Mail Stop 4561
August 17, 2005
Mr. Michael Schumacher
President
Birch Branch, Inc.
2525 Fifteenth Street, Suite 3H
Denver, CO 80211
Re: Birch Branch, Inc.
Registration Statement on Form SB-2
Filed July 15, 2005
File No. 333-126654
Dear Mr. Schumacher:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. Update your financial statements pursuant to Item 310(g) of
Regulation S-B.
2. Please provide us with copies of any graphics, maps,
photographs,
and related captions or other artwork including logos that you
intend
to use in the prospectus. You should not include such graphics
and
pictorial representations in any preliminary prospectus
distributed
to prospective investors prior to our review.
3. Please number the pages of the registration statement.
4. We note that you are registering a distribution of Birch Branch
shares that the directors of PIDV approved in 2002. Please tell
us
whether the shares were offered to PIDV shareholders before you
filed
this registration statement. Describe to us all communications
between the board and PIDV shareholders, including any public
announcements regarding the distribution. If you commenced the
offering privately, you may not complete it as a registered public
offering. Also, please tell us whether your registration
statement
on Form 10, which described the distribution, should be viewed as
a
general solicitation.
Summary
5. In the second to last paragraph, you state that "Mr. Schumacher
could be deemed to be an underwriter." Please revise this
disclosure
to note that Mr. Schumacher is in fact an underwriter. Also,
please
move this disclosure to the cover page of the prospectus. Refer
to
Item 501 of Regulation S-B.
6. We note that Amendment No. 1 to your 10-SB, filed on November
12,
2004, states that your Studio was 90% complete and it should be
finished by December 31, 2004. Amendment No. 2 to your form 10-
SB,
filed on February 1, 2005, states that the Studio is 95% complete
and
you estimate that it will be finished by February 28, 2005. In
the
last full paragraph of this section, you state that construction
on
the studio is 97% complete. Please tell us why the estimated time
of
completion has been delayed. We may have further comment based on
your response.
7. Please revise to clarify whether your primary business will be
operation of the museum and bed and breakfast facility, or if you
intend to lease the property to a third party for that purpose.
Risk Factors
8. Please include a risk factor discussing the risk of control by
your largest stockholder, Michael Schumacher.
9. Please revise your risk factor subheadings to ensure that your
subheadings clearly identify the material risk disclosed in the
narrative. Currently, many of your subheadings merely state a
fact.
For example, one risk factor subheading states No broker or dealer
has committed to create or maintain a market in our stock. Please
revise your subheadings to highlight the specific risk that
results
from the stated fact.
10. Please add a risk factor noting your reliance on Michael
Schumacher. Please note whether you have an employment agreement
with Mr. Schumacher. This disclosure should also include, but not
be
limited to, the risk posed by losing his financial resources,
knowledge and business contacts.
11. We note that a number of your risk factors appear to be
generic
to all public companies. For instance, refer to the risk factor
under the subheading General economic conditions may adversely
affect
our financial condition and results of operations. Please revise
to
ensure that each risk factor describes the specific risks to your
company.
We have a history of losses and expect losses to continue for the
foreseeable future.
12. Please revise to state your highly leveraged position and that
you have not generated revenues since your inception. Also,
please
revise to note your cash balance as of the most recent practicable
date.
Over-the-counter stocks are very risky.
13. You state that "other factors, such as new product
developments...may adversely affect the market price of the common
stock." Please state the type of product developments that could
adversely affect the market price of the common stock.
Issuances of our stock could dilute current shareholders and
adversely affect the market price of our common stock, if a public
trading market develops.
14. Please combine this risk factor with the risk titled The terms
upon which we may obtain additional capital may be dilutive to
current shareholders or otherwise require unfavorable concessions,
due to the repetitive disclosure contained in these risk factors.
Development and construction risks could adversely affect our
profitability.
15. We note that you list numerous risks in bulleted form. Please
separately describe each material risk.
The Spin-Off and Plan of Distribution
Record Date
16. You state that the record date for the distribution to PIDV
shareholders is November 26, 2002, and that individuals who have
bought their common shares after the record date are not entitled
to
participate in the distribution. Please tell us how you will
identify and locate the individuals that held PIDV shares as of
November 26, 2002.
Distribution Date
17. You state that "[i]f you hold your PIDV common shares in a
brokerage account, your shares of our common stock will be
credited
to that account. If you hold PIDV shares in a certificated form, a
certificate representing your shares of our common stock will be
mailed to you." Given that PIDV is now U.S. MedSys Corp., please
advise us how it is possible that anyone currently holds shares of
PIDV. Also, please revise to explain whether individuals that
held
PIDV shares on the record date but no longer hold those shares
will
be entitled to receive shares of your common stock in the
distribution.
18. Please revise to identify Mr. Schumacher as the trustee.
Management`s Discussion and Analysis or Plan of Operation
19. Please disclose your critical accounting estimates. Refer to
the
guidance of FR 72. We believe that at a minimum, you should
provide
disclosure about critical accounting estimates, policies and
assumptions related to your long-lived assets and your related
impairment assessments.
20. Please revise to include a discussion of whether your business
will be subject to seasonality. Refer to Item 303(b)(1)(vii) of
Regulation S-B.
Plan of Operation for March 31, 2005 to March 31, 2006
21. You state in the first sentence that you intend to market the
bed
and breakfast rental facility and museum by local advertising. In
the same paragraph, you state that you have no plans for marketing
beyond referrals. Please revise to reconcile these two
statements.
22. Please disclose the estimated costs of conducting your
marketing
campaign.
23. In the last sentence, you state "management does not
anticipate
any revenues until the capital improvements are completed, or
following the conclusion of a merger or acquisition, as
contemplated
by our business plan." Please revise to provide detailed
disclosure
regarding your business plan to enter into a merger or
acquisition.
24. Please discuss in more detail the basis for management`s
belief
that rental income will be sufficient to cover operating costs for
the foreseeable future. Disclose when you expect to begin
generating
revenues. Also, please indicate whether operating costs will
increase when you commence operations. If so, describe the
reasons
for such increase and, if possible, quantify the anticipated
increase.
25. If you wish to include disclosure regarding your results of
operations, please provide disclosure for the nine months ended
March
31, 2005. This disclosure should include a discussion of the
$9,592
in operating fees that you incurred during that period.
Liquidity and Capital Resources
26. Please revise your disclosure to note the estimated cost and
time
of completion of the studio.
Financial Position
27. Your financing agreement with your President, filed as Exhibit
10.1, states that he agrees to provide working capital to the
extent
necessary to you through the year ended June 30, 2005. In this
section, you state that your president has agreed to provide
advances
sufficient to cover working capital needs through June 30, 2006.
Please advise us whether this agreement to provide working capital
through June 30, 2006 is a written agreement and if it is please
file
it as an Exhibit.
28. In the notes to the financial statements, you state that your
President has advanced you $333,053. You also state that your
President has agreed to fund up to an additional $15,855 for a
total
of $348,908 ($333,053 + $15,855). Exhibit 10.1 states that your
President has agreed to advance funds totaling up to $350,000 for
the
construction of your studio. Please advise us as to why your
President will only provide funding of $348,908.
Business
29. Please revise to state the competitive business conditions and
your competitive position in the industry and methods of
competition.
Please refer to Item 101(b)(4) of Regulation S-B.
Current Business- Birch Branch, Inc.
30. Please advise us if you have a website, and if you do, tell us
the address of the website. Also, if you have a website please
consider disclosing the address of your website in this section.
31. You note that you "are principally in the real estate
investment
business." Please revise to note what other types of businesses
you
are involved in.
Effect of Governmental Regulations: Compliance with Environmental
Laws
32. You state that "no assurances can be made that our intended
use
will meet zoning requirements." Please revise to note if you have
already applied for zoning approval, and if you have, where you
are
in the zoning approval process.
33. In the Summary section, you state that you are the "owner of
five
residential lots." Please revise this section to state whether
your
property is in a residential zone, and if it is, why you believe
that
you will be able to run a business on the property.
Property
34. You state that in the past you "principally invested in real
estate for possible capital gains." Please revise this section to
provide further detail on your past investment activities,
including
the type and number of properties you invested in. Also, provide
the
disclosure required by Items 13, 14, and 15 of Form S-11 as
applicable. Refer to Instruction B.2 of Form SB-2.
35. Please revise to state the type of properties in which your
might
invest. Refer to Item 102(b) of Regulation S-B.
36. Please revise to indicate any limitations on the number or
amount
of mortgages which may be placed on any one piece of property.
Refer
to Item 102(b) of Regulation S-B.
37. Please revise to describe your policy with respect to
investing
in real estate, indicating whether your policy may be changed by
your
executives without a vote of security holders and what percentage
of
assets you may invest in any one property. Refer to Item 102(b)
of
Regulation S-B.
Directors, executive officers and key employees
Michael Schumacher
38. Please revise to state the nature of the business for each
company where Mr. Schumacher has worked during the last five
years.
Certain Relationships and Related Transactions
39. You state that you were advanced $9,279 by a related party.
Please revise to disclose the identity of the related party.
Also,
please revise to state the material terms of the $9,279 advance.
Federal Securities Laws Consequences
40. Please revise to disclose the number of shares that will be
owned
by affiliates after this offering and that may be resold under
Rule
144.
Where You Can Find More Information
41. Please revise to note that the public reference room is
located
in Room 1580, 100 F Street N.E., Washington, D.C. 20549.
Financial Statements
Note 1 - Organization and summary of accounting policies
Revenue Recognition
42. Revise to include your anticipated sources of revenue and the
related revenue recognition policies you will follow when you
commence revenue generating activities. This discussion should
disclose whether or not you will recognize rental income on a
straight-line basis.
Long-Lived Assets
43. Revise to include your policies related to your annual long-
lived
asset impairment assessment and the subsequent accounting when an
impairment has occurred. Reference is made to SFAS 144.
Part II
Item 28. Undertakings
44. Please tell us why you have included the undertakings required
by
Item 512(a) of Regulation S-B.
Exhibit 5.0 - Legal Opinion
45. We note that counsel`s opinion states the shares to be
distributed "have been" validly issued and "are" fully paid and
nonassessable. Since the shares have not yet been issued, it is
not
appropriate for counsel to opine that they "have been" validly
issued
and "are" fully paid and nonassessable. Instead, counsel must
opine
on the validity of the shares that will be issued in the
distribution. Please file a revised opinion.
Other
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may have additional comments after reviewing your amendment and
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert staff comments and the declaration
of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Matthew Maulbeck, Accountant, at (202) 551-
3466
or Steven Jacobs, Accounting Branch Chief, at (202) 551-3403 if
you
have questions regarding comments on the financial statements and
related matters. Please contact David Roberts, Staff Attorney, at
(202) 551-3856 or the undersigned at (202) 551-3780 with any other
questions.
Sincerely,
Karen J. Garnett
Assistant Director
cc: Clifford L. Neuman (via facsimile)
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Michael Schumacher
Birch Branch, Inc.
August 17, 2005
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