UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarter ended March 31, 2014 |
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OR |
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Commission file number 333-152012
Incoming, Inc.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
244 5th Avenue, Ste V235
New York, NY 10001
(Address of principal executive offices, including zip code.)
(800) 385-5705
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-Y (§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 [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.
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 Act). Yes [ ] No [X]
As of May 15, 2014, there are 29,274,332 shares of Class A common stock and 1,980,000 shares of Class B common stock outstanding.
All references in this Report on Form 10-Q to the terms “we”, “our”, “us”, the “Company”, “ICNN” and the “Registrant” refer to Incoming, Inc. unless the context indicates another meaning.
CONSOLIDATED BALANCE SHEETS
(unaudited)
| | | March 31, 2014 | | | December 31, 2013 | |
| | | | | | | |
| ASSETS | |
| Current Assets | | | | | | |
| Cash | | $ | 93,691 | | | $ | 91,920 | |
| Accounts receivable, trade | | | 1,074,202 | | | | 2,304,054 | |
| Accounts receivable, related parties | | | 232,182 | | | | 273,482 | |
| Inventory | | | 12,483 | | | | 13,083 | |
| Prepaid expenses | | | 516 | | | | 4,088 | |
| Other current assets | | | 700 | | | | 700 | |
| Total current assets | | | 1,413,774 | | | | 2,687,327 | |
| | | | | | | | | |
| Property and equipment, net | | | 682,247 | | | | 571,620 | |
| Construction in progress | | | - | | | | 92,881 | |
| Total Assets | | $ | 2,096,021 | | | $ | 3,351,828 | |
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| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | | 1,220,171 | | | | 2,519,127 | |
| Current maturities of long term debt | | | 60,889 | | | | 57,657 | |
| Accrued liabilities | | | 22,779 | | | | 25,120 | |
| Accounts payable – related parties | | | 274,916 | | | | 274,916 | |
| Total current liabilities | | | 1,578,755 | | | | 2,876,820 | |
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| Long-term debt | | | 321 | | | | 14,606 | |
| Total Liabilities | | | 1,579,076 | | | | 2,891,426 | |
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| Capital stock $.001 par value; 200,000,000 shares authorized | | | | | | | | |
| Class A – 29,274,332 shares issued and outstanding | | | 29,274 | | | | 29,274 | |
| Convertible Class B – 1,980,000 shares issued and outstanding | | | 1,980 | | | | 1,980 | |
| Additional paid in capital | | | 6,134,570 | | | | 6,134,570 | |
| Accumulated deficit | | | (5,648,879 | ) | | | (5,705,422 | ) |
| Total Stockholders’ Equity | | | 516,945 | | | | 460,402 | |
| Total Liabilities and Stockholders' Equity | | $ | 2,096,021 | | | $ | 3,351,828 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| | | Three months ended March 31, 2014 | | | Three months ended March 31, 2013 | |
| Revenue | | $ | 110,038 | | | $ | 31,009 | |
| Revenue from related parties | | | - | | | | 20,440 | |
| Total revenue | | | 110,038 | | | | 51,449 | |
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| Cost of revenue | | | 76,591 | | | | 126,515 | |
| Depreciation | | | 23,166 | | | | 26,114 | |
| Gross profit (loss) | | | 10,281 | | | | (101,180 | ) |
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| Selling, General, and Administrative Expenses | | | 31,992 | | | | 16,986 | |
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| Other income (expense) | | | | | | | | |
| Grant and other income | | | 78,991 | | | | 1,290 | |
| Interest expense | | | (737 | ) | | | (1,145 | ) |
| Total other income (expense) | | | 78,254 | | | | 145 | |
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| Net Income (Loss) | | $ | 56,543 | | | $ | (118,021 | ) |
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| Net Profit (Loss) per Class A Common Share (Basic and Diluted) | | $ | 0.00 | | | $ | (0.00 | ) |
| Net Profit (Loss) per Class B Common Share (Basic and Diluted) | | $ | 0.03 | | | $ | (0.06 | ) |
| Weighted Average Number of Class A Common Shares Outstanding (Basic and Diluted) | | | 29,274,332 | | | | 29,274,332 | |
| Weighted Average Number of Class B Common Shares Outstanding (Basic and Diluted) | | | 1,980,000 | | | | 1,980,000 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | | Three months ended March 31, 2014 | | | Three months ended March 31, 2013 | |
| Cash Flows from operating Activities | | | | | | |
| Net loss | | $ | 56,543 | | | $ | (118,021 | ) |
| Adjustments to reconcile net loss | | | | | | | | |
| to net cash provided by operations: | | | | | | | | |
| Depreciation | | | 23,166 | | | | 26,114 | |
| Changes in operating assets and liabilities | | | | | | | | |
| Accounts receivable | | | 1,229,852 | | | | 14,048 | |
| Accounts receivable – related party | | | 41,300 | | | | 44,001 | |
| Prepaid expenses | | | 3,572 | | | | 4,904 | |
| Inventory | | | 600 | | | | 22,633 | |
| Other current assets | | | - | | | | (600 | ) |
| Accounts payable | | | (1,298,955 | ) | | | 32,479 | |
| Accounts payable – related party | | | - | | | | (7,650 | ) |
| Accrued expenses | | | (2,341 | ) | | | 65 | |
| Net cash provided by operating activities | | | 53,737 | | | | 17,973 | |
| Cash flows from investing activities | | | | | | | | |
| Purchase of fixed assets | | | (40,912 | ) | | | (6,200 | ) |
| Net cash used in investing activities | | | (40,912 | ) | | | (6,200 | ) |
| Cash flows from financing activities | | | | | | | | |
| Principal payments on debt | | | (11,054 | ) | | | (9,363 | ) |
| Net cash used in financing activities | | | (11,054 | ) | | | (9,363 | ) |
| Net cash increase for period | | | 1,771 | | | | 2,410 | |
| Cash at beginning of period | | | 91,920 | | | | 2,348 | |
| Cash at end of period | | $ | 93,691 | | | $ | 4,758 | |
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| Supplemental disclosure of cash flow information | | | | | | | | |
| Cash paid for interest | | $ | 737 | | | | 1,145 | |
| Cash paid for income taxes | | | - | | | | - | |
| Non-cash investing and financing activities: | | | | | | | | |
| Construction in process transferred to property and equipment | | | 131,081 | | | | - | |
| Write-off of fully depreciated assets | | | 5,339 | | | | | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 Basis of Presentation, Organization, and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed unaudited financial statements of Incoming, Inc., a Nevada corporation, are condensed and, therefore, do not include all disclosures normally required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the Company's most recent annual financial statements for the year ended December 31, 2013 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on April 15, 2014. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying condensed financial statements and consist of only normal recurring adjustments. The results of operations presented in the accompanying condensed financial statements for the period ended March 31, 2014 are not necessarily indicative of the operating results that may be expected for the full year ending December 31, 2014.
Organization
Through our wholly-owned subsidiary North American Bio-Energies LLC (“NABE”), we operate in the alternative energy industry in the development and acquisition of commercial grade biodiesel facilities and the distribution and marketing of petroleum and biofuel products.
Note 2 Related Party Transactions
NABE sells a portion of its finished goods to Echols Oil Company, a company owned by our CEO, R. Samuel Bell, Jr. During the three months ended March 31, 2014, there were no sales to the related company. As of March 31, 2014, the Company had outstanding receivables from the related party company of $232,182. As of March 31, 2014, the Company had no outstanding payables to Echols, but did have $274,916 in related party payables to Green Valley Bio-Fuels.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE RESULTS OF OUR OPERATIONS AND FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
This section of the report includes a number of forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: "believe," "expect," "estimate," "anticipate," "intend," "project" and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this annual report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
The following discussion provides an analysis of the results of our operations, an overview of our liquidity and capital resources and other items related to our business. The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited financial statements and notes included in our Annual Report on Form 10-K as of and for the year ended December 31, 2013.
Overview
Company references herein are referring to consolidated information pertaining to Incoming, Inc., the registrant.
The following discussion is an overview of the important factors that management focuses on in evaluating our businesses, financial condition and operating performance and should be read in conjunction with the financial statements included in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward looking statements as a result of any number of factors, including those set forth in this Quarterly Report and elsewhere in the Company’s Annual Report on Form 10-K and other public filings.
All written and oral forward-looking statements made in connection with this Quarterly Report on Form 10-Q that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.
Company Overview
NABE is a refiner and producer of commercial-grade biodiesel as specified by the American Society of Testing and Materials (ASTM D6751). Our refining and production facility is located in Lenoir, North Carolina with a nameplate annual capacity of five million gallons. Our facility produces biodiesel from virgin, agri-based feedstock using commercial specifications. The biodiesel we produce is sold throughout North Carolina, South Carolina and Virginia directly or through wholesale distributors. Currently, we are engaged in producing biodiesel and strategically purchasing biodiesel from other producers to meet commercial requirements. We also purify and sell glycerin, which is created as a byproduct of the biodiesel production process. Once the facility has accumulated sufficient glycerin to make full loads, it is typically sold to the market.
Our production process starts with purchasing the most cost effective and suitable agri-based feedstock (e.g., soy, canola, sunflower, cotton seed and chicken/pork fat). A sample of every feedstock is tested by our in-house laboratory in order to develop the proper recipe of catalysts for the transesterification process. The glycerin byproduct is then separated from the biodiesel and any excess methanol is recovered. Recovered methanol is either sold or reused in the production process. Glycerin is sold on the open market as either a crude product or as a further-processed tech grade product. While biodiesel is our main product, glycerin is a popular chemical used in pharmaceutical and hygiene applications and serves as an additional source of revenue.
Our facility is capable of producing biodiesel from a wide range of agri-based feedstocks: soy, canola, sunflower, cotton seed and chicken/pork fat. Biodiesel production costs are highly dependent on the cost of feedstock, and we believe the ability to utilize a variety of feedstocks efficiently and interchangeably is imperative to gaining a competitive advantage in the biodiesel production market.
Results of Operations
The following is a discussion and analysis of our results of operations for the three-month period ended March 31, 2014, and the factors that could affect our future financial condition. This discussion and analysis should be read in conjunction with our financial statements and the notes thereto included elsewhere in this report. Our financial statements are prepared in accordance with United States generally accepted accounting principles. All references to dollar amounts in this section are in United States dollars unless expressly stated otherwise.
Revenue and Revenue From Related Parties
The Company generated revenues of $110,038 during the period January 1, 2014 through March 31, 2014. Revenue generated during the period was due to sales of imported biodiesel with RINs, glycerin, and materials recovered during glycerin purification processing. During the first quarter, our sales on imported biodiesel to third parties totaled $96,443. We had no sales to related parties during the first quarter. During the glycerin purification process, acid is added to the crude glycerin. As a result, high fatty acid oil separates from the glycerin and yields another commodity, high fatty acid oil. Sales of the high fatty acid oil totaled $10,660 for the period under consideration. De-methylated glycerin sales totaled $2,935 during the first quarter of 2014.
The Company generated revenues of $51,449 during the period January 1, 2013 through March 31, 2013. Revenue generated during the period was due to sales of biodiesel, glycerin, and oils recovered during glycerin purification processing. During the period January 1, 2013 through March 31, 2013, our blended biodiesel sales to third parties totaled approximately $9,734 and our sales to related parties amounted to $20,440. There were no sales of RINs during the first quarter of 2013. For the period under consideration, de-methylated glycerin sales amounted to $9,435. During the glycerin purification process, acid is added to the crude glycerin. As a result, high fatty acid oil separates from the glycerin and yields another commodity. Sales of the high fatty acid oil totaled $11,886 for the period under consideration.
Comparing the Company’s activity for the period January 1, 2014 through March 31, 2014 to the activity for the period January 1, 2013 through March 31, 2013, there was an increase in revenue of $58,589 from $51,449 to $110,038. The period-over-period increase was due primarily to the Company’s imported biodiesel sales. During the prior year, NABE’s EPA registration was enhanced to allow generation of RINs on imported biodiesel. Revenue on import sales was specifically recognized on a net basis, the result of which resulted in NABE earning $0.05 per gallon of biodiesel imported. RINs transferred during the quarter were included with the material sold under the importing category. As a result, there were no direct RIN sales during the first quarter of 2014. The Company had no RIN sales during the same period in 2013. Also impacting comparative revenues were sales of high fatty acid oil and glycerin. The Company had high fatty acid oil sales of $10,660 during the first quarter of 2014 while sales of high fatty acid oil totaled $11,886 during the same period in 2013. The Company had glycerin (methylated and demethylated) sales of $2,935 during the first quarter of 2013, while glycerin sales were $9,435 during the same period in 2013.
Cost of Revenue
Cost of revenue totaled $76,591 during the period January 1, 2014 through March 31, 2014. For the same period, cost of revenue consisted of costs associated with labor, overhead, and utilities.
Cost of revenue totaled $126,515 during the period January 1, 2013 through March 31, 2013. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, catalyst, and acid) purchases, labor, overhead, and utilities.
Comparing the Company’s activity for the period January 1, 2014 through March 31, 2014 to the activity for the period January 1, 2013 through March 31, 2013, there was a decrease in cost of revenues of $49,924 as the cost of revenues dropped from $126,515 to $76,591. The period-over-period decrease was due in large part to method of recognizing cost of sales on imported biodiesel. Our presentation of revenue is on a net basis, which means the cost of sales on imported material is zero since the Company earns a net $0.05 per gallon of biodiesel imported. During the current quarter, the Company recognized an offset to the cost of goods sold totaling $39,211 as a result of filing for the blender tax credit associated with blended gallons.
Gross Profit
Gross profit for the Company was $10,281 for the period January 1, 2014 through March 31, 2014. The primary reason for the gross profit during the period was the sale of imported biodiesel and the associated RINs.
Gross profit for the Company was a loss of $101,180 for the period January 1, 2013 through March 31, 2013. The primary reason for the gross loss during the period was reduced demand for biodiesel from smaller producers while the EPA continues to develop quality assurance program options for alleviating distress caused by the fraudulent actions of the other parties during the last quarter of 2011.
Selling, General and Administrative (SG&A) Expenses
SG&A expenses totaled $31,992 for the period January 1, 2014 through March 31, 2014. During the period under consideration, SG&A expenses primarily consisted of costs associated with payroll, office overhead and professional fees.
SG&A expenses totaled $16,986 for the period January 1, 2013 through March 31, 2013. During the period under consideration, SG&A expenses primarily consisted of costs associated with payroll, office overhead, and professional fees.
Comparing the Company’s activity for the period January 1, 2014 through March 31, 2014 to the activity for the period January 1, 2013 through March 31, 2013, there was an increase in SG&A expenses of $15,006 as SG&A rose from $16,986 to $31,992. The period-over-period increase was due primarily to professional fees associated with operating a publicly traded company. General overhead remained stable considering the second quarter of the current year compared with the second quarter of the prior year.
Other Income (Expense)
Other Income totaled $78,991 during the period January 1, 2014 through March 31, 2014. This amount was solely attributable to funding received from the USDA Biofuel Program during the first quarter of 2014.
Other Income totaled $1,290 during the period from January 1, 2013 through March 31, 2013. The primary reasons for the balance were $490 in funding from the USDA Biofuel Program and $800 recognized for the sale of old totes that had previously been impaired.
Net Income (Loss)
The Company had net income of $56,543 for the period January 1, 2014 through March 31, 2014.
The Company had a net loss of $118,021 for the period January 1, 2013 through March 31, 2013.
Liquidity and Capital Resources
Working Capital
| | | As of March 31, 2014 | | | As of December 31, 2013 | |
| Current Assets | | $ | 1,413,774 | | | $ | 2,687,327 | |
| Current Liabilities | | $ | 1,578,755 | | | $ | 2,876,820 | |
| Working Capital Deficiency | | $ | (164,981 | ) | | $ | (189,493 | ) |
| Accumulated Deficit | | $ | (5,648,879 | ) | | $ | (5,705,422 | ) |
Cash Flows
| | | Three Months Ended March 31, 2014 | | | Three Months Ended March 31, 2013 | |
| Cash provided by operating activities | | $ | 53,737 | | | $ | 17,973 | |
| Cash used in investing activities | | | (40,912 | ) | | | (6,200 | ) |
| Cash used in financing activities | | | (11,054 | ) | | | (9,363 | ) |
| Net increase (decrease) in cash | | $ | 1,771 | | | $ | 2,410 | |
As of March 31, 2014, our current assets totaling $1,413,774 consisted of cash, accounts receivable, inventory, other current assets and prepaid expenses. Our accounts payable and accrued liabilities and current portion of amounts due to related parties and third parties were $1,578,755 as of March 31, 2014. As a result, we had a working capital deficiency of $164,981.
Current assets for the Company totaled $2,687,327 as of December 31, 2013. Current liabilities for the Company totaled $2,876,820 as of December 31, 2013, which resulted in a working capital deficiency of $189,493.
Comparing the working capital deficiency at March 31, 2014 to the deficiency at December 31, 2013, there was a decrease of $24,512 as the deficiency decreased from $189,493 to $164,981. The biggest contributor to the overall decrease was the Company’s activities associated with sales of imported biodiesel.
On a short-term basis, it is anticipated that the Company’s liquidity needs will be met through selling biodiesel and RIN-gallons, through borrowing from related parties and through the sale of common stock. Considering the long-term view, the Company intends to provide liquidity through operation of its biodiesel plant in Lenoir, North Carolina and through its import activities.
To date, cash flow requirements have been primarily met through sales of biodiesel related products, through collections of accounts receivable, through share issuances, and through gross proceeds from bank and related party loans. For the three months ended March 31, 2014, the Company generated a gross profit of $10,281 on sales of $110,038 over the same period. For the three months ended March 31, 2013, the Company generated a gross loss of $101,180 on sales of $51,449 over the same period.
As of March 31, 2014, NABE had outstanding balances on bank borrowings of $61,020, which originally totaled $250,000 when the loan was first executed. The loan represents a term loan that resulted from the conversion of a line of credit. An additional balance of $189 was outstanding as of March 31, 2014, which represented financing of NABE’s general liability insurance.
A portion of the Company’s operations have been funded through the issuance of stock shares. As of March 31, 2014, the Company has issued 31,254,332 shares of capital stock (29,274,332 shares of Class A stock and 1,980,000 shares of Class B stock).
To date, our cash flow requirements have been primarily met by equity financings and from operating the Company's biodiesel production facility in Lenoir, NC. Management expects to keep operational costs to a minimum until cash is available through financing or operating activities. Management plans to continue to seek other sources of financing on favorable terms; however, there are no assurances that any such financing can be obtained on favorable terms, if at all.
Cash Provided By Operating Activities
During the period January 1, 2014 through March 31, 2014, the Company’s cash provided by operating activities totaled $53,737. For the same period, the Company’s cash provided by operating activities was primarily attributable to the net effect of importing activities, collecting trade receivables associated with biodiesel and RIN sales, and making payments on trade payables. Trade receivables decreased $1,229,852 while inventories decreased $600. Trade payables decreased $1,298,955 for the same period. Depreciation expense was $23,166 for the first quarter of 2014.
During the period January 1, 2013 through March 31, 2013, the Company’s cash provided by operating activities totaled $17,973. For the same period, the Company’s cash provided by operating activities was primarily attributable to the net effect of making credit sales and collecting trade receivables associated with biodiesel and RIN sales. Trade receivables decreased $58,049 while inventories decreased $22,633. Payables increased by $24,829 for the same period.
Cash Used In Investing Activities
During the period January 1, 2014 through March 31, 2014, the Company’s cash used in investing activities totaled $40,912. This amount represents billings for biodiesel processing and filtration equipment that was installed at the production facility in Lenoir, North Carolina. Portions of the newly installed equipment had been captured in Construction in Progress (CIP) at December 31, 2013. All of the equipment has been transferred out of CIP and into fixed assets as the system is currently going through production testing.
During the period January 1, 2013 through March 31, 2013, the Company’s cash used in investing activities totaled $6,200. This amount represents billings for two horizontal storage tanks that NABE purchased from the neighboring Google facility. These tanks have been mobilized on-site, but have yet to be placed in service and are reflected in the Construction in Process line item.
Cash Used In Financing Activities
During the period January 1, 2013 through March 31, 2014, the Company’s cash used in financing activities totaled $11,054. This amount represents payments on long-term debt to third-party creditors.
During the period January 1, 2013 through March 31, 2013, the Company’s cash used in financing activities totaled $9,363. This amount represents payments on long-term debt to third-party creditors.
We anticipate that additional funding will be required in the form of equity financing from the sale of our common stock in order to proceed with our acquisition and expansion plan. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our marketing and acquisition plans. At this time, we do not have any arrangements in place for any future equity financing.
Off-Balance Sheet Arrangements
We have no significant 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 are material to stockholders.
Recent Accounting Pronouncements
Management does not expect any financial statement impact from any recently-issued pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
| (a) | Evaluation of Disclosure Controls and Procedures |
As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) of our disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the CEO concluded that our disclosure controls and procedures were not effective as of March 31, 2014. We have identified the following material weaknesses in our internal control over financial reporting:
Lack of Independent Board of Directors and Audit Committee
Management is aware that an audit committee composed of the requisite number of independent members along with a qualified financial expert has not yet been established. Considering the costs associated with procuring and providing the infrastructure to support an independent audit committee and the limited number of transactions, management has concluded that the risks associated with the lack of an independent audit committee are not sufficient to justify the creation of such a committee at this time. Management will periodically reevaluate this situation.
Deficiencies in Our Control Environment.
Our control environment did not sufficiently promote effective internal control over financial reporting throughout the organization. This material weakness exists because of the aggregate effect of multiple deficiencies in internal control which affect our control environment, including: a) the lack of an effective risk assessment process for the identification of fraud risks; b) the lack of an internal audit function or other effective mechanism for ongoing monitoring of the effectiveness of internal controls; c) deficiencies in our accounting system and controls; d) and insufficient documentation and communication of our accounting policies and procedures as of March 31, 2014.
Deficiencies in the staffing of our financial accounting department.
The number of qualified accounting personnel with experience in public company SEC reporting and GAAP is limited. This weakness does not enable us to maintain adequate controls over our financial accounting and reporting processes regarding the accounting for non-routine and non-systematic transactions. There is a risk that a material misstatement of the financial statements could be caused, or at least not be detected in a timely manner, by this shortage of qualified resources.
Deficiencies in Segregation of Duties.
The limited number of qualified accounting personnel results in an inability to have independent review and approval of financial accounting entries. Furthermore, management and financial accounting personnel have wide-spread access to create and post entries in our financial accounting system. There is a risk that a material misstatement of the financial statements could be caused, or at least not be detected in a timely manner, due to insufficient segregation of duties.
Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our financial accounting staff is actively attending and receiving training. Management is still determining additional measures to remediate deficiencies related to staffing.
| (b) | Changes in Internal Controls Over Financial Reporting |
There were no changes that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Currently we are not involved in any pending litigation or legal proceeding.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. OTHER INFORMATION
None.
ITEM 5. EXHIBITS
The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:
| Exhibit No. | Description |
| 3.1 | Articles of Incorporation (1) |
| 3.2 | Bylaws (1) |
| 31.1 | Section 302 Certification of CEO* |
| 31.2 | Section 302 Certification of Principal Financial Officer * |
| 32.1 | Section 906 Certification of CEO* |
| 32.2 | Section 906 Certification of Principal Financial Officer* |
*filed herewith
(1) Incorporated by reference to the Form S-1 registration statement filed on June 30, 2008.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
May 20, 2014
By:
INCOMING, INC.
/s/ R. Samuel Bell, Jr.
R. Samuel Bell, Jr., CEO and Chairman, Board of Directors
/s/ Eric Norris
Vice President, Finance (Principal Financial Officer)
