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, 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:
November 11, 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
September 30, 2003
BIRCH FINANCIAL, INC.
Condensed Consolidated Balance Sheet
September 30, 2003
September 30,
2003
ASSETS
Current Assets
Cash $ 256,440
Premium financing receivable, net 8,588,289
Premium financing cancellation receivable 192,790
Equipment financing receivable-current portion 277,711
Other current assets 37,770
-----------
Total Current Assets 9,353,000
Other Assets
Equipment financing receivable, net of current
portion 729,850
Deferred tax asset 20,207
-----------
Total Other Assets 750,057
TOTAL ASSETS $10,103,057
===========
Unaudited-see accompanying notes to financial statements
1
BIRCH FINANCIAL, INC.
Condensed Consolidated Balance Sheet
(continued)
September 30, 2003
September 30,
2003
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts payable $ 21,090
Bank overdraft balance 380,553
Unfunded premium financing payable 2,244,641
Line of credit 5,009,128
Management fees payable 108,415
Notes payable 768,596
Security deposits payable 43,500
Income taxes payable 139,580
Other current liabilities 184,541
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Total Current Liabilities 8,900,044
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TOTAL LIABILITIES 8,900,044
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 630,272
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TOTAL STOCKHOLDERS' EQUITY 1,203,013
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,103,057
==========
Unaudited-see accompanying notes to financial statements
2
BIRCH FINANCIAL, INC.
Condensed Consolidated Statements of Income
for the nine months ended September 30, 2003 and 2002
Nine Months Nine Months
Ended Ended
September 30, September 30,
2003 2002
Financing Income
Premium financing $ 784,129 $ 586,233
Equipment financing 55,712 33,890
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Total Financing Income 839,841 620,123
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Financing Expense
Premium financing 211,435 140,465
Equipment financing 22,535 13,094
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Total Financing Expense 233,970 153,559
Gross Profit 605,871 466,564
Selling, General and Administrative
Expense 266,836 200,699
-------- --------
Operating Profit 339,035 265,865
Other Income
Interest income 127 521
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Total Other Income 127 521
Income before Tax Provision 339,162 266,386
Provision for Income Taxes (139,580) (109,629)
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Net Income $199,582 $156,757
======== ========
-------- --------
Net income per common share $ 0.01 $ 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 September 30, 2003 and 2002
Three Months Three Months
Ended Ended
September 30, September 30,
2003 2002
Financing Income
Premium financing $ 255,668 $ 204,760
Equipment financing 21,240 14,786
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Total Financing Income 276,908 219,546
-------- --------
Financing Expense
Premium financing 77,900 (11,286)
Equipment financing 7,696 6,335
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Total Financing Expense 85,596 (4,951)
Gross Profit 191,312 224,497
Selling, General and Administrative
Expense 93,551 88,148
-------- --------
Operating Profit 97,761 136,349
Other Income
Interest income 127 0
-------- --------
Total Other Income 127 0
Income before Tax Provision 97,888 136,349
Provision for Income Taxes (40,285) (56,113)
-------- --------
Net Income $ 57,603 $ 80,236
======== ========
-------- --------
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 Nine months ended
September 30, 2003 and 2002
Nine months Nine Months
Ended Ended
September 30, September 30,
2003 2002
Cash Flows from Operating Activities:
Net Income $ 199,582 $ 156,757
Adjustments to reconcile net income to net cash
provided by Operating Activities:
Decrease (increase) in prepaids & other receivables (116,870) (75,863)
Increase (decrease) in unfunded premium financing
payable 1,486,733 937,678
Increase (decrease) in accounts payable & accrued
liabilities 10,654 7,130
Increase (decrease) in management fees payable 24,000 12,206
Increase (decrease) in security deposits payable 15,246 0
Increase (Decrease) in income taxes payable 73,948 58,178
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Net Cash Provided by/(Used for) in Operating
Activities 1,693,293 1,096,086
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Cash Flows from Investing Activities:
Increase in loans financing receivable (2,113,666)(2,531,560)
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Net Cash Used for Investing Activities (2,113,666)(2,531,560)
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Cash Flows from Financing Activities:
Increase (decrease) in bank overdraft (506,818) (137,917)
Increase (decrease) in line of credit 826,734 1,153,130
Increase in notes payable 72,710 477,366
Issuance of common stock 0 0
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Net Cash Provided by Financing Activities 392,626 1,492,579
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Net Increase in Cash (27,747) 57,105
Beginning Cash Balance 284,187 222,049
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Ending Cash Balance $ 256,440 $ 279,154
========= ==========
5
Unaudited - see accompanying notes to financial statements
BIRCH FINANCIAL, INC.
Notes to Condensed Consolidated Financial Statements
September 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.
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Three Months Ended September 30, 2003, and 2002.
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In the quarterly period ended September 30, 2003, we received total
financing income of $276,908, of which $255,668 came from our premium
financing contracts and $21,240 came from equipment financing. During
the quarterly period ended September 30, 2002, these amounts were $219,546;
$204,760; and $14,786, respectively.
Financing expenses during the quarterly periods ended September 30,
2003, and September 30, 2002, were $85,596 and $(4,951), respectively, with
the increase coming primarily from an increased balance on our loan from
Safeco. Selling, general and administrative expenses were $93,551 during the
September 30, 2003 quarter, and $88,148 in the year-ago period.
Our net income before income tax totaled $97,888 in the quarterly
period ended September 30, 2003, as compared to $136,349 in the September 30,
2002, quarter. After provision for income taxes of $40,285 and $56,113, our
net income during the September 30, 2003, and 2002, periods was $57,603 ($0.00
per share), and $80,236 ($0.00 per share), 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.
Nine Months Ended September 30, 2003.
-------------------------------------
During the nine months ended September 30, 2003, we received total
financing income of $839,841, of which $784,129 came from our premium
financing activities and $55,712 came from equipment financing. The
comparable figures for the nine months ended September 30, 2002, were
$620,123; $586,233; and $33,890, respectively.
Total financing expense was $233,970 during the nine months ended
September 30, 2003, as compared to $153,559 in the same period during the
prior year. Premium financing expense increased to $211,435 from $140,465 in
the September 30, 2002 period. This increase resulted primarily from the
increased amount of our Safeco loan. Selling, general and administrative
expenses increased to $339,035, from $265,865 during the nine months ended
September 30, 2003, due principally to a $24,000 payment to Oakwood and Golden
Oak; an increase in our allowance for loans; the payment of $8,500 for a
program for our equipment financing billings; and our payments of $5 per bill
through that program.
Net income before income taxes totaled $339,162 during the nine
months ended September 30, 2003, as compared to $266,386 in the year-ago
period. After provision for income taxes, net income during these periods was
$199,582 ($0.01 per share) and $156,757 ($0.00 per share) respectively.
Liquidity and Capital Resources.
- --------------------------------
Our total assets as of September 30, 2003, were $10,103,057. We
believe that our current assets of $9,353,000, including $cash of $256,440,
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, 2003, our payable on the line of credit
was $5,009,128. 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.
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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: 11/13/03 By: /s Efraim Donitz
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Efraim Donitz, CEO, President,
Treasurer and Director
Date: 11/13/03 /s/ Nelson L. Colvin
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Nelson L. Colvin, Vice President,
Secretary and Director
Date: 11/13/02 /s/ Barry L. Cohen
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Barry L. Cohen, Chairman of the Board
of Directors
Date: 11/13/03 /s/ Keith L. Walton
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Keith L. Walton, Vice President and
Director
Date: 11/13/03 /s/ Ronald H. Dietz
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Ronald H. Dietz, Director
Date: 11/13/03 /s/ Lebo Newman
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Lebo Newman, Director