lydo,

You don't say what brand of fuel you're running. That would help. An ABC/N engine like this one needs a standard fuel with a castor/synthetic oil mix. I can recommend Morgan's Omega.

The brown residue may be that's it not completely broken in yet. Or you may be running it too lean. If the residue is black or silvery, you're in trouble. That would indicate AL dust in the exhaust. That is a sign of parts rubbing somewhere in the engine. Also, if you rub the residue between your CLEAN fingers, you can feel any AL dust in it. The exhaust oil should be smooth to the feel.

Take the glow plug out and slowly rotate the crankshaft. If you feel ANY grittiness or roughness, the bearings are probably rusting. Replace them. If it rotates smoothly, there's probably no rust.

Dr.1