Summary of ADINO ENERGY CORP

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of our financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our Consolidated Financial Statements and the notes thereto included elsewhere in this Form 10-K.

FORWARD-LOOKING INFORMATION

This report contains a number of forward-looking statements, which reflect the Company's current views with respect to future events and financial performance including statements regarding the Company's projections. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. In this report, the words "anticipates", "believes", "expects", "intends", "future", "plans", "targets" and similar expressions identify forward-looking statements. Readers are cautioned to not place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that may arise after the date hereof. Additionally, these statements are based on certain assumptions that may prove to be erroneous and are subject to certain risks including, but not limited to, the Company's dependence on limited cash resources, and its dependence on certain key personnel within the Company. Accordingly, actual results may differ, possibly materially, from the predictions contained herein.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. These estimates and assumptions provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material.

Consolidation
The accompanying financial statements include the accounts of Adino Energy Corporation and its wholly owned subsidiary, Intercontinental Fuels, LLC. All intercompany accounts and transactions have been eliminated.

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 Staff Accounting Bulletin 104, 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) and (4) collectability is reasonably assured (based upon our credit policy).

The Company has performed an analysis under Emerging Issues Task Force 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent," 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.

Stock-Based Compensation
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 - Revised 2004, "Share-Based Payment." which establishes accounting for stock-based payment transactions for employee services and goods and services received from non-employees. SFAS 123(R) is a revision of SFAS 123, "Accounting for Stock-Based Compensation", and supersedes Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees". Under the provisions of SFAS 123(R), stock-based compensation cost is measured at the date of grant, based on the calculated fair value of the award, and is recognized as expense over the employee's or non-employee's service period, which is generally the vesting period of the equity grant.

Goodwill and Intangible Assets
Goodwill represents the cost in excess of the fair value of net assets acquired in business combinations. Statement of financial accounting standards SFAS No. 142, "Goodwill and Other Intangible Assets", prescribes the process for impairment testing of goodwill on an annual basis or more often if a triggering event occurs.

We evaluate the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include a significant adverse change in legal factors or in business or the business climate or unanticipated competition. When evaluating whether goodwill is impaired, we compare the fair value of the business to its carrying amount, including goodwill. The fair value of the reporting unit is estimated using discounted cash flows. If the carrying amount of the business exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of reporting unit goodwill to its carrying amount. Based on the evaluations performed by management there were no indicators of impairment at December 31, 2008.

Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then revalued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based derivative financial instruments, the Company uses the Black-Scholes model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Income Taxes
We have adopted the provisions of SFAS No. 109, "Accounting for Income Taxes" which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes," by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. If a tax position is more likely than not to be sustained upon examination, then an enterprise would be required to recognize in its financial statements the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

FUTURE BUSINESS

The Company will continue to focus on its primary business plan of identifying and purchasing or operating under-performing or non-performing terminal assets. With the success of the IFL terminal, Adino has proven its expertise and proficiency at taking terminal assets, re-permitting and re-licensing the facilities, installing technologically advanced equipment and outsourcing everyday operations. This approach allows us to concentrate on bringing on customers and revenues, producing positive cash flow and property value enhancement.

At the current facility, IFL is focusing on the wholesale diesel market and subsequently intends to expand into gasoline. As more wholesalers (jobbers) are delivering from rack to customer, the location and availability of product is very important to overall profitability. IFL negates the need for distributors in North Houston to store fuel. Consequently, they concentrate on just-in-time deliveries to their customers and therefore minimize their overall transportation costs.

IFL also intends to become a merchant fuel supplier to specifically provide fuel inventories to its existing customer base. This will complete the value-added service strategy to our customers as laid out in the Company's mission statement. Management believes this will significantly enhance the revenues and profits of each terminal.

The Company is also poised to capture the growing alternative fuels and biodiesel market using its present distribution and blending infrastructure. Biodiesel is a domestic, renewable fuel for diesel engines derived from natural oils like soybean oil. Biodiesel can be used in any concentration with petroleum based diesel fuel in existing diesel engines with little or no modification, and is produced (refined) by a chemical process that removes glycerin from the oil.

With the "greening" of America and the world's push for renewable and sustainable fuels, Adino will aggressively seek opportunities that involve existing or new technologies that can replace traditional carbon footprints. This will be accomplished through strategic partnerships throughout the world.

The Company also intends to explore opportunities created for "green" companies under the stimulus bill recently signed into law.

To accomplish future growth, the Company will explore listing on one or more foreign stock exchanges in order to augment our ability to raise capital.

RESULTS OF OPERATIONS

Revenue: In 2008, the Company experienced a revenue increase of $120,849, or 6% over 2007. Revenue increased from $1,967,813 for the year ended December 31, 2007 to $2,088,662 for the year ended December 31, 2008. The parent company, Adino, accounted for $250,000 of the revenue totals in each year. The Company's main revenue source is its wholly owned subsidiary, IFL. IFL's customer base remained consistent from 2007 to 2008. Emphasis was placed on increasing our customer's throughput volumes to increase revenues.

Cost of Product Sales: As customers take their fuel from the IFL terminal, certain fuel additives must be mixed with the diesel to comply with state and federal regulations. In an effort to decrease product cost volatility and improve operational efficiency, IFL contracted with a third party fuel additive provider for all fuel additives beginning in April 2008. This allowed IFL to realize a decrease in product sales expense of $24,492, or 5%, for the period ended December 31, 2008 over 2007. Total costs were $487,416 for the period ended December 31, 2008 compared to $511,908 for the same period in 2007.

Payroll and Related Expenses: In July 2007, the operation of the terminal was outsourced to a terminal management company. This management contract allowed for the existing terminal personnel to become management company employees. Payroll expense realized in 2007 of $129,393 is for the period January to June of 2007 only. There was no corresponding expense for 2008.

Terminal Management: In an effort to control costs within the Company's terminal operations, the Company outsourced its terminal operations in July 2007. The monthly contract includes employee salaries and benefits, terminal operational expenses, minor repairs, maintenance, insurance and other ancillary operating expenses. For this reason, the terminal management expense for 2007 represented a partial year expense of $268,195 at December 31, 2007. The expense of $426,500 for the year ended December 31, 2008 reflects a full year of fees. Management is encouraged by the success of this alliance and plans to utilize the terminal management model in any future acquisitions.

General and Administrative: The Company had an increase in general and administrative expense from 2007 to 2008 of $79,014 primarily due to an increase in rent expense on the IFL terminal. From April 2007 through September 2008, the terminal lease was accounted for as a capital lease, therefore no rent expense was recorded. On October 1, 2008, IFL began a five-year lease on the terminal with the new terminal owner, Lone Star Fuel Storage and Transfer, LLC ("Lone Star"). This lease is being accounted for as an operating lease. Rent expense during the course of the lease is recognized at $31,854 per month. IFL recognized 3 months of rent expense under the new lease from October to December 2008.

Legal and Professional: Legal and professional expense was $500,183 at December 31, 2007, compared to $231,302 at December 31, 2008, a decrease of $268,881 or 54%. During March 2007, the Company experienced significant legal expenses associated with the 17617 Aldine Westfield Road terminal lawsuit settlement. The decrease in legal expenses was partially offset by an increase in accounting fees in 2008. An increase in accounting fees of $29,674 from 2007 to 2008 resulted from additional work associated with the Company's restatements of its financial statements for 2003, 2004, 2005 and 2006. These restatements are reflected in Adino's annual report for the fiscal year ended December 31, 2007.

Consulting Expense: The Company's consulting expenses decreased by $1,349,200 or 66% from 2007 to 2008. The 2007 expense was largely due to amounts recognized in Mr. Byrd and Mr. Wooley's warrant conversion and fluctuation in the stock payable valuation. See Notes 12 and 14 of the Company's audited financial statements for a detailed explanation of these instruments.

Repairs: The Company's terminal repair expense was $8,038 and $123,959 for the periods ended December 31, 2008 and 2007 respectively, a decrease of 94% from 2007 to 2008. During the first quarter of 2007, IFL upgraded the terminal facility's loading rack, accounting for most of the 2007 expense. Although repair and maintenance was done during 2008, much of the expense was capitalized as the terminal operated under a capital lease. Ancillary repair and maintenance items are covered under the terminal management agreement and are paid directly by the terminal manager.

Depreciation Expense: Depreciation for the year ended December 31, 2008 was $183,756 compared to $214,516 for the same period in 2007. In 2007, the terminal was depreciated for the entire 12 months. In 2008, IFL recorded 9 months of depreciation prior to the lease expiration on September 30, 2008. As the new terminal operating lease with Lone Star began on October 1, 2008, there is no depreciation recorded in the last quarter of 2008, accounting for the reduction in depreciation expense.

Interest Income: Interest income decreased $3,084 or 4% from 2007 to 2008. Total income was $75,275 and $78,359 for the years ended December 31, 2008 and 2007, 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. This change accounts for the reduction in interest income.

Interest Expense: Interest expense to the Company was $534,154 at December 31, 2008 compared to $512,153 at December 31, 2007, an increase of $22,001. The Company also incurred interest expense associated with the previous IFL terminal capital lease. Payments made under a capital lease are capitalized and a portion of the payment is recorded as interest expense. The IFL terminal lease comprised $366,735, or 69%, of the Company's total interest expense in 2008. Other interest amounts remained constant.

Loss from Stock Valuation: At December 31, 2007, the Company had several stock payables for a total of 10,757,000 shares. These shares could not be issued, however, due to the Company's lack of authorized capital. At our annual meeting in January 2008, the Company's stockholders approved an increase in our authorized capital from 50 million shares to 500 million shares. In the second quarter of 2008, the Company issued stock to satisfy the outstanding stock payable amounts. The Company also issued stock to settle various accounts payable and accrued expenses in July and October, 2008. See Note 12 for more information regarding these transactions. With these issuances, the Company experienced a loss of $159,963, due to changes in stock valuation. There was no corresponding activity for 2007.

Gain from Lawsuit / Sale: 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. Expense for 2007 and 2008 resulted in 9 months of gain recognition or $74,019 per year.

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 Notes 3 and 16 of the Company's audited financial statements for more information regarding these transactions.

Other Income (Expense): For the year ended December 31, 2008, the Company had other income of $0, compared to other expense of $5,199 for 2007. The difference related to non-recurring events in 2007.

LIQUIDITY AND CAPITAL RESOURCES

During the years 2003 to 2006, Adino had substantial liquidity and cash flow problems due to its lack of operating revenues. In 2007 and 2008, the Company's liquidity and cash flow improved due to revenues generated by IFL; however, we still experienced liquidity problems due to debts incurred by Adino and IFL in prior years.

Our working capital deficit at December 31, 2008 was $2,574,146 compared to $7,307,724 at December 31, 2007. The significant decrease relates primarily to the change in accounting for the Houston terminal facility, more fully discussed in Note 3 of the Company's audited financial statements. Of the outstanding current liabilities at December 31, 2008, $1,858,573 is a non-cash deferred gain on the terminal transaction. Additionally, $766,214 of the outstanding current liability is due to certain officers and directors for prior years' accrued compensation. They have agreed in writing to postpone payment of this accrued compensation should the Company need the funds that it would otherwise pay these individuals. The Company plans to satisfy current year and future cash flow requirements through its existing business operations. The Company also hopes to pursue merger and acquisition opportunities including the expansion of existing business opportunities.

COMPETITION

The market for fuel storage is localized by its very nature. Fuel wholesalers need quick and close access to fuel to supply their customers. As a result, the relevant market may not be a city, but only a certain part of a city.

Adino's IFL terminal is located in North Houston close to the George Bush Intercontinental Airport. Due to the size of the Houston metropolitan area, the relevant market is North Houston, not the entire metropolitan area.

There are several terminals in the Houston area. Several of these terminals are owned by integrated petroleum companies and exist solely to supply their franchisees and company-owned retail locations. Others sell to wholesalers in general but will not sell to competitors.

Overall, we believe that competition to IFL is negligible given its location and the fact that it serves independent petroleum wholesalers.