Quarterly Report (10-q)

Date : 09/28/2018 @ 10:32PM
Source : Edgar (US Regulatory)
Stock : INTREorg Systems, Inc. (IORG)
Quote : 0.4  0.0 (0.00%) @ 1:00AM

Quarterly Report (10-q)

 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 201 7

 

[   ] 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: (817) 313-5005

 

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). Yes [   ] No [X]

 

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

 

 


1


 

 

TABLE OF CONTENTS

 

Part I – FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

Financial Statements

 

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

17

Item 4.

Controls and Procedures

 

17

 

 

 

 

Part II – OTHER INFORMATION

 

 

 

 

 

Item 1.

Legal Proceedings

 

18

Item 1A.

Risk Factors

 

18

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

18

Item 3.

Defaults Upon Senior Securities

 

18

Item 4.

Mine Safety Disclosures

 

18

Item 5.

Other Information

 

18

Item 6.

Exhibits

 

19

 

 

 

 

SIGNATURES

 

20

 

 

 


2


 

 

INTRODUCTORY NOTE

 

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.

 

Special Note Regarding Forward-Looking Statements

 

This report contains forward-looking statements and information that are based on the beliefs of our management as well as assumptions made by and information currently available to us and the information provided by past officers and directors. Such statements should not be unduly relied upon. When used in this report, forward-looking statements include, but are not limited to, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions, as well as statements regarding new and existing products, technologies and opportunities, statements regarding market and industry segment growth and demand and acceptance of new and existing products, any projections of sales, earnings, revenue, margins or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements regarding future economic conditions or performance, uncertainties related to conducting business, any statements of belief or intention, and any statements or assumptions underlying any of the foregoing. These statements reflect our current view concerning future events and are subject to risks, uncertainties and assumptions. There are important factors that could cause actual results to vary materially from those described in this report as anticipated, estimated or expected, including, but not limited to: competition in the industry in which we operate and the impact of such competition on pricing, revenues and margins, volatility in the securities market due to the general economic downturn; Securities and Exchange Commission (the “SEC”) regulations which affect trading in the securities of “penny stocks,” and other risks and uncertainties. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward- looking statements, even if new information becomes available in the future. Depending on the market for our stock and other conditional tests, a specific safe harbor under the Private Securities Litigation Reform Act of 1995 may be available. Notwithstanding the above, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) expressly state that the safe harbor for forward-looking statements does not apply to companies that issue penny stock. Because we may from time to time be considered to be an issuer of penny stock, the safe harbor for forward-looking statements may not apply to us at certain times.

 

 


3


 

 

Item 1. Financial Statements.

 

Contents

 

 

 

Unaudited Balance Sheets at September 30, 2017 and December 31, 2016

5

 

 

Unaudited Statements of Operations for the three and nine months ended September 30, 2017 and 2016

6

 

 

Unaudited Statements of Comprehensive Loss for the three and nine months ended September 30, 2017 and 2016

7

 

 

Unaudited Statements of Cash Flows for the nine months ended September 30, 2017 and 2016

8

 

 

Unaudited Notes to Financial Statements

9

 

 


4


 

 

INTREorg Systems, Inc.

Balance Sheets

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

2017

 

 

2016

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash

$

-

 

$

-

Marketable securities

 

9,000

 

 

9,000

 

 

 

 

 

 

Total Current Assets

 

9,000

 

 

9,000

 

 

 

 

 

 

TOTAL ASSETS

$

9,000

 

$

9,000

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Accounts payable

$

526,298

 

$

514,017

Accounts payable - related parties

 

529,501

 

 

510,653

Accrued interest and other liabilities

 

783,606

 

 

743,885

Accrued compensation

 

453,290

 

 

453,290

Notes payable

 

521,000

 

 

521,000

Revolving line of credit - related party

 

322,809

 

 

314,826

Total Current Liabilities

 

3,136,504

 

 

3,057,671

 

 

 

 

 

 

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 16,694,260 and 16,114,260 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

 

2,893,739

 

 

2,848,845

Additional paid in capital

 

414,240

 

 

354,124

Accumulated other comprehensive income

 

-

 

 

-

Accumulated deficit

 

(6,435,483)

 

 

(6,251,640)

Total stockholders' deficit

 

(3,127,504)

 

 

(3,048,671)

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

9,000

 

$

9,000

 

 

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

 


5


 

 

INTREorg Systems, Inc.

Statements of Operations

(Unaudited)

 

 

 

Three months ended

September 30,

 

 

Nine months ended

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

Revenues

 

 

 

 

 

 

 

 

 

 

 

Services revenues-related party

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

-

 

 

 

 

 

-

Total revenues

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Software licensing fees- related party

 

13,429

 

 

31,241

 

 

44,894

 

 

106,158

Salaries and wages

 

-

 

 

7,000

 

 

-

 

 

49,000

General and administrative expenses

 

38,875

 

 

26,077

 

 

88,437

 

 

99,178

Total operating expenses

 

52,304

 

 

64,318

 

 

133,331

 

 

254,336

 

 

 

 

 

 

 

 

 

 

 

 

Other expense

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

10,670

 

 

10,670

 

 

31,664

 

 

31,664

Interest expense- related party

 

6,359

 

 

1,811

 

 

18,848

 

 

20,148

Loss on settlement of accounts payable

 

-

 

 

-

 

 

-

 

 

-

Total other expense

 

17,029

 

 

12,481

 

 

50,512

 

 

51,812

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(69,333)

 

$

(76,799)

 

$

(183,843)

 

$

(306,148)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share of common stock

$

(0.00)

 

$

(0.00)

 

$

(0.01)

 

$

(0.02)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

16,264,260

 

 

16,068,960

 

 

16,174,700

 

 

15,766,971

 

 

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

 

 


6


 

 

INTREorg Systems, Inc.

Statements of Comprehensive Loss

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

Nine months ended

 

 

September 30,

 

 

September 30,

 

 

2017

 

2016

 

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

Net loss

$

(69,333)

$

(76,799)

 

$

(183,843)

$

(306,148)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

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

 

-

 

(9,041)

 

 

-

 

(10,476)

Total other comprehensive income (loss)

 

-

 

(9,041)

 

 

-

 

(10,476)

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss

$

(69,333)

$

(85,840)

 

$

(183,843)

$

(316,624)

 

 

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


7


 

 

INTREorg Systems, Inc.

Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

For the Nine Months Ended

 

 

September 30,

 

 

2017

 

 

2016

 

 

 

 

 

 

Cash Flows from Operating Activities

 

 

 

 

 

Net Loss

$

(183,843)

 

$

(306,148)

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

 

 

 

 

 

Common stock and options issued for services

 

105,010

 

 

147,401

Changes in operating assets and liabilities

 

 

 

 

 

Increase in accounts payables

 

12,281

 

 

1,130

Increase in accounts payable related party

 

18,848

 

 

83,007

Increase in accrued liabilities and other

 

39,721

 

 

67,669

 

 

 

 

 

 

Net Cash Flows Used by Operating Activities

 

(7,983)

 

 

(6,941)

 

 

 

 

 

 

Net Cash Flows Provided (Used) by Investing Activities

 

-

 

 

-

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

Proceeds from related party revolving line of credit

 

7,983

 

 

6,941

 

 

 

 

 

 

Net Cash Flows Provided by Financing Activities

 

7,983

 

 

6,941

 

 

 

 

 

 

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 debt and accounts payable

$

-

 

$

290,500

 

 

 

 

 

 

 

 

 

 

 

 

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


8


 

 

INTREORG SYSTEMS, INC.

Notes to the Financial Statements

September 30, 201 7

(Unaudited)

 

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

 

Organization

 

INTREorg Systems, Inc. (the “Company”) was incorporated under the laws of the State of Texas on November 3, 2003. The Company was organized for the purpose of providing internet consulting and "back office" services to companies. The Company's fiscal year end is December 31st.

 

Reclassifications

 

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

 

Going Concern

 

The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company's current liabilities exceed the current assets by $3,127,504 at September 30, 2017. At September 30, 2017, the Company had an accumulated deficit of $6,435,483.

 

The Company's ability to continue as a going concern is dependent upon its ability to generate additional revenues or raise the necessary capital to further implement its business plan and ultimately achieve profitable operations. There can be no assurance that the Company will be successful in obtaining such financing, or that it will attain positive cash flow from operations. Accordingly, there is substantial doubt as to our ability to continue as a going concern. However, management believes that actions presently being taken provide the opportunity for the Company to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

Basis of Presentation

 

Interim Accounting

 

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's annual report on Form 10-K for the year ended December 31, 2016 as filed with the SEC on September 25, 2018. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year ended December 31, 2016 as reported in Form 10-K have been omitted.

 

Summary of Significant Accounting Policies

 

Revenue Recognition

 

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 service has been provided and the Company has no remaining obligations; the fee is fixed or determinable; and collectability is probable.

 

Marketable equity securities

 

As of September 30, 2017, the Company 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 in a private direct sale transaction.


9


 

 

INTREORG SYSTEMS, INC.

Notes to the Financial Statements

September 30, 2017

(Unaudited)

 

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

 

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.

 

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 $44,494 and $106,158 for the nine-month periods ending September 30, 2017 and 2016, respectively, related to this agreement.


10


 

 

INTREORG SYSTEMS, INC.

Notes to the Financial Statements

September 30, 2017

(Unaudited)

 

NOTE 2. RELATED PARTY TRANSACTIONS (CONTINUED)  

 

Line of Credit

 

On June 19, 2011, the Company entered into a revolving line of credit with J.H. Brech, LLC (“Brech”); a related party, to provide access to fund our operations (the "Line of Credit"). Under the terms of the 8% Line of Credit, we have access of up to $500,000. Advances under this Line of Credit were in abeyance for approximately 12 months from August of 2011 to August of 2012; however, the Line of Credit is open again and we may take advances out pursuant to the terms summarized herein. On August 26, 2014, the line of credit was amended to decrease the conversion price to $0.25 per share.

 

Interest accrues at 8% per annum on the outstanding principal amount due under the revolving line of credit and is payable semi-annually on June 30 and December 31 of each year commencing June 30, 2011. The principal and any accrued but unpaid is due on the earlier of:

 

June 19, 2014 (the revolver has not been formally extended, however, the Company continues to borrow under the revolver), or  

the date on which we receive at least $1.5 million in gross proceeds through one or a series of transactions. 

 

At the Company’s sole discretion, we can pay the interest in shares of our common stock valued as follows:

 

if our common stock is not listed for trading on an exchange or quoted for trading on the OTC Bulletin Board or the OTC Markets Group (formerly the Pink Sheets), interest shares are valued at the greater of $1.00 per share or the fair market value as determined in good faith by us based upon the most recent arms-length transaction, or 

 

if our common stock is listed for trading on an exchange or quoted for trading on the OTC Bulletin Board or the OTC Markets Group, interest shares will be valued at the greater of (A) the closing price of our common stock on the trading day immediately preceding the date the interest payment is due and payable, or (B) the average closing price of the common stock for the five trading days immediately preceding the date the interest payment is due and payable. 

 

The Company may prepay the note at any time without penalty. Upon an event of default, Brech has the right to accelerate the note. Events of default include:

 

our failure to pay the interest and principal when due, 

a default by us under the terms of the note, 

appointment of a receiver, filing of a bankruptcy provision, a judgment or levy against our company exceeding $50,000 or a default under any other indebtedness exceeding $50,000, 

a liquidation of our company or a sale of all or substantially all of our assets, or 

a change of control of our company as defined in the note. 

 

On August 25, 2014, we entered into an amendment of the Line of Credit agreement to provide that the conversion price shall be revised from $1.00 per share to $0.25 per share. The maturity date of the agreement remained the same. The parties also acknowledged and agreed that no payment of principal of the Line of Credit has been made and received, and accordingly, the amended conversion price applies to both the interest and principal of the Line of Credit. Accrued and unpaid interest on the Line of Credit at September 30, 2017 and December 31, 2016 totaled $82,931and $62,681, respectively.

 

As of September 30, 2017, and December 31, 2016, the Company owed Brech $322,809 and $314,195, respectively for amounts advanced to the Company for working capital expenses. The balance is past due and is classified as a current liability as of September 30, 2017 and December 31, 2016. 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.

 


11


 

 

INTREORG SYSTEMS, INC.

Notes to the Financial Statements

September 30, 2017

(Unaudited)

 

NOTE 2. RELATED PARTY TRANSACTIONS (CONTINUED)  

 

Cicerone Consulting Agreement

 

As of September 30, 2017, and December 31, 2016, Cicerone Corporate Development, LLC ("Cicerone") is owed $29,946 for company reimbursable expenses, under the terms of the Company's 2011 consulting agreement with Cicerone, which was terminated in 2011.

 

Payable to the Chief Executive Officer and President

 

Mr. Dunckel is owed $202,332 in unpaid consulting fees. During the nine months ended September 30, 2017 and 2016, the Company expensed no consulting fees to Mr. Dunckel.

 

Payable to former President and Chairman of the Board

 

As of September 30, 2017, and December 31, 2016, the Company has a payable of $86,000 to a former President and Chairman of the Board for consulting services rendered in prior years.

 

Payable to shareholder

 

As of September 30, 2017, and December 31, 2016, the Company has accrued $76,876 and $76,876, respectively, for accounting services from a shareholder, PT Platinum. This amount is included in accounts payable-related parties. During the nine months ended September 30, 2017 and 2016, the Company expensed no fees to PT Platinum.

 

NOTE 3. NOTES PAYABLE  

 

The Company’s notes payable totaling $521,000 bear interest at 6% to 10% per annum. Accrued and unpaid interest at September 30, 2017 and December 31, 2016 amounted to approximately $454,786 and $423,120, respectively, and is included with accrued interest and other liabilities in the accompanying financial statements. All of the Company’s notes payable are past due and in default.

 

NOTE 4. COMMITMENTS AND CONTINGENCIES .  

 

At September 30, 2017 and December 31, 2016, management estimates there is a potential liability of $453,290 related to the operations under the former management of the Company. The amount is recorded as an accrued compensation in the accompanying financial statements and relates primarily to compensation in years prior to 2009. Management is not aware of any pending or threatened litigation involving the Company as of September 30, 2017 or since, through the date of these financial statements.

 

NOTE 5. CAPITAL STOCK.  

 

During the nine-month period ended September 30, 2017, the Company authorized the issuance of 20,000 shares per month to Public Issuer Stock Analytics (PISA) pursuant to the terms of the intellectual property license and consulting agreement the Company maintains with them. The grants are valued at the closing price of the Company’s common stock as of the grant date. During the three and nine-month period ended September 30, 2017 and 2016, the Company recorded an expense of $44,894 and $108,299, respectively for the share grants.

 

During the nine- month period ended September 30, 2017 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.


12


 

 

INTREORG SYSTEMS, INC.

Notes to the Financial Statements

September 30, 2017

(Unaudited)

 

NOTE 5. CAPITAL STOCK. (CONTINUED)  

 

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.

 

Stock option expense of $16,113and $60,116 was recorded during the three and nine-month period ended September 30, 2017.

 

During the nine months ended September 30, 2017, no stock options were granted.

 

NOTE 6. 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. 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 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 management consulting agreements.

 

Public Stock Issuer Analytics, Inc. (“PISA”):

 

On March 1, 2017, PISA License Agreement was extended to September 30, 2017. On November 11, 2017, the PISA Intellectual Property License Agreement was extended ten years from September 30, 2017 through September 30, 2027. Through 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 18, 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.


13


 

 

Item 2. DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our unaudited financial statements for the three and nine months ended September 30, 2017 and 2016 and notes thereto contained elsewhere in this Report , and our annual report on Form 10-K for the year ended December 31, 2016 including the financial statements and notes thereto. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. See “Cautionary Note Concerning 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.

 


14


 

 

Going Concern

 

We have incurred accumulated losses of $6,435,483 as of September 30, 2017. The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2016 contained 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 in our company.

 

As of September 30, 2017, and December 31, 2016, the Company owed JH Brech, LLC (“Brech”), a related party, $322,809 and $314,829, respectively for amounts advanced to the Company for working capital expenses. The maturity date on the Line of Credit was June 19. 2014. The balance is past due and is classified as a current liability as of September 30, 2017 and December 31, 2016. As of the date of this Report, Brech has not declared a default on the Line of Credit and has continued to advance us money under the line of credit from time to time. The Company’s notes payable totaling $521,000 are past due and 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.

 

Results of Operations

 

For the Three Months Ended September 30, 2017 Compared to the Three Months Ended September 30, 201 6

 

During the three months ended September 30, 2017 and 2016, we did not recognize any revenue from our operational activities.

 

During the fiscal quarter ended September 30, 2017, we recognized software licensing fees-related party of $13,429 as compared to $31,241 during the same quarter in 2016. The decrease of $17,812 or 57% was attributable to decrease in fair value of our stock issued to PISA for software licensing fees. PISA receives 20,000 shares per month under the terms of our agreement. General and administrative expenses were $38,875 compared to $26,077 during the same quarter in 2016. The increase of $12,798 or 49% was primarily the result of higher professional fees.

 

We expect these expenses to 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 three months ended September 30, 2017, we recognized a net loss of $69,333, compared to $76,799 for the same quarter in 2016. The decrease of $7,466 was attributable to reduction in expenses described above.

 

For the Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016

 

During the nine months ended September 30, 2017 and 2016, we recognized no revenues from operational activities.

 

General and administrative expenses were $88,437 for the nine-month period ended September 30, 2017 compared to $99,178 during the comparable period in 2016. The decrease of $10,741 or 11% was primarily the result of lower licensing fees.

 

Interest expenses- related party decreased $1,300 or 5% due to payment of loan in Company stock.

 

During the Nine months ended September 30, 2017, we recognized a net loss of $183,843, compared to $306,148 for the same period in 2016. The decrease of $122,305 was attributable to lower expenses described above.


15


 

 

Liquidity and Capital Resources

 

Nine Months Ended September 30, 2017 and 201 6

 

The following table sets forth a summary of our cash flows for the periods indicated:

 

 

 

For the Nine Months Ended

 

 

September 30,

 

 

2017

 

 

2016

Net cash used in operating activities

$

(7,983)

 

$

(6,941)

Net cash (used in) investing activities

$

-

 

$

-

Net cash provided by financing activities

$

7,983

 

$

6,941

 

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. At September 30, 2017, we had a working capital deficit of $3,127,504 as compared to a working capital deficit of $3,048,671 at December 31, 2016. Historically we have relied upon debt funding and advances and loans from related parties to fund our cash needs. Our current liabilities increased $78,833 at September 30, 2017 from December 31, 2016 primarily related to net increases in accounts payable, accounts payable- related parties, accrued interest and other liabilities and decreases under our revolving line of credit. The majority of our expenses were paid in common stock or were included in accounts payable which increased $12,281, accounts payable- related parties which increased $18,848, accrued interest and other liabilities which increased $39,721. At September 30, 2017, we owe a total of $322,809 under the working capital line of credit.

 

Our balance sheet at September 30, 2017 and December 31, 2016, includes $453,290 of accrued compensation from 2009 and prior.

 

At September 30, 2017, we have $521,000 principal amount and $454,786 of accrued 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.

 

Net cash used in operating activities for the nine-month period ending September 30, 2017 was $7,983 as compared to net cash used in operating activities of $6,941 for the nine-month period ending September 30, 2016. We did not generate or use any cash from investing activities during the nine months ended September 30, 2016 and 2017. Cash flows provided by financing activities included an increase of $7,983 and $6,941 from a line of credit to a related party during the nine months ended September 30, 2017 and 2016, respectively.

 

We have not generated any cash flows from 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. In March 2011, we raised $100,000 in a private placement of our securities and we continue to seek the additional necessary capital. 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 development stage 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.

 

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.


16


 

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Not applicable.

 

Item 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Going forward from this filing, once cashflows from operations improve to a level where it is able to implement remediation plans, 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.

 

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 as of the end of the period covered by this Report. Based upon that evaluation, management concluded that our disclosure controls and procedures were not effective as of September 30, 2017 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.

 

Changes in Internal Control over Financial Reporting

 

There have not been any changes in our internal control over financial reporting during the three-month period ended September 30, 2017 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.

 

 

 


17


 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are currently not aware of any legal proceedings or claims that would require disclosure under Item 103 of Regulation S-K. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

ITEM 1A. RISK FACTORS

 

Not applicable.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Information on any and all 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:

 

During the nine-month period ended September 30, 2017, the Company authorized the issuance of 20,000 shares per month to Public Issuer Stock Analytics pursuant to the terms of the intellectual property license and consulting agreement the Company maintains with them. The grants are valued at the closing price of the Company’s common stock as of the grant date.

 

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 or Rule 506(b) of Regulation D promulgated thereunder, for sales not involving a public offering. 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 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None

 


18


 

 

ITEM 6. EXHIBITS

 

The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.

 

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)

32.2

Certification of the Principal Financial 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

 

 


19


 

 

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 28, 2018

 

By: /s/ Thomas E. Lindholm

Thomas E. Lindholm

Interim President and CEO


20

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