TTCM Tautachrome Inc (CE)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2021

Note 1 – Organization and Nature of Business

History

Tautachrome, Inc. was formed in Delaware on June 5, 2006 as Caddystats, Inc., was renamed Roadships Holdings Inc. on March 4, 2009, and on November 2, 2015 was again renamed to its current name Tautachrome Inc. (hereinafter referred to as “Tautachrome,” the “Company,” “we” or “us”).

The Company’s accounting year end is December 31.

Our Business

Tautachrome operates in the internet applications space, uniquely exploiting the technologies of the Augmented Reality (AR) sector, the smartphone trusted imagery sector and the crypto currency and NFT fintech sectors, with granted and pending patents in all these sectors.

The Company has completed development of a fully integrated mobile commerce platform, the ARknet platform ("ARknet"). ARknet aims to harness Web 3.0's deployment of open, permissionless and implicitly trustful networks, where software is developed openly in full view of the world, users don't need permission from anybody else to participate, and the network itself allows users to trustfully interact with anybody, publicly or privately.

The ARknet platform is able to host consumers and their social interaction and businesses selling to those consumers, all implemented through AR interfaces called Arks. The Company has just begun supporting the creation and sale of blockchain non fungible tokens (NFTs) representing unique digital imagery assets consisting of pictures, videos, Arks and such other digital things belonging to and/or developed by ARknet platform participants. In addition, the Company has high-speed blockchain technologies in development that will use digital currencies to make purchases faster and easier.  

Recently added ARknet platform features include:

MainSt.shopping allows business users to quickly create virtual stores on the ARknet Platform using our comprehensive “How To” tutorial at www.MainSt.Shopping. Patterned after the Amazon model, shoppers on MainSt use a single sign-on to gain access to all the products of every store on MainSt.

Non-Fungible Tokens (NFTs) The ARknet platform allows users to create and market NFTs of any of their digital creations from imagery, to writings to entire Arks.

Travelpin. With Travelpin users can capture imagery and attach it directly to a specific location on the Travelpin digital map. Users can view public Travelpins from other travelers and see honest reviews, photos, and comments, significantly enhancing the travel experience.

Eternals Memorials. Arknet memorials allow users to geolocate Arks at headstones of deceased loved ones, containing such digital records as users may wish to place there as an eternal memory of the person. Using the Arknet app, family and friends can view a memorial while at the headstone, or can use the app’s teleportation feature to view it from any remote location.

3D Imaging for Businesses User products. Store samples may be sent to us for high quality 3D scanning. The ARknet platform allows business users to use these 3D scanned files to display their products to their customers. Seeing products as AR objects in their own home, in 3D, is excellent way to please customers and make sales. Additional discussion of the business can be found in our Form 10-K filing as of December 31, 2020 and filed with the Securities and Exchange Commission.

Since its public announcement on September 25, 2017 (via SEC form 8-K) that it would be using its Twitter site (@Tautachrome_Inc) (https://twitter.com/tautachrome_inc)  to post important Company information, and finding this method of publicizing important Company information both fast and effective, the Company has continued to use this means of public communication, supplemented when required with Current Reports via SEC Form 8-Ks. Shareholders are advised to follow us on Twitter to be current on the Company’s disclosures in conformity with Regulation FD.

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

Consolidated Financial Statements

In the opinion of management, the accompanying financial statements includes all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for the period ended June 30, 2021.  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, 2020, as reported in Form 10-K filed with the SEC on March 30, 2021.

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

Principles of Consolidation

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

Long-Lived Assets, Intangible Assets and Impairment

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

Revenue Recognition

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

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

Step 1: Identify the contract with a customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

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

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

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.

Note 3 – Going Concern

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

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

Note 4 – Related Party Transactions

For the six months ended June 30, 2021, we accrued $2,458 of interest to the 22^nd Trust (the “Trust”), the trustee of whom is Sonny Nugent, the son of our major shareholder and former Chief Executive Officer, Micheal Nugent.  The outstanding balances of unpaid principal and interest at June 30, 2021 were $99,220 and $32,897, respectively.  The outstanding balances of unpaid principal and interest at December 31, 2020 were $99,762and $30,553, respectively.  

According to our agreement with Mr. Nugent, we accrue interest on all unpaid amounts at 5%. Principal and interest are callable at any time. If principal and interest are called and not repaid, the loan is considered in default after which interest is accrued at 10%.

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

Convertible note payable, related party

On May 5, 2013 (and on August 8, 2013 with an enlargement amendment) the Company entered into a no interest demand-loan agreement with our current Chairman, Jon N. Leonard under which the Company may borrow such money from Dr. Leonard as Dr. Leonard in his sole discretion is willing to loan.  

The terms of the note provide that at the Company’s option, the Company may make repayments in stock, at a fixed share price of $1.00per share.  Also, because this loan is a no-interest loan, an imputed interest expense of $157 was recorded as additional paid-in capital for the six months ended June 30, 2021.  The Company evaluated Dr. Leonard’s note for the existence of a beneficial conversion feature and determined that none existed.

During the six months ended June 30, 2021, we repaid $21,348 to Dr. Leonard.  Dr. Leonard also paid company expenses of $6,000.  At June 30, 2021, the balanced owed Dr. Leonard is $1,169.

Ending balances in related party accounts payable is $619,908.

For ending balances in this category, see Note 7.

Note 5 – Notes and Interest Receivable

On June 8, 2021 we lent Akumen Industries Corp. (“Akumen”) $150,000 at with interest at 5% (10% penalty rate) for seven days in exchange for a promise to provide $3 million in equity capital.  As of the balance sheet date, repayment of this note has been delayed. The Company has reason to believe this note will be repaid after a commercially reasonable delay.  We have, however, reserved the entirety of the balance of $150,760 to bad debt expense.

Note 6 – Capital

During the year ended December 31, 2020 we issued 616,014,358 common shares.  The explanation of the nature of those issuances can be found in Note 4 of the financial statements included in our Form 10-K filed with the Securities and Exchange Commission as of December 31, 2020 and filed on March 30, 2021 and herewith included by reference.

During the six months ended June 30, 2021, we issued:

During the six months ended June 30, 2021, we had the following stock payable transactions:

The explanation of the balances resulting from stock payable transactions during the year ended December 31, 2020 can be found in Note 4 of the financial statements included in our Form 10-K filed with the Securities and Exchange Commission as of December 31, 2020 and filed on March 30, 2021 and herewith included by reference.

Preferred Stock

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:

No other changes occurred to the balances of our preferred stock for the six months ended June 30, 2021.

Imputed Interest

Certain of our promissory notes bear no nominal interest.  We therefore imputed interest expense and increased Additional Paid in Capital.  For the six months ended June 30, 2021, we imputed $2,830 of such interest.  For the same period in 2020, we imputed $4,008.

Note 7 – Debt

Loans from related parties

At June 30, 2021 we owed $104,220  in related-party loans consisting of $99,220  to the 22^nd Trust and $5,000 owed to a related-party Board member .

Convertible notes payable – related party, net

Short-term portion - At June 30, 2021, we owed $71,142 of related-party notes which are convertible into common stock, of which $69,973 is owed to David LaMountain, Our Chief Operating Officer and $1,169 to Dr. Jon Leonard, our Chief Executive Officer.  Unamortized discounts at June 30, 2021 was $11,578.  During the six months ended June 30, 2021, we amortized $14,737 of discounts to interest expense from this category.

Long-term portion - Additionally at June 30, 2021, we owed $40,000 to ArKnet..  Unamortized discount at June 30, 2021 was $31,283.  During the six months ended June 30, 2021, we amortized $19,547 from this category.

Short-term convertible notes payable –  third-party, net

Unpaid principal on short-term convertible notes payable at June 30, 2021 was $1,551,966, net of discounts of $414,330 (or $1,137,636).   

We have three convertible promissory notes which are in default at June 30, 2021 totaling $32,000.  There are no discount balances on these notes.

During the six months ended June 30, we issued 164,396,661 shares to convert three outstanding convertible notes.  We reduced unpaid principal by $660,000 and unpaid interest by $26,400.  There was no gain or loss related to the conversions.

Also during the six months ended June 30, 2021, we issued a promissory note in the amount of $220,000, receiving proceeds of $208,000. The note matures February 17, 2022 and bears interest at 8% (24% default rate).   They are convertible at 63% of the lowest closing bid price during the twenty days preceding the conversion.

Also during the six months ended June 30, 2021, we issued a promissory note in the amount of $520,000, receiving proceeds of $500,000.  The note matures September 3, 2022 and bears interest at 8%.   They are convertible at 63% of the lowest closing bid price during the twenty days preceding the conversion.  We recorded a discount of $344,816 upon issuance consisting of 28,875 for the fair value of the 2,750,000 shares issued to entice the lender, an original issue discount of $20,000 and the initial derivative of $295,941.  We amortized $30,795 of this discount to interest expense during the six months ended June 30, 2021.

During the six months ended June 30, 2021, we amortized $555,841 to interest expense from this category.

Short-term notes payable

At June 30, 2021, we owed AU$22,000 (US$16,489) to three Australian investors on promissory notes which contain no conversion privileges.

Long-term convertible notes payable, net

During the six months ended June 30, 2021, we converted $247,426 from accounts payable which was payable in cash to a convertible promissory note.  The note bears interest at 5% (10% default rate) and is convertible at $0.008265 per share.  The note matures on September 3, 2022.  We originally recorded at discount of $109,247 and have amortized $19,546for the six months ended June 30, 2021.  There was no gain or loss associated with this conversions.

Imputed Interest

Certain of our promissory notes bear no nominal interest.  We therefore imputed interest expense and increased Additional Paid in Capital.  For the six months ended June 30, 2021, we imputed $2,830 of such interest.  Of this amount, $157 is imputed on amounts owed to Jon Leonard, our Chief Executive Officer, and $2,674 was imputed on twenty eight outstanding loans in Australia.   

Derivative liabilities

The above-referenced convertible promissory notes 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 June 30, 2021 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 June 30, 2021. The following assumptions were used for the valuation of the derivative liability related to the Notes:

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 instruments issued during the six months ended June 30, 2021 ranged from 49% to 132%.

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

Changes in outstanding derivative liabilities are as follows:

Note 8 – Litigation

McRae Lawsuit

On October 10, 2017, the Company received a letter from the lawyer of Eric L McRae (“McRae”) a person whose association with the Company was terminated by the Company on June 16, 2017. The letter demanded payment of 850,000,000 unrestricted Tautachrome common shares to forestall his filing a laundry list of complaints in a variety of government agencies including with the US District Court in Kansas with complaints of contract breaches and fraud by silence, with the EEOC with complaints of termination by racial discrimination, with the OSHA with complains of termination for reasons of his being a whistleblower under Sarbanes-Oxley provisions, and with various regulatory agencies with accusations of an  unspecified nature.

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

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

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.