Item 1. Business Factors
History
The Company was formed in Delaware on June 5, 2006 as Caddystats, Inc.
On March 3, 2009, the Company acquired all of the voting shares of Roadships Holdings, Inc., a Florida Corporation, and Roadships America, Inc., also a Florida Corporation in exchange for an aggregate of 16,025,000 shares of the Company’s common stock. On March 4, 2009, the Company changed its name to Roadships Holdings, Inc.
On May 26, 2015, the Company acquired all the voting shares of Click Evidence Inc., an Arizona corporation. Effective November 2, 2015, the Company changed its name to Tautachrome Inc.
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.
1. KlickZie blockchain cryptocurrency based ecosystem
In September 2017 we formed a development team of providers to develop a KlickZie blockchain (branded the “zChain”) to handle the transactions on a cryptocurrency ecosystem with a cryptotoken designated “KLK.” The KLK cryptotoken is intended to be the currency of the imagery trading ecosystem allowing KlickZie users to monetize their pictures and videos and thereby enabling ability for widescale buying, selling and licensing of KlickZie pictures and videos.
The development team that was formed, consists of individuals from the blockchain development company Kelecorix, Inc., and individuals from the image storage company Honeycomb Digital, LLC. The team is developing the software and architecture for the implementation of a simple KlickZie app that seek to implement the ownership properties of KlickZie imaging, which coupled with the blockchain-based ownership of KLK cryptotokens, could then be used to trade and license image ownership.
A monetizing ecosystem for the KlickZie app user aims to provide value to KlickZie users as well as to the Company and its shareholders.
Like other blockchains, the zChain is intended to run in a decentralized manner without any management or oversight. Its utility to KlickZie app users would come from “smart contracts” residing on the zChain implementing the buying, selling licensing and other trading features on the zChain. Its utility to the Company would come from two sources. The first is a commission on zChain smart contract transactions that involve participation by the Company to complete (for instance the certification of the validity of KlickZie imagery when requested). The second is the use of KLK tokens to provide incentives for smartphone users to download and use the KlickZie app with the aim of encouraging a rapid growth in the KlickZie userbase.
With the KLK token in place we seek to provide a new value to the KlickZie app user through the transfer of additional wealth to the user. Because KlickZie users own the imagery they create, its use by others, including advertises wishing to engage with them, could do so through the execution of a smart contract on the zChain transferring KLK currency from the advertiser to the user in exchange for the receipt of advertising imagery from the advertiser.
2. KlickZie technology-based business activity
Tautachrome’s KlickZie technology addresses two features of the internet age that create a new need and a new opportunity. The first is the need for a way to trust the pictures and videos you see on the web. Right now the trillions of pictures and frames of video on the web are so easily and often falsified that trustability of internet imagery is essentially zero. For this reason we believe that a universally available, downloadable system that turns the everyday pictures and videos we take from our smartphones into imagery that can be completely trustable to any third party seeing it, will have substantial value . With such a system two kinds of imagery will exist on the web: On the one hand imagery whose trustworthiness everybody can be certain of, and on the other hand all the rest of the imagery for which the notion of trust is meaningless. The KlickZie system aims to satisfy the requirement of for universal trustability for the ordinary imagery it produces.
The technology required for trustability also opens the door to a new opportunity. This is the opportunity to enable people to use KlickZie pictures and videos on the web to readily and safely interact with each other via the imagery itself. It is frequently the case that when you run across interesting imagery on the web you cannot know anything about it, including who the author is, who else may have seen it, or what others may think or know about it. By allowing people to interact with interesting or important pictures or videos by using the imagery itself as the portal of communication, the KlickZie system can add the viewpoints and the information offerings of interacting people to the richness of the pictures and videos. This can be carried by the system into the future along with the imagery, as an evolving information structure of interaction and imagery.
How KlickZie technology is intended to work: The KlickZie Activation Platform
Users will download KlickZie’s free software into their mobile device (iPhone, Android or other smartphone). The software, an upgrade to the smartphone’s camera software, will activate the pictures and videos taken by their device using proprietary KlickZie marking technology. Behind the scenes, KlickZie will capture the imagery and available metadata related to the imaging event, and mark the imagery and its metadata with advanced and invisible KlickZie marking technology.
KlickZie Activation
KlickZie activation seeks to add a new utility to ordinary pictures and videos. Other KlickZie users who come across an activated picture can communicate with the author of the picture, or with amenable others who have seen the picture or with the data stored in the picture by clicking or touching the picture (“touch-to-comm”). We intend the picture itself by click or touch to make the communication happen no matter where or how you come across an activated picture..
What happens to an activated picture from its creation onward is intended to be added to the picture’s data for tracking into the future. Activated pictures seek to answer many questions. For example, in a group photo you could ask: Have any of the people in my contacts list interacted with this picture? Are any of them engaging it right now? Who else besides my contacts have already engaged this picture in some way? Who took it? Where? When?
The upshot is that activation seeks to allow effective touch to comm with the authors and viewers of smartphone pictures and videos from every source, and to ensure that activated pictures and videos can be completely trusted imagery.
KlickZie Product Rollout
Rolling out KlickZie requires hiring activity to round out the KlickZie Technical Team. Additional required technical staff will include: cloud architects, database engineers, image processing engineers, full stack software engineers, steganography software developers, app development software engineers, and smartphone code defense software engineers.
· Phase 1: Build the minimal testable KlickZie system -including the smartphone imaging engine and the service cloud (Rev 1 KlickZie system), identifying and fixing functionality deficiencies and user experience and interface hiccups, building a loyal base of early adopters and defining Rev 2.
· Phase 2: Build and release Rev 2 into a limited audience to optimize user experience and user interfaces, to define, build, test and finalize viral growth methodology, to finalize the smartphone imaging engine, to test/finalize the cloud subsystem for global scale up, to build a seed population of up to 200,000 contented users, and to plan global rollout.
· Phase 3: Roll out KlickZie system globally, culture by culture and language by language, adding support staff and services as rollout moves forward.
Monetizing
As presently conceived, the KlickZie product aims at revenues from four primary sources:
· Advertising Using pictures and videos as portals of communication allows the presentation of these communications in a framework of the Company’s choice, enabling advertisers to place paid ads within this framework.
· User premium service fees KlickZie is intended to be free to consumers. Since KlickZie is handling user imagery and user imagery-based communications, opportunities for users to gain extra KlickZie service are intended to be provided for fee-based premium user memberships.
· App Developer Revenue As conceived, the KlickZie imaging engine is a powerful tool for generating trustable imagery. The KlickZie cloud is intended to allow developers access to this powerful engine along with KlickZie-provided developer tools enabling them to develop apps of their own invention, access being granted under a revenue sharing arrangement.
· Enterprise Revenue Because as conceived the KlickZie imaging engine could be a powerful tool for generating trustable imagery, it could support the needs of business and industrial enterprises for which trustable imagery from employees, customers or partners is mission critical. We plan to license our engine to enterprises on a license fee basis.
Funding
The KlickZie product rollout requires substantial funding. We plan on, and are now, seeking funds to finance KlickZie product rollout.
The Company intends to offer its KLK cryptotokens to the public in an offering to be registered under the Securities Act of 1933, for the purpose of raising up to $100 million in proceeds to further develop our KlickZie trusted imaging technology and our KlickZie high speed zChain blockchain in support of a KLK-based crypto transaction ecosystem. The Company currently plans to effect the proposed offering through a KLK token website managed by the Company. At present, purchases on the KLK token website will be paid for in Ethereum’s “ether” cryptocoins.
The proposed offering will take place as soon as practicable upon effectiveness of a registration statement to be filed with the SEC. We can give no assurance that the registration statement will ever be effective or that the proposed offering will take place as anticipated or at all.
This disclosure does not constitute an offer to sell or a solicitation of an offer to buy any securities, nor will there be any offer, solicitation or sale of securities, in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any state or jurisdiction
In addition, financing may be accomplished by incurring debt, by equity sale or through other means. There can be no assurances given that any of our funding efforts will be successful.
First KlickZie revenues
Apart from Company revenues from the sale its KLK cryptotokens to the public as disclosed in the section above, our Plan of Operations for KlickZie based revenue is prepared for first revenues from enterprise users coming on line within the first year after the receipt of funding sufficient to round out the KlickZie team. Preparations for other KlickZie revenue are geared for the two year and out timeframe.
Shelved business activity
General app development and digital design activities that were being carried out under our wholly-owned Polybia Studios subsidiary, and our acquisition activities that were being carried out under our Appquisitions Division have been shelved for the time being.
Polybia Studios
Polybia Studios, Pty LTD, is a wholly owned subsidiary of Tautachrome. During 2016, Polybia was staffed with technology graduates of Bond University in Queensland, Australia and operated out of Mermaid Beach, Queensland, Australia. Polybia provided IT support to the Company which included the development of the Company’s websites, the development of the internal software systems, database servers and branding for the Company’s SafeDate App, and for the technical support of the Company’s Appquisitions Division formed in 2016 and of the Company’s wholly owned subsidiary, PhotoSweep, LLC purchased in 2016.
Subsequent to December 31, 2017, all development and support functions formerly performed by Polybia Studios in Australia have been transferred to and are being performed in the United States.
PhotoSweep
PhotoSweep, LLC is a wholly owned subsidiary of the Company located in Oro Valley, Arizona whose single asset is a halted smartphone app named PhotoSweep that requires rework to be relaunched. The Company is currently reviewing the utility of a rework and relaunch of the app.
Competition
With regard to the internet applications in general, competition is intense. For example, according to Statista by mid-2015 there were more than three million different smartphone applications available to users. We think it is likely that this number has only increased since then. In spaces that are this crowded the principal matter of competition is about capturing user mind space, which for a given product consists of elements such as degree of product exposure to users, degree of product apparent desirability, pleasure of product usage, and persisting necessity for the product in a user’s life. These elements of competition are well known to our competitors which include the internet giants Google, Apple, Facebook and Amazon, all of whom have financial resources and operating staffs substantially larger than those of the Company, and all of whom can focus on the optimization of their products towards the same consumer and business arenas upon which we intend to focus.
With regard to KlickZie’s technology for marking, storing and tracking digital imagery, there are many firms who mark, store and track digital imagery. Among these are Digimarc, BatchPhoto, and hirdlight who market such processes for purposes of protecting intellectual property. To our knowledge none of these is turning the smartphone into a generally trustable imager or advanced image-based communicator as envisioned here, which requires substantially more talent and development activity than required for marking, storing and tracking digital imagery. However, there is nothing stopping any firm, particularly the internet giants, from entering into similar activity. Moreover Truepic has entered the arena of smartphone trusted imagery with patented technology. We have reviewed Truepic’s patent claims and believe that our planned applications will not infringe their claims.
Employees
Tautachrome, Inc. has no employees. Services are currently provided through independent contractors.
Item 1A.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are not required to provide the information required under this item.
Item 1B.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2.
Item 2. Properties
Our principal business and corporate address is 1846 E Innovation Park Drive, Oro Valley, Arizona 85755 (Telephone: 520 288 1908). The space is being provided by management on a rent free basis. We have no intention of finding, in the near future, another office space to rent during this stage of the Company.
We do not currently have any investments or interests in any real estate, nor do we have investments or an interest in any real estate mortgages or securities of persons engaged in real estate activities.
Intangible Properties: issued and pending patents
The proprietary nature of, and protection for, our technologies, processes, and know-how are important to our business. Our success could substantially depend upon our ability to protect the proprietary nature of our technologies and know-how, to protect our technology from infringement, misappropriation, discovery and duplication, and to operate without infringing on the proprietary rights of others.
We seek patent protection for our technologies. Our policy is to patent the technology, inventions and improvements that we consider important to the development of our business. We cannot be sure that any of our pending patent applications will be granted, or that any patents which we own or obtain in the future will fully protect our position. Our patent rights and the patent rights of technology companies in general, are highly uncertain and include complex legal and factual issues. We believe that our existing technology and the patents which we hold and for which we have applied do not infringe anyone else’s patent rights. We believe our patent rights will provide meaningful protection against others duplicating our proprietary technologies. We cannot be sure of this, however, because of the complexity of the legal and scientific issues that could arise in litigation over these issues.
Despite these measures, any of our intellectual property and proprietary rights could be challenged, invalidated, circumvented, infringed or misappropriated, or such intellectual property and proprietary rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages.
As of the date of this prospectus, our patent portfolio includes the patents and applications issued by and filed with the USPTO, as described in the following table:
Intangible Properties: trade secrets, know-how, and continuing technological innovation
We rely upon unpatented trade secrets, know-how, and continuing technological innovation to develop and maintain our competitive position. We seek to protect our ownership of know-how and trade secrets through an active program of legal mechanism including assignments, confidentiality agreements, material transfer agreements, research collaborations, and licenses.
Item 3.
Item 3. Legal Proceedings
The Company is currently involved in the following legal proceedings. Except as provided in this prospectus, we are not aware of any other pending or potential legal actions.
Richard Morgan
On January 9, 2017, Richard Morgan of Nisswa, Minnesota filed a complaint against the Company in the Superior Court of the State of Arizona in and for the County of Pima (“Morgan v. Tautachrome”). The complaint stems from a prior complaint filed by Morgan in the same Court on November 19, 2015 (“Morgan v. Click Evidence”) against Click Evidence Inc., a former subsidiary of the Company (“Click”), seeking damages for an alleged breach by Click of a written contract with Morgan, breach of an implied covenant of good faith and fair dealing with Morgan and, in the alternative, unjust enrichment by Click to the impoverishment of Morgan. On December 16, 2016, the Court in Morgan v. Click Evidence entered default judgment in favor of Morgan for the amount $2,377,915.01.
The complaint in Morgan v. Tautachrome alleges that the Company participated in a fraudulent transfer of patents from Click to Tautachrome with intent to hinder, delay and defraud Morgan’s claim in Morgan v. Click Evidence. Morgan seeks avoidance of the transfer of the patents and other remedies necessary to satisfy his claims under the Uniform Fraudulent Transfers Act of Arizona, to levy execution on the patents, and the appointment of a receiver to take charge of the patents for liquidation. The complaint also alleges that the Company is the successor to Click and is therefore liable to Morgan for all debts and liabilities owing to Morgan by Click.
The default judgment in Morgan v. Click Evidence was set aside on October 25, 2017, and a new evidentiary hearing on damages was ordered.
On September 11, 2017, the Court in Morgan v. Tautachrome ordered a stay of all proceedings in the matter until 30 days after entry of a final judgment in Morgan v. Click Evidence.
On February 22, 2018, the Court in Morgan v. Click Evidence issued Findings of Fact and Conclusions of Law in favor of Click and against Morgan on all causes of action in the complaint.
No final judgment in Morgan v. Click evidence has been rendered. As at the date of this prospectus, the matter in Morgan v. Tautachrome remains before the Court.
Eric L. McRae
United States District Court
On October 12, 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. The complaint was amended on November 14, 2017 and again on December 19, 2017. The amended complaint alleges that the Company breached a written agreement for the employment of McRae by failing to pay him 35 million shares of the Company’s common stock and terminating his employment without notice. The complaint goes on to allege that the Company committed fraud by silence for failing to inform McRae that it intended to receive the benefit of his services without compensating him, that the Company breached an agreement with McRae to provide him with 185 million shares of the Company’s common stock, and that the Company breached a convertible promissory note for $50,000 by failing and refusing to repay McRae for all principal and accrued interest thereunder. The complaint seeks damages in excess of $75,000.
The matter remains before the Court.
KHRC and EEOC
On December 12, 2017, McRae filed a complaint against the Company with the Kansas Human Rights Commission and the U.S. Equal Employment Opportunity Commission alleging that on June 16, 2017, he was terminated from alleged employment by the Company on the basis of race and for retaliation. The complaint also alleges that the Company discriminated against McRae in the terms of his alleged employment because of race. The Company has responded to the complaint, denying each of McRae’s allegations and providing its own version of events. The matter is presently stayed pending McRae’s determination as to whether to submit his claim for mediation.
Office of the Whistleblower
On December 8, 2017, McRae filed a complaint with the Occupational Safety and Health Administration (the “OSHA”) of the United States Department of Labor, alleging that his “investigation and reporting” to the Company’s CEO was a contributing factor in the termination of his alleged employment by the Company in violation of Section 806 of the Sarbanes-Oxley Act of 2002. On January 2, 2018, the Company delivered its response to the complaint, denying each of McRae’s allegations and providing its own version of events. The matter remains before the OSHA.
Item 4.
Item 4. Mine Safety Disclosures
Not applicable.
PART II - OTHER INFORMATION
Item 5.
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
Our shares trade on the OTCQB under the symbol “TTCM”. The following table sets forth the high and low closing bid prices of our common stock for the last two calendar years, as reported by OTC Markets Group Inc. and represents inter dealer quotations, without retail mark-up, mark-down or commission and may not be reflective of actual transactions:
At December 31, 2017, there were 1,688,241,976 shares of our common stock issued and outstanding.
Holders
On December 31, 2017, the Company had approximately 575 stockholders of record. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of shares of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.
Dividends
We have not declared or paid cash dividends on our common stock since inception and do not anticipate paying such dividends in the foreseeable future. The payment of dividends may be made at the discretion of the Board of Directors and will depend upon, among other factors, our operations, capital requirements, and overall financial condition.
Securities Authorized for Issuance under Equity Compensation Plans
None.
Item 6.
Item 6. Selected Financial Data
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 7.
Item 7. Management’s Discussion and Analysis or Plan of Operation
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information for the year ended December 31, 2017 and December 31, 2016. This MD&A should be read together with our audited consolidated financial statements and the accompanying notes for the fiscal years ended December 31, 2017 and December 31, 2016.
This discussion contains forward-looking statements that involve certain risks and uncertainties. See “Forward-Looking Statements” elsewhere in this report.
Overall Performance
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 no revenue.
The Company’s audited consolidated financial statements and the accompanying notes for the years ended December 31, 2017 and December 31, 2016, have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. We had negative cash flows from operations of $159,416 and $320,156 for the years ended December 31, 2017 and 2016, respectively, with recurring losses and negative working capital of $1,442,987 and $3,440,930 as at December 31, 2017 and 2016, respectively. 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 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 for the Years ended December 31, 2017, and 2016
Net Gain
The Company realized a net gain of $1,720,905 for the year ended December 31, 2017 compared to a net loss of $4,599,284 for the year ended August 31, 2016.
Revenue
The Company did not earn any revenue during the years ended December 31, 2017 or December 31, 2016.
Operating Expenses
The Company’s total operating expenses for the year ended December 31, 2017 were $317,631 compared to $812,134 for the year ended December 31, 2016, a decrease of $494,503 (60.9%).
For the year ended December 31, 2017, the Company incurred general and administrative expenses of $317,631 compared to $419,534 for the year ended December 31, 2016, a decrease of $101,903 (24.2%) primarily attributable to cessation of operations in Australia. The following table sets out the material components of the Company’s general and administrative expenses for the years ended December 31, 2017 and 2016.
During the year ended December 31, 2017, the Company had no depreciation expense, compared to $92,862 for the year ended December 31, 2016. The decrease is due to the assets of PhotoSweep LLC being fully impaired as at December 31, 2016.
During the year ended December 31, 2017, the Company recorded asset impairment of $0 compared to $299,738 for the year ended December 31, 2017. The decrease is due to the Company’s investment in PhotoSweep LLC being fully impaired as at December 31, 2016.
Other Expenses
On December 15, 2016, a former consultant of the Company obtained default judgment for $2,377,915.01 in damages against a former subsidiary of the Company. The Company recorded the default judgment plus $4,459 in accrued interest as a litigation loss of $2,382,374 for the year ended December 31, 2016. On October 25, 2017, the default judgment was set aside and a new hearing on damages was ordered in the same proceeding, resulting in a litigation gain of $2,426,668 for the year ended December 31, 2017. See “Legal Proceedings - Richard Morgan” and Note 7 to the financial statements elsewhere in this report.
The Company recorded an interest expense of $266,924 during the year ended December 31, 2017 compared to $317,892 for the year ended December 31, 2016, a decrease of $50,968 (16%). The decrease was primarily due to a reduction in recorded beneficial conversion features from convertible notes issued in Australia from $145,366 in 2016 to $0 in 2017, offset by $44,294 in court imposed interest during 2017 (2016: $0).
During the year ended December 31, 2016, the Company recorded a loss of $1,088,331 on a related-party equity exchange resulting in 1,379,510,380 shares of the Company’s common stock being exchanged for 13,795,104 shares of the Company’s Series D Preferred Stock. There was no such loss during the year ended December 31, 2017. See Note 5 to the financial statements elsewhere in this report.
Other Comprehensive Loss
At each balance sheet date, transactions and balances that are denominated in a currency other than U.S. dollars are adjusted to reflect the current exchange rate which may give rise to a foreign currency translation adjustment accounted for as a separate component of stockholders’ equity and included in other comprehensive income. The Company recorded a translation loss of $(67,208) for the year ended December 31, 2017, compared to a gain of $1,447 for the year ended December 31, 2016. These amounts are included in the Company’s statement of operations as foreign currency gain (loss) for the respective years.
Liquidity and Capital Resources
As of the date of this prospectus, the Company has not generated revenue and is not profitable. The Company’s operations to date have been funded primarily by private placements of common stock and convertible notes, as well as by loans from its management and controlling stockholders.
As at December 31, 2017, the Company had $9,726 in cash and $1,452,713 in current liabilities resulting in a working capital deficit of $1,442,987. The Company is not currently able to maintain its operations through its existing cash balances and internally generated cash flows. Moreover, we have determined that the current capital structure of the Company is not adequate to fund its planned growth.
We intend to secure additional capital to fund the Company’s operations through the issuance of common stock, convertible debt instruments and loans from our management. There can be no assurance that we will be successful in obtaining the capital the Company requires to achieve its business objectives, or that such capital will be available on acceptable terms. Future cash flows are subject to a number of variables, including technology development costs, technology product rollout and support expense and the demand for the Company’s products and services.
Operating Activities
During the year ended December 31, 2017, the Company used net cash of $159,416 in operating activities compared to $320,156 for the year ended December 31, 2016. The decrease was primarily attributable to cessation of operations in Australia.
The Company’s average monthly cash burn rate was $13,285 during the year ended December 31, 2017, compared to $26,680 for the year ended December 31, 2016. Subject to the success of the Company’s financing activities, we expect to increase operating activities in the coming year with a concomitant increase in the Company’s monthly burn rate. We will not be able to predict the increase to our burn rate until we have determined the outcomes of our financing activities.
Investing Activities
The Company did not use any net cash for investing activities during the year ended December 31, 2017. During the year ended December 31, 2016, the Company used net cash of $39,000 for the acquisition of certain assets from PhotoSweep, LLC. Subject to the success of our financing activities, over the next three years we expect to make substantial investments in equipment as we develop our proposed KlickZie network and add capacity.
Financing Activities
The Company received net cash of $234,500 from financing activities during the year ended December 31, 2017, consisting of $213,040 in proceeds from convertible promissory notes and $53,153 from loans by management, offset by $30,693 in note repayment and $1,000 in loan repayment. During the year ended December 31, 2016, the Company received net cash of $344,131 through its financing activities, consisting of $302,406 in proceeds from convertible promissory notes and $45,282 in management loans, offset by $3,557 in note repayment. We expect to continue our financing activities to fund our operations until such time as the Company’s technologies are commercialized and we generate revenue on a profitable basis.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations is based upon its financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of the Company’s financial statements is critical to an understanding of its financial statements.
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.
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 Company’s financial instruments consist principally of cash, amounts receivable, accounts payable, and accrued liabilities, due to related parties and convertible notes. Pursuant to ASC 820, the fair value of the Company’s cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of the Company’s other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Subsequent Events
During the three month period ended March 31, 2018, the Company sold five convertible promissory notes for aggregate proceeds of up to $758,000. The Company has received $493,000 of proceeds under the notes, with another $200,000 in proceeds receivable at its option. One of the notes was paid in full during the period for $78,000
Also during the quarter ended March 31, 2018, the Company redeemed a note in the principal amount of $60,000 with an aggregate payment of $78,000 and 15,000,000 shares of the Company’s common stock.
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.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
A smaller reporting company is not required to provide the information required by this item.
Item 8.
Item 8. Financial Statements and Supplemental Data
To the Board of Directors and
Stockholders of Tautachrome, Inc.
Opinion on the Financial Statements.
We have audited the accompanying consolidated balance sheets of Tautachrome, Inc. (the Company) as of December 31, 2017 and 2016, and the related statements of operations, changes in stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
We have served as the Company’s auditor since 2008.
Houston, TX
March 31, 2018
TAUTACRHOME, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
The accompanying notes are an integral part of these financial statements.
TAUTACHROME, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Operations
The accompanying notes are an integral part of these financial statements.
TAUTACHROME, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
From December 31, 2015 to December 31, 2017
The accompanying notes are an integral part of these financial statements.
TAUTACHROME, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
TAUTACHROME, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
The accompanying notes are an integral part of these financial statements.
TAUTACHROME, INC. AND CONSOLIDATED SUBSIDIARIES
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:
The following table presents assets and liabilities that were measured and recognized at fair value as of December 31, 2016 on a recurring basis:
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 22nd 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 22nd 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 1/100th 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:
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:
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:
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.
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Management’s Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, our management used the 2013 criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“2013 Framework”) in Internal Control-Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses.
As of December 31, 2017, we did not maintain effective controls over the control environment. Specifically we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
As of December 31, 2017, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.
As of December 31, 2017, the Company did not establish a formal written policy for the approval, identification and authorization of related party transactions.
Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2017, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.
Change in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
Item 9B.
Item 9B. Other Information
None
PART III
Item 10.
Item 10. Directors, Executive Officers, Promoters and Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act
The following sets forth our directors, executive officers, promoters and control persons, their ages, and all offices and positions held. Directors are elected for a period of one year and thereafter serve until the stockholders duly elect their successor. Officers serve at the will of the Board.
Dr. Jon N. Leonard, Ph.D., M.S., B.S.
Dr. Jon N. Leonard has been the President, CEO, CFO and a director of the Company since May 21, 2015.
From June 2012 until November 2015, Dr. Leonard was the President, Chief Executive Officer and a director of Click Evidence Inc., an Arizona company that he co-founded, which developed our Klickzie trustable imaging technology for smartphones.
From September 2003 through to May 2012, Dr. Leonard held the position of Senior Manager of Programs at Raytheon, working out of the Raytheon Advanced Programs offices in Tucson, Arizona, and was responsible for conceiving and developing novel and advanced counter terrorism technologies for several US military programs. Raytheon services the United States and its allied nations providing air and missile defense systems, radars and other sensors for aircraft, spacecraft and naval ships, cybersecurity products and services and missile systems.
From March 8, 2015 to November 22, 2016, Dr. Leonard was a director of Novagen Ingenium Inc, an emerging growth company engaged in the development and commercialization of low carbon emission engines and precision engineering services.
Since May 18, 2013, Dr. Leonard has served as the President, Chief Executive Officer and a director of California Molecular Electronics Corp., an Arizona corporation he co-founded that developed the world’s first true molecular switch.
Dr. Leonard holds a Ph.D. in mathematics from the University of Arizona, an M.S. in engineering from U.C.L.A. and a B.S. in physics from the University of Arizona.
Matthew Staker, M.S., B.S.
Matthew Staker has been a director of the Company since May 28, 2015. In 2012, he co-founded Click Evidence, Inc. and served as its Chief Engineer and Executive Vice President in addition to being a member of its board of directors until November 2015.
Since 2015, Mr. Staker has been a technical executive for a leading avionics company, overseeing the development of data acquisition units on commercial aircraft.
From April 2006 until December 2014, Mr. Staker was the Director of Technology and Solutions Architecture at Security First Corp. in Rancho Santa Margarita, California, which develops and licenses software-defined data protection solutions that provide deep data security. He was awarded two patents in digital information security as a result of his work at Security First Corp.
Mr. Staker received an M.S. in Computer Science in 1987 from the University of Southern California, and has a B.S. in Computer Science from the University of Utah.
Family Relationships
There are no family relationships between any of our executive officers and directors.
Involvement in Certain Legal Proceedings
Except as noted herein or below, during the last ten years none of our directors or officers have:
1. had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2. been convicted in a criminal proceeding or subject to a pending criminal proceeding;
3. been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
4. been found by a court of competent jurisdiction in a civil action, the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Board of Directors and Committees
At December 31, 2017, our Board of Directors presently consisted of two members: Dr. Jon Leonard and Matthew Staker. Our Bylaws generally provide for majority approval of directors in order to adopt resolutions, and provide that the Board of Directors may be expanded by Board action. All executive officer compensation, including payroll expenditures, salaries, stock options, stock incentives, and bonuses, must be approved by the unanimous consent of the Board of Directors. The entire Board of Directors acts as the Audit Committee and the Compensation Committee.
On future compensation matters, the Board will consider and recommend payroll expenditures, salaries, stock options, stock incentive and bonus proposals for our employees (if any). Acting in its audit committee function, the Board reviews, with our independent accountants, our annual financial statements prior to publication, and reviews the work of, and approves non-audit services performed by, such independent accountants. The Board appoints the independent public accountants for the ensuing year. The Board also reviews the effectiveness of the financial and accounting functions and the organization, operation and management of our Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 and the rules there under require our officers and directors, and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission and to furnish us with copies.
Based on our reviews of the copies of the Section 16(a) forms received by it, or written representations from certain reporting persons, we believe that, during the last fiscal year, none of our directors or executive officers satisfied their Section 16(a) filing requirements. Such persons are in the process, with the assistance of counsel, to file all required and missing reports.
Procedure for Nominating Directors
We have not made any material changes to the procedures by which security holders may recommend nominees to our board of directors.
The board does not have a written policy or charter regarding how director candidates are evaluated or nominated for the board. Additionally, the board has not created particular qualifications or minimum standards that candidates for the board must meet. Instead, the board considers how a candidate could contribute to the Company’s business and meet the needs of the Company and the board.
Indemnification
Under our Articles of Incorporation and Bylaws of the corporation, we may indemnify an officer or director who is made a party to any proceeding, including a law suit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he is to be indemnified, we must indemnify him against all expenses incurred, including attorney’s fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Delaware.
Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to directors or officers under Delaware law, we are informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable.
Item 11.
Item 11. Executive Compensation
Summary Compensation
During the years ended December 31, 2017 and 2016, no salary, bonus or other compensation was awarded, earned or paid to the Company’s executive officers for any service rendered in any capacity to the Company.
We intend to adopt a compensation plan for executive officers when we have positive and stable cash flows for the purpose of: (a) attracting and retaining talented executive officers who can assist with our business strategy; (b) aligning the interests of those executive officers with those of the Company; and (c) linking individual compensation to the performance of the Company. Any such plan that we may adopt will be designed to provide compensation that is both in line with our fiscal resources and competitive with companies at a similar stage of development.
The elements of compensation to be awarded to, earned by, paid to, or payable to our executive officers are currently expected to be composed of: (i) base salary (or consulting fees); (ii) option-based awards; and (iii) cash bonuses or share-based awards for exceptional performance that results in a significant increase in stockholder value.
Base salary will be a fixed element of compensation payable to executive officers for performing the specific duties of their respective positions. The amount of base salary for each executive officer will be reviewed and set annually by the Board of Directors. While base salary is intended to fit into our overall compensation objectives by serving to attract and retain talented executive officers, the size of the Company and the nature and stage of its business will also impact the level of base salary.
We intend to use option-based awards as a variable element of compensation to attract and reward talented executives and professionals. Option-based awards are intended fit into our overall compensation objectives by aligning the interests of executive officers with those of the Company and linking individual compensation to its performance. The Board of Directors will be responsible for setting and amending any equity incentive plan under which an option based award would be granted. Previous grants of stock options will be taken into account when considering new grants.
We intend to award bonuses at our sole discretion and do not have any pre-existing performance criteria or objectives.
We do not intend to provide medical, dental, pension or other benefits to our executive officers.
Employment Agreements
There are no employment agreements or arrangements, whether written or unwritten, between the Company and any of its executive officers. We do not contemplate entering into employment agreements with our executive officers until the Company has positive and stable cash flows.
Incentive Plans
The Company does not have any plan or arrangement providing compensation to executive officers or directors intended to serve as an incentive for performance to occur over any period.
Equity Compensation Plans
The Company does not have any stock option plans, stock appreciation rights or any other plan, contract, authorization or arrangement pursuant to which the executive officers or directors of the Company may receive equity-based compensation for their services to the Company.
Outstanding Equity Awards
No executive officer or director of the Company had any unexercised option, stock that had not vested or equity incentive plan award as at the end of the Company’s last completed fiscal year.
Pension and Retirement Plans
The Company does not have any plan or arrangement by which to provide pension, retirement or similar benefits to its executive officers or directors, and we do not currently intend to offer such any such plan or arrangement until we have positive and stable cash flows
Termination, Resignation or Change of Control
The Company is not a party to any contract or agreement, and has not entered into any plan or arrangement that may provide for payment to an executive officer or a director at, following, or in connection with the resignation, retirement or other termination of an executive officer or director, or a change of control of the Company or a change in the responsibilities of an executive officer following a change of control.
Compensation of Directors
The members of the Board of Directors do not receive compensation for their services as directors, but they are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. We may pay cash compensation to an executive officer who is also a director, but only in his or her capacity as an executive officer. We do not currently have an established policy to provide compensation to directors for their services in that capacity.
Director Independence
Our Board of Directors has determined that none of our directors is “independent” as defined under the standards set forth in Section 303A.02 of the NYSE Listed Company Manual. In making this determination, the Board of Directors considered all transactions set forth in the section titled “Certain Relationships and Related Transactions,” elsewhere in this prospectus.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of the date of this report, information concerning ownership of our voting shares by (i) each director, (ii) each executive officer, (iii) all directors and executive officers as a group, and (iv) each person known to us to be the beneficial owner of more than five percent of each class. The number and percentage of shares beneficially owned includes any shares as to which the named person has sole or shared voting power or investment power and any shares that the named person has the right to acquire within 60 days.
__________
(1) Each outstanding share of preferred stock entitles the holder thereof to 100 votes on all matters submitted to a vote of the Company’s stockholders.
(2) Based on an aggregate of 1,690,283,300 shares of common stock outstanding at March 29, 2018.
(3) Based on an aggregate of 13,795,104 shares of preferred stock outstanding at March 29, 2018.
(4) Includes 126,166,322 shares of common stock held by California Molecular Electronics Corp., of which Dr. Leonard is the sole officer and director.
The mailing address for all directors, executive officers and beneficial owners of more than five percent of our common stock is 1846 E. Innovation Park Drive, Oro Valley, Arizona 85755.
Unless otherwise stated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of our common stock beneficially owned by them. For purposes hereof, a person is considered to be the beneficial owner of securities that can be acquired by such person within 60 days from the date hereof, upon the exercise of warrants or options or the conversion of convertible securities. Each beneficial owner’s percentage ownership is determined by assuming that any such warrants, options or convertible securities that are held by such person (but not those held by any other person) and which can be exercised within 60 days from the date hereof, have been exercised.
Changes in Control
We are not aware of any arrangement, the operation of which may at a subsequent date result in a change of control of the Company.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
For the years ended December 31, 2017 and 2016, certain related parties made cash payments to the Company and the Company made cash payments to the related parties (see Note 4 to the financial statements).
Director Independence
As our common stock is currently traded on the OTC Bulletin Board, we are not subject to the rules of any national securities exchange which require that a majority of a listed company’s directors and specified committees of the board of directors meet independence standards prescribed by such rules.
Item 14.
Item 14. Principal Accountant Fees and Services
Audit and Review Fees. We paid M&K, CPAS, PLLC for audit and review fees of $21,500 for 2017 and $20,750 for 2016.
Tax Fees. We have not paid any money for tax related services.
All Other Fees. We have not paid any money for audit related fees.
Audit Committee pre-approval policies and procedures. The entire Board of Directors, which acts as our audit committee, approved the engagement of M&K, CPAS, PLLC.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules, Signatures
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.
In accordance with the Securities Exchange Act of 1934, this report has been duly signed by the following persons on behalf of the Company and in the capacities and on the dates indicated.
/s/ Dr. Jon Leonard
Date: March 31, 2018
Dr. Jon Leonard
Chairman, Chief Executive Officer
and Chief Financial Officer
/s/ Matthew Staker
Date: March 31, 2018
Matthew Staker
Director