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EX-31.2 - EXHIBIT 31.2 - INNER SYSTEMS INCv240222_ex31-2.htm
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EX-32.1 - EXHIBIT 32.1 - INNER SYSTEMS INCv240222_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 September 30, 2011

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 ¨
 
Accelerated Filer
¨
 
Non-Accelerated Filer ¨ (Do not check if a smaller
reporting company)
 
Smaller Reporting Company þ

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 November 3, 2011.
 
 
 

 
 
TABLE OF CONTENTS
 


 
PART I - FINANCIAL INFORMATION
 
       
ITEM 1.
INTERIM FINANCIAL STATEMENTS
 
ITEM 2.
MANAGEMENT'S DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION
 
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  10 
ITEM 4.
CONTROLS AND PROCEDURES
  10 
       
 
PART II - OTHER INFORMATION
  11 
       
ITEM 1.
LEGAL PROCEEDINGS
  11 
ITEM 1A
RISK FACTORS
  11 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES
  11 
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
  11 
ITEM 4.
(REMOVED AND RESERVED)
  11 
ITEM 5.
OTHER INFORMATION
  11 
ITEM 6.
EXHIBITS
  12 
       
SIGNATURES
    12 
 
 
2

 
 
PART I – FINANCIAL INFORMATION
 
ITEM 1. INTERIM FINANCIAL STATEMENTS
 
Inner Systems, Inc.
(A Development Stage Company)
Balance Sheets
 
 
  
September
30, 2011
(unaudited)
   
December 31,
2010
(audited)
 
                 
ASSETS
               
                 
Current assets
               
Cash
 
$
403
   
$
403
 
Prepaid expenses
   
 1000
     
 1,000
 
                 
Total current assets
   
1,403
     
1,403
 
                 
TOTAL ASSETS
 
$
1,403
   
$
1,403
 
                 
LIABILITIES & STOCKHOLDERS’ DEFICIT
               
                 
Current liabilities
               
Accrued expenses
 
$
109,005
   
$
85,136
 
Notes payable
   
223,902
     
223,902
 
                 
Total liabilities
   
332,907
     
309,038
 
                 
Stockholders’ deficit
               
Preferred stock, par value $0.001, 5,000,000 shares authorized, no shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
   
     
 
Common stock, par value $0.001, 20,000,000 shares authorized, 1,000,000 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
   
1,000
     
1,000
 
Additional paid-in capital
   
9,000
     
9,000
 
Deficit accumulated during the development stage
   
(341,504
)
   
(317,635
)
                 
Total stockholders’ deficit
   
(331,504
)
   
(307,635
)
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
$
1,403
   
$
1,403
 
 
The accompanying notes are an integral part of these financial statements
 
 
3

 
 
INNER SYSTEMS, INC.
(A Development Stage Company)

CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
 
   
Three Months ended
September 30
   
Nine Months ended
September 30,
   
Cumulative
from
August 9,
2000
(Inception)
to September
30,
 
   
2011
   
2010
   
2011
   
2010
   
2011
 
NET SALES
  $ -     $ -     $ -     $ -     $ -  
                                         
GENERAL AND ADMINISTRATIVE EXPENSES
    4,039       6,713       13,746       14,642       262,202  
INTEREST EXPENSE
    3,411       3,313       10,122       9,676       69,302  
IMPAIRMENT OF REORGANIZATION VALUE
    -       -       -       -       10,000  
                                         
NET LOSS
  $ (7,450 )   $ (10,026 )   $ (23,868 )   $ (24,318 )   $ (341,504 )
                                         
PER SHARE INFORMATION
                                       
Basic and diluted, net loss per share
  $ (.01 )   $ (.01 )   $ (.02 )   $ (.02 )        
                                         
Basic and diluted, weighted average shares outstanding
    1,000,000       1, 000, 000       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)
 
   
Nine Months ended
September 30,
   
Cumulative
from Inception
(August 9,
2000) to
September 30,
 
   
2011
   
2010
   
2011
 
                   
Cash flows relating to operating activities
                 
Net loss
  $ (23,868 )   $ (24,418 )   $ (341,504 )
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Impairment of reorganization value
                10,000  
Change in operating liabilities:
                       
Increase in accrued expenses
    23,868       18,153       109,005  
Change in prepaid expenses
    -               (1,000 )
                         
Net cash used in operating activities
    -       (6,264 )     (223,499 )
                         
Cash flows relating to financing activities
                       
Proceeds from notes payable
    -       6,232       223,902  
                         
Net cash provided by financing activities
    -       6,232       223,902  
                         
Increase (decrease) in cash
    -       (32 )     -  
Cash, beginning of period
    403       3,074        
                         
Cash, end of period
  $ 403     $ 3,042     $ 403  
                         
Supplemental disclosure of cash flow information
                       
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-  SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
     
The accompanying financial statements have been prepared on substantially the same basis as the audited financial statements included in the Inner Systems, Inc. Annual Report on Form 10-K for the year ended December 31, 2010. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission (SEC) rules and regulations regarding interim financial statements. All amounts included herein related to the condensed financial statements as of September 30, 2011 and the three and nine months ended September 30, 2011 and 2010 are unaudited and should be read in conjunction with the audited financial statements and the notes there to included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. In the opinion of management, the accompanying financial statements include all necessary adjustments for the fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the full fiscal year ending December 31, 2011.
 
NOTE 2 - FORMATION, NATURE OF BUSINESS
 
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 September 30, 2011, the Company has raised $223,902 from debt financing (Note 8). During the quarter ended September 30, 2011, the Company received no additional advances. 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.
 
NOTE 3 - GOING CONCERN

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 $7,450 and $32,581 for the period ended September 30, 2011 and the year ended December 31, 2010, respectively, and a working capital deficiency of $331,504 at September 30, 2011. 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 4 - RECENT ACCOUNTING PRONOUNCEMENTS
 
From time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting.  The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.

NOTE 5 - 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 6 - SUBSEQUENT EVENTS
 
The Company has evaluated subsequent events through the date the financial statements were issued and filed with this Form 10-Q. There were no subsequent events that required recognition or disclosure.
  
 
7

 
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

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.
 
 
8

 
 
Liquidity and Capital Resources
 
In the quarter ended September 30, 2011, we financed operations through the accrual of accounts payable.  Historically, we have financed operations through the sale of Senior Convertible Promissory Notes (the “Notes”). For the quarter ended September 30, 2011, we did not receive anything from the sale of Notes.  As of September 30, 2011, there was $223,902 of Notes outstanding. The Notes carry interest at 6% and are due at the earliest of December 31, 2011 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, 2011, 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 September 30, 2011 Compared to September 30, 2010
 
The following table summarizes the results of our operations during the three months ended September 30, 2011 and 2010, 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
 
9/30//11
(unaudited)
   
9/30/10
(unaudited)
   
Increase
(Decrease)
   
Percentage
Increase
(Decrease)
 
                         
Revenues
                       
Operating expenses
    4,039       6,713       (2,674 )     (39.8 )%
Net loss
    7,450       10,026       (2,576 )     (25.7 )%
Loss per share of common stock
  $ (0.01 )   $ (0.01 )     -       -  
 
We recorded a net loss of $7,450 for the three months ended September 30, 2011 as compared with a net loss of $10,026 for the three months ended September 30, 2010. The decrease in net loss was primarily attributable to a decrease in general and administrative expenses.
 
 
9

 
 
Nine Months Ended September 30, 2011 Compared to September 30, 2010
 
The following table summarizes the results of our operations during the nine months ended September 30, 2011 and 2010, respectively, and provides information regarding the dollar and percentage increase or (decrease) from the current 9-month period to the prior 9-month period:
 
Line Item
 
9/30//11
(unaudited)
   
9/30/10
(unaudited)
   
Increase
(Decrease)
   
Percentage
Increase
(Decrease)
 
                         
Revenues
                       
Operating expenses
    13,746       14,642       (896 )     (6.1 )%
Net loss
    23,868       24,318       (450 )     (1.9 )%
Loss per share of common stock
  $ (0.02 )   $ (0.02 )     -       -  
 
We recorded a net loss of $23,868 for the nine months ended September 30, 2011 as compared with a net loss of $24,318 for the nine months ended September 30, 2010. The decrease in net loss was primarily attributable to a decrease 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.
 
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 4. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
 
10

 
 
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 September 30, 2011. 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 second quarter of fiscal 2011 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

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.
 
 
11

 
 
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.
 
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: November 18, 2011
By:  
/s/ John M. Sharpe, Jr.
 
John M. Sharpe, Jr.
 
President
 
 
12

 
 
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.
 
 
13