$ 624,591

 

 

$ 299,519

 

 

$ 312,222

 

 

$ 169,299

 

Total operating expenses

 

 

624,591

 

 

 

299,519

 

 

 

312,222

 

 

 

169,299

 

Operating loss

 

 

(624,591 )

 

 

(299,519 )

 

 

(312,222 )

 

 

(169,299 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME / (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on litigation

 

 

105,000

 

 

 

-

 

 

 

-

 

 

 

-

 

Gain on settlement of debt

 

 

-

 

 

 

1,330

 

 

 

-

 

 

 

-

 

Interest expense

 

 

(721,463 )

 

 

(19,973 )

 

 

(559,544 )

 

 

65,852

 

Change in value of derivatives

 

 

1,069,877

 

 

 

(301,036 )

 

 

(168,436 )

 

 

(359,396 )

Loss on conversion of debt

 

 

(37,267 )

 

 

(127,031 )

 

 

(9,819 )

 

 

(6,256 )

Total other

 

 

416,147

 

 

 

(446,710 )

 

 

(737,799 )

 

 

(299,800 )

Net income or (loss)

 

$ (208,444 )

 

$ (746,229 )

 

$ (1,050,021 )

 

$ (469,099 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of foreign currency exchange

 

 

16,137

 

 

 

2,534

 

 

 

(87,108 )

 

 

8,399

 

Net comprehensive income or (loss)

 

$ (192,307 )

 

$ (743,695 )

 

$ (1,137,129 )

 

$ (460,700 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) or income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and fully diluted

 

$ 0.00

 

 

$ (0.00 )

 

$ (0.00 )

 

$ (0.00 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and fully diluted

 

 

3,659,613,359

 

 

 

2,777,602,341

 

 

 

3,785,141,462

 

 

 

3,249,186,786

 

 

The accompanying notes are an integral part of these consolidated financial statements.

   

 
4

Table of Contents

 

TAUTACHROME, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

December 31, 2018 to June 30, 2020

 

 

 

 Common Stock

 

 

 Preferred Stock

Series D

 

 

 Preferred Stock

Series E

 

 

 Additional Paid in 

 

 

 Stock 

 

 

Other Comprehensive Income 

 

 

 Accumulated

 

 

  Total Stockholders’ Equity /

 

 

 

 Shares

 

 

 Amount

 

 

 Shares

 

 

 Amount

 

 

 Shares

 

 

 Amount

 

 

 Capital

 

 

 Payable

 

 

 (Loss)

 

 

 Deficit

 

 

 (Deficit)

 

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

 

Proceeds from officer stock sale

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

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, December 31, 2019

 

 

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 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for conversion of debt

 

 

560,931,025

 

 

 

5,609

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

843,755

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

849,364

 

Issue Series E preferred shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

40,000

 

 

 

4

 

 

 

1,836,996

 

 

 

(1,837,000 )

 

 

-

 

 

 

-

 

 

 

-

 

Shares issued for services

 

 

3,333,333

 

 

 

33

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,967

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,000

 

Shares issued for cash

 

 

1,750,000

 

 

 

18

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,482

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,500

 

Shares issued to settle legal claim

 

 

50,000,000

 

 

 

500

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

144,500

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

145,000

 

Derivative associated with early debt retirement

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

782,972

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

782,972

 

Shares earned by consultants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

44,300

 

 

 

-

 

 

 

-

 

 

 

44,300

 

Imputed interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,408

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,408

 

Effect of foreign currency exchange

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,137

 

 

 

-

 

 

 

16,137

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(208,444 )

 

 

(208,444 )

Balance, June 30, 2020 (unaudited)

 

 

4,120,475,247

 

 

$ 41,205

 

 

 

13,795,104

 

 

$ 1,380

 

 

 

40,000

 

 

$ 4

 

 

$ 9,734,133

 

 

$ 273,884

 

 

$ 114,176

 

 

$ (13,076,089 )

 

$ (2,911,307 )

 

The accompanying notes are an integral part of these financial statements

  

 
5

Table of Contents

  

TAUTACHROME, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

   

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net Loss

 

$ (208,444 )

 

$ (746,229 )

Stock-based compensation

 

 

64,300

 

 

 

5,344

 

Loss on debt conversions

 

 

37,267

 

 

 

127,031

 

Change in fair value of derivative

 

 

(1,069,877 )

 

 

301,036

 

Gain on litigation

 

 

(105,000 )

 

 

-

 

Gain on debt settlements

 

 

-

 

 

 

(1,330 )

Amortization of discounts on notes payable

 

 

659,035

 

 

 

63,560

 

Imputed interest

 

 

7,408

 

 

 

8,369

 

 

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

338

 

 

 

-

 

Accounts payable and accrued expenses

 

 

5,005

 

 

 

(44,457 )

Accounts payable - related party

 

 

130,000

 

 

 

-

 

Net cash used in operating activities

 

 

(479,968 )

 

 

(286,676 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from the sale of stock

 

 

3,500

 

 

 

-

 

Proceeds from convertible notes payable

 

 

-

 

 

 

298,200

 

Proceeds from convertible notes payable, related party

 

 

478,000

 

 

 

-

 

Payment of expenses by related party

 

 

36,172

 

 

 

-

 

Proceeds from related-party loans

 

 

-

 

 

 

26,000

 

Principal payments on related-party loans

 

 

(46,828 )

 

 

(13,010 )

Net cash provided by financing activities

 

 

470,844

 

 

 

311,190

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(6,106 )

 

 

2,534

 

 

 

 

 

 

 

 

 

 

Net increase/(decrease) in cash

 

 

(15,230 )

 

 

27,048

 

Cash and equivalents - beginning of period

 

 

31,366

 

 

 

6,243

 

Cash and equivalents - end of period

 

$ 16,136

 

 

$ 33,291

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTARY INFORMATION

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ -

 

 

$ -

 

Cash paid for income taxes

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING TRANSACTIONS

 

 

 

 

 

 

 

 

Discounts on convertible notes

 

$ 170,531

 

 

$ 243,768

 

Conversion of debt to common stock

 

$ 812,097

 

 

$ 375,900

 

Settlement of derivative liability

 

$ 782,972

 

 

$ 276,592

 

Shares issued for debt settlements

 

$ 145,000

 

 

$ 3,623

 

Shares issued for stock payable

 

$ 1,837,000

 

 

$ 26,281

 

 

The accompanying notes are an integral part of these consolidated financial statements.

  

 
6

Table of Contents

 

TAUTACHROME, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2020

 

Note 1 – Organization and Nature of Business

 

History

 

Tautachrome, Inc. was formed in Delaware on June 5, 2006 as Caddystats, Inc., and subsequently renamed Roadships Holdings Inc. and on November 5, 2015 renamed to its current name Tautachrome Inc. (and hereinafter 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, uniquely exploiting the technologies of the Augmented Reality (AR) sector and the smartphone trusted imagery sector, with granted and pending patents in both sectors. In addition we have high-speed blockchain technologies in development in support of global AR-based social networking and AR-based consumer-provider commerce. These technologies are being rolled out in the Company’s ARknet platform, beginning in the US and aiming for a global operation.

 

Tautachrome is currently pursuing three main avenues of business activity based on our patented activated imaging technology, our blockchain cryptocurrency products, and our licensing of the patent pending ARk technology (together banded “KlickZie” technology):

 

 

1.

KlickZie ARk technology business: The Company has licensed and is developing a new KlickZie augmented reality (“AR”) platform branded ARknet. ARknet enables goods and services providers to establish geolocated augmented reality interfaces, called ARks, allowing consumers to purchase the provider’s products and take advantage of is specials and discounts, using the ARk. A provider’s ARk may be located anywhere in the world, from a store location to anyplace else the provider may desire. The ARknet is a fintech platform connecting consumers to providers in the global $48 trillion household goods market, using augmented reality as the medium of interaction.

 

 

 

 

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 products.

 

 

 

 

3.

KlickZie Activated Digital Imagery business: The Company is developing 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 create. Trusted imagery and user imagery-based interaction is expected to be widely used within the ARknet.

 

Since its public announcement on September 25, 2017 (via SEC form 8-K) that it would be using its Twitter site (@Tautachrome_Inc) (https://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.

    

 
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Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

 

Consolidated Financial Statements

 

In the opinion of management, the accompanying financial statements includes all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for the period ended June 30, 2020. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in our audited financial statements for the period ended December 31, 2019, as reported in Form 10-K filed with the SEC filed on March 30, 2020.

 

Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.

 

Principles of Consolidation

 

Our consolidated financial statements include the accounts of Tautachrome, Inc. and all majority-owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation.

 

Long-Lived Assets, Intangible Assets and Impairment

 

In accordance with U.S. GAAP, the Company’s long-lived assets and amortizable intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The Company assesses the recoverability of such assets by determining whether their carrying value can be recovered through undiscounted future operating cash flows, including its estimates of revenue driven by assumed market segment share and estimated costs. If impairment is indicated, the Company measures the amount of such impairment by comparing the fair value to the carrying value.

   

Revenue Recognition

  

The Company sells credits in exchange for cash. These credits can be redeemed for ARks which are geo-location objects downloadable into various digital devices. We recognize revenues once the customer has redeemed previously-purchased credits in exchange for ARks. Until that point, any cash received in exchange for credits is accounted for as liabilities.

   

 
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The company recognizes revenues in accordance with ASC 606 – Revenue From Contracts with Customers which proscribes a five-step process in evaluating the revenue recognition process:

 

Step 1: Identify the contract with a customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

 

The company has determined that the performance obligations are satisfied once the purchased credits are exchanged for ARks. As of June 30, 2020, we have recorded $2,160 in liabilities.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Net Loss Per Share

 

Basic and diluted net loss per share calculations are calculated on the basis of the weighted average number of common shares outstanding during the year. The per share amounts include the dilutive effect of common stock equivalents in years with net income. Basic and diluted loss per share is the same for the three and six months ended June 30, 2019 and 2020 as the effect of our potential common stock equivalents would be anti-dilutive.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

 

The new standard was effective for us on January 1, 2019 and we have adopted and implemented it. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. We adopted the new standard on January 1, 2019 and use the effective date as our date of initial application.

    

 
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Note 3 – Going Concern

 

In the third quarter 2019, we began operations with our ARknet platform, and in October we acquired assets to enter the business ARk vertical in our market. We will require additional capital to exploit this vertical and to commercialize others. There is no guarantee that we will be able acquire the capital to exploit and commercialize the ARknet markets we envision so as to generate positive cash flows from operations. For these reasons, substantial doubt exists as to Tautachrome’s ability to continue as a going concern. No adjustment has been made to these financial statements for the outcome of this uncertainty.

 

Management intends to raise additional capital, partly through convertible debt, partly through the direct sale of equity and partly through partnerships with businesses with whom we will provide exclusive use of ARknet techniques in their arenas of operation. We will commit those funds to further refine and develop our ARknet platform. In addition, we intend to market our products through Google and Facebook.

 

Note 4 – Related Party Transactions

 

For the six months ended June 30, 2020, we accrued $2,420 of interest to the 22nd Trust (the “Trust”), the trustee of whom is Sonny Nugent, the son of our major shareholder and former Chief Executive Officer, Micheal Nugent. The outstanding balances of unpaid principal and interest at June 30, 2020 were $97,676 and $27,723, respectively. The outstanding balances of unpaid principal and interest at December 31, 2019 were $98,032 and $25,361, respectively.

 

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%.

 

On July 11, 2019, our CEO and Board Chairman contributed $13,750 to the company which was accounted for as additional paid in capital.

 

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 Dr. Leonard as Dr. Leonard in his sole discretion is willing to loan.

 

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-interest loan, an imputed interest expense of $2,504 was recorded as additional paid-in capital for the six months ended June 30, 2020. The Company evaluated Dr. Leonard’s note for the existence of a beneficial conversion feature and determined that none existed.

 

During the six months ended June 30, 2020, we repaid $46,828 to Dr. Leonard. At June 30, 2020, the balanced owed Dr. Leonard is $32,346.

 

We also owe $69,973 to a Board member for convertible notes payable for loans he made to the company. The notes bear interest at 5% (10% after maturity) and may convert at $0.0025 per share (for $33,801 of the debt) and $.002 per share (for $36,172 of the debt). Unamortized discount and net liabilities at June 30, 2020 are $32,147 and $37,825, respectively. Unpaid interest at that date amounts to $7,155.

 

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. We originally recorded a discount of $19,278 in 2019, amortizing $2,701 and $5,885 during 2019 and 2020, respectively. The unamortized discount and net liabilities at June 30, 2020 are $10,691 and $51,809, respectively. Unpaid interest at December 31, 2019 and June 30, 2020 amount to $701 and $2,263, respectively.

    

 
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On December 19, 2019, we issued a convertible promissory note in the amount of $60,000 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 $0.004 per share. We originally recorded a discount of $24,123 in 2019, amortizing $2,010 and $7,324 during 2019 and 2020, respectively. The unamortized discount and net liabilities at June 30, 2020 are $14,789 and $45,211, respectively. Unpaid interest at December 31, 2019 and June 30, 2020 amount to $90 and $1,590, respectively.

 

During the six months ended June 30, 2020, we issued nine promissory notes to Arknet in the aggregate amount of $478,000. The notes mature between June 24, 2021 and December 31, 2021, bear interest at 5% (10% after maturity) and can convert to common stock between $0.00128 and $0.0040 per common share. We originally recorded discounts on these notes in the aggregate of $66,891, amortizing $9,958 during the six months ended June 30, 2020. The unamortized discount and net liabilities at June 30, 2020 for these nine notes are $55,022 and $422,978, respectively. Unpaid interest at that date amounts to $5,714.

 

Note 5 – Capital

 

During the year ended December 31, 2019 we issued 1,571,976,979 shares as follows:

 

 

·

We issued 1,551,562,038 shares in conversion of outstanding convertible promissory notes. We recorded a reduction of the balance of these notes of $525,621 of principal, $44,418 of interest, and $4,500 of conversion fees and recorded a loss on conversion of $127,031. As part of these conversions, we retired $471,233 of associated derivative liabilities which we included in Additional Paid in Capital.

 

 

 

 

·

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.

 

 

 

 

·

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.

 

 

 

 

·

We issued 4,291,886 shares to a consultant to reduce our stock payable to them. We reduced the stock payable by $26,281 and recorded additional expense of $313. We recorded an additional stock payable to this consultant of $19,888 during the period.

 

During the six months ended June 30, 2020, we issued

 

 

·

560,931,025 shares of common stock in conversion of $770,081 of principal and $42,016 of unpaid interest. We recorded losses of $37,267 upon conversions.

 

 

 

 

·

1,750,000 shares of common stock for $3,500 in cash.

 

 

 

 

·

50,000,000 shares of common stock to settle the McRae lawsuit (see Note 7).

 

 

 

 

·

3,333,333 shares of common stock for services. We valued the shares at their grant date fair values and included $20,000 in general and administrative expenses.

 

Additionally during the six months ended June 30, 2020, we accrued $44,300, payable in common stock, to three consultants for services performed during the period.

    

 
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Preferred Stock

 

During the year ended December 31, 2018, we accrued $1,837,000 in costs related to the 40,000 Series E Preferred shares promised in our ARknet contract containing a par value of $0.0001. This series of preferred shares have the following rights, limitations, restrictions and privileges:

 

 

·

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.

 

These shares were recorded as issued on January 31, 2020.

 

Imputed Interest

 

Certain of our promissory notes bear no nominal interest. We therefore imputed interest expense and increased Additional Paid in Capital. For the six months ended June 30, 2020, we imputed $7,408 of such interest.

  

Note 6 – Debt

 

Loans from related parties

 

At June 30, 2020 we owed $102,676 in related-party loans consisting of $97,676 to the 22nd Trust and $5,000 owed to a related-party Board member .

 

We also owe $69,973 of convertible notes payable to a Board member for loans he made to the company. The additional $5,000 is treated as an advance. The notes bear interest at 5% and may convert at $0.0025 per share.

 

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. We originally recorded a discount of $19,278 in 2019, amortizing $2,701 and $5,885 during 2019 and 2020, respectively. The unamortized discount and net liabilities at June 30, 2020 are $10,691 and $45,9247, respectively. Unpaid interest at that date amounts to $701.

 

On December 19, 2019, we issued a convertible promissory note in the amount of $60,000 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 $0.004 per share. We originally recorded a discount of $24,123 in 2019, amortizing $2,010 and $7,324 during 2019 and 2020, respectively. The unamortized discount and net liabilities at June 30, 2020 are $18,075 and $45,211, respectively. Unpaid interest at that date amounts to $1,590.

 

During the six months ended June 30, 2020, we issued nine promissory notes to Arknet in the aggregate amount of $478,000. The notes mature between June 24, 2021 and December 31, 2021, bear interest at 5% (10% after maturity) and can convert to common stock between $0.00128 and $0.0040 per common share. We originally recorded discounts on these notes in the aggregate of $66,891, amortizing $9,958 during the six months ended June 30, 2020. The unamortized discount and net liabilities at June 30, 2020 for these nine notes are $55,022 and $422,978, respectively. Unpaid interest at that date amounts to $5,714.

   

 
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Short-term notes payable

 

At June 30, 2020, we owed AU$22,000 (US$15,157) to three Australian investors on promissory notes which contain no conversion privileges.

 

Convertible notes payable

 

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 six months ended June 30, 2020, we amortized $659,035 of debt discounts to interest expense and accrued $39,330 of interest on existing notes. Additionally during the six months ended June 30, 2020, we issued 560,931,025 common shares to extinguish $770,081 and $42,016 of unpaid principal and interest, respectively, and recorded a loss on conversion of $37,267 in so doing.

 

At June 30, 2020, $32,000 of our third-party convertible notes payable were in default.

 

Convertible notes payable (excluding related-party convertible notes which is discussed in Note 4) at June 30, 2020 and December 31, 2019 and their classification into long-term, short-term and in-default were as follows:

  

 

 

06/30/20

 

 

12/31/19

 

All convertible promissory notes

 

 

 

 

 

 

Unpaid principal

 

 

798,577

 

 

 

1,578,917

 

Discounts

 

 

(11,614 )

 

 

(574,076 )

Convertible notes payable, net

 

$ 786,963

 

 

$ 1,004,841

 

 

 

 

 

 

 

 

 

 

Classified as short-term

 

 

 

 

 

 

 

 

Unpaid principal balance

 

 

766,577

 

 

 

1,183,685

 

Discounts

 

 

(11,614 )

 

 

(369,000 )

Convertible notes payable - short-term, net

 

$ 754,963

 

 

$ 814,685

 

 

 

 

 

 

 

 

 

 

Classified as long-term

 

 

 

 

 

 

 

 

Unpaid principal balance

 

 

-

 

 

 

363,232

 

Discounts

 

 

-

 

 

 

(205,076 )

Convertible notes payable - short-term, net

 

$ -

 

 

$ (158,156 )

 

 

 

 

 

 

 

 

 

Classified as in default

 

 

 

 

 

 

 

 

Unpaid principal balance

 

 

32,000

 

 

 

32,000

 

Discounts

 

 

-

 

 

 

-

 

Convertible notes payable - short-term, net

 

$ 32,000

 

 

$ 32,000

 

  

 
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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.

 

Imputed Interest

 

Certain of our promissory notes bear no nominal interest. We therefore imputed interest expense and increased Additional Paid in Capital. For the six months ended June 30, 2020, we imputed $7,408 of such interest. Of this amount, $2,504 is imputed on amounts owed to Jon Leonard, our Chief Executive Officer, and $4,904 was imputed on twenty eight outstanding loans in Australia.

  

Derivative liabilities

 

The above-referenced convertible promissory notes issued during the six months ended June 30, 2020 were analyzed in accordance with EITF 07–05 and ASC 815. EITF 07–5, which is effective for fiscal years beginning after December 15, 2009, and interim periods within those fiscal years. The objective of EITF 07–5 is to provide guidance for determining whether an equity–linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception under Paragraph 11(a) of ASC 815 which would enable a derivative instrument to be accounted for under the accrual 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 instrument or embedded feature is indexed to an entity’s own stock. First, the instrument’s contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument’s settlement provisions.

 

Derivative financial instruments should be recorded as liabilities in the consolidated balance sheet and measured at fair value. For purposes of this engagement and report, we utilized fair value as the basis for formulating our opinion which has been defined by the Financial 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 fair value is consistent with the definition of fair market value in IRS Rev. Rule 59–60.

 

The Company issued certain fixed-rate convertible Subscription Notes from 2015 through May 20, 2020 in the United States and Australia These convertible notes have become tainted (“The Tainted Notes”) as a result of the 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.

   

 
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The Convertible Note derivatives were valued as of issuance; conversion; redemption/settlement; and each quarterly period from March 31, 2018 through June 23, 2020 (the date of the extinguishment of the liability). The following assumptions were used for the valuation of the derivative liability related to the Notes:

 

 

·

The stock price of $0.0029 to $0.0043 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 140.3% – 186.5% (annualized over the term remaining for each valuation).

 

 

 

 

·

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 instruments issued during the year ended December 31, 2019 range from 11% to 564%. The effective interest rates for the instruments issued during the six months ended June 30, 2020 range from 7% to 203%.

 

At each reporting date, we determine the fair market value for each derivative associated with each of the above instruments.

 

During the six months ended June 30, 2020, creditors holding variable-rate convertible notes, whose variable rate gives rise to the existing of the derivative liability and the tainted notes’ derivative liabilities, were fully converted. However, at June 30, 2020 we had potential dilution of common shares from our Series D convertible preferred stock, convertible notes both in Australia and the United States, and our stock payable of approximately 1,900,301,343 shares. This, when combined with the issued and outstanding shares at June 30, 2020 of 4,120,475,247, results in more shares issued or issuable than we have available in the company treasury. Therefore, at June 30, 2020, we maintained a derivative liability in the amount of $683,049.

 

 
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Changes in outstanding derivative liabilities are as follows:

 

Balance, December 31, 2019

 

$ 2,365,367

 

Changes due to new issuances

 

 

170,531

 

Changes due to extinguishments

 

 

(782,972 )

Changes due to adjustment to fair value

 

 

(1,069,877 )

Balance, June 30, 2020

 

$ 683,049

 

  

Note 7 – Litigation

 

McRae Lawsuit

 

On October 10, 2017, the Company received a letter from the lawyer of Eric L McRae (“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.

 

This history of the legal proceedings in this case are described in Note 7 to the financial statements filed with Form 10-K on March 30, 2020 and are herewith included by reference.

 

On May 5, 2020 the Company settled with the McRae estate for 50 million common shares. We valued the shares at the settlement date (May 5, 2020 on which date our closing price was $0.0029) and recorded a Gain on Litigation in the amount of $105,000, a reduction of the amount of the liability to $145,000 as a result of that revaluation. We issued the shares on May 18, 2020.

   

Note 8 – Income Taxes

 

Deferred income taxes reflect the tax consequences on future years of differences between the tax bases:

 

 

 

06/30/20

 

 

12/31/19

 

 

 

 

 

 

 

 

Net operating loss carry-forward

 

 

5,127,078

 

 

 

4,579,500

 

 

 

 

 

 

 

 

 

 

Deferred tax asset

 

$ 1,076,686

 

 

$ 961,695

 

Valuation allowance

 

 

(1,076,686 )

 

 

(961,695 )

Net future income taxes

 

$ -

 

 

$ -

 

 

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 2030.

  

Note 9 – Subsequent Events

 

On July 27, 2020, the Company issued a convertible promissory note for $220,000 resulting in proceeds of $200,000 and original issue discounts of $20,000.

   

 
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Item 2- Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

 

This report contains “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including: any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. “Forward-looking statements” may include the words “may,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan” or “anticipate” and other similar words.

 

 Although we believe that the expectations reflected in our “forward-looking statements” are reasonable, actual results could differ materially from those projected or assumed. Our future financial condition and results of operations, as well as any “forward-looking statements”, are subject to change and to inherent risks and uncertainties, such as those disclosed in this report. In light of the significant uncertainties inherent in the “forward-looking statements” included in this report, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. Except for its ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any “forward-looking statement”. Accordingly, the reader should not rely on “forward-looking statements”, because they are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by the “forward-looking statements”.

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited financial statements, including the notes to those financial statements, included elsewhere in this report.

 

Overview

  

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 minimal revenue.

 

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 - Six months ended June 30, 2020 versus 2019

 

We had general and administrative expenses of $624,591 for the six months ended June 30, 2020 versus $299,519 for the same period in 2019. The increase is mainly due to increases in software development costs (a $241,280 increase) and Arknet license fees (a $100,000 increase).

   

 
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As is discussed in Note 7 to the financial statements, we had a gain of $105,000 on the McRae lawsuit settlement. We had no such gains in the previous year.

 

We had an increase in interest expense from $19,973 during the six months ended June 30, 2019 to $721,463 in the current period. The vast majority of the change was due to discount amortizations.

 

We had gains and losses on changes in the fair values of our derivatives of $1,069,877 (gain) and $301,036 (loss) for the six months ended June 30, 2020 and 2019, respectively. The gain in 2020 is almost entirely due to the redemptions resulting in the extinguishments of certain derivative liabilities.

 

We had an increase in the amount of losses associated with the conversion of convertible debt. During the six months ended June 30, 2020, we had $37,267 of such losses and $127,031 of such losses for the same period in the previous year. The increase is associated with the renegotiation of conversion prices on several of the conversions.

 

During the six months ended June 30, 2020, we had a foreign exchange gain of $16,137 versus a gain of $2,534 during the same period in 2019, all of which are currency translation effects resulting from exchange rate differences between the U.S. and Australian dollars. The US Dollar gained approximately 2% in value against the Australian Dollar during the six months ended June 30, 2020.

 

Our net comprehensive losses of $192,307 and $743,695 during the six months ended June 30, 2020 and 2019 are a result of the above items.

 

Results of Operations - Three months ended June 30, 2020 versus 2019

 

We had general and administrative expenses of $312,222 for the three months ended June 30, 2020 versus $169,299 for the same period in 2019. The increase is mainly due to increases in software development costs (a $124,000 increase) and Arknet license fees (a $50,000 increase).

 

We had an increase in interest expense from $65,852 (a gain in interest expense in 2019 resulting from a renegotiation of a certain convertible note in May, 2019 – see Note 6) to $559,544, an increase of $625,396. The vast majority of the change was due to discount amortizations.

 

We had losses on changes in the fair values of our derivatives of $168,436 and $359,396 for the three months ended June 30, 2020 and 2019, respectively. Most of the change results from different levels of convertible debts between the two periods.

 

We had an increase in the amount of losses associated with the conversion of convertible debt. During the three months ended June 30, 2020, we had $9,819 of such losses and $6,256 of such losses for the same period in the previous year. The increase is associated with the renegotiation of conversion prices on several of the conversions.

 

During the three months ended June 30, 2020, we had a foreign exchange loss of $87,108 versus a gain of $8,399 during the same period in 2019, all of which are currency translation effects resulting from exchange rate differences between the U.S. and Australian dollars. The US Dollar lost approximately 12% in value against the Australian Dollar during the second quarter of 2020.

 

Our net comprehensive losses of $1,137,129 and $460,700 during the three months ended June 30, 2020 and 2019 are a result of the above items.

   

 
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 Liquidity and Capital Resources

 

Our financial statements have been prepared on a going concern basis that contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

 

At June 30, 2020, the Company had $16,201 in current assets and current liabilities totaling $2,456,682. We are currently seeking financing to attain our business goals, but there is no guarantee that we will obtain such financing or, upon obtaining it, that we will be able to invest in productive assets that will result in positive cash flows from operations.

 

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, recurring losses, and negative working capital at June 30, 2020. 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. Management intends to finance these deficits by making additional shareholder notes and seeking additional outside financing through either debt or sales of its common stock.

 

Plan of Operation

 

Our immediate term plans for operations is discussed extensively in Item 7 – Management’s Discussion and Analysis or Plan of Operation included in our Form 10-K as of December 31, 2019, filed with the Securities and Exchange Commission on March 30, 2020 and is herein incorporated by reference.

 

ITEM 3 - QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

A smaller reporting company is not required to provide the information required by this item.

 

ITEM 4 – CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.

 

We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

    

 
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Based upon the evaluation of our officers and directors of our disclosure controls and procedures as of June 30, 2020, the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), our Chief Executive Officer has concluded that as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. Our management concluded that our disclosure controls and procedures were not effective as a result of material weaknesses in our internal control over financial reporting. We are a small organization with only a few employees. Under these circumstances it is impossible to completely segregate duties. We do not expect our internal controls to be effective until such time as we are able to begin full operations and even then, there are no assurances that our disclosure controls will be adequate in future periods.

 

Change In Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

    

 
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PART II – OTHER INFORMATION

 

ITEM 1 – LEGAL PROCEEDINGS

 

We may be involved from time to time in ordinary litigation, negotiation and settlement matters that will not have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against us, other than that described in Note 7, or our officers and directors in their capacity as such that could have a material impact on our operations or finances.

 

ITEM 2 – UNREGISTERED SALE OF EQUITY SECURITIES

 

A portion of the securities were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), by reason of the exemption from registration afforded by the provisions of Section 4(a)(2) thereof, and Rule 506(b) of Regulation D promulgated thereunder, as a transaction by an issuer not involving any public offering. The investors did not enter into any of the transactions with the Company as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting. Each investor was also afforded the opportunity to ask questions of management and to receive answers concerning the terms and conditions of the transaction. No selling commissions were paid in connection with these transactions.

 

A portion of the securities were issued without registration under the Securities Act, by reason of the exemption from registration afforded by Rule 903 of Regulation S promulgated thereunder. In determining that the issuance of certain of such securities qualified for exemption in reliance on Regulation S, the Company relied on the following facts: each recipient represented that it is not a “U.S. Person” within the meaning of Regulation S under the Securities Act and that he, she or it would not sell the shares in the U.S. for a period of at least one year after purchase.

 

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

 

None

  

ITEM 4 – MINE SAFETY DISCLOSURES

 

Not applicable.

   

ITEM 5 – OTHER INFORMATION

 

On July 22, 2020, the Arizona Corporation Arknet Inc filed a Form 3 with the SEC disclosing itself as an affiliate of the Company as a result of its acquisition of 100% of the Company’s Series E Preferred stock under the terms of a technology license agreement issued to Tautachrome by Arknet on October 17, 2018 which license was disclosed in Tautachrome’s 10KA for FY 2018, filed on April 18, 2019.

   

 
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ITEM 6 - EXHIBITS

   

Exhibit No. 

Description of Exhibit

31.1*

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1**

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.

** Furnished herewith

   

 
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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

 

 

 

 

 

Date: August 12, 2020

By:

 /s/ Dr. Jon Leonard

 

 

 

Dr. Jon Leonard

Chief Executive Officer

 

    

  

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