The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2017
Note 1 – Organization and Nature of Business
History
Tautachrome, Inc. (formerly Roadships Holdings, Inc.) was formed in Delaware on June 5, 2006 as Caddystats, Inc. (Tautachrome, Inc. and hereinafter be collectively referred to as “Tautachrome”, the “Company”, “we’ or “us”).
The Company adopted the accounting acquirer’s year end, December 31.
Our Business
The Company operates in the internet applications space, a space uniquely able to embrace fast growing and novel business. The iPhone, Google, Facebook, Amazon, Twitter, Android, Uber and numerous other examples are reminders of the ability of the internet applications space to surprise us with the arrival –seemingly from out of nowhere- of wholly new business universes.
The Company is developing a system branded “KlickZie” aimed at turning smartphones, including iPhones, Android phones and other smartphones, into trustable imagers and advanced communicators. The pictures and videos from trustable imager can be trusted to be the original, untampered, un-Photoshopped pictures and videos made by the smartphone, and in addition the pictures and videos themselves become advanced communicators, able to be used as living, trusted portals to communicate with others.
The KlickZie system concept consists of downloadable software able to securitize the imaging process in the smartphone, together with an advanced cloud system to authenticate KlickZie pictures and videos and to make possible imagery based communication among people who happen upon KlickZie pictures and videos.
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 ending March 31, 2017. 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, 2015, as reported in Form 10-K filed with the Securities and Exchange Commission on April 19, 2017.
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.
Property, Plant and Equipment
We record our property plant and equipment at historical cost. The estimated useful lives of these assets range from three to seven years and are depreciated using the straight-line method over the asset’s useful life.
Foreign Currency Risk
We currently have two subsidiaries operating in Australia. At March 31, 2017 and December 31, 2016, we had $27 and $0 Australian Dollars, respectively ($21 and $0 US Dollars, respectively) deposited into Australian banks.
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.
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 months ended March 31, 2017 and 2016 as the effect of our potential common stock equivalents would be anti-dilutive.
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment" (“ASU 2017-04”). The new standard simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill quantitative impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The standard is effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted. The Company early adopted ASU 2017-04 on January 1, 2017.
Note 3 – Going Concern
We have not begun our core operations in the technology industry and have not yet acquired the assets to enter this markets and we will require additional capital to do so. There is no guarantee that we will acquire the capital to procure the assets to enter this markets or, upon doing so, that we will generate positive cash flows from operations. 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.
Note 4 – Related Party Transactions
For the year ended December 31, 2016, we had the following transactions with the Twenty Second Trust (the "Trust"), the trustee of whom is Tamara Nugent, the wife of our major shareholder and former Chief Executive Officer, Micheal Nugent:
|
·
|
We received $18,331 in cash loans to pay operating expenses and repaid no principal.
|
|
|
|
|
·
|
We accrued $4,400 in interest payable to the Trust and paid no interest payments.
|
|
|
|
|
·
|
The outstanding balance at December 31, 2016 to the 22nd Trust was $98,344 and $11,035 for principal and interest, respectively, after adjustments for foreign exchange effect.
|
For the three months ended March 31, 2017, we received $151 in cash loans from the 22
nd
Trust. At March 31, 2017, we owed $99,583 and $12,519 in principal and interest to the Trust, 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%.
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 Jon as Jon 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 $960 was recorded as additional paid-in capital for the three months ended March 31, 2017. The Company evaluated Dr. Leonard’s note for the existence of a beneficial conversion feature and determined that none existed.
During the three months ended March 31, 2017, we received $10,000 in related-party loans from our Board Chairman and CEO, Dr. Jon Leonard, and repaid $1,000 in principal. At March 31, 2017, we owed Dr. Leonard $58,160.
Note 5 – Capital
On January 15, 2016 we issued 13,000,000 common shares to acquire all of the members’ interests in Photosweep, LLC. We valued the common stock at the grant date fair value, and included this amount in our acquisition cost of $353,600, or $0.027 per share.
On January 1, 2016, we re-negotiated certain convertible promissory notes with certain creditors in order to remove the provisions in the notes which caused of a derivative liability. We recorded this renegotiation by removing the derivative liability at December 31, 2015 and recording an increase to Additional Paid in Capital of $18,760.
In October, 2016, we issued 51,666,667 common shares to convert $60,000 of convertible notes payable, and $604 in accrued interest, to common stock.
In November, 2016, we received a Notice of Conversion from a holder of a US Dollar denominated convertible promissory note requesting a conversion of the outstanding principal and interest into the convertible amount of 2,142,857 common shares . We recorded a reduction of principal and interest of $10,000 and $586 of accrued interest, respectively, and we recorded an offsetting common stock payable in the amount of $10,586.
During the three months ended March 31, 2017, we issued 8,493,243 shares in conversion of two outstanding convertible promissory notes. We recorded a reduction of the balance of such notes of $37,822 and $15,959, respectively. We recognized no gain or loss on their conversions.
Also, during the three months ended March 31, 2017, we issued 6,450,000 shares to two consultants pursuant to our agreements with them. We valued the shares at their grant-date fair values and recorded expense of $79,215.
At March 31, 2017 and December 31, 2016, we had 1,678,732,960 and 1,672,789,717 common shares issued and outstanding, respectively, from a total of four billion authorized.
Preferred Stock
On September 29, 2016, the Company’s principal shareholders (“Principals”), Dr. Jon N. Leonard, Micheal P. Nugent, and Matthew W. Staker, offered to retire 1,379,510,380 of their common shares in exchange for a new series of non-trading preferred shares.
On October 5, 2016, the Board of Directors voted to accept the share retirement offer, and on October 20, 2016, the Company filed a Certificate of Designations with the State of Delaware creating 13,795,104 shares of Series D Preferred Stock (the “Preferred Shares”) to effect the exchange.
Share Exchange ratio and Preservation of Voting Rights
In the share exchange, each principal received 1 Preferred Share for each 100 common shares retired Each share of Preferred Shares entitles the holder to 100 votes (and each 1/100
th
of a Preferred Share entitles the holder to one vote).
Conversion Rights
A holder may convert Preferred Shares to common under the following conditions:
Automatic conversion – each Preferred Share automatically converts to 100 common shares upon the earlier of
|
·
|
The end of 5 years (5:00 PM EST, October 5, 2021), or
|
|
·
|
A change of control
|
Optional conversion - After October 5, 2017, each holder may convert each share into 100 shares of common stock immediately following a period of ten consecutive trading days during which the average closing or last sale price exceeds $3.00 per share. Also, each holder may convert into 110 shares of common stock at any time that the shares are listed on a National exchange (for example, the NYSE or NASDAQ).
Related-Party Stock Exchange
On October 27, 2016, the Company entered into the above outlined Share Exchange Agreement with related-parties
Common stock ownership structure immediately before and after execution of the Share Exchange Agreement was as follows:
|
|
Common Stock Ownership
|
|
|
|
Immediately Before
|
|
|
Effect of
|
|
|
Immediately After
|
|
|
|
Shares
|
|
|
%
|
|
|
Agreement
|
|
|
Shares
|
|
|
%
|
|
Jon Leonard, PhD
|
|
|
1,387,829,545
|
|
|
|
46.5
|
%
|
|
|
(1,009,330,578
|
)
|
|
|
378,498,967
|
|
|
|
23.5
|
%
|
Micheal Nugent
|
|
|
620,756,473
|
|
|
|
20.8
|
%
|
|
|
(92,613,893
|
)
|
|
|
528,142,580
|
|
|
|
32.8
|
%
|
Matthew Staker
|
|
|
346,957,386
|
|
|
|
11.6
|
%
|
|
|
(277,565,909
|
)
|
|
|
69,391,477
|
|
|
|
4.3
|
%
|
Robert McClelland
|
|
|
8,403,524
|
|
|
|
0.3
|
%
|
|
|
-
|
|
|
|
8,403,524
|
|
|
|
0.5
|
%
|
Patrick Greene
|
|
|
2,093,080
|
|
|
|
0.1
|
%
|
|
|
-
|
|
|
|
2,093,080
|
|
|
|
0.1
|
%
|
Non Affiliates
|
|
|
621,593,422
|
|
|
|
20.8
|
%
|
|
|
-
|
|
|
|
621,593,422
|
|
|
|
38.7
|
%
|
Totals
|
|
|
2,987,633,430
|
|
|
|
100.0
|
%
|
|
|
(1,379,510,380
|
)
|
|
|
1,608,123,050
|
|
|
|
100.0
|
%
|
Imputed Interest
Certain of our promissory notes bear no nominal interest. We therefore imputed interest expense and increase Additional Paid in Capital. For the three months ended March 31, 2017, we imputed $960 of such interest.
Beneficial Conversion Features
As discussed in Note 6, we issued certain promissory notes in the United States containing beneficial conversion features. During the three months ended March 31, 2017, we recorded and increase in Additional Paid in Capital of $22,040. We account for these Beneficial Conversion Features as debt discounts and amortize using the Effective Interest Method.
Note 6 – Debt
Loans from related parties
As is discussed in Note 4, we owed $170,262 in related-party debts consisting of $99,583 and 12,519 unpaid principal and interest, respectively, to the 22
nd
Trust and $58,160 owed to our CEO, Dr. Jon Leonard.
Convertible notes payable
During the year ended December 31, 2016, we borrowed $193,164 from 26 accredited investors in Australia. These promissory notes can be converted into shares of our common stock at the rate of AU$0.01 per share (the aggregate of which shares convertible for all outstanding Australian convertible notes at December 31, 2016 is 82,873,300). These notes are callable by the makers at any time and accrue interest at 5%. For the year ended December 31, 2016, we accrued $29,343 of interest on these notes and made no interest payments. We evaluated these notes for beneficial conversion features and calculated a value of $147,965, all of which has been immediately expensed as interest expense as the notes are due on demand.
Also during the year ended December 31, 2016, we issued four convertible promissory notes to four accredited investors in exchange for $109,758 in cash. These promissory notes can be converted into shares of our common stock at various separately-negotiated rates (the aggregate of which shares convertible for all outstanding USA convertible notes at December 31, 2016 is 28,473,915).
We evaluated these notes for beneficial conversion features and calculated a value of $77,852 which we are accounting for as debt discounts.
On January 1, 2016, we re-negotiated the eight U.S.-Dollar-denominated promissory notes that were outstanding at December 31, 2015, in order to remove the ratchet provisions which required that we account for those provisions as a derivative liability. The fair value of the derivative liability was the same at January 1, 2016 as it was on December 31, 2015 which was $23,812.
However, in so renegotiating, we granted the creditors new, lower conversion prices, which resulted in new beneficial conversion features of $110,000.
During the year ended December 31, 2016, we amortized $106,628 of debt discounts on convertible promissory notes originating in the United States to interest expense.
The aggregate amount of shares that may be issued upon conversion for convertible notes issued in both Australia and the Unites States is 111,347,215.
One of the eight accredited investors included in the above paragraph is the brother of our Board Chairman and Chief Executive Officer, Dr. Jon Leonard. This $5,000 related-party convertible promissory note is dated August 9, 2015, matures on February 26, 2017, pays interest at 5%, and may convert into 1,020,408 common shares.
Convertible notes payable at March 31, 2017 and December 31, 2016 and their classification into long-term and short-term were as follows:
|
|
03/31/17
|
|
|
12/31/16
|
|
Long-term and short-term combined
|
|
|
|
|
|
|
Unpaid principal
|
|
$
|
759,570
|
|
|
$
|
747,129
|
|
Discounts
|
|
|
(76,680
|
)
|
|
|
(75,927
|
)
|
Convertible notes payable, net
|
|
$
|
682,890
|
|
|
$
|
671,202
|
|
|
|
|
|
|
|
|
|
|
Classified as short-term
|
|
|
|
|
|
|
|
|
Unpaid principal balance
|
|
$
|
642,272
|
|
|
$
|
597,371
|
|
Discounts
|
|
|
(394
|
)
|
|
|
(13,697
|
)
|
Convertible notes payable - short-term, net
|
|
$
|
641,878
|
|
|
$
|
583,674
|
|
|
|
|
|
|
|
|
|
|
Classified as long-term
|
|
|
|
|
|
|
|
|
Unpaid principal balance
|
|
$
|
117,298
|
|
|
$
|
149,758
|
|
Discounts
|
|
|
(76,286
|
)
|
|
|
(62,230
|
)
|
Convertible notes payable - long-term, net
|
|
$
|
41,012
|
|
|
$
|
87,528
|
|
Convertible promissory notes issued in Australia
During the three months ended March 31, 2017, we had one creditor convert to common stock. We issued 5,250,000 common shares and extinguished $37,822 and $2,049 in interest, respectively and recognized no gain or loss other than a $386 foreign exchange effect.
We accrued $6,171 of nominal interest on these notes for the three months ended March 31, 2017.
Australian convertible notes payable can convert to 77,873,300 common shares in the aggregate.
Convertible promissory notes issued in the United States
All convertible promissory notes issued in the United States bear interest at 5%, and contain conversion privileges which vary depending upon the date issued, but they may convert to an aggregate of 29,816,628 common shares.
During the three months ended March 31, 2017, we received $22,040 in loans pursuant to a convertible promissory note issued in 2016 on which the Company and the creditor agreed, on December 31, 2016, to extend the note to additional amounts paid to the Company by the creditor, inheriting the conversion and interest privileges from the original convertible promissory note. We evaluated this tranche of funding for beneficial conversion features and calculated a value of $22,040 which we are accounting for as debt discounts.
Also during the three months ended March 31, 2017, we received $4,000 on a previously-existing promissory note, written in 2016, for which a creditor had not contributed the full amount. All evaluations for the existence of Beneficial Conversion Features for the full value of this creditor’s note were performed in 2016.
During the three months ended March 31, 2017, we converted no U.S. convertible promissory notes. However, we issued 2,500,000 to retire an interest payable in the amount of $2,374.
Short-term portion of long-term debt
As discussed in the Long-term notes payable section of this Note, in 2016 we converted a trade account payable balance with a consultant in the amount of $34,250 to a three-year amortizing promissory note. The short-term portion of that note which is due in twelve months or less, is $11,172.
Short-term notes payable
Short-term notes payable increased from $15,858 to $16,803 which was all due to foreign exchange effect as of March 31, 2017.
Long-term notes payable
On August 9, 2016, we converted a trade account payable balance with a consultant in the amount of $34,250 to a three-year amortizing promissory note with interest at 5%, but accrues at 18% for amounts in default. As of March 31, 2017, we accrued a total of $921 and paid a total of $800 in interest and paid a total of $5358 in principal. The remaining principal balance is presented on the balance sheet in two components: the portion that is due within twelve months ($11,172) and the portion which is due in periods after twelve months ($17,720).
Note 7 – Income Taxes
Deferred income taxes reflect the tax consequences on future years of differences between the tax bases:
|
|
3/31/17
|
|
|
12/31/16
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
|
4,214,417
|
|
|
|
4,048,660
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset at 39%
|
|
$
|
1,643,623
|
|
|
$
|
1,578,977
|
|
Valuation allowance
|
|
|
(1,643,623
|
)
|
|
|
(1,578,977
|
)
|
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 8 – Subsequent Events
We have evaluated subsequent events through the date of this report.