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EX-31.1 - SARBANES-OXLEY SECTION 302(A) CERTIFICATION - Incoming, Inc.ex-31_1.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q/A

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarter ended June 30, 2012
   
 
OR
   
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 333-152012
 
Incoming, Inc.
(Exact name of registrant as specified in its charter)
 
Nevada
(State or other jurisdiction of incorporation or organization)

244 5th Avenue, Ste V235
New York, NY 10001
(Address of principal executive offices, including 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 o
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-Y (§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 x NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer o
   
Non-accelerated filer o
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of July 31, 2012, there are 29,274,332 shares of Class A common 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.
 
 
 

 
EXPLANATORY NOTE
 
The sole purpose of this amendment to Incoming, Inc. Quarterly Report on Form 10-Q (the “Form 10-Q”) for the period ended June 30, 2012, as filed with the Securities and Exchange Commission on August 14, 2012, is to furnish Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T. Exhibit 101 provides the financial statements and related notes from the Form 10-Q formatted in XBRL (eXtensible Business Reporting Language).
 
No other changes have been made to the Form 10-Q. This Amendment No. 1 to the Form 10-Q does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the original Form 10-Q. 
 
 
 

 

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 December 31, 2011 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on April 16, 2012. 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 June 30, 2012 are not necessarily indicative of the operating results that may be expected for the full year ending December 31, 2012.


 
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INCOMING, INC.
(unaudited)
 
   
June 30, 2012
   
December 31, 2011
 
             
ASSETS
 
Current Assets
           
Cash
  $ 135,325     $ 122,727  
Accounts receivable, trade
    16,032       223,323  
Accounts receivable, related parties
    301,700       235,280  
Inventory
    40,594       69,323  
Tax credit receivable
          80,412  
Prepaid expenses
    16,128       7,947  
Other current assets
    100       100  
Total current assets
    509,879       739,112  
                 
Property and equipment, net
    630,991       688,225  
Construction in progress
    170,700       227,000  
Total assets
  $ 1,311,570     $ 1,654,337  
                 
   
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities
               
Accounts payable
    349,840       533,002  
Short term debt
    57,802       52,204  
Accrued liabilities
    18,370       14,605  
Accounts payable – related parties
    325,072       321,540  
Short term debt – related parties
          10,000  
Total current liabilities
    751,084       931,351  
                 
Long-term debt
    96,485       121,813  
Total Liabilities
    847,569       1,053,164  
                 
Capital stock $.001 par value; 75,000,000 shares authorized
               
Class A – 29,274,332 and 28,774,332 shares issued and outstanding
    29,274       28,774  
Convertible Class B – 1,980,000 shares issued and outstanding
    1,980       1,980  
Additional paid in capital
    6,119,564       6,103,397  
Accumulated deficit
    (5,686,817 )     (5,532,978 )
Total stockholders’ equity
    464,001       601,173  
                 
Total liabilities and stockholders’ equity
  $ 1,311,570     $ 1,654,337  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
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INCOMING, INC.
(unaudited)
 
   
Three months ended
June 30,
2012
   
Three months ended
June 30,
2011
   
Six months ended
June 30,
2012
   
Six months ended
June 30,
2011
 
                                 
Revenue
  $ 36,865     $ 247,825     156,476     $ 251,852  
Renewable identification number sales
    105,175       154,722       105,175       178,376  
Revenue from related parties
    49,360       34,727       68,820       85,671  
Total revenue
    191,400       437,274       330,471       515,899  
                                 
Cost of revenue
    170,524       139,273       400,287       217,119  
Cost of revenue from related parties
          159,582       -       159,582  
Depreciation
    33,265       15,353       52,978       30,706  
Gross profit (loss)
    (12,389 )     123,066       (122,794 )     108,492  
                                 
Selling, General, and Administrative Expenses
    31,412       232,438       60,152       366,957  
Gain on forgiveness of trade payables
                (30,000 )      
Loss on impairment of fixed assets
    73,790             73,790        
                                 
Other income (expense)
                               
Grant and other income
    19,429       49,878       77,518       49,878  
Interest income
          617             1,203  
Interest expense
    (2,205 )     (2,869 )     (4,621 )     (5,943 )
Total other income (expense)
    17,224       47,626       72,897       45,138  
                                 
Net Loss
  $ (100,367 )   $ (61,746 )   (153,839 )   $ (213,327 )
                                 
Net Loss per Class A Common Share (Basic and Diluted)
  $ (0.00 )   $ (0.00 )   $ (0.01 )   $ (0.01 )
Net Loss per Class B Common Share (Basic and Diluted)
  $ (0.05 )   $ (0.03 )   $ (0.08 )   $ (0.11 )
Weighted Average Number of Class A Common Shares Outstanding (Basic and Diluted)
    29,274,332       18,640,999       29,084,772       18,527,457  
Weighted Average Number of Class B Common Shares Outstanding (Basic and Diluted)
    1,980,000       1,980,000       1,980,000       1,980,000  
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
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INCOMING, INC.
(unaudited)

   
Six months ended
June 30,
2012
   
Six months ended
June 30,
2011
 
Cash flows from operating Activities
           
Net loss
  $ (153,839 )   $ (213,327 )
 
               
Adjustments to reconcile net loss to net cash provided by (used in) operations:
               
Stock based compensation
    16,667       165,208  
Gain on forgiveness of trade payables
    (30,000 )      
Loss on impairment of fixed assets
    73,790        
Depreciation
    52,978       30,706  
Changes in operating assets and liabilities
               
Accounts receivable
    207,291       (55,033 )
Accounts receivable – related party
    (66,420 )     46,520  
Tax credit/other receivables
    80,412       (133,681 )
Prepaid expenses & other current assets
    374       (5,663 )
Inventory
    28,729       (28,678 )
Other assets
          617  
Accounts payable
    (153,162 )     155,325  
Accounts payable – related party
    3,532       (57,253 )
Accrued expenses
    3,765       14  
                 
Net cash provided by (used in) operating activities
    64,117       (95,245 )
Cash flows from investing activities
               
Purchase of fixed assets
    (13,234 )     (25,851 )
Net cash used in investing activities
    (13,234 )     (25,851 )
Cash flows from financing activities
               
Payments on related party debt
    (10,000 )     (30,000 )
Principal payments on debt
    (28,285 )     (26,944 )
                 
Net cash used in financing activities
    (38,285 )     (56,944 )
Net cash increase (decrease) for period
    12,598       (178,040 )
                 
Cash at beginning of period
    122,727       191,272  
                 
Cash at end of period
  $ 135,325     $ 13,232  
                 
Supplemental disclosure of cash flow information
               
                 
Cash paid for interest
  $ 4,621       5,943  
                 
Cash paid for income taxes
           
Non-cash investing and financing activities:
               
Construction in process transferred to property and equipment
    56,300        
Unpaid additions to prepaid expenses
    8,555        
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 
 
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INCOMING, INC.
(unaudited)
 
Note 1
Organization, and Summary of Significant Accounting Policies
   
 
Organization
   
 
Incoming, Inc. (“We”, “our” or “the Company”) was incorporated in Nevada on December 22, 2006.  Our subsidiary North American Bio-Energies, LLC operates a biodiesel production facility doing business as Foothills Bio-Energies in Lenoir, North Carolina.
   
 
Reclassifications
   
 
We have reclassified certain prior-year amounts to conform to the current year’s presentation.
   
 
Consolidation
   
 
The accompanying consolidated 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.
   
Note 2
Going Concern
   
 
These financial statements have been prepared on a going concern basis.  As of December 31, 2011, the Company had a working capital deficiency of $192,239, and had accumulated a deficit of $5,532,978.  As of June 30, 2012, the Company had a working capital deficiency of $241,205, and had accumulated a deficit of $5,686,817.  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 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
   
 
NABE sells a portion of its finished goods to Verde Bio Fuels and Echols Oil Company, companies owned by Incoming, Inc’s CEO, R. Samuel Bell, Jr. During the six months ended June 30, 2012, sales to these related companies were $68,820. As of June 30, 2012, the
 
 
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  Company had outstanding receivables from these companies of $301,700. As of June 30, 2012, the Company had outstanding payables to these companies of $325,072.  During the current period, $10,000 in related party debt was repaid and there is no more short-term debt payable to related parties.
   
Note 4
Impairment of Fixed Assets
   
 
During the six months ended June 30, 2012, NABE placed steel vertical storage tanks into service. These tanks had previously been reflected in the Construction in Process line item of the balance sheet. Placing the tanks in service allowed the biodiesel production facility in Lenoir to store its crude glycerin and recovered methanol in vessels other than storage totes. The totes were in service for five years and, as a result of extensive usage, evaluated to be unsuitable for selling or for using in other applications at the plant. As a result, the Company declared the assets impaired and recorded a loss on impairment of $73,790.
   
Note 5
Gain on Forgiveness of Trade Payables
   
 
The Company recognized a gain on forgiveness of trade payables of $30,000 for the period January 1, 2012 through June 30, 2012. This $30,000 reduction of the Company’s trade payable balance resulted from forgiveness on third-party payables.
   
Note 6
Equity Transactions
   
 
During the six months ended June 30, 2012, Incoming consummated the following equity transactions:
 
 
1.
On October 18, 2011, the Company sold 250,000 Class A Common Shares and warrants to purchase 250,000 Class A Common shares for $100,000. The warrants, which were exercisable immediately upon issuance at $0.40 per share, were never exercised and all of the outstanding warrants expired on April 18, 2012. No other options or warrants were outstanding during the six months ended June 30, 2012.
     
 
2.
On June 9, 2011, the Company granted 2,000,000 shares of Class A Common Stock to a director with a fair value of $300,000. 500,000 of the shares vested immediately and 500,000 shares have vested each quarter through March 2012. During the six months ended June 30, 2012, the Company issued the remaining 500,000 Class A Common shares in conjunction with this grant and recognized the remaining $16,667 of stock-based compensation. As of June 30, 2012, the Company had issued the full 2,000,000 shares related to this grant.
 
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
 
 
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expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this annual report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
 
The following discussion provides an analysis of the results of our operations, an overview of our liquidity and capital resources and other items related to our business. The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited financial statements and notes included in our Annual Report on Form 10-K as of and for the year ended December 31, 2011.
 
Overview
 
Company references herein are referring to consolidated information pertaining to Incoming, Inc., the registrant.
 
The following discussion is an overview of the important factors that management focuses on in evaluating our businesses, financial condition and operating performance and should be read in conjunction with the financial statements included in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward looking statements as a result of any number of factors, including those set forth in this Quarterly Report and elsewhere in the Company’s Annual Report on Form 10-K and other public filings.
 
All written and oral forward-looking statements made in connection with this Quarterly Report on Form 10-Q that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.
 
Going Concern
 
The financial statements presented in this document have been prepared on a going-concern basis. As of June 30, 2012, the Company had a working capital deficiency of $241,205, and had an accumulated deficit of $5,686,817, since inception. Its ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted with any certainty at this time. These factors raise substantial doubt that the Company will be able to continue as a going concern.
The Company has funded its initial operations through the issuance of capital stock and loans from a former director and related parties. Management plans to continue to provide for the Company’s capital needs through the issuance of common stock and through related party advances. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.
 
We do not expect to generate sufficient revenue to sustain operation during the next twelve months. Consequently, we will continue to depend on additional financing in order to maintain our operations and continue with our corporate activities. Based on these uncertainties, our independent auditors included additional comments in their report on our financial statements as of and for the year ended December 31, 2011, indicating concerns about our ability to continue as a going concern.

 
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Our financial statements contain additional note disclosures describing the circumstances that led to this disclosure by our independent auditors. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Company Overview
 
NABE is a refiner and producer of commercial-grade biodiesel as specified by the American Society of Testing and Materials (ASTM D6751). Our refining and production facility is located in Lenoir, North Carolina with a nameplate annual capacity of five million gallons. Our facility produces biodiesel from virgin, agri-based feedstock using commercial specifications. The biodiesel we produce is sold throughout North Carolina, South Carolina and Virginia directly or through wholesale distributors. Currently, we are engaged in producing biodiesel and strategically purchasing biodiesel from other producers to meet commercial requirements. We also sell glycerin, which is created as a byproduct of the biodiesel production process. Once the facility has accumulated sufficient glycerin to make full loads, it is typically sold to the market.

Our production process starts with purchasing the most cost effective and suitable agri-based feedstock (e.g., soy, canola, sunflower, cotton seed and chicken/pork fat). A sample of every feedstock is then tested by our in-house laboratory in order to develop the proper recipe of catalysts for the transesterification process. The glycerin byproduct is then separated from the biodiesel and any excess methanol is recovered. The recovered methanol is reused in the production process and the glycerin is sold on the open market. While biodiesel is our main product, glycerin is a popular chemical used in pharmaceutical and hygiene applications and serves as an additional source of revenue.

Our facility is capable of producing biodiesel from a wide range of agri-based feedstocks: soy, canola, sunflower, cotton seed and chicken/pork fat. Biodiesel production costs are highly dependent on the cost of feedstock, and we believe the ability to utilize a variety of feedstocks efficiently and interchangeably is imperative to gaining a competitive advantage in the biodiesel production market.

Our goal is to become the leading diversified energy company with divisions in production, blending, marketing and distribution.
 
Results of Operations
 
The following is a discussion and analysis of our results of operations for the six-month period ended June 30, 2012, and the factors that could affect our future financial condition. This discussion and analysis should be read in conjunction with our financial statements and the notes thereto included elsewhere in this report. Our financial statements are prepared in accordance with United States generally accepted accounting principles. All references to dollar amounts in this section are in United States dollars unless expressly stated otherwise.

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

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

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

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

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

Comparing the Company’s activity for the six-month period ended June 30, 2012 to the activity for the six-month period ended June 30, 2011, there was a decrease in revenue of $185,428 from $515,899 to $330,471. The period-over-period decrease was due primarily to reduced biodiesel sales in light of the expired biodiesel blenders’ credit and to reduced RIN sales. Biodiesel sales experienced a decrease of approximately 56,230 gallons sold during the period January 1, 2012 through June 30, 2012 compared to the period January 1, 2011 through June 30, 2011. The market price for biodiesel decreased $0.34 per gallon on a comparative period-over-period basis. The Company had RIN sales of $105,175 during the period January 1, 2012 through June 30, 2012, but transacted $178,376 in RIN sales during the period January 1, 2011 through June 30, 2011. On an average unit price basis, the Company was able to sell RINs for $1.17 per RIN during the first half of 2012, but had been able to charge $1.27 per RIN during the same period in 2011. Also impacting comparative revenues were sales of methylated glycerin and recovered methanol. The Company had methylated glycerin sales of $5,101 during the first half of 2012, but had no methylated glycerin sales during the same period in 2011. The Company had recovered methanol sales of $2,116 during the first half of 2012 while recovered methanol sales totaled $6,527 during the same period in 2011.
 
 
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Cost of Revenue
Cost of revenue totaled $170,524 during the period April 1, 2012 through June 30, 2012. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, labor, overhead, and utilities.
 
Our cost of revenue was $298,855 during the three months ended June 30, 2011. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, direct labor and overhead costs. Offsetting the cost of revenue was the filing for tax credits available to biodiesel blenders and to biodiesel producers, which amounted to a total of $133,681 during the three months ended June 30, 2011.

Comparing the Company’s activity for the period April 1, 2012 through June 30, 2012 to the activity for the period April 1, 2011 through June 30, 2011, there was a decrease in cost of revenues of $128,331 as the cost of revenues declined from $298,855 to $170,524. The period-over-period decrease was due in large part to expiration of the blender tax credit. Approximately 55,200 fewer gallons were sold during the second quarter of the current year when compared with the second quarter of the prior year. Overall cost of sales was reduced in line with declining sales, but the impact of the expired biodiesel blenders’ tax credit was particularly noticeable. The Company recognized a reduction in cost of goods sold totaling $133,681 when filing for the blender and producer tax credits during the second quarter of the prior year. With no tax credit available in the current year, the Company was unable to file for any $1 per gallon credits on the gallons sold during the second quarter, which would have been approximately $27,000 if the credit had been extended.
 
Cost of revenue totaled $400,287 during the period January 1, 2012 through June 30, 2012. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, labor, overhead, and utilities.
 
The Company’s cost of revenue was $376,701 during the six months ended June 30, 2011. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, direct labor and overhead costs. Offsetting the cost of revenue was the filing for tax credits available to biodiesel blenders and to biodiesel producers, which amounted to a total of $133,681 during the six months ended June 30, 2011.
 
Comparing the Company’s activity for the six-month period ended June 30, 2012 to the activity for the six-month period ended June 30, 2011, there was an increase in cost of revenues of $23,586 as the cost of revenues rose from $376,701 to $400,287. The period-over-period increase was due in large part to expiration of the blender tax credit. Approximately 56,230 fewer gallons were sold during the first half of the current year when compared with the first half of the prior year. Overall cost of sales was reduced in line with declining sales, but the impact of the expired biodiesel blenders’ tax credit was particularly noticeable. The Company recognized a reduction in cost of goods sold totaling $133,681 when filing for the blender and producer tax credits during the first six months of the prior year. With no tax credit available in the current year, the Company was unable to file for any $1 per gallon credits on the gallons sold during the first six months, which would have been approximately $45,300 if the credit had been extended.
 
Depreciation
Depreciation expense totaled $33,265 for the period April 1, 2012 through June 30, 2012.
 
 
11

 
 
Depreciation expense was $15,353 for the three months ended June 30, 2011.
 
Depreciation expense totaled $52,978 for the period January 1, 2012 through June 30, 2012.
 
Depreciation expense was $30,706 for the six months ended June 30, 2011.
 
Gross Profit
Gross profit for the Company was a loss of ($12,389) for the period April 1, 2012 through June 30, 2012. The primary reasons for the gross loss during the period were the average unit price reduction of $0.13 per RIN in RIN market value (compared with the same period in the prior year) and the loss of the federal blenders’ tax credit, which directly impacted the price that the plant in Lenoir, North Carolina could charge for biodiesel.

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

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

Gross profit was $108,492 for the six months ended June 30, 2011. The primary reason for the gross profit during the period was the sale of RINs to third parties. Another factor impacting gross profit was raw material costs, which remained fairly stable at approximately $0.54 per pound, but yielded finished product which had to be sold at a loss due to biodiesel market conditions.
 
Selling, General and Administrative (SG&A) Expenses
SG&A expenses totaled $31,412 for the period April 1, 2012 through June 30, 2012. During the period under consideration, SG&A expenses primarily consisted of costs associated with payroll, office overhead and professional fees.
 
SG&A expenses totaled $232,438 for the three month period ended June 30, 2011. During the second quarter of 2011, the Company’s SG&A expenses were primarily comprised of payroll, fundraising fees ($12,000), and professional fees ($133,333).
 
Comparing the Company’s activity for the period April 1, 2012 through June 30, 2012 to the activity for the period April 1, 2011 through June 30, 2011, there was a decrease in SG&A expenses of $201,026 as SG&A declined from $232,438 to $31,412. The period-over-period decrease was due primarily to reduced consulting expenses ($133,333) that were recognized during the prior-year period under consideration, but did not occur during the similar period in the current year. The $133,333 consulting expenses during the second quarter of 2011 were primarily associated with a stock grant to one of the Company’s directors, Aaron Gay. Payroll expenses were lower during the current-year second quarter compared with the same period in 2011 since the biodiesel production plant reduced activity in the face of no blender tax credit and a severely hampered RIN trading market. Also contributing to the period-over-period decrease were the lack of fundraising expenses during the current quarter compared with a $12,510 expense during the same period in the prior year.

 
12

 
 
SG&A expenses totaled $60,152 for the period January 1, 2012 through June 30, 2012. During the period under consideration, SG&A expenses primarily consisted of costs associated with payroll, office overhead and consulting fees.
 
SG&A expenses for the Company totaled $366,957 for the six month period ended June 30, 2011. During the first half of 2011, SG&A expenses were primarily comprised of payroll, professional fees associated filings for publicly traded companies ($63,700), fundraising fees ($20,200), and consulting fees ($193,000).
 
Comparing the Company’s activity for the six-month period ended June 30, 2012 to the activity for the six months ended June 30, 2011, there was a decrease in SG&A expenses of $306,805 as SG&A declined from $366,957 to $60,152. The period-over-period decrease was due primarily to reduced consulting expenses ($176,333) that were recognized during the first half of the prior year, but amounted to only $16,667 during the similar period in the current year. Payroll expenses were lower during the current-year second quarter compared with the same period in 2011 since the biodiesel production plant reduced activity in the face of no blender tax credit and a severely hampered RIN trading market. Also contributing to the period-over-period decrease were reduced expenses associated with professional fees. During the first half of the prior year, professional fees totaled $106,721 while the total was $17,000 during the first half of 2012.

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

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

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

The Company had no gain on forgiveness of trade payables for the period January 1, 2011 through June 30, 2011.
 
Loss on Impairment of Fixed Assets
Loss on impairment of fixed assets was $73,790 for the period April 1, 2012 through June 30, 2012. The underlying assets that were impaired were totes that the biodiesel production facility in Lenoir, North Carolina had used for storage of methylated glycerin and recovered methanol. During the first quarter of 2012, new storage tanks were placed into service that had previously been reflected as construction in progress assets. These new storage tanks rendered the totes useless. Given the condition of the totes, it was determined that they were unsuitable for selling and the assets were fully impaired.

The Company had no loss on impairment of fixed assets for the period April 1, 2011 through June 30, 2011.
 
Loss on impairment of fixed assets was $73,790 for the period January 1, 2012 through June 30, 2012.
 
The Company had no loss on impairment of fixed assets for the period January 1, 2011 through June 30, 2011.
 
 
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Other Income (Expense)
Other Income totaled $19,429 during the period from April 1, 2012 through June 30, 2012. The primary reason for the balance was $17,193 in funding received from the North Carolina Land & Lakes Grant. The remaining balance is attributable to $2,236 in funds received from the Western Carolina Piedmont Council of Governments.
 
The Company had Other Income of $49,878 for the three months ended June 30, 2011. The source of the Other Income was from funding provided by the North Carolina Green Business Fund Grant.
 
Other Income totaled $77,518 during the period from January 1, 2012 through June 30, 2012. The primary reason for the balance was $43,682 in funding received from the North Carolina Green Business Fund Grant. Additional funding of $17,193 was provided by the North Carolina Land & Lakes Grant. The remaining balance is attributable to $16,643 in funds received from the Western Carolina Piedmont Council of Governments.
 
The Company had Other Income of $49,878 for the six months ended June 30, 2011. The source of the Other Income was from funding provided by the North Carolina Green Business Fund Grant.
 
Interest Income
The Company had no interest income for the period April 1, 2012 through June 30, 2012.
 
The Company had interest income of $617 for the three months ended June 30, 2011.
 
The Company had no interest income for the period January 1, 2012 through June 30, 2012.
 
The Company had interest income of $1,203 for the six months ended June 30, 2011.
 
Interest Expense
Interest expense for the Company was $2,205 for the period April 1, 2012 through June 30, 2012.
 
Interest expense for the Company was $2,869 for the three months ended June 30, 2011.
 
Interest expense for the Company was $4,621 for the period January 1, 2012 through June 30, 2012.
 
Interest expense for the Company was $5,943 for the six months ended June 30, 2011.
 
Net Income (Loss)
The Company had a net loss of ($100,367) for the period April 1, 2012 through June 30, 2012.
 
The Company had a net loss of ($61,746) for the three months ended June 30, 2011.
 
The Company had a net loss of ($153,839) for the period January 1, 2012 through June 30, 2012.
 
The Company had a net loss of ($213,327) for the six months ended June 30, 2011.
 
 
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Liquidity and Capital Resources
 
Working Capital
   
As of
June 30, 2012
   
As of
December 31, 2011
 
Current Assets
  $ 509,879     $ 739,112  
                 
Current Liabilities
  $ 751,084     $ 931,351  
                 
Working Capital (Deficiency)
  $ (241,205 )   $ (192,239 )
                 
Retained Earnings (Accumulated Deficit)
  $ (5,686,8127 )   $ (5,532,978 )
 
Cash Flows
   
Six Months
Ended
June 30, 2012
   
Six Months
Ended
June 30, 2011
 
Cash provided by (used in) operating activities
  $ 64,117     $ (95,245 )
Cash used in investing activities
    (13,234 )     (25,851 )
Cash used in financing activities
    (38,285 )     (56,944 )
Net increase (decrease) in cash
  $ 12,598     $ (178,040 )

As of June 30, 2012, our current assets totaling $509,879 consisted of cash, accounts receivable, inventory, other current assets and prepaid expenses. Our accounts payable and accrued liabilities and current portion of amounts due to related parties and third parties were $751,084 for the period ended June 30, 2012. As a result, we had a working capital deficiency of $241,205.

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

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

On a short-term basis, it is anticipated that the Company’s liquidity needs will be met through selling biodiesel and RIN-gallons, through borrowing from related parties and through the sale of common stock. NABE’s period-over-period biodiesel sales have decreased comparing the first six months of 2012 to the first six months of 2011. RIN sales have decreased $73,201 over the same periods of comparison. Considering the long-term view, the Company intends to provide liquidity through operation of its biodiesel plant in Lenoir, North Carolina.

To date, cash flow requirements have been primarily met through sales of biodiesel related products, through collections of accounts receivable, through share issuances, and through gross proceeds from bank and related party loans. 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. For the three months ended June 30, 2011, the Company generated a gross profit of $123,066 on sales of $437,274 over the same period.
 
 
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As of June 30, 2012, NABE had outstanding balances on bank borrowings of $147,443, which originally totaled $350,000 when the loans were first executed. An additional balance of $6,844 was outstanding as of June 30, 2012, which represented financing of NABE’s general liability insurance. As of December 31, 2011, NABE had an outstanding balance of $171,917 on a term loan that resulted from the conversion of its line of credit. An additional balance of $2,100 was outstanding as of December 31, 2011, which represented financing of NABE’s general liability insurance.

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

A portion of the Company’s operations have been funded through the issuance of stock shares. As of June 30, 2012, the Company has issued 31,254,332 shares of capital stock (29,274,332 shares of Class A stock and 1,980,000 shares of Class B stock).

We expect to incur losses as the business expands. Management expects to keep operational costs to a minimum until cash is available through financing or operating activities. Management plans to continue to seek other sources of financing on favorable terms; however, there are no assurances that any such financing can be obtained on favorable terms, if at all. If we are unable to generate sufficient profits or are unable to obtain additional funds for our working capital needs, we may need to cease or curtail operations. Moreover, there is no assurance that the net proceeds from any successful financing arrangement will be sufficient to cover cash requirements during the initial stages of the Company’s operations. For these reasons, our registered auditors believe that there is substantial doubt that we will be able to continue as a going concern.

Cash Provided By Operating Activities
 
During the period January 1, 2012 through June 30, 2012, the Company’s cash provided by operating activities totaled $64,117. For the same period, the Company’s cash provided by operating activities was primarily attributable to the net effect of making credit sales, collecting trade receivables associated with RIN sales, and making payments on trade payables. Trade receivables decreased $140,871 while inventories decreased $28,729. NABE’s tax credits receivable decreased $80,412 during the period under consideration. Payables decreased $149,630 for the same period.

During the six months ended June 30, 2011, the Company’s cash used in operating activities totaled $95,245. During the first six months of 2011, cash used in operating activities was primarily associated with increasing receivables from the federal government on tax credits for biodiesel blending activities. These receivables increased approximately $134,000. Offsetting the increase in tax credit receivables was the recognition of approximately $165,000 in stock-based compensation for consulting services.
 
Cash Used In Investing Activities
 
During the period January 1, 2012 through June 30, 2012, the Company’s cash used in investing activities totaled $13,234. This amount primarily represents plant-wide efforts to improve operating efficiency through continued efforts to insulate equipment and piping at the biodiesel production facility in Lenoir, NC. Additional funds were used to upgrade pumps, which are also located at the NABE site.

During the six months ended June 30, 2011, the Company’s cash used in investing activities totaled $25,851. For the first six months of 2011, the Company’s cash used in investing activities was primarily related to a plant-wide effort to improve operating efficiency by insulating equipment and piping at the biodiesel production facility in Lenoir, NC.
 
 
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Cash Used In Financing Activities
 
During the period January 1, 2012 through June 30, 2012, the Company’s cash used in financing activities totaled $38,285. This amount consisted of funds used to repay $10,000 in related party debt and $28,285 in payments on long-term debt to third-party creditors.

During the six months ended June 30, 2011, the Company’s cash used in financing activities totaled $56,944. For the six months ended June 30, 2011, cash used in financing activities consisted of repaying $30,000 in related party debt, and making payments of $26,944 on long-term debt to third-party creditors.

Future Financings

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

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Recent Accounting Pronouncements

Management does not expect any financial statement impact from any recently-issued pronouncements.
 
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.
 
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 June 30, 2012. We have identified the following material weaknesses in our internal control over financial reporting:
 
Lack of Independent Board of Directors and Audit Committee
Management is aware that an audit committee composed of the requisite number of independent members along with a qualified financial expert has not yet been established. Considering the costs associated with procuring and providing the infrastructure to support an independent audit committee and the limited
 
 
17

 
 
number of transactions, management has concluded that the risks associated with the lack of an independent audit committee are not sufficient to justify the creation of such a committee at this time. Management will periodically reevaluate this situation.

Deficiencies in Our Control Environment.
Our control environment did not sufficiently promote effective internal control over financial reporting throughout the organization. This material weakness exists because of the aggregate effect of multiple deficiencies in internal control which affect our control environment, including: a) the lack of an effective risk assessment process for the identification of fraud risks; b) the lack of an internal audit function or other effective mechanism for ongoing monitoring of the effectiveness of internal controls; c) deficiencies in our accounting system and controls; d) and insufficient documentation and communication of our accounting policies and procedures as of June 30, 2012.

Deficiencies in the staffing of our financial accounting department.
The number of qualified accounting personnel with experience in public company SEC reporting and GAAP is limited. This weakness does not enable us to maintain adequate controls over our financial accounting and reporting processes regarding the accounting for non-routine and non-systematic transactions. There is a risk that a material misstatement of the financial statements could be caused, or at least not be detected in a timely manner, by this shortage of qualified resources.

Deficiencies in Segregation of Duties.
The limited number of qualified accounting personnel results in an inability to have independent review and approval of financial accounting entries. Furthermore, management and financial accounting personnel have wide-spread access to create and post entries in our financial accounting system. There is a risk that a material misstatement of the financial statements could be caused, or at least not be detected in a timely manner, due to insufficient segregation of duties.

Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our financial accounting staff is actively attending and receiving training. Management is still determining additional measures to remediate deficiencies related to staffing.

 
(b)
Changes in Internal Controls Over Financial Reporting
 
There were no changes that occurred during the period 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.
 
 
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. OTHER INFORMATION

None.

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:
 
101.INS
  
XBRL Instance Document
   
101.SCH
  
XBRL Taxonomy Extension Schema Document
   
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB
  
XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document
 
*filed herewith
 
(1) Incorporated by reference to the Form S-1 registration statement filed on June 30, 2008.

 
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SIGNATURES
 
Pursuant to 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.
 
August 14, 2012
 
By:
 
INCOMING, INC.
   
 
/s/ R. Samuel Bell, Jr.
 
R. Samuel Bell, Jr., CEO and Chairman, Board of Directors
   
 
/s/ Eric Norris
  Vice President, Finance (Principal Financial Officer)
 
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