UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

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

                     For the fiscal year ended June 30, 2008

                                       or

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

                         Commission file No. 333-126654

                               BIRCH BRANCH, INC.
                               ------------------
        (Exact name of small business issuer as specified in its charter)

        Colorado                                             84-1124170
        --------                                             ----------
(State of incorporation)                                  (I.R.S. Employer
                                                        Identification Number)

                         2560 W. Main Street, Suite 200
                               Littleton, CO 80120
                               -------------------
                    (Address of principal executive offices)

                                 (303)-794-9450
                                 --------------
                           (Issuer's telephone number)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock, no
par value per share

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [_]

Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the small business issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.

                                 YES [X] NO [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form and no disclosure will be
contained, to the best of small business issuer's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]

Indicate by check mark whether the small business issuer is a shell company (as
defined by Rule 12b-2 of the Act),

                                 YES [X] NO [ ]

Issuer's revenues for the year ended June 30, 2008 were $ - 0-

Aggregate market value of voting stock held by non-affiliates based on the
closing bid price of our common stock on September 25, 2008 was $ 198,157, which
was $1.06 per share.

As of September 26, 2008, the Company had 1,708,123 shares of its no par value
common stock issued and outstanding.

Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]


<PAGE>

                  Index to Birch Branch, Inc. 2008 Form 10-KSB


                  Cautionary Note Regarding Forward-Looking Statements
PART I
------
Item 1.           Description of Business
Item 1A           Risk Factors
Item 2.           Description of Property
Item 3.           Legal Proceedings
Item 4.           Submission of Matters to a Vote of Security Holders

PART II
-------
Item 5.           Market for Common Equity and Related Stockholder Matters
Item 6.           Management's Discussion and Analysis of Financial Condition
                    and Results of  Operations
Item 7.           Financial Statements
Item 8.           Changes in and Disagreements with Accountants on Accounting
                    and Financial Disclosure
Item 8A(T).       Controls and Procedures

PART III
--------
Item 9.           Directors and Executive Officers
Item 10.          Executive Compensation
Item 11.          Security Ownership of Certain Beneficial Owners and
                    Management and Related
                  Stockholders Matters
Item 12.          Certain Relationships and Related Transactions
Item 13.          Exhibits and Reports on Form 8-K
Item 14.          Principal Accountant Fees and Services

                  Signatures


<PAGE>

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

    This Form 10-KSB for Birch Branch, Inc. ("the Company") contains
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical fact are "forward-looking
statements" for purposes of federal and state securities laws, including any
projections of earnings, revenue or other financial items; any statements of the
plans, strategies and objectives of management for future operations; any
statements concerning proposed new products or developments; any statements
regarding future economic conditions or performance; any statements of belief;
and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words "may," "will," "estimate,"
"intend," "continue," "believe," "expect" or "anticipate" and other similar
words.

    Although we believe that the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any of our forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to change and to inherent risks and
uncertainties. Actual future results may differ significantly from the results
discussed in the forward-looking statements. Some of the risks that may affect
our performance are discussed below under "Risk Factors Associated with Our
Business."

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS
-------------------------------

Overview

    Birch Branch, Inc. ("Birch Branch") was incorporated on September 28, 1989
in Colorado. Birch Branch was previously a wholly-owned subsidiary of Pride
Holdings, Inc. ("Pride Holdings"). Pride Holdings is a wholly-owned subsidiary
of Pride, Inc. ("PRIDE"). PRIDE was a wholly-owned subsidiary of Prime Rate
Income & Dividend Enterprises, Inc. ("PIDV"). On November 12, 2002, the
directors of PIDV approved, subject to the effectiveness of a registration with
the Securities and Exchange Commission, the pro rata spin-off of PRIDE to the
PIDV shareholders of record on November 26, 2002 on a pro rata basis, exclusive
of shares issued to U.S. Medical Systems, Inc. ("USMS") shareholders effective
November 12, 2002. PIDV entered into a share exchange agreement with USMS
whereby USMS became a wholly-owned subsidiary of PIDV. This business combination
completed in November, 2002, was accounted for as a reverse acquisition of PIDV
since the former controlling shareholders of USMS controlled PIDV after the
transaction. Simultaneous with the spin-off of PRIDE, the directors of PRIDE and
Pride Holdings. determined that Birch Branch should also be distributed in the
same manner to the same qualified PIDV shareholders. Birch Branch was the owner
of five residential lots comprising a total of eight acres in Nebraska. Since
Birch Branch desired to develop this property and needed additional capital to
fund this development, it was determined that it was in the best interest of
PRIDE'S shareholders to spin-off Birch Branch to the same PIDV qualified
shareholders.

    On September 26, 2006 the Company entered into an Agreement and Plan of
Reorganization with Fluid Audio Networks, Inc. ("FAN") under which, following a
proposed 3.75 for 1 forward stock split of the outstanding common stock of the
Company, the Company would issue 10,269,528 shares of common stock to acquire
all of the outstanding common stock of FAN. Additionally, the Company was to
divest itself of its real estate assets by conveying these assets to its
President in exchange for the assumption of all the parent company debt and
cancellation of 16,667 (post split) shares of its common stock held by its
President and transferred to it. The Company's then President was to convey for
cancellation an additional 16,667 shares (post split) of the Company's common
stock in exchange for a payment of $500,000.

                                       2
<PAGE>
    The Agreement and Plan of Reorganization was subject to certain significant
contingencies which must have been resolved by November 30, 2006 in order for
the transaction to close. As of November 30, 2006, several contingencies had not
been satisfied, therefore, following a brief extension of time to attempt to
clear the open contingencies, which was not successful, the Agreement and Plan
of Reorganization was terminated without any further commitment or obligation by
the Company.

    In December, 2006 all of the property described above was sold pursuant to
an Asset Purchase Agreement, dated December 6, 2006, between the Company and the
Company's then President ("Purchaser"). The consideration received by the
Company consisted of 4,167 shares of Company common stock that was owned by the
Purchaser together with the cancellation of a note due to Purchaser with a
principal amount due of $430,000, secured by the Company's assets, all related
accrued interest and the release of the Company from all other liabilities due
to Purchaser.

    Also on December 6, 2006 a Stock Purchase Agreement (the "Stock Purchase
Agreement") was made by and between Mathis Family Partners, Ltd., Lazzeri Family
Trust and Timothy Brasel and /or assigns, collectively, they are referred to
herein as the ("Investor") and Schumacher & Associates, Inc. Money Purchase Plan
& Trust, a shareholder of the Company and Michael L. Schumacher, the Company's
then President, collectively, they are referred to herein as the ("Seller"). In
the Stock Purchase Agreement, the Seller agreed to sell 254,167 fully paid and
nonassessable shares of the Company's common stock to Investor for an aggregate
of $450,000 cash. As a result of the purchase of the shares of the Company's
common stock, Investor owned approximately 59.81% of the issued and outstanding
shares of common stock of the Company, at that time of the Stock Purchase
Agreement closing, which resulted in a change in control of the Company.

    The Company currently has no operations and since July 1, 2002 has been
considered a development stage enterprise. Effective December 6, 2006 the
Company intends to evaluate structure and complete a merger with, or acquisition
of, prospects consisting of private companies, partnerships or sole
proprietorships.

    Birch Branch believes that there is a demand by non-public corporations for
shell corporations that have a public distribution of securities, such as Birch
Branch. Birch Branch believes that demand for shell corporations has increased
dramatically since the Securities and Exchange Commission, or the SEC, imposed
additional requirements upon "blank check" companies pursuant to Reg. 419 of the
Securities Act of 1933, as amended. According to the SEC, Rule 419 was designed
to strengthen regulation of securities offerings by blank check companies, which
Congress has found to have been a common vehicle for fraud and manipulation in
the penny stock market. See Securities Act Releases No. 6891 (April 17, 1991),
48 SEC Docket 1131 and No. 6932 (April 13, 1992) 51 Docket 0382, SEC Docket
0382. The foregoing regulation has substantially decreased the number of "blank
check" offerings filed with the SEC, and as a result has stimulated an increased
demand for shell corporations. While Birch Branch has made the foregoing
assumption, there is no assurance that the same is accurate or correct and,
accordingly, no assurance that Birch Branch will merge with or acquire an
existing private entity.

General Business Plan

    Birch Branch proposes to seek, investigate and, if warranted, acquire an
interest in one or more business ventures. Birch Branch's strategy is directed
on ventures which are developing companies or established businesses that desire
to have a public trading market for its common stock. After Birch Branch has
conducted a merger or acquisition, the surviving entity will be Birch Branch,
however, management from the acquired entity will in all likelihood be retained
to operate Birch Branch. Due to an absence of capital available for investment
by Birch Branch, the types of business seeking to be acquired by Birch Branch
will likely be small and high risk. In all likelihood, a business opportunity
will involve the acquisition of or merger with a corporation which desires to
establish a public trading market for its common stock.

    Birch Branch does not propose to restrict its search for investment
opportunities to any particular industry or geographical location and may,
therefore, engage in essentially any business, anywhere, to the extent of its
limited resources.

    It is anticipated that business opportunities will be sought by Birch Branch
from various sources throughout the United States, including its officer and
director, professional advisors such as attorneys and accountants, securities
broker dealers, venture capitalists, members of the financial community, other
businesses and others who may present solicited and unsolicited proposals.
Management believes that business opportunities and ventures will become
available to it due to a number of factors, including, among others: (1)
management's willingness to enter into unproven, speculative ventures; (2)
management's contacts and acquaintances; and (3) Birch Branch's flexibility with
respect to the manner in which it may structure a potential financing, merger or
acquisition. However, there is no assurance that Birch Branch will be able to
structure, finance, merge with or acquire any business opportunity or venture.

                                       3
<PAGE>
Operation of Birch Branch

    Birch Branch intends to search throughout the United States for a merger or
acquisition candidate, however, because of its lack of capital, Birch Branch
believes that the merger or acquisition candidate will be conducting business
within a limited geographical area. Birch Branch intends to maintain its
corporate headquarters and principal place of business at 2560 W. Main Street,
Suite 200, Littleton, Colorado 80120. All corporate records will be maintained
at said office, and it is anticipated that all shareholders' meetings will take
place in Colorado. In the event that a merger or acquisition of Birch Branch
takes place, no assurance can be given that the corporate records or
headquarters will continue to be maintained at Littleton, Colorado, or that
shareholders' meetings will be held in Colorado.

    Birch Branch's executive officers will seek acquisition/merger candidates or
orally contact individuals or broker dealers and advise them of the availability
of Birch Branch as an acquisition candidate. Birch Branch's executive officers
will review material furnished to them by the proposed merger or acquisition
candidates and will ultimately decide if a merger or acquisition is in the best
interests of Birch Branch and its shareholders.

    Birch Branch may employ outside consultants until a merger or acquisition
candidate has been targeted by Birch Branch, however, management believes that
it is impossible to consider the criteria that will be used to hire such
consultants. While Birch Branch may hire independent consultants, it has not
considered any criteria regarding their experience, the services to be provided,
or the term of service. As of the date hereof, Birch Branch has not had any
discussions with any consultants and there are no agreements or understandings
with any consultants. Other than as disclosed herein, there are no other plans
for accomplishing the business purpose of Birch Branch.

Selection of Opportunities

    The analysis of new business opportunities will be undertaken by or under
the supervision of Birch Branch's executive officers and directors who are not
professional business analysts and have had little previous training in business
analysis. Inasmuch as Birch Branch will have limited funds available to it in
its search for business opportunities and ventures, Birch Branch will not be
able to expend significant funds on a complete and exhaustive investigation of
such business or opportunity. Birch Branch will, however, investigate, to the
extent believed reasonable by its management, such potential business
opportunities or ventures.

    As part of Birch Branch's investigation, a representative of Birch Branch
may meet personally with management and key personnel of the firm sponsoring the
business opportunity, visit and inspect plants and facilities, obtain
independent analysis or verification of certain information provided, check
references of management and key personnel, and conduct other reasonable
measures, to the extent of Birch Branch's limited financial resources and
management and technical expertise.

    Prior to making a decision to participate in a business opportunity or
venture that is a statutory merger or conversion, Birch Branch will generally
request that it be provided with written materials regarding the business
opportunity containing such items as a description of products, services and
company history, management resumes, financial information, available
projections with related assumptions upon which they are based, evidence of
existing patents, trademarks or service marks or rights thereto, current and
proposed forms of compensation to management, a description of transactions
between the prospective entity and its affiliates during relevant periods, a
description of current and required facilities, an analysis of risks and
competitive conditions, and other information deemed relevant.

    It is anticipated that the investigation of specific business opportunities
and the negotiation, drafting and execution of relevant agreements, disclosure
documents and other instruments will require substantial management time and
attention and costs for accountants, attorneys and others. In order to meet its
liquidity needs during the next fiscal year, the Company may receive additional
financing from its officers, directors and stockholders.

                                       4
<PAGE>
    Birch Branch will have unrestricted flexibility in seeking, analyzing and
participating in business opportunities. In its efforts, Birch Branch will
consider the following kinds of factors:

     o    Potential for growth, indicated by new technology, anticipated market
          expansion or new products;
     o    Competitive position as compared to other firms engaged in similar
          activities;
     o    Strength of management;
     o    Capital requirements and anticipated availability of required funds
          from future operations, through the sale of additional securities,
          through joint ventures or similar arrangements or from other sources;
          and
     o    Other relevant factors.

    Potentially available business opportunities may occur in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
extremely difficult and complex. Potential investors must recognize that due to
Birch Branch's limited capital available for investigation and management's
limited experience in business analysis, Birch Branch may not discover or
adequately evaluate adverse facts about the opportunity to be acquired.

    Birch Branch is unable to predict when it may participate in a business
opportunity. It expects, however, that the analysis of specific proposals and
the selection of a business opportunity may take several months or more.

Form of Merger or Acquisition

    The manner in which Birch Branch participates in an opportunity will depend
upon the nature of the opportunity, the respective needs and desires of Birch
Branch and the merger or acquisition candidate, and the relative negotiating
strength of Birch Branch and such merger or acquisition candidate. The exact
form or structure of Birch Branch's participation in a business opportunity or
venture will be dependent upon the needs of the particular situation. Birch
Branch's participation may be structured as an asset purchase, a partnership, a
merger, or an acquisition of securities or such other form as its management
deems appropriate.

    As set forth above, Birch Branch may acquire its participation in a business
opportunity through the issuance of common stock or other securities in Birch
Branch. Although the terms of any such transaction cannot be predicted, it
should be noted that in certain circumstances the criteria for determining
whether or not an acquisition is a so-called "tax free" reorganization under
Section 368(a)(1) of the Internal Revenue Code of 1954, as amended, may depend
upon the issuance to the shareholders of the acquired company of at least 80% of
the common stock of the combined entities immediately following the
reorganization. If a transaction were structured to take advantage of these
provisions rather than other "tax free" provisions provided under the Internal
Revenue Code, all prior shareholders may, in such circumstances, retain 20% or
less of the total issued and outstanding common stock. If such a transaction
were available to Birch Branch, it will be necessary to obtain shareholder
approval to effectuate a reverse stock split or to authorize additional shares
of common stock prior to completing such acquisition. This could result in
substantial additional dilution to the equity of those who were shareholders of
Birch Branch prior to such reorganization. Further, extreme caution should be
exercised by any investor relying upon any tax benefits in light of the proposed
new tax laws. It is possible that no tax benefits will exist at all. Prospective
investors should consult their own legal, financial and other business advisors.

    The present management and shareholders of Birch Branch will in all
likelihood not have control of a majority of the voting shares of Birch Branch
following a reorganization transaction. In fact, it is probable that the
shareholders of the acquired entity will gain control of Birch Branch. The terms
of sale of the shares presently held by management of Birch Branch may not be
afforded to other shareholders of Birch Branch. As part of any transaction,
Birch Branch's directors may resign and new directors may be appointed without
any vote by the shareholders.

    Birch Branch has an unwritten policy that it will not acquire or merge with
a business or company in which Birch Branch's management or its affiliates or
associates directly or indirectly have a controlling interest. Management is not
aware of any circumstances under which the foregoing policy will be changed and
management, through its own initiative, will not change said policy.

                                       5
<PAGE>
    Pursuant to regulations promulgated under the Securities Exchange Act of
1934, as amended, Birch Branch will be required to obtain and file with the SEC
audited financial statements of an acquired company within four days from the
date the transaction is completed.

Competition

    Birch Branch will remain an insignificant participant among the firms which
engage in the acquisition of business opportunities. There are many established
venture capital and financial concerns that have significantly greater financial
and personnel resources and technical expertise than us. In view of our combined
extremely limited financial resources and limited management availability, Birch
Branch will continue to be at a significant competitive disadvantage compared to
its competitors.

ITEM 1A. RISK FACTORS
---------------------

    We are subject to various risks that could have a negative effect on the
Company and its financial condition, including the following.

No operating history or revenue and minimal assets.

    Birch Branch has had very limited operating history and minimal revenues or
earnings from operations. There are no significant assets or financial
resources. Birch Branch will, in all likelihood, sustain operating expenses
without corresponding revenues, at least until the consummation of a business
combination. This may result in Birch Branch incurring a net operating loss
which will increase continuously until we can consummate a business combination
with a target company. There is no assurance that Birch Branch can identify such
a target company and consummate such a business combination.

Adequate financing may not be available when needed.

    Birch Branch entered into a Revolving Credit Agreement with the Company's
major shareholders on January 23, 2007, to borrow up to $250,000 to fund
operating activities. While future operating activities are expected to be
funded by the Revolving Credit Agreement the Company's request for funds under
the Revolving Credit Agreement are not guaranteed and in the event that such
future operating activities are not funded pursuant to the Revolving Credit
Agreement, additional sources of funding would be required to continue
operations. There is no assurance that the Company could raise working capital
or if any capital would be available at all. Failure to obtain financing when
needed could result in curtailing operations, acquisitions or mergers and
investors could lose some or all of their investment.

Speculative nature of the Company's proposed operations.

    The success of Birch Branch's proposed plan of operation will depend to a
great extent on the operations, financial condition and management of the
identified target company. While management will prefer business combinations
with entities having established operating histories, there can be no assurance
that we will be successful in locating candidates meeting such criteria. In the
event Birch Branch completes a business combination, of which there can be no
assurance, the success of the Company's operations will be dependent upon
management of the target company and numerous other factors beyond Birch
Branch's control.

Scarcity of and competition for business opportunities and combinations.

    Birch Branch is and will continue to be an insignificant participant in the
business of seeking mergers with and acquisitions of business entities. A large
number of established and well-financed entities, including venture capital
firms, are active in mergers and acquisitions of companies which maybe merger or
acquisition target candidates for the Company. Nearly all such entities have
significantly greater financial resources, technical expertise and managerial
capabilities than Birch Branch and, consequently, Birch Branch will be at a
competitive disadvantage in identifying possible business opportunities and
successfully completing a business combination. Moreover, Birch Branch will also
compete with numerous other small public companies in seeking merger or
acquisition candidates.


                                       6
<PAGE>
No agreement for business combination or other transaction - - No standards for
business combination.

    As of this filing, the Company has not reached any definitive understanding
with any person or entity concerning a merger or acquisition. There can be no
assurance that Birch Branch will be successful in identifying and evaluating
suitable business opportunities or in concluding a business combination.
Management has not identified any particular industry or specific business
within an industry for evaluation by the Company. There is no assurance that
Birch Branch will be able to negotiate a business combination on terms favorable
to the Company. Birch Branch has not established a specific length of operating
history or a specified level of earnings, assets, net worth or other criteria
which it will require a target company to have achieved, or without which Birch
Branch would not consider a business combination with such business entity.
Accordingly, Birch Branch may enter into a business combination with a business
entity having no significant operating history, losses, limited or no potential
for immediate earnings, limited assets, negative net worth or other negative
characteristics.

Continued management control, limited time availability.

    While seeking a business combination, Birch Branch's officers anticipate
devoting only a limited amount of time per month to the business of Birch
Branch. Birch Branch's officers have not entered into a written employment
agreement with the Company and are not expected to do so in the foreseeable
future. Birch Branch has not obtained key man life insurance on its officers and
directors. Notwithstanding, the combined limited experience and time commitment
of management, loss of the services of these individuals would adversely affect
development of Birch Branch's business and its likelihood of continuing
operations.

Conflicts of interest - - General.

    Birch Branch's officers and directors participate in other business ventures
which may compete directly with the Company. Additional conflicts of interest
and non-arms length transactions may also arise in the future. Birch Branch has
an unwritten policy that it will not acquire or merge with a business or company
in which Birch Branch's management or its affiliates or associates directly or
indirectly have a controlling interest.

Reporting requirements may delay or preclude acquisitions.

    Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act")
requires companies subject thereto to provide certain information about
significant acquisitions including certified financial statements for the
company acquired covering one or two years, depending on the relative size of
the acquisition. The time and additional costs that may be incurred by some
target companies to prepare such financial statements may significantly delay or
essentially preclude consummation of an otherwise desirable acquisition by Birch
Branch. Acquisition prospects that do not have or are unable to obtain the
required audited statements may not be appropriate for acquisition so long as
the reporting requirements of the Exchange Act are applicable.

Lack of market research or marketing organization.

    Birch Branch has neither conducted, nor have others made available to it,
market research indicating that demand exists for the transactions contemplated
by Birch Branch. Even in the event demand exists for a merger or acquisition of
the type contemplated by Birch Branch, there is no assurance we will be
successful in completing any such business combination.

Lack of diversification.

    Birch Branch's proposed operations, even if successful, will in all
likelihood result in us engaging in a business combination with only one
business entity. Consequently, Birch Branch's activities will be limited to
those engaged in by the business entity which we merge with or acquire. Birch
Branch's inability to diversify its activities into a number of areas may
subject us to economic fluctuations within a particular business or industry and
therefore increase the risks associated with Birch Branch's operations.

                                       7
<PAGE>
Regulation under investment company act.

    Although Birch Branch will be subject to regulation under the Exchange Act,
management believes Birch Branch will not be subject to regulation under the
Investment Company Act of 1940, insofar as Birch Branch will not be engaged in
the business of investing or trading in securities. In the event Birch Branch
engages in business combinations which result in Birch Branch holding passive
investment interests in a number of entities, Birch Branch could be subject to
regulation under the Investment Company Act of 1940. In such event, Birch Branch
would be required to register as an investment company and could be expected to
incur significant registration and compliance costs. Birch Branch has obtained
no formal determination from the Securities and Exchange Commission as to the
status of Birch Branch under the Investment Company Act of 1940 and,
consequently, any violation of such Act could subject Birch Branch to material
adverse consequences.

Probable change in control and management.

    A business combination involving the issuance of Birch Branch's common stock
will, in all likelihood, result in shareholders of a target company obtaining a
controlling interest in Birch Branch. Any such business combination may require
shareholders of Birch Branch to sell or transfer all or a portion of Birch
Branch's common stock held by them. The resulting change in control of Birch
Branch will likely result in removal of the present officers and directors of
Birch Branch and a corresponding reduction in or elimination of their
participation in the future affairs of Birch Branch.

Reduction of percentage share ownership following business combination.

    Birch Branch's primary plan of operation is based upon a business
combination with a business entity which, in all likelihood, will result in
Birch Branch issuing securities to shareholders of such business entity. The
issuance of previously authorized and unissued common stock of Birch Branch
would result in reduction in percentage of shares owned by the present
shareholders of Birch Branch and would most likely result in a change in control
or management of Birch Branch.

Taxation.

    Federal and state tax consequences will, in all likelihood, be major
considerations in any business combination Birch Branch may undertake.
Currently, such transactions may be structured so as to result in tax-free
treatment to both companies, pursuant to various federal and state tax
provisions. Birch Branch intends to structure any business combination so as to
minimize the federal and state tax consequences to both Birch Branch and the
target company; however, there can be no assurance that such business
combination will meet the statutory requirements of a tax-free reorganization or
that the parties will obtain the intended tax-free treatment upon a transfer of
stock or assets. A non-qualifying reorganization could result in the imposition
of both federal and state taxes which may have an adverse effect on both parties
to the transaction.

Requirement of audited financial statements may disqualify business
opportunities.

    Management of Birch Branch will request that any potential business
opportunity provide audited financial statements. One or more attractive
business opportunities may choose to forego the possibility of a business
combination with Birch Branch rather than incur the expenses associated with
preparing audited financial statements.


ITEM 2. DESCRIPTION OF PROPERTY
-------------------------------

Facilities

    The Company has no properties and at this time has no agreements to acquire
any properties. Birch Branch's office is located at 2560 W. Main Street, Suite
200, Littleton, Colorado 80120 since January 2007, which is located in the
office of a company controlled by Earnest Mathis, Jr., Birch Branch's Chief
Executive Officer and Director. Birch Branch's office will remain at Mr. Mathis'
office until an acquisition has been concluded. There are no written documents
memorializing the foregoing. Birch Branch pays $1,500 per month for
reimbursement for out-of-pocket office expenses, such as telephone, postage or
supplies and administrative support to a Company controlled by Mr. Mathis. We
have paid $18,000 for these expenses for the year ended June 30, 2008.

                                       8
<PAGE>
    There are no agreements or understandings with respect to the office
facility subsequent to the completion of an acquisition. Upon a merger or
acquisition, Birch Branch intends to relocate its office to that of the
acquisition candidate.

ITEM 3. LEGAL PROCEEDINGS
-------------------------

    Birch Branch is not currently involved in any legal proceedings.

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

    On June 1, 2007 the shareholders of Birch Branch at a special meeting
approved a 1-for-3 reverse stock split of our common stock, no par value per
share, with no change in the number of authorized shares of common stock and
with any fractional shares rounded up to a whole share. There were 1,619,069
shares voted in favor, 1,308 shares against and 134 shares abstained. The
reverse stock split was effective on June 4, 2007.




                                       9
<PAGE>
                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
-----------------------------------------------------------------

Market Information

    Birch Branch's common stock is quoted on the OTC Bulletin Board under the
Symbol BRBH. Birch Branch's ticker symbol on the Over-the-Counter Bulletin Board
changed from BHBH to BRBH effective June 4, 2007 in connection with the
Company's 1-for-3 reverse stock split.

    Since there is only a limited trading market for our stock, stockholders may
find it difficult to sell their shares. As reported by the OTC BB, our stock has
had a high of $1.50 and a low of $1.06 for the fiscal year ended June 30, 2008.

Holders

    As of June 30, 2008, we had approximately 390 holders of record of our
common stock.

Dividends

    We have not paid, nor declared, any dividends since our inception and do not
intend to declare any such dividends in the foreseeable future. Management
anticipates that earnings, if any, will be retained to fund our working capital
needs and the expansion of our business. The paying of any dividends is in the
discretion of the Board of Directors.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------------------------------------------------------------------------------
OF OPERATIONS
-------------

    You should read the following discussion and analysis in conjunction with
our financial statements, including the notes thereto contained in this report.
This discussion contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of a variety
of certain factors, including those set forth under "Risk Factors Associated
with Our Business" and elsewhere in this report.

Overview

    Birch Branch was formed to pursue real estate development in Nebraska and
was incorporated in the State of Colorado on September 28, 1989. On December 6,
2006, all real estate property was sold through an Asset Purchase Agreement
between Birch Branch and Birch Branch's then President ("Purchaser"). Birch
Branch received 4,167 shares of its common stock owed by the Purchaser together
with the cancellation of a note due to Purchaser with a principal amount due of
$430,000, secured by the Company's assets, all related accrued interest and the
release of Birch Branch from all other liabilities due to Purchaser.

    On December 6, 2006 a Stock Purchase Agreement (the "Stock Purchase
Agreement") was made by and between Mathis Family Partners, Ltd., Lazzeri Family
Trust and Timothy Brasel and /or assigns, collectively, they are referred to
herein as the ("Investor") and Schumacher & Associates, Inc. Money Purchase Plan
& Trust, a shareholder of the Company and Michael L. Schumacher, the Company's
past President, collectively, they are referred to herein as the ("Seller"). In
the Stock Purchase Agreement, the Seller agreed to sell 254,167 fully paid and
nonassessable shares of the Company's common stock to Investor for an aggregate
of $450,000 cash. As a result of the purchase of the shares of the Company's
common stock Investor owns approximately 59.81% of the issued and outstanding
shares of common stock of the Company which resulted in a change in control of
the Company.

                                       10
<PAGE>
    Currently, Birch Branch is in the development stage and has not yet realized
any revenues from its planned operations. Birch Branch's business plan is to
evaluate structure and complete a merger with, or acquisition of, prospects
consisting of private companies, partnerships or sole proprietorships.

    Although Birch Branch has not entered into any definitive agreement
regarding such a merger or acquisition, management anticipates seeking out a
target company through solicitation. Such solicitation may include newspaper or
magazine advertisements, mailings and other distributions to law firms,
accounting firms, investment bankers, financial advisors and similar persons,
the use of one or more World Wide Web sites and similar methods. No estimate can
be made as to the number of persons who will be contacted or solicited.
Management may engage in such solicitation directly or may employ one or more
other entities to conduct or assist in such solicitation.

    Management and its affiliates may pay referral fees to consultants and
others who refer target businesses for mergers into public companies in which
management and its affiliates have an interest. Payments are made if a business
combination occurs, and may consist of cash or a portion of the stock in Birch
Branch retained by management and its affiliates, or both.

     Birch Branch has no full time employees. Birch Branch's officers have
agreed to allocate a portion of their time to the activities of Birch Branch,
without compensation.

Results of Operations

For year ended June 30, 2008, compared the year ended June 30, 2007.

    Revenue. No operating revenues were generated during the year ended June 30,
2008 and June 30, 2007.

    Operating Expenses. Total operating expenses from continuing operations were
$45,192 and $39,716, respectively for the year ended June 30, 2008 and the year
ended June 30, 2007. Operating expenses consist of professional, management and
filing fees.

    Net loss. Net loss decreased for the year ended June 30, 2008 by 79% to
$24,657 from $117,499 at the year ended June 30, 2007. The decrease in net loss
occurred primarily as a result of a loss from discontinued operations during
2006 and the receipt of a forfeited deposit in 2008.

Liquidity and Capital Resources

    As of June 30, 2008, the Company had $5,916 in cash and cash equivalents and
a working capital deficit of ($52,697).

    On January 23, 2007, the Company entered into a Revolving Credit Agreement
with the Company's major shareholders to borrow up to $250,000, evidenced by an
unsecured Revolving Loan Note. All amounts borrowed pursuant to the Revolving
Credit Agreement accrue interest at 7% per annum and all principal and accrued
but unpaid interest is payable in full on demand. As of June 30, 2008, $55,000
was borrowed under this agreement with $4,008 of interest accrued.

    While future operating activities are expected to be funded by the Revolving
Credit Agreement the Company's request for funds under the Revolving Credit
Agreement are not guaranteed and in the event that such future operating
activities are not funded pursuant to the Revolving Credit Agreement, additional
sources of funding would be required to continue operations. There is no
assurance that the Company could raise working capital or if any capital would
be available at all.

Off-Balance Sheet Items

    We have no off-balance sheet items as of June 30, 2008.

                                       11
<PAGE>
ITEM 7. FINANCIAL  STATEMENTS
-----------------  ----------

    The financial statements are included in this annual report on Form 10-KSB
at page F-1.

Index to Financial Statements

    Report of Independent Registered Public Accounting Firm -
      Ronald R. Chadwick, P.C                                               F-1
    Balance Sheets as of June 30, 2008 and 2007                             F-2
    Statements of Operations for the years ended June 30, 2008 and
       2007 and from July 1, 2002 (Date of Commencement of
       Development Stage) through June 30, 2008                             F-3
    Statements of Changes in Stockholders' Equity (Deficit) for the
       years ended June 30, 2008 and 2007                                   F-4
    Statements of Cash Flows for the Years Ending June 30, 2008 and
       2007 and from July 1, 2002 (Date of Commencement of Development
       Stage) through June 30, 2008                                         F-5
    Notes to Financial Statements                                           F-6



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

    On January 29, 2007, our Board of Directors approved the appointment of,
Ronald R. Chadwick, PC, as our independent auditor replacing our auditors for
the fiscal years ending 2006 and 2005, Miller and McCollom, Certified Public
Accountants. The Board of Directors recommended the change in our auditors
pursuant to advice from Miller and McCollom that they declined to continue as
auditors for the Company because Miller and McCollom had determined they were
going to discontinue their SEC audit practice and were not going to continue to
maintain their PCAOB registrations.

    The report on the financial statements prepared by Miller & McCollom for the
fiscal years ended June 30, 2005 and June 30, 2006, did not contain an adverse
opinion or a disclaimer of opinion, nor was it qualified or modified as to audit
scope or accounting principals. However, the report included a going concern
qualification. We did not have any disagreements with Miller & McCollom on any
accounting principals or practices, financial statement disclosure, or auditing
scope or procedure. Neither the Company nor anyone on our behalf consulted
Ronald R. Chadwick, PC, on any matter relating to the application of accounting
principles to a specified completed or contemplated transaction or the type of
audit opinion that might be rendered on our financial statements.

ITEM 8A(T). CONTROLS AND PROCEDURES
-----------------------------------

     We maintain disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) that are designed to ensure that information
that would be required to be disclosed in Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including the President and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.

     As of June 30, 2008 our management, including the President, evaluated the
overall effectiveness of the Company's responsibility and assessment of internal
controls and procedures. Based on such evaluation, our management concluded that
these internal controls and procedures were effective as of the end of the
period covered by this annual report.

     There have not been any changes in our internal controls over financial
reporting during the quarter ended June 30, 2008 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.


ITEM 8B. OTHER INFORMATION
--------------------------

    None.

                                       12

<PAGE>
                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS

Directors and Executive Officers

    The following sets forth certain information regarding each of our directors
and executive officers:
<TABLE>
<CAPTION>

     Name                    Age   Position                               Director or Officer Since
     -------------------     ---   ------------------------------------   -------------------------
<S>                          <C>   <C>                                   <C>
     Earnest Mathis, Jr.     49    Chief Executive Officer and Director   December 2006
     Robert Lazzeri          47    Chief Financial Officer and Director   December 2006
</TABLE>

    All officers hold their positions at the will of the Board of Directors. All
directors hold their positions until their successors are elected and qualified.

    The following is a summary of our directors' and executive officers'
business experience.

    Earnest Mathis, Jr. - Chief Executive Officer and Director. From March 2008
to present, Mr. Mathis has been a Director of Princeton Acquisitions, Inc. From
December 2006 to present, Mr. Mathis has been the Chief Executive Officer,
President and a Director of Birch Branch, Inc. From October 26, 2006 to August
29, 2007, Mr. Mathis was Chief Executive Officer and Director of MyCom Group,
Inc. a publicly-held shell corporation. In August 2007, Mycom Group, Inc.
acquired Veritas Solutions, Inc. in a stock for stock transaction and Mr. Mathis
resigned as an officer at that time. Mr. Mathis also has been the Manager of
BAMM, LLC, which holds real property, since June 2005. In March 2002, Mr. Mathis
became one of the founding members and managers of Waveland Ventures, LLC, a
capital management company with emphasis in managing economic redevelopment and
stimulation programs for governmental entities. He also is a managing director
of Waveland Colorado Ventures, LLC, a Certified Capital Company. From February
2003 to the present, Mr. Mathis has been a manager and member of Louisiana Land
Acquisitions, LLC, which holds real property. From January 1987 to the present,
Mr. Mathis has been President and a member of the Board of Directors of
Inverness Investments, Inc. a privately-held financial consulting company in
Littleton, Colorado. From December 2004 to present, Mr. Mathis has been a
manager of Trinidad Golf, LLC, a golf course development company. From October
2004 to present, Mr. Mathis has been a manager of Trinidad Land Co., LLC, which
holds real property. From March 2005 to July 2007, Mr. Mathis was the Chairman
of the Board of Directors for Xelr8 Holdings, Inc. (formerly VitaCube Systems
Holdings, Inc) and from March 2005 to October 11, 2006 was their Chief Executive
Officer and from March 2005 to June 2, 2005 was their President. From June 2002
to June 2003, Mr. Mathis was the President and a Director of Instanet, Inc.
Instanet was a publicly-held shell corporation. In August 2003, Instanet
acquired VitaCubeSystems Holdings, Inc. in a stock for stock transaction and Mr.
Mathis resigned as an officer and director at that time. From April 2002 to July
2006 Mr. Mathis was the Chief Executive Officer, Chief Financial Officer and a
member of the Board of Directors of Petramerica Oil, Inc., a publicly-held shell
corporation. In July 2006, Petramerica Oil, Inc. acquired Triton Distribution
Systems, Inc. in a stock for stock transaction and Mr. Mathis resigned as an
officer and director in July 2006. From December 2005 to December 2006, Mr.
Mathis was President of Xedar Corporation, a publicly-held shell corporation. In
December 2006 Xedar Corporation acquired Premier Data Services, Inc. in a stock
for stock transaction and Mr. Mathis resigned as an officer at that time and as
a director in January 2007. From February 1998 to the present, Mr. Mathis has
served as Manager of Amerigolf, LLC, a golf course development company. From
January 1997 to the present, Mr. Mathis has served as President of Integrated
Medical Services, Inc. (IMS). IMS transported and processed medical waste from
small and large generators of medical waste. In March 1999, IMS sold 100% of its
assets to publicly held Stericycle, Inc.. Mr. Mathis attended Denver University
where he studied finance.

                                       13
<PAGE>
     Robert Lazzeri. President and Director. Mr. Lazzeri, is a private investor
and business executive. From August 2006 to the present, Mr. Lazzeri has been a
Principal with Inverness Investments, Inc., a privately-held financial
consulting company in Littleton, Colorado. From February 2003 to January 2007,
Mr. Lazzeri was a Managing Member of Black Diamond Industries, LLC, a
privately-held investment company. From October 1989 to October 1999 Mr. Lazzeri
was a Partner and Senior Vice President with Daniels & Associates' investment
banking group in Denver, Colorado. From 1983 to 1989 Mr. Lazzeri worked for five
years with a "Big Eight" Public Accounting firm and then in Corporate Finance
for a private company. Mr. Lazzeri graduated with a Bachelor of Science degree
in Accounting from the University of Colorado. He is a CPA.

      In addition to his experience noted above, Mr. Lazzeri has been involved
with the following publicly reporting companies: From November 2007 to present,
Mr. Lazzeri has been the President and a Director of Princeton Acquisitions,
Inc. From May 2007 to April 2008, Mr. Lazzeri was the President and a Director
of NB Design & Licensing, Inc. In April 2008, New Bridge Design & Licensing, Inc
acquired Organic Alliance Inc. in an exchange for securities agreement and Mr.
Lazzeri resigned as an officer and director in April 2008. From December 2006 to
present, Mr. Lazzeri has been an Executive Officer and Director of Birch Branch,
Inc. From October 1999 to April 2002 Mr. Lazzeri was Chief Executive Officer and
Director of PentaStar Communications, Inc.

Section 16(a) Beneficial Ownership Reporting Compliance
     Section 16(a) of the Securities Exchange Act of 1934, as amended requires
our executive officers and directors and persons who own more than 10% of a
registered class of our equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Executive
officers, directors and greater than 10% stockholders are required by Commission
regulation to furnish us with copies of all Section 16(a) forms they file.
Except for a greater than 10% stockholder filing late their report on Form 4 for
the acquisition and disposal of shares, we believe all of our executive officers
and directors complied with all applicable filing requirements during the fiscal
year ended June 30, 2008.

ITEM 10. EXECUTIVE COMPENSATION
-------------------------------

Compensation Discussion and Analysis

    Our officers and directors do not receive any compensation for services
rendered, have not received such compensation in the past, and are not accruing
any compensation pursuant to any agreement with our Company. Our officers and
directors are reimbursed for expenses incurred on our behalf. Our officers and
directors will not receive any finder's fee as a result of their efforts to
implement the business plan outlined herein. However, our officers and directors
anticipate receiving benefits as beneficial shareholders of our common stock.

    We have not adopted any retirement, pension, profit sharing, stock option or
insurance programs or other similar programs for the benefit of our employees.

Employment Contracts

    There are no employment contracts between the Company and any of its
officers or directors.

Post-Employment Compensation, Pension Benefits, Nonqualified Deferred
Compensation

    There were no post-employment compensation, pension or nonqualified deferred
compensation benefits earned by the executive officers during the year ended
June 30, 2008.

Director Compensation

    The director's received no compensation during the year ended June 30, 2008.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
---------------------------------------------------------------------------
RELATED STOCKHOLDERS MATTERS
----------------------------

Security Ownership of Certain Beneficial Owners and Management

    The following table sets forth certain information with respect to the
ownership of our Common Stock as of the June 30, 2008, by (i) each person who is
known by us to own of record or beneficially more than 5% of our Common Stock,
(ii) each of our directors and officers. Unless otherwise indicated, the
stockholders listed in the table have sole voting and investment powers with
respect to the shares of Common Stock.

                                       14
<PAGE>

                                                         Number of   Percent of
   Name and Address                                       Shares      Class (1)
   -------------------------------------------------     ---------   ----------
   Mathis Family Partners, LTD (2)                        384,296        22.5%
   2560 W. Main Street, Suite 200
   Littleton, CO 80123

   Lazzeri Family Trust, Robert Lazzeri, Trustee (3)      384,296        22.5%
   2560 W. Main Street, Suite 200
   Littleton, CO 80123

   Total officer and director                             768,592        45.0%

   Timothy Brasel (4)                                     752,590        44.1%
   5770 South Beech Court
   Greenwood Village, CO 80121


(1)  Percentages are rounded to the nearest one-tenth of one percent.
     Percentages are based on 1,708,123 shares of common stock outstanding at
     June 30, 2008.

(2)  Earnest Mathis, Jr., Chief Executive Officer and Director of Birch Branch,
     is also the General Partner of Mathis Family Partners LTD.

(3)  Robert Lazzeri, Chief Financial Officer and Director of Birch Branch, is
     also the Trustee of Lazzeri Family Trust.

(4)  Includes shares either held directly, as custodian for a minor child or
     through entities that are controlled by Timothy Brasel

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------

    Birch Branch's office is located in the office of a company controlled by
Earnest Mathis, Jr., Birch Branch's Chief Executive Officer and Director. Birch
Branch's office will remain at Mr. Mathis' office until an acquisition has been
concluded. There are no written documents memorializing the foregoing. Birch
Branch pays $1,500 per month for reimbursement for out-of-pocket office
expenses, such as telephone, postage or supplies and administrative support to a
Company controlled by Mr. Mathis. We have paid $18,000 for these expenses for
the year ended June 30, 2008.

                                       15
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------

(a.)     Exhibits

    Exhibit No.     Description
    -----------     -----------------------------------------------------------

        2.1         Asset Purchase Agreement, incorporated by reference to
                    Exhibit 2.1 filed with Form 8-K filed December 8, 2006
        3.1         Articles of Incorporation, incorporated by reference to
                    Exhibit 3.01 filed with Form 10-SB12G filed September 13,
                    2004
        3.1.1       Certificate of Amendment to the Articles of Incorporation
                    filed herewith
        3.2         By-laws, incorporated by reference to Exhibit 3.05 filed
                    with Form 10-SB12G filed September 13, 2004
       10.1         Revolving Credit Agreement, incorporated by reference to
                    Exhibit 99.1 filed with Form 8-K filed January 26, 2007
       10.2         Revolving Loan Note, incorporated by reference to Exhibit
                    99.2 filed with Form 8-K filed January 26, 2007
       31.1         Certification of Company's Chief Executive Officer pursuant
                    to Section 302 of the Sarbanes-Oxley Act of 2002
       31.2         Certification of Company's Chief Financial Officer pursuant
                    to Section 302 of the Sarbanes-Oxley Act of 2002
       32.1         Certification of Company's Chief Executive Officer pursuant
                    to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
                    of the Sarbanes-Oxley Act of 2002
       32.2         Certification of Company's Chief Financial Officer pursuant
                    to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
                    of the Sarbanes-Oxley Act of 2002


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
-----------------------------------------------

    Set forth below are fees paid to the Company's independent accountants for
the past two years for the professional services performed for the Company.

Audit Fees and Audit Related

     We paid Ronald R. Chadwick, P.C., a total of $4,500 and $7,630 respectively
for fiscal year ended June 30, 2008 and 2007 for professional services rendered
for the audit of our annual financial statements, the reviews of financial
statements included in our Forms 10-KSB and 10-QSB and for any other services
that are normally provided by our independent auditors in connection with our
statutory and regulatory filings or engagements.

Tax Fees

    We paid Schumacher & Associates, a total of $500 for professional services
rendered in connection with the preparation of our federal and sate income tax
returns for the year ended June 30, 2007.

All Other Fees

    None.




                                       16
<PAGE>

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of Exchange Act, the small business
issuer caused this report to be signed on its behalf by the undersigned, on
September 26, 2008.

                                           BIRCH BRANCH, INC.


                                           By  /s/ Earnest Mathis Jr.
                                               ------------------------
                                               Earnest Mathis, Jr.
                                               Chief Executive Officer

                                           By  /s/ Robert Lazzeri
                                               ------------------------
                                               Robert Lazzeri
                                               Chief Financial Officer




     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the small business issuer and in the
capacities on the dates indicated.
<TABLE>
<CAPTION>

Signature                     Name                     Title                                  Date
----------------------        -------------------      ----------------------------------     ------------------


<S>                           <C>                      <C>                                              <C> <C>
/s/ Earnest Mathis Jr.        Earnest Mathis, Jr.      Chief Executive Officer and            September 26, 2008
----------------------                                 Director

/s/ Robert Lazzeri            Robert Lazzeri           Chief Financial Officer, Secretary     September 26, 2008
----------------------                                 and Director

</TABLE>





                                       18
<PAGE>
                            RONALD R. CHADWICK, P.C.
                           Certified Public Accountant
                        2851 South Parker Road, Suite 720
                             Aurora, Colorado 80014
                             Telephone (303)306-1967
                                Fax (303)306-1944


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors
Birch Branch, Inc.
Littleton, Colorado

I have audited the accompanying balance sheets of Birch Branch, Inc. (a
development stage company) as of June 30, 2008 and 2007 and the related
statements of operations, stockholders' equity and cash flows for the years then
ended and for the period from July 1, 2002 (inception) through June 30, 2008.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audit.

I conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a reasonable
basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Birch Branch, Inc. as of June 30,
2008 and 2007 and the related statements of operations, stockholders' equity and
cash flows for the years then ended and for the period from July 1, 2002
(inception) through June 30, 2008 in conformity with accounting principles
generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements the Company has suffered losses from operations and has a
working capital deficit that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


Aurora, Colorado
/s/ Ronald R. Chadwick, P.C.
------------------------
September 10, 2008                                     RONALD R. CHADWICK, P.C.



                                       F-1
<PAGE>
<TABLE>
<CAPTION>

                               BIRCH BRANCH, INC.
                          (A Development Stage Company)
                                 BALANCE SHEETS

                                                                June 30,     June 30,
                                                                  2008         2007
                                                               ---------    ---------
<S>                                                            <C>          <C>
ASSETS
Current assets:
        Cash                                                   $   5,916    $   6,802
        Prepaid Expenses                                             395           --
                                                               ---------    ---------

           Total current assets                                    6,311        6,802
                                                               ---------    ---------

        Total assets                                           $   6,311    $   6,802
                                                               =========    =========

LIABILITIES AND SHAREHOLDERS' (DEFICIT)
Current liabilities:
        Accounts payable and accrued expenses                  $      --    $     298
        Accrued expense                                            4,008          547
        Note payables                                             55,000       35,000
                                                               ---------    ---------

          Total current liabilities                               59,008       35,845
                                                               ---------    ---------

SHAREHOLDERS' (DEFICIT) (Note 2)
Preferred stock, authorized 50,000,000 shares, no par value,
    none issued or outstanding                                        --           --
Common stock, authorized 500,000,000 shares, no par value,
    1,708,123 issued and outstanding                              65,613       65,613
Additional paid in capital                                       152,877      152,877
Deferred loan fee, net of amortization                            (3,564)      (4,567)
Accumulated (deficit)                                             (5,173)      (5,173)
Accumulated (deficit) during development stage                  (262,450)    (237,793)
                                                               ---------    ---------

         Total shareholders' (deficit)                           (52,697)     (29,043)
                                                               ---------    ---------

         Total liabilities and shareholders' (deficit)         $   6,311    $   6,802
                                                               =========    =========
</TABLE>


                                      F-2

   The accompanying notes are an integral part of these financial statements.

<PAGE>
<TABLE>
<CAPTION>
                               BIRCH BRANCH, INC.
                          (A Development Stage Company)
                            STATEMENTS OF OPERATIONS

                                                                                Period
                                                                               July 1,
                                                                                 2002
                                                                               (Date of
                                                                             Commencement
                                                  For the        For the    of Development
                                                 Year Ended     Year Ended    Stage) to
                                                 June 30,       June 30,      June 30,
                                                    2008           2007          2008
                                                -----------    -----------    -----------
<S>                                             <C>            <C>            <C>
Revenues                                        $        --    $        --    $        --

Operating expenses:
     Accounting fees                                 10,930          8,210         35,250
     Legal fees                                      12,380          7,325         46,018
     Shareholder expense                              2,845         11,883         18,580
     Other general and administrative expense        19,037         12,298         36,551
                                                -----------    -----------    -----------
       Total operating expenses                      45,192         39,716        136,399
                                                -----------    -----------    -----------

Net (loss) from operations                          (45,192)       (39,716)      (136,399)
                                                -----------    -----------    -----------

Other income (expense)
     Other income                                    25,000             --         25,000
     Amortized loan fee (expense)                    (1,003)          (433)        (1,435)
     Interest (expense)                              (3,462)          (547)        (4,009)
                                                -----------    -----------    -----------
       Total other income (expense)                  20,535           (980)        19,556
                                                -----------    -----------    -----------

Net income (loss) from continuing operations        (24,657)       (40,696)      (116,843)
                                                -----------    -----------    -----------

Discontinued operations:
     (Loss) from discontinued operations
       (including loss on disposal in
       2006 of $52,017)                                  --        (76,803)      (121,232)
                                                -----------    -----------    -----------

Net income (loss)                               $   (24,657)   $  (117,499)   $  (238,075)
                                                ===========    ===========    ===========


Net income (loss) per common share              $     (0.01)   $     (0.12)
                                                -----------    -----------


Weighted average number of
     common shares outstanding                    1,708,123        984,484
                                                ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-3
<PAGE>
<TABLE>
<CAPTION>

                               BIRCH BRANCH, INC.
                          (A Development Stage Company)
                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                                                               Related                                      Accumulated
                                                               Party                                          (Deficit)
                                                 Additional   Deferred                                         During       Total
                                Common Stock       pd-in        Loan      Treasury Stock       Accumulated Development Stockholders'
                              Shares     Amount   Capital       Fee      Shares      Amount     (Deficit)     Stage      (Deficit)
                             -------  ---------- ----------  ----------  --------  ----------  ----------  ----------  ----------
<S>                          <C>      <C>        <C>         <C>         <C>       <C>         <C>         <C>         <C>
Balance at June 30, 2006     429,131      65,613         --          --        --          --      (5,173)    (95,919)    (35,479)

Return of stock to
   Treasury                       --          --         --          --    (4,167)    (25,000)         --          --     (25,000)

Debt relief from Asset            --          --    148,502          --        --          --          --          --     148,502
   Purchase Agreement

Issuance for loan fee      1,283,014          --      5,000          --        --          --          --          --       5,000

Deferred loan fee                 --          --         --      (5,000)       --          --          --          --      (5,000)

Amortization of loan fee          --          --         --         433        --          --          --          --         433

Retirement of Treasury
   Shares                      (4,167)         -        (625          --     4,167      25,000          --     (24,375)         --

Fraction shares issued
   as a result of reverse
   stock-split                   145          --         --          --        --          --          --          --          --


Net loss                          --          --         --          --        --          --          --    (117,499)   (117,499)

Balance at June 30, 2007   1,708,123      65,613    152,877      (4,567)       --          --      (5,173)   (237,793)    (29,043)
                           =========  ========== ==========  ==========  ========  ==========  ==========  ==========  ==========

Amortization of loan fee          --          --         --       1,003        --          --          --          --       1,003

Net loss                          --          --         --          --        --          --          --     (24,657)    (24,657)
                             -------  ---------- ----------  ----------  --------  ----------  ----------  ----------  ----------
Balance at June 30, 2008   1,708,123      65,613    152,877      (3,564)       --          --      (5,173)   (262,450)    (52,697)
                           =========  ========== ==========  ==========  ========  ==========  ==========  ==========  ==========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                      F-4
<PAGE>
<TABLE>
<CAPTION>

                               BIRCH BRANCH, INC.
                          (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS

                                                                                           Period
                                                                                           July 1,
                                                                                            2002
                                                                                         (Date of
                                                                                        Commencement
                                                                For the      For the   of Development
                                                              Year Ended   Year Ended    Stage) to
                                                               June 30,     June 30,      June 30,
                                                                  2008        2007          2008
                                                               ----------   ---------  --------------
<S>                                                            <C>          <C>          <C>
Cash flows from operating activities:
    Operating activities from continuing operations
        Net (loss)                                             $ (24,657)   $(117,499)   $(235,841)
        Less: Net (loss) discontinued operations                      --      (76,803)    (121,232)
                                                               ---------    ---------    ---------
    Net (loss) from continuing operations                        (24,657)     (40,696)    (114,609)

    Changes in assets and liabilities continuing operations:
        Amortized loan fee                                         1,003          433        1,436
        Prepaid expenses                                            (395)          --         (395)
        Accounts payable                                            (298)      (2,855)     (18,251)
        Accrued expenses                                           3,461          547        4,008
                                                               ---------    ---------    ---------
    Net cash (used) in operating activities
         by continuing operations                                (20,886)     (42,571)    (127,811)
                                                               ---------    ---------    ---------

Cash flow from financing activities:
        Additional paid-in capital                                    --           --        2,424
        Advances from related party                                   --       16,670       85,936
        Proceeds from shareholder loans                           20,000       35,000       55,000
                                                               ---------    ---------    ---------
           Net cash provided from financing activities            20,000       51,670      143,360
                                                               ---------    ---------    ---------

    Net cash (used) in activities of continuing operations          (886)       9,099       15,549
                                                               ---------    ---------    ---------

Cash flow from (used in):
        Discontinued operations                                       --       (5,277)     (12,613)
                                                               ---------    ---------    ---------
    Net cash (used in) discontinued operations                        --       (5,277)     (12,613)
                                                               ---------    ---------    ---------

NET (DECREASE) IN CASH                                              (886)       3,822        2,936
CASH, BEGINNING OF THE PERIOD                                      6,802        2,980        2,980
                                                               ---------    ---------    ---------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD                   $   5,916    $   6,802    $   5,916
                                                               =========    =========    =========

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
    Construction in progress financed by advance payable
        from related party including accrued interest          $      --    $      --    $ 406,945
                                                               ---------    ---------    ---------
    Exchange of real estate for note payable and other
        liabilities                                            $      --    $(549,183)   $(549,183)
                                                               ---------    ---------    ---------

SUPPLEMENTAL CASH FLOW
    For the period ended June 30, 2008
        Cash paid for interest                                 $      --    $      --    $      --
                                                               ---------    ---------    ---------
        Cash paid for income taxes                             $      --    $      --    $      --
                                                               ---------    ---------    ---------
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-5
<PAGE>
                               BIRCH BRANCH, INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS

Note 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Business
-------------------------

    BIRCH BRANCH, INC. ("the Company") was incorporated in State of Colorado on
September 28, 1989. The Company was formed to pursue real estate development in
Nebraska, and has completed construction on a Studio/private museum/bed and
breakfast rental facility. There were four additional lots included in this
development, which were being held as investments for potential future
development or sale.

    In December, 2006 all of the property described above was sold pursuant to
an Asset Purchase Agreement, dated December 6, 2006, between the Company and the
Company's then President ("Purchaser"). The consideration received by the
Company consisted of 4,167 shares of Company common stock that was owned by the
Purchaser together with the cancellation of a note due to Purchaser with a
principal amount due of $430,000, secured by the Company's assets, all related
accrued interest and the release of the Company from all other liabilities due
to Purchaser.

    The Company currently has no operations and since July 1, 2002 is considered
a development stage enterprise. Effective December 6, 2006 the Company intends
to evaluate structure and complete a merger with, or acquisition of, prospects
consisting of private companies, partnerships or sole proprietorships.

Basis of Presentation - Going Concern
-------------------------------------

    The accompanying financial statements have been prepared in conformity with
generally accepted accounting principals in the United States of America, which
contemplates continuation of the Company as a going concern. However, the
Company has negative working capital, a stockholders' deficit and no active
business operations, which raises substantial doubt about its ability to
continue as a going concern.

    In view of these matters, the Company will need to continue to be dependent
on its officers, directors and significant shareholders in order to meet its
liquidity needs during the next fiscal year. There is no assurance that the
Company's officers, directors and significant shareholders will fund the
necessary operating capital, or that revenues will commence sufficient to assure
the eventual profitability of the Company. Management believes that this plan
provides an opportunity for the Company to continue as a going concern

    Certain prior period amounts have been reclassified to conform to current
period presentation.

Development Stage Company
-------------------------

    The Company is in the development stage and has not yet realized any
revenues from its planned operations. The Company's business plan is to evaluate
structure and complete a merger with, or acquisition of, prospects consisting of
private companies, partnerships or sole proprietorships.

    Based upon the Company's business plan, it is a development stage
enterprise. Accordingly, the Company presents its financial statements in
conformity with the accounting principles generally accepted in the United
States of America that apply in establishing operating enterprises. As a
development stage enterprise, the Company discloses the deficit accumulated
during the development stage and the cumulative statements of operations and
cash flows from inception to the current balance sheet date.

Change in Control and Plan of Reorganization
--------------------------------------------

    On September 26, 2006 the Company entered into an Agreement and Plan of
Reorganization with Fluid Audio Networks, Inc. ("FAN") under which, following a
proposed 3.75 for 1 forward stock split of the outstanding common stock of the
Company, the Company would issue 10,269,528 shares of common stock to acquire
all of the outstanding common stock of FAN. Additionally, the Company was to
divest itself of its real estate assets by conveying these assets to its
President in exchange for the assumption of all the parent company debt and
cancellation of 16,667 (post split) shares of its common stock held by its
President and transferred to it. The Company's President was to convey for
cancellation an additional 16,667 shares (post split) of the Company's common
stock in exchange for a payment of $500,000.

                                      F-6
<PAGE>
    The Agreement and Plan of Reorganization was subject to certain significant
contingencies which must have been resolved by November 30, 2006 in order for
the transaction to close. As of November 30, 2006, several contingencies had not
been satisfied, therefore, following a brief extension of time to attempt to
clear the open contingencies, which was not successful, the Agreement and Plan
of Reorganization was terminated without any further commitment or obligation by
the Company.

    On December 6, 2006 a Stock Purchase Agreement (the "Stock Purchase
Agreement") was made by and between Mathis Family Partners, Ltd., Lazzeri Family
Trust and Timothy Brasel and /or assigns, collectively, they are referred to
herein as the ("Investor") and Schumacher & Associates, Inc. Money Purchase Plan
& Trust, a shareholder of the Company and Michael L. Schumacher, the Company's
past President, collectively, they are referred to herein as the ("Seller"). In
the Stock Purchase Agreement, the Seller agreed to sell 254,167 fully paid and
nonassessable shares of the Company's common stock to Investor for an aggregate
of $450,000 cash. As a result of the purchase of the shares of the Company's
common stock Investor owns approximately 59.81% of the issued and outstanding
shares of common stock of the Company which resulted in a change in control of
the Company.

Reverse Stock Split
-------------------

    On June 1, 2007 the shareholders of the Company, at a special meeting,
approved a 1-for-3 reverse stock split of the Company's common stock, no par
value per share, with no change in the number of authorized shares of common
stock and with any fractional shares rounded up to a whole share. The reverse
stock split was effective on June 4, 2007.

    In connection with the 1-for-3 reverse stock split, all historical common
shares amounts have been retroactively restated to reflect the stock split
mentioned above.

Use of Estimates
----------------

    The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Management believes that the estimates
utilized in the preparation of financial statements are prudent and reasonable.
Actual results could differ from these estimates.

Cash
----

    The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents. The Company
continually monitors its positions with, and the credit quality of, the
financial institutions with which it invests.

Income Taxes
------------

    The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the
asset and liability method of Statement 109, deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to
difference between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled.


                                      F-7
<PAGE>
Net Loss Per Share
------------------

    Earnings per share requires presentation of both basic earnings per common
share and diluted earnings per common share. Since the Company has a net loss
for all periods presented, any common stock equivalents would not be included in
the weighted average calculation since their effect would be anti-dilutive.

Recent Accounting Pronouncements
--------------------------------

     In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
("SFAS 157"), which defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS 157 is effective for
fiscal years beginning after November 15, 2007, however the FASB has delayed the
effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for
nonfinancial assets and nonfinancial liabilities, except those items recognized
or disclosed at fair value on an annual or more frequently occurring basis.

     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities--Including an amendment of FASB
Statement No. 115 ("SFAS 159"). SFAS 159 permits entities to choose to measure
many financial instruments and certain other assets and liabilities at fair
value on an instrument-by-instrument basis. SFAS 159 is effective for fiscal
years beginning after November 15, 2007. The Company does not believe that the
adoption of SFAS 159 will have a material impact on its financial statements.

     In December 2007, the FASB issued SFAS 141(R), Business Combinations ("SFAS
141(R)"). SFAS 141(R) replaces SFAS 141, Business Combinations, and requires an
acquirer to recognize the assets acquired, the liabilities assumed, including
those arising from contractual contingencies, any contingent consideration, and
any noncontrolling interest in the acquiree at the acquisition date, measured at
their fair values as of that date, with limited exceptions specified in the
statement. SFAS 141(R) also requires the acquirer in a business combination
achieved in stages (sometimes referred to as a step acquisition) to recognize
the identifiable assets and liabilities, as well as the noncontrolling interest
in the acquiree, at the full amounts of their fair values (or other amounts
determined in accordance with SFAS 141(R)). In addition, SFAS 141(R)'s
requirement to measure the noncontrolling interest in the acquiree at fair value
will result in recognizing the goodwill attributable to the noncontrolling
interest in addition to that attributable to the acquirer. SFAS 141(R) amends
SFAS No. 109, Accounting for Income Taxes, to require the acquirer to recognize
changes in the amount of its deferred tax benefits that are recognizable because
of a business combination either in income from continuing operations in the
period of the combination or directly in contributed capital, depending on the
circumstances. It also amends SFAS 142, Goodwill and Other Intangible Assets,
to, among other things, provide guidance on the impairment testing of acquired
research and development intangible assets and assets that the acquirer intends
not to use. SFAS 141(R) applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Early adoption is not permitted.
The Company is currently evaluating the potential impact that the adoption of
SFAS 141(R) could have on its consolidated financial statements.

     On February 12, 2008, the FASB issued FASB Staff Position No. FAS 157-2,
Effective Date of FASB Statement No. 157 ("FSP"). The FSP amends SFAS 157 to
delay the effective date of SFAS 157 for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (that is, at least annually). For
items within its scope, the FSP defers the effective date of SFAS 157 to fiscal
years beginning after November 15, 2008, and interim periods within those fiscal
years.

     The Company does not believe that the adoption of SFAS 157 will have a
material impact on its financial statements.

Note 2 - SHAREHOLDERS'S EQUITY (DEFICIT)

    On December 6, 2006, the Company's then President returned 4,167 shares of
the Company's common stock to treasury pursuant to an Asset Purchase Agreement.


                                      F-8
<PAGE>
    On December 6, 2006 a Stock Purchase Agreement (the "Stock Purchase
Agreement") was made by and between Mathis Family Partners, Ltd., Lazzeri Family
Trust and Timothy Brasel and /or assigns, collectively, they are referred to
herein as the ("Investor") and Schumacher & Associates, Inc. Money Purchase Plan
& Trust, a shareholder of the Company and Michael L. Schumacher, the Company's
past President, collectively, they are referred to herein as the ("Seller"). In
the Stock Purchase Agreement, the Seller agreed to sell 254,167 fully paid and
nonassessable shares of the Company's common stock to Investor for an aggregate
of $450,000 cash. As a result of the purchase of the shares of the Company's
common stock Investor owns approximately 59.81% of the issued and outstanding
shares of common stock of the Company.

    On January 23, 2007, the Company entered into a Revolving Credit Agreement
(the "Revolving Credit Agreement") with Mathis Family Partners, Ltd. ("Mathis"),
Lazzeri Family Trust ("Lazzeri") and Timothy Brasel ("Brasel"), collectively,
they are referred to herein as the "the Lender", to borrow up to $250,000,
evidenced by an unsecured Revolving Loan Note (the "Revolving Loan Note."). In
connection with and as a loan fee for the foregoing unsecured credit facility,
Mathis, Lazzeri and Brasel each received 320,754, 320,754 and 641,506
unregistered shares, respectively, of the Company's common stock. The Company
recorded a Deferred Loan fee of $5,000 that is amortized over the 5 year term of
the Revolving Credit Agreement.

    On June 1, 2007 the shareholders of Company at a special meeting approved a
1-for-3 reverse stock split of our common stock, no par value per share, with no
change in the number of authorized shares of common stock and with any
fractional shares rounded up to a whole share. As a result of the 1-for-3
reverse stock split, an additional 145 shares were issued to existing
shareholders for fractional shares held.

    On June 26, 2007 the Company retired from the treasury 4,167 shares of the
Company's common stock. These shares were originally returned to the Company's
treasury pursuant to a December 6, 2006 Asset Purchase Agreement.

Note 3 - DUE TO SHAREHOLDERS

    Prior to December 2006, the Company's then President advanced funds to the
Company for construction in progress and operating expenses. The construction
was completed in September 2005, and the Company's then President and the
Company converted $381,134 of the advances and $48,866 of accrued interest to a
mortgage note payable totally $430,000, collateralized by the land owned by the
Company. During December 2006, the land, the building and improvements were
sold, pursuant to an Asset Purchase Agreement, dated December 6, 2006, to the
Company's then President in exchange for the cancellation of the $430,000
mortgage note, accrued interest of approximately $39,976, additional advances of
approximately $50,739, accounts payable and accrued liabilities of approximately
$3,468, and the return of 12,500 shares of the Company's common stock to the
Company. The sale resulted in a loss to the Company of approximately $52,016 and
an additional paid-in capital of approximately $148,502 from the excess of
liabilities assumed over the net fair value of the property.

    On January 23, 2007, the Company entered into a Revolving Credit Agreement
(the "Revolving Credit Agreement") with Mathis Family Partners, Ltd. ("Mathis"),
Lazzeri Family Trust ("Lazzeri") and Timothy Brasel ("Brasel"), collectively,
they are referred to herein as the "the Lender", to borrow up to $250,000,
evidenced by an unsecured Revolving Loan Note (the "Revolving Loan Note.") All
amounts borrowed pursuant to the Revolving Credit Agreement accrue interest at
7% per annum and all principal and accrued but unpaid interest is payable in
full on demand of the Lender. The Revolving Credit Agreement does not obligate
the Lender to make any loans but any loans made by the Lender to the Company, up
to an outstanding principal balance of $250,000, will be subject to the terms of
the Revolving Credit Agreement and the Revolving Loan Note. In connection with
and as a loan fee for the foregoing credit facility, Mathis, Lazzeri and Brasel
each received 320,754, 320,754 and 641,506 unregistered shares, respectively, of
the Company's common stock. The Company recorded a Deferred Loan fee of $5,000
that is amortized over the 5 year term of the Revolving Credit Agreement. As of
the year ended June 30, 2008 the principal balance on the note was $55,000 with
available credit of $195,000.

Note 4 - INCOME TAXES

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

     Significant components of the Company's deferred assets and liabilities are
as follows:

                                      F-9
<PAGE>
                                                          2008       2007
                                                        --------   --------
     Deferred tax assets:
       Net operating loss carryforwards                 $241,441   $217,290
       Valuation allowance for deferred tax assets      $241,441   $217,290
                                                        --------   --------
              Net deferred tax assets                   $     --   $     --
                                                        ========   ========

     The reconciliation of income tax benefit computed at the federal tax rate
of 39.63% is as follows:

                                                           2008       2007
                                                          -------   -------
     Tax benefit at statutory rate                        $95,683   $86,112
       Valuation allowance adjustment                     $95,683   $86,112
                                                          -------   -------
              Income tax benefit                          $    --   $    --
                                                          =======   =======

     A summary of the valuation allowance is as follows:

                                                             2008     2007
                                                           -------  -------
     Balance at beginning of year                          $86,112  $18,702
        Additional for year                                $ 9,571  $67,410
                                                           -------  -------
     Balance at end of year                                $95,683  $86,112
                                                           =======  =======

     The Company has the following tax carry forwards at June 30, 2008:

            Year                Amount         Expiration Date
            ----                ------         ---------------
     Net operating loss
          June 30, 2002      $    5,173          June 30, 2022
          June 30, 2003           1,216          June 30, 2023
          June 30, 2004           1,252          June 30, 2024
          June 30, 2005          12,988          June 30, 2025
          June 30, 2006          80,463          June 30, 2026
          June 30, 2007         116,198          June 30, 2027
          June 30, 2008          24,151          June 30, 2028
                             ----------
                  Total        $241,441

     The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary
differences become deductible. Future changes in ownership may limit the ability
of the Company to utilize these net operating loss carry forwards prior to their
expiration.

Note 5 - COMMITMENTS AND CONTINGENCIES

    The Company uses the offices of certain officers and directors to carry on
day to day business operations for its minimal office facility needs (staff,
supplies and other miscellaneous items). As of January 2007, and in
consideration for these services, the Company pays $1,500 per month to an
affiliate of one of the Company's officers.


                                      F-10
<PAGE>