Amended Annual Report (10-k/a)

Date : 10/10/2018 @ 11:03AM
Source : Edgar (US Regulatory)
Stock : INTREorg Systems, Inc. (IORG)
Quote : 0.4  0.0 (0.00%) @ 1:00AM

Amended Annual Report (10-k/a)

 

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K /A 2

 

[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 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.

 

 



 

 

The purpose of this Amendment No. 2 on Form 10–K/A to , Inc.’s annual report on Form 10–K for the period ended December 31, 2017, filed with the Securities and Exchange Commission on September 28, 2018 (the “Form 10–K”), is solely to add a paragraph to the opinion that was inadvertently omitted regarding the going concern matter. This does not change the going concern disclosure that is included in footnote 1 to the financial statements. No other changes have been made to the Form 10-K or Amendment No. 1 thereto.

 

 

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.  

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

INTREorg Systems, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of INTREorg Systems, Inc. (the “Company”) as of December 31, 2017 and 2016, and the related statements of operations, changes in stockholders’ (deficit), and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ LBB & Associates Ltd. LLP

 

We have served as the Company's auditor since 2011.

 

Houston, Texas

 

September 28, 2018



 

 

 

Contents

 

 

 

Balance Sheets at December 31, 2017 and December 31, 2016

F-2

 

 

Statements of Operations for the years ended December 31, 2017 and 2016

F-3

 

 

Statements of Comprehensive Loss for the years ended December 31, 2017 and 2016

F-4

 

 

Statements of Stockholders’ Deficit for the years ended December 31, 2017 and 2016

F-5

 

 

Statements of Cash Flows for the years ended December 31, 2017 and 2016

F-6

 

 

Notes to Financial Statements

F-7

 


F-1


 

 

INTREorg Systems, Inc.

Balance Sheets

 

 

 

December 31,

 

December 31,

 

 

2017

 

2016

 

 

 

 

 

ASSETS

 

 

 

 

Current Assets:

 

 

 

 

Cash

$

100

$

-

Marketable securities

 

-

 

9,000

 

 

 

 

 

Total Current Assets

 

100

 

9,000

TOTAL ASSETS

$

100

$

9,000

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

Accounts payable

$

544,608

$

514,017

Accounts payable and accrued interest - related parties

 

535,839

 

510,653

Accrued interest and other liabilities

 

800,656

 

743,885

Accrued compensation

 

453,290

 

453,290

Notes payable

 

521,000

 

521,000

Revolving line of credit - related party

 

325,796

 

314,826

Total Current Liabilities

 

3,181,189

 

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 16,624,260 and 16,114,260 shares issued and outstanding at December 31, 2017 and 2016, respectively

 

2,970,455

 

2,848,845

Additional paid in capital

 

430,353

 

354,124

Accumulated other comprehensive income

 

-

 

-

Accumulated deficit

 

(6,581,897)

 

(6,251,640)

Total stockholders' deficit

 

(3,181,089)

 

(3,048,671)

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

100

$

9,000

 

 

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

 


F-2


 

 

INTREorg Systems, Inc.

Statements of Operations

 

 

 

For the Years Ended

 

 

December 31,

 

 

2017

 

2016

Revenues

 

 

 

 

Services revenues-related party

$

-

$

-

 

 

 

 

 

Total revenues

 

-

 

-

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Consulting Fees – related party

 

59,330

 

117,000

General and administrative expenses

 

203,406

 

231,547

Impairment of marketable securities

 

-

 

43,436

Total operating expenses

 

262,736

 

391,983

 

 

 

 

 

Other expense

 

 

 

 

Interest Expense

 

42,335

 

42,335

Interest expense- related party

 

25,186

 

21,550

 

 

 

 

 

Total other expense

 

67,521

 

63,885

 

 

 

 

 

Net loss

$

(330,257)

$

(455,868)

 

 

 

 

 

Net loss per share of common stock

$

(0.02)

$

(0.03)

 

 

 

 

 

Weighted average number of common shares outstanding

 

16,218,150

 

15,824,213

 

 

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

 

 


F-3


 

 

INTREorg SYSTEMS, INC.

Statements of Stockholders' Deficit

For the years ended December 31, 2017 and 2016

 

 

 

 

 

 

 

 

 

 

 

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, 2015

15,067,807

2,441,345

-

-

290,077

(38,085)

(5,795,772)

(3,102,435)

 

 

 

 

 

 

 

 

 

Change in value of marketable securities

-

-

-

-

-

(10,476)

-

(10,476)

Options issued for Director fees

-

-

-

-

64,047

-

-

64,047

Permanent impairment of

Marketable securities

-

-

-

-

-

48,561

-

48,561

Cancellation of common stock issued for investor relations

(355,547)

-

-

-

-

-

-

(355,547)

Common Stock issued for licensing agreement-related party

240,000

117,000

-

-

-

-

-

357,000

Common Stock issued for revolver

1,162,000

290.500

-

-

-

-

-

1,425,500

Net Loss

-

-

-

-

-

-

(455,868)

(455,868)

Balance - December 31, 2016

16,114,260

2,848,845

-

 

354,124

-

(6,251,640)

(3,048,671)

 

 

 

 

 

 

 

 

 

Options issued for Directors fees

-

-

-

-

76,229

-

-

76,229

Common Stock issued for licensing agreement- related party

240,000

59,330

-

-

-

-

-

59,330

Common stock for accrued director fees

170,000

34,000

-

-

-

-

-

34,000

Common Stock issued for director fees

100,000

28,280

-

-

-

-

-

28,280

Net Loss

-

-

-

-

-

-

(330,257)

(330,257)

Balance - December 31, 2017

16,624,260

2,970,455

-

-

430,353

-

(6,581,897)

(3,181,089)

 

 

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


F-4


 

 

INTREorg Systems, Inc.

Statements of Cash Flows

 

 

 

 

 

 

 

For the Years Ended

 

 

December 31,

 

 

2017

 

2016

Cash Flows from Operating Activities

 

 

 

 

Net Loss

$

(330,257)

$

(455,868)

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

 

 

 

 

Common stock and options issued for services

 

163,839

 

181,047

Impairment of marketable securities

 

-

 

43,436

Changes in operating assets and liabilities

 

 

 

 

Increase in accounts payables

 

30,591

 

2,769

Increase in accounts payable related party

 

25,186

 

84,709

Increase in accrued liabilities and other

 

90,771

 

136,335

Net Cash Flows Used by Operating Activities

 

(19,870)

 

(7,572)

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Proceeds from sale of marketable securities

 

9,000

 

-

Net Cash Flows Provided (Used) by Investing Activities

 

9,000

 

-

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

Proceeds from related party revolving line of credit

 

10,970

 

7,572

Net Cash Flows Provided by Financing Activities

 

10,970

 

7,572

 

 

 

 

 

Net Change in Cash

 

100

 

-

 

 

 

 

 

Cash at Beginning of Period

 

-

 

-

 

 

 

 

 

Cash at End of Period

$

100

$

-

 

 

 

 

 

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

$

34,000

$

290,500

 

 

 

 

 

 

 

 

 

 

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


F-5


 

 

INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 201 7 and 2016

 

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 $3,181,089 at December 31, 2017. At December 31, 2017, the Company had an accumulated deficit of $6,581,897.

 

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-6


 

 

INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2017 and 2016

 

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

 

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-7


 

 

INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2017 and 2016

 

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

 

Recent Pronouncements

 

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” This ASU provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. This standard is effective for interim and annual reporting periods beginning after December 15, 2017. The Company will adopt this standard effective January 1, 2018 and it is not expected to have a material impact on the Company’s financial statements.

 

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) ("ASU 2017-09"). ASU 2017-09 provides guidance on when changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless all of the following are met:

 

The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified 

The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified 

The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. 

 

The amendments in ASU 2017-09 are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The amendments should be applied prospectively to an award modified on or after the adoption date. ASU 2017-09 is not expected to have a material impact on the Company's consolidated financial statements

 

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 $59,330 and $117,000 for the years ending December 31, 2017 and 2016, respectively, related to this agreement. On November 11, 2017, the PISA Intellectual Property License Agreement was extended ten years from September 30, 2017 through September 30, 2027.

 

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. 


F-8


 

 

INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2016 and 2015

 

NOTE 2. RELATED PARTY TRANSACTIONS (CONTINUED) 

 

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, 2017 and 2016 totaled $ 89,269 and $64,083, respectively. Interest expense related to the Line of Credit was $25,186 and $21,550 for the years ended December 31, 2017 and 2016, respectively.

 

As of December 31, 2017, and December 31, 2016, the Company owed Brech $325,796 and $314,826, 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, 2017 and December 31, 2016. As of the date of this Report, Brech, has not declared a default on the Line of Credit.

 

Cicerone Consulting Agreement

 

As of December 31, 2017, and 2016, 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-9


 

 

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, 2017 and 2016, the Company recognized expense of $76,229 and $64,047, respectively, relating to these awards.

 

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, 2017 and 2016, the Company expensed $0 and $79,000, respectively in consulting fees to Mr. Dunckel.

 

Payable to former President and Chairman of the Board

 

As of December 31, 2017, and 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 December 31, 2017, and 2016 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, 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 December 31, 2017 and December 31, 2016 amounted to approximately $465,456 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 December 31, 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 December 31, 2017 or since, through the date of these financial statements.


F-10


 

 

INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2017 and 2016

 

NOTE 5. CAPITAL STOCK.  

 

During 2017, PISA earned an aggregate of 240,000 shares related to the monthly compensation, valued at $53,595, the fair market value on the date of issuance. As of December 31, 2017, a total of 60,000 of these shares authorized, but not issued, are shown as outstanding as the issuance of such shares is deemed as a ministerial act.

 

During 2017, $34,000 in accrued director fees were converted to 170,000 shares of common stock.

 

During 2017, 100,000 shares of common stock were issued for director fees of $28,280.

 

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.

 

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.

 

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%.


F-11


 

 

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, 2017 and 2016 are presented below:

 

Options

Number of

Options

Weighted

Average

Exercise

Price

Weighted

Average

Remaining

Contractual

Term

(in years)

Aggregate

Intrinsic

Value

 

 

 

 

 

Balance December 31, 2015

2,300,000

0.73

3.20

-

Granted

500,000

.11

1.75

-

Exercised

-

-

-

-

Expired

-

-

-

-

Balance December 31, 2016

2,800,000

0.46

2.31

400,000

Expired

(300,000)

2.33

-

-

Balance December 31, 2017

2,500,000

.41

.83

90,000

Options exercisable at December 31, 2017

1,500,000

.18

1.08

90,000

 

Stock option expense of $76,229 and $64,047 was recorded during the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, there was $100,189 of unrecognized stock option expense that will be recognized over the next two years.

 

NOTE 6. INCOME TAXES. 

 

The deferred tax asset as of December 31, 2017 and 2016 was approximately $750,394 and $1,102,660, respectively, offset by valuation allowances of the same amount resulting in a deferred tax asset of December 31, 2017 and 2016 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, 2017 the Company had an unused net operating loss carry over approximating $3,573,000 that is potentially available to offset future taxable income, it expires beginning 2026.

 

The Company has not filed its Federal tax returns for 2009-2017 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:

 

On October 16, 2017 Mr. John Devlin Jr. was named Director and died on March 8, 2018. 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 agreements.


F-12


 

 

INTREORG SYSTEMS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2017 and 2016

 

NOTE 7. SUBSEQUENT EVENTS (CONTINUED) 

 

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

 

Through September 15, 2018, the Company issued 180,000 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 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-13


 

 

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 October 9, 2018

 

By: /s/ Thomas E. Lindholm

Thomas E. Lindholm

Interim President and CEO

 

 

 


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