Attached files
| file | filename |
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| EXCEL - IDEA: XBRL DOCUMENT - Incoming, Inc. | Financial_Report.xls |
| EX-32.2 - EXHIBIT 32.2 - Incoming, Inc. | ex322.htm |
| EX-31.1 - EXHIBIT 31.1 - Incoming, Inc. | ex311.htm |
| EX-31.2 - EXHIBIT 31.2 - Incoming, Inc. | ex312.htm |
| EX-32.1 - EXHIBIT 32.1 - Incoming, Inc. | ex321.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarter ended September 30, 2013
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OR
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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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.)
(800) 385-5705
(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-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 [ ]
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.
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
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Smaller reporting company [X]
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
As of November 14, 2013, 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.
CONSOLIDATED BALANCE SHEETS
(unaudited)
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September 30, 2013
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December 31, 2012
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ASSETS
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Current Assets
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Cash
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$ | 157,547 | $ | 2,348 | ||||
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Accounts receivable, trade
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4,666 | 14,507 | ||||||
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Accounts receivable, related parties
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164,851 | 209,552 | ||||||
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Inventory
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117,905 | 60,706 | ||||||
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Prepaid expenses
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7,729 | 5,860 | ||||||
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Other current assets
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700 | 400 | ||||||
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Total current assets
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453,398 | 293,373 | ||||||
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Property and equipment, net
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510,906 | 580,682 | ||||||
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Construction in progress
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137,800 | - | ||||||
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Total Assets
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$ | 1,102,104 | $ | 874,055 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current Liabilities
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Accounts payable
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365,060 | 328,339 | ||||||
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Short term debt
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64,410 | 53,259 | ||||||
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Accrued liabilities
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26,238 | 24,731 | ||||||
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Accounts payable – related parties
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274,916 | 282,566 | ||||||
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Total current liabilities
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730,624 | 688,895 | ||||||
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Long-term debt
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28,706 | 69,910 | ||||||
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Total Liabilities
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759,330 | 758,805 | ||||||
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Capital stock $.001 par value; 75,000,000 shares authorized
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Class A – 29,274,332 shares issued and outstanding
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29,274 | 29,274 | ||||||
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Convertible Class B – 1,980,000 shares issued and outstanding
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1,980 | 1,980 | ||||||
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Additional paid in capital
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6,134,570 | 6,134,570 | ||||||
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Accumulated deficit
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(5,823,050 | ) | (6,050,574 | ) | ||||
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Total Stockholders’ Equity
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342,774 | 115,250 | ||||||
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Total Liabilities and Stockholders' Equity
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$ | 1,102,104 | $ | 874,055 | ||||
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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Three months
ended
September 30,
2013
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Three months ended
September 30,
2012
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Nine months ended
September 30,
2013
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Nine months
ended
September 30,
2012
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Revenue
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$ | 1,094,482 | $ | 55,588 | $ | 1,710,202 | $ | 317,240 | ||||||||
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Revenue from related parties
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75,465 | 41,185 | 149,545 | 110,005 | ||||||||||||
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Total revenue
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1,169,947 | 96,773 | 1,859,747 | 427,245 | ||||||||||||
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Cost of revenue
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1,078,675 | 152,771 | 1,731,545 | 553,057 | ||||||||||||
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Tax credit income
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(27,897 | ) | - | (133,235 | ) | - | ||||||||||
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Depreciation
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23,567 | 35,095 | 75,975 | 88,072 | ||||||||||||
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Gross profit (loss)
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95,602 | (91,093 | ) | 185,462 | (213,884 | ) | ||||||||||
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Selling, General, and Administrative Expenses
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15,114 | 24,724 | 53,491 | 84,881 | ||||||||||||
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Gain on forgiveness of trade payables
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- | - | - | (30,000 | ) | |||||||||||
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(Gain)/Loss on impairment of fixed assets
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- | (1,680 | ) | - | 72,110 | |||||||||||
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Other income (expense)
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Grant and other income
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46,033 | 16,042 | 99,763 | 93,560 | ||||||||||||
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Interest expense
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(1,846 | ) | (2, 022 | ) | (4,210 | ) | (6,643 | ) | ||||||||
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Total other income (expense)
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44,187 | 14,020 | 95,553 | 86,917 | ||||||||||||
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Net Income (Loss)
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$ | 124,675 | $ | (100,117 | ) | $ | 227,524 | $ | (253,958 | ) | ||||||
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Net Loss per Class A Common Share (Basic and Diluted)
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$ | 0.00 | $ | (0.00 | ) | $ | 0.01 | $ | (0.01 | ) | ||||||
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Net Loss per Class B Common Share (Basic and Diluted)
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$ | 0.06 | $ | (0.05 | ) | $ | 0.11 | $ | (0.13 | ) | ||||||
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Weighted Average Number of Class A Common Shares Outstanding (Basic and Diluted)
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29,274,332 | 29,274,332 | 29,274,332 | 29,148,420 | ||||||||||||
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Weighted Average Number of Class B Common Shares Outstanding (Basic and Diluted)
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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.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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Nine months
ended
September 30,
2013
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Nine months
ended
September 30,
2012
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Cash flows from operating Activities
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Net income (loss)
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$ | 227,524 | $ | (253,958 | ) | |||
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Adjustments to reconcile net loss
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to net cash provided by (used in) operations:
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Stock based compensation
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- | 16,667 | ||||||
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Gain on forgiveness of trade payables
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- | (30,000 | ) | |||||
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Loss on impairment of fixed assets
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- | 72,110 | ||||||
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Depreciation
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75,975 | 88,072 | ||||||
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Changes in operating assets and liabilities
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Accounts receivable
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9,841 | 206,553 | ||||||
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Accounts receivable – related party
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44,701 | (43,501 | ) | |||||
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Tax credit/other receivables
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- | 80,412 | ||||||
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Prepaid expenses & other current assets
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12,417 | 5,241 | ||||||
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Inventory
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(57,199 | ) | (35,738 | ) | ||||
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Other assets
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(300 | ) | - | |||||
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Accounts payable
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36,722 | (129,334 | ) | |||||
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Accounts payable – related party
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(7,650 | ) | (8,968 | ) | ||||
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Accrued expenses
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1,507 | 3,646 | ||||||
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Net cash provided by operating activities
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343,538 | (28,798 | ) | |||||
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Cash flows from investing activities
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Purchase of fixed assets
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(144,000 | ) | (26,671 | ) | ||||
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Net cash used in investing activities
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(144,000 | ) | (26,671 | ) | ||||
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Cash flows from financing activities
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Payments on related party debt
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- | (10,000 | ) | |||||
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Principal payments on debt
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(44,339 | ) | (42,475 | ) | ||||
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Net cash used in financing activities
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(44,339 | ) | (52,475 | ) | ||||
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Net cash increase for period
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155,199 | (107,944 | ) | |||||
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Cash at beginning of period
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2,348 | 122,727 | ||||||
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Cash at end of period
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$ | 157,547 | $ | 14,783 | ||||
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Supplemental disclosure of cash flow information
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Cash paid for interest
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$ | 4,210 | 6,643 | |||||
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Cash paid for income taxes
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- | - | ||||||
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Non-cash investing and financing activities:
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Construction in process transferred to property and equipment
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6,200 | 56,300 | ||||||
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Unpaid additions to prepaid expenses with debt
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14,286 | 8,555 | ||||||
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Forgiveness of related party payables
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- | 15,006 | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 Basis of Presentation, Organization, and Summary of Significant Accounting Policies
Basis of Presentation
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, 2012 included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on April 12, 2013. 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 September 30, 2013 are not necessarily indicative of the operating results that may be expected for the full year ending December 31, 2013.
Organization
Incoming, Inc. (“We”, “our” or “the Company”) was incorporated in Nevada on December 22, 2006. Results of operations primarily relate to our subsidiary, 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.
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, 2012, the Company had a working capital deficiency of $395,522, and had accumulated a deficit of $6,050,574. As of September 30, 2013, the Company had a working capital deficiency of $277,226, and had accumulated a deficit of $5,823,050. 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 Echols Oil Company, a company owned by Incoming, Inc’s CEO, R. Samuel Bell, Jr. During the nine months ended September 30, 2013, sales to the related company were $149,545. As of September 30, 2013, the Company had outstanding receivables from the related party company of $164,851. As of September 30, 2013, the Company had no outstanding payables to Echols, but did have $274,916 in related party payables to Green Valley Bio-Fuels.
Note 4 Blender Tax Credits
Prior to December 31, 2011, a tax credit was available to biodiesel blenders amounting to one dollar per gallon of blended biodiesel. Though this credit expired on December 31, 2011, all of NABE’s biodiesel sales during 2012 were sold as blended biodiesel in the event that the credit should be extended. NABE was the blender of record for these sales.
During the first quarter of 2013, Congress retroactively reinstated the blender tax credit for all of 2012 and going forward through December 31, 2013. Congress issued guidance for filing for the retroactive tax credits during the second quarter of 2013. In the second quarter of 2013, NABE filed for, and received, the blender tax credits attributable to the 2012 biodiesel sales. As a result, NABE booked a tax credit income totaling $105,338 during the second quarter of 2013.
During the third quarter of 2013, NABE booked an additional tax credit income totaling $27,897 on gallons of blended biodiesel sold during 2013.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE RESULTS OF OUR OPERATIONS AND FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
This section of the report includes a number of forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: "believe," "expect," "estimate," "anticipate," "intend," "project" and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this annual report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
The following discussion provides an analysis of the results of our operations, an overview of our liquidity and capital resources and other items related to our business. The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited financial statements and notes included in our Annual Report on Form 10-K as of and for the year ended December 31, 2012.
Overview
Company references herein are referring to consolidated information pertaining to Incoming, Inc., the registrant.
The following discussion is an overview of the important factors that management focuses on in evaluating our businesses, financial condition and operating performance and should be read in conjunction with the financial statements included in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward looking statements as a result of any number of factors, including those set forth in this Quarterly Report and elsewhere in the Company’s Annual Report on Form 10-K and other public filings.
All written and oral forward-looking statements made in connection with this Quarterly Report on Form 10-Q that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.
Going Concern
The financial statements presented in this document have been prepared on a going-concern basis. As of September 30, 2013, the Company had a working capital deficiency of $277,226, and had an accumulated deficit of $5,823,050, since inception. Its ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted with any certainty at this time. These factors raise substantial doubt that the Company will be able to continue as a going concern.
The Company has funded its initial operations through the issuance of capital stock and loans from a former director and related parties. Management plans to continue to provide for the Company’s capital needs through the issuance of common stock and through related party advances. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.
We do not expect to generate sufficient revenue to sustain operation during the next twelve months. Consequently, we will continue to depend on additional financing in order to maintain our operations and continue with our corporate activities. Based on these uncertainties, our independent auditors included additional comments in their report on our financial statements for the year ended December 31, 2012, indicating concerns about our ability to continue as a going concern.
Our financial statements contain additional note disclosures describing the circumstances that led to this disclosure by our independent auditors. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Company Overview
NABE is a refiner and producer of commercial-grade biodiesel as specified by the American Society of Testing and Materials (ASTM D6751). Our refining and production facility is located in Lenoir, North Carolina with a nameplate annual capacity of five million gallons. Our facility produces biodiesel from virgin, agri-based feedstock using commercial specifications. The biodiesel we produce is sold throughout North Carolina, South Carolina and Virginia directly or through wholesale distributors. Currently, we are engaged in producing biodiesel and strategically purchasing biodiesel from other producers to meet commercial requirements. We also purify and sell glycerin, which is created as a byproduct of the biodiesel production process. Once the facility has accumulated sufficient glycerin to make full loads, it is typically sold to the market.
Our production process starts with purchasing the most cost effective and suitable agri-based feedstock (e.g., soy, canola, sunflower, cotton seed and chicken/pork fat). A sample of every feedstock is tested by our in-house laboratory in order to develop the proper recipe of catalysts for the transesterification process. The glycerin byproduct is then separated from the biodiesel and any excess methanol is recovered. Recovered methanol is either sold or reused in the production process. Glycerin is sold on the open market as either a crude product or as a further-processed tech grade product. While biodiesel is our main product, glycerin is a popular chemical used in pharmaceutical and hygiene applications and serves as an additional source of revenue.
Our facility is capable of producing biodiesel from a wide range of agri-based feedstocks: soy, canola, sunflower, cotton seed and chicken/pork fat. Biodiesel production costs are highly dependent on the cost of feedstock, and we believe the ability to utilize a variety of feedstocks efficiently and interchangeably is imperative to gaining a competitive advantage in the biodiesel production market.
Results of Operations
The following is a discussion and analysis of our results of operations for the three and nine-month periods ended September 30, 2013, and the factors that could affect our future financial condition. This discussion and analysis should be read in conjunction with our financial statements and the notes thereto included elsewhere in this report. Our financial statements are prepared in accordance with United States generally accepted accounting principles. All references to dollar amounts in this section are in United States dollars unless expressly stated otherwise.
Revenue and Revenue From Related Parties
The Company generated revenues of $1,169,947 during the period July 1, 2013 through September 30, 2013. Revenue generated during the period was due to sales of biodiesel, RINs, glycerin, and materials recovered during glycerin purification processing. During the period July 1, 2013 through September 30, 2013, our biodiesel sales to third parties totaled approximately $1,094,482 and our sales to related parties amounted to $75,465. RIN sales accounted for $31,741 in revenue during the third quarter of 2013. For the period under consideration, de-methylated glycerin sales amounted to $2,136 while recovered methanol sales totaled $6,429. During the glycerin purification process, acid is added to the crude glycerin. As a result, high fatty acid oil separates from the glycerin and yields another commodity, high fatty acid oil. Sales of the high fatty acid oil totaled $377 for the period under consideration. Methylated glycerin sales totaled $2,885 during the third quarter of 2013.
The Company generated revenues of $96,773 during the period July 1, 2012 through September 30, 2012. Revenue generated during the period was due primarily to the sale of products (biodiesel and methylated glycerin) and to sales of RIN-gallons. RIN-gallons are EPA-regulated, market-traded commodities generated during biodiesel production. During the third quarter of 2012, our blended biodiesel sales to third parties totaled approximately $26,827 and our sales to related parties amounted to $41,185. Sales of RINs to third parties totaled $28,761 during the third quarter of 2012. During the period under consideration, methylated glycerin sales totaled $5,588.
Comparing the Company’s activity for the period July 1, 2013 through September 30, 2013 to the activity for the period July 1, 2012 through September 30, 2012, there was an increase in revenue of $1,073,174 from $96,773 to $1,169,947. The period-over-period increase was due primarily to improved biodiesel sales in light of the reinstated biodiesel blenders’ credit and to RIN sales. Biodiesel sales experienced an increase of approximately 221,692 gallons sold during the period July 1, 2013 through September 30, 2013 compared to the period July 1, 2012 through September 30, 2012. The market price for biodiesel increased $1.55 per gallon on a comparative period-over-period basis, which is due primarily to reinstatement of the biodiesel blender tax credit. The Company had RIN sales of $31,741 during the period July 1, 2013 through September 30, 2013, but transacted $28,761 in RIN sales during the period July 1, 2012 through September 30, 2012. On an average unit price basis, the Company was able to sell RINs for $1.31 per RIN during the third quarter of 2013, but charged $0.93 per RIN during the same period in 2012. Also impacting comparative revenues were sales of high fatty acid oil, glycerin and recovered methanol. The Company had high fatty acid oil sales of $377 during the third quarter of 2013, but no sales of high fatty acid oil during the same period in 2012. The Company had glycerin (methylated and demethylated) sales of $5,021 during the third quarter of 2013, while methylated glycerin sales were $5,588 during the same period in 2012. The Company had recovered methanol sales of $6,428 during the third quarter of 2013, while there were no recovered methanol sales during the same period in 2012.
The Company generated revenues of $1,859,747 during the period January 1, 2013 through September 30, 2013. Revenue generated during the period was due to sales of biodiesel, RINs, glycerin, and materials recovered during glycerin purification processing. During the period January 1, 2013 through September 30, 2013, our biodiesel sales to third parties totaled approximately $1,416,550 and our sales to related parties amounted to $149,545. RIN sales accounted for $158,111 in revenue during the first three quarters of 2013. For the period under consideration, de-methylated glycerin sales amounted to $32,141 while recovered methanol sales totaled $11,817. Sales of high fatty acid oil totaled $88,744 for the period under consideration. Methylated glycerin sales totaled $2,885 during the first three quarters of 2013.
The Company generated revenues of $427,245 during the period January 1, 2012 through September 30, 2012. Revenue generated during the period was due primarily to the sale of products (biodiesel, recovered methanol, and methylated glycerin) and to sales of RIN-gallons. During the period January 1, 2012 through September 30, 2012, our biodiesel sales to third parties totaled approximately $170,499 and our sales to related parties amounted to $110,005. Sales of RINs to third parties totaled $133,936 during the first three quarters of 2012. During the period under consideration, methylated glycerin sales totaled $10,689 while recovered methanol sales amounted to $2,116.
Comparing the Company’s activity for the nine-month period ended September 30, 2013 to the activity for the nine-month period ended September 30, 2012, there was an increase in revenue of $1,432,502 from $427,245 to $1,859,747. The period-over-period increase was due primarily to improved biodiesel sales in light of the reinstated biodiesel blenders’ credit and to RIN sales. Biodiesel sales experienced an increase of approximately 291,023 gallons sold during the period January 1, 2013 through September 30, 2013 compared to the period January 1, 2012 through September 30, 2012. The market price for biodiesel increased $1.38 per gallon on a comparative period-over-period basis, which is due primarily to reinstatement of the biodiesel blender tax credit. The Company had RIN sales of $158,111 during the period January 1, 2013 through September 30, 2013, but transacted $133,936 in RIN sales during the period January 1, 2012 through September 30, 2012. On an average unit price basis, the Company was able to sell RINs for $0.93 per RIN during the first three quarters of 2013, but had been able to charge $1.11 per RIN during the same period in 2012. Also impacting comparative revenues were sales of high fatty acid oil, methylated glycerin and recovered methanol. The Company had high fatty acid oil sales of $88,744 during the nine months of 2013, but no sales of high fatty acid oil during the same period in 2012. The Company had glycerin (methylated and de- methylated) sales of $35,026 during the first nine months of 2013, while methylated glycerin sales were $10,689 during the same period in 2012. The Company had recovered methanol sales of $11,817 during the first nine months of 2013 while recovered methanol sales totaled $2,116 during the same period in 2012.
Cost of Revenue
Cost of revenue totaled $1,078,673 during the period July 1, 2013 through September 30, 2013. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, labor, overhead, and utilities.
Cost of revenue totaled $152,771 during the period July 1, 2012 through September 30, 2012. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, labor, overhead, and utilities. There were no offsetting tax credits available during the period due to the expiration of the blender and producer tax credit at December 31, 2011.
Comparing the Company’s activity for the period July 1, 2013 through September 30, 2013 to the activity for the period July 1, 2012 through September 30, 2012, there was an increase in cost of revenues of $925,90 as the cost of revenues increased from $152,771 to $1,078,673. The period-over-period increase was due in large part to more gallons of biodiesel being produced and sold in light of the extended blender tax credit. Approximately 221,692 more gallons were sold during the third quarter of the current year when compared with the third quarter of the prior year. Cost of sales increased in line with improving sales. During the quarter, the Company recognized an offset to the cost of goods sold totaling $27,897 as a result of filing for the blender tax credit associated with blended gallons. The tax credit was not in place during 2012, but was retroactively reinstated for all of 2012 and going forward through December 31, 2013.
Cost of revenue totaled $1,731,545 during the period January 1, 2013 through September 30, 2013. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, labor, overhead, and utilities.
Cost of revenue totaled $553,057 during the period January 1, 2012 through September 30, 2012. For the same period, cost of revenue consisted of costs associated with raw material (feedstocks, methanol, and catalyst) purchases, labor, overhead, and utilities. There were no offsetting tax credits available during the period.
Comparing the Company’s activity for the period January 1, 2013 through September 30, 2013 to the activity for the period January 1, 2012 through September 30, 2012, there was an increase in cost of revenues of $1,178,488 as the cost of revenues increased from $553,057 to $1,731,545. The period-over-period increase was due in large part to more gallons of biodiesel being produced in light of the extended blender tax credit. Approximately 291,023 more gallons were sold during the first nine months of the current year when compared with the first nine months of the prior year. Cost of sales increased in line with improving sales. During the first nine months of 2013, the Company recognized an offset to the cost of goods sold totaling $133,235 as a result of filing for the blender tax credit associated with blended gallons sold during the prior year. The tax credit was not in place during 2012, but was retroactively reinstated for all of 2012 and going forward through December 31, 2013. Of the $133,235 recognized in blender tax credits during 2013, a total of $105,338 is attributable to 2012 tax credits which were filed during 2013.
Gross Profit
Gross profit for the Company was $95,602 for the period July 1, 2013 through September 30, 2013. The primary reasons for the gross profit during the period were the ability to sell more gallons of biodiesel given the limited reinstatement of the biodiesel blenders’ tax credit. Additionally, we were better able to sell RINs into the RIN market as liquidity improved compared with tight market conditions that had existed as a result of RIN fraud perpetrated by other parties in 2011. The gross profit was also directly affected by the $27,897 of tax credit income received during the period July 1, 2013 through September 30, 2013.
Gross profit for the Company was a loss of ($91,093) for the period July 1, 2012 through September 30, 2012. The primary reasons for the gross loss during the period were the average unit price reduction of $0.57 per RIN in RIN market value (compared with the same period in the prior year) and the loss of the federal blenders’ tax credit, which directly impacted the price that the plant in Lenoir, North Carolina could charge for biodiesel. RIN market values have continued to be depressed due to the fraudulent activities carried out by Maryland and Texas companies during Q4 of 2011.
Gross profit for the Company was $185,462 for the period January 1, 2013 through September 30, 2013. The gross profit during the period under consideration takes into account the gross loss of $101,180 that was experienced during the first quarter of 2013. For the period under consideration, the Company was able to sell 291,023 more gallons during the first nine months of 2013 than during the same period during 2012. The gross profit was also directly affected by the $133,235 of tax credit income received during the period January 1, 2013 through September 30, 2013.
Gross profit for the Company was a loss of ($213,884) for the period January 1, 2012 through September 30, 2012. The primary reasons for the gross loss during the period were the average unit price reduction of $0.30 per RIN in RIN market value (compared with the same period in the prior year) and the loss of the federal blenders’ tax credit, which directly impacted the price that the plant in Lenoir, North Carolina could charge for biodiesel. RIN market values have continued to be depressed due to the fraudulent activities carried out by Maryland and Texas companies during Q4 of 2011.
Selling, General and Administrative (SG&A) Expenses
SG&A expenses totaled $15,114 for the period July 1, 2013 through September 30, 2013. During the period under consideration, SG&A expenses primarily consisted of costs associated with payroll, office overhead and professional fees.
SG&A expenses totaled $24,724 for the period July 1, 2012 through September 30, 2012. During the period under consideration, SG&A expenses primarily consisted of costs associated with payroll, office overhead and professional fees.
Comparing the Company’s activity for the period July 1, 2013 through September 30, 2013 to the activity for the period July 1, 2012 through September 30, 2012, there was a decrease in SG&A expenses of $9,610 as SG&A declined from $24,724 to $15,114. The period-over-period decrease was due primarily to additional filing expenses incurred in the prior year associated with issuing first-time financials in XBRL format. General overhead remained stable considering the second quarter of the current year compared with the second quarter of the prior year.
SG&A expenses totaled $53,491 for the period January 1, 2013 through September 30, 2013. During the period under consideration, SG&A expenses primarily consisted of costs associated with payroll, office overhead and consulting fees.
SG&A expenses totaled $84,881 for the period January 1, 2012 through September 30, 2012. During the period under consideration, SG&A expenses primarily consisted of costs associated with payroll, office overhead and consulting fees.
Comparing the Company’s activity for the period January 1, 2013 through September 30, 2013 to the activity for the period January 1, 2012 through September 30, 2012, there was a decrease in SG&A expenses of $31,390 as SG&A declined from $84,881 to $53,491. The period-over-period decrease was due primarily to consulting expenses ($16,667) recognized during the prior-year period under consideration compared to the similar period in the current year. Costs associated with office staff also decreased approximately $18,300 when comparing the first three quarters of the prior year to the first three quarters of the current year. General overhead remained stable considering the first nine months of the current year compared with the first nine months of the prior year.
Gain on forgiveness of trade payables
The Company had no gain on forgiveness of trade payables for the period July 1, 2013 through September 30, 2013.
The Company had no gain on forgiveness of trade payables for the period July 1, 2012 through September 30, 2012.
The Company had no gain on forgiveness of trade payables for the period January 1, 2013 through September 30, 2013.
Gain on forgiveness of trade payables was $30,000 for the period January 1, 2012 through September 30, 2012. $30,000 of the Company’s payable balance to a third-party was forgiven during the period.
Loss on Impairment of Fixed Assets
The Company had no loss on impairment of fixed assets for the period July 1, 2013 through September 30, 2013.
The Company had no loss on impairment of fixed assets for the period July 1, 2012 through September 30, 2012.
The Company had no loss on impairment of fixed assets for the period January 1, 2013 through September 30, 2013.
Loss on impairment of fixed assets was $73,790 for the period January 1, 2012 through September 30, 2012.
Other Income (Expense)
Other Income totaled $46,0323 during the period July 1, 2013 through September 30, 2013. The primary reason for the balance was $41,240 in funding received from the North Carolina Land & Lakes Grant. The Company received additional other income totaling $4,793 from the USDA Biofuel Program during the third quarter of 2013.
Other Income totaled $16,042 during the period July 1, 2012 through September 30, 2012. The primary reasons for the balance were $9,012 in funding from the USDA Biofuel Program and $4,934 in funding received from the North Carolina Green Business Fund Grant. The remaining balance is primarily attributable to $2,095 in funds received from the Western Carolina Piedmont Council of Governments.
Other Income totaled $99,763 during the period January 1, 2013 through September 30, 2013. The primary reason for the balance was $92,000 in funding received from the North Carolina Land & Lakes Grant. The Company received additional other income totaling $5,283 from the USDA Biofuel Program during the third quarter of 2013.
Other Income totaled $93,560 during the period from January 1, 2012 through September 30, 2012. The primary reason for the balance was $48,616 in funding received from the North Carolina Green Business Fund Grant. Additional funding of $17,193 was provided by the North Carolina Land & Lakes Grant and funding of $9,012 was received from the USDA Biofuel Program. The remaining balance is primarily attributable to $18,739 in funds received from the Western Carolina Piedmont Council of Governments.
Net Income (Loss)
The Company had net income of $124,675 for the period July 1, 2013 through September 30, 2013.
The Company had a net loss of ($100,117) for the period July 1, 2012 through September 30, 2012.
The Company had net income of $227,524 for the period January 1, 2013 through September 30, 2013.
The Company had a net loss of ($253,958) for the period January 1, 2012 through September 30, 2012.
Liquidity and Capital Resources
Working Capital
|
As of
September 30, 2013
|
As of
December 31, 2012
|
|||||||
|
Current Assets
|
$ | 453,398 | $ | 293,373 | ||||
|
Current Liabilities
|
$ | 730,624 | $ | 688,895 | ||||
|
Working Capital Deficiency
|
$ | (277,226 | ) | $ | (395,522 | ) | ||
|
Accumulated Deficit
|
$ | (5,823,050 | ) | $ | (6,050,574 | ) | ||
Cash Flows
|
Nine Months
Ended
September 30, 2013
|
Nine Months
Ended
September 30, 2012
|
|||||||
|
Cash provided by (used in) operating activities
|
$ | 343,538 | $ | (28,798 | ) | |||
|
Cash used in investing activities
|
(144,000 | ) | (26,671 | ) | ||||
|
Cash used in financing activities
|
(41,339 | ) | (52,475 | ) | ||||
|
Net increase (decrease) in cash
|
$ | 155,199 | $ | (107,944 | ) | |||
As of September 30, 2013, our current assets totaling $453,398 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 $730,624 as of September 30, 2013. As a result, we had a working capital deficiency of $277,226.
Current assets for the Company totaled $293,373 as of December 31, 2012. Current liabilities for the Company totaled $688,895 as of December 31, 2012, which resulted in a working capital deficiency of $395,522.
Comparing the working capital deficiency at September 30, 2013 to the deficiency at December 31, 2012, there was a decrease of $118,297 as the deficiency decreased from $395,522 to $277,226. The biggest contributor to the overall decrease was collection of funds associated with blenders’ tax credits associated with fuels sold during 2012.
On a short-term basis, it is anticipated that the Company’s liquidity needs will be met through selling biodiesel and RIN-gallons, through borrowing from related parties and through the sale of common stock. NABE’s period-over-period biodiesel sales have increased by 291,023 gallons comparing the first nine months of 2013 to the first nine months of 2012. 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 September 30, 2013, the Company generated a gross profit of $95,602 on sales of $1,169,947 over the same period. For the three months ended September 30, 2012, the Company generated a gross loss of $91,093 on sales of $96,773 over the same period.
As of September 30, 2013, NABE had outstanding balances on bank borrowings of $87,747, which originally totaled $250,000 when the loan was first executed. The loan represents a term loan that resulted from the conversion of a line of credit. An additional balance of $5,368 was outstanding as of September 30, 2013, which represented financing of NABE’s general liability insurance.
A portion of the Company’s operations have been funded through the issuance of stock shares. As of September 30, 2013, 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 (Used In) Operating Activities
During the period January 1, 2013 through September 30, 2013, the Company’s cash provided by operating activities totaled $343,580. 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 biodiesel and RIN sales, and making payments on trade payables. Trade receivables decreased $54,542 while inventories increased $57,199. NABE collected $105,338 in tax credits attributable to blended gallons sold during 2012 and collected an additional $27,897 in tax credits attributable to gallons sold during 2013. Payables increased $33,777 for the same period.
During the period January 1, 2012 through September 30, 2012, the Company’s cash used in operating activities totaled $28,798. For the same period, the Company’s cash used in operating activities was primarily attributable to the net effect of making credit sales, collecting trade receivables associated with RIN sales, and making payments on trade payables. A loss was recognized when storage totes were deemed impaired as a result of placing other storage vessels into service. Additionally, the Company had certain third party trade payables forgiven.
Cash Used In Investing Activities
During the period January 1, 2013 through September 30, 2013, the Company’s cash used in investing activities totaled $144,000. This amount represents billings for glycerin processing equipment ($82,800) horizontal storage tanks ($6,200), and biodiesel processing equipment upgrades ($55,000). Most construction is complete on the glycerin processing system at Lenoir, North Carolina site. Commissioning of the glycerin processing equipment is expected to occur during the fourth quarter of 2013. Additional equipment is being installed to increase biodiesel throughput and filtration. These equipment upgrades may be completed during the fourth quarter of 2013.
During the period January 1, 2012 through September 30, 2012, the Company’s cash used in investing activities totaled $26,671. This amount primarily represents plant-wide efforts to improve operating efficiency through continued efforts to insulate equipment and piping at the biodiesel production facility in Lenoir, NC. Additional funds were used to upgrade pumps and purchase a vehicle, which are also associated with the NABE site.
Cash Used In Financing Activities
During the period January 1, 2013 through September 30, 2013, the Company’s cash used in financing activities totaled $44,339. This amount represents payments on long-term debt to third-party creditors.
During the period January 1, 2012 through September 30, 2012, the Company’s cash used in financing activities totaled $52,475. This amount consisted of funds used to repay $10,000 in related party debt and $42,475 in payments on long-term debt to third-party creditors.
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 September 30, 2013. 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 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 September 30, 2013.
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.
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:
|
Exhibit No.
|
Description
|
|
3.1
|
Articles of Incorporation (1)
|
|
3.2
|
Bylaws (1)
|
|
31.1
|
Section 302 Certification of CEO*
|
|
31.2
|
Section 302 Certification of Principal Financial Officer *
|
|
32.1
|
Section 906 Certification of CEO*
|
|
32.2
|
Section 906 Certification of Principal Financial Officer*
|
*filed herewith
(1) Incorporated by reference to the Form S-1 registration statement filed on June 30, 2008.
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.
November 14, 2013
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)
20