TAUTACHROME INC. - Quarter Report: 2019 September (Form 10-Q)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

FOR THE TRANSITION PERIOD FROM ___________ TO _____________.

Commission file number: 000-55721

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

(Address of principal executive offices)

(520) 318-5578

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant has submitted electronically on its corporate Web site, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

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

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 number of shares of the registrant’s common stock outstanding as of November 8, 2019, was 3,466,810,478.

TAUTACHROME, INC.

FORM 10-Q

 INDEX

PART I – FINANCIAL INFORMATION

Item 1 – Consolidated Financial Statements

TAUTACHROME, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

TAUTACHROME, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

TAUTACHROME, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY / (DEFICIT)

(Unaudited)

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

TAUTACHROME, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

TAUTACHROME, INC.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2019

Note 1 – Organization and Nature of Business

History

Tautachrome, Inc. was formed in Delaware on June 5, 2006 as Caddystats, Inc. and hereinafter 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, uniquely exploiting the technologies of the Augmented Reality sector, the blockchain/cryptocurrency sector and the smartphone picture and video technology sector. We have high-speed blockchain concepts under development aiming to couple with the Company’s revolutionary patents and licensing in augmented reality, smartphone-image authentication and imagery-based social networking interaction.

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

Since its public announcement on September 25, 2017 (via SEC form 8-K) that it would be using its Twitter site (@Tautachrome_Inc) (http://twitter.com/tautachrome_inc) to post important Company information, and finding this method of publicizing important Company information both fast and effective, the Company has continued to use this means of public communication almost exclusively, supplemented occasionally with Current Reports via SEC Form 8-Ks. Shareholders are advised to follow us on Twitter to be current on the Company’s disclosures in conformity with Regulation FD.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

Consolidated Financial Statements

In the opinion of management, the accompanying financial statements includes all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for the period ended September 30, 2019. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in our audited financial statements for the period ended December 31, 2018 (as amended), as reported in Form 10-K filed with the SEC.

Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.

Principles of Consolidation

Our consolidated financial statements include the accounts of Tautachrome, Inc. and all majority-owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation.

Long-Lived Assets, Intangible Assets and Impairment

In accordance with U.S. GAAP, the Company’s long-lived assets and amortizable intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The Company assesses the recoverability of such assets by determining whether their carrying value can be recovered through undiscounted future operating cash flows, including its estimates of revenue driven by assumed market segment share and estimated costs. If impairment is indicated, the Company measures the amount of such impairment by comparing the fair value to the carrying value.

Revenue Recognition

The Company sells credits in exchange for cash. These credits can be redeemed for ARks which are geo-location objects downloadable into various digital devices. We recognize revenues once the customer has redeemed previously-purchased credits in exchange for ARks. Until that point, any cash received in exchange for credits is accounted for as liabilities.

The company recognizes revenues in accordance with ASC 606 – Revenue From Contracts with Customers which proscribes a five-step process in evaluating the revenue recognition process:

Step 1: Identify the contract with a customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

The company has determined that the performance obligations are satisfied once the purchased credits are exchanged for ARks. At September 30, 2019, we recognized $206 in revenues and $1,985 in unearned revenues included in liabilities.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Net Loss Per Share

Basic and diluted net loss per share calculations are calculated on the basis of the weighted average number of common shares outstanding during the year. The per share amounts include the dilutive effect of common stock equivalents in years with net income. Basic and diluted loss per share is the same for the three and nine months ended September 30, 2019 as the effect of our potential common stock equivalents would be anti-dilutive.

Recent Accounting Pronouncements

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard was effective for us on January 1, 2019 and we have adopted and implemented it. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. We expect to adopt the new standard on January 1, 2019 and use the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements as the Company has no leases whose term is greater than one year.

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.

Note 3 – Going Concern

In the third quarter this year we began operations with our ARknet platform, and in October we acquired assets to enter the business ARk vertical in our market. We will require additional capital to exploit this vertical and to commercialize others. There is no guarantee that we will be able acquire the capital to exploit and commercialize the ARknet markets we envision so as to generate positive cash flows from operations. For these reasons, substantial doubt exists as to Tautachrome’s ability to continue as a going concern. No adjustment has been made to these financial statements for the outcome of this uncertainty.

Management intends to raise additional capital, partly through convertible debt, partly through the direct sale of equity and partly through partnerships with businesses with whom we will provide exclusive use of ARknet techniques in their arenas of operation. We will commit those funds to further refine and develop our ARknet platform. In addition, we intend to market our products through Google and Facebook.

Note 4 – Related Party Transactions

For the nine months ended September 30, 2019, we accrued $3,624 of interest to the 22^nd Trust (the “Trust”), the trustee of whom is Sonny Nugent, the son of our major shareholder and former Chief Executive Officer, Micheal Nugent. The outstanding balances of unpaid principal and interest at September 30, 2019 and December 31, 2018 were $121,359 and $118,591, respectively.

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

On July 11, 2019, our CEO and Board Chairman contributed $13,750 to the company which was accounted for as additional paid in capital.

Convertible note payable, related party

On May 5, 2013 (and on August 8, 2013 with an enlargement amendment) the Company entered into a no interest demand-loan agreement with our current Chairman, Jon N. Leonard under which the Company may borrow such money from Dr. Leonard as Dr. Leonard in his sole discretion is willing to loan.

The terms of the note provide that at the Company’s option, the Company may make repayments in stock, at a fixed share price of $1.00 per share. Also, because this loan is a no-interest loan, an imputed interest expense of $5,177 was recorded as additional paid-in capital for the nine months ended September 30, 2019. The Company evaluated Dr. Leonard’s note for the existence of a beneficial conversion feature and determined that none existed.

During the nine months ended September 30, 2019, we borrowed $26,000 from and repaid $26,050 to Dr. Leonard. At September 30, 2019, the balanced owed Dr. Leonard is $81,290.

We also owe $37,825 to another officer for loans he made to the company, only $32,825 of which has been formalized into convertible notes. The additional $5,000 is treated as an advance. The notes bear interest at 5% and may convert at $0.0025 per share.

Note 5 – Capital

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

During the nine months ended September 30, 2019, we issued 1,534,326,568 shares as follows:

We recorded a stock payable to a consultant in the amount of $119,100 pursuant to our contract with them.

On July 11, 2019, our CEO and Board Chairman contributed $13,750 to the company which was accounted for as additional paid in capital.

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:

These shares have yet to be issued as of September 30, 2019 and are included in stock payable at that date.

Imputed Interest

Certain of our promissory notes bear no nominal interest. We therefore imputed interest expense and increased Additional Paid in Capital. For the nine months ended September 30, 2019, we imputed $12,456 of such interest.

Note 6 – Debt

Loans from related parties

As is discussed in Note 4, at September 30, 2019 we owed $202,649 in related-party debts consisting of $97,310 and $24,049 in unpaid principal and interest, respectively, to the 22^nd Trust and $81,290 owed to our CEO, Dr. Jon Leonard.

We also owe $37,825 to another officer for loans he made to the company, only $32,825 of which has been formalized into convertible notes. The additional $5,000 is treated as an advance. The notes bear interest at 5% and may convert at $0.0025 per share.

Convertible notes payable

During the year ended December 31, 2018, we issued eight new convertible promissory notes in the aggregate 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 derivatives and calculated a collective value of $209,040 which we are accounting for as debt discounts. The individual notes are discussed in Note 6 to the financial statements filed on Form 10-K for the year ended December 31, 2018 and are hereby incorporated by reference.

During the nine months ended September 30, 2019 we issued fourteen convertible promissory notes in the aggregate amount of $940,281, receiving proceeds therefrom of $892,700. These convertible notes can convert to common stock at various prices. We evaluated these convertible notes for beneficial conversion features and calculated a collective value of $770,182 which we are accounting for as debt discounts. These convertible notes are discussed below:

During the nine months ended September 30, 2019, we amortized $423,777 of debt discounts to interest expense, accrued $31,300 of interest and paid interest of $40,781 on existing notes.

At September 30, 2019, $32,000 of our convertible notes payable were in default.

Convertible notes payable (excluding related-party convertible notes which is discussed in Note 4) at September 30, 2019 and December 31, 2018 and their classification into long-term, short-term and in-default were as follows:

On May 2, 2019, the company entered into an amendment to one of the convertible promissory notes issued during 2018. The company allowed the creditor to own a larger percentage of the company’s total shares outstanding in exchange for a waiver of all default interest. As a result, we recorded a reduction of interest payable to this creditor and interest expense of $140,491. On July 19, 2019, we issued 30,414,329 shares to this creditor extinguishing all principal and interest owed to them.

Crypto-currency notes payable

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.

For the nine months ended September 30, 2019, we accrued $3,000 of interest on this note. Unpaid interest at September 30, 2019 amounted to $4,667.

On July 31, 2019, we settled an outstanding trade account payable of $83,343 by agreeing to a cash payment of $35,000. We paid the $35,000 on July 31, 2019 and realized a gain of $48,343.

Derivative liabilities

The above-referenced convertible promissory notes issued during the nine months ended September 30, 2019 were analyzed in accordance with EITF 07–05 and ASC 815. EITF 07–5, which is effective for fiscal years beginning after December 15, 2009, and interim periods within those fiscal years. The objective of EITF 07–5 is to provide guidance for determining whether an equity–linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception under Paragraph 11(a) of ASC 815 which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non–derivative instrument that falls within the scope of EITF 00–19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non–derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. The EITF reached a consensus that would establish a two–step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument's settlement provisions.

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

The Company issued certain fixed-rate convertible Subscription Notes from 2015 through September 30, 2019 in the United States and Australia These convertible notes have become tainted (“The Tainted Notes”) as a result of the issuance of convertible promissory notes issued in the United States since there is a possibility (however remote) that the Company would not have enough shares in the Treasury to satisfy all possible conversions.

The Convertible Note derivatives were valued as of issuance; conversion; redemption/settlement; and each quarterly period from March 31, 2018 through September 30, 2019. 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 the six instruments issued during the year ended December 31, 2018 range from 243% to 289%. The effective interest rates for the instruments issued during the nine months ended September 30, 2019 range from 11% to 564%.

At each reporting date, we determine the fair market value for each derivative associated with each of the above instruments. At September 30, 2019, we determined the fair value of these derivatives were $1,810,064.

Changes in outstanding derivative liabilities are as follows:

Note 7 – Litigation

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 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 three months ended September 30, 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 10,000,000 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 10, 2017, the Company received a letter from the lawyer of Eric L McRae (“McRae”) a person whose association with the Company was terminated by the Company on June 16, 2017. The letter demanded payment of 850,000,000 unrestricted Tautachrome common shares to forestall his filing a laundry list of complaints in a variety of government agencies including with the US District Court in Kansas with complaints of contract breaches and fraud by silence, with the EEOC with complaints of termination by racial discrimination, with the OSHA with complains of termination for reasons of his being a whistleblower under Sarbanes-Oxley provisions, and with various regulatory agencies with accusations of an unspecified nature.

On October 12, 2017, McRae filed a complaint, later amended twice, against the Company in the US District Court in Kansas. The amended complaint alleges 1) that the Company breached a written agreement in an alleged employment by failing to pay him 35,000,000 shares of the Company’s common stock and terminating his association with the Company on June 16, 2017 without proper notice. The complaint goes on to allege 2) that the Company committed fraud by silence for failing to inform him of an intent to receive the benefit of his services while harboring an intent to not compensate him, 3) that the Company breached an unwritten agreement with him to provide him with 185,000,000 shares of the Company’s common stock, and 4) that the Company breached a convertible promissory note by failing and refusing to repay him the principal and accrued interest thereunder. Complaint number 4 is now moot in the belief of the Company since after the lawsuit was filed the Company continued to repay McRae’s convertible promissory note on schedule with interest due until paid in full on October 1, 2018, thus extinguishing the note and making the matter moot. These matters remain before the Court.

On December 12, 2017, McRae brought the Company before the Kansas Human Rights Commission and the U.S. Equal Employment Opportunity Commission (EEOC) alleging that on June 16, 2017 he was terminated from an alleged employment by the Company on the basis of race and for retaliation, and that the Company discriminated against him in the terms of this alleged employment because of race. The Kansas Human Rights Commission dismissed this claim.

On December 8, 2017, McRae filed a complaint with the Occupational Safety and Health Administration (the “OSHA”), 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 the Sarbanes-Oxley Act whistleblower’s provisions. On January 2, 2018, the Company delivered its response to the complaint, denying each of McRae’s allegations and providing its own presentation of the facts. McRae dismissed the OSHA claim with prejudice, and the matter cannot be brought again.

On October 17, 2018, we offered McRae 50,000,000 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 2018.

The Company, believing that allegations made by McRae are largely fabricated and aimed at doing harm, has been vigorously defending itself and believes it will prevail in every instance. Despite this belief, to save legal expense the Company made a good faith settlement offer to McRae. The offer was rejected.

Note 8 – Income Taxes

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

In assessing the realizability of future tax assets, management considers whether it is more likely than not that some portion or all of the future tax assets will not be realized. The ultimate realization of future tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of future tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Management has provided for a valuation allowance on all of its losses as there is no assurance that future tax benefits will be realized.

Our tax loss carry-forwards will begin to expire in 2030.

Note 9 – Subsequent Events

On October 3, 2019, the Board of Directors of the Company appointed David LaMountain as a director of the Company and, on October 4, 2019, Mr. LaMountain accepted his appointment.

On October 10, 2019, Matthew Staker resigned as Director.

Item 2- Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

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

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

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

Overview

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

The continuing operations of the Company are dependent upon our ability to raise adequate financing and to commence profitable operations in the future. The Company may raise additional capital through the sale of its equity securities, through an offering of debt securities, or through loans from related parties. We believe that actions presently being taken to obtain additional funding may provide the opportunity for the Company to continue as a going concern. There is no guarantee, however, that the Company will be successful in achieving these objectives.

Results of Operations - Nine months ended September 30, 2019 versus 2018

During the nine months ended September 30, 2019, we recorded $206 of revenue from the sale of ARk geo-location objects. We had no such revenue during the previous period.

We had general and administrative expenses of $732,171 for the nine months ended September 30, 2019 versus $576,230 for the same period in 2018. The increase is mainly due to increases in software development costs.

As is discussed in Note 7 to the financial statements, we had a loss of $55,000 on the settlement with Richard Morgan in 2018. We had no such loss in the current period.

For the nine months ended September 30, 2019, we had losses of $100,327 on settlements with certain suppliers that we no longer use. We had no such losses during the same period in 2018.

We had a decrease in interest expense from $1,003,299 during the nine months ended September 30, 2018 to $417,044 in the current period. The vast majority of the change was due to certain one-time discount amortization associated with convertible promissory notes issued during 2018. We had a much smaller amount of one-time amortization during the current period. Also, as discussed in Note 6, we reduced interest expense by $140,491 as a result of an amendment with one of our creditors.

We had losses on changes in the fair values of our derivatives of $1,126,787 and $150,456 for the nine months ended September 30, 2019 and 2018, respectively. This increase is mostly due to increases in the Company stock price and volatility during 2019.

During the nine months ended September 30, 2019, we had losses on conversions of promissory notes to common stock. These losses amounted to $127,031. We had no such losses during the previous year.

During the nine months ended September 30, 2019, we had a foreign exchange gain of $34,042 versus a gain of $60,187 during the same period in 2018, all of which are currency translation effects resulting from exchange rate differences between the U.S. and Australian dollars.

Our net comprehensive losses of $2,469,112 and $1,724,798 during the nine months ended September 30, 2019 and 2018 are a result of the above items.

Results of Operations - Three months ended September 30, 2019 versus 2018

During the three months ended September 30, 2019, we recorded $206 of revenue from the sale of ARk geo-location objects. We had no such revenue during the previous period.

We had general and administrative expenses of $432,652 for the three months ended September 30, 2019 versus $149,307 for the same period in 2018. The increase is mostly due to expenses related to the development of our KlickZie ArK technology applications.

As is discussed in Note 7 to the financial statements, we had a loss of $55,000 on the settlement with Richard Morgan. We had no such loss in the current period.

For the three months ended September 30, 2019, we had losses of $101,657 on settlements with certain suppliers that we no longer use and certain convertible promissory note holders in Australia . We had no such losses during the same period in 2018.

We had an increase of interest expense from $264,730 during the three months ended September 30, 2018 to $397,071 in the current period. As discussed in Note 6, we reduced interest expense by $140,491 as a result of an amendment with one of our creditors. In addition, we had approximately $91,000 more in debt discount amortization that we had in 2018. Finally, we had an increase of approximately $42,000 in nominal interest due to higher debt levels.

During the three months ended September 30, 2018, we had a $539,589 gain resulting from the change in fair value of our derivative liabilities. During the same period in 2019, we had losses of $825,751. In general, this results from increases in our stock price and volatility for the current period.

During the three months ended September 30, 2019, we had a foreign exchange gain of $31,508 versus a gain of $14,791 during the same period in 2018, all of which are currency translation effects resulting from exchange rate differences between the U.S. and Australian dollars.

Our net comprehensive loss of $1,725,417 and income of $85,343 during the three months ended September 30, 2019 and 2018 are a result of the above items.

Liquidity and Capital Resources

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

At September 30, 2019, the Company had $78,356 in cash and liabilities totaling $3,881,453. We are currently seeking financing to attain our business goals, but there is no guarantee that we will obtain such financing or, upon obtaining it, that we will be able to invest in productive assets that will result in positive cash flows from operations.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, we had negative cash flows from operations, recurring losses, and negative working capital at September 30, 2019 and December 31, 2018. These conditions raise substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Management intends to finance these deficits by making additional shareholder notes and seeking additional outside financing through either debt or sales of its common stock.

Plan of Operation

Our immediate term plans for operations is discussed extensively in Item 7 – Management’s Discussion and Analysis or Plan of Operation included in our Form 10-K as of December 31, 2018, filed with the Securities and Exchange Commission on April 16, 2019 and is herein incorporated by reference.

Item 3 - Quantitive And Qualitative Disclosures About Market Risk

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

Item 4 – Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

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

Based upon the evaluation of our officers and directors of our disclosure controls and procedures as of September 30, 2019, the end of the period covered by this Quarterly Report on Form 10-Q (the "Evaluation Date"), our Chief Executive Officer has concluded that as of the Evaluation Date that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure. Our management concluded that our disclosure controls and procedures were not effective as a result of material weaknesses in our internal control over financial reporting. We are a small organization with only a few employees. Under these circumstances it is impossible to completely segregate duties. We do not expect our internal controls to be effective until such time as we are able to begin full operations and even then, there are no assurances that our disclosure controls will be adequate in future periods.

Change In Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the six months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

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

Item 2 – Unregistered Sale of Equity Securities

None

Item 3 – Defaults Upon Senior Securities

None

Item 4 – Mine Safety Disclosures

Not applicable.

Item 5 – Other Information

None

Item 6 - Exhibits

__________ 

* Filed herewith.

** Furnished herewith

SIGNATURES

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