Item 1. Business
References in this annual report to "the Company," "we," "us," and "our," refer to Birch Branch, Inc., unless the context indicates otherwise.
Cautionary Statements Under the Private Securities Litigation Reform Act of 1995
Forward-Look Statements
Disclosures included in this Form 10-K contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933. as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may be identified by words such as "anticipate," "plan," "believe," "seek," "estimate," "expect," "could," and words of similar meanings and include, without limitation, statements about the expected future business and financial performance of Birch Branch, Inc. such as financial projections, 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 are based on management's current expectations and assumptions, which are inherently subject to uncertainties, risks, and changes in circumstances that are difficult to predict. Investors and others should consider the cautionary statements and risk factors discussed in Item 1A
Item 1A. Risk Factors
Cautionary Statements Regarding Future Results of Operations
You should read the following cautionary statements in conjunction with the factors discussed elsewhere in this and other of our filings with the Securities and Exchange Commission (SEC) and in materials incorporated by reference in these filings. These cautionary statements are intended to highlight certain factors that may affect our financial condition and results of operations and are not meant to be an exhaustive discussion of risks that apply to companies like ours. Like other companies, we are susceptible to macroeconomic downturns in the United States or abroad that may affect the general economic climate and our performance.
No operating history or revenue and minimal assets.
We have very limited operating history and no revenues or earnings from operations. There are no significant assets or financial resources. We will, in all likelihood, sustain operating expenses without corresponding revenues, at least until the consummation of a business combination. This may result in our 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 we can identify such a target company and consummate such a business combination.
Adequate financing may not be available when needed.
We entered into a Revolving Credit Agreement with our 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 our 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 we 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 our proposed operations.
The success of our proposed plan of operation will depend to a great extent on the operations, financial condition and management of the identified target company. While our management would 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 that we complete a business combination, of which there can be no assurance, the success of our operations will be dependent upon the management of the target company and numerous other factors beyond our control.
Scarcity of and competition for business opportunities and combinations.
We are 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 us. Nearly all such entities have significantly greater financial resources, technical expertise and managerial capabilities than us and, consequently, we will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. Moreover, we will also compete with numerous other small public companies in seeking merger or acquisition candidates.
No agreement for business combination or other transaction - - No standards for business combination.
We have no current arrangement, agreement or understanding with respect to engaging in a merger with or acquisition of a specific business entity. There can be no assurance that we will be successful in identifying and evaluating suitable business opportunities or in concluding a business combination. Our management has not identified any particular industry or specific business within an industry for evaluation by us. There is no assurance that we will be able to negotiate a business combination on terms favorable to us. We have not established a specific length of operating history or a specified level of earnings, assets, net worth or other criteria which we would require a target company to have achieved, or without which we would not consider a business combination with such business entity. Accordingly, we 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, management anticipates devoting only a limited amount of time per month to our business. Our officer has not entered into a written employment agreement with us and is not expected to do so in the foreseeable future. We have not obtained key man life insurance on our officer or director. Notwithstanding the combined limited experience and time commitment of our management, loss of the services of this individual would adversely affect development of our business and its likelihood of continuing operations.
Conflicts of interest - - General.
Our officer and director participates in other business ventures which may compete directly with us. We have an unwritten policy that we will not acquire or merge with a business or company in which our management or their affiliates or associates directly or indirectly have a controlling interest. Our management is not aware of any circumstances under which the foregoing policy will be changed and our management, through their own initiative, will not change said policy. Refer to "ITEM 13. Certain Relationships and Related Transactions, and Director Independence."
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 us. 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.
We have neither conducted, nor have others made available to us, market research indicating that demand exists for the transactions contemplated by the Company. Even in the event demand exists for a merger or acquisition of the type contemplated by the Company, there is no assurance that we would be successful in completing any such business combination.
Lack of diversification.
Our proposed operations, even if successful, will in all likelihood result in us engaging in a business combination with only one business entity. Consequently, our activities will be limited to those engaged in by the business entity which we merge with or acquire. Our inability to diversify our 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 our operations.
Regulation under Investment Company Act.
Although we will be subject to regulation under the Exchange Act, management believes we will not be subject to regulation under the Investment Company Act of 1940, as amended (the "Investment Company Act"), since we will not be engaged in the business of investing or trading in securities. If we engage in business combinations which result in our holding passive investment interests in a number of entities, we could be subject to regulation under the Investment Company Act. If so, we would be required to register as an investment company and could be expected to incur significant registration and compliance costs. We have obtained no formal determination from the Securities and Exchange Commission as to our status under the Investment Company Act and, consequently, any violation of such Act could subject us to material adverse consequences.
Probable change in control and management.
A business combination involving the issuance of our common stock will, in all likelihood, result in shareholders of a target company obtaining a controlling interest in us. Any such business combination may require our shareholders to sell or transfer all or a portion our common stock held by them. The resulting change in control of the Company will likely result in removal of our present officer and director and a corresponding reduction in or elimination of their participation in our future affairs.
Reduction of percentage share ownership following business combination.
Our primary plan of operation is based upon a business combination with a business entity which, in all likelihood, will result in us issuing securities to shareholders of such business entity. The issuance of previously authorized and unissued common stock of us would result in a reduction in percentage of shares owned by our present shareholders and would most likely result in a change in control and management of the Company.
No dividends.
We have not paid dividends on our common stock to date and we do not presently intend to pay dividends prior to the consummation of a business combination. The payment of dividends after a business combination, if any, will be contingent upon the Company's revenues and earnings, if any, capital requirements and general financial condition subsequent to consummation of a business combination. The payment of any dividends subsequent to consummation of a business combination will be within the discretion of our then Board of Directors. It is the present intention of the Board of Directors to retain all earnings, if any, for use in our business operations and, accordingly, the Board does not anticipate paying any cash dividends in the foreseeable future.
Taxation.
Federal and state tax consequences will, in all likelihood, be major considerations in any business combination that we 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. We intend to structure any business combination so as to minimize the federal and state tax consequences to both us 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.
Our management 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 us rather than incur the expenses associated with preparing audited financial statements. In such case, we may choose to obtain certain assurances as to the target company's assets, liabilities, revenues and expenses prior to consummating a business combination, with further assurances that an audited financial statement would be provided after closing of such a transaction. Closing documents relative thereto may include representations that the audited financial statements will not materially differ from the representations included in such closing documents.
Restriction on Rule 144 sales for a "blank check "company may discourage potential business combinations.
Effective February 15, 2008, the U. S. Securities and Exchange Commission (the "SEC") approved amendments to Rule 144 of the Securities Act of 1933 ("Rule 144"). The amended rules include new treatment for the sale of shares of a "shell company' which includes a "blank check" company and applies to us. Under the amended rules, Rule 144 cannot be relied upon for the resale of restricted or unrestricted securities originally issued by a shell company or an issuer that at any time has been a shell company unless (i) the issuer has ceased to be a shell company; (ii) the issuer is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and has filed all required reports during the 12 months preceding the Rule 144 sale and (iii) at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting that the entity is no longer a shell company.
The foregoing restrictions on the use of Rule 144 for the sale of securities issued by a shell company may reduce the attractiveness of us as a business combination candidate and accordingly, there may be more limited potential business opportunities that are willing to enter into a business combination with any company that is currently or in the last year has been a shell company, including us.
Compliance with changing corporate governance regulations and public disclosures may result in additional risks and exposures.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new regulations from the SEC, have created uncertainty for public companies such as ours. These laws, regulations, and standards are subject to varying interpretations in many cases and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations, and standards have resulted in, and are likely to continue to result in, increased expenses and significant management time and attention.
The current crisis in global credit and financial markets could materially and adversely affect our business.
As has been widely reported, global credit and financial markets have been experiencing extreme disruptions in recent months, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. There can be no assurance that there will not be further deterioration in credit and financial markets and confidence in economic conditions. These economic uncertainties affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. The current tightening of credit in financial markets and the general economic downturn has led consumers and businesses to postpone spending, which has caused uncertainty in our possible merger candidates. We are unable to predict the likely duration and severity of the current disruptions in the credit and financial markets and adverse global economic conditions and if the current uncertain economic conditions continue or further deteriorate our business and results of operations could be materially and adversely affected.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
We currently have no properties and at this time have no agreements to acquire any properties. Since January 2007, we utilize the offices of a major shareholder of ours, located at 2560 W. Main Street, Suite 200, Littleton, Colorado 80120. We pay $1,500 per month for reimbursement of out-of-pocket expenses such as telephone, postage, supplies and administrative support to a company controlled by a major shareholder of ours. We have paid $18,000 for these expenses for the year ended June 30, 2009.
There are no agreements or understandings with respect to the office facility subsequent to the completion of an acquisition. Upon a merger or acquisition, we intend to relocate our office to that of the acquisition candidate.
Item 3
Item 3 Legal Proceedings.
We are not currently involved in any legal proceedings and no such proceedings are known by us to be threatened or contemplated against us.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to security holders for a vote during the quarter ended June 30, 2009.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is quoted on the OTC Bulletin Board under the Symbol BRBH. There is only a limited trading market for our stock and our stockholders may find it difficult to sell their shares. As reported by the OTC BB, our stock has had a high of $1.06 and a low of $0.30 for the fiscal year ended June 30, 2009.
Holders
As of September 30, 2009, we had approximately 385 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. Our 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 our Board of Directors.
Item 6.
Item 6. Selected Financial Data
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide this information.
Item 7.
Item 7. 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" and elsewhere in this report.
Overview
We were formed to pursue real estate development in Nebraska and were 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 the Company and our then President ("Purchaser"). We received 4,167 shares of our 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 the Company 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 our common stock to Investor for an aggregate of $450,000 cash. As a result of the purchase of the shares of our common stock Investor owns approximately 59.81% of our issued and outstanding shares of common stock which resulted in a change in control of the Company.
Currently, we are in the development stage and have not yet realized any revenues from our planned operations. Our business plan is to evaluate structure and complete a merger with, or acquisition of, prospects consisting of private companies, partnerships or sole proprietorships.
Although we have not entered into any definitive agreement regarding a merger our 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. Our management may engage in such solicitation directly or may employ one or more other entities to conduct or assist in such solicitation.
We have no full time employees. Our officer has agreed to allocate a portion of his time to the activities of us, without compensation.
Results of Operations
For year ended June 30, 2009, compared the year ended June 30, 2008.
Revenue. No operating revenues were generated during the year ended June 30, 2009 and June 30, 2008.
Operating Expenses. Total operating expenses were $31,135 and $45,192, respectively for the year ended June 30, 2009 and for the year ended June 30, 2008. Operating expenses consisted of professional, management and filing fees.
Other income (expense). Other income (expense) were $(5,745) and $20,535, respectively for the year ended June 30, 2009 and for the year ended June 30, 2008. In January 2008, we received a $25,000 deposit in connection with a potential share exchange transaction with a third party. The potential share transaction did not close due to contingencies not met by the third party; therefore the $25,000 deposit was forfeited by the third party to the Company.
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.
Other income (expense). Other income (expense) were $20,535 and ($980), respectively for the year ended June 30, 2008 and for the year ended June 30, 2007. In January 2008, we received a $25,000 deposit in connection with a potential share exchange transaction with a third party. The potential share transaction did not close due to contingencies not met by the third party; therefore the $25,000 deposit was forfeited by the third party to the Company.
Liquidity and Capital Resources
As of June 30, 2009, we had $3,868 in cash and cash equivalents and a working capital deficit of $88,577.
On January 23, 2007, we 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, 2009, $78,000 was borrowed under this agreement with $8,753 of interest accrued.
While future operating activities are expected to be funded by the Revolving Credit Agreement our 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 we 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, 2009.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide this information.
Item 8.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm Balance Sheets as of June 30, 2009 and 2008 Statements of Operations for the years ended June 30, 2009, 2008 and from July 1, 2002 (date of commencement of development stage) through June 30, 2009 Statements of Changes in Stockholders' (Deficit) from July 1, 2002 (date of commencement of development stage) through June 30, 2009 Statements of Cash Flows for the Years Ending June 30, 2009, 2008 and from July 1, 2002 (date of commencement of development stage) through June 30, 2009 Notes to Financial Statements
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
On May 11, 2009, the Company dismissed Ronald R. Chadwick, PC (the "Former Auditor") as the Company's independent registered public accounting firm. On that same date, the Company engaged Cordovano and Honeck, LLP ("the New Auditor"), as its new independent registered public accounting firm for its fiscal year ending June 30, 2009. The Company's decision to engage the New Auditor was approved by its Board of Directors.
The report on the financial statements prepared by the Former Auditor for the fiscal years ended June 30, 2007 and June 30, 2008, 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 the Former Auditor on any accounting principals or practices, financial statement disclosure, or auditing scope or procedure.
Neither the Company nor anyone on our behalf consulted the New Auditor, 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 9A.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 ("Exchange Act"), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that the we file or submit under the Exchange Act, 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 our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(c) and (d) of the Exchange Act. Our internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, financial disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable and in accordance with generally accepted accounting principles of the United States of America (GAAP). Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Therefore, even those systems determined to effective can provide only reasonable assurance with respect to the financial statement preparation and presentation. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time. Management conducted its evaluation of the effectiveness of our internal controls over financial reporting based on the framework set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on this evaluation, we concluded that our internal control over financial reporting was effective as of June 30, 2009.
The annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
The following sets forth certain information regarding each of our directors and executive officer:
All officers hold their positions at the will of the Board of Directors. All directors hold their positions for one year or until their successors are elected and qualified.
The following is a summary of our director and executive officer business experience.
Timothy Brasel - President, Chief Executive Officer, Chief Financial Officer and Director, As of June 30, 2009, Mr. Brasel became the President, Chief Executive Officer, Chief Financial and Director of Birch Branch, Inc., a public shell company. From June 2009 to present, Mr. Brasel has been President, Chief Executive Officer and Chief Financial Officer and since March 2008 a Director of Princeton Acquisitions Inc., a public shell company. From 1987 to present, Mr. Brasel has been President and a Director of Bleu Ridge Consultants, Inc. Mr. Brasel currently devotes the majority of his time to managing his various business investments. From 2001 to 2003, Mr. Brasel was a Director in Mountain States Lending, Inc. Over five years ago, Mr. Brasel served as a director of six publicly held shells. These companies are ILMI Corporation, Studio Capital Corp., Calneva Capital Corp., Zirconium Capital Corp., Hightop Capital Corp., and Royal Belle Capital Corp. From December 1996 until September 1998, he served as President and Director of Cypress Capital, Inc., which completed an acquisition of Terra Telecommunications, Inc. during September 1998. From September 1995 until January 1999, he served as President and a Director of High Hopes, Inc., which completed an acquisition of certain technology from Sanga e-Health LLC during January 1999. From May 1995 until August 1997, Mr. Brasel served as President and a director of Universal Capital Corp., which completed an acquisition of Remarc International Inc. during August 1997. From February 1996 until February 1997, Mr. Brasel served as President and a director of Capital 2000, Inc. which completed an acquisition of United Shields Corporation in February 1997. From July 1996 until December 1997, Mr. Brasel served as President and a director of Mahogany Capital, Inc., which completed an acquisition of Pontotoc Production Company, Inc. during December 1997. From July 1996 until May 1998, Mr. Brasel served as President and a director of Walnut Capital, Inc., which completed a merger with Links Ltd. during May 1998. From March 1990 until September 1994, Mr. Brasel served as President, Secretary, Treasurer and a Director of Prentice Capital, Inc., a publicly held blank-check company which completed an acquisition of Universal Footcare, Inc. From March 1990 until August 1993, Mr. Brasel was President, Secretary and a director of Brasel Ventures, Inc., a publicly held blank-check company, which completed an acquisition of American Pharmaceutical Company. Mr. Brasel received a Bachelor of Science degree in Business Administration from Morningside College, Sioux City, Iowa.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our director, officer and holders of more than ten percent of our common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. We believe that during and for the fiscal year ended June 30, 2009, our officer, director and greater than ten percent beneficial owners complied with all Section 16(a) filing requirements.
Code of Ethics
We have not adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Given the nature of our business, our limited stockholder base and current composition of management, the board of directors does not believe that we require a code of ethics at this time. The board of directors takes the position that management of a target business will adopt a code of ethics that will be suitable for its operations after we consummate a business combination.
Nominating Committee
We have not adopted any procedures by which security holders may recommend nominees to our board of directors.
Audit Committee
The board of directors has not established an audit committee nor adopted an audit committee charter, rather, the entire board of directors serves the functions of an audit committee. Given the nature of our business, our limited stockholder base and current composition of management, the board of directors does not believe that we require an audit committee at this time. The board of directors takes the position that management of a target business will establish an audit committee and adopt an audit committee charter that will be suitable for its operations after we consummate a business combination.
Item 11.
Item 11. Executive Compensation
Compensation Discussion and Analysis
Our officer and director does not receive any compensation for services rendered, hase not received such compensation in the past, and is not accruing any compensation pursuant to any agreement with our Company. Our officer and director is reimbursed for expenses incurred on our behalf. Our officer and director will not receive any finder's fee as a result of his efforts to implement the business plan outlined herein. However, our officer and director anticipate receiving benefits as a beneficial shareholder 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 us and our officer and director.
Post-Employment Compensation, Pension Benefits, Nonqualified Deferred Compensation
There were no post-employment compensation, pension or nonqualified deferred compensation benefits earned by our executive officer during the year ended June 30, 2009.
Director Compensation
Our director has received no compensation during the year ended June 30, 2009.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder 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 September 30, 2009, 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.
(1) Percentages are rounded to the nearest one-tenth of one percent. Percentages are based on 1,708,123 shares of common stock outstanding.
(2) Includes shares either held directly, as custodian for a minor child or through entities that are controlled by Timothy Brasel.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Related Party Transactions
We have no properties and at this time have no agreements to acquire any properties. Since January 2007, we utilize the offices of a major shareholder of ours, located at 2560 W. Main Street, Suite 200, Littleton, Colorado 80120. We pay $1,500 per month for reimbursement of out-of-pocket expenses such as telephone, postage, supplies and administrative support to a company controlled by a major shareholder of ours. We paid $18,000 for these expenses for the year ended June 30, 2009.
Conflicts of Interest
Our management has adopted certain policies involving possible conflicts of interest, including prohibiting any of the following transactions involving management, promoters, shareholders or their affiliates: (i) Any lending by us to such persons; (ii) The issuance of any additional securities to such persons prior to a business combination except for fair and adequate payment; (iii) The entering into any business combination or acquisition of assets in which such persons have any interest, direct or indirect; or (iv) The payment of any finder's fees to such persons. These policies have been adopted by our Board of Directors, and any changes in these provisions require the approval of the Board of Directors. Our management does not intend to propose any such action and does not anticipate that any such action will occur. There are no binding guidelines or procedures for resolving potential conflicts of interest. Failure by our management to resolve conflicts of interest in favor of us could result in liability of our management to us. However, any attempt by shareholders to enforce a liability of our management to us would most likely be prohibitively expensive and time consuming.
Director Independence
We have not established our own definition for determining whether our director and nominees for directors are "independent" nor have we adopted any other standard of independence employed by any national securities exchange or inter-dealer quotation system.
Our current management cannot predict whether incoming management of a target business upon the consummation of a business combination, if such transaction occurs, will adopt a definition of "independence" or establish any committees of the board, such as an audit committee, a compensation committee or nominating committee.
Item 14.
Item 14. Principal Accounting Fees and Services
Audit Fees
We paid Ronald R. Chadwick, P.C., a total of $4,500 for fiscal year ended June 30, 2008 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-Q and for any other services that are normally provided by our independent auditors in connection with our statutory and regulatory filings or engagements.
We paid Ronald R. Chadwick, P.C., a total of $6,250 for fiscal year ended June 30, 2009 for professional services rendered for the reviews of financial statements included in our Form 10-Q for September 30, 2008 and December 31, 2008.
We paid Cordovano and Honeck LLP, a total of $1,000 for the fiscal year ended June 30, 2009 for professional services rendered for the reviews of our financial statements included in our Form 10-Q for March 31, 2009.
Audit Related Fees
There were no fees billed for services reasonably related to the performance of the audit or review of our financial statements outside of those fees disclosed above under "Audit Fees" for fiscal years 2009 and 2008.
Tax Fees
For the Company's fiscal year ended June 30, 2009 and 2008, we were not billed for professional services rendered for tax compliance, tax advice and tax planning, as these services were provided as part of the administrative support reimbursement provided by a company controlled by one of our stockholders.
All Other Fees
None.
Audit Committee's Pre-Approval Process
We have not established an audit committee nor adopted an audit committee charter. Rather, it is the responsibility of the entire board of directors to serve the functions of an audit committee and to pre-approve all audit and permitted non-audit services to be performed by the independent auditors, such approval to take place in advance of such services when required by law, regulation or rule, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Securities Exchange Act of 1934 that are approved by the board prior to the completion of the audit.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this annual report on Form 10-K:
1) Financial Statements:
Reports of Independent Registered Public Accounting Firms Balance Sheets at June 30, 2009 and 2008 Statements of Operations for years ended June 30, 2009 and 2008 and from July 1, 2002 (date of commencement of development stage) through June 30, 2009 Statements of Changes in Stockholders' (Deficit) from July 1, 2002 (date of commencement of development stage) through June 30, Statements of Cash Flows for the years ended June 30, 2009 and 2008 and from July 1, 2002 (date of commencement of development stage) through June 30, 2009 Notes to Financial Statements
2) Financial Statement Schedule:
We are not filing separately financial statement schedules because of the absence of conditions under which they are required or because the required information is included in the financial statements or the related notes.
3) Exhibits:
The documents set forth below are filed herewith or incorporated herein by reference to the location indicated.
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, incorporated by reference to Exhibit 3.1.1 filed with 10-KSB on September 26, 2008
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
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on September 30, 2009.
BIRCH BRANCH, INC.
By /s/ Timothy Brasel ----------------------------------------- Timothy Brasel President, Principal Executive Officer and Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders Birch Branch, Inc.:
We have audited the accompanying balance sheet of Birch Branch, Inc. (a development stage company) as of June 30, 2009, and the related statements of operations, changes in shareholders' deficit, and cash flows for the year ended June 30, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Birch Branch, Inc. as of June 30, 2009, and the results of its operations and its cash flows for the year ended June 30, 2009 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 incurred operating losses since inception and has a net capital deficit at June 30, 2009, which raises substantial doubt about its ability to continue as a going concern. Management's plan in regard to these matters is also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Cordovano and Honeck LLP - ---------------------------- Cordovano and Honeck LLP Englewood, Colorado September 24, 2009
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 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 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.
The accompanying notes are an integral part of these financial statements
The accompanying notes are an integral part of these financial statements
The accompanying notes are an integral part of these financial statements
The accompanying notes are an integral part of these financial statements
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.
Summary of Accounting Basis of Presentation - -------------------------------------------
The Company's financial statements have been prepared on an accrual basis of accounting, in conformity with accounting principles generally accepted in the United States of America. These principles contemplate the realization of assets and liquidation of liabilities in the normal course of business.
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.
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.
Going Concern - -------------
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business.
The Company's development activities since inception have been financially sustained through stockholder donations and stockholder loans to the Company, as well as sales of the Company's common stock.
The ability of the Company to continue as a going concern is dependent upon its ability to find a suitable acquisition/merger candidate, raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. The accompanying financial statements do not include any adjustments that might be required should the Company be unable to recover the value of its assets or satisfy its liabilities.
The Company's ability to continue as a going concern is subject to obtaining necessary funding from outside sources.
Certain prior period amounts have been reclassified to conform to current period presentation.
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 revenues and expenses during the reporting period. Actual results could differ from those 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.
Net (Loss) Per Share - --------------------
The Company adopted Statement of Financial Accounting Standards No. 128 that requires the reporting of both basic and diluted earnings (loss) per share. Basic earnings(loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with FASB 128, any anti-dilutive effects on net income (loss) per share are excluded.
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.
The Company has adopted the provisions of FASB Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109. As a result of the implementation of FIN 48, the Company had no changes in the carrying value of its tax assets or liabilities for any recognized tax benefits.
Recent Accounting Pronouncements - --------------------------------
In December 2007, the FASB issued SFAS 141(revised 2007), 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. The adoption of this Standard is not expected to have a material effect on the Company's results of operations or financial position.
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.
Subsequent Events - -----------------
The Company has evaluated all subsequent events through September 30, 2009, the date the financial statements were issued, and no additional items were noted that need to be disclosed.
NOTE 2 - SHAREHOLDERS' (DEFICIT)
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.
NOTE 3 - DUE TO SHAREHOLDERS
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 June 30, 2009 the principal balance on the note was $78,000 with available credit of $172,000. The note has incurred a total of $8,753 in interest with $8,753 accrued as of June 30. 2009.
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:
2009 2008 --------- --------- Deferred tax assets: Net operating loss carryforwards $ 277,961 $ 241,441 Less valuation allowance for deferred tax assets ($277,961) ($241,441) --------- --------- Net deferred tax assets $ -- $ -- ========= =========
The reconciliation of income tax benefit computed at the federal tax rate of 39.63% is as follows:
2009 2008 --------- --------- Tax benefit at statutory rate $ 110,156 $ 95,683 Less valuation allowance adjustment ($110,156) ($ 95,683) --------- --------- Income tax benefit $ -- $ -- ========= =========
A summary of the valuation allowance is as follows:
2009 2008 -------- -------- Balance at beginning of year $ 95,683 $ 86,112 Additional for year $ 14,473 $ 9,571 -------- -------- Balance at end of year $110,156 $ 95,683 ======== ========
The Company has the following tax carry forwards at June 30, 2009:
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 June 30, 2009 36,520 June 30, 2029 ---------- Total $277,961 ========
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 - RELATED PARTY TRANSACTION
Since January 2007, we utilize the offices of a major shareholder of ours, located at 2560 W. Main Street, Suite 200, Littleton, Colorado 80120. We pay $1,500 per month for reimbursement of out-of-pocket expenses such as telephone, postage, supplies and administrative support to a company controlled by a major shareholder of ours. We paid $18,000 for these expenses for the year ended June 30, 2009.