UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d ) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM ___________ TO _____________.

 

Commission file number: 000-55721

 

TAUTACHROME, INC.

(Exact name of registrant as specified in its charter)

   

Delaware		84-2340972
(State or other Jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

1846 e. Innovation Park Drive, Oro Valley, AZ 85755

(Address of principal executive offices)

 

(520) 318-5578

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to section 12(b) of the Act:

 

Title of Each Class		Trading Symbols		Name of Exchange on Which Registered
Not applicable		Not applicable		Not applicable

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐    No ☒

 

The number of shares of the registrant’s common stock outstanding as of April 23, 2021, was 4,243,606,416.

 

 

TAUTACHROME, INC.

FORM 10-Q

 

INDEX

 

PART I – FINANCIAL INFORMATION
Item 1 –	Consolidated Financial Statements			3
Item 2 –	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations			16
Item 3 –	Quantitive And Qualitative Disclosures About Market Risk			18
Item 4 –	Controls and Procedures			18
PART II – OTHER INFORMATION
Item 1 –	Legal Proceedings			19
Item 2 –	Unregistered Sale of Equity Securities			19
Item 3 –	Defaults Upon Senior Securities			19
Item 4 –	Mine Safety Disclosures			19
Item 5 –	Other Information			19
Item 6 –	Exhibits			20
Signatures				21

 

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PART I – FINANCIAL INFORMATION

 

ITEM 1 – CONSOLIDATED FINANCIAL STATEMENTS

 

TAUTACHROME, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		3/31/2021				12/31/2020
ASSETS
Current assets:
Cash		$	91,815			$	114,527
Total current assets			91,815				114,527
Non-current assets:
Property, plant and equipment, net			36,205				39,826
TOTAL ASSETS		$	128,020			$	154,353
LIABILITIES
Accounts payable and accrued expenses		$	887,994			$	789,052
Accounts payable - related party			560,132				510,313
Loans from related parties			104,520				104,762
Convertible notes payable - related party, net			35,570				50,094
Short-term convertible notes payable, net			1,019,500				999,406
Convertible notes payable in default			32,000				32,000
Short-term notes payable			16,749				16,957
Derivative liability			3,258,117				1,479,530
Total current liabilities			5,914,582				3,982,114
Long-term convertible notes payable, related party, net			15,666				10,080
Total non-current liabilities			15,666				10,080
TOTAL LIABILITIES			5,930,248				3,992,194
STOCKHOLDERS' DEFICIT
Series D Convertible Preferred, par value $0.0001. 13,795,104 shares authorized, 13,795,104 shares issued and outstanding at March 31, 2021 and December 31, 2020			1,380				1,380
Series E Convertible Preferred Stock, par value $0.0001. 40,000 shares authorized, 40,000 shares outstanding at March 31, 2021 and December 31, 2020, respectively			4				4
Series F Convertible Preferred Stock, par value $0.00001. 290,397 shares authorized, 290,397 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively			30				30
Common stock, $0.00001 par value. 4.5 billion shares authorized. 4,243,606,416 and 4,120,475,247 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively			42,436				41,205
Additional paid in capital			12,135,984				11,427,087
Common stock payable			336,584				336,584
Accumulated deficit			(18,347,863	)			(15,661,969	)
Effect of foreign currency exchange			29,217				17,838
TOTAL STOCKHOLDERS' DEFICIT			(5,802,228	)			(3,837,841	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	128,020			$	154,353

   

The accompanying notes are an integral part of these consolidated financial statements.

  

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TAUTACHROME, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended March 31,
		2021				2020
REVENUES
Online sales platform		$	15			$	-
Products			115				-
Total revenues			130				-
Cost of sales			35				-
Gross profit			95				-
OPERATING EXPENSES
General and administrative		$	154,376			$	152,137
Depreciation expense			3,621				-
Research and development			200,775				160,232
Total operating expenses			358,772				312,369
Operating loss			(358,677	)			(312,369	)
OTHER INCOME / (EXPENSE)
Gain on litigation			-				105,000
Loss on settlement of debt			-				-
Interest expense			(423,770	)			(161,919	)
Change in value of derivatives			(1,903,447	)			1,238,313
Loss on conversion of debt			-				(27,448	)
Total other			(2,327,217	)			1,153,946
Net loss		$	(2,685,894	)		$	841,577
OTHER COMPREHENSIVE INCOME (LOSS)
Effect of foreign currency exchange			11,379				103,245
Net comprehensive income or (loss)		$	(2,674,515	)		$	944,822
Net (loss) or income per common share
Basic		$	(0.00	)		$	0.00
Diluted			(0.00	)			0.00
Weighted average shares outstanding
Basic			4,179,712,976				3,505,021,996
Diluted			4,179,712,976				4,345,209,628

   

The accompanying notes are an integral part of these consolidated financial statements.

  

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TAUTACHROME, INC.

Consolidated Statement of Changes in Stockholders’ Deficit

December 31, 2019 to March 31, 2021

(Unaudited)

 

		Common Stock								Preferred Stock Series D								Preferred Stock Series E								Preferred Stock Series F								Additional								Other Comprehensive								Total Stockholders'
		Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Paid in Capital				Stock Payable				Income (Loss)				Accumulated Deficit				Equity / (Deficit)
Balance, December 31, 2019			3,504,460,889			$	35,045				13,795,104			$	1,380				-				-				-				-			$	6,095,053			$	2,066,584			$	98,039			$	(12,867,645	)		$	(4,571,544	)
Shares issued for conversion of debt			560,931,025				5,609				-				-				-				-				-				-				843,752				-				-				-				849,361
Shares issued for services			3,333,333				33				-				-				-				-				-				-				19,967				-				-				-				20,000
Shares issued for cash			1,750,000				18				-				-				-				-				-				-				3,482				-				-				-				3,500
Shares issued to settle legal claim			50,000,000				500				-				-				-				-				-				-				144,500				-				-				-				145,000
Issue Series E preferred shares			-				-				-				-				40,000				4				-				-				1,836,996				(1,837,000	)			-				-				-
Issue Series F preferred shares			-				-				-				-				-				-				290,397				30				625,235				-				-				-				625,265
Derivative associated with early debt retirement			-				-				-				-				-				-				-				-				1,844,424				-				-				-				1,844,424
Beneficial conversion features of convertible notes			-				-				-				-				-				-				-				-								-				-				-				-
Shares earned by consultants			-				-				-				-				-				-				-				-				-				107,000				-				-				107,000
Imputed interest			-				-				-				-				-				-				-				-				13,678				-				-				-				13,678
Effect of foreign currency exchange			-				-				-				-				-				-				-				-				-				-				(80,201	)			-				(80,201	)
Net income			-				-				-				-				-				-				-				-				-				-				-				(2,794,324	)			(2,794,324	)
Balance, December 31, 2020			4,120,475,247			$	41,205				13,795,104			$	1,380				40,000			$	4				290,397			$	30			$	11,427,087			$	336,584			$	17,838			$	(15,661,969	)		$	(3,837,841	)
Shares issued for conversion of debt			123,131,169				1,231				-				-				-				-				-				-				456,369				-				-				-				457,600
Derivative associated with early debt retirement			-				-				-				-				-				-				-				-				249,704				-				-				-				249,704
Imputed interest			-				-				-				-				-				-				-				-				2,824				-				-				-				2,824
Effect of foreign currency exchange			-				-				-				-				-				-				-				-				-				-				11,379				-				11,379
Net income			-				-				-				-				-				-				-				-				-				-				-				(2,685,894	)			(2,685,894	)
Balance, March 31, 2021			4,243,606,416			$	42,436				13,795,104			$	1,380				40,000				4				290,397				30			$	12,135,984			$	336,584			$	29,217			$	(18,347,863	)		$	(5,802,228	)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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TAUTACHROME, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Three Months Ended March 31,
		2021				2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss		$	(2,685,894	)		$	841,577
Stock-based compensation			-				22,412
Depreciation, depletion and amortization			3,621				-
Loss on debt conversions			-				27,448
Gain on litigation			-				(105,000	)
Change in fair value of derivative			1,903,447				(1,238,313	)
Amortization of discounts on notes payable			389,855				128,166
Imputed interest			2,824				3,839
Changes in operating assets and liabilities:
Prepaid expenses			-				166
Accounts payable and accrued expenses			102,580				(3,141	)
Accounts payable - related party			50,000				(184	)
Net cash used in operating activities			(233,567	)			(323,030	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from convertible notes payable			208,000				285,000
Payment of expenses by related parties			6,000				-
Proceeds from related-party loans			-				2,115
Principal payments on related-party loans			(20,748	)			(23,918	)
Net cash provided by financing activities			193,252				263,197
Effect of exchange rate changes on cash and cash equivalents			17,603				68,976
Net increase/(decrease) in cash			(22,712	)			9,143
Cash and equivalents - beginning of period			114,527				31,366
Cash and equivalents - end of period		$	91,815			$	40,509
SUPPLEMENTARY INFORMATION
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	-
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING TRANSACTIONS
Discounts on convertible notes		$	124,844			$	25,761
Conversion of debt and interest to common stock		$	457,600			$	2,791
Settlement of derivative liability		$	249,704			$	173
Shares issued for stock payable		$	-			$	1,837,000
Reclassification of fair value of shares granted for settlement		$	-			$	145,000

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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TAUTACHROME, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

MARCH 31, 2021

 

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 (AR) sector and the smartphone trusted imagery sector, with granted and pending patents in both sectors. The Company has completed development of a fully integrated mobile commerce app and platform, the ARknet app and platform, able to host consumers and their social interaction and businesses selling to those consumers, all facilitated by advanced 3D augmented reality interfaces for purchasing and interacting. In addition, we have high-speed blockchain technologies in development in support of frictionless sales, including supporting the creation and sale of blockchain tokens (NFTs) representing unique digital imagery assets owned by the Arknet platform participants. These technologies are being rolled out beginning in the US and aiming for a global operation.

 

The ARknet platform

 

The ARknet mobile platform is designed to provide a fully integrated and untethered mobile experience, where untethering means moving from the physical screen of a PC or mobile device to a virtual screen through our augmented reality technology. Fully integrated means consumers can seamlessly and intuitively reach any provider or any friend for any purpose without leaving the platform. Tautachrome’s MainSt campaign, kicked off in September 2020, was built to integrate the nation’s devasted small retail businesses onto the ARknet platform in such a way that with a single sign-on, a customer can buy from any business on the platform, achieving fast and seamless business integration across any number of businesses (https://mainst.shopping). And in Q1 2021 the ARknet app completed the integration onto the platform of essential social features such as sharing, following, posting, meetups and chat, for a gentle marriage of business with social, and in addition added advanced 3D AR features.

 

Download the ARknet app for Android

https://play.google.com/store/apps/details?id=com.honeycombarchive.ARknet

Download the ARknet app for iOS

https://apps.apple.com/us/app/ARknet/id1466870072

 

Non fungible tokens (“NFTs”), a technology captured in the Company’s long standing patents

 

NFTs, tradeable blockchain tokens each representing a unique digital asset, are the exciting new segment in the marketing of digital imagery. But to Tautachrome, blockchain NFTs are nothing new. Our patents teach capturing the uniqueness of digital imagery and certifying its authenticity with an Authentication Centric Entity, an ACE. When the ACE is a blockchain, the certificate of authenticity is a token on the blockchain, namely an NFT. Tautachrome’s ACE is the first fully described imagery certification system that reflects all the attributes of an NFT on a blockchain.

 

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Dr. Jon N Leonard, Tautachrome CEO states “An NFT, being a tradeable asset that represents a real digital entity, is a trustable trading asset only to the extent that the entity it represents is secure and its unique identity is reliably authenticable. Unfortunately, in today’s hot NFT market, NFTs have been sold claiming to represent unique art, without any means for proving the authenticity of the claim. That is a sure way to destabilize the NFT market, and it is the reason that security and authenticity are built into the Company’s processes so as to automatically guarantee these crucial NFT features.” In an opinion provided to the Company, Benjamin Urcia, the Company’s patent attorney for nearly a decade, stated as follows regarding the Company’s three imagery authentication and validation patents: “The three authentication/validation patents each covers the concept of capturing and storing images in a way that enables subsequent verification of their authenticity and uniqueness. Although the term “non fungible token” was not coined at the time the authentication/validation patents were filed [2013], the patents cover method steps that are essential to the creation of any authenticable token that is used to verify a unique captured image, including tokens that are stored in a blockchain, that is, NFTs.”

 

Business avenues

Tautachrome is currently pursuing three main avenues of business activity based on our patented activated imaging technology, our blockchain cryptocurrency products, and our licensing of the patent pending ARk technology (together branded “KlickZie” technology):

 

	1.	KlickZie ARk technology business: The Company has licensed and is developing the augmented reality platform branded ARknet. ARknet enables goods and services providers to establish geolocated augmented reality interfaces, called ARks, allowing consumers to purchase the provider’s products and take advantage of its specials and discounts, using the ARk. A provider’s ARk may be located anywhere in the world, from a store location to anyplace else the provider may desire. The ARknet is a fintech platform using augmented reality as the medium of interaction connecting consumers to providers in the global household goods market now estimated at $52.8 trillion annually.
	2.	KlickZie’s blockchain cryptocurrency-based ecosystem: The Company has developed its own digital currency (“KLK”), smart contracts using KLKs, high speed blockchain concepts aimed at supporting fast frictionless transactions within the ARknet, and NFTs representing unique digital assets that may be traded on the blockchain.
	3.	KlickZie Activated Digital Imagery business: The Company is developing processes to exploit our patented KlickZie trusted imaging technology and our patented trusted image-based social interactions using the pictures and videos that smartphone users create. Trusted imagery and user imagery-based interactions are expected to be widely used within the ARknet.

  

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 almost exclusively, supplemented occasionally 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.

 

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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 March 31, 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

 

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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.

 

Recent Accounting Pronouncements

 

None

 

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 three months ended March 31, 2021, we accrued $1,230 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 March 31, 2021 were $99,520 and $31,734, respectively. The outstanding balances of unpaid principal and interest at December 31, 2020 were $99,762 and $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.

 

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At March 31, 2021, Accounts Payable – Related Party was comprised of the following:

 

	·	$95,000 of accrued salary owed to our Chief Executive Officer
	·	$450,000 due to Arknet. $300,000 of this amount was due to our technology lease obligations to them and $150,000 was due to the conversion of a crypto-note payable, written in 2018 and converted to Arknet debt in 2019
	·	$13,106 of unreimbursed expenses paid on behalf of the Company by the 22nd Trust in previous years.
	·	$2,026 of other accrued related-party expenses.

   

At March 31, 2021, Loans from Related Parties was comprised of the following:

 

	·	A $5,000 advance to the Company in 2018 that has not been formalized into a promissory note.
	·	$80,107 of debts to Michael Nugent, our former Chief Executive Officer for conversion of 39,312 Convertible Preferred Class B shares in 2015.
	·	Cash Loans from the 22nd Trust in the amount of $19,413 made through 2015.

   

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 $130 was recorded as additional paid-in capital for the three months ended March 31, 2021. 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, 2021, we repaid $20,748 to Dr. Leonard. Dr. Leonard also paid company expenses of $6,000. At March 31, 2021, the balanced owed Dr. Leonard is $1,769.

 

Short-term portion - At March 31, 2021, we owed $35,570 of related-party notes which are convertible into common stock, of which $33,801 is owed to David LaMountain, Our Chief Operating Officer, and $1,769 to Dr. Jon Leonard, our Chief Executive Officer. There are no discount balances on these notes.

 

Long-term portion - Additionally at March 31, 2021, we owed $36,172 of convertible notes, net of discounts of $20,506 (or $15,666) to David LaMountain. During the three months ended March 31, 2021 we amortized $5,586 of these discounts to interest expense.

 

Note 5 – 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 three months ended March 31, 2021, we issued 123,131,169 shares in conversion of $440,000 of principal and $17,600 of interest. We realized no gain or loss on the conversion.

 

There has been no change in stock payable from December 31, 2020 to March 31, 2021. The explanation of the balances 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.

   

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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:

 

	·	They are not entitled to dividends unless all other classes of dividends have been paid,
	·	They are entitled to no liquidation rights, and
	·	They have no voting rights.

 

No other changes occurred to the balances of our preferred stock for the three months ended March 31, 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 three months ended March 31, 2021, we imputed $2,824 of such interest. For the same period in 2020, we imputed $4,008.

 

Note 6 – Debt

 

Loans from related parties

 

At March 31, 2021 we owed $104,520 in related-party loans consisting of $99,520 the 22^nd Trust and $5,000 owed to a related-party Board member.

 

Convertible Notes Payable – Related Party, Net

 

Short-term portion - At March 31, 2021, we owed $35,570 of related-party notes which are convertible into common stock, of which $33,801 is owed to David LaMountain, Our Chief Operating Officer, and $1,769 to Dr. Jon Leonard, our Chief Executive Officer. There are no discount balances on these notes.

 

Long-term portion - Additionally at March 31, 2021, we owed $36,172 of convertible notes, net of discounts of $20,506 (or $15,666) to David LaMountain. During the three months ended March 31, 2021 we amortized $5,586 of these discounts to interest expense.

 

Convertible Notes Payable – Third-Party, Net

 

Unpaid principal on short-term convertible notes payable at March 31, 2021 was $1,260,812, net of discounts of $241,312 (or $1,019,500).

 

We have three convertible promissory notes which are in default at March 31, 2021 totaling $32,000. There are no discount balances on these notes.

 

During the three months ended March 31, we issued 123,131,169 shares to convert two outstanding convertible notes. We reduced unpaid principal by $440,000 and unpaid interest by $17,600. There was no gain or loss on the converted transaction.

 

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Also, during the three months ended March 31, 2021, we issued a promissory note in the amount of $220,000, receiving proceeds of $208,000. The note matures February 17, 2022 and bear interest at 8% (24% default rate). The note had a discount of $124,844 plus an OID of $12,000 coming to a total of $136,844. They are convertible at 63% of the lowest closing bid price during the twenty days preceding the conversion.

 

Short-term notes payable

 

At March 31,2021, we owed AU$22,000 (US$16,749) to three Australian investors on promissory notes which contain no conversion privileges.

 

Imputed Interest

 

Certain of our promissory notes bear no nominal interest. We therefore imputed interest expense and increased Additional Paid in Capital. For the three months ended March 31, 2021, we imputed $2,824 of such interest. Of this amount, $130 is imputed on amounts owed to Jon Leonard, our Chief Executive Officer, and $2,694 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 May 20, 2020 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.

 

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The Convertible Note derivatives were valued as of issuance; conversion; redemption/settlement; and each quarterly period from March 31, 2018 through March 31, 2021. The following assumptions were used for the valuation of the derivative liability related to the Notes:

 

	·	The stock price of $0.000630 at 09/30/20 decreased to $0.0125 by 03/31/21 and would fluctuate with the Company projected volatility.
	·	The notes convert with variable conversion prices based on the percentages of the low or average trades or bids over 20 to 25 trading days.
	·	The effective discounts rates estimated throughout the periods range from 37% to 42% with potentially an additional discount.
	·	The Holder would automatically convert the note before maturity if the registration was effective and the company was not in default.
	·	The projected annual volatility for each valuation period was based on the historic volatility of the company are 160% – 222% (annualized over the term remaining for each valuation).
	·	An event of default would occur 0% of the time, increasing 1.00% per month to a maximum of 20%.
	·	The Holders would redeem the notes (with penalties up to 50% depending on the date and full–partial redemption) based on availability of alternative financing of 0% of the time, increasing 1.00% per month to a maximum of 5%.
	·	The Holder would automatically convert the note at the maximum of 2 times the conversion price or the stock price on the date of valuation.
	·	The Holder would automatically convert the note based on ownership or trading volume limitations.

   

We recorded the initial derivative as both a derivative liability and a debt discount (or initial reduction in carrying value of the debt). We then amortized the debt discounts using the Effective Interest Method which recognizes the cost of borrowing at a constant interest rate throughout the contractual term of the obligation. The effective interest rates on the only instrument issued during the three months ended March 31, 2021 range was 106%.

 

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:

 

Balance, December 31, 2020		$	1,479,530
Changes due to new issuances			124,844
Changes due to extinguishments			(249,704	)
Changes due to adjustment to fair value			1,903,447
Balance, March 31, 2021		$	3,258,117

 

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Note 7 – 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.

 

Note 8 – Income Taxes

 

Deferred income taxes reflect the tax consequences on future years of differences between the tax bases:

 

		03/31/21				12/31/20
Net operating loss carry-forward			6,504,449				6,114,681
Deferred tax asset		$	1,365,934			$	1,284,083
Valuation allowance			(1,365,934	)			(1,284,083	)
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 9 – Subsequent Events

 

Subsequent events have been evaluated through the date of this report.

 

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This report contains “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including: any projections of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. “Forward-looking statements” may include the words “may,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan” or “anticipate” and other similar words.

 

Although we believe that the expectations reflected in our “forward-looking statements” are reasonable, actual results could differ materially from those projected or assumed. Our future financial condition and results of operations, as well as any “forward-looking statements”, are subject to change and to inherent risks and uncertainties, such as those disclosed in this report. In light of the significant uncertainties inherent in the “forward-looking statements” included in this report, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. Except for its ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any “forward-looking statement”. Accordingly, the reader should not rely on “forward-looking statements”, because they are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by the “forward-looking statements”.

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited financial statements, including the notes to those financial statements, included elsewhere in this report.

 

Overview

 

We are an early stage internet applications company, engaged in advanced technology and business development in the internet applications space. We have incurred general and administrative costs, marketing expenses and research and development costs since we commenced our current operations in May 2015, against minimal revenue.

 

The continuing operations of the Company are dependent upon our ability to raise adequate financing and to commence profitable operations in the future. The Company may raise additional capital through the sale of its equity securities, through an offering of debt securities, or through loans from related parties. We believe 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, however, that the Company will be successful in achieving these objectives.

 

Results of Operations - Three months ended March 31, 2021 versus 2020

 

We had general and administrative expenses of $150,755 for the three months ended March 31, 2021 versus $152,137 for the same period in 2020. General and administrative expenses consist chiefly of accounting and legal compliance costs and the Arknet license fee.

 

Our research and development expenses increased due to increased development activity during the three months ended March 31, 2021 versus 2020. R&D costs were $200,775 and $160,232, respectively.

 

We had a vast increase in interest expense from $161,919 during the period ending March 31, 2020 to $423,770 in the same period in 2021. Of the 2021 number, $349,058 was from a write off of existing unamortized discount balances on two converted notes.

 

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We had a loss on changes in the fair values of our derivatives of $1,903,447 and a gain of $1,238,313 for the three months ended March 31, 2021 and 2020, respectively.

 

During the three months ended March 31, 2021, we had a foreign exchange gain of $11,379 versus a gain of $103,245 during the same period in 2020, all of which are currency translation effects resulting from the fluctuation of exchange rate differences between the U.S. and Australian dollars.

 

Our net comprehensive loss of $2,674,515 and net Comprehensive income of $944,822 during the three months ended March 31, 2021 and 2020 are a result of the above items.

 

Liquidity and Capital Resources

 

Our financial statements have been prepared on a going concern basis that contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

 

At March 31, 2020, the Company had $91,815 in current assets and current liabilities totaling $5,930,248. We are currently seeking financing to attain our business goals, but there is no guarantee that we will obtain such financing or, upon obtaining it, that we will be able to invest in productive assets that will result in positive cash flows from operations.

 

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, recurring losses, and negative working capital at March 31, 2021. 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. Management intends to finance these deficits by making additional shareholder notes and seeking additional outside financing through either debt or sales of its common stock.

 

Plan of Operation

 

Our immediate term plans for operations is discussed extensively in Item 7 – Management’s Discussion and Analysis or Plan of Operation included in our Form 10-K as of December 31, 2020, filed with the Securities and Exchange Commission on March 30, 2021 and is herein incorporated by reference.

 

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ITEM 3 - QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

A smaller reporting company is not required to provide the information required by this item.

 

ITEM 4 – CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.

 

We maintain "disclosure controls and procedures" as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

    

Based upon the evaluation of our officers and directors of our disclosure controls and procedures as of March 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q (the "Evaluation Date"), our Chief Executive Officer has concluded that as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. Our management concluded that our disclosure controls and procedures were not effective as a result of material weaknesses in our internal control over financial reporting. We are a small organization with only a few employees. Under these circumstances it is impossible to completely segregate duties. We do not expect our internal controls to be effective until such time as we are able to begin full operations and even then, there are no assurances that our disclosure controls will be adequate in future periods.

 

Change In Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

ITEM 1 – LEGAL PROCEEDINGS

 

We may be involved from time to time in ordinary litigation, negotiation and settlement matters that will not have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against us, other than that described in Note 7, or our officers and directors in their capacity as such that could have a material impact on our operations or finances.

 

ITEM 2 – UNREGISTERED SALE OF EQUITY SECURITIES

 

A portion of the securities were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), by reason of the exemption from registration afforded by the provisions of Section 4(a)(2) thereof, and Rule 506(b) of Regulation D promulgated thereunder, as a transaction by an issuer not involving any public offering. The investors did not enter into any of the transactions with the Company as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting. Each investor was also afforded the opportunity to ask questions of management and to receive answers concerning the terms and conditions of the transaction. No selling commissions were paid in connection with these transactions.

 

A portion of the securities were issued without registration under the Securities Act, by reason of the exemption from registration afforded by Rule 903 of Regulation S promulgated thereunder. In determining that the issuance of certain of such securities qualified for exemption in reliance on Regulation S, the Company relied on the following facts: each recipient represented that it is not a “U.S. Person” within the meaning of Regulation S under the Securities Act and that he, she or it would not sell the shares in the U.S. for a period of at least one year after purchase.

 

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5 – OTHER INFORMATION

 

Not applicable.

 

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ITEM 6 - EXHIBITS

 

Exhibit No.		Description of Exhibit
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.

** Furnished herewith

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	Tautachrome, Inc
Date: May 17, 2021	By:	/s/ Dr. Jon Leonard
		Dr. Jon Leonard Chief Executive Officer

 

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