UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
      ACT OF 1934





FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010





OR





 ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934





Commission
File #333-74638





ADINO
ENERGY CORPORATION


(Exact
name of registrant as specified in its charter)





MONTANA
              
              82-0369233(State
      or other jurisdiction of incorporation)
              
              (IRS
      Employer Identification Number)2500 CITY WEST BOULEVARD, SUITE 300   HOUSTON, TEXAS
              
              77042(Address
      of principal executive offices)
              
              (Zip
      Code)





(281)
209-9800


(Registrant's
telephone number, including area code)





Securities
registered pursuant to Section 12(g) of the Act:





Common
stock, $0.001 par value per share





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.x   Yes   ̈
  No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  ̈  Yesx  No





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





Large
      accelerated filer
             ̈
            Accelerated
      filer
             ̈Non-accelerated
      filer
             ̈
            Smaller
      reporting company
            x(Do
      not check if smaller reporting company)




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act: Yes ̈ Nox





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date:  At November 19, 2010, there
were 105,760,579 shares of common stock outstanding.







TABLE
OF CONTENTS




Page No.PART
      I  FINANCIAL INFORMATIONItem
      1.
                          Financial
      Statements
                          3Consolidated
      Balance Sheets – September 30, 2010 (Unaudited) and December 31,
      2009
                          3Unaudited
      Consolidated Statements of Operations-Three and Nine Months
      Ended September 30, 2010 and 2009
                          4Unaudited
      Consolidated Statement of Changes in Stockholders’ Deficit – Period Ended
      September 30, 2010
                          5Unaudited
      Consolidated Statements of Cash Flows - Nine Months Ended September 30,
      2010 and 2009
                          6Notes
      to Unaudited Consolidated Financial Statements
                          7Item
      2.
                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          16Item
      3.
                          Quantitative
      and Qualitative Disclosures About Market Risks
                          20Item
      4T.
                          Controls
      and Procedures
                          20PART
      II  OTHER INFORMATIONItem
      1.
                          Legal
      Proceedings
                          20Item
      2.
                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                          21Item
      3.
                          Defaults
      Upon Senior Securities
                          21Item
      4.
                          Submission
      of Matters to a Vote of Security Holders
                          21Item
      5.
                          Other
      Information
                          21Item
      6.
                          Exhibits
                          22Signatures
                          23


2





ITEM
1. FINANCIAL STATEMENTS





ADINO
      ENERGY CORPORATIONConsolidated
      Balance SheetAS
      OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009September
      30, 2010
                              
                              
                              December
      31, 2009(Unaudited)ASSETSCash
      in bank
                              
                              $
                              553,452
                              
                              
                              $
                              502,542Accounts
      receivable, net of allowances
                              
                              
                              11,000
                              
                              
                              
                              96,734Deposits
      and prepaid assets
                              
                              
                              13,968
                              
                              
                              
                              255Notes
      receivable, net of unamortized discount of $64,830
                              
                              
                              685,170
                              
                              
                              
                              -Interest
      receivable
                              
                              
                              375,208
                              
                              
                              
                              -Total
      current assets
                              
                              
                              1,638,798
                              
                              
                              
                              599,531Fixed
      assets, net of accumulated depreciation of $54,735 and $28,366,
      respectively
                              
                              
                              436,976
                              
                              
                              
                              32,659Oil
      and gas properties (full cost method), net of accumulated amortization,
      depreciation, depletion, accretion and asset impairment
                              
                              
                              177,254
                              
                              
                              
                              -Note
      receivable, net of unamortized discount of $114,138
                              
                              
                              -
                              
                              
                              
                              635,862Goodwill
                              
                              
                              1,566,379
                              
                              
                              
                              1,559,240Other
      assets
                              
                              
                              -
                              
                              
                              
                              375,208Total
      non-current assets
                              
                              
                              2,180,609
                              
                              
                              
                              2,602,969TOTAL
      ASSETS
                              
                              $
                              3,819,407
                              
                              
                              $
                              3,202,500LIABILITIES
      AND SHAREHOLDERS’ DEFICITAccount
      payable
                              
                              $
                              499,306
                              
                              
                              $
                              511,747Accounts
      payable - related party
                              
                              
                              39,304
                              
                              
                              
                              42,871Accrued
      liabilities
                              
                              
                              342,303
                              
                              
                              
                              330,568Accrued
      liabilities - related party
                              
                              
                              862,687
                              
                              
                              
                              1,023,687Contract
      clawback provision
                              
                              
                              293,945
                              
                              
                              
                              -Notes
      payable - current portion
                              
                              
                              1,813,479
                              
                              
                              
                              291,618Interest
      payable
                              
                              
                              622,500
                              
                              
                              
                              510,000Derivative
      liability
                              
                              
                              112,152
                              
                              
                              
                              -Deferred
      gain - current portion
                              
                              
                              391,272
                              
                              
                              
                              391,272Total
      current liabilities
                              
                              
                              4,976,948
                              
                              
                              
                              3,101,763Deferred
      gain, net of current portion
                              
                              
                              782,563
                              
                              
                              
                              1,076,022Notes
      payable, net of current portion
                              
                              
                              416,098
                              
                              
                              
                              1,522,483TOTAL
      LIABILITIES
                              
                              
                              6,175,609
                              
                              
                              
                              5,700,268SHAREHOLDERS’
      DEFICITPreferred
      stock, $0.001 par value, 20,000 shares authorized, no shares issued and
      outstanding
                              
                              
                              -
                              
                              
                              
                              -Capital
      stock, $0.001 par value, 500 million shares authorized, 105,760,579 and
      93,260,579 shares issued and outstanding at September 30, 2010 and
      December 31, 2009, respectively
                              
                              
                              105,760
                              
                              
                              
                              93,260Additional
      paid in capital
                              
                              
                              13,740,442
                              
                              
                              
                              13,527,242Retained
      deficit
                              
                              
                              (16,202,404
                              )
                              
                              
                              (16,118,270
                              )Total
      shareholders’ deficit
                              
                              
                              (2,356,202
                              )
                              
                              
                              (2,497,768
                              )TOTAL
      LIABILITIES AND SHAREHOLDERS’ DEFICIT
                              
                              $
                              3,819,407
                              
                              
                              $
                              3,202,500See
      accompanying notes to the financial statements


3





ADINO
ENERGY CORPORATION


Consolidated
Statements of Operations


FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009


(Unaudited)





Three months ended
                
                
                Nine
      months endedSeptember
      30
                
                
                September
      30
                
                
                September
      30
                
                
                September
      302010
                
                
                2009
                
                
                2010
                
                
                2009REVENUES
      AND GROSS MARGINSTerminal
      operations
                
                $
                365,817
                
                
                $
                533,998
                
                
                $
                1,488,483
                
                
                $
                1,524,985Oil
      and gas operations
                
                
                23,202
                
                
                
                -
                
                
                
                23,202
                
                
                
                -Total
      revenues
                
                
                389,019
                
                
                
                533,998
                
                
                
                1,511,685
                
                
                
                1,524,985OPERATING
      EXPENSESCost
      of product sales
                
                
                9,427
                
                
                
                100,374
                
                
                
                239,542
                
                
                
                355,868Payroll
      and related expenses
                
                
                5,613
                
                
                
                -
                
                
                
                5,613
                
                
                
                -Terminal
      management
                
                
                100,090
                
                
                
                99,990
                
                
                
                300,070
                
                
                
                300,990General
      and administrative
                
                
                197,117
                
                
                
                129,245
                
                
                
                515,745
                
                
                
                396,034Legal
      and professional
                
                
                62,828
                
                
                
                36,992
                
                
                
                177,825
                
                
                
                129,102Consulting
      fees
                
                
                242,749
                
                
                
                127,058
                
                
                
                558,680
                
                
                
                599,239Repairs
                
                
                1,444
                
                
                
                419
                
                
                
                7,807
                
                
                
                602Depreciation
      expense
                
                
                17,465
                
                
                
                2,542
                
                
                
                22,550
                
                
                
                9,629Operating
      supplies
                
                
                19,961
                
                
                
                4,406
                
                
                
                19,961
                
                
                
                7,656Total
      operating expenses
                
                
                656,694
                
                
                
                501,026
                
                
                
                1,847,793
                
                
                
                1,799,120OPERATING
      GAIN (LOSS)
                
                
                (267,675
                )
                
                
                32,972
                
                
                
                (336,108
                )
                
                
                (274,135
                )OTHER
      INCOME AND EXPENSESInterest
      income
                
                
                17,341
                
                
                
                16,923
                
                
                
                49,386
                
                
                
                49,141Interest
      expense
                
                
                (49,317
                )
                
                
                (42,391
                )
                
                
                (129,789
                )
                
                
                (124,828
                )Gain
      from lawsuit
                
                
                98,237
                
                
                
                97,819
                
                
                
                293,876
                
                
                
                301,355Loss
      on derivative
                
                
                (76,314
                )
                
                
                -
                
                
                
                (76,314
                )
                
                
                -Gain
      on change in fair value of clawback
                
                
                114,815
                
                
                
                -
                
                
                
                114,815
                
                
                
                -Other
      income
                
                
                -
                
                
                
                3,700
                
                
                
                -
                
                
                
                5,904Total
      other income and expense
                
                
                104,762
                
                
                
                76,051
                
                
                
                251,974
                
                
                
                231,572NET
      INCOME (LOSS)
                
                $
                (162,913
                )
                
                $
                109,023
                
                
                $
                (84,134
                )
                
                $
                (42,563
                )Net
      income (loss) per share, basic and fully diluted
                
                $
                (0.00
                )
                
                $
                0.00
                
                
                $
                (0.00
                )
                
                $
                (0.00
                )Weighted
      average shares outstanding, basic and fully diluted
                
                
                104,151,883
                
                
                
                93,260,579
                
                
                
                97,203,802
                
                
                
                89,879,627





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


4




ADINO
ENERGY CORPORATION


Consolidated
Statement of Changes in Stockholders’ Deficit


FOR
THE PERIOD ENDED SEPTEMBER 30, 2010


(Unaudited)





Shares
                
                
                Amount
                
                
                Additional
                  Paid in
                  Capital
                
                
                Retained
                  Deficit
                
                
                TotalBalance
      December 31, 2009
                
                
                93,260,579
                
                
                $
                93,260
                
                
                $
                13,527,242
                
                
                $
                (16,118,270
                )
                
                $
                (2,497,768
                )Shares
      issued for services
                
                
                2,500,000
                
                
                
                2,500
                
                
                
                73,200
                
                
                
                -
                
                
                
                75,700Shares
      issued for acquisition
                
                
                10,000,000
                
                
                
                10,000
                
                
                
                140,000
                
                
                
                -
                
                
                
                150,000Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (84,134
                )
                
                
                (84,134
                )Balance
      September 30, 2010
                
                
                105,760,579
                
                
                $
                105,760
                
                
                $
                13,740,442
                
                
                $
                (16,202,404
                )
                
                $
                (2,356,202
                )





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


5





ADINO
ENERGY CORPORATION


Consolidated
Statements of Cash Flows


FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009


(Unaudited)





September
      30, 2010
                        
                        
                        September
      30, 2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                        
                        $
                        (84,134
                        )
                        
                        $
                        (42,563
                        )Adjustments
      to reconcile net loss to net cash provided from (used in) operating
      activities:Depreciation
      and amortization
                        
                        
                        22,550
                        
                        
                        
                        9,629Bad
      debt expense
                        
                        
                        30,000
                        
                        
                        
                        -Options
      issued for services
                        
                        
                        -
                        
                        
                        
                        21,995Amortization
      of discount on note receivable
                        
                        
                        (49,308
                        )
                        
                        
                        (39,876
                        )Stock
      based compensation
                        
                        
                        -
                        
                        
                        
                        52,500Shares
      issued for services
                        
                        
                        75,700
                        
                        
                        
                        19,000Amortization
      of note discount
                        
                        
                        6,504
                        
                        
                        
                        -Loss
      on derivative
                        
                        
                        76,314
                        
                        
                        
                        -Gain
      on change in fair value of clawback provision
                        
                        
                        (114,815
                        )
                        
                        
                        -Gain
      on lawsuit settlement
                        
                        
                        (293,459
                        )
                        
                        
                        (301,355
                        )Gain
      on asset disposal
                        
                        
                        -
                        
                        
                        
                        (2,204
                        )Change
      in operating assets and liabilities:Accounts
      receivable
                        
                        
                        55,734
                        
                        
                        
                        (10,109
                        )Other
      assets
                        
                        
                        (13,713
                        )
                        
                        
                        5,438Accounts
      payable and accrued liabilities
                        
                        
                        (72,501
                        )
                        
                        
                        391,186Net
      cash provided from (used in) operating activities
                        
                        $
                        (361,128
                        )
                        
                        $
                        103,641CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of equipment
                        
                        
                        (32,772
                        )
                        
                        
                        (10,264
                        )Principal
      payments on note receivable
                        
                        
                        -
                        
                        
                        
                        44,845Net
      cash provided from (used in) investing activities
                        
                        $
                        (32,772
                        )
                        
                        $
                        34,581CASH
      FLOWS FROM FINANCING ACTIVITIES:Borrowing
      on debt
                        
                        
                        457,500
                        
                        
                        
                        -Principal
      payments on note payable
                        
                        
                        (12,690
                        )
                        
                        
                        (6,238
                        )Net
      cash provided from (used in) financing activities
                        
                        $
                        444,810
                        
                        
                        $
                        (6,238
                        )Net
      change in cash and cash equivalents
                        
                        
                        50,910
                        
                        
                        
                        131,984Cash
      and cash equivalents, beginning of period
                        
                        
                        502,542
                        
                        
                        
                        30,228Cash
      and cash equivalents, end of period
                        
                        $
                        553,452
                        
                        
                        $
                        162,212Cash
      paid for taxes
                        
                        $
                        -
                        
                        
                        $
                        -Cash
      paid for Interest
                        
                        $
                        12,285
                        
                        
                        $
                        12,378Non-cash
      transactions:Contract
      clawback provision
                        
                        $
                        293,945
                        
                        
                        $
                        -Acquisition
      purchased with stock
                        
                        $
                        150,000
                        
                        
                        $
                        -Asset
      retirement obligation
                        
                        $
                        19,728
                        
                        
                        $
                        -Note
      discount
                        
                        $
                        35,838
                        
                        
                        $
                        -





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


6





ADINO
ENERGY CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE
1 - ORGANIZATION




Adino Energy Corporation ("Adino", “we”or the "Company"), is an
emerging oilandgas exploration and production company
focused on mature oilfield assets with significant redevelopment, workover and
enhanced oil recovery (EOR) potential. The Company alsoleases and operatesa fuel terminal in Houston,Texas.




Adino was
incorporated under the laws of the State of Montana on August 13, 1981, under
the name Golden Maple Mining and Leaching Company, Inc. In 1985, the Company
ceased its mining operations and discontinued all business operations in 1990.
The Company then acquired Consolidated Medical Management, Inc. (“CMMI”) and
kept the CMMI name. The Company initially focused its efforts on the
continuation of the business services offered by CMMI. These services focused on
the delivery of turn-key management services for the home health industry,
predominately in south Louisiana. The Company exited the medical business in
December 2000. In August 2001, the Company decided to refocus on the oil and gas
industry. In 2006, we decided to cease our oil and gas activities and focus on
becoming a fuel company.





The
Company’s wholly owned subsidiary, Intercontinental Fuels, LLC (“IFL”), a Texas
limited liability company, was founded in 2003. Adino first acquired 75% of
IFL’s membership interests in 2003. We now own 100% of IFL.





In
January 2008, the Company changed its name to Adino Energy Corporation. We
believe that this name better reflects our current and future business
activities, as we plan to continue focusing on the energy industry.




As of
July 1, 2010, the Company acquired PetroGreen Energy LLC, a Nevada limited
liability company, and AACM3, LLC, a Texas limited liability company d/b/a Petro
2000 Exploration Co. (together "Petro Energy"). Petro Energy is a licensed Texas
oilfield operator currently operating 11 wells on two leases covering
approximately 300 acres in Coleman County, Texas. Petro also owns a drilling
rig, two service rigs and associated tools and equipment.The Company also acquired
the operator license held by the principal of PetroGreen and Petro 2000
Exploration Co.




NOTE
2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES





Basis
of presentation





The
accompanying unaudited interim consolidated financial statements of Adino Energy
Corporation have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the
Securities and Exchange Commission (“SEC”), and should be read in conjunction
with the audited financial statements and notes thereto contained in Adino
Energy Corporation’s Annual Report filed with the SEC on Form 10-K.  In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein.  The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year.





Significant
accounting policies





Oil and gas producing activities:The Company follows the full cost method of accounting for oil and gas
operations whereby all costs associated with the exploration and development of
oil and gas properties are initially capitalized into a single cost center
(“full cost pool”). Such costs include land acquisition costs, geological and
geophysical expenses, carrying charges on non-producing properties and costs of
drilling directly related to acquisition and exploration activities. Proceeds
from property sales are generally credited to the full cost pool, with no gain
or loss recognized, unless such a sale would significantly alter the
relationship between capitalized costs and the proved reserves attributable to
these costs. A significant alteration would typically involve a sale of 25% or
more of the proved reserves related to a full cost pool.





Depletion
of exploration and production costs and depreciation of production equipment is
computed using the units of production method based upon estimated proved oil
and gas reserves as determined by consulting engineers and prepared (annually)
by independent petroleum engineers. Costs included in the depletion base to be
amortized include (a) all proved capitalized costs including capitalized asset
retirement costs, net of estimated salvage values, less accumulated depletion,
(b) estimated future development cost to be incurred in developing proved
reserves; and (c) estimated dismantlement and abandonment costs, net of
estimated salvage values that have not been included as capitalized costs
because they have not yet been capitalized in asset retirement costs. The costs
of unproved properties are withheld from the depletion base until it is
determined whether or not proved reserves can be assigned to the properties. The
unproved properties are reviewed quarterly for impairment. When proved reserves
are assigned or the unproved property is considered to be impaired, the cost of
the property or the amount of the impairment is added to the costs subject to
depletion calculations.


7





Derivatives: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 its fair
value and is then revalued 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.





Asset retirement obligation:The Company accounts for its asset retirement obligations by recording
the fair value of a liability for an asset retirement obligation recognized for
the period in which it was incurred if a reasonable estimate of fair value could
be made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. The increase in carrying value of a
property associated with the capitalization of an asset retirement cost is
included in proved oil and gas properties in the consolidated balance sheets.
The Company depletes the amount added to proved oil and gas property costs. The
future cash outflows associated with settling the asset retirement obligation
that have been accrued in the accompanying balance sheets are excluded from the
ceiling test calculations. The Company also depletes the estimated dismantlement
and abandonment costs, net of salvage values, associated with future development
activities that have not yet been capitalized as asset retirement obligations.
These costs are also included in the ceiling test calculations. The asset
retirement liability is allocated to operating expense using a systematic and
rational method.




NOTE
3-GOING CONCERN





As of
September 30, 2010, the Company has a working capital deficit of $3,338,150 and
total stockholders’ deficit of $2,356,202.  These factors raise
substantial doubt regarding the Company’s ability to continue as a going
concern. The ability of the Company to continue as a going concern depends upon
its ability to obtain funding for its working capital deficit. Of the
outstanding current liabilities at September 30, 2010, $391,272 is a non-cash
deferred gain on the terminal transaction. See Note 4 for a complete explanation
of the deferred settlement gain.  Additionally, $862,687 of the
outstanding current liabilities is due to certain officers and directors for
prior years’ accrued compensation.  These officers and directors have
agreed in writing to postpone payment if necessary, should the Company need
capital it would otherwise pay these individuals.  The Company plans
to satisfy current year and future cash flow requirements through operations and
merger and acquisition opportunities including the expansion of existing
business opportunities.  The Company expects these growth
opportunities to be financed by a combination of equity and debt capital;
however, in the event the Company is unable to obtain additional debt and equity
financing, the Company may not be able to continue its operations.





NOTE
4-LEASE COMMITMENTS




On April
1, 2007, IFL agreed to lease a fuel storage terminal from 17617 Aldine Westfield
Road, LLC for 18 months at $15,000 per month. The lease contained an
option to purchase the terminal for $3.55 million by September 30, 2008. The
Company evaluated this lease and determined that it qualified as a capital lease
for accounting purposes.  The terminal was capitalized at $3,179,572,
calculated using the present value of monthly rent at $15,000 for the months
April 2007 – September 2008 and the final purchase price of $3.55 million
discounted at IFL’s incremental borrowing rate of 12.75%.  The
terminal was depreciated over its useful life of 15 years resulting in monthly
depreciation expense of $17,664.  As of December 31, 2007, the
carrying value of the capital lease liability was $3,355,984.





Due to
the difficult credit markets, the Company was unable to secure financing for the
Houston terminal facility and assigned its rights under the terminal purchase
option to Lone Star Fuel Storage and Transfer, LLC (“Lone
Star”).  Lone Star purchased the terminal from 17617 Aldine Westfield
Road, LLC on September 30, 2008.  Lone Star then entered into a five
year operating lease with option to purchase with IFL.  The five year
lease has monthly rental payments of $30,000, escalating 3% per
year.  IFL’s purchase option allows for the terminal to be purchased
at any time prior to October 1, 2009 for $7,775,552.  The sale price
escalates $1,000,000 per year after this date, through the lease expiration date
of September 30, 2013.  The Company recognizes the escalating lease
payments on a straight line basis.  As of September 30, 2010, the
Company has not exercised its option to purchase the Houston terminal
facility.





The Lone
Star lease was evaluated and was deemed to be an operating lease.





The
transactions that led to the above two leases both resulted in gains to the
Company.  The lawsuit settlement just prior to the lease with 17617
Aldine Westfield Road, LLC resulted in a gain to the Company of
$1,480,383.  The Company amortized this amount over the life of the
capital asset, or 15 years.





At the
expiration of the capital lease, September 30, 2008, the above remaining gain of
$1,332,345 was rolled into the gain on the sale assignment transaction with Lone
Star of $624,047.  The total remaining gain to be amortized as of
September 30, 2008 of $1,956,392 is being amortized over the life of the Lone
Star operating lease, or 60 months.  The operating lease expires as of
September 30, 2013.  This treatment is consistent with sale leaseback
gain recognition rules.


8





NOTE
5 – PETRO ENERGY ACQUISITION PURCHASE PRICE ALLOCATION





The
Company’s acquisition of the Petro Energy companies (see Note 1) included
operating wells and fixed assets. The transaction, treated as a business
combination, was valued under current guidance using fair value methods. To
arrive at the acquired asset’s fair value, the valuation considered the value to
be the price, in cash or equivalent, that a buyer could reasonably be expected
to pay, and a seller could reasonably be expected to accept, if the business
were exposed for sale on the open market for a reasonable period of time, with
both buyer and seller being in possession of the pertinent facts and neither
being under any compulsion to act.




The
Company issued ten million (10,000,000) shares of common stock at closing as
consideration for the companies. The stock price as of July 1, 2010 was $0.015
per common share, representing a value of $150,000.




The
tangible assets acquired were valued based on the appropriate application of the
market or cost approaches. The fair value was estimated at the depreciable value
of the current replacement costs based on the age of the assets, assuming they
are in good, working order. Additionally, the Company had an independent third
party value the oil reserves for the Felix Brandt wells in Coleman,
Texas.




A
component of the acquisition agreement with PetroGreen Energy and AACM3, LLC
gave the former owners of these companies the option to repurchase for $1.00 the
assets held by the companies as of July 1, 2010 if the Company’s common stock
price fails to reach $0.25 per share within three years of the original
acquisition date. This contract clawback provision was valued as a
derivative at July 1, 2010 at $408,760.





The above
valuations resulted in a goodwill calculation on acquisition of $7,139 at July
1, 2010.





Below is
the acquisition summary including fair value of assets acquired, liabilities
assumed and consideration given as of July 1, 2010:





Fair
      Value at July 1, 2010Assets
      acquired:Tangible
      drilling costs
                    
                    $
                    155,700Proved
      oil and gas properties
                    
                    
                    71,060Machinery
      and equipment
                    
                    
                    324,861Total
      acquired asset fair value
                    
                    
                    551,621Less
      liability assumed:Contract
      clawback provision
                    
                    
                    (408,760
                    )Consideration
      - Common stock
                    
                    
                    (150,000
                    )Goodwill
      from acquisition
                    
                    $
                    7,139





NOTE
6 – FAIR VALUE OF FINANCIAL INSTRUMENTS





On
January 1, 2008, the Company adopted a new standard related to the accounting
for financial assets and financial liabilities and items that are recognized or
disclosed at fair value in the financial statements on a recurring basis, at
least annually. This standard provides a single definition of fair value and a
common framework for measuring fair value as well as new disclosure requirements
for fair value measurements used in financial statements. Fair value
measurements are based upon the exit price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants exclusive of any transaction costs, and are determined by either
the principal market or the most advantageous market. The principal market is
the market with the greatest level of activity and volume for the asset or
liability. Absent a principal market to measure fair value, the Company would
use the most advantageous market, which is the market that the Company would
receive the highest selling price for the asset or pay the lowest price to
settle the liability, after considering transaction costs. However, when using
the most advantageous market, transaction costs are only considered to determine
which market is the most advantageous and these costs are then excluded when
applying a fair value measurement. The adoption of this standard did not have a
material effect on the Company’s financial position, results of operations or
cash flows.





On
January 1, 2009, the Company adopted an accounting standard for applying fair
value measurements to certain assets, liabilities and transactions that are
periodically measured at fair value. The adoption did not have a material effect
on the Company’s financial position, results of operations or cash
flows.




In August
2009, the FASB issued an amendment to the accounting standards related to the
measurement of liabilities that are routinely recognized or disclosed at fair
value. This standard clarifies how a company should measure the fair value of
liabilities, and that restrictions preventing the transfer of a liability should
not be considered as a factor in the measurement of liabilities within the scope
of this standard. This standard became effective for the Company on October 1,
2009. The adoption of this standard did not have a material impact on the
Company’s consolidated financial statements.


9





The fair
value accounting standard creates a three-level hierarchy to prioritize the
inputs used in the valuation techniques to derive fair values. The basis for
fair value measurements for each level within the hierarchy is described below
with Level 1 having the highest priority and Level 3 having the
lowest.





Level
      1:
            Quoted
      prices in active markets for identical assets or
    liabilities.





Level
      2:
            Quoted
      prices for similar assets or liabilities in active markets; quoted prices
      for identical or similar instruments in markets that are not active; and
      model-derived valuations in which all significant inputs are observable in
      active markets.





Level
      3:
            Valuations
      derived from valuation techniques in which one or more significant inputs
      are unobservable.





The
Company valued the Petro Energy acquisition, the current convertible note and
warrant derivatives and the Company’s largest asset, goodwill, using Level 3
criterion, shown below. As of September 30, 2010, the valuations resulted in a
loss on derivatives of $76,314 and a gain on contract clawback provision of
$114,815 for a net gain of $38,501.





September 30, 2010Description
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3
                  
                  
                  Total Realized
                    Gain (Loss) due to
                    valuation
                  
                  
                  Total Unrealized
                    Gain (Loss) due to
                    valuationGoodwill
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,566,379
                  
                  
                  $
                  -
                  
                  
                  $
                  -Asher
      note - derivative
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  37,632
                  
                  
                  
                  (1,794
                  )
                  
                  
                  -BWME
      notes - derivative
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  64,978
                  
                  
                  
                  (64,978
                  )
                  
                  
                  -Haag
      warrants - derivative
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  9,542
                  
                  
                  
                  (9,542
                  )
                  
                  
                  -Contract
      clawback provision
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  293,945
                  
                  
                  
                  114,815
                  
                  
                  
                  -Total
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,972,476
                  
                  
                  $
                  38,501
                  
                  
                  $
                  -





December 31, 2009Description
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3
                  
                  
                  Total Realized
                    Gain (Loss) due to
                    valuation
                  
                  
                  Total Unrealized
                    Gain (Loss) due to
                    valuationGoodwill
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,566,379
                  
                  
                  $
                  -
                  
                  
                  $
                  -Total
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,566,379
                  
                  
                  $
                  -
                  
                  
                  $
                  -





NOTE
7 - NOTES RECEIVABLE  / INTEREST RECEIVABLE





On
November 6, 2003, Mr. Stuart Sundlun acquired 1,200 units of IFL from Adino.
Part of the purchase price was a note from Mr. Sundlun dated November 6, 2003,
bearing interest of 10% per annum in the amount of $750,000. This note was
secured by 600 units of IFL being held in attorney escrow and released pursuant
to the sales agreement.  The sales agreement provided that the
unreleased units would revert to Adino if Mr. Sundlun did not acquire the
remaining 600 units.





On August
7, 2006, IFL repurchased the units sold to Mr. Sundlun. The entire amount due
from Mr. Sundlun and payable to Mr. Sundlun is reported at gross (i.e., without
offset) in the Company's financial statements. The right of offset does not
officially exist even though it has been discussed. In accordance with current
guidance, the Company did not net the note receivable against the note payable.
Current guidance states “It is a general principal of accounting that the
offsetting of assets and liabilities in the balance sheet is improper except
where a right of setoff exists.” Although both parties agreed verbally that a
net payment would be acceptable, no formal documentation exists of this verbal
agreement.


10





In
addition to the above facts, the note holder provided a separate written
confirmation to the Company's auditors at December 31, 2009 of both the note
payable and note receivable balances, respectively.





The
Company's net notes receivable and payable to and from Mr. Sundlun are a net
payable of $750,000.





The 600
units of IFL are no longer held in escrow as the Company purchased all 1,200
units of IFL including the escrow units for $1,500,000 which is the value of the
note payable.





The note
receivable from Mr. Sundlun matured on November 6, 2008.  The Company
extended the note’s maturity date to August 8, 2011 with no additional interest
accrual to occur past November 6, 2008.  Due to the fact that there
will be no interest accrued on the note going forward, the Company recorded a
discount on the note principal of $179,671.  This amount will amortize
until the note’s maturity in August 2011.





Interest
accrued on the Sundlun note receivable was $375,208 at September 30, 2010 and
December 31, 2009.





A
schedule of the balances at September 30, 2010 and December 31, 2009 is as
follows:





September
      30, 2010
                      
                      
                      December 31, 2009Sundlun,
      net of unamortized discount of $64,830 and $114,138,
      respectively
                      
                      $
                      685,170
                      
                      
                      $
                      635,862Less:
      current portion
                      
                      
                      (685,170
                      )
                      
                      
                      -Total
      long-term notes receivable
                      
                      $
                      -
                      
                      
                      $
                      635,862





NOTE
8 – FIXED ASSETS





The
following is a summary of this category:





September
      30, 2010
                  
                  
                  December 31, 2009Machinery
      and equipment
                  
                  $
                  417,161
                  
                  
                  $
                  -Vehicles
                  
                  
                  47,427
                  
                  
                  
                  47,427Leasehold
      improvements
                  
                  
                  23,789
                  
                  
                  
                  10,264Office
      equipment
                  
                  
                  3,334
                  
                  
                  
                  3,334Subtotal
                  
                  
                  491,711
                  
                  
                  
                  61,025Less:
      Accumulated depreciation
                  
                  
                  (54,735
                  )
                  
                  
                  (28,366
                  )Total
                  
                  $
                  436,976
                  
                  
                  $
                  32,659





The
useful life for leasehold improvements is the duration of the lease on the IFL
fuel terminal, through September 30, 2013. Machinery and equipment has a useful
life of seven years, vehicles’ useful life is five years and office equipment is
being depreciated over three years.





NOTE
9 - OIL AND GAS PROPERTIES





Tangible drilling costs:The
Company acquired tangible drilling equipment and proved oil and gas properties
with the Petro Energy acquisition in July 2010. The tangible assets were valued
based on the appropriate application of the market or cost approaches as of the
date of acquisition. The fair value was estimated at the depreciable value of
the current replacement costs based on the age and condition of the
assets.





Proved oil and gas
properties:As of September 30,
2010, the Company’s Felix Brandt oil and gas leases include eight proved
developed producing (PDP) wells and three saltwater disposal
wells. According to the reserve analysis conducted by an independent
engineering firm, the estimated discounted net cash flow on the Felix Brandt
lease was $71,060 as of July 1, 2010, the date of acquisition. Due to our
significant net loss carryforward, we do not expect to pay any federal income
taxes on future net revenues provided from the Brandt lease production.
Therefore, the pre-tax and after-tax estimate of discounted future net cash
flows are both $71,060.




Asset retirement
obligation:The Company accounts
for its asset retirement obligations by recording the fair value of a liability
for an asset retirement obligation recognized in the period in which it was
incurred if a reasonable estimate of fair value could be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset and allocated to operating expense using a systematic and
rational method. As of September 30, 2010, the Company has recorded a net asset
of $19,294 and related liability of $19,728. Accretion for the quarter ended
September 30, 2010 was $434.


11





The oil
and gas related asset values at September 30, 2010 and December 31, 2009 were as
follows:





September
      30, 2010
                  
                  
                  December 31, 2009Tangible
      drilling costs
                  
                  $
                  86,900
                  
                  
                  $
                  -Proved
      oil and gas properties
                  
                  
                  71,060
                  
                  
                  
                  -Asset
      retirement cost
                  
                  
                  19,294
                  
                  
                  
                  -Total
                  
                  $
                  177,254
                  
                  
                  $
                  -





NOTE
10 – CONSOLIDATION OF IFL AND GOODWILL





From the
period of IFL’s inception to 2005, our ownership percentage in IFL was
60%. Our ownership increased to 80% during 2005 when our 20% partner
withdrew from IFL and rescinded its investment. On August 7, 2006, we obtained
the remaining 20% interest in IFL from Stuart Sundlun in consideration for a
note payable as described in Note 12 below. This transaction was accounted for
as a step acquisition. This step acquisition resulted in an additional
$1,500,000 of goodwill as the fair value of the net assets acquired was
determined by management to be zero and the consideration given as discussed
above was the $1,500,000 note.





Additionally,
the Company realized $7,139 of goodwill associated with the acquisition of
PetroGreen and AACM3, LLC on July 1, 2010.





Adino
evaluated the aggregate goodwill for impairment at December 31, 2009 and has
determined that the fair value of the reporting unit exceeds its carrying amount
and hence the goodwill is not impaired.





NOTE
11 – ACCRUED LIABILITIES / ACCRUED LIABILITIES –RELATED PARTY





Other
liabilities and accrued expenses consisted of the following as of September 30,
2010 and December 31, 2009:




September
      30, 2010
                  
                  
                  December 31, 2009Accrued
      accounting and legal fees
                  
                  $
                  116,100
                  
                  
                  $
                  119,000Customer
      deposits
                  
                  
                  110,000
                  
                  
                  
                  110,000Property
      and payroll tax accrual
                  
                  
                  62,760
                  
                  
                  
                  76,446Asset
      retirement obligation
                  
                  
                  19,728
                  
                  
                  
                  -Deferred
      lease liability
                  
                  
                  33,715
                  
                  
                  
                  25,122Total
      accrued liabilities
                  
                  $
                  342,303
                  
                  
                  $
                  330,568Accrued
      salaries-related party
                  
                  $
                  862,687
                  
                  
                  $
                  1,023,687





Deferred lease
liability:The Lone Star lease is being expensed by the
straight line method as required by current guidance, resulting in
a deferred lease liability that will be extinguished by the lease
termination date of September 30, 2013.





NOTE
12 - NOTES PAYABLE




September
      30, 2010
                        
                        
                        December 31, 2009Note
      payable  - Stuart Sundlun, bearing interest of 10% per
      annum, due August 7, 2011
                        
                        $
                        1,500,000
                        
                        
                        $
                        1,500,000Note
      payable - Bill Gaines, non interest bearing, due on demand
                        
                        
                        2,000
                        
                        
                        
                        9,000Note
      payable - Gulf Coast Fuels, bearing interest of $25,000
                        
                        
                        275,000
                        
                        
                        
                        275,000Note
      payable - Asher, bearing interest of 8% per annum, due May 13, 2011, net
      of discount of $29,334
                        
                        
                        28,166
                        
                        
                        
                        -Notes
      payable - BWME, bearing interest at 8% per annum, due September 2,
      2013,
                        
                        
                        400,000
                        
                        
                        
                        -Note
      payable - GMAC, bearing interest of 11.7% per annum with 60 monthly
      payments of $895, due May 13, 2013
                        
                        
                        24,411
                        
                        
                        
                        30,101Total
      notes payable
                        
                        $
                        2,229,577
                        
                        
                        $
                        1,814,101Less:
      current portion
                        
                        
                        (1,813,479
                        )
                        
                        
                        (291,618
                        )Long
      term note payable
                        
                        $
                        416,098
                        
                        
                        $
                        1,522,483


12


On August
11, 2010, the Company issued a convertible promissory note to Asher Enterprises,
Inc., in the amount of $57,500. The note has a maturity date of May 13, 2011 and
has an annual interest rate of eight percent (8%) per annum. The holders have
the right from and after the date of issuance, and until any time until the note
is fully paid, to convert any outstanding and unpaid principal portion of the
note, and accrued interest, into fully paid and non-assessable shares of common
stock. The note has an initial conversion price of fifty eight percent (58%) of
the 3 lowest closing bid prices for the 10 days preceding the conversion date
and full reset provision. The note’s convertible feature was valued and resulted
in a debt discount of $35,838, which is being amortized over the nine month note
life, using the straight line method. In this case, using the straight line
method approximates the effective interest method, given the short time to
maturity. The Company has the right to redeem the note for 150% of the
redemption amount and accrued interest. See Note 14 for a complete discussion of
the derivative treatment and accounting.





On
September 2, 2010, the Company issued convertible promissory notes to investors
in the amount of $400,000, to fund financing and start-up costs of the recent
Petro Energy acquisition. The notes have a maturity date of September 2, 2013,
with accrued interest paid quarterly and an annual interest rate of eight
percent (8%) per annum. The holders have the right from and after the date of
issuance, and until any time until the note is fully paid, to convert any
outstanding and unpaid principal portion of the note, and accrued interest, into
fully paid and non-assessable shares of common stock. The note has a fixed
conversion price of $0.10.




NOTE
13 - CONTRACT CLAWBACK PROVISION




A
component of the acquisition agreement with PetroGreen Energy and AACM3, LLC
gave the former owners of these companies the option to repurchase for $1.00 the
assets held by the companies as of July 1, 2010 if the Company’s common stock
price fails to reach $0.25 per share within three years of the original
acquisition date. This contract clawback provision was valued at July 1, 2010 at
$408,760 and was revalued at September 30, 2010 at $293,945, resulting in a gain
on change in clawback valuation of $114,815 at September 30, 2010.




NOTE
14 – DERIVATIVE LIABILITY




Based on
current guidance, the Company concluded that the convertible note payable to
Asher referred to in Note 12 was required to be accounted for as a derivative.
This guidance requires the Company to bifurcate and separately account for the
conversion features of the convertible notes issued as embedded
derivatives.




With convertible
notes in general, there are three primary events that can occur: the holder can
convert the note into stock; the Company can force conversion of the convertible
note; or the Company can default on the note or liquidate. The model
analyzed the underlying economic factors that influenced which of these
events would occur, when they were likely to occur, and the specific terms
that would be in effect at the time (i.e. interest rates, stock price,
conversion price etc.). Projections were then made on these underlying
factors which led to a set of potential scenarios. Probabilities were
assigned to each of these scenarios based on management projections.
This led to a cash flow projection and a probability associated with that
cash flow. A discounted weighted average cash flow over the various
scenarios was completed, and it was compared to the discounted cash flow of
a hypothetical one year 0% debt instrument without the embedded
derivatives, thus determining a value for the compound embedded derivatives
at the date of issue.




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 its fair value and is
then  re-valued at each reporting  date,  with
changes in the fair value  reported  as
charges  or credits to income.





The
Company used a lattice model that values the compound embedded derivatives based
on a probability weighted discounted cash flow model. This model is based on
future projections of the various potential outcomes. The Asher note contained
embedded derivatives that were analyzed. Certain features of the Asher note were
incorporated into the derivative valuation model, including the conversion
feature with a reduction of the conversion rate based upon future below-market
issuances and the redemption options.





The
structure of the Asher note caused two other financial instruments held by the
Company to be deemed derivatives: The BWME notes and the Haag warrants. Both
were valued as derivatives as of the date of the Asher note issuance (Haag
warrants) or date of issuance (BWME notes) and revalued as of September 30,
2010.





Below is
detail of the derivative liability balances as of September 30, 2010 and
December 31, 2009.


Derivative Liability
                      
                      December 31, 2009
                      
                      
                      Additions
                      
                      
                      Gain (loss)
                        from valuation
                      
                      
                      September 30, 2010Asher
      note - derivative liability
                      
                      
                      -
                      
                      
                      $
                      35,838
                      
                      
                      $
                      1,794
                      
                      
                      $
                      37,632BWME
      notes - derivative liability
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      64,978
                      
                      
                      
                      64,978Haag
      warrants - derivative liability
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      9,542
                      
                      
                      
                      9,542Total
                      
                      
                      -
                      
                      
                      $
                      35,838
                      
                      
                      $
                      76,314
                      
                      
                      $
                      112,152


13





NOTE
15 – STOCK





COMMON
STOCK





The
Company's common stock has a par value of $0.001. There were 50,000,000 shares
authorized as of December 31, 2007.  At the Company’s January 2008
shareholder meeting, the shareholders voted to increase the authorized common
stock to 500,000,000 shares.  As of December 31, 2009, the Company had
93,260,579 shares issued and outstanding.





On
February 2, 2010, the Board approved a stock issuance of 250,000 shares of
restricted common stock each to Michael Turchi and Mountaintop Development, Inc.
for services rendered to the Company. The issuance resulted in an expense to the
Company of $5,700, based on the stock’s market price at the date of
issuance.





The
Company issued 10,000,000 shares of stock to the sellers in the Petro Energy
acquisition. The Company acquired 100% of the membership interests of both
companies as of July 1, 2010. The transaction resulted in stock expense to the
Company of $150,000, based on the stock’s market price at the date of issuance.
See Notes 1, 5, 9, 12, 14 and Item 2 for a thorough discussion of the
acquisition transaction.





On
September 7, 2010, the Board approved a stock issuance of 2,000,000 shares of
restricted common stock to Vulcan Advisors, LLC for consulting services
performed for the Company. The issuance resulted in an expense to the Company of
$70,000, based on the stock’s market price at the date of issuance.





As a
result of the above common stock issuances, as of September 30, 2010, there were
105,760,579 shares issued and outstanding.





PREFERRED
STOCK





In 1998,
the Company amended its articles to authorize Preferred Stock. There are
20,000,000 shares authorized of Preferred Stock with a par value of $0.001. The
shares are non-voting and non-redeemable by the Company. The Company further
designated five series of its Preferred Stock: "Series 'A' $12.50 Preferred
Stock" (2,159,193 shares authorized), "Series "A" $8.00 Preferred Stock,"
(1,079,957 shares authorized), Class “B” Preferred Stock Series 1 (666,660
shares authorized), Class “B” Preferred Stock Series 2 (666,660 shares
authorized), and Class “B” Preferred Stock Series 3 (666,680 shares authorized).
As of September 30, 2010 and December 31, 2009, there are no shares of Preferred
Stock issued and outstanding.





The
Series "A" $12.50 Preferred Stock shall be convertible, in whole or in part, at
any time after the common stock of the Company shall maintain an average bid
price per share of at least $12.50 for ten (10) consecutive trading days. The
conversion ratio is three (3) shares of common stock per share of Series “A”
$12.50 Preferred Stock.





The
Series "A" $8.00 Preferred Stock shall be convertible, in whole or in part, at
any time after the common stock of the Company shall maintain an average bid
price per share of at least $8.00 for ten (10) consecutive trading days. The
conversion ratio is three (3) shares of common stock per share of Series “A”
$8.00 Preferred Stock.





The Class
“B” Preferred Stock Series 1 is convertible, in whole or in part, at any time
after the common stock of the Company shall maintain an average bid price per
share of at least $2.00 for ten (10) consecutive trading days. The conversion
ratio is two (2) shares of common stock per share of Class “B” Preferred
Stock.





The Class
“B” Preferred Stock Series 2 is convertible, in whole or in part, at any time
after the common stock of the Company shall maintain an average bid price per
share of at least $3.00 for ten (10) consecutive trading days. The conversion
ratio is two (2) shares of common stock per share of Class “B” Preferred
Stock.





The Class
“B” Preferred Stock Series 3 is convertible, in whole or in part, at any time
after the common stock of the Company shall maintain an average bid price per
share of at least $4.00 for ten (10) consecutive trading days. The conversion
ratio is two (2) shares of common stock per share of Class “B” Preferred
Stock.





The
preferential amount payable with respect to shares of any of the above series of
Preferred Stock in the event of voluntary or involuntary liquidation,
dissolution, or winding-up, shall be an amount equal to $5.00 per share, plus
the amount of any dividends declared and unpaid thereon.





DIVIDENDS





Dividends
are non-cumulative, however, the holders of such series, in preference to the
holders of any common stock, shall be entitled to receive, as and when declared
payable by the Board of Directors from funds legally available for the payment
thereof, dividends in lawful money of the United States of America at the rate
per annum fixed and determined as herein authorized for the shares of such
series, but no more, payable quarterly on the last days of March, June,
September, and December in each year with respect to the quarterly period ending
on the day prior to each such respective dividend payment date. In no event
shall the holders of either series receive dividends of more than percent (1%)
in any fiscal year. Each share of both series shall rank on parity with each
other share of preferred stock, irrespective of series, with respect to
dividends at the respective fixed or maximum rates for such
series.


14





NOTE
16 – EARNINGS PER SHARE




The table
below sets forth the computation of basic and diluted net income (loss) per
share for the three and nine months ended September 30, 2010 and September 30,
2009.





For
      the three months ended September 30,
                      
                      
                      For
      the nine months ended September 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Numerator:Basic
      net income (loss)
                      
                      $
                      (162,913
                      )
                      
                      $
                      109,023
                      
                      
                      $
                      (84,134
                      )
                      
                      $
                      (42,563
                      )Diluted
      net income (loss)
                      
                      $
                      (162,913
                      )
                      
                      $
                      109,023
                      
                      
                      $
                      (84,134
                      )
                      
                      $
                      (42,563
                      )Denominator:Basic
      weighted average common shares outstanding
                      
                      
                      104,151,883
                      
                      
                      
                      93,260,579
                      
                      
                      
                      97,203,802
                      
                      
                      
                      89,879,627Effect
      of dilutive securitiesConvertible
      note - Asher
                      
                      
                      1,104,504
                      
                      
                      
                      0
                      
                      
                      
                      372,214
                      
                      
                      
                      0Dilutive
      weighted average common shares outstanding
                      
                      
                      105,256,388
                      
                      
                      
                      93,260,579
                      
                      
                      
                      97,576,016
                      
                      
                      
                      89,879,627Basic
      net income (loss) per share
                      
                      $
                      (
      0.00
                      )
                      
                      $
                      0.00
                      
                      
                      $
                      (
      0.00
                      )
                      
                      $
                      (0.00
                      )Diluted
      net income (loss) per share
                      
                      $
                      (
      0.00
                      )
                      
                      $
                      0.00
                      
                      
                      $
                      (
      0.00
                      )
                      
                      $
                      (0.00
                      )




As of
September 30, 2010, Adino had 105,760,579 shares outstanding, with no
shares payable outstanding. The Company uses the treasury stock method to
determine whether any outstanding options or warrants are to be included in the
diluted earnings per share calculation.




As of
September 30, 2010, Adino had 1,000,000 earned options outstanding to employees
and consultants, exercisable between $0.10 to $0.35 each.  Using an
average share price for the three months ended September 30, 2010 of
$0.024, the options result in no additional dilution to the Company. Using an
average share price for the nine months ended September 30, 2010 of $0.017, the
options result in no additional dilution to the Company.




The
Company calculated the dilutive effect of the convertibility of the Asher note,
resulting in additional weighted average share additions of 1,104,504 and
372,214 for the three and nine months ended September 30, 2010. The effect on
earnings per share from the Company’s BWME convertible notes was excluded from
the diluted weighted average shares outstanding because the conversion of these
instruments would have been non-dilutive since the strike price is above the
market price for our stock.




The
dilutive effect of convertible instruments on earnings per share is not
presented in the consolidated statements of operations for periods with a net
loss.


15


NOTE
17 – CONCENTRATIONS





The
following table sets forth the amount and percentage of revenue from those
customers that accounted for at least 10% of revenues for the quarter and nine
months ended September 30, 2010 and 2009.





Quarter
                  Ended
                
                
                
                
                
                Quarter
                  Ended
                
                
                
                
                
                Nine Months
                  Ended
                
                
                
                
                
                Nine Months
                  EndedSeptember 30,
                  2010
                
                
                %
                
                
                September 30,
                  2009
                
                
                %
                
                
                September 30,
                  2010
                
                
                %
                
                
                September 30,
                  2009
                
                
                %Customer
      A
                
                $
                -
                
                
                
                0
                %
                
                $
                53,550
                
                
                
                9
                %
                
                $
                13,402
                
                
                
                1
                %
                
                $
                160,650
                
                
                
                10
                %Customer
      B
                
                $
                366,000
                
                
                
                100
                %
                
                $
                48,906
                
                
                
                9
                %
                
                $
                1,020,000
                
                
                
                69
                %
                
                $
                308,103
                
                
                
                20
                %Customer
      C
                
                $
                -
                
                
                
                0
                %
                
                $
                219,744
                
                
                
                39
                %
                
                $
                142,642
                
                
                
                10
                %
                
                $
                545,693
                
                
                
                35
                %Customer
      D
                
                $
                -
                
                
                
                0
                %
                
                $
                116,023
                
                
                
                20
                %
                
                $
                61,110
                
                
                
                4
                %
                
                $
                347,325
                
                
                
                22
                %Customer
      E
                
                $
                -
                
                
                
                0
                %
                
                $
                90,000
                
                
                
                16
                %
                
                $
                251,042
                
                
                
                17
                %
                
                $
                90,000
                
                
                
                6
                %





The Company had no
outstanding customer receivables at September 30, 2010 and two customers that
represented 74% and 23% of outstanding receivables at December 31,
2009.





NOTE
18 - LEGAL





G J Capital Ltd. v. Intercontinental
Fuels, LLC and Adino
Energy Corporation





On March
15, 2010, IFL was sued by G J Capital Ltd. (“G J Capital”) under Cause No.
2010-16875 in the 129th
Judicial District Court of Harris County, Texas. G J Capital claims to be the
assignee of the note listed in our financial statements as payable to Gulf Coast
Fuels. In the above suit, G J Capital claims that the unpaid principal amount of
the note is $250,000. G J Capital has made claims of breach of contract, money
had and received, fraudulent misrepresentation and fraudulent inducement. G J
Capital has claimed damages of $250,000 plus punitive damages.




G J
Capital has also sued Adino and Sonny Wooley, our Chairman, and Timothy Byrd,
our CEO, in the above suit. Adino, Mr. Wooley, and Mr. Byrd have answered the
lawsuit and asserted various affirmative defenses.




Adino and
IFL have answered the above suit, generally denying any liability under the
agreement alleged by G J Capital. Adino and IFL have also countersued G J
Capital for usury and conspiracy due to the fact that the interest rate used in
the agreement with Gulf Coast Fuels exceeds the maximum interest rate set by
Texas law.





The Gulf
Coast Fuels note that is the subject of this lawsuit has already been accrued as
a liability, and therefore, does not require any further accrual as a contingent
liability.





NOTE
19 – SUBSEQUENT EVENTS





There
were no material subsequent events through the date the financial statements
were issued.





ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS





The
following discussion should be read in conjunction with our unaudited
consolidated interim financial statements and related notes thereto included in
this quarterly report and in our audited consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") contained in our Form 10-K for the year ended December
31, 2009. Certain statements in the following MD&A are forward looking
statements. Words such as "expects", "anticipates", "estimates" and similar
expressions are intended to identify forward looking statements. Such statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected.




16




RECENT
DEVELOPMENTS





Oil andGasExplorationand
Production


As of July 1, 2010, the Company
acquired PetroGreen Energy LLC and AACM3, LLC d/b/a Petro 2000 Exploration Co.
(together "Petro Energy"). Adino acquired 100% of the membership interests of
Petro Energy for 10,000,000 shares of Adino common stock; however, the newly
issued shares will remain in escrow until Adino’s stock price reaches $0.25 per
share. If Adino's stock price fails to reach $0.25 within three years, the
sellers may repurchase for $1.00 the assets held by Petro Energy on July 1,
2010.





Petro
Energy is a licensed Texas oilfield operator currently operating 11 wells on two
leases covering approximately 300 acres in Coleman County, Texas. Petro also
owns a drilling rig, two service rigs and associated tools and equipment.The Company also acquired
the operator license held by the principal of PetroGreen and Petro 2000
Exploration Co.




The newly acquired leases have mature
production from eight proved developed producing (PDP) wells and three saltwater
disposal wells. The area has seen active oil production from multiple pay zones
since the 1950s. Reservoir pressure has dropped over time; however, the Company
believes that significant oil remains in place. Adino plans a waterflood
project, which management believes will substantially increase both daily
production and economically recoverable reserves.




Since the acquisition, the Company has
completed Phase I of its workover program on its Felix Brandt and Felix Brandt
"A" Leases located in Southeast Coleman County, Texas. With the completion of
Phase I of the workover program, Adino has eight wells on production. Two more
wells are designated as injection wells for the previously announced waterflood
project (one is an active injection well and the other is in the permitting
process). The Company also recompleted an existing well as a water source for
the waterflood.




During Phase I, Adino perforated into
new zones on two of the existing wells and applied acid/fracture jobs on both.
Acid fracture involves pumping a diluted acid solution, under high pressure,
into underground formations containing hydrocarbons. The technique is used to
improve the permeability of the formations, allowing hydrocarbons to flow more
easily into the wellbore.




In
addition, significant parts of the production equipment have been replaced and
water storage tanks have been installed. The Company continues to improve basic
infrastructure on the Brandt Leases, including retention berms around the tank
batteries, trenching flow-lines and removal of debris from the
area.




The Company believes that this line of
business will be promising and the Company plans to actively pursue future
opportunities in the oil and gas exploration business.





Fuel Storage
Operations





The Company’s wholly-owned subsidiary,
IFL, continues to lease the terminal at 17617 Aldine Westfield Road, Houston,
Texas from Lone Star Fuel Storage and Transport, LLC (“Lone
Star”).  Utilizing a fuel storage and throughput model, revenues
continue to remain strong. For the current quarter, IFL provided 94.5% of the
Company’s revenues.




RESULTS
OF OPERATIONS





Revenue: The Company’s
revenues for the quarter ended September 30, 2010 were $389,019, a decrease of
$144,979 from the quarter ended September 30, 2009 of $533,998. Revenues were
$1,511,685 and $1,524,985 for the nine months ended September 30, 2010 and 2009,
respectively. The Company’s main revenue source was its wholly owned subsidiary,
IFL.  IFL added two new customers in 2009, accounting for the
increased terminal revenue in the latter part of 2009 and early
2010.  In May 2010, IFL management negotiated a long term contract
with a regional fuel supplier to be the primary customer of the Houston
terminal. The new arrangement allows for consistent revenues over the long term
and does not include revenues for fuel additives, thus decreasing revenue since
the May 2010 contract signing. The current quarter revenue figures include
$23,202 in revenue from the recently acquired exploration and production
operations.




Cost of Product
Sales:  As customers take their fuel from the IFL terminal,
certain fuel additives must be mixed with the diesel to comply with state and
federal regulations.  In an effort to decrease product cost volatility
and improve operational efficiency, IFL contracted with a third party fuel
additive provider for all fuel additives through April 2010.  The new
Houston terminal customer contract begun in May 2010 does not require that IFL
provide additive services. Therefore, the Company realized a decrease in product
sales expense of $90,947, or 91%, for the quarter ended September 30, 2010 over
2009.   Cost of product sales totaled $9,427 for the quarter
ended September 30, 2010, compared to $100,374 for the same period in 2009. Year
to date expense was $239,542 and $355,868 for the nine months ended September
30, 2010 and 2009, respectively.





Payroll and Related
Expenses: With the addition of Petro Energy, the Company has hired
several employees, resulting in payroll expense of $5,613 for the quarter and
nine months ended September 30, 2010. There is no expense for the similar
reporting periods in 2009.





Terminal Management:
The Company has outsourced its terminal operations since July
2007.  The monthly contract includes employee salaries and benefits,
terminal operational expenses, minor repairs, maintenance, insurance and other
ancillary operating expenses.  Terminal management expense for the
quarters ended September 30, 2010 and 2009 was $100,090 and $99,990,
respectively. Year to date expense at September 30, 2010 was $300,070,
relatively consistent with the expense incurred in 2009
of $300,990.  Management is encouraged by the success of this
alliance and plans to utilize the terminal management model in any future
terminal acquisitions.


17





General and
Administrative:The Company’s expense for the three months ended
September 30, 2010 was $197,117 or a 53% increase over the expense of $129,245
for the same period in 2009. Expenses for the nine months ended September 30,
2010 and 2009 were $515,745 and $396,034, respectively, an increase of 30%.
General and administrative expense is primarily rent expense paid on the IFL
terminal to Lone Star, currently $31,855 per month. In July 2010, the Company
set up an office in Coleman, Texas to facilitate the development of its oil and
gas leases, resulting in additional office expense of $13,203 and $8,810 in
insurance expenses. The Company incurred $30,000 in bad debt expense in
September 2010 and had increased second quarter 2010 expenses due to additional
filing fees and expenses of approximately $36,000.





Legal and
Professional:  Legal and professional expense was $62,828 and
$36,992 for the quarter ended September 30, 2010 and 2009 and $177,825 and
$129,102 for the nine months ended September 30, 2010 and 2009, respectively.
The third quarter increase of $25,836 is primarily due to increased legal
expense related to the Petro Energy acquisition and the lawsuit involving G J
Capital. Additionally, IFL incurred increased legal and accounting expense for
its independent audit performed in the first quarter of 2010. See Note 18 of the
Company’s financial statements for additional information regarding the
Company’s legal and professional fees.





Consulting
Expense:The Company’s consulting expenses were $242,749 and
$127,058 for the quarters ended September 30, 2010 and 2009, respectively, an
increase of $115,691 or 91%. Year to date expenses for 2010 and 2009 were
$558,680 and $599,239, respectively, a decrease of $40,559 or 7%.  In
the second quarter of 2010, IFL contracted with two consultants to formalize the
Company’s business plan and marketing presentation package, resulting in
additional expense of approximately $51,000. The consultants were retained
through August to continue this effort. One of the consultants has remained with
the Company to assist with Petro Energy’s workover and waterflood projects.
Additionally, the Company awarded 2,000,000 shares of stock to a consulting
group for assisting in a financing project, resulting in a $70,000 expense to
the Company. During 2009, the Company saw unusual expenses primarily due to a
common stock award granted to the Board of Directors of $52,500 and additional
compensation of $148,907 granted to the officers and controller of the
Company.




Depreciation Expense:Depreciation expense was $17,465 and $2,542 for the quarter ended
September 30, 2010 and 2009 and $22,550 and $9,629 for the nine months ended
September 30, 2010 and 2009, respectively. The third quarter increase of $13,198
is due to the addition of machinery and equipment through the Petro Energy
acquisition and $434 in asset retirement accretion. See Notes 8 and 9 of the
Company’s financial statements for additional information regarding these assets
and the corresponding depreciation.




Operating Supplies:Supplies
expense was $19,961 and $4,406 for the quarter ended September 30, 2010 and 2009
and $19,961 and $7,656 for the nine months ended September 30, 2010 and 2009,
respectively. The Company did not have significant operating supplies expense in
2010 prior to the Petro Energy acquisition. During the third quarter of 2010,
the Company incurred supplies expense related to its oil lease workover and
waterflood projects in Coleman, Texas.




Interest
Income:Interest income remained consistent at $49,386 and
$49,141 for the nine months ended September 30, 2010 and 2009, respectively. The
Company has agreed to an amendment on the $750,000 note receivable with Mr.
Sundlun.  This amendment extends the maturity date of the note to
August 2011 at no additional interest past the original maturity date of
November 6, 2008.  Due to the lack of interest expense, the Company
recognized a discount on the note and amortizes that discount through the note’s
maturity date, accounting for the consistent expense.





Interest
Expense:Interest expense was $49,317 and $42,391 for the
quarter ended September 30, 2010 and 2009 and $129,789 and $124,828 for the nine
months ended September 30, 2010 and 2009, respectively. During the third quarter
of 2010, the Company closed two separate financings, each resulting in 8% annual
interest to the Company. Interest expense consistent between 2009 and 2010 are
for the notes to Mr. Sundlun and vehicle financing. See Note 12 of the Company’s
financial statements for additional information regarding this interest
expense





Gain from Lawsuit / Sale
Leaseback:The lawsuit settlement on March 23, 2007 resulted
in a gain to the Company of $1,480,383.  The transaction was deemed to
be a sale/leaseback, and therefore the gain was recognized over the life of the
capitalized asset, 15 years.




On
September 30, 2008, the Company assigned its rights to purchase the IFL terminal
to Lone Star.  As of this date, the unamortized gain from lawsuit was
$1,332,345.  The Company’s transaction with Lone Star resulted in an
additional gain of $624,047.  These amounts, totaling $1,956,392, will
be amortized over the 60 month life of the Lone Star operating
lease.  See Note 4 above for more information regarding these
transactions.





Loss on Derivative:The
Company entered into a promissory note that permits conversion of the note into
shares of the Company’s common stock at a discount to the market price. This
discount to market conversion feature is treated as a derivative for accounting
purposes. This note also caused two other financial instruments held by the
Company to be considered derivatives. The Company has calculated the change in
value of those instruments for the quarter ended September 30, 2010 for a loss
of $76,314. See Note 14 of the Company’s financial statements for a more
thorough discussion of this loss. There is no gain or loss for the similar
reporting periods in 2009.


18





Gain on Change in Fair Value of
Clawback: A component of the Petro Energy acquisition agreement gave
the former owners of these companies the option to repurchase for $1.00 the
assets held by the companies as of July 1, 2010 if the Company’s common stock
price fails to reach $0.25 per share within three years of the original
acquisition date. This contract clawback provision was valued at July
1, 2010 at $408,760 and was revalued at September 30, 2010 at $293,945,
resulting in a gain on change in clawback valuation of $114,815 at September 30,
2010.




Net Income/Loss: The Company
had net loss of $162,913 and net income of $109,023 for the quarters ended
September 30, 2010 and 2009, respectively. Year to date resulted in net loss of
$84,134 and $42,563 for the nine months ended September 30, 2010 and 2009,
respectively. During the third quarter of 2010, operating loss was $267,675,
compared to operating income of $32,972 for the quarter ended September 30,
2009. This increased loss was primarily due to expenses incurred for operating
supplies, legal expense, consultants and payroll and depreciation associated
with the acquisition of Petro Energy. The current loss was partially offset by a
non-operating gain on change in fair value of clawback provision of $114,815 and
recognition of the deferred gain on lawsuit / sale leaseback of
$98,237.





CAPITAL
RESOURCES AND LIQUIDITY





As of
September 30, 2010, our cash and cash equivalents were $553,452, compared to
$502,542 at December 31, 2009.  The Company’s liquidity has increased
substantially in the past two quarters due to revenues from a new customer and
two separate financings. One of these financings was the issuance of a $57,500
convertible note to Asher Enterprises, Inc. The note bears interest at the
annual rate of 8% and is unsecured. The note matures in May 2011 but may be
converted into the Company’s common stock beginning in February 2011. The note
is convertible into shares of Adino common stock at a 42% discount to the lowest
trading price for the stock in the three days before the date of
conversion.




The other
financing in which we participated was the issuance of several convertible
promissory notes to a group of investors for an aggregate amount of $400,000.
These notes bear interest at the annual rate of 8% and are convertible into
Adino common stock at the rate of $0.10 per share. The purpose of this financing
was to purchase drilling equipment, drill, and complete the wells on the leases
that we acquired in the Petro Energy transaction. These notes are secured by the
production equipment and by the oil and gas extracted from the
wells.




Nonetheless,
cash flow has been an ongoing concern for the Company due to the large amount of
legacy liabilities that Adino accumulated during the years in which it was a
non-operating entity. These liabilities will likely continue to be a drag on the
Company’s financial statements unless and until Adino obtains financing or cash
flow from operations increases sufficiently, allowing us to pay off these
liabilities.





Our
working capital deficit at September 30, 2010 was $3,338,150 compared to
$2,502,232 at December 31, 2009. The Company believes that the current cash flow
and planned increase in operations are adequate to satisfy the working capital
deficit.  Certain officers and directors have agreed in writing to postpone
payment if necessary should the Company need capital it would otherwise pay
these individuals. Lastly, the Company plans to grow through merger and
acquisition opportunities including the expansion of existing business
opportunities. The Company expects these growth opportunities to be financed
through a combination of equity and debt capital; however, in the event the
Company is unable to obtain additional debt and equity financing, the Company
may not be able to pursue these opportunities or continue its
operations.





For the
nine months ended September 30, 2010, cash used by operating activities was
$361,128 compared to cash provided by operating activities of $103,641 for the
nine months ended September 30, 2009.  The increased use of cash
was primarily in payment of accrued liabilities and vendor
payables.





The
Company incurred capital expenditures of $23,500 in the quarter ended September
30, 2010 to develop its recently acquired oil and gas leases. We were able to
secure debt financing at reasonable rates for these expenditures. The Company
foresees additional capital expenditures of $360,000 over the next twelve months
in order to develop these properties. We do not know at this time whether we
will be able to secure financing for these expenditures, and if so, the rates
and terms applicable to this financing may exceed our current financing
rates.




RISK
FACTORS





The
market price of the Company's common stock has fluctuated significantly since it
began to be publicly traded and may continue to be highly volatile. Factors such
as the ability of the Company to achieve development goals, the ability of the
Company to compete in the petroleum distribution industry and the oil and
gas exploration and production business, 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.


19





As of
September 30, 2010, the Company has a working capital deficit of $3,338,150 and
total stockholders’ deficit of $2,356,202.  These factors raise
substantial doubt regarding the Company’s ability to continue as a going
concern. The ability of the Company to continue as a going concern depends upon
its ability to obtain funding for its working capital deficit. Of the
outstanding current liabilities at September 30, 2010, $391,272 is a non-cash
deferred gain on the terminal transaction. See Note 4 of the Company’s financial
statements for a complete explanation of the deferred settlement
gain.  Additionally, $862,687 of the outstanding current liabilities
is due to certain officers and directors for prior years’ accrued
compensation.  These officers and directors have agreed in writing to
postpone payment if necessary, should the Company need capital it would
otherwise pay these individuals.  The Company plans to satisfy current
year and future cash flow requirements through operations and merger and
acquisition opportunities including the expansion of existing business
opportunities.  The Company expects these growth opportunities to be
financed by a combination of equity and debt capital; however, in the event the
Company is unable to obtain additional debt and equity financing, the Company
may not be able to continue its operations.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





As a
smaller reporting company, we are not required to provide the information
required by this Item.





ITEM
4. CONTROLS AND PROCEDURES





Evaluation of disclosure controls
and procedures. We carried out an evaluation, under the supervision and
with the participation of our management, including our principal executive
officer and principal financial officer, of the effectiveness of our disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)).  Based upon that evaluation, our principal executive
officer and principal financial officer concluded that, as of the end of the
period covered in this report, our disclosure controls and procedures were
ineffective at ensuring that information required to be disclosed in
reports filed under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the required time periods and is accumulated and
communicated to our management, including our principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.





Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error or fraud.  A control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are
met.  Further, the design of a control system must reflect the fact
that there are resource constraints and the benefits of controls must be
considered relative to their costs.  Due to the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, have been detected. We
performed additional analysis and other post-closing procedures in an effort to
ensure our consolidated financial statements included in this quarterly report
have been prepared in accordance with generally accepted accounting principles.
Accordingly, management believes that the financial statements included in this
report fairly present in all material respects our financial condition, results
of operations and cash flows for the periods presented.





Changes in internal controls.
There have not been any changes in our internal control over financial reporting
that occurred during the quarter ended September 30, 2010 that have materially
affected or are reasonably likely to materially affect internal control over
financial reporting.





PART
II





ITEM
1. LEGAL PROCEEDINGS





G J Capital Ltd. v. Intercontinental
Fuels, LLC and Adino
Energy Corporation





On March
15, 2010, IFL was sued by G J Capital Ltd. (“G J Capital”) under Cause No.
2010-16875 in the 129th
Judicial District Court of Harris County, Texas. G J Capital claims to be the
assignee of the agreement listed in our financial statements as a loan payable
to Gulf Coast Fuels. In the above suit, G J Capital claims that the unpaid
principal amount of the loan is $250,000. G J Capital has made claims of breach
of contract, money had and received, fraudulent misrepresentation and fraudulent
inducement. In its suit, G J Capital is seeking payment of $250,000 plus
punitive damages.





Adino and
IFL have answered the above suit, generally denying any liability under the
agreement alleged by G J Capital. Adino and IFL have also countersued G J
Capital for usury and conspiracy due to the fact that the interest rate used in
the agreement with Gulf Coast Fuels exceeds the maximum interest rate set by
Texas law.





G J
Capital has also sued Adino and Sonny Wooley, our Chairman, and Timothy Byrd,
our CEO, in the above suit. Adino, Mr. Wooley, and Mr. Byrd have answered the
lawsuit and asserted various affirmative defenses. The Company has indemnified
Mr. Byrd and Mr. Wooley and is paying their legal expenses since the claims
asserted against them arise out of their service as directors, officers, and
agents of Adino and/or IFL.




20




Roy J. Holland, et. al. v. Alejandro
Perales and AACM3 LLC
d/b/a Petro 2000





On
September 16, 2009, a group of investors filed suit against Petro 2000 and
Alejandro Perales, the former managing member of the Company’s recently acquired
PetroGreen and Petro 2000 subsidiaries, in the 340th
Judicial District Court of Tom Green County, Texas under Cause No. C-09-1136-C.
The investors allege that they invested in several oil and gas leases in Brown
County, Texas but that the leases expired. The investors also allege that
Perales has failed to operate the leases as a reasonably prudent operator. The
suit alleges claims of breach of contract, fraud, and conversion against Perales
and Petro 2000. The suit seeks unspecified damages plus the removal of Petro
2000 and Perales as operators.





Perales
and Petro 2000 have denied these claims and filed a third-party petition against
John King, who was the drilling contractor for the leases at issue in the above
lawsuit. Perales and Petro 2000 claim that King breached an agreement to drill
the wells for a fixed cost and that King violated a joint venture agreement by
failing to assign certain easements to the joint venture and wrongfully shut in
a gas pipeline belonging to the joint venture. Perales’ and Petro 2000’s suit
also alleges that King defamed Perales. Perales and Petro 2000 allege that
King’s actions led to the damages sought by the investors in their suit against
Perales and Petro 2000. The suit seeks unspecified damages and indemnity and
contribution for any damages that Perales and Petro 2000 are adjudged to pay to
the investor group.




The
Company acquired Petro 2000 as of July 1, 2010 and is engaging in settlement
discussions with the plaintiffs and King.





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





On July
1, 2010, we agreed to issue 10,000,000 shares of our common stock to the members
of Petro Energy. These shares are held in escrow until the closing price of the
Company’s stock reaches $0.25 per share, at which time, the shares will be
automatically disbursed to the sellers.




On August
11, 2010, we sold a convertible promissory note to Asher Enterprises, Inc. for
$57,500. The note bears interest at the annual rate of 8% and is unsecured. The
note is convertible into shares of Adino common stock at a 42% discount to the
lowest trading price for the stock in the three days before the date of
conversion.




In
September 2010, we issued several convertible promissory notes to a group of
investors for an aggregate amount of $400,000. These notes bear interest at the
annual rate of 8% and are convertible into Adino common stock at the rate of
$0.10 per share. These notes are secured by the production equipment purchased
with the proceeds of the notes and by the oil and gas extracted from the
wells.




On
September 7, 2010, we issued 2,000,000 shares of stock to Vulcan Advisors, LLC
for consulting services performed for the Company. The Company valued these
shares at $70,000 based upon the market price of the Company’s stock at the date
of issuance.





The
Company claims an exemption from registration of the above offerings based upon
Section 4(2) of the Securities Act given the limited number of offerees and the
sophistication of the purchasers in financial matters and familiarity with the
Company’s business.




ITEM
3. DEFAULTS UPON SENIOR SECURITIES





None.





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.





ITEM
5. OTHER INFORMATION





None.


21


ITEM
6. EXHIBITS





The
following documents are filed as part of this report:





ExhibitNumber
            
            Exhibit3.1
            
            Articles
      of Incorporation (as amended January 30, 2008) (incorporated by reference
      to our Form 10-K filed on March 18, 2009)3.2
            
            By-laws
      of Golden Maple Mining and Leaching Company, Inc. (now Adino Energy
      Corporation) (incorporated by reference to our Form 10-K filed on March
      18, 2009)10.1
            
            Terminaling
      Services Agreement for Commingled Products10.2
            
            Amendment
      to Terminaling Agreement10.2
            
            Lease
      with Lone Star Fuel Storage and Transfer, LLC (incorporated by
      reference to our Form 10-K filed on March 18, 2009)10.3
            
            Resolution
      of the Board of Directors of February 20, 2009 (incorporated by reference
      to our Form 10-Q filed on  August 7, 2009)10.4
            
            Resolution
      of the Board of Directors of March 26, 2009 (incorporated by reference to
      our Form 10-Q filed on August 7, 2009)10.5
            
            Resolution
      of the Board of Directors of June 30, 2009 (incorporated by reference to
      our Form 10-Q filed on November 10, 2009)10.6
            
            Resolution
      of the Board of Directors of December 30, 2009 (incorporated by reference
      to our Form 10-Q filed on November 10, 2009)10.7
            
            Membership
      Interest Purchase Agreement10.8
            
            Post-Closing
      Agreement14
            
            Code
      of Business Conduct and Ethics (incorporated by reference to our Form
      10-K filed on March 18, 2009)31.1
            
            Certification  of  Chief  Executive  Officer  pursuant  to  Rule
      15d-14(a) of the Exchange Act31.2
            
            Certification
      of Chief Financial Officer pursuant to Rule 15d-14(a) of the Exchange
      Act32.1
            
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  200232.2
            
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002




22





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the undersigned has
duly caused this Form 10-Q to be signed on its behalf by the undersigned
thereunto duly authorized.





ADINO
      ENERGY CORPORATIONBy:
              /s/
      Timothy G. Byrd, Sr.Timothy
      G. Byrd, Sr.CEO,
      CFO and DirectorNovember
      19, 2010


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