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EX-32.1 - WebXU, Inc.cst10q3312011x321_592011.htm
EX-31.1 - WebXU, Inc.cst10q3312011x311_592011.htm
 

 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended   March 31, 2011

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

Commission File No. 000-53095

CST HOLDING CORP.
 (Exact Name of Registrant as specified in its charter)


Colorado
26-0460511
(State or other jurisdiction
(IRS Employer File Number)
of incorporation)
 

   
7060 B. South Tucson Way
 
Centennial, Colorado
80112
(Address of principal executive offices)
(zip code)

303-617-7531
 (Registrant's telephone number, including area code)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(Section 232.405 of this chapter) during the preceding 12 months(or such shorter period that the registrant was required to submit and post such files. Yes []  No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer []
Accelerated filer []
Non-accelerated filer [] (Do not check if a smaller reporting company)
Smaller reporting company  [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes [ ]    No [X]

The number of shares outstanding of the Registrant's common stock, as of the latest practicable date, March 31, 2011, was 9,696,000.

 
 

 

FORM 10-Q

CST Holding Corp.

TABLE OF CONTENTS


PART I  FINANCIAL INFORMATION
 
 
Item 1. Consolidated Financial Statements for the period ended March 31, 2011
 
         Balance Sheet (Unaudited)
  5
         Statements of Operations (Unaudited)
  6
         Statements of Cash Flows (Unaudited)
  7
         Notes to Financial Statements
  9
   
Item 2. Management’s Discussion and Analysis and Plan of Operation
  11
Item 3. Quantitative and Qualitative Disclosures About Market Risk
  15
Item 4. Controls and Procedures
  15
Item 4T. Controls and Procedures
  15
   
PART II  OTHER INFORMATION
 
  Item 1. Legal Proceedings
  15
  Item 1A. Risk Factors   15
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  25
  Item 3. Defaults Upon Senior Securities
  25
  Item 4. Submission of Matters to a Vote of Security Holders
  25
  Item 5. Other Information
  26
  Item 6. Exhibits
  26
   
Signatures
  26
   
 

 
- 2 -

 

PART I  FINANCIAL INFORMATION

References in this document to "us," "we," or "Company" refer to CST Holding Corp. and our wholly-owned subsidiary, CST Oil & Gas Corporation.

ITEM 1.  FINANCIAL STATEMENTS



 
 


 

CST HOLDING CORP.

CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Quarter Ended March 31, 2011
 







 
- 3 -

 



CST HOLDING CORP.
Consolidated Financial Statements
(Unaudited)


TABLE OF CONTENTS


 
Page
   
CONSOLIDATED FINANCIAL STATEMENTS
 
   
Consolidated balance sheets
5
Consolidated statements of operation
6
Consolidated statements of cash flows                                                                           
7
Notes to consolidated financial statements
9






 
- 4 -

 

CST HOLDING CORP.
CONSOLIDATED BALANCE SHEETS

         
 
 
   
Dec. 31, 2010
   
Mar. 31, 2011
(Unaudited)
 
             
ASSETS
           
             
Current assets
           
      Cash
  $ 5,711     $ 6,795  
      Accounts receivable - related party (net)
    24,350       131,381  
             Total current assets
    30,061       138,176  
                 
      Fixed assets
    240,078       260,078  
          Accumulated depreciation
    (41,983 )     (53,270 )
 
    198,095       206,808  
                 
Total Assets
  $ 228,156     $ 344,984  
                 
                 
LIABILITIES & STOCKHOLDERS' EQUITY
               
                 
Current liabilities
               
      Accounts payable
  $ 11,068     $ 67,346  
      Related party payables
    42,529       20,000  
      Deferred income tax liability
    32,310       31,597  
      Other
    5,265       5,265  
             Total current liabilties
    91,172       124,208  
                 
Total Liabilities
    91,172       124,208  
                 
Stockholders' Equity
               
      Preferred stock, $.10 par value;
               
          1,000,000 shares authorized; none issued
               
          and outstanding
    -       -  
      Common stock, $.001 par value;
               
          50,000,000 shares authorized;
               
         9,696,000 shares issued
               
         and outstanding
    9,696       9,696  
      Additional paid in capital
    90,489       90,489  
      Retained earnings (deficit)
    36,799       120,591  
                 
Total Stockholders' Equity
    136,984       220,776  
                 
Total Liabilities and Stockholders' Equity
  $ 228,156     $ 344,984  


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


 
- 5 -

 


CST HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
Three Months
   
Three Months
 
   
Ended
   
Ended
 
   
Mar. 31, 2010
   
Mar. 31, 2011
 
             
             
Sales (net of returns) - related party
  $ 294,528     $ 387,562  
Cost of goods sold
    7,500       150,421  
                 
Gross profit
    287,028       237,141  
                 
Operating expenses:
               
     Depreciation
    3,695       11,287  
     General and administrative
    207,795       127,275  
      211,490       138,562  
                 
Income (loss) from operations
    75,538       98,579  
                 
Other income (expense):
               
     Other income
    7,638       -  
      7,638       -  
                 
Income (loss) before
               
     provision for income taxes
    83,176       98,579  
                 
Provision for income tax
    16,635       14,787  
                 
Net income (loss)
  $ 66,541     $ 83,792  
                 
Net income (loss) per share
               
(Basic and fully diluted)
  $ 0.01     $ 0.01  
                 
Weighted average number of
               
common shares outstanding
    9,696,000       9,696,000  


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


 
- 6 -

 


CST HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Ended
   
Ended
 
   
Mar. 31, 2010
   
Mar. 31, 2011
 
             
Cash Flows From Operating Activities:
           
     Net income (loss)
  $ 66,541     $ 83,792  
 
               
     Adjustments to reconcile net loss to
               
     net cash provided by (used for)
               
     operating activities:
               
          Depreciation
    3,695       11,287  
          Accounts receivable
    (75,428 )     (107,031 )
          Prepaid expenses
    (7,014 )     -  
          Accrued payables
    -       33,036  
               Net cash provided by (used for)
               
               operating activities
    (12,206 )     21,084  
                 
                 
Cash Flows From Investing Activities:
               
     Fixed assets
    (22,388 )     (20,000 )
               Net cash provided by (used for)
               
               investing activities
    (22,388 )     (20,000 )


(Continued On Following Page)

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


 
- 7 -

 


CST HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(Continued From Previous Page)

   
Three Months
   
Three Months
 
   
Ended
   
Ended
 
   
Mar. 31, 2010
   
Mar. 31, 2011
 
             
Cash Flows From Financing Activities:
           
     Sale of common stock
    -       -  
     Distributions
    -       -  
               Net cash provided by (used for)
               
               financing activities
    -       -  
                 
Net Increase (Decrease) In Cash
    (34,594 )     1,084  
                 
Cash At The Beginning Of The Period
    38,563       5,711  
                 
Cash At The End Of The Period
  $ 3,969     $ 6,795  
                 
                 
Schedule Of Non-Cash Investing And Financing Activities
               
                 
None
               
                 
                 
Supplemental Disclosure
               
                 
Cash paid for interest
  $ -     $ -  
Cash paid for income taxes
  $ -     $ -  

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


 
- 8 -

 

CST HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CST Oil and Gas Corporation was incorporated in the State of Colorado on May 8, 1985. The Company sells oil and gas field workover services. The Company may also engage in any other business that is permitted by law, as designated by the Board of Directors of the Company.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of Whistlepig Enterprises, Inc. and its wholly owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim periods are not necessarily indicative of operations for a full year.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents.

Accounts receivable

The Company reviews accounts receivable periodically for collectability and establishes an allowance for doubtful accounts and records bad debt expense when deemed necessary.

Property and equipment

Property and equipment are recorded at cost and depreciated under accelerated methods over each item's estimated useful life.

Revenue recognition

Revenue is recognized on an accrual basis after services have been performed under contract terms, the event price to the client is fixed or determinable, and collectability is reasonably assured.


 
- 9 -

 


CST HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 

 

NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
 
Use of Estimates

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

Income tax

The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Net income (loss) per share

The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company's preferred stock (if any), are not included in the computation if the effect would be anti-dilutive and would increase the earnings or decrease loss per share.

Financial Instruments

The carrying value of the Company’s financial instruments, including cash and cash equivalents and accrued payables, as reported in the accompanying balance sheet, approximates fair value.
 

 
- 10 -

 

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and notes thereto included in, Item 1 in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements.

Forward-Looking Statements
 
This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements. Such forward-looking statements are based on current expectations, estimates, and projections about our industry, management beliefs, and certain assumptions made by our management.  Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, variations of such words, and similar expressions are intended to identify such forward-looking statements.  These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements.  Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.  However, readers should carefully review the risk factors set forth herein and in other reports and documents that we file from time to time with the Securities and Exchange Commission, particularly the Annual Reports on Form 10-K, Quarterly reports on Form 10-Q and any Current Reports on Form 8-K.
 
Overview and History
 
We were incorporated as a Colorado corporation on May 30, 2007. From 2007 to 2009, our business was to act as a consultant in the development of equestrian facilities throughout the United States, but particularly in the West.

On September 30, 2009, we acquired CST Oil & Gas Corporation, a Colorado corporation, (“CST”) through a Share Exchange agreement (the “Share Exchange Agreement”) whereby the shareholders of CST exchanged all of their common stock for our common shares (the “Share Exchange”).  In connection with the Share Exchange, the stockholders of CST exchanged all of their CST stock for a total of 8,000,000 shares of our common stock.  Immediately prior to the Share Exchange, certain of our existing shareholders tendered a total of 8,000,000 shares of our common stock to us for cancellation, leaving 1,696,000 issued and outstanding common shares.  As a result, following the Share Exchange we had 9,696,000 shares of its common stock issued and outstanding, of which approximately  84.6% were held by the former shareholders of CST. Following the closing of the Share Exchange, our name was changed to CST Holding Corp. on January 25, 2010.

CST Oil & Gas Corporation, a Colorado corporation was formed on May 8, 1985 to engage in the oil and gas business. CST Oil & Gas Corporation had been a private company since its formation and has carried on active operations in the oil and gas business. With the Share Exchange, we have succeeded to its operations. Currently, our focus is to provide well servicing and roustabout services to the petroleum industry in Kansas.

 
 
- 11 -

 


We provide well servicing and roustabout services to the petroleum industry in Kansas. Our primary focus is to provide services that help maintain coal bed methane and oil wells operated by small and mid-size independent producers in the southeastern area of the state. Well servicing and roustabout services are required to maintain the gas and\or oil flow from a well. There is an ongoing need to periodically remove and replace damaged or corroded production tubing, retrieve safety valves or malfunctioning submersible pumps or risk  substantial decline and possible complete loss of production.  Roustabout services, which include well servicing and work immediately associated with the well, also includes site maintenance, pipeline installation, road and surface facilities construction. We currently own and operate one workover rig.  We are evaluating expansion possibilities in this immediate area as the downturn in the industry has eliminated several competitors in southeastern Kansas. The long term plan for us is to expand with additional workover rigs into adjacent areas as commodity prices recover and drilling activity escalates.

            Currently, our operations are profitable. We believe that we have sufficient capital to conduct our business operations or to sustain them at our present level indefinitely. To date, we have never had any discussions with any possible acquisition candidate nor have we any intention of doing so.

We have not been subject to any bankruptcy, receivership or similar proceeding.
 
Our address is 7060 B South Tucson Way, Centennial, Colorado 80112.  Our telephone number is 303-617-7531.

Results of Operations

The following presents, for comparison purposes, the results of our consolidated operations, including the operations of CST Oil & Gas Corporation.

For the fiscal quarter ended March 31, 2011 our revenue was $387,562.  In comparison for the fiscal quarter ended March 31, 2010 our revenue was $294,528. All sales for the relevant periods were to domestic companies under common control of our officers.

For the fiscal quarter ended March 31, 2011 our cost of goods sold was $150,421.  In comparison for the fiscal quarter ended March 31, 2010 our cost of goods was $7,500.
 
 
Operating expenses, which consisted primarily of general and administrative expenses, were $138,562 and $211,490 respectively for the fiscal quarters ended March 31, 2011 and 2010. The major component of general and administrative expenses for both periods was salaries.
 
For the fiscal quarter ended March 31, 2011 we had a profit of $83,792($0.01 per share).  In comparison for the fiscal quarter ended March 31, 2010 we had a profit of $66,541 ($0.01 per share).

Our principal source of liquidity is our revenues. We expect variation in revenues to account for the difference between a profit and a loss. Also business activity is closely tied to the U.S. petroleum business. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully develop our business and our ability to generate revenues.
 
In any case, we try to operate with minimal overhead. Our primary activity will be to develop our sales. If we succeed in generating sufficient sales, we will continue to be profitable. We cannot guarantee that this will ever occur. Our plan is to build our company in any manner which will be successful.
 
 

 
- 12 -

 


Liquidity and Capital Resources.

As of March 31, 2011, we had cash or cash equivalents of $6,795. As of March 31, 2010, we had cash or cash equivalents of $3,969. 
  
For the fiscal quarter ended March 31, 2011 net cash provided by operating activities was $21,084 compared to net cash used for operating activities of $12,206 for the fiscal quarter ended March 31, 2010.
 
For the fiscal quarters ended March 31, 2011 and 2010 net cash used for investing activities was $20,000 and  $22,388 respectively. The funds were used to purchase fixed assets utilized in our business.
 
For both fiscal quarters ended March 31, 2011 and 2010 net cash used for financing activities was $-0-.

Over the next twelve months we do not expect any material capital costs to develop operations.  We believe that we have sufficient capital in the short term for our current level of operations. This is because we believe that we can attract sufficient sales within our present organizational structure and resources to remain profitable in our operations. We do not anticipate needing to raise additional capital resources in the next twelve months.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements with any party.

Critical Accounting Policies

Our discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to provisions for uncollectible accounts receivable, inventories, valuation of intangible assets and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The accounting policies that we follow are set forth in Note 2 to our financial statements as included in this prospectus. These accounting policies conform to accounting principles generally accepted in the United States, and have been consistently applied in the preparation of the financial statements.
 

 
- 13 -

 

Recently Issued Accounting Pronouncements
 
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 123R "Share Based Payment." This statement is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS No. 123R addresses all forms of share based payment ("SBP") awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. Under SFAS No. 123R, SBP awards result in a cost that will be measured at fair value on the awards' grant date, based on the estimated number of awards that are expected to vest. This statement is effective for public entities that file as small business issuers, as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. We adopted this pronouncement during the first quarter of 2005.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets - An Amendment of APB Opinion No. 29. The amendments made by SFAS No. 153 are based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for non-monetary exchanges of similar productive assets and replace it with a broader exception for exchanges of non-monetary assets that do not have "commercial substance." SFAS No. 153 is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 on its effective date did not have a material effect on our consolidated financial statements.

In March 2005, the FASB issued Financial Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations - an Interpretation of FASB Statement No. 143", which specifies the accounting treatment for obligations associated with the sale or disposal of an asset when there are legal requirements attendant to such a disposition. We adopted this pronouncement in 2005, as required, but there was no impact as there are no legal obligations associated with the future sale or disposal of any assets.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections — A Replacement of APB Opinion No. 20 and SFAS Statement No. 3". SFAS No. 154 changes the requirements for the accounting and reporting of a change in accounting principle by requiring retrospective application to prior periods' financial statements of the change in accounting principle, unless it is impracticable to do so. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption of SFAS No. 154 to have any impact on our consolidated financial statements.

Seasonality

We do not expect our sales to be impacted by seasonal demands for our products and services.

Trends

There are no known trends, events or uncertainties that have had or that are reasonably expected to have a material impact on the net sales or revenues or income from our operations. Our management has not made any commitments, which will require any material financial resources.


 
- 14 -

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

None.


ITEM 4. CONTROLS AND PROCEDURES

Not applicable


ITEM 4T. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, based on an evaluation of our disclosure controls and procedures (as defined in Rules 13a -15(e) and 15(d)-15(e) under the Exchange Act), our Chief Executive Officer and the Chief Financial Officer has concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the applicable time periods specified by the SEC’s rules and forms.

There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal three months that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

There are no legal proceedings, to which we are a party, which could have a material adverse effect on our business, financial condition or operating results.


ITEM 1A.  RISK FACTORS

You should carefully consider the risks and uncertainties described below and the other information in this document before deciding to invest in shares of our common stock.

The occurrence of any of the following risks could materially and adversely affect our business, financial condition and operating result. In this case, the trading price of our common stock could decline and you might lose all or part of your investment.


 
- 15 -

 

Risks Relating to the Oil and Natural Gas Industry
 
We derive all our revenues from the oil and natural gas exploration and production industry, a historically cyclical industry with levels of activity that are significantly affected by the levels and volatility of oil and natural gas prices.
 
Worldwide political, economic and military events have contributed to oil and natural gas price volatility and are likely to continue to do so in the future. Depending on the market prices of oil and natural gas, oil and natural gas exploration and production companies may cancel or curtail their drilling programs, thereby reducing demand for our services. Oil and natural gas prices have been volatile historically and, we believe, will continue to be so in the future. Many factors beyond our control affect oil and natural gas prices, including:
 
 
the cost of exploring for, producing and delivering oil and natural gas;
 
 
the discovery rate of new oil and natural gas reserves;
 
 
the rate of decline of existing and new oil and natural gas reserves;
 
 
available pipeline and other oil and natural gas transportation capacity;
 
 
the ability of oil and natural gas companies to raise capital;
 
 
actions by OPEC, the Organization of Petroleum Exporting Countries;
 
 
political instability in the Middle East and other major oil and natural gas producing regions;
 
 
economic conditions in the United States and elsewhere;
 
 
governmental regulations, both domestic and foreign;
 
 
domestic and foreign tax policy;
 
 
weather conditions in the United States and elsewhere;
  
 
the pace adopted by foreign governments for the exploration, development and production of their national reserves;
 
 
the price of foreign imports of oil and natural gas; and
 
 
the overall supply and demand for oil and natural gas.
     

 
- 16 -

 

    Any prolonged reduction in the overall level of exploration and development activities, whether resulting from changes in oil and natural gas prices or otherwise, can adversely impact us in many ways by negatively affecting:
 
 
our revenues, cash flows and profitability;
 
 
our ability to maintain or increase our borrowing capacity;
 
 
our ability to obtain additional capital to finance our business and make acquisitions, and the cost of that capital;
 
 
our ability to retain skilled rig personnel whom we would need in the event of an upturn in the demand for our services; and
 
 
the fair market value of our rig fleet.

Risks Relating to Our Business

Increases in the supply of rigs could decrease dayrates and utilization rates.
 
    An increase in the supply of land rigs, whether through new construction or refurbishment, could decrease dayrates and utilization rates, which would adversely affect our revenues and profitability. In addition, such adverse affect on our revenue and profitability caused by such increased competition and lower dayrates and utilization rates could be further aggravated by any downturn in oil and natural gas prices. There has been a substantial increase in the supply of land rigs in the United States over the past two years which has led to a broad decline in dayrates and utilization industry wide.

A material reduction in the levels of exploration and development activities in Kansas  or an increase in the number of rigs mobilized to Kansas could negatively impact our dayrates and utilization rates.

We currently conduct all of our operations in Kansas. A material reduction in the levels of exploration and development activities in Kansas due to a variety of oil and natural gas industry risks described above or an increase in the number of rigs mobilized to Kansas could negatively impact our dayrates and utilization rates, which could adversely affect our revenues and profitability.

We operate in a highly competitive, fragmented industry in which price competition could reduce our profitability.
 
The fact that workover rigs are mobile and can be moved from one market to another in response to market conditions heightens the competition in the industry.
 
The well service contracts we compete for are usually awarded on the basis of competitive bids or direct negotiations with customers. We believe pricing and quality of equipment are the primary factors our potential customers consider in determining which contractor to select. In addition, we believe the following factors are also important:

 
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the type and condition of each of the competing workover rigs;
 
 
the mobility and efficiency of the rigs;
 
 
the quality of service and experience of the rig crews;
 
 
the offering of ancillary services; and
 
 
the ability to provide equipment adaptable to, and personnel familiar with, new technologies and techniques.
 
    While we must be competitive in our pricing, our competitive strategy generally emphasizes the quality of our equipment and experience of our rig crews to differentiate us from our competitors. This strategy is less effective as lower demand for drilling services or an oversupply of rigs usually results in increased price competition and makes it more difficult for us to compete on the basis of factors other than price. In all of the markets in which we compete, an oversupply of rigs can cause greater price competition which can, in turn, reduce our profitability.
 
Contract well service companies compete primarily on a regional basis, and the intensity of competition may vary significantly from region to region at any particular time. If demand for drilling services improves in a region where we operate, our competitors might respond by moving in suitable rigs from other regions. An influx of rigs from other regions could rapidly intensify competition and reduce profitability.
 
We face competition from competitors with greater resources that may make it more difficult for us to compete, which can reduce our dayrates and utilization rates.
 
Some of our competitors have greater financial, technical and other resources than we do that may make it more difficult for us to compete, which can reduce our dayrates and utilization rates. Their greater capabilities in these areas may enable them to:
 
 
better withstand industry downturns;
 
 
compete more effectively on the basis of price and technology;
 
 
retain skilled rig personnel; and
 
 
build new rigs or acquire and refurbish existing rigs so as to be able to place rigs into service more quickly than us in periods of high drilling demand.



 
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Our operations involve operating hazards, which if not insured or indemnified against, could adversely affect our results of operations and financial condition.
 
Our operations are subject to the many hazards inherent in the contract well servicing business, including the risks of:
 
 
blowouts;
 
 
fires and explosions;
 
 
loss of well control;
 
 
collapse of the borehole;
 
 
lost or stuck drill strings; and
 
 
damage or loss from natural disasters.
 
Any of these hazards can result in substantial liabilities or losses to us from, among other things:
 
 
suspension of service operations;
 
 
damage to, or destruction of, our property and equipment and that of others;
 
 
personal injury and loss of life;
 
 
damage to producing or potentially productive oil and natural gas formations through which we service; and
 
 
environmental damage.
 
We seek to protect ourselves from some but not all operating hazards through insurance coverage. However, some risks are either not insurable or insurance is available only at rates that we consider uneconomical. Depending on competitive conditions and other factors, we attempt to obtain contractual protection against uninsured operating risks from our customers. However, customers who provide contractual indemnification protection may not in all cases maintain adequate insurance to support their indemnification obligations. Our insurance or indemnification arrangements may not adequately protect us against liability or loss from all the hazards of our operations. The occurrence of a significant event that we have not fully insured or indemnified against or the failure of a customer to meet its indemnification obligations to us could materially and adversely affect our results of operations and financial condition. Furthermore, we may be unable to maintain adequate insurance in the future at rates we consider reasonable.
 

 
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We face increased exposure to operating difficulties because we have a substantial  focus on drilling for natural gas.
 
    A substantial number of our well service contracts are with exploration and production companies in search of natural gas, particularly in coal bed methane. Drilling on land for natural gas generally occurs at deeper drilling depths than drilling for oil. Although deep-depth drilling exposes us to risks similar to risks encountered in shallow-depth drilling, the magnitude of the risk for deep-depth drilling is greater because of the higher costs and greater complexities involved in drilling deep wells. We generally enter into International Association of Drilling Contractors contracts that contain “daywork” indemnification language that transfers responsibility for down hole exposures such as blowout and fire to the operator, leaving us responsible only for damage to our rig and our personnel. If we do not adequately insure the risk from blowouts or if our contractual indemnification rights are insufficient or unfulfilled, our profitability and other results of operation and our financial condition could be adversely affected in the event we encounter blowouts or other significant operating difficulties while drilling at deeper depths.
 
Our operations are subject to various laws and governmental regulations that could restrict our future operations and increase our operating costs.
 
Many aspects of our operations are subject to various federal, state and local laws and governmental regulations, including laws and regulations governing:
 
 
environmental quality;
 
 
pollution control;
 
 
remediation of contamination;
 
 
preservation of natural resources; and
 
 
worker safety.
 
Our operations are subject to stringent federal, state and local laws and regulations governing the protection of the environment and human health and safety. Several such laws and regulations relate to the disposal of hazardous oilfield waste and restrict the types, quantities and concentrations of such regulated substances that can be released into the environment. Several such laws also require removal and remedial action and other cleanup under certain circumstances, commonly regardless of fault. Planning, implementation and maintenance of protective measures are required to prevent accidental discharges. Spills of oil, natural gas liquids, drilling fluids and other substances may subject us to penalties and cleanup requirements. Handling, storage and disposal of both hazardous and non-hazardous wastes are also subject to these regulatory requirements. In addition, our operations are often conducted in or near ecologically sensitive areas, which are subject to special protective measures and that may expose us to additional operating costs and liabilities for accidental discharges of oil, natural gas, drilling fluids, contaminated water or other substances or for noncompliance with other aspects of applicable laws and regulations. Historically, we have not been required to obtain environmental or other permits prior to drilling a well. Instead, the operator of the oil and gas property has been obligated to obtain the necessary permits at its own expense.

 
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The federal Clean Water Act, as amended by the Oil Pollution Act, the federal Clean Air Act, the federal Resource Conservation and Recovery Act, the federal Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, the Safe Drinking Water Act, the Occupational Safety and Health Act, or OSHA, and their state counterparts and similar statutes are the primary vehicles for imposition of such requirements and for civil, criminal and administrative penalties and other sanctions for violation of their requirements. The OSHA hazard communication standard, the Environmental Protection Agency “community right-to-know” regulations under Title III of the federal Superfund Amendment and Reauthorization Act and comparable state statutes require us to organize and report information about the hazardous materials we use in our operations to employees, state and local government authorities and local citizens. In addition, CERCLA, also known as the “Superfund” law, and similar state statutes impose strict liability, without regard to fault or the legality of the original conduct, on certain classes of persons who are considered responsible for the release or threatened release of hazardous substances into the environment. These persons include the current owner or operator of a facility where a release has occurred, the owner or operator of a facility at the time a release occurred, and companies that disposed of or arranged for the disposal of hazardous substances found at a particular site. This liability may be joint and several. Such liability, which may be imposed for the conduct of others and for conditions others have caused, includes the cost of removal and remedial action as well as damages to natural resources. Few defenses exist to the liability imposed by environmental laws and regulations. It is also not uncommon for third parties to file claims for personal injury and property damage caused by substances released into the environment.
 
Environmental laws and regulations are complex and subject to frequent changes. Failure to comply with governmental requirements or inadequate cooperation with governmental authorities could subject a responsible party to administrative, civil or criminal action. We may also be exposed to environmental or other liabilities originating from businesses and assets that we acquired from others. We are in substantial compliance with applicable environmental laws and regulations and, to date, such compliance has not materially affected our capital expenditures, earnings or competitive position. We do not expect to incur material capital expenditures in our next fiscal year in order to comply with current or reasonably anticipated environment control requirements. However, our compliance with amended, new or more stringent requirements, stricter interpretations of existing requirements or the future discovery of regulatory noncompliance or contamination may require us to make material expenditures or subject us to liabilities that we currently do not anticipate.
 
In addition, our business depends on the demand for land drilling services from the oil and natural gas industry and, therefore, is affected by tax, environmental and other laws relating to the oil and natural gas industry generally, by changes in those laws and by changes in related administrative regulations. It is possible that these laws and regulations may in the future add significantly to our operating costs or those of our customers or otherwise directly or indirectly affect our operations.
 
We rely on a few key employees whose absence or loss could disrupt our operations resulting in a loss of revenues.
 
          Many key responsibilities within our business have been assigned to a small number of employees. The loss of their services, particularly the loss of Christine Tedesco, our Chief Executive and Financial Officer, could disrupt our operations resulting in a loss of revenues. We have no employment agreements our employees.  In addition, we do not maintain “key person” life insurance policies on any of our employees. As a result, we are not insured against any losses resulting from the death of our key employees.
 

 
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We may be unable to attract and retain qualified, skilled employees necessary to operate our business.
 
Our success depends in large part on our ability to attract and retain skilled and qualified personnel. Our inability to hire, train and retain a sufficient number of qualified employees could impair our ability to manage and maintain our business. We require skilled employees who can perform physically demanding work. Shortages of qualified personnel are occurring in our industry. As a result of the volatility of the oil and natural gas industry and the demanding nature of the work, potential employees may choose to pursue employment in fields that offer a more desirable work environment at wage rates that are competitive with ours. If we should suffer any material loss of personnel to competitors or be unable to employ additional or replacement personnel with the requisite level of training and experience to adequately operate our equipment, our operations could be materially and adversely affected. With a reduced pool of workers, it is possible that we will have to raise wage rates to attract workers from other fields and to retain our current employees. If we are not able to increase our service rates to our customers to compensate for wage-rate increases, our profitability and other results of operations may be adversely affected.
 
Shortages in equipment and supplies could limit our operations and jeopardize our relations with customers.
 
The materials and supplies we use in our operations include fuels to operate our equipment, pipe,  and collars. Shortages in  equipment and supplies could limit our workover operations and jeopardize our relations with customers. We do not rely on a single source of supply for any of these items. From time to time there have been shortages of equipment and supplies during periods of high demand which we believe could reoccur. Shortages could result in increased prices for  equipment or supplies that we may be unable to pass on to customers. In addition, during periods of shortages, the delivery times for equipment and supplies can be substantially longer. Any significant delays in our obtaining  equipment or supplies could limit our operations and jeopardize our relations with customers. In addition, shortages of  equipment or supplies could delay and adversely affect our ability to obtain new contracts for our  workover rigs, which could negatively impact our revenues and profitability.
 
Risks Related to Ownership of Our Common Stock

We have incurred and will continue to incur increased costs as a result of being a public company.
 
As a result of becoming a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. We have incurred and will continue to incur costs associated with our public company reporting requirements and costs associated with recently adopted corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the SEC and the NASD.  These rules and regulations could increase our legal and financial compliance costs and could make some activities more time-consuming and costly. These new rules and regulations could make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers.

 
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The price of our common stock may be extremely volatile.
 
 
        In some future periods, our results of operations may be below the expectations of public market investors, which could negatively affect the market price of our common stock. Furthermore, the stock market in general has experienced extreme price and volume fluctuations in recent years. We believe that, in the future, the market price of our common stock could fluctuate widely due to variations in our performance and operating results or because of any of the following factors:
 
announcements of new services, products, technological innovations, acquisitions or strategic relationships by us or our competitors;
   
trends or conditions in the software, business process outsourcing and Internet markets;
   
changes in market valuations of our competitors; and
   
general political, economic and market conditions.
 
        In addition, the market prices of securities of well service companies, including our own, have been volatile and have experienced fluctuations that have often been unrelated or disproportionate to a specific company's operating performance. As a result, investors may not be able to sell shares of our common stock at or above the price at which an investor purchase paid. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against that company. If any securities litigation is initiated against us, we could incur substantial costs and our management's attention could be diverted from our business.
 
 
Quarterly and annual operating results may fluctuate, which could cause our stock price to be volatile.
 
        Our quarterly and annual operating results may fluctuate significantly in the future due to a variety of factors that could affect our revenues or our expenses in any particular period. You should not rely on our results of operations during any particular period as an indication of our results for any other period. Factors that may adversely affect our periodic results may include the loss of a significant account or accounts.
 
        Our operating expenses are based in part on our expectations of our future revenues and are partially fixed in the short term. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall.
 
The significant concentration of ownership of our common stock will limit an investor's ability to influence corporate actions.
 
        The concentration of ownership of our common stock may limit an investor's ability to influence our corporate actions and have the effect of delaying or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company, and may affect the market price of our common stock. Certain major stockholders, if they act together, are able to substantially influence all matters requiring stockholder approval, including the election of all directors and approval of significant corporate transactions and amendments to our articles of incorporation. These stockholders may use their ownership position to approve or take actions that are adverse to interests of other investors or prevent the taking of actions that are inconsistent with their respective interests.
 

 
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The availability of a large number of authorized but unissued shares of common stock may, upon their issuance, lead to dilution of existing stockholders.
 
We are authorized to issue 50,000,000 shares of common stock, $0.001 par value per share, of which, as of March 31, 2011, 9,696,000 shares of common stock were issued and outstanding. These shares may be issued by our board of directors without further stockholder approval. The issuance of large numbers of shares, possibly at below market prices, is likely to result in substantial dilution to the interests of other stockholders. In addition, issuances of large numbers of shares may adversely affect the market price of our common stock.
 
Further, our Articles of Incorporation authorizes 1,000,000 shares of preferred stock, $0.10 par value per share. The board of directors is authorized to provide for the issuance of these unissued shares of preferred stock in one or more series, and to fix the number of shares and to determine the rights, preferences and privileges thereof. Accordingly, the board of directors may issue preferred stock which convert into large numbers of shares of common stock and consequently lead to further dilution of other shareholders.
 
There is currently a limited trading market for our securities and there can be no assurance that any  liquid market will ever develop.
 
There is currently a limited trading market for our common stock. Our common stock trades on the Over-the-Counter Bulletin Board under the trading symbol CSTV as of April, 2010. However, there can be no assurance as to whether an orderly market will develop, (if ever) in our common stock.  As a result, we expect that the price at which our stock trades is likely to fluctuate significantly. Prices for our common stock is determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for shares of our common stock, developments affecting our business, including the impact of the factors referred to elsewhere in these Risk Factors, investor perception of us and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our common stock. Owing to the anticipated low price of the securities, many brokerage firms may not be willing to effect transactions in the securities. Broker-dealers may be discouraged from effecting transactions in our common stock because they are considered a penny stock and are subject to the penny stock rules.”
 
Our common stock is subject to the Penny Stock Regulations
 
Our common stock is subject to the SEC's “penny stock” rules to the extent that the price remains less than $5.00. Those rules, which require delivery of a schedule explaining the penny stock market and the associated risks before any sale, may further limit your ability to sell your shares.
 
The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share. Our common stock, when and if a trading market develops, may fall within the definition of penny stock and subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 or $300,000, together with their spouse).

 
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For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the `penny stock` rules may restrict the ability of broker-dealers to sell our common stock and may affect the ability of investors to sell their common stock in the secondary market.
 
Our common stock is illiquid and subject to price volatility unrelated to our operations
 
The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
 
Sales of substantial amounts of common stock, or the perception that such sales could occur, and the existence of convertible securities to purchase shares of common stock at prices that may be below the then current market price of the common stock, could adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of our equity securities.
 
We do not intend to pay cash dividends in the foreseeable future
 
We currently intend to retain all future earnings for use in the operation and expansion of our business. We do not intend to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate.
 

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

None


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None


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

None

 
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ITEM 5.  OTHER INFORMATION
 
              None
 

ITEM 6.  EXHIBITS
        
EXHIBIT
DESCRIPTION
   
2.1 **
Share Exchange Agreement dated March 31, 2011
   
3.1 *
Articles of Incorporation
   
3.2 *
Bylaws
   
10.1**
Drilling Rig Contract
   
31.1
Certification of CEO/CFO pursuant to Section 302
   
32.1
Certification of CEO/CFO pursuant to Section 906

* Previously filed with Form SB-2 Registration Statement, January 24, 2008.

** Previously filed with Form 8-K on September 30, 2009

Reports on Form 8-K

We filed no report under cover of Form 8K for the fiscal quarter ended March 31, 2011.


SIGNATURES

Pursuant to the requirements 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 on May 10, 2011.


 
CST HOLDING CORP.
     
 
By:     
/s/ Christine Tedesco
 
Christine Tedesco
 
Chief Executive and Financial and
Accounting Officer and President
 
 
 
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