TAUTACHROME INC. - Annual Report: 2016 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

Commission file number 333-141907

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x

The aggregate market value of 621,593,422 shares held by non-affiliates as of December 31, 2016 is $5,905,138, based on the closing price of our stock on June 30, 2016.

As of February 8, 2017, the registrant had 1,676,032,960 shares of its common stock outstanding.

Documents Incorporated by reference: None.

TAUTACHROME, INC.

FORM 10-K

For the Years Ended December 31, 2016 and 2015

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties. We generally use words such as "believe," "may," "could," "will," "intend," "expect," "anticipate," "plan," and similar expressions to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described below and elsewhere in this report. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made, and our future results, levels of activity, performance or achievements may not meet these expectations. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results or to changes in our expectations, except as required by law.

All references in this Annual Report to the "Company," "we," "us" or "our" are to Tautachrome, Inc. and our wholly owned subsidiaries.

Item 1. Business Factors

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 space uniquely able to embrace 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 the arrival of wholly new business universes seemingly from out of nowhere.

Tautachrome is currently pursuing two avenues of business activity:

1. KlickZie technology-based business activity

Tautachrome’s patent pending KlickZie technology addresses two major new needs of the internet age.

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 so often falsified that you can’t trust any of it. There is a giant need for a universally available, downloadable system that turns the everyday pictures and videos we take from our smartphones into something that is completely trustable to any third party seeing it. With such a system two kinds of imagery will suddenly appear on the web: On the one hand imagery whose trustworthiness everybody can be absolutely certain of, and on the other hand all the rest of the imagery which nobody has any idea of its trust worthiness. The KlickZie system aims to satisfy this fundamental need for universal trustability.

Solving the need for trustability also solves a more subtle need that opens the door to an enormous new opportunity. This is the need for people to be able to use 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 won’t 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 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 tapestry of interaction and imagery.

How KlickZie technology works: The KlickZie Activation Platform Consumers will download KlickZie’s free camera upgrade software into their mobile device (iPhone, Android or other smartphone) which thereafter activates the pictures and videos taken by their device using proprietary KlickZie technology. Behind the scenes, the powerful and secure KlickZie software will capture the imagery and all available metadata related to the imaging event, and mark the imagery and its metadata with advanced, highly undetectable KlickZie watermarking technology.

KlickZie Activation KlickZie activation adds a new world of usefulness to ordinary pictures and videos. People 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 merely clicking or touching the picture (“touch-to-comm”). The picture itself makes the communication happen. It does not matter where or how you come across an activated picture, you can engage it, interact with it, or share it, just by touching or clicking it.

What happens to an activated picture from its creation onward gets invisibly added to the picture’s data and can be tracked into the future. Activated pictures can 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?

KlickZie’s activated pictures and videos will also possess the power to be completely trustable in the sense that any third party can be absolutely confident of the authenticity of the imagery because KlickZie pictures and videos will be secured in the KlickZie cloud at their creation where they remain until their creator or owner deletes them.

The upshot is that activation allows effective touch to comm with the authors and viewers of smartphone pictures and videos from every source, and activated pictures and videos can be completely trusted imagery.

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. 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. Although to our knowledge no firm 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, there is nothing stopping any firm, particularly the internet giants, from entering into similar activity.

Employees

Tautachrome, Inc. has no full-time employees. Services are currently provided through independent contractors.

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. Unresolved Staff Comments

Not applicable.

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 the emerging growth 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.

Item 3. Legal Proceedings

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.

Statement of Counsel (Ian Quinn, Quinnlaw, Phoenix, AZ)

Subsequent to a stock swap on May 21, 2015 between the Company and the private Arizona corporation Click Evidence (Click”), the assets and interests of Click were transferred to the Company, Click became a mere shell, and in November 2015 the shell was conveyed out of the Company to Robert McClelland who renamed it BH Trucking. Subsequently Richard Morgan, a former consultant to Click, filed a lawsuit against BH Trucking for an alleged breach of contract with Click. While BH Trucking filed an answer and initially defended against the litigation it later dismissed their counsel in the case and failed to hire a new attorney. In Arizona, a corporation cannot represent itself pro persona. Morgan moved for and was awarded a default judgment against BH Trucking on December 15, 2016 in the amount of $2,377,915.01.

The Company was named in the lawsuit but was never served in it. As such, the Company is not a target of the judgement.

In 2017, Morgan filed a second lawsuit in which the Company is named and has been served. The Company believes this litigation is frivolous, has filed motions to dismiss all claims against it, and has instructed Quinnlaw to use all best efforts to prevent the case from getting past the pleading stage. Should it proceed, management has instructed Quinnlaw to continue to vigorously defend it.

Item 4. Mine Safety Disclosures

Not applicable.

PART II - OTHER INFORMATION

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, 2016, there were 1,672,789,717 shares of our common stock issued and outstanding.

Holders

On December 31, 2016, the Company had approximately 576 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. 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. Management’s Discussion and Analysis or Plan of Operation

The following discussion and analysis of our plan of operation should be read in conjunction with the financial statements and the related notes. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Description of Business" and elsewhere in this annual report.

Overview

Critical Accounting Policies, Estimates and New Accounting Pronouncements

Management's discussion and analysis of its financial condition and plan of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. At each balance sheet date, management evaluates its estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The estimates and critical accounting policies that are most important in fully understanding and evaluating our financial condition and results of operations include those stated in our financial statements and those listed below:

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 $320,155 and $366,403 for the years ended December 31, 2016 and 2015, respectively, recurring losses, and negative working capital at December 31, 2016 and 2015. 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.

Resignation of Australian Directors

Last year the Australian directors of Tautachrome, Micheal Nugent, Robert McClelland and Patrick Greene resigned from the board of directors and from their officer positions in Tautachrome. This move reflects the need to focus Tautachrome on its primary business in internet technology development. The business skills contributed by the Australian directors were important in building Tautachrome’s presence during the post-merger transition that created Tautachrome. Their departure signals the importance of Tautachrome’s intellectual property and for expertise in these fields to become the driving force in the Company.

Results of Operations – Comparison of Years Ended December 31, 2016 Versus 2015

Net Loss

Net loss for the years ended December 31, 2016 and 2015 was $4,600,731 and $995,385, respectively with components of those discussed below.

Revenues

There were no revenues earned during the years ended both December 31, 2016 and 2015.

General and Administrative Expenses

Our general and administrative expenses were $419,534 for the year ended December 31, 2016 versus $524,892 for the same period in 2015, or about a 20% decrease. Categories of expenses decreasing were advertising and promotion (about a $30,000 decrease) and wages and related costs (about a $35,000 decrease).

Depreciation Expense

Depreciation expense for the years ended December 31, 2016 was $92,862 versus $807 during the same period in 2015. The major component of the increase is our amortization of our investment in Photosweep, LLC of $92,862.

Asset Impairment

We had an asset impairment of $299,738 for the year ended December 31, 2016 related to our investment in Photosweep (See Note 6 to the financial statements). We had no such impairment in 2015.

Loss on Litigation

As discussed in Note 8 to the financial statements, we had a loss of $2,382,374 related to a consultant lawsuit. We had no such loss in the previous year.

Interest Expense

Interest expense was $317,892 for the year ended December 31, 2016 versus $451,804 for the same period in 2015. The principal reasons for the decrease were two-fold and offsetting: we experienced a decrease in the volume and values of the beneficial conversion features associated with the convertible promissory notes issued in Australia (a decrease approximately $280,000 from 2015) and an increase in discount amortization (and increase of approximately $108,000).

Loss on Equity Exchange

We recorded a loss of $1,088,331 on a related-party equity exchange as discussed in Note 5 to the Financial Statements. We had no such loss in 2015.

Foreign Exchange Effect and Net Comprehensive Loss

The foreign exchange effect is the effect of translating Australian Dollar balances and activities into US Dollars. Items in the Consolidated Balance Sheets in Australian Dollars are translated to US Dollars at 1.3873 USD/AUD whereas the balances in the Statement of Operations are translated at 1.380175 USD/AUD. This results in a valuation of equity in the Balance Sheet line item “Other Comprehensive Income” (it is the only item affecting that Balance Sheet item).

Change in Fair Value of Derivatives

We had no change in value of derivatives for the year ended December 31, 2016. As discussed in Note 7 to the financial statements, we renegotiated the notes containing the embedded derivatives to remove the ratchet provisions giving rise to the derivative liabilities. For the year ended December 31, 2015, the change in our derivative liabilities amounted to a loss of $17,882.

Liquidity and Capital Resources

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

At December 31, 2016, we had $1,850 in cash and $3,442,780 in current liabilities resulting in negative working capital of $3,440,930. At December 31, 2015, we had $15,428 in cash and $740,284 in current liabilities resulting in negative working capital of $724,856 for an increase in negative working capital of $333,700.

Currently, we are not able to maintain our existing operations through the existing cash balances and internally generated cash flows. Moreover, we have determined that our existing capital structure is not adequate to fund our planned growth. We intend to finance our growth by issuing additional common stock and through loans from our shareholders. There can be no assurance that we will be successful in procuring the financing we are seeking. Future cash flows are subject to a number of variables, including technology development costs, technology product rollout and support expense, the procurement of vessels, and the demand for our services. There can be no assurance that we will obtain the capital we need to achieve our goals.

Plan of Operations

Tautachrome operates in the internet applications space, a space uniquely able to embrace 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 the arrival of wholly new business universes seemingly from out of nowhere.

Tautachrome is currently pursuing two avenues of business activity:

Our Appquisitions Division is being shelved for the time being.

1. KlickZie technology-based business activity

Tautachrome’s patent pending KlickZie technology addresses two major new needs of the internet age.

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 so often falsified that you can’t trust any of it.

There is a giant need for a universally available, downloadable system that turns the everyday pictures and videos we take from our smartphones into something that is completely trustable to any third party seeing it. With such a system two kinds of imagery will suddenly appear on the web: On the one hand imagery whose trustworthiness everybody can be absolutely certain of, and on the other hand all the rest of the imagery which nobody has any idea of its trust worthiness. The KlickZie system aims to satisfy this fundamental need for universal trustability.

Solving the need for trustability also solves a more subtle need that opens the door to an enormous new opportunity. This is the need for people to be able to use 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 won’t 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 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 tapestry of interaction and imagery.

How KlickZie technology works: The KlickZie Activation Platform Consumers will download KlickZie’s free camera upgrade software into their mobile device (iPhone, Android or other smartphone) which thereafter activates the pictures and videos taken by their device using proprietary KlickZie technology. Behind the scenes, the powerful and secure KlickZie software will capture the imagery and all available metadata related to the imaging event, and mark the imagery and its metadata with advanced, highly undetectable KlickZie watermarking technology.

KlickZie Activation KlickZie activation adds a new world of usefulness to ordinary pictures and videos. People 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 merely clicking or touching the picture (“touch-to-comm”). The picture itself makes the communication happen. It does not matter where or how you come across an activated picture, you can engage it, interact with it, or share it, just by touching or clicking it.

What happens to an activated picture from its creation onward gets invisibly added to the picture’s data and can be tracked into the future. Activated pictures can 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?

KlickZie’s activated pictures and videos will also possess the power to be completely trustable in the sense that any third party can be absolutely confident of the authenticity of the imagery because KlickZie pictures and videos will be secured in the KlickZie cloud at their creation where they remain until their creator or owner deletes them.

The upshot is that activation allows effective touch to comm with the authors and viewers of smartphone pictures and videos from every source, and activated pictures and videos can be completely trusted imagery.

KlickZie Product Rollout. Rolling out KlickZie requires hiring activity to round out the Click Technical Team. Additional required technical staff 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.

Monetizing. As presently conceived, the KlickZie product aims at revenues from four primary sources:

Funding

The KlickZie product rollout requires substantial funding. We plan on, and are now, seeking funds to finance KlickZie product rollout. Financing may be accomplished by incurring debt, by equity sale or through other means. There can be no assurances given that our funding efforts will be successful.

First KlickZie revenues. Our Plan of Operations 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.

The Company has developed a business model for a large US business that exploits KlickZie technology aimed at enhancing their bottom line and their public image. Tautachrome believes that the economic payoff of KlickZie will be attractive for companies with a global reach and with a large number of consumer customers.

Acquisitions

We will continue to look at value enhancing acquisitions in 2017.

Smartphone app development and digital design business activity

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.

Going forward the Safedate App platform is being re-purposed for broader use than dating applications. Polybia studios is continuing in Australia, and PhotoSweep and IT support are being ported back to the US for state-side operation.

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. Financial Statements and Supplemental Data

INDEX TO FINANCIAL STATEMENTS

To the Board of Directors and
Stockholders of Tautachrome, Inc.

We have audited the accompanying consolidated balance sheets of Tautachrome, Inc. as of December 31, 2016, and 2015, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2016. Tautachrome, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tautachrome, Inc. as of December 31, 2016, and 2015, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the 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.

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, 2014 to December 31, 2016

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

TAUTACHROME, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows

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

The Division operates in the internet applications space, a space uniquely able to embrace 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 the arrival –seemingly from out of nowhere- of wholly new business universes.

Click is developing a system branded "KlickZie" aimed at turning smartphones, including iPhones, Android phones and other smartphones, into trustable imagers and advanced communicators. Trustable imagers means that the pictures and videos can be trusted to be the original, untampered, un-Photoshopped pictures and videos made by the smartphone. Advanced communicators means that the pictures and videos can be used as living, trusted portals to communicate with others.

The KlickZie system concept consists of downloadable software able to securitize the imaging process in the smartphone, together with an advanced cloud system to authenticate KlickZie pictures and videos and to make possible imagery based communication among people who happen upon KlickZie pictures and videos.

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 financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Actual amounts could differ significantly from these estimates.

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, 2016 and 2015.

Property, Plant and Equipment

We record our property plant and equipment at historical cost. The estimated useful lives of these assets range from three to seven years and are depreciated using the straight-line method over the asset’s useful life.

Foreign Currency Risk

We currently have two subsidiaries operating in Australia. At December 31, 2016 and 2015, we had $603 and $3,648 Australian Dollars, respectively ($434 and $2,657 US Dollars, respectively) deposited into Australian banks.

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, 2016 on a recurring basis:

The following table presents assets and liabilities that were measured and recognized at fair value as of December 31, 2015 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 8 for our reconciliation of income tax expense and deferred income taxes as of and for the years ended December 31, 2016 and 2015.

Recent Accounting Pronouncements

Income Taxes

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.

Stock Compensation

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.

Leases

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.

Financial Instruments

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. The Company does not expect adoption of the new revenue standards to have a material impact on its consolidated financial statements.

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 $320,156 and $366,403 for the years ended December 31, 2016 and 2015, respectively, recurring losses, and negative working capital at December 31, 2016 and 2015. 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, 2016 and 2015, we had the following transactions with the Twenty Second Trust (the "Trust"), the trustee of whom is Tamara Nugent, the wife of our major shareholder and former Chief Executive Officer, Micheal Nugent:

·

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

The outstanding balance to the 22^nd Trust at December 31, 2015 was $80,107. During the year ended December 31, 2016, we received $18

On September 18, 2015, we entered into an agreement with Novagen Ingenium Inc, a Nevada corporation ("Novagen") under which we agreed to sell to Novagen all of the transportation assets of Roadships which had, at the time of the exchange, carrying values of zero, for 2,000,000 shares of Novagen common stock. Shares of Novagen's common stock are quoted under the symbol "NOVZ" on the OTC Pink operated by OTC Markets Group, Inc. Novagen's controlling shareholder is Micheal Nugent who was, until November 14, 2016, on our Board of Directors and remains a major shareholder. Since the shares represent a transaction with a related party, we recorded the value of these shares at zero.

On August 9, 2015, we issued a $5,000 convertible promissory note to the brother of our Board Chairman and Chief Executive Officer in return for cash. The terms of this note are provided in Note 7, subheading "Convertible Notes Payable".

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 ("Jon") under which the Company may borrow such money from Jon as Jon in his sole discretion is willing to loan. The outstanding loan amount at December 31, 2015 was $22,160. During the year ended December 31, 2016, the Company borrowed $27,000 leaving an ending balance owed to Jon of $49,160.

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 $3,199 and $1,767 was recorded as additional paid-in capital for the years ended December 31, 2016 and 2015, respectively. The Company evaluated Dr. Leonard's note for the existence of a beneficial conversion feature and determined that none existed.

All other related party balances relate to certain officers and directors who paid expenses on behalf of the company and were reimbursed for a portion of those expenses. Balances owed at December 31, 2015 were $686. During the year ended December 31, 2016, these related parties paid $30,007 of expenses on behalf of the Company and were reimbursed $16,259, leaving a balance of $14,361 after adjustment for foreign exchange effect.

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.

As described in Note 5, 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 7, 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.

Preferred Stock

On September 29, 2016, the Company’s principal shareholders (“Principals”), Dr. Jon N. Leonard, Micheal P. Nugent, and Matthew W. Staker, offered to retire 1,379,510,380 of their common shares in exchange for a new series of non-trading preferred shares.

On October 5, 2016, the Board of Directors voted to accept the share retirement offer, and on October 20, 2016, the Company filed a Certificate of Designations with the State of Delaware creating 13,795,104 shares of Series D Preferred Stock (the “Preferred Shares”) to effect the exchange.

Share Exchange ratio and Preservation of Voting Rights

In the share exchange, each principal received 1 Preferred Share for each 100 common shares retired Each share of Preferred Shares entitles the holder to 100 votes (and each 1/100^th of a Preferred Share entitles the holder to one vote).

Conversion Rights

A holder may convert Preferred Shares to common under the following conditions:

Automatic conversion – each Preferred Share automatically converts to 100 common shares upon the earlier of

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:

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 made in our Australian subsidiary 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, 2016 and 2015, these amounted to $13,274 and $7,501, 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 7) 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.

At December 31, 2016, all outstanding convertible promissory notes issued in Australia can convert to an aggregate of 82,873,300 shares of common stock.

Also during the year ended December 31, 2016, we borrowed $109,758 from four accredited investors in the United States (see Note 7). 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, 2016,we amortized $106,628 of debt discounts to interest expense.

At December 31, 2016, all outstanding convertible promissory notes issued in the United States can convert to an aggregate of 28,473,915 shares of common stock.

Note 6 – 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 7 - Debt

Our debt in certain categories went from $632,697 at December 31, 2015 to $861,050 at December 31, 2016 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 (the aggregate of which shares convertible for all outstanding Australian convertible notes at December 31, 2016 is 82,873,300). 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 (the aggregate of which shares convertible for all outstanding USA convertible notes at December 31, 2016 is 28,473,915).

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.

The aggregate amount of shares that may be issued upon conversion for convertible notes issued in both Australia and the Unites States is 111,347,215.

One of the eight accredited investors included in the above paragraph is the brother of our Board Chairman and Chief Executive Officer, Dr. Jon Leonard. This $5,000 related-party convertible promissory note is dated August 9, 2015, matures on February 26, 2017, pays interest at 5%, and may convert into 1,020,408 common shares.

Derivative liability

The eight convertible promissory notes issued in the United States during the year ended December 31, 2015 (and which were re-negotiated on January 1, 2016) were analyzed in accordance with EITF 07–05 and ASC 815. EITF 07–5, which is effective for fiscal years beginning after December 15, 2009, and interim periods within those fiscal years. The objective of EITF 07–5 is to provide guidance for determining whether an equity–linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception under Paragraph 11(a) of ASC 815 which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non–derivative instrument that falls within the scope of EITF 00–19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non–derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability.

Derivative financial instruments should be recorded as liabilities in the consolidated balance sheet and measured at fair value. For purposes of this engagement and report, we utilized fair value as the basis for formulating our opinion which has been defined by the Financial Accounting Standards Board (“FASB”) as “the amount for which an asset (or liability) could be exchanged in a current transaction between knowledgeable, unrelated willing parties when neither party is acting under compulsion”. The FASB has provided guidance that its definition of fair value is consistent with the definition of fair market value in IRS Rev. Rule 59–60.

In valuing the derivatives, the following inputs were assumed:

We recorded the initial derivative as both a derivative liability and a debt discount (or initial reduction in carrying value of the debt). We then amortized the debt discounts, through December 31, 2015, using the Effective Interest Method which recognizes the cost of borrowing at a constant interest rate throughout the contractual term of the obligation. The effective interest rates on these seven instruments range from 5.0% to 10.6%.

At each reporting date, we determine the fair market value for each derivative associated with each of the seven above instrument. At December 31, 2015, we determined the fair value of these derivatives were $23,812. We therefore included the difference in the Statement of Operations as “Change in Fair Value of Derivatives” for the year ended December 31, 2015.

On January 1, 2016, we re-negotiated these notes with the creditors in order to remove the provisions in the notes which caused the derivative liability, namely the ratchet provisions which stipulate that the creditor may adjust the conversion price based on prices granted in subsequent capital raises. In re-negotiating this contract provision, we granted the creditors new conversion prices instead of the ratchet provisions. We therefore removed the derivative liability at December 31, 2015 on January 1, 2016 (whose one-day difference did not result in a change in fair value), and recorded an increase to Additional Paid in Capital of $18,760.

Changes in derivative liabilities for the years ended December 31, 2016 and 2015 are as follows:

In addition to the above, we recorded a liability in the amount of $2,382,374 due to a Court Judgment explained in Note 8.

Note 8 – Litigation Loss

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 Financials

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.

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

During the first quarter of 2017, we issued an additional 3,243,243 shares for conversion of principal and interest on convertible promissory notes issued in the United States.

We have evaluated subsequent events through the date of this report.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

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, 2016. In making this assessment, our management used the 2013 criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) 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.

Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2016, 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. Other Information

None

PART III

Item 10. Directors, Executive Officers, Promoters and Control Persons and Corporate Governance; Compliance with Section 16(a) Of The Exchange Act

As of March 31, 2017, the directors and executive officers and their positions, are as follows:

Dr. Jon N. Leonard

Dr. Jon N. Leonard has been the Executive Chairman and Chief Executive Officer at Click Evidence, Inc. since September 2012. From September 2002 to May 2012, Dr. Leonard was variously employed by Raytheon Missile Systems Company as Senior Director of Programs, Advance Programs, and as Director, Counter Terrorism Technology. Dr. Leonard holds a Ph.D. in Mathematics from the University of Arizona, a M.Sc. in Aerospace Engineering from U.C.L.A. and a B.A. in Physics from the University of Arizona.

Matthew Staker

In 2012, Mr. Staker co-founded Click Evidence, Inc. (“Click”) with Dr. Jon N. Leonard, and has since served as its Chief Engineer and Executive Vice President in addition to being a member of its board of directors.

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.

Since 2015, Mr. Staker has been a technical executive for a leading avionics company, overseeing the development of data acquisition units on commercial aircraft.

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 is no family relationship among 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:

Board of Directors and Committees

At December 31, 2016, 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 compensation matters, the Board considers and recommends payroll expenditures, salaries, stock options, stock incentive and bonus proposals for our employees. 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.

Item 11. Executive Compensation

Summary Compensation

As a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K, we have elected to follow scaled disclosure requirements for smaller reporting companies with respect to the disclosures required by Item 402 of Regulation S-K. Under the scaled disclosure requirements, the Company is not required to provide a Compensation Discussion and Analysis, Compensation Committee Report and certain other tabular and narrative disclosures relating to executive compensation.

The following table shows the compensation paid or accrued during the fiscal years ended December 31, 2016 and 2015, to our Chief Executive Officer, our former Chief Financial Officer (retired since January, 2014), our Executive Vice President and our Corporate Secretary.

Narrative to Summary Compensation Table

Employment Agreements of Named Executive Officers

The Company has no compensation agreements with any of the Named Officers.

Long-term Incentive Plans

We do not have any long-term incentive plans, pension plans or any similar compensatory plans for any of our directors or executive officers. Nor do we currently have any intention to initiate any such plans in the near future.

Outstanding Equity Awards at Fiscal Year End

There are no outstanding equity awards at December 31, 2016.

Retirement Benefits

We do not have any material terms or plans that provide for the payment of retirement benefits, or benefits that will be paid primarily following retirement, including but not limited to tax-qualified defined benefit plans, supplemental executive retirement plans, tax-qualified defined contribution plans and nonqualified defined contribution plans.

Nonqualified Deferred Compensation

We do not have any nonqualified defined contribution plans or other deferred compensation plans

Potential Payments Upon Termination or Change of Control

We do not, as of December 31, 2016, have any material terms, contracts, agreements, plans or arrangements, written or unwritten, that provides for payment(s) to a CEO at, following, or in connection with the resignation, retirement or termination of a CEO, or a change in control of the company or a change in the CEO’s responsibilities following a change in control, with respect to each CEO.

Director Compensation

The following table sets forth a summary of the compensation earned by our directors and/or paid to certain of our directors pursuant to certain agreements we have with them in 2014.