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 June 30, 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.
(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:
June 30, 2003
32,109,848
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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.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
BIRCH FINANCIAL, INC.
Condensed Consolidated Balance Sheet
June 30, 2003
June 30,
2003
ASSETS
Current Assets
Cash $ 232,909
Premium financing receivable, net 8,754,072
Premium financing cancellation receivable 172,968
Equipment financing receivable-current portion 277,711
Other current assets 86,426
-----------
Total Current Assets 9,524,086
Other Assets
Equipment financing receivable, net of current
portion 627,900
Deferred tax asset 20,207
-----------
Total Other Assets 648,107
TOTAL ASSETS $10,172,193
===========
Unaudited-see accompanying notes to financial statements
1
BIRCH FINANCIAL, INC.
Condensed Consolidated Balance Sheet
(continued)
June 30, 2003
June 30,
2003
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts payable $ 21,460
Unfunded premium financing payable 996,219
Line of credit 6,846,926
Management fees payable 72,069
Notes payable 744,735
Security deposits payable 37,754
Income taxes payable 99,295
Other current liabilities 208,325
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Total Current Liabilities 9,026,783
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TOTAL LIABILITIES 9,026,783
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 572,669
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TOTAL STOCKHOLDERS' EQUITY 1,145,410
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,172,193
==========
Unaudited-see accompanying notes to financial statements
2
BIRCH FINANCIAL, INC.
Condensed Consolidated Statements of Income
for the six months ended June 30, 2003 and 2002
For the Six For the Six
Months Ended Months Ended
June 30, June 30,
2003 2002
Financing Income
Premium financing $ 528,462 $ 380,782
Equipment financing 34,472 19,795
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Total Financing Income 562,934 400,577
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Financing Expense
Premium financing 118,964 109,044
Equipment financing 14,571 6,759
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Total Financing Expense 133,535 115,803
Gross Profit 429,399 284,774
Selling, General and Administrative
Expense 188,125 155,258
-------- --------
Operating Profit 241,274 129,516
Other Income
Interest income 0 521
-------- --------
Total Other Income 0 521
Income before Tax Provision 241,274 130,037
Provision for Income Taxes (99,295) (53,516)
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Net Income $141,979 $ 76,521
======== ========
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Net income per common share $ 0.00 $ 0.00
======== ========
Weighted average common shares
outstanding 32,109,848 32,116,548
========== ==========
Unaudited - see accompanying notes to financial statements
3
BIRCH FINANCIAL, INC.
Condensed Consolidated Statements of Income
for the three months ended June 30, 2003 and 2002
For the Three For the Three
Months Ended Months Ended
June 30, June 30,
2003 2002
Financing Income
Premium financing $ 285,134 $ 209,393
Equipment financing 16,077 11,703
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Total Financing Income 301,211 221,096
-------- --------
Financing Expense
Premium financing 60,685 63,555
Equipment financing 7,571 4,332
-------- --------
Total Financing Expense 68,256 67,887
Gross Profit 232,955 153,209
Selling, General and Administrative
Expense 89,081 89,033
-------- --------
Operating Profit 143,874 64,176
Other Income
Interest income 0 480
-------- --------
Total Other Income 0 480
Income before Tax Provision 143,874 64,656
Provision for Income Taxes (59,211) (26,454)
-------- --------
Net Income $ 84,663 $ 38,202
======== ========
-------- --------
Net income per common share $ 0.00 $ 0.00
======== ========
Weighted average common shares
outstanding 32,109,848 32,116,548
========== ==========
Unaudited - see accompanying notes to financial statements
4
BIRCH FINANCIAL, INC.
Condensed Consolidated Statements of Cash Flows
for the six months ended
June 30, 2003 and 2002
Six months Six Months
Ended Ended
June 30, 2003 June 30, 2002
Cash Flows from Operating Activities:
Net Income $ 141,979 $ 76,521
Adjustments to reconcile net income to net cash
provided by Operating Activities:
Decrease (increase) in prepaids & other receivables (86,426) (57,409)
Increase (decrease) in unfunded premium financing
payable (757,908) (394,423)
Increase (decrease) in accounts payable & accrued
liabilities 218,996 7,904
Increase (decrease) in management fees payable (12,993) (28,896)
Increase (decrease) in security deposits payable (9,500) 0
Increase (Decrease) in income taxes payable 33,663 2,065
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Net Cash Provided by/(Used for) in Operating
Activities (472,189) (394,238)
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Cash Flows from Investing Activities:
Increase in loans financing receivable (2,304,718)(2,094,835)
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Net Cash Used for Investing Activities (2,304,718)(2,094,835)
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Cash Flows from Financing Activities:
Increase (decrease) in bank overdraft (887,371) 322,600
Increase in line of credit 2,567,932 1,717,244
Increase in notes payable 1,045,068 327,463
Issuance of common stock 0 0
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Net Cash Provided by Financing Activities 2,725,629 2,367,307
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Net Increase in Cash (51,278) (121,766)
Beginning Cash Balance 284,187 222,049
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Ending Cash Balance $ 232,909 $ 100,283
========= ==========
5
Unaudited - see accompanying notes to financial statements
BIRCH FINANCIAL, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 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.
6
Item 2. Management's Discussion and Analysis or Plan of Operation.
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Results of Operations.
- ----------------------
In the quarterly period ended June 30, 2003, we received total
financing income of $301,211, of which $285,134 came from our premium
financing contracts and $16,077 came from equipment financing. During
the quarterly period ended June 30, 2002, these amounts were $221,096;
$209,393; and $11,703, respectively.
Financing expenses during the quarterly periods ended June 30, 2003,
and June 30, 2002, were $68,256 and $67,887, respectively. Selling, general
and administrative expenses were $89,081 during the June 30, 2003 quarter, and
$89,033 in the year-ago period.
Our net income before income tax totaled $143,874 in the quarterly
period ended June 30, 2003, as compared to $64,656 in the June 30, 2002,
quarter. After provision for income taxes of $59,211 and $26,454, our
net income during the June 30, 2003, and 2002, periods was $84,663, and
$38,202, 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 June 30, 2003, were $10,172,193. 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 June 30, 2003,
our payable on the line of credit was $6,846,926. 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.
- ---------------------------
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.
- ----------------------------------
(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.
- ----------------------------
None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits.
31 - 302 Certification.
32 - 906 Certification.
(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: 8-12-03 By: /s Efraim Donitz
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Efraim Donitz, CEO, President,
Treasurer and Director
Date: 8-12-03 By: /s/ Nelson L. Colvin
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Nelson L. Colvin, Vice President,
Secretary and Director
Date: 8-12-03 By: /s/ Barry L. Cohen
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Barry L. Cohen, Chairman of the Board
of Directors
Date: 8-12-03 By: /s/ Keith L. Walton
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Keith L. Walton, Vice President and
Director
Date: 8-12-03 By: /s/ Ronald H. Dietz
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Ronald H. Dietz, Director
Date: 8-12-03 By: /s/ Lebo Newman
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Lebo Newman, Director