Summary of CONSOLIDATION SERVICES INC

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

CNSV was formed on January 26, 2007 to engage in the development of energy-related assets. Until January 1, 2010, the Company sought to generate revenues from our coal related operations and through the harvesting of timber.

On January 1, 2010, the Board of Directors of CNSV approved the separation of the Company's existing energy business into two independent businesses. The Company has discontinued its coal mining operations and transferred its coal assets and liabilities owned as of January 1, 2010 to Colt, with its oil and gas assets (but none of its liabilities) remaining with the Company.

The Board believes that it is in the best interest of the Company to divide certain assets and liabilities of the Company into two separate legal entities, as doing so will serve an important business purpose in that it will facilitate the ability of the separate entities to more readily manage, obtain access to capital and bank lending, facilitate staffing and employment, as well as certain other business decisions, given the substantial differences in the business focuses represented by such assets and liabilities.

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 and ceased being a shell company.

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 $1,200,000, in the aggregate, from various affiliated entities and the receipt of approximately $1,500,000 from the exercise of warrants, 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 the year ended December 31, 2009, the Company realized revenues of $238,979 primarily from the receipt of undisputed coal royalties and to a small degree from the sale of timber. All revenues were from discontinued operations attributable to the spin-off of Colt and no longer appear on the Company's financial statements as part of its income (loss) from continuing 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.

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 since inception. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. In order to continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, additional capital resources and to develop a consistent source of revenues. Management's plans include investing in and developing potential energy resources that may exist on or under the Company's properties in eastern Kentucky. Management intends to use, asset backed lending, borrowing, or equity 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. 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.

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 and 2009, the Company realized other revenues from the sale of timber grown on its property. During 2009, the Company's primary source of revenues was from undisputed coal royalties. All of the Company's revenues to date have been reclassified as discontinued operations.

Stock Based Compensation Expense

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. 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 CNSV (exclusive of any of its subsidiaries) does not pay dividends and have no current plans to do so in the future. We will update these assumptions if changes are warranted.

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.

Income Taxes

The Company provides for income taxes using 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. 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.

Results of Operations

Revenues. During the year ended December 31, 2009 ("Fiscal 2009") the Company had revenues of $238,979, which was primarily from undisputed coal royalties and to a small degree from the sale of timber. The Company received its initial revenues during the year ended December 31, 2008 ("Fiscal 2008"), consisting of $13,153 from partial timber removal on our properties. All of these revenues were reclassified as discontinued operations as of December 31, 2009.

Operating expenses. During 2009, we had operating expenses of $573,273 from discontinued operations and $121,114 from continuing operations. The expenses from discontinued operations related primarily to regulatory financial reporting, professional fees and expenses incurred in connection with mining patent applications, and the research and regulatory leases with potential coal lessees. Continuing operation expenses consisted primarily of regulatory filings, consulting agreements, and legal and accounting fees. During 2008, we incurred operating expenses of $413,717 from discontinued operations, which expenses are comprised primarily of reporting expenses, professional fees and non-capitalizable expenses incurred in connection with the Company's land acquisitions. A large part of the Company's operating expenses for 2008 from discontinued operations which were transferred to Colt are reflected in the significant accounts payable and accrued expense, which consisted of balances due in legal fees and consulting fees, balances due for travel, and property tax payments, among other items.

Liquidity and Capital Resources

The Company has a limited commercial operating history, and has limited revenues or earnings from operations to date. Pursuant to the terms of the Spin-Off Agreement, as of January 1, 2010, all of the Company's assets, except for oil and natural gas interests, were transferred to Colt, a wholly-owned subsidiary which was then spun-off as a separate company. As a result of the discontinued coal operations, the Company had no cash, current assets or working capital as of December 31, 2009 for its continuing operations. The Company had an accumulated deficit of $1,351,957 on our balance sheet as of December 31, 2009.

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. Additionally, during the year ended December 31, 2008, the Company received a stock subscription for $2,179,400 for 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. As of December 31, 2009, $1,308,400 of the exercise price of the $2,179,400 stock subscription receivable had been paid to the Company as follows: (i) cash ($1,265,400) and (ii), debt reduction ($43,000). At December 31, 2009, $871,000 is due to the Company by four non-affiliated parties. The aforementioned stock subscriptions were originally due and payable on or before August 15, 2008, however, were extended to March 31, 2010 by the Company's board of directors. Pursuant to the terms of the Spin-Off Agreement, the Company's stock subscriptions receivable were transferred to Colt.

In 2009, the Company issued 117,000 shares of common stock valued at $0.75 per share for cash of $87,750. The Company also issued 52,500 shares of common stock valued at $1.10 per share for services valued at $57,750. During 2009, the Company repurchased a total of 6,250 shares of common stock at $1.92 per share for a total cash outlay of $12,000. These shares were immediately retired. As of December 31, 2009, all common stock purchase warrants expired. No warrants were exercised during the year ended December 31, 2009.

Net cash used in continuing operating activities during 2009 was $63,364 primarily as a result of a net loss of $597,396 offset, in part, by $57,750 received from common stock and warrants issued for services and $476,282 from the loss from discontinued operations. During 2008, net cash used in continuing operating activities was $70,049 primarily as a result of a net loss of $543,012 offset, in part, by net cash, provided by discontinued operating activities of $452,963 and $20,000 provided by the issuance of Common Stock upon exercise of warrants in payment of services provided by a non-affiliated third party.

During 2009, we had $140,907 net cash used in discontinued investing activities for the purchase of coal related assets compared with net cash used in investing activities of $2,117,820 in 2008 primarily as a result of $1,248,994 used in investing activities from discontinued operations for the purchase of coal related assets and $868,826 for the purchase of oil and gas reserves from investing activities of continuing operations.

During 2009, we had net cash provided by financing activities of $204,271 primarily provided by $119,521 of financing activities of discontinued operations and $87,750 of financing activities of continued operations as compared with $2,187,869 during 2008, including $908,469 provided by discontinued operations. Net cash from financing activities during 2009 included $87,750 proceeds from the common stock and warrants issued. Net cash from financing activities during 2008 represented an aggregate of $1,279,400 in proceeds from the issuance of common stock and warrants.

The Company had no change in cash as a result of the reclassification of cash to discontinued operations for 2009 and 2008.

We need additional capital to cover ongoing operating expenses. The Company's limited revenues and losses from operations since inception raise substantial doubt about the Company's ability to continue as a going concern. 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.

Plan of Operations

Since January 1, 2010, the Company has been engaged solely in the acquisition of oil and gas mineral rights in Kentucky and Tennessee. The Company's business strategy is to acquire oil and gas properties in exchange for the Company's restricted common stock to increase long-term value. The Company currently owns oil and gas mineral rights on approximately 12,000 acres in Eastern Kentucky which it intends to develop.

At this stage, our activities have been limited to pursuing our strategy to use restricted common stock in exchange for existing producing oil and gas properties, projects and partnerships that have existing oil and gas reserves. There can be no assurance at this stage that the Company will acquire producing oil and gas assets using restricted common stock now or in the future, or that we will have access to cash to acquire other oil and gas interests. If we are unable to acquire assets using our Common Stock, we intend to leverage our existing assets, as well as seek to raise capital though the sale of equity and/or debt securities. Our ultimate success will depend on our ability to acquire assets and raise additional capital on a timely basis in order to take advantage of opportunities which become available to us. In any event, there can be no assurance that we will be able to develop oil and gas assets which may exist on our properties in economically feasible quantities, if at all, or that such potential assets can be extracted.

On March 2, 2010, CNSV entered into a letter of intent to acquire an interest in fifteen (15) oil and gas wells located in Kentucky (the "Kentucky Assets"). The proposed purchase price, all in the form of CNSV Common Stock, shall be equal to the investor's cash contributions to the seller and thus represent the cost basis of the Kentucky Assets being acquired. CNSV shall realize any operating profit or loss from operations after the closing date. The Kentucky Assets will be sold to CNSV free and clear of all liens, claims and encumbrances and CNSV will not assume any liabilities of the seller. The closing of the transaction is subject to completion of due diligence, negotiation and execution of a definitive asset purchase agreement, regulatory filings and approvals, third party consents and other customary closing conditions.

On March 8, 2010, CNSV entered into a letter of intent to acquire an interest in thirteen (13) oil and gas wells in Tennessee (the "Tennessee Assets"). The proposed purchase price, all in the form of CNSV Common Stock will represent the cost basis of the acquired Tennessee Assets. The Tennessee Assets will be sold to CNSV free and clear of all liens, claims encumbrances and CNSV will not assume any liabilities of the seller. The closing is subject to completion of due diligence, execution of definitive asset purchase agreements, delivery of audited financial information concerning the seller, mutual agreement on the management of the drilling funds for some minimum time, satisfaction of all licensing requirements and all regulatory approvals required to complete the acquisition, all third party consents and other customary closing conditions.