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| ADNY.OB > SEC Filings for ADNY.OB > Form 10KSB/A on 11-Aug-2008 | All Recent SEC Filings |
11-Aug-2008
Annual Report
The following is a discussion of our financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our Consolidated Financial Statements and the notes thereto included elsewhere in this Form 10-KSB.
FORWARD-LOOKING INFORMATION
This report contains a number of forward-looking statements, which reflect the Company's current views with respect to future events and financial performance including statements regarding the Company's projections. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. In this report, the words "anticipates", "believes", "expects", "intends", "future", "plans", "targets" and similar expressions identify forward-looking statements. Readers are cautioned to not place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that may arise after the date hereof. Additionally, these statements are based on certain assumptions that may
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. These estimates and assumptions provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material.
Revenue Recognition
Adino's revenue recognition policy is consistent with the criteria set forth in
Staff Accounting Bulletin 104-Revenue Recognition in Financial Statements (SAB
104) for determining when revenue is realized or realizable and earned. In
accordance with the requirements of SAB 104 the Company recognizes revenue when
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3)
the seller's price is fixed or determinable; and (4) collectibility is
reasonably assured.
Stock-Based Compensation
On January 1, 2006, the Company adopted SFAS No. 123 - Revised 2004, Share-Based Payment, which establishes accounting for stock-based payment transactions for employee services and goods and services received from non-employees. SFAS 123(R) is a revision of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), and supersedes APB No. 25, Accounting for Stock Issued to Employees. Under the provisions of SFAS 123(R), stock-based compensation cost is measured at the date of grant, based on the calculated fair value of the award, and is recognized as expense over the employee's or non-employee's service period, which is generally the vesting period of the equity grant.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at it fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based derivative financial instruments, the Company uses the Black-Scholes model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Restatements
The 2003-2006 financial results have been restated. See Note 19 for details. Additionally, the quarterly filings for March 31, June 30, and September 30, 2006 and 2007 have been restated. See Note 20 for details.
RESULTS OF OPERATIONS
For the fiscal year ended December 31, 2007, Adino had a net loss of ($1,597,622) or (.03) per share. This compares to a net loss of ($4,817,315) for the same period in 2006. The most significant changes in operating income was a derivative loss of $2,490,426 in 2006 with no such loss in 2007. We also recorded a gain of $740,192 during 2007 with no such gains in 2006.
The Company continues to see strong growth from IFL. IFL had gross revenues of $1,717,813 and $760,313 for the years ended December 31, 2007 and 2006, respectively.
The increased revenues and reduced expenses resulted in IFL having net income from operations for all four quarters of 2007. Much of IFL's expenses are fixed costs, and as a result, every additional dollar of revenue produces a higher marginal income.
RESULTS OF OPERATIONS FOR RESTATED PERIODS (See Note 19)
2003: For the fiscal year ended December 31, 2003, Adino had a net loss of ($898,303) or ($0.02) per share. The most significant
2004: For the fiscal year ended December 31, 2004, Adino had a net loss of ($1,835,127) or ($0.04) per share. During 2004, Adino entered into a convertible debenture agreement with Dr. David Zehr, which resulted in a derivative. This restatement properly accounts for the derivative loss during 2004 of ($46,417). The primary reason for the additional loss is fully recording the operating losses of IFL.
2005: For the fiscal year ended December 31, 2005, Adino had a net loss of
($1,111,162) or ($0.02) per share. This increased loss of ($852,237) was
primarily due to interest expense related to several defaulted notes payable.
All of the notes in question were settled without cash payment in the March 23,
2007 lawsuit settlement.
2006: For the fiscal year ended December 31 2006, Adino had a net loss of
($4,817,315) or ($0.11) per share. A significant portion of this loss is due to
Adino's loss on derivatives of (2,490,426) and interest expense of ($880,798).
During 2006, Adino's wholly owned subsidiary, Intercontinental Fuels, LLC began
operations, realizing $760,313 in revenue and $617,325 in gross margin.
Adino has restated the March 31, June 30 and September 30, 2006 financial
statements in attached Note 19 to the financial statements contained herein.
The most significant changes over previously filed financial statements were
the consolidation of Intercontinental Fuels, LLC and the correction of
accounting treatment for the Dr. Zehr convertible debenture, determined to be a
derivative.
2007: Adino has restated the March 31, June 30 and September 30, 2007 financial statements in attached Note 19. The most significant adjustment to the financial statements is the accounting for the capital lease associated with the terminal operated by Intercontinental Fuels, LLC at 17617 Aldine Westfield Rd, Houston, TX. Additionally, the Company settled all litigation associated with the acquisition of the terminal on March 23, 2007. The net gain from this settlement, $1,480,383, has been corrected for recognition over the 18 month life of the terminal's capital lease.
See Note 19 for detailed restatement presentation.
LIQUIDITY AND CAPITAL RESOURCES
During the years 2003 to 2006, Adino had substantial liquidity and cash flow problems due to its lack of operating revenues. In 2007, the Company's liquidity and cash flow improved due to revenues generated by IFL; however, we still experienced liquidity problems due to debts incurred by Adino in prior years. Our working capital deficit at December 31, 2007 was $7,949,223 compared to $11,325,117 at December 31, 2006. This is primarily due to our improved revenues during 2007 and positive cash flows from operations.
COMPETITION
The market for fuel storage is localized by its very nature. Fuel wholesalers need quick and close access to fuel to supply their customers. As a result, the relevant market may not be a city, but only a certain part of a city.
Adino's IFL terminal is located in North Houston close to the George Bush Intercontinental Airport. Due to the size of the Houston metropolitan area, the relevant market is North Houston, not the entire metropolitan area.
There are several terminals in the Houston area. Several of these terminals are owned by integrated petroleum companies and exist solely to supply their franchisees and company-owned retail locations. Others sell to wholesalers in general but will not sell to competitors.
Overall, we believe that competition to IFL is negligible given its location and the fact that it serves independent petroleum wholesalers.
RISK FACTORS
Although the Company is now an operating entity and its financial results have improved greatly, Adino still continues to sustain minor operating losses. Revenues must be maintained and increased to allow Adino to show continued improvement.
The market price of the Company's common stock has fluctuated significantly since it began to be publicly traded in 1998 and may continue to be highly volatile. Factors such as the ability of the Company to achieve development goals, ability of the Company to compete in the petroleum distribution industry, the ability of the Company to raise additional funds, general market conditions and other factors affecting the Company's business that are beyond the Company's control may cause significant fluctuations in the market price of the Company's common stock. Such market fluctuations could adversely affect the market price for the Company's common stock.
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