UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________.
Commission file number 0-50490
INNER SYSTEMS, INC.
-------------------
(Exact name of registrant as specified in its charter)
New York 11-3447096
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1895 Byrd Drive, East Meadow, NY 11554
----------------------------------------
(Address of principal executive offices)
(516) 794-2179
--------------
(Issuer's telephone number)
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
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 of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES __X__ NO _____
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T 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.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] 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 _____
The number of shares outstanding of the issuer's Common Stock, $.001
par value per share, as of May 1, 2008, is 1,000,000.
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS ................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION .. 12
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..... 13
ITEM 4A(T). CONTROLS AND PROCEDURES ........................................ 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS .............................................. 14
ITEM 1A RISK FACTORS ................................................... 14
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES ........................ 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ................................ 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............ 14
ITEM 5. OTHER INFORMATION .............................................. 14
ITEM 6. EXHIBITS ....................................................... 14
SIGNATURES ................................................................. 15
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INNER SYSTEMS, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(unaudited)
________________________________________________________________________________
ASSETS
------
March 31, December 31,
2009 2008
--------- ------------
CURRENT ASSETS
- --------------
Cash ........................................... $ 1,675 $ 2,705
--------- ---------
TOTAL ASSETS ...................................... $ 1,675 $ 2,705
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
- -------------------
Accrued interest and other expenses ............ $ 47,581 $ 46,080
Notes payable .................................. 204,670 201,170
--------- ---------
TOTAL LIABILITIES ........................... 252,251 247,250
--------- ---------
STOCKHOLDERS' DEFICIENCY
- ------------------------
Preferred stock, par value $0.001;
5,000,000 shares authorized,
no shares issued and outstanding ................. - -
Common stock, par value $0.001;
20,000,000 shares authorized,
1,000,000 shares issued and outstanding .......... 1,000 1,000
Additional paid in capital ........................ 9,000 9,000
Deficit accumulated during the development stage .. (260,576) (254,545)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIENCY .............. (250,576) (244,545)
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY ................... $ 1,675 $ 2,705
========= =========
See notes to unaudited condensed financial statements.
3
INNER SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
________________________________________________________________________________
Cumulative from
Three Months Ended August 9, 2000
March 31, (Inception)
-------------------------- through March 31,
2009 2008 2009
----------- ----------- -----------------
NET SALES .................... $ -- $ -- $ --
GENERAL AND ADMINISTRATIVE
EXPENSES .................... 3,011 1,954 214,184
INTEREST EXPENSE ............. 3,020 2,514 36,392
IMPAIRMENT OF
REORGANIZATION VALUE ........ -- -- 10,000
----------- ----------- ----------
NET LOSS .................. $ (6,031) $ (4,468) $ (260,576)
=========== =========== ==========
PER SHARE INFORMATION
Basic and diluted,
net loss per share ....... $ (.01) $ (.00)
=========== ===========
Basic and diluted,
weighted average common
shares outstanding ....... 1,000,000 1,000,000
=========== ===========
See notes to unaudited condensed financial statements.
4
INNER SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
__________________________________________________________________________________________
Cumulative from
Three Months Ended August 9, 2000
March 31, (Inception)
----------------------- through March 31,
2009 2008 2009
--------- --------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................ $ (6,031) $ (4,468) $(260,576)
Adjustments to reconcile net loss to
net cash used in operating activities:
Impairment of reorganization value .. -- -- 10,000
Changes in operating liabilities:
Accrued interest and other expenses . 1,501 3,218 47,501
--------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES . (4,530) (1,250) (202,995)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES .... -- -- --
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Notes Payable ............. 3,500 -- 204,670
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH ....... (1,030) (1,250) 1,675
CASH - Beginning ........................ 2,705 2,375 --
- ---------------- --------- --------- ---------
CASH - Ending ........................... $ 1,675 $ 1,125 $ 1,675
- ------------- ========= ========= =========
See notes to unaudited condensed financial statements
5
INNER SYSTEMS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
________________________________________________________________________________
NOTE 1 - Formation, Nature of Business and Going Concern
-----------------------------------------------
Inner Systems, Inc. (the "Company"), a Delaware company, was organized in May
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"). As of that
date, 1,000,000 shares of common stock were issued.
Pursuant to the plan of reorganization, the Company sold its operations to an
unrelated third party. Effective August 9, 2000, the Company is in the
development stage and is seeking to raise capital to fund possible acquisitions.
The Company is actively searching for acquisition targets. As of May 1, 2009 the
Company had not identified any such targets.
The Company has not commenced principal operations as of March 31, 2009 and
there is no assurance that the Company will have the ability to carry out its
business plan without raising sufficient debt or equity financing. Through March
31, 2009 the Company has raised $204,670 from debt financing (Note 4), plus an
additional $2,000 in April 2009. Additional funds will be necessary. Although
the Company intends to obtain either additional debt or equity financing, there
can be no assurance that it will be successful. These factors raise substantial
doubt as to the Company's ability to continue as a going concern. The financial
statements do not include any disclosures that might be necessary should the
Company be unable to continue as a going concern.
NOTE 2 - Basis of Presentation
---------------------
The accompanying unaudited condensed financial statements reflect all
adjustments, which are, in the opinion of management, necessary to make the
financial position, results of operations and cash flows not misleading as of
March 31, 2009 and for all periods presented. All such adjustments are of a
normal recurring nature. The results of operations for the three months ended
March 31, 2009 are not necessarily indicative of the results that may be
expected for any other interim period or the full year. The condensed financial
statements should be read in conjunction with the notes to the financial
statements and in conjunction with the Company's audited financial statements
for the period August 9, 2000 (Inception) through December 31, 2008, which are
included in the Company's annual report on Form 10-K for the year ended December
31, 2008. The accounting policies used to prepare the condensed financial
statements are consistent with those described in the December 31, 2008
financial statements.
6
INNER SYSTEMS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
________________________________________________________________________________
NOTE 3 - Summary of Significant Accounting Principles
--------------------------------------------
STOCK BASED COMPENSATION
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123R "Share Based
Payment." This statement is a revision of SFAS No. 123 and supersedes APB
Opinion No. 25, and its related implementation guidance. SFAS No. 123R addresses
all forms of share based payment ("SBP") awards including shares issued under
employee stock purchase plans, stock options, restricted stock and stock
appreciation rights. Under SFAS No. 123R, SBP awards result in a cost that will
be measured at fair value on the awards' grant date, based on the estimated
number of awards that are expected to vest. The Company adopted the provisions
of SFAS 123R as of January 1, 2006. The adoption of SFAS No. 123R did not have a
material effect on the Company's financial position, results of operations or
cash flows, as the Company has not issued any SBP awards.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
LOSS PER SHARE
The Company adopted the provisions of SFAS No. 128, "Earnings per Share." SFAS
No. 128 requires the presentation of basic and diluted earnings per share
("EPS"). Basic EPS is computed by dividing the net loss by the weighted-average
number of common shares outstanding for the period. Diluted EPS includes the
potential dilution that could occur if options or other contracts to issue
common stock were exercised or converted. During the period August 9, 2000
(Inception) through March 31, 2009, no options or other contracts to issue
common stock were issued or entered into. Shares issuable upon conversion of the
Company's convertible notes have been excluded from earnings per share as they
were anti-dilutive. Accordingly, basic and diluted earnings per share are
identical. See Note 4 for the issuance of Senior Convertible Promissory Notes,
which contain a contingent conversion feature.
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
The Company adopted Financial Accounting Standards Board's Interpretation No.
48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109" ("FIN 48"), effective January 1, 2007. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in financial statements
and requires the benefit of a tax position to be recognized in the financial
statements if that position is more likely than not of being sustained by the
taxing authority. FIN 48 was applied to all open tax years as of the date of
7
INNER SYSTEMS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
________________________________________________________________________________
NOTE 3 - Summary of Significant Accounting Principles, continued
-------------------------------------------------------
effectiveness. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. There were no unrecognized tax benefits as of January 1, 2009. The
Company has identified its federal tax return and its state tax return in New
York as "major" tax jurisdictions, as defined in FIN 48. Based on the Company's
evaluation, it has concluded that there are no significant uncertain tax
positions requiring recognition in the Company's financial statements. The
Company's evaluation was performed for tax years ended 2004 through 2008, the
only periods subject to examination. The Company believes that its income tax
positions and deductions will be sustained upon audit and does not anticipate
any adjustments that will result in a material change to its financial position.
In addition, the Company did not record a cumulative effect adjustment related
to the adoption of FIN 48. The Company has elected to classify interest and
penalties incurred on income taxes, if any, as income tax expense. No interest
or penalties on income taxes have been recorded during the three months ended
March 31, 2009 or any prior period. The Company does not expect its unrecognized
tax benefit position to change during the next twelve months. Management is
currently unaware of any issues under review that could result in significant
payments, accruals or material deviations from its position. The adoption of FIN
48 did not have a material effect on our financial position, results of
operations or cash flows.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standard Board issued SFAS No. 157
"Fair Value Measurement" that provides enhanced guidance for using fair value to
measure assets and liabilities. The standard applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value. The
standard does not expand the use of fair value in any new circumstances.
This Statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. Earlier application is encouraged, provided that the reporting entity has
not yet issued financial statements for that fiscal year, including financial
statements for an interim period within that fiscal year. Currently this
pronouncement has no effect on our financial statements.
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes--an
interpretation of FASB Statement No. 109 (FIN 48), which provides clarification
related to the process associated with accounting for uncertain tax positions
recognized in consolidated financial statements. FIN 48 prescribes a
more-likely-than-not threshold for financial statement recognition and
measurement of a tax position taken, or expected to be taken, in a tax return.
FIN 48 also provides guidance related to, among other things, classification,
accounting for interest and penalties associated with tax positions, and
disclosure requirements. Currently this pronouncement has no effect on our
financial statements.
8
INNER SYSTEMS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
________________________________________________________________________________
NOTE 3 - Summary of Significant Accounting Principles, continued
-------------------------------------------------------
FSP FAS 123(R)-5 was issued on October 10, 2006. The FSP provides that
instruments that were originally issued as employee compensation and then
modified, and that modification is made to the terms of the instrument solely to
reflect an equity restructuring that occurs when the holders are no longer
employees, then no change in the recognition or the measurement (due to a change
in classification) of those instruments will result if both of the following
conditions are met: (a). There is no increase in fair value of the award (or the
ratio of intrinsic value to the exercise price of the award is preserved, that
is, the holder is made whole), or the anti-dilution provision is not added to
the terms of the award in contemplation of an equity restructuring; and (b). All
holders of the same class of equity instruments (for example, stock options) are
treated in the same manner. The provisions in this FSP shall be applied in the
first reporting period beginning after the date the FSP is posted to the FASB
website. Currently, this pronouncement has no effect on our financial
statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159
permits entities to choose to measure, on an item-by-item basis, specified
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected are
required to be reported in earnings at each reporting date. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007, the provisions of
which are required to be applied prospectively. Currently this pronouncement has
no effect on our financial statements.
In December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141 (revised 2007),
Business Combinations, which replaces SFAS No 141. The statement retains the
purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is effective for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
adoption of SFAS 141 is not currently expected to have a material effect on the
Company's financial position, results of operations, or cash flows.
9
INNER SYSTEMS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
________________________________________________________________________________
NOTE 3 - Summary of Significant Accounting Principles, continued
-------------------------------------------------------
In December 2007, the FASB issued SFAS No. 160. "Noncontrolling Interests in
Consolidated Financial Statements-and Amendment of ARB No. 51." SFAS 160
establishes accounting and reporting standards pertaining to ownership interests
in subsidiaries held by parties other than the parent, the amount of net income
attributable to the parent and to the noncontrolling interest, changes in a
parent's ownership interest, and the valuation of any retained noncontrolling
equity investment when a subsidiary is deconsolidated. This statement also
establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS 160 is effective for fiscal years beginning on or after December
15, 2008. The adoption of SFAS 160 is not currently expected to have a material
effect on the Company's financial position, results of operations, or cash
flows.
In March 2008, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 161, Disclosures about Derivative Instruments and Hedging
Activities. The new standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity's financial
position, financial performance, and cash flows. It is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The company is currently evaluating
the impact of adopting SFAS. No. 161 on its financial statements.
Effective January 1, 2009, the Company adopted Financial Accounting Standards
Board's (FASB) Statement No. 160 (FAS 160), "Noncontrolling Interests in
Consolidated Financial Statements - an Amendment of ARB No. 51." FAS 160 changed
the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a component of
equity. FAS 160 required retrospective adoption of the presentation and
disclosure requirements for existing minority interests. All other requirements
of FAS 160 will be applied prospectively. The adoption of FAS 160 did not have a
material impact on the Corporation's financial statements.
NOTE 4 - 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; however, these Demand Promissory Notes
were exchanged for Senior Convertible Promissory Notes (the "Notes"), which are
convertible into shares of the Company's common stock. The Notes, which
10
INNER SYSTEMS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
________________________________________________________________________________
NOTE 4 - Notes Payable, continued
------------------------
represent $204,670 in the aggregate, continue to bear interest at the rate of 6%
per annum and are generally due at the earlier of December 31, 2009, or a Change
of Control Transaction (as defined below). 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
$130,175, will not be recognized until the contingency is resolved. At March 31,
2008, interest of $26,392 is accrued.
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.
In April 2009, the Company received an additional advance of $2,000. The Company
expects that these advances will be converted into notes on the same terms as
the existing notes.
NOTE 5 - Trading Cancellation of "Old Shares"
------------------------------------
In 2007, it came to the attention of management 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 our
public filings, these 3,198,948 shares of common stock, compromising the Old
Shares issued to the pre-petition shareholders, were cancelled when the Company
emerged form bankruptcy on August 9, 2000. Effective August 9, 2000, these Old
Shares had no value and should not have been trading. As a result, in June 2007,
the Company advised The Depositary Trust & Clearing Corporation and the CUSIP
Service Bureau that these shares were cancelled and should not be trading.
Management does not believe that the trading and cancellation of these shares
poses a contingent liability to the Company.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
We continue to finance the Company's operations through the issuance
and sale of the Notes. In addition, on April 9, 2009, we borrowed an additional
$2,000. These funds were utilized to satisfy accrued expenses and general
administrative expenses included in our Statement of Operations for the three
months ended March 31, 2009. We are seeking to acquire business entities that
will generate cash from operations.
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 fiscal year ending December 31, 2009, we anticipate incurring a
loss as a result of 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, we will not generate
revenues. We 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 fiscal year ending December 31, 2009, 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 our plans for the next year, it is anticipated that we
will require additional capital in order to meet our 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 our current cash reserves, we do not have adequate resources
to meet our 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. Notwithstanding the
foregoing, to the extent that additional funds are required, we anticipate
receiving such funds in the form of advancements from current stockholders
without issuance of additional shares or other securities, or through the
private placement of restricted securities rather than through a public
offering. As a result, these conditions raise substantial doubt about our
ability to continue as a going concern.
12
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
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. For example, unexpected changes in market conditions or a
downturn in the economy could adversely affect actual results. Estimates are
used in accounting for, among other things, legal liability and contingencies.
Estimates and assumptions are reviewed periodically and the effects of revisions
are reflected in the Financial Statements in the period they are determined to
be necessary.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable.
ITEM 4T. CONTROLS AND PROCEDURES
-----------------------
The Company's management, which is comprised solely of John M. Sharpe,
Jr., has carried out an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15(c) and 5d-15(c). Based upon that evaluation, our chief executive
officer and chief financial officer concluded that our disclosure controls and
procedures were not effective as of the end of the period covered by this
report. This material weakness is the result of the Company's complete
dependence upon John M. Sharpe, Jr., who acts as both chief executive officer
and chief financial officer, and the lack of staff with public accounting
experience.
Although this constitutes a material weakness in the Company's
financial reporting, management has decided that, in light of the Company's
financial situation and limited operations, the risks associated with the
dependence upon Mr. Sharpe as compared to the potential benefits of adding new
employees, does not justify the expenses that would need to be incurred to
remedy this situation. Management will periodically re-evaluate this situation.
If the situation changes and/or sufficient capital is obtained, it is the
Company's intention to increase staffing to mitigate the current dependence upon
Mr. Sharpe and limited experience with public accounting.
CHANGES IN CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal controls over financial
reporting or other factors which has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Not applicable.
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
regarding the risks and uncertainties related to the company's business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
-----------------------------------------------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION
-----------------
In June 2007, it came to the attention of management 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 our 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.
As a result, in June 2007, the Company advised The Depository Trust & Clearing
Corporation and the CUSIP Service Bureau that these shares were cancelled and
should not be trading. We obtained a new CUSIP number, or identification number,
for the 1,000,000 shares issued to the holders of various claims pursuant to our
Plan of Reorganization and the Order of the Bankruptcy Court approving the Plan
of Reorganization and these shares began trading under the symbol "INSY" on May
12, 2008. Management does not believe that the trading and cancellation of these
shares poses a contingent liability to the Company.
ITEM 6. EXHIBITS
--------
31 Certification of CEO and CFO Pursuant to Section 302 of the
Sarbanes Oxley Act of 2002
32 Certification of CEO and CFO Pursuant to Section 906 of the
Sarbanes Oxley Act of 2002
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INNER SYSTEMS, INC.
Date: May 14, 2008 By: /s/ John M. Sharpe, Jr.
-----------------------
John M. Sharpe, Jr., President
15