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, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- ---------------
Commission File No. 000-50145
BIRCH FINANCIAL, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 91-2077659
------ ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
17029 Chatsworth Street, Suite 100
Granada Hills, California 91344
--------------------------------
(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, 2005
32,109,848
----------
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, 2005
BIRCH FINANCIAL, INC.
Condensed Consolidated Balance Sheet
June 30, 2005
June 30,
2005
ASSETS
Current Assets
Cash $ 151,968
Premium financing receivable, net 10,730,261
Premium financing cancellation receivable 178,382
Equipment financing receivable-current portion 390,750
Prepaid expense 10,985
-----------
Total Current Assets 11,462,346
Other Assets
Equipment financing receivable, net of current
portion 559,754
Deferred tax asset 2,715
-----------
Total Other Assets 562,469
TOTAL ASSETS $12,024,815
===========
Unaudited-see accompanying notes to financial statements
1
BIRCH FINANCIAL, INC.
Condensed Consolidated Balance Sheet
(continued)
June 30, 2005
June 30,
2005
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Bank overdraft $ 558,157
Unfunded premium financing payable 1,414,745
Line of credit 7,316,500
Notes payable 661,084
Security deposits payable 68,937
Income taxes payable 14,683
Other accrued liabilities 4,862
----------
Total Current Liabilities 10,038,968
----------
TOTAL LIABILITIES 10,038,968
STOCKHOLDERS' EQUITY
Preferred stock - 10,000,000 shares authorized at
$0.01 par; no shares issued and outstanding 0
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 1,413,106
----------
TOTAL STOCKHOLDERS' EQUITY 1,985,847
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,024,815
==========
Unaudited-see accompanying notes to financial statements
2
BIRCH FINANCIAL, INC.
Condensed Consolidated Statements of Income
for the three months ended June 30, 2005 and 2004
Three Months Three Months
Ended Ended
June 30, June 30,
2005 2004
Financing Income
Premium financing $ 354,929 $ 321,418
Equipment financing 26,779 18,723
-------- --------
Total Financing Income 381,708 340,141
Financing Expense
Premium financing 107,134 95,636
Equipment financing 9,852 6,896
-------- --------
Total Financing Expense 116,986 102,532
Gross Profit 264,722 237,609
Selling, General and Administrative
Expense 52,965 52,379
-------- --------
Operating Profit 211,757 185,230
Other Income
Interest income 0 576
-------- --------
Total Other Income 0 576
Income before Tax Provision 211,757 185,806
Provision for Income Taxes (86,500) (82,558)
-------- --------
Net Income $125,257 $103,248
======== ========
-------- --------
Net income per common share $ 0.00 $ 0.00
======== ========
Weighted average common shares
outstanding 32,109,848 32,109,848
========== ==========
Unaudited - see accompanying notes to financial statements
3
BIRCH FINANCIAL, INC.
Condensed Consolidated Statements of Income
for the six months ended June 30, 2005 and 2004
Six Months Six Months
Ended Ended
June 30, June 30,
2005 2004
Financing Income
Premium financing $ 680,826 $ 625,223
Equipment financing 54,172 34,582
-------- --------
Total Financing Income 734,998 659,805
Financing Expense
Premium financing 194,638 164,646
Equipment financing 20,525 14,237
-------- --------
Total Financing Expense 215,163 178,883
Gross Profit 519,835 480,922
Selling, General and Administrative
Expense 114,566 102,177
-------- --------
Operating Profit 405,269 378,745
Other Income
Interest income 11 1,551
-------- --------
Total Other Income 11 1,551
Income before Tax Provision 405,280 380,296
Provision for Income Taxes (166,963) (154,330)
-------- --------
Net Income $238,317 $225,966
======== ========
-------- --------
Net income per common share $ 0.01 $ 0.01
======== ========
Weighted average common shares
outstanding 32,109,848 32,109,848
========== ==========
Unaudited - see accompanying notes to financial statements
4
BIRCH FINANCIAL, INC.
Condensed Consolidated Statements of Cash Flows
for the six months ended
June 30, 2005 and 2004
Six months Six Months
Ended Ended
June 30, June 30,
2005 2004
Cash Flows from Operating Activities:
Net Income $ 238,317 $ 225,966
Adjustments to reconcile net income to net cash
provided by Operating Activities:
Decrease (increase) in prepaid & other receivables (8,823) (8,547)
Increase (decrease) in unfunded premium financing
payable 697,260 82,019
Increase (decrease) in accounts payable & accrued
liabilities (2,869) (7,784)
Increase (decrease) in management fees payable 0 (121,558)
Increase (decrease) in security deposits payable 355 6,766
Increase (decrease) in income taxes payable (87,830) (9,428)
---------- ----------
Net Cash Provided by/(Used for) in Operating
Activities 836,410 167,434
Cash Flows from Investing Activities:
(Increase) in premium financing receivable (1,656,803)(1,219,745)
Decrease (Increase) in equipment financing
receivable 151,307 (48,588)
---------- ----------
Net Cash Used for Investing Activities (1,505,496)(1,268,333)
Cash Flows from Financing Activities:
Increase in bank overdraft 74,183 56,679
Increase in line of credit 808,600 1,114,605
(Decrease) in notes payable (165,906) (55,554)
--------- ----------
Net Cash Provided by Financing Activities 716,877 1,115,730
--------- ----------
Net Increase in Cash 47,791 14,831
Beginning Cash Balance 104,177 149,737
--------- ----------
Ending Cash Balance $ 151,968 $ 164,568
========= ==========
Supplemental Information
Cash paid for interest $ 215,163 $ 178,883
Cash paid for income taxes $ 254,793 $ 163,846
5
Unaudited - see accompanying notes to financial statements
BIRCH FINANCIAL, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 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.
6
Item 2. Management's Discussion and Analysis or Plan of Operation.
- --------------------------------------------------------------------
Results of Operations.
- ----------------------
In the quarterly period ended June 30, 2005, we received total
financing income of $381,708, of which $354,929 came from our premium
financing contracts and $26,779 came from equipment financing. During
the quarterly period ended June 30, 2004, these amounts were $340,141;
$321,418; and $18,723, respectively.
Financing expenses during the quarterly periods ended June 30,
2005, and June 30, 2004, were $116,986 and $102,532, respectively. Selling,
general and administrative expenses were $52,965 during the June 30, 2005,
quarter, and $52,379 in the year-ago period.
Our income before tax provisions totaled $211,757 in the quarterly
period ended June 30, 2005, as compared to $185,806 in the June 30, 2004,
quarter. After provision for income taxes of $86,500 and $82,558, our net
income during the June 30, 2005, and 2004, periods was $125,257, and
$103,248, respectively.
In the six months ended June 30, 2005, we received total financing
income of $734,998, of which $680,826 came from our premium financing
contracts and $54,172 came from equipment financing. During the six months
ended June 30, 2004, these amounts were $659,805; $625,223; and $34,582,
respectively.
Financing expenses during the six months ended June 30, 2005, and
June 30, 2004, were $215,163 and $178,883, respectively. Selling, general and
administrative expenses were $114,566 during the June 30, 2005, six months
ended, and $102,177 in the year-ago period.
Our income before tax provisions totaled $405,280 in the six months
ended June 30, 2005, as compared to $380,296 in the June 30, 2004, period.
After provision for income taxes of $166,963 and $154,330, our net income
during the June 30, 2005, and 2004, six months ended was $238,317, and
$225,966, 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, 2005, were $12,024,815. 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
First Bank of St. Louis to fund our insurance premium financing loans. As of
June 30, 2005, our payable on the line of credit was $7,316,500. 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, our 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 effectively designed to ensure that information required to be
disclosed or filed by us is recorded, processed or summarized, within the time
periods specified in the rules and regulations of the Securities and Exchange
Commission. 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.
- ----------------------------
None; not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
- ----------------------------------------------------------------------
None; not applicable.
Item 3. Defaults Upon Senior Securities.
- ------------------------------------------
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
- --------------------------------------------------------------
None; not applicable.
Item 5. Other Information.
- ----------------------------
None; not applicable.
Item 6. Exhibits.
- -------------------
Exhibits.
31 302 Certification of Nelson L. Colvin
31 302 Certification of Keith L. Watson
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: 8/12/05 /s/Nelson L. Colvin
------------- -------------------
Nelson L. Colvin
President
Date: 8/12/05 /s/ Barry L. Cohen
------------- --------------------
Barry L. Cohen
Chairman of the Board of Directors
Date: 8/12/05 /s/ Keith L. Walton
------------- --------------------
Keith L. Walton
Vice President, Secretary/Treasurer
and Director
Date: 8/12/05 /s/ Ronald H. Dietz
------------- --------------------
Ronald H. Dietz
Director
Date: 8/12/05 /s/ Lebo Newman
------------- --------------------
Lebo Newman
Director