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 March 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 333-49736
BIRCH FINANCIAL, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 91-2077659
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
15722 Kadota Street
Sylmar, California 91342
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(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:
March 31, 2002
32,116,548
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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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.
(Formerly known as United States Indemnity & Casualty, Inc.)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
BIRCH FINANCIAL, INC.
(Formerly known as United States Indemnity & Casualty, Inc.)
Condensed Consolidated Balance Sheet
March 31, 2002
March 31,
2002
ASSETS
CURRENT ASSETS:
Cash $ 160,736
Premium financing receivable, net 4,858,008
Premium financing cancellation receivable 141,816
Equipment financing receivable-current portion 94,566
Prepaids and late charges receivable 10,613
---------
Total Current Assets 5,265,739
Other Assets
Equipment financing receivable, net of current
portion 192,618
Deferred tax asset 21,904
---------
Total Other Assets 214,522
TOTAL ASSETS $5,480,261
=========
Unaudited-see accompanying notes to financial statements
1
BIRCH FINANCIAL, INC.
(Formerly known as United States Indemnity & Casualty, Inc.)
Condensed Consolidated Balance Sheet
(continued)
March 31, 2002
March 31,
2002
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Bank overdraft $ 447,420
Accounts payable 377
Unfunded premium financing payable 790,618
Line of credit 3,115,750
Management fees payable 13,449
Notes payable 238,596
Income taxes payable 27,062
Other accrued liabilities 17,009
---------
Total Current Liabilities 4,650,281
---------
TOTAL LIABILITIES 4,650,281
STOCKHOLDERS' EQUITY
Common stock-63,000,000 shares authorized at $0.01
par; 32,116,548 issued and outstanding 321,165
Paid in capital 252,986
Retained earnings 255,829
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TOTAL STOCKHOLDERS' EQUITY 829,980
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,480,261
=========
Unaudited-see accompanying notes to financial statements
2
BIRCH FINANCIAL, INC.
(Formerly known as United States Indemnity & Casualty, Inc.)
Condensed Consolidated Statements of Income
for the three months ended March 31, 2002 and 2001
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2002 2001
Financing Income
Premium financing $ 171,390 $ 145,831
Equipment financing 8,091 1,181
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Total Financing Income 179,481 147,012
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Financing Expense
Premium financing 58,178 52,669
Equipment financing 2,427 0
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Total Financing Expense 60,605 52,669
Gross Profit 118,876 94,343
Selling, General and Administrative
Expense 53,536 55,475
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Operating Profit 65,340 38,868
Other Income
Interest income 41 750
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Total Other Income 41 750
Income before Tax Provision 65,381 39,618
Provision for Income Taxes (27,062) (11,660)
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Net Income $ 38,319 $ 27,958
======== ========
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Net income per common share $ 0.00 $ 0.00
======== ========
Weighted average common shares
outstanding 32,116,548 32,083,548
========== ==========
Unaudited - see accompanying notes to financial statements
3
BIRCH FINANCIAL, INC.
(Formerly known as United States Indemnity & Casualty, Inc.)
Condensed Consolidated Statements of Cash Flows
for the three months ended
March 31, 2002 and 2001
For the Three For the Three
Months Ended Months Ended
March 31, 2002 March 31, 2001
Cash Flows from Operating Activities:
Net Income $ 38,319 $ 27,958
Adjustments to reconcile net income to net cash
provided by Operating Activities:
Depreciation and amortization 0 3,500
Decrease (increase) in prepaid & other receivables (8,656) 1,051
Increase (decrease) in unfunded premium financing
payable (65,912) 84,107
Increase (decrease) in accounts payable & accrued
liabilities 6,359 (1,631)
Increase (decrease) in management fees payable (42,345) (38,953)
Increase (Decrease) in income taxes payable (24,389) 2,467
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Net Cash Provided by/(Used for) in Operating
Activities (96,624) 78,499
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Cash Flows from Investing Activities:
Increase in premium financing receivable (673,661) (389,136)
Increase in equipment financing receivable (50,891) (18,026)
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Net Cash Used for Investing Activities (724,552) (407,162)
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Cash Flows from Financing Activities:
Increase in bank overdraft 191,753 179,598
Increase in line of credit 480,389 144,948
Increase in notes payable 87,721 0
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Net Cash Provided by Financing Activities 759,863 324,546
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Net Increase in Cash (61,313) (4,117)
Beginning Cash Balance 222,049 106,122
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Ending Cash Balance $ 160,736 $ 102,005
========= ==========
4
Unaudited - see accompanying notes to financial statements
BIRCH FINANCIAL, INC.
(Formerly known as United States Indemnity & Casualty, Inc.)
Notes to Condensed Consolidated Financial Statements
March 31, 2002
PRELIMINARY NOTE
The accompanying condensed consolidated financial statements have been
prepared without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The interim financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the period. Certain
information and disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 2001.
5
Item 2. Management's Discussion and Analysis or Plan of Operation.
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Plan of Operation
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Premium Finance Division.
-------------------------
During the quarterly period ended March 31, 2002, we received
$171,390 in interest income from our LCIS premium financing contracts, and our
net premium financing receivable with LCIS was $4,858,008.
By December, 2002, we plan to expand our premium finance activities
with LCIS to $15 million. We base this projection on expected sales
by LCIS of $40 million, with about half of that amount being liability and
auto insurance. We expect to finance about 80% of these premiums, or
approximately $18.1 million. However, these figures 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 have renegotiated our line of credit with Safeco for all
contract financing to be provided at the prime interest rate, with a floor of
5.5%. We have increased the Safeco line of credit from $3.5 million to $5
million.
Equipment Finance Division.
---------------------------
At March 31, 2002, we had $94,566 in equipment 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. In total, we hope to
finance at least $5 million by December, 2002. 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.
We believe that our equipment finance division will grow
substantially through December 31, 2002. We expect funds to become available
as we sell bundled loans to banks and other financial institutions, retaining
the servicing and loan fees.
On March 6, 2002, we signed a Compensation Agreement with First
Mutual Mortgage of Rancho Cucamonga, California. Under the Compensation
Agreement, we will offer landscape project financing through First Mutual
Mortgage. We will get a small fee for each loan that we originate. We will
receive a fee of:
10 basis points of the loan amount on all first trust deed purchase
and refinance transactions;
1.5% on all second trust deed sub-prime credit transactions; and
1% on the loan amount of all other second trust deed transactions.
The loans are secured by the client's property. As of the date of
this Report, we have not yet made any referrals under this Compensation
Agreement, a copy of which was attached to our Annual Report on Form 10-KSB
for the calendar year ended December 31, 2001, and which is incorporated
herein by reference. See the Exhibit Index, Item 13 of this Report.
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 March 31, 2002, we received total
financial income of $179,481, of which $171,390 came from our insurance
premium financing contracts and $8,091 came from equipment financing. During
the quarterly period ended March 31, 2001, these amounts were $147,012;
$145,831; and $1,181, respectively.
Financing expenses during the quarterly periods ended March 31,
2002, and March 31, 2001, were $60,605 and $52,669, respectively. General
and administrative expenses decreased to $53,536 during the March 31,
2002 quarter, from $55,475 in the year-ago period.
Our net income before income tax totaled $65,381 in the quarterly
period ended March 31, 2002, as compared to $39,618 in the March 31,
2001, quarter. After provision for income taxes of $27,062 and $11,660, our
net income during the March 31, 2002, and 2001, periods was $38,319, and
$27,958, 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 March 31, 2002, were $5,480,261. 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 March 31, 2002, our payable
on the line of credit was $3,115,750. 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.
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None; not applicable.
Item 2. Changes in Securities and Use of Proceeds.
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None; not applicable.
Item 3. Defaults Upon Senior Securities.
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None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
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None; not applicable.
Item 5. Other Information.
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None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits.
Registration Statement on Form SB-2, as amended.*
Annual Report on Form 10-KSB for the calendar year ended
December 31, 2001.*
(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: 5/8/02 By: /s/ Efraim Donitz
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Efraim Donitz, CEO, President,
Treasurer and Director
Date: 5/8/02 By: /s/ Nelson L. Colvin
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Nelson L. Colvin, Vice President,
Secretary and Director
Date: 5/8/02 By: /s/ Barry L. Cohen
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Barry L. Cohen, Chairman of the Board
of Directors
Date: 5/8/02 By: /s/ Keith L. Walton
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Keith L. Walton, Vice President and
Director
Date: 5/8/02 By: /s/ Ronald H. Dietz
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Ronald H. Dietz, Director
Date: 5/8/02 By: /s/ Lebo Newman
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Lebo Newman, Director