The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these financial statements.
The accompanying financial statements are an integral part of these financial statements.
Notes to the Financial Statements
September 30, 2015
(Unaudited)
NOTE 1. ORGANIZATION, BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Organization
INTREOrg Systems, Inc. (the “Company”)
was incorporated under the laws of the State of Texas on November 3, 2003. The Company was organized for the purpose of providing
internet consulting and "back office" services to companies. The Company's fiscal year end is December 31st.
Reclassifications
Certain amounts in the prior period financial
statements have been reclassified to conform to the current period presentation.
Going Concern
The Company's financial statements have been
presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company's current liabilities exceed the current assets by $3,081,417 at September 30, 2015.
At September 30, 2015, the Company had an accumulated deficit of $5,673,049.
The Company's ability to continue as a going
concern is dependent upon its ability to generate additional revenues or raise the necessary capital to further implement its business
plan and ultimately achieve profitable operations. There can be no assurance that the Company will be successful in obtaining such
financing, or that it will attain positive cash flow from operations. Accordingly, there is substantial doubt as to our ability
to continue as a going concern. However, management believes that actions presently being taken provide the opportunity
for the Company to continue as a going concern. The accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Basis of Presentation
Interim Accounting
The accompanying unaudited interim financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States
of America and the rules of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the
audited financial statements and notes thereto contained in the Company's annual report on Form 10-K for the year ended December
31, 2014 as filed with the SEC on July 9, 2015. 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 interim periods presented
have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be
expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in
the audited financial statements for the most recent fiscal year ended December 31, 2014 as reported in Form 10-K have been omitted.
Summary of Significant Accounting Policies
Revenue Recognition
During the nine month period ended September 30, 2015, we recognized
services revenues from one customer that subscribed to our Stock Transfer Analytics Consulting and Financial Reporting Consulting
services. The Company recognizes revenue when it is earned and when all of the following criteria are met: persuasive evidence
of the arrangement exists; delivery has occurred or the service has been provided and the Company has no remaining obligations;
the fee is fixed or determinable; and collectability is probable.
Marketable equity securities
As of September 30, 2015, the Company had earned 142,163 restricted
common shares of Radiant Oil and Gas (“Radiant”) for services rendered (see note 2). The Company determines the appropriate
balance sheet classification of its marketable securities at the time the shares are acquired and reevaluates such determination
at each balance sheet date. The marketable equity securities are classified as current, available-for sale and carried at fair
value, with the change in unrealized gains and losses reported as a separate component of other comprehensive income (loss) on
the Statements of Comprehensive Loss and accumulated as a separate component of stockholders' equity on the balance sheets. The
Company sold the securities in October 2017 for $9,000 on a private direct sale transaction.
Fair Value of Financial Instruments
The accounting guidance establishes a fair value hierarchy based
on whether the market participant assumptions used in determining fair value are obtained from independent sources (observable
inputs) or reflect the Company's own assumptions of market participant valuation (unobservable inputs). A financial instrument's
categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The accounting guidance establishes three levels of inputs that may be used to measure fair value:
|
•
|
Level 1—Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted
assets or liabilities;
|
|
•
|
Level 2—Quoted prices for identical assets and liabilities in markets that are inactive; quoted prices for similar assets
and liabilities in active
|
|
·
|
markets or financial instruments for which significant inputs are observable, either directly or indirectly; or
|
|
•
|
Level 3—Prices or valuations that require inputs that are both unobservable and significant to the fair value measurement.
|
The Company considers an active market to be one in which transactions
for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis and views
an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price
quotations vary substantially either over time or among market makers.
Recent Accounting Pronouncements
In August 2014, the FASB issued a new Accounting
Standards Update, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about
an Entity’s Ability to Continue as a Going Concern (ASU 2014-15). ASU 2014-15 provides guidance on management’s responsibility
to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern within one year of
the date the financial statements are issued, and, if such conditions exist, to provide related footnote disclosures. The guidance
is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December
15, 2016. Early adoption is permitted. The Company expects to adopt this guidance when effective and is currently evaluating the
effect that the updated standard will have on its financial statements and related disclosures.
NOTE 2. RELATED PARTY TRANSACTIONS
Licensing Agreement
On October 30, 2012, the Company entered in
to an Intellectual Property License and Consulting Agreement with Public Issuer Stock Analytics, LLC (PISA) a Texas Limited Liability
Corporation, whose managing member is a shareholder, granting the Company an exclusive license to develop and use the Licensed
Technology and to fully exploit the Licensed Technology by selling products and/or services. Upon signing of the agreement, the
company paid PISA 250,000 shares of restricted common stock and thereafter and until the second anniversary 20,000 shares monthly
of restricted common stock monthly and 1% of the gross sales of products and/or services. Thereafter and until the third anniversary,
20,000 shares monthly of restricted common stock and 2% of Gross Sales of products and/or services. Following the third anniversary,
20,000 shares monthly of restricted common stock and 3% of Gross Sales. The Company expensed $49,175 and $66,115 for the nine-month
periods ending September 30, 2015 and 2014, respectively, related to this agreement.
Services revenues
In April 2015, we entered into a professional
services agreement with Radiant Oil and Gas (“Radiant”). In exchange for the consulting services, the Company was awarded
143,141 shares of restricted common stock of Radiant valued at $52,436.
Line of Credit
On June 19, 2011, the Company entered into
a revolving line of credit with J.H. Brech, LLC (“Brech”); a related party, to provide access to fund our operations
(the "Line of Credit"). Under the terms of the 8% Line of Credit, we have access of up to $500,000. Advances
under this Line of Credit were in abeyance for approximately 12 months from August of 2011 to August of 2012; however, the Line
of Credit is open again and we may take advances out pursuant to the terms summarized herein. On August 26, 2014, the line of credit
was amended to decrease the conversion price to $0.25 per share.
Interest accrues at 8% per annum on the outstanding principal amount
due under the revolving line of credit and is payable semi-annually on June 30 and December 31 of each year commencing June 30,
2011. The principal and any accrued but unpaid is due on the earlier of:
|
·
|
June 19, 2014 (the revolver has not been formally extended, however, the Company continues to borrow under the revolver), or
|
|
·
|
the date on which we receive at least $1.5 million in gross proceeds through one or a series of transactions.
|
At the Company’s sole discretion, we can pay the interest
in shares of our common stock valued as follows:
|
●
|
if our common stock is not listed for trading on an exchange or quoted for trading on the OTC Bulletin Board or the OTC Markets Group (formerly the Pink Sheets), interest shares are valued at the greater of $1.00 per share or the fair market value as determined in good faith by us based upon the most recent arms-length transaction, or
|
|
●
|
if our common stock is listed for trading on an exchange or quoted for trading on the OTC Bulletin Board or the OTC Markets Group, interest shares will be valued at the greater of (A) the closing price of our common stock on the trading day immediately preceding the date the interest payment is due and payable, or (B) the average closing price of the common stock for the five trading days immediately preceding the date the interest payment is due and payable.
|
The Company may prepay the note at any time without penalty. Upon
an event of default, Brech has the right to accelerate the note. Events of default include:
|
●
|
our failure to pay the interest and principal when due,
|
|
●
|
a default by us under the terms of the note,
|
|
●
|
appointment of a receiver, filing of a bankruptcy provision, a judgment or levy against our company exceeding $50,000 or a default under any other indebtedness exceeding $50,000,
|
|
●
|
a liquidation of our company or a sale of all or substantially all of our assets, or
|
|
●
|
a change of control of our company as defined in the note.
|
On August 25, 2014, we entered into an amendment to the Line of
Credit to provide that the conversion price shall be revised from $1.00 per share to $0.25 per share. The parties also acknowledged
and agreed that no payment of principal of the Line of Credit has been made and received, and accordingly, the amended conversion
price applies to both the interest and principal of the Line of Credit. Accrued and unpaid interest on the Line of Credit at September
30, 2015 totaled $110,411.
As of September 30, 2015, and December 31, 2014, the Company owed
Brech $610,760 and $459,754, respectively for amounts advanced to the Company for working capital expenses. The maturity date on
the Line of Credit was not amended. The balance is past due and is classified as a current liability as of September 30, 2015 and
December 31, 2014. As of the date of this Report, Brech, has not declared a default on the Line of Credit and waived the loan defaults
on March 2, 2017 through September 30, 2017.
Cicerone Consulting Agreement
As of September 30, 2015, and December 31, 2014, Cicerone Corporate
Development, LLC ("Cicerone") is owed $29,946 for reimbursable expenses on behalf of the Company, under the terms of
the Company's 2011 consulting agreement with Cicerone, which was terminated in 2011.
Payable to the Chief Executive Officer and President
On February 3, 2014, Darren Dunckel paid certain legal, accounting
and other invoices on behalf of the Company aggregating $33,837. Such advances have not been repaid and are included in accounts
payable- related parties. In addition, Mr. Dunckel is owed $132,656 in unpaid consulting fees. During the nine months ended September
30, 2015, the Company expensed $63,000 in consulting fees to Mr. Dunckel.
Payable to former President and Chairman of the Board
As of September 30, 2015, and December 31, 2014, the Company has
a payable of $86,000 to a former President and Chairman of the Board for consulting services rendered in prior years.
Payable to shareholder
As of September 30, 2015, and December 31, 2014, the Company has
accrued $76,876 and $18,802, respectively, for accounting services from a shareholder, PT Platinum. This amount is included in
accounts payable-related parties. During the nine months ended September 30, 2015, the Company expensed $83,175 in fees to PT Platinum.
NOTE 3. NOTES
PAYABLE
The Company’s notes payable totaling
$521,000 bear interest at 6% to 10% per annum. Accrued and unpaid interest at September 30, 2015 and December 31, 2014 amounted
to approximately $370,000 and $338,500, respectively, and is included with accrued interest and other liabilities in the accompanying
financial statements. All of the Company’s notes payable are past due and in default.
NOTE 4. COMMITMENTS
AND CONTINGENCIES
.
At September 30, 2015 and December 31, 2014, management estimates
there is a potential liability of $453,290 related to the operations under the former management of the Company. The amount is
recorded as an accrued compensation in the accompanying financial statements and relates primarily to compensation in years prior
to 2009. Management is not aware of any pending or threatened litigation involving the Company as of September 30, 2015 or since,
through the date of these financial statements.
NOTE 5. CAPITAL STOCK.
During the nine-month period ended September 30, 2015, the Company
authorized the issuance of 20,000 shares per month to Public Issuer Stock Analytics pursuant to the terms of the intellectual property
license and consulting agreement the Company maintains with them. The grants are valued at the closing price of the Company’s
common stock as of the grant date. During the three and nine month period ended September 30, 2015 the Company recorded an expense
of $6,200 and $39,800, respectively for the share grants.
During the nine-month period ended September 30, 2015 the Company
authorized the issuance of 613,935 shares to an investor relations firm pursuant to the terms of the consulting agreement the Company
maintains with them. The grants are valued at the closing price of the Company’s common stock as of the grant date. During
the nine month period ended September 30, 2015 the Company recorded an expense of $178,581 for these share grants.
While we have not issued the certificates for
398,388 of the share issuances described above as of September 30, 2015, the issuance of the certificate is considered a ministerial
act and we have reflected these shares as issued and outstanding at September 30, 2015. 258,388 of the shares have not been issued
as of the date of this Report.
In March 2015, the Company issued 250,000 shares of common stock
in full settlement of legal bills outstanding with a law firm. At the date of settlement, the fair value of the Company’s
common stock approximated $85,000, which exceeded the recorded value of the outstanding legal bills. The Company recognized a loss
of $32,587 on the transaction.
2010 Stock Option and Award Incentive Plan
On June 29, 2010, the Company’s shareholders
approved the adoption of the Company’s 2010 Stock Option and Award Incentive Plan (the “Plan”). The
Plan, which provides for the grant of stock options to the Company’s directors, officers, employees, consultants, and advisors
of the Company, is administered by a committee consisting of members of the Board of Directors (the "Stock Option Committee"),
or in its absence, the Board of Directors. The Plan provides for a total of 2,000,000 shares of common stock to be reserved
for issuance subject to options.
Pursuant to the Software Development and Ongoing
Maintenance Agreement (the “Software Development Agreement”) we entered into with Central Coast Technology Associates
("Central Coast") on June 13, 2013, we issued Central Coast options
to purchase up to 1,000,000 shares of our common
stock at an exercise price of $0.25 per share. The options vest in stages based on completion of work pursuant to the Software
Development Agreement and also contain provisions for cashless exercise. If Central Coast fails to fully complete such services,
we have the right to purchase such options for $1,000 and terminate the Software Development Agreement; provided however, that
if Central Coast fails to complete only part of such services, we can purchase up to 50% of the options for $500. As of September
30, 2015, none of the options have vested.
On May 1, 2014, the Company granted Michael
Farmer, a member of the board of directors, options to purchase 200,000 shares of the Company’s common stock at $3.00 per
share and options to purchase 100,000 shares of the Company’s common stock at $1.00 per share. 25% of the options vest at
the one year anniversary of the day of grant and 2.0833% each month thereafter. The options expire on May 1, 2017 and had an estimated
grant date fair value of $105,997, which is recognized in expense over the three year vesting period. The Company used the Black
Scholes option model to value the option awards. Stock option expense of $8,833 and $26,499 was recorded during the three and
nine month period ended September 30, 2015.
A summary of option activity as of September 30, 2015 and changes
during the period then ended are presented below:
Options
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
(in years)
|
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2015
|
|
|
1,300,000
|
|
|
$
|
.73
|
|
|
|
3.20
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2015
|
|
|
1,300,000
|
|
|
$
|
.73
|
|
|
|
2.45
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2015
|
|
|
75,000
|
|
|
$
|
3.00
|
|
|
|
1.59
|
|
|
$
|
-
|
|
During the nine months ended September 30,
2015, no stock options were granted.
NOTE 6. FAIR VALUE OF MEASUREMENTS
The Company had no assets or liabilities measured at fair value
as of December 31, 2014. The following table summarizes the valuation of our marketable securities and marketable securities of
related parties recorded on a fair value basis as of September 30, 2015:
|
|
Total
|
|
Quoted market prices in active markets (level 1
|
|
Quoted market prices in inactive markets (level 2)
|
|
Significant Unobservable inputs
(level 3)
|
Asset
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
72,503
|
|
|
$
|
—
|
|
|
$
|
72,503
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
72,503
|
|
|
$
|
—
|
|
|
$
|
72,503
|
|
|
$
|
—
|
|
The Company considers the level of inputs used to measure fair value
of marketable securities and marketable securities of related parties to be level 2 due to the low trading volume of the respective
securities.
The fair value of notes payable and the revolving line of credit-
related party are deemed to approximate book value, which represents Level 3 inputs. Due to their near-term maturities, the carrying
amounts of accounts receivable, accounts receivable- related parties, account payable and accounts payable-related parties are
considered equivalent to fair value.
NOTE 7. SUBSEQUENT EVENTS
Board of Directors:
On September 28, 2015, the Company Board of
Directors approved Director Agreements for Mr. Michael Farmer and Mr. Redgie Green. The Director Agreements dated October 1, 2015
grant each director an option to purchase 200,000 shares at $0.05 per share; and 300,000 shares at $0.15 per share on the terms
provide the Company Stock Incentive Plan. The options expire September 30, 2018.
On October 1, 2016, Mr. Thomas E. Lindholm
was named Executive Director and Interim CEO to act as the company’s sole officer. Mr. Lindholm’s Director Agreement
compensation included director fees and stock options. Mr. Lindholm was granted an option to purchase up to 500,000 shares at $.20
per share. The options fully vest on September 30, 2017 and have a 3-year term. Mr. Lindholm was issued 170,000 shares of common
stock on December 13, 2017 which converted $34,000 in accrued director fees and was also issued an additional 50,000 shares of
common stock related to this Director Agreement. On January 27, 2017, Mr. Michael Farmer resigned as Director. On March 31, 2017
Mr. Farmer exercised his stock option and requested past director fees be converted into common stock, the Company Executive Director
denied the request. Mr. Redgie Green resigned on October 11, 2017 and a copy of his resignation letter is an exhibit hereto. On
October 16, 2017 Mr. John Devlin Jr. was named Director and died on March 8, 2018. Mr. Devlin was issued 50,000 shares of common
stock upon appointment to the Board. On March 13, 2018, Mr. Robert Flynn was appointed to the Board as Director, Secretary and
Treasurer. Mr. Flynn was issued 50,000 shares of common stock upon appointment to the Board. A copy of the Director Agreements
attached hereto as an exhibit.
Management:
On August 19, 2016, Mr. Darren Dunkel was terminated
as President and Chief Executive Officer by the Board of Directors. On October 1, 2016, Mr. Thomas E. Lindholm was named interim
Chief Executive Officer and executive director to act as the company’s sole officer until a new executive officer could be
hired. On April 20, 2017, Mr. David Beach was named President and Chief Executive Officer and subsequently resigned on June 29,
2017. On March 13, 2018, Mr. Robert Flynn was named Vice President / General Counsel. Messrs. Lindholm and Flynn entered into management
consulting agreements for one year. 377,247 shares were issued to Messrs. Lindholm and Flynn on April 3, 2018 related to these
agreements.
Public Stock Issuer Analytics, Inc. (“PISA”):
On March 1, 2017, PISA License Agreement was
extended to September 30, 2017. On November 11, 2017, the PISA Intellectual Property License Agreement was extended ten years from
September 30, 2017 through September 30, 2027. Through March 31, 2018, the Company issued 526,545 shares to Public Issuer Stock
Analytics pursuant to the terms of the intellectual property license.
J.H. Brech Revolving 8% Credit Note:
During the period through March 31, 2018, the
Company issued 2,537,000 shares for the conversion of $537,737 in principal and $96,513 in interest related to the revolving line
of credit. As of June 30, 2018 the outstanding balance was $313,796 of which LOMA Management Partners has been assigned $291,600
.
Other:
Effective July 15, 2016, 355,547 shares of
common stock issued in 2015 in conjunction with a Christopher Roberts consulting agreement were retired, due to failure by Mr.
Roberts to perform his consulting agreement, to the Company's treasury. On October 15, 2017, management sold its Radiant Oil and
Gas, Inc. common shares in a private sale for $9,000.
On June 27, 2018, the Company named Mr. Richard
M. Nummi, Director and Chairman of the Executive Compensation Committee. Subject to vesting requirements, the Company granted 50,000
shares of common stock to Mr. Nummi on the date of this agreement.