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ICNN > SEC Filings for ICNN > Form 10-Q on 16-Aug-2013All Recent SEC Filings

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Form 10-Q for INCOMING, INC.


16-Aug-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 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, 2012.


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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, 2013, the Company had a working capital deficiency of $324,881, and had an accumulated deficit of $5,948,089, 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 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.


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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 and six-month periods ended June 30, 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 and Revenue From Related Parties The Company generated revenues of $638,350 during the period April 1, 2013 through June 30, 2013.
Revenue generated during the period was due to sales of biodiesel, glycerin, and materials recovered during glycerin purification processing. During the period April 1, 2013 through June 30, 2013, our biodiesel sales to third parties totaled approximately $355,900 and our sales to related parties amounted to $53,640. RIN sales accounted for $126,370 in revenue during the second quarter of 2013. For the period under consideration, de-methylated glycerin sales amounted to $20,570 while recovered methanol sales totaled $5,389. 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 $76,481 for the period under consideration.

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.


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Comparing the Company's activity for the period April 1, 2013 through June 30, 2013 to the activity for the period April 1, 2012 through June 30, 2012, there was an increase in revenue of $446,950 from $191,400 to $638,350. The period-over-period increase was due primarily to improved biodiesel sales in light of the reinstated biodiesel blenders' credit and to RIN sales. Biodiesel sales experienced an increase of approximately 77,454 gallons sold during the period April 1, 2013 through June 30, 2013 compared to the period April 1, 2012 through June 30, 2012. The market price for biodiesel increased $0.94 per gallon on a comparative period-over-period basis, which is due primarily to reinstatement of the biodiesel blender tax credit. The Company had RIN sales of $126,370 during the period April 1, 2013 through June 30, 2013, but transacted $105,175 in RIN sales during the period April 1, 2012 through June 30, 2012. On an average unit price basis, the Company was able to sell RINs for $0.86 per RIN during the second quarter of 2013, but had been able to charge $1.17 per RIN during the same period in 2012. Also impacting comparative revenues were sales of high fatty acid oil, methylated glycerin and recovered methanol. The Company had high fatty acid oil sales of $76,481 during the second quarter of 2013, but no sales of high fatty acid oil during the same period in 2012. The Company had methylated glycerin sales of $20,570 during the second quarter of 2013, while methylated glycerin sales were $3,747 during the same period in 2012. The Company had recovered methanol sales of $5,389 during the second quarter of 2013, while recovered methanol sales totaled $2,116 during the same period in 2012.

The Company generated revenues of $689,799 during the period January 1, 2013 through June 30, 2013. Revenue generated during the period was due to sales of biodiesel, glycerin, and materials recovered during glycerin purification processing. During the period January 1, 2013 through June 30, 2013, our biodiesel sales to third parties totaled approximately $365,635 and our sales to related parties amounted to $74,080. RIN sales accounted for $126,370 in revenue during the first half of 2013. For the period under consideration, de-methylated glycerin sales amounted to $30,005 while recovered methanol sales totaled $5,389. Sales of high fatty acid oil totaled $88,367 for the period under consideration.

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.

Comparing the Company's activity for the six-month period ended June 30, 2013 to the activity for the six-month period ended June 30, 2012, there was an increase in revenue of $359,328 from $330,471 to $689,799. The period-over-period increase was due primarily to improved biodiesel sales in light of the reinstated biodiesel blenders' credit and to RIN sales. Biodiesel sales experienced an increase of approximately 69,330 gallons sold during the period January 1, 2013 through June 30, 2013 compared to the period January 1, 2012 through June 30, 2012. The market price for biodiesel increased $0.88 per gallon on a comparative period-over-period basis, which is due primarily to reinstatement of the biodiesel blender tax credit. The Company had RIN sales of $126,370 during the period January 1, 2013 through June 30, 2013, but transacted $105,175 in RIN sales during the period January 1, 2012 through June 30, 2012. On an average unit price basis, the Company was able to sell RINs for $0.86 per RIN during the first half of 2013, but had been able to charge $1.17 per RIN during the same period in 2012. Also impacting comparative revenues were sales of high fatty acid oil, methylated glycerin and recovered methanol. The Company had high fatty acid oil sales of $88,367 during the first half of 2013, but no sales of high fatty acid oil during the same period in 2012. The Company had methylated glycerin sales of $30,005 during the first half of 2013, while methylated glycerin sales were $5,101 during the same period in 2012. The Company had recovered methanol sales of $5,389 during the first half of 2013 while recovered methanol sales totaled $2,116 during the same period in 2012.


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Cost of Revenue
Cost of revenue totaled $421,019 during the period April 1, 2013 through June 30, 2013. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, labor, overhead, and utilities.

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.

Comparing the Company's activity for the period April 1, 2013 through June 30, 2013 to the activity for the period April 1, 2012 through June 30, 2012, there was an increase in cost of revenues of $250,495 as the cost of revenues increased from $170,524 to $421,019. The period-over-period increase was due in large part to more gallons of biodiesel being produced in light of the extended blender tax credit. Approximately 77,454 more gallons were sold during the second quarter of the current year when compared with the second quarter of the prior year. Cost of sales increased in line with improving sales. During the quarter, the Company recognized a reduction in cost of goods sold totaling $105,338 as a result of filing for the blender tax credit associated with blended gallons sold during the prior year. The tax credit was not in place during 2012, but was retroactively reinstated for all of 2012 and going forward through December 31, 2013.

Cost of revenue totaled $547,534 during the period January 1, 2013 through June 30, 2013. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, labor, overhead, and utilities.

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.

Comparing the Company's activity for the period January 1, 2013 through June 30, 2013 to the activity for the period January 1, 2012 through June 30, 2012, there was an increase in cost of revenues of $147,247 as the cost of revenues increased from $400,287 to $547,534. The period-over-period increase was due in large part to more gallons of biodiesel being produced in light of the extended blender tax credit. Approximately 69,330 more gallons were sold during the first half of the current year when compared with the first half of the prior year. Cost of sales increased in line with improving sales. During the first six months of 2013, the Company recognized a reduction in cost of goods sold totaling $105,338 as a result of filing for the blender tax credit associated with blended gallons sold during the prior year. The tax credit was not in place during 2012, but was retroactively reinstated for all of 2012 and going forward through December 31, 2013.

Gross Profit
Gross profit for the Company was $191,037 for the period April 1, 2013 through June 30, 2013. The primary reasons for the gross profit during the period were the ability to sell more gallons of biodiesel given the limited reinstatement of the biodiesel blenders' tax credit. Additionally, we were better able to sell RINs into the RIN market as liquidity improved compared with tight market conditions that had existed as a result of RIN fraud perpetrated by other parties in 2011. The gross profit was also directly affected by the $105,338 of tax credit income received during the period April 1, 2013 through June 30, 2013.

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.


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Gross profit for the Company was $89,857 for the period January 1, 2013 through June 30, 2013. The gross profit during the period under consideration takes into account the gross loss of $101,180 that was experienced during the first quarter of 2013. For the six-month period under consideration, the Company was able to sell 69,330 more gallons during the first half of 2013 than during the same period during 2012. The gross profit was also directly affected by the $105,338 of tax credit income received during the period January 1, 2013 through June 30, 2013.

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.

Selling, General and Administrative (SG&A) Expenses SG&A expenses totaled $21,391 for the period April 1, 2013 through June 30, 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 $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.

Comparing the Company's activity for the period April 1, 2013 through June 30, 2013 to the activity for the period April 1, 2012 through June 30, 2012, there was a decrease in SG&A expenses of $10,022 as SG&A declined from $31,412 to $21,390. The period-over-period decrease was due primarily to additional filing expenses incurred in the prior year associated with issuing first-time financials in XBRL format. General overhead remained stable considering the second quarter of the current year compared with the second quarter of the prior year.


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SG&A expenses totaled $38,378 for the period January 1, 2013 through June 30, 2013. During the period under consideration, SG&A expenses primarily consisted of costs associated with payroll, office overhead and consulting fees.

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.

Comparing the Company's activity for the period January 1, 2013 through June 30, 2013 to the activity for the period January 1, 2012 through June 30, 2012, there was a decrease in SG&A expenses of $21,774 as SG&A declined from $60,152 to $38,378. 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. General overhead remained stable considering the first six months of the current year compared with the first six months of the prior year.

Gain on forgiveness of trade payables
The Company had no gain on forgiveness of trade payables for the period April 1, 2013 through June 30, 2013.

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 January 1, 2013 through June 30, 2013.

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.

Loss on Impairment of Fixed Assets
The Company had no loss on impairment of fixed assets for the period April 1, 2013 through June 30, 2013.

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 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 January 1, 2013 through June 30, 2013.

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

Other Income (Expense)
Other Income totaled $52,440 during the period April 1, 2013 through June 30, 2013. The primary reason for the balance was $50,760 in funding received from the North Carolina Land & Lakes Grant.

Other Income totaled $19,429 during the period 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.

Other Income totaled $53,730 during the period January 1, 2013 through June 30, 2013. The primary reason for the balance was $50,760 in funding received from the North Carolina Land & Lakes Grant.

Other Income totaled $77,518 during the period 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.

Net Income (Loss)
The Company had net income of $220,506 for the period April 1, 2013 through June 30, 2013.


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

The Company had net income of $102,485 for the period January 1, 2013 through June 30, 2013.

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

Liquidity and Capital Resources

Working Capital
                                           As of                 As of
                                       June 30, 2013       December 31, 2012
         Current Assets               $       445,947     $           293,373

         Current Liabilities          $       770,828     $           688,895

         Working Capital Deficiency   $      (324,881 )   $          (395,522 )

         Accumulated Deficit          $    (5,948,089 )   $        (6,050,574 )




Cash Flows
                                               Six Months          Six Months
                                                  Ended               Ended
                                              June 30, 2013       June 30, 2012
     Cash provided by operating activities   $       173,875     $        64,117
     Cash used in investing activities               (56,960 )           (13,234 )
     Cash used in financing activities               (22,329 )           (38,285 )
     Net increase in cash                    $        94,586     $        12,598

As of June 30, 2013, our current assets totaling $445,947 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 $770,828 as of June 30, 2013. As a result, we had a working capital deficiency of $324,881.

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 June 30, 2013 to the deficiency at December 31, 2012, there was a decrease of $70,341 as the deficiency decreased from $395,522 to $324,881. The biggest contributor to the overall decrease was collection of funds associated with blenders' tax credits associated with fuels sold during 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 increased by 69,330 gallons comparing the first six months of 2013 to the first six months of 2012. Considering the long-term view, the Company intends to provide liquidity through operation of its biodiesel plant in Lenoir, North Carolina.


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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 June 30, 2013, the Company generated a gross profit of $191,037 on sales of $638,350 over the same period. For the three months ended June 30, 2012, the Company generated a gross loss of $12,389 on sales of $191,400 over the same period.

As of June 30, 2013, NABE had outstanding balances on bank borrowings of $100,840, 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 $8,476 was outstanding as of June 30, 2013, . . .

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