UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

**FORM 10-Q/A**

| **[X]**

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

For the quarterly period ended March 31, 2011

**[  ]**

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

For the transition period from N/A to N/A

  

Commission File No. 333-142105

**CONSOLIDATION SERVICES, INC.**

(Name of small business issuer as specified in its charter)

 

 

Delaware

 20-8317863

( State or other jurisdiction of

incorporation or organization)

(IRS Employer Identification No.)

2300 West Sahara Drive, Suite 800, Las Vegas, NV  89102

(Address of principal executive offices)

 (702) 949-9449

(Issuer’s telephone number)

Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:  Yes [X]  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).  The registrant has not yet transitioned into this requirement.  Yes [X]  No [  ]

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated 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  

[  ]

Small reporting company

[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [X]  No [  ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

**Class**

  

**Outstanding at  May 12, 2011**

Common stock, $0.001 par value

  

46,943,669

**CONSOLIDATION SERVICES, INC.**

**INDEX TO FORM 10-Q/A FILING**

**TABLE OF CONTENTS**

 

PAGE

**PART I - FINANCIAL INFORMATION**

 

 

 

Item 1. Consolidated Financial Statements

1

 

Consolidated Balance Sheets

2

 

Consolidated Statements ofOperations

3

 

Consolidated Statements of Cash Flows

4

 

Notes to Consolidated Financial Statements

5

Item 2. Management Discussion & Analysis of Financial Condition and Results of Operations

14

Item 3. Quantitative and Qualitative Disclosures About Market Risk

17

Item 4. Controls and Procedures

17

 

 

**PART II - OTHER INFORMATION**

 

 

 

Item 1. Legal Proceedings

18

Item 1A. Risk Factors

18

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

18

Item 3.Defaults Upon Senior Securities

19

Item 4. Removed and Reserved

19

Item 5. Other information

19

Item 6. Exhibits

19

**CERTIFICATIONS**

 

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

32.2 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

**PART I**

**FINANCIAL INFORMATION**

**Item 1.  Financial Statements**

Amendment No. 3 on Form 10-K amended the Annual Report on Form 10-K for the year ended December 31, 2010 (the “Original Report”) and was filed by Consolidation Services, Inc. (the “Company”) in response to comments by the Securities and Exchange Commission. The consolidated financial statements have been restated to reflect an adjustment in April 2010 to remove goodwill and impairment of goodwill for a total error amounting to approximately $10.9 million. The accumulated loss was reduced by $10.9 million for the three months ended March 31, 2011 related to the adjustment in 2010. See Note 4.

 

The consolidated financial statements have been restated to properly reflect the initial valuation of the acquisition of the Leland partnerships based upon an oil and gas reserve valuation of $4.3 million. The acquisition of the Leland partnerships were originally recorded on April 2, 2010 at a valuation of $15,267,204 based on the fair value of the common stock consideration and goodwill was recorded for $10,912,035 in connection with the acquisition. Immediately following the acquisition, the Company recorded an impairment of the goodwill. The consolidated financial statements have been restated for all periods from the date of acquisition to March 31, 2011 to eliminate the initial valuation and subsequent impairment of goodwill. 

As originally reported in April 2010, the Company reported the difference between the trading price of the common stock and the fair value of the assets as goodwill. The amount of the goodwill which created this error is approximately $10.9 million. The net loss was reduced by $10.9 million, accumulated deficit was reduced by $10.9 million and additional paid-in capital was reduced by $10.9 million.

The consolidated financial statements have also been restated to reflect additional accrued compensation of our Chief Executive Officer for the three months ended March 31, 2011 of $45,000, respectively.

The consolidated financial statements have also been restated to reflect the authorization of preferred stock which none has been issued or outstanding as of March 31, 2011. 

The consolidated financial statements have also been restated for the period ended March 31, 2011 in response to comments received from Securities and Exchange Commission to furnish predecessor financial statements of the combined Leland partnerships (the “Predecessor”), in accordance with Regulation S-X 8-02 by including financial statements of the Predecessor for the period from January 1, 2010 through March 31, 2010.

The total effect of the adjustments described above for the three months ended March 31, 2011 was an increase in the net loss of $45,000 and $0.00 per common share, and an increase in accumulated deficit of $10.9 million.

In addition to adjustments to the financial statement, the Company restated Item 4 - Controls and Procedures to reflect material weaknesses identified in financial reporting controls related to these adjustments.

- 1 -

**CONSOLIDATION SERVICES, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(UNAUDITED)**

 

 

 

 

 

 

 

 

 

**March 31,**

 

**December 31,**

 

 

 

**2011**

 

**2010**

ASSETS:

 

 

Restated

 

Restated

CURRENT ASSETS

 

 

 

 

 

 

 

   Cash

 

 

$

1,358

 

$

17,236

   Accounts receivable

 

 

 

40,260

 

 

10,892

      Total current assets

 

 

 

41,618

 

 

28,128

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT

 

 

 

 

 

 

 

   Oil and gas properties, net, including $1,199,286 of unproved

 

 

 

 

 

 

 

      property costs using the successful efforts method of accounting.

 

 

 

4,447,276

 

 

4,462,552

   Support equipment, net

 

 

 

769,400

 

 

773,300

 

 

 

 

 

 

 

 

    TOTAL ASSETS

 

 

$

5,258,294

 

$

5,263,980

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

   Accounts payable

 

 

$

193,130

 

$

165,916

   Accounts payable - related party

 

 

 

73,543

 

 

-

   Advances from related party

 

 

 

15,000

 

 

15,000

      Total current liabilities

 

 

 

281,673

 

 

180,916

 

 

 

 

 

 

 

 

Asset retirement obligations

 

 

 

22,029

 

 

21,562

 

 

 

 

 

 

 

 

      TOTAL LIABILITIES

 

 

 

303,702

 

 

202,478

 

 

 

 

 

 

 

 

CONTINGENCIES AND COMMITMENTS

 

 

 

-

 

 

-

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

    Preferred stock, $0.001 par value, 20,000,000 shares authorized;

 

 

 

 

 

 

 

     no preferred stock was issued and outstanding 

 

 

 

-

 

 

-

     as of March 31, 2011 and December 31, 2010, respectively

 

 

 

 

 

 

 

    Common stock, $.001 par value, 200,000,000 shares authorized;

 

 

 

 

 

 

 

     42,943,669 and 42,309,053 issued and outstanding

 

 

 

 

 

 

 

     as of March 31, 2011 and December 31, 2010, respectively

 

 

 

42,944

 

 

42,309

    Additional paid-in capital

 

 

 

8,702,016

 

 

8,652,649

    Accumulated deficit

 

 

 

(3,790,368)

 

 

(3,633,456)

      Total stockholders' equity

 

 

 

4,954,592

 

 

5,061,502

 

 

 

 

 

 

 

 

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

$

5,258,294

 

$

5,263,980

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

- 2 -

**CONSOLDATION SERVICES, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(UNAUDITED)**

 

 

**SUCCESSOR COMPANY**

**PREDECESSOR**

 

 

**Three Months Ended**

 

**Period From**

** **

**Period From**

 

 

**March 31,**

 

**January 1, 2010 through**

** **

**January 1, 2010 through**

 

 

**2011**

** **

**2010**

** **

**March 31, 2010**

** **

**March 31, 2010**

 

 

Restated

 

 

 

 

 

 

OIL AND GAS REVENUES

 

$

86,500

 

$

-

 

$

86,500

 

$

67,552

 

 

 

 

 

 

 

 

 

 

 

 

 

COSTS AND OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

     Lease operating expenses

 

 

44,377

 

 

-

 

 

44,377

 

 

36,550

     Depreciation, depletion, amortization and accretion

 

 

19,643

 

 

-

 

 

19,643

 

 

25,046

     General and administrative 

 

 

179,392

 

 

41,291

 

 

179,392

 

 

182

         Total costs and operating expenses

 

 

243,412

 

 

41,291

 

 

243,412

 

 

61,778

OPERATING LOSS

 

 

(156,912)

 

 

(41,291)

 

 

(156,912)

 

 

5,774

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

      Interest expense

 

 

-

 

 

40

 

 

-

 

 

-

        Total other expense

 

 

-

 

 

40

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS BEFORE INCOME TAXES

 

 

(156,912)

 

 

(41,331)

 

 

(156,912)

 

 

5,774

INCOME TAX EXPENSE (BENEFIT)

 

 

-

 

 

-

 

 

-

 

 

-

NET LOSS

 

$

(156,912)

 

$

(41,331)

 

$

(156,912)

 

$

5,774

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED LOSS PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Net loss per share, basic and diluted

 

$

(0.00)

 

$

(0.00)

 

$

(0.00)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Weighted average number of common shares outstanding, basic and diluted

 

 

42,489,181

 

 

15,257,220

 

 

42,489,181

 

 

 

 

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

- 3 -

**CONSOLIDATION SERVICES, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 

 

**SUCCESSOR COMPANY**

**PREDECESSOR COMPANY**

 

 

**Three Months Ended**

**Period From**

 

**Period From**

 

 

**March, 31,**

**January 1, 2010 through**

 

**January 1, 2010 through**

 

 

**2011**

**2010**

**March 31, 2010**

 

**March 31, 2010**
CASH FLOWS FROM OPERATING ACTIVITIES
 

Restated

 

 

 

 

  Net (loss)

 

$

(156,912)

$

(41,331)

$

(41,331)

 

$

5,774

  Adjustments to reconcile net income (loss) to net cash

 

 

 

 

 

 

 

 

 

 

     from operating activities:

 

 

 

 

 

 

 

 

 

 

  Depreciation, depletion, and amortization

 

 

19,176

 

-

 

-

 

 

19,032

  Accretion of asset retirement obligations

 

 

467

 

-

 

-

 

 

6,014

  Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

    Accounts receivable

 

 

(29,368)

 

-

 

-

 

 

(17,055)

    Accounts payable and accrued expenses

 

 

27,216

 

28,162

 

28,162

 

 

546

    Accounts payable and accrued expenses - related party

 

 

73,543

 

-

 

-

 

 

-

          Net cash provided by (used in) operating activities

 

 

(65,878)

 

(13,169)

 

(13,169)

 

 

14,311

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

   Proceeds from the issuances of common stock

 

 

50,000

 

-

 

-

 

 

-

   Proceeds from notes payable - shareholder 

 

 

-

 

22,000

 

22,000

 

 

-

   Partner contribution

 

 

-

 

-

 

-

 

 

2,500

   Partner withdrawal

 

 

-

 

-

 

-

 

 

(8,729)

          Net cash provided by (used in) financing activities

 

 

50,000

 

22,000

 

22,000

 

 

(6,229)

 

 

 

 

 

 

 

 

 

 

 

(DECREASE) INCREASE IN CASH

 

 

(15,878)

 

8,831

 

8,831

 

 

8,082

CASH, BEGINNING OF PERIOD

 

 

17,236

 

-

 

-

 

 

338

CASH, END OF PERIOD

 

$

1,358

$

8,831

$

8,831

 

$

8,420

 

 

 

 

 

 

 

 

 

 

 

**SUPPLEMENTAL CASH FLOW INFORMATION:**

 

 

 

 

 

 

 

 

 

 

   Income Taxes Paid

 

$

-

$

-

$

-

 

$

-

   Interest Paid

 

$

-

$

40

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

**Supplemental disclosure of non cash investing and financing activities**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in asset retirement obligations

 

$

-

$

27,924

$

-

 

$

-

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

- 4 -

**CONSOLIDATION SERVICES, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**NOTE 1 - RESTATEMENT**

Amendment No. 3 on Form 10-K amended the Annual Report on Form 10-K for the year ended December 31, 2010 (the “Original Report”) and was filed by Consolidation Services, Inc. (the “Company”) in response to comments by the Securities and Exchange Commission. The consolidated financial statements have been restated to reflect an adjustment in April 2010 to remove goodwill and impairment of goodwill for a total error amounting to approximately $10.9 million. The accumulated loss was reduced by $10.9 million for the three months ended March 31, 2011 related to the adjustment in 2010. See Note 4.

The consolidated financial statements have been restated to properly reflect the initial valuation of the acquisition of the Leland partnerships based upon an oil and gas reserve valuation of $4.3 million. The acquisition of the Leland partnerships were originally recorded on April 2, 2010 at a valuation of $15,267,204 based on the fair value of the common stock consideration and goodwill was recorded for $10,912,035 in connection with the acquisition. Immediately following the acquisition, the Company recorded an impairment of the goodwill. The consolidated financial statements have been restated for all periods from the date of acquisition to March 31, 2011 to eliminate the initial valuation and subsequent impairment of goodwill. 

As originally reported in April 2010, the Company reported the difference between the trading price of the common stock and the fair value of the assets as goodwill. The amount of the goodwill which created this error is approximately $10.9 million. The net loss was reduced by $10.9 million, accumulated deficit was reduced by $10.9 million and additional paid-in capital was reduced by $10.9 million.  

 

The consolidated financial statements have also been restated to properly reflect the accrual of our CEO’s compensation in accordance with the April 7, 2010 employment agreement as amended on July 1, 2010, May 10, 2011, May 23, 2011, June 29, 2012 and June 30, 2012.  The Company inadvertently did not record an additional $15,000 per month of accrued compensation in the prior March 31, 2011, June 30, 2011 and September 30, 2011 Form 10-Q filings.  The Company did report the appropriate additional compensation expense and accrued compensation of the CEO in the December 31, 2011 Form 10-K for a total amount of $180,000. See Note 9.

 

 

 

**March 31, 2011**

 

 

**As Filed**

 

**Adjustments**

 

**As Restated**

Balance Sheet

 

 

 

 

 

 

Accounts Payable - related party

$

28,543

$

45,000

$

73,543

Additional paid-in capital

$

19,614,051

$

(10,912,035)

$

8,702,016

Accumulated deficit

$

(14,657,403)

$

(10,867,035)

$

(3,790,368)

 

 

 

 

 

 

 

Statement of Operations

 

 

 

 

 

 

General and administrative

$

134,392

$

45,000

$

179,392

Operating loss

$

(111,912)

$

(45,000)

$

(156,912)

Loss before taxes

$

(111,912)

$

(45,000)

$

(156,912)

Net loss

$

(111,912)

$

(45,000)

$

(156,912)

Loss per share

$

(0.00)

$

(0.00)

$

(0.00)

The consolidated financial statements have also been restated to reflect the authorization of preferred stock which none has been issued or outstanding as of March 31, 2011. 

The consolidated financial statements have also been restated for the period ended March 31, 2011 in response to comments received from Securities and Exchange Commission to furnish predecessor financial statements of the combined Leland partnerships (the ”Predecessor”), in accordance with Regulation S-X 8-02 by including financial statements of the Predecessor for the period from January 1, 2010 through March 31, 2010. See Note 2.

The total effect of the adjustments described above for the three months ended March 31, 2011 was an increase in the net loss of $45,000 and $0.00 per common share, and an increase in accumulated deficit of $10.9 million.

- 5 -

**NOTE 2 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

Consolidation Services, Inc. (the “Company” or “CNSV”) was incorporated in the State of Delaware on January 26, 2007. The Company is engaged in the exploration and development of oil and gas properties in Kentucky and Tennessee.   

Basis of Presentation of Interim Financial Statements 

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.  The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2010 have been omitted; this report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2010 included within its Form 10-K, as filed with the Securities and Exchange Commission.

Basis of Presentation - Predecessor

The accompanying financial statements have been prepared in accordance with the Generally Accepted Accounting Principles in the United States of America ("GAAP").

We acquired the Leland Partnerships (our predecessor company) and at the time of the acquisition on April 1, 2010, we had minimal assets and no operations. Accordingly, we have included the predecessor combined financial statements of the Leland Partnerships in the accompanying financial statements for purposes of complying with the rules and regulations of the Securities and Exchange Commission as required by S-X Rule 8-02.

Principle of Consolidation

The Company’s subsidiaries include a 100% ownership interest in Vector Energy Services, Inc. Vector Energy Services, Inc. is presently not an operating subsidiary.  

On June 2, 2010, CSI Energy, Inc. was incorporated in the State of Nevada as a wholly-owned subsidiary of the Company. CSI Energy, Inc. is presently not an operating subsidiary.  

On June 2, 2010, CSI Resources, Inc. was incorporated in the State of Nevada as a wholly-owned subsidiary of the Company. CSI Resources, Inc. is presently not an operating subsidiary.  

Use of Estimates and Assumptions

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.

- 6 -

The Company’s consolidated financial statements are based on a number of significant estimates including the selection of the useful lives for property and equipment and the oil and gas reserve quantities which are the basis for the calculations of depreciation, depletion, and impairment of property and equipment. Management emphasizes that estimated reserve quantities are inherently imprecise and that estimates of more recent discoveries are more imprecise than those for properties with long production histories.  Accordingly, the Company’s estimates are expected to change as future information becomes available.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.  At March 31, 2011, cash and cash equivalents include cash on hand and cash in depository institutions/commercial banks.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and accounts receivables. Beginning December 31, 2010, all non interest-bearing transaction accounts are now fully insured, regardless of the balance, by the FDIC through December 31, 2012. Interest-bearing accounts are insured up to $250,000. At March 31, 2011, the Company had no cash in accounts that bore interest.

Oil and Gas Properties

The Company uses the successful efforts method of accounting for oil and gas operations.  Under this method of accounting, costs to acquire mineral interests in oil and gas properties, to drill and equip development wells, and to drill and equip exploratory wells that find proved reserves are capitalized.  Depletion and depreciation of capitalized costs for producing oil and gas properties is calculated using the unit-of-production method based on estimates of proved producing oil and gas reserves on a field-by-field basis.  Depletion and depreciation expense for the Company’s oil and gas properties was approximately $15,000 and $0 for the three months ended March 31, 2011 and 2010, respectively.

The costs of unproved leaseholds and mineral interests are capitalized pending the results of exploration efforts.  In addition, unproved leasehold costs are assessed periodically, on a property-by-property basis, and a loss is recognized to the extent, if any, the property has been impaired.  This impairment will generally be based on geophysical or geologic data.  For the three months ended March 31, 2011, there was no impairment of unproved leaseholds.  Due to the perpetual nature of the Company’s ownership of the mineral interests, the drilling of a well, whether successful or unsuccessful, may not represent a complete test of all depths of interest.  Therefore, at the time that a well is drilled, only a portion of the costs allocated to the acreage drilled may be expensed.  As unproved leaseholds are determined to be productive, the related costs are transferred to proved leaseholds.  The costs associated with unproved leaseholds and mineral interests that have been allowed to expire are charged to exploration expense.

The Company evaluates impairment of its property and equipment in accordance with ASC Topic 360, *“Long-Lived Assets*”.  This standard requires that long-lived assets that are held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  When it is determined that an asset’s estimated future net cash flows will not be sufficient to recover its carrying amount, an impairment charge must be recorded to reduce the carrying amount of the asset to its estimated fair value.  Fair value is determined by reference to the present value of estimated future cash flows of such properties.  During the three months ended March 31, 2011 there was no impairment of the Company’s long-lived assets. 

- 7 -

Exploration costs, including exploratory dry holes, annual delay rental and geological and geophysical costs, are charged to expense when incurred.

Support Equipment and Facilities

Support equipment and facilities including, furniture, fixtures, automobiles, office equipment, leasehold improvements, and computer software are stated at cost. Depreciation and amortization of support equipment and facilities is calculated using various accelerated or straight-line methods over the respective expected useful lives.  Depreciation and amortization expense for support equipment and facilities totaled approximately $4,000 and $0 for the three months ended March 31, 2011 and 2010, respectively. The cost of normal maintenance and repairs is charged to operating expenses as incurred.  Material expenditures which increase the life of an asset or increase expected recoveries are capitalized and depleted or depreciated over the estimated remaining useful life of the asset.  The cost of equipment sold, or otherwise disposed of, and the related accumulated depletion, depreciation or amortization is removed from the accounts and any gains or losses are reflected in current operations.

Revenue Recognition

The Company has royalty and working interests in various oil and gas properties which constitute its primary source of revenue.  The Company recognizes oil and gas revenue from its interest in producing wells as oil and gas is sold from those wells.  Other sources of revenues received by the Company include delay rentals and mineral lease bonuses which are recognized as revenue according to the terms of the lease agreements.

The Company follows the “sales method” of accounting for oil and natural gas revenue, so it recognizes revenue on all natural gas or crude oil sold to purchasers, regardless of whether the sales are proportionate to its ownership in the property.  A receivable or liability is recognized only to the extent that the Company has an imbalance on a specific property greater than its share of the expected remaining proved reserves.  

Accounts Receivable

Substantially, all of the Company’s accounts receivable consists of accrued revenues from oil and gas production at March 31, 2011 from third party companies in the oil and gas industry.  The Company has two customers that purchase and distribute substantially all of our oil and gas production. This concentration of customers may impact the Companies’ overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions affecting the oil and gas industry.  In determining whether or not to require collateral from a purchaser or joint interest owner, the Company analyzes the entity’s net worth, cash flows, earnings and credit ratings.  Historical credit losses incurred by the Company on receivables have not been significant.

Earnings Per Share

Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options, warrants, and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. Diluted loss per share is the same as basic loss per share, because the effects of the additional securities, as a result of the net loss would be anti-dilutive for all periods presented.  There are no warrants or options outstanding for the three months ended March 31, 2011.

- 8 -

Fair Value of Financial Instruments

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 sale or liquidation.

The carrying amounts of the Company’s financial instruments, including cash, accounts receivable and accounts payable, approximate fair value due to their short-term nature.

Recent Accounting Pronouncements

Recent accounting pronouncements that the Company has adopted or that will be required to adopt in the future are summarized below.

No accounting standards or interpretations issued recently are expected to a have a material impact on the Company’s consolidated financial position, operations or cash flows.

**NOTE 3 - GOING CONCERN**

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company sustained losses from operations for the three month ended March 31, 2011 of $156,912.   Further, the Company has inadequate working capital to maintain or develop its operations, and is dependent upon funds from lenders, investors and the support of certain stockholders. These factors raise substantial doubt about the ability of the Company to continue as a going concern.  The consolidated financial statements herein do not include any adjustments that might result from the outcome of these uncertainties.  

In this regard, Company management is planning to raise additional funds through loans and additional sales of its common stock. The Company's ability to meet its obligations and continue as a going concern is dependent upon its ability to obtain additional financing, achievement of profitable operations and/or the discovery, exploration, development and sale of oil and gas reserves. Although the Company is pursuing additional financing, there can be no assurance that the Company will be able to secure financing when needed or obtain such financing on terms satisfactory to the Company, if at all.

**NOTE 4 - ACQUISITIONS**

On April 1, 2010, the Company entered into 12 substantially identical asset purchase agreements with various unrelated funds which comprised a total of 657 individual sellers and completed the purchase of interests in oil and gas wells located in Kentucky and Tennessee. The Company acquired interests in 39 oil wells and 19 gas wells, (a total of 58 wells), and the related support equipment, located on approximately 1,500 leased acres in Kentucky and Tennessee. Under the agreements, the Company acquired all rights, titles and interests to the sellers’ oil and gas wells and support equipment free and clear of all liabilities, liens and encumbrances. The effective date of the purchase and sale was April 1, 2010. 

The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition had occurred at January 1, 2010.

- 9 -

 

 

Three months ended

March 31, 2010

(Unaudited)

Oil and gas revenues

 

$

15,138

Net loss

 

$

(57,891)

Net loss per common share basic and diluted

 

$

(0.00)

Weighted average of common shares outstanding

 

 

15,257,220

*Support facilities and equipment*

The Company owns support facilities and equipment, which serve its oil and gas production activities. The equipment is depreciated over the useful life of the underlying oil and gas property. The following table details the change in supporting facilities and equipment as of March 31, 2011 and December 31, 2010:

March 31,

2011

December 31,

2010

Beginning balance

$

773,300

$

-

Additions

 

-

785,000

Dispositions

 

-

-

Impairment

 

-

-

Depreciation

 

(3,900)

(11,700)

Ending balance

$

769,400

$

773,300

 

**NOTE 5 - RELATED PARTY TRANSACTIONS**

Our CEO had expenses for travel and business related expenses of $28,543 and accrued compensation of $45,000 for the three months ended March 31, 2011 totaling $73,543.  

**NOTE 6 - ASSET RETIREMENT OBLIGATIONS**

 

The Company records the fair value of a liability for asset retirement obligations (“ARO”) in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. The present value of the estimated asset retirement cost is capitalized as part of the carrying amount of the long-lived asset and is depreciated over the useful life of the asset. The Company accrues an abandonment liability associated with its oil and gas wells when those assets are placed in service. The ARO is recorded at its estimated fair value and accretion is recognized over time as the discounted liability is accreted to its expected settlement value. Fair value is determined by using the expected future cash outflows discounted at the Company’s credit-adjusted risk-free rate. No market risk premium has been included in the Company’s calculation of the ARO balance.

The following is a description of the changes to the Company’s asset retirement obligations the three month period ended March 31, 2011 and the year ended December 31, 2010.

**Successor Company**

 

 

**March 31,**

**2011**

 

 

**December 31,**

**2010**

 

Asset retirement obligation at beginning of the period

$

21,562

 

$

-

 

Additions

 

-

 

 

20,170

 

Accretion expense

 

467

 

 

1,392

 

Asset retirement obligation at end of the period

$

22,029

 

$

21,562

 

 

- 10 -

**Predecessor Company**

 

 

 

 

 

 

**From January 1, 2010**

** to**

**April 1, 2010**

 

Asset retirement obligation at beginning of the period

$

16,157

 

Additions

 

-

 

Accretion expense

 

6,041

 

Asset retirement obligation at end of the period

$

22,171

 

**NOTE 7 - EQUITY**

Common Stock

The Company is authorized to issue 200,000,000 shares of common stock, at $0.001 par value, of which 42,943,669 common shares were issued and outstanding as of March 31, 2011. 

Preferred Stock

The Corporation is authorized to issue classes of preferred stock to be designated by the Board of Directors. The total number of preferred shares that the Company is authorized to issue is 20,000,000 shares with a par value of $0.001 per share which none has been issued or outstanding as of March 31, 2011. Except as otherwise required by statute, the designations and the powers, preferences and rights, and the qualifications or restrictions thereof, of any class or classes of stock or any series of any class of stock of the Company may be determined from time to time by resolution or resolutions of the Board of Directors.

Options

As of March 31, 2011, no options to purchase common stock of the Company were issued and outstanding. 

Warrants

As of March 31, 2011, no warrants to purchase common stock of the Company were issued and outstanding. 

Private Placements, Other Issuances and Cancellations

The Company periodically issues shares of its common stock and potentially warrants to purchase shares of common stock to investors in connection with private placement transactions, as well as to advisors and consultants for the fair value of services rendered. 

On February 28, 2011 the Company issued 250,000 common shares for $25,000 in cash proceeds and on March 9, 2011 the Company issued 384,616 common shares for $25,000 in cash proceeds in private placements. The price received in the private placements was $0.10 and $0.065 per share, respectively.

**NOTE 8 - RELATED PARTY TRANSACTIONS**

Our President had expenses for travel and business related expenses of $28,543 and accrued compensation of $45,000 for the three months ended March 31, 2011 totaling $73,543.  

- 11 -

**NOTE 9 - COMMITMENTS AND CONTINGENCIES**

*Employment Agreement*

The Company entered into an employment agreement with its President (the “Executive’) on April 7, 2010, which was amended on July 1, 2010, May 10, 2011, May 23, 2012, June 29, 2012, and June 30, 2012 (the “Employment Agreement”). The Employment Agreement, as amended, initially expires on July 1, 2013 and shall automatically renew on an annual basis unless terminated in accordance with the provisions of the Employment Agreement. The Employment Agreement, as amended, provides for:

i.A monthly salary from July 1, 2010 through September 1, 2010 of $10,000 per month and $25,000 per month after January 1, 2011 subject to an annual increase of not less than the Consumer Price Index and consistent with the Company policy applicable to other senior executives and officers and approval by the Board of Directors.

ii. A cash bonus of 25% of his annual base salary each year if the Company reaches the following milestones (none of which were attained in 2011 or 2010):

a.

The Company posts annual gross revenues on a consolidated basis of at least $4,000,000;

b.

The Company's earnings before the deduction of income taxes and amortization expenses (“EBITA”), including cash extraordinary items but before officer's bonuses, on a consolidated basis for any year is at least $1,000,000; or

c.

The completion of annual funding, including equity and debt, of at least $3,000,000.

iii. The issuance of shares equal to 6% of the then issued and outstanding shares of the Company on May 15, 2011 (2,825,620 shares), which were issued in 2011.

iv. The issuance of options (the Employment Agreement refers to them as warrants) on each anniversary date of the Employment Agreement beginning in 2013, with a five-year exercise period, to purchase 1% of the then issued and outstanding shares of the Company exercisable at a price equal to the trailing six-month average share trading price prior to grant date.

v. An automobile allowance of $1,859.72 per month beginning October 1, 2012.

vi. In the event the Executive's employment is terminated without cause he will receive 12 months of severance pay and all warrants for the following year will be immediately granted.  

During the three months ended March 31, 2012, the Company paid $30,000 in compensation and recorded accrued compensation expense of $45,000 for the portion of unpaid compensation.

On May 10, 2011 the Company and Executive amended the Employment Agreement to allow the Company to issue the 2,825,625 common shares on May 15, 2011 rather than on September and December 2010 as required by the Employment Agreement.

 

On May 23, 2012 and June 29, 2012 the Company and Executive agreed to amend the Employment Agreement so that the Company is not obligated for two issuances of warrants for the years 2011 and 2012, respectively and therefore did not grant or issue any warrants to Executive. Combined, the warrants would have allowed Executive to purchase 2% of the then issued and outstanding shares of the Company’s common shares at the market price per share on the date of issuance, for a period of 5 years, as per the Employment Agreement.

 

On June 29, 2012 the Company and Executive agreed to amend the Employment Agreement so that the Company is not obligated to the Executive for a total of $60,000 of deferred salary or $15,000 a month for the four months ended December 31, 2010 as per the Employment Agreement.

- 12 -

On June 30, 2012 the Company and Executive agreed to amend the Employment Agreement so that the Company is not obligated to the Executive for executive auto allowance and medical benefits in the amount of $91,791.60 for the period from April 7, 2010 through September 30, 2012. Therefore, the Company has not accrued this as an obligation of the Company.

**NOTE 10 - SUBSEQUENT EVENTS**

In accordance with ASC 855, the Company evaluated subsequent events through the date these financial statements were available to be issued. Material subsequent events that required recognition or additional disclosure in these financial statements are described below.

On April 26, 2011, the Board of Directors granted Stephen Thompson 4,000,000 restricted shares of Common Stock under its 2007 Equity Compensation Plan as full compensation for services rendered as Chief Executive Officer of the Company.  The fair value of the shares was $320,000 on April 26, 2011 (grant date) based on the quoted market price per share.

- 13 -

**ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**Forward-Looking Statements**

Management’s Discussion and Analysis contains various “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-Q/A, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.

Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include those identified in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.

 

In addition, the foregoing factors may affect generally our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements.

Our Company was originally formed on January 26, 2007 in Delaware, to engage in the acquisition and consolidation of companies engaged in the foodservice industry (including with respect to organic and natural food products). As of April 1, 2010, our primary business focus became the exploration and, development of oil and natural gas properties as a result of the acquisition of producing oil and gas properties.

On April 1, 2010, the Company acquired interests in 39 oil wells and 19 gas wells, (a total of 58 wells), and the related support equipment, located on approximately 1,500 leased acres in Kentucky and Tennessee. Under the agreements, the Company acquired all rights, titles and interests to the sellers’ oil and gas wells and support equipment free and clear of all liabilities, liens and encumbrances. 

- 14 -

**Supplemental Oil and Gas Information**

The following information is intended to supplement the unaudited consolidated financial statements included in this report with data that is not readily available from those statements.

 

 

Three Months Ended March 31,

 

 

2011

 

 

2010

Production

 

 

 

 

 

Oil (Bbls)

 

 

918

 

 

 

-

Gas (Mcf)

 

 

-

 

 

 

-

Barrel of Oil Equivalent (“BOE”) 

 

 

918

 

 

 

-

 

 

 

 

 

 

 

 

Average Prices

 

 

 

 

 

 

 

Oil ($/Bbl)

 

$

94.21

 

 

$

-

Gas ($/Mcf)

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

Average Lifting Cost

 

 

 

 

 

 

 

Per BOE

 

$

48.33

 

 

$

-

**Results of Operations**

We use the successful efforts method of accounting for oil and gas operations.  Presently we are producing oil from our Kentucky properties.  Our natural gas wells are not currently producing.

Our revenues for the three months ended March 31, 2011 were $86,500 as compared to $0 for 2010.  During the three months ended March 31, 2011 we produced approximately 918 barrels and received an average price per barrel of $94.21.  We did not have any oil and gas production during the three months ended March 31, 2010. 

Our operating expenses for production activities for the three months ended March 31, 2011 were $63,553 (comprised of $44,377 of lease operating expenses and $19,176 of depreciation, depletion and amortization) as compared to $0 for 2010.  Our primary operation is the drilling and production of our oil and gas properties.  The wells in Kentucky are shallow wells (approximately 1,300 feet).  We did not have oil and gas production during the three months ended March 31, 2011 and 2010.

Our general and administrative expenses for the period ended March 31, 2011 were $179,392 as compared to $41,291 for 2010.   The increase in general and administrative expenses was due to additions to our management team and the hiring of consultants in connection with a planned acquisition which was terminated, as well as in anticipation of future acquisitions.  We pay our employees and consultants largely in common shares as our cash availability is currently limited. 

**Liquidity and Capital Resources**

Our cash used in operating activities for the three months ended March 31, 2011 was $65,878 as compared to $13,169 for the three months ended March 31, 2010.   The decrease in operating cash flow was primarily attributable to higher general administrative expenses for employees and services in 2011.

Our cash provided by financing activities for the three months ended March 31, 2011 was $50,000 as compared to $22,000 for 2010.  The increase in financing activities was due to the proceeds from the issuance of 631,616 shares of common stock for $50,000 in 2011 compared to proceeds of $22,000 from notes payables in 2010, respectively.  

- 15 -

In October 2010, a shareholder advanced $15,000 at no interest rate and is due and payable upon demand. 

Our future development plan is uncertain and is dependent on our ability to effectively drill for oil and gas and obtain contract and leasing opportunities on oil and gas properties and/or acquisitions. There are no assurances of the ability of our company to drill economically producible wells. The process/practice of drilling for oil and gas is cost intensive. Accordingly, it is critical for us to raise sufficient capital to implement our business plan.  We incurred net losses of $156,912 and $41,331 for the three months ended March 31, 2011 and 2010, respectively. 

We believe we will have to rely on public and private equity and debt financings to fund our liquidity requirements over the next twelve months.  We may be unable to obtain any additional financings on terms favorable to us, or obtain additional funding at all. If adequate funds are not available on acceptable terms, and if cash and cash equivalents, together with any income generated from operations, fall short of our liquidity requirements, we may be unable to sustain operations. Continued negative cash flows could create substantial doubt regarding our ability to fully implement our business plan and could render us unable to expand our operations, respond to competitive pressures, or take advantage of acquisition opportunities, any of which may have a material adverse effect on our business. If we raise additional funds through the issuance of equity securities, our stockholders may experience dilution of their ownership interest, and the newly issued securities may have rights superior to those of our common stock. If we raise additional funds by issuing debt, we may be subject to limitations on our operations, including limitations on the payment of dividends. 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of the Company as a going concern. However, the Company has losses from operations for the three months ended March 31, 2011.   Further, the Company has inadequate working capital to maintain or develop its assets, and is dependent upon funds from lenders, investors and the support of certain stockholders.  

These factors raise substantial doubt about the ability of the Company to continue as a going concern.  The consolidated financial statements herein do not include any adjustments that might result from the outcome of these uncertainties.  In this regard, Company management is pursuing additional funds through loans and additional sales of its common stock. 

The Company's ability to meet its obligations and continue as a going concern is dependent upon its ability to obtain additional financing, achievement of profitable operations and/or the discovery, exploration, development and sale of oil and gas reserves. Although the Company is pursuing additional financing, there can be no assurance that the Company will be able to secure financing when needed or to obtain such financing on terms satisfactory to the Company, if at all.  We have limited cash and cash equivalents and rely on investment from shareholders and other financing.  We have relied upon advances from our CEO to fund operating expenses.  We need $100,000 per month to fund operating expenses and professional fees of the company.  

**Off-balance sheet arrangements**

We have no off-balance sheet arrangements including arrangements that would affect the liquidity, capital resources, market risk support and credit risk support or other benefits.

- 16 -

**WHERE YOU CAN FIND MORE INFORMATION**

 

You are advised to read this Quarterly Report on Form 10-Q/A in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q/A, Annual Reports on Form 10-K, Current Reports on Form 8-K and proxy statements that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.

 

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Our business is currently conducted principally in the United States. As a result, our financial results are not affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets. We do not engage in hedging transactions to reduce our exposure to changes in currency exchange rates, although if the geographical scope of our business broadens, we may do so in the future. 

Our exposure to risk for changes in interest rates relates primarily to our investments in short-term financial instruments. Investments in both fixed rate and floating rate interest earning instruments carry some interest rate risk. The fair value of fixed rate securities may fall due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Partly as a result of this, our future interest income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that have fallen in estimated fair value due to changes in interest rates. However, as substantially all of our cash equivalents consist of bank deposits and short-term money market instruments, we do not expect any material change with respect to our net income as a result of an interest rate change.

We do not hold any derivative instruments and do not engage in any hedging activities.  

**ITEM 4.  CONTROLS AND PROCEDURES**

 

(a)  Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet their objectives. As required by SEC Rule 13a-15(b), our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described in Management's Report on Internal Control over Financial Reporting as reported in our Form 10-K for the year ended December 31, 2010.

- 17 -

The Company’s material weaknesses in financial reporting were:

The inability of the Company to prepare and file its financial statements timely due to its limited financial and personnel resources and delays in the Company’s ability to respond to SEC inquiries regarding financial and accounting presentation in its 2010 Form 10K, which was subsequently amended.  Further, the amendment to its Form 10K caused the Company to be unable to file the required 2011 financial statements by the reporting deadline of April 15, 2012 and its Form 10-Q for the period ended March 31, 2012 by the reporting deadline of May 15, 2012.

 

There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This quarterly report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Our report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

**PART II**

**OTHER INFORMATION**

**ITEM 1. LEGAL PROCEEDINGS**

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. Other than described below, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting the Company, our common stock, any of our subsidiaries or of the Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

**ITEM 1A - RISK FACTORS**

 

There were no material changes from the risk factors previously disclosed in Part II, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010 during our three months ended March 31, 2011.

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

On February 28, 2011 the Company issued 250,000 common shares for $25,000 and on March 9, 2011 the Company issued 384,616 common shares for $25,000.

- 18 -

On April 26, 2011, the Board of Directors granted Stephen Thompson 4,000,000 restricted shares of Common Stock under its 2007 Equity Compensation Plan as full compensation for services rendered as Chief Executive Officer of the Company.  The fair value of the shares was $320,000 on April 26, 2011 (grant date) based on the quoted market price per share.

The offer and sale of such shares of our common stock were effected in reliance on the exemptions for sales of securities not involving a public offering, as set forth in Rule 506 promulgated under the Securities Act and in Section 4(2) of the Securities Act. A legend was placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequent registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.

**ITEM 3.  DEFAULTS UPON SENIOR SECURITIES**

  

There were no defaults upon senior securities during the period ended March 31, 2011.

**ITEM 4. RESERVED.**

 

**ITEM 5.  OTHER INFORMATION**

 

There is no information with respect to which information is not otherwise called for by this form.

 

**ITEM 6.  EXHIBITS**

 

**31.1**

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act

**31.2**

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

**32.2**

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

**32.2**

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

- 19 -

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) 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.

 

Registrant

 

Date: September 19, 2012

 

*Consolidation Services, Inc.*

* *

*By: /s/ Gary D. Kucher*
                                                       
 

Gary D. Kucher 

  

 

Chief Executive Officer (Principal Executive Officer)

 

 

Registrant

 

Date: September 19, 2012

 

*Consolidation Services, Inc.*

* *

*By: /s/ Richard S. Polep*

  

 

Richard S. Polep 

  

 

Chief Financial Officer (Principal Financial Officer)

- 20 - |
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