`        
**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

                                        

  (Mark One)

**[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

FOR THE QUARTERLY PERIOD ENDED: **MARCH 31, 2008**

 

**[   ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

FOR THE TRANSITION PERIOD FROM _________ TO __________

 

**Commission file number: 333-142105**

 

 

**CONSOLIDATION SERVICES, INC.**

(Exact name of smaller reporting company as specified in its charter)

 

**Delaware**

**20-8317863**

(State or other jurisdiction of

(IRS Employer

incorporation or organization)

Identification No.)

 

2756 N. Green Parkway, Suite 225

Henderson, NV  89014

(Address of principal executive offices)

 

(702) 614-5333

(Issuer’s telephone number)

 

N/A

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

 

Check whether the issuer (1) filed all reports required to filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or 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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large accelerated filer

[   ]

Accelerated filer

[   ]

Non-accelerated filer

[   ]

Smaller reporting company

[X]

(Do not check if a 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 [X]   No [   ]

 

 

 

 
 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  There were a total of13,159,636 shares of the registrant’s common stock, par value $.001 per share, outstanding as of May 12, 2008 and no other classes of common stock.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 
 

**Consolidation Services, Inc.**

**Quarterly Report on Form 10-Q**

**Period Ended March 31, 2008**

 

 

**Table of Contents**

 
 
Page

PART I .  FINANCIAL INFORMATION
   
Item 1.  Financial Statements:
 
     Condensed Balance Sheets as of March 31, 2008 (Unaudited) and	
 
       	December 31, 2007 (Audited)
4
     Condensed Statement of Operations for the three months	
 
        ended March 31, 2008, for the period from Inception on January 26, 2007,
 
        through March 31, 2007, and for the period from Inception on January 26, 2007	
 
        through March 31, 2008 (Unaudited)
5
     Condensed Statements of Stockholders’ Equity (Deficit) for the period from Inception
 
        on January 26, 2007 through March 31, 2008 (Unaudited)
6
     Condensed Statements of Cash Flow for the three months ended	
 
        March 31, 2008, the period from Inception on January 26, 2007
 
        through March 31, 2007, and the period from Inception on	
 
        January 26, 2007 through March 31, 2008  (Unaudited)
7
     Notes to Condensed Financial Statements (Unaudited)
8
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
10
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
16
Item 4T.  Controls and Procedures
16  
PART II .  OTHER INFORMATION
   
Item 1.  Legal Proceedings
17
Item 1A Risk Factors
17
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
17
Item 3.  Defaults Upon Senior Securities
17
Item 4.  Submission of Matters to a Vote of Security Holders
17
Item 5.  Other Information
17
Item 6.  Exhibits
18  
SIGNATURES
19  
EXHIBIT INDEX
20
 

 
 
3

 
 

**PART I.  FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

**CONSOLIDATION SERVICES, INC.**

(A Development Stage Company)

Balance Sheets

 

ASSETS
 
**March 31,**
 
**December 31,**
 
**2008**
 
**2007**
 
(unaudited)
        
CURRENT ASSETS
           
     Cash

$

450,643
 
$

78,482

     Deposits on property purchases
 
105,000
  
-
      
          Total Current Assets
 
555,643
  
78,482
      
PROPERTY AND EQUIPMENT, NET
 
184,469
  
189,469
      
          TOTAL ASSETS

$

740,112
 
$

267,951
      
LIABILITIES AND STOCKHOLDERS'  EQUITY
      
CURRENT LIABILITIES
           
     Accounts payable and accrued expenses

$

3,854
 
$

10,732

     Notes payable
 
115,000
  
125,000
      
          Total Current Liabilities
 
118,854
  
135,732
      
STOCKHOLDERS' EQUITY 
           
     Common stock; 50,000,000 shares	
     
        authorized at $0.001 par value, 11,497,236 and 10,980,236	
     
        shares issued and outstanding
 
11,497
  
10,980

     Additional paid-in capital
 
814,239
  
297,756

     Accumulated deficit
 
(204,478)
  
(176,517)
      
          Total Stockholders' Equity	
 
621,258
  
132,219
      
          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

740,112
 
$

267,951

 

 

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

 
 
4

 
**CONSOLIDATION SERVICES, INC.**

(A Development Stage Company)

Statements of Operations

(unaudited)

 
   
**From Inception**
 
**From Inception**
 
**For the Three**
 
**on January 26,**
 
**on January 26,**
 
**Months Ended**
 
**2007 Through**
 
**2007 Through**
 
**March 31,**
 
**March 31,**
 
**March 31,**
 
**2008**
 
**2007**
 
**2008**
         
REVENUES

$

-
 
$

-
 
$

-

COST OF SALES
 
-
  
-
  
-

GROSS MARGIN
 
-
  
-
  
-
         
OPERATING EXPENSES
                 
     General and administrative
 
27,961
  
22,445
  
204,478
         
          Total Expenses
 
27,961
  
22,445
  
204,478
         
LOSS FROM OPERATIONS
 
(27,961)
  
(22,445)
  
(204,478)
         
INCOME TAX EXPENSE
 
-
  
-
  
-
         
NET LOSS

$

(27,961)
 
$

(22,445)
 
$

(204,478)
         
BASIC LOSS PER COMMON SHARE

$

(0.00)
 
$

(0.00)
            
WEIGHTED AVERAGE NUMBER
        
   OF COMMON SHARES OUTSTANDING
 
11,238,736
  
10,000,000
   
 

 

 

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

 
 
5

 
**CONSOLIDATION SERVICES, INC.**

(A Development Stage Company)

Statements of Stockholders' Equity

(unaudited)

 
     
**Deficit**
       
**Accumulated**
     
**Additional**
 
**During the**
 
**Total**
 
**Common Stock**
 
**Paid-In**
 
**Development**
 
**Stockholders'**
 
**Shares**
 
**Amount**
 
**Capital**
 
**Stage**
 
**Equity**
              
Balance, January 26, 2007

-
 
$

-
 
$

-
 
$

-
 
$

-
              
Shares issued for cash
             
   at $0.001 per share

9,000,000
  
9,000
  
-
  
-
  
9,000
              
Shares issued for cash
             
   at $0.05 per share

1,000,000
  
1,000
  
49,000
  
-
  
50,000
              
Shares issued for services
             
   at $0.10 per share

815,000
  
815
  
80,685
  
-
  
81,500
              
Fair value of common stock	
             
   warrants granted

-
  
-
  
3,000
  
-
  
3,000
              
Common stock warrants	
             
   exercised at $1.00	
             
   per share

160,600
  
160
  
160,440
  
-
  
160,600
              
Common stock warrants	
             
   exercised for expenses paid  
             
   at $1.00 per share

4,636
  
5
  
4,631
  
-
  
4,636
              
Net loss from inception
             
   through December 31, 2007

-
  
-
  
-
  
(176,517)
  
(176,517)
              
Balance, December 31, 2007

10,980,236
  
10,980
  
297,756
  
(176,517)
  
132,219
              
Common stock warrants	
             
   exercised at $1.00	
             
   per share

517,000
  
517
  
516,483
  
-
  
517,000
              
Net loss for the three months
             
   ended March 31, 2008

-
  
-
  
-
  
(27,961)
  
(27,961)
              
Balance, March 31, 2008

11,497,236
 
$

11,497
 
$

814,239
 
$

(204,478)
 
$

621,258

 

 

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

 
 
6

 
**CONSOLIDATION SERVICES, INC.**

(A Development Stage Company)

Statements of Cash Flows

(unaudited)

 
   
**From Inception**
 
**From Inception**
 
**For The Three**
 
**on January 26,**
 
**on January 26,**
 
**Months Ended**
 
**2007 Through**
 
**2007 Through**
 
**March 31,**
 
**March 31,**
 
**March 31,**
 
**2008**
 
**2007**
 
**2008**
         
OPERATING ACTIVITIES
                 
     Net loss

$

(27,961)
 
$

(22,445)
 
$

(204,478)

     Adjustments to reconcile net loss to net cash
        
        used by operating activities:
        
        Common stock and warrants issued for services
 
-
  
-
  
84,500

        Common stock issued for expenses paid
 
-
  
-
  
4,636

     Changes in operating assets and liabilities:
        
        Change in deposits on property purchases
 
(100,000)
  
-
  
(105,000)

        Change in accounts payable and accrued expenses
 
(6,878)
  
-
  
3,854
         
          Net Cash Used by Operating Activities
 
(134,839)
  
(22,445)
  
(216,488)
         
INVESTING ACTIVITIES
                 
     Purchase of property and equipment
 
-
  
-
  
(184,469)
         
          Net Cash Used by Investing Activities
 
-
  
-
  
(184,469)
         
FINANCING ACTIVITIES
                 
     Repayment of loans payable
 
(33,000)
  
-
  
(98,000)

     Proceeds from loans payable
 
23,000
  
-
  
213,000

     Proceeds from common stock issued
 
517,000
  
59,000
  
736,600
         
          Net Cash Used by Financing Activities
 
507,000
  
59,000
  
851,600
         
          NET	INCREASE IN CASH
 
372,161
  
36,555
  
450,643
         
          CASH AT BEGINNING OF PERIOD
 
78,482
  
-
  
-
         
          CASH AT END OF PERIOD

$

450,643
 
$

36,555
 
$

450,643
         
SUPPLEMENTAL DISCLOSURES OF
        
   CASH FLOW INFORMATION
                 
CASH PAID FOR:
                 
     Interest

$

71
 
$

-
 
$

811

     Income Taxes

$

-
 
$

-
 
$

-

 

The accompanying notes are an integral part of these financial statements.
 
7

 
**CONSOLIDATION SERVICES, INC.**

(A Development Stage Company)

Notes to the Financial Statements

 

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

 

The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 31, 2008 and for all periods presented have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2007 audited financial statements.  The results of operations for the periods ended March 31, 2008 and 2007 are not necessarily indicative of the operating results for the full year.

 

NOTE 2 - GOING CONCERN

 

The Company’s financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  The Company has had no revenues and has generated losses from operations.

 

In order to continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, additional capital resources and to develop a consistent source of revenues.  Management’s plans include investing in and developing all types of businesses related to the food service industry.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations.  The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

NOTE 3 - EQUITY TRANSACTIONS

 

During the three months ended March 31, 2008, the Company issued 517,000 shares of its common stock for cashin an amount of $1.00 per share.

 

NOTE 4 - SIGNIFICANT EVENTS

 

The Company in January 2008 purchased an option to acquire approximately 1,000 acres of land in Eastern Kentucky with coal development rights.  It is intended that this land will be used for organic farming operations following proposed energy resource operations and planned reclamation efforts, as part of the Company’s business plan. The purchase price for the 1,000 acres is $1,500,000, with $1,000,000 payable to the land owner and $500,000 payable to the AMS Development Group. AMS located and optioned the property initially and are providing oversight of coal permitting and leasing. The Company has
 
 

8

 
**CONSOLIDATION SERVICES, INC.**

(A Development Stage Company)

Notes to the Financial Statements

 

NOTE 4 - SIGNIFICANT EVENTS (CONTINUED)

 

deposited $100,000 on the property, of which $67,000 is refundable as of March 31, 2008.

 

Effective March 27, 2008, the Company entered into a Property Agreement with Billy David Altizer, Pat E. Mitchell, Howard Prevette, William Dale Harris (collectively, the “Sellers”) and Buckhorn Resources LLC (“BR”), Kentucky Limited Liability Company to acquire a fifty (50%) percent equity ownership interest in BR.  BR owns approximately 10,500 acres of land with coal rights in Eastern Kentucky.  BR estimates there are approximately 269 million tons of coal of which approximately 135 million tons are mineable.  

 

The purchase price is $4,200,000 payable one-half in cash and one-half in the Company’s common stock consisting of 1,093,750 shares valued at $1.92 per share.  The shares are subject to a lock-up/leak-out agreement permitting weekly sales of up to 21,034 shares commencing on April 1, 2009.  The Company will guarantee payment of the $2,100,000 value of the shares as long as the shares are sold in accordance with the terms of the lock-up.  Any sales proceeds in excess of $4.80 shall be paid to the Company.  Of the purchase price, $600,000 is payable directly to BR as a capital contribution to fund development activities on the property including title research/surveying activities and obtaining coal mining permits, all pursuant to a budget approved by the Sellers and the Company.

 

Closing of the transaction is scheduled to occur on or before June 1, 2008, conditioned upon negotiations and execution of a definitive purchase agreement, audited financial statements of BR, any required regulatory approvals and customary closing conditions.

 

The Company can use the surface rights on the first 5,200 acres for which a higher value use has not been identified at no additional charge for its organic production operations.  The Company shall have the right of first refusal on any offer made for agricultural use of any additional acres made available for organic use unless and until a higher value is determined.  

 

 

 

 

 
 
9

 
**Item 2.  Management’s Discussion and Analysis of Financial Conditions and Results of Operations.**

 

*Forward-Looking Statements*

 

*Statements contained in this Item 2. “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and elsewhere in this document that are not historical or current facts may constitute “forward-looking statements” within the meaning of such term in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual financial or operating results of the Company to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements.  Factors that could cause actual results to differ materially from those predicated in any such forward-looking statements include: our ability to raise funds; our business strategies and future plans of operations; our ability to attract and retain qualified personnel; our ability to identify and successfully consummate and manage future acquisitions; our ability to compete against much larger companies; general economic conditions in the United States, as well as the economic conditions affecting the industry in which we operate; our current operating losses; and the competitive environment within the industry in which we compete.  Such forward-looking statements are based on our best estimates of future results, performance or achievements, based on current conditions and the most recent results of the Company.  In addition to statements that explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms “may,” “will,” “potential,” “opportunity,” “believes,” “expects,” “intends,” “estimates,” “anticipates” or “plans” to be uncertain and forward-looking.  The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in the Company’s reports and registration statements filed with the SEC.*

 

General

 

The Company has relied on its initial capitalization from its founders, the February 2007 Private Placement of $50,000, and the recent fundings of $160,600 and $517,000 from the exercise of the Class A Warrants, at a reduced exercise price of $1.00 per share, in November and December of 2007 and February and March of 2008, respectively.   The Company used the proceeds of the sale of securities to pay its organizational expenses, audit and legal expenses for its initial registration statement, as well as to meet its ongoing reporting and compliance obligations.  Through loans from an affiliated entity and the exercise of Warrants we were able to complete our first land acquisition.  The Company intends to raise additional funds from new investors and/or the exercise of outstanding Warrants at reduced exercise prices in order to fund its proposed operations.  Thoughthe Second Warrant Reduction (as defined below), we raised funds to complete additional land acquisitions.

 
 
10

 
The Company was formed on January 26, 2007, to engage in the acquisition and consolidation of companies engaged in the foodservice industry (including with respect to organic and natural food products).  The Company falls under the definition of a "shell" company, an entity which is generally described as having no or nominal operations and with no or nominal assets or assets consisting solely of cash and cash equivalents and because the Company did not engage in any business activities that provide cash flow.  As a shell company, the Company's primary purpose at this time is to either grow internally or locate and consummate a merger or acquisition of one or more domestic or foreign companies primarily in the foodservice industry.  While the Company has contracted to purchase land and certain oil, gas and mineral rights, it does not have any agreements, arrangements or understandings to acquire any other company.

 

Internal Growth of Business

 

In addition to our primary objective of growth by business combinations, we have a secondary or complementary objective of furthering our business strategy through internal growth, mainly through the development of organic and natural food products or brands, entering into “preferred supplier” agreements with other entities in the foodservice industry that have a need for organic and natural food products, growth of customers, and/or land acquisitions for the production of organic food products.  Additionally, management believes that the Company may be able to generate revenues,  on both a long term and short-term basis, through coal development and the drilling of wells for oil and/or natural gas on its owned land, to help finance the Company's plans in the organic food sector.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Going Concern

 

The Company's financial statements have been preparedusing generally accepted accounting principles applicable to a going concernwhich contemplates the realization of assets and liquidation of liabilities inthe normal course of business.  The Company has had no revenues and hasgenerated losses from operations.  In order to continue as a going concern andachieve a profitable level of operations, the Company will need, among otherthings, additional capital resources and to develop a consistent source ofrevenues.  

 

 

 

11

 
Critical Accounting Policies

 

We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations.  The list is not intended to be a comprehensive list of all of our accounting policies.  In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management's judgment in their application.  The impact and any associated risks related to these policies on our business operations is discussed throughoutManagement's Discussion and Analysis of Financial Condition and Results of Operation where such policies affect our reported and expected financial results.  Note that our preparation of the financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period.  There can be no assurance that actual results will not differ from those estimates.

 

**Revenue Recognition**

 

The Company will determine its revenue recognition policies when required.

 

**Stock based Compensation Expense**

 

The Company adopted SFAS No. 123R, "Share-Based Payments" in the first quarter of fiscal 2007. Under the requirements of SFAS No. 123R, share-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period of the award. The Company recognizes stock option expense using the straight-line attribution method under SFAS No. 123R. The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options. Option valuation models require the input of assumptions, including the expected life of stock options, the expected stock price volatility, the risk-free interest rate, and the expected dividend yield. The expected volatility and expected life are based on our limited operating experience. The risk-free interest rate is based on U.S. Treasury interest rates whose term is consistent with the expected life of the stock options. Expected dividend yield was not considered in the option pricing formula as we do not pay dividends and have no current plans to do so in the future. We will update these assumptions if changes are warranted.  

 

**Material Changes in Results of Operations For the Three Month Period Ended March 31, 2008 As Compared to the Period From Inception (January 26, 2007) through March 31, 2007**

 

*Revenues.* We did not have any revenues during the period ended March 31, 2008 representing no change from the corresponding period from inception (January 26, 2007) through March 31, 2007.  We expect that our initial revenues will be derived from coal royalties or other energy revenues from our land acquisitions prior to their being reclaimed for organic farming.

 

 

12

 
 

*Operating expenses.* Total general and administrative expenses for the first quarter of 2008 were $27,961, compared to $22,445 for the comparable period of 2007 beginning from inception (January 26, 2007) through March 31, 2007.  The minor increase in 2008 was due primarily to the increased expenses incurred in the first quarter 2008 for legal and accounting fees relating to our December 31, 2007 audit, SEC filings (including Forms 10-K and 8-K), expenses incurred in connection with land acquisitions and other corporate transactions, as well as the filing of post-effective amendment No. 1 to our registration statement on Form SB-2, as well as the filing of our registration statement on Form S-1.

 

*Net loss.*Net loss was $27,961 for the three months ended March 31, 2008, as compared to $22,445 for the period from inception (January 26, 2007) through March 31, 2007, reflecting the impact of costs incurred relating to organizational activities, increased SEC reporting and compliance, professional fees, as well as land acquisitions and corporate transactions.  The Company had a net loss of $204,478, for the period from inception (January 26, 2007) through March 31, 2008.  

 

**Material Changes in Financial Condition, Liquidity and Capital Resources as of March 31, 2008**

 

Liquidity and Capital Resources

 

The Company has a limited commercial operating history and does not have any revenues or earnings from operations to date.  On February 5, 2008, the Company’s Board of Directors authorized the temporary reduction of the warrant exercise price for the Class A, B and C Warrants (individually or collectively, the “Warrants”) from $3.00, $6.00 and $12.00 per share, respectively, to $1.00 per share in each case for the period commencing February 6, 2008 through April 30, 2008 (the “Second Warrant Reduction”),  as disclosed in the Company’s Current Report on Form 8-K, filed with the SEC on February 6, 2008.  The purpose of the Second Warrant Reduction was to provide the Company with additional capital to close pending acquisitions and negotiate additional transactions.   As a result of the Second Warrant Reduction, in February and March 2008 the Company received $517,000, including $496,000 in cash and $21,000 via the Company’s partial repayment of a note.

 

In furtherance of the Company’s secondary objective of internal growth, as described in the “Internal Growth of Business” section above, on January 8, 2008, the Company entered into an Agreement to Assign Real Estate Purchase Option to acquire approximately 1,000 acres of land in Eastern Kentucky for $1 million (the “Option Purchase Agreement”).  The Option Purchase Agreement provides for the Company to enter into a coal development agreement with an experienced energy and timber development group. The AMS Development Group (the “Development Group”) anticipates mining activities and receipt of royalties to commence in calendar year 2008. Royalty rates are typically ten percent or approximately five dollars per ton based on current prices for this quality of coal.

 
 
13

 
In connection with the Option Purchase Agreement, the Company has paid an initial deposit of $100,000, and will pay the Development Group an additional $400,000 plus fifty (50%) percent of the coal royalty revenues towards obtaining permits, and to prepare all reclamation plans, contract for coal mining and oversee the actual mining and reclamation process.  As of March 10, 2008, an aggregate of $33,000 of the initial deposit has been released from escrow, including $13,000 towards obtaining a coal mining permit application and $10,000 in order to extend the Option Purchase Agreement until the later of May 8, 2008 or until 14 days after title to the property is cleared.

 

On March 27, 2008, the Company entered into an Agreement with Billy David Altizer, Pat E. Mitchell, Howard Prevette, William Dale Harris (collectively, the “Sellers”) and Buckhorn Resources LLC (“BR”), a Kentucky Limited Liability Company, to acquire a fifty (50%) percent equity ownership interest in BR, which in turn owns approximately 10,500 acres of land with coal rights in Eastern Kentucky, in consideration for $4,200,000 payable one-half in cash and one-half in the Company’s common stock consisting of 1,093,750 shares valued at $1.92 per share, as disclosed in the Company’s Current Report on Form 8-K, filed with the SEC on March 31, 2008.  BR estimates there are approximately 269 million tons of coal of which approximately 135 million tons are mineable.  Closing of the transaction is scheduled to occur on or before June 1, 2008, conditioned upon negotiations and execution of a definitive purchase agreement, audited financial statements of BR, any required regulatory approvals and customary closing conditions.

 

On March 31, 2008, the Company entered into an Option Oil, Gas and Mineral Agreement (the “Option Agreement”) with Eastern Kentucky Land Corporation, a Kentucky corporation (“EK”), which provides that the Company shall have until October 1, 2008 (the “Option Period”) to close the Oil, Gas and Mineral Agreement, attached as Exhibit A to the Option Agreement (the “Rights Agreement”), as disclosed in the Company’s Current Report on Form 8-K, filed with the SEC on April 2, 2008.  The Option Agreement extended the time to close on the Rights Agreement to allow for the Company’s performance of due diligence activities in connection therewith, while allowing the Company to retain the agreed upon financial and other terms existing under the Rights Agreement.  However, the Company may exercise the option to close the Rights Agreement at any time during the six month Option Period.   

 

Under the Rights Agreement, the Company shall acquire all right, title and interest in the oil, gas and other minerals, except for the $0.30 per ton coal rights retained by EK (the “Rights”), on that certain property (the “Property”) owned by BR, as described above.   The total consideration under the Rights Agreement consists of: (i) payment of $200,000 in cash at the closing; and (ii) $800,000 through the issuance of 415,584 shares of unregistered common stock of the Company at closing (the “Shares”), at a price of $1.925 per share.  

 

Under the Option Agreement, the Company paid EK $20,000on or about April 8, 2008 and is obligated to pay an additional $5,000 on the first day of each succeeding month during the Option Period, up to five months, with all monies that are paid by the Company to EK during the Option Period to be credited against the $200,000 due at the closing of the Rights Agreement.  In the event the Company terminates the Option Agreement and the Rights Agreement, EK shall retain all monies owed and paid by the Company under the Option Agreement through the date of the termination.
 
 

14

 
The Company has limited financial resources and, prior to its first land acquisition in November 2007, its activity had been limited to organizational matters, ongoing reporting and compliance matters, and searching for acquisition candidates.  We will, in all likelihood, sustain operating losses until the consummation of a business combination or royalty revenues from the Company’s energy-related operations.  This may result in the Company incurring a net operating loss that will increase continuously until the Company can consummate a business combination with a profitablecompany.  There is no assurance that we can identify such a business opportunity or opportunities and consummate such a business combination, or otherwise develop sufficient assets and/or operations to the point where we cease to be considered a shell company.  In the event the Company can establish an active public market for its securities, management believes it can raise subsequent funds to implement its business strategy and support the Company's operations over the next 12 months.

 

The Company had cash of $450,643 and working capital of $436,789 as of March 31, 2008.  The working capital reflects the increase in cash resulting,in part, from $517,000 in proceeds received in February and March of 2008 from the exercise of certain registered Class A Warrants by selling stockholders or their designees, at the reduced exercise price of $1.00 per share, offset, in part, by $100,000 in cash deposits on property purchases.  In addition, working capital was affected by the reduction of accounts payable from $10,732 at December 31, 2007 to $3,854 at March 31, 2008 and the net reduction of notes payable from $125,000 at December 31, 2007 to $115,000 at March 31, 2008.  

 

Net cash used by operating activities was $216,488 for the period from inception (January 26, 2007) through March 31, 2008, which was attributable to general and administrative expenses of $204,478 since inceptionand $105,000 in connection with the payment of deposits on property purchases,which amounts were offset, in part, by $84,500 which was expensed as a result ofthe issuance of common stock and warrants for services provided.

 

Net cash was used in investing activities of $184,469 was primarily used in connection with land acquisitions.

 

Net cash provided by financing activities was $851,600, representing an aggregate of $736,600in proceeds from Common Stock issued consisting of: $50,000 gross proceeds from private placement investments; $9,000 paid-in capital from the issuance of 9,000,000 shares of common stock held by the founders, $160,600 from the exercise of Class A Warrants in December 2007, and $517,000 from the exercise of Class A Warrants in February and March of 2008.  The Company also received an aggregate of $213,000 of proceeds from loans, of which $98,000 had been repaid as of March 31, 2008.  

 

As a result of the foregoing, the Company had a net increase in cash of $450,643 for the period from inception (January 26, 2007) through March 31, 2008.

 

 

15

 
The Company's future liquidity and cash requirements will depend on a wide range of factors, including the acquisition of operating businesses and/or revenues derived from the development of energy resources on land acquired for organic farming.  In particular, the Company expects to raise capital or seek additional financing. While there can be no assurance that such raising of capital or seeking of additional financing would be available in amounts and on terms acceptable to the Company, management believes that such financing would likely be available on acceptable terms.

 

**Item 3.  Quantitative and Qualitative Disclosure About Market Risk.**

 

The Company, as a smaller reporting company, is not required to provide the information required by this item pursuant to Item 305 of Registration S-K.

 

**Item 4T.  Controls and Procedures.**

 

The certifications of the Company's chief executiveofficer and chief financial officer attached as Exhibits 31.1 and 31.2 tothis Quarterly Report on Form 10-Q include, in paragraph 4 of suchcertifications, information concerning the Company's disclosure controls andprocedures, and internal control over financial reporting. Such certificationsshould be read in conjunction with the information contained in this Item 4T fora more complete understanding of the matters covered by such certifications.

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

Under the supervision and with the participation ofour management, including our chief executive officer and chief financialofficer, we conducted an evaluation of our disclosure controls and procedures,as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgatedunder the Exchange Act, as of March 31, 2008.  Based on this evaluation, ourchief executive officer and chief financial officer have concluded that ourdisclosure controls and procedures are effective to ensure that informationrequired to be disclosed by us in the reports we file or submit under theExchange Act is recorded, processed, summarized, and reported within the timeperiods specified in the SEC's rules and forms and that our disclosure andcontrols are designed to ensure that information required to be disclosed by usin the reports that we file or submit under the Exchange Act is accumulated andcommunicated to our management, including our chief executive officer andchief financial officer, or persons performing similar functions, as appropriateto allow timely decisions regarding required disclosure. 

 

Our management, including our chief executiveofficer and chief financial officer, do not expect that our disclosure controlsand procedures or our internal controls over financial reporting will preventall error and all fraud. A control system, no matter how well conceived andoperated, can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Further, the design of a controlsystem must reflect the fact that there are resource constraints, and thebenefits of controls must be considered relative to their costs. Because of theinherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud, ifany, will be detected.

 

16

 
CHANGES IN INTERNAL CONTROL OVER FINANCIALREPORTING 

 

There were no changes (including corrective actionswith regard to significant deficiencies or material weaknesses) in our internalcontrols over financial reporting that occurred during the quarterly period ended March31, 2008 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PART II.  OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

In the ordinary course of business, the Company may be involved in legal proceedings from time to time.  As of the date of this quarterly report on Form 10-Q, we are not a party to any legal proceedings.
 
**Item 1A.  Risk Factors**

 

Except as set forth below, there are no material changes from risk factors as previously disclosed in the Company’s Form 10-K, filed with the SEC on March 27, 2008:

 

***Limited  public market.***

 

There is a limited public market for our securities.  In addition, Rule 144 promulgated under the Securities Act is not available to our investors that hold unregistered stock until we have ceased to be a shell company, as indicated by filing Form 10 type information, for a period of at least 12 months. There can be no assurance that we will continue to fulfill in the future our reporting requirements under the Exchange Act, maintain the effectiveness of our registration statement(s), or disseminate to the public any current financial or other information concerning the Company.

 

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

 

There were no unregistered sales of equity securities during the quarterly period ended March 31, 2008.

 

Pursuant to the Company’s post-effective amendment No. 1 to its registration statement on Form SB-2, filed with the SEC on January 25, 2008 and declared effective on February 1, 2008 (file no. 333-142105) (the “Registration Statement”), which registered 3,120,000 shares of common stock which were sold to investors in a February 2007 private placement offering, and 2,340,000 shares issuable upon exercise of warrants issued to investors in the February 2007 private placement.  The offering for re-sale of the securities registered under the Registration Statement commenced on or about June 25, 2007 and such offering has not been terminated.  In November and December 2007, the Company received $160,600 in proceeds from the sale of 160,600 shares of common stock, which issued upon exercise of Class A Warrants by seven (7) selling stockholders, at the reduced exercise price of $1.00 per share.  The $160,600 in gross proceeds were used by the Company for general working capital purposes and deposits on land acquisitions.  In February and March of 2008, the Company received an additional $517,000 in proceeds from the sale of 517,000 shares of common stock, which also issued upon exercise of Class A Warrants by nineteen (19) selling stockholders or their designees, at the reduced exercise price of $1.00 per share.  The $517,000 in gross proceeds were used by the Company for general working capital purposes****and deposits on land acquisitions.

 

**Item 3.  Defaults UponSenior Securities.**

 

None.

 

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

 

None.

 

**Item5.  Other Information.**

 

None.

 

17

 
**Item 6.  Exhibits.**

 

Exhibits.

 

Set forth below is a list of the exhibits to this quarterly report on Form 10-Q.

 

Exhibit 

Number

Description
  
3.1

Articles of Incorporation of the registrant(1)	

3.2

By-Laws of the registrant(1)

10.1

Deed of Conveyance dated November 8, 2007, by and between the Company and Anna Jett for real  property in Breathitt County, Kentucky(3)

10.2

Deed of Conveyance dated November 8, 2007, by and between the Company and Anna Jett for mineral interests in Breathitt County, Kentucky(3)

10.3

Deed of Conveyance dated November 8, 2007, by and between the Company and Sutter Drilling LLC  for an undivided interest in oil and gas interests in Breathitt, County, Kentucky(3)

10.4

Consulting Agreement, dated October 19, 2007, by and between the Company and Jon Jannotta(3)

10.5

Scientific Advisory Board Agreement, dated June 18, 2007, between the Company and Henry P. Sartorio(4).	

10.6

Property Agreement, by and among the Company and Billy David Altizer, Pat E. Mitchell, Howard Prevette, William Dale Harris and Buckhorn Resources LLC entered into on March 27, 2008(5).

10.7

Oil, Gas and Mineral Agreement, as amended by the Option Agreement, between	the Company and Eastern Kentucky Land Corporation entered into on March 29, 2008(6).

*31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32.1

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

*32.2

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

* Filed herewith.

(1)  Incorporated by reference from the Company's Form SB-2 filed with the Commission on April 13, 2007.

(2)  Incorporated by reference from the Company's Amendment No. 1 to Form SB-2 filed with the Commission on June 12, 2007.

(3)  Incorporated by reference to the Company's Current Report on Form 10-Q for the quarterly period ended September 30, 2007, filed with the Commission on November 19, 2007.

(4) Incorporated by reference to the Company's Current Report on Form 10-QSB/A forthe quarterly period ended June 30, 2007, filed with the Commission on November 21, 2007.

(5)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 31, 2008.

(6)  Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 2, 2008.

 
 
18

 

**SIGNATURES**

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Dated:  May 15, 2008

Consolidation Services, Inc.
 
By:

/s/ Johnny R. Thomas
  
Johnny R. Thomas, President and 

Chief Executive Officer (Principal 

Executive Officer)
    
By:

/s/ John C. Francis
  
John C. Francis, Vice President and 

Chief Financial Officer (Principal 

Financial Officer)

 

 

 

 

 

 

 

 

 

 

19

 
Consolidation Services, Inc.

 

Quarterly Report on Form 10-Q

Quarter Ended March 31, 2008

 

 

**EXHIBIT INDEX**
  
Exhibit 

Number

Description
  
31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

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

32.2

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

 

 

 

 

 

 

 

 

 

 

 

 

20

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