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, 2005
[ ] 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.
(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: (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:
May 12, 2005
32,109,846
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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, 2005
BIRCH FINANCIAL, INC.
Condensed Consolidated Balance Sheet
March 31, 2005
March 31,
2005
ASSETS
Current Assets
Cash $ 123,929
Premium financing receivable, net 10,005,404
Premium financing cancellation receivable 101,082
Equipment financing receivable-current portion 418,000
Prepaid expense 4,349
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Total Current Assets 10,652,764
Other Assets
Equipment financing receivable, net of current
portion 660,170
Deferred tax asset 2,715
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Total Other Assets 662,885
TOTAL ASSETS $11,315,649
===========
Unaudited-see accompanying notes to financial statements
1
BIRCH FINANCIAL, INC.
Condensed Consolidated Balance Sheet
(continued)
March 31, 2005
March 31,
2005
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Bank overdraft $ 761,902
Unfunded premium financing payable 1,734,905
Line of credit 5,992,800
Notes payable 799,658
Security deposits payable 73,370
Income taxes payable 80,463
Other accrued liabilities 11,961
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Total Current Liabilities 9,455,059
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TOTAL LIABILITIES 9,455,059
STOCKHOLDERS' EQUITY
Preferred stock - 10,000,000 shares authorized at
$0.01 par; no shares issued and outstanding -
Common stock-200,000,000 shares authorized at $0.01
par; 32,109,848 issued and outstanding 321,098
Paid in capital 251,643
Retained earnings 1,287,849
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TOTAL STOCKHOLDERS' EQUITY 1,860,590
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,315,649
==========
Unaudited-see accompanying notes to financial statements
2
BIRCH FINANCIAL, INC.
Condensed Consolidated Statements of Income
for the three months ended March 31, 2005 and 2004
Three Months Three Months
Ended Ended
March 31, March 31,
2005 2004
Financing Income
Premium financing $ 325,897 $ 303,805
Equipment financing 27,393 15,859
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Total Financing Income 353,290 319,664
Financing Expense
Premium financing 87,504 69,010
Equipment financing 10,673 7,341
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Total Financing Expense 98,177 76,351
Gross Profit 255,113 243,313
Selling, General and Administrative
Expense 61,601 49,798
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Operating Profit 193,512 193,515
Other Income
Interest income 11 975
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Total Other Income 11 975
Income before Tax Provision 193,523 194,490
Provision for Income Taxes (80,463) (71,772)
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Net Income $113,060 $122,718
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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, 2005 and 2004
Three months Three Months
Ended Ended
March 31, March 31,
2005 2004
Cash Flows from Operating Activities:
Net Income $ 113,060 $ 122,718
Adjustments to reconcile net income to net cash
provided by Operating Activities:
Decrease (increase) in prepaid & other receivables (2,187) (3,106)
Increase (decrease) in unfunded premium financing
payable 1,017,420 323,103
Increase (decrease) in accounts payable & accrued
liabilities 4,230 2,876
Increase (decrease) in management fees payable 0 0
Increase (decrease) in security deposits payable 4,788 1,605
Increase (decrease) in income taxes payable (22,050) 19,165
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Net Cash Provided by/(Used for) in Operating
Activities 1,115,261 466,361
Cash Flows from Investing Activities:
Increase in premium financing receivable (854,646) (792,918)
Increase in equipment financing receivable 23,641 41,014
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Net Cash Used for Investing Activities (831,005) (751,904)
Cash Flows from Financing Activities:
Increase (decrease) in bank overdraft 277,928 236,000
Increase in line of credit (515,100) 115,250
Increase (decrease) in notes payable (27,332) (90,159)
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Net Cash Provided by Financing Activities (264,504) 261,091
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Net Increase in Cash 19,752 (24,452)
Beginning Cash Balance 104,177 149,737
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Ending Cash Balance $ 123,929 $ 125,285
========= ==========
Supplemental Information
Cash paid for interest $ 98,177 $ 76,315
Cash paid for income taxes $ 80,463 $ 52,694
4
Unaudited - see accompanying notes to financial statements
BIRCH FINANCIAL, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2005
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. In the opinion of management, the
interim financial statements reflect all adjustments, consisting of
normal recurring entries, which are 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, 2004.
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, 2005, we received total
financing income of $353,290, of which $325,897 came from our premium
financing contracts and $27,393 came from equipment financing. During
the quarterly period ended March 31, 2004, these amounts were $319,664;
$303,805; and $15,859, respectively.
Financing expenses during the quarterly periods ended March 31,
2005, and March 31, 2004, were $98,177 and $76,351, respectively. Selling,
general and administrative expenses were $61,601 during the March 31, 2005
quarter, and $49,798 in the year-ago period.
Our income before tax provisions totaled $193,523 in the quarterly
period ended March 31, 2005, as compared to $194,490 in the March 31, 2004,
quarter. After provision for income taxes of $80,463 and $71,772, our net
income during the March 31, 2005, and 2004, periods was $113,060, and
$122,718, 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, 2005, were $11,315,649. 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 $10 million line of
credit with First Bank to fund our insurance premium financing loans. As of
March 31, 2005, our payable on the line of credit was $5,992,800. 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.
- ----------------------------------
Within 90 days prior to the date of this Quarterly Report and as of the
period covered thereby, we carried out an evaluation, under the supervision
and with the participation of our President, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on this
evaluation, our President concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in our periodic Securities and Exchange Commission
reports. It should be noted that the design of any system of controls is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions, regardless of how remote.
In addition, we reviewed our internal controls, and there have been no
significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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None; not applicable.
Item 2. Unregistered Sales of Equity 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.
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Exhibits.
31.1 - 302 Certification of Nelson L. Colvin
31.2 - 302 Certification of Keith L. Walton
32 906 Certification.
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: May 16, 2005 /s/Nelson L. Colvin
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Nelson L. Colvin
President
Date: May 16, 2005 /s/ Barry L. Cohen
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Barry L. Cohen
Chairman of the Board of Directors
Date: May 16, 2005 /s/ Keith L. Walton
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Keith L. Walton
Vice President, Secretary/Treasurer
and Director
Date: May 16, 2005 /s/ Ronald H. Dietz
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Ronald H. Dietz
Director
Date: May 16, 2005 /s/ Lebo Newman
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Lebo Newman
Director