U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- ---------------
Commission File No. 333-49736
BIRCH FINANCIAL, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 91-2077659
------ ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
15722 Kadota Street
Sylmar, California 91342
-------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (800) 959-3701
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
September 30, 2001
32,116,048
----------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
- -------------------------------
The Financial Statements of the Registrant required to be filed with
this 10-QSB Quarterly Report were prepared by management, and commence on the
following page, together with Related Notes. In the opinion of management,
the Financial Statements fairly present the financial condition of the
Registrant.
BIRCH FINANCIAL, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
BIRCH FINANCIAL, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Unaudited Condensed Consolidated Balance Sheets,
September 30, 2001 and December 31, 2000 2
Unaudited Condensed Consolidated Income Statements,
for the three and nine months ended
September 30, 2001 and 2000 3
Unaudited Condensed Consolidated Statements of
Cash Flows, for the nine months ended September
30, 2001 and 2000 4-5
Notes to Unaudited Condensed Consolidated Financial
Statements 6-11
BIRCH FINANCIAL, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2001 2000
CURRENT ASSETS:
Cash and Cash Equivalents 142,088 106,122
Premium Financing Receivable, net 4,488,788 3,211,173
Lease Financing Receivable 241,714 28,662
Premium Financing Cancellations Receivable 167,078 228,656
Organization Costs, Net - 51,130
Prepaid Fees and Other Receivable 30,200 27,286
--------- ---------
Total Assets 5,069,868 3,653,029
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank Overdraft 342,675 240,508
Accounts Payable 11,224 -
Unfunded Premium Financing Payable 1,276,583 532,454
Line of Credit Payable 2,534,365 2,141,941
Accrued Interest Payable - 2,584
Incentive Bonus Payable 17,000 27,953
Management Fees Payable 12,000 24,000
Income Tax Liabilities - 6,676
Other Accrued Expenses and Payable 8,335 12,154
Unearned Interest 104,198 -
--------- ---------
Total Current Liabilities 4,306,380 2,988,270
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 100,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $.01 par value, 63,000,000 shares
authorized, 32,116,048 and 32,083,048 shares
issued and outstanding, respectively 321,160 320,830
Additional Paid in Capital 252,991 220,321
Retained Earnings 189,337 123,608
--------- ---------
Total Shareholder's Equity 763,488 664,759
--------- ---------
Total Liabilities and Equity 5,069,868 3,653,029
========= =========
Note: The Balance Sheet of December 31, 2000, was taken from the audited
consolidated financial statements at that date and condensed.
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
2
BIRCH FINANCIAL, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
2001 2000 2001 2000
FINANCING INCOME:
Premium Financing Contracts $176,324 $142,762 $442,715 $321,819
Equipment Lease 10,258 2,007 14,418 2,007
-------- -------- -------- --------
Total Financing Income $186,582 $144,769 $457,133 $323,826
-------- -------- -------- --------
FINANCING EXPENSE:
Premium Financing Contracts 25,693 40,617 112,982 119,450
Equipment Lease 2,793 - 3,428 -
-------- -------- -------- --------
Total Financing Expense 28,486 40,617 116,410 119,450
-------- -------- -------- --------
EXPENSES:
General and Administrative 145,961 19,103 241,413 76,740
-------- -------- -------- --------
Total Expenses 145,961 19,103 241,413 76,740
-------- -------- -------- --------
INCOME FROM OPERATIONS 12,135 85,049 99,310 127,636
OTHER INCOME:
Interest income 1,091 657 3,419 3,757
-------- -------- -------- --------
Total Other Income 1,091 657 3,419 3,757
-------- -------- -------- --------
NET INCOME BEFORE TAXES 13,226 85,706 102,729 131,393
CURRENT TAX EXPENSE 8,000 34,960 37,000 47,000
DEFERRED TAX EXPENSE - - - -
-------- -------- -------- --------
NET INCOME $ 5,226 $ 50,746 $ 65,729 $ 84,393
======== ======== ======== ========
NET INCOME PER COMMON SHARE $ .00 $ .00 $ .00 $ .00
======== ======== ======== ========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
BIRCH FINANCIAL, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine
Months Ended
September 30,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 65,729 $ 84,393
Reconciliation of Net Income to Net Cash provided
(used) by Operating Activities:
Increase unearned interest 104,198 -
Decrease in organizational costs 51,130 -
(Increase) in prepaid fees and other receivables (2,914) (212,005)
Increase in accounts payable 11,224 10,967
Increase in unfunded premium financing 749,672 367,217
(Decrease) accrued interest payable (2,584) -
(Decrease) in bonus payable (27,953) (17,675)
Increase (decrease) in management payable 5,000 (24,000)
Increase (Decrease) in tax liabilities (2,134) 47,000
(Decrease) in accrued expenses and payable (8,360) (10,971)
Increase in unearned interest - 84,208
---------- ----------
Net Cash Provided by Operating Activities 943,008 329,134
---------- ----------
Cash Flows from Investing Activities
(Increase) in premium financing (1,277,615) (850,434)
(Increase) lease receivable (213,052) (6,201)
Decrease in premium cancellation receivable 61,577 22,371
---------- ----------
Net Cash (Used) by Investing Activities (1,429,090) (834,264)
---------- ----------
Cash Flows From Financing Activities:
Increase in bank overdraft 102,167 200,450
Increase in line of credit payable 386,881 288,577
Proceeds from sale of common stock 33,000 -
--------- ----------
Net Cash Provided by Financing Activities 522,048 489,027
--------- ----------
Net Increase (Decrease) in Cash 35,966 (16,103)
Cash at Beginning of the Year 106,122 82,515
--------- ----------
Cash at End of the Year $ 142,088 $ 66,412
========= ==========
(Continued)
4
BIRCH FINANCIAL, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Nine
Months Ended
September 30,
2001 2000
Supplemental Disclosures of Cash Flow Information:
Cash Paid during the period for:
Interest $ 122,500 $ 121,457
Income Taxes $ 6,676 $ 28,458
Supplemental Disclosures of Non-Cash Investing and
Financing Activities:
For the nine months ended September 30, 2001:
None
For the nine months ended September 30, 2000:
None
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
5
BIRCH FINANCIAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE - 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation - Birch Financial, Inc. ("Parent")
was incorporated in the state of Nevada on April 20, 1983 as Import
Dynamics, Inc. In April 1985, the Company changed its name to Peak
Performance Products, Inc. In May 1986, the Company changed its name to
LumaLure manufacturing, Inc. In January 1990, the Company changed it name
to Sairam Technologies, Ltd., In April 1991, the Company changed its name
to Balanced Environmental Services Tech, Inc. in July 1993, the Company
changed its name to United States Indemnity & Casualty, Inc. The Company
ceased its operation in 1993 and had been inactive until December 1999.
In December 1999, the Company's Board of Directors agreed to acquire 100%
of the outstanding stock of Birch Financial, Inc., a Missouri corporation
("Birch Missouri"), in exchange for 31,553,948 shares of its common stock.
The Company changed its name to Birch Financial, Inc.
Birch Missouri was incorporated on February 25, 1999 in the state of
Missouri. Immediately after its incorporation, Birch Missouri entered into
an agreement to acquire 100% of the outstanding stock of Birch Financial,
Inc., a California corporation ("Birch California"), in exchange for its
own stock. Neither the Parent nor Birch Missouri has significant assets or
business activities.
Birch California was incorporated on June 13, 1994. It's primary business
activity is in insurance premium financing. Birch California finances
insurance premiums that are brokered by the majority shareholders of the
Company. The majority of the premium finance contracts are for a term of
nine months and are collateralized by insurance policies with a term of
twelve months. The consolidated financial statements primarily reflect the
financial position, the result of the operations and the cash flows of
Birch California.
In 2000, Birch California started providing equipment lease financing.
Condensed Financial Statements - In the opinion of management, the
accompanying unaudited condensed consolidated financial statements of Birch
Financial, Inc., a Nevada corporation and subsidiaries (the "Company") have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Regulation S-X promulgated under the Securities Exchange Act of 1934.
Correspondingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. All normal, recurring adjustments considered necessary for a
fair presentation have been included. Preparing financial statements
requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. Actual
results may differ from these estimates. These financial statements should
be read in conjunction with the annual audited financial statements and
notes thereto included in the Company's Registration Statement on Form SB-
2, as amended, filed with Securities and Exchange Commission. The results
of operations for the three and nine months ended September 30, 2001 are
not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2001.
Consolidation - The consolidated financial statements include the accounts
of the Parent and its two subsidiaries. All significant intercompany
transactions between Parent, Birch Missouri, and Birch California have been
eliminated in consolidation.
-6-
BIRCH FINANCIAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Use of Estimates - In preparing the consolidated financial statements in
conformity with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported value
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, and revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Fair Value of Financial Instruments - The carrying value of the Company's
financial instruments, which consist of cash and cash equivalents, premium
financing receivable, leasing payments receivable, bank line payable, and
accounts payable approximate their fair values.
The Company's premium financing receivable is stated at total receivable
of the outstanding premium finance contracts, less unearned interest and
allowance for uncollectible accounts. The lease contract receivable is
stated at total payments of the outstanding lease agreements, less
unearned financing charge.
Interest Income: Interest income on premium financing contracts is
computed based on the method stipulated in the contracts, which in all
cases is the "Rule of 78's" method. The difference between the Rule of
78's method of interest recognition and the leveled yield method required
by generally accepted accounting principles for the period covered by
these financial statements has been determined to be immaterial.
Interest income on equipment lease financing is computed based on the
leveled yield method.
Property and equipment - Property and equipment is carried at cost.
Depreciation is computed using the straight-line method over the expected
useful lives.
Proposed Public Stock Offering - The Company is in the process of making a
public offering of 5,000,000 shares of its previously authorized but
unissued common stock. This offering is registered with the Securities and
Exchange Commission on Form SB-2. An offering price of $1.25 per share has
been arbitrarily determined by the Company. The Company will pay a 10%
commission if brokers are used in the offering, otherwise the offering will
be managed by the Company, who will receive no sales commissions or other
compensation in connection with the offering, except for reimbursement of
expenses actually incurred on behalf of the Company in connection with the
offering estimated to be approximately $60,000. As of September 30, 2001,
the Company has sold 33,000 shares.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This statement requires an asset and liability approach for
accounting for income taxes.
Earnings Per Share - The Company accounts for earnings per share in
accordance with Statement of Financial Accounting Standards No. 128
"Earnings Per Share", which requires the Company to present basic earnings
per share and dilutive earnings per share when the effect is dilutive.
[See Note 9]
-7-
BIRCH FINANCIAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Cash and Cash Equivalents - For purposes of the statement of cash flows,
the Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
Recently Enacted Accounting Standards - Statement of Financial Accounting
Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities - a replacement of FASB
Statement No. 125", SFAS No. 141, "Business Combinations", SFAS No. 142,
"Goodwill and Other Intangible Assets", SFAS No. 143, "Accounting for Asset
Retirement Obligations" and SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" were recently issued. SFAS No. 140, 141,
142 and 143 have no current applicability to the Company or their effect on
the financial statements would not have been significant.
NOTE 2 - FINANCING RECEIVABLE
Premium financing - The Company provides insurance premium financing loans
for the insured of only two agents, Landscape Contractor Insurance, Inc.
and Ortiz Insurance Agency. The loans are generally for a period not to
exceed nine months. Should the borrower not make payments as agreed, the
Company assesses late charges. As of September 30, 2001, the premium
financing balances were:
Premium financing receivable $ 4,490,358
Late fee reserve (1,570)
_____________
Total premium financing receivable $ 4,488,788
Should the borrower not make payments as agreed for a period of 60 days,
The Company may cancel the insurance policy and requests a refund of
premiums paid to the two agents. The Company reclassifies the loan from
premium financing receivable to premium financing cancellation receivable.
The Company establishes an allowance for the loan after the loan is in
default for a period of 180 days. At September 30, 2001, the balance is:
[See Note 6]
Premium financing cancellation receivable $ 189,298
Allowance for uncollectible receivables (22,219)
____________
Total premium financing cancellation
receivable $ 167,078
Lease financing receivable - The Company offers equipment financing
services to the members of the "green industry" in California, Nevada, and
Arizona. As of September 30, 2001 the Company had receivables of $241,714.
NOTE 3 - UNFUNDED PREMIUM FINANCING
The Company provides premium financing and establishes a receivable for
the entire amount to be financed. The Company pays the minimum required
payment to the insurance agent through an advance on the line of credit
and establishes a liability for the difference. The balance owed on the
insurance premium is paid timely by the Company as required. The
difference between the premium receivable and the line of credit is the
unfunded premium financing. At September 30, 2001, the balance of the
unfunded premium financing was $1,276,583. [See Note 6]
-8-
BIRCH FINANCIAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LINE OF CREDIT
The Company has a $3,500,000 line of credit facility with a financial
institution for its normal operating needs. Borrowing under this line is
due on demand and is collateralized by the Company's premium financing
receivable. As of September 30, 2001 and December 31, 2000 the balance of
its borrowing under the line was $2,364,584 and $2,141,941, respectively.
[See Note 7]
Line of credit - The Company has a $1,000,000 line of credit facility with
a financial institution for its normal operating needs. Borrowing under
this line is due on demand and is collateralized by the Company's premium
financing receivable. As of September 30, 2001 and December 31, 2000 the
balance of its borrowing under the line was $5,543 and $1,468,
respectively.
The Company has secured a $250,000 line of credit from a related party to
fund loans related to its equipment leasing operations. At September 30,
2001, the balance on this line of credit was $164,238. [See Notes 6 and 7]
NOTE 5 - CAPITAL STOCK
Reverse stock split - On December 14, 1999 the Company authorized a 1,000-
to-1 reverse stock split. On the same day the Company authorized a 100-to-
1 forward stock split.
Stock cancellation - In December 1999, the Company authorized the
cancellation of 3,700,000 shares of its common stock before its approval
of issuing 31,553,948 shares of its common stock for the outstanding stock
of Birch Missouri.
Preferred stock - The Company is authorized to issue 100,000,000 shares of
preferred stock with a par value of $.001. At September 30, 2001, no
shares of preferred stock were issued and outstanding.
Common stock - The Company is authorized to issue 63,000,000 shares of
common stock with a par value of $.01. At September 30, 2001, there were
32,116,048 shares of common stock issued and outstanding.
Stock issuances - In August 2001, the Company issued 33,000 shares for
$33,000, or $1.00 per share.
NOTE 6 - RELATED PARTY TRANSACTION
The Company obtains its premium financing businesses largely from an
entity related through common control. At September 30, 2001 and December
31, 2000, the company had an unfunded premium financing payable due to
this related party of $1,276,583 and $532,454, respectively.
The Company had a premium financing cancellation receivable due from the
same related party of $167,078 and $228,656 as of September 30, 2001 and
December 31, 2000, respectively. The cancellation receivable is a result
of the early termination of insurance policies for which the premium had
been paid in full.
The Company is obligated to pay an incentive bonus to a company controlled
by its executive officer. The bonus is calculated based on the Company's
net income before tax and certain expenses. The bonus is payable annually
following the year when it is earned. At September 30, 2001 and December
31, 2000, the Company had accrued $17,000 and $26,953 for the incentive
bonus to that company.
-9-
BIRCH FINANCIAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - RELATED PARTY TRANSACTION (continued)
The Company has secured a line of credit from a related party to fund
loans related to its equipment leasing operations. The balance on this
line of credit at September 30, 2001, was $164,238.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Incentive bonus - The Company is obligated to pay an incentive bonus to a
company controlled by its executive officer. The bonus is calculated
based on the Company's net income before tax and certain expenses. The
bonus is payable annually following the year when it is earned. At
September 30, 2001 and December 31, 2000, the Company had accrued $17,000
and $27,953 for the incentive bonus to that company.
Line of credit - The Company has a $3,500,000 line of credit facility with
a financial institution for its normal operating needs. Borrowing under
this line is due on demand and is collateralized by the Company's premium
financing receivable. As of September 30, 2001 and December 31, 2000 the
balance of its borrowing under the line was $2,364,584 and $2,141,941,
respectively. [See Note 4]
The Company has a $1,000,000 line of credit facility with a financial
institution for its normal operating needs. Borrowing under this line is
due on demand and is collateralized by the Company's premium financing
receivable. As of September 30, 2001 and December 31, 2000, the balance
of its borrowing under the line was $5,543 and $1,468, respectively.
The Company has secured a $250,000 line of credit from a related party to
fund loans related to its equipment leasing operations. At September 30,
2001, the balance on this line of credit was $164,238.
Consulting agreement - In 1995, the Company entered into an agreement for
consulting services related to the accounting and record keeping functions
of the business. The term of the agreement was for a renewable one year
period. The agreement may be cancelled with a written 90 day notice. The
agreement has been renewed every year and the Company anticipates
continuing to renew the agreement annually .
NOTE 8 - CONCENTRATIONS
Revenue - The Company provides insurance premium financing loans for the
insured of only two agents, Landscape Contractor Insurance, Inc. (LCII), a
company related through common control, and Ortiz Insurance Agency. The
Company expects that LCII will provide approximately 80% of revenue, while
Ortiz will provide 20% of revenue during 2001. The loss or reduction of
either of these two revenue sources would force the Company to originate
other types of loans or make other investments, and may seriously diminish
the Company's revenue and profitability.
Line of Credit - The Company currently has a $3,500,000 line of credit
from Safeco Credit Company, Inc. (a Washington corporation). The credit
line is subject to annual renewal. Should the Company not renew or be
forced to find another credit source, the Company's ability to fund loans
and to meet operating expenses could be diminished.
-10-
BIRCH FINANCIAL, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - EARNINGS PER SHARE
The following data show the amounts used in computing earnings (loss) per
share and the effect on income and the weighted average number of shares of
dilutive potential common stock for:
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
______________________ _____________________
2001 2000 2001 2000
___________ __________ __________ __________
Net income available to
common shareholders $ 5,226 $ 50,746 $ 65,729 $ 84,393
(numerator) ___________ __________ __________ __________
Weighted average number of
common shares outstanding
used in earnings (loss) per
share during the period 32,099,729 32,083,048 32,088,608 32,083,048
(denominator) __________ __________ __________ __________
At September 30, 2001, there were no dilutive potential shares.
-11-
Item 2. Management's Discussion and Analysis or Plan of Operation.
- --------------------------------------------------------------------
Plan of Operation
- -----------------
Premium Finance Division.
-------------------------
During the quarterly period ended September 30, 2001, we received
$176,324 in interest income from our LCIS premium financing contracts, and our
net premium financing receivable with LCIS was $4,488,788.
By December, 2001, we plan to expand our premium finance activities
with Landscape Contractor Insurance, Inc. ("LCIS") and Ortiz Insurance Agency,
Inc., to $15 million. We base this projection on expected sales by LCIS of
$30.2 million, with about half of that amount being liability and auto
insurance. We expect to finance about 80% of these premiums, or approximately
$12.1 million. Ortiz has not been writing business since Reliance Insurance
went out of business. We expect that Ortiz will resume the beginning of 2002
with a new carrier. However, figures these are projections only, and we can
not guarantee that we will be able to reach these levels of revenue.
We are negotiating with other agencies to provide premium financing
for associations that they represent. However, we can not assure you that we
will be able to get these associations' business or that, if we do, we will be
able to finance this level of gross premiums.
We renegotiated our line of credit with Safeco for all contract
financing to be provided at the prime interest rate, with a floor of 7.5%. We
increased the Safeco line of credit to $5 million.
Equipment Finance Division.
---------------------------
At September 30, 2001, we had $241,714 in lease financing
receivables. We have had discussions with equipment dealers in Southern
California. These dealers sell about $10 million of equipment per year. One
dealer alone wants us to help finance about four machines per month, which we
estimate will total approximately $1,152,000 per year, beginning in 2002. In
total, we hope to finance at least $300,000 by December, 2001. However, we
can not assure you that we will reach any specific dollar amount.
We also intend to offer lines of credit to companies with "Class A"
credit ratings. We hope that this will generate about $2 million in
additional revenues, although we can not provide any guarantees in this
regard.
On April 23, 2001, which is prior to the period covered by this
Report, the Securities and Exchange Commission declared effective our
Registration Statement on Form SB-2, as amended. The Registration Statement
provides for the offer and sale of up to 5,000,000 shares of our common stock
at a price of $1.25, for aggregate gross proceeds of up to $6,250,000. We
anticipate making all or most of our offers and sales in the State of
California. As of the date of this Report, we have sold 27,200 shares of our
common stock, for gross proceeds of $27,200. We have allocated the net
proceeds, after deduction of offering expenses, for equipment financing loans.
The funds are currently in our equipment financing account.
We believe that our equipment finance division will grow
substantially through December 31, 2001. We plan to use the net proceeds of
our registered offering, if any, for the operations of this division. We
expect additional funds to become available as we sell bundled loans to banks
and other financial institutions, retaining the servicing and loan fees.
The foregoing discussion contains forward-looking statements that
discuss, among other things, future expectations and projections regarding
future developments, operations and financial conditions. All forward-looking
statements are based on management's existing beliefs about present and future
events outside of management's control and on assumptions that may prove to be
incorrect. If any underlying assumptions prove incorrect, Birch Financial's
actual results may vary materially from those anticipated, estimated,
projected or intended. Our operations are subject to numerous risks that may
cause our actual results to differ materially from forward-looking statements.
These risks include, without limitation, the Risk Factors set forth in our
Registration Statement on Form SB-2, as amended, which may be accessed at the
Securities and Exchange Commission's web site: www.sec.gov.
Results of Operations.
- ----------------------
In the quarterly period ended September 30, 2001, we received total
financial income of $186,582, of which $176,324 came from our insurance
premium financing contracts and $10,258 came from equipment leases. During
the quarterly period ended September 30, 2000, these amounts were $144,769;
$142,762; and $2,007, respectively.
Financing expenses during the quarterly periods ended September 30,
2001, and September 30, 2000, were $28,486 and $40,617, respectively. General
and administrative expenses increased to $145,961 during the September 30,
2001 quarter, from $19,103 in the year-ago period.
Our net income before income tax totaled $13,226 in the quarterly
period ended September 30, 2001, as compared to $85,706 in the September 30,
2000, quarter. After provision for income taxes of $8,000 and $34,960, our
net income during the September 30, 2001, and 2000, periods was $5,226, and
$50,746, respectively.
Many of our borrowers are involved in construction. That industry
is sensitive to economic cycles and to bad weather, so either condition would
likely have an effect on our revenues. However, because our borrowers'
operations include maintenance work and other work that is not very sensitive
to economic conditions, we believe that our operations are somewhat insulated
from an economic downturn.
Liquidity and Capital Resources.
- --------------------------------
Our total assets as of September 30, 2001, were $5,069,868, as
compared to total assets of $3,653,029 at December 31, 2000. This increase
was caused primarily from increases in our premium financing receivable from
$3,211,173 to $4,488,788, and in our lease financing receivable from $28,662
to $241,714. We believe that our current assets will be sufficient to allow
us to operate for the next 12 months. However, we depend heavily on our line
of credit with Safeco to fund our insurance premium financing loans. As of
September 30, 2001, our payable on the line of credit was $2,534,365. If we
were to lose this line of credit for any reason, our ability to fund these
loans would be significantly impaired and our income would be reduced.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- ----------------------------
None; not applicable.
Item 2. Changes in Securities and Use of Proceeds.
- ---------------------------------------------------
None; not applicable.
Item 3. Defaults Upon Senior Securities.
- ------------------------------------------
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
- --------------------------------------------------------------
None; not applicable.
Item 5. Other Information.
- ----------------------------
None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
- -------------------------------------------
(a) Exhibits.
Registration Statement on Form SB-2, as amended.*
(b) Reports on Form 8-K.
None.
* Incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIRCH FINANCIAL, INC.
Date: 11-19-01 By: /s/ Efraim Donitz
--------- -----------------------------------
Efraim Donitz, CEO, President,
Treasurer and Director
Date: 11-19-01 By: /s/ Nelson L. Colvin
--------- -----------------------------------
Nelson L. Colvin, Vice President,
Secretary and Director
Date: 11-19-01 By: /s/ Barry L. Cohen
--------- -----------------------------------
Barry L. Cohen, Chairman of the Board
of Directors
Date: 11-19-01 By: /s/ Keith L. Walton
--------- -----------------------------------
Keith L. Walton, Vice President and
Director
Date: 11-19-01 By: /s/ Ronald H. Dietz
--------- -----------------------------------
Ronald H. Dietz, Director
Date: 11-19-01 By: /s/ Lebo Newman
--------- -----------------------------------
Lebo Newman, Director