Notes to Consolidated Financial Statements
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies
Organization and Nature of Business
History
Tautachrome, Inc. was formed in Delaware on June 5, 2006 as Caddystats, Inc. and hereinafter 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, uniquely exploiting the technologies of the Augmented Reality (AR) sector and the smartphone trusted imagery sector, with granted and pending patents in both sectors. The Company has completed development of a fully integrated mobile commerce app and platform, the ARknet app and platform, able to host consumers and their social interaction and businesses selling to those consumers, all facilitated by advanced 3D augmented reality interfaces for purchasing and interacting. In addition, we have high-speed blockchain technologies in development in support of frictionless sales, including supporting the creation and sale of blockchain tokens (NFTs) representing unique digital imagery assets owned by the Arknet platform participants. These technologies are being rolled out beginning in the US and aiming for a global operation.
The ARknet platform
The ARknet mobile platform is designed to provide a fully integrated and untethered mobile experience, where untethering means moving from the physical screen of a PC or mobile device to a virtual screen through our augmented reality technology. Fully integrated means consumers can seamlessly and intuitively reach any provider or any friend for any purpose without leaving the platform. Tautachrome’s MainSt campaign, kicked off in September 2020, was built to integrate the nation’s devasted small retail businesses onto the ARknet platform in such a way that with a single sign-on, a customer can buy from any business on the platform, achieving fast and seamless business integration across any number of businesses (https://mainst.shopping). And in Q1 2021 the ARknet app releases 1.8.2 through 1.8.6 completed the integration onto the platform of essential social features such as sharing, following, posting, meetups and chat, for a gentle marriage of business with social, and in addition added advanced 3D AR features.
Download the ARknet app for Android
https://play.google.com/store/apps/details?id=com.honeycombarchive.ARknet
Download the ARknet app for iOS
https://apps.apple.com/us/app/ARknet/id1466870072
Non fungible tokens (“NFTs”), a technology captured in the Company’s long standing patents
NFTs, tradeable blockchain tokens each representing a unique digital asset, are the new rage in the marketing of digital imagery. But to Tautachrome, blockchain NFTs are nothing new. Our patents teach capturing the uniqueness of digital imagery and certifying its authenticity with an Authentication Centric Entity, an ACE. When the ACE is a blockchain, the certificate of authenticity is a token on the blockchain, namely an NFT. Tautachrome’s ACE is the first fully described imagery certification system that reflects all the attributes of an NFT on a blockchain.
Dr. Jon N Leonard, Tautachrome CEO states “An NFT, being a tradeable asset that represents a real digital entity, is a trustable trading asset only to the extent that the entity it represents is secure and its unique identity is reliably authenticable. Unfortunately, in today’s hot NFT market, NFTs have been sold claiming to represent unique art, without any means for proving the authenticity of the claim. That is a sure way to destabilize the NFT market, and it is the reason that security and authenticity are built into the Company’s processes so as to automatically guarantee these crucial NFT features.” In an opinion provided to the Company, Benjamin Urcia, the Company’s patent attorney for nearly a decade, stated as follows regarding the Company’s three imagery authentication and validation patents: “The three authentication/validation patents each covers the concept of capturing and storing images in a way that enables subsequent verification of their authenticity and uniqueness. Although the term “non fungible token” was not coined at the time the authentication/validation patents were filed [2013], the patents cover method steps that are essential to the creation of any authenticable token that is used to verify a unique captured image, including tokens that are stored in a blockchain, that is, NFTs.”
Business avenues
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):
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1.
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KlickZie ARk technology business: The Company has licensed and is developing the augmented reality 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 its 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 using augmented reality as the medium of interaction connecting consumers to providers in the global household goods market now estimated at $52.8 trillion annually.
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2.
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KlickZie’s blockchain cryptocurrency-based ecosystem: The Company has developed its own digital currency (“KLK”), smart contracts using KLKs, high speed blockchain concepts aimed at supporting fast frictionless transactions within the ARknet, and NFTs representing unique digital assets that may be traded on the blockchain.
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3.
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KlickZie Activated Digital Imagery business: The Company is developing processes to exploit our patented KlickZie trusted imaging technology and our patented trusted image-based social interactions using the pictures and videos that smartphone users create. Trusted imagery and user imagery-based interactions are expected to be widely used within the ARknet.
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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.
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, 2020 and 2019.
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.
At December 31, 2020 and 2019, we had total liabilities of $2,512,664 and $2,237,946, respectively. Of this amount, only the derivative liabilities of $1,479,530 and 2,365,367, respectively ,were calculated using level 3 inputs. All other liabilities were calculated using level 1 inputs.
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 7 for our reconciliation of income tax expense and deferred income taxes as of and for the years ended December 31, 2020 and 2019.
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.
Note 2 – 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 $910,344 and $1,014,724 for the years ended December 31, 2020 and 2019, respectively, and have experienced recurring losses, and negative working capital at December 31, 2020 and 2019. 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 3 – Related Party Transactions
For the year ended December 31, 2020, we accrued $4,887 of interest to the 22nd Trust (the “Trust”), the trustee of whom is Sonny Nugent, the son of our former Chief Executive Officer, Micheal Nugent. The outstanding balances of unpaid principal and interest at December 31, 2020 and 2019 were $99,762 and $30,553, respectively.
Additionally, we owe the Trust $17,906 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%.
On July 11, 2019, our CEO and Board Chairman contributed $13,750 to the company 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:
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$200,000 for the calendar years 2020 and 2021
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$300,000 for the calendar years 2022 and 2023 and
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$400,000 for the calendar year 2024 and each subsequent calendar year during the term of the agreement.
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7.5% of net sales.
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As of December 31, 2020, we have accrued the $200,000 initial license and annual maintenance fees.
During the year ended December 31, 2019, the company entered into an arrangement with a ARknet whereby the holder of the Crypto-note was paid in common shares of Arknet. We reclassified the $100,000 Crypto-note to an advance by the Company to ARknet.
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, 2020, we accrued $60,000 pursuant to this employment agreement and owe him $95,000 of unpaid compensation at December 31, 2020.
Between October 1, 2019 and July 15,2020, we borrowed $610,500 from Arknet, a related party. On September 1, 2020, we retired all twelve Arknet convertible notes by issuing 290,397 F Series Convertible Preferred shares (see Note 4). We reduced our liability to Arknet in the amount of $610,500 in principal and $14,735 in interest.
At December 31, 2020, Accounts Payable – Related Party was comprised of the following:
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$95,000 of accrued salary owed to our Chief Executive Officer
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$400,000 due to Arknet. $300,000 of this amount was due to our technology lease obligations to them and $100,000 was due to the conversion of a crypto-note payable, written in 2018 and converted to Arknet debt in 2019
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$13,998 of unreimbursed expenses paid on behalf of the Company by the 22nd Trust in previous years.
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$1,315 of other accrued related-party expenses.
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At December 31, 2020, Loans from Related Parties was comprised of the following:
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A $5,000 advance to the Company in 2018 that has not been formalized into a promissory note.
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$80,107 of debts to Michael Nugent, our former Chief Executive Officer for conversion of 39,312 Convertible Preferred Class B shares in 2015.
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Cash Loans from the 22nd Trust in the amount of $19,655 made through 2015.
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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 $3,316 was recorded as additional paid-in capital for the year ended December 31, 2020. The Company evaluated Dr. Leonard’s note for the existence of a beneficial conversion feature and determined that none existed.
During the year ended December 31, 2019, we borrowed $2,218 from and repaid $64,874.12 to Dr. Leonard. At December 31, 2020, the balanced owed Dr. Leonard is $16,517.
We also owe $33,801, less discounts of $224 to another officer for loans he made to the company. The notes bear interest at 5% and may convert at $0.0025 per share.
Note 4 – Capital
Common Stock
During the year ended December 31, 2019, we issued 1,571,976,979 shares as follows:
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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.
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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.
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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.
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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.
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During the year ended December 31, 2020, we issued 616,014,358 shares as follows:
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We issued 560,931,025 shares in conversion of outstanding convertible promissory notes. We recorded a reduction of the balance of these notes of $770,081 of principal, $42,016 of interest, and recorded a loss on conversion of $37,267. As part of these conversions, we retired $782,972 of associated derivative liabilities which we included in Additional Paid in Capital.
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1,750,000 shares of common stock for $3,500 in cash.
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50,000,000 shares of common stock to settle the McRae lawsuit (see Note 6).
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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.
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Stocks Payable
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We maintain a stock payable for an individual who wished to convert to $2,142,857 shares but is delaying receipt for tax reasons. The dollar balance in the Stock Payable account for this individual is $10,586.12.
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We accrued $3,862.50 to a consultant pursuant to their contract with us. The total amount of shares due to this consultant at December 31, 2020 is 3,655,666 represented as $28,300 in stock payable.
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We accrued $98,575 to another consultant for development services. As of December 31, 2020, we owe 62,261,472 in stock represented by $247,075 in the Stock Payable account.
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We reduced our stock payable to Arknet in the amount of $1,837,000 by issuing 40,000 Preferred E shares.
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We accrued $20,000 to a consultant for services and subsequently traded them for 3,333,333 common shares.
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We accrued $4,563 for development-related activities. The dollar balances in the Stock Payable account at December 31, 2020 is $4,563. The number of shares convertible in indeterminable at this time.
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We retired $145,000 of a legal liability relating to the McRae affair (see Note 6) in exchange for 50,000,000 common shares.
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On July 11, 2019, our CEO and Board Chairman contributed $13,750 to the company which was accounted for as 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, 2020 and 2019, these amounted to $13,678 and $16,707, respectively.
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 issued in accordance with our ARknet contract (see Note 4) containing a par value of $0.0001. This series of preferred shares have the following rights, limitations, restrictions and privileges:
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They are not entitled to dividends,
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They are entitled to no liquidation rights,
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Each share has the voting rights of all other voting shares combined, multiplied by 0.00001, and
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They have no conversion or redemption rights.
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In September, 2020 we issued 290,397 Series F Preferred shares in retirement of twelve convertible promissory notes to Arknet. In so doing, we reduced our liability to them in the amount of $610,500 of principal and $14,735 in interest. Each share of Series F preferred is convertible into 1,000 shares of common stock. This series of preferred shares have the following rights, limitations, restrictions and privileges:
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They are not entitled to dividends unless all other classes of dividends have been paid,
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They are entitled to no liquidation rights, and
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Note 5 - Debt
Our debt in certain categories went from $3,934,795 at December 31, 2019 to $2,692,829 at December 31, 2020 as follows:
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12/31/20
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12/31/19
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Loans from related parties
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$
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104,762
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$
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103,032
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Convertible notes payable, related party
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50,094
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111,999
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Short-term convertible notes payable, net
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999,406
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814,685
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Convertible notes payable in default
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32,000
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32,000
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Short-term notes payable
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16,957
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15,465
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Court Judgment liability
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-
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250,000
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Derivative liability
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1,479,530
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2,365,367
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Long-term convertible notes payable, net
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-
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158,156
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Long-term convertible notes payable, related party
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10,080
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84,091
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Totals
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$
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2,692,829
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$
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3,934,795
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Loans from related parties
Loans from related parties consists of a $5,000 advance made by an officer of the Company and $99,762 owed to the Twenty-Second Trust.
We also owe $69,973 to another officer for loans he made to the company. The notes bear interest at 5% and may convert at $0.0025 per share.
Convertible notes payable
During the year ended December 31, 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:
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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. 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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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.
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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.
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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.
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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.
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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.
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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 $12,50. 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.
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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.
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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.
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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.
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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.
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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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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, 2020 we had the following debt activity:
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We issued ten convertible promissory notes to a Arknet, a related party, with aggregate proceeds of $488,000. The notes mature at various times during 2021 and bear interest at 5%. In September 2020, we issued 290,397 Series F Preferred Stock (See Note 4) in retirement of all ten of these promissory notes, plus two written in 2019 in the aggregate amount of $122,500.
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We issued two convertible promissory notes to a related party in the aggregate amount of $36,172 in exchange for expenses paid on behalf of the Company. The notes mature on October 2, 2021 and bear interest at 5% (rate upon default: 10%). These notes have a conversion price of $0.002 per share.
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On July 21, September 2 and December 10, 2020, we issued three convertible promissory notes in the aggregate amount of $660,000, receiving $600,000 in proceeds. The notes mature on July 27, September 2 and December 10, 2021 and bear interest at 8% (24% default rate). They are convertible at 63% of the lowest closing bid price during the twenty days preceding the conversion.
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At December 31, 2020, our convertible notes payable had the following balances:
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Gross
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Discount
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Net
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Convertible notes payable - related party
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50,318
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$
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(224
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)
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$
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50,094
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Short-term convertible notes payable
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1,487,919
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(488,513
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)
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999,406
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Convertible notes payable in default
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32,000
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-
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32,000
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Long-term convertible notes payable, related party
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36,172
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(26,092
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)
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10,080
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Totals
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$
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1,606,409
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|
$
|
(514,829
|
)
|
|
$
|
1,091,580
|
|
And was comprised of the following detail:
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Note No.
|
|
Description
|
|
Note Date
|
|
Maturity Date
|
|
Unpaid Principal
|
|
|
Discount
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107 Australian notes
|
|
Various
|
|
On demand
|
|
$
|
577,889
|
|
|
$
|
-
|
|
|
$
|
577,889
|
|
2701
|
|
Third party note
|
|
09/17/15
|
|
On demand
|
|
|
10,000
|
|
|
|
-
|
|
|
|
10,000
|
|
2703
|
|
Third party note
|
|
09/03/15
|
|
On demand
|
|
|
10,000
|
|
|
|
-
|
|
|
|
10,000
|
|
2704
|
|
Third party note
|
|
08/26/15
|
|
On demand
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
2707
|
|
Third party note
|
|
08/27/15
|
|
On demand
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
2709
|
|
Third party note
|
|
03/19/16
|
|
On demand
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
2713
|
|
Third party note
|
|
10/12/16
|
|
04/05/18
|
|
|
28,000
|
|
|
|
-
|
|
|
|
28,000
|
|
2714
|
|
Third party note
|
|
12/02/16
|
|
05/26/18
|
|
|
2,000
|
|
|
|
-
|
|
|
|
2,000
|
|
2715
|
|
Third party note
|
|
12/02/16
|
|
05/26/18
|
|
|
2,000
|
|
|
|
-
|
|
|
|
2,000
|
|
2716
|
|
Third party note
|
|
12/21/16
|
|
On demand
|
|
|
3,500
|
|
|
|
-
|
|
|
|
3,500
|
|
2721
|
|
Related-party note
|
|
10/13/17
|
|
On demand
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
2728
|
|
Related-party note
|
|
08/02/18
|
|
On demand
|
|
|
27,825
|
|
|
|
-
|
|
|
|
27,825
|
|
2729
|
|
Third party note
|
|
10/19/18
|
|
On demand
|
|
|
30,000
|
|
|
|
-
|
|
|
|
30,000
|
|
2731
|
|
Third party note
|
|
01/23/19
|
|
On demand
|
|
|
1,475
|
|
|
|
-
|
|
|
|
1,475
|
|
2732
|
|
Third party note
|
|
01/16/19
|
|
On demand
|
|
|
4,000
|
|
|
|
-
|
|
|
|
4,000
|
|
2733
|
|
Third party note
|
|
04/15/19
|
|
On demand
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
2734
|
|
Third party note
|
|
04/29/19
|
|
On demand
|
|
|
5,331
|
|
|
|
-
|
|
|
|
5,331
|
|
2735
|
|
Third party note
|
|
05/10/19
|
|
On demand
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
2736
|
|
Third party note
|
|
05/24/19
|
|
On demand
|
|
|
5,000
|
|
|
|
-
|
|
|
|
5,000
|
|
2740
|
|
Third party note
|
|
05/13/19
|
|
On demand
|
|
|
5,725
|
|
|
|
-
|
|
|
|
5,725
|
|
2743-1
|
|
Third party note
|
|
08/06/19
|
|
On demand
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
2743-2
|
|
Third party note
|
|
08/06/19
|
|
On demand
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
2743-3
|
|
Third party note
|
|
08/06/19
|
|
On demand
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
2745
|
|
Related-party note
|
|
10/18/19
|
|
On demand
|
|
|
974
|
|
|
|
(224
|
)
|
|
|
750
|
|
2752
|
|
Related-party note
|
|
04/02/20
|
|
On demand
|
|
|
18,848
|
|
|
|
(13,517
|
)
|
|
|
5,331
|
|
2753
|
|
Related-party note
|
|
04/02/20
|
|
On demand
|
|
|
17,324
|
|
|
|
(12,575
|
)
|
|
|
4,749
|
|
2760
|
|
Third party note
|
|
07/27/21
|
|
07/27/21
|
|
|
220,000
|
|
|
|
(178,425
|
)
|
|
|
41,575
|
|
2761
|
|
Third party note
|
|
09/02/20
|
|
09/02/21
|
|
|
220,000
|
|
|
|
(170,633
|
)
|
|
|
49,367
|
|
2762
|
|
Third party note
|
|
12/09/20
|
|
12/10/21
|
|
|
220,000
|
|
|
|
(139,455
|
)
|
|
|
80,545
|
|
2510
|
|
Related-party note
|
|
|
|
|
|
|
16,518
|
|
|
|
-
|
|
|
|
16,518
|
|
|
|
|
|
|
|
|
|
$
|
1,606,409
|
|
|
$
|
(514,829
|
)
|
|
$
|
1,091,580
|
|
During the year ended December 31, 2020 and 2019, we amortized $902,653 and $575,602, respectively of debt discounts to interest expense, accrued $102,659 and 117,035, respectively of interest and paid interest of $0 and $40,781, respectively on existing notes.
At December 31, 2020, $58,056 of our convertible notes payable were in default.
Convertible notes payable (excluding related-party convertible notes which is discussed in Note 3 and above) at December 31, 2020 and 2019 and their classification into long-term, short-term and in-default were as follows:
|
|
12/31/20
|
|
|
12/31/19
|
|
All convertible promissory notes
|
|
|
|
|
|
|
Unpaid principal
|
|
|
1,519,919
|
|
|
|
1,578,917
|
|
Discounts
|
|
|
(488,513
|
)
|
|
|
(574,076
|
)
|
Convertible notes payable, net
|
|
$
|
1,031,406
|
|
|
$
|
1,004,841
|
|
|
|
|
|
|
|
|
|
|
Classified as short-term
|
|
|
|
|
|
|
|
|
Unpaid principal balance
|
|
|
1,487,919
|
|
|
|
1,183,685
|
|
Discounts
|
|
|
(488,513
|
)
|
|
|
(369,000
|
)
|
Convertible notes payable - short-term, net
|
|
$
|
999,406
|
|
|
$
|
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
|
|
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.
Crypto-currency notes payable
On 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 nine months after issuance, participate in a price 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 participating in the offer at the lower price.
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.
Derivative liabilities
The above-referenced convertible promissory notes issued during the year ended December 31, 2019 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 September 30, 2019 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.
The Convertible Note derivatives were valued as of issuance; conversion; redemption/settlement; and each quarterly period from March 31, 2018 through December 31, 2020. The following assumptions were used for the valuation of the derivative liability related to the Notes:
|
·
|
The stock price of $0.00830 to $0.00630 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 37% 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 111.0% – 185% (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 twenty instruments issued during the year ended December 31, 2019 range from 7% to 564%. The effective interest rates for the fifteen instruments issued during the year ended December 31, 2020 range from 7% to 345%.
At each reporting date, we determine the fair market value for each derivative associated with each of the above instruments. At December 31, 2020, we determined the fair value of these derivatives were $1,479,530.
Changes in outstanding derivative liabilities are as follows:
Balance, December 31, 2019
|
|
$
|
2,365,367
|
|
Changes due to new issuances
|
|
|
742,775
|
|
Changes due to extinguishments
|
|
|
(1,844,424
|
)
|
Changes due to adjustment to fair value
|
|
|
215,812
|
|
Balance, December 31, 2019
|
|
$
|
1,479,530
|
|
Note 6 – Litigation Gains and Losses
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 7 – Income Taxes
Deferred income taxes reflect the tax consequences on future years of differences between the tax bases:
|
|
12/31/20
|
|
|
12/31/19
|
|
Net operating loss carry-forward
|
|
$
|
6,114,681
|
|
|
$
|
4,579,500
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
$
|
1,284,083
|
|
|
$
|
961,695
|
|
Valuation allowance
|
|
|
(1,284,083
|
)
|
|
|
(961,695
|
)
|
Net future income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred taxes for 2020 and 2019 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 8 – Subsequent Events
In February, 2021, we issued a convertible promissory note in the amount of $220,000, receiving $200,000 of proceeds.
As of March 17, 2021, we issued 123,131,169 common shares in partial retirement of a convertible note.