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ICNN > SEC Filings for ICNN > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for INCOMING, INC.

Form 10-Q for INCOMING, INC.


14-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 interim 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 September 30, 2012, the Company had a working capital deficiency of $319,535, and had accumulated a deficit of $5,786,936 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 nine-month period ended September 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 $96,773 during the period July 1, 2012 through September 30, 2012. Revenue generated during the period was due primarily to the sale of products (biodiesel and methylated glycerin) and to sales of RIN-gallons. RIN-gallons are EPA-regulated, market-traded commodities generated during biodiesel production. During the third quarter of 2012, our blended biodiesel sales to third parties totaled approximately $26,827 and our sales to related parties amounted to $41,185. Sales of RINs to third parties totaled $28,761 during the third quarter of 2012. During the period under consideration, methylated glycerin sales totaled $5,588.


The Company generated revenues of $825,830 during the period July 1, 2011 through September 30, 2011. Revenue for the post-acquisition period was generated through biodiesel sales, through RIN sales, and through the sale of methylated glycerin. During the period under consideration, our biodiesel sales to third parties totaled approximately $366,334 and our sales to related parties amounted to $97,425. Sales of RINs to third parties totaled $350,618 for the period July 1, 2011 through September 30, 2011. Sales of methylated glycerin amounted to $11,453 during the period July 1, 2011 through September 30, 2011.

The Company generated revenues of $427,245 during the period January 1, 2012 through September 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 September 30, 2012, our biodiesel sales to third parties totaled approximately $170,499 and our sales to related parties amounted to $110,005. Sales of RINs to third parties totaled $133,936 during the first three quarters of 2012. During the period under consideration, methylated glycerin sales totaled $10,689 while recovered methanol sales amounted to $2,116.

The Company generated $1,341,727 in revenues during the period January 1, 2011 through September 30, 2011. Revenue for the period was generated through biodiesel sales, through RIN sales, through recovered methanol sales and through the sale of methylated glycerin. During the period January 1, 2011 through September 30, 2011, our biodiesel sales to third parties totaled approximately $614,469 and our sales to related parties amounted to $183,097. Sales of RINs to third parties totaled $528,993 during the period January 1, 2011 through September 30, 2011. During the period under consideration, sales of recovered methanol totaled $6,527 while methylated glycerin sales amounted to $8,641.

During the three and nine months periods ended September 30, 2012, revenue continued to be weak compared with results from the same period in the prior year. RINs, the EPA's currency for tracking renewable fuel blending activities, have continued to trade lightly for small producers as a consequence of the fraudulent RIN transactions executed by Maryland and Texas companies in Q4 of 2011.

Cost of Revenue
Cost of revenue totaled $152,771 during the period July 1, 2012 through September 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. There were no offsetting tax credits available during the period due to the expiration of the blender and producer tax credit at December 31, 2011.

Cost of revenue totaled $657,715 during the period July 1, 2011 through September 30, 2011. For the same period, cost of revenue consisted of raw materials, labor, overhead, and costs associated with processing glycerin. Offsetting the cost of revenue was the filing for tax credits available to biodiesel blenders, which amounted to $249,757 during the period.

Cost of revenue totaled $553,057 during the period January 1, 2012 through September 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. There were no offsetting tax credits available during the period.

Cost of revenue was $1,034,415 during the period January 1, 2011 through September 30, 2011. For the same period, cost of revenue consisted of raw materials, labor, overhead, and costs associated with processing glycerin. Offsetting the cost of revenue was the filing for tax credits available to biodiesel blenders, which amounted to $249,757 during the period.


During the three and nine months periods ended September 30, 2012, cost of revenue decreased when compared with results from the same period in the prior year. In the prior year, we were able to either charge customers for the tax credit equivalent or were able to claim the credit in the case of selling blended biodiesel. Absence of the federal tax credit for biodiesel blenders has severely impacted our ability to make biodiesel profitably. Feedstock costs have remained fairly constant on a year-over-year basis despite the lack of the blender's tax credit.

Gross Profit
Gross profit for the Company was a loss of ($91,093) for the period July 1, 2012 through September 30, 2012. The primary reasons for the gross loss during the period were the average unit price reduction of $0.57 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. RIN market values have continued to be depressed due to the fraudulent activities carried out by Maryland and Texas companies during Q4 of 2011.

Gross profit for the Company totaled $152,762 for the period July 1, 2011 through September 30, 2011. The primary reason for the gross profit during the period under consideration was the sale of RINs to third parties amounting to $350,618. Despite the contribution from RIN sales during the period under consideration, their impact on gross profit was diminished due to the rise in raw material costs that caused cost of sales to spike to $657,715 over the same time frame.

Gross profit for the Company was a loss of ($213,884) for the period January 1, 2012 through September 30, 2012. The primary reasons for the gross loss during the period were the average unit price reduction of $0.30 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. RIN market values have continued to be depressed due to the fraudulent activities carried out by Maryland and Texas companies during Q4 of 2011.

Gross profit for the Company totaled $261,253 for the period January 1, 2011 through September 30, 2011. The primary reason for the gross profit during the period under consideration was the sale of RINs to third parties amounting to $528,993. Also impacting the gross profit was the fact that the cost to produce was reduced by $249,757 as NABE filed for biodiesel blending credits with the IRS.

Selling, General and Administrative (SG&A) Expenses SG&A expenses totaled $24,724 for the period July 1, 2012 through September 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 $1,052,350 for the period July 1, 2011 through September 30, 2011. During the period under consideration, SG&A expenses were primarily comprised of payroll, accounting fees ($35,200), travel expenses ($11,214), consulting fees ($982,421), and fees associated with filing financial reports in XBRL format.

SG&A expenses totaled $84,881 for the period January 1, 2012 through September 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 totaled $1,419,322 for the period January 1, 2011 through September 30, 2011. During the period under consideration, SG&A expenses were primarily comprised of payroll, accounting fees ($120,140), legal fees ($21,781), travel expenses ($11,214), consulting fees ($1,185,139), and fees associated with filing financial reports in XBRL format.


During the three and nine months periods ended September 30, 2012, SG&A expenses declined when compared with results from the same period in the prior year. The period-over-period decrease was due primarily to reduced consulting expenses that were recognized during the prior year as part of a stock grant. A portion of the stock grant was recognized during the current year, but the amount was much less on a comparative basis.

Gain on Forgiveness of Trade Payables
The Company had no gain on forgiveness of trade payables for the period July 1, 2012 through September 30, 2012.

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

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

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

Loss on Impairment of Fixed Assets
The Company had no loss on impairment of fixed assets for the period July 1, 2012 through September 30, 2012.

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

Loss on impairment of fixed assets was $73,790 for the period July 1, 2012 through September 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. This loss was partially offset by a $1,680 gain on disposal of fixed assets recorded during the three months ended September 30, 2012.

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

Other Income (Expense)
Other Income totaled $16,042 during the period July 1, 2012 through September 30, 2012. The primary reasons for the balance were $9,012 in funding from the USDA Biofuel Program and $4,934 in funding received from the North Carolina Green Business Fund Grant. The remaining balance is primarily attributable to $2,096 in funds received from the Western Carolina Piedmont Council of Governments.

The Company had Other Income of $24,916 for the period July 1, 2011 through September 30, 2011. The source of the Other Income was funding provided by the USDA's Biofuel Program.


Other Income totaled $93,560 during the period from January 1, 2012 through September 30, 2012. The primary reason for the balance was $48,616 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 and funding of $9,012 was received from the USDA Biofuel Program. The remaining balance is primarily attributable to $18,739 in funds received from the Western Carolina Piedmont Council of Governments.

The Company had Other Income of $74,794 for the period January 1, 2011 through September 30, 2011. Sources of Other Income included $49,878 in funding provided by the North Carolina Green Business Fund grant and $24,876 in funding provided by the USDA's Biofuel Program.

Net Income (Loss)
The Company had a net loss of ($100,117) for the period July 1, 2012 through September 30, 2012.

The Company had a net loss of ($878,748) for the three months ended September 30, 2011.

The Company had a net loss of ($253,958) for the period January 1, 2012 through September 30, 2012.

The Company had a net loss of ($1,092,075) for the nine months ended September 30, 2011.

Liquidity and Capital Resources

Working Capital
                                    As of                    As of
                              September 30, 2012       December 31, 2011
Current Assets               $            426,756     $           739,112

Current Liabilities          $            746,291     $           931,351

Working Capital Deficiency   $           (319,535 )   $          (192,239 )

Accumulated Deficit          $         (5,786,936 )   $        (5,532,978 )




Cash Flows
                                                               Nine Months     Nine Months
                                                                  Ended           Ended
                                                                September       September
                                                                30, 2012        30, 2011
Cash used in operating activities                              $   (28,798 )   $   (67,980 )
Cash used in investing activities                                  (26,671 )       (36,912 )
Cash provided by (used in) financing activities                    (52,475 )        67,390
Net decrease in cash                                           $  (107,944 )   $   (37,502 )

As of September 30, 2012, our current assets totaling $426,756 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 $746,291 for as of September 30, 2012. As a result, we had a working capital deficiency of $319,535.

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 September 30, 2012 to the deficiency at December 31, 2011, there is an increase of $127,296 as the deficiency increased from $192,239 to $319,535. 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 nine months 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 nine months of 2012 to the first nine months of 2011. RIN sales have decreased $395,057 over the same periods of comparison. Considering the long-term view, the Company intends to provide liquidity through operation of its biodiesel plant in Lenoir, North Carolina. 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.

As of September 30, 2012, NABE had outstanding balances on bank borrowings of $134,964, which originally totaled $350,000 when the loans were first executed. An additional balance of $5,134 was outstanding as of September 30, 2012, which represented financing of NABE's general liability insurance. As of December 31, 2011, NABE had an outstanding balance of $171,917 on a term loan that resulted from the conversion of its line of credit. An additional balance of $2,100 was outstanding as of December 31, 2011, which represented financing of NABE's general liability insurance.

As of September 30, 2012, NABE has fully repaid a previously outstanding liability with a related party. This amount totaled $10,000 as of December 31, 2011.

A portion of the Company's operations have been funded through the issuance of stock shares. As of September 30, 2012, 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).

We expect to incur losses as the business expands. 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. If we are unable to generate sufficient profits or are unable to obtain additional funds for our working capital needs, we may need to cease or curtail operations. Moreover, there is no assurance that the net proceeds from any successful financing arrangement will be sufficient to cover cash requirements during the initial stages of the Company's operations. For these reasons, our registered auditors believe that there is substantial doubt that we will be able to continue as a going concern.

Cash Used In Operating Activities

During the period January 1, 2012 through September 30, 2012, the Company's cash used in operating activities totaled $28,798. For the same period, the Company's cash used in operating activities was primarily attributable to the net effect of making credit sales, collecting trade receivables associated with RIN sales, and making payments on trade payables. A loss was recognized when storage totes were deemed impaired as a result of placing other storage vessels into service. Additionally, the Company had certain third party trade payables forgiven.

During the period January 1, 2011 through September 30, 2011, cash used in operating activities totaled $67,980. For the same period, cash used in operating activities was primarily attributable to the net effect of making credit sales and an increasing balance in the federal tax credits receivable from blending activities. Other factors contributing to the cash used in operating activities during period were an increase in inventory and a decrease in accounts payable, which were partially offset by a decrease in accounts receivable.


Cash Used In Investing Activities

During the period January 1, 2012 through September 30, 2012, the Company's cash used in investing activities totaled $26,671. This amount primarily represents plant-wide efforts to improve operating efficiency through continued efforts to insulate equipment and piping at the biodiesel production facility in Lenoir, NC. Additional funds were used to upgrade pumps and purchase a vehicle, which are also associated with the NABE site.

During the period January 1, 2011 through September 30, 2011, cash used in investing activities totaled $36,912. This amount primarily represents plant-wide efforts to improve operating efficiency through insulating equipment and piping at the biodiesel production facility in Lenoir, NC.

Cash Provided By (Used In) Financing Activities

During the period January 1, 2012 through September 30, 2012, the Company's cash used in financing activities totaled $52,475. This amount consisted of funds used to repay $10,000 in related party debt and $42,475 in payments on long-term debt to third-party creditors.

During the period January 1, 2011 through September 30, 2011, the Company's cash provided by financing activities totaled $67,390. This amount represents repayment of $87,500 in related party debt, proceeds from the sale of stock of $200,000 and payments totaling $45,110 on long-term debt to third-party creditors.

Future Financings

We anticipate that additional funding will be required in the form of equity financing from the sale of our common stock. 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 plan and operations. At this time, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock or through a loan from our directors to meet our obligations over the next twelve months. We do . . .

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