EVOLUTION RESOURCES, INC. - FORM 10-Q

Attached files

file	filename
EX-31.2 - CERTIFICATION - EVOLUTION RESOURCES, INC.	evln_ex312.htm
EX-32.1 - CERTIFICATION - EVOLUTION RESOURCES, INC.	evln_ex321.htm
EX-31.1 - CERTIFICATION - EVOLUTION RESOURCES, INC.	evln_ex311.htm
EX-32.2 - CERTIFICATION - EVOLUTION RESOURCES, INC.	evln_ex322.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————


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

For the quarterly period ended: July 31, 2010
Or

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

For the transition period from: _____________ to _____________

EVOLUTION RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Nevada		333-140306		20-2356853
(State or other jurisdiction of incorporation or organization)		Commission file number)		(IRS Employer Identification No.)

143 Yazoo Avenue

Clarksdale, Mississippi 38614

(Address of principal executive offices)

662-655-1077

(Registrant's telephone number)

(Former name and address, if changed since last report)

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

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

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

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

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 ¨ No þ

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 17,156,077 shares of Common Stock, as of October 18, 2010

INDEX

		Page No.(s)
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of July 31, 2010 (Unaudited) and October 31, 2009	1
	Consolidated Statements of Operations For the Three and Nine Months Ended July 31, 2010, for the Period from April 9, 2009 (Inception) through July 31, 2009, and for the Period from April 9, 2009 (Inception) through July 31, 2010 (Unaudited)	2

	Consolidated Statement of Stockholders’ Equity (Deficit) for the Period from April 9, 2009 (inception) through July 31, 2010 (Unaudited)	3

	Consolidated Statements of Cash Flows For the Nine Months Ended July 31, 2010, for the Period from April 9, 2009 (Inception) through July 31, 2009, and for the Period from April 9, 2009 (Inception) through July 31, 2010 (Unaudited)	4

	Notes to the Consolidated Financial Statements (Unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures
		24
PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3.	Defaults Upon Senior Securities	25

Item 4.	Submission of Matters to a Vote of Security Holders	26

Item 5.	Other Information	26

Item 6.	Exhibits	26

SIGNATURES		27

PART I - FINANCIAL INFORMATION

EVOLUTION RESOURCES, INC.

(A Development Stage Company)

Consolidated Balance Sheets

ITEM 1 - FINANCIAL STATEMENTS

	July 31, 2010			October 31, 2009
	(Unaudited)
ASSETS
Current assets:
Cash	$	-		$	2,221
Prepaid expenses		25,209			56,781
Total current assets		25,209			116,669

Property, plant and equipment, net of accumulated depreciation		4,943,985			10,538,970
Equipment, net held for sale		1,545,000			5,150,000
License agreement		-			1,500,000
Capitalized issuance expense		-			57,667
Total assets	$	6,514,194		$	17,305,639

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses	$	1,523,209		$	865,067
Related party payables		58,591			214,085
Accrued interest payable		317,648			282,502
Common stock in dispute (500,000 shares held by Company)		2,000,000			-
Notes payable, net of discount		1,513,180			1,320,250
Current portion of deferred liability		-			60,000
Total current liabilities		5,412,628			2,741,904

Deferred liability, net of current portion		-			1,440,000
Derivative liability		3,959,093			4,392,823
Deferred income tax liability		1,792,934			1,792,934
Total liabilities		11,164,655			10,367,661

Stockholders’ equity (deficit):
Preferred Stock, $0.001 par value; 1,000,000 authorized, 22,500 shares designated as Series A Convertible preferred stock; 22,500 shares issued and outstanding		224,600			53,973
Common stock, $0.001 par value, 74,000,000 shares authorized, 18,156,077 and 17,581,077 issued and outstanding at July 31, 2010 and October 31, 2009, respectively		18,156			17,581
Additional paid-in capital		9,611,501			3,386,023
Earnings (deficit) accumulated during the development stage		(14,504,718	)		3,480,401
Total stockholders’ equity (deficit)		(4,650,461	)		6,937,978
Total liabilities and stockholders’ equity (deficit)	$	6,514,194		$	17,305,639

See accompanying notes to the consolidated financial statements.

EVOLUTION RESOURCES, INC.

(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)

	Three months ended July 31, 2010			Nine months ended July 31, 2010			For the period from April 9, 2009 (Inception) July 31, 2009			For the period from April 9, 2009 (Inception) July 31, 2010

Revenue:	$	-		$	-		$	-		$	-

Operating expenses:
Professional fees		14,200			522,559			137,972			871,101
Compensation expense		2,588,099			7,370,455			-			7,370,456
Management services		125,000			375,000			-			465,987
Depreciation and amortization		93,000			339,000			-			593,250
General and administration		136,043			620,483			256,635			817,197
Total operating expenses		2,956,342			9,227,497			394,607			10,117,991

Loss from operations		(2,956,342	)		(9,227,497	)		(394,607	)		(10,117,991	)

Other expense (income):
Interest expense		51,660			99,740			-			147,486
Loss/(gain) on derivative liability		(240,023	)		(263,103	)		8,113,268			3,888,957
Other income		-			-			-			(16,779	)
Impairment on assets & equipment held for sale		6,860,985			8,920,985			-			8,920,985
Total other expense (income)		6,672,622			8,757622			8,113,268			12,940,649
								-
Loss before income taxes and extraordinary gain		(9,628,964	)		(17,985,119	)		(8,507,875	)		(23,058,640	)
								-
Income tax provision		-			-			-			(1,792,934	)
Loss before extraordinary gain		(9,628,964	)		(17,985,119	)		(8,507,875	)		(24,851,574	)
								-
Extraordinary gain on acquisition		-			-			-			10,346,857
Net loss	$	(9,628,964	)	$	(17,985,119	)	$	(8,507,875	)	$	(14,504,717	)

Net loss per common share – basic and diluted	$	(0.53	)	$	(0.63	)	$	(0.49	)	$	(1.44	)
Net income per common share from extraordinary gain on acquisition – basic & diluted		0.00			0.00			0.00			0.60

Net loss per common share	$	(0.53	)	$	(1.01	)	$	(0.49	)	$	(0.84	)

Weighted average number of common shares outstanding - basic and diluted		18,156,077			17,748,293			17,201,433			17,254,592

See accompanying notes to the consolidated financial statements.

EVOLUTION RESOURCES, INC.

(A Development Stage Company)

Consolidated Statement of Stockholders’ Equity (Deficit)

For the Period from April 9, 2009 (Inception) through July 31, 2010

(Unaudited)

	Preferred Stock (Shares)		Preferred Stock ($)		Discount on Preferred Stock ($)			Common Stock (Shares)			Common Stock ($)			Additional Paid-in Capital ($)			(Deficit) Earnings Accumulated During the Development Stage ($)			Total Stockholders’ Equity (Deficit) ($)
Balance at April 9, 2009 (Inception)		-	$	-	$	-			9,760,000		$	9,760		$	49,995		$	(83,218	)	$	(23,463	)
Reverse Acquisition									7,321,077			7,321			(66,745	)		83,218			23,794
Sale of 12,000 preferred shares		12,000		120,000		(120,000	)														-
Sale of 5,000 preferred shares		5,000		50,000		(50,000	)														-
Sale of 5,500 preferred shares		5,500		55,000		(55,000	)														-
Shares issued for cancellation of warrants									500,000			500			3,402,773						3,403,273
Amortization of discount on preferred shares						53,973															53,973
Net income																		3,480,401			3,480,401
Balance at October 31, 2009		22,500		225,000		(171,027	)		17,581,077			17,581			3,386,023			3,480,401			6,937,978
Shares in dispute, held by Company,									(500,000	)		(500	)		(1,999,500	)					(2,000,000	)
Shares issued for services															7,370,455						7,370,455
Issuance of shares to Harborview									75,000			75									75
Shares issued for debt on March 3, 2010									1,000,000			1,000			854,523						855,523
Amortization of discount on preferred shares						170,627															170,627
Net loss																		(17,985,119	)		(17,985,119	)
Balance at July 31, 2010		22,500	$	225,000	$	(400	)		18,156,077		$	18,156		$	9,611,501		$	(14,504,718	)	$	4,650,461

See accompanying notes to the consolidated financial statements.

EVOLUTION RESOURCES, INC.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Month Period ended July 31, 2010			For the period from April 9, 2009 (Inception) July 31, 2009			For the period from April 9, 2009 (Inception) July 31, 2010

Cash flows from operating activities:
Net loss	$	(17,985,119	)		(8,507,875	)	$	(14,504,718	)
Adjustments to reconcile net loss to net cash used in operating activities
Gain on acquisition, net of cash paid		-			-			(10,284,842	)
Impairment on assets & equipment held for sale		8,920,985			-			8,920,985
Discount on note payable		-			-			(215,000	)
Discount on preferred stock		-			-			(171,027	)
Stock compensation expense		7,370,455			-			7,370,455
Loss/(gain) on derivative liability		(263,103	)		7,999,888			3,966,629
Depreciation and amortization		387,780			-			642,030
Capitalized issuance expense		57,667			-			-
Other		-			37,760			23,794
Changes in operating assets and liabilities:
Prepaid expenses		31,572			(50,000	)		(25,209	)
Accounts payable and accrued expenses		1,548,811			487,748			2,177,253
Related party payables		(155,494	)		-			(155,494	)
Income taxes payable		-			-			1,792,934
Net cash provided by (used in) operating activities		(86,446	)		(32,479	)		(462,210	)

Cash flows from investing activities:
Cash paid for Liquafaction acquisition		-			-			(62,015	)
Net cash used in investing activities		-			-			(62,015	)

Cash flows from financing activities:
Sale of Series A convertible preferred stock		-			32,479			225,000
Sale of common stock		75			-			75
Cash from notes payable		84,150			-			299,150
Net cash provided by financing activities		84,225			32,479			524,225


Net change in cash		(2,221	)		-			-
Cash, beginning of period		2,221			-			-
Cash, end of period	$	-			-		$	-

Supplemental disclosures:
Cash paid during the period for interest	$	-		$	-		$	-
Cash paid during the period for income taxes	$	-		$	-		$	-

Noncash investing and financing:
Common stock issued for debt	$	855,523		$	-		$	855,523

See accompanying notes to the consolidated financial statements.

EVOLUTION RESOURCES, INC.

(A Development Stage Company)

July 31, 2010 and 2009

Notes to the Consolidated Financial Statements

(Unaudited)

NOTE 1 –ORGANIZATION

Evolution Resources, Inc. (“Evolution” or the “Company”), formerly BBN Global Consulting, Inc. (“BBN”). BBN was incorporated on March 15, 2005 under the laws of the State of Nevada. It was formed to be a consulting firm with a mission of providing strategic business planning and management consulting to small domestic companies and to assist medium sized companies in China and Brazil to establish a business presence in the United States. Since November 1, 2007 the Company has ceased operations, and all previous business activities have been discontinued. After the closing of the merger on May 27, 2009, as described below, BBN changed its name from BBN Global Consulting, Inc. to Evolution Resources, Inc. to reflect the activities or our principal business. Because of the merger, BBN ceased to be a “shell company” as that term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

On May 27, 2009 (the “Merger Date”), BBN, Evolution and Evolution Resources Acquisition Corporation (“ERAC”), a wholly-owned subsidiary of Evolution entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, on May 27, 2009 ERAC merged with and into Evolution, with Evolution remaining as the surviving corporation (the “Merger”).

As a result of the ownership interests of the former shareholders of Evolution, for financial statement reporting purposes, the merger between BBN and Evolution has been treated as a reverse acquisition with Evolution deemed the accounting acquirer and BBN deemed the accounting acquiree under the purchase method of accounting in accordance with section 805-10-55 of the FASB Accounting Standards Codification. The reverse merger is deemed a capital transaction and the net assets of Evolution (the accounting acquirer) are carried forward to BBN (the legal acquirer and the reporting entity) at their carrying value before the combination. The acquisition process utilizes the capital structure of BBN and the assets and liabilities of Evolution which are recorded at historical cost. The equity of BBN is the historical equity of Evolution retroactively restated to reflect the number of shares issued by BBN in the transaction.

On May 27, 2009, in connection with the Merger, the Company amended its articles of incorporation to change its name from BBN Global Consulting, Inc. to Evolution Resources, Inc. (the “Company”).

As of the closing of the Merger, each issued and outstanding share of common stock of Evolution was converted into the right to receive 15,296,077 shares of the common stock of BBN. Following (i) the closing of the Merger and (ii) the cancellation of 7,975,000 shares of BBN’s common stock in connection with the Merger, the former shareholders of Evolution hold approximately 89.55% of the common stock of BBN.

On December 31, 2009, the Company formed a wholly owned subsidiary, Evolution Development LLC, (“LLC”) which will hold intellectual property and manage the Company's research and development efforts.

Evolution Resources, Inc. is a development stage company focused on the advancement of the production of cellulosic ethanol and biodiesel. Evolution’s business plan contains certain proposed projects that if successfully implemented and completed, will leverage existing assets and infrastructure to (a) significantly shorten the time frame required to establish commercial scale cellulosic ethanol production facilities and (b) “repurpose” certain industrial facilities to provide key biofuels production components.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the fiscal year ended October 31, 2009 and notes thereto contained in the Company’s Amended Annual Report on Form 10-KA filed with the SEC on April 20, 2010.

The consolidated financial statements include the accounts of the Company at July 31, 2010 and October 31, 2009 (where applicable) and for the interim period ended July 31, 2010 and for the period from April 9, 2009 (inception) through July 31, 2009. Liqua LLC is included as of July 31, 2010 and December 31, 2009 (inception) and for the period from December 31, 2009 (inception) through July 31, 2010. All inter-company balances and transactions have been eliminated.

Development Stage Company

The Company is a development stage company as defined by ASC 915-10 “Development Stage Entities”. The Company is still devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced. All losses accumulated since inception has been considered as part of the Company's development stage activities.

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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fiscal year end

The Company elected October 31 as its fiscal year ending date.

Cash equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Property, Plant and Equipment

Property, plant and equipment are carried at cost. Depreciation of property, plant and equipment is computed by the straight line method (after taking into account their respective estimated residual values) over the assets estimated useful lives from five (5) to twenty (20) years. The cost of asset additions and improvements that extend the useful lives of property and equipment are capitalized. Routine maintenance and repairs items are charged to current operations. The original cost and accumulated depreciation of asset dispositions are removed from the accounts and any gain or loss is reflected in the statement of operations in the period of disposition.

Licenses

The Company has adopted the guidelines as set out in ASC 350-10 “Intangibles, Goodwill and Other” for licenses. Under the requirements as set out in ASC 350-10, licenses are stated at cost and amortized over their remaining legal lives, estimated useful lives or the term of the contracts, whichever is shorter. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

Impairment of Long-Lived Assets

In accordance with Statement of ASC 360-10-35 “Property, Plant and Equipment – Subsequent Measurement”, the Company reviews the carrying value of its long-lived assets , which includes property, plant and equipment and licenses annually or whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value. The Company determined that there was a $8,920,985 impairment on property and equipment and equipment held for sale as of July 31, 2010, and continues to evaluate the remaining long-lived assets on an ongoing basis.

Discount on Series A convertible preferred stock

The Company has allocated the proceeds received from Series A convertible preferred stock between the underlying instruments and has recorded the conversion feature as a liability in accordance with ASC 815-10, “Derivative and Hedging – and Related Disclosures”, and related interpretations.

The conversion feature and certain other features that are considered embedded derivative instruments, such as a conversion reset provision, a penalty provision and redemption option, have been recorded at their fair value within the terms of ASC 815-10 as its fair value can be separated from the convertible note and its conversion is independent of the underlying note value. The conversion liability is marked to market each reporting period with the resulting gains or losses shown on the Statement of Operations.

Derivatives

The Company accounts for derivatives in accordance with ASC 815-10, “Derivative and Hedging – and Related Disclosures”, ASC 815-10 as amended, requires companies to recognize all derivative instruments as either assets or liabilities in the consolidated balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on: (i) whether the derivative has been designated and qualifies as part of a hedging relationship, and (ii) the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument based upon the exposure being hedged as either a fair value hedge, cash flow hedge or hedge of a net investment in a foreign operation. At July 31, 2010, the Company had not entered into any transactions that were considered hedges under ASC 815-10. In conjunction with the issuance of Series A convertible preferred stock, the Company has accounted for the embedded derivative liability in accordance with ASC 815-15, “Derivatives & Hedging – Embedded Derivatives” and performs a mark to market analysis at the end of each reporting period.

Financial instruments

The Company evaluates its Series A convertible preferred stock to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC 815-15, “Derivatives and Hedging – Embedded Derivatives”, and related interpretations including ASC 815-40, “Derivatives and Hedging – Contracts in Entities Own Equity”. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the Statement of Operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification under ASC 815-10, “Derivative and Hedging – and Related Disclosures”, are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

The fair value model utilized to value the various compound embedded derivatives in the secured convertible notes comprises multiple probability-weighted scenarios under various assumptions reflecting the economics of the secured convertible notes, such as the risk-free interest rate, expected Company stock price and volatility, likelihood of conversion and or redemption, and likelihood of default status and timely registration. At inception, the fair value of the single compound embedded derivative was bifurcated from the host debt contract and recorded as a derivative liability which resulted in a reduction of the initial notional carrying amount of the secured convertible notes (as unamortized discount which will be amortized over the term of the notes under the effective interest method).

Fair value of financial instruments

The Company has adopted and follows ASC 820-10, “Fair Value Measurements and Disclosures” for measurement and disclosures about fair value of its financial instruments. ASC 820-10 establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by ASC 820-10 described below:

Level 1		Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2		Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3		Pricing inputs that are generally observable inputs and not corroborated by market data.

As defined by ASC 820-10, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants at the measurement date. The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, accounts payable and accrued expenses, accrued interest payable, common stock in dispute, deferred liability and deferred income tax liability, approximate their fair values because of the short maturity of these instruments. The Company’s notes payable approximates the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at July 31, 2010 and October 31, 2009.

The Company revalues its derivative liability at every reporting period and recognizes gains or losses in the consolidated statements of operations that are attributable to the change in the fair value of the derivative liability. The Company has no other assets or liabilities measured at fair value on a recurring basis.

Revenue recognition

The Company follows the guidance of ASC 605-10, “Revenue Recognition” to recognize revenue related to its operations. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured and inventory held for sale is sold.

Income taxes

The Company accounts for income taxes under ASC 740-10, “Income Taxes”. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

ASC 740-10-25, “Income Taxes – Recognition” addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. ASC 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. ASC 740-10-40, “Income Taxes – De-recognition”, provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of ASC 740-10-25.

Net income (loss) per common share

Net income (loss) per common share is computed pursuant to ASC 260-10, “Earnings per Share”, Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss0 per share is computed by dividing net income by the weighted average number of shares of common stock and potentially dilutive outstanding shares of common stock during each period to reflect the potential dilution that could occur. There were 2,857,143 shares of common stock issuable under the conversion feature of the Series A convertible preferred stock and 1,000,000 warrants outstanding and 2,857,143 shares of common stock issuable under the conversion feature of the Series A convertible preferred stock as of July 31, 2010 and 2009, respectively, which were excluded from the calculation because their effect would be anti-dilutive.

Commitment and contingencies

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Cash flows reporting

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

Subsequent events

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

Recently Issued Accounting Pronouncements

In January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-02 “Consolidation Topic 810 – Accounting and Reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification”, which provides amendments to Subtopic 810-10 and related guidance within U.S. GAAP to clarify that the scope of the decrease in ownership provisions of the Subtopic and related guidance applies to the following:

1. A subsidiary or group of assets that is a business or nonprofit activity

2. A subsidiary that is a business or nonprofit activity that is transferred to an equity method investee or joint venture

3. An exchange of a group of assets that constitutes a business or nonprofit activity for a non controlling interest in an entity (including an equity method investee or joint venture).

The amendments in this Update also clarify that the decrease in ownership guidance in Subtopic 810-10 does not apply to the following transactions even if they involve businesses:

1. Sales of in substance real estate. Entities should apply the sale of real estate guidance in Subtopics 360-20 (Property, Plant, and Equipment) and 976-605 (Retail/Land) to such transactions.

2. Conveyances of oil and gas mineral rights. Entities should apply the mineral property conveyance and related transactions guidance in Subtopic 932-360 (Oil and Gas-Property, Plant, and Equipment) to such transactions.

If a decrease in ownership occurs in a subsidiary that is not a business or nonprofit activity, an entity first needs to consider whether the substance of the transaction causing the decrease in ownership is addressed in other U.S. GAAP, such as transfers of financial assets, revenue recognition, exchanges of nonmonetary assets, sales of in substance real estate, or conveyances of oil and gas mineral rights, and apply that guidance as applicable. If no other guidance exists, an entity should apply the guidance in Subtopic 810-10.

In January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-06 “Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements”, which provides amendments to Subtopic 820-10 that require new disclosures as follows:

1.	Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers.

Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number).

This Update provides amendments to Subtopic 820-10 that clarify existing disclosures as follows:

Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities.

Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.

This Update also includes conforming amendments to the guidance on employers' disclosures about postretirement benefit plan assets (Subtopic 715-20). The conforming amendments to Subtopic 715-20 change the terminology from major categories of assets to classes of assets and provide a cross reference to the guidance in Subtopic 820-10 on how to determine appropriate classes to present fair value disclosures. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

In February 2010, the FASB issued the FASB Accounting Standards Update No. 2010-09 “Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements”, which provides amendments to Subtopic 855-10 as follows:

An entity that either (a) is an SEC filer or(b) is a conduit bond obligor for conduit debt securities that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets) is required to evaluate subsequent events through the date that the financial statements are issued. If an entity meets neither of those criteria, then it should evaluate subsequent events through the date the financial statements are available to be issued.

2.	An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC's requirements.

The scope of the reissuance disclosure requirements is refined to include revised financial statements only. The term revised financial statements is added to the glossary of Topic 855. Revised financial statements include financial statements revised either as a result of correction of an error or retrospective application of U.S. generally accepted accounting principles.

All of the amendments in this Update are effective upon issuance of the final Update, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010.

In April 2010, the FASB issued the FASB Accounting Standards Update No. 2010-17 “Revenue Recognition — Milestone Method (Topic 605) Milestone Method of Revenue Recognition”, which provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive.

Determining whether a milestone is substantive is a matter of judgment made at the inception of the arrangement. The following criteria must be met for a milestone to be considered substantive. The consideration earned by achieving the milestone should:

1.	Be commensurate with either of the following:

The vendor's performance to achieve the milestone

The enhancement of the value of the item delivered as a result of a specific outcome resulting from the vendor's performance to achieve the milestone

2.	Relate solely to past performance

3.	Be reasonable relative to all deliverables and payment terms in the arrangement.

A milestone should be considered substantive in its entirety. An individual milestone may not be bifurcated. An arrangement may include more than one milestone, and each milestone should be evaluated separately to determine whether the milestone is substantive. Accordingly, an arrangement may contain both substantive and nonsubstantive milestones.

A vendor's decision to use the milestone method of revenue recognition for transactions within the scope of the amendments in this Update is a policy election. Other proportional revenue recognition methods also may be applied as long as the application of those other methods does not result in the recognition of consideration in its entirety in the period the milestone is achieved.

A vendor that is affected by the amendments in this Update is required to provide all of the following disclosures:

1.	A description of the overall arrangement

2.	A description of each milestone and related contingent consideration

3.	A determination of whether each milestone is considered substantive

4.	The factors that the entity considered in determining whether the milestone or milestones are substantive

5.	The amount of consideration recognized during the period for the milestone or milestones.

The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity's fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. Additionally, a vendor electing early adoption should disclose the following information at a minimum for all previously reported interim periods in the fiscal year of adoption:

Revenue

2.	Income before income taxes

3.	Net income

4.	Earnings per share

5.	The effect of the change for the captions presented.

A vendor may elect, but is not required, to adopt the amendments in this Update retrospectively for all prior periods.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

NOTE 3 – GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the accompanying consolidated financial statements, the Company has a deficit accumulated during the development stage of $14,504,718 at July 31, 2010, with a net loss of $17,985,119 and net cash used in operating activities of $86,446 for the interim period ended July 31, 2010, respectively with no revenues earned since inception.

The Company had negative net working capital of $5,387,419 at July 31 2010. The Company has defaulted on notes payable with principal and interest totaling $1,691,648 at January 31, 2010 related to the Liquafaction acquisition. This defaulted balance with penalties is now $1,794,768 at July 31, 2010. The Company also has not been able to pay monthly lease expenses associated with the Moses Lake facility in the State of Washington, which approximate $21,700 per month; these monthly payments have continued to accrue since the acquisition date.

The Company is currently attempting to sell the excess equipment at the Moses Lake, WA facility and plans to use the proceeds to pay down the outstanding principal and interest on the notes payable balances along with the current and past due lease expenses associated with the facility in Moses Lake, Washington. The Company is attempting to re-negotiate the existing notes payable which are in default with the note holders. The Company does not know if its attempts to re-negotiate with the existing note holders will be successful. Under the existing notes payable agreements, the note holders may choose to exercise their rights under their respective security agreements to satisfy their outstanding balances with the Company.

If the effort to sell excess equipment and re-negotiate with existing note holders is unsuccessful, the Company will have to examine other alternatives to satisfy its existing current obligations, but has no other plan at this time.

While the Company is attempting to commence operations and generate revenues, the Company’s cash position is not sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to commence operations, generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.

The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 4 – ACQUISITIONS

On July 14, 2009, Evolution entered into a Stock Purchase Agreement (the “Agreement”) whereby the Company acquired all of the issued and outstanding common stock of Liquafaction Corporation (“Liquafaction”) and fifty-three percent of the membership interests of Liqua Ethanol, LLC (“Liqua LLC”) (the shares of Liquafaction and Liqua LLC are referred to collectively as the “Equity”). The purchase price of the Equity is as follows: (i) $35,000 upon the execution of this Agreement, to be paid from a prior deposit, (ii) a total of $30,000 due in equal weekly payments for eight weeks from the date hereof and (iii) $150,000 upon the earlier of the completion of the Moses Lakes project funding or 120 days from the date of the Agreement. Additionally, the Shareholder received a (i) warrant to purchase 1,150,000 shares of Buyer’s common stock at an exercise price of $7.00 per share

and (ii) the right to receive additional warrants to purchase up to an additional 400,000 shares at an exercise price of $7.00 per share based on various performance objectives contained in the Agreement (collectively, the “Warrants”). The fair value of the warrants was $3,258,409 at acquisition, and $3,403,273 as of October 30, 2009. The changes in fair market value are included in the Consolidated Statement of Operations loss on derivatives totaling $4,151,660 as of October 31, 2009. No additional warrant valuation was needed or performed after October 30, 2009, as the warrants were cancelled on October 30, 2009.

Liqua LLC is a subsidiary of Liquafaction, however it has no operations, no assets or liabilities, and therefore the Company has not shown any related noncontrolling interest on the balance sheet or statement of operations. Any future operations will be reported accordingly.

In July, 2009, in conjunction with the acquisition of Liquafaction, the Company formed Moses Lake Biorefinery, LLC, in the State of Washington. At October 31, 2009, Moses Lake Biorefinery had no operations, no assets or liabilities. It was formed for future operations related to the Liquafaction acquisition.

On October 30, 2009, the company entered into an agreement with the seller of Liquafaction to cancel the initial consideration of 1,150,000 warrants to purchase the Buyer’s shares of common stock at $7.00 per share in exchange for the issuance of 500,000 shares of the Buyer’s common stock. The Seller’s basis in the Company’s stock was determined to be market of $4.00 per share value as of October 30, 2009. The 1,150,000 warrants have a derivative liability of $3,403,273 as of October 30, 2009. Therefore the Company recorded an accounting entry to increase to APIC by $1,403,273 in conjunction with the cancellation of the stock warrants and the issuance of 500,000 common shares at market value.

The objective of this project was to convert a former idled corn ethanol facility into a pilot-scale biorefinery that produces ethanol and associated co-products from wheat straw in order to test biomass pretreatment and enzymatic hydrolysis technology on a relatively small scale prior to final engineering and construction of a larger 3 million gallon/year cellulosic production facility at the same location. The planned facility was to utilize the area’s abundant wheat straw for conversion into high value co-products: ethanol, single cell protein, lignin, and syrup.

The following table summarizes the fair values assigned of the assets acquired and the liabilities assumed on the date of acquisition, July 14, 2009. The initial valuation of was based on preliminary fair values assigned to the assets prior to the third party evaluation.

	July 14, 2009
Property & equipment	$	10,631,970
Inventory available for sale		5,150,000
Total assets		15,781,970
Liabilities		1,868,749
Total acquisition price	$	3,473,364

Evolution Resources purchase price totaled $3,473,363 for the Liquafaction acquisition. The excess of the fair value of the assets acquired and liabilities assumed over the purchase price was allocated to negative goodwill. In accordance with In accordance with ASC 805-30-50-1 f.2 and ASC 805-30-25-4,“Intangibles, Goodwill and Other”, the negative goodwill was recorded as an extraordinary gain on acquisition, resulting from the bargain purchase of the Liquafaction net assets.

The Company engaged a third party appraisal firm, The Mentor Group, (“Mentor”) to perform a valuation of the assets of Liquafaction. The new third party appraisal was then used to determine the current fair market value of the assets that included the discounted value on the plant equipment and the fair market value of the inventory available for sale at July 31, 2010.

NOTE 5 – LICENSING AGREEMENT

Licensing Agreement

On April 27, 2009, the Company entered into a licensing agreement with Bio-Process Innovation, Inc. (“BPI”) to license its patented and proprietary processes and associated yeast(s). The Company then amended this agreement on November 18, 2009, effective October 31, 2009.

In conjunction with the amended agreement dated November 18, 2009, the Company and BPI entered into a convertible note as of the date of the agreement for the total amount of $1,500,000 bearing interest of 8% per annum. As the monthly payments or other payments are made, the note amount shall be reduced dollar for dollar. The note shall be convertible into common shares of Evolution common stock at the election of the licensee such that any remaining balance owed as of month thirty, may be converted into the shares at the market price that may be liquidated over the succeeding 6 months in equal proportional amounts each month.

In December 2009, the Company and BPI terminated the licensing agreement and subsequent convertible note as the Company moved away from using wheat straw biomass for the cellulosic ethanol project to a wood biomass, therefore rendering the licensing agreement no longer appropriate.

NOTE 6 – NOTES PAYABLE

In connection with the acquisition of Liquafaction on July 14, 2009, the Company assumed certain secured notes payable held by Liquafaction related to the financing of the facilities. The following table outlines the notes payable at April 30, 2010.

Note (1):	Secured by boiler and 2 centrifuges
Note (2):	Secured by elevator property
Note (3):	Secured by main ethanol plant equipment
Note (4):	Secured by evaporator
Note(5):	Marguerite Heiser entered into 3 separate promissory notes with Liquafaction; $39,600, $30,000 and $4,650. The note for $39,600 was secured by equipment and was due on August 9, 2008. When the principal balance and interest due was not paid as per the initial agreement, Marguerite Heiser enforced the security agreement and the equipment was sold to reduce her total notes payable balance. A verbal agreement with Marguerite Heiser was entered into for $11,000 and is included in the notes payable balance at July 31, 2010.
Note (6):	Secured by Freightliner trailer

On July 31, 2009, the Company entered into a Securities Purchase Agreement with certain accredited investors pursuant to which the Company sold $215,000 principal amount in aggregate of senior secured notes bearing 18% interest per annum, due November 30, 2009, and five-year warrants to purchase 1,000,000 shares of common stock at an exercise price of $5.00 per share (the “Warrant”). The Notes are secured by (i) substantially all of the assets of Evolution and its subsidiaries and (ii) the pledge of Evolution of its entire equity interest in each of its subsidiaries. The Notes are guaranteed by each of Evolution’s subsidiaries. Evolution and each of its subsidiaries also entered into an account control agreement to secure the Notes. With appropriate notice, Evolution has the option to repay the Notes prior to the due date. At the date of original issuance, the Company recognized a discount on the note of $215,000 representing the fair value of the warrants at issuance. The debt discount was fully amortized at July 31, 2010.

On December 3, 2009, the Company entered into a forbearance agreement with Harborview Master Fund, LP due to a default under the securities purchase agreement where the Company had failed to pay the principal amount and interest due on November 30, 2009. The lender has agreed to forebear exercising its rights and remedies in connection with the default provisions of the agreement. In conjunction with the forbearance agreement, the Company made the required interest payments on the principal balance to the Harborview Master Fund of $12,561 on December 3, 2009 and $6,250 on December 30, 2009 in to satisfy the forbearance agreement. The principal balance remains outstanding at July 31, 2010.

On April 7, 2010, Evolution Resources received written default notices from two notes payable holders, Bruce Blackwell and Shaun Bunce, in relation to outstanding notes payable related to the Liquafaction acquisition. The total amount of the notes payable covered under the written default notices were $778,000. The Company is in default on the remaining notes payable related to the Liquafaction acquisition, however has not received written notice from the remaining note holders.

The Company is in default on the total notes payable principal, interest and penalties totaling $1,794,768 at July 31, 2010. The Company began accruing penalties on the unpaid portions of the notes payable after January 31, 2010 at 18% per annum.

NOTE 7 – COMMITMENTS AND CONTINGENCIES

Due to the Company’s current financial situation, it is not making regular or timely payments to its vendors and external consultants.

The Company entered into a consulting agreement on January 6, 2010 with Byrne & Company Limited to provide consulting services related to project feasibility studies, business plan development, site selection evaluation, site development, financial

modeling, project analysis and additional strategic analysis. In conjunction with this agreement, Thomas Byrne will hold the

office of Vice President of Project Development. Byrne & Company will receive as compensation, $25,000 per month for services performed. This agreement supersedes the original agreement with Byrne & Company signed on May 14, 2009.

The Company entered into a consulting agreement on January 6, 2010 with Business Resource and Technology International, Inc. (“BRTI”) to provide consulting services in relation to biomass to fuel matters on a strategic, technical and economic nature. In exchange for consulting services, BRTI will receive $3,500 per month.

The Company entered into a consulting agreement on December 29, 2009 with Dr. Richard Phillips to provide consulting services in relation to biomass to fuel matters on a strategic, technical and economic nature. In exchange for consulting services, Dr. Phillips will each receive $3,500 per month. This agreement supersedes the original agreement with Dr. Phillips dated March 11, 2009. Mr. Phillips will also become president of the Company's wholly owned subsidiary, Evolution Development, LLC, which holds intellectual property and manage the Company's research and development efforts.

The Company entered into a consulting agreement on December 29, 2009 with Dr. Hasan Jameel to provide consulting services in relation to biomass to fuel matters on a strategic, technical and economic nature. In exchange for consulting services, Dr. Jameel will each receive $3,500 per month.

The Company entered into a formal engagement on December 22, 2009 with the law firm of Wilson Sonsini Goodrich & Rosati to provide legal advice on governmental and non-governmental relations matters, along with corporate formation and other forms of strategic financing. An initial retainer of $10,000 was required upon signing of the engagement letter and would be drawn down upon as expenses were incurred.

The Company entered into a Testing Services Agreement with North Carolina State University on December 9, 2009 to conduct fermentation testing and lignin filtration studies. The testing process will be conducted over a one year period beginning December 2009 and continue through November 2010. The cost for this testing process will be approximately $150,000.

The Company has entered into a consulting agreement on February 28, 2009 with Chrysalis Energy Partners, LLC, (“Chrysalis”) to provide professional services through February 28, 2010. The Company is to pay $10,000 per month for these services. At February 28, 2010, the Company and Chrysalis have continued the prior agreement on a month to month basis.

The Company assumed the main ethanol plant lease which Liquafaction had entered into in September 2006. The original lease terms ran from June 1, 2006 to and including May, 31, 2009. The initial lease called for monthly rent of $5,000 for the first twelve months, escalating to $10,000 per month thereafter. At the acquisition date, Liquafaction was behind on its monthly plant rent payments. The Company entered into a new lease agreement for the ethanol plant which at the time included the late rental payments of $170,000 from the initial lease and continuing monthly rental payments of $10,000 per month. The Company is currently in default on these monthly leases.

The Company entered into an agreement to join the “North Carolina State University Wood to Ethanol Research Consortium” (“WERC”) in order to have access to WERC’s body of research surrounding new developments in ethanol production. The Company paid $50,000 for membership in the WERC beginning June 1, 2009 through June 1, 2011.

The Company rents warehouse space in Medera, CA from Olberti, LLC (“Olberti”) for $4,500 per month, which originated in December 2007 in conjunction with the Liquafaction acquisition to store a large burner/economizer that is needed for the operation of the ethanol plant in Moses Lake, WA. The Company has no formal written lease agreement with Olberti. As of July 31, 2010, the company owed $100,500 in rent to Olberti.

The Company leases a warehouse and water well/rights in Moses Lake, WA at the Liquafaction facility to store inventory held for sale and draw water for use in the plant. The lease for the warehouse and water well/rights is $4,200 and $3,000 per month respectively. The lease originated in May 2007. The Company is in default on these leases.

The Company entered into a consulting agreement with the Turnaround Management Company (“TTMC”) on February 3, 2010. The agreement was to provide consulting services to the Moses Lake, Washington site to determine the requirements to complete the design and start up and make operational an ethanol plant. The Company estimates the cost of these services to be approximately $30,000 for the entire project. TTMC has not begun its analysis in conjunction with the agreement at July 31, 2010. The Company cancelled the consulting agreement with BRTI shortly after executing the agreement.

On April 8, 2010, Evolution Fuels Plazas, LLC received written default and termination notices for all properties leased from J&J Developments, Inc. (“J&J”). J&J is the lessor of the retail fuel stations and convenience stores, for which Evolution Resources, Inc., its Chief Executive Officer, Dennis McLaughlin and its Principal Accounting Officer, Christopher Chambers are named as guarantors on the operating agreements with Evolution Fuels Plazas, LLC. Evolution Fuels Plazas and J&J are currently in dispute in relation to several items in the respective leases, and no resolution has been made. Evolution Fuels Plazas hopes to resolve these outstanding issues in a timely manner. No resolution to the above stated lease termination has been resolved at July 31, 2010.

NOTE 8 – STOCKHOLDERS’ EQUITY

Common Stock

October 30, 2009, effective November 12, 2009, Evolution Resources, Inc. (“Evolution”) entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Harborview Master Fund, L.P. (“Harborview”) pursuant to which Evolution sold, and Harborview purchased, 75,000 shares of Evolution’s common stock, par value $.001 (the “Shares”). In consideration of the Shares, Harborview agreed to the following: (i) to amend the conversion price of the Series A Convertible Preferred Stock issued

by Evolution to a $4.00 per share fixed conversion price and (ii) to amend the exercise price of the Warrant to Purchase Shares of Common Stock issued to Harborview on July 31, 2009 (the “Original Warrant”) to a $7.00 per share exercise price subject to adjustment except that in certain circumstances the conversion price may not be reduced below $4.00 per share (collectively, the “Amendments”). The fair value of the warrants was $1,365,088 as of July 31, 2010. The changes in fair market value of the warrants of $266,312 are included in the Consolidated Statement of Operations gain on derivatives totaling $240,023 as of July 31, 2010.

On October 30, 2009, the Company entered to an agreement with the Seller of Liquafaction to cancel the outstanding 1,150,000 warrants in exchange for 500,000 shares of the Company’s common stock. On November 25, 2009, the Company determined that the seller of Liquafaction was in breach of his purchase agreement with the Company. As a result, the company did not issue the 500,000 shares of common stock to the seller until the seller remedies the breach of the agreement.

On November 12, 2009, a majority shareholder and officer of the Company issued 3,775,000 shares of his personal common stock to various stakeholders, employees, and directors of the Company for services performed. No additional shares of the Company’s common stock were issued therefore the number of shares issued and outstanding was not impacted by this transaction. This transaction resulted in total compensation expense of $10,268,000, which will be amortized over the restricted period and the amortized expense of $7,370,455 is presented on the Consolidated Statement of Operations for the nine month period ended July 31, 2010.

On March 3, 2010, the Company issued 1,000,000 shares of common stock to Evolution Fuels, Inc., which is a related party to Evolution Resources, Inc. The Company issued these shares in exchange for forgiveness of $855,523 of accounts payable which was owed to Evolution Fuels, Inc.

Series A Convertible Preferred Stock

On May 27, 2009, the Company entered into a Series A Convertible Preferred Stock Purchase Agreement (the “Purchase Agreement”) with Harborview Master Fund, L.P. (“Harborview”). Pursuant to the Purchase Agreement, Harborview purchased an aggregate of 22,500 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”), for aggregate gross proceeds equal to $225,000. The purchase price will be paid as follows: (i) $120,000 was paid on the Merger Date, May 27, 2009 (ii) $55,000 will be paid upon the filing of a registration statement and (iii) $50,000 upon the effectiveness of the registration statement.

The Series A Preferred Stock shall not be entitled to receive any dividends, have a liquidation value of $100 per share and shall be entitled to vote together with the holders of the common stock of the Company, on an as converted basis. The Series A Preferred Stock may be converted into common stock of the Company at the option of the holder by using a conversion price which shall be equal to the liquidation value of $100 divided by the lesser of (i) $1.00, as adjusted or (ii) 70% of the average (a) if the common stock of the Company is then listed or quoted on a trading market, the daily volume weighted average price of the common stock for such date, for the five trading day period preceding the conversion date; (b) if the common stock of the Company is not listed or quoted on a trading market but are then reported in the “Pink Sheets”, the most recent bid price per share, for the five trading day period preceding the conversion date; or (c) in all other cases, the fair market value of a share of common stock as determined by an independent valuation expert.

The Company followed the accounting treatment in ASC 825-10, “Financial Instruments”,” ASC 815-10, “Derivative and Hedging – and Related Disclosures”, and ASC 815-40, “Derivatives and Hedging – Contracts in Entities Own Equity”.

The Company recognized a derivative liability upon the issuance of $225,000 of the Series A Preferred Stock that values the compound derivatives based on a probability weighted discounted cash flow model. The significant assumptions used for the valuation model were: the underlying stock price was used as the fair value of the common stock even though it is thinly traded, projected volatility of 215%, based on the average of 7 comparable alternative energy companies, the Company would complete its registration requirements by October 31, 2009, the holder would automatically convert at a stock price of $1.50 if the Company was not in default, the holder would convert on a quarterly basis in amounts not to exceed 25% of the average trading volume, the average trading volume would increase at 5% per quarter, and the holder would redeem if the stock price fell to $0.10 or lower. As the value of the derivative liability was greater than the face value of the Series A Preferred Stock, only the par value was prescribed to the Series A Preferred Stock. At July 31, 2010, the fair value of the Series A Preferred Stock derivative liability was $2,594,085. The change in the fair value of the warrants for the period ending July 31, 2010, is $47,748 and is included in the Consolidated Statement of Operations gain on derivatives totaling $240,023, which includes the interest amortization expense of $74,037 related to the discount on the preferred stock.

NOTE 9 – SUBSEQUENT EVENTS

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued. The following were considered material by the company’s management:

On September 11, 2010, 1,000,000 shares of previously issued common stock of the Company were cancelled. These 1,000,000 shares were originally issued in exchange for forgiveness of $855,523 of accounts payable to Evolution Fuels, Inc. (a related party).

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

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Information set forth herein contains "forward-looking statements" which can be identified by the use of forward-looking terminology such as "believes," "expects," "may,” “should" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. No assurance can be given that the future results covered by the forward-looking statements will be achieved. The Company cautions readers that important factors may affect the Company’s actual results and could cause such results to differ materially from forward-looking statements made by or on behalf of the Company. These factors include the Company’s lack of historically profitable operations, dependence on key personnel, the success of the Company’s business, ability to manage anticipated growth and other factors identified in the Company's filings with the Securities and Exchange Commission, press releases and/or other public communications.

Overview

Evolution Resources, Inc. is a development stage company focused on the advancement of the profitable production of cellulosic ethanol and biodiesel. Our business plan contains certain proposed projects that if successfully implemented and completed, will leverage existing assets and infrastructure to (a) significantly shorten the time frame required to establish commercial scale cellulosic ethanol production facilities and (b) “repurpose” certain industrial facilities to provide key biofuels production components.

We are currently focused on building a team of industry experts to advise and assist our management as the project plans are developed. The team will include members from the scientific, financial, legal, and government policy communities who are all well experienced in the field of renewable fuels.

Corporate History

We were incorporated in the State of Nevada in March 2005.

On May 27, 2009, the Company, Evolution Resources, Inc., a Delaware corporation (“Evolution”) and Evolution Resources Acquisition Corp. (“ERAC”), a wholly-owned subsidiary of the Company, entered into an Agreement and Plan of Merger. Pursuant to the terms of the Merger Agreement, ERAC merged with and into Evolution, with Evolution remaining as the surviving corporation and as our sole wholly-owned subsidiary. After the closing of the merger, we changed our name from BBN Global Consulting, Inc. to Evolution Resources, Inc. to reflect the business of our principal subsidiary. Because of the merger, we ceased to be a “shell company” as that term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.

As of the closing of the merger, each issued and outstanding share of common stock of Evolution was converted into the right to receive 15,296,077 shares of our common stock, which constitutes approximately 89.55% of our outstanding common stock.

Prior to the merger, we were a shell company, and we had no assets or liabilities. As a result of the merger transaction described above, the financial statements presented are our consolidated financial statements including our wholly-owned subsidiary, Evolution (which is the operating entity).

Recent Events

On July 14, 2009, Evolution entered into a Stock Purchase Agreement (the “Agreement”) whereby the Company acquired all of the issued and outstanding common stock of Liquafaction Corporation (“Liquafaction”) and 53% of the membership interests of Liqua Ethanol, LLC (“Liqua LLC”) (the shares of Liquafaction and Liqua LLC are referred to collectively as the “Equity”). The purchase price of the Equity is as follows: (i) $35,000 upon the execution of this Agreement, to be paid from a prior deposit, (ii) a total of $30,000 due in equal weekly payments for eight weeks from the date hereof and (iii) $150,000 upon the earlier of the completion of the Moses Lakes project funding or 120 days from the date of the Agreement. Additionally, the seller received a (i) warrant to purchase 1,150,000 shares of Buyer’s common stock at an exercise price of $7.00 per share and (ii) the right to receive additional warrants to purchase up to an additional 400,000 shares at an exercise price of $7.00 per share based on various performance objectives contained in the Agreement (collectively, the “Warrants”).

On October 30, 2009, the Company entered into an agreement with the seller of Liquafaction to cancel the initial consideration of 1,150,000 warrants to purchase the Buyer’s shares of common stock at $7.00 per share in exchange for the issuance of 500,000 shares of the Buyer’s common stock. The Seller’s basis in the Company’s stock was determined to be market of $4.00 per share

value as of October 30, 2009. The 1,150,000 warrants have a derivative liability of $3,403,273 as of October 30, 2009.

Therefore the Company recorded an accounting entry to increase APIC by $1,403,273 in conjunction with the cancellation of the stock warrants and the issuance of 500,000 common shares at market value. No additional warrant valuation was needed or performed at April 30, 2010, as the warrants were cancelled on October 30, 2009.

Liquafaction, both individually and through Liqua Ethanol, LLC of which Liquafaction owns 53%, owns an idle corn ethanol facility located in Moses Lake, Washington. The Company intended to convert the facility into a large demonstration/small commercial-scale bio-refinery that produces ethanol and associated co-products from wheat straw.

Liqua LLC is a subsidiary of Liquafaction, however it has no operations, no assets or liabilities, and therefore the Company has not shown any related minority interest on the balance sheet or income statement. Any future operations will be reported accordingly.

In July, 2009, in conjunction with the acquisition of Liquafaction, the Company formed Moses Lake Biorefinery, LLC, in the state of Washington. At October 31, 2009, Moses Lake Biorefinery had no operations, no assets or liabilities. It was formed for future operations related to the Liquafaction acquisition.

On July 31, 2009, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain accredited investors pursuant to which we sold $215,000 aggregate principal amount of senior secured notes due November 30, 2009 (the “Notes”) and five-year warrants to purchase 1,000,000 shares of common stock at an exercise price of $5.00 per share (the “Warrant”).

The Notes bear interest at a rate of 18% per annum, which is payable quarterly beginning on October 1, 2009. The Notes are secured by (i) substantially all of our assets and subsidiaries and (ii) the pledge of our entire equity interest in each of our subsidiaries. The Notes are guaranteed by each of our subsidiaries. We and all of our subsidiaries also entered into an account control agreement to secure the Notes. With appropriate notice, we have the option to repay the Notes prior to the due date.

On November 15, 2009 the Company entered into an operating agreement with Evolution Fuels Plazas, LLC and Legends Travel Centers, LLC. Evolution Fuels Plazas and Legends Travel Centers were formed on October 21, 2009 with the purpose to own and operate retail fueling stations and convenience stores, along with retail truck stop fueling stations and convenience stores. The Company will maintain a 19.90% minority interest in the operations of both Evolution Fuels Plazas and Legends Travel Centers, and Evolution Fuels, Inc. will hold the majority interest of 80.10%. Evolution Resources, Inc. is a guarantor on all of the leases pursuant to the operating agreement with Evolution Fuels Plazas, LLC.

On November 25, 2009, the Company determined that the seller of Liquafaction was in breach of his purchase agreement with the Company. As a result, the company did not issue the 500,000 shares of common stock to the seller until the seller remedies the breach of the agreement. There has been no resolution to this matter at July 31, 2010.

On February 3, 2010, in conjunction with the operating agreements noted above, Evolution Fuels Plazas, LLC entered into three retail fuel station leases, two leases were for retail fueling stations and convenience stores in Topeka, Kansas and one unmanned fueling station in Manhattan, Kansas. Also on February 3, 2010, Legends Travel Centers, LLC entered into a retail truck stop fueling station, convenience store and restaurant in Mountainburg, Arkansas.

Evolution Resources, Inc., its Chief Executive Officer, Dennis McLaughlin and its Principal Accounting Officer, Christopher Chambers are named as guarantors on the operating agreement with Evolution Fuels Plazas, LLC.

On March 1, 2010, in conjunction with the operating agreement noted above, Evolution Fuels Plazas, LLC entered into one lease for retail fueling station and convenience store in Dallas, Texas. The station will be located in the heart of the Dallas metropolis, immediately adjacent to the upscale Park Cities neighborhood, and will serve as the first "marquee" location for the Company's planned rollout of its branded stations. Evolution Fuels plans to uniquely image the station and offer specialty foods, beverages and other products in order to help create a recognizable brand as it rolls out additional stations. Evolution Resources, Inc., its Chief Executive Officer, Dennis McLaughlin and its Principal Accounting Officer, Christopher Chambers are named as guarantors on the operating agreements with Evolution Fuels Plazas, LLC.

Projects

The proposed projects include the following:

●

Development of a 4 million gallon per year (mmgy) cellulosic ethanol production facility located in an area with a large availability of straw biomass. The project is attractive as the initial cellulosic facility due to the fact that the site for the proposed facility has existing ethanol components and equipment, initial design work for the project has already been completed, and certain permits for ethanol production already exist at the facility. These elements, combined with the goal of engineering and constructing a relatively small commercial scale production facility, provide the potential to complete the project and bring it online in as little as relatively quickly.

Development of a 60 mmgy cellulosic ethanol production facility to be located adjacent to an existing pulping facility. The project will leverage the existing mill assets for the handling of large quantities of wood biomass and the capability to produce pulp cellulose, and will utilize a proprietary technology to convert the cellulose to fermentable sugars.

In order to fund the development of the projects, acquire certain assets, and perform the required engineering and construction work involved with each project, we will need to raise approximately $200 million in a mix of equity, debt, and federal government grants/guarantees.

Presently, Evolution has completed the acquisition of Liquafaction Corporation that will allow the Company to pursue the 4 million gallon per year project described in the first bullet point above. Although the Company is in negotiations for the next bullet point project described above, it does not have any agreements or understandings to acquire, or secure access to, that project, the land or facilities described above that would be necessary to develop this project. As such, no assurance can be made that the above-described projects will ever be developed.

Plan of Operations

The renewable energy sector is in a unique situation. The American Recovery and Reinvestment Act of 2009 have five main objectives in spending the $787 billion dollars that has been allotted. The objectives are:

1. To preserve and create jobs and to promote economic recovery

2. To assist those most impacted by the recession

3. To provide investments needed to increase economic efficiency by spurring technological advances in science and health

4. To invest in transportation, environmental protection, and other infrastructure that will provide long-term economic benefits

5. To stabilize State and local government budgets in order to minimize and avoid reduction in essential services and counterproductive state and local tax increases.

The recession hit the renewable energy industry very hard. The loss of jobs and reduction in incomes impacted the US miles driven by billions of miles. This took the pressure off the demand for gasoline and creating an oversupply thus significantly reduces the price at the pump. This left a number of renewable energy projects that were not well capitalized in financial trouble. There are some assets that are in the right locations and priced to allow for the potential of a significant increase in value when the economy returns and the demand for energy increases.

Evolution Resources has researched and discovered a number of these opportunities in the States of Washington, Mississippi, and Louisiana. The team assembled can repurpose and upgrade the assets acquired at a significant discount. The team is also in a position to test new technologies and to provide renewable energy at a cost competitive price. New grant and low interest loan programs are available from the Federal and State agencies through the Department of Energy, Department of Agriculture, Department of Defense and State Economic Development agencies that were allocated stimulus money to revitalize and expand the renewable energy industry.

These programs will allow not only significant leveraging of the equity dollars but matching of these dollars with grants on a one for one basis and in some limited cases a five to one match.

The Company is concentrating the majority of its efforts on projects in the Mississippi and Louisiana Delta area, where it has garnered significant governmental support from these two states. Economic conditions in this region have deteriorated to the extent that changes in certain industrial sectors are critical for the livelihood of many of the towns and cities. Evolution is actively engaged with state and local governments, as well as regional economic development authorities, who are assisting with the development of the Company’s project plans.

The Company’s business plan contains certain proposed projects that will leverage existing distressed assets and infrastructure to:

a) Significantly shorten the time frame required to establish commercial scale cellulosic ethanol production facilities

b) “Repurpose” distressed industrial facilities to provide key biofuels production systems

c) Beat the competition to profitable production of renewable fuels

The projects involve the production of cellulosic ethanol – ethanol produced from biomass sources such as wood chips, straws, and other plant matter – and the production of biodiesel – a fuel made from animal fats or vegetable oils.

Evolution’s management team has spent the last three years working in the renewable fuels industry and through this experience has identified the opportunities described above. It has built a team of industry experts to advise and assist the Company’s management as the project plans are developed. The team includes members from the scientific, financial, legal, and government policy communities who are all well experienced in the field of renewable fuels.

Financial Summary for the nine-month period ended July 31, 2010

Revenue: For the nine month period ended July 31, 2010, we had no operating revenues. We do not expect to earn significant revenues in the near future.

Operating Expense: For the nine month period July 31, 2010, we incurred $9,227,497 in operating expenses which consisted of compensation expense related to restricted stock issuances $7,370,455, professional and management fees of $897,559 depreciation and amortization of $339,000 and general and administrative expenses of $620,483.

Other Income and Expenses: For the nine month period ended July 31, 2010, we recognized a loss on write down of inventory held for sale of $2,060,000, recognized a $263,103 gain on changes in market values of derivative liabilities during the period, recognized $99,740 in interest expense, and recognized $8,920,985 in impairment on assets and equipment held for sale for the period ended July 31, 2010.

Liquidity and Capital Resources

As of July 31, 2010, we had $0 cash on hand. We are in the very early stages of development. We expect to rely upon funds raised from private placements, as well as future equity and debt offerings, current and future grant opportunities to implement our business and growth plan and to meet our liquidity needs going forward. However, we cannot assure you that such financing will be available to us on favorable terms, or at all. If, after utilizing the existing sources of capital that become available to the Company, further capital needs will be needed and if we are not successful in obtaining the financing, we may be forced to curtail our existing or planned future operations.

Consultants and Independent Contractors

Presently, we have certain agreements or understandings consultants and independent contractors. As such, no assurance can be made that we will be able to retain these consultants or other appropriate consultants/contractors or, if we are able to retain new consultants/contractors, that the terms will be favorable to us.

Net Cash from Continuing Operations – Operating Activity

Our cash flow from operations has been negative since the inception of the company. We do not anticipate that we will have a positive cash flow from operations for the remainder of 2010. Whether we have positive cash flow in 2011 depends on whether we are able to continue to finance our current business plan and successfully complete our cellulosic ethanol facility. Failure to obtain such financing would have an adverse impact on financial position and results of operations and ability to continue as a going concern.

During the nine month period ended July 31, 2010, we have incurred an operating loss net of tax of $17,985,119. This operating loss was primarily the result of a charge of $7,370,455 to compensation expense for restricted stock awards and loss on write down of inventory held for sale of $2,060,000, and impairment of plant assets of $6,860,985. At July 31, 2010 we had negative capital (current assets less current liabilities) of $5,387,419.

During the six month period ended July 31, 2010, our net cash used in operating activities was $86,446.

Net Cash from Continuing Operations - Investing Activities

For the nine-month period ended July 31, 2010, net cash from investing activities was $0.

Net Cash from Continuing Operations – Financing Activity

For the nine month period ended July 31, 2010, net cash from financing activities was $84,225.

Critical Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

We are currently a developmental-stage company and have minimal operational revenues to date. The company follows the guidance in accordance with the principles of ASC 605-10, “Revenue Recognition” from 1) sales of ethanol from our production facilities when (a) persuasive evidence that an agreement exists; (b) the products have been delivered; (c) the prices are fixed and determinable and not subject to refund or adjustment; and (d) collection of the amounts due is reasonably assured and inventory held for sale is sold.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments and other short-term investments with a maturity of three months or less, when purchased, to be cash equivalents.

Long-Lived Assets

The Company assesses the realizable value of long-lived assets for potential impairment at least annually or when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated fair value is less than its carrying value. In assessing the recoverability of our long-lived assets, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. In addition, we must make assumptions regarding the useful lives of these assets. The Company determined that there was a $2,060,000 impairment on equipment held for sale and a $6,860,985 impairment on plant assets as of July 31, 2010, and continues to evaluate the remaining long-lived assets on an ongoing basis.

Project Development

Project development costs will be either expensed or capitalized. The costs of materials and equipment that will be acquired or constructed for project development activities, and that have alternative future uses, both in project development, marketing or sales, will be classified as property and equipment and depreciated over their estimated useful lives.

Fair Value of Financial Instruments

ASC-825-10, “Financial Instruments,” requires the Company to disclose, when reasonably attainable, the fair market values of its accounts receivable, accounts payable, accrued expenses, deferred revenue and notes payable that are deemed to be financial instruments. The carrying amounts and estimated fair values of the Company’s financial instruments approximate their fair value due to their short-term nature.

Earnings per Common Share

The Company complies with ASC 260-10, “Earnings per Share,” which requires dual presentation of basic and diluted earnings per share. Basic EPS excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average common shares outstanding for the year. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Income Taxes

The Company complies with ASC 740-10, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amounts expected to be realized.

Impairment of Long-Lived Assets:

In accordance with ASC 360-10-35, “Plant, Property and Equipment – Subsequent Measurement," long lived assets such as property and equipment and intangible assets are not subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds fair value of the asset group.

Derivative Instruments

The Company accounts for derivatives in accordance with ASC 815-10, “Derivatives & Hedging – and Related Disclosures” and the related interpretations. ASC 815-10 requires companies to recognize all derivative instruments as either assets or liabilities in the consolidated balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on: (i) whether the derivative has been designated and qualifies as part of a hedging relationship, and (ii) the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument based upon the exposure being hedged as either a fair value hedge, cash flow hedge or hedge of a net investment in a foreign operation. At October 31, 2009, the Company had not entered into any transactions which were considered hedges under ASC 815-10. In conjunction with the issuance of Series A convertible preferred stock, the Company has accounted for the embedded derivative liability in accordance with ASC 815-15, “Derivatives & Hedging – Embedded Derivatives” and performs a mark to market analysis at the end of each reporting period.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Results of Operations

Revenue

For the three and nine month period ended July 31, 2010, we had no operating revenues. We do not expect to earn significant revenues in the near future.

Operating Expenses

For the three and nine month period ended July 31, 2010, we incurred $2,956,342 and $9,227,497, respectively in operating expenses which consisted of compensation expense related to restricted stock issuances of $2,588,099 and $7,370,455 respectively, professional and management fees of $139,200 and $897,559 respectively, depreciation and amortization of $93,000 and $339,000 respectively and general and administrative expenses of $136,043 and $620,483 respectively.

Legal and Accounting Expense

For the three and nine month period ended July 31, 2010, we incurred $0 and $46,947, respectively in legal and accounting expense.

Research and Development Expense

For the three and nine month period ended July 31, 2010, we have had no research and development expense.

Interest Expense

For the three and nine month period ended July 31, 2010, we incurred $51,660 and $99,740, respectively of interest expense related to interest bearing notes payable acquired in the Liquafaction acquisition, along with interest expense associated with preferred stock.

ITEM 3. QUANTATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our quantitative and qualitative disclosures about market risk from those disclosed in our 2009 Annual Report on Form 10-K. More detailed information concerning market risk can be found in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our 2009 Annual Report on Form 10-K dated as of, and filed with the SEC on, November 27, 2009, and our amended Annual Report on Form 10-K/A dated as of, and filed with the SEC on April 20, 2010.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Accounting Officer of our disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the Chief Executive Officer and Chief Accounting Officer have concluded that our disclosure controls and procedures were not effective as of April 30, 2010. As noted in our amended Annual Report on Form 10-K/A dated as of, and filed with the SEC on April 20, 2010, we are in the process of enhancing our disclosure controls and procedures.

Due to the limited resources of the company in its initial development stage, we have limitations surrounding staffing resources to ensure transactions are adequately captured and tracked along with the proper supervision of the accounting department. We have begun to formulate additional controls and policies relating to internal control over financial reporting and disclosures, including preparation of accounting policies and procedures manual, containing among other things, detailed , expanded closing checklists, to guide our accounting personnel in addressing significant accounting issues in compliance with U.S. GAAP and SEC requirements. We have also replaced key accounting positions with more trained and experienced personnel to oversee the accounting group, along with hiring of additional staff to ensure capture and tracking of financial information is more accurate. We continue to strive to improve our disclosure controls and procedures and continue to evaluate their effectiveness.

Changes in Internal Controls over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during our fiscal quarter ended July 31, 2010 that have materially affected; or is reasonably likely to materially affect our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to various suits and claims that have arisen in the ordinary course of business. We do not believe that the disposition of any of these items will result in a material adverse effect on our consolidated financial position, results of operations or cash flows.

For additional information on legal proceedings, see “Note 7, Commitments and Contingencies” in “Item 1. Financial Statements” above.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors disclosed in our 2009 Annual Report on Form 10-K dated as of, and filed with the SEC on, November 27, 2009, and our amended Annual Report on Form 10-K/A dated as of, and filed with the SEC on April 20, 2010.

For a discussion of these risk factors, see “Item 1A. Risk Factors” in our 2009 Annual Report on Form 10-K and/or Form 10-K/A.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

On July 31, 2009, the Company entered into a Securities Purchase Agreement with certain accredited investors pursuant to which we sold $215,000 aggregate principal amount of senior secured notes bearing 18% interest per annum, due November 30, 2009, and five-year warrants to purchase 1,000,000 shares of common stock at an exercise price of $5.00 per share (the “Warrant”). The Notes are secured by (i) substantially all of the assets of Evolution and its subsidiaries and (ii) the pledge of Evolution of its entire equity interest in each of its subsidiaries. The Notes are guaranteed by each of Evolution’s subsidiaries. Evolution and each of its subsidiaries also entered into an account control agreement to secure the Notes. With appropriate notice, Evolution has the option to repay the Notes prior to the due date. At the date of original issuance, the Company recognized a discount on the note of $215,000 representing the fair value of the warrants at issuance. The debt discount was fully amortized at July 31, 2010. On December 3, 2009, the Company entered into a forbearance agreement with Harborview Master Fund, LP due to a default under the securities purchase agreement where the Company had failed to pay the principal amount and interest due on November 30, 2009. The lender has agreed to forebear exercising its rights and remedies in connection with the default provisions of the agreement. In conjunction with the forbearance agreement, the Company made the required interest payments on the principal balance to the Harborview Master Fund of $12,561 on the December 3, 2009 and $6,250 on December 30, 2009 in to satisfy the forbearance agreement. The principal balance remains outstanding at July 31, 2010.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

Not Applicable

ITEM 6. EXHIBITS

31.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

SIGNATURES

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

	EVOLUTION RESOURCES, INC. (Registrant)
Date: October 19, 2010	By:	/s/ Dennis G. McLaughlin
		Dennis G. McLaughlin
		President and Chief Executive Officer (Principal Executive Officer)

EVOLUTION RESOURCES, INC. - FORM 10-Q - October 19, 2010

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