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.

During the six months ended June 30, 2018, no stock options were granted.

Stock option expense of $16,113and $32,226 was recorded during the three and six-month period ended June 30, 2018.

NOTE 3. SUBSEQUENT EVENTS

Directors and Management

In July 2018, Mr. Lindholm was issued 142,581 shares for previously accrued compensation and Mr Flynn was issued 79,890 shares for previously accrued consulting fees.

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

On November 11, 2017, the PISA Intellectual Property License Agreement was extended ten years from September 30, 2017 through September 30, 2027. Pursuant to the terms of the intellectual property license, the Company issued 60,000 shares through September 30, 2018 to Public Issuer Stock Analytics.

J.H. Brech Revolving 8% Credit Note:

The balance on the line of credit as of September 30, 2018 was $215,796.

Other:

During September 2018, the Company issued 1,235,000 shares of common stock for $247,000.  $60,000 of this amount was received in August 2018 and is shown in common stock in the accompanying balance sheet.

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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 six months ended June 30, 2018 and 2017 and notes thereto contained elsewhere in this Report, and our annual report on Form 10-K for the year ended December 31, 2017 including the financial statements and notes thereto. The following discussion and analysis contain 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.”

Going Concern

We have incurred accumulated losses of $6,805,047 as of June 30, 2018. The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2017 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 June 30, 2018, and December 31, 2017, the Company owed JH Brech, LLC (“Brech”), a related party, $315,796 and $325,796, 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 June 30, 2018 and December 31, 2017. 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 me. 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

During the three and six months ended June 30, 2018, we recognized no revenues from operational activities.

During the fiscal quarter ended June 30, 2018, we recognized software licensing fees-related party of $12,352 as compared to $13,120 during the same quarter in 2017. The decrease of $768 or 6% was attributable to the decrease in fair value of our stock issuances to PISA for software licensing fees. PISA receives 20,000 shares per month under the terms of our agreement. Other general and administrative expenses were $94,785 compared to $38,508 during the same quarter in 2017. The increase of $56,277 or 146% was primarily the result of an increase in CEO compensation, legal and director fees.

Interest expenses- related party decreased $365 due to lower borrowings under our line of credit with Brech.

During the three months ended June 30, 2018, we recognized a net loss of $123,578 compared to $68,461 for the same quarter in 2017. The increase of $55,117 was attributable to higher expenses described above.

During the six month period ended June 30, 2018, we recognized software licensing fees-related party of $22,247 as compared to $31,465 during the same period in 2017. The decrease of $9,218 or 30% was attributable to the decrease in fair value of our stock issuances to PISA for software licensing fees. PISA receives 20,000 shares per month under the terms of our agreement. Other general and administrative expenses were $167,786 compared to $49,562 during the same period in 2017. The increase of $118,224 or 238% was primarily the result of an increase in CEO compensation, director fees and options and legal.

Interest expense for the six months ended June 30, 2018 was consistent with the same period in 2017.

During the six months ended June 30, 2018, we recognized a net loss of $223,150 compared to $114,510 for the same period in 2017. The increase of $108,640 was attributable to higher expenses described above.

We expect that expenses will increase during 2018 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.

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Liquidity and Capital Resources

Six Months Ended June 30, 2018 and 2017

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

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. At June 30, 2018, we had a working capital deficit of $3,217,766 as compared to a working capital deficit of $3,181,089 at December 31, 2017. Historically we have relied upon debt funding and advances and loans from related parties to fund our cash needs. Our current liabilities increased $71,454 at June 30, 2018 from December 31, 2017 primarily related to net increases in accounts payable, accounts payable- related parties, accrued interest and other liabilities and additional advances under our revolving line of credit. Expenses were paid in common stock or were included in accounts payable which decreased $7,249, accounts payable- related parties which increased $32,123 or accrued interest and other liabilities which increased $121,580. At June 30, 2018, we owe a total of $315,796 under the working capital line of credit.

Our balance sheet at June 30, 2018 and December 31, 2017, includes $453,290 of accrued contingencies. This amount represents an estimate of certain operating liabilities which may have been incurred by prior management that we are unable to confirm.

At June 30, 2018, we have $521,000 principal amount and $486,451 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 six-month period ending June 30, 2018 was $15,223 as compared to net cash used in operating activities of $7,981 for the six-month period ending June 30, 2017. We did not generate or use any cash from investing activities during the six months ended June 30, 2018 and 2017. Cash flows provided by financing activities during the six months ended June 30, 2018 included an increase in cash of $60,000 from sales of common stock and a decrease from a $10,000 paydown on the line of credit to a related party During the six months ended June 30, 2017, the Company had an increase of cash from proceeds from the line of credit with a related party of $7,983

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.

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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 cash flows 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 June 30, 2018, 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 June 30, 2018 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.

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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 six months ended June 30, 2018, the Company authorized the issuance of 120,000 shares valued at $22,247 to Public Issuer Stock Analytics pursuant to the terms of the intellectual property license and consulting agreement the Company maintains with them.

During the quarter ended June 30, 2018, the Company received, under a private placement, $60,000 for subscription to 300,000 shares of common stock at $.20 per share. The shares were issued in September 2018.

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

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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.

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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

President and CEO

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