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ICNN > SEC Filings for ICNN > Form 10-Q/A on 9-Nov-2012All Recent SEC Filings

Show all filings for INCOMING, INC.

Form 10-Q/A for INCOMING, INC.


9-Nov-2012

Quarterly Report


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, 2011.

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.

Going Concern

The financial statements presented in this document have been prepared on a going-concern basis. As of June 30, 2012, the Company had a working capital deficiency of $241,205, and had an accumulated deficit of $5,686,817, since inception. Its ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted with any certainty at this time. These factors raise substantial doubt that the Company will be able to continue as a going concern. The Company has funded its initial operations through the issuance of capital stock and loans from a former director and related parties. Management plans to continue to provide for the Company's capital needs through the issuance of common stock and through related party advances. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

We do not expect to generate sufficient revenue to sustain operation during the next twelve months. Consequently, we will continue to depend on additional financing in order to maintain our operations and continue with our corporate activities. Based on these uncertainties, our independent auditors included additional comments in their report on our financial statements as of and for the year ended December 31, 2011, indicating concerns about our ability to continue as a going concern.


Our financial statements contain additional note disclosures describing the circumstances that led to this disclosure by our independent auditors. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 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 then 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. The recovered methanol is reused in the production process and the glycerin is sold on the open market. 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.

Our goal is to become the leading diversified energy company with divisions in production, blending, marketing and distribution.

Results of Operations

The following is a discussion and analysis of our results of operations for the six-month period ended June 30, 2012, 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, RIN sales and Revenue From Related Parties The Company generated revenues of $191,400 during the period April 1, 2012 through June 30, 2012. Revenue generated during the period was due primarily to the sale of products (biodiesel, recovered methanol, and methylated glycerin) and to sales of RIN-gallons. RIN-gallons are EPA-regulated, market-traded commodities generated during biodiesel production. During the period April 1, 2012 through June 30, 2012, our blended biodiesel sales to third parties totaled approximately $36,865 and our sales to related parties amounted to $49,360. Sales of RINs to third parties totaled $105,175 during the second quarter of 2012. During the period under consideration, methylated glycerin sales totaled $3,747 while recovered methanol sales amounted to $2,116.


We generated $437,274 in revenues during the three months ended June 30, 2011. Revenue for the period was generated through biodiesel sales and through RIN sales. During the quarter, our biodiesel sales to third parties totaled approximately $247,825 and our sales to related parties amounted to $34,727. Sales of RINs to third parties totaled $154,722 for the quarter ended June 30, 2011. There were no sales of either glycerin or recovered methanol during the second quarter of 2011.

Comparing the Company's activity for the period April 1, 2012 through June 30, 2012 to the activity for the period April 1, 2011 through June 30, 2011, there was a decrease in revenue of $245,874 from $437,274 to $191,400. The period-over-period decrease was due primarily to reduced biodiesel sales in light of the expired biodiesel blenders' credit and to reduced RIN sales. Biodiesel sales experienced a decrease of approximately 55,200 gallons sold during the period April 1, 2012 through June 30, 2012 compared to the period April 1, 2011 through June 30, 2011. The market price for biodiesel decreased $0.15 per gallon on a comparative period-over-period basis. The Company had RIN sales of $105,175 during the period April 1, 2012 through June 30, 2012, but transacted $154,722 in RIN sales during the period April 1, 2011 through June 30, 2011. On an average unit price basis, the Company was able to sell RINs for $1.17 per RIN during the second quarter of 2012, but had been able to charge $1.30 per RIN during the same period in 2011. Offsetting the reduced biodiesel and RIN sales were sales of methylated glycerin and recovered methanol. The Company had methylated glycerin sales of $3,747 during the second quarter of 2012, but had no methylated glycerin sales during the same period in 2011. The Company had recovered methanol sales of $2,116 during the second quarter of 2012, but had no recovered methanol sales during the same period in 2011.

The Company generated revenues of $330,471 during the period January 1, 2012 through June 30, 2012. Revenue generated during the period was due primarily to the sale of products (biodiesel, recovered methanol, and methylated glycerin) and to sales of RIN-gallons. During the period January 1, 2012 through June 30, 2012, our biodiesel sales to third parties totaled approximately $156,476 and our sales to related parties amounted to $68,820. Sales of RINs to third parties totaled $105,175 during the first half of 2012. During the period under consideration, methylated glycerin sales totaled $5,101 while recovered methanol sales amounted to $2,116.

We generated $515,899 in revenues during the six months ended June 30, 2011. Revenue for the period was generated through biodiesel sales, through RIN sales, and through the sale of recovered methanol. During the six-month period, our biodiesel sales to third parties totaled approximately $251,852 and our sales to related parties amounted to $85,671. Sales of RINs to third parties totaled $178,376 for the six months ended June 30, 2011. Sales of recovered methanol amounted to $6,527 during the six months ended June 30, 2011. There were no sales of glycerin during the first six months of 2011.

Comparing the Company's activity for the six-month period ended June 30, 2012 to the activity for the six-month period ended June 30, 2011, there was a decrease in revenue of $185,428 from $515,899 to $330,471. The period-over-period decrease was due primarily to reduced biodiesel sales in light of the expired biodiesel blenders' credit and to reduced RIN sales. Biodiesel sales experienced a decrease of approximately 56,230 gallons sold during the period January 1, 2012 through June 30, 2012 compared to the period January 1, 2011 through June 30, 2011. The market price for biodiesel decreased $0.34 per gallon on a comparative period-over-period basis. The Company had RIN sales of $105,175 during the period January 1, 2012 through June 30, 2012, but transacted $178,376 in RIN sales during the period January 1, 2011 through June 30, 2011. On an average unit price basis, the Company was able to sell RINs for $1.17 per RIN during the first half of 2012, but had been able to charge $1.27 per RIN during the same period in 2011. Also impacting comparative revenues were sales of methylated glycerin and recovered methanol. The Company had methylated glycerin sales of $5,101 during the first half of 2012, but had no methylated glycerin sales during the same period in 2011. The Company had recovered methanol sales of $2,116 during the first half of 2012 while recovered methanol sales totaled $6,527 during the same period in 2011.


Cost of Revenue
Cost of revenue totaled $170,524 during the period April 1, 2012 through June 30, 2012. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, labor, overhead, and utilities.

Our cost of revenue was $298,855 during the three months ended June 30, 2011. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, direct labor and overhead costs. Offsetting the cost of revenue was the filing for tax credits available to biodiesel blenders and to biodiesel producers, which amounted to a total of $133,681 during the three months ended June 30, 2011.

Comparing the Company's activity for the period April 1, 2012 through June 30, 2012 to the activity for the period April 1, 2011 through June 30, 2011, there was a decrease in cost of revenues of $128,331 as the cost of revenues declined from $298,855 to $170,524. The period-over-period decrease was due in large part to expiration of the blender tax credit. Approximately 55,200 fewer gallons were sold during the second quarter of the current year when compared with the second quarter of the prior year. Overall cost of sales was reduced in line with declining sales, but the impact of the expired biodiesel blenders' tax credit was particularly noticeable. The Company recognized a reduction in cost of goods sold totaling $133,681 when filing for the blender and producer tax credits during the second quarter of the prior year. With no tax credit available in the current year, the Company was unable to file for any $1 per gallon credits on the gallons sold during the second quarter, which would have been approximately $27,000 if the credit had been extended.

Cost of revenue totaled $400,287 during the period January 1, 2012 through June 30, 2012. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, labor, overhead, and utilities.

The Company's cost of revenue was $376,701 during the six months ended June 30, 2011. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, direct labor and overhead costs. Offsetting the cost of revenue was the filing for tax credits available to biodiesel blenders and to biodiesel producers, which amounted to a total of $133,681 during the six months ended June 30, 2011.

Comparing the Company's activity for the six-month period ended June 30, 2012 to the activity for the six-month period ended June 30, 2011, there was an increase in cost of revenues of $23,586 as the cost of revenues rose from $376,701 to $400,287. The period-over-period increase was due in large part to expiration of the blender tax credit. Approximately 56,230 fewer gallons were sold during the first half of the current year when compared with the first half of the prior year. Overall cost of sales was reduced in line with declining sales, but the impact of the expired biodiesel blenders' tax credit was particularly noticeable. The Company recognized a reduction in cost of goods sold totaling $133,681 when filing for the blender and producer tax credits during the first six months of the prior year. With no tax credit available in the current year, the Company was unable to file for any $1 per gallon credits on the gallons sold during the first six months, which would have been approximately $45,300 if the credit had been extended.

Depreciation
Depreciation expense totaled $33,265 for the period April 1, 2012 through June 30, 2012.


Depreciation expense was $15,353 for the three months ended June 30, 2011.

Depreciation expense totaled $52,978 for the period January 1, 2012 through June 30, 2012.

Depreciation expense was $30,706 for the six months ended June 30, 2011.

Gross Profit
Gross profit for the Company was a loss of ($12,389) for the period April 1, 2012 through June 30, 2012. The primary reasons for the gross loss during the period were the average unit price reduction of $0.13 per RIN in RIN market value (compared with the same period in the prior year) and the loss of the federal blenders' tax credit, which directly impacted the price that the plant in Lenoir, North Carolina could charge for biodiesel.

Gross profit was $123,066 for the three months ended June 30, 2011. The primary reason for the gross profit during the period was the sale of RINs to third parties. Another factor impacting gross profit was raw material costs, which stabilized at approximately $0.54 per pound, but yielded finished product that had to be sold at a loss due to biodiesel market conditions.

Gross profit for the Company was a loss of ($122,794) for the period January 1, 2012 through June 30, 2012. The primary reasons for the gross loss during the period were the average unit price reduction of $0.10 per RIN in RIN market value (compared with the same period in the prior year) and the loss of the federal blenders' tax credit, which directly impacted the price that the plant in Lenoir, North Carolina could charge for biodiesel.

Gross profit was $108,492 for the six months ended June 30, 2011. The primary reason for the gross profit during the period was the sale of RINs to third parties. Another factor impacting gross profit was raw material costs, which remained fairly stable at approximately $0.54 per pound, but yielded finished product which had to be sold at a loss due to biodiesel market conditions.

Selling, General and Administrative (SG&A) Expenses SG&A expenses totaled $31,412 for the period April 1, 2012 through June 30, 2012. During the period under consideration, SG&A expenses primarily consisted of costs associated with payroll, office overhead and professional fees.

SG&A expenses totaled $232,438 for the three month period ended June 30, 2011. During the second quarter of 2011, the Company's SG&A expenses were primarily comprised of payroll, fundraising fees ($12,000), and professional fees ($133,333).

Comparing the Company's activity for the period April 1, 2012 through June 30, 2012 to the activity for the period April 1, 2011 through June 30, 2011, there was a decrease in SG&A expenses of $201,026 as SG&A declined from $232,438 to $31,412. The period-over-period decrease was due primarily to reduced consulting expenses ($133,333) that were recognized during the prior-year period under consideration, but did not occur during the similar period in the current year. The $133,333 consulting expenses during the second quarter of 2011 were primarily associated with a stock grant to one of the Company's directors, Aaron Gay. Payroll expenses were lower during the current-year second quarter compared with the same period in 2011 since the biodiesel production plant reduced activity in the face of no blender tax credit and a severely hampered RIN trading market. Also contributing to the period-over-period decrease were the lack of fundraising expenses during the current quarter compared with a $12,510 expense during the same period in the prior year.


SG&A expenses totaled $60,152 for the period January 1, 2012 through June 30, 2012. During the period under consideration, SG&A expenses primarily consisted of costs associated with payroll, office overhead and consulting fees.

SG&A expenses for the Company totaled $366,957 for the six month period ended June 30, 2011. During the first half of 2011, SG&A expenses were primarily comprised of payroll, professional fees associated filings for publicly traded companies ($63,700), fundraising fees ($20,200), and consulting fees ($193,000).

Comparing the Company's activity for the six-month period ended June 30, 2012 to the activity for the six months ended June 30, 2011, there was a decrease in SG&A expenses of $306,805 as SG&A declined from $366,957 to $60,152. The period-over-period decrease was due primarily to reduced consulting expenses ($176,333) that were recognized during the first half of the prior year, but amounted to only $16,667 during the similar period in the current year. Payroll expenses were lower during the current-year second quarter compared with the same period in 2011 since the biodiesel production plant reduced activity in the face of no blender tax credit and a severely hampered RIN trading market. Also contributing to the period-over-period decrease were reduced expenses associated with professional fees. During the first half of the prior year, professional fees totaled $106,721 while the total was $17,000 during the first half of 2012.

Gain on forgiveness of trade payables
The Company had no gain on forgiveness of trade payables for the period April 1, 2012 through June 30, 2012.

The Company had no gain on forgiveness of trade payables for the period April 1, 2011 through June 30, 2011.

Gain on forgiveness of trade payables was $30,000 for the period January 1, 2012 through June 30, 2012. $30,000 of the Company's payable balance to a third-party was forgiven during the period.

The Company had no gain on forgiveness of trade payables for the period January 1, 2011 through June 30, 2011.

Loss on Impairment of Fixed Assets
Loss on impairment of fixed assets was $73,790 for the period April 1, 2012 through June 30, 2012. The underlying assets that were impaired were totes that the biodiesel production facility in Lenoir, North Carolina had used for storage of methylated glycerin and recovered methanol. During the first quarter of 2012, new storage tanks were placed into service that had previously been reflected as construction in progress assets. These new storage tanks rendered the totes useless. Given the condition of the totes, it was determined that they were unsuitable for selling and the assets were fully impaired.

The Company had no loss on impairment of fixed assets for the period April 1, 2011 through June 30, 2011.

Loss on impairment of fixed assets was $73,790 for the period January 1, 2012 through June 30, 2012.

The Company had no loss on impairment of fixed assets for the period January 1, 2011 through June 30, 2011.


Other Income (Expense)
Other Income totaled $19,429 during the period from April 1, 2012 through June 30, 2012. The primary reason for the balance was $17,193 in funding received from the North Carolina Land & Lakes Grant. The remaining balance is attributable to $2,236 in funds received from the Western Carolina Piedmont Council of Governments.

The Company had Other Income of $49,878 for the three months ended June 30, 2011. The source of the Other Income was from funding provided by the North Carolina Green Business Fund Grant.

Other Income totaled $77,518 during the period from January 1, 2012 through June 30, 2012. The primary reason for the balance was $43,682 in funding received from the North Carolina Green Business Fund Grant. Additional funding of $17,193 was provided by the North Carolina Land & Lakes Grant. The remaining balance is attributable to $16,643 in funds received from the Western Carolina Piedmont Council of Governments.

The Company had Other Income of $49,878 for the six months ended June 30, 2011. The source of the Other Income was from funding provided by the North Carolina Green Business Fund Grant.

Interest Income
The Company had no interest income for the period April 1, 2012 through June 30, 2012.

The Company had interest income of $617 for the three months ended June 30, 2011.

The Company had no interest income for the period January 1, 2012 through June 30, 2012.

The Company had interest income of $1,203 for the six months ended June 30, 2011.

Interest Expense
Interest expense for the Company was $2,205 for the period April 1, 2012 through June 30, 2012.

Interest expense for the Company was $2,869 for the three months ended June 30, 2011.

Interest expense for the Company was $4,621 for the period January 1, 2012 through June 30, 2012.

Interest expense for the Company was $5,943 for the six months ended June 30, 2011.

Net Income (Loss)
The Company had a net loss of ($100,367) for the period April 1, 2012 through June 30, 2012.

The Company had a net loss of ($61,746) for the three months ended June 30, 2011.

The Company had a net loss of ($153,839) for the period January 1, 2012 through June 30, 2012.

The Company had a net loss of ($213,327) for the six months ended June 30, 2011.


Liquidity and Capital Resources

Working Capital
                                              As of                 As of
                                          June 30, 2012       December 31, 2011
Current Assets                            $      509,879     $           739,112

Current Liabilities                       $      751,084     $           931,351

Working Capital (Deficiency)              $     (241,205 )   $          (192,239 )

Retained Earnings (Accumulated Deficit)   $  (5,686,8127 )   $        (5,532,978 )



Cash Flows
                                                    Six Months          Six Months
                                                       Ended               Ended
                                                   June 30, 2012       June 30, 2011
Cash provided by (used in) operating activities   $        64,117     $       (95,245 )
Cash used in investing activities                         (13,234 )           (25,851 )
Cash used in financing activities                         (38,285 )           (56,944 )
Net increase (decrease) in cash                   $        12,598     $      (178,040 )

As of June 30, 2012, our current assets totaling $509,879 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 $751,084 for the period ended June 30, 2012. As a result, we had a working capital deficiency of $241,205.

Current assets for the Company totaled $739,112 as of December 31, 2011. Current liabilities for the Company totaled $931,351 as of December 31, 2011, which resulted in a working capital deficiency of $192,239.

Comparing the working capital deficiency at June 30, 2012 to the deficiency at December 31, 2011, there is an increase of $48,966 as the deficiency increased from $192,239 to $241,205. The biggest contributors to the overall increase were collection of outstanding accounts receivable and tax credits receivable and the subsequent payment of accounts payables throughout the first half of 2012.

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. NABE's period-over-period biodiesel sales have decreased comparing the first six months of 2012 to the . . .

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