UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549




FORM
10-K




(Mark
One)


[X]
       ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934


For the
fiscal year ended December 31, 2008




OR




[
        ]  TRANSITION REPORT PURSUANT TO 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 registrants as specified in its charters)




Delaware
              
              20-8317863(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)




2756
      N. Green Valley Parkway, Suite 225, Henderson, NV
                
                89014(Address
      of principal executive office)
                
                (Zip
      Code)




(702)
614-5333


(Registrants’
telephone number, including area code)




Securities
registered pursuant to Section 12(b) of the Act: None




Securities
registered pursuant to Section 12(g) of the Act: None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes [   ]   No
[X]




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [   ]   No
[X]




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X]   No [   ]













Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]




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 [ ] No [X]




The
aggregate market value of the 14,253,386 shares of common stock of the
registrant issued and outstanding as of June 30, 2008, the last business day of
the registrant’s most recently completed second fiscal quarter, excluding
8,539,636 shares of common stock held by affiliates of the registrant, was
$11,427,500 based on the last sale price of $2.00 on such date.





The
number of shares of registrant’s common stock outstanding as of March 20, 2009
was 15,093,970.







DOCUMENTS
INCORPORATED BY REFERENCE


Not
Applicable.


























2


CONSOLIDATION
SERVICES, INC.




2008
FORM 10-K ANNUAL REPORT




TABLE
OF CONTENTS





PART IItem 1.
                    BusinessItem 1A.
                    Risk FactorsItem 2.
                    PropertiesItem 3.
                    Legal Proceedings – LitigationItem 4.
                    Submission of Matters to a Vote of Security
      HoldersPART IIItem 5.
                    Market for the Registrant’s Securities and Related
      MattersItem 6.
                    Selected Financial DataItem 7.
                    Management’s Discussion and Analysis of Financial Condition and
      Results of OperationsItem 8.
                    Financial Statements and Supplementary DataItem 9.
                    Changes in and Disagreements with Accountants on Accounting and
      Financial DisclosureItem 9A.
                    Controls and ProceduresItem 9B.
                    Other InformationPART IIIItem 10.
                    Directors and Executive Officers of the
      RegistrantItem 11.
                    Executive CompensationItem 12.
                    Security Ownership of Certain Beneficial Owners and
      ManagementItem 13.
                    Certain Relationships and Related
    TransactionsItem 14.
                    Principal Accountant Fees and ServicesPART IVItem 15.
                    Exhibits and Financial Statement Schedules

















3


PART I





ITEM 1.  BUSINESS




Statement
Regarding Forward-Looking Disclosure




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




Consolidation
Services, Inc. (the “Company” or CNSV) was formed on January 26,
2007.  We are engaged in the development of our energy-related assets,
primarily the ability to generate revenues from our coal related operations,
through the harvesting of our inventory of timber, as well as from our proposed
oil and natural gas operations, for which there are no assurances such coal, oil
or natural gas resources exist in economically feasible quantities, if at
all.  Given the current economy and in view of our obligation to
maximize value for our stockholders, our primary business focus has shifted away
from our proposed organic and natural food business.  Other than
meeting with potential acquisition candidates, business managers and increasing
core knowledge in the industry, our plans regarding our proposed organic and
natural food business, including acquisitions of local companies or internal
growth through using land for production purposes, recruiting “associate”
producers and the private labeling of third party producers food products
in a larger geographic area under our proposed “Choice Organic Family” TM label,
are on hold indefinitely or until such time as management determines it has
sufficient revenues and capital resources, or the current economic crisis abates
and financing options become available.





At this
stage, our activities have been limited to the acquisition of land and entering
into energy-related contracts, coal mining development agreements and other
development activities in connection with our land, energy, and corporate
development.  There can be no assurance at this stage that coal or
other energy related assets exist on our properties in economically feasible
quantities, if at all, or that such potential assets can be
extracted.









4


As of
July 1, 2008, the Company acquired all of the capital stock of Vector Energy
Services, Inc. (“Vector”), a Delaware corporation without any significant
assets, from its Chief Financial Officer, John Francis, for nominal
consideration of ten dollars.  The Company has different potential
energy resources, and intends to conduct all or a portion of its proposed oil
and gas business primarily through Vector as a wholly-owned subsidiary, its
proposed coal business through a yet to be formed affiliated entity, and
anticipates placing its organic and natural food related assets into Artisan
Organics Inc. (“Artisan”), a yet to be formedDelaware corporation,
for the purpose of holding such assets separate and apart for future
use.





Management
believes that, given the differences within the energy industry, for example,
between coal versus oil versus natural gas, separating the Company’s assets into
separate legal entities will better enable the Company to seek funding from
different sources specializing in such different asset
classes.  Separation of the assets also simplifies the ability to
collateralize against such assets and limits the wide disparity of attendant
liabilities representative of such different asset classes, particularly where
potential funding is specific to a given developmental project.  However,
the terms, assets and timetables of any asset transfer have not been negotiated
and depend on the availability of potential funding
sources.  References in this report to CNSV do not take into account
any future transfer of assets to Vector, Artisan, or any anticipated transfer of
coal rights or contracts to a yet to be formed affiliated entity.





The
Company has acquired approximately 11,900 acres of land for the primary purpose
of extracting coal, oil and natural gas resources, for which there are no
assurances we will be able to extract energy resources from our owned or
controlled properties in economically feasible quantities.  As of the
date hereof, we have not commenced mining activities and as of December 31,
2008, had nominal revenues of $13,153 resulting from partial timber removal on
the Breathitt Property (described below).  The Company has entered
into its initial mining development agreements to mine coal and will enter into
agreements to drill wells for oil and/or natural gas on some of its acquired
land, assuming such energy resources exist for which there are no
assurances. The Company is required
to outlay expenses relating to permitting and licensing, however, it expects
that the consideration for coal mine operators to enter into leases with the
Company will be based on a negotiated percentage of royalty payments
attributable to such coal mine operator’s production and that coal mine
operators will reimburse the Company for such expense outlays, in addition to
covering payment of the reclamation bond required prior to the commencement of
coal mining.  The Company (including its applicable subsidiaries)
shall hold the surface rights to such land, while it is proposed that Vector
will hold title to the gas or oil rights by way of a mineral
deed.  Similarly, a yet to be formed entity affiliated with the
Company will hold title to any coal rights by a mineral deed.  Based
on management’s knowledge of the industry, such mineral deeds can be specific to
surface, general for all mineral rights or specific to coal, oil or gas
mineral rights.  Management understands this to be common practice
amongst landowners in the energy industry from this region.





The
Company has nominal revenues and operations, and has incurred losses since
inception.  Our auditors have issued a going concern
opinion.  See “Report of Independent Registered Public Accounting
Firm.”  This means that there is substantial doubt that we can
continue as an on-going business unless we obtain additional
capital.  Accordingly, the Company will need, among other things,
additional capital resources and to develop a consistent source of
revenues.  Debt or equity financing has been unavailable to the
Company since the middle of 2008.  The Company is primarily seeking asset
based financing from its prospective coal mining activities.  However,
there can be no assurance the Company will be able to generate sufficient
revenues from its prospective operations.








5





Marketing
and Business Strategy




The
Company has four main priorities regarding the development of its land and
energy resources: (1) completion of the coal permitting process on its LeeCo and
Owsley Properties, in order that our proposed extraction/production processes
vis-a-vis our current and prospective lessees can begin and the Company can
begin generating revenues from such proposed activities which are anticipated by
March or April of 2009.  However, there can be no assurance that such
extraction/production processes will be successful, that we will be able to
engage lessess, or that any coal assets that may exist under our properties will
be extracted in economically reasonable quantities or result in revenues;
(2) entering into leasing arrangements with third parties to provide for
the mining of potential energy resources on its various properties; (3)
obtaining engineering, reserve, forestry and technical reports for those
properties that we do not already have such reports, as necessary, in order to
support the existence of minable quality and quantity of oil and natural gas
underlying such properties, as well as to support pricing for our timber on up
to approximately 11,900 acres of the Company’s property; and (4) harvesting
timber from our properties as a source of the Company’s revenues over the next
twelve to twenty-four months and to allow for clearing on the properties in
connection with our proposed coal, oil and natural gas extraction
activities.





The
Company is currently in discussions with mine operators and potential lessees
regarding its properties, and has entered into a development agreement on its
Owsley Property, as discussed below.





Land
and Natural Resources





Eastern Kentucky was
initially selected for the Company’s Land Acquisition Program because, in
addition to its ability to serve as an organic food production asset, should the
Company decide to move forward with its initially planned organic and natural
food plans, the properties are believed to have excellent prospects for energy
development, specifically natural gas, oil and coal.  The four
counties where the Company is initially focused are designated a “Federal
Renewal Community” by the U.S. Department of Housing and Urban Development
(HUD). Businesses within the area may be eligible for a substantial package of
federal tax credits and deductions designed to encourage business investment and
the creation of jobs.  Given the Company’s determination to pursue its
proposed energy-related business, the extraction of viable energy and natural
resources has become the primary objective of the Land Acquisition Program.
Under the Land Acquisition Program, the Company has acquired or leased
approximately 11,900 acres, as described below.  Management
intends to extract coal and other potential energy resources from the
land over at least a fifteenyear period, commencing
in 2009 with the proposed coal mining activities on the Owsley
Property.















6


As of
this date, the Company has not commenced mining activities and there can be no
assurance that we will be able to extract energy resources in economically
feasible amounts, if at all.  Our activities have been limited to the
acquisition of land, commencement of the permitting process, and entering into
leases or energy-related contracts regarding proposed coal mining development
activities in connection with our land, energy and corporate development
plans.  In addition, the Company has begun to harvest limited timber
on certain of its properties in order to prepare the land for proposed
energy-development activities (for which there are no assurances reserves exist
or will be extractable in economically feasible quantities, if at all) are
expected to take place simultaneously with such timber harvest and land
preparation activities and be ongoing on other land that we own, control or
lease.  In the event we determine to proceed with our organic and
natural food operations, such timber harvesting will provide another benefit,
namely, preparing the land for cattle grazing and related organic produce
operations.  Our business strategy is to generate revenues from timber
harvesting and prospective mining operations to help finance the Company’s
strategic objectives.





The
Appalachian region has come to be dominated by natural gas utilities, which were
interested in drilling shallow wells that did not produce huge amounts of gas,
but also did not require much investment or entail much risk. The Appalachian
region wells have produced small gas flows for decades. Utilities have come to
see their wells as low-risk development wells.  For example, Equitable
Resources Inc., a Pittsburgh based gas utility wrote to investors that
“management believes virtually all the company’s wells are low-risk development
wells.”   Wall Street Journal, October 16, 2006.




Although
we view the opportunity to drill what we believe are high probability, low
volume wells quickly and at relatively low cost as an ideal complement to the
Company’s initially contemplated organic operations, at this stage there are no
assurances that natural resources can be extracted in economically feasible
amounts, if at all.  The Company believes, based on management’s prior
experiences, such wells will generally be less than 3,000 feet deep and have a
minimal footprint on the Company’s land.  Management expects the wells
to require less than two years of operations to recover all costs. The area
where the Company will be developing gas resources has good access to existing
pipeline infrastructure. Management expects to use satellite links to gas wells
in order to allow real time remote monitoring of gas production.




A small
percentage of the shallow wells may produce oil, based on the history of wells
drilled in the region.  Coal mining, if any, will be done by third
parties and the Company anticipates being paid on a royalty
basis.  The Company expects the mining permits, if any, to require the
mine operators and/or lessees to build roads and ultimately reclaim the land as
dictated by the reclamation plan.












7


Breathitt Transaction





On
November 8, 2007, the Company closed on the purchase of approximately 250 acres
of land in Breathitt County, Kentucky (the “Breathitt Property”) from Anna L.
Jett, an individual with whom the Company had no affiliation prior to the
subject land purchase, for consideration of $175,000, not including other
closing costs as more fully described below (the “Breathitt
Transaction”).  The transaction involved three deeds, which appeared
as exhibits 10.1 through 10.3 to the Company’s Form 10-QSB for the period ended
September 30, 2007, filed with the Commission on November 19,
2007.  In addition to the deed transferring the ownership of the
approximately 250 acres of land to the Company (the “Land Deed”), Anna Jett also
conveyed to the Company herundivided coal, oil, gas
and mineral rights to certain tracts of land, including with respect to the
property conveyed under the Land Deed, for nominal consideration of ten
dollars (the “Mineral Deed”).  Total closing costs were $185,101,
including $8,750 paid to Sitter Drilling LLC, an unaffiliated party, as a
finders/negotiation fee.  In addition, the Company conveyed to Sitter
Drilling LLC a 6.25% interestin oil and gas with
respect to the land covered under the Land Deed, for nominal
consideration.  Funding for this transaction came from
a  loan of $190,000 in the aggregate, from Meadow Lark Holdings LLC, a
Nevada limited liability company owned jointly by Johnny Thomas (the Chairman of
the Board, Chief Executive Officer and President of the Company) and Helen
Thomas (the former Secretary/Treasurer and a former director of the Company).
The terms of the loan(s) provide for six percent interest due upon demand,
subject to availability of funds. Of this amount, $153,532 of principal and
interest was repaid as of December 31, 2008, leaving a balance of
$36,368.





In August
2008, the Company commenced limited timber harvesting on the Breathitt
Property. The timber operation simultaneously, at no charge, improves
road access to the property to potential natural  gas drilling
sites.  The Company may also exploit oil, natural gas and/or coal that
may exist under its properties, however, we need to do core drilling so we can
determine the quality of such natural resources prior to determining whether
mining the land would be cost beneficial.





Owsley
Transaction




On August
25, 2008, the Company exercised an option to purchase approximately 1,000 acres
of land in Owsley County, Kentucky (the “Owsley Property”) for a purchase
price of $1,000,000 pursuant to the Owsley Option Assignment between
the Company and AMS Development, LLC (“AMS”), whereby AMS assigned and
transferred to the Company its interest in an option to purchase the Owsley
Property from Larry Bruce Herald.




The
purchase price regarding the Owsley Property was paid to Larry Bruce Herald as
follows: (i) $500,000 in cash at the closing; and (ii) $500,000 pursuant
to the Note and Mortgage of even date on the Owsley
Property.  Under the terms of the Note, Larry Bruce Herald may
accelerate the Note and repossess the Owsley Property upon a “default”, which is
defined in the Note as the failure to make installment payments of principal
when due, or to fulfill covenants and agreements therein, or the filing of a
petition in bankruptcy by the Company or the involuntary petition in bankruptcy
filed against it, or the Company’s making of an assignment for the benefit of
creditors.  In addition, the Company cannot re-borrow or receive
advances regarding any amounts repaid under the Note.  The cash funds
used to purchase the Owsley Property have been provided from Johnny R. Thomas,
the Company’s CEO, who loaned the Company $513,655 for the Closing pursuant to a
promissory note which is payable upon demand, with interest at 6% per
annum.  On October 15, 2008, the Company made a principal reduction
payment of $200,000 on the Note and obtained an extension on the Note, leaving
a  $300,000 balance accruing at 10% per annum and which is payable in
2009.








8





The Coal
Reserve Report for the Owsley Property, a copy of which has been furnished to
the Commission’s Office of the Engineer and which reserve report is further
described herein under Item 2 - Properties, revealed that the Owsley Property
has an estimated 364,611 tons of “proven” coal reserves and 443,076 tons of
probable coal reserves as of October 2008.  The coal mining
reclamation efforts are expected to develop good roads to approximately 25
prospective natural gas/oil well drilling sites, ponds and watering sites
throughout the property.  The permits to be filed are specific and the
reclamation performance is bonded.  In the event the Company
determines to proceed with its initial organic and natural food
plans following mining of coal reserves, the reclamation process is also
anticipated to result in the development of an estimated $1,000,000 in
infrastructure on the Owsley Property.





We expect
initial timber removal to commence in the first quarter of 2009, and mining is
expected to commence during March or April of 2009 on about 88
acres.  We ultimately expect all surface mineable acres on the Owsley
Property to be mined over the next five to seven years, commencing with
approximately 100 acres in 2009 and early 2010.




Development
Agreement





On August
26, 2008, the Company entered into the Development Agreement with AMS regarding
certain engineering, consulting and administrative services that AMS has agreed
to provide in connection with the development of the Owsley Property for coal
mining activities.  Services under the Development Agreement also
include the handling and preparation of all coal permitting applications and
information required by applicable regulatory and administrative agencies that
oversee coal mining activities, as well as the structuring and handling of the
mining and reclamation plans with the goal of commencing mining operations
within six months of the date of the Development Agreement using each party's
reasonable best efforts, assuming energy resources can be extracted in
economically feasible quantities, if at all.  Initial coal permit
applications for the Owsley Property were filed in November of 2008 with State
of Kentucky, Division of Mines in early February 2009.  The initial
applications are for surface/auger mining permits, however, management believes,
based on its knowledge, that underground mining permits will eventually be
obtained.





As
consideration for entering into the Development Agreement, AMS received
consideration of: (1) $100,000, which amount was placed in escrow at the time
the parties entered into the Owsley Option Assignment and has since been
released from escrow; (2) assignment by the Company to AMS of 50% of the coal
royalty rights with respect to the Owsley Property, which rights vested as of
the Closing, with a mineral deed relating to such rights to be filed promptly
thereafter; and (3) $400,000 through the issuance of 200,000 shares of the
Company’s restricted common stock, par value $.001 per share valued
at $2.00 per share which was the ten day market average when the Owsley
Option Assignment was negotiated and executed.  The shares are subject
to a lock-up/leak-out agreement permitting aggregate weekly sales of up to 4,000
shares per week commencing on October 27, 2008, the date our recent registration
statement was declared effective, and ending fifty (50) weeks later, subject to
an available exemption from registration or registration of the
shares. These shares are not eligible to be re-sold under Rule 144
promulgated under the Securities Act of 1933, as amended (the “Securities Act”)
until twelve months after the Company ceased to be a shell company as defined in
Rule 12b-2 promulgated under the Exchange Act (which date is July 1, 2009) and
in the event the Company decides to file a registration statement providing for
the registration of such shares under the Securities Act which is declared
effective by the U.S. Securities and Exchange Commission (the “SEC”), any such
filing is not anticipated earlier than July 1, 2009.








9





Buckhorn
Transaction





On May
20, 2008, the Company completed the acquisition of a fifty (50%) percent equity
ownership interest in Buckhorn Resources, LLC (“Buckhorn”), in an arms-length
transaction pursuant to that certain Property Agreement, dated March 27, 2008,
between the Company and Billy David Altizer, Pat E. Mitchell, Howard Prevette,
William Dale Harris and Buckhorn.  Other than in respect to this
transaction and that Billy David Altizer, the managing member of Buckhorn is
also the managing member of (i) AMS, referenced in the Owsley Transaction,
above; and (ii) A&L Surveying and Engineering, LLC (as disclosed in the
section titled “Management - Certain Relationships and Related Transactions”),
among other entities, the Company did not have any prior material relationship
with the parties to the Property Agreement.  The Buckhorn Transaction
caused the Company to cease to be a “shell company” as that term is defined in
Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).




Buckhorn
owns approximately 10,000 acres of land in Perry and Leslie Counties in eastern
Kentucky (the “Buckhorn Property”), including all rights to coal on the
property, except for a $.30 per ton coal right retained by an unaffiliated third
party and former owner of the property (see the section "EK Transaction"
below).




As
disclosed under “Legal Proceedings” below, Begley Properties, LLC (hereinafter,
“Begley”) filed an action against Buckhorn in the Leslie Circuit Court on
September 29, 2005, to quiet title to certain parcels of property ofapproximately 500
acres owned by Buckhorn that are located in Leslie and Perry Counties in
Kentucky.  Buckhorn is contesting Begley’s claim and disputes the
facts as conveyed by Begley.  However, due to the nature of
litigation, the outcome of this matter is impossible to determine at this
time.




The total
consideration for the Buckhorn acquisition was $4,200,000, consisting of: (i)
$2,100,000 in cash or installment payments, whereby $550,000 was paid by the
Company in cash at the closing and $1,550,000 remains payable by the Company in
installments within twelve months of the closing (which amount consisted of a
$1,000,000 unsecured promissory note and $550,000 in remaining capital
contributions out of a total of $600,000 ($50,000 of which was paid at closing)
for the purpose of funding certain development activities on the Buckhorn
Property, such as obtaining coal-mining permits, and for working capital
requirements); and (ii) an aggregate of 1,093,750 shares of the Company’s
restricted common stock, valued at $1.92 per share, or $2,100,000 in the
aggregate.  CNSV 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 proceeds from the sale of such common stock in excess of
$4.80 per share (the “Surplus” as defined in the Property Agreement) shall be
paid to CNSV.  The shares are subject to a lock-up/leak-out agreement
permitting aggregate weekly sales of up to 21,034 shares from April 1, 2009
through April 1, 2010, subject to an available exemption from registration or
registration of the shares. These shares are not eligible to be re-sold
under Rule 144 promulgated under the Securities Act until July 1,
2009.








10


Management
retained a forestry expert to inventory timber on approximately 1,100 acres to
enable management to commence harvesting timber when appropriate taking into
consideration timber prices, cash flow needs, accessibility and other
issues.  If the Company is successful in its efforts, of which there
is no assurance, the removal of timber as indicated would provide additional
revenues and working capital.  Over the course of 2009 and 2010, the
Company plans regarding the Buckhorn Property include: timber removal, filing
coal permit application(s), finding potential locations for drilling sites for
oil and natural gas wells and the development of potential oil and natural gas
wells, for which there are no assurances such oil and gas resources exist in
economically feasible or marketable quantities or qualities.





The
Company retained a mineral resources expert firm to prepare a natural gas
reserve report on the Buckhorn Property pursuant to SEC
guidelines.  Management is using the report, which was completed on
February 9, 2009, to develop a strategy for funding the development of potential
gas resources that may exist on or under the Buckhorn Property, for which there
are no assurances such resources exist in economically feasible or marketable
quantities or qualities.





EK
Transaction




On March
31, 2008, the Company entered into an Option Agreement with Eastern
Kentucky Land Corporation (“EK”), which provided for the Company’s option to
close the Rights Agreement until October 1, 2008 (the “EK Option
Agreement”, collectively the transactions contemplated by the EK Option
Agreement and the Rights Agreement (defined below) shall be referred to as the
“EK Transaction”).  The EK 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.




Effective
September 22, 2008, the Company closed the Rights Agreement (the “Rights
Agreement”), whereby the Company acquired all right, title and interest in the
oil, gas and other minerals (for which there is no assurance such resources
exist in economically feasible quantities, if at all) on the Buckhorn Property,
as described above, excluding the $0.30 per ton coal rights retained by EK when
it sold the Buckhorn Property. The total consideration paid by the Company
under the Rights Agreement was $1,000,000, and consisted 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, at a
price of $1.925 per share, which value is guaranteed provided such shares are
sold in accordance with certain lock-up/lock-out terms.  For shares
sold at a price greater than $4.81 per share, EK shall pay the Company the
surplus.  The lock-up terms allow EK to sell 7,992 shares per week for
the period from April 1, 2009 through March 31, 2010, subject to an available
exemption from registration or registration of the shares.  These shares
are not eligible to be re-sold under Rule 144 promulgated under the Securities
Act until July 1, 2009.




Under the
EK Option Agreement, the Company paid EK $20,000 on or about April 8, 2008 and
made additional monthly extension payments of $30,000, in the aggregate, through
the closing date.  The $50,000 in total extension payments were
credited against the $200,000 due at the closing of the Rights Agreement,
leaving a balance of $150,000 which was paid at closing.  Other than in
connection with the Buckhorn Transaction, in which EK was the grantor of the
subject property to Buckhorn, the Company had no previous affiliations with
EK.









11


LeeCo
Transaction





On
September 11, 2008, the Company entered into the LeeCo Agreement (the “LeeCo
Agreement”) with LeeCo Development, LLC (“LeeCo”) having an effective date as of
June 19, 2008.  LeeCo currently leases coal rights from
landowners on approximately 650 acres and believes it can obtain additional coal
leases and oil/natural gas rights on a substantial amount of additional acres
vis-а-vis third party landowners.  The LeeCo Agreement closed on
September 16, 2008, and provided for the purchase of a fifty percent
(50%) ownership interest in LeeCo from the two original members of LeeCo (the
“Initial Owners”).  The LeeCo Agreement also provided for the
Company’s acquisition of all current and future oil/natural gas rights held or
obtained by LeeCo, which development rights shall be transferred to the Company
either through assignment from LeeCo to the Company or preferably directly by
contract with the owner of subject properties, subject to a 1% royalty which
shall be retained equally between the Initial Owners.  This royalty
shall be payable on the oil/natural gas leases obtained on properties
signed by LeeCo and transferred to the Company.  Under the LeeCo
Agreement, the Company has the sole responsibility and authority to make all
oil/natural gas decisions with respect to such current and future
rights.





At the
closing on September 16, 2008, the Company paid an aggregate purchase price of
$500,000 as follows: (i) $50,000 in cash, whichcash funds were paid in
equal payments of $25,000 to each of the Initial Owners; and (ii) $450,000
through the issuance of 225,000 shares of restricted common stock valued at
$2.00 per share (the “Shares”), based on the fair market value of the Company’s
Shares on the effective date of the LeeCo Agreement.  The Company
shall guarantee the $450,000 value of the Shares, provided they are sold in
accordance with the terms of the lock-up provisions in the LeeCo Agreement and
Initial Owners shall pay the Company any surplus in the event the Initial Owners
sell the Shares at a price greater than $5.00 per share.  The lock-up
provisions permit the Initial Owners to sell 4,327 shares per week for the
period from January 1, 2009 through December 31, 2009, subject to there being an
available exemption from registration or the shares being
registered.  These shares are not eligible to be re-sold under Rule
144 promulgated under the Securities Act until July 1, 2009.





Also at
the closing, the Company and the Initial Owners deposited $100,000 as a capital
contribution to LeeCo in proportion to their respective ownership interests,
consisting of $25,000 from each of the Initial Owners and $50,000 from the
Company, which capital contribution is to be used for working capital
purposes.  The Company also became a manager and member of
LeeCo.  The Company appointed its President and CEO, Johnny R. Thomas,
to perform the duties associated with this role until the Company notifies LeeCo
of a change by written notice.





We filed
a coal permit application in November 2008 with the State of Kentucky, Division
of Mining with respect to the LeeCo Property.  Management expects to
begin generating revenues from coal royalties in connection with proposed coal
mining activities on such property sometime during the March to April 2009
timeframe.




Business
of Buckhorn Resources, LLC




Buckhorn
is a Kentucky limited liability company that was formed in the State of Kentucky
on October 13, 2004.  Buckhorn’s main business strategy is to engage in the
ownership of properties possessing natural and energy resources, as well as
non-coal real estate development. Buckhorn currently owns about 10,000 acres of
land in eastern Kentucky.  Although Buckhorn anticipates that most of its
revenue will come from coal, Buckhorn will work with CNSV to develop other
sources of income on the Buckhorn Property, including those with respect to
timber and non-coal real estate development.









12


Buckhorn’s
primary assets are its properties in eastern Kentucky.  Buckhorn will
not operate any mines.  Instead, Buckhorn plans to enter into long-term
leases with experienced, third-party coal mine operators and coal producers for
the right to mine coal reserves on its properties in exchange for royalty
payments.  Buckhorn expects its lessees to pay royalties based on the
higher of a percentage of the gross sales price or a fixed price per ton of coal
sold, with pre-established minimum annual tonnage requirements.  Because
Buckhorn will not mine any coal on its properties, for which there is no
assurance such coal exists or can be extracted, it expects to have
relatively small operating expenses and capital expenditure requirements, as
compared to mining companies.  Therefore, Buckhorn’s proposed coal royalty
business is expected to have relatively high margins.  Buckhorn will also
contractually limit its exposure to liabilities asserted with the operation of
coal mines, including site or environmental reclamation costs.  In
addition, timber is a valuable natural resource that is available on the
Buckhorn Property which has commercial uses such as hardwood lumber, sawdust and
woodchips, among other things.




Buckhorn’s
revenues and profitability will be largely dependent on the production of coal
by proposed lessees on its properties, which at this stage there are no
assurances that such coal exists in marketable or economically feasible amounts.
 Buckhorn’s potential coal royalty revenues will vary depending on the coal
prices that may be realized by its lessees, subject to specified minimum fixed
rates per ton.  Buckhorn estimates that its proposed lessees will sell more
than 80% of the coal they produce to customers pursuant to contracts with
negotiated prices and terms of one year or more.  They will sell the
remaining portion of the coal they are able to produce on the spot market.
 Therefore, Buckhorn’s anticipated coal royalty revenues would be affected
by changes in coal prices and its lessees' long-term supply contracts and, to a
lesser extent, by fluctuations in the spot market prices for coal. A number of
factors affect the prevailing price for coal, including demand, the price and
availability of alternative fuels, overall economic conditions and governmental
regulations.




Buckhorn
does not have the rights to any oil, gas and minerals underlying the Buckhorn
Property, for which there is no assurance such oil, gas or minerals exists or
can be extracted in economically feasible quantities; however, pursuant to the
EK Option Agreement, CNSV acquired all right, title and interest in the oil, gas
and other minerals under the Buckhorn Property, except for the $.30 per ton coal
rights retained by EK, as more fully described above.




Following
the proposed reclamation of lands after the utilization of its natural
resources, and assuming the Company decides to pursue organic and natural foods
business plan, it is anticipated that Buckhorn would be included in any
of the Company’s organic certification and farming operations on the
Buckhorn Property.  Alternatively, there are approximately 23 miles of
riverfront property that Buckhorn may use for residential real estate
development.












13


Competitive
Business Conditions




The coal
industry is highly competitive. There are numerous large and small producers in
all coal producing regions of the United States.  Assuming coal exists in
economically feasible quantities on the Company (or its subsidiaries)
properties, for which there is no assurance, our main competition will be with
companies that manage and own coal bearing properties and lease acreage in such
properties to coal mine operators and coal producers.  The most important
factors on which the Company (including through its subsidiaries) will
compete is price, coal quality and characteristics, proximity to transportation,
royalty rates, and the reliability of supply. Demand for coal and the prices
that we will be able to obtain, assuming coal exists in economically
feasible quantities on our properties, is closely linked to coal consumption
patterns of the domestic electric generation industry and international
consumers. These coal consumption patterns are influenced by factors beyond our
control, including demand for electricity, which is significantly dependent upon
economic activity and summer and winter temperatures in the United States,
government regulation, technological developments and the location,
availability, quality and price of competing sources of fuel such as natural
gas, oil and nuclear, and alternative energy sources such as hydroelectric
power.




Steam
coal prices remained relatively flat through most of the mid-to-late 1990s. When
long-term contracts for many producers began to expire in 2000 and beyond, new
contracts were entered into reflecting then-current market demand and operating
conditions. Coal prices increased significantly between 2000 and 2006,
especially in the eastern regions of the United States. During 2006, mild
weather conditions across the United States led to reduced electricity demand
and higher coal inventory levels, resulting in a decline in spot steam coal
prices.  In 2007, the pricing environment for coal, Eastern U.S. coal in
particular, became extremely favorable as production remained low while demand
increased. This momentum in the eastern U.S. coal markets increased in
2008.  Coal prices in certain regions, such as Central and Northern
Appalachia, were at the highest levels experienced in the past decade when spot
prices for coal from such regions increased in price from approximately $55 per
short ton (as opposed to metric ton) in December 2007 to approximately $145 per
short ton during September and October of 2008, according to the Energy
Information Administration’s “Historical Average Weekly Coal Commodity Spot
Prices” (Dollars per Short Ton) for the Business Week ended March 6, 2009,
available at
http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html. However, coal
prices have since decreased from those highs and are currently $68.20 per short
ton for the business week ended March 13, 2009, also available at
http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html.  The
pricing information therein is based on the average coal spot market prices and
average weekly coal commodity spot prices for the Central Appalachia
region.







14


At this
point, the Company’s main asset is its land and the potential natural
resources that may exist under such properties. However, we lack the
proper facilities, infrastructure and equipment to extract such anticipated
natural resources, so third party developers and/or mining operators need to be
utilized for such purposes.  Buckhorn and potentially other subsidiaries of
the Company, in conjunction with selected coal mining operators, will prepare
and submit or cause to be prepared and submitted the documents required by
regulatory agencies responsible for coal mining and reclamation of the
respectively owned properties.  Such documents include, but are not
necessarily limited, to the following: surface coal mining permit applications,
including mining and reclamation operation plans; mine license applications;
applicable Division of Water permit applications; applicable permit applications
required by the U.S. Army Corps. of Engineers; and mining plans required by the
U.S. Mine Safety and Health Administration.




The
Company anticipates it will commence mining activities on the LeeCo Property and
the Owsley Property in calendar year 2009, provided such owned or controlled
land will have natural resources that are marketable or that can be extracted in
economically feasible amounts.  Management believes based on their
knowledge of the industry, that royalty rates are typically ten percent, or
approximately $8 per ton, based on current prices for this quality of coal, as
set forth above.  Through its 50% ownership of Buckhorn, CNSV will keep 50%
of all coal royalties, if any, received by Buckhorn.  Similarly, the
Company assigned 50% of its coal royalty rights to AMS with respect to the
Owsley Property, subject to the filing of a mineral deed evidencing such
assignment.





One of
the managing members of Buckhorn, LeeCo, and AMS - Billy David Altizer - has
considerable experience in engineering, development and monitoring coal mining
on a number of projects, including award winning reclamation projects, and has
over twenty years experienced working with and consulting for and surveying
properties having energy resources.  Other members of the Company (or its
subsidiaries) also have considerable experience in timber harvest and natural
gas/oil drilling and all aspects of project planning and permitting required to
assist the Company in developing a model production site, with profitable energy
development.   A total of five coal mining operators have been
approached by the Company through the efforts of Billy David Altizer in
accordance with the requirements of the Development Agreement, described above
under the “Business - Land for Production Purposes”
section.  Discussions are ongoing with four of the five
initial parties.




The
reclamation process, following mining of the coal on the Company (or its
subsidiaries) properties, would serve to enhance and benefit future organic
farming operations, should the Company determine to pursue such business
strategy.  For example, such reclamation efforts are expected to
result in through the development of an estimated $1,000 per acre in
infrastructure on the Buckhorn Property. The coal mining reclamation efforts
will develop pastures of specific sizes, good roads to pastures and to
approximately 400 natural gas/oil well drilling sites, ponds and watering sites
throughout the property, reshape steep relatively inaccessible slopes to gentle
slopes by lowering the peaks and filling the hollows, and seeding the pastures
with Company selected species and varieties to maximize production.  The
permits filed are specific and the reclamation performance will be
bonded.




Harvest
of timber resources on the Buckhorn Property, Owsley Property, and other various
Company properties, if successful, would provide revenues and allow us
to clear parts of the land for the purpose of locating and drilling wells,
building roads and infrastructure, as well as facilitating the extraction of
energy resources.






15





Marketing/Distribution




The
Company, acting alone or through its subsidiaries, intends to enter into leases
with various coal mining operators for the purpose of mining coal from the
Buckhorn and Owsley Properties, among others, and market and distribute any such
extractable coal in raw form to smaller electric utilities, industrial
companies, and/or coal resellers. However, at this stage there are no
assurances that such owned or controlled land will have coal or
other natural resources that are marketable or that can be extracted in
economically feasible amounts, if at all.  The Company, including its
subsidiaries, marketing efforts will be performed by its respective management,
consultants and  independent coal brokers, and its sales efforts will be
 focused primarily  on contacting the maximum number of coal mining
companies to enhance bidding to mine coal underlying its properties,
particularly with respect to the Buckhorn and Owsley Properties at this time.
 The Company’s (including its subsidiaries) properties are located near
some of the major coal hauling railroads that serve Central Appalachia, which it
anticipates utilizing as its main distribution channels.  The Company
(including its subsidiaries) believes that the geographic location of its
properties will give lessees a transportation cost advantage, particularly with
respect to coal produced in the western states, which would improve their
competitive position and the Company’s (or its subsidiaries) corresponding coal
royalty revenues.





At this
time, other than the Development Agreement with AMS, the Company, (including its
subsidiaries) does not have any binding agreements with prospective lessees or
coal mine developers.  LeeCo and AMS are in the process of approaching
selected coal mining operators or lessees to enhance bidding to mine coal
underlying the Company’s owned or controlled properties.  We are in
discussions with approximately four potential lessees with respect to the Owsley
Property, one of which may be utilized for the LeeCo Property.




Business
of LeeCo Development, LLC





LeeCo is
engaged in leasing coal rights from the owners of properties that are believed
to be rich in mineral and/or energy resources for the purpose of permitting such
lands for mining and energy development.  LeeCo will then seek to
sublease such mineral rights to third parties for mining and extraction. LeeCo
filed a coal permit application in November 2008 with the State of Kentucky,
Division of Mining, however, it has no binding subleases with third
parties.  Notwithstanding the foregoing, management expects to
commence coal mining activities over the course of March to April 2009 through
possibly one of the potential lessees that the Company is currently in
discussions with regarding the Owsley Property. LeeCo pursues leases on
properties that LeeCo management identifies as having potential coal reserves
that would be suitable for mining that it believes can be successfully leased,
permitted and subleased for mining to third parties for a
profit.  LeeCo currently leases coal rights from landowners with
respect to approximately 650 acres of land.  LeeCo management believes
it can obtain additional coal leases, as well as oil/natural gas rights on a
substantial amount of additional acres vis-à-vis third party
landowners.








16


Government
Regulation








The coal
mine operators with whom the Company (or its subsidiaries) intends to enter into
leases on its properties, or lessees, are obligated to conduct mining operations
in compliance with all applicable federal, state and local laws and regulations.
 To the extent permissible under applicable law, the Company (or its
subsidiaries) lessees will bear all costs and responsibilities for the
item/expenditure as such lessees routinely do in all their coal mining
operations.  The proposed coal mining operations on the Company (or its
subsidiaries) properties may subject its lessees to extensive federal, state and
local regulations with respect to matters such as: employee health and safety;
permitting and licensing requirements; air quality standards; water quality
standards; plant, wildlife and wetland protection; blasting operations; the
management and disposal of hazardous and non-hazardous materials generated by
mining operations; the storage of petroleum products and other hazardous
substances; reclamation and restoration of properties after mining operations
are completed; discharge of materials into the environment, including air
emissions and wastewater discharge; surface subsidence from underground mining;
and the effects of mining operations on groundwater quality and
availability.




Numerous
governmental permits and approvals are required to commence coal mining
operations. Regulatory authorities exercise considerable discretion in the
timing and scope of permit issuance. Requirements imposed by these authorities
may be costly and time consuming and may result in delays in the commencement or
continuation of exploration or production operations. In addition, lessees may
be required to prepare and present to federal, state and local authorities data
pertaining to the effect or impact that proposed exploration for or production
of coal might have on the environment. Further, the public may comment on and
otherwise engage in the permitting process, including through intervention in
the courts. Accordingly, the permits the Company (or its subsidiaries) lessees’
need may not be issued, or, if issued, may not be issued in a timely fashion, or
may involve requirements that restrict a lessees’ ability to conduct mining
operations or to do so profitably.  The Company (or its subsidiaries) will
bear the cost of obtaining the permits, however, selected coal mining operators
will reimburse the Company (or its subsidiaries) for those
expenses.




Under
some circumstances, substantial fines and penalties, including revocation of
mining permits, may be imposed under the laws described herein. Monetary
sanctions and, in severe circumstances, criminal sanctions may be imposed for
failure to comply with these laws. Regulations also provide that a mining permit
can be refused or revoked if the permit applicant or permittee owns or controls,
directly or indirectly through other entities, mining operations which have
outstanding environmental violations.





The
Company (or its subsidiaries) will seek to have each of its lessees be
contractually obligated under its lease to post a reclamation
bond.  Except as discussed above with respect to costs relating to
permits, the Company (or its subsidiaries) does not anticipate accruing costs
because it anticipates that its lessees will be contractually liable for all
costs relating to their mining operations, to the extent permissible by
law.  With the exception of the Development Agreement with AMS, the
Company (or its subsidiaries) has not yet entered into such binding development
contracts or leases.  However, the Company (or its subsidiaries)
believes that the competitive bidding process among coal mining operators to
mine the Company (or its subsidiaries) owned or controlled properties, in
combination with common usage or standard in the industry among coal mining
operators to agree to post such reclamation bonds and pay other related coal
mining expenses, will allow the Company (or its subsidiaries) to come to an
agreement on such contractual terms with the ultimate lessees or coal mining
developers.






17





In view
of the foregoing, the Company (or its subsidiaries) does not currently expect
that future compliance will have a material adverse effect on its
operations.  However, because of extensive and comprehensive
regulatory requirements, violations during mining operations are not unusual in
the industry and, notwithstanding compliance efforts, we do not believe
violations by our lessees can be eliminated completely.




While it
is not possible to quantify the costs of compliance by the Company (or its
subsidiaries)’s lessees with all applicable federal and state laws, those costs
are expected to be significant.  Although The Company (or its
subsidiaries)’s lessees typically accrue adequate amounts to cover these costs,
their future operating results would be adversely affected if they later
determined these accruals to be insufficient. Compliance with government
regulation and laws has substantially increased the cost of coal mining for
lessees, such as those The Company (or its subsidiaries) intends to contract
with, as well as other domestic coal producers.




The
Surface Mining Control and Reclamation Act of 1977, or SMCRA, which is
administered by the U.S. Office of Surface Mining Reclamation and Enforcement,
or OSM, establishes mining, environmental protection and reclamation standards
for all aspects of U.S. surface mining. The State of Kentucky has primacy
over surface coal mining operations. That means that the state program has been
patterned after the federal program and has been approved by OSM. Mine operators
must obtain SMCRA permits and permit renewals for mining operations from the
state regulatory agency.




SMCRA
permit provisions include requirements for coal prospecting; mine plan
development; topsoil removal, storage and replacement; selective handling of
overburden materials; mine pit backfilling and grading; protection of the
hydrologic balance; subsidence control for underground mines; surface drainage
control; mine drainage and mine discharge control and treatment, and
re-vegetation.




The coal
mining permit application process is initiated by collecting baseline data to
adequately characterize the pre-mine environmental condition of the permit area.
  Once a permit application is prepared and submitted to the
regulatory agency, it goes through a completeness and technical review. Public
notice of the proposed permit is given for a comment period before a permit can
be issued. Some SMCRA mine permits take over a year to prepare, depending on the
size and complexity of the mine and often take six months to two years to be
issued. Regulatory authorities have considerable discretion in the timing of the
permit issuance and the public has the right to comment on and otherwise engage
in the permitting process, including public hearings and through intervention in
the courts.




Before a
SMCRA permit is issued, a mine operator must submit a bond or other form of
financial security to guarantee the performance of reclamation obligations.
 This bonding/permitting process is expected to serve the Company’s (or its
subsidiaries) well, as this insures that the mine operator will reclaim the land
as specified in the permit.




The
Abandoned Mine Land Fund, which is part of SMCRA, requires a fee on all coal
produced in the U.S. The proceeds are used to rehabilitate lands mined and
left unreclaimed prior to August 3, 1977, and to pay health care benefit
costs of orphan beneficiaries of the “combined fund.”








18


SMCRA
requires compliance with many other major environmental programs. These programs
include the Clean Air Act; Clean Water Act; Resource Conservation and Recovery
Act, or RCRA; and Comprehensive Environmental Response, Compensation, and
Liability Act, or CERCLA. Besides OSM, other Federal regulatory agencies are
involved in monitoring or permitting specific aspects of mining operations. The
U.S. Environmental Protection Agency, or EPA, is the lead agency for States
or Tribes with no authorized programs under the Clean Water Act, RCRA and
CERCLA. The U.S. Army Corps of Engineers regulates activities affecting
navigable waters and the U.S. Bureau of Alcohol, Tobacco and Firearms
regulates the use of explosive blasting.





In
addition to regular property taxes, Kentucky's Revenue Cabinet assesses the
Company (or its subsidiaries) coal property in Kentucky each year.  The
Company’s (or its subsidiaries) lessees may be in disagreement as to the value
they place on our reserves. If informal discussions do not settle the
disagreement, the lessees must file a formal protest, which is a more formal
process seeking a compromise. Failure to compromise results in an appeal to the
Kentucky Board of Tax Appeals. The decision of the board can be appealed to the
Franklin Circuit Court and on through the appellate process. Complying with
existing regulations for filing unmined coal returns is very expensive and time
consuming. The coal owner is required to map and list all mineable coal on his
tax return. If the owner believes a boundary of coal is not mineable, but the
Revenue Cabinet believes it is, the Revenue Cabinet will take the position that
the coal was "omitted", and assess a penalty along with interest. The Revenue
Cabinet may also consider a boundary as "omitted" if the owner lists it but at
nominal value.  The Company (or its subsidiaries) may have ongoing
negotiations and litigation with the Revenue Cabinet over its assessments and
returns.  However, the Company (or its subsidiaries) plans for its coal
leases to require that the lessee reimburse the Company (or its subsidiaries)
for all unmined mineral taxes paid on coal they have leased.




The
Company (or its subsidiaries) does not believe there are any matters that would
materially hinder its ability to acquire mining permits.




Environmental
Laws




The
recent trend in environmental legislation and regulation generally is toward
stricter standards, and this trend is expected to continue. These laws and
regulations may require the acquisition of a permit or other authorization
before construction, mining or drilling commences and for certain other
activities; limit or prohibit construction, mining, drilling and other
activities on certain lands lying within wilderness and other protected areas;
and impose substantial liabilities for pollution resulting from our operations.
The permits required for such mining and drilling operations are subject to
revocation, modification and renewal by issuing authorities. Governmental
authorities have the power to enforce compliance with their regulations, and
violations are subject to fines, penalties or injunctions.  These
obligations and responsibilities are those of the coal mining operators to whom
the Company (or its subsidiaries) will lease its properties.








19


The
Company (or its subsidiaries) and its lessees will be subject to the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, and similar state laws that
impose liability, without regard to fault or the legality of the original
conduct, on certain classes of persons that are considered to have contributed
to the release of a "hazardous substance" into the environment.  These
persons include the owner or operator of the disposal site or sites where the
release occurred and companies that disposed or arranged for the disposal of the
hazardous substances found at the site. Persons who are or were responsible for
releases of hazardous substances under CERCLA may be subject to joint and
several liability for the costs of cleaning up the hazardous substances that
have been released into the environment and for damages to natural resources.
 As the owner of the land upon which mining and other energy-related
operations are anticipated to take place, the Company (or its subsidiaries)
may be held strictly liable as a responsible party under CERCLA, along with any
of its lessees.  Furthermore, neighboring landowners and other third
parties may file claims for personal injury and property damage allegedly caused
by the hazardous substances released into the environment.




The
Company’s (or its subsidiaries) lessees will be subject to the Federal Clean
Water Act and corresponding state laws which affect coal mining operations by
imposing restrictions on discharges into regulated waters. Permits requiring
regular monitoring and compliance with effluent limitations and reporting
requirements govern the discharge of pollutants into regulated waters. New
requirements under the Federal Clean Water Act and corresponding state laws
could cause the Company’s (or its subsidiaries) lessees mining operators to
incur significant additional costs that adversely affect our future operating
results.




The
Company’s (or its subsidiaries) lessees will be subject to the Federal black
lung laws promulgated by the United States Department of Labor in connection
with the lessees’ proposed coal mining operations which are to be performed by
the coal mining operators, as well as be affected by the Clean Air Act and
similar state and local laws, which extensively regulate the amount of sulfur
dioxide, particulate matter, nitrogen oxides, mercury and other compounds
emitted into the air from electric power plants, which are the largest end-users
of most coal producers.





The
Company’s (or its subsidiaries) lessees will be subject to Resource Conservation
and Recovery Act (“RCRA”).  RCRA, which was enacted in 1976, affects
U.S. coal mining operations by establishing “cradle to grave” requirements
for the treatment, storage and disposal of hazardous wastes. Typically, the only
hazardous materials found on a mine site are those contained in products used in
vehicles and for machinery maintenance. Coal mine wastes, such as overburden and
coal cleaning wastes, are not considered hazardous waste materials under RCRA,
however, this may not be the case in connection with any oil and natural gas
resources underlying the Company (or its subsidiaries) properties.  In
May 2000, the EPA concluded that coal combustion materials do not warrant
regulation as hazardous under RCRA. The EPA is retaining the hazardous waste
exemption for these materials. The EPA is evaluating national non-hazardous
waste guidelines for coal combustion materials placed at a mine. National
guidelines for mine-fills may affect the cost of ash placement at
mines.







20


The
Company (or its subsidiaries) lessees may be affected by a regional haze
program originally developed in 1999 by the U.S. Environmental Protection Agency
(the “EPA”) to improve visibility in national parks and wilderness areas.
 In June 2005, the EPA announced final amendments to its regional haze
program. As part of the new rules, affected states had to develop implementation
plans by December 2007 that, among other things, identify facilities that will
have to reduce emissions and comply with stricter emission limitations. This
program may restrict construction of new coal-fired power plants where emissions
are projected to reduce visibility in protected areas. In addition, this program
may require certain existing coal-fired power plants to install emissions
control equipment to reduce haze-causing emissions such as sulfur dioxide,
nitrogen oxide, and particulate matter. Demand for coal mined by our prospective
lessees could be affected when these new standards are implemented by the
applicable states.




The Kyoto
Protocol to the United Nations Framework Convention on Climate Change calls for
developed nations to reduce their emissions of greenhouse gases to five percent
below 1990 levels by 2012. Carbon dioxide, which is a major byproduct of the
combustion of coal and other fossil fuels, is subject to the Kyoto Protocol. The
Kyoto Protocol went into effect on February 16, 2005 for those nations that
ratified the treaty.  In 2001, the United States withdrew its support for
the Kyoto Protocol. There has been increasing international pressure on the
United States to adopt mandatory restrictions on carbon dioxide emissions and
the U.S. Congress is actively considering legislation to reduce emissions of
greenhouse gases. By comparison, many states and regional organizations have
already taken legal measures to reduce emissions of greenhouse gases, primarily
through the planned development of regional greenhouse gas cap and trade
programs.




The
Company’s (or its subsidiaries) lessees may be affected by the Federal
Endangered Species Act and counterpart state legislation protect species
threatened with possible extinction. Protection of endangered species may have
the effect of prohibiting or delaying the Company (or its subsidiaries) and its
lessees from obtaining mining permits and may include restrictions on timber
harvesting, road building and other mining or forestry activities in areas
containing the affected species. A number of species indigenous to Central
Appalachia are protected under the Endangered Species Act.  The Company (or
its subsidiaries) does not believe there are any species protected under the
Endangered Species Act that would materially and adversely affect its lessees'
ability to mine coal from our properties in accordance with current mining plans
or our ability to sell timber growing on our properties for harvest. Additional
species on the Company (or its subsidiaries) properties may receive
protected status under the Endangered Species Act and additional currently
protected species may be discovered within its properties.




Mine
Health and Safety Laws.





Stringent
safety and health standards have been imposed by federal legislation since the
adoption of the Mine Health and Safety Act of 1969. This Act resulted in
increased operating costs and reduced productivity. The Federal Mine Safety and
Health Act of 1977, which significantly expanded the enforcement of health and
safety standards; imposes comprehensive safety and health standards on all
mining operations. In addition, as part of the aforementioned federal
legislation, the Black Lung Acts require payments of benefits by all businesses
conducting current mining operations to coal miners with black lung and to some
survivors of a miner who dies from this disease.







21


By
Executive Order dated September 21, 2001, Kentucky's Governor Patton established
a moratorium on permits for non-coal mining operations and the review of permits
and laws regarding oil and gas wells in the Pine Mountain area.  The stated
purpose of the order is to protect the environment and scenic landscape along
the Pine Mountain Trail.  Viewscape or viewshed is now being recognized as
a factor to be considered in Lands Unsuitable Petitions. However, legislation
adopted in March 2002 establishing the Pine Mountain Trail as a park includes
specific findings that the park boundaries are adequate to protect the trail and
that use of lands outside the boundary of the park will not be restricted
because those lands may be viewed from the park. If this legislation was
challenged and a lands unsuitable for mining petition seeking denial of mining
permits where mining would be within the view from the park were successful, it
could have a material impact on our business, financial condition or results of
operations, as the view from the top of Pine Mountain extends through the
counties of Harlan, Leslie, Letcher and Perry.





The
Kentuckians for the Commonwealth filed a lawsuit on August 21, 2001 in a federal
district court in Charleston, West Virginia, Kentuckians for the Commonwealth v.
Rivenburgh, related to valley fills in streams of Martin County, Kentucky.
Plaintiffs alleged that the Corps of Engineers violated the Clean Water Act and
the National Environmental Policy Act. Specifically, the lawsuit claims that the
Corps of Engineers has no authority under the Clean Water Act to issue permits
allowing valley fills in streams. In the alternative, plaintiffs claimed
that:




·
            the
      Corps of Engineers violated the Clean Water Act by issuing Nationwide
      Clean Water Act Section 404 dredge and fill permits for valley fills
      rather than site specific permits;





·
            the
      Corps of Engineers violated the National Environmental Policy Act by
      approving these permits without preparing an environmental impact
      statement;





·
            the
      Corps of Engineers may not issue these permits without analyzing measures
      required by the Clean Water Act to avoid and minimize impact on streams;
      and





·
            the
      Corps of Engineers cannot authorize disposal without waiting for the U.S.
      EPA to complete proceedings under the Clean Water Act to veto the proposed
      permit.




The
plaintiffs sought an injunction prohibiting the Corps of Engineers from issuing
any new permits allowing valley fills in streams or, in the alternative,
requiring revocation of the specific permits subject to this litigation. On May
8, 2002, the court granted the injunction requested by the
plaintiffs.




On
January 29, 2003 the Fourth Circuit reversed this injunction which prohibited
the Army Corp of Engineers from issuing new Section 404 permits for the deposit
of mountaintop debris in valley fills, indicating that issuance of permits did
not violate the Clean Water Act.








22


The U.S.
Army Corps of Engineers ("Corps") is authorized to issue general "nationwide"
permits for specific categories of activities that are similar in nature and
that are determined to have minimal adverse environmental effects. Nationwide
Permit 21 authorizes the disposal of dredged or fill material from surface coal
mining activities into the waters of the United States. A July 2004 decision by
the U.S. District Court for the Southern District of West Virginia inOhio Valley
Environmental Coalition v. Bulen  enjoined the Huntington
District of the Corps from issuing further permits pursuant to Nationwide Permit
21. While this decision was vacated by the U.S. Court of Appeals for the Fourth
Circuit in November 2005, it has been remanded to the District Court for the
Southern District of West Virginia for further proceedings consistent with the
appellate court’s opinion.  We currently utilize Nationwide Permit 21
authorizations, and this and other court cases have created uncertainty
regarding our ability to utilize this form of permit in the future for the
disposal of dredged or fill material.





Plaintiff
environmental groups have also recently challenged the Corps' decision to issue
individual Clean Water Act or “CWA” Section 404 permits for certain surface
coal mining activities. On March 23, 2007, in the caseOhio Valley
Environmental Coalition v. U.S. Army Corps of Engineers,  the
U.S. District Court for the Southern District of West Virginia rescinded permits
authorizing the construction of valley fills at a number of separate surface
coal mining operations, finding that the Corps had issued the permits
arbitrarily and capriciously in violation of the National Environmental Policy
Act and the CWA. On June 19, 2007, the District Court issued a declaratory
judgment indicating that the mining companies in the case were also required to
obtain separate CWA Section 402 permit authorizations for discharges into
the stream segments located between the toes of their valley fills and their
respective sediment pond embankments.  On October 11, 2007, the District
Court granted a preliminary injunction and temporary restraining order against
the Defendant mine and Army Corps of Engineers.  In December 2007,
plaintiff environmental groups brought a similar suit against the issuance of a
different surface coal mine permit in the U.S. District Court for the Eastern
District of Kentucky, alleging identical violations. The Corps has voluntarily
suspended its permit in that case for agency re-evaluation. Although permits for
our mining operations are not presently joined to either case, it is possible
that we may be unable to obtain or may experience delays in securing, utilizing
or renewing additional CWA Section 404 individual permits for surface
mining operations due to agency or court decisions stemming from these
cases.





The
Company’s (or its subsidiaries) lessees may use explosives in connection with
their surface mining activities. The Federal Safe Explosives Act ("SEA"),
applies to all users of explosives. Knowing or willful violations of the SEA may
result in fines, imprisonment, or both. In addition, violations of SEA may
result in revocation of user permits and seizure or forfeiture of explosive
materials.




Other
Environmental Laws Affecting Lessees. The Company (or its subsidiaries) lessees
will be required to comply with numerous other federal, state and local
environmental laws in addition to those previously discussed. These additional
laws include, for example, the Resource Conservation and Recovery Act, the Safe
Drinking Water Act, the Toxic Substance Control Act, and the Emergency Planning
and Community Right-to-Know Act.





Research
and Development




Our
business plan is focused on the exploration and development of our potential
coal, oil and natural gas resources on or under our properties.  Other
than in connection with property explorations, assessments and technical
reports, we have not expended any significant funds on research and development
in the conventional sense during the years ended December 31, 2008 and
2007.








23





Facilities




The
Company is operating from the residence of its CEO, Dr. Johnny Thomas, with
a mailing address at 2756 N. Green Valley Parkway,
Suite 225, Henderson N.V. 89014, as most of our current operating
activities will be out of state.




Both
Buckhorn’s and LeeCo’s corporate headquarters are located at 380
Barbourville Road, London, Kentucky.  This office space consists of
approximately 2,000 total square feet. Buckhorn and LeeCo both occupy this
facility on a rent-free basis under a verbal agreement with A&L Surveying
and Engineering, LLC, which is owned by Billy David Altizer.  Mr.
Altizer is one of two managing members of both LeeCo and
Buckhorn.  Buckhorn and LeeCo both believe that its existing
facilities are adequate for its current and reasonably anticipated future
needs.





Employees




As of the
date of this report, Dr. Johnny Thomas, CEO, and John Francis, CFO are employed
by the Company on a full-time basis.   See “Management.”  We
do not expect to hire additional employees at this time, as we expect to use
contract service providers such as the development group recently hired with our
purchases of land in Kentucky.  Current management of the Company is
considered ideal to implement land acquisitions and to evaluate and negotiate
with potential acquisition candidates that may provide for a strategic fit. The
Company expects to gain access to experienced industry personnel through its
acquisitions and by the recruitment of an individual with the appropriate
qualifications to head up the Company’s private label and national marketing
efforts.




Buckhorn
and LeeCo do not have any employees and rely on the services of Billy David
Altizer and Johnny R. Thomas, its managing members, in connection with
operational and related matters, as well as third party service providers, with
respect to the development of coal, oil and natural gas and other natural
resources underlying our property.  Depending on the level in which
Buckhorn’s coal mining operations and other natural resource development
activities increase, it may need to hire employees to assist its managing member
or engineers in connection with the initial permitting of the Buckhorn Property,
as the needs arise. Buckhorn anticipates that any such employees would be hired
on a part-time or contract basis or such services will be provided by coal
mining companies as part of the lease process.





Vector
does not have any employees.





ITEM 1A.  RISK FACTORS




You
should carefully consider the risks and uncertainties described below before you
decide to buy our securities. While these are all known material risks and
uncertainties we face, you should know that they are not the only ones facing
us. If any of the following risks actually occurs, our business, financial
condition or results of operations would likely suffer. In these circumstances,
the value of our securities could decline, and you could lose all or part of the
money you paid to buy our securities.








24


An
investment in the securities of the Company involves a very high degree of risk
and should not be made by persons who cannot afford the loss of their entire
investment. The following factors, in addition to those discussed elsewhere in
this document, should be considered carefully in evaluating the Company and its
business. The order of presentation of each risk factor is not indicative of the
relative importance of such factor.




Risks Related to Our
Business





We are an early
stage development company and have no operating
history.




We were
recently formed and have only recently ceased to be considered a “shell company”
as defined under Rule 12b-2 under the Exchange Act, and have commenced
commercial operations.  As a result, it is difficult for us to accurately
forecast our future operating performance. Furthermore, our management has no
experience in the energy industries.  Our prospects must be considered in
light of the risks, delays, expenses and difficulties frequently encountered by
companies in the early stage of development. Many of these factors are beyond
our control, including unanticipated development expenses, employment costs, and
administrative expenses. We cannot assure our investors that our proposed
business plans as described in this report will materialize or prove
successful.





We expect to
continue to incur losses for the near-future.


We
project that we will continue to incur development and administrative expenses
and operate at a loss for up to the next two years unless we are able to
generate substantial revenues from energy services. We cannot be certain whether
or when we will be able to achieve profitability because of the significant
uncertainties with respect to our business.





Our
current capitalization is inadequate and we may be unable to raise the required
capital to conduct our operations and pay down our liabilities under notes,
loans and guarantees.




As of
July 1, 2008, we ceased to be considered a “shell company” as defined under Rule
12b-2 under the Exchange Act and have recently commenced commercial operations
with only minimal revenues to date.  The proceeds of our February 2007
Private Placement enabled us to become registered as a public reporting company.
Through loans from affiliates and our December 2007 Warrant Exercise we were
able to complete our first land acquisitions.  We require additional
capital resources including, but not limited to, exercise of outstanding
warrants, in order to conduct our operations, pay down the Company’s liabilities
and obligations under various notes, loans and guarantees as they come due,
raise sufficient working capital, and in order to grow and expand our business.
 Future events may lead to increased costs that could make it difficult for
us to succeed. To raise additional capital, we may be required to sell
additional equity securities, or accept debt financing or obtaining financing
through a bank or other entity.  If additional funds are raised through the
issuance of additional stock, there may be a significant dilution in the value
of our outstanding common stock which has decreased in value.  The Company
has no binding arrangements with respect to additional financings.  
 Debt or equity financing has been unavailable to the Company since the
middle of 2008.  The Company is primarily seeking asset based
financing from its prospective coal mining activities, of which there are no
assurances will occur.  However, there can be no assurance that any
additional financings will be available to us, that any affiliate will make
additional loans, or that adequate funds for our operations will otherwise be
available when needed or on terms that are acceptable to us.  The inability
to secure additional financing would prevent us from meeting our obligations
which would have a material adverse effect upon the Company, which may result in
the loss of your investment in the Company.









25





Our financial
statements have been prepared assuming that the Company will continue as a going
concern.




The
accompanying financial statements to this report have been prepared assuming the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company’s accumulated deficit, lack of operations and
sources of revenues raise substantial doubt about the Company’s ability to
continue as a going concern. Our independent registered public accounting firm
has included an explanatory paragraph expressing doubt about our ability to
continue as a going concern in their audit report dated March 20,
2009.





We
can provide no assurance that our internal control over our financial reporting
will be effective under Section 404 of the Sarbanes-Oxley Act of 2002.
Establishing internal controls over our financial reporting is likely to
increase our costs.





Section
404 of the Sarbanes-Oxley Act of 2002 (“SOX”) and the rules issued thereunder
have required certain changes in the corporate governance, securities disclosure
and compliance practices of United States public companies. Our compliance with
these rules are likely to increase our general and administrative costs.
 In particular, our management is required to conduct an evaluation of the
effectiveness of our internal control over financial reporting. Our
independent registered public accounting firm will be required to issue an audit
report on management’s assessment and on our internal control over financial
reporting as of each year end, beginning December 31, 2009. We expect that SOX
and such other laws, rules and regulations promulgated thereunder will increase
legal and financial compliance costs and will make our corporate governance
activities more difficult, time-consuming and costly. We also expect that these
new requirements will make it more difficult and expensive for us to obtain
director and officer liability insurance in the United States.




Given the
complexities and inherent risks associated with the operation of internal
control over financial reporting, we can provide no assurance that our internal
control over financial reporting will be effective under Section 404. Moreover,
we can provide no assurance as to any matters that might be reported in our
management’s assessment of our internal control over financial reporting or our
independent registered public accounting firm’s audit report. If we are not able
to implement the requirements relating to internal controls and all other
provisions of Section 404 in a timely fashion or achieve adequate compliance
with these requirements or other requirements of SOX, we might become subject to
sanctions or investigation by regulatory authorities such as the SEC or the
Financial Industry Regulatory Authority, Inc. (“FINRA”).  Any such action
may materially adversely affect our reputation, financial condition and the
value of our securities, including our common stock. Additionally, ineffective
internal control over financial reporting could cause investors to lose
confidence in our reported financial information and could result in a lower
trading price for our securities.




Our
business strategy, in part, depends upon our ability to complete and manage
acquisitions of other companies.




Our
business strategy, in part, is to grow through acquisitions, which depends on
our ability to identify, negotiate, complete and integrate suitable
acquisitions.  See Item 1. “Business.”  Even if we complete
acquisitions we may experience:









26





·
            difficulties
      in integrating any acquired companies, personnel and products into our
      existing business;




·
            delays
      in realizing the benefits of the acquired company or
    products;




·
            significant
      demands on the Company’s management, technical, financial and other
      resources;




·
            diversion
      of our management’s time and attention to unexpected
    problems;




·
            higher
      costs of integration than we
anticipated;




·
            unanticipated
      liabilities;




·
            difficulties
      in retaining key employees of the acquired businesses who are necessary to
      manage these acquisitions; and/or




·
            anticipated
      benefits of acquisitions may not materialize as
  planned.




We have
not entered into any agreements, arrangements or understandings to acquire any
other operating companies, and there is no assurance any acquisition will be
completed for any number of reasons.




We may not be
able to successfully compete against companies with substantially greater
resources.




Since we
have only recently ceased to be a shell company and have commenced commercial
operations, all of our future competitors are larger and have many more
employees and substantially greater operating and financial resources than we do
and thus will be able to exert significant influence on the markets in which we
will be competing. They also have significantly longer operating histories and
more established relationships within the energy industry. They can use their
experience and resources against us in a variety of competitive ways. Although
we intend to offer a competitively priced model to acquire companies, there can
be no assurance that any future price competition by our competitors, if it
develops, will not have a material adverse effect on our operations which would
prevent us from carrying out our acquisition strategy.





Current
economic recession could materially adversely affect the Company.




The
Company’s future operations and performance depend significantly on worldwide
economic conditions. Uncertainty about current global economic conditions poses
a risk as consumers and businesses have postponed spending in response to
tighter credit, negative financial news and/or declines in income or asset
values, which could have a material negative effect on the demand for our
potential energy resources, of which there are no assurances such exist in
economically feasible quantities or qualities, and a resulting drop in the
prices of such items. Actual demand for energy resources could also differ
materially from the Company’s expectations.  Other factors that could
influence demand include continuing increases in fuel and other energy costs,
conditions in the residential real estate and mortgage markets, the financial
crisis, labor and healthcare costs, access to credit, consumer confidence, and
other macroeconomic factors.  These and other economic factors could
have a material adverse effect on demand for the Company’s products and services
and on the Company’s financial condition, operating results, and cash
flows.








27


The
current financial turmoil affecting the banking system and
financial markets and the possibility that financial institutions may
consolidate or go out of business have resulted in a tightening in the
credit markets, a low level of liquidity in many financial markets,
and extreme volatility in fixed income, credit, currency and equity
markets. There could be a number of follow-on effects from the credit
crisis on the Company’s prospective operations, including insolvency of
industry partners and contractors.  While the ultimate outcome of
these economic conditions cannot be predicted, they could have a negative impact
on our liquidity and financial condition if our ability to borrow money to
finance operations were to be impaired.







If
we were to lose the services of our CEO, we may not be able to execute our
business strategy.





Our
future success depends in a large part upon the continued service of
Dr. Johnny Thomas, our founder and CEO. Dr. Thomas is critical to the
overall management of the Company, as well as the development of our business
strategy and our strategic direction. Although we intend to enter into
employment agreements with Dr. Thomas, as well as our other executive
officers, at the time we commence commercial operations, at this stage in our
history, the loss or unavailability of Dr. Thomas would be expected to
seriously impede our ability to execute our business plan.




Directors
and officers have limited liability.




As
permitted by the Delaware General Corporate Law, the Company’s certificate of
incorporation and by-laws limit the personal liability of the directors and/or
stockholders of the Company for monetary damages for breach of fiduciary duty as
a director but such provision does not eliminate or limit the liability of a
director in certain circumstances, such as for (i) any breach of the director’s
duty of loyalty to the corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporate Law,
or (iv) for any transaction from which the director derived an improper personal
benefit.




Our
business may be subject to geopolitical events.




Our
business could be affected by geopolitical events such as war, threat of war, or
terrorist actions, in addition to the current financial crisis, described above.
  The occurrence of such a geopolitical event or events could
materially and adversely affect our business and financial
condition.





If
we are unable to hire, retain or motivate qualified personnel, consultants and
advisors, we may not be able to grow effectively.




Our
performance will be largely dependent on the talents and efforts of highly
skilled individuals. Our future success depends on our continuing ability to
identify, hire, develop, motivate and retain highly qualified personnel for all
areas of our organization. Competition for such qualified employees is intense.
If we do not succeed in attracting excellent personnel or in retaining or
motivating them, we may be unable to grow effectively. In addition, our future
success will depend in large part on our ability to retain key consultants and
advisors. Our inability to retain their services could negatively impact our
business and our ability to execute our business strategy.








28





We
may become subject to significant liabilities under various guarantees the
Company entered into in connection with recent land acquisitions, unless the
terms of such guarantees are renegotiated or extended.





In connection with the Buckhorn
Transaction, the Development Agreement with AMS, the EK Transaction, and the
LeeCo Transaction, a component of the consideration price was in the form of
restricted common stock which value was guaranteed by the Company.  As
of March 12, 2009, our stock price was $0.61 per share and the terms of the
guarantees provided for stock consideration valued at approximately $3,750,000
to be guaranteed at a price of between $1.92 per share and $2.00 per
share.  Although the guarantees are not enforceable until October of
2009 in one case and 2010 for the remainder, in the event our stock price does
not recover to the values guaranteed by such time(s) and all other terms of the
guarantees are complied with by the counterparties (many of whom are now
affiliated with the Company), the Company would face financial exposure and
potential liability for the difference between the guaranteed value and the then
current stock price of the Company, unless such guarantees are renegotiated or
extended.





We
may become subject to undisclosed liabilities as a result of proposed
acquisitions.




While we
will conduct whatever due diligence we can with regard to all acquisitions,
there may be significant undisclosed liabilities associated with a entity that
might not be known to us prior to an acquisition. The indemnities and warranties
that we will receive in connection with the proposed acquisitions might not
fully cover such liabilities, in which case our operations may be adversely
affected.




Risks
Related to Our Securities





Stockholders may
suffer dilution if founders or their affiliates register theirsecurities under future
registration statements.




The
founders of the Company and their affiliates acquired their shares of common
stock, which represent a controlling interest in the Company, at a cost
substantially less than that which new investors may purchase their
securities.  In the event founders’ shares and their affiliates,
including shares underlying warrants, are registered under future registration
statements filed with the Commission, other stockholders may bear a substantial
portion of the risk of loss and experience dilution of their interests in the
Company, while control of the Company will remain in the hands of management of
the Company.





Our
principal stockholders may have the ability to control almost all matters of the
company.




The
Company’s three founders and their affiliates own 8,539,636 shares of common
stock, all of which are restricted. These shares represent 56.6% of the
15,093,970 issued and outstanding shares of common stock of the Company as of
February 2009. Therefore, management will be able to control the outcome of all
issues submitted to stockholders of the Company until the Company is able to
raise additional equity financing. This includes their ability to elect the
entire Board of Directors, amend the Certificate of Incorporation, approve a
merger or consolidation of the Company with another company or approve the sale
of all or substantially all of the assets of the Company without the agreement
of minority stockholders. See “Principal Stockholders” for further
details.








29





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 at least twelve months after we ceased to be a shell
company, which occurred on June 30, 2008, when the Company filed Form 10 type
information with the Commission.  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.





The
Company does not intend to pay dividends to its stockholders.




We do not
intend to declare or pay cash dividends to our stockholders until we have
achieved profitability, if ever. The Company cannot provide any assurance that
it will be able to pay any dividends to purchasers of the Shares.




Our common stock
is subject to restrictions on sales by broker-dealers and penny stock rules,
which may be detrimental to investors.




Our
common stock is subject to Rules 15g-1 through 15g-9 under the Exchange
Act, which imposes certain sales practice requirements on broker-dealers who
sell our common stock to persons other than established customers and
“accredited investors” (as defined in Rule 501(a) of the Securities Act).
For transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser’s
written consent to the transaction prior to the sale. This rule adversely
affects the ability of broker-dealers to sell our common stock and purchasers of
our common stock to sell their Shares of our common stock.




Additionally,
our common stock is subject to SEC regulations applicable to “penny stocks.”
Penny stocks include any non-Nasdaq equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. The regulations
require that prior to any non-exempt buy/sell transaction in a penny stock, a
disclosure schedule proscribed by the SEC relating to the penny stock market
must be delivered by a broker-dealer to the purchaser of such penny stock. This
disclosure must include the amount of commissions payable to both the
broker-dealer and the registered representative and current price quotations for
our common stock. The regulations also require that monthly statements be sent
to holders of a penny stock that disclose recent price information for the penny
stock and information of the limited market for penny stocks. These requirements
adversely affect the market liquidity of our common stock.





Trading
on the OTC Bulletin Board may be detrimental to
investors.




Securities
traded on the OTC Bulletin Board generally have limited trading volume and
exhibit a wide spread between the bid/ask quotations. We cannot predict whether
a more active market for our common stock will develop in the future. In the
absence of an active trading market: investors may have difficulty buying and
selling our common stock or obtaining market quotations; market visibility for
our common stock may be limited; and a lack of visibility for our common stock
may have a depressive effect on the market price for our common
stock.









30





Preferred Stock
as an anti-takeover device.




We are
authorized to issue 20,000,000 shares of preferred stock, $.001 par
value. The preferred stock may be issued in series from time to time with such
designation, voting and other rights, preferences and limitations as our Board
of Directors may determine by resolution. Unless the nature of a particular
transaction and applicable statutes require such approval, the Board of
Directors has the authority to issue these shares without stockholder approval
subject to approval of the holders of our preferred stock. The issuance of
preferred stock may have the effect of delaying or preventing a change in
control of the Company without any further action by our
stockholders.




We are subject to
critical accounting policies, and we may interpret or implement required
policies incorrectly.




We will
follow generally accepted accounting principles for the U.S. in preparing
our financial statements. As part of this process, we must make many estimates
and judgments about future events. These affect the value of the assets and
liabilities, contingent assets and liabilities, and revenue and expenses that we
report in our financial statements. We believe these estimates and judgments are
reasonable, and we make them in accordance with our accounting policies based on
information available at the time. However, actual results could differ from our
estimates, and this could require us to record adjustments to expenses or
revenues that could be material to our financial position and results of
operations in future periods.




Possible
redemption of warrants.




The
Company, at its option, may redeem the Warrants at $.001 per Warrant at any time
upon 20 days’ prior written notice, subject to assignment to standby
purchasers. Redemption of the Warrants could force the holders to exercise the
Warrants and pay the exercise price at a time when it may be disadvantageous for
the holders to do so, sell the Warrants at the then current market price when
they might otherwise wish to hold the Warrants, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants at the time of redemption.




Our growth is
dependent on our ability to complete acquisitions of businesses and land and
integrate operations of acquired businesses.




Our
primary strategy is to achieve growth through acquisitions of businesses and
land.  We may not be able to make acquisitions in the future and any
acquisitions we do make may not be successful. The inability to consummate any
such acquisitions or to manage combined operations effectively could have a
material adverse effect on the Company. Furthermore, future acquisitions may
have a material adverse effect upon our operating results, particularly in
periods immediately following the consummation of those transactions while the
operations of the acquired businesses are being integrated into our
operations.




Achieving
the benefits of acquisitions depends on the timely, efficient and successful
execution of a number of post-acquisition events, including integrating the
business of the acquired company into our purchasing programs, distribution
network, marketing programs and reporting and information systems. We may not be
able to successfully integrate the acquired company’s operations or personnel,
or realize the anticipated benefits of the acquisition. Our ability to integrate
acquisitions may be adversely affected by many factors, including the relatively
large size of a business and the allocation of our limited management resources
among various integration efforts.








31


In
connection with the acquisitions of businesses or land in the future, we may
decide to consolidate the operations of any acquired business with our existing
operations or make other changes with respect to the acquired business or land,
which could result in special charges or other expenses. Our results of
operations also may be adversely affected by expenses we incur in making
acquisitions, by amortization of acquisition-related intangible assets with
definite lives and by additional depreciation attributable to acquired assets.
Any of the businesses we acquire may also have liabilities or adverse operating
issues, including some that we fail to discover before the acquisition, and our
indemnity for such liabilities typically has been limited and may, with respect
to future acquisitions, also be limited.






Additionally,
our ability to make any future acquisitions may depend upon obtaining additional
financing. We may not be able to obtain additional financing on acceptable terms
or at all. To the extent that we seek to acquire other businesses in exchange
for our common stock, fluctuations in our stock price could have a material
adverse effect on our ability to complete acquisitions.





Risks
Related to Energy Development




Drilling
activities are subject to many risks that could result in liability exposure or
the loss of production and revenues, including the risk that no commercially
productive oil or gas reservoirs will be encountered.




There can
be no assurance that any wells drilled will be productive or that we will
recover all or any portion of our investment. Drilling for oil and gas involves
a high degree of risk that no commercial production will be obtained and may
involve unprofitable efforts, not only from dry wells, but also from wells that
are productive but do not produce sufficient net revenues to return a profit
after drilling, operating and other costs. The cost of drilling, completing and
operating wells is often uncertain. Our future drilling operations may be
curtailed, delayed or canceled as a result of a variety of factors, many of
which are beyond our control, including economic conditions, mechanical
problems, pressure or irregularities in formations, title problems, weather
conditions, compliance with governmental requirements and shortages in or delays
in the delivery of equipment and services.  Our future drilling activities
may not be successful. Lack of drilling success could have a material adverse
effect on our financial condition and results of operations.




Our
operations will also be subject to all the hazards and risks normally incident
to the development, exploitation, production and transportation of oil and gas,
including unusual or unexpected geologic formations, pressures, down hole fires,
mechanical failures, blowouts, explosions, uncontrollable flows of oil, gas,
brine, or well fluids into the environment (including ground water distribution)
and pollution and other environmental risks. These hazards could result in
substantial losses to us due to injury and loss of life, severe damage to and
destruction of property and equipment, pollution and other environmental damage
and suspension of operations.  We may not be insured or fully insured
against all risks.









32


Oil and natural gas prices fluctuate
widely and low prices could have a material adverse impact on ourfuturebusiness and financial
results.




Historically,
the markets for oil and gas have been volatile and are likely to continue to be
volatile in the future. Prices for oil and gas are subject to wide fluctuations
in response to: (i) relatively minor changes in the supply of, and demand for,
oil and gas; (ii) market uncertainty; and (iii) a variety of additional factors,
all of which are beyond our control. These factors include domestic and foreign
political conditions, the price and availability of domestic and imported oil
and gas, the level of consumer and industrial demand, weather, domestic and
foreign government relations, the price and availability of alternative fuels
and overall economic conditions. Furthermore, the marketability of any
production depends in part upon the availability, proximity and capacity of
gathering systems, pipelines and processing facilities. Volatility in oil and
gas prices could affect our ability to market our production, if any, through
such systems, pipelines or facilities.




We
may not have satisfactory title to our properties.




We
believe we have satisfactory title to our properties in accordance with
standards generally accepted in the oil and gas industry. However, title defects
of varying degrees will arise, and, if practicable, reasonable efforts will be
made to cure any such defects.




Even an
in-depth review of properties and records may not necessarily reveal existing or
potential problems, nor will it permit us to become familiar enough with the
properties to assess fully their deficiencies and capabilities.  To the
extent the seller does not operate the properties, obtaining access to
properties and records may be more difficult. Even when problems are identified,
the seller may not be willing or financially able to give contractual protection
against such problems, and we may decide to assume environmental and other
liabilities in connection with acquired properties.




We
are subject to various governmental regulations which may cause us to incur
substantial costs.




Our
operations are or could be affected from time to time in varying degrees by
political developments and federal, state and local laws and regulations. In
particular, oil and gas production and related operations are or have been
subject to price controls, taxes and other laws and regulations relating to the
oil and gas industry. Failure to comply with such laws and regulations can
result in substantial penalties. The regulatory burden on the oil and gas
industry increases our cost of doing business and affects our profitability.
Although we believe we will be able to substantially comply with applicable laws
and regulations, because such laws and regulations are frequently amended or
reinterpreted, we are unable to predict the future cost or impact of complying
with such laws and regulations.




Sales of
natural gas by us are not regulated and are generally made at market prices.
However, the Federal Energy Regulatory Commission ("FERC") regulates interstate
natural gas transportation rates and service conditions, which affect the
marketing of natural gas produced, as well as the revenues received by us for
sales of such production.









33


Since the
mid-1980's, the FERC has issued a series of orders, culminating in Order Nos.
636, 636-A and 636-B ("Order 636"), that have significantly altered the
marketing and transportation of natural gas. Order 636 mandated a fundamental
restructuring of interstate pipeline sales and transportation service, including
the unbundling by interstate pipelines of the sale, transportation, storage and
other components of the city-gate sales services such pipelines previously
performed. One of the FERC's purposes in issuing the orders was to increase
competition within all phases of the natural gas industry. Order 636 and
subsequent FERC orders issued in individual pipeline restructuring proceedings
have been the subject of appeals, and the courts have largely upheld Order 636.
Because further review of certain of these orders is still possible, and other
appeals may be pending, it is difficult to exactly predict the ultimate impact
of the orders on us and our natural gas marketing efforts. Generally, Order 636
has eliminated or substantially reduced the interstate pipelines' traditional
role as wholesalers of natural gas, and has substantially increased competition
and volatility in natural gas markets.




We
are subject to various environmental risks which may cause us to incur
substantial costs.




Our
proposed drilling operations and properties are subject to extensive and
changing federal, state and local laws and regulations relating to environmental
protection, including the generation, storage, handling and transportation of
oil and gas and the discharge of materials into the environment, and relating to
safety and health. The recent trend in environmental legislation and regulation
generally is toward stricter standards, and this trend will likely continue.
These laws and regulations may require the acquisition of a permit or other
authorization before construction or drilling commences and for certain other
activities; limit or prohibit construction, drilling and other activities on
certain lands lying within wilderness and other protected areas; and impose
substantial liabilities for pollution resulting from our operations. The permits
required for our various operations are subject to revocation, modification and
renewal by issuing authorities. Governmental authorities have the power to
enforce compliance with their regulations, and violations are subject to fines,
penalties or injunctions. In the opinion of management, we are in substantial
compliance with current applicable environmental laws and regulations, and we
have no material commitments for capital expenditures to comply with existing
environmental requirements. Nevertheless, changes in existing environmental laws
and regulations or in interpretations thereof could have a significant impact on
us. The impact of such changes, however, would not likely be any more burdensome
to us than to any other similarly situated oil and gas company.




CERCLA
and similar state laws impose liability, without regard to fault or the legality
of the original conduct, on certain classes of persons that are considered to
have contributed to the release of a "hazardous substance" into the environment.
These persons include the owner or operator of the disposal site or sites where
the release occurred and companies that disposed or arranged for the disposal of
the hazardous substances found at the site. Persons who are or were responsible
for releases of hazardous substances under CERCLA may be subject to joint and
several liability for the costs of cleaning up the hazardous substances that
have been released into the environment and for damages to natural resources.
Furthermore, neighboring landowners and other third parties may file claims for
personal injury and property damage allegedly caused by the hazardous substances
released into the environment.









34


Risks
Related to the Coal Industry




A
substantial or extended decline in coal prices could reduce our coal royalties
and the value of our coal reserves.





Primarily
as a result of the recent downturn in the global economy, coal prices have
declined significantly from the highs reached in 2008.  The prices our
prospective lessees receive for their coal depend upon other factors beyond
their or our control, including:




•
            the
      supply of and demand for domestic and foreign coal;•
            domestic
      and foreign governmental regulations and taxes;•
            the
      price and availability of alternative fuels;•
            the
      proximity to and capacity of transportation facilities;•
            weather
      conditions; and•
            the
      effect of worldwide energy conservation
  measures.




A
substantial or extended decline in coal prices could materially and adversely
affect us in two ways. First, lower prices may reduce the quantity of coal that
may be economically produced from our properties. This, in turn, could reduce
our anticipated coal royalty revenues and the value of our coal
reserves.  Second, even if production is not reduced, the royalties we
receive on each ton of coal sold may be reduced.  In addition,
volatility in coal prices could make it difficult to estimate with precision the
value of our coal reserves on an ongoing basis and that of any coal reserves
that we may consider for acquisition.





The
future impact of the current global recession, including financial and credit
markets on coal production levels and prices is uncertain. Depending on the
longevity and ultimate severity of the deterioration, demand for coal may
decline, which could adversely effect production and pricing for coal mined by
our lessees, and, consequently, adversely affect future royalty income that we
may receive.





If the coal
industry experiences overcapacity in the future, our profitability could be
impaired.




Coal
prices in most regions of the U.S. and globally were approaching record
highs in the first half of 2008, which encouraged producers to increase planned
capacity.  Many of these planned capacity increases and existing
production plans have been delayed or reduced due to the global economic
downturn and coal price reductions in the second half of 2008. To the extent
that demand drops below supply, our ability to enter into leases with lessees
and any profit therefrom, could be materially adversely
affected.





We
have not yet retained a lessee to extract coal from our
properties.  The inability to engage one or more lessees within a
reasonable amount of time would have a material adverse impact on currently and
principally anticipated source of revenues and the Company’s business as a
whole.







If we are
unable to retain one or more lessees to extract coal reserves from our
properties, we would be unable to receive coal royalties which are currently the
Company’s principal anticipated source of revenue.  Given our
inability to obtain financing through banks or the equity capital markets as a
result of the current economic crisis, the inability to generate revenues from
coal extraction by lessees in the near termwould have a material
adverse impact on the Company’s business and financial condition.  An
additional factor which makes it difficult for us to retain one or more lessees
is that our coal reserves tend to be small or isolated in nature, since industry
trends toward consolidation favor larger-scale, higher technology mining
operations to increase productivity rates.









35







If
we successfully retain lessees, we anticipate relying only on a limited number
of lessees for our coal revenues and the loss of or reduction in production from
any of our prospective lessees would reduce our anticipated coal royalties
revenues.





We do not
anticipate engaging more than five (5) lessees in the near
term.  Therefore,we
will depend on a limited number of lessees for a significant portion of our
anticipated coal royalties revenues. If any of these lessees enters bankruptcy
or decides to cease operations or significantly reduces its production, our
anticipated coal royalties revenues would be adversely
affected.  Moreover, we may not be able to find a replacement lessee
and, if we find a replacement lessee, we may not be able to enter into a new
lease on favorable terms within a reasonable period of time. In addition, the
outgoing lessee could be subject to bankruptcy proceedings that could further
delay the execution of a new lease or the assignment of the existing lease to
another operator.  Furthermore, if we enter into a new lease, the
replacement operator might not achieve the same levels of production or sell
coal at the same price as the lessee it replaced.





Prospective
lessees may be adversely impacted by the current deterioration in the credit
markets.




As many
lessees finance their activities through cash flow from operations, the
incurrence of debt, the use of commercial paper or the issuance of equity, the
lack of availability of debt or equity financing may result in a significant
reduction in prospective lessees’ spending related to development of new mines,
including those that are proposed on our properties.  In addition,
such prospective lessees’ ability to pay current obligations and continue
ongoing operations may be adversely impacted.  Any significant
reductions in spending by prospective lessees’, both pre-engagement and after
engaged, could have a material adverse effect on our ability to generate
revenues.





Prospective
lessees’ coal mining operations would be subject to operating risks that could
result in loweranticipatedcoal
royaltiesto
us.




Our
ability to generate higher coal royalty revenues is largely dependent on our
prospective lessees’ level of production from our coal reserves, which is
subject to operating conditions or events beyond their or our control
including:





•
            the
      inability to acquire necessary permits or mining or surface
      rights;•
            changes
      or variations in geologic conditions, such as the thickness of the coal
      deposits and the amount of rock embedded in or overlying the coal
      deposit;•
            changes
      in governmental regulation of the coal industry or the electric utility
      industry;•
            mining
      and processing equipment failures and unexpected maintenance
      problems;•
            interruptions
      due to transportation delays;•
            adverse
      weather and natural disasters, such as heavy rains and
      flooding;•
            labor-related
      interruptions; and•
            fires
      and explosions.





Our
lessees may also incur costs and liabilities resulting from claims for damages
to property or injury to persons arising from their operations. If our lessees
are pursued for these sanctions, costs and liabilities, their mining operations
and, as a result, our anticipated coal royalty revenues could be adversely
affected.


36





There
have been several recent lawsuits filed that will potentially make it much more
difficult for our prospective lessees to obtain permits to mine coal reserves
that may exist on our properties. The most likely impact of the litigation will
be to increase both the cost to our prospective lessees of acquiring permits and
the time that it will take for them to receive the permits. These conditions may
increase our prospective lessees’ cost of mining and delay or halt production at
particular mines for varying lengths of time or permanently.  Any such
interruptions to the production of coal from our reserves would have the effect
of reducing anticipated coal royalties.





If our
prospective lessees are not able to manage their operations well, production
volumes and anticipatedcoal royaltieswould
decrease.





Our
prospective lessees will be able to make their own business decisions with
respect to their operations within the constraints of their leases, including
decisions relating to:





•
            marketing
      the coal mined;•
            mine
      plans, including the amount to be mined and the method of
      mining;•
            processing
      and blending coal;•
            expansion
      plans and capital expenditures;•
            credit
      risk of their customers;•
            permitting;•
            insurance
      and surety bonding;•
            acquisition
      of surface rights and other mineral estates;•
            employee
      wages;•
            coal
      transportation arrangements;•
            compliance
      with applicable laws, including environmental
    laws; and•
            mine
      closure and reclamation.





A failure
on the part of one of our prospective lessees to make anticipated coal royalty
payments could give us the right to terminate the lease, repossess the property
and enforce payment obligations under the lease. If we repossessed any of our
properties, we would seek a replacement lessee. We might not be able to find a
replacement lessee and, if we did, we might not be able to enter into a new
lease on favorable terms within a reasonable period of time. In addition, the
existing lessee could be subject to bankruptcy proceedings that could further
delay the execution of a new lease or the assignment of the existing lease to
another operator. If we enter into a new lease, the replacement operator might
not achieve the same levels of production or sell coal at the same price as the
lessee it replaced.





Prospective
lessees could satisfy obligations to their customers with coal from properties
other than ours, depriving us of the ability to receive amounts in excess of
minimum royalty payments.




Coal
supply contracts do not generally require operators to satisfy their obligations
to their customers with coal mined from specific reserves. Several factors may
influence a prospective lessees’ decision to supply its customers with coal
mined from properties we do not own or lease, including the royalty rates under
such prospective lessees’ lease with us, mining conditions, mine operating
costs, cost and availability of transportation, and customer coal
specifications. If a lessee satisfies its obligations to its customers with coal
from properties we do not own or lease, production on our properties will
decrease, and we will receive lower future coal royalty
revenues.









37





Our reserve
estimates depend on many assumptions that may be inaccurate, which could
materially adversely affect the quantities and value of our
reserves.




Our
reserve estimates may vary substantially from the actual amounts of coal our
prospective lessees may be able to economically recover from our reserves. There
are numerous uncertainties inherent in estimating quantities of reserves,
including many factors beyond our control. Estimates of coal reserves
necessarily depend upon a number of variables and assumptions, any one of which
may, if incorrect, result in an estimate that varies considerably from actual
results.  These factors and assumptions relate to:





•
            future
      coal prices, operating costs, capital expenditures, severance and excise
      taxes, and development and reclamation costs;•
            future
      mining technology improvements;•
            the
      effects of regulation by governmental
agencies; and•
            geologic
      and mining conditions, which may not be fully identified by available
      exploration data and may differ from our experiences in areas where our
      lessees currently mine.





Actual
production, revenue and expenditures with respect to our reserves will likely
vary from estimates, and these variations may be material. As a result, you
should not place undue reliance on our coal reserve data that is included in
this report.





Delays
in our prospective lessees obtaining mining permits and approvals, or the
inability to obtain required permits and approvals, could have an adverse effect
on our potential coal royalty revenues.





Mine
operators, including our prospective lessees, must obtain numerous permits and
approvals that impose strict conditions and obligations relating to various
environmental and safety matters in connection with coal mining. The permitting
rules are complex and can change over time. The public has the right to comment
on many permit applications and otherwise participate in the permitting process,
including through court intervention. Accordingly, permits required by our
prospective lessees to conduct operations may not be issued, maintained or
renewed, may not be issued or renewed in a timely fashion, or may involve
requirements that restrict our prospective lessees’ ability to economically
conduct their mining operations. Limitations on our prospective lessees’ ability
to conduct their mining operations due to the inability to obtain or renew
necessary permits, or due to uncertainty, litigation or delays associated with
the eventual issuance of these permits, could have an adverse effect on our
anticipated coal royalty revenues or profitability.





Uncertainty
over the precise parameters of the Clean Water Act’s regulatory scope may
adversely impact our prospective coal lessees’ ability to secure the necessary
permits for their valley fill surface mining activities.





To
dispose of mining overburden generated from surface mining activities, lessees
often need to obtain government approvals, including Clean Water Act
Section 404 permits to construct valley fills and sediment control ponds.
Ongoing uncertainty over which waters are subject to the Clean Water Act may
adversely impact our prospective lessees’ ability to secure these necessary
permits.






38




Our
coal and natural resource operations may record impairment losses on its
long-lived assets.





We have
completed a number of land acquisitions having energy resources within the past
year.  In conjunction with our accounting for these land acquisitions,
it was necessary for us to estimate the values of the assets acquired and
liabilities assumed, which involved the use of various assumptions. The most
significant assumptions, and the ones requiring the most judgment, involve the
estimated fair values of property, plant and equipment, and the resulting amount
of goodwill, if any. Unforeseen changes in operations, the business environment
or market conditions could substantially alter management’s assumptions and
could result in lower estimates of values of acquired assets or of future cash
flows. This could result in impairment charges being recorded in our
consolidated statements of income.





Because
the demand and pricing for coal is greatly influenced by consumption patterns of
the domestic electricity generation industry, a reduction in the demand for coal
by this industry would negatively affect our future revenues and
profitability.




Fuel cost
is a significant component of the cost associated with coal-fired power
generation, with respect to not only the price of the coal, but also the costs
associated with emissions control and credits (i.e., sulfur dioxide, nitrogen
oxides, etc.), combustion by-product disposal (i.e., ash) and equipment
operations and maintenance (i.e., materials handling facilities). All of these
costs must be considered when choosing between coal generation and alternative
methods, including natural gas, nuclear, hydroelectric and others.




Weather
patterns also can greatly affect electricity generation. Extreme temperatures,
both hot and cold, cause increased power usage and, therefore, increased
generating requirements from all sources. Mild temperatures, on the other hand,
result in lower electrical demand, which allows generators to choose the
lowest-cost sources of power generation when deciding which generation sources
to dispatch. Accordingly, significant changes in weather patterns could reduce
the demand for our coal.




Deregulation
of the electric utility industry may cause customers to be more price-sensitive
in purchasing coal, which could cause profitability to decline.  Electric
utility deregulation is expected to provide incentives to generators of
electricity to minimize their fuel costs and is believed to have caused electric
generators to be more aggressive in negotiating prices with coal suppliers. To
the extent utility deregulation causes our prospective lessees’ customers to be
more cost-sensitive, deregulation may have a negative effect on our
profitability.




Increased
consolidation and competition in the U.S. coal industry may adversely affect our
revenues and profitability.




During
the last several years, the U.S. coal industry has experienced increased
consolidation, which has contributed to the industry becoming more competitive.
Consequently, many of our competitors in the domestic coal industry have
significantly greater financial resources than us. The intense competition among
our prospective lessees’ and other coal producers may impact our ability to
retain or attract customers and may therefore adversely affect our future
revenues and profitability.








39


Fluctuations
in transportation costs and the availability and dependability of transportation
could affect the demand for coal and lessees’ ability to deliver coal to
customers.




Increases
in transportation costs could have an adverse effect on demand for coal.
Customers choose coal supplies based, primarily, on the total delivered cost of
coal. Any increase in transportation costs would cause an increase in the total
delivered cost of coal. That could cause future customers to seek less expensive
sources of coal or alternative fuels to satisfy their energy needs. In addition,
significant decreases in transportation costs from other coal-producing regions,
both domestic and international, could result in increased competition from coal
producers in those regions. For instance, coal mines in the western United
States could become more attractive as a source of coal to consumers in the
eastern United States if the costs of transporting coal from the West were
significantly reduced.





Central
Appalachia mines generally ship coal via rail systems.  The dependence upon
railroads and third party trucking companies would impact our prospective
lessees’ ability to deliver coal to its customers. Disruption of service due to
weather-related problems, strikes, lockouts, bottlenecks and other events could
temporarily impair our ability to supply coal to our prospective lessees’
customers, resulting in decreased shipments. Decreased performance levels over
longer periods of time could cause such customers to look elsewhere for their
fuel needs, negatively affecting our future revenues and
profitability.





Shortages
or increased costs of skilled labor in the Central Appalachian coal region may
hamper lessees’ ability to achieve high labor productivity and competitive
costs.




Coal
mining continues to be a labor-intensive industry. As the demand for coal has
increased, many producers have attempted to increase coal production, which has
resulted in a competitive market for the limited supply of trained coal miners
in the Central Appalachian region. In some cases, this market situation has
caused compensation levels to increase, particularly for “skilled” positions
such as electricians and mine foremen. To maintain current production levels, we
may be forced to respond to these increases in wages and other forms of
compensation, and related recruiting efforts by our competitors. Any future
shortage of skilled miners, or increases in our labor costs, could have an
adverse impact on our prospective lessees’ labor productivity and costs and on
their ability to expand production, which may impact our coal royalty
revenues.




Our prospective
lessees will be subject to federal, state and local laws and regulations that
may limit their ability to produce and sell coal from our
properties.





Our
prospective lessees may incur substantial costs and liabilities under
increasingly strict federal, state and local environmental, health and safety
laws, including regulations and governmental enforcement
policies.  Failure to comply with these laws and regulations may
result in the assessment of administrative, civil and criminal penalties, the
imposition of cleanup and site restoration costs and liens, the issuance of
injunctions to limit or cease operations, the suspension or revocation of
permits and other enforcement measures that could have the effect of limiting
production from our prospective lessees’ operations.




New
environmental legislation, new regulations and new interpretations of existing
environmental laws, including regulations governing permitting requirements,
could further regulate or tax the coal industry and may also require our lessees
to change their operations significantly, to incur increased costs or to obtain
new or different permits, any of which could decrease our coal royalty
revenues.


40





Government
laws, regulations and other requirements relating to the protection of the
environment, health and safety and other matters impose significant costs on our
prospective lessees, and future requirements could limit our prospective
lessees’ ability to produce coal.




Our
prospective lessees’ proposed coal mining operations would be subject to
extensive federal, state and local regulations with respect to matters such
as:




·
            employee
      health and safety;


·
            permitting
      and licensing requirements;


·
            air
      quality standards;


·
            water
      quality standards;


·
            plant,
      wildlife and wetland protection;


·
            blasting
      operations;


·
            the
      management and disposal of hazardous and non-hazardous materials generated
      by mining operations;


·
            the
      storage of petroleum products and other hazardous
    substances;


·
            reclamation
      and restoration of properties after mining operations are
      completed;


·
            discharge
      of materials into the environment, including air emissions and wastewater
      discharge;


·
            surface
      subsidence from underground mining;
and


·
            the
      effects of mining operations on groundwater quality and
      availability.





Complying
with these requirements, including the terms of obtaining permits, would have a
significant effect on our costs of operations. We could incur substantial costs,
including clean up costs, fines, civil or criminal sanctions and third party
claims for personal injury or property damage as a result of violations of or
liabilities under these laws and regulations.




The coal
industry is also affected by significant legislation mandating specified
benefits for retired miners. In addition, the utility industry, which is the
most significant end user of coal, is subject to extensive regulation regarding
the environmental impact of its power generating activities. Coal contains
impurities, including sulfur, mercury, chlorine and other elements or compounds,
many of which are released into the air when coal is burned. Stricter
environmental regulations of emissions from coal-fired electric generating
plants could increase the costs of using coal, thereby reducing demand for coal
as a fuel source or the volume and price of our coal sales, or making coal a
less attractive fuel alternative in the planning and building of utility power
plants in the future.




New
legislation, regulations and orders adopted or implemented in the future (or
changes in interpretations of existing laws and regulations) may materially
adversely affect our proposed mining operations, our cost structure and future
customers’ operations or ability to use coal.






41


The
passage of legislation responsive to the Framework Convention on Global Climate
Change or similar governmental initiatives could result in restrictions on coal
use.




The
United States and more than 160 other nations are signatories to the 1992
Framework Convention on Global Climate Change, commonly known as the Kyoto
Protocol, which is intended to limit or capture emissions of greenhouse gases,
such as carbon dioxide. In December 1997, the signatories to the convention
established a potentially binding set of emissions targets for developed
nations. Although the specific emissions targets vary from country to country,
the United States would be required to reduce emissions to 93% of 1990 levels
over a five-year budget period from 2008 through 2012. The U.S. Senate has not
ratified the treaty commitments, and the former Bush administration officially
opposed the Kyoto Protocol and proposed an alternative to reduce the intensity
of United States emissions of greenhouse gases. With Russia’s ratification of
the Kyoto Protocol in 2004, it became binding on all ratifying countries. The
implementation of the Kyoto Protocol in a number of countries, and other
emissions limits, such as those adopted by the European Union, could affect
demand for coal outside the United States. If the Kyoto Protocol or other
comprehensive legislation focusing on greenhouse gas emissions is enacted by the
United States, it could have the effect of restricting the use of coal. Other
efforts to reduce emissions of greenhouse gases and federal initiatives to
encourage the use of natural gas also may affect the use of coal as an energy
source.




New
regulations have expanded the definition of black lung disease and generally
made it easier for claimants to assert and prosecute claims, which could
increase exposure to black lung benefit liabilities.




In
January 2001, the United States Department of Labor amended the regulations
implementing the federal black lung laws to give greater weight to the opinion
of a claimant’s treating physician, expand the definition of black lung disease
and limit the amount of medical evidence that can be submitted by claimants and
respondents. The amendments also alter administrative procedures for the
adjudication of claims, which, according to the Department of Labor, results in
streamlined procedures that are less formal, less adversarial and easier for
participants to understand. These and other changes to the federal black lung
regulations could significantly increase the Company and our prospective
lessees’ future exposure to black lung benefits liabilities.




In recent
years, legislation on black lung reform has been introduced but not enacted in
Congress. It is possible that this legislation will be reintroduced for
consideration by Congress. If any of the proposals included in this or similar
legislation is passed, the number of claimants who are awarded benefits could
significantly increase. Any such changes in black lung legislation, if approved,
may adversely affect our business, financial condition and results of operations
in the future.




Extensive
environmental laws and regulations affect the end-users of coal and could reduce
the demand for coal as a fuel source and cause the volume of our lessees’ coal
sales to decline.




The Clean
Air Act and similar state and local laws extensively regulate the amount of
sulfur dioxide, particulate matter, nitrogen oxides, mercury and other compounds
emitted into the air from electric power plants, which are the largest end-users
of most coal producers. Compliance with such laws and regulations, which can
take a variety of forms, may reduce demand for coal as a fuel source because
they require significant emissions control expenditures for coal-fired power
plants to attain applicable ambient air quality standards, which may lead these
generators to switch to other fuels that generate less of these emissions and
may also reduce future demand for the construction of coal-fired power
plants.






42


The U.S.
Department of Justice, on behalf of the EPA, has filed lawsuits against several
investor-owned electric utilities and brought an administrative action against
one government-owned utility for alleged violations of the Clean Air Act.
 These lawsuits could require the utilities to pay penalties, install
pollution control equipment or undertake other emission reduction measures, any
of which could adversely impact their demand for coal we produce.




A
regional haze program initiated by the EPA to protect and to improve visibility
at and around national parks, national wilderness areas and international parks
restricts the construction of new coal-fired power plants whose operation may
impair visibility at and around federally protected areas and may require some
existing coal-fired power plants to install additional control measures designed
to limit haze-causing emissions.




The Clean
Air Act also imposes standards on sources of hazardous air pollutants. For
example, the EPA has announced that it would regulate hazardous air pollutants
from coal-fired power plants. Under the Clean Air Act, coal-fired power plants
will be required to control hazardous air pollution emissions by no later than
2009, which likely will require significant new investment in controls by power
plant operators. These standards and future standards could have the effect of
decreasing demand for coal.




Other
so-called multi-pollutant bills, which could regulate additional air pollutants,
have been proposed by various members of Congress. If such initiatives are
enacted into law, power plant operators could choose other fuel sources to meet
their requirements, reducing the demand for coal.




The
characteristics of coal may make it difficult for coal users to comply with
various environmental standards related to coal combustion. As a result, they
may switch to other fuels, which would affect our anticipated coal royalty
revenues.




Coal
contains impurities, including sulfur, nitrogen oxide, mercury, chlorine and
other elements or compounds, many of which are released into the air when coal
is burned. Stricter environmental regulations of emissions from coal-fired
electric generating plants could increase the costs of using coal thereby
reducing demand for coal as a fuel source, and the volume and price of future
coal sales. Stricter regulations could make coal a less attractive fuel
alternative in the planning and building of utility power plants in the
future.




For
example, in order to meet the federal Clean Air Act limits for sulfur dioxide
emissions from electric power plants, coal users may need to install scrubbers,
use sulfur dioxide emission allowances (some of which they may purchase), blend
high sulfur coal with low sulfur coal or switch to other fuels. Each option has
limitations. Lower sulfur coal may be more costly to purchase on an energy basis
than higher sulfur coal depending on mining and transportation costs. The cost
of installing scrubbers is significant and emission allowances may become more
expensive as their availability declines. Switching to other fuels may require
expensive modification of existing plants.




On March
15, 2005, the U.S. Environmental Protection Agency adopted a new federal rule to
cap and reduce mercury emissions from both new and existing coal-fired power
plants. The reductions will be implemented in stages, primarily through a
market-based cap-and-trade program. Nevertheless, the new regulations will
likely require some power plants to install new equipment, at substantial cost,
or discourage the use of certain coals containing higher levels of
mercury.






43


Other new
and proposed reductions in emissions of sulfur dioxides, nitrogen oxides,
particulate matter or greenhouse gases may require the installation of
additional costly control technology or the implementation of other measures,
including trading of emission allowances and switching to other fuels. For
example, the Environmental Protection Agency recently proposed separate
regulations to reduce the interstate transport of fine particulate matter and
ozone through reductions in sulfur dioxides and nitrogen oxides through the
eastern United States. The Environmental Protection Agency continues to require
reduction of nitrogen oxide emissions in 22 eastern states and the District of
Columbia and will require reduction of particulate matter emissions over the
next several years for areas that do not meet air quality standards for fine
particulates. In addition, Congress and several states are now considering
legislation to further control air emissions of multiple pollutants from
electric generating facilities and other large emitters. These new and proposed
reductions will make it more costly to operate coal-fired plants and could make
coal a less attractive fuel alternative to the planning and building of utility
power plants in the future. To the extent that any new or proposed requirements
affect our prospective lessees’ customers, this would adversely affect
our future corresponding operations and coal royalty revenues.





ITEM 2.  PROPERTIES




The
Company is operating from the residence of its CEO, Dr. Johnny Thomas, with
a mailing address at 2756 N. Green Valley Parkway,
Suite 225, Henderson N.V. 89014, as most of our current operating
activities will be out of state.  The Company’s telephone number is (702)
614-5333.





Breathitt
Property





On
November 8, 2007, the Company closed on the purchase of approximately 250 acres
of land in Kentucky. Total closing costs were $185,101, including $8,750 paid to
Sitter Drilling LLC, an unaffiliated party, as a finders/negotiation
fee.  In August 2008, the Company commenced removing the timber
on its 250 acre tract of land in Breathitt County, Kentucky,
referred to herein as the Breathitt Property.  This is intended to
enable the Company to gain road access to potential drilling
sites.  Currently, the Company does not anticipate engaging in energy
related operations on this property.





Owsley
Property





On August
25, 2008, the Company exercised an option and purchased approximately 1,000
acres of land in Owsley County, Kentucky (the “Owsley Property”) pursuant to the
Agreement to Assign Real Estate Purchase Option, dated January 8, 2008, between
the Company and AMS.  Regarding the Owsley Property, initial timber
removal is expected to commence in the first quarter of 2009 and mining is
expected to commence during March or April of 2009 on about 88
acres.   We ultimately expect all surface mineable acres to be mined
in five to seven years, commencing with approximately 100 acres in 2009 and
early 2010.  The Company filed an initial coal permit application
regarding the Owsley Property with the State of Kentucky, Division of Mining in
November 2008.









44


Per the
Coal Reserve Report for the Owsley Property, a copy of which has been furnished
to the Commission’s Office of the Engineer, the Company is in the “development”
stage, which includes issuers engaged in the preparation of an established
commercially minable deposit for its extraction, and there were an estimated
364,611tons of
“proven” reserves and 443,076 tons of “probable” reserves on such property as of
October 2008.  The property is comprised of nine tracts totaling
approximately 986 acres in Owsley County, Kentucky.  Access to the
property is gained by a county road, which bisects the same.  The
Company has title to the surface and one- half of the coal mineral
estate.  AMS Development, LLC has title to one-half of the coal
mineral estate.  No mining has been conducted on the subject property
and no mine infrastructure has yet been constructed, however, access roads
exist. Excess overburden disposal sites have been selected and, for Phase 1, has
been approved by the U.S. Army Corps of Engineers.  Exploration is
complete for development purposes.  Ongoing exploration may be
conducted as is typical of most mining properties.  Mining will be
conducted using surface mining (open pit) techniques and auger mining
methods.  No plant or permanent equipment exists on the subject
property and no underground equipment is on site.  No electrical power
will be required by the mining operation, as we contemplate using diesel
equipment.  The economic mineral for the subject property is limited
to bituminous coal.  Billy David Altizer, the person making the
assessments in the Coal Reserve Report, is a managing member of Buckhorn
Resources, LLC and LeeCo Development, LLC, both fifty percent owned subsidiaries
of the Company, and is also the managing member of A&L Surveying and
Engineering, LLC, a counterparty with the Company regarding development of the
Owsley Property (as provided herein under the section entitled “Business – Land and Natural
Resources; Development Agreement”).














Buckhorn
Property





Buckhorn
Resources, LLC, a subsidiary of the Company, has its corporate
headquarters  at 380 Barbourville Road, London, Kentucky. The London,
Kentucky office space consists of approximately 2,000 square feet which it
shares with LeeCo.  Buckhorn occupies this facility on a rent-free basis
pursuant to a verbal agreement with A&L Surveying and Engineering, LLC,
which is owned by Billy David Altizer, one of two of Buckhorn’s managing
members.  We believe that our existing facilities are adequate for our
current and reasonably anticipated future needs.




In
addition, Buckhorn holds title to approximately 10,000acres of land in Perry
and Leslie counties referred to herein as the Buckhorn Property.  As
set forth under “Legal Proceedings” below, Buckhorn was sued and has
counterclaimed in a title dispute over approximately an additional 700 acres of
land for which it claims ownership, the grantor of the Buckhorn Property
reserved a $.30 per ton royalty for all coal mined by any party from the
Buckhorn Property.





Under the
Oil, Gas and Mineral 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
Company acquired all right, title and interest in the oil, gas and other
minerals underlying the Buckhorn properties, except for the $0.30 per ton coal
rights retained by the grantor as described in the prior paragraph.






45


Buckhorn
management anticipates mining activities and receipt of royalties to commence in
calendar year 2010.  Management believes, based on its knowledge of the
industry, that given current prices for this quality of coal, royalty rates are
typically ten percent or approximately $8 per ton.  Based on CNSV’s 50%
ownership of Buckhorn, CNSV will receive 50% of all royalties received by
Buckhorn.  One managing member of Buckhorn has considerable experience in
engineering, development and monitoring coal mining on a number of projects,
including award winning reclamation projects. Other members of Buckhorn also
have considerable experience in timber harvest and natural gas/oil drilling and
all aspects of project planning and permitting required to assist CNSV in
developing a model production site, with profitable energy
development.




The
reclamation process, following mining of the coal on the Buckhorn Property, will
develop pastures of specific sizes, good roads to pastures and to approximately
200 natural gas/oil well drilling sites, ponds and watering sites throughout the
property.  The permits filed are specific and the reclamation performance
will be bonded.





Over the
course of 2009 and 2010, the Company’s plans regarding the Buckhorn Property
include: timber removal, filing coal permit application(s), finding locations
for drilling sites for oil and natural gas wells and the potential development
of such oil and natural gas wells.




LeeCo
Property





On
September 16, 2008, the Company purchased a fifty percent (50%) ownership
interest in LeeCo from the Initial Owners pursuant to the LeeCo
Agreement.





LeeCo
filed an initial coal permit application with the State of Kentucky, Division of
Mining with respect to the LeeCo Property in November 2008.  LeeCo
currently leases coal rights from landowners on approximately 650 acres and
believes it can obtain additional coal leases and oil/natural gas rights on a
substantial amount of additional acres vis-a-vis third party landowners for the
purpose of subleasing such properties to mining operators which would be
responsible for extracting any potential coal, oil and natural gas assets that
may exist under such properties, for which there is no assurance such natural
resources exist at all or in marketable quantities.  Any royalties
received by the Company or LeeCo shall be subject to a 1% interest which shall
be retained equally between the Initial Owners.





LeeCo’s
corporate headquarters are located at 380 Barbourville Road, London,
Kentucky, which LeeCo occupies this office space on a rent-free basis and
pursuant to a verbal agreement with A&L Surveying and Engineering, LLC,
which is owned by Billy David Altizer, one of two managing members of
LeeCo.  This 2,000 total square foot office space is shared by LeeCo
and Buckhorn.





ITEM 3.  LEGAL PROCEEDINGS - LITIGATION




The
Company is not a party to any legal proceedings.




Buckhorn
Resources, LLC, a fifty percent (50%) owned subsidiary of the Company, remains
subject to the following proceedings:








46




Begley
Properties, LLC v. Buckhorn Resources, LLC, Leslie Circuit Court Case No.
05-CI-00275.  Begley Properties, LLC (hereinafter, “Begley”) filed an
action against Buckhorn in the Leslie Circuit Court on September 29, 2005. The
Complaint is an action to quiet title to approximately 500 acres of property
located in Leslie and Perry Counties in Kentucky.  Most recently, Begley
filed a motion for summary judgment in this case. Buckhorn has filed a response
to Begley’s Motion for Summary Judgment, a Motion to Strike the Motion for
Summary Judgment and a Statement of Disputed Facts. Begley’s motion is before
the court for a ruling. It is unknown when the judge will make a ruling on the
motion for summary judgment. Further, the likelihood of an unfavorable outcome
in this matter is impossible to determine. The amount of loss Buckhorn would
suffer in the event of an unfavorable outcome is unknown and cannot reasonably
estimated at this time.




ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS




None.








PART II




ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED
MATTERS




Our
common stock has been traded on the OTCBB since on or about December 12, 2007
and there currently is a limited public trading market for our common stock.
 Prior to that date, our common stock was not actively traded in the public
market.  Our common stock is listed on the OTCBB under the symbol "CNSV."




The
following table sets forth, for the periods indicated, the high and low bid
quotations for our common stock on the OTCBB as reported by various Bulletin
Board market makers.  The quotations reflect inter-dealer prices, without
adjustments for retail mark-ups, mark-downs, or commissions and may not
necessarily reflect actual transactions.




Period
                  
                  High Trade
                  
                  
                  Low Trade2008Fourth
      Quarter
                  
                  $
                  1.20
                  
                  
                  $
                  0.65Third
      Quarter
                  
                  $
                  2.00
                  
                  
                  $
                  1.01Second
      Quarter
                  
                  $
                  2.25
                  
                  
                  $
                  1.95First
      Quarter
                  
                  $
                  2.50
                  
                  
                  $
                  0.482007Fourth
      Quarter
                  
                  $
                  0.45
                  
                  
                  $
                  0.15




On
March20, 2009
there were 90 stockholders of record and 15,093,970 shares of our common stock
issued and outstanding.




To date,
we have never declared or paid any cash dividends on our capital stock and we do
not expect to pay any dividends in the foreseeable future. Payment of future
dividends, if any, will be at the discretion of our Board of Directors after
taking into account various factors, including our financial condition,
operating results, current and anticipated cash needs and plans for
expansion.






47





Recent
Sales of Unregistered Securities




All
issuances of restricted securities by the Company during the year ended December
31, 2008 were previously reported on Current Reports on Form 8-K or the
Company’s Quarterly Reports on Form 10-Q.





ITEM 6.  SELECTED FINANCIAL DATA.




The
Company is not required to provide the information required by this Item as a
smaller reporting company.




ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION




Statement
Regarding Forward-Looking Disclosure




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 and
consolidation of companies engaged in the foodservice industry (including with
respect to organic and natural food products).  As discussed in the
“Business” section, above, in view of the current economic climate and our
obligation to maximize value for our stockholders, our primary business focus
has shifted away from our proposed organic and natural food business to the
development of our energy-related assets, primarily the ability to generate
revenues from our coal related operations, through the harvesting of our
inventory of timber, as well as from our proposed natural gas operations, for
which there are no assurances such coal or natural gas resources exist in
economically feasible quantities, if at all.  In the near term, we
intend to lease our coal reserves in the eastern Kentucky region of the United
States to experienced mine operators under long-term leases that grant the
operators the right to mine and sell coal from our reserves in exchange for
royalty payments. As of December 31, 2008, we owned or controlled land
with approximately 364,611tons of “proven” and
443,076 tons of “probable” coal reserves on its Owsley Property.  If
at some point we are able to generate sufficient revenues from our energy
related operations to support and sustain our initially planned organic and
natural food business plans, the Company will consider how beneficial such
platform would be for the Company and its stockholders.






48


Until the
Company completed the acquisition of a 50% interest on Buckhorn Resources, LLC
on May 20, 2008, the Company filed 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, nor had a sufficient level of assets.  The Company has provided
in a Form 8-K, filed on June 30, 2008, current "Form 10 information,"
including audited financial statements which were first filed on a Form 8-K on
May 27, 2008. The rules that require the filing of “Form 10 information” are
designed to assure that investors in shell companies that acquire operations or
assets have access on a timely basis to the same kind of information as is
available to investors in public companies with continuing
operations.




As a
result of concerns about the stability of financial markets generally and the
solvency of counterparties specifically, the cost of obtaining money from the
credit markets has increased as many lenders and institutional investors have
increased interest rates, enacted tighter lending standards, and refused to
refinance existing debt or equity at all or on similar terms.  If
funding is not available when needed, or is available only on unfavorable terms,
we may be unable to fund our working capital requirements, debt or guarantee
obligations, complete acquisitions or otherwise take advantage of business
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on our revenues and results of operations.





Management
believes that the Company may be able to generate revenues through coal
development and the drilling of wells for oil and/or natural gas on its owned or
leased land.  Given the current market conditions and the lack of debt
or equity financing options available since the middle of 2008,management’s main
objectives over the next twelve months and beyond are to develop its land and
energy resources through the completion of the coal permitting process on its
properties (including obtaining engineering, reserve, forestry and technical
reports, as necessary, to support the existence of minable quality and quantity
of oil and natural gas underlying the Company’s various properties) and to enter
into leasing arrangements with third parties to provide for the mining of
potential energy resources on its various properties, with the anticipation
of receiving royalties in 2009 from our lessees’ activities.  The
Company believes it can more readily enter into leases for coal given the access
to expertise through AMS, its development group, as well as nearby access to
transportation, and has proceeded with filing coal permit applications.
Another reason for the focus on coal is that oil and gas extraction requires
specialized infrastructure, including pipelines, in order to transport oil and
natural gas from our properties, which the Company does not anticipate having in
place in the near term.  As of the date of this report, the Company
has not commenced mining activities or entered into leases with any coal mine
operators, although it has been in discussions with four of the initial five
coal operators for approximately six (6) months.  However, there can
be no assurance that we will be able to locate and/or extract energy resources
in economically feasible amounts, if at all, or enter into leases with coal
operators.





In recent
months commodity prices, including coal prices, have declined in the financial
markets, and we expect to continue to see lower prices for coal in 2009. The
U.S. coal market is being impacted by the global economic slowdown and it
is difficult to determine how this will impact proposed coal production from our
properties.  In the near-term, the global economic slowdown has
lowered demand for coal which has resulted in a significant decline in spot coal
prices especially in the Appalachian region over the past couple of
months.  The price of spot coal has also been impacted by a decrease
in the price of competing fuel sources including oil and natural
gas.  Recently, the coal industry has announced cutbacks in supply in
response to decrease in demand for coal.  These factors, which are
beyond our control, may negatively impact our ability to engage lessees,
negotiate royalties rates that are more favorable to the Company, as well as may
impact the prices that our prospective lessees are able to receive for the sale
of the coal.  Due to the uncertainties in the global market place, we
are unable to forecast the price or demand for coal over the next few
years.  However, long-term we believe that the demand for coal
worldwide will continue to be strong.  We also believe that in the
United States, coal will continue to be one of the most economical energy
sources.







49


In terms
of alternative sources of revenues or funding, management anticipates the
continued harvesting of timber from our properties as a source of revenues over
the next twelve months.  The harvesting of timber serves a dual
benefit in that it also helps in clearing the land in connection with our
proposed coal, oil and natural gas extraction activities. The Company is
also seeking asset based financing from its prospective coal mining
activities which it may utilize to meet outstanding obligations and for
working capital purposes, of which there are no assurances such financing will
be available.





The
Company relied on its initial capitalization from its founders and the February
2007 Private Placement of $50,000 to pay its organizational expenses and audit
and legal expenses for its initial registration statement.  Through loans
of approximately $942,155, in the aggregate,from various affiliated
entities and the receipt of approximately $160,600 and a commitment for
$2,179,400 from the exercise of Warrants at a reduced exercise price of $1.00
per share in November and December 2007 (the “First Warrant Reduction”) and
February 6, 2008 and April 30, 2008 (the “Second Warrant Reduction”),
respectively, we were able to complete our first two land acquisitions, as well
as to meet our ongoing reporting and compliance obligations.





During
the year ended December 31, 2008, the Company received its initial revenues of
$13,153 from partial timber harvesting on its Breathitt
Property.  During October through December of the year ended December
31, 2008, the Company also received $338,000 in cash from the payment of
promissory notes payable to the Company by four non-affiliated parties in
connection with the Second Warrant Reduction, whereby the Company
issued 2,179,400 shares of  common stock through the exercise of
2,179,400 Class A Warrants at $1.00 per share.  This reduced the
previous balance of $1,218,000 as of September 30, 2008, under the
aforementioned promissory notes to $880,000 as of the year ended December 31,
2008.  The Company intends to seek additional funds from potential
asset based financing providers with respect to its prospective coal bearing
properties, for which there is no assurance coal exists at all or in
economically feasible or marketable quantities and/or the exercise of
outstanding Warrants in order to fund its proposed operations.





Management
plans to continue to operate from home offices for the foreseeable future as
most of the Company’s immediate operating activities will be in
Kentucky.  The Company does not intend to hire any additional
employees, at this time.  It expects to use contract service
providers, such as AMS Development, LLC with which the Company contracted in
connection with development services in connection with the Company’s purchase
of 1,000 acres in Owsley County, Kentucky (as further described under the
“Land  and Natural Resources” section above).





Land
Related Activities




Our
activities have been limited to the acquisition of land, commencement of the
permitting process and entering into leases or energy-related contracts
regarding proposed coal mining development activities in connection with our
land, energy and corporate development plans, and the commencement of timber
harvesting on our properties which started with the Breathitt Property in August
2008.  Management anticipates that all of its currently owned
properties will also have timber harvested.  Our main business
strategy over the next twelve to twenty-four months is to generate revenues from
prospective mining operations to generate revenues for the Company.







50


The
Company has acquired or leased an aggregate of approximately 11,900 acres (of
which 650 acres are leased through LeeCo Development, LLC, a 50% owned
subsidiary of the Company which acquisition occurred on September 16, 2008), as
described above under “Land and Natural Resources.”  Management
expects to continue acquiring land in 2009 in the event we receive adequate
financing.  In August 2008, the Company commenced removing the timber
on its 250 acre tract of land in eastern Kentucky referred to as the
Breathitt Property, in order that the Company may gain road access to potential
drilling sites.  Partial timber removal from the Breathitt Property
resulted in $13,153 in revenues, which was applied to offset amounts owed by the
Company on November 20, 2008 to Pat Mitchell Enterprises, Inc. in connection
with the Company’s purchase of its interest in Buckhorn.





On
November 8, 2007, the Company closed on the purchase of approximately 250 acres
of land in Kentucky. Total closing costs were $185,101, including $8,750 paid to
Sitter Drilling LLC, an unaffiliated party, as a finders/negotiation
fee.   The Company received a loan of $190,000 in the aggregate,
in November, 2007 from an affiliated entity owned jointly by the Company's CEO
and his wife, Helen Thomas, a former officer and director of the
Company.  Of this amount, $65,000 of principal and interest was repaid
prior to December 31, 2007.  In August 2008, the Company commenced
removing the timber on its 250 acre tract of land in Breathitt
County, Kentucky (the "Breathitt Property").  This is intended to
enable the Company to gain road access to potential drilling
sites.  Currently, the Company does not anticipate engaging in energy
related operations on this property.





On May
20, 2008, the Company completed the acquisition of a fifty (50%) percent equity
ownership interest in Buckhorn Resources, LLC, a  Kentucky limited
liability company (“Buckhorn”), pursuant to that certain Property Agreement,
dated March 27, 2008, between the Company and Billy David Altizer, Pat E.
Mitchell, Howard Prevette, William Dale Harris (collectively, the “Sellers”) and
Buckhorn (the "Property Agreement").  Other than in respect to this
transaction, the Company did not have any material relationship with the parties
to the Property Agreement.




Buckhorn
owns approximately 10,000 acres of land in eastern Kentucky, including all
rights to coal that may exist on or under the property, except for a $.30 per
ton coal right retained by an unaffiliated third party who is the former owner
of the property (EK, as described below).  Approximately 500 acres remains
subject to a lis pendens in connection with the Begley litigation, more fully
described under “Business-Legal Proceedings” in this report.  CNSV 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 proposed grass fed
grazing/organic farming operations. CNSV shall have the right of first refusal
on any offer made for agricultural use of the surface acres, should it later
decide to pursue its organic and natural food operations, unless or until a
higher value use is determined.




The total
consideration for this acquisition was $4,200,000, consisting of: (i) $2,100,000
in cash or installment payments, whereby $550,000 was paid by the Company in
cash at the closing and $1,550,000 remains payable by the Company in
installments over the next twelve months (which amount includes: (a) an
unsecured promissory note in the aggregate principal amount of $1,000,000, and
(b) $550,000 in capital contributions payable post-closing out of the total
$600,000 of the cash consideration component promised as capital contributions
at closing (the other $50,000 in capital contributions were paid at closing) to
fund development activities on the property such as title work, vigorous defense
and prosecution of lawsuits, and obtaining coal-mining permits); and (ii) an
aggregate of 1,093,750 shares of the Company’s restricted common stock, valued
at $1.92 per share, or $2,100,000 in the aggregate.  The shares are subject
to a lock-up/leak-out agreement permitting aggregate weekly sales of up to
21,034 shares commencing on April 1, 2009 through April 1, 2010. CNSV 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 proceeds from
the sale of such common stock in excess of $4.80 per share (the “Surplus” as
defined in the Property Agreement) shall be paid to CNSV.






51


As of the
year ended December 31, 2008, the Company has made the following payments to the
initial Buckhorn owners in connection with the Company’s purchase of their fifty
percent interest in Buckhorn - $78,153 in October 2008 consisting of the
following amounts: $25,000 to David Altizer d/b/a A&L Surveying and
Engineering, LLC, $40,000 to Timber Mine Enterprises, and $13,153 to Pat
Mitchell Enterprises, Inc. which were sourced from the Company’s initial timber
revenues on part of the Breathitt Property.The $78,153 payment
reduced the $500,000 amount due under the November 20, 2008 installment payment
of the unsecured promissory note to $421,847, resulting in an aggregate unpaid
principal balance of $921,847 as of December 31, 2008.





The other
component of the $1,550,000 in aggregate installment payments due post-closing,
namely the $550,000 in capital contributions that remained owing by the Company
to Buckhorn post-closing under the terms of the Buckhorn Transaction, had its
balance reduced as of the year ended December 31, 2008.  During the
fourth quarter, the Company made payments totaling $29,500 towards Buckhorn’s
working capital requirements, which consisted of $9,500 to forestry expert in
connection with a forestry report and $20,000 to Buckhorn directly for working
capital purposes.  As of the year ended December 31, 2008, the Company
made a total of $83,818 in capital contributions to Buckhorn (which included the
aforementioned $29,500 amount), reducing the total balance due on the $600,000
capital commitment to $516,183.





Management
retained a forestry expert to inventory timber on approximately 1,100 acres of
the Buckhorn Property to enable management to commence harvesting timber when
appropriate taking into consideration timber prices, cash flow needs,
accessibility and other related issues.





On August
25, 2008, the Company exercised an option to purchase approximately 1,000 acres
of land in Owsley County, Kentucky pursuant to the Agreement to Assign Real
Estate Purchase Option, dated January 8, 2008, between the Company and AMS
Development, LLC (“AMS”), whereby AMS assigned and transferred its interest in
an option to purchase the Owsley Property from Larry Bruce Herald (the “Owsley
Option Assignment”), and the Extension of Real Estate Option to Purchase
Agreement, dated June 13, 2008, between the Company and Larry Bruce Herald (the
“Owsley Option Extension”, collectively with the Owsley Option Assignment shall
be referred to as the “Owsley Option Agreements”) and completed such acquisition
for a purchase price of $1,000,000 pursuant to the Real Estate Sale and Purchase
Agreement, dated January 8, 2008 (the “Owsley Purchase
Agreement”).





The
purchase price regarding the Owsley Property was paid to Larry Bruce Herald as
follows: (i) $500,000 in cash at the Closing; and (ii) $500,000 pursuant to a
promissory note made as of the Closing Date and due October 15, 2008, on a
non-interest bearing basis (the “Note”) and mortgage of even date on the Owsley
Property to secure payment under the Note (the
“Mortgage”).   Under the terms of the Note, Larry Bruce Herald
may accelerate the Note and repossess the Owsley Property upon a “default”,
which is defined in the Note as the failure to make installment payments of
principal when due, or to fulfill covenants and agreements therein, or the
filing of a petition in bankruptcy by the Company or the involuntary petition in
bankruptcy filed against it, or the Company’s making of an assignment for the
benefit of creditors.  In addition, the Company cannot re-borrow or
receive advances regarding any amounts repaid under the Note.  The
cash funds used to purchase the Owsley Property have been provided from Johnny
R. Thomas, the Company’s CEO, who loaned the Company $513,655 for the Closing
pursuant to a promissory note, with interest at 6% per annum which is payable
upon demand, subject to availability of funds.  In October of
2008, the Company made a $200,000 principal payment under the Note, which
reduced the unpaid principal balance thereunder to $300,000 as of December 31,
2008.






52


On August
26, 2008, the Company entered into an agreement with AMS regarding certain
engineering, consulting and administrative services that AMS has agreed to
provide in connection with the development of the Owsley Property for proposed
coal mining activities (the “Development Agreement”).  Services under
the Development Agreement also include the handling and preparation of all coal
permitting applications and information required by applicable regulatory and
administrative agencies that oversee coal mining activities, as well as the
structuring and handling of the mining and reclamation plans (the “Services”)
with the goal of commencing mining operations within six months of the date of
the Development Agreement using each party’s reasonable best
efforts.





As
consideration for entering into the Development Agreement, AMS received
consideration of: (1) $100,000, which amount was placed in escrow at the time
the parties entered into the Owsley Option Assignment and has since been
released from escrow; (2) assignment by the Company to AMS of 50% of the coal
royalty rights with respect to the Owsley Property, which rights vested as of
the Closing, with a mineral deed relating to such rights to be filed promptly
thereafter; and (3) $400,000 through the issuance of 200,000 shares of the
Company’s restricted common stock, par value $.001 per share valued at
$2.00 per share which was the ten day market average when the Owsley Option
Assignment was negotiated and executed.  The Development Group
anticipates mining activities to commence in calendar year 2009, with receipt of
royalties expected to commence in March or April of 2009.




Regarding
our Owsley Property (1,000 acres), we expect initial timber removal to commence
in the first quarter of 2009, and mining is expected to commence
during March or April of 2009 on about 88 acres. We ultimately expect
all surface mineable acres to be mined in five to seven years, commencing with
approximately 100 acres in 2009 and early 2010.




On
September 11, 2008, the Company entered into an agreement by and among Billy
David Altizer (“Altizer”), Pat E. Mitchell (“Mitchell”), and LeeCo Development
LLC, a Kentucky limited liability company (the “LeeCo Agreement”), having
an effective date as of June 19, 2008.  LeeCo currently leases coal
rights from landowners on approximately 650 acres and believes it can obtain
additional coal leases and oil/natural gas rights on a substantial amount of
additional acres vis-a-vis third party landowners.  The LeeCo
Agreement was closed on September 16, 2008, and provided for the purchase of a
fifty percent (50%) ownership interest in LeeCo from the two original members of
LeeCo (the “Initial Owners”).  The LeeCo Agreement also provided for
the Company’s acquisition of all current and future oil/natural gas rights owned
or obtained by LeeCo, which development rights shall be transferred to the
Company either through assignment from LeeCo to the Company or preferably
directly by contract with the owner of subject properties, subject to a 1%
interest which shall be retained equally between the Initial
Owners.  This royalty shall  be payable on the oil/natural
gas leases obtained on properties signed by LeeCo and transferred to the
Company.  Under the LeeCo Agreement, the Company has the sole
responsibility and authority to make all oil/natural gas decisions with respect
to such current and future rights.





At the
closing on September 16, 2008, the Company paid an aggregate purchase price of
$500,000 as follows: (i) $50,000 in cash, whichcash funds were paid in
equal payments of $25,000 to each of the Initial Owners; and (ii) $450,000
through the issuance of 225,000 shares of restricted common stock valued at
$2.00 per share, based on the fair market value of the Company’s shares on the
effective date of the LeeCo Agreement.  The shares shall be sold in
accordance with the lock-up provisions in the LeeCo Agreement, which permits the
Initial Owners to sell 4,327 shares per week for the period from January 1,
2009 through December 31, 2009, subject to there being an available exemption
from registration or the shares being registered.  The Company shall
guarantee the $450,000 value of the shares, provided they are sold in accordance
with the terms of the lock-up and Initial Owners shall pay the Company any
surplus in the event the Initial Owners sell the shares at a price greater than
$5.00 per share.






53


Also at
the closing, the Company and the Initial Owners deposited $100,000 as a capital
contribution to LeeCo in proportion to their respective ownership interests,
consisting of $25,000 from each of the Initial Owners and $50,000 from the
Company, which capital contribution is to be used for working capital
purposes.  The Company also became a manager and member of
LeeCo.  The Company appointed its President and CEO, Johnny R. Thomas,
to perform the duties associated with this role until the Company notifies LeeCo
of a change by written notice.





Effective
March 31, 2008, the Company entered into an Option Oil, Gas and Mineral
Agreement (the “EK Option Agreement”) with Eastern Kentucky Land Corporation, a
Kentucky corporation (“EK”), which provided that the Company shall have until
October 1, 2008 (the “Option Period”) to close the Oil, Gas and Mineral
Agreement  (the “Rights Agreement”), attached as Exhibit A to the EK Option
Agreement.




Effective
September 22, 2008, the Company closed on the Rights Agreement, and acquired all
right, title and interest in the oil, gas and other minerals that may exist on
the Buckhorn Property, as described above, except for the $0.30 per ton coal
rights retained by EK when the Buckhorn Property was transferred to Buckhorn
(the “Rights”).   The total consideration paid by the Company under
the Rights Agreement was $1,000,000, and consisted of: (i) $200,000 in cash; and
(ii) $800,000 through the issuance of 415,584 shares of unregistered common
stock of the Company, at a price of $1.925 per share.  The EK 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.




Under the
EK Option Agreement, the Company paid EK $20,000 on April 8, 2008 and paid an
additional $30,000 total as of the closing date which amounts were credited
against the $200,000 cash component under the Rights Agreement, leaving the
balance of $150,000 which was paid at closing.





Vector
and Transfer of Assets into Separate Subsidiaries





As of
July 1, 2008, the Company acquired all of the capital stock of Vector Energy
Services, Inc. (“Vector”), a Delaware corporation without any significant
assets, from its Chief Financial Officer, John Francis, for nominal
consideration of ten dollars.  The Company has different potential
energy resources, and intends to conduct all or a portion of its proposed oil
and gas business primarily through Vector as a wholly-owned subsidiary, its
proposed coal business through a yet to be formed affiliated entity, and
anticipates placing its organic and natural food related assets into Artisan
Organics Inc. (“Artisan”), a yet to beformed Delaware
corporation, for the purpose of holding such assets separate from its
non-foodservice operations as well as for future use, should the Company decide
to pursue its initially planned organic and natural food business
plans.  In connection therewith, management anticipates transferring
certain oil and/or gas contracts (including the potential cashflows therefrom)
into Vector, coal assets into a yet to be formed affiliated entity, and organic
and natural food related assets, such as our  “Choice Organic Family”
trademark, into Artisan.  However, the terms, assets and timetables of
any asset transfer have not been negotiated and depend on the availability of
potential funding sources.  References in this report to CNSV do not
take into account any future transfer of assets to Vector, Artisan, or any
anticipated transfer of coal rights or contracts to a yet to be formed
affiliated entity.







54


Management
believes that, given the differences within the energy industry, for example,
among coal, oil and natural gas, separating the Company’s assets into separate
legal entities will better enable the Company to seek funding from different
sources specializing in such different asset classes.  Separation of
the assets also simplifies the ability to collateralize against such assets and
limits the wide disparity of attendant liabilities representative of such
different asset classes, particularly where potential funding is specific to a
given developmental project.  It will also simplify the recruitment of
personnel for the separate divisions and simplify compensation incentives
and evaluation for the different asset classes, as well as permit the Company’s
organic and natural food assets to remain separated from its energy-related
activities, thereby allowing the Company to use these assets at some point in
the future if it decides to resume its organic and natural food strategy,
without as much concern for liabilities or encumbrances that could have
otherwise resulted from exposure to the Company’s energy related
operations.





Liquidity
and Capital Resources




The
Company has a limited commercial operating history, and has limited revenues or
earnings from operations to date.




On
October 22, 2007, the Company received a $10,000 loan from an entity controlled
by two of its officers, and a loan of $180,000 on November 6, 2007, from an
affiliated entity owned jointly by the Company's CEO and his wife, Helen Thomas,
a former officer and director of the Company.




During
November and December 2007, the Company received an aggregate of $160,600 from
the exercise of Class A Warrants by Selling Stockholders or their transferees,
at the reduced exercise price of $1.00 per share.  In addition, two
founders exercised unregistered Class A Warrants at such reduced price,
resulting in $4,636 in proceeds received by the Company.  On February 5,
2008, the Company’s Board of Directors again reduced the exercise prices of the
warrants to $1.00 per share, which exercise price reduction lasted from February
6, 2008 through April 30, 2008.  As of the year ended December 31, 2008,
the Company received a commitment for $2,179,400 from the exercise of warrants
including: (i) $1,299,400 in cash consisting of $1,256,400 in cash from the
payment of promissory notes, $23,000 in debt reduction and an additional $20,000
in debt reduction which was categorized as payment for services provided by a
non-affiliated third party (in the form of common stock issued upon exercise of
warrants), and (ii) $880,000 remaining in notes payable to the Company.
 The purpose of the Second Warrant Reduction was to provide the Company
with additional funds to close the pending acquisitions and to negotiate
additional transactions.





The
Company has also received loans from Johnny R. Thomas, its Chief Executive
Officer and President.  On September 16, 2008, Johnny R. Thomas loaned
the Company $66,500 pursuant to a promissory note, with interest at 6% per
annum payable upon demand, subject to availability of funds, in connection with
the cash component of the purchase price for the LeeCo
Transaction.  On August 25, 2008, Johnny R. Thomas loaned the Company
$513,655 pursuant to a promissory note, with interest at 6% per annum, payable
upon demand, subject to availability of funds, in order to pay the $500,000 cash
component of the purchase price on the Owsley Transaction, as well as $13,655 in
closing costs.  As of September 22, 2008, Johnny R. Thomas loaned the
Company $150,000 pursuant to a promissory note, with interest at 6% per annum
payable upon demand, subject to availability of funds, in order to pay the
$150,000 cash component of the purchase price on the EK
Transaction.  Johnny R. Thomas also loaned the Company $50,000 in the
aggregate over the past six months to cover the extension payments under the EK
Option Agreement by way of a separate promissory note having the same terms as
the $150,000 loan in the previous sentence.






55


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
receipt of royalty revenues from the Company’s energy-related operations.
 This will result in the Company incurring a net operating loss that will
increase continuously until the Company can generate royalty revenues in excess
of its expenses in order to operate profitably, of which there are no assurances
this will occur.





In the
event the Company is unable to generate a sufficient amount of coal royalties or
timber royalties within the next twelve months, the Company will require
additional capital resources and financing to implement its business strategy
and support the Company's operations.  The ability to generate such
coal royalty revenues will likely be impacted by the recent material declines in
coal prices.  Given that debt or equity financing has been unavailable
to the Company since the middle of 2008the Company is seeking
asset based financing from its prospective coal mining activities.  However, as a
result of the economic conditions, there can be no assurance that any additional
financings will be available to us that any affiliate will make additional
loans, or that adequate funds for our operations will otherwise be available
when needed or on terms that are acceptable to us or at all. Depending on the
Company’s ability to service its obligations under various loans, notes and
guarantees to its counterparties, which are dependent largely on its ability to
generate revenues from coal royalties and timber royalties, the Company may
require additional capital sooner than anticipated.  The inability to
secure financing within the next twelve months may have a material adverse
effect upon the Company, which could result in the loss of your investment in
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.




Going
Concern




The
financial statements included in this filing have been prepared in conformity
with generally accepted accounting principles that contemplate the continuance
of us as a going concern. 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 intends to use borrowings and security sales to
mitigate the effects of its cash position, however no assurance can be given
that debt or equity financing, or financing from the exercise of warrants, if
and when required, will be available. The financial statements do not include
any adjustments relating to the recoverability and classification of recorded
assets and classification of liabilities that might be necessary should we be
unable to continue existence.








56


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 throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations 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 recognizes revenues when the product or service is delivered and
accepted by the customer.  During 2008, the Company realized revenues
from the sale of timber grown on its property.




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.





Results
of Operations For the Year Ended December 31, 2008 as Compared with the Year
Ended December 31, 2007




Revenues. The Company
received its initial revenues during the year ended December 31, 2008,
consisting of $13,153 from partial timber removal on our
properties.  The Company did not receive any revenues during the year
ended December 31, 2007.  We expect that our initial revenues will be
derived from coal royalties or other energy revenues from our land
acquisitions.









57


Operating expenses. We have
incurred general and administrative expenses of $503,766, for the year ended
December 31, 2008, which expenses are comprised primarily of reporting expenses,
professional fees and expenses incurred in connection with the Company’s land
acquisitions.  A large part of the Company’s operating expenses for
the year ended December 31, 2008 are reflected in the significant accounts
payable and accrued expense balance of $353,311, which consisted of large
balances due in legal fees and consulting fees, balances due for travel, and
property tax payments, among other items.  In addition, an aggregate
amount of $9,100 was paid to third parties in connection with the preparation of
technical reports regarding potential oil and natural gas reserves on both our
Buckhorn and Owsley Properties.  For the period from inception on
January 26, 2007 through December 31, 2007, the Company had general and
administrative expenses of $176,517.  These expenses were comprised
primarily of SEC and state "Blue Sky" filing fees, professional fees and
expenses incurred.





Net loss. Net loss was
$541,631 or ($.04) per share for the year ended December 31, 2008, reflecting
the impact of general and administrative costs and interest expenses
incurred.  Net loss was $176,517 or ($.02) per share for the period from
inception on January 26, 2007 through December 31, 2007, reflecting the impact
of organizational, reporting, compliance and land acquisition costs
incurred.





Liquidity
and Capital Resources as of December 31, 2008




The
Company had cash of$83,099 and a
working capital deficit of $2,268,682 at December 31, 2008.  We also had an
accumulated deficit of $718,148 on our balance sheet as of December 31,
2008.





During
the year ended December 31, 2008, the Company received a commitment for
$2,179,400 through the issuance of 2,179,400 shares of its common stock as a
result of warrant exercises of 2,179,400 Class A Warrants at $1.00 per share in
connection with the Second Warrant Reduction between February 6, 2008 and April
30, 2008.  As of December 31, 2008, the exercise price of $2,179,400 had
been paid to the Company as follows: (i) $1,299,400 through a combination of
cash ($1,256,400) from the payment of promissory notes issued to the Company in
connection with prior warrant exercises, debt reduction ($23,000), and
additional debt reduction ($20,000) which was categorized as payment for
services provided by a non-affiliated third party (in the form of common stock
issued upon exercise of warrants); and (ii) $880,000 remaining due under
promissory notes payable to the Company by four non-affiliated parties,
reflecting $338,000 in cash payments made during the fourth quarter, reducing
the principal balance from $1,218,000 as of the quarter ended September 30,
2008.  The aforementioned promissory notes were due and payable on or
before August 15, 2008, however, were extended to March 31, 2009 by the
Company’s board of directors.





During
2008, the Company issued 1,934,334 shares of its common stock for properties
valued at an average of $1.94 per share, or an aggregate of
$3,750,000.





Net cash
used by operating activities was $180,433 for the year ended December 31, 2008,
which was attributable to our net loss of $541,631, as offset by a significant
increase in accounts payable of $342,579 and common stock issued upon exercise
of warrants in repayment of services provided by a non-affiliated third
party in the amount of $20,000.




Net cash
was used in investing activities of $2,117,820 was primarily used in connection
with land acquisitions.






58


Net cash provided by financing activities was $2,302,870, representing an
aggregate of $1,279,400in proceeds from Common
Stock issued in connection with the exercise of Class A Warrants at a reduced
exercise price of $1.00 per share.  The Company also recorded an aggregate
of $1,432,655 in proceeds from loans payable, of which $409,185 had been
repaid during the year ended December 31, 2008.




As a
result of the foregoing, the Company had a net increasein cash of $4,617 for
the period ended December 31, 2008.




In
connection with the acquisition of various properties in 2008, we incurred a
$3,750,000 non-cash potential liability as a result of the issuance of common
stock as consideration, in part, and the guarantees made by the Company
regarding the value of such securities per certain lock-up
arrangements.





We will
need additional capital within the next twelve months to cover ongoing operating
expenses and increasing accounts payable, including obligations under loans,
notes and guarantees.  The Company's accumulated deficit, lack of
operations and sources of revenues raise substantial doubt about the Company's
ability to continue as a going concern. Our independent registered public
accounting firm has included an explanatory paragraph expressing doubt about our
ability to continue as a going concern in their audit report for the year ended
December 31, 2008.  The Company's future liquidity and cash
requirements will depend on a wide range of factors, including the receipt of
revenues from the development of energy resources on land, which will be
impacted by recent coal price declines.  In particular, the Company is
seeking asset based financing, given that debt or equity financing has been
unavailable to the Company since the middle of 2008.  Given the
economic crisis, there can be no assurance that such potential asset based
financing would be available in amounts and on terms acceptable to the Company
if at all.





Liquidity
and Capital Resources as of December 31, 2007





The
Company had cash of $78,482, no restricted cash and a working capital deficit of
$176,517 at December 31, 2007.  The working capital deficit reflects the
increase in notes payable and accounts payable.




Net cash
used by operating activities was $76,649 for the period from the inception on
January 26, 2007 through December 31, 2007, which was fully attributable to the
net loss of $176,517 including an expense of $84,500 resulting from the issuance
of common stock and warrants for services provided and an increase in accounts
payable of $10,732.




Net cash
was used in investing activities of $189,469 was primarily used in connection
with land acquisitions.





Net cash
provided by financing activities was $344,600, representing an aggregate of
$219,600 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 and $160,600 from the
exercise of Class A Warrants.  The Company also received an aggregate of
$190,000 of proceeds from loans of which $65,000 had been repaid as of December
31, 2007.








59


As a
result of the foregoing, the Company had a net decrease in cash of $78,482 for
the period from inception through December 31, 2007.





ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA




The
financial statements and financial statement schedules referred to in the index
contained on page F-1 of this report following Part IV, Item 15, are
incorporated herein by reference.




ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE




None




ITEM 9A(T).  CONTROLS AND PROCEDURES





Disclosure
Controls and Procedures





Disclosure
controls and procedures refer to controls and other procedures designed to
ensure that information required to be disclosed in the reports we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the SEC and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. In designing and
evaluating our 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 and implementing
possible controls and procedures.




As
required by Rule 13a-15 or 15d-15 under the Exchange Act, our management,
including our Chief Executive Officer and our Chief Financial Officer, evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2008.  Based on that evaluation, our
management, including the Chief Executive Officer and Chief Financial Officer,
has concluded that our disclosure controls and procedures are effective as of
the end of the period covered by this report to ensure that information required
to be disclosed by us in reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms, and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosure.





Changes
in Internal Controls Over Financial Reporting




Management
has not identified any change in the Company’s internal control over financial
reporting that occurred during the fourth fiscal quarter of 2008 that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.





Management’s
Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act.  Our management is also required to assess and
report on the effectiveness of our internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section
404”).  Management, including our Chief Executive Officer and Chief
Financial Officer, assessed the effectiveness of our internal control over
financial reporting as of December 31, 2008.  In making this
assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control – Integrated Framework.  Based on management’s assessment of
the effectiveness of internal control over financial reporting as of
December 31, 2008, management identified that, as of that date, there was a
significant deficiency, or a combination of deficiencies, in our internal
control over financial reporting resulting from our lack of an Audit Committee
to oversee the effectiveness of the internal control system.  An effective
Board of Directors and Audit Committee and other corporate governance functions
play an extremely important oversight role in the internal control system of a
company.  If there is no such function or if the function does not operate
comprehensively and proactively, there is a reasonable possibility that
significant internal control deficiencies cannot be detected or
prevented.




In order
to correct the foregoing deficiency, we have taken the following remediation
measure:




1.
            Our
      Board of Directors plans to establish an audit committee consisting of
      directors that are each “independent” as that term is defined under the
      Nasdaq Marketplace Rules, as specified below under the section “Directors
      and Executive Officers of the Registrant – Audit Committee.” We anticipate
      that our audit committee will be responsible for, among other
      things:




·
            selecting
      our independent auditors and pre-approving all auditing and non-auditing
      services permitted to be performed by our independent
      auditors;




·
            reviewing
      with our independent auditors any audit problems or difficulties and
      management’s response;




·
            reviewing
      and approving all proposed related-party transactions, as defined in Item
      404 of Regulation S-K;




·
            discussing
      the annual audited financial statements with management and our
      independent auditors;




·
            reviewing
      major issues as to the adequacy of our internal controls and any special
      audit steps adopted in light of significant internal control
      deficiencies;




·
            implementing,
      annually reviewing and reassessing the adequacy of an audit committee
      charter;




·
            such
      other matters that are specifically delegated to our audit committee by
      our Board of Directors from time to
time;




·
            meeting
      separately and periodically with management and our internal and
      independent auditors; and




·
            reporting
      regularly to the full Board of
Directors.




60


These
functions have been and are currently being performed by the Board of Directors.
However, we believe that the implementation of an independent audit committee
performing these functions and an audit committee charter will remediate the
significant deficiency identified above, and we will continue to monitor the
effectiveness of these steps, once effected, and make any changes that our
management deems appropriate.




Our
management does not believe that this significant deficiency is a material
weakness or that it had a material effect on our financial condition or results
of operations or caused our financial statements as of and for the year ended
December 31, 2008 to contain a material misstatement.




A
material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis.  A significant deficiency is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting that is less severe than a material weakness, yet important enough to
merit attention by those responsible for oversight of the Company's financial
reporting.




Our
management is not aware of any material weaknesses in our internal control over
financial reporting, and nothing has come to the attention of management that
causes them to believe that any material inaccuracies or errors exist in our
financial statements as of December 31, 2008.  The reportable
conditions and other areas of our internal control over financial reporting
identified by us as needing improvement have not resulted in a material
restatement of our financial statements.  Nor are we aware of any
instance where such reportable conditions or other identified areas of weakness
have resulted in a material misstatement or omission in any report we have filed
with or submitted to the Commission.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate.




Auditor
Attestation




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




ITEM 9B.  OTHER INFORMATION




Not
Applicable.







61





PART III





ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT





Executive
Officers and Directors




The
following table provides information concerning each officer and director of the
Company. All directors hold office until the next annual meeting of stockholders
or until their successors have been elected and qualified.




Names
                  Ages
                  PositionJohnny
      R. Thomas
                  67
                  Chairman
      of the Board, Chief Executive Officer and PresidentJohn
      C. Francis
                  59
                  Vice
      President, Chief Financial Officer, Secretary/Treasurer and
      Director




Johnny R. Thomas has served
as Chairman of the Board, Chief Executive Officer and President since the
Company’s inception on January 26, 2007. For more than the past five years,
Dr. Thomas has been self employed as an investor in securities, real estate
and limited custom home development. Since January 2000, Dr. Thomas has
been a managing member of Falcon Financial Group, LLC, financial consultants;
which has suspended its operations as of December 31, 2008 and is inactive at
this time.  Prior thereto, he was a founder and served as Chairman of the
Board and CEO of AgriBioTech, Inc. from September 1993 until February 1999.
AgriBioTech and several of its subsidiaries filed a voluntary petition for
bankruptcy in January 2000 (and was subsequently liquidated in Chapter 7),
approximately eleven months following Dr. Thomas’s departure from the
Company.  Dr. Thomas received his Ph.D. in genetics/plant breeding
from Oregon State University in 1966.





John C. Francis has served as
Vice President, Chief Financial Officer and a director of the Company since its
formation on January 26, 2007 and has served as Secretary/Treasurer since
September 16, 2008.  He has served as the President and a director of
Native American Television Network, Inc. (NATVN) since June 2004. NATVN is
establishing the first Western hemispheric, pan-tribal digital cable channel, to
broadcast Native American television programming, however it is in the early
stages of its development with its activities limited to capital
formation.  Mr. Francis has served as Managing Member of Acalan,
LLC since its formation in 1998. Acalan is a new media company specializing in
the development, production and distribution of transformational media and is
currently inactive.  Mr. Francis has also been a managing member
of Falcon Financial Group, LLC since January 2000.  Falcon Financial
Group, LLC has suspended its operations as of December 31, 2008 and is inactive
at this time. He served as Chief Financial Officer (from April 1994 to
April 1996), vice-president, secretary and director (April 1994 through
January 1999) of AgriBioTech, Inc.  AgriBioTech and several of
its subsidiaries filed a voluntary petition for bankruptcy in January 2000 (and
was subsequently liquidated in Chapter 7), approximately eleven months
following Mr. Francis’ departure from the Company.




Dr.
Johnny Thomas and John Francis are employed on a full-time basis by the
Company.







62


Scientific
Advisory Board




Management
of the Company began forming a scientific advisory board of professionals (the
“SAB”) with the hiring of  Mr. Henry P. Sartorio on June 18,
2007.  Mr. Sartorio is a patent attorney specializing in intellectual
property law.  From 2004-present, Mr. Sartorio has been a consultant
advising small businesses, particularly in the fields of material science,
instrumentation and solar energy systems. Mr. Sartorio was formerly Patent
Attorney at the University of California Lawrence Livermore National Laboratory
- Patent Prosecution from 1977-1988, particularly focusing on the fields of
lasers and optics, electronics, instrumentation, chemical engineering, materials
science; copyright law; government contracts; and technology licensing. He also
served as Deputy Laboratory Counsel, Head of Patent Department from 1989-1998
and managed six attorneys.  From 1999-2003, Mr. Sartorio served as a
patent attorney, particularly in the fields of physics and instrumentation at
the University of California Lawrence Berkeley National
Laboratory.  Mr. Sartorio received his B.S. Physics in 1966 and his
M.S. Aeronautics & Astronautics (Instrumentation and Control Systems) in
1971 from the Massachusetts Institute of Technology. He received his Juris
Doctor in 1977 from the George Washington University National Law Center. Mr.
Sartorio's Professional Memberships include being a member of the California and
Massachusetts state bars; being registered to practice before the United
States Patent and Trademark Office; and being a past co-chair of the patent
committee of the California State Bar Intellectual Property Section.  On
June 18, 2007, Mr. Sartorio signed a three-year consulting agreement with the
Company as an independent contractor.  He was granted 90,000 shares of
Common Stock of the Company, vesting one-third upon signing and one-third on
each of the next two anniversary dates of the agreement.





Currently,
Mr. Sartorio is the only member of the SAB board which was initially
intended to consist of professionals from both within and outside of the
foodservice industry.  However, given the Company’s recent decision to
focus its efforts on energy development, and Mr. Sartorio’s background and
expertise in the areas of energy, alternative fuels and “green” technologies,
management believes he is well suited to searching for new technologies in
connection with the Company’s shifting focus towards energy development
activities.  We anticipate that any future member of the SAB will be
selected on the basis of their ability to contribute to the technological
development of the Company’s energy-related focus.





Code
of Ethics





As of
December 31, 2008, the Company has not adopted a code of ethics which applies to
its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions. The
Company desires to appoint independent members to the Board of Directors before
adopting such a code. As our business expands, the Company shall commence
searching for individuals who would be considered independent, as well as
qualified to serve as directors.











63


Audit
Committee





As of
December 31, 2008, we did not have a separate audit committee. Rather, our Board
of Directors performed all the functions that may be delegated to an audit
committee. Based on our small size and limited financial and human resources, we
did not believe that creating an audit committee separate and distinct from our
full Board of Directors would have been cost-effective. We intend, however, to
establish an audit committee of the board of directors as soon as practicable.
We envision that such audit committee will be primarily responsible for
reviewing the services performed by our independent auditors, evaluating our
accounting policies and our system of internal controls.  The
Company’s executive officers have commenced researching candidates for
membership on the Board of Directors who would be “independent” and who,
accordingly, could serve on an audit committee, as well as candidates that
qualify as an “audit committee financial expert” as defined in Item
407(d)(5)(ii) of Regulation S-K.





ITEM 11.
 EXECUTIVE COMPENSATION




The
following table shows information concerning all compensation paid for services
to the Company in all capacities during the year ended December 31, 2008,
or accrued within the current fiscal year as to the Chief Executive Officer, and
each of the other two most highly compensated executive officers of the Company
who served in such capacity at the end of the last fiscal year whose total
annual salary and bonus exceeded $100,000 (collectively, the “Named Executive
Officers”):





SUMMARY
COMPENSATION TABLE





Name
      and
                    Principal
                    Position(s)
                  Year
                  Salary
                    ($)
                  Bonus
                    ($)
                  Stock
                    Awards
                    ($)
                  Option
                    Award(s)
                    ($)
                  Non
      Equity
                    Incentive
                    Plan
                    Compensation
                    ($)
                  Non
                    Qualified
                    Deferred
                    Compensation
                    Earnings
                    ($)
                  All
      Other
                    Compensation
                    ($)
                  Total
                    ($)Johnny
      R. Thomas,
                    CEO
      and President (1)
                  2008
                  $-0-
                  $
      -0-
                  $
      -0-
                  $-0-
                  $
      -0-
                  $
      -0-
                  $
      -0-
                  $-0-2007
                  $-0-
                  $
      -0-
                  $
      -0-
                  $1,000(2)
                  $
      -0-
                  $
      -0-
                  $
      -0-
                  $1,000




(1)
 Served as chief executive officer from January 26, 2007 (inception)
through present.




(2)
 On August 21, 2007, each of Dr. Thomas, and the other two executive
officers of the Company were awarded Class A Warrants to purchase 1,000,000
restricted shares of common stock at an exercise price of $3.00 per share for
services as officers and directors of the Company, valued at an aggregate of
$3,000.  The exercise price of these warrants are subject to temporary
reduction upon written notice of the Company (at its sole discretion). At the
end of such discretionary reduction period, the price shall revert back to the
defined Exercise Price.














64





OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END





Option Awards
                
                Stock Awards(a)
                (b)
                (c)
                (d)
                (e)
                (f)
                (g)
                (h)
                (i)
                (j)Name
                Number of
                  Securities
                  Underlying
                  Unexercised
                  Options (#)
                  Exercisable
                Number of
                  Securities
                  Underlying
                  Unexercised
                  Options (#)
                  Unexercisable
                Equity
                  Incentive
                  Plan
                  Awards:
                  Number of
                  Securities
                  Underlying
                  Unexercised
                  Unearned
                  Options (#)
                Option
                  Exercise
                  Price ($)
                Option
                  Expiration
                  Date
                Number of
                  Share or
                  Units of
                  Stock That
                  Have Not
                  Vested
                Market
                  Value of
                  Shares or
                  Units of
                  Stock That
                  Have Not
                  Vested(1)
                Equity
                  Incentive Plan
                  Awards:
                  Number of
                  Unearned
                  Shares, Units
                  or Other
                  Rights That
                  Have Not
                  Vested
                Equity Incentive
                  Plan Awards:
                  Market or Payout
                  Value of
      Unearned Shares,
                  Units or Other
                  Rights That Have
                  Not Vested(1)Johnny
      R. Thomas
                1,000,000(2)
                -0-
                -0-
                $3.00(1)
                12/31/09
                -0-
                $-0-
                -0-
                $-0-




(1)
 The Common Stock of the Company as listed on the OTCBB had a market value
of  $1.20 per share on December 31, 2008, based on the last reported
trade.




(2)
 Class A Warrants to purchase 3,000,000 shares of common stock in the
aggregate (or 1,000,000 each) were granted on August 21, 2007 to each of the
Company’s three officers and directors at the time, as compensation for services
rendered to the Company.




Director
Compensation




The
following table presents information regarding the compensation of our directors
during the fiscal year-ended December 31, 2008, except for Johnny R. Thomas, our
Chief Executive Officer, whose compensation is described in the Summary
Compensation Table above.  Other than the stock awards and warrant grants
appearing therein, we have paid no cash compensation to the officers or
directors.





Name
                Fees
      Earned
                  or
      Paid in
                  Cash
      ($)
                Stock
      Awards
                  ($)
                Option
                  Awards
      ($)
                Non-equity
                  incentive
      plan
                  compensation
                  ($)
                Nonqualified
                  Deferred
                  Compensation
                  Earnings
                All
      other
                  Compensation
                  ($)
                Total
                  ($)John
      Francis
                $-0-
                $-0-
                $-0-
                $-0-
                $-0-
                $-0-
                $-0-Helen
      Thomas
                $-0-
                $-0-
                $-0-
                $-0-
                $-0-
                $-0-
                $-0-




(1) Class
A Warrants to purchase 3,000,000 shares of common stock in the aggregate (or
1,000,000 each) were granted on August 21, 2007 to each of the Company’s three
officers and directors at the time, as compensation for services rendered to the
Company, valued at $3,000 in the aggregate, or $1,000 individually.














65


2007 Employee Stock Incentive
Plan




The
Company has adopted the 2007 Employee Stock Incentive Plan (the “2007 Plan”) in
order to motivate participants by means of stock options and restricted shares
to achieve the Company’s long-term performance goals and enable our employees,
officers, directors and consultants to participate in our long term growth and
financial success. The 2007 Plan provides for the grant of any combination of
stock options to purchase shares of Common Stock or restricted stock to our
directors, officers, employees and consultants and those of any subsidiaries.
The 2007 Plan, which is administered by our Board of Directors, authorizes the
issuance of a maximum of 5,000,000 shares of Common Stock, which may be
authorized and unissued shares or treasury shares. The stock options granted
under the 2007 Plan shall be either incentive stock options, within the meaning
of Section 422 of the Internal Revenue Code (“ISO’s”), or non-qualified
stock options (“NQSO’s”). Both incentive stock options and non-qualified stock
options must be granted at an exercise price of not less than the fair market
value of shares of Common Stock at the time the option is granted and incentive
stock options granted to 10% or greater stockholders must be granted at an
exercise price of not less than 110% of the fair market value of the shares on
the date of grant. If any award under the 2007 Plan terminates, expires
unexercised, or is cancelled, the shares of Common Stock that would otherwise
have been issuable pursuant thereto will be available for issuance pursuant to
the grant of new awards. The 2007 Plan was adopted by the Board and Shareholders
on January 27, 2007. The 2007 Plan will terminate on January 27, 2017.
 No options have been grated, to date, under the 2007 Plan.




ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT




The
following table sets forth certain information regarding the number and
percentage of common stock (being our only voting securities) beneficially owned
by each officer and director, each person (including any “group” as that term is
used in Section 13(d)(3) of the Exchange Act) known by us to own more
than 5% of any class of our common stock, and all officers and directors as a
group, as of the date of this report.





Name
      and Address
                        Title
      of Class
                        
                        Amount
      and
                          Nature
      of
                          Beneficial
                          Ownership(1)
                        
                        
                        Percentage
      of
                          Outstanding
                          Shares
      Owned(2)Johnny
      R. Thomas(6)
                        Common
      Stock
                        
                        
                        4,415,000
                        (3)
                        
                        
                        25.9
                        %John
      C. Francis(6)
                        Common
      Stock
                        
                        
                        6,571,100
                        (4)
                        
                        
                        43.5
                        %Helen
      Thomas(6)(7)
                        Common
      Stock
                        
                        
                        7,221,768
                        (4)(5)
                        
                        
                        47.8
                        %All
      Officers and Directors as a Group (2 persons)
                        Common
      Stock
                        
                        
                        10,986,100
                        
                        
                        
                        53.4
                        %




(1)
            Unless
      otherwise indicated, the Company has been advised that all individuals
      listed have the sole power to vote and dispose of the number of Shares set
      forth opposite their names. For purposes of computing the number and
      percentage of Shares beneficially owned by a stockholder, any Shares which
      such person has the right to acquire within 60 days are deemed to be
      outstanding, but those Shares are not deemed to be outstanding for the
      purpose of computing the percentage ownership of any other
      stockholder.






66





(2)
            Based
      on15,093,970 Shares
      issued and outstanding as of March 20, 2009. Does not include Shares of
      common stock issuable upon exercise of a Class A Warrant issued for
      each share of common stock currently issued and outstanding exercisable
      for one share of common stock and one Class B Warrant issuable for
      one share of common stock and one Class C Warrant exercisable for one
      share of common stock.




(3)
            Includes
      an aggregate of 2,451,768 of Common Stock issued and outstanding and
      1,963,232 shares of Common Stock issuable upon currently exercisable Class
      A Warrants, but does not include an equal number of shares of Common Stock
      issuable upon exercise of both Class B Warrants and Class C Warrants
      issuable upon exercise of Class A Warrants.  Dr. Thomas’ beneficial
      ownership includes the following, which share amounts (as appearing in the
      above table) have been reduced to reflect the amount of partial or shared
      ownership by Dr. Thomas, as noted below: 3,536 Shares held by Meadow Lark
      Holdings LLC (of which Dr. Thomas is a 50% owner with Helen Thomas),
      20,000 Shares held individually by Dr. Thomas,
      2,390,000 Shares held by JRT Trust, an entity established for estate
      planning purposes, 60,000 Shares held by Serene Art LLC (of which
      Dr. Thomas is a 50% owner with Helen Thomas), and 10,000 shares held
      by Estancia LLC.  Dr. Thomas disclaims beneficial ownership of
      all Shares held by his wife, Helen Thomas, Bosque FLP, Capilla Holdings
      LLC, Pikes LLC, and Manzano Family Limited Partnership, and Helen Thomas
      disclaims beneficial ownership of all Shares owned by Dr.
      Thomas.




(4)
            Includes
      an aggregate of 3,036,100 shares of Common Stock issued and outstanding
      and 3,535,000 shares of Common Stock issuable upon currently exercisable
      Class A Warrants, but does not include an equal number of shares of Common
      Stock issuable upon exercise of both Class B Warrants and Class C Warrants
      issuable upon exercise of Class A Warrants.  Mr. Francis’ beneficial
      ownership includes the following, which share amounts (as appearing in the
      above table) have been reduced to reflect the amount of partial or shared
      ownership by Mr. Francis, as noted below: 51,100 Shares held
      individually by Mr. Francis, 30,000 Shares held by
      Mr. Francis’s wife and two children, 1,505,000 held by Putun LLC
      (100% owned by John Francis), 100,000 Shares owned by Excalibur
      Trust, of which Mr. Francis is sole trustee, 1,000,000 Shares
      owned by Unicorn Trust of which Mr. Francis’ wife is sole trustee and
      350,000 Shares held by Camelot, FLP an entity established for estate
      planning purposes. Mr. Francis disclaims beneficial ownership of all
      Shares held by his wife, Unicorn Trust and Camelot,
  FLP.




(5)
            Includes
      an aggregate of 3,051,768 shares of Common Stock issuable and outstanding
      and 4,170,000 shares of Common Stock issuable upon currently exercisable
      Class A Warrants, but does not include an equal number of shares of Common
      Stock issuable upon exercise of both Class B Warrants and Class C Warrants
      issuable upon exercise of Class A Warrants.  Mrs. Thomas’ beneficial
      ownership includes the following, which share amounts (as appearing in the
      above table) have been reduced to reflect the amount of partial or shared
      ownership by Mrs. Thomas, as noted below:  20,000 held by Helen
      Thomas, wife of Johnny Thomas, individually, 920,000 Shares hold by
      HHT Trust, 20,000 held by Pikes LLC, 3,536 Shares held by Meadow Lark
      Holdings LLC (of which Dr. Thomas is a 50% owner with Helen Thomas),
      2,020,000 Shares held by Bosque FLP, 40,000 Shares held by
      Capilla Holdings LLC, 60,000 Shares held by Serene Art LLC (of which
      Helen Thomas is a 50% owner with Johnny Thomas), all of which entities
      were established for estate planning purposes.  Does not include
      120,000 shares gifted to four family members in the amount of 30,000
      shares each.









67


(6)
            Except as otherwise noted each
      person’s address is c/o the Company, 2756 N. Green Valley Parkway, Suite
      225, Henderson, NV 89014.





(7)
            Helen
      Thomas resigned from her position as Secretary/Treasurer and director of
      the Company effective September 16,
2008.





EQUITY
COMPENSATION PLAN INFORMATION




The
following table sets forth the information indicated with respect to our stock
option plan as of December 31, 2008, under which our common stock is authorized
for issuance compensation.




Number
      of Securities
                to
      be issued
                upon
      exercise of
                Outstanding
                options,
      warrants and rights
                (a)
              
              
              Weighted
      average
                exercise
      price of
                outstanding
      options,
                warrants
      and rights
                (b)
              
              
              Number
      of securities
                remaining
      available for
                future
      issuance under
                equity
      compensation plans
                (excluding
      securities
                reflected
      in column (a))
                (c)Equity
      compensation plans approved by security holders (1)
              
              
              5,000,000
              
              
              
              N/A
              
              
              
              5,000,000Equity
      compensation plans not approved by security holders
              
              
              --
              
              
              
              --
              
              
              
              --Total
              
              
              5,000,000
              
              
              
              --
              
              
              
              5,000,000


(1)
      The 2007 Employee Stock Incentive
Plan.





ITEM 13.
 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





Certain
Relationships and Related Transactions




As of
September 22, 2008, in connection with the EK Transaction Johnny R. Thomas
loaned the Company $150,000pursuant to a promissory
note, with interest at 6% per annum, payable upon demand,  subject to
availability of funds.  Also in connection with the EK Transaction,
Johnny R. Thomas loaned the Company an aggregate amount of $50,000 which was
paid out over the past six months under the EK Option Agreement, pursuant to a
separate promissory note, with interest at 6% per annum, payable upon
demand, subject to availability of funds.





On
September 16, 2008, Johnny R. Thomas loaned the Company $66,500pursuant to a promissory
note, with interest at 6% per annum, which is payable upon demand, subject to
availability of funds in connection with the cash component of the purchase
price for the LeeCo Transaction.





On August
25, 2008, Johnny R. Thomas loaned the Company $513,655 pursuant to a promissory
note, with interest at 6% per annum, which is payable upon demand, subject to
availability of funds, in order to pay the $500,000 cash component of the
purchase price on the Owsley Transaction, as well as $13,655 in closing
costs.





Pursuant
to a Stock Purchase Agreement, dated as of July 1, 2008, the Company acquired
1,000 shares of common stock of Vector, which constitutes all of its issued and
outstanding capital stock, from the Company’s Chief Financial Officer, John
Francis, for nominal consideration consisting of ten dollars.  Vector
does not currently have significant assets.






68





On
December 31, 2007, Johnny R. Thomas exercised Class A Warrants to purchase 1,768
restricted shares of common stock and paid $1,768 in proceeds to the Company in
exchange for reimbursement of expenses paid by Johnny R. Thomas on behalf of the
Company.




On
December 31, 2007, John Francis exercised Class A Warrants to purchase 1,100
restricted shares of common stock and paid $1,100 in proceeds to the Company, in
exchange for reimbursement of expenses paid by John Francis on behalf of the
Company.




On
December 31, 2007, Helen Thomas received 1,768 shares of restricted common stock
from the Company’s expense account, in exchange for reimbursement of expenses
paid by Johnny R. Thomas on behalf of the Company.





On
October 22, 2007, the Company received a $10,000 loan and on November 6,
2007, the Company received a loan of $180,000, respectively, from Meadow
Lark Holdings LLC, aNevadalimited liability
company owned jointly by Johnny Thomas (the Chairman of the Board, Chief
Executive Officer and President of the Company) and Helen Thomas (then
Secretary/Treasurer and a director of the Company). The terms of the
loan(s) provide for six percent interest, due upon demand, subject to
availability of funds.  The Company placed $5,000 in a land option
account with a third party, with instructions to negotiate options to purchase
land for organic farming purposes.  On November 8, 2007, the Company
used the loan proceeds to close on the purchase of approximately 250 acres of
land in Kentucky.  The Company’s expectation at this time is to use
the property for the proposed harvesting of limited timber. Total
closing cost were $185,101, including $8,750 paid to Sitter Drilling LLC, an
unaffiliated party, as a finders/negotiation fee.





On August
21, 2007, CNSV issued to each of its three executive officers Class A Management
Warrants to each purchase 1,000,000 shares of common stock at $3.00 per share
for services rendered.  There are an aggregate of 3,000,000 shares of
common stock issuable upon exercise of the Class A Management Warrants, as well
as 3,000,000 shares issuable upon exercise of underlying Class B Warrants
exercisable upon exercise of Class A Warrants and 3,000,000 shares issuable upon
exercise of underlying Class C Warrants issuable upon exercise of Class B
Warrants, or an aggregate of 9,000,000 shares underlying all Class A, Class B
and Class C Warrants.





On
February 26, 2007, the Company completed an unregistered private offering
under the Securities Act relying upon the exemption from registration afforded
by Rule 505 of Regulation D promulgated thereunder. The Company sold
1,000,000 shares of its $.001 par value common stock at a price of
$.05 per share for $50,000 in cash. For each share of Common Stock purchased,
the purchaser or his affiliates received one Class A Warrant exercisable
for three additional Shares when fully exercised.





On
January 26, 2007, in connection with the formation of the Company, the
officers of the Company and their affiliates purchased 9,000,000 Shares of
common stock from the Company for an aggregate of $9,000, or $.001 per share.
For each share of Common Stock purchased, the officer or his/her affiliates
received one Class A Warrant exercisable for three additional Shares when
fully exercised.






69


We are
provided office space, telephone and secretarial services from our Chief
Executive Officer, without charge on an oral basis. CNSV intends to rent office
space and hire administrative personnel following the date of this report when
necessary to support the Company’s growth.




Conflicts
of Interest




In order
to minimize potential conflicts of interest relating to non arms-length
transactions based on our current business strategy (i) we will not combine
with any target business in which our officers, directors or stockholders, or
their respective affiliates, serve as officers, directors or partners or own or
hold an ownership interest, (ii) none of such persons will receive from us
or the target business or its principals any finder’s fees, consulting fees or
similar compensation, whether in cash, securities or otherwise, for introducing
to us a target business, and (iii) our management will not negotiate or
otherwise consent to the purchase of their respective common stock as a
condition of or in connection with our proposed combination with a target
business. Our directors and officers know of no special circumstances under
which, through their own initiative, this understanding will
change.




However,
in the event we are unable to implement our business strategy and are required
to consider other industries or areas in the best interests of the Company, the
possibility of potential conflicts of interests exist with other business
interests of management.




In
addition, our officers and directors currently have, or may in the future have,
real or potential conflicts of interest with us in connection with their
allocation of business time and with respect to corporate
opportunities.





Director
Independence





The
Company is quoted on the OTC Bulletin Board inter-dealer quotation system, which
does not have director independence requirements. However, for purposes of
determining director independence, we have applied the definitions set out in
NASDAQ Rule 4200(a)(15).  NASDAQ Rule 4200(a)(15) states that
"Independent director" means a person other than an executive officer or
employee of the company or any other individual having a relationship which, in
the opinion of the issuer's board of directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director.  Accordingly, we do not consider Messrs. Thomas and Francis,
the only directors of the Company at this time, to be independent directors
since they are both executive officers and employees of the
Company.  The Company does not have standing audit, nominating or
compensation committees.





ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND
SERVICES




The
following table represents the aggregate fees for professional audit services
rendered by Moore & Associates, Chartered including fees for the audit of
the Company’s annual financial statements for the fiscal years 2007 and 2008,
and for fees billed for other services rendered by and Moore and Associates,
Chartered.







70





2007
                      
                      
                      2008Audit
      Fees (1)
                      
                      $
                      8,500
                      
                      
                      $
                      16,500Audit-Related
      Fees (2)
                      
                      $
                      2,873
                      
                      
                      
                      0Audit
      and Audit-Related Fees
                      
                      $
                      11,373
                      
                      
                      $
                      16,500Tax
      Fees (3)
                      
                      
                      0
                      
                      
                      0All
      Other Fees (4)
                      
                      
                      0
                      
                      
                      
                      11,785Total
      Fees
                      
                      $
                      11,373
                      
                      
                      $
                      28,285




(1)
 Audit fees were for professional services rendered in connection with
audits and quarterly reviews of the consolidated financial statements of the
Company, review of and  preparation of consents for registration statements
filed with the Securities and Exchange Commission and for review of the
Company’s tax provision.  Audit fees incurred in connection with
registration statements were $2,500 for fiscal year 2007 and $0 for fiscal year
2008.




(2)
 Audit-related fees are principally for review of financial statements in
the Company’s registration statements, internal controls, and other services
related to financial accounting and reporting standards.




(3)
 Tax fees are related to services for tax consultation and tax
compliance.





(4)  All
other fees relate to all fees billed for products and services provided by the
principal accountant, other than those reported above, including those services
provided by an outside accounting firm.




Audit Committee:
Pre-Approval Policies and Procedures. The Company does not have an audit
committee and the board handles all such decisions.




PART IV




ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES




(a)           Financial
Statements




(1)           See
“Index to Consolidated Financial Statements” set forth on page F-1.




(b)           Exhibits.




(1)           See
“Index to Exhibits” set forth on page 72.








71


























CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)








FINANCIAL
STATEMENTS








December
31, 2008 and 2007
















































































F-1





























C
O N T E N T S








Report of Independent Registered Public Accounting
      Firm
              F-3Consolidated Balance Sheets
              F-4Consolidated Statements of Operations
              F-5Consolidated Statements of Stockholders’
      Equity
              F-6Consolidated Statements of Cash Flows
              F-7Notes to the Financial Statements
              F-8























F-2





MOORE
& ASSOCIATES, CHARTERED


ACCOUNTANTS AND
ADVISORS


PCAOB
REGISTERED





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
the Board of Directors


Consolidation
Services, Inc.


(A
Development Stage Company)





We have
audited the accompanying consolidated balance sheets of Consolidation Services,
Inc. (A Development Stage Company) as of December 31, 2008 and 2007, and the
related consolidated statements of operations, stockholders’ equity and cash
flows for the year ended December 31, 2008, for the period from inception on
January 26, 2007 through December 31, 2007, and for the period from inception on
January 26, 2007 through December 31, 2008. These consolidated financial
statements are the responsibility of the Company’s management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.





We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Consolidation Services, Inc.
(A Development Stage Company) as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders’ equity and cash flows for
the year ended December 31, 2008, for the period from inception on January 26,
2007 through December 31, 2007, and for the period from inception on January 26,
2007 through December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 3 to the
financial statements, the Company has accumulated deficit of $718,148 as of
December 31, 2008, which raises substantial doubt regarding the Company’s
ability to continue as a going concern.  Management’s plans concerning
these matters are also described in Note 3.  The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.





/s/
Moore & Associates, Chartered





Moore
& Associates Chartered


Las
Vegas, Nevada


March 20,
2009





6490 West Desert Inn Rd, Las
Vegas, NV 89146 (702) 253-7499 Fax (702) 253-7501





F-3





CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Consolidated Balance Sheets








ASSETSDecember
      31,
                      
                      
                      December
      31,2008
                      
                      
                      2007CURRENT
      ASSETSCash
                      
                      $
                      83,099
                      
                      
                      $
                      78,482Prepaid
      expenses
                      
                      
                      -
                      
                      
                      
                      -Total
      Current Assets
                      
                      
                      83,099
                      
                      
                      
                      78,482PROPERTY
      AND EQUIPMENT, NET
                      
                      
                      6,907,289
                      
                      
                      
                      189,469TOTAL
      ASSETS
                      
                      $
                      6,990,388
                      
                      
                      $
                      267,951LIABILITIES AND
      STOCKHOLDERS'  EQUITYCURRENT
      LIABILITIESAccounts
      payable and accrued expenses
                      
                      $
                      353,311
                      
                      
                      $
                      10,732Notes
      payable-related parties
                      
                      
                      776,623
                      
                      
                      
                      -Notes
      payable
                      
                      
                      1,221,847
                      
                      
                      
                      125,000Total
      Current Liabilities
                      
                      
                      2,351,781
                      
                      
                      
                      135,732STOCKHOLDERS'
      EQUITYCommon
      stock; 220,000,000 sharesauthorized
      at $0.001 par value, 15,093,970 and 10,980,236shares
      issued and outstanding, respectively
                      
                      
                      15,094
                      
                      
                      
                      10,980Additional
      paid-in capital
                      
                      
                      5,658,746
                      
                      
                      
                      297,756Non
      controlling interest
                      
                      
                      562,915
                      
                      
                      
                      -Stock
      subscription receivable
                      
                      
                      (880,000
                      )
                      
                      
                      -Deficit
      accumulated during the development stage
                      
                      
                      (718,148
                      )
                      
                      
                      (176,517
                      )Total
      Stockholders' Equity
                      
                      
                      4,638,607
                      
                      
                      
                      132,219TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                      
                      $
                      6,990,388
                      
                      
                      $
                      267,951





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






F-4





CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Consolidated Statements of Operations








From
      Inception
                  
                  
                  From
      InceptionFor
      the
                  
                  
                  on
      January 26,
                  
                  
                  on
      January 26,Year
      Ended
                  
                  
                  2007
      Through
                  
                  
                  2007
      ThroughDecember
      31,
                  
                  
                  December
      31,
                  
                  
                  December
      31,2008
                  
                  
                  2007
                  
                  
                  2008REVENUES
                  
                  $
                  13,153
                  
                  
                  $
                  -
                  
                  
                  $
                  13,153COST
      OF SALES
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -GROSS
      MARGIN
                  
                  
                  13,153
                  
                  
                  
                  -
                  
                  
                  
                  13,153OPERATING
      EXPENSESGeneral
      and administrative
                  
                  
                  503,766
                  
                  
                  
                  176,517
                  
                  
                  
                  680,283Total
      Expenses
                  
                  
                  503,766
                  
                  
                  
                  176,517
                  
                  
                  
                  680,283LOSS
      FROM OPERATIONS
                  
                  
                  (490,613
                  )
                  
                  
                  (176,517
                  )
                  
                  
                  (667,130
                  )OTHER
      INCOME (EXPENSE)Interest
      expense
                  
                  
                  (52,399
                  )
                  
                  
                  
                  
                  
                  
                  (52,399
                  )Non
      controlling interest
                  
                  
                  1,381
                  
                  
                  
                  
                  
                  
                  
                  1,381TOTAL
      OTHER INCOME (EXPENSE)
                  
                  
                  (51,018
                  )
                  
                  
                  -
                  
                  
                  
                  (51,018
                  )LOSS
      BEFORE INCOME TAXES
                  
                  
                  (541,631
                  )
                  
                  
                  (176,517
                  )
                  
                  
                  (718,148
                  )INCOME
      TAX EXPENSE
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -NET
      LOSS
                  
                  $
                  (541,631
                  )
                  
                  $
                  (176,517
                  )
                  
                  $
                  (718,148
                  )BASIC
      LOSS PER COMMON SHARE
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.02
                  )WEIGHTED
      AVERAGE NUMBEROF
      COMMON SHARES OUTSTANDING
                  
                  
                  13,855,391
                  
                  
                  
                  9,990,118








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






F-5





CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Consolidated Statements of Stockholders' Equity








DeficitAccumulatedAdditional
                
                
                Stock
                
                
                Non
                
                
                During
      the
                
                
                TotalCommon
      Stock
                
                
                Paid-In
                
                
                Subscription
                
                
                Controlling
                
                
                Development
                
                
                Stockholders'Shares
                
                
                Amount
                
                
                Capital
                
                
                Receivable
                
                
                Interest
                
                
                Stage
                
                
                EquityBalance,
      January 26, 2007
                
                
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Shares
      issued for cashat
      $0.001 per share
                
                
                9,000,000
                
                
                
                9,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                9,000Shares
      issued for cashat
      $0.05 per share
                
                
                1,000,000
                
                
                
                1,000
                
                
                
                49,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                50,000Shares
      issued for servicesat
      $0.10 per share
                
                
                815,000
                
                
                
                815
                
                
                
                80,685
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                81,500Fair
      value of common stockwarrants
      granted
                
                
                -
                
                
                
                -
                
                
                
                3,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,000Common
      stock warrantsexercised
      at $1.00per
      share
                
                
                160,600
                
                
                
                160
                
                
                
                160,440
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                160,600Common
      stock warrantsexercised
      for expenses paidat
      $1.00 per share
                
                
                4,636
                
                
                
                5
                
                
                
                4,631
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,636Net
      loss from inceptionthrough
      December 31, 2007
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (176,517
                )
                
                
                (176,517
                )Balance,
      December 31, 2007
                
                
                10,980,236
                
                
                
                10,980
                
                
                
                297,756
                
                
                
                -
                
                
                
                -
                
                
                
                (176,517
                )
                
                
                132,219Common
      stock warrantsexercised
      at $1.00per
      share
                
                
                2,179,400
                
                
                
                2,180
                
                
                
                2,177,220
                
                
                
                (880,000
                )
                
                
                -
                
                
                
                -
                
                
                
                1,299,400Common
      stock issued for propertiesat
      an average of $1.94 per share
                
                
                1,934,334
                
                
                
                1,934
                
                
                
                3,183,770
                
                
                
                -
                
                
                
                564,296
                
                
                
                -
                
                
                
                3,750,000Net
      loss for the yearended
      December 31, 2008
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,381
                )
                
                
                (541,631
                )
                
                
                (543,012
                )Balance,
      December 31, 2008
                
                
                15,093,970
                
                
                $
                15,094
                
                
                $
                5,658,746
                
                
                $
                (880,000
                )
                
                $
                562,915
                
                
                $
                (718,148
                )
                
                $
                4,638,607








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


F-6





CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Consolidated Statements of Cash Flows








From
      Inception
                
                
                From
      InceptionFor
      the
                
                
                on
      January 26,
                
                
                on
      January 26,Year
      Ended
                
                
                2007
      Through
                
                
                2007
      ThroughDecember
      31,
                
                
                December
      31,
                
                
                December
      31,2008
                
                
                2007
                
                
                2008OPERATING
      ACTIVITIESNet
      loss
                
                $
                (541,631
                )
                
                $
                (176,517
                )
                
                $
                (718,148
                )Adjustments
      to reconcile net loss to net cashused
      by operating activities:Common
      stock and warrants issued for services
                
                
                20,000
                
                
                
                84,500
                
                
                
                104,500Common
      stock issued for expenses paid
                
                
                -
                
                
                
                4,636
                
                
                
                4,636Non
      controlling interest in subsidiary loss
                
                
                (1,381
                )
                
                
                
                
                
                
                (1,381
                )Changes
      in operating assets and liabilities:Change
      in prepaid expenses
                
                
                -
                
                
                
                
                
                
                
                -Change
      in accounts payable and accrued expenses
                
                
                342,579
                
                
                
                10,732
                
                
                
                353,311Net
      Cash Used byOperating
      Activities
                
                
                (180,433
                )
                
                
                (76,649
                )
                
                
                (257,082
                )INVESTING
      ACTIVITIESPurchase
      of property and equipment
                
                
                (2,117,820
                )
                
                
                (189,469
                )
                
                
                (2,307,289
                )Net
      Cash Used byInvesting
      Activities
                
                
                (2,117,820
                )
                
                
                (189,469
                )
                
                
                (2,307,289
                )FINANCING
      ACTIVITIESRepayment
      of loans payable
                
                
                (409,185
                )
                
                
                (65,000
                )
                
                
                (474,185
                )Proceeds
      from loans payable
                
                
                1,432,655
                
                
                
                190,000
                
                
                
                1,622,655Proceeds
      from common stock issued
                
                
                1,279,400
                
                
                
                219,600
                
                
                
                1,499,000Net
      Cash Provided byFinancing
      Activities
                
                
                2,302,870
                
                
                
                344,600
                
                
                
                2,647,470NET
      INCREASE IN CASH
                
                
                4,617
                
                
                
                78,482
                
                
                
                83,099CASH
      AT BEGINNING OF PERIOD
                
                
                78,482
                
                
                
                -
                
                
                
                -CASH
      AT END OF PERIOD
                
                $
                83,099
                
                
                $
                78,482
                
                
                $
                83,099SUPPLEMENTAL
      DISCLOSURES OFCASH
      FLOW INFORMATIONCASH
      PAID FOR:Interest
                
                $
                2,653
                
                
                $
                740
                
                
                $
                3,393Income
      Taxes
                
                $
                -
                
                
                $
                -
                
                
                $
                -NON
      CASH FINANCING ACTIVITIES:Properties
      purchased for common stock
                
                $
                3,750,000
                
                
                $
                -
                
                
                $
                3,750,000








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


F-7


CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Notes to Financial Statements


December
31, 2008 and 2007





1.           SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES


Nature of
Business


Consolidation
Services, Inc. (the Company) was incorporated in the State of Delaware on
January 26, 2007. The Company is engaged in the development of our
energy-related assets, primarily the ability to generate revenues from our coal
related operations, through the harvesting of our inventory of timber, as well
as from our proposed oil and natural gas operations.  Our primary
business focus has shifted away from our proposed organic and natural food
business.




Use of
Estimates


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




Basic (Loss) per Common
Share


Basic
(loss) per share is calculated by dividing the Company’s net loss applicable to
common shareholders by the weighted average number of common shares during the
period. Diluted earnings per share is calculated by dividing the Company’s net
income available to common shareholders by the diluted weighted average number
of shares outstanding during the year. The diluted weighted average number of
shares outstanding is the basic weighted number of shares adjusted for any
potentially dilutive debt or equity. Common stock equivalents outstanding as of
December 31, 2008 are not included in the computation of Basic (loss) per share
because they would be antidilutive.




For
      the
                  Year
      Ended
                  December
      31,
                  2008
                
                
                For
      the
                  Year
      Ended
                  December
      31,
                  2007Loss
      (numerator)
                
                $
                (541,631
                )
                
                $
                (176,517
                )Shares
      (denominator)
                
                
                13,855,391
                
                
                
                9,990,118Per
      share amount
                
                $
                (0.04
                )
                
                $
                (0.02
                )





Dividends


The
Company has not adopted any policy regarding payment of dividends. No dividends
have been paid during any of the periods shown.


Comprehensive
Income
 The
Company has no component of other comprehensive income. Accordingly, net income
equals comprehensive income for the years ended December 31, 2008 and
2007.
  Advertising
Costs
 The
Company’s policy regarding advertising is to expense advertising when incurred.
The Company had not incurred any advertising expense as of December 31, 2008 and
2007.




F-8


CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Notes to
Financial Statements


December
31, 2008 and 2007








1.           SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)





Income
Taxes


The
Company provides for income taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. SFAS No. 109 requires the use of
an asset and liability approach in accounting for income taxes. Deferred tax
assets and liabilities are recorded based on the differences between the
financial statement and tax bases of assets and liabilities and the tax rates in
effect when these differences are expected to reverse.


SFAS No.
109 requires the reduction of deferred tax assets by a valuation allowance if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized.
  The
provision for income taxes differs from the amounts which would be provided by
applying the statutory federal income tax rate of 39% to the net loss before
provision for income taxes for the following reasons:


December
      31, 2008
                
                
                December
      31, 2007Income
      tax expense at statutory rate
                
                $
                (211,236
                )
                
                $
                (68,842
                )Common
      stock and warrants issued for services
                
                
                7,800
                
                
                
                32,955Valuation
      allowance
                
                
                203,436
                
                
                
                35,887Income
      tax expense per books
                
                $
                -
                
                
                $
                -





Net
deferred tax assets consist of the following components as of:





December
      31, 2008
                
                
                December
      31, 2007NOL
      carryover
                
                $
                239,323
                
                
                $
                35,887Valuation
      allowance
                
                
                (239,323
                )
                
                
                (35,887
                )Net
      deferred tax asset
                
                $
                -
                
                
                $
                -





Due to
the change in ownership provisions of the Tax Reform Act of 1986, net operating
loss carry forwards of $609,012 for federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur net operating
loss carry forwards may be limited as to use in future years.


Impairment of Long-Lived
Assets
 The
Company continually monitors events and changes in circumstances that could
indicate carrying amounts of long-lived assets may not be recoverable. When such
events or changes in circumstances are present, the Company assesses the
recoverability of long-lived assets by determining whether the carrying value of
such assets will be recovered through undiscounted expected future cash flows.
If the total of the future cash flows is less than
the carrying amount of those assets, the Company recognizes an impairment loss
based on the excess of the carrying amount over the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or the
fair value less costs to sell.




F-9


CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Notes to
Financial Statements


December
31, 2008 and 2007








1.           SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)


Accounting
Basis


The basis
is accounting principles generally accepted in the United States of
America.  The Company has adopted a December 31 fiscal year
end.


Stock-based
compensation.
 The
Company has adopted the fair value based method of accounting for stock-based
employee compensation in accordance with Statement of Financial Accounting
Standards Number 123 (REVISED 2004), "Share-Based Payment"  (SFAS
123[R]).  In accordance with SFAS 123[R], option expense of $3,000 was
recognized for the year ended December 31, 2007.  The expense was
calculated using the Black-Scholes valuation model.
  Cash and Cash
Equivalents
 For
purposes of the Statement of Cash Flows, the Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents to the extent the funds are not being held for investment
purposes.
  Recent Accounting
Pronouncements
  In
June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,
(“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting,
and therefore need to be included in the computation of earnings per share under
the two-class method as described in FASB Statement of Financial Accounting
Standards No. 128, “Earnings per Share.” FSP EITF 03-6-1 is effective for
financial statements issued for fiscal years beginning on or after
December 15, 2008 and earlier adoption is prohibited. We are not required
to adopt FSP EITF 03-6-1; neither do we believe that FSP EITF 03-6-1 would have
material effect on our consolidated financial positionand results of
operations if adopted.
  In
May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163,
“Accounting for Financial
Guarantee Insurance Contract - and interpretation of FASB Statement No.
60”.SFAS
No. 163 clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement of  premium
revenue and claims liabilities. This statement also requires expanded
disclosures about financial guarantee insurance contracts. SFAS No. 163 is
effective for fiscal years beginning on or after December 15, 2008, and interim
periods within those years. SFAS No. 163 has no effect on the Company’s
financial position, statements of operations, or cash flows at this
time.
  In May
2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162,
“The Hierarchy of Generally
Accepted Accounting Principles”.SFAS No. 162 sets forth
the level of authority to a given accounting pronouncement or document by
category. Where there might be conflicting guidance between two categories, the
more authoritative category will prevail. SFAS No. 162 will become effective 60
days after the SEC approves the PCAOB’s amendments to AU Section 411 of the
AICPA Professional




F-10


CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Notes to
Financial Statements


December
31, 2008 and 2007








1.           SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)


Recent Accounting
Pronouncements (Continued)


Standards.
SFAS No. 162 has no effect on the Company’s financial position, statements of
operations, or cash flows at this time.


In March
2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133.This standard requires companies to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The Company has not yet adopted the
provisions of SFAS No. 161, but does not expect it to have a material impact on
its financial position, results of operations or cash flows.
  In
December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110 regarding
the use of a "simplified" method, as discussed in SAB No. 107 (SAB 107), in
developing an estimate of expected term of "plain vanilla" share options in
accordance with SFAS No. 123 (R), Share-Based
Payment.  In particular, the staff indicated in SAB 107 that it
will accept a company's election to use the simplified method, regardless of
whether the company has sufficient information to make more refined estimates of
expected term. At the time SAB 107 was issued, the staff believed that more
detailed external information about employee exercise behavior (e.g., employee
exercise patterns by industry and/or other categories of companies) would, over
time, become readily available to companies. Therefore, the staff stated in SAB
107 that it would not expect a company to use the simplified method for share
option grants after December 31, 2007. The staff understands that such detailed
information about employee exercise behavior may not be widely available by
December 31, 2007. Accordingly, the staff will continue to accept, under certain
circumstances, the use of the simplified method beyond December 31, 2007. The
Company currently uses the simplified method for “plain vanilla” share options
and warrants, and will assess the impact of SAB 110 for fiscal year 2009. It is
not believed that this will have an impact on the Company’s financial position,
results of operations or cash flows.
  In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No.
51.  This statement amends ARB 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. Before this
statement was issued, limited guidance existed for reporting noncontrolling
interests. As a result, considerable diversity in practice existed. So-called
minority interests were reported in the consolidated statement of financial
position as liabilities or in the mezzanine section between liabilities and
equity. This statement improves comparability by eliminating that diversity.
This statement is effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2008 (that
is,




F-11


CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Notes to
Financial Statements


December
31, 2008 and 2007








1.           SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)


Recent Accounting
Pronouncements (Continued)




January
1, 2009, for entities with calendar year-ends). Earlier adoption is prohibited.
The effective date of this statement is the same as that of the related
Statement 141 (revised 2007). The Company will adopt this Statement beginning
March 1, 2009. It is not believed that this will have an impact on the Company’s
financial position, results of operations or cash flows.


In
December 2007, the FASB, issued FAS No. 141 (revised 2007), Business Combinations. This
Statement replaces FASB Statement No. 141, Business Combinations, but
retains the fundamental requirements in Statement 141.  This
Statement establishes principles and requirements for how the acquirer: (a)
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree; (b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and (c) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. This statement
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. An entity may not apply it before that date. The
effective date of this statement is the same as that of the related FASB
Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements.  The Company will adopt this
statement beginning March 1, 2009. It is not believed that this will have an
impact on the Company’s financial position, results of operations or cash
flows.
  In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial
Assets and Liabilities—Including an Amendment of FASB Statement No.
115.  This standard permits an entity to choose to measure many
financial instruments and certain other items at fair value. This option is
available to all entities. Most of the provisions in FAS 159 are elective;
however, an amendment to FAS 115 Accounting for Certain Investments
in Debt and Equity Securities applies to all entities with available for
sale or trading securities. Some requirements apply differently to entities that
do not report net income. SFAS No. 159 is effective as of the beginning of an
entity’s first fiscal year that begins after November 15, 2007. Early adoption
is permitted as of the beginning of the previous fiscal year provided that the
entity makes that choice in the first 120 days of that fiscal year and also
elects to apply the provisions of SFAS No. 157 Fair Value
Measurements.  The Company adopted SFAS No. 159 beginning March
1, 2008. The adoption of this pronouncement did not have an impact on the
Company’s financial position, results of operations or cash flows.
  In
September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements  This statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This statement
applies under other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this statement does not require any new fair value measurements.
However, for some entities, the application of this statement will change
current practice. This






F-12


CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Notes to
Financial Statements


December
31, 2008 and 2007








1.           SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)


Recent Accounting
Pronouncements (Continued)


statement
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Earlier
application is encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including financial statements for an
interim period within that fiscal year. The Company adopted this statement March
1, 2008. The adoption of this pronouncement did not have an impact on the
Company’s financial position, results of operations or cash
flows.


Revenue
Recognition
 The
Company recognizes revenues when the product or service is delivered and
accepted by the customer. During 2008, the Company realized revenues from the
sale of timber grown on its property.
  Oil and Gas
Properties
 In
accordance with Statement of Financial Accounting Standard (SFAS) No. 69, the
Company follows the successful efforts method of accounting for its oil and gas
activities.  Accordingly, the cost associated with developmental oil
and gas properties are capitalized and recovered using units of production cost
depletion method.  Exploratory cost, including the cost of exploratory
dry holes and related geological and geophysical cost are charged as current
expense.  In instances where the status of a well is indeterminable at
the end of the year, it is the Company’s practice to capitalize these costs as
oil and gas properties, until such time as the outcome of drilling becomes known
to the Company. Wells cannot remain in a status of indeterminable for a period
greater than twelve months.


2.           COMMON
STOCK


On
January 26, 2007, the Company received $9,000 from its founders for 9,000,000
shares of its common stock. On February 26, 2007, the Company completed an
unregistered private offering under the Securities Act of 1933, as amended,
relying upon the exemption from registration afforded by Rule 505 of Regulation
D promulgated there under.  The Company sold 1,000,000 shares of its
common stock at a price of $0.05 per share for $50,000 in cash.
  On August
21, 2007, the Company issued 690,000 shares of its common stock for legal and
other consulting services valued at $0.10 per share. The Company also issued
3,000,000 “A” common stock purchase warrants to its officers and directors for
services performed valued at $3,000. The Company has determined the estimated
value of the compensatory options granted to non-employees in exchange for
services and financing expenses using the Black-Scholes pricing model and the
following assumptions: expected term of 1year, a risk free interest rate of
5.35%, a dividend yield of 0% and volatility of 100% in 2007. The amount of the
expense charged to operations for compensatory options granted in exchange for
services was $3,000 during the year ended December 31, 2007.




F-13


CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Notes to
Financial Statements


December
31, 2008 and 2007





2.           COMMON STOCK
(Continued)





The board
of directors also authorized the issuance of an additional 400,000 shares for
services to be performed in the future. On October 19, 2007the Company issued 125,000
shares of its common stock for consulting services valued at $0.10 per share.
There remain 275,000 shares of common stock reserved for services to be
performed in the future.
 
 During
November and December 2007, 160,600 registered common stock Class A Warrants
were exercised for cash at a price of $1.00 per share. Also during December
2007, 4,636 unregistered common stock Class A Warrants were exercised for
expenses paid on the Company’s behalf at a price of $1.00 per
share.
 
 During
2008, the Company issued 1,934,334 shares of its common stock for properties
valued at an average of $1.94 per share.  Additionally, warrants for
2,179,400 shares of common stock were exercised at $1.00 per
share.  During 2008, the Company received $1,299,400 in cash for the
exercise of the warrants and carries a notes receivables balance of $880,000
under promissory notes from four non-affiliated parties.


3.           GOING
CONCERN


The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern.  However, the Company has accumulated
deficit of $718,148 as of December 31, 2008.  The Company currently
has limited liquidity, and has not completed its efforts to establish a
stabilized source of revenues sufficient to cover operating costs over an
extended period of time.
 
 Management
anticipates that the Company will be dependent, for the near future, on
additional investment capital to fund operating expenses The Company intends to
position itself so that it may be able to raise additional funds through the
capital markets. In light of management’s efforts, there are no assurances that
the Company will be successful in this or any of its endeavors or become
financially viable and continue as a going concern.


4.           COMMON STOCK PURCHASE
WARRANTS


As of
December 31, 2008, the Company has 8,660,000 “A” common stock purchase warrants
outstanding.  The exercise price of the 2,179,400 class “A” common
stock purchase warrants exercised during 2008, as further described above in
Note 2, was reduced to $1.00 per share from February 6th to
April 30th, 2008.
However, the exercise price reverted back to $3.00 per share for all unexercised
“A” common stock warrants on May 1, 2008.


5.           PROPERTY AND
EQUIPMENT


Property
and equipment are stated at cost.  Amortization is to be computed
using the units of production over the estimated production life of the assets.
Amortization expense for the years ended December 31, 2008 and 2007 amounted to
$-0- and $-0-.  Gains from losses on sales and disposals are included
in the statements of operations.  Maintenance and repairs are charged
to expense as incurred.  As of December 31, 2008 and 2007 property and
equipment consisted of the following:




F-14


CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Notes to
Financial Statements


December
31, 2008 and 2007





5.           PROPERTY AND EQUIPMENT
(CONTINUED)





2008
                
                
                2007Raw
      land in Kentucky
                
                $
                6,907,289
                
                
                $
                189,469Accumulated
      amortization
                
                
                -
                
                
                
                -Total
                
                $
                6,907,289
                
                
                $
                189,469




The
Company intends to develop the raw land as a site primarily for its coal, oil
and natural gas development activities.  The Company may also utilize
the land for raising organic foods in the event the Company decides to resume
its pursuit of such business strategy.


6.           NOTES
PAYABLE


On May
20, 2008, the Company issued an unsecured promissory note in the aggregate
principal amount of $1,000,000, on an interest free basis to finance the
purchase of a 50% membership interest in Buckhorn Resources LLC which holds land
in Kentucky. The Company has repaid $78,153 of the principal balance under the
note as of December 31, 2008, leaving an unpaid principal balance of
$921,847.
 
 On August
25, 2008, the Company issued a promissory note in the aggregate principal amount
of $500,000 to finance the purchase of 1,000 acres of land in Kentucky. The
Company has repaid $200,000 of the principal balance as of December 31, 2008,
leaving an unpaid principal balance of $300,000.  The note was
extended on October 15, 2008, with the $300,000 principal balance accruing
interest at 10% per annum, and is secured by the land and due during
2009.


7.           NOTES PAYABLE-RELATED
PARTY


During
November 2007, the Company borrowed $190,000 to finance the purchase of the land
in Kentucky. The Company has repaid $153,532 of the note payable as of December
31, 2008, leaving a balance due of $36,368. The note payable accrues interest at
6% per annum is unsecured and due upon demand.
 
 During
2008, the Company borrowed $740,155 to finance the purchase of the land in
Kentucky from an officer and director. The note payable accrues interest at 6%
per annum are unsecured and due upon demand.


8.           S.F.A.S. 69 SUPPLEMENTAL
DISCLOSURES-UNAUDITED




(1)        Capitalized
Costs Relating to Oil and Gas Producing Activities:





December
      31,
                  2008Proved
      oil and gas producing properties andrelated
      lease well equipment
                
                $
                -Unproved
      oil and gas properties
                
                
                -Accumulated
      depreciation and depletion
                
                
                -Net
      Capitalized Costs
                
                $
                -





F-15


CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Notes to
Financial Statements


December
31, 2008 and 2007







8.           S.F.A.S. 69 SUPPLEMENTAL
DISCLOSURES-UNAUDITED (CONTINUED)




(2)       Costs
Incurred in Oil and Gas Property Acquisition, Exploration, and Development
Activities:





December
      31,
                  2008Acquisition
      of propertiesProved
                
                $
                -Unproved
                
                
                -Exploration
      Costs
                
                
                -Development
      Costs
                
                
                -





The
Company does not have any investments accounted for by the equity
method.





(3)      Results
of Operations for Producing Activities:





December
      31,
                  2008Sales
                
                $
                -Production
      costs
                
                
                -Depreciation
      and depletion
                
                
                -Income
      tax expense
                
                
                -Results
      of operations for producing activities
                  (excluding
      the activities of the pipeline transmission
                  operations,
      corporate overhead and interest costs)
                
                $
                -





(4)     Reserve
Quantity Information





Oil
                  BBL
                
                
                Gas
                  CFInception
                
                
                -
                
                
                
                -Revisions
      of previous estimates
                  for
      improved recovery
                
                
                -
                
                
                
                -December
      31, 2007
                
                
                -
                
                
                
                -





Proved
developed reserves:





Oil
                  BBL
                
                
                Gas
                  CFDecember
      31, 2008
                
                
                -
                
                
                
                -





During
the period ended December 31, 2008, the Company did not perform reserve studies
and estimates on its various properties.  The difficulties and
uncertainties involved in estimating proved oil and gas reserves makes
comparisons between companies difficult.  Estimation of reserve
quantities is subject to wide fluctuations because it is dependent on judgmental
interpretation of geological and geophysical data.






F-16


CONSOLIDATION
SERVICES, INC.


(A
Development Stage Company)


Notes to
Financial Statements


December
31, 2008 and 2007







8.           S.F.A.S. 69 SUPPLEMENTAL
DISCLOSURES-UNAUDITED (CONTINUED)




(5)            Standardized
Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas
Reserves





December
      31,
                  2008Future
      cash flows
                
                $
                -Future
      production, development costs and
                  income
      tax expense
                
                
                -Future
      net cash flows
                
                
                -Discounted
      for estimated timing of cash flows
                
                
                -Standardized
      measure of discounted future net
                  cash
      flows
                
                $
                -





Future
income taxes were determined by applying the statutory income tax rate to future
pre-tax net cash flow relating to proved reserves.





The
following schedule summarizes changes in the standardized measure of discounted
future net cash flow relating to proved oil and gas reserves:





December
      31,
                  2008Standardized
      measure, beginning of period
                
                $
                -Oil
      and gas sales, net of production costs
                
                
                -Sales
      of mineral in place
                
                
                -Purchases
                
                
                -Net
      change due to revisions in quantity estimates
                
                
                -Accretion
      of discount items
                
                
                -Standardized
      measure, end of period
                
                $
                -





The above
schedules relating to proved oil and gas reserves, standardized measure of
discounted future net cash flows and changes in the standardized measure of
discounted future net cash flows have their foundation in engineering estimates
of future net revenues that are derived from proved reserves and prepared using
the prevailing economic conditions. These reserve estimates are made from
evaluations conducted by independent geologists, of such properties and will be
periodically reviewed based upon updated geological and production
data.  Estimates of proved reserves are inherently
imprecise.  The above standardized measure does not include any
restoration costs due to the fact the Company does not own the
land.











F-17


INDEX
TO EXHIBITS





Exhibit
              Number
            
            Description3.1
            
            Articles
      of Incorporation of the registrant(1)3.2
            
            By-Laws
      of the registrant(1)4.1
            
            Form
      of Class A Common Stock Purchase Warrant(1)4.2
            
            Form
      of Class B Common Stock Purchase Warrant(2)4.3
            
            Form
      of Class C Common Stock Purchase Warrant(2)4.4
            
            Form
      of Subscription Agreement, dated February 9, 2007(2)10.1
            
            Real
      Estate Sale and Purchase Agreement, dated January 8, 2008, between Larry
      Bruce Herald and Consolidation Services, Inc.(5)10.2
            
            Agreement
      to Assign Real Estate Purchase Option, dated January 8,
      2008.(5)10.3
            
            Property
      Agreement, by and among Consolidation Services, Inc. and Billy David
      Altizer, Pat E. Mitchell, Howard Prevette, William Dale Harris and
      Buckhorn Resources LLC effective March 20, 2008 and entered  into on
      March 27, 2008(3)10.4
            
            Option
      Oil, Gas and Mineral Agreement, dated as of March 31, 2008, by and among
      Consolidation Services, Inc. and Eastern Kentucky Land Corporation (the
      “EK Option Agreement”), with the Oil, Gas and Mineral Agreement, dated as
      of March 29, 2008, by and among Consolidation Services, Inc. and Eastern
      Kentucky Land Corporation (the “Rights Agreement”), attached as Exhibit A
      to the Option Agreement.(4)10.5
            
            Extension
      of Real Estate Option to Purchase Agreement, dated June 13, 2008, between
      the Company and Larry Bruce Herald.(5)10.6
            
            Stock
      Purchase Agreement (“Agreement”) is entered into as of July 1, 2008, by
      and among Vector Energy Services, Inc., John C. Francis, and Consolidation
      Services, Inc.(6)10.7
            
            Development
      Agreement, dated August 26, 2008, between Consolidation Services, Inc. and
      AMS Development, LLC.(7)10.8
            
            Form
      of Promissory Note, dated August 25, 2008, made by Consolidation Services,
      Inc. to Larry Bruce Herald.(7)10.9
            
            Form
      of Mortgage, dated August 25, 2008, between Consolidation Services, Inc.
      and Larry Bruce Herald.(7)10.10
            
            LeeCo
      Agreement, entered into as of September 11, 2008, by and among
      Consolidation Services, Inc., Altizer, Mitchell, and LeeCo Development,
      LLC.(8)*21.1
            
            Subsidiaries
      of Registrant*31.1
            
            Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule
      15d-14(a) of the Securities and Exchange Act of 1934, as amended, 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) of the Securities and Exchange Act of 1934, as amended, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.*32.1
            
            Certification
      of the Chief Executive Officer pursuant to Rule 13a-14(b) or Rule
      15d-14(b) of the Securities and Exchange Act of 1934, as amended, and 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 Rule 13a-14(b) or Rule
      15d-14(b) of the Securities and Exchange Act of 1934, as amended, and 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 8-K
filed with the Commission on March 31, 2008.


(4)
 Incorporated by reference to the Company's Current Report on Form 8-K
filed with the Commission on April 2, 2008.


(5)
 Incorporated by reference to the Company's Current Report on Form
8-K/Amendment No. 1 filed with the Commission on June 30, 2008.


(6)  Incorporated
by reference to the Company's Current Report on Form 10-Q for the quarterly
period ended June 30, 2008, filed with the Securities and Exchange Commission on
August 1, 2008.


(7)
Incorporated by reference to the Company's Current Report on Form 8-K filed with
the Commission on August 28, 2008.


(8)
Incorporated by reference to the Company's Current Report on Form 8-K filed with
the Commission on September 17, 2008.









72


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.





Consolidation
      Services, Inc.March
      25, 2009
                  By:
                  /s/    /s/ Johnny R.
      ThomasJohnny
      R. ThomasChief
      Executive Officer






Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:






Signature
                  Title
                  Date/s/ Johnny R. Thomas
                    Johnny
      R. Thomas
                  Chairman
      of the Board, President andChief
      Executive Officer (Principal Executive Officer)
                  March
      25, 2009/s/ John C. Francis
                    John
      C. Francis
                  Vice
      President, Chief Financial Officer(Principal
      Financial and Accounting Officer), Secretary/Treasurer and
      Director
                  March
      25, 2009








73