TAUTACHROME INC. - Annual Report: 2018 (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, 2018

Commission file number 333-141907

1846 E. Innovation Park Drive,

Oro Valley, Arizona 85755

(Address of principal executive offices, including zip code.)

(520) 318-5578

(Registrant’s telephone number, including area code)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ 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 ¨ 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 ¨

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. ¨

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):

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2018, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $6,592,777 (based on the closing price of $0.0078 on June 30, 2018 on the OTCQB).

As of April 10, 2019, the registrant had 2,871,747,062 shares of its common stock outstanding.

Documents Incorporated by reference: None.

TAUTACHROME, INC.

FORM 10-K

For the Years Ended December 31, 2018 and 2017

TABLE OF CONTENTS

PART 1 – 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

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, 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. The subsequent development of a new patent pending technology dubbed ArK technology that exploits augmented reality in a new solution to the purchasing interaction between global consumers and providers is a brand new surprise, and has been licensed by the Company for development.

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

Arks may be mobile ArKs, using the app user’s mobile device to mobilize the ArK location, or stationary ArKs, using a set geo location determined by coordinates or determined by fixing the ArK location by moving the ArK owner’s mobile device to a desired location and setting the stationary ArK’s location there.

Providers may create their ArKs, decide on their ArK Symbol, choose their Symbol geolocations and provide for license payment to the Company, using features in the ArK app.

We intend the ArK app to be free to consumers or other users merely wishing to use the app to survey their environ for the presence of ArK symbols.

We envision a KlickZie ArKnet with billions of users and ArKs connecting humanity, commerce, information, crypto currency, and innovation in useful ways. Plus, we want to return the ownership of users’ information and valuable items such as images and video, back to where it rightfully belongs, the individual user.

For additional information, visit http://myarknet.io.

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.

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

Monetizing

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

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 ArK technology platform, our activated imagery 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.

The proposed offering will take place both with offerings under Reg D exemption or Reg S exclusions, and with a public offering as soon as practicable upon effectiveness of a registration statement to be filed with the SEC. We can give no assurance that such a registration statement will ever be effective or that such a public 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 ArK business app 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. Work on our PhotoSweep halted smartphone app named PhotoSweep has also been shelved for the time being.in preference to a strict focusing on the KlickZie business activity.

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 ArK augmented reality space, while there is no direct competition in the at the moment, that could change in a heartbeat with an interest taken by any of the internet giants mentioned above.

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. 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 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. 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

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 entity 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.

Effect on the Financial Statements

During the year ended December 31, 2017 we 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.

On August 14, 2018, we settled this lawsuit in full by issuing 10 million shares. We valued the shares at their grant date fair value of $60,000, removing the judgment liability of $5,000 and recording a $55,000 loss on litigation.

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.

On October 17, 2018, we offered McRae 50 million shares in settlement of all outstanding legal actions against us. McRae declined the offer. However, we re-evaluated the liability on these lawsuits from $49,000 to $250,000 based on the closing price of our common stock on the date of the offer. We recognized a loss on litigation of $$201,000 in so doing.

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. 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, 2018, there were 1,932,483,910 shares of our common stock issued and outstanding.

Holders

On December 31, 2018, the Company had approximately 577 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information for the year ended December 31, 2018 and December 31, 2017. This MD&A should be read together with our audited consolidated financial statements and the accompanying notes for the fiscal years ended December 31, 2018 and December 31, 2017.

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, 2018 and December 31, 2017, 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 $635,027 and $159,416 for the years ended December 31, 2018 and 2017, respectively, with recurring losses and negative working capital of $2,589,561 and $1,442,987 as at December 31, 2018 and 2017, 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, 2018, and 2017

Net Gain versus Net Loss

The Company realized a net comprehensive loss of $4,103,126 for the year ended December 31, 2018 compared to a net comprehensive gain of $1,720,905 for the year ended December 31, 2017.

Revenue

The Company did not earn any revenue during the years ended December 31, 2018 or December 31, 2017.

Operating Expenses

The Company’s total operating expenses for the year ended December 31, 2018 were $2,619,916 compared to $317,631 for the year ended December 31, 2017, an increase of $365,285 (115%).

For the year ended December 31, 2017, the Company incurred general and administrative expenses of $782,916 compared to $317,631 for the year ended December 31, 2017, an increase of $2,302,285 (725%) primarily attributable to increased software development activity and increases in legal costs to fight our existing lawsuits. The following table sets out the material components of the Company’s general and administrative expenses for the years ended December 31, 2018 and 2017.

Other Expenses

On December 15, 2016, a former consultant of the Company obtained default judgment for $2,377,915 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. Additionally, during the year ended December 31, 2017, we accrued 54,000 for the Morgan and McRae lawsuits.

On October 17, 2018, we offered McRae 50 million shares in settlement of all outstanding legal actions against us. McRae declined the offer. However, we re-evaluated the liability on these lawsuits from $49,000 to $250,000 based on the closing price of our common stock on the date of the offer. We recognized a loss on litigation of $$201,000 in so doing.

During the year ended December 31, 2018, we recorded a loss on the settlement to Morgan of $55,000.

During the year ended December 31, 2018, we recorded losses of $41,278 on conversions of debt to equity. We had no such losses during the previous year.

The Company recorded an interest expense of $1,363,437 during the year ended December 31, 2018 compared to $266,924 for the year ended December 31, 2017, an increase of $1,096,513 (410%). The increase is due to five convertible promissory notes which contained initial derivatives which we accounted for as debt discounts and are amortizing to interest expense.

During the year ended December 31, 2018, we recorded a change in the value of our derivative liabilities in the amount of $96,843. We had no such item in 2017.

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 gain of $80,662 for the year ended December 31, 2018, compared to a loss of $67,208 for the year ended December 31, 2017. 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 report, 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, 2018, the Company had $6,243 in cash and $2,595,804 in current liabilities resulting in a working capital deficit of $2,589,561. 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, 2018, the Company used net cash of $635,027 in operating activities compared to $159,416 for the year ended December 31, 2017. The increase was primarily attributable to increased software development and legal fees.

The Company’s average monthly cash burn rate was $52,919 during the year ended December 31, 2018, compared to $13,285 for the year ended December 31, 2017. 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, 2018.

Financing Activities

The Company received net cash of $550,882 from financing activities during the year ended December 31, 2018, consisting of $633,000 in proceeds from convertible promissory notes, $100,000 of proceeds from the issuance of crypto-currency notes payable and $2,130 of loans by management, offset by $162,298 in note repayment and $21,950 in related-party loan repayments. During the year ended December 31, 2017, the Company received net cash of $234,500 through its financing activities, consisting of $213,040 in proceeds from convertible promissory notes and $53,153 in management loans, offset by $30,693 in note repayments and $1,000 in related-party loan repayments. 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.

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. 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.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Tautachrome, Inc. (the Company) as of December 31, 2018 and 2017, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.

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 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

April 16, 2019

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, 2016 to December 31, 2018

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

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):

We were informed by the SEC in January of 2017 that the Tautachrome KLK20 token is considered to be a security by virtue of the fact that the Company will have to do work for the token to have value. We understand the law and that interpretation of the law, and we agree. This means that the token may only be sold to persons under which the sale would qualify under an available exemption from registration or an available exclusion from registration.

Our current offering of our KLK20 tokens are being made only to Non-US Persons under an exclusion from registration, and to US Persons who are accredited investors under an exemption from registration.

For US Persons, the Offering is being made only to accredited investors pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), Regulation D and Rule 506 promulgated thereunder.

The Offering is being made available to Non-US Persons pursuant to an exclusion from registration under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), Regulation S and Rules 901 through 905 promulgated thereunder.

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, 2018 and 2017.

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, 2018 on a recurring basis:

The following table presents assets and liabilities that were measured and recognized at fair value as of December 31, 2017 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, 2018 and 2017.

Recent Accounting Pronouncements

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income . The guidance permits entities to reclassify tax effects stranded in Accumulated Other Comprehensive Income as a result of tax reform to retained earnings. This new guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted in annual and interim periods and can be applied retrospectively or in the period of adoption. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendment provides guidance on accounting for the impact of the Tax Cuts and Jobs Act (the “Tax Act”) and allows entities to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. The Tax Act has several significant changes that impact all taxpayers, including a transition tax, which is a one-time tax charge on accumulated, undistributed foreign earnings. The calculation of accumulated foreign earnings requires an analysis of each foreign entity’s financial results going back to 1986. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

There are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material effect on its financial position, results of operations, or cash flows.

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 $635,027 and $159,416 for the years ended December 31, 2018 and 2017, respectively, recurring losses, and negative working capital at December 31, 2018 and 2017. 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, 2018 and 2017, 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:

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, 2017 was $100,033 and $16,012 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, 2018 and 2017, the Company borrowed $2,130 and $53,000, respectively, repaid principal of $21,950 and owed to Dr. Leonard $81,240 and $101,160 at December 31, 2018 and 2017, 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 $7,489 and $5,023 was recorded as additional paid-in capital for the years ended December 31, 2018 and 2017, respectively. The Company evaluated Dr. Leonard’s note for the existence of a beneficial conversion feature and determined that none existed.

On August 2, 2018, we issued a promissory note for $27,825 to a related party. In return, we received $10,000 in cash and the benefit of $17,825 of payments made by the creditor on the company’s behalf. The note matures on February 2, 2020, and bears interest at 5%. Any unpaid interest and principal at maturity bears interest at 10%. During the year ended December 31, 2018, we accrued $1,149 of interest. After twelve months, this note may be converted into common shares at $0.0025 per share (or 11,129,880 shares).

Also on August 2, 2018, we issued 43,177,151 to a related party, converting $102,000 of principal and $6,376 of interest to equity.

On December 12, 2018, we received $5,000 from a related party as an advance towards a convertible promissory note to be executed during 2019. This $5,000 is included in Loans from Related Parties on the balance sheet.

On October 17, 2018, we executed a License Agreement with ArKnet, Inc., a company owned by our CEO, Dr. Leonard and another related party. We received certain technologies aimed at the global household goods and services market in exchange for on-going cash payments and 40,000 shares of Convertible Preferred Series E Stock, issuable on or before April 17, 2020. We recorded an accrual of $1,837,000 for the cost of these shares during 2018 (See Note 5).

The cash consideration is:

In addition to the above, the Company is to pay a 7.5% royalty on net sales. During 2018, there were no revenues on which to pay this royalty.

Note 5 – Capital Structure

Common Stock

At December 31, 2016, we had 1,672,789,717 common shares issued and outstanding from a total of four billion authorized.

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.

During the year ended December 31, 2018 we issued 246,542,274 shares as follows:

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, 2018 and 2017, these amounted to $17,931 and $18,678, respectively.

Beneficial Conversion Features of Convertible Promissory Notes

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.

Preferred Stock

During the year ended December 31, 2018, we accrued $1,837,000 in costs related to the 40,000 Series E Preferred shares promised in our ArKnet contract (see Note 4) containing a par value of $0.0001.  This series of preferred shares have the following rights, limitations, restrictions and privileges:

Note 6 - Debt

Our debt in certain categories went from $1,086,398 at December 31, 2017 to $1,822,730 at December 31, 2018 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, 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.

During the year ended December 31, 2018, we issued eight new convertible promissory notes in the amount of $633,000, containing original issue discounts totaling $71,688, for net proceeds of $561,313). 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. The notes are individually discussed below:

On December 27, 2017, we issued a convertible promissory note which was not funded until January 2, 2018. The note nominal amount was $78,000 and we received proceeds of $75,000, recording an original issue discount in the amount of $3,000. The note matures on September 30, 2018 and bears interest at 12% with any unpaid interest and principal at maturity bearing interest at 22%. The note could be converted at 58% of the lowest two trading prices during the twenty days prior to conversion. We initially recorded a discount on this note in the amount of $95,816 which included the $3,000 original issue discount and an initial derivative of $92,816 (see Derivative section below), but immediately amortized $17,816 to interest expense.

This note allowed the debtor certain prepayment rights, but incurring an interest penalty upon doing so. On February 14, 2018, we paid $94,923 to the creditor to pay this note in its entirety. During the period from issuance to retirement, we accrued $1,118 in interest and, upon paying the note, incurred additional interest expense of $15,805.

On February 1, 2018, we issued a promissory note in the amount of $60,000 and received $58,000 in proceeds, recording an original issue discount in the amount of $2,000. The note matures on February 1, 2019 and bears interest at 12%, with any unpaid principal and interest at maturity bearing interest at 18%. At any time 180 days after the issuance (or June 30, 2018) the lender may convert at a 40% discount of the three lowest trading prices during the previous twenty trading days prior to the notice of conversion. We initially recorded a discount on this note in the amount of $68,286 including the $2,000 original issue discount and an initial derivative of $66,286 (see Derivative section below), but immediately amortized $8,286 to interest expense. During the year ended December 31, 2018, we amortized the entire discount of $68,286 to interest expense. Additionally, during the year ended December 31, 2018, we accrued $5,195 of nominal interest. During 2018, we issued 23,084,728 shares, converting $40,000 of principal to equity.

The Company has certain prepayment rights and may prepay any outstanding interest or principal at the following rates: 0-90 days, 135%; 91-180 days:150%.

On February 12, 2018, we issued a promissory note in the amount of $55,125 and received proceeds of $50,000, recording an original issue discount in the amount of $5,125 . The note matures on February 5, 2019 and bears interest at 8%, with any unpaid principal and interest at maturity bearing interest at 16%. The lender may convert any outstanding principal and interest at 60% of the lowest trading price for twenty days prior to the notice of conversion. We initially recorded a discount on this note in the amount of $72,868 including the $5,125 original issue discount and an initial derivative of $67,743 (see Derivative section below), but immediately amortized $17,743 to interest expense. During the year ended December 31, 2018, we amortized the entire $72,868 of discount to interest expense. Additionally, during the year ended December 31, 2018, we accrued $3,112 of nominal interest. During 2018, we issued 44,543,712 shares, converting the entire principal and interest balances of $55,125 and $3,112, respectfully, to equity.

On February 7, 2018, we issued a convertible promissory note in the amount of $465,000. The first tranche of proceeds in the amount of $220,000 was received on February 12, 2018. The agreement calls for proceeds, original issue discounts and nominal liabilities as follows:

The note matured nine months from the date of payment of each tranche (therefore, the remaining unpaid principal is in default at December 31, 2018). The note bears interest at 6%, with any unpaid principal and interest at maturity bearing interest at 18%.

After 180 days, the lender has the right to convert any and all principal and interest to common stock at 65% of the lowest trading price over the twenty trading days prior to the notice of conversion. At any time during default, the lender may apply an additional market discount of 15%.

We originally recorded a discount on this note of $446,400 consisting of the original issue discount of $41,563, the initial derivative (see Derivative section below) of $277,337, and an equity incentive of $127,500 in the form of 15,000,000 shares which we valued on the fair value grant date. Of the $446,400 recorded as a discount, we immediately amortized $184,837 to interest expense. During the year ended December 31, 2018, we amortized the remaining $261,563 to interest expense and accrued $146,533 of nominal interest. During 2018, we issued 32,222,223 shares in conversion of $45,000 of principal.

On February 26, 2018, we issued a convertible promissory note in the amount of $100,000. We received the proceeds of $90,000 on the same date, recording an original issue discount of $10,000. The note matures on October 30, 2018 and bears interest at 12%, with any unpaid principal and interest at maturity bearing interest at 18%. The lender may convert any outstanding principal and interest at 60% of the average of the four lowest trading price for twenty five days prior to the notice of conversion. We initially recorded a discount on this note in the amount of $173,273 consisting of the $10,000 original issue discount and an initial derivative of $163,273 (see Derivative section below), but immediately amortized $73,273 to interest expense. During the year ended December 31, 2018, we amortized the entire remaining discount of $100,000 to interest expense. Additionally, during the year ended December 31, 2018, we accrued $10,574 of nominal interest. During 2018, we issued 46,700,000 shares, converting $14,498 of principal and $8,374 of interest to equity.

On March 9, 2018, we issued a convertible promissory note in the amount of $110,000. We received the proceeds of $100,000 on March 13, 2018, recording an original issue discount of $10,000. The note matures on March 5, 2019 and bears interest at 8%, with any unpaid principal and interest at maturity bearing interest at 16%. The lender may convert any outstanding principal and interest at 63% of lowest closing price for twenty trading days prior to the notice of conversion. We initially recorded a discount on this note in the amount of $131,224 consisting of the $10,000 original issue discount and an initial derivative of $121,224 (see Derivative section below), but immediately amortized $21,224 to interest expense. During the year ended December 31, 2018, we amortized an additional $64,250 of this discount to interest expense. At December 31, 2018, the unamortized discount on this note amounted to $45,750. Additionally, during the year ended December 31, 2018, we accrued $6,598 of nominal interest. During 2018, we issued 29,818,129 shares converting $40,000 and $2,011 of principal and interest, respectively.

On October 19, 2018, we issued a promissory note in the amount of $30,000, receiving proceeds of that amount. The note matures on April 19, 2020 and bears interest at 4%. Any unpaid principal and interest at maturity bears interest at 10%. During the year ended December 31, 2018, we accrued $245 in interest. After twelve months, the note may be converted into common shares at $0.004 per share (or 7,575,758 shares).

During the year ended December 31, 2018, we made principal and interest payments on existing convertible notes of $81,798 and $6,625, respectively, to Eric McRae with whom we are engaged in a lawsuit (see Note 7).

At December 31, 2018, $627,928 or our convertible notes payable were classified as short-term, $422,565 as in default and $25,000 as long term.

Crypto-currency notes payable

We were informed by the SEC in January of 2017 that the Tautachrome KLK20 token is considered to be a security by virtue of the fact that the Company will have to do work for the token to have value. We understand the law and that interpretation of the law, and we agree. This means that the token may only be sold to persons under which the sale would qualify under an available exemption from registration or an available exclusion from registration.

Our current offering of our KLK20 tokens are being made only to Non-US Persons under an exclusion from registration, and to US Persons who are accredited investors under an exemption from registration.

For US Persons, the Offering is being made only to accredited investors pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), Regulation D and Rule 506 promulgated thereunder.

The Offering is being made available to Non-US Persons pursuant to an exclusion from registration under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), Regulation S and Rules 901 through 905 promulgated thereunder.

On August 7, 2018, we issued a Crypto Exchange Promissory Note (“the Crypto Note”) in exchange for $100,000 in cash. The Crypto Note accrues interest at 4% until maturity which is 18 months from issue and 10% after maturity. The holder can convert unpaid principal and accrued interest into KLK20 tokens at any time at the rate of $0.25 per token. The holder may, for up to nine months after issuance, participate in a price guarantee: if the Company offers the tokens at less than $0.25 per token at any point for up to nine months after issuance, then the holder has the option of participating in the offer at the lower price.

During the year ended December 31, 2018, we accrued $1,667 of interest on this note.

Derivative liabilities

The above-referenced convertible promissory notes issued during the year ended December 31, 2018 were analyzed in accordance with EITF 07–05 and ASC 815. EITF 07–5, which is effective for fiscal years beginning after December 15, 2009, and interim periods within those fiscal years. The objective of EITF 07–5 is to provide guidance for determining whether an equity–linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception under Paragraph 11(a) of ASC 815 which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non–derivative instrument that falls within the scope of EITF 00–19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non–derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. The EITF reached a consensus that would establish a two–step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument’s contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument’s settlement provisions.

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

The Company issued Subscription Notes from 2015 through 2018 in the United States and Australia which are convertible at discounted market rates and market prices based on the average of 5 trading day closing bids. The notes are convertible after 1 year from issuance; mature in 18 months from issuance; accrued at 5% interest; and a 10% default rate. These convertible notes have become tainted (“The Tainted Notes”) as a result of the issuance of convertible promissory notes issued in the United States since there is a possibility (however remote) that the Company would not have enough shares in the Treasury to satisfy all possible conversions.

The Convertible Note derivatives were valued as of issuance; conversion; redemption/settlement; and at the end of each quarterly period during 2018. The following assumptions were used for the valuation of the derivative liability related to the Notes:

We recorded the initial derivative as both a derivative liability and a debt discount (or initial reduction in carrying value of the debt). We then amortized the debt discounts using the Effective Interest Method which recognizes the cost of borrowing at a constant interest rate throughout the contractual term of the obligation. The effective interest rates on six instruments issued during the year ended December 31, 2018 range from 243% to 289%.

At each reporting date, we determine the fair market value for each derivative associated with each of the above instruments. At December 31, 2018, we determined the fair value of these derivatives were $365,497.

Changes in outstanding derivative liabilities are as follows:

Court Judgment Liability

Our Court Judgment Liability was increased to $250,000 from $54,000 as a result of the settlement on the McRae matter, a reduction of $5,000 and an additional accrual of $201,000 to state the liability at the amount of our 50 million-share offer to McRae (See Note 7).

Short-Term Notes Payable

Short-term notes payable went from $17,191 at December 31, 2017 to $15,501 at December 31, 2018 owing entirely to exchange rate fluctuations.

Note 7 – 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.

On August 14, 2018, we settled this lawsuit in full by issuing 10 million shares. We valued the shares at their grant date fair values, removing the judgment liability of $5,000 and recording a $55,000 loss on litigation.

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.

On October 17, 2018, we offered McRae 50 million shares in settlement of all outstanding legal actions against us. McRae declined the offer. However, we re-evaluated the liability on these lawsuits from $49,000 to $250,000 based on the closing price of our common stock on the date of the offer. We recognized a loss on litigation of $201,000 in so doing.

Note 8 – Income Taxes

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

Deferred taxes for 2018 and 2017 are calculated using a marginal tax rate of 21% and 39%, respectively.

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 9 – Subsequent Events

On April 1, 2019, we issued 40,000 shares of Series E Convertible Preferred Stock as consideration to ArkNet, Inc. pursuant to our License Agreement with that Company (see Note 4).

As of April 10, 2019, we issued 939,263,152 shares in conversion of convertible promissory notes.

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, 2018. 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, 2018, 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, 2018, 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, 2018, 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, 2018, 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

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.

Aasim Saied

Mr. Aasim Saied serves as the Chairman and Chief Executive Officer of Akyumen Technologies Corp. Mr. Saied is an established entrepreneur with experience and with a history of high tech concept design and building fast-moving, innovative companies.

He has been a Director of Tautachrome, Inc. since April 16, 2018. He is an inventor, entrepreneur and futurist, who developed the Projector Phone technology and various other products and services. He has a successful history in building fast moving and innovative companies and has engineered powerful new patent-pending mobile device technologies and software applications. He has recruited a global team of developers and industry specialists for a successful launch of his Companies.

He was the Founder and Owner of CareerServices.com and was co-founder of Logic Wireless, LLC and served as its Chairman and Chief Executive Officer. He served as the Chairman of Didrick Medical Inc. He has been an Independent Director of Urban Communications, Inc. since June 30, 2015. He sits on the board of several other cutting-edge technology companies like Bionic Medical Devices, Zeta Byte and Lookhu Corp. He is a Member of the Board of Advisors of Wowio, Inc. and is an active speaker at various schools, universities and technology events. Mr. Saied graduated from the University of Arizona in 2008 with a bachelor’s degree in Technology.

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:

Board of Directors and Committees

At December 31, 2018, our Board of Directors presently consisted of three members: Dr. Jon Leonard, Matthew Staker and Aasim Saied. 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. Executive Compensation

Summary Compensation

During the years ended December 31, 2018 and 2017, 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

The Company has an employment agreement with Dr. Jon Leonard, the Company’s Chief Executive Officer at a compensation rate of $60,000 (which increases 5% per year) and six weeks per year of paid vacation.  Payment and vacation benefits begin to accrue in June, 2019.

Other than the agreement in the previous paragraph, 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 any other 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. 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.