0001144204-13-000958.txt : 20130107 0001144204-13-000958.hdr.sgml : 20130107 20130107113630 ACCESSION NUMBER: 0001144204-13-000958 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20120930 FILED AS OF DATE: 20130107 DATE AS OF CHANGE: 20130107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIRCH BRANCH INC CENTRAL INDEX KEY: 0000857872 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 841124170 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-50936 FILM NUMBER: 13514220 BUSINESS ADDRESS: STREET 1: 2560 W MAIN STREET STREET 2: SUITE 200 CITY: LITTLETON STATE: CO ZIP: 80120 BUSINESS PHONE: 303-794-9450 MAIL ADDRESS: STREET 1: 2560 W MAIN STREET STREET 2: SUITE 200 CITY: LITTLETON STATE: CO ZIP: 80120 10-Q 1 v329738_10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to______.

BIRCH BRANCH, INC.

(Exact name of registrant as specified in Charter)

Colorado

333-126654

84-1124170

(State or other jurisdiction of

incorporation or organization)

(Commission File No.)

(IRS Employee
Identification No.)

c/o Henan Shuncheng Group Coal Coke Co., Ltd.

Henan Shuncheng Group Coal Coke Co., Ltd. (New Building), Cai Cun Road Intersection,

Anyang County, Henan Province, China 455141

(Address of Principal Executive Offices)

+86 372 323 7890

(Issuer Telephone number)


	(Former Name or Former Address if Changed Since Last Report)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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 filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

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 ¨ No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of November 30, 2012: 32,047,222.

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

CERTAIN TERMS USED IN THIS REPORT

When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to Birch Branch, Inc. and its subsidiaries. “SEC” refers to the Securities and Exchange Commission.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Birch Branch, Inc.

Consolidated Balance Sheets

As of September 30, 2012 and December 31, 2011

(Stated in US Dollars)

(Unaudited)

	9/30/2012		12/31/2011
	(Unaudited)
Assets
Current assets:
Cash	$	8,542,463	$	2,704,987
Restricted cash		141,534,877		142,168,060
Bank notes receivable		2,946,590		145,162
Trade receivables, net		19,517,860		15,822,298
Other receivables		13,089,168		7,514,142
Related party receivables		9,336,450		3,500,715
Inventories		31,107,545		50,042,822
Advances to suppliers and prepayments		100,493,266		66,450,939
Deposits		2,974,767		3,301,491
Total current assets		329,542,986		291,650,616

Non-current assets:
Property, plant and equipment, net		139,330,794		68,927,116
Construction in Progress		22,528,287		83,621,292
Intangible assets, net		798,063		870,903
Long-term investments		27,264,476		24,352,460
Total non-current assets		189,921,620		177,771,771

Total assets	$	519,464,606	$	469,422,387

Liabilities and Stockholders’ Equity

Liabilities

Current liabilities:
Bank notes payable	$	190,979,341	$	186,890,191
Short term bank loans		82,431,793		66,538,879
Accounts payable		116,536,309		68,841,304
Accrued liabilities		3,258,630		660,695
Taxes payable		16,752,464		12,199,742
Other payable		8,277,202		9,179,612
Long-term bank loans, current portion		5,835,042		3,142,331
Capital lease obligation, current portion		4,384,483		4,087,562
Customer deposits		27,569,639		8,202,109
Total current liabilities		456,024,903		359,742,425

Non-current liabilities:
Notes payable to related party		62,806,908		70,190,769
Forgivable loans		9,719,287		6,235,959
Long-term bank loans		-		3,142,332
Capital lease obligation, non-current portion		9,164,852		11,509,361
Total non-current liabilities		81,691,047		91,078,421
Total liabilities	$	537,715,950	$	450,820,846

The accompanying notes are an integral part of these consolidated financial statements

Birch Branch, Inc.

Consolidated Balance Sheets

As of September 30, 2012 and December 31, 2011

(Stated in US Dollars)

(Unaudited)

	9/30/2012			12/31/2011
	(Unaudited)			(Audited)
Stockholders’ Equity
Preferred stock, 50,000,000 shares authorized, $0 par value, 0 shares issued and outstanding	$	-		$	-
Common stock, 500,000,000 shares authorized, $0 par value, 32,047,222 and 32,047,222 shares issued and outstanding as of September 30, 2012 and December 31, 2011		6,963,403			6,963,403
Statutory reserve		234,683			234,683
Retained earnings		(32,374,640	)		6,369,358
Accumulated other comprehensive income		6,490,204			4,594,559
Non-controlling interest		435,006			439,538
Total stockholders’ equity		(18,251,344	)		18,601,541

Total liabilities and equity	$	519,464,606		$	469,422,387

The accompanying notes are an integral part of these consolidated financial statements

Birch Branch, Inc.

Consolidated Statements of Operations

For the three months and nine months ended September 30, 2012 and 2011

(Stated in US Dollars)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues	$	92,334,315		$	114,953,099		$	293,001,141		$	302,885,541
Cost of revenues		93,753,039			112,925,723			297,697,818			285,496,778
Gross profit		(1,418,724	)		2,027,376			(4,696,677	)		17,388,763

Operating expenses:
Sales and marketing		4,080,425			1,925,134			10,237,497			6,725,671
General and administrative		1,353,066			1,666,839			8,662,381			6,308,226
Total operating expenses		5,433,491			3,591,973			18,899,878			13,033,897

Income (loss) from operations		(6,852,215	)		(1,564,597	)		(23,596,555	)		4,354,866

Other income (expenses):
Interest income		(306,628	)		857,196			1,789,753			1,634,093
Interest expense		(3,900,142	)		(4,835,012	)		(17,737,433	)		(12,755,153	)
Other income		145,180			534,332			871,323			1,081,728
Other expenses		(49,589	)		(27,109	)		(75,618	)		(176,693	)
Gain on investment		-			1,248						193,721
Total other income (expenses)		(4,111,179	)		(3,469,345	)		(15,151,975	)		(10,022,304	)

Income (loss) before provision for income taxes		(10,963,394	)		(5,033,942	)		(38,748,530	)		(5,667,438	)

Provision for (benefit from) income taxes		-			-			-			-

Net income (loss)	$	(10,963,394	)	$	(5,033,942	)	$	(38,748,530	)	$	(5,667,438	)

Net income attributable to:
- Common stockholders		(10,964,187	)		(5,076,521	)		(38,743,998	)		(5,624,108	)
- Non-controlling interest		793			(42,578	)		(4,532	)		(43,330	)

Other Comprehensive Income/(Loss)
Foreign currency translation adjustments		17,980			416,161			1,895,645			1,381,656
Total Comprehensive Income/(Loss)	$	(10,945,414	)	$	(4,617,781	)	$	(36,852,885	)	$	(4,285,782	)

Earnings per share
- Basic	$	(0.34	)	$	(0.16	)	$	(1.21	)	$	(0.18	)
- Diluted	$	(0.34	)	$	(0.16	)	$	(1.21	)	$	(0.18	)

Weighted average shares outstanding
- Basic		32,047,222			32,047,222			32,047,222			32,047,222
- Diluted		32,047,222			32,047,222			32,047,222			32,047,222

The accompanying notes are an integral part of these consolidated financial statements

Birch Branch, Inc.

Consolidated Statements of Stockholders’ Equity

As of September 30, 2012 and December 31, 2011

(Stated in US Dollars)

(Unaudited)

															Accumulated
												Non-			Other
	Common Stock				Registered		Statutory		Retained			controlling			Comprehensive		Total
	No. of Shares		Amount		Capital		Reserve		Earnings			Interest			Income		Equity
Balance at January 1, 2011 (Audited)		32,047,222	$	-	$	6,963,403	$	234,683	$	38,499,365		$	427,395		$	3,366,695	$	49,491,541

Apportionment of loss to non-controlling interest										(12,143	)		12,143					-
Net income for year ended December 31, 2011										(32,117,864	)							(32,117,864	)
Foreign currency translation gain																1,227,864		1,227,864
Balance at December 31, 2011 (Audited)		32,047,222	$	-	$	6,963,403	$	234,683	$	6,369,358		$	439,538		$	4,594,559	$	18,601,541

Apportionment of loss to non-controlling interest										4,532			(4,532	)
Net loss for nine months ended September 30, 2012										(38,748,530	)		-			-		(38,748,530	)
Foreign currency translation gain																1,895,645		1,895,645
Balance at September 30, 2011		32,047,222	$	-	$	6,963,403	$	234,683	$	(32,374,640	)	$	435,006		$	6,490,204		(18,251,344	)

The accompanying notes are an integral part of these consolidated financial statements

Birch Branch, Inc.

Consolidated Statements of Cash Flows

For the nine months ended September 30, 2012 and 2011

(Stated in US Dollars)

(Unaudited)

	Nine Months Ended September 30,
	2012			2011
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net Income/(loss)	$	(38,748,530	)	$	(5,667,438	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		10,966,436			6,197,844

Change in assets and liabilities:
Increase in Trade receivables		(3,636,425	)		4,995,879
Decrease/(Increase) in Inventories		19,122,316			(3,477,481	)
Increase in Prepayments and other receivables		(39,090,244	)		(22,256,982	)
Decrease/(Increase) in Related party receivables		447,251			(127,510	)
Increase in Accounts payable		42,009,551			28,014,703
Decrease in Other payables and current liabilities		25,502,744			(24,936,768	)
Net cash provided by (used in) operating activities		16,573,099			(17,257,753	)

Cash flows from investing activities:
Increase in restricted cash		1,164,548			(46,731,621	)
Long-term investment in equities		(2,820,997	)		(4,343,954	)
Acquisitions of property, plant and equipment		(12,253,481	)		(6,669,816	)
Decrease/(Increase) in construction in progress		(2,817,639	)		(26,101,295	)
Decrease/(Increase) in Bank notes receivable		(2,800,885	)		3,893,186
Collection/(Advance) loans to individuals and companies		(250,658	)		-
Collection/(Advance) to related parties		(6,269,902	)		-
Net cash provided by (used in) investing activities		(26,049,014	)		(79,953,500	)

Cash flows from financing activities:
Proceeds from borrowings from bank and others		75,697,839			12,034,860
Repayment of bank borrowings and others		(60,526,731	)		-
Increase/(Decrease) in bank notes payable		3,390,633			63,501,656
Proceeds/(Repayment) of capital lease obligation		(2,398,125	)		11,292,944
Proceeds from deposit for capital lease obligation		339,064			1,817,694
Proceeds from forgivable loans		3,460,021			-
Payment to related parties		(7,646,205	)		-
Net cash provided by (used in)financing activities		12,316,496			88,647,154

Net increase in cash		5,837,476			(6,861,231	)

Effect of exchange rate changes		2,996,895			1,702,868

Cash at beginning of the period		2,704,987			9,213,760

Cash at end of the period	$	8,542,463		$	2,352,529

Supplemental disclosure of cash flow information:
Interest received	$	984,381		$	1,634,093
Interest paid		9,961,669			(12,470,954	)
Income taxes paid		-			10,845,094

Non-Cash Investing and Financing Activities:
Addition of PPE transferred from CIP	$	68,741,410		$	-
Accounts Payable for constructions	$	5,428,154		$	-

The accompanying notes are an integral part of these consolidated financial statements

Birch Branch, Inc.

Notes to Unaudited Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

The Company and Principal Business Activities

Organizational History

Ultimate Holding Company

a.)

Birch Branch, Inc. (“BRBH”) was incorporated in the State of Colorado on September 29, 1989. BRBH was originally formed to pursue real estate development projects until December 16, 2006. Unless the context requires or is otherwise indicated, the term the “Company” includes BRBH and the following entities, after giving effect to the Share Exchange (as defined herein):

II.

Intermediary Holding Companies

a.)

Shun Cheng Holdings Hong Kong Limited (“Shun Cheng HK”) is an investment holding company that was incorporated in Hong Kong on December 18, 2009.

Shun Cheng HK does not have any operations. Its sole purpose is to act as an intermediary holding company.

b.)

On March 17, 2010, under the laws of the Henan Province, in the People’s Republic of China (“PRC”), Anyang Shuncheng Energy Technology Co., Ltd. (“Anyang WOFE”) was incorporated as a wholly-foreign owned entity. Anyang WOFE is wholly-owned by Shun Cheng HK.

Anyang WOFE does not conduct operations. All operations are conducted through the operating entities via a variable interest entity agreement detailed below.

III.

Operating Entities

All of the Company’s operations are located in the PRC, and are conducted through its operating entities detailed below:

a.) Henan Shuncheng Group Coal Coke Co., Ltd. (“SC Coke”) is a limited liability company organized in the PRC on August 27, 1997 as Anyang ShunCheng Washing Co., Ltd. In February 2005, the name was changed to Coal Coking Co., Ltd. In August 2007, the name was changed to the current name of Henan Shuncheng Group Coal Coke Co., Ltd. SC Coke has three shareholders: Wang Xinshun, Wang Xinming and Cheng Junsheng (collectively, the “SC Coke Shareholders”) owning 60%, 20% and 20% interests, respectively.

SC Coke is located in the Henan Province coal chemical industry cluster area in Anyang County, about 40 kilometers (approximately 25 miles) to the northwest of Anyang City. SC Coke is principally engaged in the processing of coal into coke, and related byproducts of cleaned coal, tar, crude benzene, and ammonium sulfate.

b.) Henan Shuncheng Group Longdu Trade Co., Ltd. (“Longdu”) is a limited liability company organized in the PRC on May 25, 2004. SC Coke holds an 86% interest in Longdu. The Company’s Chairman, Mr. Wang Xinshun, owns a 5% interest in Longdu.

Longdu is principally engaged in coal-washing and the production of refined coal, medium coal and coal slurry. The majority of Longdu’s coal is sent to the Company for further processing, while the remainder is sold to outside customers.

Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

Variable Interest Entity Agreement

On March 19, 2010, Anyang WOFE entered into four contractual arrangements that for accounting purposes will be collectively known as the variable interest entity (“VIE”) agreement with the SC Coke Shareholders. The VIE agreement entitles Anyang WOFE to 100% of the future earnings and losses of both SC Coke, and its proportional 86% share of the earnings of Longdu. The Company filed with the Securities and Exchange Commission (“SEC”) a Current Report on Form 8-K on July 2, 2010 that included the documents comprising the VIE agreement as exhibits. The Company accounted for the VIE agreement, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10, by consolidating SC Coke and Longdu as operating entities (similar to a subsidiary) of both Anyang WOFE and the Company, because the Company: (1) has the authority to direct the operations of SC Coke and Longdu, (2) has the authority to provide financial support for SC Coke and Longdu, and (3) is primary beneficiary of the results of operations of SC Coke and Longdu. The significant terms of the VIE agreement are detailed for each of the contractual arrangements below:

Entrusted Management Agreement

Anyang WOFE has full and exclusive rights to manage SC Coke. These rights include, but are not limited to: appointment and dismissal of the members of the board of directors, hiring and termination of managerial and administrative personnel, and control over assets, which includes deployment and disposition thereof, and related cash flows generated by these assets.

Anyang WOFE is entitled to receive a quarterly management fee paid 45 days in arrears from the end of the quarter equivalent to SC Coke’s earnings before taxes for the quarter, subject to quarterly and annual adjustments.

Anyang WOFE is subject to operational risk and is obligated to settle debts on behalf of SC Coke, if SC Coke does not have sufficient funds to pay its debts itself.

II.

Exclusive Option Agreement

Anyang WOFE, or parties designated by Anyang WOFE, has been granted the irrevocable right to purchase all or part of the ownership interest of SC Coke from the SC Coke Shareholders for the minimum possible price permissible by PRC law. The option is exercisable only to the extent that such purchase does not violate any PRC law then in effect. The purchase right is exclusively granted to Anyang WOFE and is not transferable without the express written consent of the SC Coke Shareholders.

The SC Coke Shareholders cannot dispose, assign or mortgage SC Coke assets or operations without the express written consent of Anyang WOFE.

Unless unanimously terminated by all parties, the Exclusive Option Agreement remains in effect for SC Coke, the SC Coke Shareholders, and Anyang WOFE and their successors.

III.

Shareholders' Voting Proxy Agreement

The SC Coke Shareholders have irrevocably appointed the board of directors of Anyang WOFE as their proxy to vote on all matters that require the approval of the SC Coke Shareholders. These voting rights include, but are not limited to, the election of directors and the chairman of the board.

Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

In the event that PRC regulations change (which regulations presently prohibit the transfer of SC Coke to Anyang WOFE), the SC Coke Shareholders may be exclusively permitted to transfer their ownership in SC Coke to Anyang WOFE; however, they are strictly prohibited from transferring their ownership in SC Coke to any other individuals or entities.

The SC Coke Shareholders have agreed to irrevocably and unconditionally indemnify the board of directors of Anyang WOFE from claims arising from the exercise of any of the powers conferred upon Anyang WOFE under the agreement.

IV.

Shares Pledge Agreement

The SC Coke Shareholders have pledged all of their ownership interests in SC Coke, including rights to PRC registered capital and dividends related to ownership in SC Coke, to guarantee their obligations under the Entrusted Management Agreement, the Exclusive Option Agreement and the Shareholders’ Voting Proxy Agreement.

Share Exchange Agreements

On June 28, 2010, BRBH closed a share exchange transaction (the “Share Exchange”) in which BRBH issued 30,233,750 common shares to the former shareholders of Shun Cheng HK in exchange for all of the issued and outstanding shares of Shun Cheng HK. In connection with the Share Exchange, certain shareholders of BRBH agreed to cancel 435,123 common shares and BRBH issued 540,472 common shares to financial consultants. Immediately prior to the closing of the Share Exchange there were 1,708,123 common shares outstanding. Upon completion of the Share Exchange and transactions contemplated by the Share Exchange agreement, there were 32,047,222 common shares outstanding. Immediately following the closing of the Share Exchange, the former shareholders of Shun Cheng HK and the original shareholders of BRBH own approximately 95% and approximately 5% of BRBH’s issued and outstanding common shares, respectively.

The Share Exchange has been accounted for as a recapitalization of Shun Cheng HK in which BRBH (the legal acquirer) is considered the accounting acquiree and Shun Cheng HK (the legal acquiree) is considered the accounting acquirer. As a result of the Share Exchange, BRBH is deemed to be a continuation of the business of Shun Cheng HK. Accordingly, the financial data included in the accompanying consolidated financial statements for all periods prior to June 28, 2010 is that of the accounting acquirer Shun Cheng HK. The historical stockholders’ equity of the accounting acquirer prior to the Share Exchange has been retroactively restated as if the Share Exchange occurred as of the beginning of the first period presented.

Summary of Significant Accounting Policies

Financial Statement Presentation

The financial statements are prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements include the accounts of BRBH, Shun Cheng HK, Anyang WOFE, SC Coke, and Longdu. All intercompany transactions, such as sales, cost of sales, and balances due to/due from, investment in subsidiaries, and subsidiaries’ capitalization have been eliminated.

Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

Non-controlling Interest

14% of the registered capital of Longdu is owned by parties other than SC Coke. The Company’s Chairman, Mr. Wang Xinshun, owns a 5% interest in Longdu, while other investors own the remaining 9% interest. Mr. Wang’s and the other investors’ share of capital, retained earnings, and income are separately disclosed on the Company’s balance sheet and statement of operations.

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosure of contingent assets and liabilities. Significant estimates and assumptions are used for, but not limited to: (1) allowance for trade receivables, (2) economic lives of property, plant and equipment, (3) asset impairments, and (4) contingency reserves. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. In addition, any change in these estimates or their related assumptions could have an adverse effect on the Company’s operating results.

Foreign Currency Translation

The accompanying consolidated financial statements are presented in U.S. Dollars. The functional currency of the Company’s operating entities is the RMB, the official currency of the PRC. Capital accounts of the consolidated financial statements are translated into U.S. Dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of the balance sheet date. Income and expenditures are translated at the average exchange rates for the nine months ended September 30, 2012 and 2011. Currency translation adjustment results from translation to U.S. Dollar for financial reporting purposes are recorded in other comprehensive income as a component of owners’ equity. A summary of the conversion rates for the periods presented is as follows:

	9/30/2012		12/31/2011		9/30/2011
Period/year end RMB: U.S. Dollar exchange rate		6.3410		6.3647		6.4640
Average RMB: U.S. Dollar exchange rate		6.3170		6.4735		6.5482

RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into U.S. Dollars at the rates used in translation.

Comprehensive Income

The Company accounts for comprehensive income in accordance with the provisions of ASC topic 220, Comprehensive Income , which establishes standards for reporting comprehensive income or loss and its components in the financial statements. The accumulated other comprehensive income represents foreign currency translation adjustments.

Revenue Recognition

In accordance with ASC 605-10, the Company recognizes revenue upon receipt of an acceptance of goods document issued by its customers. Each customer enters into an annual master sales agreement with the Company which will indicate a total volume for the year, and an acceptable range of prices, given market fluctuations on a short term basis, for the Company’s coke and coal byproducts. Final determination of the price for coke is determined on individual purchase orders which lie in the aforementioned price range. The Company’s coke and coal byproducts are fully usable at the point of shipment. From a revenue recognition perspective, the Company believes that collectability of the revenue is reasonably assured at the time that customers acknowledge receipt and accept the Company’s product. The Company has not experienced any material return of products, and as such, it has not prepared allowances for returns.

Customer payments received prior to completion of the above criteria are recorded as a liability on the Company’s balance sheet as unearned revenue.

Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

3.	Trade Receivables

The Company’s trade receivables as of September 30, 2012 and December 31, 2011, as well as the activity in the Company’s allowance for bad debts for the nine-month ended September 30, 2012 and the year ended December 31, 2011 are set forth below:

	9/30/2012		12/31/2011
Trade Receivables	$	23,789,294	$	20,093,732
Less: Allowance for Bad Debt		4,271,434		4,271,434
Trade Receivables, net		19,517,860		15,822,298

Allowance for Bad Debts
Beginning Balance		4,271,434		1,653,287
Provision for bad debts		-		2,618,147
Ending Balance	$	4,271,434	$	4,271,434

4.	Other Receivables

Other receivables as of September 30, 2012 and December 31, 2011 are detailed in the table below:

	9/30/2012		12/31/2011
Project safety deposit	$	7,885	$	110
Non-collateralized, non-interest bearing loans to individuals and companies receivable on demand		5,149,044		3,784,696
Others		7,932,239		3,729,336
	$	13,089,168	$	7,514,142

5.	Inventories

The components of the Company’s inventories as of September 30, 2012 and December 31, 2011 are as follows:

	9/30/2012		12/31/2011
Raw materials	$	1,445,622	$	1,588,832
Work in process and semi-finished goods		6,616,463		19,162,264
Finished goods		23,045,460		29,291,726
Total inventories	$	31,107,545	$	50,042,822

6.	Advances to Suppliers and Prepayments

The components of the Company’s advances to suppliers and prepayments as of September 30, 2012 and December 31, 2011 are as follows:

	9/30/2012		12/31/2011
Prepayments for raw materials in operations		100,493,266		66,336,798
Prepaid taxes		-		114,141
	$	100,493,266	$	66,450,939

Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

7.	Property, Plant and Equipment, net

The components of the Company’s plant and equipment are as follows:

			Accumulated
9/30/2012	At Cost		Depreciation		Net
Buildings and plant	$	35,729,838	$	6,115,364		29,614,474
Machinery and equipment		136,304,584		28,619,134		107,685,450
Electronic equipment		3,761,364		2,468,907		1,292,457
Vehicles		1,100,551		577,583		522,968
Wastewater treatment and environmental equipment		820,276		604,831		215,445
Total plant and equipment	$	177,716,613	$	38,385,819		139,330,794

			Accumulated
12/31/2011	At Cost		Depreciation		Net
Buildings and plant	$	35,576,186	$	4,820,117	$	30,756,069
Machinery and equipment		1,388,507		848,902		539,605
Electronic equipment		3,604,960		1,982,054		1,622,906
Vehicles		54,974,689		19,277,467		35,697,222
Wastewater treatment and environmental equipment		817,221		505,907		311,314
Total plant and equipment	$	96,361,563	$	27,434,447	$	68,927,116

Depreciation expenses related to plant and equipment were $ 10,890,051 and $ 6,121,245 for the nine months ended September 30, 2012 and 2011, respectively.

8.	Construction in Progress

The components of the Company’s construction in progress are as follows:

Description	9/30/2012		12/31/2011
Coking furnace	$	483,801	$	40,380,647
Office buildings		4,761,238		5,662,946
Plant and facilities		1,898,297		26,582,072
Sewage system		34,120		35,526
Deposits for construction projects		15,350,831		10,960,101
	$	22,528,287	$	83,621,292

9.	Investments

The following tabulation presents SC Coke’s investment in non-controlled entities, which are not included in the consolidation:

Investment	Ownership			Type		9/30/2012
Anyang Rural Credit Cooperative - Tongye Branch		11.26	%		Equity	$	7,380,539
Anyang Urban Credit Cooperative		11.26	%		Equity		9,427,377
Ansteel Group Metallurgy Stove Co., Ltd.		19	%		Equity		2,457,026
Anyang Xinlong Coal (Group) Hongling Coal Co., Ltd.		16	%		Equity		7,999,534
						$	27,264,476

Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

10.	Bank Notes Payable

The following table provides the name of the financial institutions, due dates, and amounts outstanding at September 30, 2012 for the Company’s bank notes payable:

Financial Institution	Due Date	9/30/2012

Guangdong Development Bank - Anyang Branch	10/16/2012		2,365,557
Guangdong Development Bank - Anyang Branch	10/27/2012		3,154,077
Guangdong Development Bank - Anyang Branch	11/30/2012		2,365,557
Guangdong Development Bank - Anyang Branch	3/5/2013		1,577,038
Guangdong Development Bank - Anyang Branch	3/14/2013		2,365,557
Guangdong Development Bank - Anyang Branch	3/19/2013		788,519
Guangdong Development Bank - Anyang Branch	3/20/2013		630,815
China Construction Bank - Zhongzhou Branch	3/23/2013		6,308,153
Shanghai Pudong Development Bank -Zhengzhou Branch	1/5/2013		9,462,231
Shanghai Pudong Development Bank -Zhengzhou Branch	11/24/2012		2,365,557
Shanghai Pudong Development Bank -Zhengzhou Branch	12/5/2012		5,046,523
Shanghai Pudong Development Bank -Zhengzhou Branch	12/7/2012		4,731,115
Shanghai Pudong Development Bank -Zhengzhou Branch	12/7/2012		3,154,077
Shanghai Pudong Development Bank -Zhengzhou Branch	12/12/2012		2,996,373
Shanghai Pudong Development Bank -Zhengzhou Branch	12/26/2012		2,365,557
Shanghai Pudong Development Bank -Zhengzhou Branch	2/15/2013		1,577,038
Shanghai Pudong Development Bank -Zhengzhou Branch	3/12/2013		3,154,077
Commercial Bank of Anyang	2/24/2013		3,154,077
Commercial Bank of Anyang	11/29/2012		6,308,153
Commercial Bank of Anyang	10/1/2012		4,731,115
Commercial Bank of Anyang	12/11/2012		3,154,077
Bank of Luoyang - Zhengzhou Branch	10/11/2012		4,731,115
Bank of Luoyang - Zhengzhou Branch	10/26/2012		1,577,038
Bank of Luoyang - Zhengzhou Branch	12/27/2012		3,311,780
Bank of Luoyang - Zhengzhou Branch	1/3/2013		4,573,411
China Everbright Bank - Zhengzhou Branch	10/12/2012		3,154,077
China Everbright Bank - Zhengzhou Branch	12/20/2012		7,254,376
China Everbright Bank - Zhengzhou Branch	1/29/2013		6,308,153
China Everbright Bank - Zhengzhou Branch	2/7/2013		3,154,077
China Everbright Bank - Zhengzhou Branch	3/29/2013		4,731,115
China Everbright Bank - Zhengzhou Branch	10/26/2012		3,154,077
China Everbright Bank - Zhengzhou Branch	11/8/2012		3,154,077
Bank of Mingsheng - Zhengzhou Branch	10/20/2012		7,254,377
Bank of Mingsheng - Zhengzhou Branch	12/4/2012		7,096,672
Bank of Mingsheng - Zhengzhou Branch	12/15/2012		1,971,298
Bank of Mingsheng - Zhengzhou Branch	2/8/2013		3,154,077
Bank of Mingsheng - Zhengzhou Branch	2/10/2013		4,731,115
Bank of Mingsheng - Zhengzhou Branch	2/13/2013		3,942,596
Bank of Mingsheng - Zhengzhou Branch	10/24/2012		1,577,038
Bank of Mingsheng - Zhengzhou Branch	1/23/2013		1,577,038
China Citic Bank- Anyang Branch	11/21/2012		1,577,038
China Citic Bank- Anyang Branch	11/25/2012		3,154,077
China Citic Bank- Anyang Branch	11/28/2012		3,627,188
China Merchants Bank - Anyang Branch	9/18/2013		3,154,077
China Merchants Bank - Anyang Branch	3/18/2013		1,577,038
China Merchants Bank - Anyang Branch	3/21/2013		1,261,631
Bank of China-Huojiacun Branch	2/25/2013		6,387,005
Industrial Bank-Weiyi Branch	1/4/2013		6,308,153
Industrial Bank-Weiyi Branch	1/10/2013		9,462,231
Industrial Bank-Weiyi Branch	7/17/2013		4,731,115
Industrial and Commercial Bank of China - Shuiye Branch	10/27/2012		1,577,038

		$	190,979,341

The bank notes payable do not carry a stated interest rate, but do carry a specific due date. These notes are negotiable documents issued by financial institutions on the Company’s behalf to vendors. These notes can either be endorsed by the vendor to other third parties as payment, or prior to coming due, they can factor these notes to other financial institutions. These notes are short term in nature and, as such, the Company does not calculate imputed interest with respect to them. These notes are collateralized by the Company’s Restricted Cash.

Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

11.

Loans

The components of the Company’s loans payable are as follows:

		Due		Interest			9/30/2012
Name of Creditors	Note	Date		Rate			USD
Anyang Rural Credit Cooperative - Tongye Branch	A		3/23/2013		10.933	%		4,731,115
Shanghai Pudong Development Bank - Zhengzhou Branch	B		3/1/2013		6.160	%		3,154,077
Shanghai Pudong Development Bank - Zhengzhou Branch	C		3/7/2013		6.160	%		3,154,077
Shanghai Pudong Development Bank - Zhengzhou Branch	D		2/13/2013		6.160	%		1,577,038
Commercial Bank of Anyang	E		6/14/2013		6.310	%		3,154,077
Commercial Bank of Anyang	F		8/21/2013		12.000	%		3,154,077
Agricultural Bank of China - Anyang Branch	G		10/10/2012		8.856	%		1,103,927
Agricultural Bank of China - Anyang Branch	H		10/10/2012		8.856	%		1,577,038
Agricultural Bank of China - Anyang Branch	I		10/10/2012		8.856	%		1,577,038
Agricultural Bank of China - Anyang Branch	J		10/10/2012		8.856	%		3,627,188
Guangdong Development Bank - Anyang Branch	K		9/5/2013		6.600	%		7,885,192
Guangdong Development Bank - Anyang Branch	L		3/10/2013		6.160	%		1,577,038
Guangdong Development Bank - Anyang Branch	M		3/19/2012		6.160	%		1,577,038
Guangdong Development Bank - Anyang Branch	N		3/20/2013		6.160	%		788,519
Bank of Luoyang - Zhengzhou Branch	O		7/9/2013		7.200	%		3,154,077
Bank of Luoyang - Zhengzhou Branch	P		4/9/2013		7.872	%		3,154,077
Bank of Luoyang - Zhengzhou Branch	Q		12/20/2012		7.020	%		1,577,038
Bank of Luoyang - Zhengzhou Branch	R		12/20/2012		7.020	%		1,577,038
China Citic Bank - Anyang Branch	S		1/8/2013		7.544	%		3,154,077
China Merchants Bank - Anyang Branch	T		11/9/2012		7.544	%		1,577,038
China Merchants Bank - Anyang Branch	U		11/30/2012		7.544	%		1,577,038
China Merchants Bank - Anyang Branch	V		9/19/2013		6.900	%		3,154,077
Zhengzhou Bank - Nongye Eastern Road Branch	W		12/14/2012		8.528	%		4,731,115
Industrial Bank - Weiyi Branch	X		1/13/2013		7.216	%		4,731,115
ICBC – Shuiye Branch	Y		3/21/2013		7.216	%		2,838,669
China Construction Bank - Anyang Branch	Z		1/30/2013		6.160	%		1,577,038
China Construction Bank - Anyang Branch	a		10/26/2012		6.710	%		3,154,077
Kaifeng Bank – Zhengzhou Agriculture St. Branch	b		7/4/2013		5.784	%		3,154,077

Anyang Rural Credit Cooperative - Tongye Branch	d		12/21/2012		15.088	%		4,683,804

Short-term bank loans-subtotal							$	82,431,793

Shanghai Pudong Development Bank - Zhengzhou Branch	c		3/23/2013		7.820	%		5,835,042

Long-term bank loans, current portion-subtotal							$	5,835,042

Bank Loans-total							$	88,266,835

Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

SC Coke has collateralized its debt obligations above. Refer to notes below for collateral corresponding to each obligation.

Guaranteed by Henan Hubo Cement Co., Ltd and Linzhou Hongqiqu Electrical Carbon Co., Ltd

Guaranteed by Anyang Liyuan Coking Co., Ltd and Shareholders (Xinshun Wang, Xinming Wang and Junsheng Cheng)

Guaranteed by Anyang Liyuan Coking Co., Ltd

Guaranteed by Linzhou Hongqiqu electrical Carbon Co., Ltd

Guaranteed by Henan Hubo Cement Co., Ltd

Guaranteed by Henan Chengyu Coking Co., Ltd and Henan Hubo Cement Co., Ltd

Guaranteed by Anyang Xinpu Steel Co., Ltd, Xinshun Wang and Fengyun Wu

Guaranteed by Xinlei Group Cheng Chen Coking and Xinshun Wang

Guaranteed by Anyang Xinpu Steel Co., Ltd, and Xinshun Wang

Guaranteed by Henan Chengyu Coking Co., Ltd

Guaranteed by Anyang Liyuan Coking Co., Ltd and Henan Chengyu Coking Co., Ltd

Guaranteed by Anyang Liyuan Coking Co., Ltd and Linzhou Hongqiqu electrical Carbon Co., Ltd

Guaranteed by Henan Yutian Chemical Co., Ltd and Henan Chengyu Coking Co., Ltd

Guaranteed by Cleaned coal

Guaranteed by Linzhou Hongqiqu electrical Carbon Co., Ltd

Guaranteed by Henan Yutian Chemical Co., Ltd

Guaranteed by Anyang Liyuan Coking Co., Ltd

Guaranteed by Anyang Nianxinpu Steel Co., Ltd

12.	Other Payable

Other payable as of September 30, 2012 and December 31, 2011 is detailed in the table below:

	9/30/2012		12/31/2011
Project safety deposit	$	1,756,551	$	2,681,680
Payable for raw materials in operation		-		20,542
Advances from individuals and companies payable on demand		4,649,885		5,477,457
Others		1,870,766		999,933

	$	8,277,202	$	9,179,612

13.	Notes Payable to Related Party

Creditor	Note	9/30/2012		12/31/2011
Chairman, Wang Xinshun	A	$	22,945,078	$	25,785,216
SC Coke Shareholders	B		39,861,830		44,405,553
		$	62,806,908	$	70,190,769

Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

Notes Payable to Wang Xinshun

On May 23, 2010, SC Coke entered into a formal loan agreement with the Company’s Chairman, Mr. Wang Xinshun, for amounts owed to him in the amount of approximately $35.6 million at December 31, 2009. The significant terms of the loan are: (a) 12 year term, beginning as of December 31, 2009 to December 31, 2021, (b) 3% fixed simple annual interest, (c) SC Coke has the option, but not the obligation, to pay interest for the first two years, (d) after the first two years, the balance of the loan will be amortized over the remaining 10 years of the term and SC Coke is required to make monthly interest and principal payments, and (e) Mr. Wang Xinshun is prohibited from declaring default against SC Coke.

The Company has neither accrued nor paid any interest for the note payable to Mr. Wang Xinshun during the nine months ended September 30, 2012.

Notes Payable to SC Coke Shareholders

On March 31, 2010, the SC Coke Shareholders, and Anyang Xinlong Coal (Group) Hongling Coal Co., Ltd., Anyang Huichang Coal Washing Co., Ltd. and Anyang Jindu Coal Co., Ltd (collectively, the “third party lenders”) formalized the terms for approximately $35.5 million of loans previously extended to SC Coke by the three lenders.

Also, on June 21, 2010, SC Coke and the SC Coke Shareholders entered into a debt agreement for the original principal amount of the loans due to the third party lenders (approximately $35.5 million), the significant terms of which are: (a) 15 year term, commencing on June 21, 2010, (b) 2% fixed simple annual interest, (c) SC Coke has the option, but not the obligation, to pay interest when accrued, and (d) the SC Coke Shareholders do not have the ability to declare a default.

14.	Forgivable Loans

SC Coke is currently the beneficiary of two government grants that are generally intended to be used towards capital technology improvement with the end goal of increased production and energy efficiency. The grants were awarded during 2008 and 2009, respectively. These grants have been recorded as forgivable loans in the liability section of the balance sheet. SC Coke has received payment of the grants, but has not yet met all the criteria set forth under the grant. Upon receiving government approval of fulfilling all of the criteria set forth under the grant, SC Coke will credit the balance to other income on the consolidated statement of operations. SC Coke will also appropriate that same amount from retained earnings to statutory reserves indicating that the assets associated with these grants are not available for dividend distribution.

Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

15.	Related Party Transactions

SC Coke has specified the following transactions with related parties with ending balances as of September 30, 2012:

A.	Trade Receivables and Revenue

(a)	Angang Steel Group Metallurgy Furnace Co., Ltd (Angang), in which SC Coke owns a 19% stake, is one of the customers of SC Coke.

There was an ending balance in accounts receivable from Angang of approximately $53,096 as of September 30, 2012.

Revenue recorded in the consolidated financial statements from Angang amounts to approximately $926,073 for the nine months ended September 30, 2012.

B.	Deposits and Cost of Revenues

(a)	The Chairman and majority owner, Mr. Wang Xinshun, owns a 43.86% interest in Anyang Bailianpo Coal Co., Ltd. (Bailianpo) which provides raw coal to SC Coke.

SC Coke had outstanding prepayment to Bailianpo of $433,984 as of September 30, 2012.

There were purchase transactions from Bailianpo amounted to appromimately $63,708 for the nine months ended September 30, 2012.

(b)	SC Coke holds a 16% interest in Anyang Xinlong Coal (Group) Hongling Coal Co., Ltd. (Anyang Xinlong), which is a coal mine located in Anyang County providing SC Coke with a substantial portion of its coking coal requirements.

SC Coke has an ending balance in accounts receivable from Anyang Xinlong of $218,863 as of September 30, 2012.

C.	Advance to relatives of the Chairman

As of September 30, 2012 and December 31, 2011, the advances to relatives of the Chairman are $8,630,507 and $2,351,815, respectively.

Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

15.

Related Party Transactions (continued)

SC Coke has specified the following transactions with related parties in 2011:

Trade Receivables and Revenue

(a)

Angang Steel Group Metallurgy Furnace Co., Ltd (Angang), in which SC Coke owns a 19% stake, is one of the customers of SC Coke.

There was an ending balance in accounts receivable from Angang of approximately $273,202 as of December 31, 2011.

Revenue recorded in the consolidated financial statements from Angang amounts to approximately $535,978 for the nine months ended September 30, 2011.

Deposits and Cost of Revenues

(a)

The Chairman and majority owner, Mr. Wang Xinshun, owns a 43.86% interest in Anyang Bailianpo Coal Co., Ltd. (Bailianpo) which provides raw coal to SC Coke.

SC Coke had outstanding prepayment to Bailianpo of $614,849 as of December 31, 2011.

There is no purchase transaction from Bailianpo for the nine months ended September 30, 2011.

(b)

SC Coke holds a 16% interest in Anyang Xinlong Coal (Group) Hongling Coal Co., Ltd. (Anyang Xinlong), which is a coal mine located in Anyang County providing SC Coke with a substantial portion of its coking coal requirements.

SC Coke has an ending balance in accounts receivable from Anyang Xinlong of $260,850 as of December 31, 2011.

Cost of revenues related to purchases from Anyang Xinlong included in the consolidated financial statements amounts to approximately $1,484,931 for the nine months ended September 30, 2011.

Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

16.	Income Taxes

The Company and its operating entities are subject to income tax under the jurisdictions where they operate. The following table details the Company and its operating entities, and the statutory tax rates to which they are subject:

Entity	Country of Domicile		Income Tax Rate

Birch Branch, Inc.		USA		15.00%-35.00	%
Shuncheng Holdings HongKong Ltd.		HK		16.50	%
Anyang Shuncheng Energy Technology Co., Ltd.		PRC		25.00	%
Henan Shuncheng Group Coal Coke Co., Ltd.		PRC		25.00	%
Henan Shuncheng Group Longdu Trade Co., Ltd.		PRC		25.00	%

Although the Company is subject to United States income taxes, it is a holding company with no operations or profits within the U.S. borders. The Company currently only incurs expenses in the United States that are associated with being a public company.

Income (loss) before taxes and provision for taxes (tax benefit) consisted of the following for the nine months ended September 30, 2012 and 2011, respectively:

	9/30/2012			9/30/2011
Income (loss) before tax:
USA	$	-		$	-
HK		4			(53	)
PRC		(38,748,534	)		(5,667,385	)
Total:	$	(38,748,530	)	$	(5,667,438	)

Provision for income taxes:
US Federal		-			-
State		-			-
PRC	$	-		$	-
Total provision for taxes (tax benefit):	$	-		$	-

Effective tax rate		0	%		0	%

The differences between the U.S. federal statutory income tax rates and the Company’s effective tax rate for the nine months ended September 30, 2012 and 2011 are shown in the following table:

	9/30/2012			9/30/2011
US statutory tax rate		35	%		35	%
Lower rates in the PRC		-10	%		-10	%
Accrual and reconciling items		-			-25	%
Fully reserved net Operating Loss		-25	%		-
Effective tax rate:		0	%		0	%

Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2012 and December 31, 2011

(Unaudited)

17.	Commitments and Contingencies

Third Party Guarantees

SC Coke entered into agreements as a guarantor of debt for seventeen companies (the “guarantees”) in the amount of approximately $116,070,023 at September 30, 2012. Of the aforementioned guarantees, seven of the thirty companies have, in turn, guaranteed debts of approximately $77, 542,974 on behalf of SC Coke at September 30, 2012. SC Coke has not historically incurred any losses due to such debt guarantees. Additionally, the Company has determined that the fair value of the guarantees is immaterial. For more details of the outstanding guarantees, see the table below:

		Guarantee
Guarantee Beneficiary	Creditor	End		9/30/2012
Linzhou Hongqiqu Electrical Carbon Co., Ltd	Agricultural Bank of China - Linzhou Branch		2013.4.16		3,154,077
Linzhou Hongqiqu Electrical Carbon Co., Ltd	Agricultural Bank of China - Linzhou Branch		2013.1.11		4,731,115
Linzhou Hongqiqu Electrical Carbon Co., Ltd	Agricultural Bank of China - Linzhou Branch		2013.5.20		3,154,077
Linzhou Hongqiqu Electrical Carbon Co., Ltd	Agricultural Bank of China - Linzhou Branch		2013.6.18		7,885,192
Linzhou Hongqiqu Electrical Carbon Co., Ltd	Agricultural Bank of China - Linzhou Branch		2013.8.23		7,885,192
Linzhou Hongqiqu Electrical Carbon Co., Ltd	Linzhou Commercial Bank		2013.2.13		3,154,077
Henan Hubo Cement Co., Ltd.	Bank of China - Anyang Branch		2012.11.14		4,731,115
Henan Liyuan Coking Co., Ltd	China Merchants Bank - Anyang Branch		2013.1.31		1,577,038
Henan Liyuan Coking Co., Ltd	Shanghai Pudong Development Bank -Zhengzhou Branch		2013.12.20		7,885,192
Henan Liyuan Coking Co., Ltd	Shanghai Pudong Development Bank -Zhengzhou Branch		2013.2.16		7,096,672
Henan Liyuan Coking Co., Ltd	China Merchants Bank - Anyang Branch		2013.3.20		3,154,077
Henan Liyuan Coking Co., Ltd	China Merchants Bank - Anyang Branch		2013.2.1		3,154,077
Henan Liyuan Coking Co., Ltd	Bank of Luoyang - Zhengzhou Branch		2013.2.20		4,731,115
Henan Liyuan Coking Co., Ltd	Bank of China - Pangeng Branch		2013.3.23		6,308,153
Henan Chengyu Coking Co., Ltd	Tongye Credit Union		2013.3.30		3,154,077
Henan Chengyu Coking Co., Ltd	Guangdong Development Bank - Anyang Branch		2013.2.8		9,462,230
Henan Fengtai Food Co.,	China Minsheng Banking - Zhengzhou Branch		2013.4.8		1,577,038
Henan Baoshun Chemical Tech Co., Ltd	Bank of Luoyang - Zhengzhou Branch		2013.6.18		9,462,230
Anyang Xinpu Steel Co., Ltd - Zhanqian	Shanghai Pudong Development Bank -Zhengzhou Branch		2013.1.18		1,577,038
Anyang Xinpu Steel Co., Ltd - Houde	Citic Bank - Anyang Branch		2013.6.19		1,577,038
Anyang Xinpu Steel Co., Ltd	City Cooperative		2013.7.18		2,996,373
Henan Yuxin Acticated Carbon Co., Ltd	China Construction Bank - Anyang Branch		2013.1.4		1,892,446
Henan Yulong Coking Co., Ltd - Lichuang	Guangdong Development Bank - Anyang Branch		2013.3.10		3,154,077
Henan Yulong Coking Co., Ltd	Tongye Credit Union		2013.2.15		3,154,077
Linzhou Fengbao Pipe Co., Ltd	China Minsheng Banking - Anyang Branch		2013.3.30		7,885,192
Anyang Zhongyang Industrial Co., Ltd	Bank of Luoyang - Zhengzhou Branch		2012.11.26		1,577,038

				$	116,070,023

Birch Branch, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2012 and December 31, 2011
(Unaudited)

SC Coke entered into agreements as a guarantor of debt for thirteen companies (the “guarantees”) in the amount of approximately $123,682,186 at December 31, 2011. Of the aforementioned guarantees, six of the thirteen companies have, in turn, guaranteed debts of approximately $57,897,466 on behalf of SC Coke at December 31, 2011. SC Coke has not historically incurred any losses due to such debt guarantees. Additionally, the Company has determined that the fair value of the guarantees is immaterial. For more details of the outstanding guarantees, see the table below:

		Guarantee
Guarantee Beneficiary	Creditor	End		12/31/2011

Anshan Minshan Metal Co., Ltd.	Agricultural Bank of China – Anyang Branch		2/23/2012	$	613,682
Linzhou Hongqiqu Electrical Carbon Co., Ltd	Agricultural Bank of China – Linzhou Branch		5/15/2012		3,142,332
Linzhou Hongqiqu Electrical Carbon Co., Ltd	Agricultural Bank of China – Linzhou Branch		4/9/2012		3,142,332
Linzhou Hongqiqu Electrical Carbon Co., Ltd	Agricultural Bank of China – Linzhou Branch		7/3/2012		7,855,830
Linzhou Hongqiqu Electrical Carbon Co., Ltd	Agricultural Bank of China – Linzhou Branch		9/2/2012		7,855,830
Anyang Hengxiang Coal Co., Ltd.	Agricultural Bank of China – Anyang Branch		5/28/2012		659,890
Henan Hubo Cement Co., Ltd.	Bank of China – Anyang Branch		11/14/2012		4,713,498
Henan Hubo Cement Co., Ltd.	Guangdong Development Bank - Anyang Branch		6/16/2012		3,770,798
Anyang Liyuan Coking Co., Ltd	China Citic Bank		11/25/2012		6,284,664
Anyang Liyuan Coking Co., Ltd	Commercial Banks of China - Anyang Branch		1/5/2013		4,713,498
Anyang Liyuan Coking Co., Ltd	Shanghai Pudong Development Bank – Zhengzhou Branch		2/21/2012		32,994,485
Anyang Liyuan Coking Co., Ltd	China Citic Bank		9/15/2012		3,142,332
Anyang Liyuan Coking Co., Ltd	Bank of Luoyang		3/9/2012		4,085,032
Anyang Liyuan Coking Co., Ltd	Agricultural Bank of China		6/24/2012		3,142,332
Anyang Liyuan Coking Co., Ltd	Agricultural Bank of China		6/16/2012		3,142,332
Anyang Xintianhe Cement Co., Ltd	Guangdong Development Bank		6/13/2012		6,284,664
Henan Chengyu Coking Co., Ltd	Guangdong Development Bank - Anyang Branch		9/20/2012		9,426,996
Henan Chengyu Coking Co., Ltd	Anyang Rural Credit Cooperative - Tongye Branch		2/20/2012		3,142,332
Anyang Lichuang Co.	Guangdong Development Bank - Anyang Branch		3/8/2012		3,142,332
Henan Xinlei Group	Bank of Minsheng – Zhengzhou Branch		10/10/2012		1,571,166
Anyang Xinpu Steel Co., Ltd	City Cooperative		6/4/2012		7,070,247
Anyang Qili Cement Co., Ltd	Commercial Bank of Anyang		5/23/2012		628,466
Anyang Hongyuan Yinsheng Steel Co., Ltd	Commercial Bank of Anyang		5/5/2012		314,233
Taifeng Company	Bank of Mingsheng – Zhengzhou Branch		8/26/2012		1,571,166
Anyang Yuxin Activity of Limestone Co., Ltd.	China Construction Bank		1/4/2013		1,885,399
				$	123,682,186

Capital Lease Obligations

SC Coke has entered into a non-cancellable lease agreement for certain machinery and equipment. The following table details SC Coke’s commitments for minimum lease payments and the related principal outstanding at September 30, 2012:

Quarter ending September 30, 2012:	Principal		Payments
2012	$	1,427,089	$	1,859,709
2013		3,985,768		4,865,089
2014		4,338,791		4,865,089
2015		2,633,837		2,856,147
2016		1,163,850		1,190,061
Total future minimum lease payments	$	13,549,335	$	15,636,095

Accrued Payment of Enterprise Income Taxes

Effective January 1, 2008, PRC government implements a new 25% income tax rate for all enterprise regardless of whether domestic or foreign enterprise without any tax holiday. Certain local government has the authority to defer the enterprise’s tax payment in a way to support local business. SC Coke is subject to the 25% tax rule. However, Anyang City government defers SC Coke income tax payment by implementing fixed payment quota instead of determining based on taxable income assessment. As of September 30, 2012, SC Coke had accrued approximately $15.9 million liability for estimated taxes. In the event that, PRC tax authority starts to collect this deferral, SC Coke will be subject to an overdue fine at the rate of 0.05% per day of the amount of taxes in arrears. The tax authority may also impose an additional fine of 50% to five times the underpaid taxes. SC Coke has been unable to determine the potential penalties and interest related to the overdue tax balance at this time.

SC Coke has available funds to cover the unpaid tax liability, but may not have sufficient funds available to pay the fine. The Chairman entered into a tax indemnity agreement on May 23, 2010, pursuant to which he agreed to indemnify SC Coke for any interest, penalties or other related extra costs resulting from the prior and any future tax underpayments in tax years in which he managed and operated SC Coke. The indemnification is capped at $35.6 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Report. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.

Background

Operating through Henan Shuncheng Group Coal Coke Co., Ltd. (“SC Coke”), a variable interest entity incorporated under the laws of People’s Republic China (“PRC”), we are a vertically integrated coke producer with facilities and operations based solely in the PRC, principally in Henan Province. SC Coke, which operates and derives its revenue solely in the PRC, has a coke production plant with current capacity of approximately 1.7 million tons of coke annually, equity ownership in a coal mine and two coal washing plants (producing refined coal).

We control SC Coke and its operations through a series of contractual arrangements between Anyang Shuncheng Energy Technology Co., Ltd. (“Anyang WOFE”), our Chinese wholly-foreign owned enterprise subsidiary, and SC Coke and its shareholders.

Corporate History

We were incorporated in the State of Colorado on September 28, 1989. We were previously a residential real estate holding company. In September 2006, we sold our real estate assets to its then president and, effective December 6, 2006, our plan was to evaluate the structure and complete a merger with, or acquisition of, prospects consisting of private companies, partnerships or sole proprietorships.

On May 14, 2010, we entered into a share exchange agreement (the “Share Exchange Agreement”) with Shun Cheng Holdings Hong Kong Limited (“Shun Cheng HK”), the former shareholders of Shun Cheng HK (the “Shun Cheng HK Shareholders”), and our former principal shareholders, pursuant to which the Shun Cheng HK Shareholders agreed to transfer all of the issued and outstanding securities of Shun Cheng HK to us in exchange for 30,233,750 shares of our common stock (the “Share Exchange”). The Share Exchange closed on June 28, 2010, at which time Shun Cheng HK became our wholly-owned subsidiary. The acquisition of Shun Cheng HK has been accounted for as a reverse merger. For accounting purposes, Shun Cheng HK is the acquirer in the reverse acquisition transaction and, consequently, its financial results have been reported on a historical basis.

The corporate structure of the Company, after taking into account the Share Exchange, is as follows:

Contractual Arrangements

Our relationships with SC Coke and its shareholders are governed by a series of contractual arrangements, described below, through which we exercise management rights over SC Coke. None of the Company, Shun Cheng HK, and Anyang WOFE owns any direct equity interest in SC Coke. On March 19, 2010, Anyang WOFE entered into the following contractual arrangements with SC Coke and its shareholders:

Entrusted Management Agreement. Pursuant to the entrusted management agreement between Anyang WOFE, on the one hand, and SC Coke and Wang Xinshun, Wang Xinming and Cheng Junsheng (collectively, the “SC Coke Shareholders”), on the other hand, (the “Entrusted Management Agreement”), SC Coke and the SC Coke Shareholders agreed to entrust the business operations of SC Coke and its management to Anyang WOFE until Anyang WOFE acquires all of the assets or equity of SC Coke (as more fully described under “Exclusive Option Agreement” below). Under the Entrusted Management Agreement, Anyang WOFE manages SC Coke’s operations and assets, and controls all of SC Coke’s cash flow and assets through entrusted or designated bank accounts. In turn, it is entitled to any of SC Coke’s net earnings as a management fee, and is obligated to pay all SC Coke’s debts to the extent SC Coke is not able to pay such debts. Such management fees payable by SC Coke shall accrue until such time as the parties shall mutually agree. The Entrusted Management Agreement will remain in effect until the acquisition of all assets or equity of SC Coke by Anyang WOFE is completed.

Shareholders’ Voting Proxy Agreement. Under the shareholders’ voting proxy agreement (the “Shareholders’ Voting Proxy Agreement”) between Anyang WOFE and the SC Coke Shareholders, the SC Coke Shareholders irrevocably and exclusively appointed the board of directors of Anyang WOFE as their proxy to vote on all matters that require SC Coke shareholder approval. The Shareholders’ Voting Proxy Agreement shall not be terminated prior to the completion of the acquisition of all assets or equity of SC Coke by Anyang WOFE.

Exclusive Option Agreement. Under the exclusive option agreement (the “Exclusive Option Agreement”) between Anyang WOFE, on the one hand, and SC Coke and the SC Coke Shareholders, on the other hand, the SC Coke Shareholders granted Anyang WOFE an irrevocable exclusive purchase option to purchase all or part of the shares or assets of SC Coke. The option is exercisable at any time on or after June 28, 2010, but only to the extent that such purchase does not violate any PRC law then in effect. The exercise price shall be the minimum price permitted under the PRC law then applicable and such price, subject to applicable PRC law, shall be refunded to Anyang WOFE or SC Coke for no consideration or the minimum consideration permitted under the PRC law then applicable, whichever is more, in a manner decided by Anyang WOFE, at its reasonable discretion.

Shares Pledge Agreement. Under the shares pledge agreement between Anyang WOFE, on the one hand, and SC Coke and the SC Coke Shareholders, on the other hand, (the “Shares Pledge Agreement”), the SC Coke Shareholders pledged all of their equity interests in SC Coke, including the proceeds thereof, to guarantee all of Anyang WOFE’s rights and benefits under the Entrusted Management Agreement, the Exclusive Option Agreement and the Shareholders’ Voting Proxy Agreement. Prior to the termination of the Shares Pledge Agreement, the pledged equity interests cannot be transferred without Anyang WOFE’s prior consent.

Overview

SC Coke, which operates and derives its revenue solely in the PRC, is a vertically integrated coke producer, that has a coke production plant with current capacity of approximately 1.7 million tons of coke annually, equity ownership in a coal mine and two coal washing plants (producing refined coal). From our refined coal production process, byproducts such as medium coal and coal slurry are produced and sold. From coke production, SC Coke recycles and produces coke byproducts, including crude benzol, amsulfate, coal gas and tar. These coke byproducts are either marketed and sold, or recycled and consumed to provide electricity for its internal operations. For the purpose of this discussion, such refined coal and coke byproducts are referred to as “secondary products.”

The PRC coke manufacturing industry is highly competitive. The average sale prices for products are driven by a number of factors, including the particular composition and grade or quality of the coal or coke being sold, prevailing market prices for these products in the Chinese local, national and global marketplace, timing of sales, delivery terms, negotiations between SC Coke and its customers, and relationships with those customers.

The Chinese coking industry is also a regionalized business where supply of raw materials and the demand for coke become uneconomical at long distances as transportation costs become prohibitive. SC Coke estimates that supply of raw materials and demand for coke to be delivered by truck transportation is uneconomical beyond 800 kilometers (approximately 500 miles); and access to and delivery by rail becomes a critical competitive factor. SC Coke is located in close proximity to the main coal mining provinces of Shanxi and Henan in China and has a private railway line, approximately 1.7 kilometers (approximately 1 mile) in length, which provides connection to the national railway network.

As the coke industry is highly dependent on the iron and steel industries, it is affected by many of the same factors that impact the iron and steel industries. Iron and steel are basic commodities that are required in many other industries, such as construction, infrastructure works, automotive and aerospace. The iron and steel industries are highly cyclical and have historically been very volatile. Similarly, the price and demand for coke has also experienced such cyclicality and volatility. SC Coke intends to focus on better recycling and use of its secondary products, in particular coke byproducts. The applications for coke byproducts are expected to be more diverse; therefore, demand factors for coke byproducts are likely to be different from the factors applicable to the iron and steel industries; for example, coal tar is used for the treatment of psoriasis and amsulfate is used as agricultural fertilizer.

The primary raw material for coke production is coal, principally coking coal. Raw coal is washed to produce refined coal which is the main raw material for SC Coke’s coke production. Coke prices are highly correlated to coal prices. SC Coke’s production process is as follows:

Because of our reliance on coal, SC Coke acquired an equity ownership interest in a coal mine. Although SC Coke has developed multiple sources of coal supplies and long term relationships with its coal suppliers, because of the PRC government policies of encouraging consolidation in the coal mining industry, SC Coke may continue to invest in coal mines, if, when and where opportunities are available and the terms of such investments are economically attractive.

The PRC government adopted policies to encourage consolidation in the PRC coal mining industry whereby smaller and inefficient coal mines have been shut down. Similarly in the iron and steel industries, which are SC Coke’s main customers, companies have been merged and consolidated by the government. We believe that the coke manufacturing industry may face similar consolidation pressures in the future. Accordingly, SC Coke intends to continue its capacity expansion to maintain its competitive positioning.

SC Coke has started construction on two additional coke ovens which when completed are expected to increase SC Coke’s production capacity to approximately 3.0 million tons of coke annually. This increase in coke production may produce sufficient quantities of coke byproducts to allow SC Coke to potentially consider producing further downstream secondary products; for example, crude benzol, a current byproduct, possibly processed further to produce benzene.

For the reasons above, the availability of expansion capital is critical to SC Coke to facilitate capacity expansion, downstream diversification or upstream acquisitions. If such capital is unavailable on commercial terms, if at all, SC Coke’s growth and business could be materially adversely affected.

Results of Operations

Three Months ended September 30, 2012 Compared to the Three Months ended September 30, 2011

Revenues.

Along with the decrease in coke production and sales, revenues for the three months ended September 30, 2012 decreased significantly from the revenues for the three months ended September 30, 2011 by $22,618,784, from $114,953,099 to $ 92, 334, 315, which was a decrease of 19.7%.

The decrease in revenue was primarily because the product unit price for coke kept at a low level. When compared with the same period of 2011, average sales price per ton for coke decreased from $266 to $220.

Cost of Goods Sold and Gross Profit. Cost of goods sold is comprised of raw material, labor and manufacturing costs. Cost of goods sold decreased from $113 million for the three months ended September 30, 2011 to $94 million for the three months ended September 30, 2012. The primary reasons for this decrease were in line with the decrease in sales revenue. Gross profit decreased from $2.0 million for the three months ended September 30, 2011 to $1.4 million loss for the three months ended September 30, 2012; and gross profit margin decreased from 1.8% for the three months ended September 30, 2011 to 1.5% loss for the three months ended September 30, 2012, due to an increase in the average unit raw material price.

Operating Expenses. Operating expenses increased by 51% from $3.6 million for the three months ended September 30, 2011 to $5.4 million for the three months ended September 30, 2012. Operating expenses are comprised of sales and marketing expenses and general and administrative expenses. Sales and marketing expenses increased marginally from $1.9 million for the three months ended September 30, 2011 to $4.1 million in the three months ended September 30, 2012 which was due to the increased freight expense. General and administrative expenses decreased from $1.7 million for the three months ended September 30, 2011 to $1.4 million for the three months ended September 30, 2012.

Interest Income and Expense. Interest expense for the three months ended September 30, 2011 was $4.8 million compared to interest expense for the three months ended September 30, 2012 of $3.9 million.

Provision for Income Taxes. Provision for income taxes was nil in both the three months ended September 30, 2012 and the three months ended September 30, 2011. SC Coke and Longdu were subject to a corporate income tax rate of 25% during the three months ended September 30, 2012 and 2011.

Net Income. SC Coke recorded net loss of $11.0 million for the three months ended September 30, 2012 compared to net loss of $4.6 million for the three months ended September 30, 2011. The decrease was primarily due to the reasons explained above.

Results of Operations

Nine Months ended September 30, 2012 Compared to the Nine Months ended September 30, 2011

Revenues.

Along with the decrease in coke production and sales, revenues for the nine months ended September 30, 2012 decreased from the revenues for the nine months ended September 30, 2011 by $9,884,400, from $302,885,541, which was a decrease of 3.3%. The decrease in revenue was primarily due to the product unit price for coke kept at a low level. When compared with the same period of 2011, average sales price per ton for coke decreased from $258 to $220.

Cost of Goods Sold and Gross Profit. Cost of goods sold is comprised of raw material, labor and manufacturing costs. Cost of goods sold increased from $285 million for the nine months ended September 30, 2011 to $298 million for the nine months ended September 30, 2012. The primary reasons for this increase were the increase in production and raw material costs. Gross profit decreased from $17.4 million for the nine months ended September 30, 2011 to $4.7 million loss for the nine months ended September 30, 2012; and gross profit margin decreased from 5.7% for the nine months ended September 30, 2011 to 1.6% loss for the nine months ended September 30, 2012, due to an increase in the average unit raw material price.

Operating Expenses. Operating expenses increased by 45% from $13.0 million for the nine months ended September 30, 2011 to $18.9 million for the nine months ended September 30, 2012. Operating expenses are comprised of sales and marketing expenses and general and administrative expenses. Sales and marketing expenses increased marginally from $6.7 million for the nine months ended September 30, 2011 to $10.2 million for the nine months ended September 30, 2012, which is due to the increased freight expenses. General and administrative expenses increased from $6.3 million for the nine months ended September 30, 2011 to $8.7 million for the nine months ended September 30, 2012 due to the inventory impairment provision accrued in the nine months ended September 30, 2012.

Interest Income and Expense. Interest expense for the nine months ended September 30, 2011 was $12.8 million compared to interest expense for the nine months ended September 30, 2012 of $17.7 million, due to an increase in bank notes payable during the period. Interest income increased by $0.2 million for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011.

Net Income. SC Coke recorded net loss of $36.9 million for the nine months ended September 30, 2012 compared to net loss of $4.3 million for the nine months ended September 30, 2011. The decrease was due to the reasons explained above.

Liquidity and Capital Resources

Net Cash Provided by (Used in)Operating Activities

Net cash provided by operating activities for the three months ended September 30, 2012 was $2,047,361 compared with net cash used by operating activities for the three months ended September 30, 2011 of $769,255. Net cash provided by inventory was $2,237,531 for the three months ended September 30, 2012 compared with net cash used of approximately $1,377,895 for the three months ended September 30, 2011.

Net cash provided by operating activities for the nine months ended September 30, 2012 was $16,573,099 compared with net cash used in operating activities for the nine months ended September 30, 2011 of $17,257,753. Net cash used by prepayment and other receivable was $39,090,244 for the nine months ended September 30, 2012 compared with net cash used of approximately $22,256,982 for the nine months ended September 30, 2011. Net cash provided by inventory was $19,122,316 for the nine months ended September 30, 2012 compared with net cash used of approximately $3,477,481 for the nine months ended September 30, 2011. Moreover, Net cash provided by other payable and current liabilities was $25,502,744 for the nine months ended September 30, 2012 compared with net cash used of $24,936,768 for the nine months ended September 30, 2011. However, net cash used by accounts receivable was $3,636,425 for the nine months ended September 30, 2012 compared with net cash provided of $4,995,879 for the nine months ended September 30, 2011.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities for the three months ended September 30, 2012 was $33,532,318 compared to $948,789 for the three months ended September 30, 2011. Net cash provided by restricted cash was $ 23,238,287 for the three months ended September 30, 2012 compared with $8,151,105 for the three months ended September 30, 2011. Net cash provided by construction in progress was $11,566,292 for the three months ended September 30, 2012 compared with net cash used of $4,464,559 for the three months ended September 30, 2011.

Net cash used in investing activities was $26,049,014 for the nine months ended September 30, 2012 as compared to $79,953,500 for the nine months ended September 30, 2011. The primary reason for the decrease was that we have invested in building our infrastructures and increased restricted cash in the first nine months of 2011.

Net Cash Provided by (Used in) Financing Activities

Net cash used by financing activities in the three months ended September 30, 2012 was $32,189,715 compared with net cash $10,022,318 for the three months ended September 30, 2011. Net cash used by bank notes payable was $39,841,266 for the three months ended September 30, 2012 compared with $16,178,654 for the three months ended September 30, 2011.

Net cash provided in financing activities was $12,316,496 for the nine months ended September 30, 2012 as compared to $88,647,154 for the nine months ended September 30, 2011. Net cash provided by bank notes payable was $3,390,633 for the nine months ended September 30, 2012 compared with net cash provided of approximately $63,501,656 for the nine months ended September 30, 2011. And, for the nine months ended September 30, 2012, SC Coke repaid loans of $7,646,205 to related parties.

Capital Resources

Funding for our business activities has historically been provided by cash flow from operations, and short-term lender financing, including loans from SC Coke’s sole director Xinshun Wang, who is also our Chairman of the Board of Directors, and/or from short term and long term bank loans obtained from local financial institutions.

The original loans from Xinshun Wang were interest free and had no repayment terms. On May 23, 2010, SC Coke entered into a loan agreement with its sole director regarding outstanding loans to SC Coke of $35.6 million as of December 31, 2009. The principal terms of the loan are: (a) 12 year term, from December 31, 2009 to December 31, 2021, (b) 3% fixed annual interest on a non-compounded basis over the term of the loan, (c) SC Coke has the option, but not the obligation, to pay interest for the first two years, (d) 10 year equal payments from December 31, 2012 to December 31, 2021, and (e) the lender has no ability to call a default. Additionally, on May 31, 2010, SC Coke’s sole director agreed to indemnify SC Coke from any underpayment of its income tax in prior and future years, and all associated interest, penalties and costs as a result of such underpayment, up to a maximum of $35.6 million.

On March 31, 2010, the SC Coke Shareholders, and Anyang Xinlong Coal (Group)Hongling Coal Co., Ltd., Anyang Huichang Coal Washing Co., Ltd. and Anyang Jindu Coal Co., Ltd (collectively, the “third party lenders”) formalized the terms for approximately $35.5 million of loans previously extended to SC Coke by the three lenders.

On June 21, 2010, the SC Coke Shareholders entered into an agreement with the third party lenders to assume the obligations of the third party lenders, and concurrently the third party lenders released SC Coke from any liability. Also, on June 21, 2010, SC Coke and the SC Coke Shareholders entered into a debt agreement for the original principal amount of the loans due to the third party lenders

Because of SC Coke’s rapid capacity expansion, its internally generated funds from operations have historically been insufficient to meet its liquidity requirements. The growth of SC Coke has been dependent on outside financings to meet its liquidity, working capital and expansion expenditures. As of September 30, 2012, total loans payable were $82.4 million (excluding $62.8 million related party loan from SC Coke’s sole director), among which $82.4 million was short term and payable in the next 12 months. These loans have interest rates ranging from 5.78% to 15.09%, and certain of the loans are collateralized.

The loans are guaranteed by various parties in exchange for corresponding guarantees obtained from SC Coke. For a description of such guarantees, refer to “Off-Balance Sheet Arrangements.” If such bank financings become unavailable to us and/or additional funding is not obtained, we may not be able to meet our financing obligations, which could have a material adverse impact on our business. If SC Coke is required to satisfy obligations of any of its guarantees, it could have a material adverse impact on its financial condition.

As part of our operations, SC Coke issues bank notes payable as payments to its suppliers. These bank notes payable are issued by financial institutions and require deposits from SC Coke, ranging from 50% to 100% of the bank notes issued. Bank notes were payable outstanding at September 30, 2012 were $191 million.

SC Coke’s management intends to continue to develop its business through (1) increased coking production volumes to seek to achieve greater economies of scale which it believes will increase productivity and energy efficiency; (2) better recycling and usage of coking byproducts which have higher profit margins and create less environmental impact; and (3) potential acquisitions or equity participation in third party coal mines to source raw materials. Growth through facility expansion and acquisition will require additional bank financing and/or equity capital, and therefore the sustainability of such growth will be dependent upon the availability of financing arrangements and capital, if any, on acceptable terms. SC Coke’s management believes that the costs associated with its expansion activities will be funded through cash flows from operations and additional short and long-term debt obligations and/or raising funds through equity offerings, if any such financing is available on terms acceptable to the Company. If additional funding is not obtained, SC Coke will need to reduce, defer or cancel development programs, planned initiatives or overhead expenditures, to the extent necessary. The failure to fund SC Coke’s capital requirements would have a material adverse effect on its business, financial condition and results of operations.

Capital Expenditures

During the nine months ended September 30, 2012, SC Coke made approximately additional capital expenditures of $2.8 million. Such additional capital expenditures were primarily used for the purchases of coking equipment, upgrades and improvements to its coke production facilities.

Foreign Currency Translation Gains and Losses

During three months ended September 30, 2012, SC Coke recognized a foreign currency translation gain of $0.02 million as compared to a foreign currency translation gain of $0.4 million for the three months ended September 30, 2011 due to the decrease in the value of the RMB to the U.S. Dollar in the third quarter. During nine months ended September 30, 2012, SC Coke recognized a foreign currency translation gain of $1.9 million as compared to a foreign currency translation gain of $1.4 million for the nine months ended September 30, 2011 due to a increase in the value of the RMB to the U.S. Dollar and the increase in SC Coke’s overall debt to equity ratio.

Off-Balance Sheet Arrangements

SC Coke has entered into financial guarantees and similar commitments to guarantee the payment obligations of third parties. Conversely, SC Coke’s debt with lenders is also guaranteed by other parties which may be related or unrelated to us. As an industry practice, Chinese financial institutions require third party guarantees in order to provide both short term and long term bank loans to any corporate borrower. Because of this requirement, it is common practice that Chinese private enterprises enter into arrangements with other private enterprises to provide mutual guarantees in order to obtain bank loans from local Chinese financial institutions.

Typically, SC Coke enters into such mutual guarantees for companies that have good longstanding relationships with SC Coke or its sole director and our Chairman of the Board of Directors, Xinshun Wang, and a mutual guarantee provided to SC Coke of approximately similar amounts. Such guarantees are typically for a period of 2 years from the date of issuance of the guarantees.

Changes in the economic environment could leave SC Coke exposed for obligations that it has guaranteed which could have a materially negative impact on our ongoing business, and cause SC Coke to potentially be unable to meet its obligations under other bank financings. Additionally, should any of the companies for which SC Coke provides guarantees defaults, and the banks enforce SC Coke’s guarantees, SC Coke’s recourse may only be limited to default on the mutual guarantee; SC Coke may not be able to meet the liquidity and working capital requirements for our ongoing business, resulting in a material adverse impact on our business.

As of September 30, 2012, SC Coke guaranteed the obligations of seventeen companies of approximately $116 million in total principal outstanding. SC Coke’s potential liability under guarantees could include interest, default interest and the obligation to pay costs of collection in addition to principal amounts to which the guarantees relate.

We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk, or credit support to us or engages in leasing, hedging, or research and development services with us.

Inflation

In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. During the past fifteen years, the official consumer price index in China has been as high as 24.1% and as low as -1.4%; while these inflation rates are an average national basis, the regional inflation in the major cities has been higher. These factors have led to the adoption by the PRC government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation including bank lending restrictions on property investment in China. While inflation has been more moderate since 1995, high inflation may in the future cause the PRC government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for SC Coke’s products. SC Coke’s operations have also experienced cost increases, including labor costs and raw material costs. SC Coke expects its operating costs to increase in tandem with the inflationary environment, particularly because of the economic growth in China, and we expect higher inflation rates to impact our operating costs in the near term.

Critical Accounting Policies and Estimates

Basis of Presentation

In preparing our consolidated financial statements in accordance with accounting principles generally accepted in the United States, we are required to make judgments, estimates and assumptions that affect: (i) the reported amounts of our assets and liabilities; (ii) the disclosure of our contingent assets and liabilities at the end of each reporting period; and (iii) the reported amounts of revenue and expenses during each reporting period. We continually evaluate these estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other sources. Because the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. We believe that any reasonable deviation from those judgments and estimates would not have a material impact on our financial condition or results of operations. To the extent that the estimates used differ from actual results, however, adjustments to the statement of operations and corresponding balance sheet accounts would be necessary. These adjustments would be made in future financial statements. When reading our financial statements, you should consider: (i) our critical accounting policies; (ii) the judgment and other uncertainties affecting the application of such policies; and (iii) the sensitivity of reported results to changes in conditions and assumptions. We believe the following accounting policies involve the most significant judgment and estimates used in the preparation of our financial statements. SC Coke has not made any material changes in the methodology used in these accounting polices during the past two years.

We consolidated the financial position, results of operations, and cash flows of SC Coke and Longdu based on accounting guidance found in FASB ASC 810 Consolidation of Variable Interest Entities which calls for us to consider various factors indicative of the relationship between the WOFE and SC Coke and Longdu. We considered the risks (absorption of potential losses), benefits (residual returns), obligations (repayment of debt on behalf of subsidiaries or the operating entities), nature of the business, legal aspects, and the purpose of the entities in concluding that SC Coke and Longdu should be treated for accounting purposes as wholly-owned subsidiaries.

Use of Estimates

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the U.S., management makes estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosure of contingent assets and liabilities. Significant estimates and assumptions are used for, but not limited to, allowance for trade receivables, economic lives of property, plant and equipment, asset impairments, and contingency reserves. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. In addition, any change in these estimates or their related assumptions could have an adverse effect on the Company’s operating results.

Long lived assets make up a significant portion of our asset base. Accordingly, we make regular assessments of our estimates of the useful lives, potential residual values, and potential impairments of our long lived assets.

The carrying value of trade receivables is subject to our estimate of the allowance for doubtful accounts. We perform a regular analysis of the aging of our receivables in order to determine that estimate.

Bank Notes Receivable/Payable

Banks in China commonly issue bank notes to companies for transactional purposes. The bank notes do not have a stated interest rate, but may be redeemed by the holder at a discount before the maturity date. The requirements by the banks vary, but the usual transaction will require the borrowing company to pay approximately 50% of the bank note upon issuance and deposit the remaining 80% to 100% with the bank as restricted funds. The amount of money required depends on bank policy and the credit rating of the requesting company. The notes are settled at maturity, which is usually between three to six months.

SC Coke accepts bank notes receivable from vendors in China as payment for products sold in the ordinary course of business. SC Coke also obtains bank notes from various banks to pay vendors for coal or for deposits on machinery or coal. Due to the short-term nature of the bank notes and the immaterial credit risk, as a function of the notes bearing the full creditworthiness of the issuing banks, SC Coke considers both bank notes receivable and bank notes payable at face value to be recorded at their fair market value. Despite the liquid nature of the bank notes, SC Coke does not include in current cash bank notes receivable with a maturity of less than three months.

Revenue Recognition and Trade Receivables

SC Coke is primarily in the business of processing coal to produce and sell coke. During the production process, several byproducts are produced, which SC Coke refines to produce and sell additional products. SC Coke’s primary customers are long-term customers with which SC Coke has developed long-term selling relationships. Most of these customers have long term contracts with SC Coke, but the terms of the contracts tend to change with the prevailing market price of coal and/or coke. Credit investigations are performed on new customers before a contract is approved. SC Coke reviews trade receivables and provides an allowance for receivables its suspects might not be collectable.

Revenue is recognized when products are fully delivered and accepted and collection is reasonably assured.

We believe that our revenue recognition policy meets the prescribed guidelines found in the FASB ASC 605-10 and is conservative in nature because our policy is reliant on customer acceptance documentation.

Plant and Equipment

Plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets.

Repairs and maintenance costs are expensed as incurred. Gain or loss on disposals are immaterial and included in cost of revenues for the six months ended September 30, 2012 and 2011. SC Coke capitalizes interest attributable to capital construction projects in accordance with Accounting Standards Codification subtopic 835-20, Capitalization of Interest , which requires interest to be capitalized for assets that are constructed or otherwise produced for an entity’s own use, including assets constructed or produced for the entity by others for which deposits or progress payments have been made.

Our existing plant and equipment make up a very material portion of our asset base. We are also actively adding to our facilities in order to both increase capacity and efficiency. The selection of a useful life for assets heavily impacts the amount of depreciation that we record and in turn the results of our operations. In accordance with PRC tax law, the PRC national government provides guidelines for useful lives for plant and equipment. The PRC tax depreciation guidelines are very strong indicators of appropriate useful lives; accordingly the PRC useful lives are used for both PRC tax law and US GAAP reporting purposes.

Long-term Investments

Long-term investments represent investments SC Coke has in private companies within China. SC Coke did not hold a greater than 20% interest in, and it has determined that it did not have significant control or influence over, any of SC Coke’s investment holdings other than Longdu. SC Coke’s investments are in private companies where there is not a market to determine the value of the investments. Accordingly, SC Coke records these investments at cost. SC Coke will continually evaluate its investments.

We have made equity investments in four private companies. The investments are passive in nature. We do not participate in management of the companies in which we invest. In the event that the companies in which we have invested become insolvent, the maximum loss that we would experience is up to the amount that we have invested. We review the financial statements of such companies annually to determine if there has been any impairment of our investment. We have not yet received any cash dividends from our investments. We are not aware that the companies in which we have invested currently have any plans to become public listed companies. If any of our investments became publicly listed, we would mark their values to fair market value on a quarterly basis.

Guarantees

From time to time, SC Coke provides guarantees of loans and other obligations for other, unrelated local enterprises. SC Coke’s potential liability under such guarantees could include interest, default interest and the obligation to pay costs of collection in addition to principal amounts to which the guarantee relates. Because banks typically require security for loans, such as guarantees, mortgages or pledges, and these enterprises, including SC Coke, have mortgaged and pledged all of their available assets in order to obtain additional bank loans, the local enterprises often agree to provide guarantees for one another. All of the guarantees provided by SC Coke are joint liability guarantees, which provide that when the debtor defaults, the bank can request SC Coke to pay the total debt outstanding without first enforcing its rights against the debtor. SC Coke records a liability for guarantees of loans and other obligations for others when: (i) information available indicates that it is probable that a liability has been incurred at the financial statement date, and (ii) the amount of the loss can be reasonably estimated.

Forgivable Loans

When all of the criteria set forth in the grants have been fulfilled, the amounts will become part of SC Coke’s permanent capital, which is restricted for growth purposes and cannot be used to pay dividends.

Income Taxes

SC Coke accounts for income taxes in accordance with ASC 740, Income Taxes (ASC 740) (formerly SFAS 109 Accounting for Income Taxes ). ASC 740 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. We adopted accounting policies in accordance with GAAP with regard to provisions, reserves, inventory valuation method, and depreciation that are consistent with requirements under Chinese income tax laws. Therefore, there were no significant deferred tax assets or liabilities recorded during the six months ended June 30, 2010. We adopted the provisions of ASC 740, Income Taxes , on January 1, 2009. This interpretation clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in our financial statements. The interpretation also provides guidance for the measurement and classification of tax positions, interest and penalties, and requires additional disclosure on an annual basis. The cumulative effect of the change was not material. Following implementation, the ongoing recognition of changes in measurement of uncertain tax positions will be reflected as a component of income tax expense. Interest and penalties incurred associated with unresolved income tax positions will continue to be included in other income (expense).

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Smaller reporting companies are not required to provide the information required by this item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. Our principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of September 30, 2012, pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Report, the Company’s disclosure controls and procedures were effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms.

A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

No changes were made to our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

Smaller reporting companies are not required to provide the information required by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) Exhibits

Exhibit Number		Description
31.1		Certification of Chief Executive Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of 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 Chief Financial Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Interactive Data File (Form 10-Q for the quarterly period ended September 30, 2012 furnished in XBRL)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BIRCH BRANCH, INC.

Date: January 7, 2013	By:	/s/ Feng Wang
		Feng Wang
		President, Chief Executive Officer. Chief Financial Officer and Director

EX-31.1 2 v329738_ex31-1.htm EXHIBIT 31.1

EXHIBIT 31.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

I, Feng Wang, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Birch Branch, Inc. (the “registrant”):

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 registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer(s) 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 13-a13a-15(f) and 15d-15(f)) for the registrant and 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 registrant, 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 registrant’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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’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 registrant’s internal control over financial reporting.

Date: January 7, 2013

/s/ Feng Wang

Feng Wang

Chief Executive Officer

(Principal Executive Officer)

EX-31.2 3 v329738_ex31-2.htm EXHIBIT 31.2

EXHIBIT 31.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

I, Feng Wang, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Birch Branch, Inc. (the “registrant”):

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;

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 registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) 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 13-a13a-15(f) and 15d-15(f)) for the registrant and have:

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 registrant, 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;

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;

Evaluated the effectiveness of the registrant’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

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 7, 2013

/s/ Feng Wang

Feng Wang

Chief Financial Officer

(Principal Financial Officer)

EX-32.1 4 v329738_ex32-1.htm EXHIBIT 32.1

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 Quarterly Report of Birch Branch, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2012 (the “Report”), I, Feng Wang, Chief Executive 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, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities 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.

Date: January 7, 2013

/s/ Feng Wang

Feng Wang

Chief Executive Officer

(Principal Executive Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed from within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 5 v329738_ex32-2.htm EXHIBIT 32.2

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 Quarterly Report of Birch Branch, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2012 (the “Report”), I, Lei Wang, 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, that:

The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: January 7, 2013

/s/ Feng Wang

Feng Wang

Chief Financial Officer

(Principal Financial Officer)

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<table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 8.65pt;">1.</td><td>The Company and Principal Business Activities</td></tr></table><p style="text-align: justify; text-indent: -8.65pt; margin: 0pt 0px 0pt 8.65pt; font: 10pt times new roman, times, serif;"> </p><table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 8.65pt;">A.</td><td>Organizational History</td></tr></table><p style="text-align: justify; text-indent: -8.65pt; margin: 0pt 0px 0pt 8.65pt; font: 10pt times new roman, times, serif;"> </p><table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 8.65pt;">I.</td><td>Ultimate Holding Company</td></tr></table><p style="text-align: justify; text-indent: -13.2pt; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;"> </p><table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 8.65pt;">a.)</td><td>Birch Branch, Inc. (“BRBH”) was incorporated in the State of Colorado on September 29, 1989.  BRBH was originally formed to pursue real estate development projects until December 16, 2006. Unless the context requires or is otherwise indicated, the term the “Company” includes BRBH and the following entities, after giving effect to the Share Exchange (as defined herein):</td></tr></table><p style="text-align: justify; text-indent: -13.2pt; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;"> </p><table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 8.65pt;">II.</td><td>Intermediary Holding Companies</td></tr></table><p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 8.65pt;">a.)</td><td>Shun Cheng Holdings Hong Kong Limited (“Shun Cheng HK”) is an investment holding company that was incorporated in Hong Kong on December 18, 2009.</td></tr></table><p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;">Shun Cheng HK does not have any operations.  Its sole purpose is to act as an intermediary holding company.</p><p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 8.65pt;">b.)</td><td>On March 17, 2010, under the laws of the Henan Province, in the People’s Republic of China (“PRC”), Anyang Shuncheng Energy Technology Co., Ltd. (“Anyang WOFE”) was incorporated as a wholly-foreign owned entity.  Anyang WOFE is wholly-owned by Shun Cheng HK.</td></tr></table><p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;">Anyang WOFE does not conduct operations.  All operations are conducted through the operating entities via a variable interest entity agreement detailed below.</p><p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 8.65pt;">III.</td><td>Operating Entities</td></tr></table><p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;">All of the Company’s operations are located in the PRC, and are conducted through its operating entities detailed below:</p><p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;">a.) Henan Shuncheng Group Coal Coke Co., Ltd. (“SC Coke”) is a limited liability company organized in the PRC on August 27, 1997 as Anyang ShunCheng Washing Co., Ltd.  In February 2005, the name was changed to Coal Coking Co., Ltd.  In August 2007, the name was changed to the current name of Henan Shuncheng Group Coal Coke Co., Ltd.  SC Coke has three shareholders: Wang Xinshun, Wang Xinming and Cheng Junsheng (collectively, the “SC Coke Shareholders”) owning 60%, 20% and 20% interests, respectively.</p><p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;">SC Coke is located in the Henan Province coal chemical industry cluster area in Anyang County, about 40 kilometers (approximately 25 miles) to the northwest of Anyang City.  SC Coke is principally engaged in the processing of coal into coke, and related byproducts of cleaned coal, tar, crude benzene, and ammonium sulfate.</p><p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;">b.) Henan Shuncheng Group Longdu Trade Co., Ltd. (“Longdu”) is a limited liability company organized in the PRC on May 25, 2004.  SC Coke holds an 86% interest in Longdu.  The Company’s Chairman, Mr. Wang Xinshun, owns a 5% interest in Longdu.</p><p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;">Longdu is principally engaged in coal-washing and the production of refined coal, medium coal and coal slurry.  The majority of Longdu’s coal is sent to the Company for further processing, while the remainder is sold to outside customers.</p><p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 8.65pt;">B.</td><td>Variable Interest Entity Agreement</td></tr></table><p style="text-align: justify; margin: 0pt 0px 0pt 22pt; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;">On March 19, 2010, Anyang WOFE entered into four contractual arrangements that for accounting purposes will be collectively known as the variable interest entity (“VIE”) agreement with the SC Coke Shareholders.  The VIE agreement entitles Anyang WOFE to 100% of the future earnings and losses of both SC Coke, and its proportional 86% share of the earnings of Longdu.  The Company filed with the Securities and Exchange Commission (“SEC”) a Current Report on Form 8-K on July 2, 2010 that included the documents comprising the VIE agreement as exhibits.  The Company accounted for the VIE agreement, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810-10, by consolidating SC Coke and Longdu as operating entities (similar to a subsidiary) of both Anyang WOFE and the Company, because the Company: (1) has the authority to direct the operations of SC Coke and Longdu, (2) has the authority to provide financial support for SC Coke and Longdu, and (3) is primary beneficiary of the results of operations of SC Coke and Longdu.  The significant terms of the VIE agreement are detailed for each of the contractual arrangements below:</p><p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 8.65pt;"><font style="color: black;">I.</font></td><td><font style="color: black;">Entrusted Management Agreement</font></td></tr></table><p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;">Anyang WOFE has full and exclusive rights to manage SC Coke.  These rights include, but are not limited to: appointment and dismissal of the members of the board of directors, hiring and termination of managerial and administrative personnel, and control over assets, which includes deployment and disposition thereof, and related cash flows generated by these assets.</p><p style="margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;">Anyang WOFE is entitled to receive a quarterly management fee paid 45 days in arrears from the end of the quarter equivalent to SC Coke’s earnings before taxes for the quarter, subject to quarterly and annual adjustments.</p><p style="margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;">Anyang WOFE is subject to operational risk and is obligated to settle debts on behalf of SC Coke, if SC Coke does not have sufficient funds to pay its debts itself.</p><p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 8.65pt;">II.</td><td>Exclusive Option Agreement</td></tr></table><p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;">Anyang WOFE, or parties designated by Anyang WOFE, has been granted the irrevocable right to purchase all or part of the ownership interest of SC Coke from the SC Coke Shareholders for the minimum possible price permissible by PRC law.  The option is exercisable only to the extent that such purchase does not violate any PRC law then in effect.  The purchase right is exclusively granted to Anyang WOFE and is not transferable without the express written consent of the SC Coke Shareholders.</p><p style="margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;">The SC Coke Shareholders cannot dispose, assign or mortgage SC Coke assets or operations without the express written consent of Anyang WOFE.</p><p style="margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;">Unless unanimously terminated by all parties, the Exclusive Option Agreement remains in effect for SC Coke, the SC Coke Shareholders, and Anyang WOFE and their successors.</p><p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 8.65pt;">III.</td><td>Shareholders' Voting Proxy Agreement</td></tr></table><p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;">The SC Coke Shareholders have irrevocably appointed the board of directors of Anyang WOFE as their proxy to vote on all matters that require the approval of the SC Coke Shareholders.  These voting rights include, but are not limited to, the election of directors and the chairman of the board.</p><p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;">In the event that PRC regulations change (which regulations presently prohibit the transfer of SC Coke to Anyang WOFE), the SC Coke Shareholders may be exclusively permitted to transfer their ownership in SC Coke to Anyang WOFE; however, they are strictly prohibited from transferring their ownership in SC Coke to any other individuals or entities.</p><p style="text-align: justify; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;">The SC Coke Shareholders have agreed to irrevocably and unconditionally indemnify the board of directors of Anyang WOFE from claims arising from the exercise of any of the powers conferred upon Anyang WOFE under the agreement.</p><p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 8.65pt;">IV.</td><td>Shares Pledge Agreement</td></tr></table><p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 41.8pt; font: 10pt times new roman, times, serif;">The SC Coke Shareholders have pledged all of their ownership interests in SC Coke, including rights to PRC registered capital and dividends related to ownership in SC Coke, to guarantee their obligations under the Entrusted Management Agreement, the Exclusive Option Agreement and the Shareholders’ Voting Proxy Agreement.</p><p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><table style="margin-top: 0pt; width: 100%; font: 10pt times new roman,times,serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 8.65pt;">C.</td><td>Share Exchange Agreements</td></tr></table><p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;">On June 28, 2010, BRBH closed a share exchange transaction (the “Share Exchange”) in which BRBH issued 30,233,750 common shares to the former shareholders of Shun Cheng HK in exchange for all of the issued and outstanding shares of Shun Cheng HK.  In connection with the Share Exchange, certain shareholders of BRBH agreed to cancel 435,123 common shares and BRBH issued 540,472 common shares to financial consultants.  Immediately prior to the closing of the Share Exchange there were 1,708,123 common shares outstanding.  Upon completion of the Share Exchange and transactions contemplated by the Share Exchange agreement, there were 32,047,222 common shares outstanding.  Immediately following the closing of the Share Exchange, the former shareholders of Shun Cheng HK and the original shareholders of BRBH own approximately 95% and approximately 5% of BRBH’s issued and outstanding common shares, respectively.</p><p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;"> </p><p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;">The Share Exchange has been accounted for as a recapitalization of Shun Cheng HK in which BRBH (the legal acquirer) is considered the accounting acquiree and Shun Cheng HK (the legal acquiree) is considered the accounting acquirer.  As a result of the Share Exchange, BRBH is deemed to be a continuation of the business of Shun Cheng HK.  Accordingly, the financial data included in the accompanying consolidated financial statements for all periods prior to June 28, 2010 is that of the accounting acquirer Shun Cheng HK.  The historical stockholders’ equity of the accounting acquirer prior to the Share Exchange has been retroactively restated as if the Share Exchange occurred as of the beginning of the first period presented.</p>

<table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 8.65pt;">10.</td> <td>Bank Notes Payable</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;">The following table provides the name of the financial institutions, due dates, and amounts outstanding at September 30, 2012 for the Company’s bank notes payable:</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="padding-left: 0.36in;">Financial Institution</td> <td> </td> <td style="text-align: center;">Due Date</td> <td> </td> <td style="text-align: center;" colspan="2">9/30/2012</td> <td> </td> </tr> <tr style="vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;"> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt; width: 76%;">Guangdong Development Bank - Anyang Branch</td> <td style="width: 1%;"> </td> <td style="text-align: right; width: 10%;">10/16/2012</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">2,365,557</td> <td style="text-align: left; width: 1%;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Guangdong Development Bank - Anyang Branch</td> <td> </td> <td style="text-align: right;">10/27/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Guangdong Development Bank - Anyang Branch</td> <td> </td> <td style="text-align: right;">11/30/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">2,365,557</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Guangdong Development Bank - Anyang Branch</td> <td> </td> <td style="text-align: right;">3/5/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Guangdong Development Bank - Anyang Branch</td> <td> </td> <td style="text-align: right;">3/14/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">2,365,557</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Guangdong Development Bank - Anyang Branch</td> <td> </td> <td style="text-align: right;">3/19/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">788,519</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Guangdong Development Bank - Anyang Branch</td> <td> </td> <td style="text-align: right;">3/20/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">630,815</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Construction Bank - Zhongzhou Branch</td> <td> </td> <td style="text-align: right;">3/23/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6,308,153</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Shanghai Pudong Development Bank -Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">1/5/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">9,462,231</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Shanghai Pudong Development Bank -Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">11/24/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">2,365,557</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Shanghai Pudong Development Bank -Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">12/5/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">5,046,523</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Shanghai Pudong Development Bank -Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">12/7/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">4,731,115</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Shanghai Pudong Development Bank -Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">12/7/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Shanghai Pudong Development Bank -Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">12/12/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">2,996,373</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Shanghai Pudong Development Bank -Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">12/26/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">2,365,557</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Shanghai Pudong Development Bank -Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">2/15/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Shanghai Pudong Development Bank -Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">3/12/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Commercial Bank of Anyang</td> <td> </td> <td style="text-align: right;">2/24/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Commercial Bank of Anyang</td> <td> </td> <td style="text-align: right;">11/29/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6,308,153</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Commercial Bank of Anyang</td> <td> </td> <td style="text-align: right;">10/1/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">4,731,115</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Commercial Bank of Anyang</td> <td> </td> <td style="text-align: right;">12/11/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Bank of Luoyang - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">10/11/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">4,731,115</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Bank of Luoyang - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">10/26/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Bank of Luoyang - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">12/27/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,311,780</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Bank of Luoyang - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">1/3/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">4,573,411</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Everbright Bank - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">10/12/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Everbright Bank - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">12/20/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7,254,376</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Everbright Bank - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">1/29/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6,308,153</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Everbright Bank - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">2/7/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Everbright Bank - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">3/29/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">4,731,115</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Everbright Bank - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">10/26/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Everbright Bank - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">11/8/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Bank of Mingsheng - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">10/20/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7,254,377</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Bank of Mingsheng - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">12/4/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7,096,672</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Bank of Mingsheng - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">12/15/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,971,298</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Bank of Mingsheng - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">2/8/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Bank of Mingsheng - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">2/10/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">4,731,115</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Bank of Mingsheng - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">2/13/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,942,596</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Bank of Mingsheng - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">10/24/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Bank of Mingsheng - Zhengzhou Branch</td> <td> </td> <td style="text-align: right;">1/23/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Citic Bank- Anyang Branch</td> <td> </td> <td style="text-align: right;">11/21/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Citic Bank- Anyang Branch</td> <td> </td> <td style="text-align: right;">11/25/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Citic Bank- Anyang Branch</td> <td> </td> <td style="text-align: right;">11/28/2012</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,627,188</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Merchants Bank - Anyang Branch</td> <td> </td> <td style="text-align: right;">9/18/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Merchants Bank - Anyang Branch</td> <td> </td> <td style="text-align: right;">3/18/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">China Merchants Bank - Anyang Branch</td> <td> </td> <td style="text-align: right;">3/21/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,261,631</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-indent: -5.5pt; padding-left: 5.5pt;">Bank of China-Huojiacun Branch</td> <td> </td> <td style="text-align: right;">2/25/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6,387,005</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Industrial Bank-Weiyi Branch</td> <td> </td> <td style="text-align: right;">1/4/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6,308,153</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Industrial Bank-Weiyi Branch</td> <td> </td> <td style="text-align: right;">1/10/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">9,462,231</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Industrial Bank-Weiyi Branch</td> <td> </td> <td style="text-align: right;">7/17/2013</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">4,731,115</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt; text-indent: -5.5pt; padding-left: 5.5pt;">Industrial and Commercial Bank of China - Shuiye Branch</td> <td style="padding-bottom: 1pt;"> </td> <td style="text-align: right; padding-bottom: 1pt;">10/27/2012</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: left;"> </td> <td style="border-bottom: black 1pt solid; text-align: right;">1,577,038</td> <td style="text-align: left; padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-indent: -5.5pt; padding-left: 5.5pt;"> </td> <td> </td> <td style="text-align: right;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt; text-indent: -5.5pt; padding-left: 5.5pt;"> </td> <td style="padding-bottom: 2.5pt;"> </td> <td style="text-align: right; padding-bottom: 2.5pt;"> </td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">190,979,341</td> <td style="text-align: left; padding-bottom: 2.5pt;"> </td> </tr> </table> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The bank notes payable do not carry a stated interest rate, but do carry a specific due date.  These notes are negotiable documents issued by financial institutions on the Company’s behalf to vendors. These notes can either be endorsed by the vendor to other third parties as payment, or prior to coming due, they can factor these notes to other financial institutions. These notes are short term in nature and, as such, the Company does not calculate imputed interest with respect to them. These notes are collateralized by the Company’s Restricted Cash.</p>

<div style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 8.65pt;">11.</td> <td>Loans</td> </tr> </table> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px 0pt 27.35pt; font: 10pt times new roman, times, serif;">The components of the Company’s loans payable are as follows:</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="text-align: center;"> </td> <td> </td> <td style="text-align: center;" colspan="2"> </td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">Due</td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">Interest</td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">9/30/2012</td> <td> </td> </tr> <tr style="vertical-align: bottom;"> <td style="text-align: center;">Name of Creditors</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">Note</td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">Date</td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">Rate</td> <td> </td> <td> </td> <td style="text-align: center;" colspan="2">USD</td> <td> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; width: 48%;">Anyang Rural Credit Cooperative - Tongye Branch</td> <td style="width: 1%;"> </td> <td style="text-align: center; width: 1%;"> </td> <td style="text-align: center; width: 10%;">A</td> <td style="text-align: left; width: 1%;"> </td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">3/23/2013</td> <td style="text-align: left; width: 1%;"> </td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">10.933</td> <td style="text-align: left; width: 1%;">%</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">4,731,115</td> <td style="text-align: left; width: 1%;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Shanghai Pudong Development Bank - Zhengzhou Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">B</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3/1/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6.160</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Shanghai Pudong Development Bank - Zhengzhou Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">C</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3/7/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6.160</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Shanghai Pudong Development Bank - Zhengzhou Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">D</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">2/13/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6.160</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Commercial Bank of Anyang</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">E</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6/14/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6.310</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Commercial Bank of Anyang</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">F</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">8/21/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">12.000</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Agricultural Bank of China - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">G</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">10/10/2012</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">8.856</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,103,927</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Agricultural Bank of China - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">H</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">10/10/2012</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">8.856</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Agricultural Bank of China - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">I</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">10/10/2012</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">8.856</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Agricultural Bank of China - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">J</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">10/10/2012</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">8.856</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,627,188</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Guangdong Development Bank - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">K</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">9/5/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6.600</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7,885,192</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Guangdong Development Bank - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">L</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3/10/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6.160</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Guangdong Development Bank - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">M</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3/19/2012</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6.160</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Guangdong Development Bank - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">N</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3/20/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6.160</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">788,519</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Bank of Luoyang - Zhengzhou Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">O</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7/9/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7.200</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Bank of Luoyang - Zhengzhou Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">P</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">4/9/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7.872</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Bank of Luoyang - Zhengzhou Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">Q</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">12/20/2012</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7.020</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Bank of Luoyang - Zhengzhou Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">R</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">12/20/2012</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7.020</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">China Citic Bank - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">S</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1/8/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7.544</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">China Merchants Bank - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">T</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">11/9/2012</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7.544</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">China Merchants Bank - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">U</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">11/30/2012</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7.544</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">China Merchants Bank - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">V</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">9/19/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6.900</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">Zhengzhou Bank - Nongye Eastern Road Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">W</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">12/14/2012</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">8.528</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">4,731,115</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Industrial Bank - Weiyi Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">X</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1/13/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7.216</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">4,731,115</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">ICBC – Shuiye Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">Y</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3/21/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7.216</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">2,838,669</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">China Construction Bank - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">Z</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1/30/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6.160</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">1,577,038</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;">China Construction Bank - Anyang Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">a</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">10/26/2012</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">6.710</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Kaifeng Bank – Zhengzhou Agriculture St. Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">b</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7/4/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">5.784</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3,154,077</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Anyang Rural Credit Cooperative - Tongye Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">d</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">12/21/2012</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">15.088</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">4,683,804</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>Short-term bank loans-subtotal</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;">$</td> <td style="text-align: right;">82,431,793</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left;">Shanghai Pudong Development Bank - Zhengzhou Branch</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;">c</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">3/23/2013</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">7.820</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">5,835,042</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>Long-term bank loans, current portion-subtotal</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;">$</td> <td style="text-align: right;">5,835,042</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td> </td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td>Bank Loans-total</td> <td> </td> <td style="text-align: center;"> </td> <td style="text-align: center;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;">$</td> <td style="text-align: right;">88,266,835</td> <td style="text-align: left;"> </td> </tr> </table> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <div style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> SC Coke has collateralized its debt obligations above.  Refer to notes below for collateral corresponding to each obligation.</div> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;"> </p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">A</td> <td>Guaranteed by Henan Hubo Cement Co., Ltd and Linzhou Hongqiqu Electrical Carbon Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">B</td> <td>Guaranteed by Anyang Liyuan Coking Co., Ltd and Shareholders (Xinshun Wang, Xinming Wang and Junsheng Cheng)</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">C</td> <td>Guaranteed by Anyang Liyuan Coking Co., Ltd and Shareholders (Xinshun Wang, Xinming Wang and Junsheng Cheng)</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">D</td> <td>Guaranteed by Anyang Liyuan Coking Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">E</td> <td>Guaranteed by Linzhou Hongqiqu electrical Carbon Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">F</td> <td>Guaranteed by Linzhou Hongqiqu electrical Carbon Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">G</td> <td>Guaranteed by Henan Hubo Cement Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">H</td> <td>Guaranteed by Henan Hubo Cement Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">I</td> <td>Guaranteed by Henan Hubo Cement Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">J</td> <td>Guaranteed by Henan Hubo Cement Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">K</td> <td>Guaranteed by Henan Chengyu Coking Co., Ltd and Henan Hubo Cement Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">L</td> <td>Guaranteed by Henan Chengyu Coking Co., Ltd and Henan Hubo Cement Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">M</td> <td>Guaranteed by Henan Chengyu Coking Co., Ltd and Henan Hubo Cement Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">N</td> <td>Guaranteed by Henan Chengyu Coking Co., Ltd and Henan Hubo Cement Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">O</td> <td>Guaranteed by Anyang Xinpu Steel Co., Ltd, Xinshun Wang and Fengyun Wu</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">P</td> <td>Guaranteed by Xinlei Group Cheng Chen Coking and Xinshun Wang</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">Q</td> <td>Guaranteed by Anyang Xinpu Steel Co., Ltd, and Xinshun Wang</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">R</td> <td>Guaranteed by Anyang Xinpu Steel Co., Ltd, and Xinshun Wang</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">S</td> <td>Guaranteed by Henan Chengyu Coking Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">T</td> <td>Guaranteed by Anyang Liyuan Coking Co., Ltd and Henan Chengyu Coking Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">U</td> <td>Guaranteed by Anyang Liyuan Coking Co., Ltd and Henan Chengyu Coking Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">V</td> <td>Guaranteed by Anyang Liyuan Coking Co., Ltd and Henan Chengyu Coking Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">W</td> <td>Guaranteed by Anyang Liyuan Coking Co., Ltd and Linzhou Hongqiqu electrical Carbon Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">X</td> <td>Guaranteed by Henan Yutian Chemical Co., Ltd and Henan Chengyu Coking Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">Y</td> <td>Guaranteed by Cleaned coal</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">Z</td> <td>Guaranteed by Linzhou Hongqiqu electrical Carbon Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">a</td> <td>Guaranteed by Linzhou Hongqiqu electrical Carbon Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">b</td> <td>Guaranteed by Henan Yutian Chemical Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">c</td> <td>Guaranteed by Anyang Liyuan Coking Co., Ltd</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0%;"></td> <td style="width: 0.16in;">d</td> <td>Guaranteed by <font style="font-size: 10pt;">Anyang Nianxinpu Steel Co., Ltd</font></td> </tr> </table> </div>

<table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 8.65pt;">15.</td> <td style="text-align: justify;">Related Party Transactions</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;">SC Coke has specified the following transactions with related parties with ending balances as of September 30, 2012:</p> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;"> </p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="font-style: italic; width: 8.65pt;">A.</td> <td style="text-align: justify; font-style: italic;">Trade Receivables and Revenue</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;"> </p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 8.65pt;">(a)</td> <td style="text-align: justify;">Angang Steel Group Metallurgy Furnace Co., Ltd (Angang), in which SC Coke owns a 19% stake, is one of the customers of SC Coke.</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;">There was an ending balance in accounts receivable from Angang of approximately $53,096 as of September 30, 2012.</p> <p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;">Revenue recorded in the consolidated financial statements from Angang amounts to approximately $926,073 for the nine months ended September 30, 2012.</p> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;"> </p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="font-style: italic; width: 8.65pt;">B.</td> <td style="text-align: justify; font-style: italic;">Deposits and Cost of Revenues</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;"> </p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 8.65pt;">(a)</td> <td style="text-align: justify;">The Chairman and majority owner, Mr. Wang Xinshun, owns a 43.86% interest in Anyang Bailianpo Coal Co., Ltd. (Bailianpo) which provides raw coal to SC Coke.</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;">SC Coke had outstanding prepayment to Bailianpo of $433,984 as of September 30, 2012.</p> <p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px 12pt 56.1pt; font: 10pt times new roman, times, serif;">There were purchase transactions from Bailianpo amounted to appromimately $63,708 for the nine months ended September 30, 2012.  </p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 8.65pt;">(b)</td> <td style="text-align: justify;">SC Coke holds a 16% interest in Anyang Xinlong Coal (Group) Hongling Coal Co., Ltd. (Anyang Xinlong), which is a coal mine located in Anyang County providing SC Coke with a substantial portion of its coking coal requirements.</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;">SC Coke has an ending balance in accounts receivable from Anyang Xinlong of $218,863 as of September 30, 2012.</p> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;"> </p> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 8.65pt;">C.</td> <td style="text-align: justify; font-style: italic;">Advance to relatives of the Chairman</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;">As of September 30, 2012 and December 31, 2011, the advances to relatives of the Chairman are $8,630,507 and $2,351,815, respectively.</p> <p style="text-align: justify; margin: 0pt 0px 0pt 56.1pt; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px 0pt 0.5in; font: 10pt times new roman, times, serif;">SC Coke has specified the following transactions with related parties in 2011:</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <table style="margin-top: 0px; font: 10pt times new roman, times, serif; margin-bottom: 6pt;" cellspacing="0" cellpadding="0"> <tr style="text-align: justify; vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="text-align: left; width: 0.25in;"><i>A.</i></td> <td style="text-align: justify;"><i>Trade Receivables and Revenue</i></td> </tr> </table> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <table style="margin-top: 0px; font: 10pt times new roman, times, serif; margin-bottom: 6pt;" cellspacing="0" cellpadding="0"> <tr style="text-align: justify; vertical-align: top;"> <td style="width: 0.75in;"></td> <td style="text-align: left; width: 0.25in;">(a)</td> <td style="text-align: justify;">Angang Steel Group Metallurgy Furnace Co., Ltd (Angang), in which SC Coke owns a 19% stake, is one of the customers of SC Coke.</td> </tr> </table> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 1in; font: 10pt times new roman, times, serif;">There was an ending balance in accounts receivable from Angang of approximately $273,202 as of December 31, 2011.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 1in; font: 10pt times new roman, times, serif;">Revenue recorded in the consolidated financial statements from Angang amounts to approximately $535,978 for the nine months ended September 30, 2011.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <table style="margin-top: 0px; font: 10pt times new roman, times, serif; margin-bottom: 6pt;" cellspacing="0" cellpadding="0"> <tr style="text-align: justify; vertical-align: top;"> <td style="width: 0.5in;"></td> <td style="text-align: left; width: 0.25in;"><i>B.</i></td> <td style="text-align: justify;"><i>Deposits and Cost of Revenues</i></td> </tr> </table> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <table style="margin-top: 0px; font: 10pt times new roman, times, serif; margin-bottom: 6pt;" cellspacing="0" cellpadding="0"> <tr style="text-align: justify; vertical-align: top;"> <td style="width: 0.75in;"></td> <td style="text-align: left; width: 0.25in;">(a)</td> <td style="text-align: justify;">The Chairman and majority owner, Mr. Wang Xinshun, owns a 43.86% interest in Anyang Bailianpo Coal Co., Ltd. (Bailianpo) which provides raw coal to SC Coke.</td> </tr> </table> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 1in; font: 10pt times new roman, times, serif;">SC Coke had outstanding prepayment to Bailianpo of $614,849 as of December 31, 2011.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 1in; font: 10pt times new roman, times, serif;">There is no purchase transaction from Bailianpo for the nine months ended September 30, 2011.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <table style="margin-top: 0px; font: 10pt times new roman, times, serif; margin-bottom: 6pt;" cellspacing="0" cellpadding="0"> <tr style="text-align: justify; vertical-align: top;"> <td style="width: 0.75in;"></td> <td style="text-align: left; width: 0.25in;">(b)</td> <td style="text-align: justify;">SC Coke holds a 16% interest in Anyang Xinlong Coal (Group) Hongling Coal Co., Ltd. (Anyang Xinlong), which is a coal mine located in Anyang County providing SC Coke with a substantial portion of its coking coal requirements.</td> </tr> </table> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 1in; font: 10pt times new roman, times, serif;">SC Coke has an ending balance in accounts receivable from Anyang Xinlong of $260,850 as of December 31, 2011.</p> <p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 1in; font: 10pt times new roman, times, serif;">Cost of revenues related to purchases from Anyang Xinlong included in the consolidated financial statements amounts to approximately $1,484,931 for the nine months ended September 30, 2011.</p>

<table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 8.65pt;">16.</td> <td>Income Taxes</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;">The Company and its operating entities are subject to income tax under the jurisdictions where they operate. The following table details the Company and its operating entities, and the statutory tax rates to which they are subject:</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p> <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="border-bottom: black 1pt solid; text-align: center; font-style: italic;" nowrap="nowrap">Entity</td> <td style="padding-bottom: 1pt; font-style: italic;" nowrap="nowrap"> </td> <td style="border-bottom: black 1pt solid; text-align: center; font-style: italic;" colspan="2" nowrap="nowrap">Country of  Domicile</td> <td style="padding-bottom: 1pt; font-style: italic;" nowrap="nowrap"> </td> <td style="padding-bottom: 1pt; font-style: italic;" nowrap="nowrap"> </td> <td style="border-bottom: black 1pt solid; text-align: right; font-style: italic;" colspan="2" nowrap="nowrap">Income Tax Rate</td> <td style="padding-bottom: 1pt; font-style: italic;" nowrap="nowrap"> </td> </tr> <tr style="vertical-align: bottom;"> <td style="text-align: center; font-style: italic;"> </td> <td style="font-style: italic;"> </td> <td style="text-align: center; font-style: italic;" colspan="2"> </td> <td style="font-style: italic;"> </td> <td style="font-style: italic;"> </td> <td style="text-align: right; font-style: italic;" colspan="2"> </td> <td style="font-style: italic;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;" nowrap="nowrap">Birch Branch, Inc.</td> <td nowrap="nowrap"> </td> <td style="text-align: left;" nowrap="nowrap"> </td> <td style="text-align: right;" nowrap="nowrap">USA</td> <td style="text-align: left;" nowrap="nowrap"> </td> <td nowrap="nowrap"> </td> <td style="text-align: left;" nowrap="nowrap"> </td> <td style="text-align: right;" nowrap="nowrap">15.00%-35.00</td> <td style="text-align: left;" nowrap="nowrap">%</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt; width: 74%;">Shuncheng Holdings HongKong Ltd.</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">HK</td> <td style="text-align: left; width: 1%;"> </td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">16.50</td> <td style="text-align: left; width: 1%;">%</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Anyang Shuncheng Energy Technology Co., Ltd.</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">PRC</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">25.00</td> <td style="text-align: left;">%</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Henan Shuncheng Group Coal Coke Co., Ltd.</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">PRC</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">25.00</td> <td style="text-align: left;">%</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Henan Shuncheng Group Longdu Trade Co., Ltd.</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">PRC</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">25.00</td> <td style="text-align: left;">%</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"></p> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;">Although the Company is subject to United States income taxes, it is a holding company with no operations or profits within the U.S. borders. The Company currently only incurs expenses in the United States that are associated with being a public company.</p> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px 0pt 27.5pt; font: 10pt times new roman, times, serif;">Income (loss) before taxes and provision for taxes (tax benefit) consisted of the following for the nine months ended September 30, 2012 and 2011, respectively:</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">9/30/2012</td> <td style="padding-bottom: 1pt;"> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">9/30/2011</td> <td style="padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Income (loss) before tax:</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-indent: -5.5pt; padding-left: 5.5pt;">USA</td> <td> </td> <td style="text-align: left;">$</td> <td style="text-align: right;">-</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;">$</td> <td style="text-align: right;">-</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-indent: -5.5pt; padding-left: 5.5pt; width: 74%;">HK</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">4</td> <td style="text-align: left; width: 1%;"> </td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">(53</td> <td style="text-align: left; width: 1%;">)</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="padding-bottom: 1pt; text-indent: -5.5pt; padding-left: 5.5pt;">PRC</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: left;"> </td> <td style="border-bottom: black 1pt solid; text-align: right;">(38,748,534</td> <td style="text-align: left; padding-bottom: 1pt;">)</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: left;"> </td> <td style="border-bottom: black 1pt solid; text-align: right;">(5,667,385</td> <td style="text-align: left; padding-bottom: 1pt;">)</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt; text-indent: -5.5pt; padding-left: 17.6pt;">Total:</td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">(38,748,530</td> <td style="text-align: left; padding-bottom: 2.5pt;">)</td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right;">(5,667,438</td> <td style="text-align: left; padding-bottom: 2.5pt;">)</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-indent: -5.5pt; padding-left: 5.5pt;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Provision for income taxes:</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">US Federal</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">-</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">-</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-indent: -5.5pt; padding-left: 5.5pt;">State</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">-</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">-</td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="padding-bottom: 1pt; text-indent: -5.5pt; padding-left: 5.5pt;">PRC</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: left;">$</td> <td style="border-bottom: black 1pt solid; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 1pt;"> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: left;">$</td> <td style="border-bottom: black 1pt solid; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt; text-indent: -5.5pt; padding-left: 17.6pt;">Total provision for taxes (tax benefit):</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: left;">$</td> <td style="border-bottom: black 1pt solid; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 1pt;"> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: left;">$</td> <td style="border-bottom: black 1pt solid; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-indent: -5.5pt; padding-left: 5.5pt;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;"> </td> <td style="text-align: left;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 2.5pt; text-indent: -5.5pt; padding-left: 5.5pt;">Effective tax rate</td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;"> </td> <td style="border-bottom: black 2.5pt double; text-align: right;">0</td> <td style="text-align: left; padding-bottom: 2.5pt;">%</td> <td style="padding-bottom: 2.5pt;"> </td> <td style="border-bottom: black 2.5pt double; text-align: left;"> </td> <td style="border-bottom: black 2.5pt double; text-align: right;">0</td> <td style="text-align: left; padding-bottom: 2.5pt;">%</td> </tr> </table> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The differences between the U.S. federal statutory income tax rates and the Company’s effective tax rate for the nine months ended September 30, 2012 and 2011 are shown in the following table:</p> <p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p> <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">9/30/2012</td> <td style="padding-bottom: 1pt;"> </td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: center;" colspan="2">9/30/2011</td> <td style="padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt; width: 74%;">US statutory tax rate</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">35</td> <td style="text-align: left; width: 1%;">%</td> <td style="width: 1%;"> </td> <td style="text-align: left; width: 1%;"> </td> <td style="text-align: right; width: 10%;">35</td> <td style="text-align: left; width: 1%;">%</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Lower rates in the PRC</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">-10</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">-10</td> <td style="text-align: left;">%</td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Accrual and reconciling items</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">-</td> <td style="text-align: left;"> </td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">-25</td> <td style="text-align: left;">%</td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: left; padding-bottom: 1pt; text-indent: -5.5pt; padding-left: 5.5pt;">Fully reserved net Operating Loss</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: left;"> </td> <td style="border-bottom: black 1pt solid; text-align: right;">-25</td> <td style="text-align: left; padding-bottom: 1pt;">%</td> <td style="padding-bottom: 1pt;"> </td> <td style="border-bottom: black 1pt solid; text-align: left;"> </td> <td style="border-bottom: black 1pt solid; text-align: right;">-</td> <td style="text-align: left; padding-bottom: 1pt;"> </td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: left; text-indent: -5.5pt; padding-left: 5.5pt;">Effective tax rate:</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">0</td> <td style="text-align: left;">%</td> <td> </td> <td style="text-align: left;"> </td> <td style="text-align: right;">0</td> <td style="text-align: left;">%</td> </tr> </table>