Attached files
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EX-31.1 - INNER SYSTEMS INC | v185003_ex31-1.htm |
EX-31.2 - INNER SYSTEMS INC | v185003_ex31-2.htm |
EX-32.1 - INNER SYSTEMS INC | v185003_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the
Quarter ended March 31, 2010
Commission
File Number: 0-50490
INNER
SYSTEMS, INC.
(Exact
name of registrant as specified in its charter)
New
York
|
11-3447096
|
|||
(State
of organization)
|
(I.R.S.
Employer Identification No.)
|
1895 Byrd
Drive
East
Meadow, NY 11554
(Address of principal executive offices)
(516)
794-2179
Registrant’s
telephone number, including area code
n/a
Former
address if changed since last report
Check whether
the issuer (1) filed all reports required to be filed by Section 13
or 15(d) of
the Exchange Act during the past
12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
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 and 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
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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer o
|
Accelerated
Filer o
|
Non-Accelerated
Filer ¨ (Do
not check if a smaller reporting company)
|
Smaller
Reporting Company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes x No
¨
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock $.001 par value
There
were 1,000,000 shares of common stock outstanding as of May 1,
2010.
TABLE
OF CONTENTS
PART
I - FINANCIAL INFORMATION
|
||||
ITEM
1.
|
INTERIM
FINANCIAL STATEMENTS
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3
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||
ITEM
2.
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MANAGEMENT'S
DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION
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12
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||
ITEM
3
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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14
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||
ITEM
4A(T).
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CONTROLS
AND PROCEDURES
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14
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PART
II - OTHER INFORMATION
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||||
ITEM
1.
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LEGAL
PROCEEDINGS
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14
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||
ITEM
1A
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RISK
FACTORS
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14
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||
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES
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15
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ITEM
3.
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DEFAULTS
UPON SENIOR SECURITIES
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15
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ITEM
4.
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(REMOVED
AND RESERVED)
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15
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ITEM
5.
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OTHER
INFORMATION
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15
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ITEM
6.
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EXHIBITS
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15
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SIGNATURES
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16
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2
PART
I – FINANCIAL INFORMATION
ITEM
1. INTERIM FINANCIAL STATEMENTS
Inner
Systems, Inc.
(A Development Stage
Company)
Balance
Sheets
March 31,
2010
(unaudited)
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December 31,
2009
(audited)
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|||||||
ASSETS
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||||||||
Current
assets
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||||||||
Cash
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$
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3,042
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$
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3,074
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||||
Total
current assets
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3,042
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3,074
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||||||
TOTAL
ASSETS
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$
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3,042
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$
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3,074
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LIABILITIES & STOCKHOLDERS’
DEFICIT
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||||||||
Current
liabilities
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||||||||
Accrued
expenses
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$
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68,177
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$
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60,459
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||||
Notes
payable
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219,970
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217,670
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||||||
Total
liabilities
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287,347
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278,129
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||||||
Stockholders’
deficit
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||||||||
Preferred
stock, par value $0.001, 5,000,000 shares authorized, no shares issued and
outstanding at December 31, 2009 and December 31, 2008,
respectively
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—
|
—
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||||||
Common
stock, par value $0.001, 20,000,000 shares authorized, 1,000,000 shares
issued and outstanding at March 31, 2010 and December 31, 2009,
respectively
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1,000
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1,000
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||||||
Additional
paid-in capital
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9,000
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9,000
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||||||
Deficit
accumulated during the development stage
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(294,305
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)
|
(285,055
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)
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||||
Total
stockholders’ deficit
|
(284,305
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)
|
(275,055
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)
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||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
$
|
3,042
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$
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3,074
|
The
accompanying notes are an integral part of these financial
statements
3
Inner
Systems, Inc.
(A
Development Stage Company)
Statements
of Operations
(unaudited)
3 months
ended March
31, 2010
|
3 months
ended March
31, 2009
|
Cumulative
from Inception
(August 9,
2000) to
March 31, 2009
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||||||||||
Revenue
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$ | — | $ | — | $ | — | ||||||
Expenses:
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||||||||||||
General
and administrative
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6,030 | 3,011 | 235,092 | |||||||||
Total
operating expenses
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6,030 | 3,011 | 235,092 | |||||||||
Other
expenses
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||||||||||||
Interest
expense
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3,220 | 3,020 | 49,213 | |||||||||
Impairment
of reorganization value
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— | — | 10,000 | |||||||||
Net
loss
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$ | (9,250 | ) | $ | (6,031 | ) | $ | (294,305 | ) | |||
Net
loss per common share
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$ | (0.01 | ) | $ | (0.01 | ) | ||||||
Weighted
average number of common shares
|
1,000,000 | 1,000,000 |
The
accompanying notes are an integral part of these financial
statements
4
Inner
Systems, Inc.
(A Development Stage
Company)
Statements
of Cash Flows
(unaudited)
Three months ended
March 31,
|
Cumulative
from Inception
(August 9,
2000) to March
31,
|
|||||||||||
2010
|
2009
|
2010
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||||||||||
Cash
flows relating to operating activities
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||||||||||||
Net
loss
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$ | (9,250 | ) | $ | (6,031 | ) | $ | (294,305 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Impairment
of reorganization value
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— | — | 10,000 | |||||||||
Change
in operating liabilities:
|
||||||||||||
Increase
in accrued expenses
|
7,718 | 1,501 | 68,177 | |||||||||
Net
cash used in operating activities
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(1,532 | ) | (4,530 | ) | (216,128 | ) | ||||||
Cash
flows relating to financing activities
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||||||||||||
Proceeds
from notes payable
|
1,500 | 3,500 | 219,170 | |||||||||
Net
cash provided by financing activities
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1,500 | 3,500 | 219,170 | |||||||||
Increase
(decrease) in cash
|
(32 | ) | (1,030 | ) | 3,042 | |||||||
Cash,
beginning of period
|
3,074 | 2,705 | — | |||||||||
Cash,
end of period
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$ | 3,042 | $ | 1,675 | $ | 3,042 | ||||||
Supplemental
disclosure of cash flow information
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||||||||||||
Cash
paid during the period for interest
|
$ | — | $ | — | ||||||||
Cash
paid during the period for income taxes
|
$ | — | $ | — |
The
accompanying notes are an integral part of these financial
statements
5
INNER
SYSTEMS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
NOTE
1 - FORMATION, NATURE OF BUSINESS AND GOING CONCERN
Inner
Systems, Inc. (the “Company”), a New York company, was organized in 1997. The
Company was in the business of providing concession services. On May 21, 1999,
the Company filed a voluntary petition for reorganization pursuant to Chapter 11
of the United States Bankruptcy Code. The petition was filed in the United
States Bankruptcy Court for the Eastern District of New York and its plan of
reorganization was confirmed on August 9, 2000 (“Inception” date).
Pursuant
to the plan of reorganization, the Company sold its operations to an unrelated
third party. Effective August 9, 2000, the Company entered the development stage
and is seeking to raise capital to fund possible acquisitions. The Company is
actively searching for acquisition targets. As of March 15, 2010, the Company
had not identified any such targets.
The
Company is dependent on advances from investors and lenders for continued
funding. There are no commitments or guarantees from any third party to provide
such funding nor is there any guarantee that the Company will be able to access
the funding it requires to continue its operations. Through March 31,
2010, the Company has raised $219,170 from debt financing (Note 8). During the
quarter ended March 31, 2010, the Company received additional advances of
$1,500. Additional funds will be necessary to continue operations. Although the
Company intends to obtain either additional debt or equity financing, there can
be no assurance that it will be successful in doing so.
The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for annual financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accruals considered necessary
for a fair presentation, have been included. Operating results for the three
months ended March 31, 2010 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2010. For further information,
refer to the financial statements and footnotes thereto included in the Form
10-K for the year ended December 31, 2009.
The
accompanying financial statements contemplate continuation of the Company as a
going concern. The Company is considered a development stage company, has not
begun generating revenue, and has experienced recurring net operating losses.
The Company had a net loss of $9,250 and $30,510 for the period ended March 31,
2010 and the year ended December 31, 2009, respectively, and a working capital
deficiency of $284,305 at March 31, 2010. These factors raise substantial doubt
about the Company’s ability to continue as a going concern. These financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts, or amounts and classification of
liabilities that might result from this uncertainty.
6
INNER
SYSTEMS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
A.
BASIS OF ACCOUNTING
These
financial statements have been prepared using the accrual basis of
accounting. Under the accrual basis of accounting, revenues are
recorded as earned and expenses are recorded at the time liabilities are
incurred. The Company has adopted a December 31
year-end.
B.
CASH EQUIVALENTS
The
Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents. At March 31, 2010, the
Company had $3,042 cash and no cash equivalents.
C.
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
D.
BASIC EARNINGS PER SHARE
The FASB
issued SFAS No. 128, (ASC Topic 260) "Earnings Per Share", which specifies the
computation, presentation and disclosure requirements for earnings (loss) per
share for entities with publicly held common stock. ASC 260
supersedes the provisions of APB No. 15, and requires the presentation of basic
earnings (loss) per share and diluted earnings (loss) per share.
Basic net
loss per share amounts is computed by dividing the net income by the weighted
average number of common shares outstanding. Diluted earnings per share are the
same as basic earnings per share due to the lack of dilutive items in the
Company. Common stock equivalents are excluded from the computation
if their effect is anti-dilutive. For all periods presented the
Company has sustained losses, which would make use of equivalent shares
anti-dilutive.
E.
INCOME TAXES
Income
taxes are provided in accordance with ASC 740 “ Income Taxes”. A deferred tax
asset or liability is recorded for all temporary differences between financial
and tax reporting and net operating loss carryforwards. Deferred tax
expense (benefit) results from the net change during the year of deferred tax
assets and liabilities.
Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
F.
REVENUE RECOGNITION
The
Company has not recognized any revenues from its operations.
G.
NEW ACCOUNTING PRONOUNCEMENTS
In
February 2010, the FASB issued amended guidance on subsequent events to
alleviate potential conflicts between FASB guidance and SEC requirements. Under
this amended guidance, SEC filers are no longer required to disclose the date
through which subsequent events have been evaluated in originally issued and
revised financial statements. This guidance was effective immediately and we
adopted these new requirements for the period ended March 31, 2010. The
adoption of this guidance did not have a material impact on our financial
statements.
7
INNER
SYSTEMS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CON’T)
In
February 2010, the FASB (Financial Accounting Standards Board) issued Accounting
Standards Update 2010-08 (ASU 2010-08), Technical Corrections to Various
Topics. This amendment eliminated inconsistencies and outdated
provisions and provided the needed clarifications to various topics within Topic
815. The amendments are effective for the first reporting period
(including interim periods) beginning after issuance (February 2, 2010), except
for certain amendments. The amendments to the guidance on accounting
for income taxes in a reorganization (Subtopic 852-740) should be applied to
reorganizations for which the date of the reorganization is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. For those reorganizations reflected in interim financial
statements issued before the amendments in this Update are effective,
retrospective application is required. The clarifications of the
guidance on the embedded derivates and hedging (Subtopic 815-15) are effective
for fiscal years beginning after December 15, 2009, and should be applied to
existing contracts (hybrid instruments) containing embedded derivative features
at the date of adoption. The Company does not expect the provisions
of ASU 2010-08 to have a material effect on the financial position, results of
operations or cash flows of the Company.
In
January 2010, the FASB (Financial Accounting Standards Board) issued Accounting
Standards Update 2010-07 (ASU 2010-07), Not-for-Profit Entities (Topic 958):
Not-for-Profit Entities: Mergers and Acquisitions. This amendment to
Topic 958 has occurred as a result of the issuance of FAS 164. The
Company does not expect the provisions of ASU 2010-07 to have a material effect
on the financial position, results of operations or cash flows of the
Company.
In
January 2010, the FASB (Financial Accounting Standards Board) issued Accounting
Standards Update 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures
(Topic 820): Improving Disclosures about Fair Value
Measurements. This amendment to Topic 820 has improved disclosures
about fair value measurements on the basis of input received from the users of
financial statements. This is effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosures
about purchases, sales, issuances, and settlements in the roll forward of
activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. Early adoption is
permitted. The Company does not expect the provisions of ASU 2010-06
to have a material effect on the financial position, results of operations or
cash flows of the Company.
In
January 2010, the FASB (Financial Accounting Standards Board) issued Accounting
Standards Update 2010-05 (ASU 2010-05), Compensation – Stock Compensation (Topic
718). This standard codifies EITF Topic D-110 Escrowed Share
Arrangements and the Presumption of Compensation.
In
January 2010, the FASB (Financial Accounting Standards Board) issued Accounting
Standards Update 2010-04 (ASU 2010-04), Accounting for Various Topics—Technical
Corrections to SEC Paragraphs.
In
January 2010, the FASB (Financial Accounting Standards Board) issued Accounting
Standards Update 2010-03 (ASU 2010-03), Extractive Activities—Oil and Gas (Topic
932): Oil and Gas Reserve Estimation and Disclosures. This amendment
to Topic 932 has improved the reserve estimation and disclosure requirements by
(1) updating the reserve estimation requirements for changes in practice and
technology that have occurred over the last several decades and (2) expanding
the disclosure requirements for equity method investments. This is
effective for annual reporting periods ending on or after December 31,
2009. However, an entity that becomes subject to the disclosures
because of the change to the definition oil- and gas- producing activities may
elect to provide those disclosures in annual periods beginning after December
31, 2009. Early adoption is not permitted. The Company
does not expect the provisions of ASU 2010-03 to have a material effect on the
financial position, results of operations or cash flows of the
Company.
In
January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of a
Subsidiary. This amendment to Topic 810 clarifies, but does not
change, the scope of current US GAAP. It clarifies the decrease in
ownership provisions of Subtopic 810-10 and removes the potential conflict
between guidance in that Subtopic and asset derecognition and gain or loss
recognition guidance that may exist in other US GAAP. An entity will
be required to follow the amended guidance beginning in the period that it first
adopts FAS 160 (now included in Subtopic 810-10). For those
entities that have already adopted FAS 160, the amendments are effective at the
beginning of the first interim or annual reporting period ending on or after
December 15, 2009. The amendments should be applied retrospectively to the first
period that an entity adopted FAS 160. The Company does not expect
the provisions of ASU 2010-02 to have a material effect on the financial
position, results of operations or cash flows of the Company.
8
INNER
SYSTEMS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CON’T)
In
January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic
505): Accounting for Distributions to Shareholders with Components of Stock and
Cash (A Consensus of the FASB Emerging Issues Task Force). This
amendment to Topic 505 clarifies the stock portion of a distribution to
shareholders that allows them to elect to receive cash or stock with a limit on
the amount of cash that will be distributed is not a stock dividend for purposes
of applying Topics 505 and 260. Effective for interim and annual periods ending
on or after December 15, 2009, and would be applied on a retrospective
basis. The Company does not expect the provisions of ASU 2010-01 to
have a material effect on the financial position, results of operations or cash
flows of the Company.
NOTE
3. WARRANTS AND OPTIONS
There are
no warrants or options outstanding to acquire any additional shares of common or
preferred stock.
NOTE
4. GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company generated net losses of
$294,305 from Inception (August 9, 2000) to March 31, 2010. This condition
raises substantial doubt about the Company's ability to continue as a going
concern. The Company's continuation as a going concern is dependent on its
ability to meet its obligations, to obtain additional financing as may be
required and ultimately to attain profitability. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded assets, or the amounts of and classification of liabilities that might
be necessary in the event the company cannot continue in existence. Accordingly,
these factors raise substantial doubt as to the Company’s ability to continue as
a going concern
The
Company is dependent on advances from its principal shareholders for continued
funding. There are no commitments or guarantees from any third party
to provide such funding nor is there any guarantee that the Company will be able
to access the funding it requires to continue its operations.
NOTE
5. INCOME TAXES
The
Company records its income taxes in accordance with ASC 740 “Income
Taxes”. The Company incurred net operating losses during all periods
presented resulting in deferred tax assets. Realization of deferred
tax assets is dependent upon sufficient future taxable income during the period
that deductible temporary differences and carryforwards are expected to be
available to reduce taxable income. As the achievement of required
future taxable income is uncertain, the Company has recorded a valuation
allowance offsetting all deferred tax assets.
NOTE
6. STOCKHOLDERS' DEFICIT
The
stockholders' deficit section of the Company contains the following classes of
capital stock as of March 31, 2010:
|
·
|
Preferred
stock, $0.001 par value: 5,000,000 shares authorized; -0- shares issued
and outstanding.
|
|
·
|
Common
stock, $0.001 par value: 20,000,000 shares authorized; 1,000,000 shares
issued and outstanding.
|
There are
no warrants or options outstanding to acquire any additional shares of common or
preferred stock.
9
INNER
SYSTEMS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
NOTE
7 - BANKRUPTCY PROCEEDINGS
On August
9, 2000 (as amended on August 9, 2001), the United States Bankruptcy Court of
the Eastern District of New York (the “Court”) confirmed the Company’s plan of
reorganization (the “Plan”) and all debts of the Company that arose before the
confirmation of the Plan were discharged.
The Plan
ratified the approval of an Asset Purchase Agreement (the “Agreement”) between
the Company and Culinart, Inc. (“Culinart”). Under the Agreement, Culinart is
required to make certain payments (the
“Culinart Payments”) to the bankruptcy estate through September
2003.
The Plan
contained six classes of creditors of which approximately $196,000 were not paid
as of the Plan confirmation date. Such claims were to be paid by the Culinart
Payments. The Company cannot confirm whether the Culinart Payments have or have
not been paid. If the Culinart payments were not made, the Court may deem the
Company in default under the terms of the Plan. The Court retained exclusive
jurisdiction to deal with items arising from the Plan, including defaults under
the Plan. In order for a creditor to proceed on a default, the creditor would
have to reopen the case. Management believes that if the Culinart Payments were
not made, then Culinart or the disbursing agent under the Plan not the Company
would be responsible for defaults occurring under the Plan. In addition
Management believes that with the passage of time, the likelihood of relief in
favor of a creditor as a result of the Company’s default, if any, under the Plan
diminishes. However there can be no assurances that the Company will not be
deemed in default of the Plan nor that the maximum liability would be capped at
$196,000. The Plan stipulated the issuance of 1,000,000 shares of a new class of
common stock to be paid and issued to certain secured, administrative and
unsecured creditors. In addition, the interests of the existing stockholders
were extinguished and 3,198,948 shares of common stock were cancelled. A total
of 1,000,000 shares of new common stock were issued on August 9, 2000 of which
735,000 shares were issued to one administrative creditor, 65,000 shares were
issued to a second administrative creditor and the remaining shares were issued
to the holders of unsecured non-priority claims.
It was
determined that the Company’s reorganization value computed immediately before
August 9, 2000, the date of plan confirmation, was $10,000. At December 31,
2000, it was determined that the reorganization value was completely impaired
and accordingly written down to zero, which is representative of its fair
value.
The
Company adopted fresh start reporting because holders of the existing voting
shares immediately before filing and confirmation of the Plan received less than
50% of the voting shares of the emerging entity. There were no remaining
bankruptcy liabilities at August 9, 2000.
NOTE
8 - NOTES PAYABLE
The
Company financed operations through loans from various investors. Originally,
these loans were evidenced by Demand Promissory Notes bearing interest at the
rate of 6% per annum, although it was the intention of management of the Company
and the investors to exchange these notes for convertible promissory notes which
would be convertible into shares of the Company’s common stock. On January 14,
2005, management finalized the specific terms of their agreement and form of
documents and exchanged the original Demand Promissory Notes for Senior
Convertible Promissory Notes (the “Notes”). The Notes, which represent $287,347
in the aggregate as of March 31, 2010, continue to bear interest at the rate of
6% per annum. The Notes were due at the earlier of December 31, 2007, or a
Change of Control Transaction (as defined below); however, the Notes were
extended to the earlier of December 31, 2010 or a Change of Control Transaction.
Additionally, the Notes are only convertible when the Company consummates a
Change of Control Transaction. A Change in Control Transaction shall mean (i) a
sale of all or substantially all of the Company’s assets, (ii) a transaction (or
series of transactions, including merger, consolidation or other reorganization
of the Company, or issuance of additional shares of capital stock of the Company
other than in connection with capital raising transactions) which results in the
holders of the Company’s capital stock prior to the transaction owning less than
50% of the voting power, on a fully diluted, as-converted basis for all
outstanding classes thereof, of the Company’s capital stock after the
transaction or (iii) a liquidation, dissolution or winding up of the Company.
The Notes are convertible at various rates ranging from $.005 to $.40 per share.
Since the conversion feature in the Notes is contingent on a future event
outside the control of the investors, the contingent beneficial conversion
feature, valued at approximately $98,944, will not be recognized until
the contingency is resolved. The holders of the Notes were also granted
Registration Rights with respect to the shares of common stock issuable upon
conversion of the Notes, if they are converted. These rights are evidenced by a
Registration Rights Agreement between the Company and the holders of the Notes;
such registration rights do not become effective until a Change in Control
Transaction occurs.
10
INNER
SYSTEMS, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO FINANCIAL STATEMENTS
NOTE
8 – NOTES PAYABLE (CON’T)
In the
quarter ended March 31, 2010, the Company received additional advances of
$1,500. The Company converted these advances into notes on the same terms as the
existing Notes.
NOTE
9 - RELATED PARTY TRANSACTION
Through
an oral agreement with the Company’s President, the Company is provided office
space, phone usage, equipment rental and other office services. The Company has
not been charged for these services as usage has been minimal.
NOTE
10 - TRADING CANCELLATION OF “OLD SHARES”
In June
2007, it came to the attention of the Company that the shares trading under the
symbol “ISYM” were the shares of common stock held by the pre-petition
shareholders of the Company (the “Old Shares”). As previously disclosed in the
Company’s public filings, these 3,198,948 shares of common stock, comprising the
Old Shares issued to the pre-petition shareholders, were cancelled when the
Company emerged from bankruptcy on August 9, 2000. Effective August 9, 2000,
these Old Shares had no value and should not have been trading. In June 2007,
the Company advised The Depository Trust & Clearing Corporation and the
CUSIP Service Bureau that these Old Shares were cancelled and should not be
trading. The Company obtained a new CUSIP number, or identification number, for
the 1,000,000 shares issued to the holders of various claims pursuant to the
Plan of Reorganization and the Order of the Bankruptcy Court approving the Plan
of Reorganization (the “New Shares”) and the Company has obtained the trading
symbol “ISYE” for the New Shares.
11
The
following discussion should be read in conjunction with our unaudited financial
statements and the notes thereto.
Forward-Looking
Statements
This
quarterly report contains forward-looking statements and information relating to
us that are based on the beliefs of our management as well as assumptions made
by, and information currently available to, our management. When used in this
report, the words "believe," "anticipate," "expect," "estimate," “intend”,
“plan” and similar expressions, as they relate to us or our management, are
intended to identify forward-looking statements. These statements reflect
management's current view of us concerning future events and are subject to
certain risks, uncertainties and assumptions, including among many others: a
general economic downturn; a downturn in the securities markets; federal or
state laws or regulations having an adverse effect on proposed transactions that
we desire to effect; Securities and Exchange Commission regulations which affect
trading in the securities of "penny stocks,"; and other risks and uncertainties.
Should any of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described in this report as anticipated, estimated or expected. The accompanying
information contained in this registration statement, including, without
limitation, the information set forth under the heading “Management’s Discussion
and Analysis and Plan of Operation — Risk Factors" identifies important
additional factors that could materially adversely affect actual results and
performance. You are urged to carefully consider these factors. All
forward-looking statements attributable to us are expressly qualified in their
entirety by the foregoing cautionary statement.
Plan
of Operation
Overview
We are
presently a shell company (as defined in Rule 12b-2 of the Exchange Act) whose
plan of operation over the next twelve months is to seek and, if possible,
acquire an operating business or valuable assets by entering into a business
combination. We will not be restricted in our search for business combination
candidates to any particular geographical area, industry or industry segment,
and may enter into a combination with a private business engaged in any line of
business, including service, finance, mining, manufacturing, real estate, oil
and gas, distribution, transportation, medical, communications, high technology,
biotechnology or any other. Management's discretion is, as a practical matter,
unlimited in the selection of a combination candidate. Management will seek
combination candidates in the United States and other countries, as available
time and resources permit, through existing associations and by word of mouth.
This plan of operation has been adopted in order to attempt to create value for
our shareholders. For further information on our plan of operation and business,
see PART I, Item 1 of our Annual Report on Form 10-K for the fiscal year ending
2009.
Inner
Systems, Inc. (the “Company”) was incorporated under the laws of the State of
New York on September 16, 1997. On August 7, 1998, Inner System Industries,
Inc., a Texas corporation and the owner and operator of a food service and
vending machine business, was merged with and into the Company. Thereafter, we
owned and operated a food cafeteria, catering business and vending machine
business from offices located in Commack, New York.
On May
21, 1999, the Company filed a voluntary petition for reorganization pursuant to
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Eastern District of New York. We continued to operate our business as a
debtor-in-possession. However, on or about August 25, 1999, we sold our assets
to Culinart, Inc. Then, on August 9, 2000, the Bankruptcy Court approved our
plan of reorganization (the “Plan”). The Plan stipulated payments of $395,000,
the net proceeds from the sale of the assets, and the issuance of 1,000,000
shares to the holders of various claims. The interests of the pre-petition
shareholders were extinguished and the 3,198,948 shares of common stock issued
to the pre-petition shareholders were cancelled.
The
Company’s current business plan is to seek, investigate, and, if warranted,
acquire one or more properties or businesses, and to pursue other related
activities intended to enhance shareholder value. The acquisition of a business
opportunity may be made by purchase, merger, exchange of stock, or otherwise,
and may encompass assets or a business entity, such as a corporation, joint
venture, or partnership. The Company has limited capital, and it is unlikely
that the Company will be able to take advantage of more than one such business
opportunity. The Company intends to seek opportunities demonstrating the
potential of long-term growth as opposed to short-term
earnings.
12
Liquidity
and Capital Resources
In the
quarter ended March 31, 2010, we financed operations through the sale of Senior
Convertible Promissory Notes (the “Notes”). For the quarter ended March 31,
2010, we received the aggregate amount of $1,500. These funds were utilized to
satisfy accrued expenses and general and administrative expenses included in our
Statement of Operations for the quarter ended March 31, 2010. As of March 31,
2010, there was $287,347 of Notes outstanding. The Notes carry interest at 6%
and are due at the earliest of December 31, 2010 or a change of control
transaction.
We
currently rely on loan proceeds or proceeds from the sale of our securities to
fund our operations. There is no assurance that we will be able to continue
generating funds from loans by investors. We are seeking to acquire business
entities that will generate cash from operations.
For the
remainder of the fiscal year ending December 31, 2010, we anticipate incurring a
loss as a result of continued expenses associated with compliance with the
reporting requirements of the Exchange Act, and expenses associated with
locating and evaluating acquisition candidates. We anticipate that until a
business combination is completed with an acquisition candidate, it will not
generate revenues. It may also continue to operate at a loss after completing a
business combination, depending upon the performance of the acquired
business.
Plan
of Operations and Need for Additional Financing
During
the remainder of the fiscal year ending December 31, 2010, we plan to continue
with efforts to seek, investigate, and, if warranted, acquire one or more
properties or businesses. We also plan to file all required periodic reports and
to maintain our status as a fully-reporting company under the Exchange Act. In
order to proceed with its plans for the next year, it is anticipated that we
will require additional capital in order to meet its cash needs. These include
the costs of compliance with the continuing reporting requirements of the
Exchange Act as well as any costs we may incur in seeking business
opportunities.
Based
upon the company’s current cash reserves, the Company does not have adequate
resource to meet its short term or long-term cash requirements. No specific
commitments to provide additional funds have been made by management, the
principal stockholders or other stockholders, and we have no current plans,
proposals, arrangements or understandings with respect to the sale or issuance
of additional securities prior to the location of a merger or acquisition
candidate. Accordingly, there can be no assurance that any additional funds will
be available to us to allow us to cover our expenses. As a result, these
conditions raise substantial doubt about our ability to continue as a going
concern.
Three
Months Ended March 31, 2010 Compared to March 31, 2009
The
following table summarizes the results of our operations during the three months
ended March 31, 2010 and 2009, respectively, and provides information regarding
the dollar and percentage increase or (decrease) from the current 3-month period
to the prior 3-month period:
Line
Item
|
3/31/10
(unaudited)
|
3/31/09
(unaudited)
|
Increase
(Decrease)
|
Percentage
Increase
(Decrease)
|
||||||||||||
Revenues
|
— | — | — | — | ||||||||||||
Operating
expenses
|
6,030 | 3,011 | 3,019 | 100.3 | ||||||||||||
Net
loss
|
9,250 | 6,031 | 3,219 | 52.4 | ||||||||||||
Loss
per share of common stock
|
$ | (0.01 | ) | $ | (0.01 | ) | - | - |
We
recorded a net loss of $9,250 for the three months ended March 31, 2010 as
compared with a net loss of $6,031 for the three months ended March 31, 2009.
The increase in net loss was primarily attributable to an increase in general
and administrative expenses.
Off
Balance Sheet Arrangements
We do not
have any off balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that are material to an investor in our
securities.
Seasonality
Our
operating results are not affected by seasonality.
13
Inflation
Our
business and operating results are not affected in any material way by
inflation.
Critical
Accounting Policies
The
Securities and Exchange Commission issued Financial Reporting Release No. 60,
“Cautionary Advice Regarding Disclosure About Critical Accounting Policies”
suggesting that companies provide additional disclosure and commentary on their
most critical accounting policies. In Financial Reporting Release No. 60, the
Securities and Exchange Commission has defined the most critical accounting
policies as the ones that are most important to the portrayal of a company’s
financial condition and operating results, and require management to make its
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. The nature of our business
generally does not call for the preparation or use of estimates other than with
respect to the valuation allowance on its deferred tax assets as a result of the
Company’s Net Operating Loss carry-forward. Due to the fact that the Company
does not have any operating business, we do not believe that we do not have any
such critical accounting policies.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
As a
“smaller reporting company” as defined by Item 10 of Regulation S-K, the Company
is not required to provide information required by this Item.
Item 4A(T). CONTROLS AND
PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is
defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated
under the Securities Exchange Act of 1934, as amended (Exchange Act), as of
March 31, 2010. Based on this evaluation, our principal executive officer and
principal financial officer have concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed by
us in the reports we file or submit under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and that our disclosure and
controls are designed to ensure that information
required to be disclosed by us in the reports that we file
or submit under the Exchange Act is accumulated and communicated to
our management, including our principal executive officer and
principal financial officer, or persons
performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
Changes
in Internal Control Over Financial Reporting
There
were no changes (including corrective actions with regard to significant
deficiencies or material weaknesses) in our internal controls over financial
reporting that occurred during the first quarter of fiscal 2010 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART
II - OTHER INFORMATION
ITEM 1.
|
LEGAL
PROCEEDINGS
|
There are
no legal proceedings which are pending or have been threatened against us or any
of our officers, directors or control persons of which management is
aware.
ITEM
1A.
|
RISK
FACTORS.
|
As a
“smaller reporting company” as defined by Item 10 of Regulation S-K, the Company
is not required to provide information required by this Item
14
ITEM 2.
|
UNREGISTERED SALES OF EQUITY
SECURITIES
|
Except as
may have previously been disclosed on a current report on Form 8-K or a
quarterly report on Form 10-Q, we have not sold any of our securities in a
private placement transaction or otherwise during the past three
years.
ITEM 3.
|
DEFAULTS UPON SENIOR
SECURITIES
|
Not
applicable.
ITEM 4.
|
(REMOVED AND
RESERVED)
|
None.
ITEM 5.
|
OTHER
INFORMATION
|
None.
ITEM 6.
|
EXHIBITS
|
Exhibit No.
|
Description
|
|
31.1
|
Certification
of Principal Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Principal Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Principal Executive Officer and Principal Financial Officer furnished
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of
2002.
|
15
SIGNATURES
In
accordance with the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
INNER
SYSTEMS, INC.
|
|||
Date:
May 13, 2010
|
By:
|
/s/ John
M. Sharpe, Jr.
|
|
John
M. Sharpe, Jr.
|
|||
President
|
EXHIBIT
INDEX
Exhibit No.
|
Description
|
|
31.1
|
Certification
of Principal Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Principal Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Principal Executive Officer and Principal Financial Officer furnished
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of
2002.
|
16