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, 2004
[ ] 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. 000-50145
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)
17029 Chatsworth Street, Suite 100
Granada Hills, California 91344
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(Address of Principal Executive Offices)
Issuer's Telephone Number: (818) 832-9664
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:
May 17, 2004
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, 2004
BIRCH FINANCIAL, INC.
Condensed Consolidated Balance Sheet
March 31, 2004
March 31,
2004
ASSETS
Current Assets
Cash $ 125,285
Premium financing receivable, net 9,433,806
Premium financing cancellation receivable 189,326
Equipment financing receivable-current portion 240,000
Prepaid expense 3,105
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Total Current Assets 9,991,522
Other Assets
Equipment financing receivable, net of current
portion 601,705
Deferred tax asset 9,605
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Total Other Assets 611,310
TOTAL ASSETS $10,602,832
===========
Unaudited-see accompanying notes to financial statements
1
BIRCH FINANCIAL, INC.
Condensed Consolidated Balance Sheet
(continued)
March 31, 2004
March 31,
2004
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Bank overdraft $ 656,020
Unfunded premium financing payable 1,280,587
Line of credit 6,305,312
Management fees payable 121,558
Notes payable 678,904
Security deposits payable 49,502
Income taxes payable 83,638
Other accrued liabilities 2,684
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Total Current Liabilities 9,178,205
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TOTAL LIABILITIES 9,178,205
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 851,886
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TOTAL STOCKHOLDERS' EQUITY 1,424,627
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,602,832
==========
Unaudited-see accompanying notes to financial statements
2
BIRCH FINANCIAL, INC.
Condensed Consolidated Statements of Income
for the three months ended March 31, 2004 and 2003
Three Months Three Months
Ended Ended
March 31, March 31,
2004 2003
Financing Income
Premium financing $ 303,805 $ 243,328
Equipment financing 15,859 18,395
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Total Financing Income 319,664 261,723
Financing Expense
Premium financing 69,010 70,741
Equipment financing 7,341 7,571
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Total Financing Expense 76,351 78,312
Gross Profit 243,313 183,411
Selling, General and Administrative
Expense 49,798 86,011
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Operating Profit 193,515 97,400
Other Income
Interest income 975 0
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Total Other Income 975 0
Income before Tax Provision 194,490 97,400
Provision for Income Taxes (71,772) (40,084)
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Net Income $122,718 $ 57,316
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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 32,109,848
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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, 2004 and 2003
Three months Three Months
Ended Ended
March 31, March 31,
2004 2003
Cash Flows from Operating Activities:
Net Income $ 122,718 $ 57,316
Adjustments to reconcile net income to net cash
provided by Operating Activities:
Decrease (increase) in prepaid & other receivables (3,106) 0
Increase (decrease) in unfunded premium financing
payable 323,103 666,766
Increase (decrease) in accounts payable & accrued
liabilities 2,876 86,036
Increase (decrease) in management fees payable 0 24,225
Increase (decrease) in security deposits payable 1,605 3,220
Increase (Decrease) in income taxes payable 19,165 (25,548)
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Net Cash Provided by/(Used for) in Operating
Activities 466,361 812,015
Cash Flows from Investing Activities:
Increase in premium financing receivable (792,918)(1,119,019)
Increase in equipment financing receivable 41,014 (71,831)
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Net Cash Used for Investing Activities (751,904)(1,190,850)
Cash Flows from Financing Activities:
Increase (decrease) in bank overdraft 236,000 (653,000)
Increase in line of credit 115,250 984,408
Increase (decrease) in notes payable (90,159) 40,132
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Net Cash Provided by Financing Activities 261,091 371,540
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Net Increase in Cash (24,452) (7,295)
Beginning Cash Balance 149,737 284,187
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Ending Cash Balance $ 125,285 $ 276,892
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Supplemental Information
Cash paid for interest $ 76,351 $ 78,312
Cash paid for income taxes $ 52,694 $ 65,632
4
Unaudited - see accompanying notes to financial statements
BIRCH FINANCIAL, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2004
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, 2003.
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, 2004, we received total
financing income of $319,664, of which $303,805 came from our premium
financing contracts and $15,859 came from equipment financing. During
the quarterly period ended March 31, 2003, these amounts were $261,723;
$243,328; and $18,395, respectively. Revenue from our premium financing
operations increased by approximately 19.9% from the first quarter of 2003 to
the first quarter of 2004. The decline in equipment financing revenue is due
to a decrease in new loans, which we attribute to poor weather in Northern
California and the slower economy in the first quarter of 2004. As the
weather and economic conditions continue to improve, we expect that our
equipment financing business will increase.
Financing expenses during the quarterly periods ended March 31,
2004, and March 31, 2003, were $76,351 and $78,312, respectively. Selling,
general and administrative expenses were $49,798 during the March 31, 2004
quarter, and $86,011 in the year-ago period. This decrease was due largely to
the termination of our Consultant Agreement with Efco, Inc. in January, 2004.
Our income before tax provisions totaled $194,490 in the quarterly
period ended March 31, 2004, as compared to $97,400 in the March 31, 2003,
quarter. After provision for income taxes of $71,772 and $40,084, our net
income during the March 31, 2004, and 2003, periods was $122,718, and $57,316,
respectively.
Liquidity and Capital Resources.
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Our current assets as of March 31, 2004, were $9,991,522, of which
$125,285 consisted of cash. 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, 2004, our payable on the line of credit was
$6,305,312. 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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The Company's chief executive officer and treasurer are responsible for
establishing and maintaining disclosure controls and procedures.
(a) Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of March 31, 2004, the chief executive
officer and the treasurer have concluded that the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as amended) are effective to ensure that
information required to be disclosed in reports that the Company files or
submits under the Securities Exchange Act, as amended is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission.
(b) Changes in internal controls
Based on their evaluation as of March 31, 2004, the chief executive
officer and the treasurer have concluded that there were no significant
changes in the Company's internal controls over financial reporting or in any
other areas that could significantly affect the Company's internal controls
subsequent to the date of his most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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None; not applicable.
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
Securities.
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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.
31.1 - 302 Certification of Nelson L. Colvin
31.2 - 302 Certification of Keith L. Walton
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: 5-21-04 /s Nelson L. Colvin
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Nelson L. Colvin, President,
Secretary and Director
Date: 5-21-04 /s/ Barry L. Cohen
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Barry L. Cohen, Chairman of the Board
of Directors
Date: 5-21-04 /s/ Keith L. Walton
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Keith L. Walton, Vice President and
Director
Date: 5-21-04 /s/ Ronald H. Dietz
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Ronald H. Dietz, Director
Date: 5-21-04 /s/ Lebo Newman
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Lebo Newman, Director