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EX-32.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - Incoming, Inc.ex-32_2.htm
EX-32.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - Incoming, Inc.ex-32_1.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER - Incoming, Inc.ex-31_1.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER - Incoming, Inc.ex-31_2.htm
 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
AMENDMENT NO. 2
FORM 10-Q/A
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended August 31, 2010
 
Commission file number 333-152012
 
Incoming, Inc.
(Exact name of registrant as specified in its charter)

     
Nevada
(State of incorporation)
 
42-1768468
(I.R.S. Employer Identification Number)

 
244 Fifth Avenue, Ste. V235, New York, NY 10001
(Address of principal executive offices) (Zip Code)

(917) 210-1074
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. 
 
YES x     NO ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
YES ¨     NO ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company in Rule 12b-2 of the Exchange Act:
 
Large Accelerated Filer ¨
 
Accelerated Filer ¨
 
Non-Accelerated Filer ¨
 
Smaller Reporting Company x
 
 
 
 
1

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): (check one)
 
Yes ¨ No x
 
State the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date.
 
As of October 20, 2010, there are 18,599,332 shares of Class A commons stock and 1,980,000 shares of Class B common stock outstanding.
 
All references in this Report on Form 10-Q to the terms “we”, “our”, “us”, the “Company”, “ICNN” and the “Registrant” refer to Incoming, Inc., unless the context indicates another meaning.

 
2

 
 
EXPLANATORY NOTE

Incoming, Inc. (the “Company”) is filing this Amendment No.2 to its quarterly report on Form 10-Q for the fiscal quarter ended August 31, 2010 (“Form 10-Q/A”), which was originally filed with the Securities and Exchange Commission (“SEC”) on November 12, 2010 (the “Original Form 10-Q”), to expand the original Form 10-Q Management Discussion and Analysis section to better describe and quantify underlying material activities that generate revenue variances between periods and to provde a more detailed analysis of the components of the statement of cash flows. The filing of this Form 10-Q/A will not be deemed an admission that the Original Form 10-Q, when made, included any untrue statement of material fact or omitted to state a material fact necessary to make a statement not misleading.  Except as noted above, no information in the Original 10-Q has been changed.
 
 
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PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

The accompanying condensed unaudited financial statements of Incoming, Inc., a Nevada corporation, are condensed and, therefore, do not include all disclosures normally required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the Company's most recent annual financial statements for the year ended November 30, 2009 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on April 15, 2010. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying condensed financial statements and consist of only normal recurring adjustments. The results of operations presented in the accompanying condensed financial statements for the period ended August 31, 2010 are not necessarily indicative of the operating results that may be expected for the full year ending November 30, 2010.
 
Index to the Unaudited Financial Statements
1
   
CONSOLIDATED BALANCE SHEETS
2
   
CONSOLIDATED STATEMENTS OF OPERATIONS
3
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
4
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
 
 
4

 
 
INCOMING, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
 
   
SUCCESSOR
August 31, 2010
   
PREDECESSOR
November 30, 2009
 
             
ASSETS
 
Current Assets
           
Cash
  $ 35,200     $ -  
Accounts receivable, net
    8,550       709  
Accounts receivable, related party
    289,584       -  
Inventory
    65,769       90,523  
Tax credit receivable
    176,988       164,190  
Prepaid expenses
    20,507       -  
Deferred offering costs
    10,000       -  
Other current assets
    7,119       5,788  
Total current assets
    613,717       261,210  
                 
Property and equipment, net
    953,118       202,357  
Construction in progress
    300,460       271,478  
Total assets
  $ 1,867,295     $ 735,045  
                 
   
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
Current liabilities
               
Accounts payable
    590,708       257,253  
Accrued liabilities
    5,330       4,857  
Accounts payable – related party
    14,348       -  
Short term debt – related parties
    283,710       97,500  
Total current liabilities
    894,096       359,610  
                 
Long-term debt
    256,008       284,019  
Total Liabilities
    1,150,104       643,629  
                 
Capital stock $.001 par value; 75,000,000 shares authorized;
  Class A – 18,224,000 shares issued and outstanding
    18,224       -  
  Class B – 1,980,000 shares issued and outstanding
    1,980       -  
Additional paid in capital
    4,504,751       -  
Accumulated deficit
    (3,807,764 )     91,416  
Total stockholders’ equity
    717,191       91,416  
                 
Total liabilities and stockholder's equity
  $ 1,867,295     $ 735,045  

The accompanying notes are an integral part of these financial statements.

 
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INCOMING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

   
Three months ended August 31, 2010
   
Nine months ended August 31, 2010
   
Three months
ended
August 31, 2009
   
Nine months
ended
August 31, 2009
 
                         
   
Predecessor
June 1, 2010
Through
August 23, 2010
   
Successor
June 1, 2010
Through
August 23, 2010
   
Post-Merger
Successor
August 24, 2010
Through
August 31, 2010
   
Predecessor
December 1, 2009
Through
August 23, 2010
   
Successor
December 1, 2009
Through
August 23, 2010
   
Post-Merger
Successor
August 24, 2010
Through
August 31, 2010
   
Predecessor
June 1, 2009
Through
August 31, 2009
   
Predecessor
December 1, 2008
Through
August 31, 2009
 
Revenue
  $ 338,116       3,267       2,291       543,211       35,062       2,291       147,694       296,799  
Cost of revenue
    339,939       -       20,227       454,787       2,676       20,227       181,067       332,430  
Depreciation
    10,548       -       959       33,563       -       959       11,608       34,543  
Gross profit (loss)
    (12,371 )     3,267       (18,895 )     54,861       32,386       (18,895 )     (44,981 )     (70,174 )
                                                                 
Selling, General, and Administrative Expenses
    22,764       3,360,250       25,065       28,928       3,481,665       25,065       45,383       119,587  
                                                                 
Other income (expense)
                                                               
Other income (expense)
    27,332       -       7,137       117,942       -       7,137       27,000       29,640  
Interest income
    -       -       513       -       1,893       513       -       -  
Interest expense
    (2,456 )     (1,812 )     (2,013 )     (9,742 )     (11,090 )     (2,013 )     (3,817 )     (11,444 )
Total other income (expense)
    24,876       (1,812 )     5,637       108,200       (9,197 )     5,637       23,183       (18,196 )
                                                                 
Net Income (Loss)
  $ (10,259 )     (3,358,795 )     (38,323 )     134,133       (3,458,476 )     (38,323 )     (67,181 )     (171,565 )
                                                                 
Net Income (Loss) per Share (Basic and Diluted)
  $ -       (0.23 )     (0.00 )     -       (0.29 )     (0.00 )     -       -  
                                                                 
Weighted Average Number of Common Shares Outstanding (Basic)
    -       14,846,262       20,204,000       -       12,058,000       20,204,000       -       -  

The accompanying notes are an integral part of these financial statements.

 
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INCOMING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

   
Nine months
ended
August 31, 2010
   
Nine months
ended
August 31, 2009
 
     
Predecessor
December 1, 2009
Through
August 23, 2010
   
Post-Merger Successor
August 24, 2010 Through
August 31, 2010
     
Predecessor
December 1, 2008 Through
August 31, 2009
 
Cash Flows from operating Activities
                 
Net income (loss)
  $ 134,133     $ (38,323   $ (171,565
Adjustments to reconcile Net Income
                       
to net cash provided by operations:
                       
Depreciation
    33,563       959       34,543  
Changes in operating assets and liabilities
                       
Accounts receivable
    (291,150     2,300       11,404  
Tax credit receivable
    (12,798     -       -  
Prepaid expenses
    (18,472     3,857       -  
Inventory
    10,209       14,545       65,393  
Other assets
    5,221       (6,552     -  
Accounts payable
    268,288       22,436       (20,504
Other current liabilities
    (4,452     4,925       4,812  
Net cash provided by (used in) operating activities
    124,542       4,147       (75,917
                         
Cash flows from investing activities
                       
Purchase of fixed assets
    (63,900     -       (27,396
Cash flows from financing activities
                       
Borrowings on related party debt
    -       -       97,500  
Principal payments on debt
    (24,166     (8,122     (18,434
Net cash provided by (used in) financing activities
    (24,166     (8,122     79,066  
                         
Net cash increase (decrease) for period
    36,476       (3,975     (24,247
Cash at beginning of period
    -       39,175       38,215  
Cash at end of period
  $ 36,476     $ 35,200     $ 13,968  
                         
Supplemental disclosure of cash flow information:
                       
                         
Cash paid for interest
  $ -       9,742       11,444  
Cash paid for income taxes
    -       -       -  

The accompanying notes are an integral part of these financial statements.

 
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INCOMING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1
Organization, and Summary of Significant Accounting Policies

Organization

We were incorporated in Nevada on December 22, 2006.  Our fiscal year end is November 30. On August 23, 2010, we acquired an existing biodiesel production facility in Lenoir, NC from North American Bio-Energies, LLC (“NABE”).  NABE has December 31 as its fiscal year end.

Successor company references herein are referring to consolidated information pertaining to Incoming, Inc., the registrant.

Predecessor company references herein relate to North American Bio-Energies, LLC, the former owner and manager of the biodiesel production facility (doing business as Foothills Bio-Energies), and its operations at the facility located in Lenoir, North Carolina.

Consolidation
 
The accompanying successor consolidated successor financial statements represent the consolidated operations of Incoming, Inc. and its wholly-owned subsidiary North American Bio-Energies, LLC. Intercompany balances and transactions have been eliminated in consolidation.

 Basis of Presentation – Successor
 
The accompanying unaudited consolidated financial statements as of November 30, 2009 included herein have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management of Incoming, Inc. (the "Company", "us", "our", or "we"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  These financial statements should be read in conjunction with the November 30, 2009 audited financial statements and notes thereto. The balance sheet at November 30, 2009 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accepted accounting principles for complete financial statements.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended November 30, 2009.  The results of operations for the nine-month period ended August 31, 2010 are not necessarily indicative of the results that may be expected for the year.
 
 
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Basis of Presentation – Predecessor
 
These financial statements include the accounts of NABE.  The accompanying financial statements have been prepared to present the statements of financial position of NABE and statements of operations and cash flows of NABE for inclusion in the Company’s Form 10-Q for purposes of complying with the rules and regulations of the Securities and Exchange Commission as required by S-X Rule 8-02. These statements include only those assets, liabilities and related operations of NABE.  The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America using NABE-specific information where available.  These financial statements should be read in conjunction with the financial statements and footnotes included in the Company’s Form 8-K filed on August 24, 2010.

Note 2
Going Concern

These financial statements have been prepared on a going concern basis.  As of August 31, 2010, the Company had a working capital deficiency of $280,379, and had accumulated a deficit of $3,807,764.  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 its 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 to date has funded its initial operations through the issuance of capital stock and 2,000,000 common stock options, loans from related parties, and revenue generated in the normal course of business. Management plans to continue to provide for its capital needs by the issuance of common stock and 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.

Note 3
Related Party Transactions

 
a)
On July 1, 2010, Mr. Andrew Befumo resigned as a director of the Company.  The Company had previously been invoiced by Mr. Befumo’s firm, Befumo & Schaeffer, and had an outstanding balance of $13,897 as of August 31, 2010.
 
 
b)
During the nine months ended August 31, 2010 the company paid for certain expenses of 2outof5, Inc (Related party) for incorporation and other minor expenses.  Two officers of the Company are the owners of 2outof5, Inc.  As of August 31, 2010 the Company had receivables of $25 due from 2outof5, Inc.
 
 
c)
During the nine months ended August 31, 2009, the Predecessor received loan advances from Echols Oil Company (related party) totaling $97,500.  As of August 31, 2010, these amounts are still owed. The Company’s current Chairman and CEO, R. Samuel Bell, Jr. is the owner of Echols Oil Company.

 
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Note 4
Other Material Contracts

On February 1, 2010, the company signed a term sheet with Auctus Private Equity Fund, LLC (the “Term Sheet”) to sell up to $25,000,000 of the Company’s common stock on an as needed best efforts basis after a registration statement is declared effective by the Securities Exchange Commission (SEC).  The term sheet has a non-refundable origination fee of $15,000. As of October 20, 2010, the company has not filed the registration statement.  As of August 31, 2010, $10,000 of the non-refundable fee had been paid and is included in the accompanying consolidated balance sheet as deferred offering costs.  The term sheet with Auctus Private Equity Fund, LLC is non-binding.

On October 8, 2009, the Company entered into an agreement with Ascendant Strategy Group (ASG), to promote speaking engagements.  The contract was amended March 23, 2010.  Terms of the contract called for ASG to perform event planning and coordination of services to the Company to include marketing and booking of speaking engagements for 15 cities.  The company paid $35,000 promotional expense - $8,750 was to be refundable under certain terms of the agreement.  In addition, the Company was to pay 20% commission on any revenue exceeding $40,000.  The contract included a return on investment clause that if the Company had not attained revenues of $59,000 by June 1, 2010, then ASG would return $8,750, and the Company would not be obligated to pay the 20% commission.  As of May 31, 2010, revenues of $59,000 were not achieved and the Company is no longer obligated to pay $7,498 of commission.  As of August 31, 2010, the company received $200 of the refund and $8,550 is receivable.

Note 5
Acquisition of NABE

On August 23, 2010, Incoming acquired North American Bio-Energies (“NABE”), a biodiesel plant in Lenoir, North Carolina, for 990,000 Class A common shares and 1,980,000 Class B common shares valued at $975,914 on the date of acquisition. NABE manufactures and sells biodiesel to petroleum distributors.  On the date of acquisition, Incoming determined that the fair value of the assets and liabilities acquired was more readily determinable than the fair value of the equity interests transferred and therefore used these values for the preliminary purchase price allocation below.  The fair value of the equity interests transferred was not readily determinable because (1) the Class A common shares are thinly traded and (2) there is no active market for the Class B common shares.

Prior to the acquisition, Incoming had de minimis operations. As a result, predecessor financial statements are provided in accordance with S-X Rule 8-02.

The preliminary purchase price allocation is summarized as follows:

Cost of the acquisition:
  $ 975,914  
Allocation of the purchase price:
       
Cash
  $ 36,476  
Accounts receivable
    291,859  
Prepaid expenses
    18,472  
Inventory
    80,314  
Tax credit receivable
    176,988  
Other assets
    567  
Property, plant and equipment
    954,077  
Construction in progress
    300,460  
Accounts payable
    (525,541 )
Accrued liabilities
    (405 )
Long-term debt
    (259,853 )
Related party debt
    (97,500 )
    $ 975,914  
 
 
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The purchase price allocation will be finalized once NABE receives a completed third party appraisal of its equipment.  Management’s estimate of the fair value of NABE’s equipment in the allocation above is based on an appraisal report received in a prior year.  Management has determined that the carrying values of current assets and liabilities approximate their fair values on the acquisition date.  The carrying values of long term and related party debt also approximate their fair values due to their relatively short maturities and interest rates that are not materially different than NABE’s market rate of interest.

Note 6
Equity Transactions

During the nine months ended August 31, 2010, Incoming, Inc. consummated the following equity transactions:

 
1.
$51,020 of debt and accrued interest previously owed to Ephren Taylor, former CEO, was forgiven
 
2.
Sold 10,000 Class A common shares for $5,000
 
3.
Issued 6,460,000 Class A common shares to officers and directors for services valued at $3,294,600
 
4.
Issued 990,000 Class A common shares and 1,980,000 Class B common shares valued at $975,914 to acquire NABE (see Note 5)

Holders of Class A common stock are entitled to one vote for each share of Class A common stock outstanding, are entitled to receive the assets of the Company ratably in proportion to the number of shares held by them, and are entitled to receive dividends for each share held as declared by the Board of Directors.  Holders of Class B common stock are entitled to two votes for each share of Class B common stock outstanding, are entitled to receive the assets of the Company ratably in proportion to the number of shares held by them, and are entitled to receive dividends for each share held as declared by the Board of Directors.

Note 7
Subsequent Events
 
Related Party Transactions
 
On September 14, 2010, the Company entered into a loan agreement with Verde Brazil, Inc. to provide the Company with loans up to  US $50,000. Subsequent to August 31, 2010, the Company received $13,500.  The Company’s current Chairman and CEO, R. Samuel Bell, Jr. is majority owner of Verde Brazil, Inc.
 
 
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On September 1, 2010, the Company entered into a loan agreement with 2 out of 5, Inc. to provide the Company with loans up to $10,000. Subsequent to August 31, 2010, the Company received $2,000. Two officers of the Company are the owners of 2 out of 5, Inc.
 
On September 7, 2010, the Company modified its outstanding related party promissory notes with directors and related parties into convertible debt instruments. Added to each promissory note is a conversion clause that allowed loans to be converted into common shares at $0.51 per share.  Upon execution, the notes were immediately converted as follows:
 
Name
 
Shares
   
Debt Retired
 
Ephren Taylor
    230,256     $ 117,430  
City Capital
    135,026       68,863  
Resilient Innovations
    10,050       5,125  
Total
    375,332     $ 191,418  
 
On September 7, 2010, Mr. Ephren Taylor resigned as Chief Executive Officer and President.
 
On September 7, 2010, R. Samuel Bell, Jr. was appointed as CEO and Chairman of the Board.
 
On September 7, 2010, Victor AbiJaoudi II was appointed as President of the Company.

 
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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 November 30, 2009.
 
Overview
 
Successor company references herein are referring to consolidated information pertaining to the Company, the registrant.
 
Predecessor company references herein are referring to North American Bio-Energies, LLC (“NABE”), the former owner and manager of the biodiesel production facility in Lenoir, NC, and their operations at the facility.
 
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 August 31, 2010, the Company had a working capital deficiency of $280,379, and had an accumulated deficit of $3,807,764 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.

As of November 5, 2010, the Company has funded its initial operations through the issuance of capital stock for cash and loans from the former director and related parties. Management plans to continue to provide for the Company’s capital needs by the issuance of common stock and 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.
 
 
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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 period from inception (December 22, 2006) to August 31, 2010, 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 purchasing off-specification product from neighboring plants and refining batches to meet commercial requirements.  We are also refining stored glycerin byproduct from our 2009 biodiesel production.

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. Glycerin, a 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, about 2% of annual gross 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.

We recently purchased three 7,500-gallon settling tanks and plan to purchase a 10,000-gallon reactor. Once installed and piped in, this new equipment is expected to increase our facility’s annual capacity by as much as 300%. Currently, our facility is utilizing two 3,000 gallon reactors to refine biodiesel. These reactors are also being used as settling tanks to separate the glycerin from the biodiesel; one reactor is refining while the other is dormant during the settling process. By installing settling tanks, each reactor can be freed up to refine more biodiesel. By using a larger reactor, more biodiesel can be refined in each batch.

We currently are partnering with universities and technical colleges to find alternative uses for our byproduct, glycerin. Particularly, North Carolina State University is testing a new nozzle tip for our facility’s boiler that would allow us to use glycerin as a heating source. The facility currently uses natural gas, which is an additional cost in the production process.  At full capacity, switching our facility’s heating source to glycerin will save over $100,000 per year in the cost of natural gas and we will still have glycerin available to sell on the open market.

Our goal is to become the leading, diversified energy company with divisions in production, blending, marketing and distribution. Building on over 30 years of relationships and the experience of our new director, R. Samuel Bell, Jr., we have adopted an acquisition plan that includes the expansion into Brazil’s renewable energy market.
 
Government mandates, strong tax incentives and an auction-based selling platform make Brazil, in management’s view, a potentially profitable climate for clean energy.

 
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Major Performance Factors

Revenue

We derive the majority of our revenue from the sale of biodiesel and the balance is derived from the sale of glycerin. Revenue may be affected by the following factors:

- Price volatility of petroleum diesel;
- Government incentives;
- Processing capacity; and
- Market demand.

Price volatility of petroleum diesel. Biodiesel is primarily used in blends with petroleum diesel as a fuel for trucks, automobiles, heating oil and marine transportation. Biodiesel can be mixed at any level with petroleum diesel to create a biodiesel blend. Unlike ethanol, where engines need to be modified to handle blend ratios above 10%, biodiesel blends can be used in diesel engines without modifications. Petroleum diesel is a traded commodity and subject to daily pricing swings. The price that we can charge our customers for biodiesel needs to be competitive with the price of petroleum diesel fuel, regardless of our cost to produce.

Government incentives. Initiatives and incentives at the federal, state and local government levels that benefit our blending and retail customers play a major role in the demand for our product. The primary federal economic incentive is the biodiesel blenders excise tax credit, which is available to registered blenders of biodiesel and petroleum diesel.  Our customers are registered biodiesel blenders, they purchase the biodiesel from us at a price of $1.00 in excess of the market price of petroleum diesel and then our customers are reimbursed the $1.00 from the federal government. The biodiesel tax credit expired on December 31, 2009. Although Congress has included the extension of this credit on multiple bills and we believe the likelihood of it passing appears high, no assurance can be given that the tax incentive will be restored by Congress.  Additionally, the State of South Carolina has an incentive in place for retailers of biodiesel.  The retailer receives 25 cents per gallon for every gallon of biodiesel that they blend with petroleum diesel at their stores. The existence of government incentives affects the price our customers are willing to pay. The absence of such efforts may adversely affect our ability to generate revenue.

Processing capacity. Our current annual maximum (assuming the facility is running 24 hours a day, 350 days per year) or “nameplate” capacity is 5.0 million gallons; however, our highest production output was 914,000 gallons in 2009.  Production volume decreased in the first quarter due to the biodiesel tax credit expiring on December 31, 2009. As a result, the market price of biodiesel effectively increased by $1.00.  Profit margins were eliminated forcing management to pursue other revenue generating sources, such as, refining the glycerin stored at the Company’s facilities as well as purchasing off-specification product from neighboring plants.  Pending the extension of the tax credit and additional funding from investors, we expect our 2011 processing capacity to increase by a minimum of 300%.  If the tax credit is not reinstated, we will continue to seek out clients that can use our facility for other chemical manufacturing processes.

Market demand. The growth potential of our revenue depends on the market demand for our products. We believe there is high growth potential for our sales given the increase of national “green” initiatives, the cooperation of U.S. auto manufacturers and the mandate by the EPA to require the use of 800 million gallons of biodiesel in 2011.

Cost of Sales

The cost of sales is composed of the following items: raw materials, blending materials, labor and overhead. Raw materials refer to feedstock, which accounts for approximately 70% of the total cost of sales. Blending materials refer to methanol and catalyst, which combined account for approximately 12% of the total cost of sales. Labor cost is low and only makes up a small portion of the cost of sales. Overhead includes utilities, maintenance costs, and inspections, and accounts for approximately 16% of the total cost of sales.
 
Cost of sales is, directly or indirectly, determined by the following factors:

- The availability and pricing of feedstock; and
- Operating efficiency of the production facility.

The availability and pricing of feedstock. Our ability to produce or refine biodiesel from a variety of agri-based feedstocks allows us to shift production to the highest yielding feedstocks based on market prices. While this diversity limits exposure to volatile markets, feedstock remains the major cost of sales and its fluctuation will have a material impact on our total cost. Transportation costs also affect the overall feedstock cost, but are minimized due to the location of our facility in North Carolina. There is a readily available supply of local feedstocks including soy, canola, sunflower and chicken/pork fat. Competition with the food and animal feed industries may keep feedstock prices high even while biodiesel prices fall.
 
 
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Operating efficiency of the production facility. Our onsite laboratory saves us significant time and expense during the biodiesel production and refining process and it also allows us to ensure a high quality finished product.  All feedstocks are tested for quality and for their fatty acid levels upon receipt, allowing us to adjust the mix of catalysts and methanol in a quick and efficient manner. At multiple times during the refining process, additional samples are taken and tested for quality on site. The finished product is ultimately tested to ensure that it meets the ASTM-D6751 standards. With the frequency of testing needed, an onsite laboratory saves money and time that would have been spent sending samples off and waiting for results.

We are making improvements to increase the efficiency of our production process, including the reuse of the refining byproduct glycerin. We have begun testing a nozzle tip that will allow us to use glycerin as a heating source for our boiler, lowering the expense and need for the currently used natural gas. Additionally, the installation of three new 7,500-gallon settling tanks and a new 10,000-gallon reactor will decrease batch-processing time and increase overall processing capacity.

Operating Expenses

Operating expenses consist of selling expenses and general and administrative expenses. Generally, operating expenses are only a small portion of total costs and expenses.

Selling expenses are nominal as we have no advertising expenses and no sales staff due to our verbal off-take agreements with related party distributors.

General and administrative expenses consist of payroll for our plant manager and clerical staff in addition to professional fees, telephone, tax, and licenses and related fees.  Professional fees include environmental consultants necessary for compliance. We expect an increase in administrative expenses as a public company as we will undergo and redesign our internal control system and processes.

Acquisition of North American Bio-Energies, LLC ("NABE")

On August 23, 2010, the Company acquired NABE for 990,000 Class A common shares and 1,980,000 Class B common shares valued at $975,914 on the date of acquisition.  The purchase price allocation is summarized as follows:
 
Cost of the acquisition:
  $ 975,914  
Allocation of the purchase price:
       
Cash
  $ 36,476  
Accounts receivable
    291,859  
Prepaid expenses
    18,472  
Inventory
    80,314  
Tax credit receivable
    176,988  
Other assets
    567  
Property, plant and equipment
    954,077  
Construction in progress
    300,460  
Accounts payable
    (525,541 )
Accrued liabilities
    (405 )
Long-term debt
    (259,853 )
Related party debt
    (97,500 )
    $ 975,914  
 
 
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Results of Operations

The following is a discussion and analysis of our results of operations for the nine-month period ended August 31, 2010, and the factors that could affect our future financial condition. This discussion and analysis should be read in conjunction with our audited 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
The Predecessor generated revenues of $338,116 for the period June 1, 2010 through August 23, 2010.  Revenue generated during the period was due primarily to an arrangement with a neighboring plant for purchasing off-specification product at deeply discounted rates and further refining the product to commercial grade (ASTM D6751) specifications.  The absence of affordable feedstock made this type of arrangement profitable; however, it is not likely that this arrangement will continue to be available. Of the total sales, approximately $305,000 was related to re-processed off-specification biodiesel with the balance attributable to the sale of de-methylated glycerin.

The Predecessor generated revenues of $543,211 for the period December 1, 2009 through August 23, 2010.  The bulk of the revenue generated during the period was associated with the sales associated with the period June 1, 2010 through August 23, 2010 (described above).  The balance of the sales during the period was attributable to sales of biodiesel produced through an arrangement with a local soy farmer (toll-blending).  Our plant received tolling revenue for converting the farmer’s soy oil into biodiesel.

On a post-merger basis, we generated $2,291 in revenues for the period August 24 through August 31, 2010. Revenue for the post-merger period was generated through the sale of de-methylated glycerin. Methanol was removed from glycerin that had been stored at the plant since being generated during 2009 production runs, which resulted in the de-methylated glycerin being available for sale.

During the three months ended August 31, 2009, the Predecessor generated $147,694 in revenues. For the period June 1, 2009 through August 31, 2009, the Predecessor’s revenues were derived primarily from the sale of toll-blended biodiesel products, and de-methylated glycerin.

During the nine months ended August 31, 2009, the Predecessor generated $296,799 in revenues. For the period December 1, 2008 through August 31, 2009, the Predecessor’s revenues were derived primarily from the sale of biodiesel products (including toll-blended biodiesel), methylated glycerin, and de-methylated glycerin.

Comparing the Predecessor’s activity for the three-month period ended August 23, 2010 to the three-month period ended August 31, 2009, there was an increase in revenue of $190,422 as the balance rose from $147,694 to $338,116.  The period-over-period increase was due in large part to selling more products. Considering period-over-period balances, biodiesel sales increased by approximately 94,000 gallons while sales of de-methylated glycerin increased by approximately 153,000 pounds. Offsetting the increased sales volumes was an approximate $0.70 per gallon decrease in the average market price for biodiesel.

Comparing the Predecessor’s activity for the nine-month period ended August 23, 2010 to the nine-month period ended August 31, 2009, there was an increase in revenue of $246,412 as the balance rose from $296,799 to $543,211. The period-over-period increase was due in large part to selling more biodiesel, sales of which increased by approximately 106,390 gallons. Offsetting the increased sales volumes was an approximate $0.20 per gallon decrease in the average market price for biodiesel. De-methylated glycerin sales experienced a decrease of approximately 59,300 pounds, but its selling price increased by $0.01 per pound.

Cost of Revenue
Cost of revenue for the Predecessor totaled $339,939 for the period June 1, 2010 through August 23, 2010.  For the same period, cost of revenue consists of labor, overhead, and material costs associated with re-processing off-specification biodiesel from neighboring plants.
 
 
 
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Cost of revenue for the Predecessor totaled $454,787 for the period December 1, 2009 through August 23, 2010.  For the same period, cost of revenue consists of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, direct labor and overhead costs.

On a post-merger basis, our cost of revenue was $20,227 for the period August 24 through August 31, 2010. Cost of revenue for the August 24, 2010 through August 31, 2010 period was associated with an inventory revaluation resulting from period-end observations.
 
For the Predecessor’s prior three month period ended August 31, 2009, cost of revenue was $181,067 and consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, direct labor and overhead costs.

For the Predecessor’s prior nine month period ended August 31, 2009, cost of revenue was $332,430 and consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, direct labor and overhead costs.

Comparing the Predecessor’s activity for the three-month period ended August 23, 2010 to the three-month period ended August 31, 2009, there was an increase in cost of revenues of $158,872 as the balance rose from $181,067 to $339,939.  The period-over-period increase was due in large part to having produced more biodiesel. Considering period-over-period balances, the cost to produce biodiesel decreased by approximately $0.40 per gallon. This decrease was due primarily to advantageous purchasing and re-processing of distressed product. Glycerin, a co-product of the biodiesel production process, has no material cost assigned to it. The process for removing the methanol from the glycerin is captured as a cost of revenue. This cost of revenues increased $13,000 as the number of pounds being de-methylated increased by 153,000 pounds on a period-over-period basis. Period-over-period costs for utilities remained basically unchanged.

Comparing the Predecessor’s activity for the nine-month period ended August 23, 2010 to the nine-month period ended August 31, 2009, there was an increase in cost of revenues of $122,357 as the balance rose from $332,430 to $454,787. The period-over-period increase was due in large part to having produced more biodiesel. Considering period-over-period balances, the cost to produce biodiesel decreased by approximately $0.03 per gallon. This per-gallon decrease resulted from the offsetting effects of selling 73,600 fewer gallons of toll-blended products while selling 272,300 more gallons of biodiesel that was either produced in-house or re-processed from off-specification material. Glycerin, a co-product of the biodiesel production process, has no material cost assigned to it. The process for removing the methanol from the glycerin is captured as a cost of revenue. This cost of revenues decreased $7,500 as the number of pounds being de-methylated decreased by 59,300 pounds on a period-over-period basis. Considering the direct labor component of the period-over-period change, there was a decrease of approximately $34,000 due to fewer employees being utilized. Re-processing distressed product required fewer laborers than producing biodiesel through the normal production process. Period-over-period costs for utilities remained basically unchanged.

Depreciation
Depreciation expense for the Predecessor totaled $10,548 for the period June 1, 2010 through August 23, 2010.

Depreciation expense for the Predecessor totaled $33,565 for the period December 1, 2009 through August 23, 2010.

On a post-merger basis, depreciation expense was $959 for the period August 24 through August 31, 2010.

During the three months ended August 31, 2009, the Predecessor had a depreciation expense equal to $11,608.

During the nine months ended August 31, 2009, the Predecessor had a depreciation expense equal to $34,543.

Gross Profit
Gross profit for the Predecessor was a loss totaling ($12,371) for the period June 1, 2010 through August 23, 2010.  The primary reason for the gross profit loss during the period was depreciation. Biodiesel sold for approximately the same as the cost to produce during the period.
 
 
 
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Gross profit for the Predecessor totaled $54,861 for the period December 1, 2009 through August 23, 2010 as biodiesel was selling for more than the cost to produce due to the advantageous arrangement for selling re-processed off-specification product from neighboring plants.

On a post-merger basis, gross profit was a loss of ($18,895) for the period August 24, 2010 through August 31, 2010. The loss during the post-merger period was primarily due to inventory valuation reduction resulting from the period-end inventory observation of methylated glycerin.

During the three months ended August 31, 2009, the Predecessor had a gross profit loss equal to ($44,981). The Predecessor’s gross profit loss for the three months ended August 31, 2009 was attributable to rising feedstock prices during a period of declining biodiesel market prices.

During the nine months ended August 31, 2009, the Predecessor had a gross profit loss equal to ($70,174). The Predecessor’s gross profit loss for the nine months ended August 31, 2009 was attributable to rising feedstock prices during a period of declining biodiesel market prices.

Selling, General and Administrative (SG&A) Expenses
SG&A expenses for the Predecessor totaled $22,764 for the period June 1, 2010 through August 23, 2010.  During the same period, the Predecessor’s SG&A expenses were primarily comprised of payroll, professional fees associated with grant writing and research.

SG&A expenses for the Predecessor totaled $28,928 for the period December 1, 2009 through August 23, 2010.  During the period December 1, 2009 through August 23, 2010, the Predecessor’s SG&A expenses were primarily comprised of payroll, charges for re-permitting the biodiesel production facility in Lenoir, North Carolina, professional fees associated with grant writing and research, and one-time property rental charges.

On a post-merger basis, the Company had SG&A expenses of $25,065 for the period August 24 through August 31, 2010. SG&A expenses during the post-merger period were primarily associated with legal and accounting fees associated with the acquisition of NABE.

During the three months ended August 31, 2009, the Predecessor had SG&A expenses of $45,383. The primary contributors to the Predecessor’s prior year SG&A were payroll, consulting expenses paid to the prior owners, an inventory revaluation resulting from the decrease in biodiesel market price.

During the nine months ended August 31, 2009, the Predecessor had SG&A expenses of $119,587. The primary contributors to the Predecessor’s prior year SG&A were payroll, consulting expenses paid to the prior owners, an inventory revaluation resulting from the decrease in biodiesel market price, charges for re-permitting the biodiesel production facility in Lenoir, North Carolina, and rent expense on the property.

Comparing the Predecessor’s activity for the three-month period ended August 23, 2010 to the three-month period ended August 31, 2009, there was a decrease in SG&A expenses of $22,619 as the balance dropped from $45,383 to $22,764.  The period-over-period decrease was due in large part to rent paid to the landlord on the property leased for the biodiesel production facility in Lenoir, North Carolina. The landlord was late in presenting the rent bill, which is contractually agreed to be equal to the property tax on the facility. An adjusting entry for $21,100 had to be made during the period June 1, 2009 through August 31, 2009 to account for the rent. This entry was not present during the period June 1, 2010 through August 23, 2010. All other SG&A costs remained essentially unchanged on a period-over-period basis.

Comparing the Predecessor’s activity for the nine-month period ended August 23, 2010 to the nine-month period ended August 31, 2009, there was a decrease in SG&A expenses of $90,659 as the balance decreased from $119,587 to $28,928. The period-over-period decrease is primarily attributable to expenses incurred during the period ended August 31, 2009 that did not recur during the nine months ending August 23, 2010. The largest contributors to the period-over-period difference were an inventory revaluation ($40,600), taxes paid as rent to the landlord ($21,000), and re-permitting fees ($13,400).

 
 
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Other Income
Other Income for the Predecessor totaled $27,332 for the period June 1, 2010 through August 23, 2010.  The primary source of the Other Income during the period was grant funding the Predecessor received from the North Carolina Department of Energy and Natural Resources and from the Carolina Land & Lakes Grant.

Other Income for the Predecessor totaled $117,942 for the period December 1, 2009 through August 23, 2010.  The primary source of the Other Income during the period was grant funding the Predecessor received from the North Carolina Department of Energy and Natural Resources and from the Carolina Land & Lakes Grant.

On a post-merger basis, the Company had Other Income of $7,137 for the period August 24 through August 31, 2010. The primary source of the Other Income for the post-merger Company was the sale of RIN-gallons (EPA-regulated, market-traded commodities generated during biodiesel production) and grant funding.

During the three months ended August 31, 2009, the Predecessor had Other Income of $27,000, which was associated with grant funding from the Carolina Land & Lakes Grant.

During the nine months ended August 31, 2009, the Predecessor had Other Income of $29,640, which was primarily associated with grant funding from the Carolina Land & Lakes Grant.

Interest Income
The Predecessor had no interest income for the period June 1, 2010 through August 23, 2010.

The Predecessor had no interest income for the period December 1, 2009 through August 23, 2010.

On a post-merger basis, the Company had interest income of $513 for the period August 24, 2010 through August 31, 2010.

During the three months ended August 31, 2009, the Predecessor had no interest income.

During the nine months ended August 31, 2009, the Predecessor had no interest income.

Interest Expense
Interest expense for the Predecessor was $2,456 for the period June 1, 2010 through August 23, 2010.

Interest expense for the Predecessor was $9,742 for the period December 1, 2009 through August 23, 2010.

On a post-merger basis, the Company had interest expense of $2,013 for the period August 24 , 2010 through August 31, 2010.

During the three months ended August 31, 2009, the Predecessor had interest expense of $3,817.

During the nine months ended August 31, 2009, the Predecessor had interest expense of $11,444.

Net Income (Loss)
Net income for the Predecessor was a loss of ($10,259) for the period June 1, 2010 through August 23, 2010.

Net income for the Predecessor was $134,133 for the period December 1, 2009 through August 23, 2010.

On a post-merger basis, the Company had a net loss of ($38,323) for the period June 1, 2010 through August 31, 2010.

During the three months ended August 31, 2009, the Predecessor had a net loss of ($67,181).

During the nine months ended August 31, 2009, the Predecessor had a net loss of ($171,565).

 
 
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Debt Obligations and Commitments

Contractual Obligations
 
Total
   
Less than one year
   
1 - 3 Years
   
3 - 5 Years
   
More than 5 Years
 
Term loan (1)
  $ 21,352       21,352       -       -       -  
Term loan (2)
    234,596       46,425       100,467       87,704          
Demand note - related party (3)
    97,500       97,500       -       -       -  
                                         
Total
  $ 353,448       165,277       100,467       87,704       -  
_______________________
(1) Variable rate term loan dated November 7, 2006 in the original principal amount of $100,000 payable to BB&T Bank by NABE in monthly principal and interest installments of $2,125. Interest is calculated at a variable rate equal to prime plus one percent. For purposes of calculating total obligations due under this term loan, the prime rate, as of August 31, 2010, the date of calculation, was five and a quarter percent (5.25%). This note matures on November 10, 2011, is secured, and contains a cross default provision that will result in the imposition of a default interest rate equal to the lender’s prime rate plus 5% in the event of default of any loan agreement. This note was amended on May 22, 2007, the date that Mr. Bell purchased the membership interests of two of the founding members of NABE. The modification occurred to remove the previous members of NABE as payors on the note and to include Mr. Bell as a payor. The proceeds from this note were used to purchase lab and processing equipment. The information presented regarding this term loan is as of August 31, 2010. The foregoing description constitutes all of the material terms of this loan and is qualified in its entirety by reference to Exhibit 4.2, which is incorporated herein by reference.

(2) Variable rate term loan dated November 7, 2006 in the original principal amount of $250,000 payable to BB&T Bank by NABE in monthly principal and interest installments of $4,805. Interest is calculated at a variable rate equal to prime plus one percent. For purposes of calculating total obligations due under this term loan, the prime rate, as of August 31, 2010, the date of calculation, was five and a quarter percent (5.25%). This note matures on April 25, 2015, is secured, and contains a cross default provision that will result in the imposition of a default interest rate equal to the lender’s prime rate plus 5% in the event of default of any loan agreement. This note was amended on April 27, 2010 to convert it from a line-of-credit loan to a term loan. The proceeds from this note were used to purchase additional processing equipment. The information presented regarding this term loan is as of August 31, 2010. The foregoing description constitutes all of the material terms of this loan and is qualified in its entirety by reference to Exhibit 4.3, which is incorporated herein by reference.

(3) Unsecured non-interest bearing demand loan payable to Echols Oil Company, Inc., a related party. For additional information regarding this loan, please refer to "Certain Relationships and Related Transactions and Director Independence." The information presented regarding this loan is as of August 31, 2010.

Liquidity and Capital Resources

Working Capital
   
Post-Merger
Successor
As of August 31,
2010
   
Predecessor
As of November 30,
2009
 
Current Assets
  $ 613,717     $ 261,210  
Current Liabilities
    894,096       359,610  
                 
Working Capital Deficiency
    (280,379 )     (98,400 )
                 
Accumulated Deficit
    (3,807,764 )     91,416  



Cash Flows
   
Predecessor
December 1, 2009 through
August 23, 2010
   
Post-Merger
Successor
August 24, 2010 through
August 31, 2010
   
Predecessor
Nine months
Ended
August 31, 2009
 
Cash provided by (used in) operating activities
  $ 124,542     $ 4,147     $ (75,917 )
Cash provided by (used in) investing activities
    (63,900 )     -       (27,396 )
Cash provided by (used in) financing activities
    (24,166 )     (8,122 )     79,066  
Net increase (decrease) in cash
    36,476       (3,975 )     (24,247 )


 
 
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As of August 31, 2010, our post-merger current assets totaling $613,717 consisted of cash, accounts receivable, inventory, tax credits receivable, deferred offering costs, other current assets and prepaid expenses.  Our post-merger accounts payable and accrued liabilities and current portion of amounts due to related parties and third parties were $894,096 for the period ended August 31, 2010.  As a result, we had a working capital deficiency of $280,379.

Current assets for the Predecessor totaled $261,210 for the period ended November 30, 2009. Current liabilities for the Predecessor totaled $359,610 for the period ended November 30, 2009, which resulted in a working capital deficiency of $98,400.

To August 31, 2010, the Company has funded its initial operations through the issuance of 20,204,000 shares of capital stock (18,224,000 shares of Class A stock and 1,980,000 shares of Class B stock), loans from the former director, loans from related parties, and loans from third parties.

We expect to incur losses as the business expands. To date, our cash flow requirements have been primarily met by equity financings and cash advances from the Company's former Director and related parties. 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 (Used In) Operating Activities

Prior to the Company’s acquisition of NABE, the Predecessor’s cash provided by operating activities totaled $124,542 during the period December 1, 2009 through August 23, 2010. For the Predecessor during the period December 1, 2009 through August 23, 2010, cash provided by operating activities was primarily derived from sales of biodiesel to related parties.

During the period August 24, 2010 through November 30, 2010, the post-merger Company’s cash provided by operating activities totaled $4,147. For the period August 24, 2010 through August 31, 2010, the post-merger Company’s cash provided by operating activities was primarily due to the sale of de-methylated glycerin to third parties.

During the nine months ended August 31, 2009, the Predecessor’s cash used in operating activities totaled $75,917.  For the nine months ended August 31, 2009, the Predecessor's cash used in operations was generally due to rising costs for feedstock and other raw materials associated with producing biodiesel.

Cash Provided By (Used In) Investing Activities

Prior to the Company’s acquisition of NABE, the Predecessor’s cash used in investing activities totaled S63,900 for the period December 1, 2009 through August 23, 2010. During the period December 1, 2009 through August 23, 2010, the Predecessor's cash used in investing activities was used make progress payments on a candle filter and further costs associated with the process chiller.

During the period August 24, 2010 through August 31, 2010, the post-merger Company had no investing activities.

During the nine months ended August 31, 2009, the Predecessor’s cash used in investing activities totaled $78,769.  For the nine months ended August 31, 2009, cash used in investing activities was used for the installation of a process chiller at our facility.


 
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Cash Provided By (Used In) Financing Activities

Prior to the Company’s acquisition of NABE, the Predecessor’s cash used in financing activities totaled $24,166 for the period December 1, 2009 through August 23, 2010. During the period December 1, 2009 through August 23, 2010, the Predecessor's cash used in financing activities represented payments on debt obligations.

During the period August 24, 2010 through August 31, 2010, the post-merger Company’s cash used in financing activities totaled $8,122. For the period August 24, 2010 through August 31, 2010, the post-merger Company's cash used in financing activities represented payments on debt obligations.

During the nine months ended August 31, 2009, the Predecessor’s cash provided by financing activities totaled $79,066.  For the twelve months ended August 31, 2009, the Predecessor's cash provided by financing activities was primarily a result of borrowings from related parties.
 
 
 
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Operating Costs and Expenses

The increase in our operating costs during the nine months ended August 31, 2010, compared to the same period in fiscal 2009, was due mainly to charges for re-permitting the biodiesel production facility in Lenoir, North Carolina, professional fees associated with grant writing and research, and one-time property rental charges.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
 
 
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ITEM 4. CONTROLS AND PROCEDURES.
 
(a)      Evaluation of Disclosure Controls and Procedures
 
As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) of our disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the CEO concluded that our disclosure controls and procedures were not effective as of August 31, 2010 due to accounting errors related to stock based compensation and our inability to timely file our Form 10-Q for the period ended August 31, 2010.
 
(b)      Changes in Internal Controls Over Financial Reporting
 
There were no changes that occurred during the first quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 

PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

Currently, we are not involved in any pending litigation or legal proceeding.

ITEM 1A. RISK FACTORS.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. OTHER INFORMATION.

None.
 
 
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ITEM 5. EXHIBITS.

The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:


*filed herewith
(1) Incorporated by reference to the Form S-1 registration statement filed on June 30, 2008.

 
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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
May 6, 2011    
     
  INCOMING, INC.  
       
 
By:
/s/ Eric Norris  
    Eric Norris  
    VP, Finance  
    (Principal Financial Officer)   
       
    (On behalf of the registrant and as principal financial officer)  
 
 
 
 
 
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