TTCM Tautachrome Inc (CE)

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

Note 1 – Organization and Nature of Business

History

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

The Company adopted the accounting acquirer’s year end, December 31.

Our Business

Tautachrome operates in the internet applications space, uniquely exploiting the technologies of the Augmented Reality sector, the blockchain/cryptocurrency sector and the smartphone picture and video technology sector. We have high-speed blockchain concepts under development aiming to couple with the Company’s revolutionary patents and licensing in augmented reality, smartphone-image authentication and imagery-based social networking interaction.

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 branded “KlickZie” technology):

Additional discussion of the business can be found in our Form 10-K filing as of December 31, 2021 and filed with the Securities and Exchange Commission filed on March 24, 2022.

Since its public announcement on September 25, 2017 (via SEC form 8-K) that it would be using its Twitter site (@Tautachrome) (https://twitter.com/tautachrome) 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 as deeded with Current Reports via SEC Form 8-Ks. Shareholders are advised to follow us on Twitter and read our 8-K Current Reports 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 September 30, 2022. 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, 2021, as reported in Form 10-K filed with the SEC on March 24, 2022.

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 has two revenue streams: (1) sales of merchandise online on its own account for promotion of the Company and (2) the online sales platform which is an internet shopping place where businesses can create a store and place items for sale that other ARknet users can buy. Tautachrome takes a percentage fee of the sale.

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 periods with net income.

Recent Accounting Pronouncements

We have reviewed the FASB issue Accounting Standards Update, (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the period reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

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 and have experienced recurring losses, and negative working capital at September 30, 2022. 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

Accounts payable – related party consists of $120,000 accrued to our former CEO and Director, Dr. Jon Leonard for unpaid salary and $750,000 owed in accrued license fees to Arknet.

Loans from Related Parties consists of $96,520 owed to Michael Nugent, $5,000 owed to David LaMountain, our CEO, and $12,891 owed to various members of the Nugent family.

Convertible Notes Payable, Related Party, Net consists of $70,392 that are owed to officers and directors of the company.

Long-term Convertible Notes Payable, Related Party consists of $38,400 due to Arknet. The discount on this note has been fully amortized to interest expense.

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%.

We issued 3,000,000 shares to a Director pursuant to our agreement with him. We valued the shares at the grant date fair value and charged general and administrative expenses with $2,700.

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 $17 was recorded as additional paid-in capital for the nine months ended September 30, 2022. The Company evaluated Dr. Leonard’s note for the existence of a beneficial conversion feature and determined that none existed.

At September 30, 2022, the balanced owed Dr. Leonard is $419.

Note 5 – Capital

During the year ended December 31, 2021 we issued a net of 1,746,133,668 in 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, 2021 and filed on March 24, 2022 and herewith included by reference.

During the nine months ended September 30, 2022, we issued the following common shares:

Stock Payable

For the nine months ended September 30, 2022 we recorded stock payable to consultants of $87,175 pursuant to our contracts with them.

During the nine months ended September 30, 2022, we issued 98,896,076 shares to a consultant to extinguish a stock payable in the amount of $563,250.

The explanation of the changes and balances for the year ended December 31, 2021 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, 2021 and filed on March 24, 2021 and herewith included by reference.

Preferred Stock

In October, 2016 we issued 13,795,104 shares of Series D preferred stock to our (then) directors in exchange for 1,379,510,380 shares of common stock. This series of preferred stock was subject to two separate rights to convert to common stock. The first could be elected by the shareholder if the stock sold for greater than $3 per share. The second was automatic and would not be trigger until October 5, 2021. On that date, the original 1,379,510,380 common shares were issued retiring the Series D preferred stock. There was no gain or loss on the conversion because the value of the common shares issued equaled the value of the Series D Preferred shares.

Imputed Interest

Certain of our promissory notes bear no nominal interest. We therefore imputed interest expense and increased Additional Paid in Capital. For the nine months ended September 30, 2022, we imputed $6,837 of such interest.

Loans from related parties

At September 30, 2022 we owed $101,520 in related-party loans consisting of $96,520 to Michael Nugent, $5,000 owed to our current CEO, David LaMountain and various small loans from members of the Nugent family.

Short-Term Convertible Notes Payable – Related Party

At September 30, 2022, we owed $70,392 in convertible notes payable consisting of $419 to Dr. Jon Leonard, $69,973 to David LaMountain, our Chief Executive Officer.

Short-Term Convertible Notes Payable – Third-Party, Net

Unpaid principal on short-term convertible notes payable at September 30, 2022 was $1,105,164, net of discounts of $143,150 (or $962,014).

We have four convertible promissory notes which are in default at September 30, 2022 totaling $279,426. There are no discount balances on these notes.

Short-term notes payable

At September 30,2022, we owed AU$22,000 (US$14,160) to three Australian investors on promissory notes which contain no conversion privileges.

In addition, during the nine months ended September 30, 2022 we issued a promissory note in the amount of $54,000, receiving proceeds of $50,000 and incurring an original issue discount of $4,000. On this note, we also issued 1,600,000 common shares as an enticement for this loan which we valued at $3,200, also recorded as a debt discount (for a total initial discount of $7,200). During the nine months ended September 30, 2022, we amortized $3,768 of this discount.

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 September 30, 2022 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 September 30, 2022. 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 average effective interest rate on the two convertible instruments issued during the nine months ended September 30, 2022 range was 122%.

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:

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.