Summary of CONSOLIDATION SERVICES INC

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

Forward-Looking Statements

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

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 our annual report on Form 10-K, filed with the SEC on March 25, 2009, in view of the current economic climate and our obligation to maximize value for our stockholders, our primary business focus changed 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. However, as of the date of this report, the Company has not commenced mining activities or entered into leases with any coal mine operators and there can be no assurance that we will be able to enter into leases with coal operators. The Company is currently in the final stages of discussions with one or more potential coal lessees regarding its properties located in eastern Kentucky and anticipates that it will be able to enter into a lease with one or more such party in the near future.

Material Changes in Results of Operations For the Three Month Period Ended June 30, 2009 As Compared to the Three Month Period Ended June 30, 2008.

Revenues. We did not have any revenues during the three month period ended June 30, 2009, representing no change from the corresponding three month period ended June 30, 2008. Since inception on January 26, 2007, we have received total revenues of $17,419.

Operating expenses. Total general and administrative expenses for the second quarter of 2009 were $201,720, compared to $67,590 for the comparable period in 2008. The increase in expenses in the second quarter of 2009 was due primarily to the expenses incurred in connection with mining permit applications, accrued officer's salaries, title research and negotiating leases with potential coal lessees during this period. The only other expense incurred for the three months ended June 30, 2009 was interest expense of $18,364, as offset by $17,730 from the Company's non-controlling interest in Buckhorn.

Net loss. Net loss was $202,354 or ($0.01) per share for the three months ended June 30, 2009, as compared to $67,524 or ($0.01) per share for the three months ended June 30, 2008, reflecting the impact of costs incurred relating primarily to general and administrative expenses, as well as interest expenses.

Material Changes in Results of Operations For the Six Month Period Ended June 30, 2009 As Compared to the Six Month Period Ended June 30, 2008.

Revenues. The Company received revenues of $4,266 during the six months ended June 30, 2009 from partial timber removal on our Owsley property, all of which was received during the quarter ended March 31, 2009. The Company did not receive any revenues during the six month period ended June 30, 2008.

Operating expenses. We incurred general and administrative expenses of $329,899, for the six months ended June 30, 2009, which expenses are comprised primarily of reporting expenses, professional fees and expenses incurred in mining permit applications, accrued officer's salaries, title research and negotiating leases with potential coal lessees during this period, as expenses rapidly increased during this period of organic development for the Company. The only other material expense incurred for the six months ended June 30, 2009 was interest expense of $37,992, as offset by $18,771 from the Company's non-controlling interest in Buckhorn. For the six month period ended June 30, 2008, the Company's only material expenses were general and administrative expenses of $95,551, which were comprised primarily of SEC and state "Blue Sky" filing fees, professional fees and expenses.

Net loss. Net loss was $344,854 or ($0.02) per share for the six months ended June 30, 2009, reflecting the impact of general and administrative costs and interest expenses incurred during such period. Net loss was $95,485 or ($0.01) per share for the six month period ended June 30, 2008, reflecting the impact of organizational, reporting, and compliance costs incurred, as well as minor amounts in connection with the Company's non-controlling interest in Buckhorn.

Material Changes in Financial Condition; Liquidity and Capital Resources as of June 30, 2009 As Compared to December 31, 2008.

The Company had cash of $5,754 and a working capital deficit of $2,732,970 at June 30, 2009. We also had an accumulated deficit of $1,063,002 as of June 30, 2009. In comparison, at December 31, 2008 the Company's cash position was $83,099 which was mainly due to proceeds from the issuance of Company securities. We had a working capital deficit of $2,268,682 at December 31, 2008 and an accumulated deficit of $718,148. The increase in the Company's working capital deficit and accumulated deficit over the reported period are primarily the result of notable increases in accounts payable and accrued expenses by $232,208 and an increase in notes payable to related parties of $424,001, despite a decrease of $269,266 in notes payable to unrelated parties.

The Company had a net decrease in cash of $77,345 for the six month period ended June 30, 2009, compared with a net increase in cash of $69,487 during the same period last year. The difference is the result of a modest increase in cash used in operating activities and a significant decrease in investing activities during the six month period ended June 30, 2009, respectively, as offset by significantly lower cash flow from financing activities as compared to the six month period ended June 30, 2008, as described hereinafter.

Net cash used in operating activities was $131,417 for the six month period ended June 30, 2009, which was attributable to our net loss of $344,854 and as adjusted for a $18,771 loss from the Company's non-controlling interest in its Buckhorn subsidiary, which was offset in part, by a significant increase in accounts payable of $232,208. Net cash used in operating activities was $110,913 for the six month period ended June 30, 2008, which was attributing primarily to a net loss of $95,485 and reductions in prepaid expenses of $40,769, as offset by an increase in accounts payable of $5,407 and as adjusted for $20,000 in common stock and warrants issued for services.

Net cash used in investing activities significantly decreased to $109,663 during the six month period ended June 30, 2009, which amounts were used to purchase property and equipment in connection with preparing to mine the Company's properties. During the six month period ended June 30, 2008, $640,000 in cash was used in investing activities in connection with the purchase of property and equipment in furtherance of the Company's business objectives.

Net cash provided by financing activities was $163,735 for the six month period ended June 30, 2009, which was attributable to the repayment of $293,266 in loans payable as offset by the receipt of (i) $448,001 in the aggregate from loans payable under twelve promissory notes from the Company to Johnny Thomas or his designees with interest at 6% per annum, payable upon demand, and (ii) $9,000 in cash payments due under the promissory notes issued in connection with the Second Warrant Reduction. During the six month period ended June 30, 2008, net cash provided by financing activities was $820,400, resulting primarily from the receipt of $863,400 from the exercise of warrants and $23,000 in proceeds from loans payable from related parties as offset by the repayment of $66,000 in loans payable to related parties. The Company continues to seek related party or asset based financing in order to meet outstanding obligations and for working capital purposes, of which there are no assurances such financing will be available. However, in the event that the Company is able to generate significant royalty revenues from its prospective coal operations, management anticipates that it will not need to rely as heavily, if at all, on such asset based or related party financing arrangements.

In terms of liquidity and capital resources, management anticipates that it will continue harvesting timber from the Company's properties over the next twelve months, in addition to the anticipated commencement of royalty revenues from our coal bearing properties during the period between August and October, 2009, should we be successful in finalizing our current discussions with a potential coal lessee and entering into a lease, for which there is no assurance will occur or that we will receive coal royalties in economically feasible amounts or at all.

In terms of related material changes, commitments, demands, events or trends regarding the Company, of the $2,179,400 due to the Company in connection with the exercise 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, $871,000 remained due under promissory notes payable to the Company by four non-affiliated parties as of June 30, 2009, reflecting $9,000 in cash payments made during the first quarter of 2009, which reduced the principal balance from $880,000 as of the year ended December 31, 2008. No cash payments on the notes were made during the quarter ended June 30, 2009. The aforementioned promissory notes were due and payable on or before August 15, 2008, however, were extended most recently from June 30, 2009 to September 30, 2009 by resolution of the Company's board of directors, dated June 30, 2009.

As previously reported in the Company's Current Report on Form 8-K, filed with the SEC on August 28, 2008, the Company issued a promissory note in the aggregate principal amount of $500,000 to finance the purchase of the Owsley Property, which consists of approximately 1,000 acres of land in Kentucky. The note was originally due and payable in full on or before October 15, 2008, however, the note was extended a number of times by the parties. The Company made principal payments of $200,000 and $150,000, plus interest, on November 7, 2008 and January 15, 2009, respectively, in accordance with the terms of various extensions of the note, leaving a final payment of $150,000, plus interest, due on May 15, 2009. By agreement entered into between the Company and Larry Bruce Herald on May 27, 2009, filed herewith as Exhibit 10.1, Herald agreed to accept $15,000 upon execution of such agreement and to further extend payment due as of June 30, 2009, on the remaining balance of $135,000, plus interest at 10% per annum, to July 15, 2009. As of the date of this report, the Company has not repaid any of the $135,000 plus interest due under such extension.

On May 5, 2009, the Company's board of directors approved salaries for Johnny R. Thomas and John C. Francis of $12,000 per month, commencing on April 1, 2009, until changed by the board or by employment agreements. Such monthly salaries will be accrued until the Company has the funds available to pay the officers.

On or about June 25, 2009, each of the agreements between the Company and AMS Development LLC, dated August 26, 2008 (with respect to 200,000 shares); Buckhorn Resources, LLC, dated March 20, 2008 (with respect to 1,093,750 shares); and LeeCo Development, LLC, dated June 19, 2008 (with respect to 225,000 shares), each of which are filed herewith as Exhibits 10.2, 10.3, and 10.4, respectively, were amended to modify the Company's guarantee obligations and lock-up/leak-out terms regarding the restricted shares of common stock issued as consideration under such agreements and to provide for the Company's ability to repurchase such shares. Under the original agreements as previously reported, the respective parties would have become eligible to begin selling their respective weekly quotas of shares on the public markets commencing on July 1, 2009 (or with respect to shares sold pursuant to exemptions from registration under federal and state securities laws from October 27, 2008 and for fifty weeks thereafter for AMS

Development, LLC; from April 1, 2009 through April 1, 2010 for Buckhorn Resources, LLC; and from January 1, 2009 through December 31, 2009 for LeeCo Development, LLC), and if such shares were sold below the guaranteed price per share ($1.92 per share for Buckhorn agreement and $2.00 per share for each of the AMS and LeeCo agreements) which is higher than the current market price for the Company's public stock, at a bid and asked price of $0.48 and $1.15 per share, respectively, on July 31, 2009, the Company would have to pay the difference between such guaranteed price per share and the sale price. Citing the current economic situation, lack of liquidity in the Company stock and the inability to meet certain revenue milestones from underlying properties, the Company and the respective parties agreed to modify these agreements to provide for the stockholders' ability to sell their pro-rata portion of such shares to the Company in private transactions, as opposed to on the open market, at the price per share provided by the guarantee and the Company would repurchase such shares on a monthly basis using twenty-five percent (25%) of revenue received in connection with the underlying properties, with such repurchases being permitted to commence prior to July 1, 2009. In the event the Company's publicly traded stock closed above $2.25 per share for fifteen consecutive trading days immediately prior to such month's scheduled repurchase, the stockholders could elect to sell that month's quota in the public markets instead of through the repurchase plan. As of the date of this report, the Company has not commenced any repurchases of stock under the aforementioned amended agreements and has not engaged a coal mining operator to commence activities on any of the Company's owned or leased properties and the only revenues received have been from timber removal.

As previously reported, pursuant to that certain Rights Agreement between the Company and Eastern Kentucky Land Corporation ("EK") effective September 22, 2008 (the "Rights Agreement"), whereby the Company acquired all right, title and interest in oil, gas and other minerals that may exist on the Buckhorn property, the Company guaranteed the price of $1.925 per share for 415,584 shares in connection with a portion of the purchase price of the Rights Agreement. Under the lock up terms of the Rights Agreement EK, which received the 415,584 restricted shares, is eligible 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 pursuant to 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. If such shares are sold below the guaranteed price per share of $1.925 per share, which is higher than the current market price for the Company's public stock at a bid and asked price of $0.48 and $1.15 per share, respectively, on July 31, 2009, the Company will be liable to pay the difference between such guaranteed price per share and the sale price. As of the date of this report, Management has not yet renegotiated this obligation or entered into an amendment with respect to such lock-up/leak out terms, and as such, the Company's guarantee obligations under the Rights Agreement may be triggered at any time through the sale of such restricted shares by EK in accordance with securities laws.

We anticipate that the Company will need additional capital within the next twelve months of up to approximately $3,000,000 to cover ongoing operating expenses, current liabilities, and other expenses. 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 and our financial statements for the six months ended June 30, 2009 address this in Note 2.

The Company's future liquidity and cash requirements will depend on a wide range of factors, including the ability to generate revenues from the development of energy resources that may exist on or under the Company's land, as well as the Company's ability to utilize financing sources (including debt or equity financing) and borrow funds. 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 and we are unable to generate significant revenues from operations, 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.

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 nominal 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 advances from related parties, asset backed lending, borrowing, or financings from the issuance or exercise of its securities to mitigate the effects of its cash position, however no assurance can be given that such sources of financing, if and when required, will be available on terms that are favorable to the Company or at all. 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 in existence.

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 its 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 the six months ended June 30, 2009, 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.