UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2008
or
[_] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Commission file number: 333-126654
BIRCH BRANCH, INC.
------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1124170
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(State of incorporation) (I.R.S. Employer
Identification Number)
2560 W. Main Street, Suite 200
Littleton, CO 80120
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(Address of principal executive offices)
(303) 794-9450
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(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the proceeding 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.
YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of November 7, 2008 the
Company had 1,708,123 shares of its no par value common stock issued and
outstanding.
Table of Contents
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets
September 30, 2008 (unaudited) and June 30, 2008 2
Condensed Statements of Operations Three
Months Ended September 30, 2008 and 2007 and
from July 1, 2002 (date of inception)
through September 30, 2008 (unaudited) 3
Condensed Statements of Cash Flows Three
Months Ended September 30, 2008 and 2007 and
from July 1, 2002 (date of inception)
through September 30, 2008 (unaudited) 4
Notes to Condensed Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis or Plan of Operation 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
Item 4T. Controls and Procedures 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits 9
Part I FINANCIAL INFORMATION
Item 1 - CONDENSED INTERIM FINANCIAL STATEMENTS
BIRCH BRANCH, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
September 30, June 30,
2008 2008
--------- ---------
(unaudited) (audited)
ASSETS
Current assets:
Cash $ 5,447 $ 5,916
Prepaid Expenses 395 395
--------- ---------
Total current assets 5,842 6,311
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Total assets $ 5,842 $ 6,311
========= =========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 768 $ --
Accrued expense 4,997 4,008
Note payables 62,500 55,000
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Total current liabilities 68,265 59,008
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SHAREHOLDERS' (DEFICIT) (Note 2)
Preferred stock, authorized 50,000,000 shares, no par value,
none issued or outstanding -- --
Common stock, authorized 500,000,000 shares, no par value,
1,708,123 issued and outstanding 65,613 65,613
Additional paid in capital 152,877 152,877
Deferred loan fee, net of amortization (3,312) (3,564)
Accumulated (deficit) (5,173) (5,173)
Accumulated (deficit) during development stage (272,428) (262,450)
--------- ---------
Total shareholders' (deficit) (62,423) (52,697)
--------- ---------
Total liabilities and shareholders' (deficit) $ 5,842 $ 6,311
========= =========
The accompanying notes are an integral part of these financial statements.
2
BIRCH BRANCH, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Period
July 1,
2002
(Date of
Commencement
For the For the of
Three Three Development
Months Months Stage)
Ended Ended to
September 30, September 30, September 30,
2008 2007 2008
----------- ----------- -----------
Revenues $ -- $ -- $ --
Operating expenses:
Accounting fees 3,650 5,030 38,900
Legal fees 368 -- 46,386
Shareholder expense 220 180 18,800
Other general and administrative expense 4,500 5,529 41,051
----------- ----------- -----------
Total operating expenses 8,738 10,739 145,137
----------- ----------- -----------
Net (loss) from operations (8,738) (10,739) (145,137)
----------- ----------- -----------
Other income (expense)
Other income -- -- 25,000
Amortized loan fee (expense) (252) (252) (1,687)
Interest (expense) (988) (890) (4,997)
----------- ----------- -----------
Total other income (expense) (1,240) (1,142) 18,316
----------- ----------- -----------
Net income (loss) from continuing operations (9,978) (11,881) (126,821)
----------- ----------- -----------
Discontinued operations:
(Loss) from discontinued operations
(including loss on disposal in
2006 of $52,017) -- -- (121,232)
----------- ----------- -----------
Net income (loss) $ (9,978) $ (11,881) $ (248,053)
=========== =========== ===========
Net income (loss) per common share $ (0.01) $ (0.01)
----------- -----------
Weighted average number of
common shares outstanding 1,708,123 1,708,123
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
BIRCH BRANCH, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Period
July 1,
2002
(Date of
Commencement
For the For the of
Three Three Development
Months Months Stage)
Ended Ended to
September 30, September 30, September 30,
2008 2007 2008
------------ ------------- -------------
Cash flows from operating activities:
Operating activities from continuing operations
Net (loss) $ (9,978) $ (11,881) $ (272,428)
Less: Net (loss) discontinued operations -- -- (121,232)
------------ ------------- -------------
Net (loss) from continuing operations (9,978) (11,881) (151,196)
Changes in assets and liabilities continuing operations:
Amortized loan fee 252 252 1,688
Prepaid expenses -- -- (395)
Accounts payable 768 5,232 9,126
Accrued expenses 989 890 4,997
------------ ------------- -------------
Net cash (used) in operating activities
by continuing operations (7,969) (5,507) (135,780)
------------ ------------- -------------
Cash flow from financing activities:
Additional paid-in capital -- -- 2,424
Advances from related party -- -- 85,936
Proceeds from shareholder loans 7,500 -- 62,500
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Net cash provided from financing activities 7,500 -- 150,860
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Net cash (used) in activities of continuing operations (469) (5,507) 15,080
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Cash flow from (used in):
Discontinued operations -- -- (12,613)
------------ ------------- -------------
Net cash (used in) discontinued operations -- -- (12,613)
------------ ------------- -------------
NET (DECREASE) IN CASH (469) (5,507) 2,467
CASH, BEGINNING OF THE PERIOD 5,916 6,802 2,980
------------ ------------- -------------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 5,447 $ 1,295 $ 5,447
============ ============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Construction in progress financed by advance payable
from related party including accrued interest $ -- $ -- $ 406,945
------------ ------------- -------------
Exchange of real estate for note payable and other
liabilities $ -- $ -- $ (549,183)
------------ ------------- -------------
SUPPLEMENTAL CASH FLOW
For the period ended September 30, 2008
Cash paid for interest $ -- $ -- $ --
------------ ------------- -------------
Cash paid for income taxes $ -- $ -- $ --
------------ ------------- -------------
The accompanying notes are an integral part of these financial statements.
4
BIRCH BRANCH, INC.
(A Development Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
- -------------------------
BIRCH BRANCH, INC. ("the Company") was incorporated in State of Colorado on
September 28, 1989. The Company was formed to pursue real estate development in
Nebraska, and has completed construction on a Studio/private museum/bed and
breakfast rental facility. There were four additional lots included in this
development, which were being held as investments for potential future
development or sale.
In December, 2006 all of the property described above was sold pursuant to
an Asset Purchase Agreement, dated December 6, 2006, between the Company and the
Company's then President ("Purchaser"). The consideration received by the
Company consisted of 4,167 shares of Company common stock that was owned by the
Purchaser together with the cancellation of a note due to Purchaser with a
principal amount due of $430,000, secured by the Company's assets, all related
accrued interest and the release of the Company from all other liabilities due
to Purchaser.
The Company currently has no operations and since July 1, 2002 is
considered a development stage enterprise. Effective December 6, 2006 the
Company intends to evaluate structure and complete a merger with, or acquisition
of, prospects consisting of private companies, partnerships or sole
proprietorships.
Summary of Accounting Basis of Presentation
- -------------------------------------------
The condensed interim financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures made are adequate to make the information presented not misleading.
The condensed interim financial statements and notes thereto should be read in
conjunction with the financial statements and the notes thereto, included in the
Company's Annual Report to the Securities and Exchange Commission for the fiscal
year ended June 30, 2008, filed on Form 10-KSB on September 26, 2008.
In the opinion of management, all adjustments necessary to summarize fairly
the financial position and results of operations for such periods in accordance
with accounting principles generally accepted in the United States of America.
All adjustments are of a normal recurring nature. The results of operations for
the most recent interim period are not necessarily indicative of the results to
be expected for the full year.
Certain prior period amounts have been reclassified to conform to current
period presentation.
Cash
- ----
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents. The Company
continually monitors its positions with, and the credit quality of, the
financial institutions with which it invests.
Development Stage Company
- -------------------------
The Company is in the development stage and has not yet realized any
revenues from its planned operations. The Company's business plan is to evaluate
structure and complete a merger with, or acquisition of, prospects consisting of
private companies, partnerships or sole proprietorships.
Based upon the Company's business plan, it is a development stage
enterprise. 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 inception to the current balance sheet date.
5
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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. Management believes that the estimates
utilized in the preparation of financial statements are prudent and reasonable.
Actual results could differ from these estimates.
Going Concern
- -------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principals in the United States of America, which
contemplates continuation of the Company as a going concern. However, the
Company has negative working capital, a stockholders' deficit and no active
business operations, which raises substantial doubt about its ability to
continue as a going concern.
In view of these matters, the Company will need to continue to be dependent
on its officer and directors in order to meet its liquidity needs during the
next fiscal year. There is no assurance that the Company's officer and directors
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
Certain prior period amounts have been reclassified to conform to current
period presentation.
NOTE 2 - SHAREHOLDERS'S (DEFICIT)
On January 23, 2007, the Company entered into a Revolving Credit Agreement
(the "Revolving Credit Agreement") with Mathis Family Partners, Ltd. ("Mathis"),
Lazzeri Family Trust ("Lazzeri") and Timothy Brasel ("Brasel"), collectively,
they are referred to herein as the "the Lender", to borrow up to $250,000,
evidenced by an unsecured Revolving Loan Note (the "Revolving Loan Note."). In
connection with and as a loan fee for the foregoing unsecured credit facility,
Mathis, Lazzeri and Brasel each received 320,754, 320,754 and 641,506
unregistered shares, respectively, of the Company's common stock. The Company
recorded a Deferred Loan fee of $5,000 that is amortized over the 5 year term of
the Revolving Credit Agreement.
NOTE 3 - DUE TO SHAREHOLDERS
On January 23, 2007, the Company entered into a Revolving Credit Agreement
(the "Revolving Credit Agreement") with Mathis Family Partners, Ltd. ("Mathis"),
Lazzeri Family Trust ("Lazzeri") and Timothy Brasel ("Brasel"), collectively,
they are referred to herein as the "the Lender", to borrow up to $250,000,
evidenced by an unsecured Revolving Loan Note (the "Revolving Loan Note.") All
amounts borrowed pursuant to the Revolving Credit Agreement accrue interest at
7% per annum and all principal and accrued but unpaid interest is payable in
full on demand of the Lender. The Revolving Credit Agreement does not obligate
the Lender to make any loans but any loans made by the Lender to the Company, up
to an outstanding principal balance of $250,000, will be subject to the terms of
the Revolving Credit Agreement and the Revolving Loan Note. In connection with
and as a loan fee for the foregoing credit facility, Mathis, Lazzeri and Brasel
each received 320,754, 320,754 and 641,506 unregistered shares, respectively, of
the Company's common stock. The Company recorded a Deferred Loan fee of $5,000
that is amortized over the 5 year term of the Revolving Credit Agreement. As of
the year ended September 30, 2008 the principal balance on the note was $62,500
with available credit of $187,500.
6
Item 2 - MANAGEMENT'S DISCUSSION AND ANAYLSIS OR PLAN OF OPERATION
Cautionary Note Regarding Forward-Looking Statements
Statements contained in this report include "forward-looking statements"
within the meaning of such term in Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
involve known and unknown risks, uncertainties and other factors, which could
cause actual financial or operating results, performances or achievements
expressed or implied by such forward-looking statements not to occur or be
realized. Such forward-looking statements generally are based on our best
estimates of future results, performances or achievements, predicated upon
current conditions and the most recent results of the companies involved and
their respective industries. Forward-looking statements may be identified by the
use of forward-looking terminology such as "may," "can," "will," "could,"
"should," "project," "expect," "plan," "predict," "believe," "estimate," "aim,"
"anticipate," "intend," "continue," "potential," "opportunity" or similar terms,
variations of those terms or the negative of those terms or other variations of
those terms or comparable words or expressions.
Readers are urged to carefully review and consider the various disclosures
made by us in this Quarterly Report on Form 10-Q and our Form 10-KSB for the
fiscal year ended June 30, 2008, and our other filings with the U.S. Securities
and Exchange Commission. These reports and filings attempt to advise interested
parties of the risks and factors that may affect our business, financial
condition and results of operations and prospects. The forward-looking
statements made in this Form 10-Q speak only as of the date hereof and we
disclaim any obligation to provide updates, revisions or amendments to any
forward-looking statements to reflect changes in our expectations or future
events.
Results of Operations
For the three months ended September 30, 2008 compared to the three months ended
September 30, 2007
Revenue. No operating revenues were generated during the three months
ended September 30, 2008 and September 30, 2007.
Operating Expenses. Total operating expenses were $8,738 and $10,739,
respectively for the quarter ended September 30, 2008 and for the quarter ended
September 30, 2007. Operating expenses consist of professional, management and
filing fees.
Liquidity and Capital Resources
As of September 30, 2008, the Company had $5,447in cash or cash equivalents
and a working capital deficit of $62,423.
On January 23, 2007, the Company entered into a Revolving Credit Agreement
with the Company's major shareholders to borrow up to $250,000, evidenced by an
unsecured Revolving Loan Note. All amounts borrowed pursuant to the Revolving
Credit Agreement accrue interest at 7% per annum and all principal and accrued
but unpaid interest is payable in full on demand. As of September 30, 2008,
$62,500 was borrowed under this agreement with $4,997 of interest accrued.
While future operating activities are expected to be funded by the
Revolving Credit Agreement the Company's request for funds under the Revolving
Credit Agreement are not guaranteed and in the event that such future operating
activities are not funded pursuant to the Revolving Credit Agreement, additional
sources of funding would be required to continue operations. There is no
assurance that the Company could raise working capital or if any capital would
be available at all.
Off-Balance Sheet Items
We have no off-balance sheet items as of September 30, 2008.
7
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A smaller reporting company is not required to provide the information required
by this Item.
Item 4T - CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) that are designed to ensure that information
that would be required to be disclosed in Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including the President and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
As of September 30, 2008, our management, including the President, evaluated
the overall effectiveness of the Company's responsibility and assessment of
internal controls and procedures. Based on such evaluation, our management
concluded that these internal controls and procedures were effective as of the
end of the period covered by this quarterly report.
There have not been any changes in our internal controls over financial
reporting during the quarter ended September 30, 2008 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
8
Part II OTHER INFORMATION
Item 1. - LEGAL PROCEEDINGS
None.
Item 2. - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. - DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. - OTHER INFORMATION
None
Item 6. - EXHIBITS
Exhibit No Description
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31.1 Certification of Company's Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2 Certification of Company's Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1 Certification of Company's Chief Executive Officer
pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Company's Chief Financial Officer
pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
9
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, on November 7, 2008.
BIRCH BRANCH, INC.
By /s/ Earnest Mathis, Jr.
-----------------------
Earnest Mathis, Jr.
Chief Executive Officer,
By /s/ Robert Lazzeri
-----------------------
Robert Lazzeri
Chief Financial Officer
(Principal Accounting Officer),
10