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, 2003
[ ] 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.
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(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, 2003
32,109,848
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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.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
BIRCH FINANCIAL, INC.
Condensed Consolidated Balance Sheet
March 31, 2003
March 31,
2003
ASSETS
CURRENT ASSETS:
Cash $ 276,892
Premium financing receivable, net 7,605,321
Premium financing cancellation receivable 193,133
Equipment financing receivable-current portion 273,888
---------
Total Current Assets 8,349,234
Other Assets
Equipment financing receivable, net of current
portion 626,441
Deferred tax asset 20,207
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Total Other Assets 646,648
TOTAL ASSETS $8,995,882
=========
Unaudited-see accompanying notes to financial statements
1
BIRCH FINANCIAL, INC.
Condensed Consolidated Balance Sheet
(continued)
March 31, 2003
March 31,
2003
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Bank overdraft $ 234,371
Unfunded premium financing payable 1,424,674
Line of credit 5,263,402
Management fees payable 108,287
Notes payable 736,018
Security deposits payable 31,474
Income taxes payable 40,084
Other accrued liabilities 96,825
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Total Current Liabilities 7,935,135
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TOTAL LIABILITIES 7,935,135
STOCKHOLDERS' EQUITY
Common stock-63,000,000 shares authorized at $0.01
par; 32,109,848 issued and outstanding 321,098
Paid in capital 251,643
Retained earnings 488,006
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TOTAL STOCKHOLDERS' EQUITY 1,060,747
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,995,882
=========
Unaudited-see accompanying notes to financial statements
2
BIRCH FINANCIAL, INC.
Condensed Consolidated Statements of Income
for the three months ended March 31, 2003 and 2002
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2003 2002
Financing Income
Premium financing $ 243,328 $ 171,389
Equipment financing 18,395 8,092
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Total Financing Income 261,723 179,481
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Financing Expense
Premium financing 70,741 58,178
Equipment financing 7,571 2,427
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Total Financing Expense 78,312 60,605
Gross Profit 183,411 118,876
Selling, General and Administrative
Expense 86,011 53,536
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Operating Profit 97,400 65,340
Other Income
Interest income 0 41
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Total Other Income 0 41
Income before Tax Provision 97,400 65,381
Provision for Income Taxes (40,084) (27,062)
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Net Income $ 57,316 $ 38,319
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Net income per common share $ 0.00 $ 0.00
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Weighted average common shares
outstanding 32,109,848 32,116,548
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Unaudited - see accompanying notes to financial statements
3
BIRCH FINANCIAL, INC.
Condensed Consolidated Statements of Cash Flows
for the three months ended
March 31, 2003 and 2002
For the Three For the Three
Months Ended Months Ended
March 31, 2003 March 31, 2002
Cash Flows from Operating Activities:
Net Income $ 57,316 $ 38,319
Adjustments to reconcile net income to net cash
provided by Operating Activities:
Decrease (increase) in prepaid & other receivables 0 (8,656)
Increase (decrease) in unfunded premium financing
payable 666,766 (65,912)
Increase (decrease) in accounts payable & accrued
liabilities 86,036 6,359
Increase (decrease) in management fees payable 24,225 (42,345)
Increase (decrease) in security deposits payable 3,220 0
Increase (Decrease) in income taxes payable (25,548) (24,389)
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Net Cash Provided by/(Used for) in Operating
Activities 812,015 (96,624)
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Cash Flows from Investing Activities:
Increase in premium financing receivable (1,119,019) (673,661)
Increase in equipment financing receivable (71,831) (50,891)
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Net Cash Used for Investing Activities (1,190,850) (724,552)
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Cash Flows from Financing Activities:
Increase (decrease) in bank overdraft (653,000) 191,753
Increase in line of credit 984,408 480,389
Increase in notes payable 40,132 87,721
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Net Cash Provided by Financing Activities 371,540 759,863
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Net Increase in Cash (7,295) (61,313)
Beginning Cash Balance 284,187 222,049
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Ending Cash Balance $ 276,892 $ 160,736
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4
Unaudited - see accompanying notes to financial statements
BIRCH FINANCIAL, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2003
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, 2002.
5
Item 2. Management's Discussion and Analysis or Plan of Operation.
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Results of Operations.
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In the quarterly period ended March 31, 2003, we received total
financing income of $261,723, of which $243,328 came from our insurance
premium financing contracts and $18,395 came from equipment financing. During
the quarterly period ended March 31, 2002, these amounts were $179,481;
$171,389; and $8,092, respectively. This increase in income was due primarily
to increased financing volume.
Total financing expenses during the quarterly periods ended March
31, 2003, and March 31, 2002, were $78,312 and $60,605, respectively.
Selling, general and administrative expenses increased to $86,011 during the
March 31, 2003 quarter, from $53,536 in the year-ago period, due primarily to
increased processing fees from Automated Installment Systems, which processes
our premium finance agreements, and increased management fees paid to Efco,
Inc., which is controlled by our President, CEO and Treasurer, Efraim Donitz.
Payments to Efco are based on our pre-tax profits; as pre-tax profits
increase, so do the payments to Efco.
Our net income before income tax totaled $97,400 in the quarterly
period ended March 31, 2003, as compared to $65,381 in the March 31, 2002,
quarter. After provision for income taxes of $40,084 and $27,062, our net
income during the March 31, 2003, and 2002, periods was $57,316, and $38,319,
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.
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Our total assets as of March 31, 2003, were $8,995,882. We believe
that our current assets and income from operations 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, 2003, our payable on the line of credit was $5,263,402. 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.
Forward-Looking Statements.
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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.
Item 3. Controls and Procedures.
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(a) Evaluation of Disclosure Controls and Procedures. Our Chief
Executive Officer/Treasurer has evaluated Birch Financial's disclosure
controls and procedures within 90 days prior to the date of this report, and
has concluded that these controls and procedures are effective.
(b) Changes in Internal Controls. There were no significant
changes in Birch Financial's internal controls or, to Birch Financial's
knowledge, in other factors that could significantly affect its disclosure
controls and procedures subsequent to the evaluation date.
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.
None.
(b) Reports on Form 8-K.
None.
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: 5/12/03 /s/ Efraim Donitz
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Efraim Donitz, CEO, President,
Treasurer and Director
Date: 5/12/03 /s/ Nelson L. Colvin
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Nelson L. Colvin, Vice President,
Secretary and Director
Date: 5/12/03 /s/ Barry L. Cohen
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Barry L. Cohen, Chairman of the Board
of Directors
Date: 5/12/03 /s/ Keith L. Walton
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Keith L. Walton, Vice President and
Director
Date: 5/12/03 /s/ Ronald H. Dietz
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Ronald H. Dietz, Director
Date: 5/12/03 /s/ Lebo Newman
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Lebo Newman, Director
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Efraim Donitz, President, Chief Executive Officer and Treasurer of
Birch Financial, Inc., certify that:
1. I have reviewed this Quarterly report on Form 10-QSB of Birch
Financial, Inc.;
2. Based on my knowledge, this Quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this Quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
Quarterly report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the Registrant and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to me by others within
those entities, particularly during the period in which this
Quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly report (the "Evaluation Date"); and
c) presented in this Quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on
My evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
Registrant's auditors and the audit committee of Registrant's board of
directors (or persons performing the equivalent function);
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. I have indicated in this Quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: 5/12/03 Signature: /s/ Efraim Donitz
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Efraim Donitz
President, CEO and Treasurer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Birch Financial, Inc.
(the "Company") on Form 10-QSB for the period ending March 31, 2003, as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Efraim Donitz, Chief Executive Officer, President and Treasurer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Efraim Donitz
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Efraim Donitz
Chief Executive Officer,
President and Treasurer
5/12/2003