ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	6 Months Ended
Jun. 30, 2011
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	Nature of Operations and Organization Bedrock Energy, Inc. was incorporated in Colorado on August 11, 2004 and on May 5, 2010 its name was changed to Gulfstar Energy Corporation (“Gulfstar” or the “Company”). On May 5, 2010, the Company entered into a Share Exchange Agreement with Talon Energy Corporation (“Talon”). Talon was a Florida company engaged in management activities in the oil and gas industry. On June 24, 2010, the Share Exchange Agreement with Talon was replaced by a similar Revised and Amended Share Acquisition Agreement between Talon and the Company and in conjunction with a June 24, 2010 Share Exchange Agreement between the Company and Gulfstar Energy Group, LLC (“Gulfstar LLC”), a privately held Mississippi Limited Liability Company, for 58.3% of the outstanding equity interests of Gulfstar LLC, and an Acquisition Agreement between the Company and Gulfstar LLC to acquire the remaining 41.7% of the outstanding equity interests of Gulfstar LLC. The Revised and Amended Share Acquisition Agreement and Share Exchange Agreement were both effective as of June 30, 2010. The Share Exchange Agreement between the Company and Gulfstar LLC provided for Jason Sharp and Timothy Sharp (“Sharps”), officers and members of Gulfstar LLC, to exchange their 58.3% of Gulfstar LLC outstanding equity interests for 11,659,659 restricted shares of common stock of the Company. The Gulfstar LLC exchange was accounted for as a reverse recapitalization in which Gulfstar LLC was determined to be the acquirer for accounting purposes. The June 24, 2010 Acquisition Agreement between the Company and Gulfstar LLC provides for the acquisition of the remaining outstanding equity interests of Gulfstar LLC, but requires a Registration Statement to be filed with the Securities and Exchange Commission by September 30, 2011 to register these remaining shares of common stock offered by the Company to the individual equity interest holders of Gulfstar LLC. This Registration Statement has until December 31, 2011 to become effective. As of June 30, 2011, these remaining 41.7% equity interests of Gulfstar LLC have not been acquired by the Company. The Revised and Amended Share Acquisition Agreement with Talon provided for the Company to issue 3,509,530 restricted shares of its common stock to the shareholders of Talon in exchange for the issued and outstanding shares of Talon. After the exchange of such shares the Company owned 100% of the issued and outstanding shares of Talon. On June 15, 2011, the Company entered into an Agreement with Gulfstar LLC and the Sharps in order for the Sharps to compensate the Company as a result of events that had taken place over a period of time since July 2010 and as such adjust the share consideration for the change in value of the assets previously acquired. The parties acknowledged that this Agreement was not intended to otherwise change or amend that certain Acquisition Agreement and Share Exchange Agreement entered into on June 24, 2010 by and between the parties. As a result and as part of the Agreement, the Sharps agreed to return to the Company 6,659,659 shares of their common stock valued at $929,744 or approximately $.14 per share. The Company has recorded these shares as Treasury Shares and recorded the claims settlement as other income during the second quarter of 2011. In addition, as part of this Agreement, the Sharps agreed to place into escrow 2,408,985 shares of their remaining 5,000,000 shares of common stock for the benefit of the remaining minority equity holders of Gulfstar LLC subject to the filing and effectiveness of the Registration Statement with the Security and Exchange Commission. As a result of this Agreement, the Sharps have retained an ownership of 2,591,015 shares of common stock of the Company. Gulfstar LLC built and currently operates a 16-mile natural gas pipeline supply system in Western Kentucky for the transportation of natural gas and provides property management services for the operation of 20 wells in Kentucky of which it holds overriding royalty interest of approximately 12.5% and holds mineral rights on approximately 9,000 acres of leased land. Since the inception of the Pipeline and the flow of natural gas during the second quarter of 2010, Gulfstar LLC has encountered significant challenges in increasing the flow of natural gas through its Pipeline. As a result of these challenges and limited ability of the Company to fund future development of natural gas wells to the Pipeline, the Company has decided to additionally focus on the exploration and production of oil and gas leases located in other parts of the United States, including Kentucky and Colorado. As part of its focus on exploration and production, the Company acquired on August 5, 2011 at a cost of $80,000 a 100% working interest, 81.25% net revenue interest, in approximately 320 acres in Weld County, Colorado which is located about 40 miles north of Denver, Colorado and lies in what is called the Denver, Julesberg Basin (DJ Basin). The DJ Basin is the predominant geological structure in Northern Colorado. The shallow “J” and “D” sand formations of the DJ Basin constitute a common source of oil and gas. The acreage in Weld County has forty (40) acre drilling and spacing units for the production of oil and gas from the “D” and “J” sand formations. The acreage contained within this lease has an 18-month term (“Primary Term”), and may be extended if the Company drills two wells during the Primary Term, or if other conditions are met. The term of the lease can continue as long as the Company produces oil and gas in paying quantities during the term of the lease. Interim Presentation In the opinion of the management of the Company, the accompanying unaudited financial statements include all material adjustments, including normal and recurring adjustments, considered necessary to present fairly the financial position and operating results of the Company for the period presented. The financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. It is the Company’s opinion that when the interim financial statements are read in conjunction with the December 31, 2010 Annual Report on Form 10-K and its Current Report on Form 10-Q, the disclosures are adequate to make the information presented not misleading. Interim results are not indicative of results for a full year or any future period. Principles of Consolidation Gulfstar LLC was determined to be the accounting acquirer in the reverse recapitalization that occurred on June 30, 2010. As a result, all financial information prior to June 30, 2010 will include only the accounts of Gulfstar LLC. Subsequent to June 30, 2010, the accompanying financial information will include the accounts of Gulfstar, its wholly owned subsidiary, Talon, and its majority owned subsidiary, Gulfstar LLC. As of June 30, 2011, Gulfstar liquidated Talon and assumed net liabilities in the amount of $263,083. All significant inter-company balances and transactions have been eliminated during consolidation. Development Stage The Company and its subsidiaries are currently focusing on the exploration and production activities, limited operation of its pipeline gathering system and management of existing oil and gas wells. Significant additional efforts, and funding, neither of which is assured, are required for the Company to achieve its intended normalized operating level. Substantially all of the Company's efforts are devoted to the establishment of sufficient resources and revenue producing assets in order to achieve its overall operational goals. Though planned principal operations are anticipated to commence, no significant revenue has been realized from the Company's to-date activities. The consolidated statements of operations are shown inclusive of all cumulative revenue and expense activity since the inception date of the Company, May 19, 2006, while the Company is in the development stage. Non-Controlling Interest The non-controlling interest is related to Gulfstar LLC, which is consolidated, but not wholly owned by the Company. At June 30, 2011, the Company owned 58.3% of the equity interest of Gulfstar LLC and therefore, the non-controlling interest of 41.7% was $1,422,252. At December 31, 2010, the Company owned 58.4% of the equity interest of Gulfstar LLC and therefore, the non-controlling interest of 41.6% was $1,287,171. Income Taxes Gulfstar LLC, a limited liability company, is not a tax paying entity for Federal income tax purposes. Its pro rata share of income, losses and tax credits is passed through to its members and reported by its members on their individual income tax returns. The consolidated statement of operations for the six months ended June 30, 2010 and for the period from May 19, 2006 (inception) through June 30, 2010 includes the accounts of Gulfstar LLC only, therefore, no provision for federal income taxes or for deferred taxes has been determined. The Company has determined, for the period July 1, 2010 through December 31, 2010 and for the period January 1, 2011 through June 30, 2011, any provision for income taxes or deferred taxes and this determination has been based upon the accounts of Gulfstar Energy Corporation, Talon and the pro rata loss of Gulfstar LLC passed through and reportable by Gulfstar Energy Corporation. The Company accounts for income taxes under the liability method as prescribed by ASC authoritative guidance. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted rates expected to be in effect during the year in which the basis difference reverses. The realizability of deferred tax assets are evaluated quarterly and a valuation allowance is provided if it is more likely than not that the deferred tax assets will not give rise to future benefits in the Company’s income tax returns. The primary timing differences between financial and tax reporting arise from federal net operating loss carryforwards, amortization of start up costs, and accrued expenses. The Company assessed the likelihood of utilization of the deferred tax assets, in light of recent and expected continuing losses. As a result of this review, the deferred tax asset of $745,871 and $758,227 has been fully reserved at June 30, 2011 and December 31, 2010, respectively. As of June 30, 2011, the Company had net operating loss carryforwards for income tax and financial reporting purposes of approximately $760,000 expiring in the years 2020 through 2031. The Company has adopted ASC guidance regarding accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the financial statements and applies to all income tax positions. Each income tax position is assessed using a two step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. At June 30, 2011, there were no uncertain tax positions that required accrual. None of the Company's federal or state income tax returns are currently under examination by the Internal Revenue Service or state authorities. However, calendar years 2007 and later remain subject to examination by the Internal Revenue Service and respective states. Business Combinations The Company accounts for acquisitions in accordance with guidance found in ASC 805, Business Combinations. The guidance, effective January 1, 2009, requires consideration given, including contingent consideration, assets acquired and liabilities assumed to be valued at their fair market values at the acquisition date. The guidance further provides that: (1) in-process research and development will be recorded at fair value as an indefinite-lived intangible assets; (2) acquisition costs will generally be expensed as incurred, (3) restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and (4) changes in deferred tax asset valuations and income tax uncertainties after the acquisition date generally will affect income tax expense. ASC 805 requires that any excess of purchase price over fair value of assets acquired, including identifiable intangibles and liabilities assumed be recognized as goodwill. In accordance with ASC 805, any excess off fair value of acquired net assets, including identifiable intangible assets, over the acquisition consideration results in a bargain purchase gain. Prior to recording a gain, the acquiring entity must reassess whether all acquired assets and assumed liabilities have been identified and recognized and perform re-measurements to verify that the consideration paid, assets acquired and liabilities assumed have been properly valued. Income or Loss Per Share Income or loss per share is computed by dividing net income or loss by the weighted average number of common shares outstanding and requires presentation of both basic and diluted loss per common share. Common share equivalents, if used, would consist of any options, warrants and contingent shares. Common share equivalents would not be included in the weighted average calculation for the periods that reported a net loss since their effect would be anti-dilutive. As of June 30, 2011 and December 31, 2010, the Company had outstanding no options, warrants or contingent shares. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures 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, and such differences may be material to the financial statements. Concentration of Credit Risk The Company, from time to time during the periods covered by these consolidated financial statements, may have bank balances in excess of its insured limits. Management has deemed this a normal business risk. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all cash and highly liquid investments with initial maturities of three months or less to be cash equivalents. Accounts Receivable Accounts receivable are stated at their cost less any allowance for doubtful accounts. The allowance for doubtful accounts is based on the management’s assessment of the collectability of specific customer accounts and the aging of the accounts receivable. If there is deterioration in a major customer’s creditworthiness or if actual defaults are higher than the historical experience, the management’s estimates of the recoverability of amounts due to the Company could be adversely affected. Based on the management’s assessment, no reserve is deemed necessary at June 30, 2011 and December 31, 2010. Revenue Recognition The Company recognizes revenue from its Pipeline segment upon shipment of the gas to its customers. Royalty revenue is recognized from the Company's oil and gas property management and exploration and production segment in the period of production. Property and Equipment The Company follows the full cost method of accounting for oil and natural gas operations. Under this method, all productive and nonproductive costs incurred in connection with the acquisition, exploration, and development of oil and natural gas reserves are capitalized. No gains or losses are recognized upon the sale or other disposition of oil and natural gas properties except in transactions that would significantly alter the relationship between capitalized costs and proved reserves. The costs of unevaluated oil and natural gas properties are excluded from the amortizable base until the time that either proven reserves are found or it has been determined that such properties are impaired. As properties become evaluated, the related costs transfer to proved oil and natural gas properties using full cost accounting. None of the capitalized costs in the amount of $320,980 were included in the amortization base as of June 30, 2011, nor did the Company expense any capitalized costs during the six months ended June 30, 2011 and 2010. The Company does not have significant oil and gas producing activities as of June 30, 2011 and December 31, 2010, and its oil and gas properties are still in the drilling phase and have not been evaluated. Management capitalizes additions to property and equipment including its pipeline. Expenditures for repairs and maintenance are charged to expense. Property and equipment are carried at cost. Adjustment of the asset and the related accumulated depreciation accounts are made for property and equipment retirements and disposals, with the resulting gain or loss included in the consolidated statements of operations. In accordance with authoritative guidance on accounting for the impairment of disposal of long-lived assets, as set forth in Topic 360 of the ASC, the Company assesses the recoverability of the carrying value of its non-oil and gas long-lived assets when events occur that indicate an impairment in value may exist. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. If this occurs, an impairment loss is recognized for the amount by which the carrying amount of the assets exceeds the estimated fair value of the asset. During the quarter ended June 30, 2011, the Company entered into an agreement with Gulfstar LLC and the Sharps which the Company determined is an event that required the Company to assess whether the carrying value of the Pipeline was impaired. As a result of the Company’s analysis, the Company assessed there was no impairment to the Pipeline. Goodwill In accordance with generally accepted accounting principles, goodwill cannot be amortized, however, it must be tested annually for impairment. This impairment test is calculated at the reporting unit level. The goodwill impairment test has two steps. The first identifies potential impairments by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired and the second step is not necessary. If the carrying value exceeds the fair value, the second step calculates the possible impairment loss by comparing the implied fair value of goodwill with the carrying amount. If the implied goodwill is less than the carrying amount, a write-down is recorded. Management tests goodwill each year for impairment, or when facts or circumstances indicate impairment has occurred. During the quarter ended June 30, 2011, the Company entered into an agreement with Gulfstar LLC and the Sharps which the Company determined is an event that required the Company to assess whether the carrying value of goodwill was impaired. As a result of the Company’s analysis, the Company assessed that goodwill was impaired and therefore an impairment loss was recorded in the amount of $368,369 as an operating expense. Intangible Assets Intangible assets consist of right of way deposits, which are contracts allowing the Company to install pipeline on private land. The rights exist indefinitely and therefore, no amortization has been recorded. Management evaluates the assets for impairment whenever events or circumstances indicate a possible impairment. During the quarter ended June 30, 2011, the Company entered into an agreement with Gulfstar LLC and the Sharps which the Company determined is an event that required the Company to assess whether the carrying value of the right of ways were impaired. As a result of the Company’s analysis, the Company assessed there was no impairment to the right of ways. Significant Customer The Company's pipeline construction was finished during the second quarter of 2010 and is currently delivering natural gas to one manufacturing customer located in Kentucky. Revenue earned from the oil and gas property management segment and exploration and production segment are determined based upon division orders with one purchaser. Depreciation For financial reporting purposes, depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of assets at acquisition. For income tax reporting purposes, depreciation of property and equipment is computed using the straight-line and accelerated methods over the estimated useful lives of assets at acquisition. Recent Accounting Pronouncements There were accounting standards and interpretations issued during the six months ended June 30, 2011, none of which are expected to have a material impact on the Company’s financial position, operations or cash flows.

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2011

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Organization

Bedrock Energy, Inc. was incorporated in Colorado on August 11, 2004 and on May 5, 2010 its name was changed to Gulfstar Energy Corporation (“Gulfstar” or the “Company”).

On May 5, 2010, the Company entered into a Share Exchange Agreement with Talon Energy Corporation (“Talon”). Talon was a Florida company engaged in management activities in the oil and gas industry. On June 24, 2010, the Share Exchange Agreement with Talon was replaced by a similar Revised and Amended Share Acquisition Agreement between Talon and the Company and in conjunction with a June 24, 2010 Share Exchange Agreement between the Company and Gulfstar Energy Group, LLC (“Gulfstar LLC”), a privately held Mississippi Limited Liability Company, for 58.3% of the outstanding equity interests of Gulfstar LLC, and an Acquisition Agreement between the Company and Gulfstar LLC to acquire the remaining 41.7% of the outstanding equity interests of Gulfstar LLC. The Revised and Amended Share Acquisition Agreement and Share Exchange Agreement were both effective as of June 30, 2010.

The Share Exchange Agreement between the Company and Gulfstar LLC provided for Jason Sharp and Timothy Sharp (“Sharps”), officers and members of Gulfstar LLC, to exchange their 58.3% of Gulfstar LLC outstanding equity interests for 11,659,659 restricted shares of common stock of the Company.

The Gulfstar LLC exchange was accounted for as a reverse recapitalization in which Gulfstar LLC was determined to be the acquirer for accounting purposes.

The June 24, 2010 Acquisition Agreement between the Company and Gulfstar LLC provides for the acquisition of the remaining outstanding equity interests of Gulfstar LLC, but requires a Registration Statement to be filed with the Securities and Exchange Commission by September 30, 2011 to register these remaining shares of common stock offered by the Company to the individual equity interest holders of Gulfstar LLC. This Registration Statement has until December 31, 2011 to become effective. As of June 30, 2011, these remaining 41.7% equity interests of Gulfstar LLC have not been acquired by the Company.

The Revised and Amended Share Acquisition Agreement with Talon provided for the Company to issue 3,509,530 restricted shares of its common stock to the shareholders of Talon in exchange for the issued and outstanding shares of Talon. After the exchange of such shares the Company owned 100% of the issued and outstanding shares of Talon.

On June 15, 2011, the Company entered into an Agreement with Gulfstar LLC and the Sharps in order for the Sharps to compensate the Company as a result of events that had taken place over a period of time since July 2010 and as such adjust the share consideration for the change in value of the assets previously acquired. The parties acknowledged that this Agreement was not intended to otherwise change or amend that certain Acquisition Agreement and Share Exchange Agreement entered into on June 24, 2010 by and between the parties. As a result and as part of the Agreement, the Sharps agreed to return to the Company 6,659,659 shares of their common stock valued at $929,744 or approximately $.14 per share. The Company has recorded these shares as Treasury Shares and recorded the claims settlement as other income during the second quarter of 2011. In addition, as part of this Agreement, the Sharps agreed to place into escrow 2,408,985 shares of their remaining 5,000,000 shares of common stock for the benefit of the remaining minority equity holders of Gulfstar LLC subject to the filing and effectiveness of the Registration Statement with the Security and Exchange Commission. As a result of this Agreement, the Sharps have retained an ownership of 2,591,015 shares of common stock of the Company.

Gulfstar LLC built and currently operates a 16-mile natural gas pipeline supply system in Western Kentucky for the transportation of natural gas and provides property management services for the operation of 20 wells in Kentucky of which it holds overriding royalty interest of approximately 12.5% and holds mineral rights on approximately 9,000 acres of leased land. Since the inception of the Pipeline and the flow of natural gas during the second quarter of 2010, Gulfstar LLC has encountered significant challenges in increasing the flow of natural gas through its Pipeline. As a result of these challenges and limited ability of the Company to fund future development of natural gas wells to the Pipeline, the Company has decided to additionally focus on the exploration and production of oil and gas leases located in other parts of the United States, including Kentucky and Colorado.

As part of its focus on exploration and production, the Company acquired on August 5, 2011 at a cost of $80,000 a 100% working interest, 81.25% net revenue interest, in approximately 320 acres in Weld County, Colorado which is located about 40 miles north of Denver, Colorado and lies in what is called the Denver, Julesberg Basin (DJ Basin). The DJ Basin is the predominant geological structure in Northern Colorado. The shallow “J” and “D” sand formations of the DJ Basin constitute a common source of oil and gas. The acreage in Weld County has forty (40) acre drilling and spacing units for the production of oil and gas from the “D” and “J” sand formations.

The acreage contained within this lease has an 18-month term (“Primary Term”), and may be extended if the Company drills two wells during the Primary Term, or if other conditions are met. The term of the lease can continue as long as the Company produces oil and gas in paying quantities during the term of the lease.

Interim Presentation

In the opinion of the management of the Company, the accompanying unaudited financial statements include all material adjustments, including normal and recurring adjustments, considered necessary to present fairly the financial position and operating results of the Company for the period presented. The financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. It is the Company’s opinion that when the interim financial statements are read in conjunction with the December 31, 2010 Annual Report on Form 10-K and its Current Report on Form 10-Q, the disclosures are adequate to make the information presented not misleading. Interim results are not indicative of results for a full year or any future period.

Principles of Consolidation

Gulfstar LLC was determined to be the accounting acquirer in the reverse recapitalization that occurred on June 30, 2010. As a result, all financial information prior to June 30, 2010 will include only the accounts of Gulfstar LLC. Subsequent to June 30, 2010, the accompanying financial information will include the accounts of Gulfstar, its wholly owned subsidiary, Talon, and its majority owned subsidiary, Gulfstar LLC. As of June 30, 2011, Gulfstar liquidated Talon and assumed net liabilities in the amount of $263,083. All significant inter-company balances and transactions have been eliminated during consolidation.

Development Stage

The Company and its subsidiaries are currently focusing on the exploration and production activities, limited operation of its pipeline gathering system and management of existing oil and gas wells. Significant additional efforts, and funding, neither of which is assured, are required for the Company to achieve its intended normalized operating level. Substantially all of the Company's efforts are devoted to the establishment of sufficient resources and revenue producing assets in order to achieve its overall operational goals. Though planned principal operations are anticipated to commence, no significant revenue has been realized from the Company's to-date activities. The consolidated statements of operations are shown inclusive of all cumulative revenue and expense activity since the inception date of the Company, May 19, 2006, while the Company is in the development stage.

Non-Controlling Interest

The non-controlling interest is related to Gulfstar LLC, which is consolidated, but not wholly owned by the Company. At June 30, 2011, the Company owned 58.3% of the equity interest of Gulfstar LLC and therefore, the non-controlling interest of 41.7% was $1,422,252. At December 31, 2010, the Company owned 58.4% of the equity interest of Gulfstar LLC and therefore, the non-controlling interest of 41.6% was $1,287,171.

Income Taxes

Gulfstar LLC, a limited liability company, is not a tax paying entity for Federal income tax purposes. Its pro rata share of income, losses and tax credits is passed through to its members and reported by its members on their individual income tax returns. The consolidated statement of operations for the six months ended June 30, 2010 and for the period from May 19, 2006 (inception) through June 30, 2010 includes the accounts of Gulfstar LLC only, therefore, no provision for federal income taxes or for deferred taxes has been determined. The Company has determined, for the period July 1, 2010 through December 31, 2010 and for the period January 1, 2011 through June 30, 2011, any provision for income taxes or deferred taxes and this determination has been based upon the accounts of Gulfstar Energy Corporation, Talon and the pro rata loss of Gulfstar LLC passed through and reportable by Gulfstar Energy Corporation.

The Company accounts for income taxes under the liability method as prescribed by ASC authoritative guidance. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted rates expected to be in effect during the year in which the basis difference reverses. The realizability of deferred tax assets are evaluated quarterly and a valuation allowance is provided if it is more likely than not that the deferred tax assets will not give rise to future benefits in the Company’s income tax returns. The primary timing differences between financial and tax reporting arise from federal net operating loss carryforwards, amortization of start up costs, and accrued expenses.

The Company assessed the likelihood of utilization of the deferred tax assets, in light of recent and expected continuing losses. As a result of this review, the deferred tax asset of $745,871 and $758,227 has been fully reserved at June 30, 2011 and December 31, 2010, respectively. As of June 30, 2011, the Company had net operating loss carryforwards for income tax and financial reporting purposes of approximately $760,000 expiring in the years 2020 through 2031.

The Company has adopted ASC guidance regarding accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the financial statements and applies to all income tax positions. Each income tax position is assessed using a two step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. At June 30, 2011, there were no uncertain tax positions that required accrual.

None of the Company's federal or state income tax returns are currently under examination by the Internal Revenue Service or state authorities. However, calendar years 2007 and later remain subject to examination by the Internal Revenue Service and respective states.

Business Combinations

The Company accounts for acquisitions in accordance with guidance found in ASC 805, Business Combinations. The guidance, effective January 1, 2009, requires consideration given, including contingent consideration, assets acquired and liabilities assumed to be valued at their fair market values at the acquisition date. The guidance further provides that: (1) in-process research and development will be recorded at fair value as an indefinite-lived intangible assets; (2) acquisition costs will generally be expensed as incurred, (3) restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and (4) changes in deferred tax asset valuations and income tax uncertainties after the acquisition date generally will affect income tax expense.

ASC 805 requires that any excess of purchase price over fair value of assets acquired, including identifiable intangibles and liabilities assumed be recognized as goodwill. In accordance with ASC 805, any excess off fair value of acquired net assets, including identifiable intangible assets, over the acquisition consideration results in a bargain purchase gain. Prior to recording a gain, the acquiring entity must reassess whether all acquired assets and assumed liabilities have been identified and recognized and perform re-measurements to verify that the consideration paid, assets acquired and liabilities assumed have been properly valued.

Income or Loss Per Share

Income or loss per share is computed by dividing net income or loss by the weighted average number of common shares outstanding and requires presentation of both basic and diluted loss per common share. Common share equivalents, if used, would consist of any options, warrants and contingent shares. Common share equivalents would not be included in the weighted average calculation for the periods that reported a net loss since their effect would be anti-dilutive. As of June 30, 2011 and December 31, 2010, the Company had outstanding no options, warrants or contingent shares.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures 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, and such differences may be material to the financial statements.

Concentration of Credit Risk

The Company, from time to time during the periods covered by these consolidated financial statements, may have bank balances in excess of its insured limits. Management has deemed this a normal business risk.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all cash and highly liquid investments with initial maturities of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable are stated at their cost less any allowance for doubtful accounts. The allowance for doubtful accounts is based on the management’s assessment of the collectability of specific customer accounts and the aging of the accounts receivable. If there is deterioration in a major customer’s creditworthiness or if actual defaults are higher than the historical experience, the management’s estimates of the recoverability of amounts due to the Company could be adversely affected. Based on the management’s assessment, no reserve is deemed necessary at June 30, 2011 and December 31, 2010.

Revenue Recognition

The Company recognizes revenue from its Pipeline segment upon shipment of the gas to its customers. Royalty revenue is recognized from the Company's oil and gas property management and exploration and production segment in the period of production.

Property and Equipment

The Company follows the full cost method of accounting for oil and natural gas operations. Under this method, all productive and nonproductive costs incurred in connection with the acquisition, exploration, and development of oil and natural gas reserves are capitalized. No gains or losses are recognized upon the sale or other disposition of oil and natural gas properties except in transactions that would significantly alter the relationship between capitalized costs and proved reserves. The costs of unevaluated oil and natural gas properties are excluded from the amortizable base until the time that either proven reserves are found or it has been determined that such properties are impaired. As properties become evaluated, the related costs transfer to proved oil and natural gas properties using full cost accounting. None of the capitalized costs in the amount of $320,980 were included in the amortization base as of June 30, 2011, nor did the Company expense any capitalized costs during the six months ended June 30, 2011 and 2010. The Company does not have significant oil and gas producing activities as of June 30, 2011 and December 31, 2010, and its oil and gas properties are still in the drilling phase and have not been evaluated.

Management capitalizes additions to property and equipment including its pipeline. Expenditures for repairs and maintenance are charged to expense. Property and equipment are carried at cost. Adjustment of the asset and the related accumulated depreciation accounts are made for property and equipment retirements and disposals, with the resulting gain or loss included in the consolidated statements of operations.

In accordance with authoritative guidance on accounting for the impairment of disposal of long-lived assets, as set forth in Topic 360 of the ASC, the Company assesses the recoverability of the carrying value of its non-oil and gas long-lived assets when events occur that indicate an impairment in value may exist. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. If this occurs, an impairment loss is recognized for the amount by which the carrying amount of the assets exceeds the estimated fair value of the asset. During the quarter ended June 30, 2011, the Company entered into an agreement with Gulfstar LLC and the Sharps which the Company determined is an event that required the Company to assess whether the carrying value of the Pipeline was impaired. As a result of the Company’s analysis, the Company assessed there was no impairment to the Pipeline.

Goodwill

In accordance with generally accepted accounting principles, goodwill cannot be amortized, however, it must be tested annually for impairment. This impairment test is calculated at the reporting unit level. The goodwill impairment test has two steps. The first identifies potential impairments by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired and the second step is not necessary. If the carrying value exceeds the fair value, the second step calculates the possible impairment loss by comparing the implied fair value of goodwill with the carrying amount. If the implied goodwill is less than the carrying amount, a write-down is recorded. Management tests goodwill each year for impairment, or when facts or circumstances indicate impairment has occurred. During the quarter ended June 30, 2011, the Company entered into an agreement with Gulfstar LLC and the Sharps which the Company determined is an event that required the Company to assess whether the carrying value of goodwill was impaired. As a result of the Company’s analysis, the Company assessed that goodwill was impaired and therefore an impairment loss was recorded in the amount of $368,369 as an operating expense.

Intangible Assets

Intangible assets consist of right of way deposits, which are contracts allowing the Company to install pipeline on private land. The rights exist indefinitely and therefore, no amortization has been recorded. Management evaluates the assets for impairment whenever events or circumstances indicate a possible impairment. During the quarter ended June 30, 2011, the Company entered into an agreement with Gulfstar LLC and the Sharps which the Company determined is an event that required the Company to assess whether the carrying value of the right of ways were impaired. As a result of the Company’s analysis, the Company assessed there was no impairment to the right of ways.

Significant Customer

The Company's pipeline construction was finished during the second quarter of 2010 and is currently delivering natural gas to one manufacturing customer located in Kentucky. Revenue earned from the oil and gas property management segment and exploration and production segment are determined based upon division orders with one purchaser.

Depreciation

For financial reporting purposes, depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of assets at acquisition. For income tax reporting purposes, depreciation of property and equipment is computed using the straight-line and accelerated methods over the estimated useful lives of assets at acquisition.

Recent Accounting Pronouncements

There were accounting standards and interpretations issued during the six months ended June 30, 2011, none of which are expected to have a material impact on the Company’s financial position, operations or cash flows.

GulfStar Energy Corp 10-Q