Annual Report (10-k)

Date : 09/25/2018 @ 10:05PM
Source : Edgar (US Regulatory)
Stock : INTREorg Systems, Inc. (IORG)
Quote : 0.4  0.0 (0.00%) @ 1:00AM

Annual Report (10-k)

 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal year ended December 31, 201 6

 

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________

 

Commission File Number

 

INTREorg Systems, Inc.

(Exact name of registrant as specified in its charter)

 

Texas

 

45-0526215

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

2600 E. Southlake Blvd., Suite 120-366

Southlake, TX 76092

 

Registrant’s telephone number, including area code: ( 713) 316-0061

 

Indicate by check mark whether the issuer (1) 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 [   ] No [X]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes [   ] No [X]

 

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 Ruble 12b-2 of the Exchange Act.

 

Large accelerated filer

[   ]

Accelerated filer

[   ]

Non-accelerated filer

[   ] (Do not check if a smaller reporting company)

Smaller reporting company

[X]

 

 

Emerging Growth Company

[X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period 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). [   ]

 

The number of shares of Common Stock, no par value, issued and outstanding as of September 15, 2018 was 19,132,135.

 

 


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TABLE OF CONTENTS

 

 

 

Page No.

Part I

Item 1.

Business.

4

Item 1A.

Risk Factors.

7

Item 1B.

Unresolved Staff Comments.

14

Item 2.

Properties.

14

Item 3.

Legal Proceedings.

14

Item 4.

Mine Safety Disclosure.

14

Part II

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

15

Item 6.

Selected Financial Data.

15

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

16

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

19

Item 8.

Financial Statements and Supplementary Data.

F-1

Item 9.

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

II-1

Item 9A.

Controls and Procedures.

II-1

Item 9B.

Other Information.

II-2

Part III

Item 10.

Directors, Executive Officers and Corporate Governance.

II-3

Item 11.

Executive Compensation.

II-5

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

II-6

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

II-7

Item 14.

Principal Accounting Fees and Services.

II-9

Part IV

Item 15.

Exhibits, Financial Statement Schedules.

II-10

 


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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

This report contains forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements include, among others, the following:

 

our ability to raise sufficient working capital necessary to continue to implement our business plan and satisfy our obligations, 

our ability to continue as a going concern, 

our ability to develop revenue producing operations, 

our ability to establish our brand and effectively compete in our target market, and 

risks associated with the external factors that impact our operations, including economic and leisure trends. 

 

Forward-looking statements are typically identified by use of terms such as "may", "could" , "should", "expect", "plan", "project", "intend", "anticipate", "believe", "estimate", " predict" , "potential", "pursue", "target" or "continue", the negative of such terms or other comparable terminology, although some forward-looking statements may be expressed differently. The forward-looking statements contained in this report are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management's assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. You should also consider carefully the statements under "Risk Factors" and other sections of this report, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety, including the risks described in "Item IA. - Risk Factors". Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

 

Unless specifically set forth to the contrary, when used in this Report the terms "INTREorg," "we"", "our", the "Company" and similar terms refer to INTREorg Systems, Inc., a Texas corporation. In addition, when used herein and unless specifically set forth to the contrary, "2016" refers to the year ended December 31, 2016, and "2015" refers to the year ended December 31, 2015.


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PART I

 

ITEM 1. DESCRIPTION OF BUSINESS.  

 

INTREORG was organized for the purpose of providing consulting and "back office" services to other companies. Our business plan is to become an integrated provider of Software as a Service (SaaS) applications, Stock Transfer Analytics ("STA") software application and consulting. Our target market is publicly traded, emerging growth companies. Our business plan is to engage customers using our proprietary STA software to help with compliance, fund raising and investor relations. We believe this will lead to additional opportunities to provide consulting services and/or SaaS for these companies.

 

Since inception we have been evaluating different models to carry out our business plan and develop the services and software we seek to offer to our customers. We have conducted years of test marketing of various software reporting and compliance tools. Over the years, between the trials of a new business and the slowing economy, we experienced managerial and employee turnover and have not always been able to afford to carry out our plans. However, we continued to maintain our SEC reporting and work on finding products and services that meets our criteria. We believe we have finally established the right business model, products and services, and management group to begin to implement our business plan.

 

Publicly traded companies, have an unfulfilled need to track and analyze market data of trading in the entity's own stock. This creates a market opportunity for INTREORG to provide accurate and timely reporting on stock movement data. Due to the dynamic and ever-changing nature of the market, executives of public traded companies should be evaluating their stock movement information for compliance, fund raising and investor relations purposes. Collecting and compiling this information has proven to be challenging for companies and has resulted in public companies transition toward electronic monitoring and management of their stock sales and purchases to gain better insight and control. The ultimate goal for all public companies is the ability to accurately gauge the movement of shares in the market, validate compliance, track those movements "over time", and analyze this data to accurately report information to their executive teams. There are numerous challenges associated with this goal and to facilitate a solution is a very complex and data intensive process but necessary for successful financial advantage. INTREORG has created a proprietary data delivery software tool that provides data mining, reporting and a technical understanding to be able to help our clients. Our software can provide information that can be used for:

 

Compliance 

o Identify Large Shareholder Liquidations 

o Related Accounts 

o Notify Counsel of unreported Insider transactions 

o Illegal Distribution of Unregistered Shares 

Fund Raising 

o Pricing & Timing for Capital Raises 

o Investor Sources 

Investor Relations 

o Investor Demographics 

o IR Effectiveness 

 

Our software tool provides a sophisticated analysis track and report changes in share movements to our clients. INTREORG Systems Inc. provides SaaS and consulting service for publicly traded companies using their proprietary Stock Transfer Analytics (STA) software. The company is built on the knowledge and experience of over five decades of capital markets exposure. INTREORG's services play a vital role in helping companies understand broker-dealer, clearing firm and shareholder position movements and how they impact a company's market value.

 

Market Trading Analysis for Publicly Traded Companies.

 

We have been exploring consulting services for publicly traded companies focusing on data and information regarding their shareholder base and trading activities. There have been preliminary meetings with possible vendors, clients and data providers, but no formal or definitive agreements (other than those described herein) have been executed as of the date of this filing. Since January 1 , 2011, we have focused on obtaining the licensing for software from PISA (as further described below), which is crucial for providing the consulting services we intend to offer and for researching the viability of pricing structures within the industry.


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Stock Transfer Analytics " STA" software application

 

"Stock Transfer Analytics" refers to a process of analyzing data sources about a public company's shareholders and shareholdings to generate new knowledge and gain insights about otherwise vague or difficult-to-understand aspects of a public company's public stock. We believe that the knowledge and insights which may be gained from Stock Transfer Analytics will be valuable to the financial management of public companies, and would be particularly useful to CEOs, CFOs, corporate counsel, and investor relations (IR) professionals as they monitor their corporate status.

 

Stock Transfer Analytics Services

 

The Stock Transfer Analytics software can be used as the enabling technology of a financial services consultancy, or as the technology driven fee-for-access web site. Specific services include:

 

Stock inventory modeling; 

Monitoring for Regulation FD (Fair Disclosure) compliance: When an issuer, or person acting on its behalf, discloses material nonpublic information to certain enumerated persons (in general, securities market professionals and holders of the issuer's securities who may well trade on the basis of the information), the issuer must make public disclosure of that information; during the normal course of data-mining, Regulation FD issues may be identified so long as insiders and persons possessing material, non-public information are made known to the issuer. If any such compliance issue is found, the client company of the software would be immediately notified via electronic communication detailing the individual and the transaction believed to constitute the compliance issue. 

Enforce lock-ups; and, 

Improved investor relations. 

 

On October 30, 2012, we executed an Intellectual Property License and Consulting Agreement (the "PISA Agreement") with Public Issuer Stock Analytics, LLC ("PISA") that provides us the exclusive right to market and sell services associated with certain proprietary intellectual property owned by PISA. PISA further agreed to act as a consultant to us, providing the actual services associated with the certain proprietary intellectual property. The term of the PISA Agreement is for three years. Under the PISA Agreement, PISA is entitled to the following compensation: 250,000 shares of Common Stock when the PISA Agreement was executed; 20,000 shares per month based on the closing price of our Common Stock on the last business day of each respective month (the "Share Royalty"); and 1%, 2% or 3% of gross sales, due on a quarterly basis , up and until the second anniversary, third anniversary or termination of the agreement, respectively (the "Gross Sales Royalty"). If no gross sales exist for a given period, PISA's only compensation for such period shall be the Share Royalty. The Gross Sales Royalty may be paid in cash or restricted shares of Common Stock; if paid in Common Stock, such stock shall be issued based on the market close on the last business day of each month in each quarter as such market close is found in Bloomberg.

 

Our ability to fully implement our business plan is dependent both on implementing the licensing agreement with the related party as well as raising sufficient capital to fund the further development of our company. Going forward, we expect that our efforts will be focused on parallel courses to achieve both of these goals. While we have raised funds in private offerings, there are no assurances, that we will be able to raise all necessary capital; and without access to funding we will be unable to pursue other aspects of our business development.

 

Information Based Sales and Marketing Efforts.

 

We have developed a set of metrics that we believe permits us to assess each client's needs and its potential profitability based on such company's publicly available intonation. Accordingly, we intend to focus our sales and marketing efforts on companies with readily available public information, such as those who file reports with the SEC. We believe that this approach will allow us to focus our sales and marketing efforts on a legitimate group of potential clients and reduce wasted sales and marketing expenses.

 

We expect to finalize our marketing strategies and hire and train either in house marketing personnel or engage independent contractors who have expertise in our target markets, at such time as we begin offering our products and services, which we anticipate will occur within the next 6 months to a year, to provide additional capital and resources. Until such time, our marketing strategy will remain as in-person client development meetings with the management teams of public companies.


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We currently maintain a master service agreement with one client, which provides a good example of the services we can provide to our clients. For instance, pursuant to the terms of the agreement, we will create a dynamic database that logically aggregates, compiles, and rationalizes all disparate and available broker-dealer and shareholder data from known reporting entities and all available relevant sources, including but not limited to, The Depository Trust and Clearing Corporation (DTCC), Cede & Co., Company's Transfer Agent and Broadridge Financial Solutions, Inc. This is the first step in turning static reporting entity, broker-dealer and shareholder data into a useful and dynamic archival/historic repository.

 

In addition to the services described above, our consulting team will be available to provide trusted advisor related consulting services to the client in conjunction with the software they are using.

 

Competition

 

Once we begin our operations, we will be engaged in a highly competitive industry and competing with many companies, a number of which are larger, better capitalized, more established and have greater access to resources necessary to produce a competitive advantage. Our competitors will include large, international companies as well as regional and local companies that provide computer software programs. Although we may compete with other entities that provide some of the services we provide, we do not believe that there is any other entity that currently provides the entire suite of services and software that we intend to provide to our clients. We believe that most competitors provide some of the services we intend to provide as separate stand-alone services and that our ability to combine these services with our software will enhance the demand for our offerings.

 

Because of all the inherent limitations with any new organization, there are no assurances that we will ever be able to effectively compete in our target business. However, once we obtain additional financing and are able to execute our business goals, we believe our core values as described above will provide us with competitive strengths.

 

Customers

 

Over the past two fiscal years, we have signed one client - Rangeford Resources, Inc. ("Rangeford") - and use the Public Issuer Stock Analytics technology for our own shareholder base. Accordingly, the loss of this customer will have a material adverse effect on our business and operations. We currently intend that our clients will consist of smaller, emerging public companies that are trying to gain insight on their capitalization to better evaluate their status and the types of corporate actions they may pursue.

 

On October 30, 2012, we entered into a Master Services Agreement with Rangeford pursuant to which we will provide services relating to the Public Issuer Stock Analytics software for an annual fee of $30,000 (based on our license agreement with PISA, up to 3% of these fees will be paid to PISA for the first three years of the Rangeford Agreement). The term of the Agreement is one year, and thereafter the agreement renews automatically and remains "evergreen" for succeeding one-year terms, unless terminated according to the termination provisions in the agreement. (See, "Certain Relationships and Related Transactions," and "Director Independence")

 

Intellectual Property

 

We do not currently have any registered trademarks nor do we own any patents. However, we intend to apply for the appropriate protection if it becomes necessary.

 

Employees

 

As of December 31, 2016, we had one full time employee. Our executive officer provides certain services dedicated to current corporate and business development activities on an as needed, part-time basis.

 

FOR ADDITIONAL INFORMATION

 

We are a reporting company and file annual, quarterly and current reports, proxy statements and other information with the SEC. For further information with respect to the Company, you may read and copy its reports, proxy statements and other information, at the SEC public reference rooms at 100 F. Street, N.E., Washington, D.C. 20549. You can request copies of these documents by writing to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the public reference rooms. The Company’s SEC filings are also available at the SEC's web site at http://www.sec.gov.

 

Copies of Company's Annual Reports on Fenn l0K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are all available on our website (www.intreorg.com) free of charge, within a week after we file same with the SEC or by sending a request for a paper copy to our outside securities counsel: Hunter Taubman Weiss LLP, 130 W. 42nd Street, Suite 1050, New York, NY 10036 (the information provided on our website at is not part of this Report).


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ITEM l A. RISK FACTORS.  

 

Although we are not required to provide this information since we are a smaller reporting company, we are voluntarily providing such information in light of the risks associated with our company and our lack of revenue. Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected.

 

OUR AUDITORS HAVE RAISED SUBSTANTIAL DOUBTS AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.

 

Our financial statements have been prepared assuming we will continue as a going concern. Since inception we have experienced recurring losses from operations, which losses have resulted in accumulated deficit of $6,242,419 as of December 31, 2016. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. We anticipate that we will continue to incur losses in future periods until we begin reporting generating revenues. There are no assurances that we will be able to raise our revenues to a level which supports profitable operations and provides sufficient funds to pay our obligations. If we are unable to meet those obligations, we could be forced to cease operations in which event investors would lose their entire investment in our company.

 

WE HAVE NOMINAL REVENUES AND OUR ABILITY TO PAY OUR OPERATING EXPENSES IS DEPENDENT UPON ADVANCES FROM RELATED PARTIES.

 

For the fiscal year ended December 31, 2016, we reported a net loss of $446,647. We had a working capital deficit of $3,048,671 at December 31, 2016. We have not yet begun generating revenue from our operations and are dependent upon a line of credit or other informal advances from a related party to pay our operating expenses and the continued development of our business plan. There are no assurances this related party will continue to advance funds to us that will satisfy our working capital needs until such time as we are able to raise additional capital or generate sufficient revenues to fund our operating expenses. While we seek ways to continue to operate by securing additional financing resources or alliances or other partnership agreements, we do not at this time have any commitments or agreements that provide for additional capital resources. Our financial condition and the going concern emphasis paragraph may also make it more difficult for us to maintain existing customer relationships and to initiate and secure new customer relationships.

 

IF WE ARE UNABLE TO FILE OUR OUTSTANDING DELINQUENT PERIODIC REPORTS, OUR REGISTRATION MAY BE REVOKED AND WE MAY BE SUBJECT TO A TRADING SUSPENSION.

 

Due to capital constraints, we were not able to file timely all of our periodic reports during the past three fiscal years; however, we have been working towards resolving that deficiency and will only be deficient with regards to our fiscal 2017 and 2018 reports following the filing of this Annual Report on Form 10-K for the year ended December 31, 2016. Although there can be no guarantee, we hope that by filing all the other delinquent reports we will prevent the SEC from initiating an administrative proceeding to revoke our registration under the Securities Exchange Act of 1934 (the "Exchange Act") pursuant to Section 12(j) of the Exchange Act. If the SEC initiates a 12(j) proceeding, our stock may be subject to a trading suspension pursuant to Section 12(k) of the Exchange Act. If the SEC initiates a 12(j) or 12(k) proceeding, it will significantly impair our ability to raise additional financings, could force us to expend significant financial resources to defend ourselves, could divert the attention of our management from our core business and could harm our reputation.

 

WE HAVE HISTORICALLY BEEN, AND MAY CONTINUE TO BE, HEAVILY RELIANT UPON FINANCING FROM RELATED PARTIES, WHICH PRESENTS POTENTIAL CONFLICTS OF INTEREST THAT MAY ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

We have historically obtained financing from related parties, including major shareholders, directors and officers, in the form of debt, debt guarantees and issuances of equity securities, to finance working capital growth. These related parties have the ability to exercise significant control over our financing decisions, which may present conflicts of interest regarding the choice of parties from whom we obtain financing, as well as the terms of financing. No assurance can be given that the terms of financing transactions with related parties are or will be as favorable as those that could be obtained in arms' length negotiations with third parties.


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WE HAVE A SIGNIFICANT AMOUNT OF DEBT WHICH COULD IMPACT OUR ABILITY TO CONTINUE TO IMPLEMENT OUR BUSINESS PLAN.

 

We have incurred indebtedness totaling $3,057,671 at December 31, 2016, which includes $514,017 in accounts payable, $510,653 in accounts payable to related parties, $743,885 in accrued interest and other liabilities, $453,290 in accrued contingencies, $521,000 in notes payable which are past due and a revolving line of credit with a related party with an outstanding balance as of December 31, 2016 of $314,826. We do not have adequate funds to satisfy the outstanding obligations. The outstanding notes provide that as a result of a default - failure to pay when due, the note holders could declare the notes immediately due and payable. Unless we are able to restructure some or all of this debt, and raise sufficient capital to fund our continued development, our current operations do not generate sufficient cash to pay these obligations, when due. Accordingly, there can be no assurance that we will be able to pay these or other obligations which we may incur in the future and it is unlikely we will be able to continue as a going concern.

 

WE HAVE LIMITED HISTORY AND WE CANNOT ASSURE YOU THAT OUR BUSINESS MODEL WILL BE SUCCESSFUL IN THE FUTURE OR THAT OUR OPERATIONS WILL BE PROFITABLE.

 

Our company was formed in 2003 but we have yet to begin generating revenues from our operations. Accordingly, investors do not have sufficient operating history upon which to evaluate our business model. There can be no assurances whatsoever that we will be able to successfully implement our business model, penetrate our target markets or attain a wide following for our services. We are subject to all the risks inherent in an early stage enterprise and our prospects must be considered in light of the numerous risks, expenses, delays, problems and difficulties frequently encountered in those businesses.

 

WE ARE DELINQUENT IN OUR TAX FILINGS.

 

We failed to file federal tax returns for the fiscal years ended December 31, 2009 through 2016 and they are open for review by the various tax jurisdictions. We are also required to file Franchise Tax Reports in Texas and we have filed all the required tax forms in Texas. We cannot assure you that we will not incur fines and penalties for failure to file such our federal tax returns.

 

THE COMPANY COMPETES WITH MANY LARGER, WELL CAPITALIZED COMPANIES

 

We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and may have more financial resources. Such competitors primarily include Broadridge, Deloitte, KPMG Accenture etc. INTREORG also faces competition from many other types of service providers, including SHAREINTEL. Due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can. Our ability to compete successfully depends on a number of factors, including, among other things:

 

The ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; 

The ability to expand our market position; 

The rate at which we introduce new products and services relative to our competitors; 

Customer satisfaction with our level of service; 

 

Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.

 

OUR SOLE OFFICER DOES NOT DEVOTE ALL OF HIS TIME TO OUR BUSINESS, WHICH MAY IMPACT OUR ABILITY TO CARRY OUT OUR BUSINESS IN THE MOST EFFICIENT MANNER

 

Our sole officer does not allocate his full time to our business thereby resulting in potential conflicts of interest in his determination as to how much time to devote to our affairs, and this conflict of interest could have a negative impact on our ability to implement our business plan.

 

Our sole officer devotes only approximately 50% of his time and attention to our business and he is engaged in other business endeavors which are unrelated to our company. If his other business affairs require him to devote more substantial amounts of time to such affairs, it could limit his ability to devote time to our affairs and could have a negative impact on our ability to implement our business plan. We cannot assure you that these potential conflicts of interest will be resolved in our favor.


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WE WILL NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE TERMS IF AT ALL

 

Our current operations are not sufficient to fund our operating expenses and we will need to raise additional working capital to continue to implement our business model, to provide funds for marketing to support our efforts to increase our revenues and for general overhead expenses, including those associated with our reporting obligations under Federal securities laws. Generally, small businesses such as ours for which there is a limited public market for their securities face significant difficulties in their efforts to raise equity capital. While to date we have relied upon the relationships of our executive officers and shareholders in our capital raising efforts, there are no assurances that these resources will continually be available to us or provide us with sufficient funding.

 

We do not have any commitments to provide additional capital and there are no assurances we will be able to raise capital upon terms which are favorable to our company. Even if we are able to raise capital, the structure of that capital raise could impact our company and our shareholders in a variety of ways. If we raise additional capital through the issuance of debt, this will result in interest expense. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our company held by existing shareholders will be reduced and those shareholders may experience significant dilution. In addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common stock. We cannot assure you that we will be able to raise the working capital as needed in the future on terms acceptable to us, if at all. If we do not raise funds as needed, we may not be able to continue to implement our business plan and it is likely that you would lose your entire investment in our company.

 

WE RELY ON THIRD PARTY TECHNOLOGIES AND IF WE ARE UNABLE TO USE OR INTEGRATE THESE TECHNOLOGIES, OUR PRODUCT AND SERVICE DEVELOPMENT MAY BE DELAYED AND OUR OPERATING RESULTS NEGATIVELY IMPACTED.

 

We rely on certain software that we acquire from third parties, including software that is used to perform key functions. These third­ party software licenses may not continue to be available on commercially reasonable terms, and the software may not be appropriately supported, maintained or enhanced by the licensors or manufacturers. The loss of licenses or access to, or inability to support, maintain and enhance any such software could result in increased costs, or in delays or reductions in product shipments until equivalent products can be developed, identified, licensed and integrated, which would likely harm our business.

 

IF WE ARE DEEMED TO BE AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT, WE MAY BE REQUIRED TO INSTITUTE BURDENSOME COMPLIANCE REQUIREMENTS AND OUR ACTIVITIES MAY BE RESTRICTED, WHICH MAY MAKE IT DIFFICULT FOR US TO COMPLETE A BUSINESS COMBINATION.

 

The regulatory scope of the Investment Company Act of 1940, as amended (the "Investment Company Act"), which was enacted principally for the purpose of regulating vehicles for pooled investments in securities, extends generally to companies engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities. The Investment Company Act may, however, also be deemed to be applicable to a company which does not intend to be characterized as an investment company but which, nevertheless, engages in activities which may be deemed to be within the definitional scope of certain provisions of the Investment Company Act. We do not believe that our principal activities will subject us to regulation under the Investment Company Act. However, because our business model provides for, and encourages, us to accept stock of our client companies rather than cash as compensation for our services, there can be no assurance that we will not be deemed to be an investment company. If we are deemed to be an investment company, we may become subject to certain restrictions relating to our activities, including restrictions on the nature of our investments and the issuance of securities, which may create difficulties for future financings. In addition, the Investment Company Act imposes certain requirements on companies deemed to be within its regulatory scope, including registration as an investment company, adoption of a specific form of corporate structure and compliance with certain burdensome reporting, record keeping, voting, proxy, disclosure and other rules and regulations. In the event we are characterized as an investment company, our inability to satisfy such regulatory requirements, whether on a timely basis or at all, would, under certain circumstances, have a material adverse effect on us. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our ability to consummate a business combination.


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WE DO NOT CARRY BUSINESS INTERRUPTION OR OTHER INSURANCE, SO WE HAVE TO BEAR LOSSES OURSELVES.

 

We are subject to risk inherent to our business, including equipment failure, theft, natural disasters, industrial accidents, labor disturbances, business interruptions, property damage, product liability, personal injury and death. We do not carry any business interruption insurance or third-party liability insurance or other insurance to cover risks associated with our business. As a result, if we suffer losses, damages or liabilities, including those caused by natural disasters or other events beyond our control and we are unable to make a claim again a third party, we will be required to bear all such losses from our own funds, which could have a material adverse effect on our business, financial condition and results of operations.

 

OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY, AND THE POSSIBILITY THAT OUR TECHNOLOGY COULD INADVERTENTLY INFRINGE TECHNOLOGY OWNED BY OTHERS, MAY ADVERSELY AFFECT OUR ABILITY TO COMPETE.

 

We rely on a combination of trade secret laws and confidentiality procedures to protect the technological know-how that comprise much of our intellectual property. We protect our technological know-how pursuant to non-disclosure and non-competition provisions contained in our third-party agreements, and agreements with them to keep confidential all information relating to our customers, methods, business and trade secrets. Third parties are also required to acknowledge and recognize that all inventions, trade secrets, works of authorship, developments and other processes made by them during their service term with us are our property.

 

A successful challenge to the ownership of our intellectual property could materially damage our business prospects. Our competitors may assert that our technologies or products infringe on their patents or proprietary rights. We may be required to obtain from other licenses that may not be available on commercially reasonable terms, if at all. Problems with intellectual property rights could increase the cost of our products or delay or preclude our new product development and commercialization. If infringement claims against us are deemed valid, we may not be able to obtain appropriate licenses on acceptable terms or at all. Litigation could be costly and time­ consuming but may be necessary to defend against infringement claims.

 

WE RELY ON THE LICENSE FROM PISA TO PROVIDE SOME OF OUR KEY SERVICES; ANY DETERIORATION OF OUR RELATIONSHIP WITH PISA'S MANAGEMENT COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS OPERATIONS.

 

On October 30, 2012, we entered in to an Intellectual Property License and Consulting agreement with Public Issuer Stock Analytics, LLC ("PISA"), a related party, that provides us with the exclusive right to market and sell certain of PISA's proprietary intellectual property/software. The PISA software is crucial for us to provide the type of consulting services we intend to offer and for researching the viability of pricing structures within the industry. Although we have a good relationship with PISA's management, there is not guarantee that we will be able to renew the license when the term expires with substantially similar terms or at all.

 

WE LICENSE TECHNOLOGY FROM THIRD PARTIES. IF WE ARE UNABLE TO MAINTAIN THESE LICENSES, OUR OPERATIONS AND FINANCIAL CONDITION MAY BE NEGATIVELY IMPACTED.

 

We currently license technology from a related party, but intend to license additional technologies from other third parties. The loss of, our ability to maintain, or changes in material terms of these licenses could result in increased cost or delayed sales of our software and services, or may cause us to remove features from our products or services. We anticipate that we will continue to license technology from third parties in the future. This technology may not continue to be available on commercially reasonable terms, if at all. The impairment of these third-party relationships, especially if this impairment were to occur in unison, could result in delays in the delivery of our software and services until equivalent technology, if available, is identified, licensed and integrated. This delay could adversely affect our operating results and financial condition.


10


 

 

THE TECHNOLOGY UNDERLYING OUR PRODUCTS AND SERVICES JS COMPLEX AND MAY CONTAIN UNKNOWN DEFECTS THAT COULD HARM OUR REPUTATION, RESULT IN PRODUCT LIABILITY OR DECREASE MARKET ACCEPTANCE OF OUR PRODUCTS.

 

The technology underlying our products is complex and includes software that is internally developed, and software licensed from third parties. These products have, and will in the future, contain errors or defects, particularly when first introduced or when new

versions or enhancements are released. We may not discover defects that affect our current or new applications or enhancements until after they are sold, and our insurance coverage may not be sufficient to cover our complete liability exposure. Any defects in our products and services could damage our reputation.

 

Cause our customers to initiate product liability suits against us 

 

Increase our product development resources 

 

Cause customers to cancel orders or potential customers to purchase competitive products or services 

 

Delay release or market acceptance of our products, or otherwise adversely impact our relationships with our customers or 

 

Cause us to allocate valuable engineering resources to fix our existing products, which may cause us to allocate fewer resources toward developing new products, or toward adding features to our existing products. 

 

WE BEAR THE RISK OF LOSS OF MAJOR CLIENTS, NONPAYMENT FROM OUR CLIENTS AND THE POSSIBLE EFFECTS OF BANKRUPTCY FILINGS BY CLIENTS, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

We intend to focus our business strategy on serving large corporate customers. While our strategy is intended to enable us to increase our revenues and earnings from our major corporate customers, the strategy also exposes us to increased risks arising from the possible loss of major customer accounts. If a large client experiences financial difficulty or is otherwise unable to meet its obligations as they become due, our financial condition and results of operations could be adversely affected. Given the difficult economic environment, there is an increased risk of clients failing to pay or delaying payment. Once we begin to service more clients, if there is a significant amount of uncollected accounts receivables or customer defaults it would have a material adverse effect on our earnings and financial condition. In addition, we would have charge backs on existing accounts receivable and invoices on future sales of accounts receivable generated by such clients under our accounts receivable purchase agreements.

 

IF A SUFFICIENT NUMBER OF CUSTOMERS DO NOT ACCEPT OUR PRODUCTS, OUR BUSINESS MAY NOT SUCCEED.

 

We cannot predict how the market for our products and services will develop, and part of our strategic challenge will be to convince enterprise customers of the productivity, improved analysis suitability and other benefits of our services. As of the date of this filing, we only have one customer. Our future revenue and revenue growth rates will depend in large part on our success in delivering these services effectively, creating market acceptance for these services and meeting customer's needs for new or enhanced services. If we fail to do so, our services will not achieve widespread market acceptance, and we may not generate sufficient revenue to offset our product development and selling and marketing costs, which will hurt our business.

 

WE MAY NOT BE ABLE TO INNOVATE TO MEET THE NEEDS OF OUR TARGET MARKET.

 

Our future success will continue to depend upon our ability to develop new products, product enhancements or service offerings that address future needs of our target markets and to respond to these changing standards and practices. The success of new products, product enhancements or service offerings depend on several factors, including the timely completion, quality and market acceptance of the product, enhancement or service. Our revenue could be reduced if we do not capitalize on our current market leadership by timely developing innovative new products, product enhancements or service offerings that will increase the likelihood that our products and services will be accepted in preference to the products and services of our current and future competitors.


11


 

 

IF OUR MARKETING AND LEAD GENERATION EFFORTS ARE NOT SUCCESSFUL, OUR BUSINESS WILL BE HARMED.

 

We believe that continued marketing efforts will be critical to achieve widespread acceptance of our products. Our marketing campaigns may not be successful given the expense required. For example, failure to adequately generate and develop sales leads could cause our future revenue growth to decrease. In addition, our inability to generate and cultivate sales leads into large organizations, where there is the potential for significant use of our products, could have a material effect on our business. We may not be able to identify and secure the number of strategic sales leads necessary to help generate marketplace acceptance of our services. If our marketing or lead-generation efforts are not successful, our business and operating results will be harm.

 

OUR ARTICLES OF INCORPORATION MAY DELAY OR PREVENT A TAKE-OVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR STOCKHOLDERS.

 

Our Articles of Incorporation authorize the issuance of up to 10,000,000 shares of preferred stock with such rights and preferences as maybe determined from time to time by our board of directors. Our board of directors may, without shareholder approval, issue additional classes of preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock.

 

IF THE MATERIAL WEAKNESSES OR OTHER DEFICIENCIES IN OUR INTERNAL ACCOUNTING PROCEDURES ARE NOT REMEDIATED, WE WILL NOT COMPLY WITH THE RULES UNDER THE SARBANES-OXLEY ACT RELATED TO ACCOUNTING CONTROLS AND PROCEDURES OR OUR STOCK PRICE COULD DECLINE SIGNIFICANTLY.

 

Section 404 of the Sarbanes-Oxley Act required annual management assessments of the effectiveness of our internal controls over financial reporting commencing December 31, 2007. Our management concluded the financial statements included in our Annual Report on Form 10-K for the two-years ended December 31, 2015 and 2014, fairly present in all material respects our financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the U.S.

 

Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2016 based on the control criteria established in a report entitled Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on this evaluation, our management concluded our internal control over financial reporting was not effective as of December 31, 2016. During its evaluation, as of December 31, 2016 our management identified material weaknesses in our internal control over financial reporting and other deficiencies as described in our annual report on Form 10-K for the years then ended. As a result, our investors could lose confidence in us, which could result in a decline in our stock price.

 

We are taking steps to remediate our material weaknesses. However, if we fail to achieve and maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude in the future that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could decline significantly. In addition, we cannot be certain that additional material weaknesses or other significant deficiencies in our internal controls will not be discovered in the future.

 

Risks Relating to Our Securities

 

LACK OF LIQUIDITY

 

There is currently only a limited public market for the Company's Common Stock and there can be no assurance that a more robust trading market will develop further or be maintained in the future.

 

OUR COMMON STOCK IS A "PENNY STOCK" AND MAY BE DIFFICULT TO SELL.

 

The SEC has adopted regulations which generally define a "penny stock" to be an equity security that has a market price of less than

$5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is less than $5.00 per share and, therefore, it may be designated as a "penny stock" according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares.


12


 

 

THE MARKET FOR PENNY STOCKS HAS EXPERIENCED NUMEROUS FRAUDS AND ABUSES WHICH COULD ADVERSELY IMPACT INVESTORS IN OUR STOCK.

 

Penny stocks are frequent targets of fraud or market manipulation. Patterns of fraud and abuse include:

 

Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; 

Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; 

Boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; 

Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and 

Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses 

 

Our management is aware of the abuses that have occurred historically in the penny stock market.

 

OUR STOCK PRICE JS VOLATILE, WHICH COULD ADVERSELY AFFECT YOUR INVESTMENT.

 

Our stock price, like that of other computer software companies, is highly volatile. Our stock price may be affected by such factors as:

 

product development announcements by us or our competitors; 

regulatory matters; 

announcements in the software community; 

intellectual property and legal matters; and 

broader industry and market trends unrelated to our performance 

 

In addition, if our revenues or operating results in any period fail to meet the investment community's expectations, there could be an immediate adverse impact on our stock price.

 

OUR PUBLICLY FILED REPORTS ARE SUBJECT TO REVIEW BY THE SEC, AND ANY SIGNIFICANT CHANGES OR AMENDMENTS REQUIRED AS A RESULT OF ANY SUCH REVIEW MAY RESULT IN MATERIAL LIABILITY TO US AND MAY HAVE A MATERIAL ADVERSE IMPACT ON THE TRADING PRICE OF THE COMPANY'S COMMON STOCK.

 

The reports of publicly traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements, and the SEC is required to undertake a comprehensive review of a company's reports at least once every three years under the Sarbanes-Oxley Act of 2002. SEC reviews may be initiated at any time. We could be required to modify, amend or reformulate information contained in prior filings as a result of an SEC review. Any modification, amendment or reformulation of information contained in such reports could be significant and result in material liability to us and have a material adverse impact on the trading price of the Company's common stock.

 

STOCKHOLDER OWNERSHIP INTEREST IN OUR COMPANY MAY BE DILUTED AS A RESULT OF FUTURE FINANCINGS OR ADDITIONAL ACQUISITIONS.

 

As previously stated, we need to raise additional capital to carry out our business plans. We may seek to raise these funds in public or private issuances of equity and such financings may take place in the near future or over the longer term. Sales of our securities offered through future equity offerings may result in substantial dilution to the interests of our current shareholders. The sale of a substantial number of securities to investors, or anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. In addition, we have issued shares of our common stock for various consulting services or license agreements in the past and may do so in the future, which may also result in substantial dilution to the interests of our current shareholders.


13


 

 

ITEM l B. UNRESOLVED STAFF COMMENTS.  

 

Although this item is not applicable to smaller reporting companies like us, management believes it is important to disclose the following information to you.

 

Due to capital constraints, we were not able to timely file all of our periodic reports during the past three fiscal yers; however, we have been working towards resolving that deficiency. We informed the SEC that we shall file all outstanding delinquent reports on or before October 31, 2018. We hope that by filing all the other delinquent reports by such date and the outstanding 10-K soon thereafter, will prevent the SEC from initiating an administrative proceeding to revoke our registration under the Securities Exchange Act of 1934 (the "Exchange Act") pursuant to Section 12G) of the Exchange Act.

 

ITEM 2. DESCRIPTION OF PROPERTY.  

 

The company does not lease an office facility at this point. Our executive officers work out of their respective homes.

 

ITEM 3. LEGAL PROCEEDINGS.  

 

We are not a party to any pending or threatened litigation.

 

ITEM 4. MINE SAFETY DISCLOSURES.  

 

Not applicable to our operations.


14


 

PART II

 

ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.  

 

Market Price of and Dividends on Common Equity and Related Stockholder Matters

 

Our common stock currently trades on the OTC Pink Market under the symbol, "IORG."

 

The reported high and low last sale prices for the common stock are shown below for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.

 

 

 

High

 

Low

2015

 

 

 

 

First quarter ended March 31, 2015

 

0.38

 

0.22

Second quarter ended June 30, 2015

 

0.29

 

0.16

Third quarter ended September 30, 2015

 

0.19

 

0.07

Fourth quarter ended December 31, 2015

 

0.32

 

0.09

 

 

 

 

 

2016

 

 

 

 

First quarter ended March 31, 2016

 

0.79

 

0.35

Second quarter ended June 30, 2016

 

0.83

 

0.27

Third quarter ended September 30, 2016

 

0.72

 

0.34

Fourth quarter ended December 31, 2016

 

0.34

 

0.17

 

The last sale price of our common stock as reported on the OTC Pink Market was $0.55 on August 31, 2018. As of August 31, 2018, there were approximately 115 record owners of our common stock.

 

Dividend Policy

 

We have never paid cash dividends on our common stock. Under Texas law, we are prohibited from paying dividends on our common stock if (1) our surplus is less than the amount required by Section 21.313 of the Texas Business Organizations Code to be transferred to stated capital at the time the share dividend is made; or (2) the share dividend will be made to a holder of shares of any other class or series, unless (A) our Articles of Incorporation provide for the dividend; or (B) the share dividend is authorized by the holders of at least a majority of the outstanding shares of the class or series in which the share dividend is to be made. We have no present intention to declare or pay dividends on shares of our common stock.

 

Recent Sales of Unregistered Securities

 

Information regarding any equity securities we have sold during the period covered by this Report that were not registered under the Securities Act of 1933, as amended, is set forth below. Each such transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D promulgated by the SEC. Unless stated otherwise: (i) the securities were offered and sold only to accredited investors; (ii) there was no general solicitation or general advertising related to the offerings; (iii) each of the persons who received these unregistered securities had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities, and that they were knowledgeable about our operations and financial condition; (iv) no underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with the transactions; and, (v) each certificate issued for these unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.

 

All of the transactions listed above were made pursuant to the exemption from the registration provisions of the Securities Act of 1933, as amended, provided by Section 4(a)(2) of the Securities Act for sales not involving a public offering or Rule 506 of Regulation D promulgated thereunder. The securities issued have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

 

ITEM 6. SELECTED FINANCIAL DATA.  

 

Not applicable to a smaller reporting company


15


 

 

ITEM 7. MANAGEMENTS DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.  

 

The following discussion of our financial condition and results of operation for 2015 and 2014 should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward­ looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Item 1 A. Risk Factors, Cautionary Notice Regarding Forward­ Looking Statements and Business sections in this Form 10-K. We use words such as "anticipate," "estimate, " "plan," "project," "continuing," "ongoing g," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward­ looking statements.

 

Overview

 

We were organized for the purpose of providing consulting and "back office" services to other companies. Our business plan is to become an integrated provider of Software as a Service (SaaS) applications, Stock Transfer Analytics ("STA") software application and consulting. Our target market is publicly-traded, emerging growth companies. Our business plan is to engage customers using our proprietary STA software to help customers with compliance, fund raising and investor relations. We believe this will lead to additional opportunities to provide consulting services and/or SaaS for these companies.

 

Since inception we have been evaluating different models to carry out our business plan and develop the services and software we seek to offer to our customers. We have conducted years of test marketing of various software reporting and compliance tools. Over the years, between the trials of a new business and the slowing economy, we experienced managerial and employee turnover and have not always been able to afford to carry out our plans. However, we continued to maintain our SEC reporting and work on finding products and services that meets our criteria. We believe we have finally established the right business model, products and services, and management group to begin to implement our business plan.

 

We have been exploring providing consulting services for publicly traded companies focusing on data and information regarding their shareholder base and trading activities. There have been preliminary meetings with possible vendors, clients and data providers, but no formal or definitive agreements (other than those described herein) have been entered as of the date of this filing. Since January 1, 2011, we have been focused on obtaining the licensing for software from PISA (as further described below), which is crucial for providing the consulting services we intend to offer and for researching the viability of pricing structures within the industry.

 

In October 2012, we executed an Intellectual Property License and Consulting Agreement (the "PISA Agreement") with Public Issuer Stock Analytics, LLC ("PISA") that provides us the exclusive right to market and sell services associated with certain proprietary intellectual property owned by PISA. PISA further agreed to act as a consultant to us, providing the actual services associated with the certain proprietary intellectual property. The term of the PISA Agreement is for three years. Under the PISA Agreement, PISA is entitled to the following compensation: 250,000 shares of Common Stock when the PISA Agreement was executed; 20,000 shares per month based on the closing price of our Common Stock on the last business day of each respective month (the "Share Royalty"); and 1%, 2% or 3% of gross sales, due on a quarterly basis, up and until the second anniversary, third anniversary or termination of the agreement, respectively (the "Gross Sales Royalty"). If no gross sales exist for a given period, PISA's only compensation for such period shall be the Share Royalty. The Gross Sales Royalty may be paid in cash or restricted shares of Common Stock; if paid in Common Stock, such stock shall be issued based on the market close on the last business day of each month in each quarter as such market close is found in Bloomberg.

 

Our ability to fully implement our business plan is dependent both on implementing the licensing agreement with the related party as well as raising sufficient capital to fund the further development of our company. Going forward, we expect that our efforts will be focused on parallel courses to achieve both of these goals. While we have raised funds in private offerings, there are no assurances, however, that we will be able to raise all of the necessary capital and without access to funding we will be unable to pursue other aspects of our business development.


16


 

 

Recent Events

 

Going Concern

 

We have incurred accumulated losses of $6,251,640 as of December 31, 2016. The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2016 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our operating losses and need to raise additional capital. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to increase our revenues and report profitable operations or to continue as a going concern, in which event investors would lose their entire investment m our company.

 

Plan of Operations

 

To date, we have funded our activities through debt as well as through working capital advances from related parties. To fully organize our company and implement the first phase of our business model, we will need to raise approximately $2.5 million in addition to the funds necessary to satisfy our existing obligations. Over the past four years, we have only raised approximately $350,000 in private financings; we continue to seek the additional necessary capital, but there can be no assurance that we will receive financing on acceptable terms, or at all.

 

Given the nature of our company and the current status of the capital markets, there are no assurances we will be able to raise all of the necessary capital. Even if we are ultimately able to raise the capital, there are no assurances that our business model will be successful or that we will ever generate revenues from our operations.

 

Results of Operations

 

For the Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015

 

During the years ended December 31, 2016 and 2015, we recognized $0.00 and $52,436 respectively of service revenue. We do not expect to recognize revenues from our operational activities in 2017, as the software has not been fully developed.

 

During the year ended December 31, 2016, we recognized operational expenses of $391,983, consisting of general and administrative expenses of $274,983 and consulting fees-related parties of $117,700, compared to operational expenses of $936,817 during the year ended December 31, 2015. The decrease of $544,834 or 58% was a result of the decrease in G&A expenses.

 

We expect that these expenses will increase during 2017 as we begin to further implement our business plan, although we are unable at this time to quantify the actual amount of this anticipated increase as it will be based upon our varying level of operations.

 

During the year ended December 31, 2016, we recognized a net loss of $455,868 compared to $978,189 for the year ended December 31, 2015. The decrease of $522,321 or 53% was attributable to the decrease in revenues and G&A expenses.

 

Liquidity and Capital Resources

 

At December 31, 2016, we had a working capital deficit of $3,048,671. Historically, we have relied upon debt funding, advances and loans from related parties to fund our cash needs.

 

At December 31, 2016, we owe a total of $314,826 under the working capital line of credit.

 

Our balance sheet at December 31, 2016 includes $453,290 of accrued compensation. This amount represents an estimate of certain operating liabilities which may have been incurred by prior management that we are unable to confirm.

 

At December 31, 2016 we have $521,000 principal amount and $423,120 of accrued but unpaid interest due under the terms of various promissory notes to third parties. These notes, which are unsecured, are all in default and we do not have sufficient funds to repay these obligations. As a result of the default, the note holders could enforce their rights under these notes at any time.


17


 

 

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 funding for our operations. 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, between August of 2011 and 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.

 

As of December 31, 2016, the Company owed JH Brech, a related party, $314,826 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 included in current liabilities as of December 31, 2016 and 2015. As of the date of this Report, J.H. Brech, LLC has not declared a default on the Line of Credit.

 

We have not generated any significant revenues and we are dependent upon advances from a related party to fund our ongoing general and administrative expenses and satisfy our obligations. We need to initially raise $500,000 to fund the initial launch of our business plan, in addition to funds necessary to satisfy our current obligations. We do not, however, have any agreements or understanding with any third party to provide this financing. Until we can raise the necessary funds, we will be unable to further implement our business plan. Given the nature of our company and the thinly traded nature of the public market for our common stock, there are no assurances we will be able to raise the necessary capital. If we are unable to raise capital as necessary, our ability to continue as a going concern is in jeopardy and investors could lose their entire investment in our company.


18


 

 

Critical Accounting Policies

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

A summary of significant accounting policies is included in Note 1 to the financial statements included in this report. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.  

 

Not applicable for a smaller reporting company.


19



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.  

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of INTREorg Systems, Inc.

 

We have audited the accompanying balance sheets of INTREorg Systems, Inc. (the "Company") as of December 31, 2016 and 2015, and the related statements of operations, comprehensive loss, stockholders' deficit, and cash flows for each of the years in the two-year period ended December 31, 2016. INTREorg Systems, Inc.'s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

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

 

As discussed in Note 1 to the financial statements, the Company's absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2017 raise substantial doubt about its ability to continue as a going concern. The 2016 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ LBB & Associates Ltd., LLP

LBB & Associates Ltd., LLP

 

Houston, Texas

September 25, 2018


F-1



Item 8. Financial Statements.

 

Contents

 

 

 

Balance Sheets at December 31, 2016 and December 31, 2015

F-3

 

 

Statements of Operations for the years ended December 31, 2016 and 2015

F-4

 

 

Statements of Comprehensive Loss for the years ended December 31, 2016 and 2015

F-5

 

 

Statements of Stockholders’ Deficit for the years ended December 31, 2016 and 2015

F-6

 

 

Statements of Cash Flows for the years ended December 31, 2016 and 2015

F-7

 

 

Notes to Financial Statements

F-8

 


F-2



 

 

INTREorg Systems, Inc.

Balance Sheets

 

 

 

 

December 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash

 

$

-

 

$

-

Marketable securities

 

 

9,000

 

 

14,351

 

 

 

-

 

 

-

 

 

 

 

 

 

 

Total Current Assets

 

 

9,000

 

 

14,351

TOTAL ASSETS

 

$

9,000

 

$

14,351

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable

 

$

514,017

 

$

511,248

Accounts payable and accrued interest - related parties

 

 

510,653

 

 

425,944

Accrued interest and other liabilities

 

 

743,885

 

 

607,550

Accrued compensation

 

 

453,290

 

 

453,290

Notes payable

 

 

521,000

 

 

521,000

Revolving line of credit - related party

 

 

314,826

 

 

597,754

Total Current Liabilities

 

 

3,057,671

 

 

3,116,786

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit

 

 

 

 

 

 

Preferred Stock, no par value; 10,000,000 shares authorized none issued and outstanding

 

 

-

 

 

-

Common Stock, no par value; 100,000,000 shares authorized 16,114,260 and 15,067,807 shares issued and outstanding at December 31, 2016 and 2015, respectively

 

 

2,848,845

 

 

2,441,345

Additional paid in capital

 

 

354,124

 

 

290,077

Accumulated other comprehensive income

 

 

-

 

 

(38,085)

Accumulated deficit

 

 

(6,251,640)

 

 

(5,795,772)

Total stockholders' deficit

 

 

(3,048,671)

 

 

(3,102,435)

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

 

$

9,000

 

$

14,351

 

 

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

 


F-3



INTREorg Systems, Inc.

Statements of Operations

 

 

 

For the Years Ended

 

 

December 31,

 

 

2016

 

2015

Revenues

 

 

 

 

Services revenues-related party

$

-

$

52,436

 

 

 

 

 

Total revenues

 

-

 

52,436

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Consulting Fees – related party

 

117,000

 

67,700

General and administrative expenses

 

231,547

 

869,117

Impairment of marketable securities

 

43,436

 

-

Total operating expenses

 

391,983

 

936,817

 

 

 

 

 

Other expense

 

 

 

 

Interest Expense

 

42,335

 

42,335

Interest expense- related party

 

21,550

 

51,473

 

 

 

 

 

Total other expense

 

63,885

 

93,808

 

 

 

 

 

Net loss

$

(455,868)

$

(978,189)

 

 

 

 

 

Net loss per share of common stock

$

(0.03)

$

(0.07)

 

 

 

 

 

Weighted average number of common shares outstanding

 

15,834,213

 

14,149,500

 

 

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

 

 


F-4



 

 

INTREorg Systems, Inc.

Statements of Comprehensive Loss

 

 

 

 

 

 

 

 

 

For the Years ended

 

 

 

December 31,

 

 

 

2016

 

2015

 

 

 

 

 

 

Net loss

 

$

(455,868)

$

(978,189)

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

Unrealized gain (loss) on marketable securities classified as available for sale

 

 

-

 

(38,085)

Total other comprehensive loss

 

 

-

 

(38,085)

 

 

 

 

 

 

Total comprehensive loss

 

$

(455,868)

$

(1,016,274)

 

 

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


F-5



INTREorg SYSTEMS, INC.

Statements of Stockholders' Deficit

For the years ended December 31, 2016 and 2015

 

 

 

 

 

 

 

 

 

 

 

Preferred A

Stock

# of Shares

 

Additional

Paid in

Capital

$

Accumulated other

Comprehensive

Loss

$

 

 

 

Common Stock

# of Shares

Amount

$

Amount

$

Accumulated

Deficit

$

 

 

Totals

$

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2014

13,114,872

1,881,944

-

-

254,744

-

(4,817,583)

(2,680,895)

 

 

 

 

 

 

 

 

 

Change in value of marketable securities

-

-

-

-

-

(38,085)

-

(38,085)

Options issued for Director fees

-

-

-

-

35,333

-

-

35,333

Common stock issued for consulting services

240,000

55,200

-

-

-

-

-

55,200

Common stock issued for settlement of liabilities

250,000

85,000

-

-

-

-

-

85,000

Cancellation of common stock issued for investor relations

864,935

265,826

-

-

-

-

-

265,826

Common Stock issued for web design

68,000

20,875

-

-

-

-

-

20,875

Common Stock issued for revolver

530,000

132,500

-

-

-

-

-

132,500

Net Loss

-

-

-

-

-

-

(978,189)

978,189

Balance - December 31, 2015

15,067,807

2,441,345

-

 

290,077

(38,085)

(5,795,772)

(3,102,435)

 

 

 

 

 

 

 

 

 

Options issued for Directors fees

-

-

-

-

64,047

-

-

64,047

Change in value of marketable securities

-

-

-

-

-

(10,476)

-

(10,476)

Permanent impairment of marketable securities

-

-

-

-

-

48,561

-

48,561

Cancellation of common stock issued for investor relations

(355,547)

-

-

-

-

-

-

-

Common Stock issued for consulting services

240,000

117,000

-

-

-

-

-

117,000

Common Stock issued for revolver

1,162,000

290,500

-

-

-

-

-

290,500

Net Loss

-

-

-

-

-

-

(455,868)

(455,868)

Balance - December 31, 2016

16,114,260

2,848,845

-

-

354,124

-

(6,289,725)

(3,048,671)

 

 

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


F-6



 

INTREorg Systems, Inc.

Statements of Cash Flows

 

 

 

 

 

 

 

For the Years Ended

 

 

December 31,

 

 

2016

 

2015

Cash Flows from Operating Activities

 

 

 

 

Net Loss

$

(455,868)

$

(978,189)

Adjustments to reconcile net loss to net cash used by operating activities:

 

 

 

 

Common stock and options issued for services

 

181,047

 

377,234

Amortization and depreciation

 

-

 

12,500

Marketable securities received for services rendered

 

-

 

(52,436)

Loss on settlement of accounts payable

 

-

 

32,587

Impairment of marketable securities

 

43,436

 

-

Changes in operating assets and liabilities

 

 

 

 

Increase in accounts payables

 

2,769

 

67,583

Increase in accounts payable related party

 

84,709

 

227,204

Increase in accrued liabilities and other

 

136,335

 

139,530

 

 

 

 

 

Net Cash Flows Used by Operating Activities

 

(7,572)

 

(173,987)

 

 

 

 

 

Net Cash Flows Provided (Used) by Investing Activities

 

-

 

-

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

Proceeds from related party revolving line of credit

 

7,572

 

173,987

 

 

 

 

 

Net Cash Flows Provided by Financing Activities

 

7,572

 

173,987

 

 

 

 

 

Net Change in Cash

 

-

 

-

 

 

 

 

 

Cash at Beginning of Period

 

-

 

-

 

 

 

 

 

Cash at End of Period

$

-

$

-

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

Cash paid for interest

$

-

$

-

Cash paid for taxes

$

-

$

-

Stock issued in settlement of accounts payable, debt and accrued interest

$

290,500

$

-

 

 

 

 

 

 

 

 

 

 

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


F-7



 

INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 201 6 and 2015

 

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 $3,048,671 at December 31, 2016. At December 31, 2016, the Company had an accumulated deficit of $6,251,640.

 

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.

 

Summary of Significant Accounting Policies

 

Cash and Cash Equivalents

 

The Company considers all highly-liquid debt instruments, with an original maturity of three months, to be cash equivalents.

 

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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Income Taxes

 

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

Net Loss Per Share

 

Net loss per share is based on the weighted average number of common shares outstanding during the period. This number has not been adjusted for outstanding options since the average would be anti-dilutive.

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is provided for using the straight-line method over the useful life of the assets.


F-8



INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2016 and 2015

 

NOTE 1. ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED) 

 

Long-Lived Assets

 

Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than assets’ carrying amount.

 

Amortization

 

The Company is amortizing its license agreement over its three-year estimated useful life beginning in January 2013, the date placed in service.

 

Revenue Recognition

 

During the one-year period ended December 31, 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 December 31, 2016, the Company had earned 143,141 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. The Company determined that the loss on the marketable securities as of December 31, 2016 was permanent and wrote the investment down to market value based on the subsequent sale price and recognized the loss in the Statement of Operations for the year ended December 31, 2016

 

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.


F-9



INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2016 and 2015

 

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 $117,000 and $67,700 for the years ending December 31, 2016 and 2015, 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. 


F-10



INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2016 and 2015

 

NOTE 2. RELATED PARTY TRANSACTIONS (CONTINUED) 

 

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 December 31, 2016 and 2015 totaled $ 64,083 and $45,629, respectively. Interest expense related to the Line of Credit was $21,550 and $51,473 for the years ended December 31, 2016 and 2015, respectively.

 

As of December 31, 2016, and December 31, 2015, the Company owed Brech $314,826 and $597,754, 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 December 31, 2016 and December 31, 2015. 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 December 31, 2016 and 2015, 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.

 

Board Compensation

 

On October 1, 2016, the Company granted Thomas Lindholm, a member of the board of directors, options to purchase 500,000 shares of the Company’s common stock at $.20 per share. 25% of the options vest each quarter until fully vested at the one-year anniversary of the day of grant. The options expire on September 30, 2019 and had an estimated grant date fair value of $155,550, which is recognized in expense over the three-year vesting period.

 

On October 1, 2015, the Company granted Michael Farmer and Regie Green, members of the board of directors, options to purchase 600,000 shares of the Company’s common stock at $.15 per share and options to purchase 400,000 shares of the Company’s common stock at $.05 per share. 25% of the options vest each quarter until fully vested at the one-year anniversary of the day of grant. The options expire on September 30, 2018 and had an estimated grant date fair value of $37,806, which is recognized in expense over the three-year vesting period.


F-11



INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2016 and 2015

 

NOTE 2. RELATED PARTY TRANSACTIONS (CONTINUED) 

 

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.

 

During the years ended December 31, 2016 and 2015, the Company recognized an expense of $64,047 and $35,333, respectively, relating to these awards.

 

On October 1, 2013, the Company entered into a consulting agreement with its Chief Executive Officer and President, Darren Dunckel. Pursuant to the consulting agreement, Mr. Dunckel is entitled to $7,000 per month and 25% of the revenue generated by his gross sales of our products and services; additionally, the Company shall reimburse him for all pre-approved and reasonable expenses Mr. Dunckel incurs while carrying out his consulting duties. The consulting agreement shall continue in place and Mr. Dunckel shall remain entitled to the same compensation until such time as the Company enters into a new agreement with him as President.

 

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 $33,512. Such advances have not been repaid and are included in accounts payable- related parties. In addition, Mr. Dunckel is owed $202,332 in unpaid consulting fees. During the years ended December 31, 2016 and 2015, the Company expensed $79,000 and $84,000, respectively in consulting fees to Mr. Dunckel.

 

Payable to former President and Chairman of the Board

 

As of December 31, 2016, and 2015, 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 December 31, 2016and 2015 the Company had $76,876 accrued for accounting services from a shareholder, PT Platinum. This amount is included in accounts payable-related parties. During the years ended December 31, 2016 and 2015, the Company expensed $0 and $58,073, respectively 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 December 31, 2016 and December 31, 2015 amounted to approximately $423,120 and $380,785, 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 December 31, 2016 and December 31, 2015, 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 December 31, 2016 or since, through the date of these financial statements.


F-12



INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2016 and 2015

 

NOTE 5. CAPITAL STOCK.  

 

During 2016, PISA earned an aggregate of 240,000 shares related to the monthly compensation, valued at $117,000, the fair market value on the date of issuance. As of December 31, 2016, a total of 240,000 of these shares authorized, but not issued, are shown as outstanding as the issuance of such shares is deemed as a ministerial act.

 

During the year ended December 31, 2016 the Company cancelled the issuance of 355,547 shares to an investor relations firm pursuant to the terms of the consulting agreement the Company maintains with them.

 

During the year ended December 31, 2016 the Company issued 1,162,000 shares of common stock valued at $290,500 to pay off a portion of the revolver LOC.

 

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.

 

On October 1, 2015, the Company granted Michael Farmer and Redgie Green, members of the board of directors, options to purchase 600,000 shares of the Company’s common stock at $.15 per share and options to purchase 400,000 shares of the Company’s common stock at $.05 per share. 25% of the options vest each quarter until fully vested at the one-year anniversary of the day of grant. The options expire on September 30, 2018 and had an estimated grant date fair value of $37,806, which is recognized in expense over the three-year vesting period. The Company used the Black Scholes option model to value the option awards with the following assumptions: volatility – 243%; term – 3 years and discount rate - .92%.

 

On October 1, 2016, the Company granted Thomas Lindholm, a member of the board of directors, options to purchase 500,000 shares of the Company’s common stock at $.20 per share. 25% of the options vest each quarter until fully vested at the one-year anniversary of the day of grant. The options expire on September 30, 2019 and had an estimated grant date fair value of $155,550, which is recognized in expense over the three-year vesting period. The Company used the Black Scholes option model to value the option awards with the following assumptions: volatility – 242%; term – 3 years and discount rate - .92%.

 

Stock option expense of $64,047 and $35,333 was recorded during the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, there was $176,418 of unrecognized stock option expense that will be recognized over the next 2.5 years.


F-13



INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2016 and 2015

 

NOTE 5. CAPITAL STOCK. (CONTINUED) 

 

A summary of option activity for the years ended December 31, 2016 and 2015 are presented below:

 

Options

Number of

Options

Weighted

Average

Exercise

Price

Weighted

Average

Remaining

Contractual

Term

(in years)

Aggregate

Intrinsic

Value

 

 

 

 

 

Balance December 31, 2014

1,300,000

0.73

3.20

-

Granted

1,000,000

.11

1.75

-

Exercised

-

-

-

-

Expired

-

-

-

-

Balance December 31, 2015

2,300,000

0.46

2.31

400,000

Granted

500,000

.20

2.75

 

Balance December 31, 2016

2,800,000

.41

1.67

70,000

Options exercisable at December 31, 2016

1,469,744

.46

1.71

70,000

 

NOTE 6. INCOME TAXES. 

 

The deferred tax asset as of December 31, 2016 and 2015 was approximately $1,102,000 and $947,000, respectively, offset by valuation allowances of the same amount resulting in a deferred tax asset of December 31, 2016 and 2015 of $0. There is no income tax provision for either year due to the change in valuation allowance. The difference between the effective rate and the statutory rate is the result of the change in the valuation allowance. At December 31, 2016 the Company had an unused net operating loss carry over approximating $3,243,000 that is potentially available to offset future taxable income, it expires beginning 2026.

 

The Company has not filed its Federal tax returns for 2009-2016 and could be subject to penalty for its delinquency. Additionally, the availability of its net operating loss may be subject to adjustment.

 

NOTE 7. SUBSEQUENT EVENTS  

 

Board of Directors:

 

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 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.

 


F-14



INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2016 and 2015

 

NOTE 7. SUBSEQUENT EVENTS (CONTINUED) 

 

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 September 15, 2018, the Company issued 586,545 shares to Public Issuer Stock Analytics pursuant to the terms of the intellectual property license.

 

J.H. Brech Revolving 8% Credit Note:

 

The balance on the line of credit as of September 4, 2018 was $215,796.

 

Other:

 

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.

 

On September 12, 2018, the Company issued 1,185,000 shares of common stock for $237,000.


F-15



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.  

 

Not applicable.

 

ITEM 9A. CONTROLS AND PROCEDURES.  

 

Evaluation of Disclosure Controls and Procedures

 

As of December 31, 2016, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, management concluded that our disclosure controls and procedures were not effective as of December 31, 2016, to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by SEC, and that such information is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Going forward from this filing, the Company intends to re-establish and maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the "SEC") , and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

 

In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, 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. Because of 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. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls 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.

 

Management's Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; 

 

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and 

 

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.  

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


II-1



Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2016 due to the existence of the material weaknesses as of December 31, 2016, discussed below. A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected in the following areas:

 

Inadequate segregation of duties within an account or process. Management has determined that it does not have appropriate segregation of duties within our internal controls that would ensure the consistent application of procedures in our financial reporting process by existing personnel. This control deficiency could result in a misstatement of substantially all of our financial statement accounts and disclosures that would result in a material misstatement to the annual or interim financial statements.

 

Inadequate Policies & Procedures. Management has determined that its existing policies and procedures are limited and/or inadequate in scope to provide staff with guidance or framework for accounting and disclosing financial transactions. This deficiency could result in unintended, misleading entries being made in the financial system and precluding sufficient disclosure of complex transactions.

 

Lack of sufficient subject matter expertise. Management has determined that it lacks certain subject matter expertise relating to accounting for complex transactions and the disclosure of complex transactions related to accounting for income taxes. Our financial staff currently lacks sufficient training or experience in accounting for complex transactions and the required disclosure therein.

 

This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting due to permanent exemptions for smaller reporting companies.

 

Remediation Plan for Material Weaknesses

 

The material weaknesses described above in "Material Weaknesses in Internal Control Over Financial Reporting" comprise control deficiencies that we discovered during the financial closing process for the December 31, 2016 fiscal year and although we have been implementing the remediation plan described below, the deficiencies have not yet been fully resolved.

 

Management has formulated and continued to implement a remediation plan that will continue through fiscal 2018, which includes: (i) developing a centralized set of policies and procedures to address inadequacies described above; and (ii) augmenting and allowing for additional training and education for select members of our financial staff. In addition, efforts will be made to segregate the data initiation and preparation processes from the data entry process in order to ensure that different employees prepare data as compared to those who enter data into the financial system.

 

We believe that these measures, if effectively implemented and maintained, will remediate the material weaknesses discussed above.

 

Changes in Internal Control Over Financial Reporting

 

We are currently undertaking the measures discussed above to remediate the material weaknesses discussed under "Material Weaknesses in Internal Control over Financial Reporting" above. Those measures, described under "Remediation Plan for Material Weaknesses," will continue to be implemented during fiscal 2018, and are reasonably likely to materially affect our internal control over financial reporting.

 

Other than as described above, there have been no changes in our internal control over financial reporting during the fourth quarter of 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time. Our system contains self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.

 

ITEM 9 B. Other Information.  

 

Not applicable.


II-2



PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.  

 

The following table and text set forth the name and ages of all directors and executive officers as of December 31, 2016

 

There are no family relationships among our directors and executive officers. Each director is elected at our annual meeting of shareholders and holds office until the next annual meeting of shareholders, or until his successor is elected and qualified. Also provided herein are brief descriptions of the business experience of each director, executive officer and advisor during the past five years and an indication of directorships held by each director in other company’s subject to the reporting requirements under the Federal securities laws. None of our officers or directors is a party adverse to us or has a material interest adverse to us.

 

Name

 

Age

 

Position

Darren C. Dunckel

 

46

 

CEO and President

Redgie Green

 

62

 

Director

Michael Farmer

 

54

 

Director

Thomas E Lindholm

 

58

 

CEO and Director

 

Thomas E Lindholm. Mr. Lindholm is a senior corporate executive, a seasoned investment and merchant banker who has advised financial institutions such as commercial banks, investments banking firms, hedge funds, and commercial finance companies in areas such as asset/liability management, capital structure strategies, portfolio management, and underwriting policies. He has also managed and consulted several "small cap" publicly traded companies.

 

Darren C. Dunckel. Mr. Dunckel served as Chief Executive Officer and Director at Forex International Trading Corp. from 2010 to 2011. Under his direction, Forex International Trading went from a development stage shell corporation to a fully reporting operating company. From 2005 to 2010, Mr. Dunckel served as the President of several privately-owned companies. As President, he oversaw management of real estate acquisitions, development and sales in the United States and overseas. In addition, from September 2007 to April 2009 Mr. Dunckel served on the Board of Directors of Emvelco Corp., a publicly traded company. From 2004 to 2010, Mr. Dunckel served as the President of My Daily Corporation, a financial services company. From 2002 through 2004, Mr. Dunckel was Vice President, Regional Director for the Newport Group managing a territory for financial and consulting services. Mr. Dunckel has spent 20+ years in the financial services industry having worked for Lehman Brothers, Smith Barney, UBS and New York Life Investment Management. He has held a series 3, 7, 63, 65 securities licenses and a California Insurance License. He is trained as an Accredited Investment Fiduciary. Mr. Dunckel has consulted over 350 companies in a broad range of industries and from start up to Fortune 500. Mr. Dunckel earned a bachelor's degree in International Relations from the University of Southern California.

 

Redgie Green. Mr. Green has served as a member of our Board of Directors since March 2008. Mr. Green became a director of Golden Dragon Holdings Corp in March 2006. Mr. Green has served as the Chief Executive Officer and a Director of Legacy Technology Holdings, Inc. since October 2010 and as a Director of Momentum BioFuels, Inc. since May 2012. Mr. Green served as he Chief Executive Officer of Sun River Energy, Inc. from January 2009 through August 3, 2010. From January 2009 through October 2009, he served as the President of Sun River Energy, Inc. He has served as a director of Sun River Energy, Inc. from 1998 through October 2010. He served as a director of ASPI, Inc. from 2006 through the fall of2009 and was appointed as an officer and director of Captech Financial, Inc. in May 2006. He served as a director of Baymark Technologies, Inc. 2005-2006. Mr. Green was co-owner and operator of Green's B&R Enterprises, a wholesale donut baker from 1983 to 1990. He has been an active investor in small capital and high-tech adventures since 1987. He was Secretary, Treasurer and Director of Baymark Technologies, Inc. and was appointed as a director of Aspeon, Inc. (now Aspi, Inc.) from March 2006 until October 2009. Mr. Green serves as a director of intreOrg Systems, Inc. and International Paintball, Inc. Mr. Green received a B.S. in Business Administration from the University of Colorado.


II-3



Michael Farmer. Mr. Farmer is an experienced entrepreneur and business owner with a track record of developing and leading organizations to profitable growth. Mr. Farmer is President and CEO of Global One Pet, Inc., an innovative pet food company that he co-founded in 2008. Mr. Farmer is also a director INTREorg Systems, Inc., and the American Pet Products Association. In 2001, Mr. Farmer co-founded FIRSTRAX, Inc., which became the leading innovator in pet accessory products. As President and CEO, he led the company to rapid growth as it developed patented pet containment products which were distributed throughout the world. The company was sold to United Pet Group in early 2005. Prior to co-founding FIRSTRAX, Mr. Farmer was the Executive Vice President for Doskocil (Petmate), a market leader in non-food pet products from 1998 to 2001. In 1994, Mr. Farmer joined Dogloo, a market leader in plastic pet shelters as the Vice President of Sales and Marketing. Mr. Farmer was promoted to Executive Vice President and General Manager in 1997. Mr. Farmer spent the first 11 years of his career with the Coleman Company, the world leader in outdoor recreational products. While at Coleman, Mr. Farmer served in a variety of capacities including Director of Operations, Design Director, Director of Engineering and Materials Management, and Director of Marketing and Product Development. Mr. Farmer has a Bachelor of Science degree in Industrial Technology from Emporia State University, where he earned All American academic and basketball honors. He also earned an MBA from Wichita State University.

 

Corporate Governance

 

Our Board of Directors has three directors and has not established Audit, Compensation, and Nominating or Governance Committees as standing committees. The Board does not have an executive committee or any committees performs a similar function. We are not currently listed on a national securities exchange or in an inter-dealer quotation system that has requirements that a majority of the board of directors be independent. The Board has determined that 2 members of the Board are independent.

 

Due to our lack of operations and size, we do not have an Audit Committee. Furthermore, since we are not currently listed on a national securities exchange, we are not subject to any listing requirements mandating the establishment of any particular committees. For these same reasons, we did not have any other separate committees during fiscal 2016; all functions of a nominating committee, audit committee and compensation committee were performed by our whole board of directors. Our board of directors intends to appoint such persons and form such committees as are required to meet the corporate governance requirements imposed by the national securities exchanges as necessary. Therefore, we intend that a majority of our directors will eventually be independent directors and at least one director will qualify as an "audit committee financial expert."

 

We do not have a policy regarding the consideration of any director candidates which may be recommended by our shareholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees. Further, when identifying nominees to serve as director, while we do not have a policy regarding the consideration of diversity in selecting directors, our Board seeks to create a Board of Directors that is strong in its collective knowledge and has a diversity of skills and experience with respect to accounting and finance, management and leadership, vision and strategy, business operations, business judgment, industry knowledge and corporate governance. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our shareholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as we have never received a recommendation from any shareholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our shareholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees. In considering a director nominee, it is likely that our Board will consider the professional and/or educational background of any nominee with a view towards how this person might bring a different viewpoint or experience to our Board.

 

Board Leadership Structure and the Board's Role in Risk Oversight.

 

Although the Company currently does not have a Chairman of the Board of Directors, the Board of Directors is set up to maintain a structure that separates the roles of Chief Executive Officer of the Company with Chairman of the Board of Directors, as the Company believes it is in the best interests of the Company and our shareholders to have the two roles separated.

 

Compliance with Section 16(a) of the Exchange Act

 

Section 16(a) of the Exchange Act requires our officers, directors and persons who own more than I 0% of any class of our securities registered under Section 12(g) of the Exchange Act to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.


II-4



The table below accounts for the missed Form 3, Form 4 and Form 5s of each person subject to Section 16(a); all other persons subject to Section 16(a) reporting have filed their reports. We have reminded these persons about their obligations and it is our understanding that if they have not already, they will file all beneficial ownership forms required to date in the coming weeks.

 

Name

 

Known Failures to File a

Required Form

Mr. Dunckel

 

1

Mr. Farmer

 

 

Mr. Green

 

 

 

Code of Business Conduct, Code of Ethics and Code of Ethics for Financial Professionals

 

In 2007, our Board of Directors adopted a Code of Business Conduct which applies to our directors, officers, employees and representatives. The Code of Business Conduct sets forth guidelines for public communications, conflicts of interest policies, anti­ competitive activities, our policies regarding confidential and proprietary information, information on insider trading restrictions and policies regarding financial investments by the covered persons, and includes a code of ethics for our employees. In 2007 our Board also adopted a Code of Ethics that applies to our Board members and sets out our policies related to conflicts of interest, confidentiality, legal compliance, competition and corporate opportunities, and reporting illegal or unethical behavior. Lastly, in 2007 our Board also adopted a Code of Ethics for Financial Professionals which provides additional guidelines for our chief executive officer, chief financial officer, controller and any other person providing similar functions to us. Our codes of ethics are attached as exhibits to this Form and can be found on our website, www.intreorg.com. Additionally, we will provide a copy, without charge, to any person desiring a copy of the Code of Business Conduct, the Code of Ethics and/or the Code of Ethics for Financial Professionals, by written request to, 556 Silicon Drive, Suite 103, Southlake, Texas 76092.

 

ITEM 11. EXECUTIVE COMPENSATION.  

 

The following discussion summarizes all compensation awarded to, earned by, or paid to our principal executive officer, each other executive officer serving as such whose annual compensation exceeded $100,000, and up to two additional individuals for whom disclosure would have been made but for the fact that the individual was not serving as an executive officer of our company at December 31, 2015, for all services rendered in all capacities to us for the latest two fiscal years ended December 31, 2016 and 2015.

 

Although compensation exceeds $100,000, as disclosed below, the Company is no longer required to pay such compensation and therefore, we believe we can omit an executive compensation table pursuant to Instruction 4 often 402(m)(2).

 

Outstanding Equity Awards at Fiscal Year-End

 

Dr. Henson and Mr. Dunckel, who are the only persons required to be included in the outstanding equity awards table, did not have any outstanding equity awards that are required to be reported in such table for the fiscal year covered by this Report.

 

Executive and Director Compensation

 

The following table sets forth certain information concerning compensation paid to our directors for services as directors during the fiscal year ended December 31, 2016 and 2015:

 

Name

Fees earned or paid in cash ($)

Stock Awards ($)

Option Awards ($)

Non-equity incentive plan compensation ($)

Non-qualified deferred compensation earnings

($)

All other compensation

($)

Total

($)

Thomas Lindholm

-

-

-

-

-

-

20,000

Redgie Green

-

-

-

-

-

-

24,000

Michael Farmer

-

-

-

-

-

-

16,000

 

Compensation Policies and Practices as they Relate to Risk Management

 

We believe that our compensation policies and practices do not encourage excessive or unnecessary risk-taking and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect on us. The design of our compensation policies and practices encourages our employees to remain focused on both our short- and


II-5



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.  

 

The following table sets forth certain information regarding beneficial ownership of our Common Stock as of December 31, 2016 by (i) each person (or group of affiliated persons) who is known by us to own more than five percent (5%) of the outstanding shares of our Common Stock, (ii) each director, executive officer and director nominee, and (iii) all of our directors, executive officers and director nominees as a group. As of December 31, 2016, we had 16,114,260 shares of Common Stock issued and outstanding and O shares of Preferred Stock outstanding.

 

Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. For purposes of this table, a person or group of persons is deemed to have "beneficial ownership" of any shares of common stock that such person has the right to acquire within 60 days of December 31, 2016. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of December 31, 2016 is deemed to be outstanding for such person, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.

 

Unless otherwise indicated, the business address of each person listed is in care of INTREorg Systems, Inc, 2600 East Southlake Blvd, Suite 120-366, Southlake, Texas 76092. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.

 

Name of Beneficial Owner

Amount and Nature of Beneficial Ownership

% of Class

Darren Dunckel

 

0%

Redgie Green

120,000

0.85%

Michael Farmer

820,000 (1)

5.82%

All officers and directors as a group (three persons)

940,000

6.68%

 

 

 

J.H. Brech, LLC

290,500

1.88%

Harry McMillan (2)

1,034,017

7.34%

C.E. McMillan Family Trust (2)(3)

1,034,017

7.34%

 

(1) Includes 700,000 shares held of record by JBK Management, LLC, an entity controlled by Mr. Fanner and over which he has voting and dispositive control of the shares of the Company's common stock held by such entity, 20,000 shares he received for his director services and l 00,000 options that have vested but whose strike price is lower than the current market price for our common stock. 

 

(2) Includes 290,500 shares held by J.H. Brech, LLC ("JHB") and 770,000 shares held by Public Issuers Stock Analytics, LLC ("PISA"). McMillan, on behalf of the CE McMillan Family Trust (the "McMillan Trust"), is the manager of JHB, CCD and PISA (JHB, CCD and PISA are collectively referred to herein as the "Entities"). Mr. McMillan is the Trustee of the McMillan Trust, for the benefit of his wife and their children. McMillan, as trustee of the McMillan Trust and the McMillan Trust may each be deemed to beneficially own the shares of common stock beneficially owned by the Entities. Each disclaims beneficial ownership of such shares. 

 

The McMillan Trust, which owns PISA, and McMillan, as Managing Member of PISA and trustee of the McMillan Trust, may each be deemed to beneficially own the shares of common stock owned by PISA. Each disclaims beneficial ownership of such shares.


II-6



Securities Authorized for Issuance under Equity Compensation Plans

 

The following table sets forth securities authorized for issuance under any equity compensation plans approved by our shareholders as well as any equity compensation plans not approved by our shareholders as of December 31, 2016.

 

 

Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)

Weighted average exercise price of outstanding options, warrants and rights (b)

Number of securities remaining available for future issuance under equity

compensation plans ( excluding securities reflected in column (a)

(c)

Plan category

 

 

 

 

 

 

 

Plans approved by our shareholders:

 

 

 

2010 Stock Option and Award Incentive Plan

2,800,000

$.47

0

Plans not approved by shareholders:

0

n/a

n/a

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.  

 

Other than the relationships and transactions discussed below, we are not a party to, nor are we proposed to be a party, to any transaction since the beginning of the fiscal year ending December 31, 2016 involving an amount that exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years and in which a related person, as such term is defined by Item 404 of Regulation S-K, had or will have a direct or indirect material interest.

 

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 $117,000 and $67,700 for the years ending December 31, 2016 and 2015, 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. 


II-7



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 December 31, 2016 and 2015 totaled $ 64,083 and $45,629, respectively. Interest expense related to the Line of Credit was $21,550 and $51,473 for the years ended December 31, 2016 and 2015, respectively.

 

As of December 31, 2016, and December 31, 2015, the Company owed Brech $314,826 and $597,754, 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 December 31, 2016 and December 31, 2015. 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 December 31, 2016 and 2015, 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.

 

Our principal executive offices are also located in JHB's offices. The use of the office space was included in our consulting arrangement with JHB and although the consulting agreement terminated, we continue to use the space rent free.

 

Promoters and Certain Control Persons

 

None of our management or other control persons were “promoters” (within the meaning of Rule 405 under the Securities Act), and none of such persons took the initiative in the formation of our business or in connection with the formation of our business and received 10% of our debt or equity securities or 10% of the proceeds from the sale of such securities in exchange for the contribution of property or services, during the last five years.

 

Director Independence

 

Our board of directors has determined that we have two board members that qualify as “independent” as defined by Rule 4200(a)(15) of the NASDAQ Marketplace Rules. Messrs. Green and Farmer are our independent directors.

Subsequently Messrs. Green and Farmer have left the Board. In 2018 Mr. Richard Nummi and Mr. Robert Flynn joined the Board as independent directors.


II-8



ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.  

 

LBB & Associates, Ltd., LLP served as our independent registered public accounting firm for 2014 and 2015. The following table shows the fees that were billed for the audit and other services provided by this firm for 2014 and 2015.

 

 

2016

 

2015

Audit Fees

$20,300

 

$20,300

 

Audit Fees – This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

 

Audit-Related Fees – This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the disclosed under this category include consultation regarding our correspondence with the Securities and Exchange Commission and other accounting consulting.

 

Tax Fees – This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under the category include tax return preparation and technical tax advice.

 

All Other Fees – This category consists of fees for other miscellaneous items.

 

Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the Board approves the engagement letter with respect to audit, tax, and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. The audit and tax fees paid to the auditors were pre-approved by the entire Board of Directors.


II-9



ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.  

 

3.1

 

Articles of Incorporation (Incorporated by reference to the registration statement on Form 10, SEC File No. 000-53262, as amended)

 

 

 

3.2

 

Articles of Amendment to our Articles of Incorporation (Incorporated by reference to the registration statement on Form 10, SEC File No. 000-53262, as amended).

 

 

 

3.3

 

Bylaws (Incorporated by reference to the registration statement on Form 10, SEC File No. 000-53262, as amended)

 

 

 

10.1

 

Form of Agreement with Central Coast Technology Associates (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8K filed on June 18,2013)

 

 

 

10.2

 

Form of Option Agreement for Central Coast Technology (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8K filed on June 18,2013)

 

 

 

10.3

 

Consulting Agreement with Darren Dunckel (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8K filed on January 14,2014)

 

 

 

10.4

 

Form of First Letter of Addendum and First Amendment to $500,000 8% Revolving Credit Note by and between the Company and J.H. Brech, LLC (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8K filed on August 28,2014)

 

 

 

31.1

 

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)

 

 

 

31.2

 

Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)

 

 

 

32.1

 

Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith)

 

 

 

101

 

Interactive Data Files (Filed herewith)

101.INS

 

XBRL INSTANCE DOCUMENT

101.SCH

 

XBRL TAXONOMY EXTENSION SCHEMA

101.CAL

 

XBRL TAXONOMY EXTENSION CALCULATION LINKBASE

101.DEF

 

XBRL TAXONOMY EXTENSION DEFINITION LINKBASE

101.LAB

 

XBRL TAXONOMY EXTENSION LABEL LINKBASE

101.PRE

 

XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE


II-10



SIGNATURES

 

 

Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

INTREorg Systems, Inc.

 

Dated September 25, 2018

 

By: /s/ Thomas E. Lindholm

Thomas E. Lindholm

Interim President and CEO

 

 

 


II-11

 

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