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 MARCH 31, 2011





OR





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





Commission File #333-74638





ADINO ENERGY CORPORATION


(Exact name of registrant as specified in its charter)





MONTANA

82-0369233(State or other jurisdiction of incorporation)

(IRS Employer Identification Number)2500 CITY WEST BOULEVARD, SUITE 300   HOUSTON, TEXAS

77042(Address of principal executive offices)

(Zip Code)





(281) 209-9800


(Registrant's telephone number, including area code)





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





Common stock, $0.001 par value per share





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.x    Yes   ̈    No





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





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





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





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





Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:  At May 16, 2011, there were 111,160,232 shares of common stock outstanding.





TABLE OF CONTENTS





Page No.PART I  FINANCIAL INFORMATIONItem 1.
Financial Statements
3Consolidated Balance Sheets – March 31, 2011 (Unaudited) and December 31, 2010
3Unaudited Consolidated Statements of Operations-Three Months Ended March 31, 2011 and 2010
4Unaudited Consolidated Statement of Changes in Stockholders’ Deficit – Period Ended March 31, 2011
5Unaudited Consolidated Statements of Cash Flows - Three Months Ended March 31, 2011 and 2010
6Notes to Unaudited Consolidated Financial Statements
7Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21Item 3.
Quantitative and Qualitative Disclosures About Market Risks
24Item 4T.
Controls and Procedures
24PART II  OTHER INFORMATIONItem 1.
Legal Proceedings
24Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
25Item 3.
Defaults Upon Senior Securities
25Item 4.
Removed and Reserved
25Item 5.
Other Information
25Item 6.
Exhibits
26Signatures
26




2


ITEM 1. FINANCIAL STATEMENTS





ADINO ENERGY CORPORATION


Consolidated Balance Sheets


AS OF MARCH 31, 2011 AND DECEMBER 31, 2010





March 31, 2011


December 31, 2010(Unaudited)ASSETSCash in bank

$
175,575


$
282,272Accounts receivable, net of allowances


11,971



9,615Deposits and prepaid assets


64,331



64,562Notes receivable - current portion, net of unamortized discount of $64,830


722,685



703,430Interest receivable


375,208



375,208Total current assets


1,349,770



1,435,087Fixed assets, net of accumulated depreciation of $61,384 and $47,866, respectively


176,667



165,648Oil and gas properties (full cost method), net of accumulated amortization, depreciation, depletion, and asset impairmentProved


155,803



155,279Unproved


122,257



59,060Goodwill


1,559,240



1,566,379Discontinued operations - net assets held for sale


-



357,314Total non-current assets


2,013,967



2,303,680TOTAL ASSETS

$
3,363,737


$
3,738,767LIABILITIES AND STOCKHOLDERS’ DEFICITAccount payable

$
409,392


$
413,515Accounts payable - related party


50,187



47,200Accrued liabilities


333,762



371,601Accrued liabilities - related party


858,159



909,960Contract clawback provision


397,088



337,354Notes payable - current portion


1,801,946



1,864,251Interest payable


701,148



660,000Derivative liability


70,088



103,511Deferred gain - current portion


391,272



391,272Discontinued operations - liabilities held for sale


-



44,884Total current liabilities


5,013,042



5,143,548Deferred gain, net of current portion


586,924



684,744Notes payable, net of current portion


704,019



413,845TOTAL LIABILITIES


6,303,985



6,242,137STOCKHOLDERS’ DEFICITCapital stock, $0.001 par value, 500 million shares authorized, 109,123,412 and 107,260,579 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively


109,123



107,260Additional paid in capital


13,840,173



13,785,442Retained deficit


(16,889,544
)


(16,396,072
)Total stockholders’ deficit


(2,940,248
)


(2,503,370
)TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$
3,363,737


$
3,738,767





See accompanying notes to the financial statements


3





ADINO ENERGY CORPORATION


Consolidated Statements of Operations


FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010


(Unaudited)





Three months endedMarch 31


March 312011


2010REVENUESTerminal operations

$
456,000


$
655,967Oil and gas operations


30,203



-Total revenues


486,203



655,967OPERATING EXPENSESCost of product sales


5,450



162,199Payroll and related expenses


64,353



-Terminal management


100,290



99,990General and administrative


163,905



136,186Legal and professional


114,166



65,901Consulting fees


231,310



132,215Repairs


2,990



212Depreciation expense


17,789



2,542Operating supplies


2,195



-Total operating expenses


702,448



599,245OPERATING GAIN (LOSS)


(216,245
)


56,722OTHER INCOME AND EXPENSESInterest income


19,555



15,589Interest expense


(73,655
)


(40,264
)Gain from lawsuit


97,820



97,820Change in fair value of derivative liability


10,829



-Loss on change in fair value of clawback provision


(59,734
)


-Total other income and expense


(5,185
)


73,145INCOME (LOSS) FROM CONTINUTING OPERATIONS


(221,430
)


129,867DISCONTINUTED OPERATIONSLoss from operations of Adino Drilling, LLC (including loss on disposal of $252,624 )


(272,042
)


-NET INCOME (LOSS)

$
(493,472
)

$
129,867Net income (loss) per share, basic and fully diluted

$
(0.00
)

$
0.00Net income (loss) per share, from discontinued operations

$
(0.00
)

$
0.00Weighted average shares outstanding, basic and fully diluted


107,685,367



93,582,801





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


4




ADINO ENERGY CORPORATION


Consolidated Statement of Changes in Stockholders’ Deficit


FOR THE PERIOD ENDED MARCH 31, 2011


(Unaudited)





Shares

Amount


Additional

Paid in

Capital


Retained

Deficit


TotalBalance December 31, 2010

107,260,579

$
107,260


$
13,785,442


$
(16,396,072
)

$
(2,503,370
)Shares issued in debt conversion

1,862,833


1,863



54,731



-



56,594Net loss

-


-



-



(493,472
)


(493,472
)Balance March 31, 2011

109,123,412

$
109,123


$
13,840,173


$
(16,889,544
)

$
(2,940,248
)





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


5




ADINO ENERGY CORPORATION


Consolidated Statements of Cash Flows


FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010


(Unaudited)





March 31, 2011


March 31, 2010CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)

$
(493,472
)

$
129,867Adjustments to reconcile net income (loss) to net cash (used in) operating activities:Depreciation, depletion and accretion


31,440



2,542Amortization of discount on note receivable


(19,255
)


(15,572
)Shares issued for services


-



5,700Amortization of note discount


21,441



-Change in fair value of derivative liability


(10,829
)


-Loss on change in fair value of clawback provision


59,734



-Gain on lawsuit settlement


(97,820
)


(97,819
)Loss on sale of subsidiary


252,524



-Change in operating assets and liabilities:Accounts receivable


(2,356
)


(15,756
)Other assets


231



90Accounts payable and accrued liabilities


6,311



(181,124
)Net cash (used in) operating activities

$
(252,051
)

$
(172,072
)CASH FLOWS FROM INVESTING ACTIVITIESPurchases of equipment


(97,973
)


-Net cash (used in) investing activities

$
(97,973
)

$
-CASH FLOWS FROM FINANCING ACTIVITIES:Borrowing on debt


272,500



-Principal payments on note payable


(32,072
)


(2,854
)Net cash provided from (used in) financing activities

$
240,428


$
(2,854
)Net change in cash and cash equivalents


(109,596
)


(174,926
)Cash and cash equivalents, beginning of period


285,171



502,542Cash and cash equivalents, end of period

$
175,575


$
327,616Cash paid for taxes

$
-


$
-Cash paid for Interest

$
9,571


$
832Non-cash transactions:Stock issued in debt conversion

$
34,000


$
-Derivative liability

$
22,594


$
-Revision of asset retirement obligation

$
3,669


$
-





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


6




ADINO ENERGY CORPORATION





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





NOTE 1 - ORGANIZATION





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





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





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





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





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





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 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 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 has a reportable loss of $252,624.





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.


7





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.





For the three months ended March 31, 2011 and the year ended December 31, 2010, 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. 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.





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 March 31, 2011 or December 31, 2010.





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.


8





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 both throughput and storage fees on a monthly basis. The Company recognizes revenue from throughput fees in the month that the services are provided based upon contractually determined rates. The Company recognizes storage fee revenue in the month that the service is provided in accordance with our customer contracts.





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 changes 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 occurs 60 days after the gas has 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.





Segment Reporting


The Company is required to present segment reporting (also calledline of business reporting ) in the financial reports when a reportable segment meets one or more of the following tests: (1) revenue is 10% or more of combined revenue; (2) operating profit is 10% or more of combined operating profit (operating profit excludes unallocable general corporate revenue and expenses, interest expense, and income taxes); or (3) identifiable assets are 10% or more of the combined identifiable assets.. Current guidance requires that financial statements include information about operations in different industries, foreign operations, export sales, major customers, and government contracts. The disclosures provide data useful in evaluating a segment's profit potential and riskiness. A significant segment in the past that is expected to be so again should be reported even though it failed the 10% test in the current year. Segments shall represent a substantial portion (at least 75%) of the company's total revenue to unaffiliated customers. As a matter of practicality, however, no more than 10 segments should be shown. While intersegment sales or transfers are eliminated in consolidated financial statements, they are included for purposes of segment disclosure in determining the 10% and 75% rules. The disclosures are not required for an enterprise that derives 90% or more of its revenues from one industry. The segmental disclosures may be presented in the body of the financial statements, footnotes, or a separate schedule. The disclosure requirements are not applicable to nonpublic companies or in interim reports





With the acquisition of the oil and gas companies discussed in Item 1, the Company had a segment that represented in excess of 10% of identifiable assets.  See Note 19 for segment reporting detail.





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 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.   Basic and diluted EPS are the same as the effect of our potential common stock equivalents would be anti-dilutive.


9





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 expected volatility under this valuation model is based on the current and historical implied volatilities from traded options of our common stock. 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.





For the quarters ended March 31, 2011 and 2010, 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.  See Notes 9 and 10 for a more thorough discussion of the Company’s fixed assets and oil and gas assets as of March 31, 2011.





Goodwill


Goodwill is 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. Early adoption is not permitted. 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.


10





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.





Based on the evaluations performed by management, there were no indicators of impairment at March 31, 2011 or December 31, 2010.





Fair Value of Financial Instruments


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





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





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





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.





Reclassification


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





NOTE 3-GOING CONCERN





As of March 31, 2011, the Company has a working capital deficit of $3,663,272 and total stockholders’ deficit of $2,940,248.  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 March 31, 2011, $391,272 is a non-cash deferred gain on the terminal transaction. See Note 4 for a complete explanation of the deferred settlement gain.  Additionally, $858,159 of the outstanding current liabilities is due to certain officers and directors for prior years’ accrued compensation.  These officers and directors have agreed in writing to postpone payment if necessary, should the Company need capital it would otherwise pay these individuals.  The Company plans to satisfy current year and future cash flow requirements through its fuel terminal storage and 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.


11





NOTE 4-LEASE COMMITMENTS





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





Due to the difficult credit markets, the Company was unable to secure financing for the Houston terminal facility and assigned its rights under the terminal purchase option to Lone Star Fuel Storage and Transfer, LLC (“Lone Star”).  Lone Star purchased the terminal from 17617 Aldine Westfield Road, LLC on September 30, 2008.  Lone Star then entered into a five year operating lease with option to purchase with IFL.  The five year lease has monthly rental payments of $30,000, escalating 3% per year.  IFL’s purchase option allows for the terminal to be purchased at any time prior to October 1, 2009 for $7,775,552.  The sale price escalates $1,000,000 per year after this date, through the lease expiration date of September 30, 2013.  The Company recognizes the escalating lease payments on a straight line basis.  As of March 31, 2011, the Company has not exercised its option to purchase the Houston terminal facility.





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





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





At the expiration of the capital lease, September 30, 2008, the above remaining gain of $1,332,345 was rolled into the gain on the sale assignment transaction with Lone Star of $624,047.  The total remaining gain to be amortized as of September 30, 2008 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.





For each quarter ended March 31, 2011 and 2010, the Company recognized $97,820 in gain on sale/leaseback.





NOTE 5 – PETRO ENERGY ACQUISITION PURCHASE PRICE ALLOCATION





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





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





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





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


12





Fair Value at July 1, 2010Assets acquired:Tangible drilling costs

$
155,700Proved oil and gas properties


71,060Machinery and equipment


324,861Total acquired asset fair value


551,621Less liability assumed:Contract clawback provision


(408,760
)Consideration - Common stock


(150,000
)Goodwill from acquisition

$
7,139


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 6 – 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 has 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. The Company is currently drilling shallower wells for which the drilling rig would be uneconomic. 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 5 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 December 31, 2010:





Assets disposed at March 31, 2011


December 31, 2010Cash

$
100


$
2,899Fixed assets, net of depreciation of $34,837 and $21,186 at March 31, 2011 and December 31, 2010, respectively


350,702



354,415Total assets


350,802



357,314Accounts payable


5,317



44,472Accounts payable - related party


-



412Total liabilities


5,317



44,884Net assets - discontinued operations

$
345,485


$
312,430





NOTE 7 – FAIR VALUE OF FINANCIAL INSTRUMENTS





The Company valued the Petro Energy acquisition, the current convertible note and warrant derivatives and the Company’s largest asset, goodwill, using Level 3 criterion, shown below. As of March 31, 2011, the valuations resulted in a gain on derivatives of $33,423 and a loss on contract clawback provision of $59,734 for a net loss of $26,311.


13





March 31, 2011Description

Level 1


Level 2


Level 3


Total Realized Gain (Loss) due to Valuation at


Total Unrealized Gain (Loss) due to valuationGoodwill

$
-


$
-


$
1,559,240


$
-


$
-Notes payable  - derivative


-



-



64,369



30,039



-Haag warrants - derivative


-



-



5,719



1,631



-Contract clawback provision


-



-



397,088



(59,734
)


-Total

$
-


$
-


$
2,026,416


$
(28,064
)

$
-





December 31, 2010Description

Level 1


Level 2


Level 3


Total Realized Gain (Loss) due to Valuation at March 31, 2010


Total Unrealized Gain (Loss) due to valuationGoodwill

$
-


$
-


$
1,566,379


$
-


$
-Asher /BWME notes  - derivative


-



-



96,161



-



-Haag warrants - derivative


-



-



7,350



-



-Contract clawback provision










337,354



-



-Total

$
-


$
-


$
2,007,244


$
-


$
-





At March 31, 2010, the Company had $1,559,240 of goodwill on the balance sheet. There was no gain on loss on valuation for the quarter ended March 31, 2011.





NOTE 8 - 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, 2010 of both the note payable and note receivable balances, respectively.





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





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





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





Interest accrued on the Sundlun note receivable was $375,208 at March 31, 2011 and December 31, 2010.





A schedule of the balances at March 31, 2011 and December 31, 2010 is as follows:





March 31, 2011


December 31, 2010Sundlun, net of unamortized discount of $27,315 and $46,570, respectively

$
722,685


$
703,430Less: current portion


(722,685
)


(703,430
)Total long-term notes receivable

$
-


$
-




14





NOTE 9 – FIXED ASSETS





The following is a summary of this category:





March 31, 2011


December 31, 2010Machinery and equipment

$
159,263


$
138,964Vehicles


47,427



47,427Leasehold improvements


28,027



23,789Office equipment


3,334



3,334Total assets - continuing operations


238,051



213,514Less: Accumulated depreciation


(61,384
)


(47,866
)Net assets - continuing operations


176,667



165,648Machinery and equipment - Adino Drilling, LLC, discontinued as of 3/31/2011, net of accumulated depreciation


-



354,415Total

$
176,667


$
520,063





On March 31, 2011, the Company sold the membership shares of Adino Drilling, LLC to a related third party.  Adino Drilling, LLC’s assets were machinery and equipment, with a net book value of $350,701 at the time of sale.





The useful life for leasehold improvements is the duration of the lease on the IFL fuel terminal, through September 30, 2013. Machinery and equipment has a useful life of seven years, vehicles’ useful life is five years and office equipment is being depreciated over three years.  Depreciation expense for the quarters ended March 31, 2011 and 2010 was $13,519 and $2,542, respectively.





NOTE 10 - OIL AND GAS PROPERTIES





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





Proved oil and gas properties:As of March 31, 2011, the Company’s Felix Brandt oil and gas leases include eight proved developed producing (PDP) wells and three saltwater disposal wells. According to the reserve analysis conducted by an independent engineering firm, the estimated discounted net cash flow on the Felix Brandt lease was $118,590 as of December 31, 2010. Due to our significant net loss carryforward, we do not expect to pay any federal income taxes on future net revenues provided from the Brandt lease production. Therefore, the pre-tax and after-tax estimate of discounted future net cash flows are both $118,590.





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. During the first quarter of 2011, the Company added an asset retirement liability for the Leonard #1 well, based on the average cost to plug and abandon well of similar type and structure in the area.  The resulting liability of $6,000 was recorded at its present value of $3,669, with an offsetting asset adjustment to asset retirement cost.   As of March 31, 2011 and December 31, 2010, the Company has recorded an asset of $39,490 and $35,821 and related liability of $41,183 and $36,689, respectively. Accretion for the quarter ended March 31, 2011 was $825.





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 no additional impairment was noted for the quarter ended March 31, 2011.





The oil and gas related asset values at March 31, 2011 and December 31, 2010 were as follows:





March 31, 2011


December 31, 2010Tangible drilling costs

$
116,903


$
116,603Proved oil and gas properties


71,060



71,060Asset retirement cost


39,490



35,821Impairment


(47,481
)


(47,481
)Accumulated DD&A


(24,169
)


(20,724
)Total

$
155,803


$
155,279




15




Depletion:Depletion, calculated using the units of production method was $3,445 for the quarter ended March 31, 2011.  There was no corresponding expense during the same period in 2010.




NOTE 11 – 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 16 below. This transaction was accounted for as a step acquisition. This step acquisition resulted in an additional $1,500,000 of goodwill as the fair value of the net assets acquired was determined by management to be zero and the consideration given as discussed above was the $1,500,000 note.





Additionally, the Company realized $7,139 of goodwill associated with the acquisition of PetroGreen and AACM3, LLC on July 1, 2010.  The Company sold its wholly owned subsidiary, Adino Drilling, LLC as of March 31, 2011 and the goodwill of $7,139 was written off.





Adino evaluated the aggregate goodwill for impairment at December 31, 2010 and has determined that the fair value of the reporting unit exceeds its carrying amount and hence the goodwill is not impaired.





NOTE 12 – ACCRUED LIABILITIES / ACCRUED LIABILITIES –RELATED PARTY





Other liabilities and accrued expenses consisted of the following as of March 31, 2011 and December 31, 2010:





March 31, 2011


December 31, 2010Accrued accounting and consulting fees

$
122,500


$
115,000Customer deposits


110,000



110,000Property and payroll tax accrual


26,197



76,113Asset retirement obligation


41,183



36,689Deferred lease liability


33,882



33,799Total accrued liabilities

$
333,762


$
371,601Accrued salaries-related party

$
858,159


$
909,960





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





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 13 - NOTES PAYABLE





March 31, 2011


December 31, 2010Note payable  - Stuart Sundlun, bearing interest of 10% per annum, due August 7, 2011

$
1,500,000


$
1,500,000Notes payable - Schwartz group, bearing interest at 6%, due January 9, 2013


272,500



-Note payable - Gulf Coast Fuels, bearing interest of $25,000


275,000



275,000Demand note - Perales, non interest bearing, due May 31, 2011


20,000



50,000Note payable - Asher, bearing interest of 8% per annum, due May 13, 2011, net of discount of $5,365 and $26,807 at March 31, 2011 and December 31, 2010, respectively


18,135



30,693Notes payable - BWME, bearing interest at 8% per annum, due September 2, 2013


400,000



400,000Note payable - GMAC, bearing interest of 11.7% per annum with 60 monthly payments of $895, due May 13, 2013


20,330



22,403Total notes payable

$
2,505,965


$
2,278,096Less: current portion


(1,801,946
)


(1,864,251
)Long term note payable

$
704,019


$
413,845




16





On August 11, 2010, the Company issued a convertible promissory note to Asher Enterprises, Inc., in the amount of $57,500. The note has a maturity date of May 13, 2011 and has an annual interest rate of eight percent (8%) per annum. The holders have the right from and after the date of issuance, and until any time until the note is fully paid, to convert any outstanding and unpaid principal portion of the note, and accrued interest, into fully paid and non-assessable shares of common stock. The note has an initial conversion price of fifty eight percent (58%) of the 3 lowest closing bid prices for the 10 days preceding the conversion date and full reset provision. The note’s convertible feature was valued and resulted in a debt discount of $35,838, which is being amortized over the nine month note life, using the straight line method. In this case, using the straight line method approximates the effective interest method, given the short time to maturity. The Company has the right to redeem the note within 90 days from the date of issuance for 150% of the redemption amount and accrued interest. See Note 16 for a complete discussion of the derivative treatment and accounting of the Asher note.





During the first quarter, 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.  See Note 16 for a detailed description of each conversion.





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





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.





NOTE 14 - CONTRACT CLAWBACK PROVISION





A component of the acquisition agreement with PetroGreen Energy and AACM3, LLC gave the former owners of these companies the option to repurchase for $1.00 the assets held by the companies as of July 1, 2010 if the Company’s common stock price fails to reach $0.25 per share within three years of the original acquisition date. This contract clawback provision was valued at July 1, 2010 at $408,760 and has been revalued at each successive balance sheet date.  The current value of $397,088 at March 31, 2011, resulted in a loss on change in clawback valuation of $59,734.





NOTE 15 – DERIVATIVE LIABILITY





Based on current guidance, the Company concluded that the convertible note payable to Asher referred to in Note 16 was required to be accounted for as a derivative. This guidance requires the Company to bifurcate and separately account for the conversion features of the convertible notes issued as embedded derivatives.





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





Derivative financial instruments are initially measured at their fair value.  For  derivative  financial  instruments  that are accounted for as liabilities,  the derivative  instrument is initially recorded at its fair value and is then  re-valued at each reporting  date,  with changes in the fair value  reported  as charges  or credits to income.





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


17





The structure of the Asher note caused three other financial instruments held by the Company to be deemed derivatives: The BWME and Schwartz notes and the Haag warrants. All were valued as derivatives as of the date of the Asher note issuance (Haag warrants) or date of issuance (BWME and Schwartz notes) and revalued at December 31, 2010 and March 31, 2011.





Below is detail of the derivative liability balances as of March 31, 2011 and December 31, 2010.





Derivative Liability

December 31, 2010


Additions


(Gain) Loss

from valuation


March 31, 2011Asher note / BWME notes / Schwartz notes


96,161


$
20,841


$
(52,633
)

$
64,369Haag warrants


7,350



-



(1,631
)


5,719Total


103,511


$
20,841


$
(54,264
)

$
70,088





The net gain of $33,423 is split between an addition of $22,594 to additional paid-in-capital for the derivative reduction attributable to the Asher note conversions discussed in Notes 13 and 16.  The remaining $10,829 is reflected as gain on derivatives in the statement of operations.





NOTE 16 – STOCK





COMMON STOCK





The Company's common stock has a par value of $0.001. There were 50,000,000 shares authorized as of December 31, 2007.  At the Company’s January 2008 shareholder meeting, the shareholders voted to increase the authorized common stock to 500,000,000 shares.  As of December 31, 2010, the Company had 107,260,579 shares issued and outstanding.





On February 22, 2011, Asher Enterprises converted $10,000 of its note into 465,116 shares of the Company’s common stock. The conversion resulted in a reduction of additional paid-in-capital of $6,648 due to the reduction of the associated derivative liability.





On March 8, 2011, Asher Enterprises converted $12,000 of its note into 603,015 shares of the Company’s common stock. The conversion resulted in a reduction of additional paid-in-capital of $7,959 due to the reduction of the associated derivative liability.





On March 22, 2011, Asher Enterprises converted $12,000 of its note into 794,702 shares of the Company’s common stock. The conversion resulted in a reduction of additional paid-in-capital of $7,987 due to the reduction of the associated derivative liability.





All note conversions were within the terms of the agreement.





As a result of the above common stock issuances, there were 109,123,412 shares issued and outstanding as of March 31, 2011.





PREFERRED STOCK





In 1998, the Company amended its articles to authorize Preferred Stock. There are 20,000,000 shares authorized of Preferred Stock with a par value of $0.001. The shares are non-voting and non-redeemable by the Company. The Company further designated five series of its Preferred Stock: "Series 'A' $12.50 Preferred Stock" (2,159,193 shares authorized), "Series "A" $8.00 Preferred Stock," (1,079,957 shares authorized), Class “B” Preferred Stock Series 1 (666,660 shares authorized), Class “B” Preferred Stock Series 2 (666,660 shares authorized), and Class “B” Preferred Stock Series 3 (666,680 shares authorized). As of March 31, 2011 and December 31, 2009, there are no shares of Preferred Stock issued and outstanding.





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





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





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





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


18





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





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





DIVIDENDS





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





NOTE 17 – EARNINGS PER SHARE





The table below sets forth the computation of basic and diluted net income (loss) per share for the three months ended March 31, 2011 and 2010.





For the three months ended March 31,2011


2010Numerator:Basic net income

$
(493,472
)

$
129,867Diluted net income (loss)

$
(493,472
)

$
129,867Denominator:Basic weighted average common shares outstanding


107,685,367



93,582,801Effect of dilutive securitiesConvertible note


1,049,700



0Dilutive weighted average common shares outstanding


108,735,067



93,582,801Basic net income (loss) per share

$
(0.00
)

$
0.00Diluted net income (loss) per share

$
(0.00
)

$
0.00Net income (loss) per share from discontinued operations

$
(0.00
)

$
0.00





As of March 31, 2011, Adino had 109,123,412 shares outstanding, with no shares payable outstanding. The Company uses the treasury stock method to determine whether any outstanding options or warrants are to be included in the diluted earnings per share calculation.





As of both March 31, 2011 and March 31, 2010, Adino had 1,000,000 earned options outstanding to employees and consultants, exercisable between $0.10 to $0.35 each.  Using an average share price for the three months ended March 31, 2011 and 2010 of $0.039 and $0.01 respectively, the options resulted in no additional dilution to the Company.





The Company calculated the dilutive effect of the convertibility of the Asher note, resulting in additional weighted average share additions of 1,049,700 for the three months ended March 31, 2011. The effect on earnings per share from the Company’s BWME convertible notes was excluded from the diluted weighted average shares outstanding because the conversion of these instruments would have been non-dilutive since the strike price is above the market price for our stock.  There were no dilutive note instruments in place at March 31, 2010.





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 18 – 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 months ended March 31, 2011 and 2010.


19





Three months

ended





Three months

endedMarch 31,

2011


%


March 31,

2010


%Customer A

$
-



0
%

$
13,402



2
%Customer B

$
456,000



100
%

$
300,000



46
%Customer C

$
-



0
%

$
102,795



16
%Customer D

$
-



0
%

$
61,110



9
%Customer E

$
-



0
%

$
178,419



27
%





The Company had no outstanding customer receivables at March 31, 2011 or December 31, 2010.





NOTE 19 – SEGMENT REPORTING





On July 1, 2010, the Company purchased PetroGreen Energy, LLC and AACM3, LLC, jump-starting its re-entry into the oil and gas exploration and production industry.  To facilitate those operations, the Company started two new wholly owned subsidiaries, Adino Exploration, LLC and Adino Drilling, LLC.  All oil and gas operations are conducted under these two subsidiaries.  The Company maintains all fuel storage operations, autonomously, in IFL.





Revenue:


The new oil and gas segment experienced minimal revenues during 2010, with only 6 months of ownership in the mature oilfield assets.  The Company experienced significant expenses in subsidiary origination, office set-up, hiring of employees and the well workover program.  The net income of the combined oil and gas segment for the quarter ended March 31, 2011 is as follows:





For the three

months endedMarch 31, 2011Revenues

$
30,203Production and lease operating expenses


140,476Revenue sharing royalties


5,450Impairment of oil and natural gas properties


-Accretion of asset retirement obligation


825Depreciation, depletion and amortization


22,442Total costs


169,193Pretax income (loss) from producing activities


(138,990
)Income tax expense


–Results of oil and natural gas producing activities(excluding overhead and interest costs)

$
(138,990
)





There were no corresponding revenue or expenses for the three months ended March 31, 2010, as the oil and gas operations were acquired on July 1, 2010.





Although the revenues generated from the oil and gas operations were not material to the Company as a whole, management anticipates increased revenues and stabilized expenses for 2011, primarily based on full year reporting, current lease development plans and operational efficiencies.





Assets


Total Company assets at March 31, 2011 and December 31, 2010 were $3,363,737 and $3,738,767, respectively.  The oil and gas acquisition substantially added to the Company’s asset base. At March 31, 2011 and December 31, 2010, total net oil and gas assets were $427,260 and $719,950 or 12.7% and 19.3% of the totals, respectively.


20


As of March 31, 2011, the Company sold Adino Drilling, LLC, resulting in a decrease in machinery and equipment of $350,702, net of depreciation.





March 31,

2011


December 31,

2010Machinery and equipment, net of depreciation

$
144,968


$
505,611Leasehold improvements, net of depreciation


4,232



-Oil and gas properties:  proved, net of depletion and impairment


116,313



119,458Oil and gas properties:  unproved


122,257



59,060Asset retirement cost


39,490



35,821Total net oil and gas assets

$
427,260


$
719,950





NOTE 20 – SUBSEQUENT EVENTS





During April 2011, Asher converted the remaining note payable of $23,500 into 2,036,820 shares of the Company’s common stock. These conversions extinguished the derivative liability associated with the note and tainted instruments.  See Notes 13 and 15 for additional discussion.





There were no additional subsequent events through May 16, 2011, 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, 2010. 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





As of 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 will remain in escrow until Adino’s stock price reaches $0.25 per share. If Adino's stock price fails to reach $0.25 within three years, the sellers may repurchase for $1.00 the assets originally held by Petro Energy on July 1, 2010.





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





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





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





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





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





In December 2010, the Company began drilling on the James Leonard lease in southeast Coleman County, Texas. The primary target pay zone is the Fry Sand at approximately 1,200 feet. Adino owns 100% of the working interest (87.5% net revenue interest) in the James Leonard lease.


21





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 has 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. The Company is currently drilling shallower wells for which the drilling rig would be uneconomic. 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.





The Company believes that the new emphasis on oil and gas exploration will be promising.





Fuel Storage Operations





The Company’s wholly-owned subsidiary, IFL, continues to lease the terminal at 17617 Aldine Westfield Road, Houston, Texas from Lone Star Fuel Storage and Transport, LLC (“Lone Star”).  Utilizing a fuel storage and throughput model, revenues continue to remain strong. During the first quarter of 2011, IFL provided 93.8% of the Company’s revenue.





RESULTS OF OPERATIONS





Revenue: The Company’s revenues were $486,203 and $655,967 for the three months ended March 31, 2011 and 2010, respectively. The Company’s main revenue source was its wholly owned subsidiary, IFL.  IFL had multiple customers during the first quarter 2010.  In May 2010, IFL management negotiated a long term contract with a regional fuel supplier to be the primary customer of the Houston terminal. The new arrangement allows for consistent revenues over the long term and does not include revenues for fuel additives, thus decreasing revenue since the May 2010 contract signing.





The Company’s acquisition of the oil and gas leases during July, 2010 and the subsequent drilling operations contributed $30,203 in revenue during the first quarter of 2011.  There are no comparable revenues for 2010.





Cost of Product Sales:  As customers take their fuel from the IFL terminal, certain fuel additives must be mixed with the diesel to comply with state and federal regulations.  In order to decrease product cost volatility and improve operational efficiency, IFL contracted with a third party fuel additive provider for all fuel additives through April 2010.  The new Houston terminal customer contract begun in May 2010 does not require that IFL provide additive services. Therefore, the Company realized a decrease in product sales expense of $156,749 or 97%, for 2011. Total expense for the quarter ended March 31, 2011 was $5,450, compared to $162,199 for the same period, 2010.





Payroll and Related Expenses: With the addition of Adino Exploration, the Company has hired several employees to operate the leases owned by the Company.  Additionally, the Company has added payroll for one employee at its corporate office. These employee additions result in payroll expense of $64,353 for the three months ended March 31, 2011. There is no expense for the similar reporting periods in 2010.





Terminal Management: The Company has outsourced its terminal operations since July 2007.  The monthly contract includes employee salaries and benefits, terminal operational expenses, minor repairs, maintenance, insurance and other ancillary operating expenses.  Terminal management expense at March 31, 2011 was $100,290, relatively consistent with the expense incurred in 2010 of $99,990.  Management is encouraged by the success of this alliance and plans to utilize the terminal management model in any future terminal acquisitions.





General and Administrative:The Company’s expense for the three months ended March 31, 2011 was $163,905 or a 20% increase over the expense of $136,186 for the same period in 2010. General and administrative expense is primarily rent expense paid on the IFL terminal to Lone Star, currently $31,855 per month. In July 2010, the Company set up an office in Coleman, Texas to facilitate the development of its oil and gas leases, resulting in additional office and administrative expense of $18,455 and $8,048 in insurance expenses for the three months ended March 31, 2011.





Legal and Professional:  Legal and professional expense was $114,166 and $65,901 for the quarters ended March 31, 2011 and 2010, respectively. The increase of $48,265 is primarily due to increased legal expense related to the lawsuit involving G J Capital. See Note 18 of the Company’s financial statements for additional discussion regarding the Company’s suit with G J Capital.





Consulting Expense:The Company’s consulting expenses were $231,310 and $132,215 for the quarters ended March 31, 2011 and 2010, respectively, an increase of $99,095 or 75%.  The Company has increased expenses within Adino Exploration and Adino Drilling for engineering and geological reports and for operations management.


22


Depreciation Expense: Depreciation expense was $26,035 and $2,542 for the quarters ended March 31, 2011 and 2010, respectively. The increase of $23,493 is due to the addition of machinery and equipment through the Petro Energy acquisition and $825 in asset retirement accretion. The March 31, 2011 amount includes depreciation expense of $13,651 from its discontinued operation, Adino Drilling, LLC.  See Notes 9 and 10 of the Company’s financial statements for additional information regarding these assets and the corresponding depreciation.





Operating Supplies: Supplies expense was $2,195 for the quarter ended March 31, 2011.  The Company did not have similar operating supplies expense in 2010 prior to the Petro Energy acquisition. The Company’s supplies expense related to its oil lease workover and waterflood projects in Coleman, Texas.





Interest Income:Interest income remained relatively consistent at $19,555 and $15,589 for the three months ended March 31, 2011 and 2010, respectively. The Company has agreed to an amendment on the $750,000 note receivable with Mr. Sundlun.  This amendment extends the maturity date of the note to August 2011 at no additional interest past the original maturity date of November 6, 2008.  Due to the lack of interest expense, the Company recognized a discount on the note and amortizes that discount through the note’s maturity date.





Interest Expense:Interest expense was $73,655 and $40,264 for the three months ended March 31, 2011 and 2010, respectively, an increase of $33,391 or 83%. During the third quarter of 2010, the Company closed two separate financings, each resulting in 8% annual interest to the Company. The Company closed additional financing with the Schwartz group in January 2011 at an annual interest rate of 6%.  Interest expense consistent between 2010 and 2011 are for the notes to Mr. Sundlun and vehicle financing. See Note 16 of the Company’s financial statements for additional information regarding this interest expense





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





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





Gain on Derivative: The Company entered into a promissory note that permits conversion of the note into shares of the Company’s common stock at a discount to the market price. This discount to market conversion feature is treated as a derivative for accounting purposes. This note also caused three other financial instruments held by the Company to be considered derivatives. The Company has calculated the change in value of those instruments for the quarter ended March 31, 2011 for a gain of $10,829. See Note 15 of the Company’s financial statements for a more thorough discussion of this gain. There is no gain or loss for the similar reporting periods in 2010.





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. This contract clawback provision was valued at July 1, 2010 at $408,760.  On December 31, 2010, the clawback was valued at $337,354 and was revalued at March 31, 2011 at $397,088, resulting in a loss on change in clawback valuation of $59,734 at March 31, 2011.





Net Income/Loss: The Company had net loss of $493,472 and net income of $129,867 for the three months ended March 31, 2011 and 2010, respectively. For the quarter ended March 31, 2011, the Company experienced an operating loss of $216,245, compared to operating income of $56,722 for the same period, 2010. This increased loss was primarily due to higher legal and consulting expenses, as well as increased payroll and depreciation expenses for the Company’s oil and gas subsidiaries. The Company sold its wholly owned subsidiary, Adino Drilling, LLC, at March 31, 2011, resulting in a loss from discontinued operations of $272,042.  See Note 6 for a more thorough discussion of the sale.





CAPITAL RESOURCES AND LIQUIDITY





As of March 31, 2011, our cash and cash equivalents were $175,575, compared to $285,171(including $2,899 from discontinued operations) at December 31, 2010.  The Company’s liquidity decreased in the first quarter due to increased legal and consulting expenses.





In order to provide additional financing to drill and complete the wells on the leases that we acquired in the Petro Energy transaction, we issued several convertible promissory notes to a group of investors for an aggregate amount of $272,500 in January 2011. These notes bear interest at the annual rate of 6% and are convertible into Adino common stock at the rate of $0.35 per share.





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


23





Our working capital deficit at March 31, 2011 was $3,663,272 compared to $3,708,461 at December 31, 2010. The Company believes that the current cash flow and planned increase in operations are adequate to satisfy the working capital deficit.  Certain officers and directors have agreed in writing to postpone payment if necessary should the Company need capital it would otherwise pay these individuals. Lastly, the Company plans to grow through merger and acquisition opportunities including the expansion of existing business opportunities. The Company expects these growth opportunities to be financed through a combination of equity and debt capital; however, in the event the Company is unable to obtain additional debt and equity financing, the Company may not be able to pursue these opportunities or continue its operations.





For the three months ended March 31, 2011, cash used by operating activities was $252,051 compared to cash used by operating activities of $172,072 for the three months ended March 31, 2010.





The Company incurred capital expenditures of $97,973 in the quarter ended March 31, 2011 to develop its recently acquired oil and gas leases. We were able to secure debt financing at reasonable rates for these expenditures. The Company foresees additional capital expenditures of $360,000 over the next twelve months in order to develop these properties. We do not know at this time whether we will be able to secure financing for these expenditures, and if so, the rates and terms applicable to this financing may exceed our current financing rates.





RISK FACTORS





The market price of the Company's common stock has fluctuated significantly since it began to be publicly traded and may continue to be highly volatile. Factors such as the ability of the Company to achieve development goals, the ability of the Company to compete in the petroleum distribution industry and the oil and gas exploration and production business, the ability of the Company to raise additional funds, general market conditions and other factors affecting the Company's business that are beyond the Company's control may cause significant fluctuations in the market price of the Company's common stock. Such market fluctuations could adversely affect the market price for the Company's common stock.





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 March 31, 2011 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 its wholly-owned subsidiary, Intercontinental Fuels, LLC (“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 alleges 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 has also alleged fraudulent conduct by one or more of the defendants.


24





Adino, IFL, and Mr. Byrd and Mr. Wooley have 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, and Mr. Byrd and Mr. Wooley contend 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.





The court has granted a partial summary judgment to G J Capital against IFL ruling that IFL received the money in question and did not repay it, with the amount of damages to be determined at a later date.





Both Adino and IFL are vigorously defending this suit and the Company has provided Mr. Byrd and Mr. Wooley with a legal defense since the Company determined they were sued in their capacity as directors and officers of Adino.





This case was set for trial in April 2011, but it was continued to later in 2011.  The Company maintains the original contract amount of $275,000 as a liability, but believes it will prevail in the suit.





Roy J. Holland, et. al. v. Alejandro Perales andAACM3 LLC d/b/a Petro 2000





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





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





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





In January 2011, we issued several convertible promissory notes to a group of investors for an aggregate amount of $272,500. These notes bear interest at the annual rate of 6% and are convertible into Adino common stock at the rate of $0.35 per share.





On February 22, 2011, Asher Enterprises converted $10,000 of its note into 465,116 shares of the Company’s common stock. The conversion resulted in an expense to the Company of $10,069 based on the stock’s market price on the date of conversion.





On March 8, 2011, Asher Enterprises converted $12,000 of its note into 603,015 shares of the Company’s common stock. The conversion resulted in an expense to the Company of $3,077 based on the stock’s market price on the date of conversion.





On March 22, 2011, Asher Enterprises converted $12,000 of its note into 794,702 shares of the Company’s common stock. The conversion resulted in an expense to the Company of $10,530 based on the stock’s market price on the date of conversion.





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





ITEM 3. DEFAULTS UPON SENIOR SECURITIES





None.





ITEM 4. REMOVED AND RESERVED





ITEM 5. OTHER INFORMATION





None.


25





ITEM 6. EXHIBITS





The following documents are filed as part of this report:





ExhibitNumber

Exhibit3.1

Articles of Incorporation (as amended January 30, 2008) (incorporated by reference to our Form 10-K filed on March 18, 2009)3.2

By-laws of Golden Maple Mining and Leaching Company, Inc. (now Adino Energy Corporation) (incorporated by reference to our Form 10-K filed on March 18, 2009)10.1

Terminaling Services Agreement for Commingled Products10.2

Amendment to Terminaling Agreement10.3

Lease with Lone Star Fuel Storage and Transfer, LLC (incorporated by reference to our Form 10-K filed on March 18, 2009)10.4

Resolution of the Board of Directors of February 20, 2009 (incorporated by reference to our Form 10-Q filed on  August 7, 2009)10.5

Resolution of the Board of Directors of March 26, 2009 (incorporated by reference to our Form 10-Q filed on August 7, 2009)10.6

Resolution of the Board of Directors of June 30, 2009 (incorporated by reference to our Form 10-Q filed on November 10, 2009)10.7

Resolution of the Board of Directors of December 30, 2009 (incorporated by reference to our Form 10-Q filed on November 10, 2009)10.8

Membership Interest Purchase Agreement (incorporated by reference to our Form 10-K filed on April 1, 2011)10.9

Post-Closing Agreement (incorporated by reference to our Form 10-K filed on April 1, 2011)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 Act31.2

Certification of Chief Financial Officer pursuant to Rule 15d-14(a) of the Exchange Act32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





SIGNATURES





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





ADINO ENERGY CORPORATIONBy:
/s/ Timothy G. Byrd, Sr.Timothy G. Byrd, Sr.CEO and DirectorMay 16, 2011




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