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 March 31, 2009
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 registrant as specified in its charter)
Colorado 84-1124170
- ------------------------ ---------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
2560 W. Main Street, Suite 200
Littleton, CO 80120
-------------------
(Address of principal executive offices)
(303) 794-9450
--------------
(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 May 15, 2009 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 March 31, 2009 (unaudited) and
June 30, 2008 2
Condensed Statements of Operations Three Months Ended March
31, 2009 and 2008 and Nine Months Ended March 31, 2009 and
2008 and from July 1, 2002 (date of inception) through March
31, 2009 (unaudited) 3
Condensed Statements of Cash Flows Nine Months Ended March
31, 2009 and 2008 and from July 1, 2002 (date of inception)
through March 31, 2009 (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 9
Item 4T. Controls and Procedures 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits 10
Part I FINANCIAL INFORMATION
Item 1 - CONDENSED INTERIM FINANCIAL STATEMENTS
BIRCH BRANCH, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
March 31, June 30,
2009 2008
----------- -----------
(unaudited) (audited)
ASSETS
Current assets:
Cash $ 192 $ 5,916
Prepaid Expenses -- 395
----------- -----------
Total current assets 192 6,311
----------- -----------
Total assets $ 192 $ 6,311
=========== ===========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 3,161 $ --
Accrued expense - related party 7,404 4,008
Note payables - related party 70,000 55,000
----------- -----------
Total current liabilities 80,565 59,008
----------- -----------
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 (2,814) (3,564)
Accumulated (deficit) (5,173) (5,173)
Accumulated (deficit) during development stage (290,876) (262,450)
----------- -----------
Total shareholders' (deficit) (80,373) (52,697)
----------- -----------
Total liabilities and shareholders' (deficit) $ 192 $ 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
For the For the For the For the Commencement
Three Three Nine Nine of
Months Months Months Months Development
Ended Ended Ended Ended Stage) to
March 31, March 31, March 31, March 31, March 31,
2009 2008 2009 2008 2009
----------- ----------- ----------- ----------- -----------
Revenues $ -- $ -- $ -- $ -- $ --
Operating expenses:
Accounting fees 1,800 1,800 7,250 9,130 42,500
Legal fees 245 7,935 612 9,567 46,631
Shareholder expense 627 561 2,189 2,294 20,768
Other general and administrative expense 4,600 4,500 14,229 14,538 50,781
----------- ----------- ----------- ----------- -----------
Total operating expenses 7,272 14,796 24,280 35,529 160,680
----------- ----------- ----------- ----------- -----------
Net (loss) from operations (7,272) (14,796) (24,280) (35,529) (160,680)
----------- ----------- ----------- ----------- -----------
Other income (expense)
Other income -- 25,000 -- 25,000 25,000
Amortized loan fee (expense) (247) (249) (751) (753) (2,186)
Interest (expense) (1,208) (1,004) (3,395) (2,502) (7,403)
----------- ----------- ----------- ----------- -----------
Total other income (expense) (1,455) 23,747 (4,146) 21,745 15,411
----------- ----------- ----------- ----------- -----------
Net income (loss) from continuing operations (8,727) 8,951 (28,426) (13,784) (145,269)
----------- ----------- ----------- ----------- -----------
Discontinued operations:
(Loss) from discontinued operations
(including loss on disposal in
2006 of $52,017) -- -- -- -- (121,232)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (8,727) $ 8,951 $ (28,426) $ (13,784) $ (266,501)
=========== =========== =========== =========== ===========
Net income (loss) per common share $ (0.01) $ 0.01 $ (0.02) $ (0.01)
----------- ----------- ----------- -----------
Weighted average number of
common shares outstanding 1,708,123 1,708,123 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
For the For the Commencement
Nine Nine of
Months Months Development
Ended Ended Stage) to
March 31, March 31, March 31,
2009 2008 2009
--------- --------- ---------
Cash flows from operating activities:
Operating activities from continuing operations
Net (loss) $ (28,426) $ (13,784) $(290,876)
Less: Net (loss) discontinued operations -- -- (121,232)
--------- --------- ---------
Net (loss) from continuing operations (28,426) (13,784) (169,644)
Changes in assets and liabilities continuing operations:
Amortized loan fee 750 753 2,186
Prepaid expenses 395 -- --
Accounts payable 3,161 7,809 11,519
Accrued expenses 3,396 2,502 7,404
--------- --------- ---------
Net cash (used in) operating activities
by continuing operations (20,724) (2,720) (148,535)
--------- --------- ---------
Cash flow from financing activities:
Additional paid-in capital -- -- 2,424
Advances from related party -- -- 85,936
Proceeds from shareholder loans 15,000 20,000 70,000
--------- --------- ---------
Net cash provided by financing activities 15,000 20,000 158,360
--------- --------- ---------
Net cash (used in) provided by activities
of continuing operations (5,724) 17,280 9,825
--------- --------- ---------
Cash flow from (used in):
Discontinued operations -- -- (12,613)
--------- --------- ---------
Net cash (used in) discontinued operations -- -- (12,613)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH (5,724) 17,280 (2,788)
CASH, BEGINNING OF THE PERIOD 5,916 6,802 2,980
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 192 $ 24,082 $ 192
========= ========= =========
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 March 31, 2009
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 29, 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
March 31, 2009 the principal balance on the note was $70,000 with available
credit of $180,000.
NOTE 4 - RELATED PARTY TRANSACTION
The Company utilizes the offices of a company controlled by Earnest Mathis,
Jr., Birch Branch's Chief Executive Officer and Director. The Company pays
$1,500 per month for reimbursement for out-of-pocket office expenses, such as
telephone, postage or supplies and administrative support to a company
controlled by Mr. Mathis. We have paid $13,500 for these expenses for the nine
months ended March 31, 2009.
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 March 31, 2009 compared to the three months ended
March 31, 2008
Revenue. No operating revenues were generated during the three months ended
March 31, 2009 and March 31, 2008.
Operating Expenses. Total operating expenses were $7,272 and $14,796,
respectively for the quarter ended March 31, 2009 and for the quarter ended
March 31, 2008. Operating expenses consist of professional, management and
filing fees.
Other income (expense). Other income (expense) were $(1,455) and $23,747,
respectively for the quarter ended March 31, 2009 and the quarter ended March
31, 2008. In January 2008, the Company received a $25,000 deposit in connection
with a potential share exchange transaction with a third party. The potential
share transaction did not close due to contingencies not met by the third party;
therefore the $25,000 deposit was forfeited by the third party to the Company.
For the nine months ended March 31, 2009 compared to the nine months ended March
31, 2008
Revenue. No operating revenues were generated during the nine months ended
March 31, 2009 and March 31, 2008.
Operating Expenses. Total operating expenses were $24,280 and $35,529,
respectively for the nine months ended March 31, 2009 and for the nine months
ended March 31, 2008. Operating expenses consist of professional, management and
filing fees.
Other income (expense). Other income (expense) were $(4,146) and $21,745,
respectively for the nine months ended March 31, 2009 and for the nine months
ended March 31, 2008. In January 2008, the Company received a $25,000 deposit in
connection with a potential share exchange transaction with a third party. The
potential share transaction did not close due to contingencies not met by the
third party; therefore the $25,000 deposit was forfeited by the third party to
the Company.
Liquidity and Capital Resources
As of March 31, 2009, the Company had $192 in cash or cash equivalents and a
working capital deficit of $80,373.
7
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 March 31, 2009, $70,000
was borrowed under this agreement with $7,404 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 March 31, 2009.
8
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we
are not required to provide this information.
Item 4T - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934
("Exchange Act"), the Company carried out an evaluation, under the supervision
and with the participation of the Company's management, including the Company's
Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the
effectiveness of the Company's disclosure controls and procedures (as defined
under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered
by this report. Based upon that evaluation, the Company's CEO and CFO concluded
that the Company's disclosure controls and procedures are effective to ensure
that information required to be disclosed by the Company in the reports that the
Company files or submits under the Exchange Act, 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 the
Company's management, including the Company's CEO and CFO, as appropriate, to
allow timely decisions regarding required disclosure.
Changes in Internal Controls
There have been no changes in the Company's internal control over financial
reporting during the latest fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
9
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
---------- ----------------------------------------------------------------
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
10
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 May 15, 2009.
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),
11