UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

**FORM 10-Q**

| **[X]**

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

For the quarterly period ended June 30, 2012

**[  ]**

**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. 0-54230

 

**CONSOLIDATION SERVICES, INC.**

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

 

Nevada

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 [   ]No [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [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 August 2, 2012**

Common stock, $0.001 par value

 

50,169,289

 

**CONSOLIDATION SERVICES, INC.**

**INDEX TO FORM 10-Q FILING**

**TABLE OF CONTENTS**

 

 

PAGE

**PART I - FINANCIAL INFORMATION**

 

 

 

 

 

Item 1. Unaudited Consolidated Financial Statements

 

 

 

Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011

 

3

 

Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011

 

4

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2012and 2011

 

5

 

Notes to Consolidated Financial Statements

 

6-14

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

 

15-19

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

19

Item 4. Controls and Procedures

 

20

 

 

 

**PART II - OTHER INFORMATION**

 

 

 

 

 

Item 1. Legal Proceedings

 

21

Item 1A. Risk Factors

 

21

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

 

21

Item 3. Defaults Upon Senior Securities

 

21

Item 4. Removed and Reserved

 

21

Item 5. Other information

 

21

Item 6. Exhibits

 

21

 

 

 

Signature Pages

 

22

 

**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.

1

**PART I**

**FINANCIAL INFORMATION**

**Item 1.  Financial Statements**

Amendment No. 3 on Form 10-K amends 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 amount of the error is approximately $10.9 million. The accumulated loss would be reduced by $10.9 million for December 31, 2011.

The consolidated financial statements have also been restated to reflect the accrued compensation of our Chief Executive Officer for the three and six months ended June 30, 2012 of $45,000 and $90,000, respectively, loss per share would be reduced by $0.00 and accumulated deficit would be reduced by $10.9 million.  The Company intends to amend the June 30, 2010, September 30, 2010, March 31, 2011, June 30, 2011, and September 30, 2011 10-Qs for these changes.

2

**CONSOLIDATION SERVICES, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

 

 

 

 

 

 

 

 

 

**June 30,**

 

**December 31,**

 

 

 

**2012**

 

**2011**

ASSETS:

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

   Cash

 

 

$

21,181

 

$

668

   Accounts receivable - oil and gas

 

 

 

5,682

 

 

12,744

      Total current assets

 

 

 

26,863

 

 

13,412

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT

 

 

 

 

 

 

 

   Oil and gas properties, net,  including $936,111 not subject to amortization and $1,199,286 of

 

 

 

 

 

 

 

      unproved property costs using the successful efforts method of accounting

 

 

 

1,605,980

 

 

1,608,114

   Support equipment, net

 

 

 

151,199

 

 

153,282

    TOTAL ASSETS

 

 

 

1,784,042

 

 

1,774,808

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

   Accounts payable

 

 

 

405,031

 

 

320,290

   Accounts payable - related party

 

 

 

295,948

 

 

200,948

   Accrued interest - related party

 

 

 

8,992

 

 

3,117

   Notes payable - shareholder

 

 

 

276,730

 

 

122,500

      Total current liabilities

 

 

 

986,701

 

 

646,855

 

 

 

 

 

 

 

 

Asset retirement obligations

 

 

 

28,043

 

 

23,570

      TOTAL LIABILITIES

 

 

 

1,014,744

 

 

670,425

 

 

 

 

 

 

 

 

CONTINGENCIES AND COMMITMENTS

 

 

 

-

 

 

-

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

    Preferred stock, $.001 par value, 20,000,000 shares authorized;

 

 

 

 

 

 

 

     none issued and outstanding as of  June 30, 2012 and 

 

 

 

-

 

 

-

     December 31, 2011, respectively

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

     50,169,289 and 49,919,289 issued and outstanding as of  

 

 

 

 

 

 

 

     June 30, 2012 and December 31, 2011, respectively

 

 

 

50,169

 

 

49,919

    Additional paid-in capital

 

 

 

9,349,607

 

 

9,337,857

    Accumulated deficit

 

 

 

(8,630,478)

 

 

(8,283,393)

      Total stockholders' equity

 

 

 

769,298

 

 

1,104,383

 

 

 

 

 

 

 

 

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

$

1,784,042

 

$

1,774,808

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

3

**CONSOLIDATION SERVICES, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

 

** **

**Three Months Ended,**

** **

**Six Months Ended,**

 

 

**June 30,**

** **

**June 30,**

 

 

**2012**

 

**2011**

** **

**2012**

 

**2011**

 

 

 

 

Restated

 

 

 

Restated

 

 

 

 

 

 

 

 

 

 

 

 

 

OIL AND GAS REVENUES

 

$

22,494

 

$

78,627

 

$

75,261

 

$

165,127

 

 

 

 

 

 

 

 

 

 

 

 

 

COSTS AND OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

     Lease operating expenses

 

 

38,995

 

 

68,040

 

 

89,958

 

 

99,155

     Depreciation, depletion, amortization and accretion

 

 

2,257

 

 

17,409

 

 

8,691

 

 

37,052

     General and administrative 

 

 

174,692

 

 

758,956

 

 

317,822

 

 

951,610

         Total costs and operating expenses

 

 

215,944

 

 

844,405

 

 

416,471

 

 

1,087,817

OPERATING LOSS

 

 

(193,450)

 

 

(765,778)

 

 

(341,210)

 

 

(922,690)

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

      Interest expense

 

 

3,478

 

 

253

 

 

5,875

 

 

253

        Total other expense

 

 

3,478

 

 

253

 

 

5,875

 

 

253

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

 

(196,928)

 

 

(766,031)

 

 

(347,085)

 

 

(922,943)

Provision for income taxes

 

 

-

 

 

-

 

 

-

 

 

-

NET LOSS

 

$

(196,928)

 

$

(766,031)

 

$

(347,085)

 

$

(922,943)

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED LOSS PER COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Net loss per common share, basic and diluted

 

 

(0.00)

 

 

(0.02)

 

 

(0.01)

 

 

(0.02)

 

 

 

 

 

 

 

 

 

 

 

 

 

  Weighted average number of common shares outstanding, basic and diluted

 

 

49,954,614

 

 

47,292,334

 

 

49,937,145

 

 

47,292,334

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

4

**CONSOLIDATION SERVICES, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 

 

**Six Months Ended June 30,**

 

 

**2012**

 

**2011**

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Restated

 

 

 

 

 

 

 

  Net loss

 

$

(347,085)

 

$

(922,943)

  Adjustments to reconcile net loss to net cash

 

 

 

 

 

 

     used in operating activities:

 

 

 

 

 

 

  Depreciation, depletion, and amortization

 

 

4,218

 

 

36,089

  Accretion of asset retirement obligations

 

 

4,473

 

 

963

  Common stock issued for services

 

 

7,000

 

 

642,820

  Changes in operating assets and liabilities:

 

 

 

 

 

 

    Accounts receivable

 

 

7,062

 

 

(8,334)

    Accounts payable

 

 

95,615

 

 

58,118

    Accounts payable - related party

 

 

95,000

 

 

115,948

          Net cash used in operating activities

 

 

(133,717)

 

 

(77,339)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

   Proceeds from the issuances of common stock

 

 

-

 

 

50,000

   Proceeds from note payable

 

 

154,230

 

 

35,000

          Net cash provided by financing activities

 

 

154,230

 

 

85,000

 

 

 

 

 

 

 

INCREASE IN CASH

 

 

20,513

 

 

7,661

CASH, BEGINNING OF YEAR

 

 

668

 

 

17,236

CASH, END OF PERIOD

 

$

21,181

 

$

24,897

 

 

 

 

 

 

 

**SUPPLEMENTAL CASH FLOW INFORMATION:**

 

 

 

 

 

 

   Income Taxes

 

$

-

 

$

-

   Interest Paid

 

$

-

 

$

-

 

**NON-CASH INVESTING AND FINANCING ACTIVITY:**

 

   Common stock issued for stock payable

$

5,000

$

-

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

5

**CONSOLIDATION SERVICES, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**NOTE 1 - RESTATEMENT**

Amendment No. 3 on Form 10-K amends 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 amount of the error is approximately $10.9 million. The accumulated loss would be reduced by $10.9 million for December 31, 2011 which effected the June 30, 2011 Balance Sheet.

The consolidated financial statements have 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 the additional $15,000 per month accrued compensation in the prior March 31, 2011, June 30, 2011 and September 30, 2011 10-Q filings.  The Company did report the appropriate compensation expense and accrued compensation of the CEO in the December 31, 2011 Form 10-K for a total amount of $180,000. 

 

 

**Three months ended June 30, 2011**

 

 

**As Filed**

 

**Adjustments**

 

**As Restated**

Accounts Payable - related party

$

25,948

$

90,000

$

115,948

Additional paid-in capital

 

20,249,895

 

(10,912,037)

 

9,337,858

Accumulated deficit

$

(15,378,434)

$

10,822,037

$

(4,566,397)

Statement of Operations

 

 

 

 

 

 

General and administrative

$

713,956

$

45,000

$

758,956

Operating loss

$

720,778

$

45,000

$

765,778

Loss before taxes

$

721,031

$

45,000

$

766,031

Net loss

$

721,031

$

45,000

$

766,031

Earnings per share

$

(0.00)

$

(0.00)

$

(0.00)

 

 

**Six months ended June 30, 2011**

 

 

**As Filed**

 

**Adjustments**

 

**As Restated**

Statement of Operations

 

 

 

 

 

 

Accounts Payable - related party

$

25,948

$

90,000

$

115,948

Additional paid-in capital

 

20,249,895

 

(10,912,037)

 

9,337,858

Accumulated deficit

$

(15,378,434)

$

10,822,037

$

(4,556,397)

General and administrative

$

861,610

$

90,000

$

951,610

Operating loss

$

832,690

$

90,000

$

922,690

Loss before taxes

$

832,943

$

90,000

$

922,943

Net loss

$

832,943

$

90,000

$

922,943

Earnings per share

$

(0.00)

$

(0.00)

$

(0.00)

6

**NOTE 2 - DESCRIPTON 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 reserves 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. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. While management of the Company believes that the disclosures presented herein are adequate and not misleading, these interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2011 included within its Form 10-K as filed with the Securities and Exchange Commission.

Principles of Consolidation

On June 2, 2010, CSI Energy, Inc. and CSI Resource, Inc. were incorporated in the State of Nevada as wholly-owned subsidiaries of the Company. CSI Energy, Inc. and CSI Resources, Inc. are presently not operating subsidiaries.

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.

The Company’s consolidated financial statements are based on a number of significant estimates including the oil and gas reserve quantities, which are the basis for the calculations of depreciation, depletion, and impairment. The Company’s reserve quantities are determined at least annually by an independent petroleum engineering firm. However, 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 June 30, 2012, cash and cash equivalents include cash on hand and cash in depository institutions/commercial banks.  

7

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 of capitalized costs for producing oil and gas properties is calculated using the unit-of-production method based on estimates of proved oil and gas reserves on a field-by-field basis.  

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.  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 and other long-lived assets 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.  

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. 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.   

 

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.

8

Accounts Receivable

Substantially all of the Company’s accounts receivable consists of accrued revenues from oil and gas production from third party companies in the oil and gas industry. This concentration of customers may be a consideration of 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 may analyze the entity’s net worth, cash flows, earnings and credit ratings. Historical credit losses incurred by the Company on receivables have not been significant.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash. Beginning December 31, 2011, 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 June 30, 2012, the Company had no cash in accounts that bore interest.

The Company has two customers that purchase and distribute substantially all of our oil and gas production.

Earnings (Loss) 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 due to the Company having a net loss (attributable to its common shareholders). Accordingly, the effects of including any additional common stock equivalents would be anti-dilutive.  There were no potentially dilutive financial instruments outstanding at June 30, 2012 and 2011.

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, accounts payable and advance from related party approximate fair value due to their short-term nature. 

Recent Accounting Pronouncements  

 

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

Subsequent Events 

The Company evaluated subsequent events through the date these financial statements were available to be issued.

9

**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 has sustained recurring losses from operations including a net loss for the six months ended June 30, 2012 of $347,085. 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.  

 

In this regard, the Company 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 to obtain such financing on terms satisfactory to the Company, if at all. 

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

**NOTE 4 - OIL AND GAS PROPERTIES AND ACQUISITIONS**

During the six months ended June 30, 2012, the Company did not purchase or dispose of any oil and gas properties.

Net oil and gas properties as of June 30, 2012 and December 31, 2011 were:

 

**June 30, 2012**

 

 

**December 31,**

**2011**

 

 

 

 

 

 

Beginning balance January 1,

$

1,608,114

 

$

4,462,552

Additions

 

 

 

 

 

     Unproved properties

 

-

 

 

-

     Proved properties

 

-

 

 

-

     Asset retirement obligation

 

-

 

 

-

Sales and dispositions

 

-

 

 

-

Impairment 

 

-

 

 

(2,845,946)

Depletion and depreciation

 

(2,134)

 

 

(8,492)

Ending balance

$

1,605,980

 

$

1,608,114

10

Net oil and gas properties by classification were:

 

**June 30, 2012**

 

**December 31, 2011**

 

 

 

 

Oil and gas properties subject to amortization

$

774,222

 

$

774,222

Oil and gas properties not subject to amortization

 

868,828

 

 

868,828

Asset retirement obligations capitalized

 

20,170

 

 

20,170

Accumulated depreciation, depletion and impairment

 

(57,240)

 

 

(55,106)

Total oil and gas assets

$

1,605,980

 

$

1,608,114

*Impairment of oil and gas properties*

During the year ended December 31, 2011 the Company impaired $2,515,488 of its proved oil and gas properties. During the six months ended June 30, 2012 there was no impairment. The impairment in 2011 was due to reductions in the future estimated recoverable reserves as a result of sporadic production during 2011.

For the year ended December 31, 2011 there was a $330,458 impairment of unproved leaseholds. For the six months ended June 30, 2012 there was no impairment of unproved leaseholds.

*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 June 30, 2012 and December 31, 2011:

Beginning balance as of January 1, 2011

$

773,300

Additions

 

-

Dispositions

 

-

Impairment

 

(615,850)

Depreciation

 

(4,168)

Ending balance as of December 31, 2011

 

153,282

Additions

 

-

Dispositions

 

-

Impairment

 

-

Depreciation

 

(2,083)

Ending balance as of June 30, 2012

$

151,199

**NOTE 5- RELATED PARTY TRANSACTIONS**

During the year end December 31, 2011, we entered into 12 notes payable with a shareholder: The total of all the notes payable was $122,500 at December 31, 2011.  All of the notes payable are due on demand, have no periodic payment terms and bear interest at interest rates of 6% - 7.5% per annum.

During the six months ended June 30, 2012, we entered into 19 notes payable with a shareholder for $154,230 in the aggregate.  The total of all notes payable outstanding was $276,730 at June 30, 2012. 

11

From the period of July 1, 2012 through August 2, 2012, the Company entered into 2 additional notes payable with a shareholder totaling $25,968. All of the notes are due on demand, have no periodic payment terms and bear interest at 6% per annum.

Accounts payable and accrued expenses due to related parties are expenses paid on behalf of the Company by our Chief Executive Officer and shareholders of the Company. These payables and accrued expenses are due upon demand and do not bear interest.”

**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 for the six months ended as of for the six months ended June 30, 2012 and the year ended December 31, 2011.

 

 

**Six Months Ended June 30,**

 

 

 

**June 30,**

**2012**

 

 

**December 31,**

**2011**

 

Asset retirement obligation at beginning of the period

$

23,570

 

$

21,562

 

Additions

 

-

 

 

-

 

Accretion expense

 

4,473

 

 

2,008

 

Asset retirement obligation at end of the period

$

28,043

 

$

23,570

 

**NOTE 7 - 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):

12

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 is effective 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.  

For the six months ended June 30, 2012, the Company paid $55,000 in compensation and accrued compensation expense of $95,000 for the unpaid portion.

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.

 

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.

13

**NOTE 8- STOCKHOLDERS’ EQUITY**

Common Stock Issuances

The Company is authorized to issue 200,000,000 shares of common stock, at $0.001 par value, of which 50,169,289 common shares were issued and outstanding as of June 30, 2012.

The Company periodically issues shares of its common stock and 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.

**2012 Activity:**

During the three months ended June 30, 2012, the Company issued 250,000 common shares with an aggregate fair value of approximately $12,000 in exchange for services.

**2011 Activity:**

During the year ended December 31, 2011, the Company issued 634,615 common shares for $50,000 in net proceeds in private placements. The price received in the private placements ranged from $0.065 per share to $0.10 per share.  

During the year ended December 31, 2011, the Company issued 6,975,620 common shares with an aggregate fair value of approximately $642,818 in exchange for services. The $642,818 of services was expensed as compensation including $12,000 for our new CFO, Richard Polep, $310,818 for our new CEO, Gary Kucher, and $320,000 for our resigning CEO, Stephen Thompson during the year ended December 31, 2011. The trading price used to estimate the fair values of the common stock issued for the year ended December 31, 2011 was the trading price on the respective grant dates ranging from $0.08-$0.11 per share.

**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 twenty million (20,000,000) shares with a par value of $0.001 per share. 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.

14

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

***Statement Regarding Forward-Looking Disclosures***

*Certain statements contained in this report, including, without limitation, statements containing the words, "likely," "forecast," "project," "believe," "anticipate," "expect," and other words of similar meaning, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.  Our plans and objectives are based, in part, on assumptions involving the continued expansion of our business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.  We undertake no obligation to revise or update publicly any forward-looking statements for any reason.*

***General***

The Company was formed on January 26, 2007 to engage in the acquisition, development and exploitation of natural resource and energy-related assets.  Until January 1, 2010, the Company sought to generate revenues from its previously owned coal-mining related operations and through the harvesting of timber. Effective April 1, 2010, the Company changed its business plan to develop and operate oil and gas properties.

**Plan of Operations**

Since April 1, 2010, the Company has been solely engaged in the maintenance and production of our oil and gas wells in Kentucky and Tennessee. In addition, the Company’s business strategy included an ongoing search to identify unique opportunities to acquire and develop additional natural resource opportunities, with a goal of increasing current revenue and long-term value. The Company also owns oil and gas mineral rights on an additional 12,000 acres (approximately) in Eastern Kentucky. 

At this stage, our activities have been limited to pursuing our strategy to identify and acquire additional natural resource business opportunities including but not limited to oil and gas mineral rights, leases and operations. There can be no assurance that the Company will acquire assets using restricted securities now or in the future, or that we will have access to cash to acquire other assets and interests. If we are unable to acquire assets using our securities, we intend to leverage our existing assets, as well as seek to raise capital though the sale of equity and/or debt securities. Our ultimate success will depend on our ability to acquire assets and raise additional capital on a timely basis in order to take advantage of opportunities that become available to us. In any event, there can be no assurance that we will be able to complete additional acquisitions or develop rights or resources, which may exist on our properties in an economically viable quantity or manner, if at all. 

15

Currently the Company is seeking to identify new acquisition candidates to expand the Company’s business portfolio beyond its current oil and gas production. 

**Supplemental Oil and Gas Information -****Comparisons of the three months ended June 30, 2012 and 2011**

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 June 30,

 

 

 

2012

 

 

2011

 

Production

 

 

 

 

 

 

Oil (Bbls)

 

 

245

 

 

 

786

 

Gas (Mcf)

 

 

-

 

 

 

-

 

Barrel of Oil Equivalent (“BOE”) 

 

 

245

 

 

 

786

 

 

 

 

 

 

 

 

 

 

Average Prices

 

 

 

 

 

 

 

 

Oil ($/Bbl)

 

$

91.81

 

 

$

100.03

 

Gas ($/Mcf)

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

Average Lifting Cost

 

 

 

 

 

 

 

 

Per BOE

 

$

166.16

 

 

$

69.69

 

**Results of Operations - For the Three Months ended June 30, 2012**

We use the successful efforts method of accounting for oil and gas operations. Presently we are producing oil from our Kentucky properties.

Our revenues for the three months ended June 30, 2012 were $22,494 as compared to $78,627 for 2011.  Our revenues are from the sale of our oil and gas production. During the three months ended June 30, 2012 we produced approximately 245 barrels and received an average price per barrel of $91.62 while during 2011 we produced 786 barrels and received an average price per barrel of $100.03.   The oil production has decreased due to wells that are under repair.

Our operating expenses for production activities for the three months ended June 30, 2012 and 2011 were $41,252 (comprised of $38,995 of lease operating expenses and $37,784 of depreciation, depletion and amortization) and $85,089 (comprised of $68,040 of lease operating expenses and $17,409 of depreciation, depletion and amortization), respectively. 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) and require minimal maintenance. The decrease in lease operating expenses is attributable to decrease hauling and work-over costs incurred during the 2012 from the decrease in oil production.  The decrease in depreciation, depletion and amortization is a result of an impairment of our capitalized oil and gas properties in the fourth quarter of 2011.

Our general and administrative expenses for the three months ended June 30, 2012 and 2011 were $174,692 and $758,956, respectively. The decrease is primarily attributable to the reduction in stock issued to officers to approximately $12,000 incurred in 2012 (approximately $643,000 in 2011).

16

**Supplemental Oil and Gas Information -****Comparisons of the six months ended June 30, 2012 and 2011**

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.

 

 

Six months ended June 30,

 

 

 

2012

 

 

2011

 

Production

 

 

 

 

 

 

Oil (Bbls)

 

 

777

 

 

 

1,704

 

Gas (Mcf)

 

 

-

 

 

 

-

 

Barrel of Oil Equivalent (“BOE”) 

 

 

777

 

 

 

1,704

 

 

 

 

 

 

 

 

 

 

Average Prices

 

 

 

 

 

 

 

 

Oil ($/Bbl)

 

$

96.86

 

 

$

96.91

 

Gas ($/Mcf)

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

Average Lifting Cost

 

 

 

 

 

 

 

 

Per BOE

 

$

121.20

 

 

$

58.19

 

**Results of Operations - For the Six Months Ended June 30, 2012**

We use the successful efforts method of accounting for oil and gas operations.  Presently we are producing oil from our Kentucky properties.

Our revenues for the six months ended June 30, 2012 were $75,261 as compared to $165,127 for 2011.  Our revenues are from the sale of our oil and gas production. During the six months ended June 30, 2012 we produced approximately 777 barrels and received an average price per barrel of $96.86 while during 2011 we produced 1,704 barrels and received an average price per barrel of $96.91. The oil production has decreased due to wells that are under repair.

Our operating expenses for production activities for the six months ended June 30, 2012 and 2011 were $98,649 (comprised of $89,958 of lease operating expenses and $7,596 of depreciation, depletion and amortization) and $136,207 (comprised of $99,155 of lease operating expenses and $37,052 of depreciation, depletion and amortization), respectively. 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) and require minimal maintenance. The decrease in lease operating expenses is attributable to decrease hauling and work-over costs incurred during the 2012 from the decrease in oil production.  The decrease in depreciation, depletion and amortization is a result of an impairment of our capitalized oil and gas properties in the fourth quarter of 2011.

Our general and administrative expenses for the six months ended June 30, 2012 and 2011 were $317,822 and $951,610, respectively. The decrease is primarily attributable to the reduction in stock issued to officers of approximately $7,000 incurred in 2012 (approximately $643,000 in 2011).

17

**Liquidity and Capital Resources**

Our cash used in operating activities for the six months ended June 30, 2012 was $133,717 as compared to $77,339 for the six months ended June 30, 2011. The increase in cash flows used in operations was primarily attributable to the changes in operating assets and liabilities, primarily related to increases in accounts payable, in 2012 as compared to the 2011 period.

Our cash provided by financing activities for the six months ended June 30, 2012 was $154,230 as compared to $85,000 for 2011. The increase in financing activities was due to the proceeds from notes payable of $154,230 from our shareholders in the 2012 period. The Company received proceeds of $50,000 for the issuance of 634,616 shares of common stock during the six months ended June 30, 2011. The Company also received proceeds of $35,000 from notes payable during the six months ended June 30, 2011.

During the six months ended June 30, 2012, we entered into 19 notes payable with a shareholder: The total of all notes payable outstanding was $276,730 at June 30, 2012. All of the notes payable are due on demand, have no periodic payment terms and bear interest at interest rates of 6% - 7.5% per annum.

From the period of July 2012 through August 2, 2012, the Company entered into 2 additional notes payable with a shareholder totaling $25,968. All of the notes are due on demand, have no periodic payment terms and bear interest at 6% per annum.

Our future development plan for our oil and gas assets 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 $347,085 and $922,943 for the six months ended June 30, 2012 and 2011, 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 a history of recurring losses from operations.  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 to fund its operating activities.

18

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 a shareholder to fund operating expenses. We need $75,000 per month to fund operating expenses and professional fees of the company.

**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.

**WHERE YOU CAN FIND MORE INFORMATION**

You are advised to read this Quarterly Report on Form 10-Q 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, Annual Report 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. Company information is also available at: www.cnsv.info

**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.  

19

**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-Q for the six months ended June 30, 2012.

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.

 

Also, in the fourth quarter of 2011, the Company determined it had failed to accrue deferred compensation each reporting period during 2011 totaling $180,000 ($45,000 a quarter) for 2011 for our CEO which has been recorded at December 31, 2011.  Accordingly, the Company will be required to amend each of its quarterly filings for 2011 to reflect the amount of compensation that should have been recorded for each reporting period.

There were no changes in our internal control over financial reporting that occurred during the six months ended June 30, 2012 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.

20

**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. 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, 2011 during the six months ended June 30, 2012.

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

During the three months ended June 30, 2012, the Company issued 250,000 common shares with an aggregate fair value of approximately $12,000 in exchange for services.

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

  

There were no defaults upon senior securities during the six months ended June 30, 2012.

**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.

21

**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: August 20, 2012

 

*Consolidation Services, Inc.*

* *

*By: /s/ Gary D. Kucher*

  

 

Gary D. Kucher 

  

 

Chief Executive Officer (Principal Executive Officer)

 

 

 

 

 

 

Registrant

 

Date: August 20, 2012

 

*Consolidation Services, Inc.*

* *

*By: /s/* *Richard S. Polep*

  

 

Richard S. Polep 

  

 

Chief Financial Officer (Principal Financial Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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