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 September 30, 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 November 10, 2009, is 1,000,000.
TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS .................................. 1
ITEM 2. MANAGEMENT'S DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION . 9
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .... 12
ITEM 4A(T). CONTROLS AND PROCEDURES ....................................... 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ............................................. 13
ITEM 1A RISK FACTORS .................................................. 13
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES ....................... 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........... 13
ITEM 5. OTHER INFORMATION ............................................. 13
ITEM 6. EXHIBITS ...................................................... 13
SIGNATURES ................................................................. 14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INNER SYSTEMS, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(unaudited)
________________________________________________________________________________
ASSETS
------
September 30, December 31,
2009 2008
------------- ------------
CURRENT ASSETS
- --------------
Cash ........................................ $ 3,603 $ 2,705
--------- ---------
TOTAL ASSETS ................................... $ 3,603 $ 2,705
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
- -------------------
Accrued interest and other expenses ......... $ 53,919 $ 46,080
Notes payable ............................... 217,670 201,170
--------- ---------
TOTAL LIABILITIES ........................ 271,589 247,250
--------- ---------
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 (277,986) (254,545)
--------- ---------
TOTAL STOCKHOLDERS' DEFICIENCY ........... (267,986) (244,545)
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY ................ $ 3,603 $ 2,705
========= =========
See notes to unaudited condensed financial statements.
1
INNER SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
____________________________________________________________________________________________________
Cumulative
from
August 9,
Three Months Ended Nine Months Ended 2000
Sept 30, Sept 30, (Inception)
-------------------------- -------------------------- to Sept 30,
2009 2008 2009 2008 2009
----------- ----------- ----------- ----------- -----------
NET SALES ............... $ - $ - $ - $ - $ -
GENERAL AND
ADMINISTRATIVE
EXPENSES .............. 3,469 5,995 14,112 28,726 225,285
INTEREST EXPENSE ........ 3,171 2,889 9,329 8,164 42,701
IMPAIRMENT OF
REORGANIZATION
VALUE ................. - - - - 10,000
----------- ----------- ----------- ----------- -----------
NET LOSS ........... $ (6,640) $ (8,884) $ (23,441) $ (36,890) $ (277,986)
=========== =========== =========== =========== ===========
PER SHARE INFORMATION
Basic and diluted, net
loss per share ........ $ (.01) $ (.01) $ (.02) $ (.04)
=========== =========== =========== ===========
Basic and diluted,
weighted average shares
outstanding ........... 1,000,000 1,000,000 1,000,000 1,000,000
=========== =========== =========== ===========
See notes to unaudited condensed financial statements.
2
INNER SYSTEMS, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
______________________________________________________________________________________
Cumulative from
Nine Months Ended August 9, 2000
September 30, (Inception)
---------------------- through Sept 30,
2009 2008 2009
--------- --------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................ $ (23,441) $ (36,890) $(277,986)
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 . 7,839 8,975 53,919
--------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES (15,602) (27,915) (214,067)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES .... -- -- --
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Notes Payable ............. 16,500 28,500 217,670
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH ....... 898 585 3,603
CASH - Beginning ........................ 2,705 2,375 --
--------- --------- ---------
CASH - Ending ........................... $ 3,603 $ 2,960 $ 3,603
========= ========= =========
See notes to unaudited condensed financial statements
3
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 corporation, 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 August 1, 2009
the Company had not identified any such targets.
The Company has not commenced principal operations as of September 30, 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
September 30, 2009 the Company has raised $217,670 from debt financing (Note 4).
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
September 30, 2009 and for all periods presented. All such adjustments are of a
normal recurring nature. The results of operations for the three months and nine
months ended September 30, 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.
4
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 September 30, 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
5
INNER SYSTEMS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
________________________________________________________________________________
NOTE 3 - Summary of Significant Accounting Principles, continued
-------------------------------------------------------
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
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 September 30, 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
September 30, 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
FASB Accounting Standards Codification
(Accounting Standards Update ("ASU") 2009-01)
In June 2009, FASB approved the FASB Accounting Standards Codification ("the
Codification") as the single source of authoritative nongovernmental GAAP. All
existing accounting standard documents, such as FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force and other related
literature, excluding guidance from the SEC, have been superseded by the
Codification. All other non-grandfathered, non-SEC accounting literature not
included in the Codification has become nonauthoritative. The Codification did
not change GAAP, but instead introduced a new structure that combines all
authoritative standards into a comprehensive, topically organized online
database. The Codification is effective for interim or annual periods ending
after September 15, 2009, and impacts the Company's financial statements as all
future references to authoritative accounting literature will be referenced in
accordance with the Codification. There have been no changes to the content of
the Company's financial statements or disclosures as a result of implementing
the Codification during the quarter ended October 6, 2009.
6
INNER SYSTEMS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
________________________________________________________________________________
NOTE 3 - Summary of Significant Accounting Principles, continued
-------------------------------------------------------
As a result of the Company's implementation of the Codification during the
quarter ended October 6, 2009, previous references to new accounting standards
and literature are no longer applicable. In the current quarter financial
statements, the Company will provide reference to both new and old guidance to
assist in understanding the impacts of recently adopted accounting literature,
particularly for guidance adopted since the beginning of the current fiscal year
but prior to the Codification.
Subsequent Events
(Included in ASC 855 "Subsequent Events", previously SFAS No. 165 "Subsequent
Events")
ASC 855 established general standards of accounting for and disclosure of events
that occur after the balance sheet date, but before the financial statements are
issued or available to be issued ("subsequent events"). An entity is required to
disclose the date through which subsequent events have been evaluated and the
basis for that date. For public entities, this is the date the financial
statements are issued. ASC 855 does not apply to subsequent events or
transactions that are within the scope of other GAAP and did not result in
significant changes in the subsequent events reported by the Company. ASC 855
became effective for interim or annual periods ending after June 15, 2009 and
did not impact the Company's consolidated financial statements. The Company
evaluated for subsequent events through November 12, 2009, the issuance date of
the Company'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
represent $217,670 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
7
INNER SYSTEMS, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
________________________________________________________________________________
NOTE 4 - Notes Payable, continued
------------------------
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 September
30, 2009, interest of $42,271 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.
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.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This discussion contains forward-looking statements. The reader should
understand that several factors govern whether any forward-looking statement
contained herein will be or can be achieved. Any one of those factors could
cause actual results to differ materially from those projected herein. These
forward-looking statements include plans and objectives of management for future
operations, including plans and objectives relating to the products and the
future economic performance of the company. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, future business decisions, and the
time and money required to successfully complete development projects, all of
which are difficult or impossible to predict accurately and many of which are
beyond the control of the company. Although the company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of those assumptions could prove inaccurate and, therefore,
there can be no assurance that the results contemplated in any of the
forward-looking statements contained herein will be realized. Based on actual
experience and business development, the company may alter its marketing,
capital expenditure plans or other budgets, which may in turn affect the
company's results of operations. In light of the significant uncertainties
inherent in the forward-looking statements included therein, the inclusion of
any such statement should not be regarded as a representation by the company or
any other person that the objectives or plans of the company will be achieved.
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.
9
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2009 COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
2008.
The following table summarizes the results of our operations during the quarter
ended September 30, 2009 compared to the quarter ended September 30, 2008.
SEPTEMBER 30, SEPTEMBER 30,
2009 2008
------------- -------------
Revenues ......................... -- --
Cost of Services ................. - -
General and Administrative Expense 3,469 5,995
Interest expense ................. 3,171 2,889
Net income (loss) ................ (6,640) (8,884)
Earnings (Loss) per common share . (.01) (.01)
We had no revenues in either the quarter ended September 30, 2009 or September
30, 2008.
General and administrative expenses were $3,469 in the quarter ended September
30, 2009, which primarily comprised costs associated with securities law
compliance.
During the quarter ended September 30, 2009 we incurred a net loss of $(6.640).
Loss per common share for the quarter ended September 30, 2009 was $(0.01).
NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2008.
The following table summarizes the results of our operations during the nine
months ended September 30, 2009 compared to the quarter ended September 30,
2008.
SEPTEMBER 30, SEPTEMBER 30,
2009 2008
------------- -------------
Revenues ......................... -- --
Cost of Services ................. - -
General and Administrative Expense 14,112 28,726
Interest expense ................. 9,329 8,164
Net income (loss) ................ (23,441) (36,890)
Earnings (Loss) per common share . (.02) (.04)
We had no revenues in either the nine months ended September 30, 2009 or
September 30, 2008.
General and administrative expenses were $14,112 during the nine months ended
September 30, 2009, which primarily comprised costs associated with securities
law compliance.
During the nine months ended September 30, 2009 we incurred a net loss of
$(23,441). Loss per common share for the nine months ended September 30, 2009
was $(0.02).
10
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations
is based upon our financial statements which have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets and liabilities. Currently,
our only estimate is that of depreciation expense. We base our estimates on
historical experience and on other assumptions that we believes to be reasonable
under the circumstances, the results of which form our basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
GOING CONCERN
Our independent auditors have added an explanatory paragraph to their audit
issued in connection with the financial statements for the period ended December
31, 2008, relative to our ability to continue as a going concern. This means
that there is substantial doubt that we can continue as an ongoing business for
the next 12 months. The financial statements do not include any adjustments that
might result from the uncertainty about our ability to continue our business.
Because our auditors have issued a going concern opinion, there is substantial
uncertainty we will continue operations in which case you could lose your
investment. Because our auditors have issued a going concern opinion, there is
substantial uncertainty we will continue operations. We will need to raise
additional investment capital to fund our operations beyond that date and until
we can operate on a cash flow positive basis. There is no guarantee that we will
be able to obtain such additional funding or that any funding will be offered on
terms and conditions which are acceptable to us.
FAIR VALUES OF FINANCIAL INSTRUMENTS
At September 30, 2009, fair values of cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses and notes payable approximate
their carrying amount due to the short period of time to maturity.
PROPERTY AND EQUIPMENT
We record property and equipment at cost and calculate depreciation using the
straight-line method over the estimated useful life of the assets, which is
estimated to be three years. Expenditures for maintenance and repairs, which do
not improve or extend the expected useful life of the assets, are expensed to
operations while major repairs are capitalized. The gain or loss on disposal of
property, plant and equipment is the difference between the net sales proceeds
and the carrying amount of the relevant assets, and, if any, is recognized in
the statements of operations.
STOCK-BASED COMPENSATION
As of January 1, 2006, SFAS No. 123R, Share-Based Payment, became effective for
all companies and addresses the accounting for share-based payment transactions.
SFAS No. 123R eliminates the ability to account for share-based compensation
transactions using APB No. 25, and generally requires instead that such
transactions be accounted and recognized in the statement of operations based on
their fair value. We have never implemented a stock option plan nor have we ever
issued stock in lieu of compensation to anyone. As such, this pronouncement has
no impact on these financial statements but its provisions will apply to the
extent we engage in such activities in the future.
11
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2009, we had $3,603 cash, a working capital deficit of
$267,986 and an accumulated deficit of $277,986 through September 30, 2009. Our
operating activities used $5,206 in cash for the quarter period ended September
30, 2009.
Management believes that the Company will require a significant cash infusion
over the next twelve months. Historically, we have depended on loans from third
parties and their affiliated companies to provide us with working capital as
required. There is no guarantee that such funding will be available when
required and there can be no assurance that these parties, or any of them, will
continue making loans or advances to us in the future.
LOANS PAYABLE
As of September 30, 2009, certain debenture holders of the Company have provided
loans to the Company for operating purposes. Such loans aggregated $217,670 at
September 30, 2009. These loans are evidenced by Senior Convertible Promissory
Notes bearing interest at the rate of 6% per annum which are convertible into
shares of the Company's common stock.
LONG-TERM DEBT
None.
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,
capital expenditures or capital resources that is material to investors.
SEASONALITY
Our operating results are not affected by seasonality.
INFLATION
Our business and operating results are not affected in any material way by
inflation.
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.
12
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.
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
-----------------
None
ITEM 6. EXHIBITS
--------
31.1 Certification of CEO and CFO Pursuant to Section 302 of the
Sarbanes Oxley Act of 2002
32.1 Certification of CEO and CFO Pursuant to Section 906 of the
Sarbanes Oxley Act of 2002
13
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: November 13, 2009 By: /s/ John M. Sharpe, Jr.
---------------------------
John M. Sharpe, Jr., President
14