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 JUNE 30,
2012



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).      ̈     Yes     x
    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 August 14, 2012 there were 148,888,219 shares of common
stock outstanding.















TABLE OF CONTENTS



|                              |                                                                                                       |    | Page No.
|----------------------------- | ----------------------------------------------------------------------------------------------------- | -- | --------
|PART I  FINANCIAL INFORMATION
|                              |                                                                                                       |    |         
|Item 1.                       | Financial Statements                                                                                  |    | 3       
|                              | Consolidated Balance Sheets - June 30, 2012 (Unaudited) and December 31, 2011                         |    | 3       
|                              | Unaudited Consolidated Statements of Operations-Three and six months ended June 30, 2012 and 2011     |    | 5       
|                              | Unaudited Consolidated Statement of Changes in Stockholder’s Deficit - Six months ended June 30, 2012 |    | 7       
|                              | Unaudited Consolidated Statements of Cash Flows - Six months ended June 30, 2012 and 2011             |    | 8       
|                              | Notes to Unaudited Consolidated Financial Statements                                                  |    | 9       
|                              |                                                                                                       |    |         
|Item 2.                       | Management’s Discussion and Analysis of Financial Condition and Results of Operations                 |    | 32      
|Item 3.                       | Quantitative and Qualitative Disclosures About Market Risks                                           |    | 36      
|Item 4T.                      | Controls and Procedures                                                                               |    | 36      
|                              |                                                                                                       |   
|PART II  OTHER INFORMATION   
|                              |                                                                                                       |   
|Item 1.                       | Legal Proceedings                                                                                     |    | 36      
|Item 2.                       | Unregistered Sales of Equity Securities and Use of Proceeds                                           |    | 37      
|Item 3.                       | Defaults Upon Senior Securities                                                                       |    | 37      
|Item 4.                       | Mine Safety Disclosures                                                                               |    | 37      
|Item 5.                       | Other Information                                                                                     |    | 37      
|Item 6.                       | Exhibits                                                                                              |    | 37      
|                              |                                                                                                       |    |         
|Signatures                    |                                                                                                       | 39





2









ITEM 1. FINANCIAL STATEMENTS	 ADINO ENERGY CORPORATION

Consolidated Balance Sheets

AS OF JUNE 30, 2012 AND DECEMBER 31,
2011



|                                                                                                                                                                               |  | June 30, 2012 |             |   | December 31, 2011 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ----------- | - | ----------------- | -
|                                                                                                                                                                               |  | (Unaudited)   |             |   |                   |  
|ASSETS                                                                                                                                                                         |  |               |             |   |                   |  
|Cash in bank                                                                                                                                                                   |  | $             | 25,480      |   |                   | $
|Certificate of deposit - restricted                                                                                                                                            |  |               | 50,037      |   |                   |  
|Accounts receivable, net of allowances                                                                                                                                         |  |               | 22,741      |   |                   |  
|Deposits and prepaid assets                                                                                                                                                    |  |               | 4,780       |   |                   |  
|Notes receivable                                                                                                                                                               |  |               | 750,000     |   |                   |  
|Interest receivable                                                                                                                                                            |  |               | 375,208     |   |                   |  
|Receivable - asset sale                                                                                                                                                        |  |               | 25,000      |   |                   |  
|Other assets                                                                                                                                                                   |  |               | 25,948      |   |                   |  
|Total current assets                                                                                                                                                           |  |               | 1,279,194   |   |                   |  
|                                                                                                                                                                               |  |               |             |   |                   |  
|Fixed assets, net of accumulated depreciation of $109,854 and $88,874, respectively                                                                                            |  |               | 157,659     |   |                   |  
|Oil and gas properties (full cost method), net of accumulated amortization, depreciation, depletion, and asset impairment                                                      |  |               |             |   |                   |  
|Proved                                                                                                                                                                         |  |               | 692,302     |   |                   |  
|Unproved                                                                                                                                                                       |  |               | 1,500       |   |                   |  
|Discontinued operations - net assets held for sale                                                                                                                             |  |               | -           |   |                   |  
|Total non-current assets                                                                                                                                                       |  |               | 851,461     |   |                   |  
|TOTAL ASSETS                                                                                                                                                                   |  | $             | 2,130,655   |   |                   | $
|                                                                                                                                                                               |  |               |             |   |                   |  
|LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                                          |  |               |             |   |                   |  
|Accounts payable                                                                                                                                                               |  | $             | 466,189     |   |                   | $
|Accounts payable - related party                                                                                                                                               |  |               | 37,410      |   |                   |  
|Accrued liabilities                                                                                                                                                            |  |               | 27          |   |                   |  
|Accrued liabilities - related party                                                                                                                                            |  |               | 860,081     |   |                   |  
|Contract clawback provision                                                                                                                                                    |  |               | -           |   |                   |  
|Asset retirement obligation                                                                                                                                                    |  |               | 53,076      |   |                   |  
|Notes payable - current portion                                                                                                                                                |  |               | 1,807,436   |   |                   |  
|Convertible notes payable - current portion                                                                                                                                    |  |               | 172,184     |   |                   |  
|Note payable – related party – current portion                                                                                                                                 |  |               | 100,000     |   |                   |  
|Interest payable                                                                                                                                                               |  |               | 902,908     |   |                   |  
|Derivative liability                                                                                                                                                           |  |               | 106,804     |   |                   |  
|Deferred revenue                                                                                                                                                               |  |               | 50,000      |   |                   |  
|Discontinued operations - liabilities held for sale                                                                                                                            |  |               | -           |   |                   |  
|Total current liabilities                                                                                                                                                      |  |               | 4,556,115   |   |                   |  
|                                                                                                                                                                               |  |               |             |   |                   |  
|Notes payable, net of current portion                                                                                                                                          |  |               | -           |   |                   |  
|Convertible notes payable, net of current portion                                                                                                                              |  |               | 400,000     |   |                   |  
|TOTAL LIABILITIES                                                                                                                                                              |  |               | 4,956,115   |   |                   |  
|                                                                                                                                                                               |  |               |             |   |                   |  
|STOCKHOLDERS’ DEFICIT                                                                                                                                                          |  |               |             |   |                   |  
|Preferred stock, $0.001 par value, 20,685,250 shares authorized, 111,180 and 109,642 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively        |  |               | 718,705     |   |                   |  
|Capital stock, $0.001 par value, 500 million shares authorized, 148,888,219 and 125,574,295 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively |  |               | 148,888     |   |                   |  
|Additional paid in capital                                                                                                                                                     |  |               | 14,275,073  |   |                   |  
|Retained deficit                                                                                                                                                               |  |               | (17,968,126 | ) |                   |  
|Total stockholders’ deficit                                                                                                                                                    |  |               | (2,825,460  | ) |                   |  
|                                                                                                                                                                               |  |               |             |   |                   |  
|TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                                    |  | $             | 2,130,655   |   |                   | $



See accompanying notes to the financial statements





3







ADINO ENERGY CORPORATION

Consolidated Statements of Operations

FOR THE THREE AND SIX MONTHS ENDED JUNE
30, 2012 AND 2011

(Unaudited)

|                                                                               |  | Three months ended |             |   | Six months ended |  
|------------------------------------------------------------------------------ |  | ------------------ | ----------- | - | ---------------- | -
|                                                                               |  | June 30            |             |   | June 30          |  
|                                                                               |  | 2012               |             |   | 2011             |  
|                                                                               |  |                    |             |   |                  |  
|REVENUES AND GROSS MARGINS                                                     |  |                    |             |   |                  |  
|Consulting revenue                                                             |  | $                  | -           |   |                  | $
|Oil and gas operations                                                         |  |                    | 112,216     |   |                  |  
|Total revenues                                                                 |  |                    | 112,216     |   |                  |  
|                                                                               |  |                    |             |   |                  |  
|OPERATING EXPENSES                                                             |  |                    |             |   |                  |  
|Cost of product sales                                                          |  |                    | 11,176      |   |                  |  
|Payroll and related expenses                                                   |  |                    | 18,327      |   |                  |  
|General and administrative                                                     |  |                    | 32,148      |   |                  |  
|Legal and professional                                                         |  |                    | 16,916      |   |                  |  
|Consulting fees                                                                |  |                    | 63,983      |   |                  |  
|Repairs                                                                        |  |                    | 899         |   |                  |  
|Depreciation expense                                                           |  |                    | 41,872      |   |                  |  
|Operating supplies                                                             |  |                    | 47,433      |   |                  |  
|Total operating expenses                                                       |  |                    | 232,754     |   |                  |  
|                                                                               |  |                    |             |   |                  |  
|OPERATING INCOME (LOSS)                                                        |  |                    | (120,538    | ) |                  |  
|                                                                               |  |                    |             |   |                  |  
|OTHER INCOME AND EXPENSES                                                      |  |                    |             |   |                  |  
|Interest income                                                                |  |                    | 18          |   |                  |  
|Interest expense                                                               |  |                    | (71,477     | ) |                  |  
|Gain on sale/relinquishment                                                    |  |                    | 473,232     |   |                  |  
|Gain (loss) on derivative                                                      |  |                    | (32,949     | ) |                  |  
|Gain (loss) on change in fair value of clawback                                |  |                    | (78,994     | ) |                  |  
|Gain on asset sale                                                             |  |                    | -           |   |                  |  
|Gain on debt conversion                                                        |  |                    | 87,962      |   |                  |  
|Other (expense)                                                                |  |                    | 681         |   |                  |  
|Total other income and expense                                                 |  |                    | 378,473     |   |                  |  
|                                                                               |  |                    |             |   |                  |  
|Income (loss) from continuing operations                                       |  | $                  | 257,935     |   |                  | $
|                                                                               |  |                    |             |   |                  |  
|Discontinued Operations                                                        |  |                    |             |   |                  |  
|Gain from operations of discontinued Intercontinental Fuels, LLC               |  |                    | -           |   |                  |  
|Loss from operations of discontinued Adino Drilling, LLC                       |  |                    | -           |   |                  |  
|Net income (loss)                                                              |  | $                  | 257,935     |   |                  | $
|                                                                               |  |                    |             |   |                  |  
|Net loss per share, basic and fully diluted - continuing operations            |  | $                  | 0.00        |   |                  | $
|Net income (loss) per share, basic and fully diluted - discontinued operations |  | $                  | 0.00        |   |                  | $
|Total net loss per share, basic and fully diluted                              |  | $                  | 0.00        |   |                  | $
|                                                                               |  |                    |             |   |                  |  
|Weighted average shares outstanding, basic                                     |  |                    | 140,856,758 |   |                  |  
|Weighted average shares outstanding, fully diluted                             |  |                    | 172,408,454 |   |                  |  





4









ADINO ENERGY CORPORATION

Consolidated Statement of Changes in
Stockholders’ Deficit

FOR THE PERIOD ENDED JUNE 30, 2012

(Unaudited)



|                                             |  | Common Stock Shares |             |  | Common Stock Amount |   |         | Preferred Shares |  |  | Preferred Stock Amount |  |  | APIC |         |   | Retained Earnings (Deficit) |   |            | Total | 
|-------------------------------------------- |  | ------------------- | ----------- |  | ------------------- | - | ------- | ---------------- |  |  | ---------------------- |  |  | ---- | ------- | - | --------------------------- | - | ---------- | ----- | 
|                                             |  |                     |             |  |                     |   |         |                  |  |  |                        |  |  |      |         |   |                             |   |            |       | 
|Balance December 31, 2011                    |  |                     | 125,574,295 |  |                     | $ | 125,573 |                  |  |  | 109,642                |  |  | $    | 685,558 |   |                             | $ | 14,177,563 |       | 
|                                             |  |                     |             |  |                     |   |         |                  |  |  |                        |  |  |      |         |   |                             |   |            |       | 
|Shares issued in debt conversion - common    |  |                     | 23,313,924  |  |                     |   | 23,315  |                  |  |  | -                      |  |  |      | -       |   |                             |   | 63,769     |       | 
|Reduction in derivative liability            |  |                     | -           |  |                     |   | -       |                  |  |  | -                      |  |  |      | -       |   |                             |   | 33,741     |       | 
|Shares issued in debt conversion - preferred |  |                     | -           |  |                     |   | -       |                  |  |  | 681                    |  |  |      | 22,500  |   |                             |   | -          |       | 
|Shares issued for cash                       |  |                     | -           |  |                     |   | -       |                  |  |  | 857                    |  |  |      | 30,000  |   |                             |   | -          |       | 
|Dividend on preferred stock                  |  |                     | -           |  |                     |   | -       |                  |  |  | -                      |  |  |      | (19,353 | ) |                             |   | -          |       | 
|Net loss                                     |  |                     | -           |  |                     |   | -       |                  |  |  | -                      |  |  |      | -       |   |                             |   | -          |       | 
|Balance June 30, 2012                        |  |                     | 148,888,219 |  |                     |   | 148,888 |                  |  |  | 111,180                |  |  |      | 718,705 |   |                             |   | 14,275,073 |       | 



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





5







ADINO ENERGY CORPORATION

Consolidated Statements of Cash Flows

FOR THE SIX MONTHS ENDED JUNE 30, 2012
AND 2011

(Unaudited)



|                                                                                |  | June 30, 2012 |          |   | June 30, 2011 |  
|------------------------------------------------------------------------------- |  | ------------- | -------- | - | ------------- | -
|                                                                                |  |               |          |   |               |  
|Cash Flows from Operating Activities:                                           |  |               |          |   |               |  
|Net (Loss)                                                                      |  | $             | (263,381 | ) |               | $
|                                                                                |  |               |          |   |               |  
|Adjustments to Reconcile net (loss) to net cash (used in) operating activities: |  |               |          |   |               |  
|Depreciation and depletion                                                      |  |               | 81,243   |   |               |  
|Accretion                                                                       |  |               | 2,132    |   |               |  
|Amortization of discount on note receivable                                     |  |               | -        |   |               |  
|Amortization of note payable discount                                           |  |               | 18,170   |   |               |  
|Gain on change in derivative liability                                          |  |               | (17,468  | ) |               |  
|Bad debt expense                                                                |  |               | 358,401  |   |               |  
|Shares issued in debt conversion                                                |  |               | (87,962  | ) |               |  
|Gain on sale - Ashton assets                                                    |  |               | (161,905 | ) |               |  
|Loss on change in fair value of clawback provision                              |  |               | 198,643  |   |               |  
|Gain on lawsuit settlement                                                      |  |               | (32,607  | ) |               |  
|Loss on sale of subsidiary                                                      |  |               | 8,415    |   |               |  
|Gain on sale / relinquishment                                                   |  |               | (473,232 | ) |               |  
|Change in operating assets and liabilities                                      |  |               |          |   |               |  
|Accounts receivable                                                             |  |               | (7,882   | ) |               |  
|Other assets                                                                    |  |               | 62,091   |   |               |  
|Accounts payable and accrued liabilities                                        |  |               | (366,812 | ) |               |  
|Net cash (used in) operating activities                                         |  | $             | (682,154 | ) |               | $
|                                                                                |  |               |          |   |               |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                            |  |               |          |   |               |  
|Proceeds from sale of IFL                                                       |  |               | 244,825  |   |               |  
|Proceeds from sale of fixed assets - Ashton                                     |  |               | 475,000  |   |               |  
|Purchases of equipment                                                          |  |               | (70,909  | ) |               |  
|Net cash provided by (used in) investing activities                             |  | $             | 648,916  |   |               | $
|                                                                                |  |               |          |   |               |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |               |          |   |               |  
|Borrowing on debt                                                               |  |               | 40,000   |   |               |  
|Proceeds from preferred stock sale                                              |  |               | 30,000   |   |               |  
|Dividends paid                                                                  |  |               | (19,353  | ) |               |  
|Principal payments on note payable                                              |  |               | (323,874 | ) |               |  
|Net cash provided by  (used in) financing activities                            |  | $             | (273,227 | ) |               | $
|                                                                                |  |               |          |   |               |  
|Net change in cash and cash equivalents                                         |  |               | (306,465 | ) |               |  
|Cash and cash equivalents, beginning of period                                  |  |               | 331,945  |   |               |  
|Cash and cash equivalents, end of period                                        |  | $             | 25,480   |   |               | $
|                                                                                |  |               |          |   |               |  
|Cash paid for:                                                                  |  |               |          |   |               |  
|Interest                                                                        |  | $             | 42,719   |   |               | $
|Income taxes                                                                    |  |               | -        |   |               |  
|                                                                                |  |               |          |   |               |  
|Non-cash transactions:                                                          |  |               |          |   |               |  
|Stock issued in debt conversion - common stock                                  |  | $             | 171,000  |   |               | $
|Stock issued in debt conversion - preferred stock                               |  | $             | 22,500   |   |               | $
|Asset retirement obligation                                                     |  | $             | -        |   |               | $
|Accrual of dividend payable                                                     |  | $             | 19,353   |   |               | $
|Note receivable - Ashton assets                                                 |  | $             | 25,000   |   |               | $
|Derivative liability new debt                                                   |  | $             | 21,119   |   |               | $
|Reduction in derivative due to debt conversions                                 |  | $             | 33,741   |   |               | $



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 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 2003, 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. The Company acquired 100% ownership of IFL shortly thereafter.



In January 2008, the Company changed its
name to Adino Energy Corporation. We believed that this name better reflected our current and future business activities.



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



After the acquisition of Petro Energy,
the Company created two wholly owned subsidiaries:  Adino Exploration, LLC (“Adino Exploration”) and Adino
Drilling, LLC (“Adino Drilling”).  All oil and gas leases were transferred from the Petro Energy companies
to Adino Exploration and future oil and gas exploration acquisitions and activity are to be operated through this company.  The
large drilling rig acquired in the Petro Energy transaction and other associated drilling machinery and equipment were transferred
to Adino Drilling.



On March 31, 2011, the Company sold the
membership interest of Adino Drilling, LLC to a related party.  Under the terms of the agreement, the Company realized a reduction
in accrued liability of $100,000 and acquired a $500,000 six year, 5.24% interest note receivable, for a total sale price of $600,000.
However, the transaction’s related party note of $500,000 is not allowed for reporting purposes, therefore the Company had
a reportable loss of $252,624.



In October 2011 Adino signed a letter of
intent to purchase all of the assets of Ashton, AOS 1A, and AOS 1-B. The proposed purchase price for the assets was $6,000,000
in face value of convertible preferred stock of the Company, with the preferred stock converting to common stock at the rate of
$0.15 per share. The parties agreed that partial closing of the purchase would occur once the sellers received clear title to the
assets subject to the agreement. The first partial closing of purchase occurred on November 3, 2011, and the Company issued 100,000
shares of Adino's Class "B" Preferred Stock Series 1 (the "Preferred Stock"), as follows: 95,534 shares to
AOS 1A, and 4,466 shares to AOS 1-B. The Preferred Stock shall be convertible into common shares at AOS 1A or AOS 1-B's option
at any time after six months, provided that (a) immediately after the first six months, only 25% of the Preferred Stock may be
converted to common stock, and (b) each month thereafter, only up to 12.5% of the Preferred Stock may be converted to common stock.
The Preferred Stock shall have other terms as determined by Adino's Board of Directors. The number of shares of Preferred Stock
was chosen to conform to the agreed upon value of $1,500,000 for the assets. The Company later decided not to acquire the remaining
Ashton assets. On February 7, 2012, the Company sold all oilfield machinery and equipment it had purchased from Ashton Oilfield
Services in its November 2011 acquisition for $500,000.



With the Company’s focus on oil and
gas exploration and production, the Company decided to sell its interest in IFL. To that end, on February 7, 2012, Adino sold all
of its membership interest in IFL to Pomisu XXI S.L. (“Buyer”). The purchase price to be paid by the Buyer was $900,000,
paid in two installments with the first installment of $244,825 paid on February 7, 2012, and the balance due not later than May
7, 2012. The balance of the purchase price shall be computed as follows: $900,000 minus $244,825 (initial installment) minus $655,157
of IFL liabilities assumed and settled by the Buyer. The liabilities included $106,520 in accounts payable, $1,500 to a related
party, $110,000 in retained customer deposit and $437,155 for the G J Capital lawsuit judgment (see Note 25 for a more thorough
discussion). The balance due had not been paid as of June 30, 2012 and the full receivable balance has been reserved.





7







On June 29, 2012, the Company executed
a multi-party agreement with the Sellers of the PetroGreen assets and Gator-Dawg Drilling, LLC (“Gator-Dawg”). In the
agreement, the Company released the restriction on the 10 million shares of common stock held in escrow on behalf of the Sellers
in the PetroGreen asset purchase in July of 2010. In exchange, the Sellers released all claims to the contract clawback agreement,
which stated that the Sellers could repurchase the assets sold to the Company for $1.00 if the price of the Company’s stock
did not reach $0.25 per share by the specified date. The Company also transferred the membership shares of AACM3, LLC to its former
owner, Alex Perales. AACM3, LLC did not hold any assets at the time of transfer. Gator-Dawg agreed to transfer the drilling rig
and associated assets purchased from the Company in March, 2011 to AACM3, LLC. In exchange for the drilling rig transfer, the Company
forfeited the $500,000 note due from Gator-Dawg for purchase of those assets (disallowed for consolidation), executed a $100,000
note payable to Gator-Dawg for rig improvements and transferred a truck and trailer purchased in early 2012 to Gator-Dawg. The
completion of this multi-party agreement extinguished the contract clawback provision at June 29, 2012.



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



Use of Estimates



The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect reported amounts and related disclosures.  Actual results could differ from those estimates.



Principles of Consolidation

The consolidated financial statements include
all of the assets, liabilities and results of operations of subsidiaries in which the Company has a controlling interest. All significant
inter-company accounts and transactions among consolidated entities have been eliminated.



Concentrations of Credit Risk

Financial instruments which subject the
Company to concentrations of credit risk include cash and cash equivalents and accounts receivable.



The Company maintains its cash in well-known
banks selected based upon management’s assessment of the banks’ financial stability. Balances rarely exceed the $250,000
federal depository insurance limit. The Company has not experienced any losses on deposits and believes the risk of loss is minimal.



Management assesses the need for an allowance
for doubtful accounts based upon the financial strength of our customers, historical experience with our customers and the aging
of the amounts due. For the year ended December 31, 2011, we had no reserve for doubtful accounts as all of our receivables were
collected early in the subsequent period and had no expectation of loss. At June 30, 2012, the Company reserved the amount due
from sale of IFL, or $358,401.



Cash Equivalents

For purposes of reporting cash flows, the
Company considers all short-term investments with an original maturity of three months or less to be cash equivalents.  We
had no cash equivalents at either June 30, 2012 or December 31, 2011.



Investments

The Company from time to time maintains
a portfolio of marketable investment securities for deposit requirements associated with our oil and gas operator licenses. The
securities have an investment grade and a term to earliest maturity generally of ten months to over one year and include certificates
of deposit. These securities are carried at cost, which approximates market. The Company’s securities are classified as held-to-maturity
because the Company has the positive intent and ability to hold the securities to maturity.





8







Other Assets

Supplies consisting of equipment and parts
to be used for future drilling projects and repair to existing wells are stated at cost.  As the supplies are assigned
to a particular project, they are then capitalized or expensed, accordingly.  Supplies are evaluated at each balance
sheet date for obsolescence and impairment.



Property and Equipment

Property and equipment are recorded at
cost.  Depreciation is provided on the straight-line method over the estimated useful lives of the assets, which range from
three to fifteen years.  Expenditures for major renewals and betterments that extend the original estimated economic useful
lives of the applicable assets are capitalized.  Expenditures for normal repairs and maintenance are charged to expense as
incurred.  The cost and related accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts,
and any gain or loss is included in operations.



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.



Current guidance requires that  unamortized
capitalized costs (less certain adjustments) for each cost center  not exceed the cost ceiling, which is defined as the
present value of future net revenues from estimated production of proved oil and gas reserves (plus certain adjustments). If adjusted
unamortized costs capitalized within a cost center exceed the cost center ceiling, the excess is charged to expenses and separately
disclosed during the period it occurs. The Company evaluates the carrying cost of the applicable oil producing properties for any
impairment as required.



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 lattice 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. Accretion
of the asset retirement liability is allocated to operating expense using the discount method.



Revenue Recognition

IFL earns revenue from customer contract
payments on a monthly basis. The Company recognizes revenue from the contracts in the month that the services are provided based
upon contractually determined rates.





9







As described above, in accordance with
the requirement of current guidance, the Company recognizes revenue when (1) persuasive evidence of an arrangement exists (contracts)
(2) delivery has occurred (monthly) (3) the seller’s price is fixed or determinable (per the customer’s contract or
current market price) and (4) collectability is reasonably assured (based upon our credit policy).



The Company has performed an analysis and
determined that gross revenue reporting is appropriate, since (1) the Company is the primary obligor in the transaction (2) the
Company has latitude in establishing price and (3) the Company provides the product and performs part of the service.



Adino Exploration earns revenue from the
sale of oil.  The Company recognizes oil, gas and natural gas condensate revenue in the period of delivery.  Settlement
for oil sales occurs 30 days after the oil has been sold; and settlement for gas sales would occur 60 days after the gas had been
sold.  The Company recognizes revenue when an arrangement exists, the product or service has been provided, the sales
price is fixed or determinable, and collectability is reasonably assured.



Income Taxes

The Company uses the asset and liability
approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future
tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using tax
rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period when the change is enacted.



On January 1, 2007, the Company adopted
an accounting standard which clarifies the accounting for uncertainty in income taxes recognized in financial statements. This
standard provides guidance on recognizing, measuring, presenting and disclosing in the financial statements uncertain tax positions
that a company has taken or expects to take on a tax return.



Income (Loss) Per Share

Current guidance requires earnings per
share (“EPS”) to be computed and reported as both basic EPS and diluted EPS. Basic EPS is computed by dividing net
income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income
by the weighted average number of common shares and dilutive common stock equivalents (convertible notes and interest on the notes,
stock awards and stock options) outstanding during the period. Dilutive EPS reflects the potential dilution that could occur if
options to purchase common stock were exercised for shares of common 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.



Stock-Based Compensation

We record stock-based compensation as a
charge to earnings, net of the estimated impact of forfeited awards. As such, we recognize stock-based compensation cost only for
those stock-based awards that are estimated to ultimately vest over their requisite service period, based on the vesting provisions
of the individual grants. The process of estimating the fair value of stock-based compensation awards and recognizing stock-based
compensation cost over their requisite service periods involves significant assumptions and judgments.



We estimate the fair value of stock option
awards on the date of grant using a Black-Scholes valuation model which requires management to make certain assumptions regarding:
(i) the expected volatility in the market price of the Company’s common stock; (ii) dividend yield; (iii) risk-free interest
rates; and (iv) the period of time employees are expected to hold the award prior to exercise (referred to as the expected holding
period). The dividend yield is based on the approved annual dividend rate in effect and current market price of the underlying
common stock at the time of grant. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time
of grant for bonds with maturities ranging from one month to ten years. The expected holding period of the awards granted is estimated
using the historical exercise behavior of employees. In addition, we estimate the expected impact of forfeited awards and recognize
stock-based compensation cost only for those awards expected to vest. We use historical experience to estimate projected forfeitures.
If actual forfeiture rates are materially different from our estimates, stock-based compensation expense could be significantly
different from what we have recorded in the current period. We periodically review actual forfeiture experience and revise our
estimates, as considered necessary. The cumulative effect on current and prior periods of a change in the estimated forfeiture
rate is recognized as compensation cost in earnings in the period of the revision.



The Company has granted options and warrants
to purchase Adino’s common stock.  These instruments have been valued using the Black-Scholes model.



Impairment of Long-Lived Assets

In the event that facts and circumstances
indicate that the carrying value of a long-lived asset may be impaired, an evaluation of recoverability is performed by comparing
the estimated future undiscounted cash flows associated with the asset or the asset’s estimated fair value to the asset’s
carrying amount to determine if a write-down to market value or discounted cash flow is required.





10







At June 30, 2012 and December 31, 2011,
Adino evaluated and determined that no impairment was warranted on the fixed assets of the Company.  Additionally, no
impairment was required on the oil and gas assets of the Company.  There was no change to the impairment analysis performed
at the December 31, 2011 audit and no indicators of impairment at the review.  See Notes 12 and 13 for a more thorough
discussion of the Company’s fixed assets and oil and gas assets as of June 30, 2012 and December 31, 2011.



Goodwill

Through December 31, 2011, goodwill has
been our single largest asset. We evaluate the recoverability and measure the potential impairment of our goodwill annually. The
annual impairment test is a two-step process that begins with the estimation of the fair value of the reporting unit. The first
step screens for potential impairment and the second step measures the amount of the impairment, if any. Our estimate of fair value
considers the financial projections and future prospects of our business, including its growth opportunities and likely operational
improvements. As part of the first step to assess potential impairment, we compare our estimate of fair value for the reporting
unit to the book value of the reporting unit. We determine the fair value of the reporting units based on the income approach.
Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash
flows. If the book value is greater than our estimate of fair value, we would then proceed to the second step to measure the impairment,
if any. The second step compares the implied fair value of goodwill with its carrying value. The implied fair value is determined
by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had
been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting
unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied
fair value of goodwill. If the carrying amount of the reporting unit’s goodwill is greater than its implied fair value, an
impairment loss will be recognized in the amount of the excess. We believe our estimation methods are reasonable and reflect common
valuation practices.



In December 2010, the FASB issued FASB
ASU No. 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts,”
which is now codified under FASB ASC Topic 350, Intangibles - Goodwill and Other.” This ASU provides amendments to Step 1
of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity
is required to perform Step 2 of the goodwill impairment test if it is more likely than not goodwill impairment exists. When determining
whether it is more likely than not impairment exists, an entity should consider whether there are any adverse qualitative factors,
such as a significant deterioration in market conditions, indicating impairment may exist. FASB ASU No. 2010-28 is effective for
fiscal years (and interim periods within those years) beginning after December 15, 2010. Upon adoption of the amendments, an entity
with reporting units having carrying amounts which are zero or negative is required to assess whether it is more likely than not
the reporting units’ goodwill is impaired. If the entity determines impairment exists, the entity must perform Step 2 of
the goodwill impairment test for that reporting unit or units. Step 2 involves allocating the fair value of the reporting unit
to each asset and liability, with the excess being implied goodwill. An impairment loss results if the amount of recorded goodwill
exceeds the implied goodwill. Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning
retained earnings in the period of adoption.



On a quarterly basis, we perform
a review of our business to determine if events or changes in circumstances have occurred which could have a material adverse effect
on the fair value of the Company and its goodwill. If such events or changes in circumstances were deemed to have occurred, we
would perform an impairment test of goodwill as of the end of the quarter, consistent with the annual impairment test performed
at the end of our fiscal year on December 31, and record any noted impairment loss.



With the sale of IFL in February 2012,
the Company has removed all IFL goodwill at June 30, 2012.



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.





11







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.



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.
|-------- | ------------------------------------------------------------------------------------------------------



Discontinued Operations



The results of operations of a component of an entity that either
has been disposed of or is classified as held for sale is reported in discontinued operations if both of the following conditions
are met:



a. The operations and cash flows
of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction.



b. The entity will not have
any significant continuing involvement in the operations of the component after the disposal transaction.



In a period in which a component of an
entity either has been disposed of or is classified as held for sale, the income statement of the Company for current and prior
periods will report the results of operations of the component, including any gain or loss recognized, in discontinued operations.
The results of operations of a component classified as held for sale shall be reported in discontinued operations in the period(s)
in which they occur.



Reclassification

Certain amounts reported in the prior period
financial statements may have been reclassified to the current period presentation.



NOTE 3-GOING CONCERN



As of June 30, 2012, the Company has a
working capital deficit of $3,276,921 and total stockholders’ deficit of $2,825,460.  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 June 30,
2012, $860,081 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. Additionally, non-cash items includes a derivative liability of $106,804.
 The Company plans to satisfy current year and future cash flow requirements through its oil and gas 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 escalated $1,000,000 per year after this date, through the lease expiration date of September 30, 2013.  The Company
recognized the escalating lease payments on a straight line basis.





12







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 was $1,956,392. This amount is being
amortized over the life of the Lone Star operating lease, or 60 months.  The operating lease expires on September 30,
2013.  This treatment is consistent with sale leaseback gain recognition rules.



With the Company’s focus on oil and
gas exploration and production, the Company decided to sell its interest in IFL. To that end, on February 7, 2012, Adino sold all
of its membership interest in IFL to Pomisu XXI S.L. (“Buyer”). The purchase price to be paid by the Buyer was $900,000,
paid in two installments with the first installment of $244,825 paid on February 7, 2012, and the balance due not later than May
7, 2012. The balance of the purchase price shall be computed as follows: $900,000 minus $244,825 (initial installment) minus $655,157
of IFL liabilities assumed and settled by the Buyer. The liabilities included $106,520 in accounts payable, $1,500 to a related
party, $110,000 in retained customer deposit and $437,155 for the G J Capital lawsuit judgment (see Part II, Item 1 for a more
thorough discussion). At June 30, 2012, the balance due from Buyer had not been paid. The Company has reserved the full receivable
amount.





NOTE 5 - CERTIFICATE OF DEPOSIT



At June 30, 2012 and December 31, 2011,
the Company has $50,037 and $50,000, respectively, of restricted certificates of deposit (CDs”). These investments are classified
as either a current or long-term asset based on their maturity date. The securities generally have maturity dates of ten months
to over one year. The restricted investments serve as collateral for an oil and gas operator license held by the Company’s
wholly-owned subsidiary, Adino Exploration, LLC. The cash is held in custody by the issuing bank, is restricted as to withdrawal
or use, and is currently invested in certificates of deposit. Income from these investments is paid to the Company at maturity
of the certificates of deposit. These investments are classified as held-to-maturity and are recorded as either short-term or long-term
on the balance sheet based on contractual maturity date and are recorded at amortized cost.  The Company’s securities
are classified as held-to-maturity because the Company has the positive intent and ability to hold the securities to maturity.



NOTE 6 - ACCOUNTS RECEIVABLE



The Company uses an oil and gas gathering
company for its oil sales. Each month, sales are recorded as the product is picked up by the gatherer and payments are made to
the Company, the following month. The amounts accrued at June 30, 2012 and December 31, 2011 are current month production, to be
paid the subsequent month. Additionally, the Company advanced $10,000 to a business associate in December 2011 for repayment in
2012.



|                                |  | June 30, 2012 |        |  | December 31, 2011 |  
|------------------------------- |  | ------------- | ------ |  | ----------------- | -
|                                |  |               |        |  |                   |  
|Oil and gas gatherer receivable |  | $             | 12,741 |  |                   | $
|Advances                        |  |               | 10,000 |  |                   |  
|Total                           |  | $             | 22,741 |  |                   | $



NOTE 7 - PETRO ENERGY ACQUISITION PURCHASE PRICE ALLOCATION



The Company’s acquisition of Petro
Energy (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.





13







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



After acquisition of the Petro Energy
companies, the Company created two wholly owned subsidiaries:  Adino Exploration, LLC (“Adino Exploration”)
and Adino Drilling, LLC (“Adino Drilling”).  All oil and gas leases and a portion of the machinery and equipment
were transferred from the Petro Energy companies to Adino Exploration and future oil and gas exploration acquisitions and activity
are to be operated through this company.  The large drilling rig acquired in the Petro Energy transaction and other associated
drilling machinery and equipment were transferred to Adino Drilling.



NOTE 8 - SALE OF ADINO DRILLING, LLC



On March 31, 2011, the Company sold the
membership shares of Adino Drilling, LLC to a related party.  Under the terms of the agreement, the Company realized a reduction
in accrued liability of $100,000 and acquired a $500,000 six year, 5.24% interest note receivable, for a total sale price of $600,000. 
The sale resulted in a gain to the Company of $247,376; however the transaction’s related party note of $500,000 is not allowed
for reporting purposes, therefore the Company realized a reportable loss of $252,624.  Adino’s management believes that
the sale of the drilling rig and associated equipment was in the best interest of the Company and the shareholders.  The rig
held by the Company was primarily suited for drilling up to 3,500 feet. However, the Company is currently drilling shallower wells.
This large rig would be uneconomical for drilling smaller wells. The Company has decided to contract with service companies that
specialize in shallower wells, thus reducing drilling expense.  The cash flow to be realized from the $500,000 note, accompanied
by the decreased related party compensation of $100,000, is expected to increase Adino’s cash flow.



With the sale of Adino Drilling, LLC, the
$7,139 of goodwill resulting from the original PetroGreen acquisition, discussed in Note 7 was written off.  The transaction
has been accounted for as a discontinued operation.



Below are the asset and liability values
for Adino Drilling, LLC at March 31, 2011:



|                                                                                                               |  | Assets disposed at March 31, 2011 |        
|-------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | -------
|                                                                                                               |  |                                   |        
|Cash                                                                                                           |  | $                                 | 100    
|Fixed assets, net of depreciation of $34,837 and $21,186 at March 31, 2011 and December 31, 2011, respectively |  |                                   | 350,702
|Total assets                                                                                                   |  |                                   | 350,802
|                                                                                                               |  |                                   |        
|Accounts payable                                                                                               |  |                                   | 5,317  
|Accounts payable - related party                                                                               |  |                                   | -      
|Total liabilities                                                                                              |  |                                   | 5,317  
|                                                                                                               |  |                                   |        
|Net assets - discontinued operations                                                                           |  | $                                 | 345,485





14







NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS



The Company’s $50,000 CD is carried
at cost, which approximates market. During the six months ended June 30, 2012, the Company realized $37 in interest income on the
CD. The Company valued the Petro Energy acquisition contract clawback and the current convertible note and warrant derivatives
using Level 3 criterion, shown below. As of June 30, 2012, the valuations resulted in a gain on derivatives of $50,417 and loss
on contract clawback provision of $119,649 for a net loss of $69,251. As of December 31, 2011, the valuations resulted in a gain
on derivatives of $10,850, loss on contract clawback provision of $49,385 and goodwill impairment of $4,827 for a net loss of $53,859.





|June 30, 2012               |  |         |        |  |         |   |   |         |  |   |                                                  |  |  |                                                 |        
|--------------------------- |  | ------- | ------ |  | ------- | - | - | ------- |  | - | ------------------------------------------------ |  |  | ----------------------------------------------- | -------
|Description                 |  | Level 1 |        |  | Level 2 |   |   | Level 3 |  |   | Total Realized  Gain (Loss) due to  Valuation at |  |  | Total Unrealized  Gain (Loss) due to  valuation |        
|                            |  |         |        |  |         |   |   |         |  |   |                                                  |  |  |                                                 |        
|Marketable security - CD    |  | $       | 50,037 |  |         | $ | - |         |  | $ | -                                                |  |  | $                                               | 37     
|                            |  |         |        |  |         |   |   |         |  |   |                                                  |  |  |                                                 |        
|Notes payable  - derivative |  |         | -      |  |         |   | - |         |  |   | 106,737                                          |  |  |                                                 | (26,431
|                            |  |         |        |  |         |   |   |         |  |   |                                                  |  |  |                                                 |        
|Haag warrants - derivative  |  |         | -      |  |         |   | - |         |  |   | 67                                               |  |  |                                                 | (3,592 
|                            |  |         |        |  |         |   |   |         |  |   |                                                  |  |  |                                                 |        
|Contract clawback provision |  |         | -      |  |         |   | - |         |  |   | -                                                |  |  |                                                 | 198,643
|Total                       |  | $       | 50,037 |  |         | $ | - |         |  | $ | 106,804                                          |  |  | $                                               | 168,657



|December 31, 2011           |  |         |        |  |         |   |   |         |  |   |                                               |  |  |                                                 |       
|--------------------------- |  | ------- | ------ |  | ------- | - | - | ------- |  | - | --------------------------------------------- |  |  | ----------------------------------------------- | ------
|Description                 |  | Level 1 |        |  | Level 2 |   |   | Level 3 |  |   | Total Realized  Gain (Loss) due to  Valuation |  |  | Total Unrealized  Gain (Loss) due to  Valuation |       
|                            |  |         |        |  |         |   |   |         |  |   |                                               |  |  |                                                 |       
|Marketable security - CD    |  | $       | 50,000 |  |         | $ | - |         |  | $ | -                                             |  |  | $                                               | -     
|                            |  |         |        |  |         |   |   |         |  |   |                                               |  |  |                                                 |       
|Goodwill                    |  |         | -      |  |         |   | - |         |  |   | 1,554,413                                     |  |  |                                                 | (4,827
|                            |  |         |        |  |         |   |   |         |  |   |                                               |  |  |                                                 |       
|Notes payable  - derivative |  |         | -      |  |         |   | - |         |  |   | 133,235                                       |  |  |                                                 | 14,541
|                            |  |         |        |  |         |   |   |         |  |   |                                               |  |  |                                                 |       
|Haag warrants - derivative  |  |         | -      |  |         |   | - |         |  |   | 3,659                                         |  |  |                                                 | (3,691
|                            |  |         |        |  |         |   |   |         |  |   |                                               |  |  |                                                 |       
|Contract clawback provision |  |         | -      |  |         |   | - |         |  |   | 386,739                                       |  |  |                                                 | 49,385
|Total                       |  | $       | 50,000 |  |         | $ | - |         |  | $ | 2,078,046                                     |  |  | $                                               | 53,859



With the sale of IFL, the Company removed
all associated goodwill at the sale date, February 7, 2012. At December 31, 2011, the Company recognized a loss on goodwill of
$4,827 for an ending balance of $1,554,413.



On June 29, 2012, the Company executed
a multi-party agreement with the Sellers of the PetroGreen assets and Gator-Dawg Drilling, LLC (“Gator-Dawg”). In the
agreement, the Company released the restriction on the 10 million shares of common stock held in escrow on behalf of the Sellers
in the PetroGreen asset purchase in July of 2010. In exchange, the Sellers released all claims to the contract clawback agreement,
which stated that the Sellers could repurchase the assets sold to the Company for $1.00 if the price of the Company’s stock
did not reach $0.25 per share by the specified date. The Company also transferred the membership shares of AACM3, LLC to its former
owner, Alex Perales. AACM3, LLC did not hold any assets at the time of transfer. Gator-Dawg agreed to transfer the drilling rig
and associated assets purchased from the Company in March, 2011 to AACM3, LLC. In exchange for the drilling rig transfer, the Company
forfeited the $500,000 note due from Gator-Dawg for purchase of those assets (disallowed for consolidation), executed a $100,000
note payable to Gator-Dawg for rig improvements and transferred a truck and trailer purchased in early 2012 to Gator-Dawg. The
completion of this multi-party agreement extinguished the contract clawback provision at June 29, 2012.





15







The clawback was valued at the agreement
date, June 29, 2012, resulting in an additional loss on clawback of $78,994 during the quarter, for a total change in clawback
value of $198,643 for the six months ended June 30, 2012.



NOTE 10 - 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.



In addition to the above facts, the note
holder provided a separate written confirmation to the Company's auditors at December 31, 2011 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.  The discount was fully amortized as of August 8,
2011.  The Company and Mr. Sundlun do not deem the notes in default and were discussing the note extension or renegotiation
at June 30, 2012.



Interest accrued on the Sundlun note receivable
was $375,208 at June 30, 2012 and December 31, 2011.



A schedule of the balances at June 30,
2012 and December 31, 2011 is as follows:



|                                 |  | June 30, 2012 |          |   | December 31, 2011 |  
|-------------------------------- |  | ------------- | -------- | - | ----------------- | -
|                                 |  |               |          |   |                   |  
|Sundlun note receivable          |  | $             | 750,000  |   |                   | $
|Less: current portion            |  |               | (750,000 | ) |                   |  
|Total long-term notes receivable |  | $             | -        |   |                   | $



NOTE 11 - RECEIVABLE - ASSET SALES



In October 2011, Adino signed a letter of
intent to purchase all of the assets of Ashton, AOS 1A, and AOS 1-B. The proposed purchase price for the assets was $6,000,000
in face value of convertible preferred stock of the Company, with the preferred stock converting to common stock at the rate of
$0.15 per share. The parties agreed that partial closing of the purchase would occur once the sellers received clear title to the
assets subject to the agreement. The first partial closing of purchase occurred on November 3, 2011, and the Company issued 100,000
shares of Adino's Class "B" Preferred Stock Series 1 (the "Preferred Stock"), as follows: 95,534 shares to
AOS 1A, and 4,466 shares to AOS 1-B. The Preferred Stock shall be convertible into common shares at AOS 1A or AOS 1-B's option
at any time after six months, provided that (a) immediately after the first six months, only 25% of the Preferred Stock may be
converted to common stock, and (b) each month thereafter, only up to 12.5% of the Preferred Stock may be converted to common stock.
The Preferred Stock shall have other terms as determined by Adino's Board of Directors. The number of shares of Preferred Stock
was chosen to conform to the agreed upon value of $1,500,000 for the assets. The Company later decided not to acquire the remaining
Ashton assets. On February 7, 2012, the Company sold all oilfield machinery and equipment it had purchased from Ashton Oilfield
Services in its November 2011 acquisition for $500,000. At June 30, 2012, the outstanding balance on the purchase was $25,000,
which was fully collected as of July 12, 2012.





16







With the Company’s focus on oil and
gas exploration and production, the Company decided to sell its interest in IFL. To that end, on February 7, 2012, Adino sold all
of its membership interest in IFL to Pomisu XXI S.L. (“Buyer”). The purchase price to be paid by the Buyer was $900,000, paid
in two installments with the first installment of $244,825 paid on February 7, 2012, and the balance due not later than May 7,
2012. The balance of the purchase price shall be computed as follows: $900,000 minus $244,825 (initial installment) minus $655,157
of IFL liabilities assumed and settled by the Buyer. The agreement also called for any cash payments made by the Company, on behalf
of the Buyer, to be repaid to the Company at the settlement. As of March 31, 2012, the Company had paid $200,321 in partial settlement
of the G J Capital lawsuit judgment. The full receivable balance due from Buyer of $358,401 has been reserved, as the balance had
not been collected by the May 7, 2012 settlement date (subsequent to the date of the this report).



A schedule of the balances at June 30,
2012 and December 31, 2011 is as follows:



|                                            |  | June 30, 2012 |          |   | December 31, 2011 |  
|------------------------------------------- |  | ------------- | -------- | - | ----------------- | -
|                                            |  |               |          |   |                   |  
|Ashton asset sale                           |  | $             | 25,000   |   |                   | $
|IFL membership sale                         |  |               | 358,401  |   |                   |  
|Less:  allowance for uncollectible accounts |  |               | (358,401 | ) |                   |  
|Total receivable - asset sales              |  | $             | 25,000   |   |                   | $



NOTE 12 - FIXED ASSETS



The following is a summary of this category:



|                                                                                                                    |  | June 30, 2012 |         |   | December 31, 2011 |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | -
|                                                                                                                    |  |               |         |   |                   |  
|Machinery and equipment                                                                                             |  | $             | 190,722 |   |                   | $
|Vehicles                                                                                                            |  |               | 47,427  |   |                   |  
|Leasehold improvements                                                                                              |  |               | 13,851  |   |                   |  
|Total assets - continuing operations                                                                                |  |               | 252,000 |   |                   |  
|Less: Accumulated depreciation                                                                                      |  |               | (94,341 | ) |                   |  
|Net assets - continuing operations                                                                                  |  |               | 157,659 |   |                   |  
|Machinery and equipment - Intercontinental Fuels, LLC, discontinued as of 2/7/2012, net of accumulated depreciation |  |               | -       |   |                   |  
|Total                                                                                                               |  | $             | 157,659 |   |                   | $





On February 7, 2012, the Company sold the
membership shares of IFL to a third party.  IFL’s assets were leasehold improvements and office equipment, with
a net book value of $6,281 at the time of sale. The sale resulted in a loss to the Company of $8,416, which is included with the
IFL activity through the sale date, in the discontinued operations section of the statement of operations.



The useful life for leasehold improvements
is 15 years. 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.  Depreciation expense for the quarter and six months ended June 30, 2012 and 2011
was $9,744 and $19,090, and $27,170 and $35,787, respectively.



NOTE 13 - 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.



Since the Petro Energy acquisition, the
Company has completed an extensive workover program on the original wells acquired. The Company has also drilled and completed
3 wells on the James Leonard lease during 2011. In late 2011, the Company drilled 5 new wells - 4 on the James Leonard lease and
1 on the Felix Brandt lease, financed by BlueRock Energy Capital II, LLC (BlueRock”). (See Note 17 for additional discussion).





17







Proved oil and gas properties:As
of June 30, 2012, the Company’s Felix Brandt and James Leonard leases include twenty one 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 $118,590 as of December 31, 2010. As a result of the Company’s
workover and drilling programs during 2011, the estimated discounted net cash flow on the combined Felix Brandt and James Leonard
leases are $851,896 as of December 31, 2011. Due to our significant net loss carryforward, we do not expect to pay any federal
income taxes on future net revenues provided from the Felix Brandt lease production. Therefore, the pre-tax and after-tax estimate
of discounted future net cash flows at December 31, 2011 are both $851,896. There was no updated estimate of future net reserves
performed at June 30, 2012.



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 June 30, 2012, the Company has recorded a net asset of $46,372 and related liability of $53,076. Accretion
for the quarter and six months ended June 30, 2012 was $1,066 and $2,132, respectively.



Impairment:Current guidance
requires that  unamortized capitalized costs (less certain adjustments) for each cost center  not exceed the
cost ceiling, which is defined as the present value of future net revenues from estimated production of proved oil and gas reserves
(plus certain adjustments). If adjusted unamortized costs capitalized within a cost center exceed the cost center ceiling, the
excess is charged to expenses and separately disclosed during the period it occurs. The Company evaluated the carrying cost of
the applicable oil producing properties and determined that the carrying value should be reduced by $47,481 for the year ended
December 31, 2010. For the six months ended June 30, 2012 and the year ended December 31, 2011, the Company evaluated the carrying
cost of the applicable oil producing properties and determined that the carrying value did not exceed the cost ceiling, therefore
no adjustment was necessary at June 30, 2012 or December 31, 2011.



The oil and gas related asset values at June 30, 2012 and December
31, 2011 were as follows:



|                                |  | June 30, 2012 |          |   | December 31, 2011 |  
|------------------------------- |  | ------------- | -------- | - | ----------------- | -
|                                |  |               |          |   |                   |  
|Tangible drilling costs         |  | $             | 757,764  |   |                   | $
|Proved oil and gas properties   |  |               | 71,060   |   |                   |  
|Unproved oil and gas properties |  |               | 1,500    |   |                   |  
|Asset retirement cost           |  |               | 46,372   |   |                   |  
|Impairment                      |  |               | (47,481  | ) |                   |  
|Accumulated depletion           |  |               | (135,413 | ) |                   |  
|Total                           |  | $             | 693,802  |   |                   | $



Depletion, calculated using the units of production method for
the three and six months ended June 30, 2012 and 2011 was $30,337 and $62,153 and $3,445, and $3,445 and $17,087, respectively.



NOTE 14 - OTHER ASSETS



As the Company’s wells and lease
holdings have increased, it has need for supplies on hand for lease and well repair and maintenance. At June 30, 2012 and December
31, 2011, the Company had $19,448 and $25,001 in supplies and replacement parts available for use, respectively.



NOTE 15 - 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 9. 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.



Adino evaluated the aggregate goodwill
for impairment. Due to the sale of the Company’s interest in IFL in February 2012, the Company has recorded impairment of
goodwill on the transaction of $1,554,413 and $4,827, at March 31, 2012 and December 31, 2011, respectively. No goodwill remains
after March 31, 2012.





18







NOTE 16 - ACCRUED LIABILITIES / ACCRUED
LIABILITIES - RELATED PARTY



Other liabilities and accrued expenses
consisted of the following as of June 30, 2012 and December 31, 2011:



|                                  |  | June 30, 2012 |         |  | December 31, 2011 |  
|--------------------------------- |  | ------------- | ------- |  | ----------------- | -
|                                  |  |               |         |  |                   |  
|Accrued accounting and legal fees |  | $             | -       |  |                   | $
|Property and payroll tax accrual  |  |               | 27      |  |                   |  
|Dividend payable                  |  |               | -       |  |                   |  
|Total accrued liabilities         |  | $             | 27      |  |                   | $
|                                  |  |               |         |  |                   |  
|Accrued salaries-related party    |  | $             | 860,080 |  |                   | $
|                                  |  |               |         |  |                   |  
|Asset retirement obligation       |  | $             | 53,076  |  |                   | $



Accrued accounting and legal fees:On
April 18, 2012, the Company converted the accrued consultant debt of $103,000 into 2,060,000 shares of Rule 144 common stock. See
Note 20 for further discussion.



Dividend payable:Dividend expense
of $19,353 for the six months ended June 30, 2012 has been paid prior to quarter end.



Accrued salaries - related party:This
liability is due to certain officers and directors for prior years’ accrued compensation.  They have agreed to
postpone payment if necessary, should the Company need capital it would otherwise pay these individuals.





NOTE 17 - NOTES PAYABLE / CONVERTIBLE NOTES PAYABLE



|                                                                                                                        |  | June 30, 2012 |            |   | December 31, 2011 |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | ----------------- | -
|                                                                                                                        |  |               |            |   |                   |  
|NOTES PAYABLE                                                                                                           |  |               |            |   |                   |  
|Note payable  - Stuart Sundlun, bearing interest of 10% per annum, due August 7, 2011                                   |  | $             | 1,500,000  |   |                   | $
|Note payable - Gulf Coast Fuels/GJ Capital                                                                              |  |               | -          |   |                   |  
|Notes payable - BlueRock Energy Group, bearing interest at 18%, payable via production)                                 |  |               | 294,159    |   |                   |  
|Note payable - GMAC, bearing interest of 11.7% per annum with 60 monthly payments of $895, due May 13, 2013             |  |               | 13,277     |   |                   |  
|Related party - Notes payable – Gator-Dawg Drilling, LLC, bearing interest at 5.24%, payable on demand                  |  |               | 100,000    |   |                   |  
|Total notes payable                                                                                                     |  |               | 1,907,436  |   |                   |  
|Less:  current portion                                                                                                  |  |               | (1,907,436 | ) |                   |  
|Long term notes payable                                                                                                 |  |               | -          |   |                   |  
|                                                                                                                        |  |               |            |   |                   |  
|CONVERTIBLE NOTES PAYABLE                                                                                               |  |               |            |   |                   |  
|Note payable - Asher notes, net of discount of $32,817 and $50,986 at June 30, 2012 and December 31, 2011, respectively |  |               | 109,684    |   |                   |  
|bearing interest of 8% per annum, due February 16, 2012 (balance $0 at 6/30/12; $5,000 at 12/31/11)                     |  |               |            |   |                   |  
|bearing interest of 8% per annum, due March 23,2012 (balance $0 at 6/30/12; $53,000 at 12/31/11)                        |  |               |            |   |                   |  
|bearing interest of 8% per annum, due April 7, 2012 (balance $27,500 at 6/30/12 and 12/31/11)                           |  |               |            |   |                   |  
|bearing interest of 8% per annum, due June 12, 2012 (balance $37,500 at  6/30/12 and 12/31/11)                          |  |               |            |   |                   |  
|bearing interest of 8% per annum, due August 28, 2012 (balance $37,500 at 6/30/12 and 12/31/11)                         |  |               |            |   |                   |  
|bearing interest of 8% per annum, due October 23, 2012 (balance $40,000 at 6/30/12; $0 at 12/31/11)                     |  |               |            |   |                   |  
|Notes payable - BWME, bearing interest at 8% per annum, due September 2, 2013                                           |  |               | 400,000    |   |                   |  
|Notes payable - Schwartz group, bearing interest at 6%, due January 9, 2013                                             |  |               | 62,500     |   |                   |  
|Total convertible notes payable                                                                                         |  | $             | 572,184    |   |                   | $
|Less: current portion                                                                                                   |  |               | (272,184   | ) |                   |  
|Long term convertible notes payable                                                                                     |  | $             | 300,000    |   |                   | $





19







Sundlun Note: 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.



In addition to the above facts, the note
holder provided a separate written confirmation to the Company's auditors at December 31, 2011 of both the note payable and note
receivable balances, respectively.



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



Interest accrued on the Sundlun note payable
was $847,500 and $810,000 at June 30, 2012 and December 31, 2011, respectively.



Gulf Coast Fuels / GJ Capital: In
December 2011, the court rendered judgment for G J Capital and against Adino and IFL in the amount of $250,000, plus $152,988 in
attorneys’ fees, $9,300 in court costs, plus $20,616 in prejudgment interest. The Company did not appeal this judgment .In
February 2012, the Company paid $200,321 in partial settlement of the amount due. The balance due at March 31, 2012 was $236,834.
On May 1, 2012, the Company paid the final balance due on the GJ Capital suit, receiving a full release on all liability.



BlueRock Financing: On October 14,
2011, the Company entered into a production agreement with BlueRock Energy Capital II, LLC (BlueRock”). Under the production
agreement, BlueRock funded Adino with $410,000 for the drilling of five oil wells on the Company’s Leonard and Felix Brandt
leases and for working capital. Under the terms of the production agreement, BlueRock will be entitled to 65% of the net revenue
interest of the wells until BlueRock receives $410,000 plus an 18% return on investment. These monies are to be paid as the Company
receives production payments on the new wells. After payment of this amount, BlueRock will receive a 3% overriding royalty interest
on the wells. At June 30, 2012 and December 31, 2011, the balance on the BlueRock agreement was $294,159 and $379,854, respectively.



Asher Notes: On August 11, 2010,
the Company issued a convertible promissory note to Asher Enterprises, Inc. (Asher”), in the amount of $57,500. The note
had a maturity date of May 13, 2011 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 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.



With the Asher notes, the Company has the
right to redeem the notes within 90 days from the date of issuance for 135% of the redemption amount and accrued interest, from
days 91-120, the Company has the right to redeem the notes for 145% of the redemption amount and accrued interest, and from days
121-180, the Company has the right to redeem the notes for 150% of the redemption amount and accrued interest.





20







During the first quarter of 2011, Asher
converted $34,000 of the notes into the Company’s common stock, resulting in an issuance of 1,862,833 shares to Asher.  During
the second quarter of 2011, Asher converted the remaining balance of $23,500 into the Company’s common stock, resulting in
an issuance of 2,036,820 shares to Asher.  No amounts were converted during the third quarter, 2011. During the fourth
quarter of 2011, Asher converted $48,000 into the Company’s common stock, resulting in an issuance of 2,664,063 shares to
Asher. See Note 20 for a detailed description of each conversion.



During the second quarter of 2011, the
Company issued two nine-month convertible promissory notes to Asher in the amount of $53,000 each. The notes have maturity dates
of February 16, 2012 and March 23, 2012 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 an initial conversion
price of sixty five percent (65%) of the three lowest closing bid prices for the ten days preceding the conversion date. The notes’
convertible features were valued and resulted in debt discounts of $23,918 and $23,998 respectively, 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.



During the third quarter of 2011, the Company
issued two nine-month convertible promissory notes to Asher in the amount of $37,500 each. The notes have maturity dates of April
17, 2012 and June 12, 2012 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 due April 17, 2012 has an
initial conversion price of sixty five percent (65%) of the three lowest closing bid prices for the ten days preceding the conversion
date. The note due June 12, 2012 has an initial conversion price of fifty six percent (56%) of the three lowest closing bid prices
for the ten days preceding the conversion date. The notes’ convertible features were valued and resulted in debt discounts
of $15,943 and $21,720 respectively, 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.



On November 22, 2011, the Company issued
a nine-month convertible promissory note to Asher in the amount of $37,500. The note has a maturity date of August 28, 2012 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 an initial conversion price of fifty eight percent (58%)
of the three lowest closing bid prices for the ten days preceding the conversion date. The note’s convertible feature was
valued and resulted in a debt discount of $21,477, 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.



On January 19, 2012, the Company issued
a nine-month convertible promissory note to Asher in the amount of $40,000. The note has a maturity date of October 23, 2012 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 an initial conversion price of fifty eight percent (58%)
of the three lowest closing bid prices for the ten days preceding the conversion date. The note’s convertible feature was
valued and resulted in a debt discount of $21,119, which is being amortized over the nine month note life, using the effective
interest method.



During the first quarter of 2012, Asher
converted $45,000 of the notes and $2,120 in interest into the Company’s common stock, resulting in an issuance of 9,912,748
shares to Asher. There was no gain or loss on the transaction.



During the second quarter of 2012, Asher
converted $23,000 of the notes and $2,120 in interest into the Company’s common stock, resulting in an issuance of 11,341,176
shares to Asher. There was no gain or loss on the transaction.



BWME Notes: 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
at 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. The full balance of
$400,000 is outstanding at both June 30, 2012 and December 31, 2011.



Schwartz Notes: On January 10, 2011,
the Company issued convertible promissory notes to investors in the amount of $272,500, to fund drilling activities associated
with the recent Petro Energy acquisition. The notes have a maturity date of January 9, 2013, with interest accrued and paid at
the option of the holder at an annual interest rate of six percent (6%) 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
$0.35. During December 2011, the Company offered to convert the notes into shares of the Company’s Class B Preferred Stock,
Series 3. Three of the investors then chose to convert their notes, totaling $187,500 into shares of the preferred stock. In January
2012, a fourth investor chose to convert his note balance of $22,500 into shares of the Company’s Class B Preferred Stock,
Series 3. The final note of $62,500 remains outstanding at June 30, 2012.





21







Gator-Dawg Note: On June 29, 2012,
the Company executed a multi-party agreement with the Sellers of the PetroGreen assets and Gator-Dawg Drilling, LLC (“Gator-Dawg”).
In the agreement, the Company released the restriction on the 10 million shares of common stock held in escrow on behalf of the
Sellers in the PetroGreen asset purchase in July of 2010. In exchange, the Sellers released all claims to the contract clawback
agreement, which stated that the Sellers could repurchase the assets sold to the Company for $1.00 if the price of the Company’s
stock did not reach $0.25 per share by the specified date. The Company also transferred the membership shares of AACM3, LLC to
its former owner, Alex Perales. AACM3, LLC did not hold any assets at the time of transfer. Gator-Dawg agreed to transfer the drilling
rig and associated assets purchased from the Company in March 2011 to AACM3, LLC. In exchange for the drilling rig transfer, the
Company forfeited the $500,000 note due from Gator-Dawg for purchase of those assets (disallowed for consolidation), executed a
$100,000 note payable to Gator-Dawg for rig improvements and transferred a truck and trailer purchased in early 2012
to Gator-Dawg. The completion of this multi-party agreement extinguished the contract clawback provision at June 29, 2012. The
$100,000 note to Gator-Dawg is payable on demand.



The table below reflects the aggregate principal maturities
of long-term debt for years ended December 31:



|      |  | Principal |        
|----- |  | --------- | -------
|      |  |           |        
|2013  |  | $         | 400,000
|2014  |  |           | -      
|2015  |  |           | -      
|2016  |  |           | -      
|2017  |  |           | -      
|Total |  | $         | 400,000



NOTE 18 - 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. The contract clawback provision was valued at December 31, 2011 at $386,739.



The contract clawback was valued at March
31 and June 29, 2012 and the increase in provision for the quarters was recorded as a loss on contract clawback in the statement
of operations.



On June 29, 2012, the Company executed
a multi-party agreement with the Sellers of the PetroGreen assets and Gator-Dawg Drilling, LLC (“Gator-Dawg”). In the
agreement, the Company released the restriction on the 10 million shares of common stock held in escrow on behalf of the Sellers
in the PetroGreen asset purchase in July of 2010. In exchange, the Sellers released all claims to the contract clawback agreement,
which stated that the Sellers could repurchase the assets sold to the Company for $1.00 if the price of the Company’s stock
did not reach $0.25 per share by the specified date. The Company also transferred the membership shares of AACM3, LLC to its former
owner, Alex Perales. AACM3, LLC did not hold any assets at the time of transfer. Gator-Dawg agreed to transfer the drilling rig
and associated assets purchased from the Company in March 2011 to AACM3, LLC. In exchange for the drilling rig transfer, the Company
forfeited the $500,000 note due from Gator-Dawg for purchase of those assets (disallowed for consolidation), executed a $100,000
note payable to Gator-Dawg for rig improvements and transferred a truck and trailer purchased in early 2012 to Gator-Dawg. The
completion of this multi-party agreement extinguished the contract clawback provision at June 29, 2012.



NOTE 19 - DERIVATIVE LIABILITY



Based on current guidance, the Company
concluded that the convertible notes payable to Asher referred to in Note 17 were 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.





22







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 notes contained embedded derivatives that were analyzed. Certain features of the Asher
notes 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 notes 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 are revalued at each
balance sheet reporting date.



Below is detail of the derivative liability
balances as of June 30, 2012 and December 31, 2011.



|Derivative Liability    |  | December 31, 2011 |         |  | Additions |   |        | Increase  (Decrease)  from valuation |  |   | June 30, 2012 |  
|----------------------- |  | ----------------- | ------- |  | --------- | - | ------ | ------------------------------------ |  | - | ------------- | -
|                        |  |                   |         |  |           |   |        |                                      |  |   |               |  
|Asher note / BWME notes |  | $                 | 133,234 |  |           | $ | 21,119 |                                      |  | $ | (47,616       | )
|                        |  |                   |         |  |           |   |        |                                      |  |   |               |  
|Haag warrants           |  |                   | 3,660   |  |           |   | -      |                                      |  |   | (3,593        | )
|Total                   |  | $                 | 136,894 |  |           | $ | 21,119 |                                      |  | $ | (51,209       | )



The net decrease of $30,090 is split between
changes to derivative liability due to new note addition of $21,119, a reduction of $33,741 to additional paid-in-capital for the
derivative reduction attributable to the Asher note conversions discussed in Notes 17 and 20.  The remaining $17,468
is reflected as gain on derivatives in the statement of operations.



NOTE 20 - 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 June 30, 2012 and
December 31, 2011, the Company had 135,487,043 and 125,574,295 shares issued and outstanding, respectively.



On January 11, 2012, Asher converted $5,000
of its note and $2,120 in accrued interest into 569,600 shares of the Company’s common stock.



On January 24, 2012, Asher converted $12,000
of its note into 2,181,818 shares of the Company’s common stock.



On February 21, 2012, Asher converted $15,000
of its note into 2,678,571 shares of the Company’s common stock.



On March 12, 2012, Asher converted $13,000
of its note into 4,482,759 shares of the Company’s common stock.



On April 16, 2012, Asher converted $12,000
of its note into 6,666,667 shares of the Company’s common stock.



On May 23, 2012, Asher converted $10,000
of its note into 2,941,176 shares of the Company’s common stock.



On May 23, 2012, Asher converted $1,000
of its note and $2,120 in accrued interest into 1,733,333 shares of the Company’s common stock.



All note conversions were within the terms
of the agreement and did not result in a gain or loss.





23







On April 18, 2012, The Board of Directors approved a stock
conversion of $103,000 in accrued consulting expense into Rule 144 common stock, at a conversion rate of $0.05 per share. The
conversion resulted in issuance of 2,060,000 shares of stock and a gain to the Company of $87,962, based on the difference between
the conversion rate and the market price on the date of conversion.



As a result of the above common stock issuances,
there were 148,888,219 shares issued and outstanding as of June 30, 2012.



PREFERRED STOCK



In 1998, the Company amended its articles
to authorize Preferred Stock. There are 20,000,000 shares authorized with a par value of $0.001. The shares are non-voting and
non-redeemable by the Company. The Company further designated two series of its Preferred Stock: "Series 'A' $12.50 Preferred
Stock" with 2,159,193 shares of the total shares authorized and "Series "A" $8.00 Preferred Stock," with
the number of authorized shares set at 1,079,957 shares.



Any holder of either series may convert
any or all of such shares into shares of common stock of the Company at any time. Said shares shall be convertible at a rate equal
to three (3) shares of common stock of the Company for each one (1) share of Series "A" $12.50 Preferred Stock. 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.



Series "A" $8.00 Preferred Stock
shall be convertible at a rate equal to three (3) shares of common stock of the Company for each one (1) share of Series "A"
$8.00 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 preferential amount payable with respect
to shares of either 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.



As of June 30, 2012, the Company has also
designated two series of Class B Preferred Stock.



The number of authorized shares of Class
B Preferred Stock Series 1 is 666,680 shares. At any time after six months from the date of issuance of Class B Preferred Stock
Series 1, any holder may convert up to 25% of such holder’s initial holdings (i.e. before taking into account any prior conversions,
but taking into account any sales or transfers) of Class B Preferred Stock Series 1 into fully paid and nonassessable shares of
common stock of the Company at the rate of one hundred (100) shares of common stock per share of Class B Preferred Stock Series
1. Every month thereafter, any holder of Class B Preferred Stock Series 1 may convert up to 12.5% of such stockholder’s initial
holdings of Class B Preferred Stock Series 1 (i.e. before taking into account any prior conversions, but taking into account any
sales or transfers) into fully paid and nonassessable shares of common stock of the Company at the rate of one hundred (100) shares
of common stock per share of Class B Preferred Stock Series 1. Any such conversion may be effected by giving to the Secretary of
the Company written notice of conversion, accompanied by the surrender of the certificate(s) of the stock to be converted, duly
endorsed, along with any other information or documents reasonably requested by the Secretary to effect the conversion. The shares
of Class B Preferred Stock Series 1 shall not have any voting rights. Any outstanding shares of Class B Preferred Stock Series
1 may be redeemed by the Company, at the Company’s option, at any time for $15.00 per share.



On November 3, 2011, The Company acquired
all unencumbered assets owned by two limited partnerships managed by Ashton Oilfield Services, LLC (Ashton”). The assets
were purchased for one million five hundred thousand dollars ($1,500,000) and the Company issued 100,000 shares of Class B Preferred
Stock Series 1 to Ashton. The assets were valued based on fair market value for similar assets in good, working condition.



At June 30, 2012 and December 31, 2011,
there were 100,000 shares of Class B Preferred Stock Series 1 issued and outstanding.



The number of authorized shares of Class
B Preferred Stock Series 3 is 18,570 shares. The issue price for Class B Preferred Stock Series 3 is $35.00. The holders of Class
B Preferred Stock Series 3 shall be entitled to receive a quarterly dividend equal to 2.5% of the issue price of each share. The
dividends shall be paid quarterly, when as and if declared payable by the Company’s Board of Directors from funds legally
available for the payment thereof. If in any quarter the Company does not pay any accrued dividends, such dividends shall cumulate.
Interest shall not be paid on cumulated dividends. Each share of Class B Preferred Stock Series 3 shall rank on the same parity
with each other share of preferred stock, irrespective of series, with respect to dividends at the respective fixed or maximum
rate for such series. Any holder of Class B Preferred Stock Series 3 may convert, at any time, any or all shares held into common
stock of the Company. Each Class B Preferred Stock Series 3 share held may be converted into one hundred (100) fully paid and nonassessable
shares of common stock of the Company at the conversion rate of $0.35 per common stock .



On December 10, 2011, three of the Schwartz
investors, each holding a note for $62,500, converted their notes into 1,786 shares of the Company’s Class B Preferred Stock
Series 3, for a total issuance of 5,358 shares. Additionally, each investor invested an additional $50,000 in the Company through
the purchase of 1,428 shares of Class B Preferred Stock Series 3 shares, for a total issuance of 4,284 shares. The conversion was
within the terms of the agreement and there was no gain or loss on the transaction.





24







On January 9, 2012, one of the Schwartz
investors converted his $22,500 note into 681 shares of the Company’s Class B Preferred Stock Series 3. Additionally, he
invested an additional $30,000 in the Company through the purchase of 857 shares of Class B Preferred Stock Series 3 shares. The
conversion was within the terms of the agreement and there was no gain or loss on the transaction.



At June 30, 2012 and December 31, 2011,
there were 11,180 and 9,642 shares of Class B Preferred Stock Series 3 issued and outstanding, respectively.



DIVIDENDS



Dividends for Class B Preferred Stock Series
3 are cumulative. The holders of Class B Preferred Stock Series 3 shall be entitled to receive a quarterly dividend equal to 2.5%
of the issue price of each share. The dividends shall be paid quarterly, when as and if declared payable by the Company’s
Board of Directors from funds legally available for the payment thereof. If in any quarter the Company does not pay any accrued
dividends, such dividends shall cumulate. Interest shall not be paid on cumulated dividends.



Dividends for Class A Preferred Stock and
Class B Series 1 Preferred Stock 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.



Dividends for Class A Preferred Stock are
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 Class A Preferred Stock receive
dividends of more than percent (1%) in any fiscal year, and each share shall rank on parity with each other share of preferred
stock, irrespective of class or series, with respect to dividends at the respective fixed or maximum rates for such series.



At June 30, 2012 and December 31, 2011,
the Company recorded dividends paid for the Class B Preferred Stock Series 3 shares of $19,353 and $1,942 respectively, for those
shares issued in the Schwartz debt conversions, discussed above.



NOTE 21 - STOCK OPTIONS / STOCK WARRANTS



In September 2007, the Company entered
into a consulting agreement with Small Cap Support Services, Inc. (Small Cap”) to provide investor relations services.  In
addition to monthly compensation, Small Cap was entitled to 500,000 options, vesting ratably over 8 quarters through August 30,
2009, priced at 166,667 shares at $0.15, $0.25, and $0.35 each.  Using the Black-Scholes valuation model and an expected
life of 3.5 years, volatility of 271.33%, and a discount rate of 4.53%, the Company determined the aggregate value of the 500,000
seven year options to be $59,126. The options became fully expensed and vested as of June 30, 2009. All options are outstanding
at June 30, 2012 and December 31, 2011.



NOTE 22 - EARNINGS PER SHARE



The table below sets forth the computation
of basic and diluted net income (loss) per share for the three and six months ended June 30, 2012 and 2011.



|                                                                               |  | For the quarter ended June 30 |             |  | For the six months ended June 30 |  
|------------------------------------------------------------------------------ |  | ----------------------------- | ----------- |  | -------------------------------- | -
|                                                                               |  | 2012                          |             |  | 2011                             |  
|Numerator:                                                                     |  |                               |             |  |                                  |  
|Gain (loss)  from continuing operations                                        |  | $                             | 257,935     |  |                                  | $
|Gain from discontinued operations                                              |  | $                             | -           |  |                                  | $
|                                                                               |  |                               |             |  |                                  |  
|Basic net income (loss)                                                        |  | $                             | 257,935     |  |                                  | $
|Diluted net income (loss)                                                      |  | $                             | 257,935     |  |                                  | $
|                                                                               |  |                               |             |  |                                  |  
|Denominator:                                                                   |  |                               |             |  |                                  |  
|Basic weighted average common shares outstanding                               |  |                               | 140,856,758 |  |                                  |  
|Effect of dilutive securities                                                  |  |                               |             |  |                                  |  
|Convertible note                                                               |  |                               | 31,551,696  |  |                                  |  
|Dilutive weighted average common shares outstanding                            |  |                               | 172,408,454 |  |                                  |  
|                                                                               |  |                               |             |  |                                  |  
|Net (loss) per share, basic and fully diluted - continuing operations          |  |                               | 0.00        |  |                                  |  
|Net income (loss) per share, basic and fully diluted - discontinued operations |  |                               | 0.00        |  |                                  |  
|Basic net income (loss) per share                                              |  | $                             | 0.00        |  |                                  | $
|Diluted net income (loss) per share                                            |  | $                             | 0.00        |  |                                  | $





25







As of June 30, 2012, Adino had 148,888,219
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.



At June 30, 2012, the Company has 500,000
options outstanding to a former consultant, exercisable between $0.15 and $0.35 each.   Using an average share price
for the three and six months ended June 30, 2012 and 2011 of $0.005 and $0.01, and $0.02 and $0.03 respectively, the options resulted
in no additional dilution to the Company.



The Company calculated the dilutive effect
of the convertibility of the Asher notes, resulting in additional weighted average share additions of 24,289,300 for the three
and six months ended June 30, 2012. The Company’s conversion of several of the Schwartz notes into Preferred Class B Series
3 shares (discussed in Note 20) resulted in dilution of 1,114,286 common shares. Additional dilution of 10,000,000 shares resulted
from the Company’s purchase of the Ashton assets (see Notes 1 and 19). The effect on earnings per share from the Company’s
BWME, Schwartz and Gator-Dawg 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.



There were no dilutive note instruments
in place at June 30, 2011.



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.



NOTE 23 - 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 three and six months ended June
30, 2012 and 2011.



|               |  | Quarter Ended |         |  | % |  |     | Quarter Ended |  |   | %       |  |  | Six Months Ended |        |  | % |   |         | Six Months Ended |  |  | %  |  
|-------------- |  | ------------- | ------- |  | - |  | --- | ------------- |  | - | ------- |  |  | ---------------- | ------ |  | - | - | ------- | ---------------- |  |  | -- | -
|               |  | June 30, 2012 |         |  |   |  |     | June 30, 2011 |  |   |         |  |  | June 30, 2012    |        |  |   |   |         | June 30, 2011    |  |  |    |  
|               |  |               |         |  |   |  |     |               |  |   |         |  |  |                  |        |  |   |   |         |                  |  |  |    |  
|Customer
    A |  | $             | -       |  |   |  | -   |               |  | $ | 456,000 |  |  |                  | 100.00 |  |   | $ | 152,000 |                  |  |  | 42 | %
|Customer B     |  | $             | 112,216 |  |   |  | 100 | %             |  | $ | -       |  |  |                  | -      |  |   | $ | 210,949 |                  |  |  | 58 | %
|               |  |               |         |  |   |  |     |               |  |   |         |  |  |                  |        |  |   |   |         |                  |  |  |    |  
|Total          |  | $             | 112,216 |  |   |  |     |               |  | $ | 456,000 |  |  |                  |        |  |   | $ | 362,949 |                  |  |  |    |  





The Company had outstanding accounts receivable of $22,741and
$14,859 at June 30, 2012 and December 31, 2011, respectively. Of those amounts, $12,741 and 4,859 were from oil revenues delivered
at month-end and collected the subsequent month. Each date also reflects $10,000 due from a third party.



NOTE 24 - SALE OF INTERCONTINENTAL FUELS,
LLC



On February 7, 2012, Adino sold all of
its membership interest in IFL to Pomisu XXI S.L. (“Buyer”). The purchase price paid by the Buyer was $900,000, paid
in two installments with the first installment of $244,825 paid on February 7, 2012, and the balance due not later than May 7,
2012. The balance of the purchase price shall be computed as follows: $900,000 minus $244,825 (initial installment) minus any IFL
liabilities plus any cash on deposit with Regions Bank for the benefit of IFL or cash on deposit with J.P. Morgan Bank for the
benefit of the Company.





26







The Buyer agreed to assume the following
liabilities in the transaction:



|Description          |  | Amount |        
|-------------------- |  | ------ | -------
|                     |  |        |        
|Accounts payable     |  | $      | 106,520
|G J Capital judgment |  |        | 437,154
|Due to related party |  |        | 1,500  
|Prepaid rent deposit |  |        | 110,000
|Total                |  | $      | 655,175



The February 7, 2012 IFL balance sheet
(unconsolidated) is presented below:



|                                 |  | February 7, 2011 |           
|-------------------------------- |  | ---------------- | ----------
|Assets                           |  |                  |           
|Cash                             |  | $                | 82,409    
|Fixed Assets net of depreciation |  |                  | 6,131     
|Total assets                     |  | $                | 88,540    
|                                 |  |                  |           
|Liabilities                      |  |                  |           
|Accounts payable                 |  | $                | 148,258   
|Accrued liabilities              |  |                  | 76,215    
|Due to related party             |  |                  | 1,500     
|Deferred gain on sale/leaseback  |  |                  | 171,293   
|Due to G J Capital               |  |                  | 437,155   
|Total liabilities                |  |                  | 834,421   
|                                 |  |                  |           
|Equity                           |  |                  |           
|Additional paid-in-capital       |  |                  | 1,870,100 
|Distributions                    |  |                  | (663,476  
|Retained earnings                |  |                  | (2,069,189
|Net income                       |  |                  | 116,684   
|Total equity                     |  |                  | (745,881  
|Total liabilities and equity     |  | $                | 88,540    





IFL net income for the three months ended
March 31, 2012 and 2011, reflected as discontinued operations on this quarter’s Statement of Operations is as follows:



|                                              |  | IFL                |         |   | IFL                |  
|--------------------------------------------- |  | ------------------ | ------- | - | ------------------ | -
|                                              |  | Three months ended |         |   | Three months ended |  
|                                              |  | 3/31/12            |         |   | 3/31/11            |  
|Revenues:                                     |  |                    |         |   |                    |  
|Terminal operations revenue                   |  | $                  | 152,000 |   |                    | $
|                                              |  |                    |         |   |                    |  
|Operating expenses:                           |  |                    |         |   |                    |  
|Terminal management                           |  |                    | 33,430  |   |                    |  
|General and administrative                    |  |                    | 43,949  |   |                    |  
|Legal and professional                        |  |                    | 8,762   |   |                    |  
|Consulting fees                               |  |                    | 28,000  |   |                    |  
|Depreciation expense                          |  |                    | 150     |   |                    |  
|Total operating expenses                      |  |                    | 114,291 |   |                    |  
|                                              |  |                    |         |   |                    |  
|Operating income (expense)                    |  |                    | 37,709  |   |                    |  
|                                              |  |                    |         |   |                    |  
|Other income (expense)                        |  |                    |         |   |                    |  
|Interest income                               |  |                    | 350     |   |                    |  
|Interest expense                              |  |                    | (741    | ) |                    |  
|Gain from lawsuit/sale leaseback              |  |                    | 32,607  |   |                    |  
|Total other income and expense                |  |                    | 32,216  |   |                    |  
|                                              |  |                    |         |   |                    |  
|Net income                                    |  | $                  | 69,925  |   |                    | $
|                                              |  |                    |         |   |                    |  
|Net loss on sale                              |  |                    | 8,416   |   |                    |  
|                                              |  |                    |         |   |                    |  
|Total net income from discontinued operations |  | $                  | 61,509  |   |                    | $





27







NOTE 25 - LAWSUIT SETTLEMENT - G J CAPITAL



On March 15, 2010, G J Capital, Ltd. (G
J Capital”) filed suit against Adino Energy Corporation and IFL in the 129th Judicial District Court of Harris County, Texas.
G J Capital’s claim relates to a repurchase agreement whereby IFL sold to G J Capital certain assets for $250,000 and retained
the ability to repurchase the assets in sixty days by paying to G J Capital the amount of $275,000. G J Capital’s petition
alleged claims of breach of contract, money had and received, and fraudulent misrepresentation. G J Capital later amended its petition
to allege that certain of Adino’s directors and officers (Mr. Timothy Byrd and Mr. Sonny Wooley) fraudulently transferred
assets of Adino and/or IFL. G J Capital has also alleged that Mr. Wooley and Mr. Byrd are thealter ego of Adino
and IFL, and/or that Adino and/or IFL arealter egos of one another. G J Capital also alleged fraudulent conduct by one
or more of the defendants.



Adino, IFL, Mr. Byrd and Mr. Wooley countersued
G J Capital and filed third-party claims against CapNet Securities Corporation (CapNet”), Daniel L. Ritz, Jr. (Ritz”),
Gulf Coast Fuels, Inc. (Gulf Coast”) and Paul Groat (Groat”), alleging that they conspired to damage IFL and Adino
by involving it in the transaction described above. In this action, Adino, IFL, Mr. Byrd and Mr. Wooley contended that Ritz, CapNet,
Gulf Coast, and Groat were involved together for the common, improper scheme to cause IFL immense financial hardship so that Gulf
Coast could acquire the fuel terminal currently leased by IFL at an unfairly low price; that as part of this conspiracy they also
effected a settlement of the Gulf Coast claim (which, if true, would mean that G J Capital acquired no claim at all against any
of the defendants); and that in addition or in the alternative, even if G J Capital acquired some cognizable interest against IFL,
Adino, IFL, Byrd and Wooley are entitled to indemnification by and contribution by Ritz, CapNet, Gulf Coast, and Groat.



In December 2011, G J Capital
dismissed its claims against Mr. Byrd and Mr. Wooley. Also in December 2011, the court rendered judgment for G J Capital and
against Adino and IFL in the amount of $250,000, plus $152,988 in attorneys’ fees, $9,300 in court costs, plus $20,616
in prejudgment interest. The Company did not appeal this judgment. In February 2012, the Company paid $200,321 in partial
settlement of the amount due. The balance due at March 31, 2012 was $236,834. On May 1, 2012, the Company paid the final
balance due on the GJ Capital suit, receiving a full release on all liability.



NOTE 26 – GAIN ON SALE / RELINQUISHMENT



On June 29, 2012, the Company executed
a multi-party agreement with the Sellers of the PetroGreen assets and Gator-Dawg Drilling, LLC (“Gator-Dawg”). In the
agreement, the Company released the restriction on the 10 million shares of common stock held in escrow on behalf of the Sellers
in the PetroGreen asset purchase in July of 2010. In exchange, the Sellers released all claims to the contract clawback agreement,
which stated that the Sellers could repurchase the assets sold to the Company for $1.00 if the price of the Company’s stock
did not reach $0.25 per share by the specified date. The Company also transferred the membership shares of AACM3, LLC to its former
owner, Alex Perales. AACM3, LLC did not hold any assets at the time of transfer. Gator-Dawg agreed to transfer the drilling rig
and associated assets purchased from the Company in March 2011 to AACM3, LLC. In exchange for the drilling rig transfer, the Company
forfeited the $500,000 note due from Gator-Dawg for purchase of those assets (disallowed for consolidation), executed a $100,000
note payable to Gator-Dawg for rig improvements and transferred a truck and trailer purchased in early 2012 to Gator-Dawg.



The contract clawback was valued at March
31 and June 29, 2012 and the increase in provision for the quarters was recorded as a loss on contract clawback in the statement
of operations. The completion of this multi-party agreement extinguished the contract clawback provision at June 29, 2012.



|                                                                 |  | Gain (loss) at June 30, 2012 |         
|---------------------------------------------------------------- |  | ---------------------------- | --------
|                                                                 |  |                              |         
|Contract clawback                                                |  | $                            | 585,382 
|Note payable related party - Gator Dawg                          |  |                              | (100,000
|Truck and trailer to Gator Dawg, net of accumulated depreciation |  |                              | (12,150 
|                                                                 |  |                              |         
|                                                                 |  |                              |         
|Total                                                            |  | $                            | 473,232 





28









NOTE 27 - SUBSEQUENT EVENTS



There were no additional subsequent events
through August 14, 2012, 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, 2011. 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.



RECENT DEVELOPMENTS



Oil and Gas Exploration and Production



On July 1, 2010, the Company acquired 100%
of the membership interests of Petro Energy for 10,000,000 shares of Adino common stock; however, the newly issued shares were
to remain in escrow until Adino’s stock price reaches $0.25 per share. If Adino's stock price failed to reach $0.25 within
three years, the sellers could repurchase for $1.00 the assets originally held by Petro Energy on July 1, 2010.



Petro Energy was a licensed Texas oilfield
operator operating 11 wells on two leases covering approximately 300 acres in Coleman County, Texas. Petro also owned 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.



Since the acquisition, the Company has
completed Phase I of its workover program on its Felix Brandt and Felix Brandt "A" leases (collectively, the Felix Brandt
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 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 Felix Brandt Leases, including retention berms around the tank batteries, trenching flow-lines and removal of debris from
the area.



With the initial Petro Energy purchase,
the Company acquired 100% of the working interest (87.5% net revenue interest) in the James Leonard lease (the Leonard lease”)
in southeast Coleman County, Texas. The primary target pay zone of the Leonard lease is the Fry Sand at approximately 1,200 feet.





29







In December 2010, we began Phase II of
the Petro Energy development plan for the Leonard lease. The Company cleared the needed land and drilled 3 successful wells on
the Leonard lease, completing those wells in early summer 2011. We have also moved in the required tank battery with retention
berms, put in flow lines and have added a shop for localized equipment repairs and disbursement.



With the success of the drilling program,
the Company had the reserve analysis recalculated to include both the Felix Brandt and Leonard leases. An independent engineering
firm estimated the discounted net cash flow increased from $118,590 as of December 31, 2010 to $851,896 at December 31, 2011.



On October 12, 2011, the Company signed
a letter of intent with Ashton Oilfield Services, LLC (Ashton”) for purchase of oilfield equipment, including a drilling
rig, associated equipment and several vehicles.  The proposed purchase price for the assets was $6,000,000 in face value
of convertible preferred stock of the Company, with the preferred stock converting to common stock at the rate of $0.15 per share.
In November 2011, the Company closed on $1,500,000 of the total proposed sale price, issuing 100,000 shares of preferred stock
to a limited partnership managed by Ashton. The agreement was finalized in November and the Company began consolidating the equipment
from its various locations in Texas, New Mexico and Oklahoma. The Company later decided not to acquire the remaining Ashton assets.
On February 7, 2012 (subsequent to the period covered by this report), the Company sold all oilfield machinery and equipment it
had purchased from Ashton Oilfield Services in its November 2011 acquisition for $500,000 cash.



On October 14, 2011, the Company entered
into a production agreement with BlueRock Energy Capital II, LLC (BlueRock”).  Under the production agreement,
BlueRock has agreed to fund Adino with $410,000 for the drilling of five oil wells on the Leonard and Felix Brandt leases and for
working capital.  Under the terms of the production agreement, BlueRock will be entitled to 65% of the net revenue interest
of the wells until BlueRock receives $410,000 plus an 18% return on investment.  These monies are to be paid as the Company
receives production payments on the new wells.  After payment of this amount, BlueRock will receive a 3% overriding royalty
interest on the wells.



Drilling began on the BlueRock five well
program (one well on the Felix Brandt lease and four wells on the Leonard lease) in November 2011. The wells were completed during
the second quarter, 2012.



The Company owns the Felix Brandt leases,
the James Leonard lease and the Lillie D. Coats lease. These leases comprise approximately 395 gross acres in Coleman County, Texas
and approximately 300 gross acres in Runnels County, Texas. The Company’s working interest in each lease varies.



As of June 30, 2012, the Company’s
Felix Brandt leases include thirteen proved developed producing (PDP) wells and three saltwater disposal wells. The Leonard lease
includes seven PDP wells. The Coats lease includes one PDP well.



On June 29, 2012, the Company executed
a multi-party agreement with the Sellers of the PetroGreen assets and Gator-Dawg Drilling, LLC (“Gator-Dawg”). In the
agreement, the Company released the restriction on the 10 million shares of common stock held in escrow on behalf of the Sellers
in the PetroGreen asset purchase in July of 2010. In exchange, the Sellers released all claims to the contract clawback agreement.
The Company also transferred the membership shares of AACM3, LLC to its former owner, Alex Perales. AACM3, LLC did not hold any
assets at the time of transfer. Gator-Dawg (formerly Adino Drilling, LLC) agreed to transfer the drilling rig and associated assets
purchased from the Company in March, 2011 to AACM3, LLC. In exchange for the drilling rig transfer, the Company transferred a truck
and trailer purchased in early 2012 and executed a $100,000 note payable to Gator-Dawg. The completion of this multi-party agreement
extinguished the contract clawback provision at June 29, 2012.



The Company believes that its focused efforts in exploration
and production have been very successful and plans to continue the path of lease acquisition and development resulting in increased
production and reserve interests in 2012 and beyond.



Fuel Storage Operations



With the Company’s focus on oil and
gas exploration and production, the Company decided to sell its interest in IFL. To that end, on February 7, 2012, Adino sold all
of its membership interest in IFL to Pomisu XXI S.L. (“Buyer”). The purchase price to be paid by the Buyer is $900,000, paid
in two installments with the first installment of $244,824.97 paid on February 7, 2012, and the balance due not later than May
7, 2012. The balance of the purchase price shall be computed as follows: $900,000 minus $244,842.97 (initial installment) minus
$655,157 of IFL liabilities assumed and settled by the Buyer. The liabilities included $106,520 in accounts payable, $1,500 to
a related party, $110,000 in retained customer deposit and $437,155 for the G J Capital lawsuit judgment (see Note 25 for a more
thorough discussion). As of June 30, 2012, amounts due from Buyer had not been collected and are fully reserved.



RESULTS OF OPERATIONS



The Company sold its
wholly-owned subsidiary, IFL, as of February 2012. The revenues and expenses from that subsidiary have been shown as net income
from discontinued operations for the quarter and six months ended June 30, 2012. The Company’s net income for the quarter
and six months ended June 30, 2011 has also been separated from the consolidated entity and presented in discontinued operations
for comparison purposes.





30







Revenue: The
Company’s oil and gas revenues, net of royalty expense, was $112,216 and 96,705 for the three months ended June 30, 2012
and 2011, respectively. The comparison of $210,949 and $121,458 for the six months ended June 30, 2012 and 2011 respectively, reflect
the Company’s success in work-overs and new drilling projects.



Cost of Product
Sales:  Cost of product sales, severance taxes, for the three and six months ended June 30, 2012 and 2011 were $11,176
and $19,312 and $22,349 and $20,643, respectively. The Company saw significant increases in its production on the Felix Brandt
and James Leonard leases, resulting in increased severance taxes paid as a percent of revenues.



Payroll and Related
Expenses: Employee expense decreased from $47,708 for the three months ended June 30, 2011 to $18,327 for the same period
ended June 30, 2012. Year to date expense at June 30, 2011 of $112,061 decreased to $56,873 at June 30, 2012. The Company had several
oilfield workers during 2011, but now primarily utilizes contract workers for those services, contributing to the decreased expense.



General and Administrative: :The
Company’s expense for the quarter and six months ended June 30, 2012 was $32,148 and $459,093 compared to $56,481 and $95,106
for the same periods in 2011. The increase is primarily due to bad debt expense of $358,401 to reserve for potentially uncollectible
receivables. Additionally, the Company incurred moving expenses associated with the Ashton asset purchase (see Note 1) of $19,842.



Legal and Professional:  Legal
and professional expense was $16,916 and $54,062 for the three months ended June 30, 2012 and 2011, respectively and $28,258 and
$140,980 for the six months ended June 30, 2012 and 2011, respectively. During 2012, although the Company experienced significant
legal expense associated with the G J Capital lawsuit, legal fees were negotiated and the Company received a credit on legal billings
of $52,785 during the first quarter, 2012. See Note 25 for discussion on the G J Capital lawsuit.



Consulting Expense:The
Company’s consulting expense for the quarter and six months ended June 30, 2012 was $63,983 and $198,326 compared to $204,990
and $392,968 for the same periods in 2011. The Company retains the services of a consultant, geologist and petroleum engineer to
assist in property development and oil and gas operations. During 2012, the Company retained one fewer consultant, reducing expense
compared to the prior year.



Depreciation Expense:
Depreciation expense was $82,826 and $28,056 for the years six months ended June 30, 2012 and 2011, respectively.   The
increase is due to increased depletion associated with increased oil production. Depletion for the six months ended June 30, 2012
and 2011 was $62,153 and $20,532, respectively.



Operating Supplies:
The Company’s operating supplies expense for the quarter and six months ended June 30, 2012 was $47,433 and $57,452 compared
to $2,957 and $5,152 for the same periods in 2011. The increase expense is due to repairs and maintenance necessary on the increased
number of wells.



Interest Income:Interest
income for the three and six months ended June 30, 2012 was $18 and $666, compared to $20,303 and $39,600 for the comparable period
in 2011. The Company had agreed to an amendment on the $750,000 note receivable with Mr. Sundlun.  This amendment extended
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 amortized that discount through the note’s
maturity date. The decrease in income from 2012 to 2011 is a result of the discount being fully amortized at July 31, 2011.



Interest Expense:Interest
expense was $71,477 and $61,190 for the three months ended June 30, 2012 and 2011, respectively, and $170,311 and $132,720 for
the six months ended June 30, 2012 and 2011, respectively, an increase of $37,591 or 28%. Interest expense increased for 2012
due to the Company entering into several additional convertible promissory notes payable to Asher, resulting in 8% annual interest
to the Company. The Company also entered into a promissory note payable to BlueRock, resulting in 18% annual interest to the Company,
and a promissory note payable to the Schwartz Group, resulting in 6% annual interest to the Company. Interest expense consistent
between 2012 and 2011 are for the notes to Mr. Sundlun and vehicle financing. See Note 17 of the Company’s financial statements
for additional information regarding interest expense.



Gain on Debt Conversion: On April 18, 2012, The Board of Directors approved a stock conversion of $103,000 in accrued consulting expense into Rule
144 common stock, at a conversion rate of $0.05 per share. The conversion resulted in issuance of 2,060,000 shares of stock and
a gain to the Company of $87,962.



Gain on Sale/Relinquishment: On June 29, 2012, the Company executed a multi-party agreement
with the Sellers of the PetroGreen assets and Gator-Dawg Drilling, LLC (“Gator-Dawg”). In the agreement, the Company
released the restriction on the 10 million shares of common stock held in escrow on behalf of the Sellers in the PetroGreen asset
purchase in July of 2010. In exchange, the Sellers released all claims to the contract clawback agreement. The Company also transferred
the membership shares of AACM3, LLC to its former owner, Alex Perales. AACM3, LLC did not hold any assets at the time of transfer.
Gator-Dawg (formerly Adino Drilling, LLC) agreed to transfer the drilling rig and associated assets purchased from the Company
in March, 2011 to AACM3, LLC. In exchange for the drilling rig transfer, the Company transferred a truck and trailer purchased
in early 2012 and executed a $100,000 note payable to Gator-Dawg. The completion of this multi-party agreement extinguished the
contract clawback provision at June 29, 2012. The net effect of the multi-party agreement resulted in a gain on sale/relinquishment
to the Company of $473,232 at June 30, 2012.





31







Gain (Loss) on
Derivative: The Company entered into a series of promissory notes that permits conversion of the notes 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 three months ended June 30, 2012 for a loss of $32,949, compared with
a loss of $18,104 for the three months ended June 30, 2011. Year to date amounts are a gain on change in value at June 30, 2012
of $17,468 compared to a loss of $7,275 at June 30, 2011. See Note 19 of the Company’s financial statements for a more thorough
discussion of this item.



Gain (Loss) 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. Although the clawback was relinquished
by the Petro Energy sellers at June 29, 2012, the Company was required to recognize the change in value through the relinquishment
date. The change in value for the six months ended June 30, 2012 was $198,643 compared to $643 for the same period, 2011. See Note
18 for a discussion of the clawback and the relinquishment agreement.



Gain on Sale of
Assets: The Company sold the assets acquired from Ashton for $500,000 on February 7, 2012, resulting in a gain
on sale of $161,905. See Note 1 for a more thorough discussion of the asset purchase and sale transactions.



Net Income/Loss:
The Company had a net gains of $257,935 and $43,191 for the three months ended June 30, 2012 and 2011, respectively and net losses
of $263,381 and $450,281 for the six months ended June 30, 2012 and 2011, respectively. Although the Company had increased revenues
from the oil and gas operations at June 30, 2012, the bad debt expense of $358,401 offset the positive effects of the increased
revenues. The Company’s contract clawback relinquishment contributed a gain of $473,232 to the 2012 second quarter income.
Of the totals, net income contributed by IFL, reflected in discontinued operations, was $61,509 and $548,594, for the six months
ended June 30, 2012 and 2011, respectively. The 2011 amount represented six full months of activity, whereas only one month of
activity was included in the gain on discontinued operations at June 30, 2012. See Note 24 for detailed information of the IFL
net income per quarter.



Cash:
The Company’s available cash decreased from $224,401 at December 31, 2011 to $25,480 at June 30, 2012. In December 2011,
the Company received additional investment from members of the Schwartz group of $150,000. The Company also had deposits from the
BlueRock financing for well completion. During 2012, those funds were deployed in the oil and gas drilling and completion projects.



CAPITAL RESOURCES AND LIQUIDITY



As of June 30, 2012, our cash and cash
equivalents were $75,517, compared to $274,401 at December 31, 2011.  The Company’s liquidity decreased as funds
received from financing and investors was deployed into the oil and gas completions in West Texas.



In order to provide additional
financing to the Company in the first quarter of 2012, the Company took on an additional short-term convertible note with
Asher Enterprises, Inc., of $40,000. Additionally, one of the Schwartz investors purchased Preferred Stock Class B Series 3
for $30,000 in January, 2012.



Cash flow has been an ongoing concern for
the Company due to the large amount of legacy liabilities that Adino accumulated during previous years. 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.



As of June 30, 2012, the Company has a
working capital deficit of $3,276,921 and total stockholders’ deficit of $2,825,460.  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 June 30,
2012, $860,081 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. Additionally, non-cash items includes a derivative liability of $106,804.
 The Company plans to satisfy current year and future cash flow requirements through its oil and gas 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.





32







For the six months ended June 30, 2012,
cash used by operating activities was $682,154 compared to cash used by operating activities of $207,515 for the six months ended
June 30, 2011. The primary difference was a charge to bad debt at June 30, 2012 of $358,401 and payment of the GJ Capital lawsuit
and expenses.



The Company incurred capital expenditures
of $70,909 in the six months ended June 30, 2012 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 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 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.



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 June 30, 2012
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. Adino Energy Corporation, et. al.



On March 15, 2010, G J Capital, Ltd. (“G
J Capital”) filed suit against Adino Energy Corporation and IFL in the 129th Judicial District Court of Harris County, Texas.
G J Capital’s claim related to a repurchase agreement whereby IFL sold to G J Capital certain assets for $250,000 and retained
the ability to repurchase the assets in sixty days by paying to G J Capital the amount of $275,000. G J Capital’s petition
alleged claims of breach of contract, money had and received, and fraudulent misrepresentation. G J Capital later amended its petition
to allege that certain of Adino’s directors and officers (Mr. Timothy Byrd and Mr. Sonny Wooley) fraudulently transferred
assets of Adino and/or IFL. G J Capital also alleged that Mr. Wooley and Mr. Byrd were thealter ego of Adino
and IFL, and/or that Adino and/or IFL werealteregos of one another. G J Capital also alleged fraudulent conduct by one
or more of the defendants.





33







Adino, IFL, Mr. Byrd and Mr. Wooley countersued
G J Capital and filed third-party claims against CapNet Securities Corporation (“CapNet”), Daniel L. Ritz, Jr. (“Ritz”),
Gulf Coast Fuels, Inc. (“Gulf Coast”) and Paul Groat (“Groat”), alleging that they conspired to damage
IFL and Adino by involving it in the transaction described above. In this action, Adino, IFL, Mr. Byrd and Mr. Wooley contended
that Ritz, CapNet, Gulf Coast, and Groat were involved together for the common, improper scheme to cause IFL immense financial
hardship so that Gulf Coast could acquire the fuel terminal currently leased by IFL at an unfairly low price; that as part of this
conspiracy they also effected a settlement of the Gulf Coast claim (which, if true, would mean that G J Capital acquired no claim
at all against any of the defendants); and that in addition or in the alternative, even if G J Capital acquired some cognizable
interest against IFL, Adino, IFL, Byrd and Wooley are entitled to indemnification by and contribution by Ritz, CapNet, Gulf Coast,
and Groat. Adino nonsuited its claims against CapNet, Ritz, Gulf Coast, and Groat in February 2012.



In December 2011, G J Capital dismissed
its claims against Mr. Byrd and Mr. Wooley. Also in December 2011, the court rendered judgment for G J Capital and against Adino
and IFL in the amount of $250,000, plus $152,988 in attorneys’ fees, $9,300 in court costs, plus $20,616 in prejudgment interest.
The Company did not appeal this judgment .In February 2012, the Company paid $200,321 in partial settlement of the amount due.
The balance due at March 31, 2012 was $236,834. On May 1, 2012, the Company paid the final balance due on the GJ Capital suit,
receiving a full release on all liability.





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



During the first quarter of 2012, the Company
issued a nine-month convertible promissory note to Asher in the amount of $40,000. The note has a maturity date of October 23,
2012 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 an initial conversion price of fifty eight percent
(58%) of the three lowest closing bid prices for the ten days preceding the conversion date.



On January 9, 2012, one of the Schwartz
investors converted his $22,500 note into 681 shares of the Company’s Class B Preferred Stock Series 3. Additionally, he
invested an additional $30,000 in the Company through the purchase of 857 shares of Class B Preferred Stock Series 3 shares.



The Company claims an exemption from registration
for the above issuances pursuant to Section 4(2) of the Securities Act due to the small number of purchasers and their sophistication
in financial and business matters.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.



ITEM 4. MINE SAFETY DISCLOSURE



Not applicable.



ITEM 5. OTHER INFORMATION



None.



ITEM 6. EXHIBITS



The following documents are filed or furnished as part of this
report:



|Exhibit |  |                                                                                                                                                              
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Exhibit                                                                                                                                                      
|        |  |                                                                                                                                                              
|3.1     |  | Articles of Incorporation (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)
|3.3     |  | Amendment to Articles of Incorporation                                                                                                                       
|10.1    |  | Membership Interest Purchase Agreement (incorporated by reference to our Form 10-K filed on April 1, 2011)                                                   
|10.2    |  | Post-Closing Agreement (incorporated by reference to our Form 10-K filed on April 1, 2011)                                                                   
|10.3    |  | Employment agreement of Sonny Wooley (incorporated by reference to our Form 10-Q filed on August 15, 2011)                                                   
|10.4    |  | Employment agreement of Timothy G. Byrd, Sr. (incorporated by reference to our Form 10-Q filed on August 15, 2011)                                           
|10.5    |  | Membership Interest Purchase and Sale Agreement                                                                                                              
|10.6    |  | Asset Purchase Agreement (incorporated by reference to our Form 8-K filed on November 14, 2011)                                                              
|10.7    |  | Relinquishment of Repurchase Rights Agreement                                                                                                                
|14      |  | 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 Act                                                               
|31.2    |  | Certification of Chief Financial Officer pursuant to Rule 15d-14(a) of the Exchange Act                                                                      
|32.1    |  | 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 2002             
|32.2    |  | 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             
|101     |  | Interactive Data File                                                                                                                                        





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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 CORPORATION             | 
|--- | ------------------------------------ | 
|    |                                      | 
|By: | /s/ Timothy G. Byrd, Sr.             | 
|    | Timothy G. Byrd, Sr.                 | 
|    | Chief Executive Officer and Director | 
|    | August 14, 2012                      | 



|/s/ Shannon W. McAdams  | 
|----------------------- | 
|Shannon W. McAdams      | 
|Chief Financial Officer | 

August 14, 2012





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