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ICNN > SEC Filings for ICNN > Form 10-Q on 15-May-2013All Recent SEC Filings

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Form 10-Q for INCOMING, INC.


15-May-2013

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 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, 2012.

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 March 31, 2013, the Company had a working capital deficiency of $502,893, and had an accumulated deficit of $6,168,595 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 the 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 for the year ended December 31, 2012, 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 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, 2013, 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 $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.

The Company generated revenues of $139,071 during the period January 1, 2012 through March 31, 2012. Revenue generated during the period was due primarily to biodiesel sales and to glycerin sales. During the period January 1, 2012 through March 31, 2012, our blended biodiesel sales to third parties totaled approximately $118,257 and our sales to related parties amounted to $19,460. There were no sales of RINs during the first quarter of 2012. During the period under consideration, methylated glycerin sales amounted to $1,354.

Comparing the Company's activity for the period January 1, 2013 through March 31, 2013 to the activity for the period January 1, 2012 through March 31, 2012, there was a decrease in revenue of $87,622 from $139,071 to $51,449. The period-over-period decrease was due primarily to decreased biodiesel sales and continued difficulty with selling RINs. Biodiesel sales experienced a decrease of approximately 8,100 gallons during the period January 1, 2013 through March 31, 2013 compared to the period January 1, 2012 through March 31, 2012. The Company had no RIN sales during the period January 1, 2013 through March 31, 2013, and sold no RINs during the period January 1, 2012 through March 31, 2012. The Company had de-methylated glycerin sales of $9,435 during the first quarter of 2013, but had no de-methylated glycerin sales during the first quarter of 2012. Additionally, the Company had high fatty acid oil sales of $11,886 during the period January 1, 2013 through March 31, 2013, but had no high fatty acid oil sales during the period January 1, 2012 through March 31, 2012.

Cost of Revenue
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.

Cost of revenue totaled $229,763 during the period January 1, 2012 through March 31, 2012. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, labor, overhead, and utilities.

Comparing the Company's activity for the period January 1, 2013 through March 31, 2013 to the activity for the period January 1, 2012 through March 31, 2012, there was a decrease in cost of revenues of $103,248 as the cost of revenues reduced from $229,763 to $126,515. The period-over-period decrease was due in large part to the reduced number of gallons of biodiesel produced. Slightly increasing the period-over-period cost of revenue was the impact of processing methylated glycerin to produce de-methylated glycerin and high fatty acid oils. Glycerin purification efforts increased utility and personnel costs.

Depreciation
Depreciation expense totaled $26,114 for the period January 1, 2013 through March 31, 2013.

Depreciation expense totaled $19,713 for the period January 1, 2012 through March 31, 2012.


Gross Profit
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.

Gross profit for the Company was a loss of ($110,405) for the period January 1, 2012 through March 31, 2012. The primary reason for the gross loss during the period was the impact of being unable to sell RINs in the current market, which continues to be impacted by the fraudulent actions of the parties in Maryland and Texas.

Selling, General and Administrative (SG&A) Expenses 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.

SG&A expenses totaled $28,740 for the period January 1, 2012 through March 31, 2012. During the period under consideration, SG&A expenses primarily consisted of costs associated with payroll, office overhead, and consulting fees ($16,667).

Comparing the Company's activity for the period January 1, 2013 through March 31, 2013 to the activity for the period January 1, 2012 through March 31, 2012, there was a decrease in SG&A expenses of $11,754 as SG&A declined from $28,740 to $16,986. The period-over-period decrease was due primarily to consulting expenses ($16,667) recognized during the prior-year period under consideration compared to the similar period in the current year. Payroll expenses and office overhead remained stable considering the first quarter of the current year compared with the first quarter of the prior year.

Gain on forgiveness of trade payables
The Company had no gain on forgiveness of trade payables for the period January 1, 2013 through March 31, 2013.

Gain on forgiveness of trade payables was $30,000 for the period January 1, 2012 through March 31, 2012. $30,000 of the Company's payable balance to a third-party was forgiven during the period.

Other Income (Expense)
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.

Other Income totaled $58,089 during the period from January 1, 2012 through March 31, 2012. The primary reason for the balance was $43,682 in grant funding received from the North Carolina Green Business Fund. Most of the remaining balance is attributable to $13,567 in funds received from the Western Carolina Piedmont Council of Governments.

Interest Income
The Company had no interest income for the period January 1, 2013 through March 31, 2013.

The Company had no interest income for the period January 1, 2012 through March 31, 2012.


Interest Expense
Interest expense for the Company was $1,145 for the period January 1, 2013 through March 31, 2013.

Interest expense for the Company was $2,416 for the period January 1, 2012 through March 31, 2012.

Net Income (Loss)
The Company had a net loss of ($118,021) for the period January 1, 2013 through
March 31, 2013.

The Company had a net loss of ($53,472) for the period January 1, 2012 through
March 31, 2012.

Liquidity and Capital Resources

Working Capital
                                          As of                  As of
                                      March 31, 2013       December 31, 2012
        Current Assets               $        210,797     $           293,373

        Current Liabilities          $        713,690     $           688,895

        Working Capital Deficiency   $       (502,893 )   $          (395,522 )

        Accumulated Deficit          $     (6,168,595 )   $        (6,050,574 )



Cash Flows
                                              Three Months         Three Months
                                                  Ended               Ended
                                             March 31, 2013       March 31, 2012
     Cash provided by operating activities   $        17,973     $         87,535
     Cash used in investing activities                (6,200 )            (19,833 )
     Cash used in financing activities                (9,363 )            (14,263 )
     Net increase in cash                    $         2,410     $         53,439

As of March 31, 2013, our current assets totaling $210,797 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 third parties were $713,690 as of March 31, 2013. As a result, we had a working capital deficiency of $502,893.

Current assets for the Company totaled $293,373 as of December 31, 2012. Current liabilities for the Company totaled $688,895 as of December 31, 2012, which resulted in a working capital deficiency of $395,522.

Comparing the working capital deficiency at March 31, 2013 to the deficiency at December 31, 2012, there is an increase of $107,371 as the deficiency increased from $395,522 to $502,893. The biggest contributors to the overall increase were collection of outstanding accounts receivable, and the sale of inventory on hand.

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 decreased comparing the first three months of 2013 to the first three months of 2012. The Company had no RIN sales during either of the periods of comparison. Considering the long-term view, the Company intends to provide liquidity through operation of its biodiesel plant in Lenoir, North Carolina and through sales of stock in the Company.


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, 2013, the Company generated a gross loss of ($101,180) on sales of $51,449 over the same period. For the three months ended March 31, 2012, the Company generated a gross loss of ($110,405) on sales of $139,071 over the same period.

As of March 31, 2013, NABE had outstanding balances on bank borrowings of $113,806, 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.

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 Provided By Operating Activities

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.

During the period January 1, 2012 through March 31, 2012, the Company's cash provided by operating activities totaled $87,535. 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 RIN sales. Trade receivables decreased $203,028 while inventories decreased $2,825. NABE's tax credits receivable decreased $80,412 during the period under consideration. Payables decreased $158,398 for the same period.

Cash Used In Investing Activities

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.

During the period January 1, 2012 through March 31, 2012, the Company's cash used in investing activities totaled $19,833. 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, which are also located at the NABE site.


Cash Used In Financing Activities

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.

During the period January 1, 2012 through March 31, 2012, the Company's cash used in financing activities totaled $14,263. This amount represents payments 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 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.

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