UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q








(Mark
One)





[X]          QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
quarterly period ended June 30,
2008





[  ]           TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT





For the
transition period from _______ to ________





Commission
file number:      000-53369








SUNSHINE
FINANCIAL, INC.


(Exact
name of registrant as specified in its charter)





United
      States
            30-0484296(State
      or other jurisdiction of incorporation of organization)
            (IRS
      Employer Identification No.)





1400
East Park Avenue, Tallahassee, Florida  32301


(Address
of principal executive offices; Zip Code)





(850)
219-7200


(Registrant’s
telephone number, including area code)





None


(Former
name, former address and former fiscal year, if changed since last
report)







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




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




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]




APPLICABLE
ONLY TO CORPORATE ISSUERS




State the
number of shares outstanding of each issuer's classes of common equity, as of
the latest practicable date:  At September 25, 2008,
there were no shares of the issuers' common stock
outstanding.











SUNSHINE
FINANCIAL, INC.





Index





Page
      NumberPART
      IFINANCIAL INFORMATIONItem
      1.         Financial
      StatementsCondensed Consolidated Balance
      Sheets as of June 30,
              2008
      (Unaudited) and December 31, 2007
            1Condensed Consolidated
      Statements of Earnings for the
              Three-Month
      and Six-Month Periods Ended June 30, 2008
              and
      2007 (Unaudited)
            2Condensed Consolidated
      Statements of Cash Flows For
              the
      Six-Month Periods Ended June 30, 2008 and 2007 (Unaudited)
            3-4Notes
      to Condensed Consolidated Financial Statements
            5-7Item
      2. Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            8-16Item
      3. Quantitative
      and Qualitative Disclosures About Market Risk
            16Item
      4T. Controls and
      Procedures
            17PART
      II OTHER
      INFORMATIONItem
      1. Legal
      Proceedings
              
              Item
      1A. Risk
      Factors
            18
              
              18Item
      2. Unregistered
      Sales of Equity Securities and Use
              of
      Proceeds
            18Item
      3. Defaults Upon
      Senior Securities
            18Item
      4. Submission of
      Matters to a Vote of Security
              Holders
            18Item
      5. Other
      Information
            18Item
      6. Exhibits
            18SIGNATURES
            19EXHIBIT
      INDEX
            20








PART
I - FINANCIAL INFORMATION


Item
1.  Financial Statements





SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES





Condensed
Consolidated Balance Sheets


(In
thousands)





At
      June 30,
              2008
            
            
            At
      December 31,
              2007(Unaudited)AssetsCash
      and due from banks
            
            $
            1,514
            
            
            
            2,127Interest-bearing
      deposits with banks
            
            
            1,994
            
            
            
            17,386Federal
      funds sold
            
            
            17,525
            
            
            
            5,002Cash
      and cash equivalents
            
            
            21,033
            
            
            
            24,515Securities
      held to maturity
            
            
            6,090
            
            
            
            -Loans,
      net of allowance for loan losses of $1,484 and $1,423
            
            
            130,986
            
            
            
            125,602Premises
      and equipment, net
            
            
            3,791
            
            
            
            3,553Federal
      Home Loan Bank stock, at cost
            
            
            283
            
            
            
            246Deferred
      income taxes
            
            
            909
            
            
            
            570Accrued
      interest receivable
            
            
            469
            
            
            
            458Other
      assets
            
            
            2,141
            
            
            
            1,981Total
      assets
            
            $
            165,702
            
            
            
            156,925Liabilities
      and Retained EarningsLiabilities:Noninterest-bearing
      deposit accounts
            
            
            20,195
            
            
            
            20,330Money-market
      deposit accounts
            
            
            19,111
            
            
            
            18,381Savings
      accounts
            
            
            31,606
            
            
            
            31,204Time
      deposits
            
            
            76,560
            
            
            
            67,653Total
      deposits
            
            
            147,472
            
            
            
            137,568Borrowings
            
            
            -
            
            
            
            500Official
      checks
            
            
            274
            
            
            
            296Advances
      by borrowers for taxes and insurance
            
            
            132
            
            
            
            -Other
      liabilities
            
            
            598
            
            
            
            776Total
      liabilities
            
            
            148,476
            
            
            
            139,140Retained
      earnings
            
            
            17,226
            
            
            
            17,785Total
      liabilities and retained earnings
            
            $
            165,702
            
            
            
            156,925








See
accompanying Notes to Condensed Consolidated Financial
Statements.


1


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES





Condensed
Consolidated Statements of Earnings (Unaudited)


(In
thousands)





Three
      Months Ended
              June 30,
            
            
            Six
      Months Ended
              June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Interest
      income:Loans
            
            $
            2,074
            
            
            
            2,156
            
            
            
            4,110
            
            
            
            4,276Other
            
            
            143
            
            
            
            109
            
            
            
            339
            
            
            
            199Total
      interest income
            
            
            2,217
            
            
            
            2,265
            
            
            
            4,449
            
            
            
            4,475Interest
      expense on deposit accounts
            
            
            1,060
            
            
            
            757
            
            
            
            2,108
            
            
            
            1,401Interest
      expense on borrowings
            
            
            -
            
            
            
            -
            
            
            
            4
            
            
            
            1Total
      interest expense
            
            
            1,060
            
            
            
            757
            
            
            
            2,112
            
            
            
            1,402Net
      interest income
            
            
            1,157
            
            
            
            1,508
            
            
            
            2,337
            
            
            
            3,073Provision
      for loan losses
            
            
            211
            
            
            
            150
            
            
            
            436
            
            
            
            375Net
      interest income after provision for loan losses
            
            
            946
            
            
            
            1,358
            
            
            
            1,901
            
            
            
            2,698Noninterest
      income:Fees
      and service charges on deposit accounts
            
            
            482
            
            
            
            563
            
            
            
            952
            
            
            
            1,089Fees
      and charges on loans
            
            
            46
            
            
            
            61
            
            
            
            100
            
            
            
            166Other
            
            
            -
            
            
            
            1
            
            
            
            -
            
            
            
            1Total
      noninterest income
            
            
            528
            
            
            
            625
            
            
            
            1,052
            
            
            
            1,256Noninterest
      expenses:Salaries
      and employee benefits
            
            
            1,127
            
            
            
            1,059
            
            
            
            2,275
            
            
            
            2,153Occupancy
      and equipment
            
            
            266
            
            
            
            275
            
            
            
            565
            
            
            
            503Data
      processing services
            
            
            217
            
            
            
            218
            
            
            
            381
            
            
            
            397Professional
      fees
            
            
            32
            
            
            
            96
            
            
            
            78
            
            
            
            187Advertising
      and promotion
            
            
            70
            
            
            
            31
            
            
            
            129
            
            
            
            60Stationary
      and supplies
            
            
            25
            
            
            
            25
            
            
            
            50
            
            
            
            42Other
            
            
            216
            
            
            
            235
            
            
            
            372
            
            
            
            443Total
      noninterest expenses
            
            
            1,953
            
            
            
            1,939
            
            
            
            3,850
            
            
            
            3,785(Loss)
      earnings before income tax benefit
            
            
            (479
            )
            
            
            44
            
            
            
            (897
            )
            
            
            169Income
      tax benefit
            
            
            (181
            )
            
            
            -
            
            
            
            (338
            )
            
            
            -Net
      (loss) earnings
            
            $
            (298
            )
            
            
            44
            
            
            
            (559
            )
            
            
            169





See
accompanying Notes to Condensed Consolidated Financial
Statements.


2


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES





Condensed
Consolidated Statements of Cash Flows (Unaudited)


(In
thousands)





Six Months Ended June 30,2008
            
            
            2007Cash
      flows from operating activities:Net
      (loss) earnings
            
            $
            (559
            )
            
            
            169Adjustments
      to reconcile net earnings (loss) to net cash from operating
      activities:Depreciation
            
            
            208
            
            
            
            265Provision
      for loan losses
            
            
            436
            
            
            
            375Deferred
      income tax benefit
            
            
            (339
            )
            
            
            -Net
      amortization of deferred loan fees and costs
            
            
            31
            
            
            
            38(Increase)
      decrease in accrued interest receivable
            
            
            (11
            )
            
            
            62(Increase)
      decrease in other assets
            
            
            (160
            )
            
            
            174Decrease
      in NCUSIF deposit
            
            
            -
            
            
            
            19Decrease
      in official checks
            
            
            (22
            )
            
            
            (8
            )Net
      increase in advances by borrowers for taxes and insurance
            
            
            132
            
            
            
            -Decrease
      in other liabilities
            
            
            (178
            )
            
            
            (1
            )Net
      cash (used in) provided by operating activities
            
            
            (462
            )
            
            
            1,093Cash
      flows from investing activities:Purchase
      of held-to-maturity securities
            
            
            (6,090
            )
            
            
            -Net
      increase in loans
            
            
            (5,851
            )
            
            
            (5,840
            )Net
      purchases of premises and equipment
            
            
            (446
            )
            
            
            (77
            )(Purchase
      of) proceeds from sale of Federal Home Loan Bank stock
            
            
            (37
            )
            
            
            45Net
      cash used in investing activities
            
            
            (12,424
            )
            
            
            (5,872
            )Cash
      flows from financing activities:Net
      increase in deposits
            
            
            9,904
            
            
            
            7,479Net
      decrease in borrowings
            
            
            (500
            )
            
            
            -Net
      cash provided by financing activities
            
            
            9,404
            
            
            
            7,479(Decrease)
      increase in cash and cash equivalents
            
            
            (3,482
            )
            
            
            2,700Cash
      and cash equivalents at beginning of period
            
            
            24,515
            
            
            
            10,701Cash
      and cash equivalents at end of period
            
            $
            21,033
            
            
            
            13,401





(continued)


3


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES





Condensed
Consolidated Statements of Cash Flows (Unaudited), Continued


(In
thousands)








Six Months Ended June 30,2008
            
            
            2007Supplemental
      disclosure of cash flow information-Cash
      paid during the period for:Income
      taxes
            
            $
            -
            
            
            
            -Interest
            
            $
            2,108
            
            
            
            1,401






















































































See
accompanying Notes to Condensed Consolidated Financial Statements.





4


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES





Notes
to Condensed Consolidated Financial Statements








1.
            Basis of
      Presentation.The unaudited,
      condensed consolidated financial statements include the consolidated
      results of operations of Sunshine Financial, Inc. ("Company" or "Sunshine
      Financial") and its subsidiary, Sunshine Savings Bank
      ("Bank").  These financial statements do not include the
      accounts of the Company's parent company, Sunshine Savings
      MHC.  These condensed consolidated financial statements have
      been prepared in accordance with the instructions for Form 10-Q and
      Article 8-03 of Regulation S-X and do not include all disclosures required
      by generally accepted accounting principles for a complete presentation of
      the Company's financial condition and results of operations.  In
      the opinion of management, the information reflects all adjustments
      (consisting only of normal recurring adjustments) which are necessary in
      order to make the financial statements not misleading and for a fair
      representation of the results of operations for such
      periods.  The results for the three- and six-month periods ended
      June 30, 2008 should not be considered as indicative of results for a full
      year.  For further information, refer to the consolidated
      financial statements and footnotes for the year ended December 31, 2007,
      included in the Company's Registration Statement on Form
    S-1.





2.
            Loan
      Impairment and Loan Losses.The activity in the allowance for loan
      losses is as follows (in
thousands):





Three
      Months Ended
              June 30,
            
            
            Six
      Months Ended
              June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Balance
      at beginning of period
            
            $
            1,453
            
            
            
            1,500
            
            
            
            1,423
            
            
            
            1,526Provision
      for loan losses
            
            
            211
            
            
            
            150
            
            
            
            436
            
            
            
            375Charge-offs
            
            
            (200
            )
            
            
            (322
            )
            
            
            (433
            )
            
            
            (623
            )Recoveries
            
            
            20
            
            
            
            40
            
            
            
            58
            
            
            
            90Balance
      at end of period
            
            $
            1,484
            
            
            
            1,368
            
            
            
            1,484
            
            
            
            1,368





Nonaccrual
      and past due loans were as follows (in
  thousands):





At June 30,2008
            
            
            2007Nonaccrual
      loans
            
            $
            1,475
            
            
            
            239Past
      due ninety days or more, still accruing
            
            
            -
            
            
            
            -$
            1,475
            
            
            
            239





The
      Company has not identified any individual loans as
    impaired.





3.
            Regulatory
      Capital.  The Bank is required to maintain certain
      minimum regulatory capital requirements.  At June 30, 2008, the
      Bank was in compliance with its regulatory capital
      requirements.





5


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES





Notes
to Condensed Consolidated Financial Statements, Continued








4.
            Adoption of
      Plan of Reorganization and Stock Issuance.On January 29,
      2008, the Board of Directors unanimously adopted a Plan of Reorganization
      and Stock Issuance (the "Plan") pursuant to which the Bank proposes to
      reorganize from a federally-chartered mutual savings bank into a
      federally-chartered mutual holding company structure (the
      "Reorganization") under the laws of the United States of America and the
      rules and regulations of the Office of Thrift Supervision ("OTS"). 
      The Mutual Holding Company ("MHC") will be owned by, and exclusive voting
      rights will be vested in, the members of the Bank.  As part of the
      Reorganization, the Bank will convert to a federal stock savings bank (the
      "Stock Bank") and will establish a federal stock holding company (the
      "Stock Holding Company") that will be a majority-owned subsidiary of the
      MHC at all times so long as the MHC structure is maintained.  As part
      of the Reorganization and concurrently with it, the Stock Holding Company
      intends to undertake a stock issuance through the offering of up to 49% of
      its to be outstanding common stock (the "Common Stock") in the stock
      offering (the "Stock Offering").  The remaining common stock to be
      outstanding will be issued to the
MHC.





The Stock
Offering provides that nontransferable subscription rights to purchase Stock
Holding Company Common Stock be offered first to Eligible Account Holders of
record as of the Eligibility Record Date, then to the Bank's Tax-Qualified
Employee Plans, then to Supplemental Eligible Account Holders of record as of
the Supplemental Eligibility Record Date, and then to Other Members. 
Concurrently with, at any time during, or promptly after the Subscription
Offering, and on a lowest priority basis, an opportunity to subscribe be offered
to the general public in a Direct Community Offering or a Public Offering. 
The price of the Stock Holding Company Common Stock will be based upon an
independent appraisal of the Bank.





Through
June 30, 2008, the Bank incurred approximately $348,000 in stock offering
costs.  Should the offering be successful, these offering costs plus
any additional costs will be accounted for as a reduction from the proceeds
received.  Should the offering be unsuccessful, these amounts plus any
additional costs will be charged to expense.





On
September 18, 2008, the Bank announced that Sunshine Financial its proposed
holding company, has extended the community offering phase of its stock
offering.  The subscription offering phase to certain depositors of
the Bank and other eligible subscribers expired at 12:00 p.m., Eastern time, on
September 16, 2008.  Sunshine Financial will hold all subscribers'
funds received to date, with interest on those funds continuing to accrue until
the completion of the offering as disclosed in its prospectus dated August 12,
2008.  Sunshine Financial may terminate the community offering at any
time.








6


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES





Notes
      to Condensed Consolidated Financial Statements,
  Continued








4.
            Adoption of
      Plan of Reorganization and Stock Issuance, Continued.In addition,
      Sunshine Financial announced that it has increased the individual purchase
      limitation and the overall group purchase limitation of the common stock
      sold in the offering (688,500 shares at the minimum of the offering range
      and 931,500 shares at the maximum of the offering range) to 34,425
      shares.  Persons who submitted orders in the subscription
      offering at the original maximum individual purchase limit or overall
      purchase limitation may increase their order by submitting an additional
      stock order form with full payment for the additional shares
      ordered.





7


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES





Item
2.


Financial
Condition and Results of Operations








Forward-Looking
Statements





When used in this report and in future
filings by Sunshine Financial with the SEC, in Sunshine Financial's press
releases or other public or shareholder communications, or in oral statements
made with the approval of an authorized executive officer, the words or phrases,
"anticipate," "believes," "expects," "would be," "will allow," "intends to,"
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimated," "projected," or similar expressions are intended to identify
forward-looking statements.  Such statements are subject to risks and
uncertainties, including but not limited to changes in economic conditions in
Sunshine Financial's market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in Sunshine Financial's market
area, changes in the position of banking regulators on the adequacy of our
allowance for loan losses, and competition, all or some of which could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected.




Sunshine Financial wishes to caution
readers not to place undue reliance on any forward-looking statements, which
speak only as of the date made, and advise readers that various factors,
including regional and national economic conditions, substantial changes in
levels of market interest rates, credit and other risks of lending and investing
activities, and competitive and regulatory factors, could affect Sunshine
Financial's financial performance and could cause Sunshine Financial's actual
results for future periods to differ materially from those anticipated or
projected.




Sunshine Financial does not undertake,
and specifically disclaims any obligation, to update any forward-looking
statements to reflect occurrences or unanticipated events or circumstances after
the date of such statements.




General




On July
1, 2007, Sunshine Savings Bank (the "Bank") converted its charter from a
state-chartered credit union to a federally-chartered savings
bank.  On that date the name was changed from Sunshine State Credit
Union to Sunshine Savings Bank, and we became a taxable
organization.  The banking operations are conducted through four
offices in Tallahassee, Florida and one office in Broward County,
Florida.  The Bank's deposits are insured to the extent of the law, by
the Federal Deposit Insurance Corporation.




Our
principal business consists of attracting retail deposits from the general
public and investing those funds, along with borrowed funds, in loans secured by
first and second mortgages on one- to four-family residences, home equity loans
and lines of credit, and direct automobile, credit card and other consumer
loans.




We offer
a variety of deposit accounts, which are our primary source of funding for our
lending activities.  We have adopted a plan of reorganization and
stock issuance, primarily to increase our capital to grow our loan portfolio and
to continue to build our franchise.




Sunshine
Savings Bank is significantly affected by prevailing economic conditions as well
as government policies and regulations concerning, among other things, monetary
and fiscal affairs, housing and financial institutions.  Deposit flows
are influenced by a number of factors, including interest rates paid on
competing time deposits, other investments, account maturities, and the overall
level of personal income and savings.  Lending activities are
influenced by the demand for funds, the number and quality of lenders, and
regional economic cycles.  Sources of funds for lending activities of
the Bank include primarily deposits, borrowings, payments on loans and income
provided from operations.




8


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES







The
Bank's earnings are primarily dependent upon our net interest income, the
difference between interest income and interest expense.  Interest
income is a function of the balances of loans and investments outstanding during
a given period and the yield earned on these loans and
investments.  Interest expense is a function of the amount of deposits
and borrowings outstanding during the same period and interest rates paid on
these deposits and borrowings.  The Bank's earnings are also affected
by our provision for loan losses, service charges and fees, gains from sales of
loans, commission income, other income, operating expenses and income
taxes.




Over the
last year, our net interest margin has narrowed and the level of our
nonperforming loans has increased. These trends are primarily attributable to
our change in lending emphasis from higher risk and higher rate consumer
automobile and unsecured lending to lower risk and lower yielding single-family
mortgage lending, the effect of rapidly declining short-term interest rates and
the economic slowdown that began during this period.  As rates have
declined, our yields on adjustable rate loans also declined. While funding costs
also moved significantly lower, the more immediate impact of lower rates on a
substantial portion of our loan portfolio resulted in compression of our net
interest margin. This decline was compounded by the adverse effect of an
increase in the level of nonaccrual loans and other nonperforming assets.
Reflecting these generally lower market interest rates as well as the changes in
our asset mix and a higher level of nonaccrual loans, the yield on earning
assets for the six months ended June 30, 2008 decreased by 116 basis points
compared to the prior year's six month period, while funding costs for the six
months ended June 30, 2008 increased by 56 basis points compared to the same
period last year, as we increased the amount of higher costing certificates of
deposit as a percentage of our overall deposits.  Approximately $30.8
million, or 40.2%, of our total certificates will mature from July 1, 2008
through December 31, 2008, which are costing an average rate of 5.06%. Likewise,
our net interest rate-spread declined to 2.48% for the six months ended June 30,
2008 as compared to 4.20% for the same period last year. Importantly, during the
first six months of 2008, the Federal Reserve was aggressively lowering
short-term interest rates.  Due to the timing of those changes, we
anticipate further compression of our net interest margin over the next quarter,
despite the fact that funding costs are expected to continue
declining.  In addition, to the extent the economic slowdown continues
or worsens, our nonperforming assets may increase, further negatively impacting
our earnings.




Following
the completion of the offering, we anticipate that our operating expenses will
increase as a result of our branch expansion strategy and the costs associated
with being a public company.  We also expect, however, to decrease the
level of discretionary contributions to our existing benefit plans
to  substantially offset the projected cost of our proposed stock
based benefit plans. While these additional expenses will negatively impact
earnings, we do not expect them to offset the additional income we expect to
receive by leveraging the proceeds from our stock offering.




Critical Accounting
Policies




Certain
of our accounting policies are important to the portrayal of our financial
condition, since they require management to make difficult, complex or
subjective judgments, some of which may relate to matters that are inherently
uncertain.  Estimates associated with these policies are susceptible
to material changes as a result of changes in facts and
circumstances.  Facts and circumstances which could affect these
judgments include, but are not limited to, changes in interest rates, changes in
the performance of the economy and changes in the financial condition of
borrowers.  Management believes that its critical accounting policies
include, determining the allowance for loan losses and accounting for deferred
income taxes.




9


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES







Allowance for
Loan Loss.  The allowance for loan losses is the amount
estimated by management as necessary to cover losses in the loan portfolio at
the balance sheet date.  The allowance is established through the
provision for loan losses, which is charged to income.  Determining
the amount of the allowance for loan losses necessarily involves a high degree
of judgment.  The allowance for loan losses is evaluated on a regular
basis by management and is based upon management's periodic review of the
collectability of the loans in light of historical experience, the nature and
volume of the loan portfolio, adverse situations that may affect the borrower's
ability to repay, estimated value of any underlying collateral and prevailing
economic conditions.  This evaluation is inherently subjective as it
requires estimates that are susceptible to significant revision as more
information becomes available.




The
allowance consists of specific and general components.  The specific
component relates to loans that are classified as impaired.  For such
loans that are also classified as impaired, an allowance is established when the
discounted cash flows, collateral value or observable market price of the
impaired loan is lower than the carrying value of that loan.  The
general component covers all other loans and is based on historical industry
loss experience adjusted for qualitative factors.




Loans are
considered impaired if, based on current information and events, it is probable
that we will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan
agreement.  The measurement of impaired loans is generally based on
the present value of expected future cash flows discounted at the historical
effective interest rate stipulated in the loan agreement, except that all
collateral-dependent loans are measured for impairment based on fair value of
the collateral.  In measuring the fair value of the collateral,
management uses assumptions (e.g., discount rates) and methodologies (e.g.,
comparison to the recent selling price of similar assets) consistent with those
that would be utilized by unrelated third parties.




Deferred Tax
Assets.  Income taxes are reflected in our financial statements
to show the tax effects of the operations and transactions reported in the
financial statements and consist of taxes currently payable plus deferred
taxes.  SFAS No. 109, "Accounting for Income Taxes," requires the
asset and liability approach for financial accounting and reporting for deferred
income taxes.  Deferred tax assets and liabilities result from
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities.  They are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled and are determined using the
assets and liability method of accounting.  The deferred income
provision represents the difference between net deferred tax asset/liability at
the beginning and end of the reported period.  In formulating our
deferred tax asset, we are required to estimate our income and taxes in the
jurisdiction in which we operate.  This process involves estimating
our actual current tax exposure for the reported period together with assessing
temporary differences resulting from differing treatment of items, such as
depreciation and the provision for loan losses, for tax and financial reporting
purposes.  Deferred tax assets and liabilities are the expected future
tax amounts for the temporary differences between carrying amounts and tax bases
of assets and liabilities, computed using enacted tax rates.  The
realization of deferred tax assets is dependent on results of future
operations.  A valuation allowance, if needed, reduces deferred tax
assets to the amount expected to be realized.




10


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES





Management's
Discussion and Analysis of Financial Condition and Results of
Operations








Comparison
of Financial Condition at June 30, 2008 and December 31, 2007





General.  Total
assets increased $8.8 million, or 5.6%, to $165.7 million at June 30, 2008 from
$156.9 million at December 31, 2007. The increase in total assets was due
primarily to increases in securities and in our loan portfolio, offset by a
decrease in cash and cash equivalents.  Securities increased by $6.1
million at June 30, 2008 from none at December 31, 2007, while our loan
portfolio increased $5.4 million since December 31, 2007, which was offset by a
$3.5 million decrease in cash and cash equivalents.  The increase in
total assets was funded by an increase in our time deposits.




Loans.Our
loan portfolio increased $5.4 million, to $131.0 million at June 30, 2008 from
$125.6 million at December 31, 2007.  Our one- to four-family real
estate mortgage loans increased $6.7 million and other secured loans increased
$3.2 million.  These increases were offset by a decrease in automobile
loans of $3.3 million, and a decrease in credit card and unsecured loans of $1.2
million. The decrease in automobile and credit card and unsecured loans was
primarily due to a combination of more stringent underwriting policies and a
greater emphasis on providing mortgage lending.




Allowance for
Loan Losses.  The allowance for loan losses is maintained to
cover losses that have been estimated on the date of the evaluation in
accordance with generally accepted accounting principles in the United
States.  It is our estimate of probable incurred credit losses in our
loan portfolio.




Our
methodology for analyzing the allowance for loan losses consists of specific and
general components.  We stratify the loan portfolio into homogeneous
groups of loans that possess similar loss-potential characteristics and apply an
appropriate loss ratio to the homogeneous pools of loans to estimate the
incurred losses in the loan portfolio.  The amount of loan losses
incurred in our consumer portfolio is estimated by using historical loss ratios
for major loan collateral types adjusted for current factors.  The
historical loss experience is generally defined as an average percentage of net
loan losses to loans outstanding.  A separate valuation of known
losses for individual impaired large-balance, non-homogeneous loans is also
established. Impaired loans are loans that we believe are probable of not being
paid in accordance with the loan agreement. The allowance for loan losses on
individually analyzed loans includes one- to four-family and consumer loans,
where management has concerns about the borrower's ability to
repay.  Loss estimates include the difference between the estimated
current fair value of the collateral and the loan amount due.




Our
allowance for loan losses at June 30, 2008 was $1.5 million or 1.13% of net
loans receivable, compared to $1.4 million or 1.12% of net loans receivable at
December 31, 2007.  Nonperforming loans increased to $1.5 million at
June 30, 2008 from $1.4 million at December 31, 2007.  Nonperforming
loans to total loans increased to 1.11% at June 30, 2008 from 1.10% at December
31, 2007.




Deposits.Total
deposits increased $9.9 million to $147.5 million at June 30, 2008 from $137.6
million at December 31, 2007.  This increase was due primarily to an
$8.9 million or 13.2% increase in time deposits.  The increase in our
time deposits was the result of paying more competitive interest rates and our
recent access to the general public for deposits as we had no field of
membership limitation since our conversion to a thrift charter.




Equity.Total
equity decreased $559,000 to $17.2 million at June 30, 2008 or 10.40% of total
assets, from $17.8 million at December 31, 2007.  This decrease was
solely due to the net operating loss for the six months ended June 30,
2008.




11


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES








Comparison
of Results of Operation for the Three Months Ended June 30, 2008 and
2007





General.  Net
loss for the three months ended June 30, 2008 was $298,000 compared to net
earnings of $44,000 for the three months ended June 30, 2007.  The
earnings (net loss) represent an annualized return on average assets of
(0.73)% for the three months ended June 30, 2008 and 0.13% for the three months
ended June 30, 2007.  The decrease in net earnings was due
primarily to a decrease in our interest-rate spread.  The average
yield on assets decreased to 5.73% for the three months ended June 30, 2008
from 7.00% for the three months ended June 30, 2007.  This decline was
expected due to a change in emphasis from higher risk and higher rate consumer
automobile and unsecured lending to lower risk and lower yielding single-family
mortgage lending.  In addition, the average cost of liabilities
increased to 3.32% for the three months ended June 30, 2008 from 3.00% for the
three months ended June 30, 2007, primarily due to the higher volume of
certificate of deposit accounts.




Net Interest
Income.  Net interest income decreased $351,000, or 23.3%, to
$1.2 million for the three months ended June 30, 2008 from $1.5 million for the
same period in 2007 as the increase in the average balance of our loan portfolio
was not enough to offset the lower rates we were earning on our loans and
increased costs of our deposits.  Our interest-rate spread decreased
to 2.42% for the three months ended June 30, 2008 from 4.00% for the same period
in 2007, while our net interest margin declined to 3.13% at June 30, 2008
from 4.42% at June 30, 2007.  The ratio of average interest-earning
assets to average interest-bearing liabilities for the three months ended June
30, 2008 decreased to 121.0% at June 30, 2008, from 128.1% as of June 30,
2007.




Interest
Income. Interest income for the three months ended June 30, 2008
decreased $48,000 to $2.2 million from the same period ending June 30,
2007.  While the total interest income remained relatively stable, the
yield on loans decreased to 6.44% for the three months ended June 30, 2008 from
7.11% for the three months ended June 30, 2007, primarily the result of
emphasizing lower yielding and lower risk mortgage loan
products.   In addition, the yield on other interest earning
assets decreased to 2.26% for the three months ended June 30, 2008 from 5.30%
for the three months ended June 30, 2007, primarily the result of lower rates on
other interest-bearing assets.  The overall yield on average earning
assets decreased to 5.73% from 7.00% for the same period due to lower yielding
loans and federal funds sold.




Interest
Expense. Interest expense for the three months ended June 30, 2008 was
$1.1 million compared to $757,000 for the same period in 2007, an increase of
$303,000.  The increase was primarily the result of an increase in the
average balance of time deposits, offset by a decrease in the average rate of
paid on time deposits.  Average time deposits increased to $77.5
million for the three month period ended June 30, 2008 from $49.0 million for
the same period in 2007 and the average rate paid on time deposits decreased to
4.61% from 4.76%.  Approximately $30.8 million, or 40.2%, of total
time deposits will mature from July 1, 2008 through December 31, 2008, which are
costing us an average rate of 5.06%.  It is expected, based on our
historical experience, that these time deposits would most likely be retained by
us at lower rates, based on the recent reductions by the U.S. Federal Reserve
Board in the federal funds rate, thus reducing our overall cost of
funds.




Provision for
Loan Losses.  We establish an allowance for loan losses by
charging amounts to the loan provision at a level required to reflect estimated
credit losses in the loan portfolio.  In evaluating the level of the
allowance for loan losses, management considers, among other factors, historical
loss experience, the types of loans and the amount of loans in the loan
portfolio, adverse situations that may affect borrowers' ability to repay,
estimated value of any underlying collateral,  prevailing economic
conditions and current risk factors specifically related to each loan
type.  See "- Critical Accounting Policies -- Allowance for Loan Loss"
for a description of the manner in which the provision for loan losses is
established.




12


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES









Based on
management's evaluation of these factors, we recorded a provision for loan
losses of $211,000 for the three months ended June 30, 2008 and $150,000 for the
same period in 2007.  The provision for loan losses reflected the
growth in our loan portfolio between these two periods and the increase in one-
to four-family mortgage loans and home equity loans which require a smaller
contribution to the allowance for loan losses than if our growth consisted of
higher risk loans. Net charge-offs for the three months ended June 30, 2008 were
$180,000 compared to $282,000 for the three month period ended June 30,
2007.  For the second quarter of 2008, net charge-offs consisted of
$105,000 for credit card and unsecured loans, $34,000 for one- to four-family
mortgage loans, $31,000 for automobile loans, $6,000 for home equity loans and
$4,000 for other secured consumer loans.  For the same period in 2007,
net charge-offs consisted of $125,000 for automobile loans, $84,000 for home
equity loans and $73,000 for credit card and unsecured
loans.




Nonperforming
loans to total loans at June 30, 2008 were 1.11% compared to 0.19% at June 30,
2007. One- to four-family mortgage loans accounted for almost all of the
increase in nonperforming loans between the periods. Because of the lower level
of historical loss associated with these loans, the adverse effect on our
allowance for loan loss of an increase in nonperforming loans was partially
mitigated. In addition, the amount of repossessed automobiles declined during
the second quarter of 2008 compared to the same quarter last year, reducing the
amount of allowance established for losses upon sale of these automobiles. The
allowance for loan losses to net loans receivable was 1.13% at June 30, 2008
compared to 1.11% at June 30, 2007.




Noninterest
Income. Noninterest income for the three months ended June 30, 2008
declined $97,000 to $528,000 compared to $625,000 for the same period in
2007.  Loan fees and service charges on deposit accounts decreased by
$16,000 and $81,000, respectively, for the three months ended June 30, 2008,
compared to the three months ended June 30, 2007 due to a reduction in our fee
schedule and the number of demand accounts.




Noninterest
Expense. Noninterest expense for the three months ended June 30, 2008
remained approximately the same at $2.0 million compared to $1.9 million for the
same period in 2007.  The largest increase occurred in salaries and
employee benefits which was attributable to normal merit pay increases as well
as increased insurance costs.  This was offset by decreases in other
noninterest expense.  The number of full-time equivalent employees at
June 30, 2008 and June 30, 2007 was 77.




Income
Taxes. For the three months ended June 30, 2008, we recorded an income
tax benefit of $181,000 on a before tax loss of $479,000.  Due to
credit unions being not-for-profit organizations, we were not subject to federal
or state income taxes for the three months ended June 30, 2007.  As a
result of our charter conversion to a mutual savings bank on July 1, 2007, we
became a for-profit, taxable organization.  Beginning July 1, 2007,
our earnings as a savings bank were subject to federal and state income taxes at
a combined rate of 37.6%.  Had our earnings in 2007 been subject to
income taxes, we would have recorded tax provision of $16,000 and our net
earnings after income taxes would have been $28,000.




13


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES








Comparison
of Results of Operation for the Six Months Ended June 30, 2008 and
2007





General.  Net
loss for the six months ended June 30, 2008 was $559,000 compared to net
earnings of $169,000 for the six months ended June 30, 2007.  The
earnings represent an annualized return on average assets of (0.70) % for
the six months ended June 30, 2008 and 0.25% for the six months ended June
30, 2007.  The decrease in net earnings was due primarily to a
decrease in our interest-rate spread.  The average yield on assets
decreased to 5.88% for the six months ended June 30, 2008 from 7.04% for the six
months ended June 30, 2007.  This decline was expected due to a change
in emphasis from higher risk and higher rate consumer automobile and unsecured
lending to lower risk and lower yielding single-family mortgage
lending.  In addition, the average cost of liabilities increased to
3.40% for the six months ended June 30, 2008 from 2.84% for the six months ended
June 30, 2007, primarily due to the higher cost and volume of certificate of
deposit accounts.




Net Interest
Income.  Net interest income decreased $736,000, or 24.0%, to
$2.3 million for the six months ended June 30, 2008 from $3.1 million for the
same period in 2007 as the increase in the average balance of our loan portfolio
was not enough to offset the lower rates we were earning on our loans and
increased costs of our deposits.  Our interest-rate spread decreased
to 2.48% for the six months ended June 30, 2008 from 4.20% for the same period
in 2007, while our average net interest margin declined to 3.13% at June
30, 2008 from 4.42% at June 30, 2007.  The ratio of average
interest-earning assets to average interest-bearing liabilities for the six
months ended June 30, 2008 decreased to 121.8% at June 30, 2008, from 128.8% as
of June 30, 2007.




Interest
Income.  Interest income for the six months ended June 30, 2008
decreased $26,000 to $4.4 million from the same period ending June 30,
2007.  While the total interest income remained relatively stable, the
yield on loans decreased to 6.49% for the six months ended June 30, 2008 from
7.12% for the six months ended June 30, 2007, primarily the result of
emphasizing lower yielding and lower risk mortgage loan
products.   In addition, the yield on other interest-earning
assets decreased to 2.70% for the six months ended June 30, 2008 from 5.61% for
the six months ended June 30, 2007, primarily the result of lower rates on other
interest-bearing assets.  The overall yield on average earning assets
decreased to 5.88% from 7.04% for the same period due to lower yielding loans
and federal funds sold.




Interest
Expense. Interest expense for the six months ended June 30, 2008 was $2.1
million compared to $1.4 million for the same period in 2007, an increase of
$0.7 million.  The increase was primarily the result of an increase in
both the average balance and the average rate paid on time deposits. Average
time deposits increased to $74.3 million for the six month period ended June 30,
2008 from $45.4 million for the same period in 2007 and the average rate paid on
time deposits increased to 4.78% from 4.60%.




Provision for
Loan Losses.  For the six months ended June 30, 2008 the
provision for loan losses was $436,000 and $375,000 for the same period in
2007.  The provision for loan losses reflected the growth in our loan
portfolio between these two periods and the increase in one- to four-family
mortgage loans and home equity loans which require a smaller contribution to the
allowance for loan losses than if our growth consisted of higher risk loans. Net
charge-offs for the six months ended June 30, 2008 were $375,000 compared to
$533,000 for the six month period ended June 30, 2007. For the first half of
2008, net charge-offs consisted of $200,000 for credit card and unsecured loans,
$34,000 for one- to four-family mortgage loans, $116,000 for automobile loans,
$22,000 for home equity loans and $3,000 for other secured consumer
loans.  For the same period in 2007, net charge-offs consisted of
$266,000 for automobile loans, $85,000 for home equity loans and $182,000 for
credit card and unsecured loans.









14


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES







Noninterest
Income. Noninterest income for the six months ended June 30, 2008
declined $204,000 to $1,052,000 compared to $1,256,000 for the same period in
2007.  Loan fees and service charges on deposit accounts decreased by
$66,000 and $138,000, respectively, for the six months ended June 30, 2008,
compared to the six months ended June 30, 2007 due to a reduction in our fee
schedule and the number of demand accounts.




Noninterest
Expense. Noninterest expense for the six months ended June 30, 2008 was
$3.85 million, compared to $3.79 million for the same period in
2007.  The largest increase occurred in salaries and employee benefits
which was attributable to an increase in employees, normal merit pay increases
as well as increased insurance costs.




Income
Taxes. For the six months ended June 30, 2008, we recorded an income tax
benefit of $338,000 on a before tax loss of $897,000.  Had our
earnings in 2007 been subject to income taxes, we would have recorded tax
provision of $63,000 and our net earnings after income taxes would have been
$106,000.





Off-Balance
Sheet Arrangements





In the normal course of operations, we
engage in a variety of financial transactions that are not recorded in our
financial statements.  These transactions involve varying degrees of
off-balance sheet credit, interest rate and liquidity risks.  These
transactions are used primarily to manage customers' requests for funding and
take the form of loan commitments and lines of credit.  For the six
months ended June 30, 2008 and the year ended December 31, 2007, we engaged in
no off-balance sheet transactions likely to have a material effect on our
financial condition, results of operations or cash flows.




A summary
of our off-balance sheet commitments to extend credit at June 30, 2008, is as
follows (in thousands):




Off-balance sheet loan
      commitments:Commitments
      to make loans
            
            $
            1,369Unused
      lines of
      credit
            
            
            15,742Total
      loan
      commitments
            
            $
            17,111


15


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES








Capital




Sunshine
Savings Bank is subject to minimum capital requirements imposed by the
OTS.  Based on its capital levels at June 30, 2008, Sunshine Savings
Bank exceeded these requirements as of that date and continues to exceed them as
of the date of this report.  Consistent with our goals to operate a
sound and profitable organization, our policy is for Sunshine Savings Bank to
maintain a "well-capitalized" status under the capital categories of the
OTS.  Based on capital levels at June 30, 2008, Sunshine Savings Bank
was considered to be well-capitalized.  In addition, as part of our
conversion to a federally-chartered savings bank, Sunshine Savings Bank is
required to maintain a minimum Tier I capital to total assets ratio of no less
than 8% for three years of operation.




The
following table sets forth our regulatory capital ratios at June 30,
2008:




Actual
            
            
            Minimum Capital
              Requirements
            
            
            Minimum Required to
              Be Well-Capitalized
              Under Prompt
              Corrective
              Action
      ProvisionsAmount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio(Dollars
      in thousands)Core capital (to total
      adjusted  assets)
            
            $
            16,076
            
            
            
            9.77
            %
            
            $
            6,582
            
            
            
            4.00
            %
            
            $
            8,227
            
            
            
            5.00
            %Core
      capital (to risk-weighted assets)
            
            $
            16,076
            
            
            
            14.92
            %
            
            $
            4,308
            
            
            
            4.00
            %
            
            $
            6,464
            
            
            
            6.00
            %Risked-based capital (to risk-weighted assets)
            
            $
            17,423
            
            
            
            16.17
            %
            
            $
            8,618
            
            
            
            8.00
            %
            
            $
            10,773
            
            
            
            10.00
            %







The capital raised in our
pending offering, with net proceeds estimated to be between $6.1 million and
$9.9 million, will significantly increase our regulatory capital levels and
ratios.  Based upon our existing capital, and the capital to be raised
in our pending offering, we believe that we will have sufficient capital to
carry out our proposed business plan for at least the next year and to meet any
applicable regulatory capital requirements during that period.




Impact of Inflation




The
effects of price changes and inflation can vary substantially for most financial
institutions.   While management believes that inflation affects
the growth of total assets, it believes that it is difficult to assess the
overall impact.   Management believes this to be the case due to
the fact that generally neither the timing nor the magnitude of the inflationary
changes in the consumer price index ("CPI") coincides with changes in interest
rates.   The price of one or more of the components of the CPI
may fluctuate considerably and thereby influence the overall CPI without having
a corresponding affect on interest rates or upon the cost of those good and
services normally purchased by Sunshine Savings Bank.   In years
of high inflation and high interest rates, intermediate and long-term interest
rates tend to increase, thereby adversely impacting the market values of
investment securities, mortgage loans and other long-term fixed rate
loans.   In addition, higher short-term interest rates caused by
inflation tend to increase the cost of funds.   In other years,
the opposite may occur.




Item 3.       Quantitative and Qualitative Controls
Disclosures About Market Risk





Not required for smaller reporting
companies.


16


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES








Item4T.        Controls and
Procedures





An evaluation of the Company's
disclosure controls and procedures as defined in Rule 13a -15(e) under the
Securities Exchange Act of 1934 (the"Act") as ofJune30, 2008, was carried out under the supervision
and with the participation of the Company's Chief Executive Officer, Chief
Financial Officer and several other members of the Company's senior management.
The Chief Executive Officer and Chief Financial Officer concluded that, as ofJune30, 2008, the Company's disclosure controls and
procedures were effective in ensuring that the information required to be
disclosed by the Company in the reports it files or submits under the Act is:
(i) accumulated and communicated to the Company's management (including the Chief
Executive Officer and the Chief Financial Officer) in a timely manner, and (ii)
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms. There were no changes in our internal control over
financial reporting (as defined in Rule 13a - 15(f) under the Act) that occurred
during the quarter endedJune 30, 2008, that has materially affected, or is
likely to materially affect our internal control over financial
reporting.




The Company intends to continually
review and evaluate the design and effectiveness of its disclosure controls and
procedures and to improve its controls and procedures over time and to correct
any deficiencies that it may discover in the future. The goal is to ensure that
senior management has timely access to all material financial and nonfinancial
information concerning the Company's business. While the Company believes the
present design of its disclosure controls and procedures is effective to achieve
its goal, future events affecting its business may cause the Company to modify
its disclosure controls and procedures.






The Company does not expect that its
disclosure controls and procedures will prevent all error and all fraud. A
control procedure, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control procedure
are met. Because of the inherent limitations in all control procedures, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any control procedure is also based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies and procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
procedure, misstatements due to error or fraud may occur and not be
detected.




17


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES







PART II-OTHER INFORMATION







Item 1.     Legal Proceedings





In the normal course of business, the
Company occasionally becomes involved in various legal
proceedings.  In the opinion of management, any liability from such
proceedings would not have a material adverse effect on the business or
financial condition of the Company.





Item 1A.  Risk
Factors





Not required for smaller reporting
companies.





Item 2.    Unregistered Sales of Equity Securities
and use of Proceeds





(a)Recent Sales of Unregistered
Securities





Nothing to report.





(b)Use of Proceeds





Nothing to report.





(c)Stock Repurchases





Nothing
to report.





Item
3.  Defaults Upon Senior
Securities





Nothing
to report.





Item
4.      Submission of Matters to a Vote of
Security Holders





Nothing
to report.





Item
5.      Other Information




Nothing
to report.
  Item
6.  Exhibits




See
Exhibit Index


18


SUNSHINE
FINANCIAL, INC. AND SUBSIDIARIES





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.





SUNSHINE FINANCIAL,
      INC.Date: 
      September 25, 2008
            By:
            /s/ Louis
      O. Davis, Jr.Louis
      O. Davis, Jr.President
      and Chief Executive Officer(Duly Authorized
Officer)




Date: 
      September 25, 2008
              By:
              /s/
      Scott A. SwainScott
      A. SwainSenior
      Vice President, Treasurer and
                Chief Financial Officer(Principal
      Financial Officer)
  19


EXHIBIT
INDEX





Exhibits
            
            Reference to
      Prior
              Filing
      or Exhibit No.
              Attached Hereto2.0
            Plan
      of Reorganization and Stock Issuance
            *3.1
            Charter
      for Sunshine Financial, Inc.
            **3.2
            Bylaws
      of Sunshine Financial, Inc.
            **4.0
            Form
      of Stock Certificate of Sunshine Financial, Inc.
            **10.1
            Form
      of Employment Agreement entered into with Louis O. Davis
            **10.2
            Director
      Fee Arrangements
            **14.
            Code
      of Business Conduct and Ethics
            +15
            Letter on unaudited interim
      financial information
            None18
            Letter re change in accounting
      principles
            None19
            Reports furnished to security
      holders
            None20
            Other documents to security
      holders or incorporated by reference
            None22
            Published report on matters
      submitted for shareholder vote
            None23
            Consents
            None24
            Power of
      Attorney
            None31.1
            Rule 13a–14(a) Certification of
      Chief Executive Officer
            31.131.2
            Rule 13a–14(a) Certification of
      Chief Financial Officer
            31.232
            Section 1350
      Certification
            32





*
            Filed
      as an exhibit toPre-effective
      Amendment No. 1 tothe
      Company’s
      Form S–1registration
      statement filed onJuly
      8,
      2008(File
      No.333–151131) pursuant
      to Section 5 of the Securities Act of
  1933.**
            Filed
      as an exhibit to the Company’s
      Form S-1registration
      statement filed onMay
      23,
      2008(File
      No.333–151131) pursuant
      to Section 5 of the Securities Act of
  1933.+
            Company
      is in formation and will not be chartered until the closing of its stock
      offering.  It will adopt a Code of Conduct and Ethics at its
      organization.