Notes to Consolidated Financial Statements
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
Tautachrome operates in the internet applications space, a large space we believe to be uniquely able to make possible fast growing and novel business. The iPhone, Google, Facebook, Amazon, Twitter, Android, Uber and numerous other examples are reminders of the ability of the internet applications space to surprise us with new business universes out of nowhere. A recent surprise was the arrival in the internet applications space of blockchain technology, which is empowering enterprises of all sizes to create ecosystems of trade based on self-introduced and globally useable cryptocurrencies. The arrival of blockchain technology has added a significant new and leading element to Tautachrome’s business plans and activities.
Tautachrome is currently pursuing two main avenues of business activity based on our patented imaging technology (branded “
KlickZie
” technology):
|
1.
|
KlickZie’s blockchain cryptocurrency based ecosystem:
our recently added activity to create our own KlickZie blockchain and cryptocurrency to incentivize user download of KlickZie products and to provide a crypto based monetary stream to the Company, and
|
|
|
|
|
2.
|
KlickZie technology-based business
: our longstanding flagship activity to develop and monetize downloadable apps based on our patented KlickZie trusted imaging technology and based on our patented trusted image-based social interactions using the pictures and videos that smartphone users generate on the web using their KlickZie imaging app.
|
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The Company’s financial statements are presented in accordance with accounting principles generally accepted (GAAP) in the United States. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein.
Principles of Consolidation
Our consolidated financial statements include Tautachrome, Inc. and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
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, 2017 and 2016.
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.
The following table presents assets and liabilities that were measured and recognized at fair value as of December 31, 2017 on a recurring basis:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Gains
(Losses)
|
|
Accounts payable and accrued expenses
|
|
$
|
356,213
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Accounts payable - related party
|
|
|
15,515
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loans from related parties
|
|
|
100,033
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Convertible notes payable - related party
|
|
|
101,160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Short-term convertible notes payable, net
|
|
|
712,803
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Convertible notes payable in default
|
|
|
95,798
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Short-term notes payable
|
|
|
17,191
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Court judgment liability
|
|
|
54,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,372,668
|
|
Long-term convertible notes payable, net
|
|
|
5,413
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
TOTAL LIABILITIES
|
|
$
|
1,458,126
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,372,668
|
|
The following table presents assets and liabilities that were measured and recognized at fair value as of December 31, 2016 on a recurring basis:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total Gains
(Losses)
|
|
Accounts payable and accrued expenses
|
|
$
|
275,760
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Accounts payable - related party
|
|
|
25,486
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loans from related parties
|
|
|
99,434
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Convertible notes payable - related party
|
|
|
49,160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Short-term convertible notes payable, net
|
|
|
583,674
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Short-term notes payable
|
|
|
15,858
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Court judgment liability
|
|
|
2,382,374
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,382,374
|
)
|
Short-term portion of long-term debt
|
|
|
11,034
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Long-term convertible notes payable, net
|
|
|
87,528
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Long-term notes payable
|
|
|
19,659
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
TOTAL LIABILITIES
|
|
$
|
3,549,967
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(2,382,374
|
)
|
Income Taxes
We recognize deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates that are expected to be in effect when the differences are expected to be recovered. We provide a valuation allowance for deferred tax assets for which we do not consider realization of such assets to be more likely than not.
See Note 9 for our reconciliation of income tax expense and deferred income taxes as of and for the years ended December 31, 2017 and 2016.
Recent Accounting Pronouncements
In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory (“ASU 2016-16”), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ASU 2016-06 will be effective for the Company in its first quarter of 2019.
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplified certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification on the statement of cash flows. ASU 2016-09 will be effective for the Company beginning in its first quarter of 2018.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. ASU 2016-02 will be effective for the Company beginning in its first quarter of 2020, and early adoption is permitted.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 will be effective for the Company beginning in its first quarter of 2019.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which modifies the measurement of expected credit losses of certain financial instruments. ASU 2016-13 will be effective for the Company beginning in its first quarter of 2021 and early adoption is permitted. The Company does not believe the adoption of ASU 2016-13 will have a material impact on its consolidated financial statements.
The new revenue standards may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company currently expects to adopt the new revenue standards in its first quarter of 2018 utilizing the full retrospective transition method.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The new standard simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill quantitative impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The standard is effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted. The Company early adopted ASU 2017-04 on January 1, 2017.
In January 2017, the FASB issued ASU 201701, Business Combinations (Topic 805); Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business to help companies evaluate whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The amendments in this update are effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. We are evaluating the impact of adopting this guidance on our Consolidated Financial Statements.
In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 201711, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 47020, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
The adoption of these standards is not expected to have a material impact on our financial position or results of operations.
Note 3 – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, we had negative cash flows from operations of $159,416 and $320,156 for the years ended December 31, 2017 and 2016, respectively, recurring losses, and negative working capital at December 31, 2017 and 2016. These conditions raise substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
The Company may raise additional capital through the sale of its equity securities, through an offering of debt securities, or through borrowings from financial institutions or related parties. Management believes that actions presently being taken to obtain additional funding may provide the opportunity for the Company to continue as a going concern. There is no guarantee the Company will be successful in achieving these objectives.
Note 4 – Related Party Transactions
For the years ended December 31, 2017 and 2016, we had the following transactions with the Twenty Second Trust (the “Trust”), the trustee of whom is Sonny Nugent, the son of our major shareholder and former Chief Executive Officer, Micheal Nugent:
|
·
|
We received $0 and $18,331, respectively, in cash loans to pay operating expenses and repaid $0 in principal for both years.
|
|
|
|
|
·
|
We accrued $4,924 and $4,400, respectively, in interest payable to the Trust and paid $0 of interest for both years.
|
|
|
|
|
·
|
The outstanding balance at December 31, 2017 to the 22
nd
Trust was $100,033 and $16,012 for principal and interest, respectively, after adjustments for foreign exchange effect.
|
According to our agreement with Mr. Nugent, we accrue interest on all unpaid amounts at 5%. Principal and interest are callable at any time. If principal and interest are called and not repaid, the loan is considered in default after which interest is accrued at 10%.
The outstanding balance to the 22
nd
Trust at December 31, 2016 was $98,344 and $11,035 in principal and interest, respectively.
On May 5, 2013 (and on August 8, 2013 with an enlargement amendment) the Company entered into a no interest demand-loan agreement with our current Chairman, Jon N. Leonard under which the Company may borrow such money from Mr. Leonard as he, in his sole discretion, is willing to loan. During the years ended December 31, 2017 and 2016, the Company borrowed $53,000 and $27,000, respectively, and owed to Mr. Leonard $101,160 and $49,160 at December 31, 2017 and 2016, respectively.
The terms of the note provide that at the Company’s option, the Company may make repayments in stock, at a fixed share price of $1.00 per share. Also, because this loan is a no interest loan an imputed interest expense of $5,023 and $3,199 was recorded as additional paid-in capital for the years ended December 31, 2017 and 2016, respectively. The Company evaluated Dr. Leonard’s note for the existence of a beneficial conversion feature and determined that none existed.
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. On October 27, 2016, the Company redeemed 1,379,510,380 common shares by issuing 13,795,104 Preferred Stock Series D Shares to three major shareholders (see Note 5).
Note 5 – Capital Structure
Common Stock
At December 31, 2015, we had 2,987,633,430 common shares issued and outstanding from a total of four billion authorized.
On January 15, 2016 we issued 13,000,000 common shares to acquire all of the members’ interests in PhotoSweep, LLC. We valued the common stock at the grant date fair value, and included this amount in our acquisition cost of $353,600, or $0.027 per share.
As further discussed in Note 6, on January 1, 2016, we re-negotiated certain convertible promissory notes with certain creditors in order to remove the provisions in the notes which caused the derivative liability. We recorded this renegotiation by removing the derivative liability at December 31, 2015 and recording an increase to Additional Paid in Capital of $18,760.
In October, 2016, we issued 51,666,667 common shares to convert $60,000 of convertible notes payable, and $604 in accrued interest, to common stock.
In November, 2016, we received a Notice of Conversion from a holder of a US Dollar denominated convertible promissory note requesting a conversion of the outstanding principal and interest into the convertible amount of 2,142,857 common shares . We recorded a reduction of principal and interest of $10,000 and $586 of accrued interest, respectively, and we recorded an offsetting common stock payable in the amount of $10,586.
During the year ended December 31, 2017, we issued 8,493,243 common shares to convert $49,249 of convertible notes payable, and $4,916 in accrued interest, to common stock.
Also during the year ended December 31, 2017, we issued 6,700,000 common shares to four consultants for services. We valued the shares at their grant date fair values, charging general and administrative expenses with $84,329.
On October 5, 2017, we received 2,041,324 shares back into the treasury from a consultant. These shares were gifted to the consultant by a major shareholder. We recorded the receipt of these shares at par value.
On October 16, 2017, we signed a consulting agreement to aide us in developing our blockchain-based cryptotokens in five stages, with 700,000 shares accruing at the completion of each stage. Phase 1 was completed on December 12, 2017. We therefore accrued those 700,000 shares at the date they were earned, charging general and administrative expense $12,600.
Preferred Stock
On September 29, 2016, the Company’s principal shareholders (“Principals”), Dr. Jon N. Leonard, Micheal P. Nugent, and Matthew W. Staker, offered to retire 1,379,510,380 of their common shares in exchange for a new series of non-trading preferred shares.
On October 5, 2016, the Board of Directors voted to accept the share retirement offer, and on October 20, 2016, the Company filed a Certificate of Designations with the State of Delaware creating 13,795,104 shares of Series D Preferred Stock (the “Preferred Shares”) to effect the exchange.
Share Exchange ratio and Preservation of Voting Rights
In the share exchange, each principal received 1 Preferred Share for each 100 common shares retired Each share of Preferred Shares entitles the holder to 100 votes (and each 1/100
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
|
%
|
Fair Values
The closing price of the common stock on the date of the Share Exchange Agreement was $0.019, resulting in a valuation of the common stock of $26,210,697. We determined that the fair value of the Series D Preferred Shares was $27,299,028 using the following inputs:
|
1.
|
The common stock price was $0.019;
|
|
|
|
|
2.
|
A change of control having a 20% likelihood in 2018 and 2019 each, triggering an automatic conversion of 100 common shares per Series D preferred shares;
|
|
|
|
|
3.
|
The Company obtaining a NASDAQ/NYSE listing estimated at 10% in 2017, 50% in 2018 and 50% in 2019 triggering a conversion at 110 common shares per Series D preferred share;
|
|
|
|
|
4.
|
The Company’s stock price was modeled using geometric Brownian motion with a volatility of 279% volatility (based on the Company’s historical volatility);
|
|
|
|
|
5.
|
The common shares exchanged for the Series D preferred were valued based on the quoted market price on the date of exchange;
|
We therefore recorded a loss on the exchange of $1,088,331 computed as the difference between the value of the common and preferred shares.
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, 2017 and 2016, these amounted to $18,678 and $13,274, respectively.
Beneficial Conversion Features of Convertible Promissory Notes
During the year ended December 31, 2016, we borrowed $193,164 from 26 accredited investors in Australia (see Note 6) which contained features allowing the holder to convert the principal and accumulated interest into common stock. We evaluated these notes for beneficial conversion features and calculated a value of $147,965, all of which has been immediately expensed as interest expense as the notes are due on demand.
During the year ended December 31, 2016, we borrowed $109,758 from four accredited investors in the United States (see Note 6). These notes contain features which allow the holder to convert the principal and interest into common stock at various negotiated rates. We evaluated these notes for beneficial conversion features and calculated a value of $187,851, which is accounted for as debt discounts.
During the year ended December 31, 2017, we borrowed $213,040 from five accredited investors in the United States (see Note 6). These notes contain features which allow the holder to convert the principal and interest into common stock at various negotiated rates. We evaluated these notes for beneficial conversion features and calculated a value of $209,040, which is accounted for as debt discounts.
At December 31, 2017, all outstanding convertible promissory notes issued in Australia can convert to an aggregate of 77,873,300 shares of common stock. All convertible promissory notes issued in the United States can convert to 104,616,628 shares for a total potential dilution of 182,489,928 shares.
Note 6 - Debt
Our debt in certain categories went from $3,243,424 at December 31, 2016 to $1,086,398 at December 31, 2017 as follows:
|
|
12/31/17
|
|
|
12/31/16
|
|
Loans from related parties
|
|
$
|
100,033
|
|
|
$
|
99,434
|
|
Convertible notes payable, related party
|
|
|
101,160
|
|
|
|
49,160
|
|
Short-term convertible notes payable, net
|
|
|
705,303
|
|
|
|
583,674
|
|
Convertible notes payable in default
|
|
|
103,298
|
|
|
|
-
|
|
Short-term notes payable
|
|
|
17,191
|
|
|
|
15,858
|
|
Court Judgment liability
|
|
|
54,000
|
|
|
|
2,382,374
|
|
Long-term notes payable (short term portion)
|
|
|
-
|
|
|
|
11,034
|
|
Long-term notes payable (long term portion)
|
|
|
-
|
|
|
|
19,659
|
|
Long-term convertible notes payable
|
|
|
5,413
|
|
|
|
82,231
|
|
Totals
|
|
$
|
1,086,398
|
|
|
$
|
3,243,424
|
|
See Note 4 for a discussion of our related-party debts, including the first two entries in the above table.
Convertible notes payable
During the year ended December 31, 2016, we borrowed $193,164 from 26 accredited investors in Australia. These promissory notes can be converted into shares of our common stock at the rate of AU$0.01 per share. These notes are callable by the makers at any time and accrue interest at 5%. For the year ended December 31, 2016, we accrued $29,343 of interest on these notes and made no interest payments. We evaluated these notes for beneficial conversion features and calculated a value of $147,965, all of which has been immediately expensed as interest expense as the notes are due on demand.
Also during the year ended December 31, 2016, we issued four convertible promissory notes to four accredited investors in exchange for $109,758 in cash. These promissory notes can be converted into shares of our common stock at various separately-negotiated rates.
We evaluated these notes for beneficial conversion features and calculated a value of $77,852 which we are accounting for as debt discounts.
On January 1, 2016, we re-negotiated the eight U.S.-Dollar-denominated promissory notes that were outstanding at December 31, 2015, in order to remove the ratchet provisions which required that we account for those provisions as a derivative liability. The fair value of the derivative liability was the same at January 1, 2016 as it was on December 31, 2015 which was $23,812.
However, in so renegotiating, we granted the creditors new, lower conversion prices, which resulted in new beneficial conversion features of $110,000.
During the year ended December 31, 2016, we amortized $106,628 of debt discounts on convertible promissory notes originating in the United States to interest expense.
During the year ended December 31, 2017 we issued seven new convertible promissory notes in the amount of $213,040, receiving proceeds therefrom of the same amount. These convertible notes can convert to common stock at various different prices. We evaluated these convertible notes for beneficial conversion features and calculated a collective value of $209,040 which we are accounting for as debt discounts.
During the year ended December 31, 2017, we amortized $138,668 of debt discounts to interest expense.
Also during the year ended December 31, 2017, we converted two outstanding convertible notes payable to common stock, reducing principal owed by $49,249.
At December 31, 2017, $95,798 of our convertible notes payable were in default.
Court Judgment Liability
Our Court Judgment Liability was reduced to $54,000 from $2,382,374 as a result of the setting aside of the previously-issued default judgment in the Morgan matter and the inclusion of a $49,000 accrual in the McRae matter (See Note 8).
Long-Term Notes Payable
Our long-term notes payable (both long-term and short term portions) went from $30,693 at December 31, 2016 to $0 as this debt was paid in full during the year ended December 31, 2017.
Short-Term Notes Payable
Short-term notes payable went from $15,858 at December 31, 2016 to $17,191 at December 31, 2017 owing entirely to exchange rate fluctuations.
Note 7 – Asset Acquisition
Acquisition of PhotoSweep, LLC
On January 15, 2016, we acquired the PhotoSweep asset (“PhotoSweep”), which we accounted for as an asset purchase. PhotoSweep’s assets at the point of purchase consisted only of a business plan.
Under the terms of the Acquisition, the Registrant paid $39,000 and issued 13,000,000 shares of its common stock to acquire PhotoSweep from Jeremy Snyder, Sara Snyder, Richard and Candice Snyder, Quazar Enterprises Limited and Carrington Capital Group Limited.
We valued the common stock at the grant date fair value, and recorded an acquisition cost of $353,600, or $0.027 per share.
As of December 31, 2016, we amortized $92,862 to expense and at December 31, 2016 we recorded an asset impairment of $299,738 as a result of the Company’s annual impairment review.
Note 8 – Litigation Gains and Losses
Morgan Lawsuit
Background
The May 21, 2015 merger of the Company with Click Evidence, Inc. (“Click”) resulted in the transfer of Click’s assets and interests from Click to the Company and in Click becoming an asset-less shell inside the Company and then being disposed of on November 25, 2015. In the November 25, 2015 conveyance of the Click to the new owner, its name was changed to BH Trucking, Inc. (“BH”).
Filing and service
A first lawsuit was filed in the Superior Court of the State of Arizona, Pima County, by a former consultant to Click, Richard Morgan (“Morgan”). This lawsuit was served on December 2, 2015, against Click/BH, with the Company also named in the lawsuit, but not served by it or effectively made aware of it until 2017.
Allegation
The lawsuit claimed that the consultant’s agreement with Click/BH permitted him to recover a finder’s fee for the cashless stock swap that achieved the merger on May 21, 2015. The new owner of Click/BH, the only party served, declined to defend the lawsuit allowing it to go to default.
Default judgment
On December 16, 2016, the Court issued a default judgment for the plaintiff and against the defendants in the amount of $2,377,915. The Company believes that having not been served or made aware of the lawsuit, it is not a target of the judgment.
Second Lawsuit
On January 23, 2017, the Company and its CEO were served in a second lawsuit by Morgan alleging that the Company’s intellectual property assets that were transferred to it by Click under the May 21, 2015 merger of the Company with Click, were fraudulently removed from Click/BH, and seeks to have them returned to Click/BH.
Charge to the Financial Statements
The Company believes that the second lawsuit is baseless, and is defending itself vigorously against it. The Company also believes that being named but not served, the default judgment in Morgan’s first lawsuit does not apply to the Company. Nevertheless, out of an abundance of caution, we have included in liabilities the default amount of $2,377,915 plus $4,459 interest at 4.5% from December 16, 2016, the date of the judgment, to December 31, 2016.
On August 29, 2017, the Court set aside the judgment in the First Lawsuit resulting in the removal of the liability of $2,377,915 and accrued interest of $4,459 at December 31, 2016, as well as the additional accrued interest recorded during 2017 of $44,294, for a total gain of $2,426,668.
McRae Lawsuit
On October 7, 2017, Eric L. McRae of Sedgwick County, Kansas (“McRae”) filed a complaint against the Company in the United States District Court for the District of Kansas asserting a claim that Tautachrome breached a written agreement for the employment of McRae and seeking an award of damages in excess of $75,000.
Although Tautachrome refutes each and every allegation made by McRae in the complaint and intends to vigorously defend against it, we have accrued $49,000 to expense against this contingency.
Note 9 – Income Taxes
Deferred income taxes reflect the tax consequences on future years of differences between the tax bases:
|
|
12/31/17
|
|
|
12/31/16
|
|
Net operating loss carry-forward
|
|
$
|
2,103,201
|
|
|
$
|
4,048,660
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset at 39%
|
|
$
|
820,248
|
|
|
$
|
1,578,977
|
|
Valuation allowance
|
|
|
(820,248
|
)
|
|
|
(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 2022.
Note 10 – Subsequent Events
We issued an additional 3,243,243 shares for conversion of principal and interest on convertible promissory notes issued in the United States.
We issued five convertible promissory notes whose face value, in the aggregate, equaled $758,000. We collected $493,000 of proceeds pursuant to these notes, and are due an additional $200,000 in proceeds in the future. Additionally, we paid off one of these notes in full totaling 78,000 in principal.
We issued 16,996,331 shares converting debt to common stock.
We have evaluated subsequent events through the date of this report.