Correspondence
Birch Branch, Inc.
March 13, 2007
Ms. Amanda Jaffe
U.S. Securities & Exchange Commission
Division of Corporate Finance
100 F Street, N.E.
Washington, D.C. 20549
RE: Birch Branch, Inc.
Dear Ms. Jaffe:
As we discussed on the telephone, I have sent to you via general correspondence
on Edgar, the amended June 30, 2006 10KSB for Birch Branch, Inc. This file shows
our proposed changes that address the comments in your letter of February 28,
2007. I have noted our changes in this letter as below:
1. Item 8 "CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE"- as there were no changes or disagreements with our
accountants during this period we have included the disclosure and inserted
"None".
2. Item 8A "CONTROLS AND PROCEDURES"- this disclosure was unintentionally
omitted from the earlier filing so the following has been added:
The Company's management, including the president, chief financial officer and
vice president, has evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined by Rules 13a-15 (e) of the Securities
Exchange Act of 1934) as of June 30, 2006. Their evaluation concluded that the
disclosure controls and procedures are effective as of June 30, 2006 to provide
reasonable assurance that material information relating to the Company is made
known to management including the president, chief financial officer and vice
president.
There were no significant changes in the Company's internal control over
financial reporting that occurred during the Company's last fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
2560 W. Main Street, Suite 200 Littleton, CO 88120 ph 303-794-9450
3. Exhibits 31.1 and 31.2- "annual report" has been changed to "report"
throughout the Exhibit.
4. Exhibits 31.1 and 31.2- "valuation" has been changed to "evaluation" in
paragraph 4 (c).
Amanda, please call me to discuss these changes at your earliest convenience. I
will be submitting separate transmittals for each reporting period.
Best Regards,
/s/ Bob Lazzeri
- ---------------
Bob Lazzeri
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended - June 30, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from:
Commission file number: 333-126654
Birch Branch, Inc.
(Name of Small Business Issuer in its charter)
Colorado 84-1124170
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)
2525 Fifteenth Street, Suite 3H, Denver, Co 80211
(Address of principal executive offices)
Issuer's telephone number: (303) 480-5037
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, no par value per share
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(D) of the Exchange Act during the past 12 months (or for such shorter
period that the small business issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of small business issuer's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
Indicate by check mark whether small business issuer is a shell company (as
defined by Rule 12b-2 of the Exchange Act) YES [X] NO [ ]
State issuer's revenues for its most recent fiscal year. $ -0-
State the aggregate market value of the voting stock held by non- affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act): $ -0-
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ] Not applicable.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
1,287,393 as of September 1, 2006.
Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [X]
1
PART I
ITEM 1. BUSINESS
Birch Branch, Inc. (Birch Branch) is a corporation which was formed under the
laws of the State of Colorado on September 28, 1989. The Articles of
Incorporation of the Company authorized it to issue 500,000,000 shares of common
stock with no par value per share and 50,000,000 shares of preferred stock with
no par value per share.
Birch Branch was a wholly-owned subsidiary of Pride Holdings, Inc. (Pride
Holdings). Pride Holdings is a wholly-owned subsidiary of Pride, Inc. (PRIDE).
Pride, Inc. was a wholly-owned subsidiary of Prime Rate Income & Dividend
Enterprises, Inc. (PIDV). On November 12, 2002, the directors of PIDV approved,
subject to the effectiveness of a registration with the Securities and Exchange
Commission, the pro rata spin-off of PRIDE to the PIDV shareholders of record on
November 26, 2002 on a pro rata basis, exclusive of shares issued to U.S.
Medical Systems, Inc. (USMS) shareholders effective November 12, 2002. PIDV
entered into a share exchange agreement with USMS whereby USMS became a
wholly-owned subsidiary of PIDV. This business combination completed in
November, 2002, was accounted for as a reverse acquisition of PIDV since the
former controlling shareholders of USMS controlled PIDV after the transaction.
Since USMS's business is not related to the real estate and mortgage investment
business of PRIDE, the PIDV directors decided it was in the best interest of
PIDV and PRIDE and PIDV's shareholders to spin-off PRIDE. The conditions of the
business combination agreement with USMS stipulate that PRIDE would be spun-off
to PIDV shareholders. The shares of PRIDE are being held by Michael L.
Schumacher, President, for the benefit of PIDV shareholders, in escrow with
instructions to distribute the PRIDE shares upon the effectiveness of a
registration statement with the Securities and Exchange Commission. Management
of PRIDE intends to continue operations of PRIDE in the same manner as prior to
the pro rata spin-off and does not anticipate any additional corporate
transactions which might impact the continuing interest of the shareholders.
PIDV changed its name to U.S. MedSys Corp. in March 2004.
Simultaneous with the pro rata spin-off of Pride, Inc., the directors of Pride
and Pride Holdings, Inc. determined that Birch Branch should also be distributed
on the same basis to the same qualified PIDV shareholders. Birch Branch is the
owner of five residential lots comprising a total of eight acres in Nebraska.
Since Birch Branch desired to develop this property and needed additional
capital to fund this development and since Pride and Pride Holdings, Inc. are
not in the real estate development business, it was determined that it was in
the best interest of Pride's shareholders to spin-off Birch Branch to the same
PIDV qualified shareholders. The shares of Birch Branch, Inc. are being held by
Michael L. Schumacher, for the benefit of the PIDV qualified shareholders. The
shares will be distributed to the PIDV shareholders upon the effectiveness of a
registration statement.
The principal executive offices of the Company are located at 2525 Fifteenth
Street, Suite 3H, Denver, Colorado 80211, and the Company's telephone number is
(303) 480-5037.
GENERAL BUSINESS PLAN
Birch Branch is principally in the real estate investment business. Birch Branch
owns real estate in Nebraska. At November 12, 2002, Birch Branch had tentative
plans to build a replica of a historic artist's studio (Studio) on one of the
Nebraska property lots, but had not commenced construction at that time. The
tentative plans called for using the Studio as a bed and breakfast type rental
facility. Construction began on the Studio in 2003 and was completed in
September 2005. The total cost including furnishings and construction interest
was approximately $410,000. All of the costs have been funded by advances from
the Company's President. Since there are five lots included in this property,
the remaining four lots are being held as investments for potential future
development or sale.
DISTRIBUTION OF PRODUCTS AND SERVICES
Birch Branch intends to market its bed and breakfast rental facility by local
advertising.
COMPETITION
Birch Branch's intended business is highly competitive. There are thousands of
bed and breakfast rental facilities in the United States of America.
2
AVAILABILITY OF RAW MATERIAL: PRINCIPAL SUPPLIERS
Since the Company is not involved in manufacturing, there is no need for raw
materials. Supplies used in the planned business are minimal.
PATENTS AND INTELLECTUAL PROPERTY
The Company has no patent or intellectual property rights.
GOVERNMENTAL APPROVAL
There are no governmental approval requirements related to the Company's
business.
EFFECT OF GOVERNMENTAL REGULATIONS: COMPLIANCE WITH ENVIRONMENTAL LAWS
Various local zoning, homeowners associations and various other rules and
regulations limit how properties may be used and require certain maintenance and
repairs for properties. Residential property located in Keith County, Nebraska,
where our property is located, may be used as a bed and breakfast under existing
zoning regulations. Certain federal and state environmental protection statutes
exist related to hazardous wastes and other environmental concerns. To our
knowledge, we are in compliance with all environmental laws.
RESEARCH AND DEVELOPMENT
The Company has not been involved in any research and development projects.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company currently maintains a mailing address at 2525 Fifteenth Street,
Suite 3H, Denver, CO 80211, which is the address of its President. The Company
pays no rent for the use of this mailing address. The Company does not believe
that it will need to maintain an office at any time in the foreseeable future in
order to carry out its plan of operations described herein.
ITEM 3. LEGAL PROCEEDINGS.
There are no known legal proceedings or outstanding judgments against the
Company, nor any pending litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information.
The common stock of the Company recently began trading on the Over the Counter
Bulletin Board system under the symbol "BHBH". There is no assurance that the
common stock will continue to be quoted or that any liquidity exists for the
Company's stockholders.
(b) Holders.
As of June 30, 2006, there are approximately 412 holders of the Company's Common
Stock.
3
(c) Dividends.
The Company has never paid a dividend on its common stock. We do not anticipate
paying any dividends on our common stock in the foreseeable future. Management
anticipates that earnings, if any, will be retained to fund our working capital
needs and the expansion of our business. The paying of any dividends is in the
discretion of the Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS.
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical facts are
forward-looking statements such as statements relating to future operating
results, existing and expected competition, financing and refinancing sources
and availability and plans for future development or expansion activities and
capital expenditures. Such forward-looking statements involve a number of risks
and uncertainties that may significantly affect our liquidity and results in the
future and, accordingly, actual results may differ materially from those
expressed in any forward-looking statements. Such risks and uncertainties
include, but are not limited to, those related to effects of competition,
leverage and debt service financing and refinancing efforts, general economic
conditions, and changes in applicable laws or regulations. The following
discussion and analysis should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this report.
Our activities have been primarily focused on real estate investment and it is a
development stage enterprise since planned principal operations have not yet
commenced. The development stage began when we commenced planning for the
construction of the bed and breakfast on July 1, 2002. Accordingly, management
does not consider the historical results of operations to be representative of
our future results of operation.
Critical Accounting Policies
We have identified the following policies below as critical to our business and
results of operations. For further discussion on the application of these and
other accounting policies, see Note 1 to the accompanying audited financial
statements for the year ended June 30, 2006, included elsewhere in this filing.
Our reported results are impacted by the application of the following accounting
policies, certain of which require management to make subjective or complex
judgments. These judgments involve making estimates about the effect of matters
that are inherently uncertain and may significantly impact quarterly or annual
results of operations. For all of these policies, management cautions that
future events rarely develop exactly as expected, and the best estimates
routinely require adjustment. Specific risks associated with these critical
accounting policies are described in the following paragraphs.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue Recognition
- -------------------
We have had no revenue during the two years ended June 30, 2006. Anticipated
future operating revenue will represent daily room rentals and revenues from
food and other services. Such revenues will be recorded as the rooms are rented
or the services are performed.
Impairment of Long-Lived Assets
- -------------------------------
We review our long-lived assets, including property, construction in progress,
and equipment, for impairment when events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. We evaluate, at each
balance sheet date, whether events and circumstances have occurred which
indicate possible impairment. As of June 30, 2006, we do not consider any of its
long-lived assets to be impaired.
4
Plan of Operation for June 30, 2006 to June 30, 2007
Birch Branch intends to market its bed and breakfast rental facility by local
advertising, such as placing an advertisement in the local newspaper. We expect
that the cost of local advertising will be insignificant. Operating costs are
expected to range between $20,000 and $25,000, for the next twelve months. These
operating costs include insurance, taxes, utilities, maintenance, food costs,
janitorial, contract services, advertising and all other costs of operations. We
expect to generate revenues in the next twelve months from rental income from
referrals from certain individuals and entities that operate unrelated
businesses nearby the property. Our President has agreed to allow interest to
accrue rather than requiring payment on the funds advanced for the next five
years. Management intends to acquire necessary services from independent
contractors. Since there can be no assurances that rental income will be
sufficient to cover operating costs for the foreseeable future, it may be
necessary to raise additional funds. Due to our lack of operating history,
raising additional funds may be difficult. Contingencies exist with respect to
this matter.
We generated no revenues during the year ended June 30, 2006, and management
does not anticipate any revenues until May 2007.
Seasonality
- -----------
It is expected that our business will be seasonal with nearly all revenue
generated during the period commencing May 1 and ending October 31. Therefore,
we do not anticipate any material revenue until May 2007.
Results of Operations
Year ended June 30, 2006
- ------------------------
We had no revenue for the year ended June 30, 2006.
Operating expenses during the year ended June 30, 2006 totaled $52,291,
consisting of accounting and audit fees of $8,615, depreciation of $8,922, legal
fees of $23,262, real estate taxes of $3,513, stock transfer fees of $3,852, and
other expenses of $4,127. Interest expense during the year ended June 30, 2006
totaled $28,171.
Year ended June 30, 2005
- ------------------------
We had no revenue for the year ended June 30, 2005.
Operating expenses during the year ended June 30, 2005 totaled $12,988,
consisting of professional fees of $10,546, real estate taxes of $1,405 and
other expenses of $1,037.
Liquidity and Capital Resources
At June 30, 2006, we had an unrestricted cash balance of approximately $2,980.
Our current assets were approximately $2,980 at June 30, 2006 and our current
liabilities totaled approximately $37,013, resulting in a net working capital
deficit of ($34,033).
Financial Position
At June 30, 2006, we had no commitments for capital expenditures. The bed and
breakfast was completed in September 2005, and our President and the Company
converted $381,134 of the advances and $48,866 of the accrued interest to a
mortgage note payable totaling $430,000, collateralized by the land and building
owned by the Company. An additional $34,069 in advances is uncollateralized,
bears no interest and has no maturity date.
The mortgage loan bears simple interest at 8% per annum with the total note and
accrued interest due September 30, 2010. The Annual Percentage Rate (APR) is
approximately 6.85%. Construction note interest of $48,866 was capitalized
during the construction period. Immaterial real estate taxes on this property,
subject to the construction in progress, were expensed as incurred.
5
The Company is dependent on our President to provide advances sufficient to
cover working capital needs through June 30, 2007. Management estimates it will
take approximately $20,000 - $25,000 per year to fund existing operations.
Should we decide to develop or improve the four remaining lots that it owns, it
will require additional development capital. We currently have no plans to
develop or build on the remaining four lots it owns.
Trends
There is significant uncertainty inherent to the real estate investment and
development industry. However, other than historical and public information,
there are no known trends, events or uncertainties that have had or that are
reasonably expected to have a material impact on the net sales or revenues or
income from rental property. Other than the completion costs of the bed and
breakfast, our management has not made any commitments which will require any
material financial resources.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------ -------------------------------------------
6
INDEX TO FINANCIAL STATEMENTS
BIRCH BRANCH, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
with
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audited Financial Statements:
Report of Independent Registered Public Accounting Firm F-2
Balance Sheet F-3
Statements of Operations F-4
Statement of Changes in Stockholders' (Deficit) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Birch Branch, Inc.
Denver, CO
We have audited the accompanying balance sheet of Birch Branch, Inc. (a
development-stage company) as of June 30, 2006 and the related statements of
operations, stockholders' (deficit) and cash flows for the two years ended June
30, 2006 and 2005 and for the period from July 1, 2002 (date of commencement of
development stage) through June 30, 2006. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements, referred to above, present fairly, in
all material respects, the financial position of Birch Branch, Inc. (a
development-stage company) as of June 30, 2006 and the related statements of
operations and cash flows for the two years ended June 30, 2006 and 2005 and for
the period from July 1, 2002 (date of commencement of development stage) through
June 30, 2006 in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 2, the Company
has no operating revenues to date, has working capital and stockholders'
deficits, and has recurring losses from operations, which raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to this matter are also discussed in Note 2. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Miller & McCollom
Certified Public Accountants
4350 Wadsworth Blvd., Suite 300
Wheat Ridge, CO 80033
August 29, 2006
F-2
BIRCH BRANCH, INC.
------------------
(A Development Stage Company)
BALANCE SHEET
JUNE 30, 2006
ASSETS
------
Current Assets:
Cash $ 2,980
---------
Total Current Assets 2,980
Real estate, land 55,595
Real estate, building, net of accumulated depreciation of $7,660 390,678
Furnishings, net of accumulated depreciation of $1,262 7,839
---------
TOTAL ASSETS $ 457,091
=========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
Current Liabilities:
Accounts payable, related party $ 34,069
Accrued expenses 2,944
---------
Total Current Liabilities 37,013
Mortgage note payable, related party 430,000
Accrued interest payable, related party 25,557
---------
TOTAL LIABILITIES 492,570
---------
Commitments and contingencies (Notes 1, 2, 3, 4 and 5)
Stockholders' (Deficit):
Preferred stock, no par value
50,000,000 shares authorized,
none issued and outstanding --
Common stock, no par value,
500,000,000 shares authorized,
1,287,393 issued and outstanding 65,613
Accumulated (Deficit) (5,173)
Accumulated (Deficit) during Development Stage (95,919)
---------
TOTAL STOCKHOLDERS' (DEFICIT) (35,479)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 457,091
=========
The accompanying notes are an integral part of the financial statements.
F-3
BIRCH BRANCH, INC.
------------------
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Period from July 1, 2002
(date of commencement of development stage)
through June 30, 2006
For the period
from July 1,
2002 (date of
commencement
of development
Year Ended stage) through
June 30, June 30,
2006 2005 2006
---- ---- ----
Revenue $ -- $ -- $ --
-------------- -------------- --------------
Expenses
Accounting and auditing 8,615 7,495 16,110
Depreciation 8,922 -- 8,922
Legal fees 23,262 3,051 26,313
Real estate taxes 3,513 1,405 7,336
Stock transfer fees 3,852 -- 3,852
Other 4,128 1,037 5,215
-------------- -------------- --------------
52,292 12,988 67,748
-------------- -------------- --------------
Net Operating (Loss) (52,292) (12,988) (67,748)
Other (Expense):
Interest expense (28,171) -- (28,171)
-------------- -------------- --------------
Net (Loss) $ (80,463) $ (12,988) $ (95,919)
============== ============== ==============
Per Share $ (.06) $ (.01) $ (.07)
============== ============== ==============
Weighted Average Shares Outstanding 1,287,393 1,287,393 1,287,393
============== ============== ==============
The accompanying notes are an integral part of the financial statements.
F-4
BIRCH BRANCH, INC.
------------------
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)
For the Period from July 1, 2002
(date of commencement of development stage)
through June 30, 2006
Accumulated
(Deficit)
during
Preferred Stock Common Stock Accumulated Development
No./Shares Amount No./Shares Amount (Deficit) Stage Total
---------- ---------- ---------- ---------- ----------- ----------- -----------
Balance at July 1, 2002 -- $ -- 1,325,000 $ 63,189 $ (5,173) $ -- $ 58,016
Cash capital contributions -- -- -- 1,192 -- -- 1,192
Common stock canceled
(Note 4) -- -- (37,607) -- -- -- --
Net loss for the year ended
June 30, 2003 -- -- -- -- -- (1,216) (1,216)
---------- ---------- ---------- ---------- ----------- ----------- -----------
Balance at June 30, 2003 -- -- 1,287,393 64,381 (5,173) (1,216) 57,992
Cash capital contributions -- -- -- 1,232 -- -- 1,232
Net loss for the year ended
June 30, 2004 -- -- -- -- -- (1,252) (1,252)
---------- ---------- ---------- ---------- ----------- ----------- -----------
Balance at June 30, 2004 -- -- 1,287,393 65,613 (5,173) (2,468) 57,972
Net loss for the year ended
June 30, 2005 -- -- -- -- -- (12,988) (12,988)
---------- ---------- ---------- ---------- ----------- ----------- -----------
Balance at June 30, 2005 -- -- 1,287,393 65,613 (5,173) (15,456) 44,984
Net loss for the year ended
June 30, 2006 -- -- -- -- -- (80,463) (80,463)
---------- ---------- ---------- ---------- ----------- ----------- -----------
Balance at June 30, 2006 -- $ -- 1,287,393 $ 65,613 $ (5,173) $ (95,919) $ (35,479)
========== ========== ========== ========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-5
BIRCH BRANCH, INC.
------------------
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Period from July 1, 2002
(date of commencement of development stage)
through June 30, 2006
For the period
from July 1,
2002 (date of
commencement
of development
Year Ended stage) through
June 30, June 30,
2006 2005 2006
---- ---- ----
Cash Flows from Operating Activities:
Net (Loss) $ (80,463) $ (12,988) $ (95,919)
Adjustment to reconcile net (loss) to
net cash provided by operating activities:
Depreciation 8,922 -- 8,922
Increase in accounts payable and
accrued expenses 2,275 12,988 15,307
-------------- -------------- --------------
Net Cash (Used in) Operating Activities (69,266) -- (71,690)
-------------- -------------- --------------
Cash Flows from Investing Activities -- -- --
-------------- -------------- --------------
Cash Flows from Financing Activities:
Additional paid-in capital -- -- 2,424
Advances from related party 69,266 -- 69,266
-------------- -------------- --------------
Net Cash Provided by Financing Activities 69,266 -- 71,690
-------------- -------------- --------------
Increase in Cash -- -- --
Cash, Beginning of Period 2,980 2,980 2,980
-------------- -------------- --------------
Cash, End of Period $ 2,980 $ 2,980 $ 2,980
============== ============== ==============
Interest Paid $ -- $ -- $ --
============== ============== ==============
Income Taxes Paid $ -- $ -- $ --
============== ============== ==============
Supplementary Schedule of Non-cash Transactions:
Construction in progress financed
by advances payable from related party
including accrued interest $ 21,273 $ 163,506 $ 398,517
============== ============== ==============
The accompanying notes are an integral part of the financial statements.
F-6
BIRCH BRANCH, INC.
------------------
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 and 2005
(1) Organization and Summary of Accounting Policies
-----------------------------------------------
This summary of significant accounting policies of Birch Branch, Inc. (Company)
is presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management
who is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles in the United
States of America and have been consistently applied in the preparation of the
financial statements.
Organization
The Company was organized on September 28, 1989 under the laws of the
state of Colorado. Until November 12, 2002, the Company was a wholly
owned subsidiary of Pride Holdings, Inc. Pride Holdings is a
wholly-owned subsidiary of Pride, Inc. (PRIDE). Pride, Inc. was a
wholly-owned subsidiary of Prime Rate Income & Dividend Enterprises,
Inc. (PIDV). On November 12, 2002, the directors of PIDV approved,
subject to the effectiveness of a registration with the Securities and
Exchange Commission, the spin-off of PRIDE to the PIDV shareholders of
record on November 26, 2002 on a pro rata basis, exclusive of shares
issued to U.S. Medical Systems, Inc. (USMS) shareholders effective
November 12, 2002. PIDV entered into a share exchange agreement with
USMS whereby USMS became a wholly-owned subsidiary of PIDV. This
business combination completed in November, 2002, was accounted for as
a reverse acquisition of PIDV since the former controlling shareholders
of USMS controlled PIDV after the transaction. Since USMS's business is
not related to the real estate and mortgage investment business of
PRIDE, the PIDV directors decided it was in the best interest of PIDV
and PRIDE and PIDV's shareholders to spin-off PRIDE. The conditions of
the business combination agreement with USMS stipulate that PRIDE would
be spun-off to PIDV shareholders. The shares of PRIDE are being held by
Michael L. Schumacher, President, for the benefit of PIDV shareholders,
in escrow with instructions to distribute the PRIDE shares once the
PRIDE Form 10-SB is effective with the Securities and Exchange
Commission. Management of PRIDE intends to continue operations of PRIDE
in the same manner as prior to the spin-off and does not anticipate any
additional corporate transactions which might impact the continuing
interest of the shareholders.
Simultaneous with the spin-off of Pride, Inc., the directors of Pride
and Pride Holdings, Inc. determined that Birch Branch should also be
distributed in the same manner to the same qualified PIDV shareholders.
Birch Branch is the owner of five residential lots comprising a total
of eight acres in Nebraska. Since Birch Branch desired to develop this
property and needed additional capital to fund this development, it was
determined that it was in the best interest of Pride's shareholders to
spin-off Birch Branch to the same PIDV qualified shareholders.
Description of Business
Birch Branch is principally in the real estate investment business.
Birch Branch owns real estate in Nebraska. At November 12, 2002, Birch
Branch had tentative plans to build a replica of a historic artist's
studio (Studio) on one of the Nebraska lots, but had not commenced
construction
F-7
at that time. The tentative plans called for using the Studio as a bed
and breakfast type rental facility. Construction began on the Studio in
2003 and was 100% complete on September 7, 2005. Since there are five
lots included in this property, the remaining four lots are being held
as investments for potential future development or sale.
Development Stage Enterprise
Based upon the Company's business plan, it is a development stage
enterprise since planned principal operations have not yet commenced.
Accordingly, the Company presents its financial statements in
conformity with the accounting principles generally accepted in the
United States of America that apply in establishing operating
enterprises. As a development stage enterprise, the Company discloses
the deficit accumulated during the development stage and the cumulative
statements of operations and cash flows from commencement of
development stage to the current balance sheet date. The development
stage began when the Company commenced planning for the construction of
the Studio, July 1, 2002.
Per Share Information
Per share information is computed by dividing the net income or loss by
the weighted average number of shares outstanding during the period.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
Risks and Uncertainties
The Company is subject to substantial business risks and uncertainties
inherent in starting a new business. There is no assurance that the
company will be able to generate sufficient revenues or obtain
sufficient funds necessary for launching a new business venture.
Revenue Recognition
The Company had no revenue during the two years ended June 30, 2006.
Anticipated future operating revenue will represent daily room rentals
and revenues from food and other services. Such revenues will be
recorded as the rooms are rented on a straight-line basis or the
services are performed.
Cash and Cash Equivalents
The Company considers cash and cash equivalents to consist of cash on
hand and demand deposits in banks with an initial maturity of 90 days
or less.
F-8
Property and Furnishings
Property and furnishings are carried principally at cost. Upon receipt
of the certificate of occupancy on September 30, 2005, the Company
began depreciating the property and furnishings on the straight-line
method over their respective estimated useful lives. Estimated useful
lives generally range from 10 to 40 years for buildings and five to ten
years for furnishings.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, including property,
construction in progress, and equipment, for impairment when events or
changes in circumstances indicate that the carrying value of an asset
may not be recoverable. The Company evaluates, at each balance sheet
date, whether events and circumstances have occurred which indicate
possible impairment. As of June 30, 2006, the Company does not consider
any of its long-lived assets to be impaired.
Fair Value of Financial Instruments
The Company, as required, discloses fair value information about
financial instruments when it is practicable to estimate that value.
The carrying value of the Company's cash, cash equivalents, and
accounts payable approximate their estimated fair values due to their
short-term maturities.
Recent Accounting Pronouncements
There were various accounting standards and interpretations issued
during 2006 and 2005, none of which are expected to have a material
impact on the Company's consolidated financial position, operations, or
cash flows.
Income Taxes
The Company records deferred tax assets and liabilities for temporary
differences between the tax bases of assets and liabilities and the
amounts at which they are carried in the financial statements, the
effect of net operating losses, based upon the enacted tax rates in
effect for the year in which the differences are expected to reverse. A
valuation allowance is established when necessary to reduce deferred
tax assets to the amount expected to be realized.
Other
The Company has selected June 30 as its fiscal year end.
The Company has paid no dividends during the years ended June 30, 2006
and 2005.
No advertising expense has been incurred.
The Company has not entered into any leases.
All of the Company's assets are located in the United States.
F-9
(2) Basis of Presentation - Going Concern
-------------------------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America, which
contemplates continuation of the Company as a going concern. However, the
Company has no operating income to date, has working capital and stockholders'
deficits, and has recurring losses from operations. These matters raise
substantial doubt about the Company's ability to continue as a going concern. In
view of these matters, realization of certain of the assets in the accompanying
balance sheet is dependent upon the Company's ability to meet its financing
requirements, raise additional capital, and the success of its future
operations. The Company has been economically dependant on its President to fund
operations. In order to meet its liquidity needs during the next fiscal year,
the Company anticipates receiving additional financing from its President. There
is no assurance that the Company's President will fund the necessary operating
capital, or that revenues will commence sufficient to assure the eventual
profitability of the Company. Management believes that this plan provides an
opportunity for the Company to continue as a going concern.
(3) Property and Furnishings
------------------------
Property and furnishings at June 30, 2006 are summarized as follows:
Building $ 398,338
Land 55,595
Furnishings 9,101
------------
463,034
Less accumulated depreciation (8,922)
------------
$ 454,112
(4) Common and Preferred Stock
--------------------------
The Company's articles of incorporation authorize the issuance of 500,000,000
shares of no par common stock and 50,000,000 shares of no par preferred stock.
At June 30, 2006, there were 1,287,393 shares of common stock outstanding. At
June 30, 2006, there were no preferred shares outstanding. Terms and preferences
of future issuances of preferred stock, if any, are at the discretion of the
Company's Board of Directors.
The Company's outstanding common stock was distributed to qualified spin-off
shareholders upon the effectiveness of a registration statement with the
Securities and Exchange Commission. During March 2003, the Company's outstanding
common stock was reduced to 1,287,393 shares to match the number of shares to be
distributed to eligible shareholders.
(5) Income Taxes
------------
Deferred income taxes arise from temporary timing differences in the recognition
of income and expenses for financial reporting and tax purposes. The Company's
deferred tax assets consist entirely of the benefit from net operating loss
(NOL) carryforwards. The net operating loss carry forwards expire in various
years through 2026. The Company's deferred tax assets are offset by a valuation
allowance due to the uncertainty of the realization of the net operating loss
carryforwards. Net operating loss carryforwards may be further limited by a
change in company ownership and other provisions of the tax laws.
The Company's deferred tax assets, valuation allowance, and change in valuation
allowance are as follows:
F-10
Estimated Change in
Estimated NOL NOL Tax Benefit Valuation Valuation Net Tax
Period Ending Carry-forward Expires from NOL Allowance Allowance Benefit
- ------------- ------------- ------- ----------- --------- --------- -------
June 30, 2005 20,629 2025 3,816 (3,816) (2,402) --
June 30, 2006 101,092 2026 18,702 (18,702) (14,886) --
Income taxes at the statutory rate are reconciled to the Company's actual income
taxes as follows:
Income tax benefit at statutory rate resulting from
net operating loss carryforward (15.0%)
State tax (benefit) net of Federal benefit (3.5%)
Deferred income tax valuation allowance 18.5%
------------
Actual tax rate 0%
============
(6) Related Party Transactions
--------------------------
The Company's President advanced funds plus accrued interest to the Company for
the construction in progress and operating expenses. The construction was
completed in September 2005, and the Company's President and the Company
converted $381,134 of the advances and $48,866 of the accrued interest to a
mortgage note payable totaling $430,000, collateralized by the land and building
owned by the Company. An additional $34,069 in advances is uncollateralized,
bears no interest and has no maturity date.
The mortgage loan bears simple interest at 8% per annum with the total note and
accrued interest due September 30, 2010. The Annual Percentage Rate (APR) is
approximately 6.85%. Construction note interest of $48,866 was capitalized
during the construction period. Immaterial real estate taxes on this property,
subject to the construction in progress, were expensed as incurred.
There were 1,325,000 shares of common stock outstanding at July 1, 2002. To
facilitate the one for one distribution, 37,607 shares were cancelled for no
consideration.
The Company uses the offices of its President for its minimal office facility
needs for no consideration. No provision for these costs has been provided since
it has been determined that they are immaterial.
F-11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
ITEM 8A. CONTROLS AND PROCEDURES.
The Company's management, including the president, chief financial officer and
vice president, has evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined by Rules 13a-15 (e) of the Securities
Exchange Act of 1934) as of June 30, 2006. Their evaluation concluded that the
disclosure controls and procedures are effective as of June 30, 2006 to provide
reasonable assurance that material information relating to the Company is made
known to management including the president, chief financial officer and vice
president.
There were no significant changes in the Company's internal control over
financial reporting that occurred during the Company's last fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
Company's directors and executive officers:
NAME AGE POSITION
Michael Schumacher 57 President, Treasurer, Chief Financial
Officer and Director
George Powell 80 Vice President, Secretary and Director
MICHAEL SCHUMACHER. Michael Schumacher has been President, Treasurer, Chief
Financial Officer and a Director of the Company since acquisition by PIDV. Mr.
Schumacher was President and Chairman of the Board of PIDV, a public real estate
company, until December 2002. Mr. Schumacher was from October 1996 until
September 1999, a director, president and treasurer of Rocky Mountain Power
Company, a public real estate company. Mr. Schumacher has also been a director,
president and treasurer of Pride, Inc., a real estate company, since inception,
August 22, 2001. Mr. Schumacher was a director and officer of Sun Vacation
Properties Corporation (formerly Commonwealth Equities, Inc.), an inactive
public company, from November 2000 until February 2001, and a director and
officer of Vacation Ownership Marketing, Inc., an inactive public company, from
May 2000 until August 2001. Since January 2003, Mr. Schumacher has been
Vice-President and a Director of Federal Mortgage Corporation of Puerto Rico
(Federal), which was an inactive public company until March 31, 2005. Effective
March 31, 2005, Federal acquired 100% ownership of Pride Lending, Inc. from a
related party. Pride Lending, Inc. principally invests in mortgage loans. He was
also, from June 2003 to May 31, 2005, a Vice-President and Director of National
Superstars, Inc, an inactive public company until May 31, 2005. Effective May
31, 2005, National Superstars, Inc. completed a business combination with MSO
Holdings, Inc. resulting in a change in control of National Superstars, Inc.
From January 2005 to June 2006, he was President, Treasurer, Chief Financial
Officer and a Director of Marwich II, Ltd., an inactive public company.
Effective June 2006, Marwich II, Ltd. completed a business combination,
resulting in a change in control of Marwich II, Ltd. Also since January 2005, he
has been President, Treasurer, CFO and a director of Springfield Financial,
Inc., an inactive public company. Since March 2005, he has been Secretary,
Treasurer and a director of American Telstar, Inc., an inactive public company.
Mr. Schumacher is President, Chairman of the Board, and controlling shareholder
of Pride, Inc. and its wholly-owned subsidiaries, including Pride Equities, Inc.
Pride, Inc. and its subsidiaries are primarily in the real estate investment
business. Mr. Schumacher is and has been for more than 20 years, a Director and
President of Schumacher & Associates, Inc., a certified public accounting firm
located in Denver, Colorado that provides audit services, principally to public
companies on a national basis throughout the U.S.A. Mr. Schumacher is a
Certified Public Accountant, Certified Management Accountant and an Accredited
Financial Planning Specialist. Mr. Schumacher has a Bachelor of the Sciences
Degree in Business Administration with a major in accounting from the University
of Nebraska at Kearney and a Masters in Business Administration from the
University of Colorado.
GEORGE A. POWELL. George A. Powell has been Secretary, Vice-President and a
Director of the Company since acquisition by PIDV. Mr. Powell has been a
director, secretary and vice-president of Pride, Inc., a real estate company,
since August 22, 2001. Mr. Powell was from October 1996 until September 1999, a
director, secretary and vice-president of Rocky Mountain Power Co., a public
real estate company. Mr. Powell was previously, until November 12, 2002, a
director, secretary and vice-president of Prime Rate Income & Dividend
Enterprises, Inc. (PIDV), a public real estate company. Since December 2004, he
has been Vice-President and Secretary of Springfield Financial, Inc., an
inactive public company. From January 2005 to June 2006, he was secretary and a
director of Marwich II, Ltd., an inactive public company. Effective June 2006,
Marwich II, Ltd. completed a business combination, resulting in a change in
control of Marwich II, Ltd. Mr. Powell was previously a director and president
of Continental Investors Life, Inc., a public reporting insurance company. Since
Mr. Powell's retirement from the insurance business in 1988, he has been
self-employed as a business consultant.
7
SIGNIFICANT EMPLOYEES
We have no employees other than Michael L. Schumacher and George A. Powell, and
they devote approximately 5% of their time to our business.
ITEM 10. DIRECTOR AND EXECUTIVE COMPENSATION.
Presently, none of the Company's current officers or directors received any
compensation for their respective services rendered unto the Company, nor have
they received such compensation in the past 5 years. They all have agreed to act
without compensation until authorized by the Board of Directors, which is not
expected to occur until the Company has generated revenues from operations after
consummation of a merger or acquisition. The Company currently has no funds
available to pay officers or directors. Further, none of the officers or
directors are accruing any compensation pursuant to any agreement with the
Company.
It is possible that, after the Company successfully consummates a merger or
acquisition with an unaffiliated entity, that entity may desire to employ or
retain one or a number of members of the Company's management for the purposes
of providing services to the surviving entity, or otherwise provide other
compensation to such persons. However, the Company has adopted a policy whereby
the offer of any post-transaction remuneration to members of management will not
be a consideration in the Company's decision to undertake any proposed
transaction. Each member of management has agreed to disclose to the Company's
Board of Directors any discussions concerning possible compensation to be paid
to them by any entity that proposes to undertake a transaction with the Company
and further, to abstain from voting on such transaction. Therefore, as a
practical matter, if each member of the Company's Board of Directors is offered
compensation in any form from any prospective merger or acquisition candidate,
the proposed transaction will not be approved by the Company's Board of
Directors as a result of the inability of the Board to affirmatively approve
such a transaction.
It is possible that persons associated with management may refer a prospective
merger or acquisition candidate to the Company. In the event the Company
consummates a transaction with any entity referred by associates of management,
it is possible that such an associate will be compensated for their referral in
the form of a finder's fee. It is anticipated that this fee will be either in
the form of restricted common stock issued by the Company as part of the terms
of the proposed transaction, or will be in the form of cash consideration.
However, if such compensation is in the form of cash, such payment will be
tendered by the acquisition or merger candidate, because the Company has
insufficient cash available. The amount of such finder's fee cannot be
determined as of the date of this registration statement, but is expected to be
comparable to consideration normally paid in like transactions. No member of
management of the Company will receive any finder's fee, either directly or
indirectly, as a result of their respective efforts to implement the Company's
business plan outlined herein.
No retirement, pension, profit sharing, stock option or insurance programs or
other similar programs have been adopted by the Company for the benefit of its
employees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of September 1, 2006
regarding the beneficial ownership of the Company's Common Stock by (i) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the Company's Common Stock, (ii) by each Director and executive officer of the
Company and (iii) by all executive officer and Directors of the Company as a
group. Each of the persons named in the table has sole voting and investment
power with respect to Common Stock beneficially owned.
8
NAME AND ADDRESS NUMBER OF PERCENTAGE
SHARES OWNED OF SHARES
OR CONTROLLED OWNED
Michael Schumacher (1) 693,054 53.8%
President, Treasurer, Chief
Financial Officer & Director
2525 Fifteenth Street Suite 3H
Denver, Colorado 80211
Harold L. Morris (2) 364,059 28.3%
4 Harbor Pointe
Corona del Mar, CA 92625
George A Powell 670 -0-
Vice President, Secretary &
Director
7209 S. Garland Court
Littleton, CO 80128
All Officers and Directors as a Group 693,724 53.9%
(2 persons)
(1) Michael L. Schumacher owns 7,264 shares individually. In addition, Mr.
Schumacher, President and Director of Birch Branch is the sole beneficiary of
the Schumacher & Associates, Inc. Money Purchase Plan & Trust (Schumacher Plan),
which owns 681,368 shares of Birch Branch. Shares owned by the Schumacher Plan
are considered to be beneficially owned by Mr. Schumacher. Mr. Schumacher's
beneficial ownership also includes the following shares owned by certain
relatives of Mr. Schumacher:
Number
Owner Relationship of Shares
- ----- ------------ ---------
Jada Schumacher Daughter 1,024
Spencer Schumacher Son 1,024
Quinn Schumacher Son 1,204
Ralph and Alma Schumacher Parents 366
Roberta and Timothy Weiss Sister and her spouse 328
Constance and Gary Novak Sister and her spouse 328
Cynthia Rubinson Sister 328
-----
Total 4,422
-----
(2) Harold L. Morris individually owns 132,680 shares of Birch Branch. In
addition, Harold L. Morris and his spouse, Connie Morris are the sole
beneficiaries of the Harold L. Morris Profit Sharing Plan, which owns 168,358
shares of Birch Branch. Applegates Landing I, a Harold L. Morris family
partnership, owns 48,598 shares. Mr. Morris' beneficial ownership also includes
the following shares owned by certain relatives:
Number
Owner Relationship of Shares
- ----- ------------ ---------
Debra L. Morris Daughter 9,592
Gary A. Morris Brother 4,794
------
Total 14,386
------
Under the SEC Rules, we include in the number of shares owned by each person the
number of shares issuable under outstanding options if those options are
exercisable within 60 days of this filing. We calculate the ownership of each
person who owns exercisable options by adding (i) the number of exercisable
options for that person only to (ii) the number of shares outstanding and
dividing that result into (iii) the total number of shares and exercisable
options owned by that person.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Schumacher Plan holds 681,368 shares of our issued and outstanding stock,
representing 52.9% of our issued and outstanding common stock. Michael L.
Schumacher is the sole beneficiary of the Schumacher Plan. The Schumacher Plan
may be deemed a "parent" as defined under the rules and regulations promulgated
under the Securities Act.
9
The Company's President has advanced funds plus accrued interest at 8% per annum
to the Company for the construction in progress and operating expenses. The
construction was completed in September 2005, and the Company's President and
the Company converted $381,134 of the advances and $48,866 of the accrued
interest to a mortgage note payable totaling $430,000, collateralized by the
land and building owned by the Company. An additional $34,069 in advances is
uncollateralized, bears no interest and has no maturity date.
The mortgage loan bears simple interest at 8% per annum with the total note and
accrued interest due September 30, 2010. The Annual Percentage Rate (APR) is
approximately 6.85%. Construction note interest of $48,866 was capitalized
during the construction period. Immaterial real estate taxes on this property,
subject to the construction in progress, were expensed as incurred.
There were 1,325,000 shares of common stock outstanding at July 1, 2002. To
facilitate the one for one distribution, 37,607 shares were cancelled for no
consideration.
We use the mailing address of the offices of its President for its mailing
address. No expense provision for this use has been provided since it has been
determined that it is immaterial.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements are contained in Item 7.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.
(c) Exhibits.
* 3.1 Articles of Incorporation
* 3.2 Bylaws of the Company
* These documents are rendered as previously filed and incorporated by reference
to the Company's previous filings with the Securities and Exchange Commission.
31.1 Certification of Chief Executive Filed herewith
Officer and Chief Financial electronically
Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Vice President Filed herewith
pursuant to Section 302 of the electronically
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Filed herewith
Officer and Chief Financial electronically
Officer pursuant to 18 U.S.C.
Section 1350
32.2 Certification of Vice President Filed herewith
pursuant to 18 U.S.C. electronically
Section 1350
10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Small business issuer has duly caused this Annual
Report of Form 10-KSB to be signed on its behalf by the undersigned, thereunto
duly authorized.
Birch Branch, Inc.
Date: September 1, 2006
By:
/s/ Michael Schumacher
- -------------------------------------------
Michael Schumacher
President, Treasurer, Chief Financial
Officer and Director
By:
/s/ George A. Powell
- -------------------------------------------
George A. Powell
Vice-President, Secretary and Director
11
EXHIBIT 31.1
CERTIFICATIONS
I, Michael L. Schumacher, certify that:
1. I have reviewed this report on Form 10-KSB of Birch Branch, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)
for the small business issuer and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements, for external purposes in accordance with generally
accepted accounting principles;
c) evaluated the effectiveness of the small business issuer 's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d) disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect,
the small business issuer's internal control over financial reporting;
and
5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
the small business issuer's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer 's
internal control over financial reporting.
Dated: September 1, 2006
/s/ Michael Schumacher
- ---------------------------------------------
Michael L. Schumacher
President, Treasurer, Chief Executive Officer
and Chief Financial Officer
EXHIBIT 31.2
CERTIFICATIONS
I, George A. Powell, certify that:
1. I have reviewed this report on Form 10-KSB of Birch Branch, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)
for the small business issuer and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements, for external purposes in accordance with generally
accepted accounting principles;
c) evaluated the effectiveness of the small business issuer 's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d) disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect,
the small business issuer's internal control over financial reporting;
and
5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
the small business issuer's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the small business issuer's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer 's internal
control over financial reporting.
Dated: September 1, 2006
/s/ George A. Powell
- --------------------------------------
George A. Powell
Vice President, Secretary and Director
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Birch Branch, Inc. (the "Company") on
Form 10-KSB for the fiscal year ended June 30, 2006, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Michael
L. Schumacher, Chief Executive Officer and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d),
as applicable, of the Securities and Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Michael Schumacher
- ---------------------------------------------
Michael L. Schumacher
President, Treasurer, Chief Executive Officer and Chief Financial Officer
September 1, 2006
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Birch Branch, Inc. (the "Company") on
Form 10-KSB for the fiscal year ended June 30, 2006, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, George
A. Powell, Vice President of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to
the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d),
as applicable, of the Securities and Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ George A. Powell
- ---------------------------------------
George A. Powell
Vice President, Secretary and Director
September 1, 2006