UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
one)





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





For the
quarterly period ended:June
30, 2010





OR





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





For
the transition period from _______________to ________________





Commission
File Number:333-126654





BIRCH
BRANCH, INC.


(Exact
Name of Registrant as Specified in Its Charter)





Colorado
                
                84-1124170(State
      or Other jurisdiction of Incorporation or Organization)
                
                (I.R.S.
      Employer Identification No.)c/o
      Henan Shuncheng Group Coal Coke Co., Ltd.
                  Henan
      Province, Anyang County, Cai Cun Road Intersection, Henan Shuncheng
                  Group
      Coal Coke Co., Ltd. (New Building), China
                
                455141(Address
      of Principal Executive Offices)
                
                (Zip
      Code)





+86
372 323 7890


(Registrant’s
Telephone Number, Including Area Code)





N/A


(Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.


Yesx         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  ̈          No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one)





Large
accelerated filer  ̈          
Accelerated filer  ̈          
Non-accelerated filer  ̈            Smaller
reporting companyx





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes  ̈          Nox





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.


32,047,222 shares
of common stock are issued and outstanding as of August 20, 2010.












Table
of Contents




PagePART
      I – FINANCIAL INFORMATION
              1Item
      1.          Financial
      Statements (Unaudited)
              1Item
      2.          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              25PART
      II - OTHER INFORMATION
              44Item
      6.         
      Exhibits.
              44




i





EXPLANATORY
NOTE




As
used in this Quarterly Report, unless the context requires or is otherwise
indicated, the terms “we,” “us,” “our,” the “Registrant,” the “Company,” “our
company” and similar expressions include the following entities, after giving
effect to the Share Exchange (as defined below):




(i)
Birch Branch, Inc., a Colorado corporation (“BRBH”), which is a publicly traded
company;




(ii)
Shun Cheng Holdings HongKong Limited, a company organized under the laws of Hong
Kong and a wholly-owned subsidiary of BRBH (“Shun Cheng HK”);




(iii)
Anyang Shuncheng Energy Technology Co., Ltd., a Chinese wholly-foreign owned
enterprise subsidiary of Shun Cheng HK (“Anyang WFOE”);




(iv)
Henan Shuncheng Group Coal Coke Co., Ltd., a Chinese variable interest entity
that Anyang WFOE controls through certain contractual arrangements (“SC Coke”);
and




(v)
Henan Shuncheng Group Longdu Trade Co., Ltd., a Chinese company which is 86%
owned by SC Coke (“Longdu”).  Wang Xinshun, our Chairman of the Board
of Directors and the sole director and holder of a 60% interest in SC Coke, also
owns a 5% interest in Longdu.




“China”
or “PRC” refers to the People’s Republic of China, excluding Hong Kong, Macau
and Taiwan.  “RMB” or “Renminbi” refers to the legal currency of China
and “$” or “U.S. Dollars” refers to the legal currency of the United
States.  The Company maintains its books and accounting records in
Renminbi.  Unless otherwise stated, the translations of RMB into U.S.
Dollars have been made at the rate of exchange of $1.00 to RMB 6.8348, the
approximate average exchange rate for the six months ended June 30,
2010.  We make no representation that the RMB or U.S. Dollar amounts
referred to in this Quarterly Report could have been or could be converted into
U.S. Dollars or RMB, as the case may be, at any particular rate or at
all.  “GAAP” unless otherwise indicated refers to United States
generally accepted accounting principles.




When
used herein to describe SC Coke’s current products, “coke” refers to
metallurgical coke unless otherwise indicated.





PART
I – FINANCIAL INFORMATION




Item 1.
            Financial
      Statements (Unaudited)




Birch
Branch, Inc.


Consolidated
Balance Sheets


As
of June 30, 2010 and December 31, 2009


(Stated
in US Dollars)


(unaudited)




Note
                                      
                                      
                                      6/30/2010
                                      
                                      
                                      12/31/2009AssetsCurrent
      assets:Cash
                                      
                                      
                                      2D
                                      
                                      
                                      $
                                      6,295,178
                                      
                                      
                                      $
                                      5,749,945Restricted
      cash
                                      
                                      
                                      2E
                                      
                                      
                                      
                                      64,771,024
                                      
                                      
                                      
                                      52,404,530Bank
      notes receivable
                                      
                                      
                                      2F
                                      
                                      
                                      
                                      7,408,689
                                      
                                      
                                      
                                      4,658,384Trade
      receivables
                                      
                                      
                                      2G,
      3
                                      
                                      
                                      
                                      25,238,022
                                      
                                      
                                      
                                      11,342,082Other
      receivables
                                      
                                      
                                      
                                      
                                      
                                      
                                      14,405,374
                                      
                                      
                                      
                                      -Related
      party receivable
                                      
                                      
                                      13
                                      
                                      
                                      
                                      36,278
                                      
                                      
                                      
                                      -Inventories
                                      
                                      
                                      2H,4
                                      
                                      
                                      
                                      34,704,642
                                      
                                      
                                      
                                      32,426,320Advances
      to Suppliers and Prepayments
                                      
                                      
                                      5
                                      
                                      
                                      
                                      60,051,807
                                      
                                      
                                      
                                      67,797,396Total
      current assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      212,911,014
                                      
                                      
                                      
                                      174,378,657Deposits
      for construction projects
                                      
                                      
                                      
                                      
                                      
                                      
                                      19,063,718
                                      
                                      
                                      
                                      9,578,896Plant
      and equipment, net
                                      
                                      
                                      2I,6
                                      
                                      
                                      
                                      78,250,164
                                      
                                      
                                      
                                      65,386,090Long-term
      investments
                                      
                                      
                                      2J,
      7
                                      
                                      
                                      
                                      19,715,369
                                      
                                      
                                      
                                      15,420,649Total
      non-current assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      117,029,251
                                      
                                      
                                      
                                      90,385,635Total
      assets
                                      
                                      
                                      
                                      
                                      
                                      $
                                      329,940,265
                                      
                                      
                                      $
                                      264,764,292Liabilities and
      Stockholders’ EquityLiabilitiesCurrent
      liabilities:Bank
      notes payable
                                      
                                      
                                      8
                                      
                                      
                                      $
                                      79,458,332
                                      
                                      
                                      $
                                      59,234,774Accounts
      payable
                                      
                                      
                                      
                                      
                                      
                                      
                                      47,962,168
                                      
                                      
                                      
                                      23,211,187Accrued
      liabilities
                                      
                                      
                                      
                                      
                                      
                                      
                                      89,085
                                      
                                      
                                      
                                      438,928Taxes
      payable
                                      
                                      
                                      
                                      
                                      
                                      
                                      10,481,603
                                      
                                      
                                      
                                      8,390,646Loans
                                      
                                      
                                      9
                                      
                                      
                                      
                                      33,193,314
                                      
                                      
                                      
                                      67,299,038Other
      payable
                                      
                                      
                                      10
                                      
                                      
                                      
                                      18,097,774
                                      
                                      
                                      
                                      10,254,272Capital
      lease obligation, current portion
                                      
                                      
                                      15
                                      
                                      
                                      
                                      1,362,427
                                      
                                      
                                      
                                      989,829Customer
      deposits
                                      
                                      
                                      
                                      
                                      
                                      
                                      13,772,337
                                      
                                      
                                      
                                      7,829,089Total
      current liabilities
                                      
                                      
                                      
                                      
                                      
                                      
                                      204,417,040
                                      
                                      
                                      
                                      177,647,763Notes
      payable to related parties
                                      
                                      
                                      11
                                      
                                      
                                      
                                      71,308,488
                                      
                                      
                                      
                                      35,635,066Forgivable
      loans
                                      
                                      
                                      12
                                      
                                      
                                      
                                      5,192,184
                                      
                                      
                                      
                                      5,192,184Capital
      lease obligation, non-current portion
                                      
                                      
                                      15
                                      
                                      
                                      
                                      4,491,254
                                      
                                      
                                      
                                      5,163,274Total
      non-current liabilities
                                      
                                      
                                      
                                      
                                      
                                      
                                      80,991,926
                                      
                                      
                                      
                                      45,990,524Total
      liabilities
                                      
                                      
                                      
                                      
                                      
                                      $
                                      285,408,966
                                      
                                      
                                      $
                                      223,638,287Stockholders’
      EquityPreferred
      stock, 50,000,000 shares authorized, no par value, 0 shares issued and
      outstanding
                                      
                                      
                                      
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -Common
      stock, 500,000,000 shares authorized, no par value, 32,047,222 shares
      issued and outstanding
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Additional
      paid in capital
                                      
                                      
                                      
                                      
                                      
                                      
                                      8,127,560
                                      
                                      
                                      
                                      6,395,907Statutory
      reserve
                                      
                                      
                                      
                                      
                                      
                                      
                                      234,683
                                      
                                      
                                      
                                      234,683Retained
      earnings
                                      
                                      
                                      
                                      
                                      
                                      
                                      33,945,520
                                      
                                      
                                      
                                      31,426,894Accumulated
      other comprehensive income
                                      
                                      
                                      
                                      
                                      
                                      
                                      1,798,051
                                      
                                      
                                      
                                      2,595,677Non-controlling
      interest
                                      
                                      
                                      
                                      
                                      
                                      
                                      425,485
                                      
                                      
                                      
                                      472,844Total
      stockholders’ equity
                                      
                                      
                                      
                                      
                                      
                                      
                                      44,531,299
                                      
                                      
                                      
                                      41,126,005Total
      liabilities and equity
                                      
                                      
                                      
                                      
                                      
                                      $
                                      329,940,265
                                      
                                      
                                      $
                                      264,764,292





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


1




Birch
Branch, Inc.


Consolidated
Statements of Operations


For
the three and six months ended June 30, 2010 and 2009


(unaudited)




Three months ended
                        
                        
                        Six months endedNote
                        
                        
                        6/30/2010
                        
                        
                        6/30/2009
                        
                        
                        6/30/2010
                        
                        
                        6/30/2009Revenues
                        
                        2P
                        
                        
                        $
                        74,640,647
                        
                        
                        $
                        50,974,475
                        
                        
                        $
                        139,057,967
                        
                        
                        $
                        77,370,512Cost
      of revenues
                        
                        
                        
                        
                        
                        
                        69,310,348
                        
                        
                        
                        46,058,684
                        
                        
                        
                        128,753,949
                        
                        
                        
                        70,900,979Gross
      profit
                        
                        
                        
                        
                        
                        
                        5,330,299
                        
                        
                        
                        4,915,791
                        
                        
                        
                        10,304,018
                        
                        
                        
                        6,469,533Operating
      expenses:Sales
      and marketing
                        
                        2R
                        
                        
                        
                        952,614
                        
                        
                        
                        1,189,336
                        
                        
                        
                        1,815,988
                        
                        
                        
                        1,986,254General
      and administrative
                        
                        
                        
                        
                        
                        
                        1,383,150
                        
                        
                        
                        914,540
                        
                        
                        
                        3,111,609
                        
                        
                        
                        2,192,868Total
      operating expenses
                        
                        
                        
                        
                        
                        
                        2,335,764
                        
                        
                        
                        2,103,876
                        
                        
                        
                        4,927,597
                        
                        
                        
                        4,179,122Income
      from operations
                        
                        
                        
                        
                        
                        
                        2,994,535
                        
                        
                        
                        2,811,915
                        
                        
                        
                        5,376,421
                        
                        
                        
                        2,290,411Other
      income (expense):Interest
      income
                        
                        
                        
                        
                        
                        
                        189,671
                        
                        
                        
                        222,941
                        
                        
                        
                        501,406
                        
                        
                        
                        449,307Interest
      expense
                        
                        
                        
                        
                        
                        
                        (1,397,706
                        )
                        
                        
                        (374,309
                        )
                        
                        
                        (2,633,454
                        )
                        
                        
                        (957,273
                        )Other
      income
                        
                        
                        
                        
                        
                        
                        142,691
                        
                        
                        
                        113,741
                        
                        
                        
                        246,685
                        
                        
                        
                        95,457Other
      expense
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (50,693
                        )Gain
      on investment
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        2,600,270
                        
                        
                        
                        -
                        
                        
                        
                        2,600,270Total
      other income (expense)
                        
                        
                        
                        
                        
                        
                        (1,065,344
                        )
                        
                        
                        2,562,643
                        
                        
                        
                        (1,885,363
                        )
                        
                        
                        2,137,068Income
      before provision for income taxes
                        
                        
                        2S,
      14
                        
                        
                        
                        1,929,191
                        
                        
                        
                        5,374,558
                        
                        
                        
                        3,491,058
                        
                        
                        
                        4,427,479Provision
      for income taxes
                        
                        
                        
                        
                        
                        
                        517,652
                        
                        
                        
                        1,438,106
                        
                        
                        
                        1,019,791
                        
                        
                        
                        1,201,336Net
      income
                        
                        
                        
                        
                        
                        $
                        1,411,539
                        
                        
                        $
                        3,936,452
                        
                        
                        $
                        2,471,267
                        
                        
                        $
                        3,226,143Net
      income attributable to:-
      Common stockholders
                        
                        
                        
                        
                        
                        $
                        1,396,362
                        
                        
                        $
                        3,903,378
                        
                        
                        $
                        2,518,626
                        
                        
                        $
                        3,210,143-
      Non-controlling interest
                        
                        
                        
                        
                        
                        $
                        15,172
                        
                        
                        $
                        33,074
                        
                        
                        $
                        (47,359
                        )
                        
                        $
                        16,000Earnings
      per share-
      Basic
                        
                        
                        
                        
                        
                        $
                        0.04
                        
                        
                        $
                        0.12
                        
                        
                        $
                        0.08
                        
                        
                        $
                        0.10-
      Diluted
                        
                        
                        
                        
                        
                        $
                        0.04
                        
                        
                        $
                        0.12
                        
                        
                        $
                        0.08
                        
                        
                        $
                        0.10Weighted
      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


2





Birch
Branch, Inc.


Consolidated
Statements of Equity


As
of June 30, 2010 and December 31, 2009


And
for the six months ended June 30, 2010 and 2009


(unaudited)




AccumulatedAdditional
                            
                            
                            
                            
                            
                            
                            
                            
                            Non-
                            
                            
                            OtherShares
                            
                            
                            
                            
                            
                            Paid-in
                            
                            
                            Statutory
                            
                            
                            Retained
                            
                            
                            controlling
                            
                            
                            Comprehensive
                            
                            
                            TotalOutstanding
                            
                            
                            Amount
                            
                            
                            Capital
                            
                            
                            Reserve
                            
                            
                            Earnings
                            
                            
                            Interest
                            
                            
                            Income
                            
                            
                            EquityBalance
      at January 1, 2009
                            
                            
                            1,708,123
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -Share
      Exchange
                            
                            
                            30,233,750
                            
                            
                            
                            -
                            
                            
                            
                            6,395,907
                            
                            
                            
                            234,683
                            
                            
                            
                            15,681,231
                            
                            
                            
                            368,832
                            
                            
                            
                            2,429,705
                            
                            
                            
                            25,110,358Cancellation
      of Shares
                            
                            
                            (435,123
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Net
      income
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            15,849,675
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            15,849,675Apportionment
      of net income to non-controlling interest
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (104,012
                            )
                            
                            
                            104,012
                            
                            
                            
                            -
                            
                            
                            
                            -Currency
      translation adjustment
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            165,972
                            
                            
                            
                            165,972Balance
      at December 31, 2009
                            
                            
                            31,506,750
                            
                            
                            $
                            -
                            
                            
                            $
                            6,395,907
                            
                            
                            $
                            234,683
                            
                            
                            $
                            31,426,894
                            
                            
                            $
                            472,844
                            
                            
                            $
                            2,595,677
                            
                            
                            $
                            41,126,005Balance
      at January 1, 2010
                            
                            
                            31,506,750
                            
                            
                            $
                            -
                            
                            
                            $
                            6,395,907
                            
                            
                            $
                            234,683
                            
                            
                            $
                            31,426,894
                            
                            
                            $
                            472,844
                            
                            
                            $
                            2,595,677
                            
                            
                            $
                            41,126,005Share
      Compensation (see Note 17)
                            
                            
                            540,472
                            
                            
                            
                            -
                            
                            
                            
                            567,496
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            567,496Capital
      Contribution
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,164,157
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,164,157Apportionment
      of loss to non-controlling interest
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            47,359
                            
                            
                            
                            (47,359
                            )
                            
                            
                            -
                            
                            
                            
                            -Net
      income
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            2,471,267
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            2,471,267Currency
      translation adjustment
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (797,627
                            )
                            
                            
                            (797,627
                            )Balance
      at June 30, 2010
                            
                            
                            32,047,222
                            
                            
                            $
                            -
                            
                            
                            $
                            8,127,560
                            
                            
                            $
                            234,683
                            
                            
                            $
                            33,945,520
                            
                            
                            $
                            425,485
                            
                            
                            $
                            1,798,050
                            
                            
                            $
                            44,531,298





Six Months Ended6/30/2010
                              
                              
                              6/30/2009Comprehensive IncomeNet
      Income
                              
                              $
                              2,471,267
                              
                              
                              $
                              3,226,143Other
      Comprehensive IncomeForeign
      Currency Translation Adjustment
                              
                              
                              (797,627
                              )
                              
                              
                              130,004Total
      Comprehensive Income
                              
                              $
                              1,673,640
                              
                              
                              $
                              3,356,147





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


3





Birch
Branch, Inc.


Consolidated
Statements of Cash Flows


For
the six months ended June 30, 2010 and 2009


(unaudited)




6/30/2010
                      
                      
                      6/30/2009Cash
      flows from operating activities:Net
      income
                      
                      $
                      2,471,267
                      
                      
                      $
                      3,226,143Adjustments
      to reconcile net income to net cash (used in)provided
      by operating activities:Share
      based compensation
                      
                      
                      567,496
                      
                      
                      
                      -Depreciation
      and amortization
                      
                      
                      2,903,528
                      
                      
                      
                      2,056,335Change
      in assets and liabilities:Notes
      and trade receivables and customer deposits
                      
                      
                      (10,702,997
                      )
                      
                      
                      5,588Inventories
                      
                      
                      (2,278,322
                      )
                      
                      
                      (2,680,752
                      )Prepayments
      and other current assets
                      
                      
                      (6,696,063
                      )
                      
                      
                      (1,906,714
                      )Notes
      and accounts payable
                      
                      
                      44,974,539
                      
                      
                      
                      (9,370,881
                      )Other
      payables and current liabilities
                      
                      
                      9,584,616
                      
                      
                      
                      (1,531,726
                      )Net
      cash provided by (used in) operating activities
                      
                      
                      40,824,064
                      
                      
                      
                      (10,202,007
                      )Cash
      flows from investing activities:Deposits
      in bank accounts as restricted cash
                      
                      
                      (12,366,494
                      )
                      
                      
                      -Purchase
      of long-term investment in equities
                      
                      
                      (4,294,720
                      )
                      
                      
                      (15,959
                      )Acquisitions
      of property, plant and equipment
                      
                      
                      (15,767,602
                      )
                      
                      
                      (1,211,393
                      )Deposits
      for capital expenditures
                      
                      
                      (9,484,822
                      )
                      
                      
                      (4,712,741
                      )Net
      cash used in investing activities
                      
                      
                      (41,913,638
                      )
                      
                      
                      (5,940,093
                      )Cash
      flows from financing activities:Owners’
      capital contribution
                      
                      
                      1,164,157
                      
                      
                      
                      -Proceeds
      from borrowings from bank and others
                      
                      
                      27,318,458
                      
                      
                      
                      76,009,842Repayment
      of borrowings of bank and others
                      
                      
                      (25,750,759
                      )
                      
                      
                      (26,685,325
                      )Repayment
      of capital lease obligation
                      
                      
                      (299,422
                      )
                      
                      
                      -Net
      cash provided by (used in) financing activities
                      
                      
                      2,432,434
                      
                      
                      
                      49,324,517Net
      increase in cash
                      
                      
                      1,342,860
                      
                      
                      
                      33,182,417Effect
      of exchange rate changes
                      
                      
                      (797,627
                      )
                      
                      
                      130,004Cash
      at beginning of the period
                      
                      
                      5,749,945
                      
                      
                      
                      26,873,633Cash
      at end of the period
                      
                      $
                      6,295,178
                      
                      
                      $
                      60,186,054Supplemental
      disclosure of cash flow information:Interest
      received
                      
                      $
                      501,406
                      
                      
                      $
                      449,307Interest
      paid
                      
                      
                      2,633,454
                      
                      
                      
                      957,273Income
      taxes paid
                      
                      
                      2,855,836
                      
                      
                      
                      1,287,863





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


4




Birch
Branch, Inc.


Notes
to Unaudited Interim Consolidated Financial Statements





(Unaudited)





1. 
         The Company and its Principal Business
Activities




A. 
 Organizational History




I. 
          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.  Effective December 6, 2006, BRBH
ceased pursuit of real estate development projects and any business
operations.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 HongKong 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
WFOE”) was incorporated as a wholly-foreign owned entity.  Anyang WFOE is
wholly-owned by Shun Cheng HK.




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




III. 
        Operating Entities




Pursuant
to the VIE agreement described below, the Company's operations are conducted
through the operating entities described below (the "operating entities") in the
PRC:




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.




5




Birch
Branch, Inc.
 Notes
to Unaudited Interim Consolidated Financial Statements
 
 (Unaudited)




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.








B. 
  Variable Interest Entity Agreement




On March
19, 2010, Anyang WFOE 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 WFOE 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 CodificationTM (“ASC”) 810-10, by consolidating SC Coke and Longdu as
subsidiaries of both Anyang WFOE 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:




I. 
          Entrusted Management Agreement




Anyang
WFOE 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
WFOE 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
WFOE 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 pays its debts
itself.




II. 
         Exclusive Option Agreement




Anyang
WFOE, or parties designated by Anyang WFOE, 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 WFOE 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 WFOE.




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




6
 
  Birch
Branch, Inc.
 Notes
to Unaudited Interim Consolidated Financial Statements
 
 (Unaudited)


III. 
        Shareholders’ Voting Proxy Agreement




The SC
Coke Shareholders have irrevocably appointed the board of directors of Anyang
WFOE 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.




In the
event that PRC regulations change (which regulations presently prohibit the
transfer of SC Coke to Anyang WFOE), the SC Coke Shareholders may be exclusively
permitted to transfer their ownership in SC Coke to Anyang WFOE; 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 WFOE from claims arising from the exercise of any
of the powers conferred upon Anyang WFOE 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.




C. 
  Share Exchange Agreement




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.




7
 
  Birch
Branch, Inc.
 Notes
to Unaudited Interim Consolidated Financial Statements
 
 (Unaudited)


2. 
         Summary of Significant Accounting
Policies




A. 
 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 WFOE, SC Coke, and Longdu.  All intercompany transactions, such as
sales, cost of sales, and balances due to/due from, investment in
subsidiaries, and the operating entities and the capitalization
thereof have been eliminated.




The
Company regrouped certain accounts in the December 31, 2009 consolidated balance
sheet to improve comparability with June 30, 2010 balance sheet line
items.  There was no impact on earnings as a result of the
regrouping.




B. 
  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.




C. 
  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.




D. 
  Cash




Cash
consists primarily of cash on hand or cash deposits in banks that are available
for withdrawal without restriction.




E. 
  Restricted Cash




Restricted
cash represents cash that is held by banks as collateral for bank notes
payable.  The banks have collateral requirements ranging from 50% to 100%
of the outstanding bank notes.




8
 
  Birch
Branch, Inc.
 Notes
to Unaudited Interim Consolidated Financial Statements
 
 (Unaudited)


F. 
  Bank Notes Receivable




Bank
notes receivable are highly liquid negotiable instruments issued by banks in the
PRC on behalf of SC Coke’s customers, which are collateralized by deposits made
by such customers at the subject banks.  These notes typically have
maturities between one to six months.  SC Coke can: (a) redeem the notes
for face value at maturity, (b) endorse the notes to SC Coke’s vendors as a form
of payment instrument, or (c) factor the notes to a bank.  In the event
that SC Coke factors these notes to a bank, it will record as interest
expense the difference between cash received and the face value of the
note.




G. 
  Trade Receivables




Trade receivables
are reported at net realizable value.  SC Coke has established an allowance
for doubtful accounts based upon factors pertaining to the credit risks of
specific customers, historical trends, age of the receivable and other
information.  Delinquent accounts are written off when it is determined
that the amounts are uncollectible.




H. 
  Inventories




Inventories
are stated at the lower of cost or market.  Cost is determined on a
standard cost basis, which approximates actual cost on a first-in, first-out
(“FIFO”) method.  Lower of cost or market is evaluated by considering
obsolescence, excessive levels of inventory, deterioration, and other
factors.  Adjustments to reduce the cost of inventory to its net realizable
value, if required, are made for estimated excess or obsolescence and are
charged to cost of revenues.  Currently, SC Coke does not allocate costs to
the byproducts.  However, due to rapid inventory turnover, differences to
the financial statements are considered immaterial.




I. 
   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 as follows:




Machinery
      and equipment
                
                10
      yearsBuilding
      and improvements
                
                20
      yearsCompany
      vehicles
                
                5
      yearsFurniture
      and office equipment
                
                5
      yearsMiscellaneous
                
                5
      years




Repairs
and maintenance costs are expensed as incurred.  Gains or losses on
disposals are included in cost of revenues.




SC Coke
capitalizes interest attributable to capital construction projects in accordance
with ASC 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.




Construction
in progress represents direct costs of construction or acquisition and design
fees incurred.  Capitalization of these costs ceases and the construction
in progress is transferred to plant and equipment when substantially all the
activities necessary to prepare the assets for their intended use are
completed.  No depreciation is recorded on construction in progress until
construction has been completed and the related asset is ready for intended use
and has been transferred to plant and equipment.




9
 
  Birch
Branch, Inc.
 Notes
to Unaudited Interim Consolidated Financial Statements
 
 (Unaudited)


J. 
   Long-Term Investments




Long-term
investments represent investments that SC Coke has in private companies within
China other than Longdu.  SC Coke does not hold any interest greater than
20% and it has determined that it did not have significant control or influence
over any of the private companies in which it has investment holdings.  As
a result of the investments being private companies, there is a lack of readily
determinable market value for these investments; as such, SC Coke recorded these
investments at cost.




K. 
  Impairment of Long-Lived Assets




The
Company has adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”, ASC 360-10-35.  The Company
evaluates its long lived assets for impairment when indicators of impairment are
present or annually, whichever occurs sooner.  In the event that there are
indications of impairment, the Company will record a loss to the statement of
operations equal to the difference between the carrying value and the fair value
of the long lived asset.  The Company typically, but not exclusively,
employs the expected future discounted cash flows method to determine fair value
of long lived assets subject to impairment.  The fair value of long lived
assets that are held for disposition will include the cost of
disposal.




SC Coke’s
long-lived assets are grouped by their presentation on the consolidated balance
sheets, and further segregated by their operating and asset type. 
Long-lived assets subject to impairment include buildings, equipment, vehicles,
software licenses, and land-use-rights.  The Company makes its
determinations based on various factors that impact those assets.




At June
30, 2010 and 2009, SC Coke assessed its buildings, equipment, vehicles, software
licenses, and land-use-rights for production and has concluded its long-lived
assets have not experienced any impairment losses because SC Coke’s long lived
assets have enabled SC Coke to experience significant profit growth during the
six months ended June 30, 2010 and 2009.




L. 
  Fair Value of Financial Instruments




The
Company has adopted ASC 820-10, Fair Value Measurements and
Disclosures, which defines fair value, establishes a framework for using
fair value to measure assets and liabilities, and expands disclosures about fair
value measurements.  ASC 820-10 applies whenever other statements require
or permit assets or liabilities to be measured at fair value.




ASC
820-10 includes a fair value hierarchy that is intended to increase the
consistency and comparability in fair value measurements and related
disclosures.  The fair value hierarchy is based on inputs to valuation
techniques that are used to measure fair value that are either observable or
unobservable.  Observable inputs reflect assumptions market participants
would use in pricing an asset or liability based on market data obtained from
independent sources while unobservable inputs reflect a reporting entity’s
pricing an asset or liability based upon their own market assumptions.  The
fair value hierarchy consists of the following three levels:




Level 1–inputs are
unadjusted quoted prices in active markets for identical assets or liabilities
that the Company has the ability to access at the measurement date.




10
 
  Birch
Branch, Inc.
 Notes
to Unaudited Interim Consolidated Financial Statements
 
 (Unaudited)


Level 2–observable
inputs other than level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.




Level 3–instrument
valuations are obtained without observable market values and require a
high-level of judgment to determine the fair value.




SC Coke’s
financial instruments consist mainly of cash, restricted cash, bank notes
receivable, and debt obligations.  Bank notes receivable are reflected in
the accompanying financial statements at historical cost, which approximates
fair value due to the short-term nature of these instruments.  Based on the
borrowing rates currently available to the Company for loans with similar terms
and average maturities, the fair value of debt obligations also approximates its
carrying value due to the short-term nature of the instruments.  While the
Company believes its valuation methodologies are appropriate and consistent with
other market participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could result in a
different estimate of fair value at the reporting date.




The
following table presents SC Coke’s financial assets and liabilities in
accordance with the hierarchy set forth in ASC 820-10:




June 30, 2010Quotedin Active
                                    
                                    
                                    SignificantMarkets
                                    
                                    
                                    Other
                                    
                                    
                                    Significantfor Identical
                                    
                                    
                                    Observable
                                    
                                    
                                    UnobservableAssets
                                    
                                    
                                    Inputs
                                    
                                    
                                    Inputs(Level 1)
                                    
                                    
                                    (Level 2)
                                    
                                    
                                    (Level 3)
                                    
                                    
                                    TotalFinancial
      assets:Cash
                                    
                                    
                                    6,295,178
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    6,295,178Restricted
      cash
                                    
                                    
                                    64,771,024
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    64,771,024Bank
      notes receivable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    7,408,689
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    7,408,689Total
      financial assets
                                    
                                    
                                    71,066,202
                                    
                                    
                                    
                                    7,408,689
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    78,474,891Financial
      liabilities:Bank
      notes payable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    79,458,332
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    79,458,332Total
      financial liabilities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    79,458,332
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    79,458,332




In
January 2008, the Company adopted ASC 825-10, Fair Value Option for Financial
Assets and Financial Liabilities, and has elected not to measure any of
SC Coke’s current eligible financial assets or liabilities at fair value. 
ASC 825-10 was issued to allow entities to voluntarily choose to measure certain
financial assets and liabilities at fair value (fair value option).  The
fair value option may be elected on an instrument-by-instrument basis and is
irrevocable, unless a new election date occurs.  If the fair value option
is elected for an instrument, ASC 825-10 specifies that unrealized gains and
losses for that instrument shall be reported in earnings at each subsequent
reporting date.  ASC 825-10 became effective January 1, 2008. 
The Company did not elect the fair value option for its financial assets and
liabilities existing on January 1, 2008, and did not elect the fair value
option for any financial assets or liabilities transacted during the six months
ended June 30, 2010.




11
 
  Birch
Branch, Inc.
 Notes
to Unaudited Interim Consolidated Financial Statements
 
 (Unaudited)


M. 
Statutory Reserve




In
accordance with PRC laws, statutory reserve refers to the appropriation from net
income, to the account “statutory reserve,” to be used for future company
development, recovery of losses, and increase of capital, as approved, to expand
production or operations.  PRC laws prescribe that an enterprise operating
at a profit must appropriate, on an annual basis, an amount equal to 10% of its
profit.  Such an appropriation is necessary until the reserve reaches a
maximum that is equal to 50% of the enterprise’s PRC registered capital. 
SC Coke cannot pay dividends out of statutory reserves or paid in capital
registered in PRC.




N. 
 Foreign Currency Translation




The
accompanying consolidated financial statements are presented in U.S.
Dollars.  The functional currency of the Company’s subsidiaries and
the operating entities described herein 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 six months ended June 30, 2010 and 2009.  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:




6/30/2010
              
              12/31/2009Period/year
      end RMB: U.S. Dollar exchange rate
              6.8086
              
              6.8372Average
      RMB: U.S. Dollar exchange rate
              6.8348
              
              6.8408




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.




O. 
  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.




12
 
  Birch
Branch, Inc.
 Notes
to Unaudited Interim Consolidated Financial Statements
 
 (Unaudited)


P. 
  Revenue Recognition




In
accordance with ASC 605-10, SC Coke recognizes revenue upon receipt of an
acceptance of goods document issued by its customers.  Each customer enters
into an annual master sales agreement with SC Coke which will indicate a total
volume for the year, and an acceptable range of prices, given market
fluctuations on a short term basis, for SC Coke’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.  SC
Coke’s coke and coal byproducts are fully usable at the point of shipment. 
From a revenue recognition perspective, the Company believes that collectibility
of the revenue is reasonably assured at the time that customers acknowledge
receipt and accept SC Coke’s product.  SC Coke 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.




Q. 
 Shipping and Handling Costs




Shipping
and handling costs billed to customers are recorded net of the amount
collected.  Shipping and handling expenses are included in sales and
marketing expenses.




R. 
  Advertising




Advertising
and promotion costs are expensed as they are incurred; such costs were
immaterial for 2010 and 2009 and are included in sales and marketing
expenses.




S. 
  Income Taxes




The
Company has implemented ASC 740, Accounting for Income
Taxes.  Income tax liabilities computed according to the United
States and PRC tax laws are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of fixed
assets and intangible assets for financial and tax reporting.  The deferred
tax assets and liabilities represent the future tax consequences of those
differences, which will be either taxable or deductible when the assets and
liabilities are recovered or settled.  Deferred taxes also are recognized
for operating losses that are available to offset future income taxes.  A
valuation allowance is created to evaluate deferred tax assets if it is more
likely than not that these items will either expire before the Company is able
to realize the associated tax benefit, or that future realization is
uncertain.  The Company assesses its future tax assets and liabilities for
any uncertainty on an annual basis.  Upon completion of its annual review
of its tax position for the years ended December 31, 2009 and 2008, the Company
concluded that there was no uncertainty regarding its tax position.  Any
changes in the Company’s position on a going forward basis will be charged to
tax expense or deferred tax benefit in its statement of operations.




T. 
  Recent Accounting Pronouncements




In June
2009, FASB issued ASC 860, Transfers and Servicing, and
ASC 810, Consolidation, a
revision to FASB Interpretation No. 46 (Revised December 2003), Consolidation of
Variable Interest Entities (FASB ASC 810 Consolidation).  The
Company has adopted the new accounting policies and has determined that there is
no material impact to the financial statements presented herein.




13
 
  Birch
Branch, Inc.
 Notes
to Unaudited Interim Consolidated Financial Statements
 
 (Unaudited)


On June
30, 2009, FASB issued ASC 105, Accounting Standards Codification
(FASB ASC 105 Generally Accepted Accounting Principles) a replacement of FASB
Statement No. 162 the Hierarchy of Generally Accepted Accounting
Principles.  On the effective date of this standard, ASC became the
source of authoritative U.S. accounting and reporting standards for
nongovernmental entities, in addition to guidance issued by the SEC.  This
statement is effective for financial statements issued for interim and annual
periods ending after September 15, 2009.  If an accounting change results
from the application of this guidance, an entity should disclose the nature and
reason for the change in accounting principle in their financial
statements.  This new standard categorizes the US GAAP hierarchy to two
levels: one that is authoritative (in ASC) and one that is non-authoritative
(not in ASC).  Exceptions include all rules and interpretive releases of
the SEC under the authority of federal securities laws, which are sources of
authoritative US GAAP for SEC registrants, and certain grandfathered guidance
having an effective date before March 15, 1992.  Statement No. 168 is the
final standard that will be issued by FASB in that form.  There will no
longer be, for example, accounting standards in the form of statements, staff
positions, Emerging Issues Task Force (“EITF”) abstracts, or AICPA Accounting
Statements of Position.  The Company has adopted and implemented the new
accounting policy.




3. 
         Trade Receivables




SC Coke’s
trade receivables as of June 30, 2010 and December 31, 2009, as well as the
activity in SC Coke’s allowance for bad debts for the six months ended June 30,
2010 and the year ended December 31, 2009 are set forth below:




6/30/2010
                          
                          
                          12/31/2009Trade
      Receivables
                          
                          $
                          28,871,849
                          
                          
                          $
                          14,960,708Less:
      Allowance for Bad Debt
                          
                          
                          3,633,827
                          
                          
                          
                          3,618,626Trade
      Receivables, net
                          
                          $
                          25,238,022
                          
                          
                          $
                          11,342,082Allowance for Bad DebtsBeginning
      Balance
                          
                          $
                          3,618,626
                          
                          
                          $
                          317,787Provision
      for bad debts
                          
                          
                          15,201
                          
                          
                          
                          3,300,839Less: Bad Debt Written
      Off
                          
                          
                          -
                          
                          
                          
                          -Ending
      Balance
                          
                          $
                          3,633,827
                          
                          
                          $
                          3,618,626




4. 
         Inventories




The
components of SC Coke’s inventories as of June 30, 2010 and December 31, 2009
are as follows:




6/30/2010
                      
                      
                      12/31/2009Raw
      materials
                      
                      $
                      3,543,864
                      
                      
                      $
                      6,580,843Work
      in process and semi-finished goods
                      
                      
                      24,504,501
                      
                      
                      
                      22,118,983Finished
      goods
                      
                      
                      6,656,277
                      
                      
                      
                      3,726,494Total
      inventories
                      
                      $
                      34,704,642
                      
                      
                      $
                      32,426,320




5. 
         Advances to Suppliers and
Prepayments




The
components of SC Coke’s advances to suppliers and prepayments as of June 30,
2010 and December 31, 2009 are as follows:




6/30/2010
                  
                  
                  12/31/2009Construction
      projects prepayments
                  
                  $
                  -
                  
                  
                  $
                  14,957,919Prepayments
      for raw materials in operations
                  
                  
                  55,838,629
                  
                  
                  
                  52,839,477Prepaid
      expenses
                  
                  
                  1,357,342Prepaid
      taxes
                  
                  
                  2,855,836
                  
                  
                  
                  -$
                  60,051,807
                  
                  
                  $
                  67,797,396




14




Birch
Branch, Inc.


Notes
to Unaudited Interim Consolidated Financial Statements





(Unaudited)




6.
                Plant
      and Equipment,
net




The
components of SC Coke’s plant and equipment are as follows:




6/30/2010AccumulatedAt
      Cost
                    
                    
                    Depreciation
                    
                    
                    NetBuildings
      and plant
                    
                    $
                    21,041,719
                    
                    
                    $
                    2,120,941
                    
                    
                    $
                    18,920,778Machinery
      and equipment
                    
                    
                    35,204,488
                    
                    
                    
                    11,658,570
                    
                    
                    
                    23,545,918Electronic
      equipment
                    
                    
                    599,205
                    
                    
                    
                    199,206
                    
                    
                    
                    399,999Vehicles
                    
                    
                    2,461,911
                    
                    
                    
                    1,408,955
                    
                    
                    
                    1,052,956Others
                    
                    
                    697,849
                    
                    
                    
                    258,840
                    
                    
                    
                    439,009Construction
      in progress
                    
                    
                    33,891,504
                    
                    
                    
                    -
                    
                    
                    
                    33,891,504Total
      plant and equipment
                    
                    $
                    93,896,676
                    
                    
                    $
                    15,646,512
                    
                    
                    $
                    78,250,164





12/31/2009AccumulatedAt
      Cost
                    
                    
                    Depreciation
                    
                    
                    NetBuildings
      and plant
                    
                    $
                    21,160,158
                    
                    
                    $
                    1,211,661
                    
                    
                    $
                    19,948,497Machinery
      and equipment
                    
                    
                    34,645,669
                    
                    
                    
                    9,967,947
                    
                    
                    
                    24,677,722Electronic
      equipment
                    
                    
                    429,188
                    
                    
                    
                    161,650
                    
                    
                    
                    267,538Vehicles
                    
                    
                    2,411,955
                    
                    
                    
                    1,209,313
                    
                    
                    
                    1,202,642Others
                    
                    
                    675,178
                    
                    
                    
                    192,411
                    
                    
                    
                    482,767Construction
      in progress
                    
                    
                    18,806,924
                    
                    
                    
                    -
                    
                    
                    
                    18,806,924Total
      plant and equipment
                    
                    $
                    78,129,072
                    
                    
                    $
                    12,742,982
                    
                    
                    $
                    65,386,090




Depreciation
expense related to plant and equipment was $2,903,528 and $4,140,370 for the six
months and twelve months ended June 30, 2010 and December 31, 2009,
respectively.




The
construction in progress sub-account is detailed below:




Description
                      
                      6/30/2010
                      
                      
                      12/31/2009Coking
      furnace
                      
                      $
                      7,160,377
                      
                      
                      $
                      151,665Office
      buildings
                      
                      
                      4,479,864
                      
                      
                      
                      2,438,888Plant
      and facilities
                      
                      
                      13,585,207
                      
                      
                      
                      11,687,086Sewage
      system
                      
                      
                      559,007
                      
                      
                      
                      511,223Equipment
      peripherals
                      
                      
                      8,107,049
                      
                      
                      
                      4,018,061$
                      33,891,504
                      
                      
                      $
                      18,806,924





15


Birch
Branch, Inc.


Notes
to Unaudited Interim Consolidated Financial Statements





(Unaudited)




7.
            Investments




The
following tabulation presents SC Coke’s investment in noncontrolled entities,
which are not included in the consolidation.




Investment
                            
                            Ownership
                            
                            Type
                            
                            6/30/2010Anyang
      Rural Credit Cooperative - Tongye Branch
                            
                            
                            11.26
                            %
                            Equity
                            
                            $
                            4,315,543Anyang
      Urban Credit Cooperative - Meiyuanzhuan Branch
                            
                            
                            11.26
                            %
                            Equity
                            
                            
                            5,989,337Ansteel
      Group Metallurgy Stove Co., Ltd.
                            
                            
                            19
                            %
                            Equity
                            
                            
                            2,288,282Anyang
      Xinlong Coal Industry Co., Ltd. - Hongling Branch
                            
                            
                            16
                            %
                            Equity
                            
                            
                            7,092,207$
                            19,715,369




8.
            Bank
      Notes Payable




The
following table provides the name of the financial institution, due date, and
amounts outstanding at June 30, 2010 for SC Coke’s bank notes
payable.




Financial
      Institution
                        
                        Due
      Date
                        
                        6/30/2010China
      Citic Bank
                        
                        12/01/2011
                        
                        $
                        5,874,923China
      Citic Bank
                        
                        10/15/2010
                        
                        
                        2,937,461China
      Citic Bank
                        
                        07/12/2010
                        
                        
                        2,937,461China
      Citic Bank
                        
                        07/13/2010
                        
                        
                        558,118Shanghai
      Pudong Development Bank - Zhengzhou Branch
                        
                        09/10/2010
                        
                        
                        5,874,923Shanghai
      Pudong Development Bank - Zhengzhou Branch
                        
                        12/29/2010
                        
                        
                        4,406,192Shanghai
      Pudong Development Bank - Zhengzhou Branch
                        
                        12/29/2010
                        
                        
                        5,140,558Shanghai
      Pudong Development Bank - Zhengzhou Branch
                        
                        10/08/2010
                        
                        
                        1,468,731Shanghai
      Pudong Development Bank - Zhengzhou Branch
                        
                        10/08/2010
                        
                        
                        1,468,731Agricultural
      Bank of China - Anyang Branch
                        
                        09/17/2010
                        
                        
                        2,937,461Guangdong
      Development Bank - Anyang Branch
                        
                        12/09/2010
                        
                        
                        5,581,177Guangdong
      Development Bank - Anyang Branch
                        
                        12/10/2010
                        
                        
                        4,993,684Guangdong
      Development Bank - Anyang Branch
                        
                        08/08/2010
                        
                        
                        734,365Henan
      Rural Credit Cooperative - Tongye Branch
                        
                        09/23/2010
                        
                        
                        7,343,654Henan
      Rural Credit Cooperative - Tongye Branch
                        
                        09/25/2010
                        
                        
                        7,343,654China
      Commercial Bank - Anyang Branch
                        
                        08/02/2010
                        
                        
                        3,965,573China
      Commercial Bank - Anyang Branch
                        
                        08/02/2010
                        
                        
                        440,619Bank
      of Luoyang
                        
                        08/04/2010
                        
                        
                        5,874,923The
      Industrial and Commercial Bank of China - Shuiye Branch
                        
                        09/29/2010
                        
                        
                        763,740The
      Industrial and Commercial Bank of China - Shuiye Branch
                        
                        10/26/2010
                        
                        
                        1,468,731China
      Everbright Bank
                        
                        12/22/2010
                        
                        
                        2,937,461China
      Everbright Bank
                        
                        12/23/2010
                        
                        
                        4,406,192$
                        79,458,332




16




Birch
Branch, Inc.
 Notes
to Unaudited Interim Consolidated Financial Statements
 
 (Unaudited)




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 SC Coke’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, SC
Coke does not calculate imputed interest with respect to them.  These
notes are collateralized by SC Coke’s deposits as described in Note 2E -
Restricted Cash.




9.
            Loans




The
components of SC Coke’s loans payable are as follows:




Name
      of Creditors
                      
                      Note
                      
                      Due
      Date
                      
                      Interest
      Rate
                      
                      
                      6/30/2010Henan
      Rural Credit Cooperatives - Anyang Branch
                      
                      A
                      
                      03/22/2011
                      
                      
                      8.8500
                      %
                      
                      $
                      4,406,193Shanghai
      Pudong Development Bank - Zhengzhou Branch
                      
                      B
                      
                      12/24/2010
                      
                      
                      5.3460
                      %
                      
                      
                      5,874,923Bank
      of China - Anyang Hejiacun Branch
                      
                      C
                      
                      07/01/2010
                      
                      
                      5.8410
                      %
                      
                      
                      2,937,461Industrial
      and Commercial Bank of China - Shuiye Branch
                      
                      D
                      
                      10/14/2010
                      
                      
                      5.3460
                      %
                      
                      
                      5,287,431Guangdong
      Development Bank - Anyang Branch
                      
                      E
                      
                      07/22/2010
                      
                      
                      5.3100
                      %
                      
                      
                      1,468,731Guangdong
      Development Bank - Anyang Branch
                      
                      F
                      
                      08/31/2010
                      
                      
                      5.3100
                      %
                      
                      
                      2,937,461Guangdong
      Development Bank - Anyang Branch
                      
                      G
                      
                      01/18/2011
                      
                      
                      5.3100
                      %
                      
                      
                      2,937,461Guangdong
      Development Bank - Anyang Branch
                      
                      H
                      
                      06/07/2011
                      
                      
                      5.3100
                      %
                      
                      
                      1,468,731Henan
      Urban Credit Cooperative - Anyang Branch
                      
                      I
                      
                      04/13/2011
                      
                      
                      6.6375
                      %
                      
                      
                      2,937,461Bank
      of Luoyang - Zhengzhou Branch
                      
                      J
                      
                      01/27/2011
                      
                      
                      5.3100
                      %
                      
                      
                      2,937,461$
                      33,193,314




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




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


B.
            Guaranteed
      by Anyang City New Tianhe Cement Co.,
LLC


C.
            Guaranteed
      by Xinlei Group Cheng Chen Coking


D.
            Guaranteed
      by Anyang Top Coal Co., Ltd.


E.
            Guaranteed
      by Henan Hubo Cement Co., Ltd and Anyang Liyuan Coking Co.,
      Ltd


F.
            Guaranteed
      by Henan Hubo Cement Co., Ltd and Xinlei Group Cheng Chen
      Coking


G.
            Guaranteed
      by Henan Hubo Cement Co., Ltd and Liyuan Coking Co.,
  Ltd


H.
            Guaranteed
      by Henan Hubo Cement Co., Ltd and Anyang Liyuan Coking Co.,
      Ltd


I.
            Guaranteed
      by Xinpu Steel Co., Ltd


J.
            Guaranteed
      by Anyang Liyuan Coking Co., Ltd




10.
            Other
      Payable




Other
payable at June 30, 2010 and December 31, 2009 is detailed in the table
below.




6/30/2010
                        
                        
                        12/31/2009Project
      safety deposit
                        
                        $
                        209,827
                        
                        
                        $
                        167,836Unbilled
      purchase payable
                        
                        
                        13,981,726
                        
                        
                        
                        3,785,000Payable
      for raw materials in operation
                        
                        
                        1,611,347
                        
                        
                        
                        566,602


17





Birch
Branch, Inc.


Notes
to Unaudited Interim Consolidated Financial Statements





(Unaudited)


6/30/2010
                              
                              
                              12/31/2009Non-collateralized,
      non-interest bearing loans from individuals payable on
    demand
                              
                              
                              2,173,933
                              
                              
                              
                              5,159,865Others
                              
                              
                              120,941
                              
                              
                              
                              574,969$
                              18,097,774
                              
                              
                              $
                              10,254,272




11.
            Notes
      Payable to Related Parties




Creditor
                              
                              Note
                              
                              
                              6/30/2010Chairman,
      Wang Xinshun
                              
                              A
                              
                              
                              $
                              35,789,956SC
      Coke Shareholders
                              
                              B
                              
                              
                              
                              35,518,532$
                              71,308,488




A.
            Note
      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 six months ended June 30, 2010.  The
outstanding balance owed to Mr. Wang Xinshun for financial reporting purposes
has increased slightly as result of a change in the foreign currency exchange
rate.




B.
            Note
      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.




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 (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.


18




Birch
Branch, Inc.


Notes
to Unaudited Interim Consolidated Financial Statements





(Unaudited)





12.
            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.




13.
            Related
      Party Transactions




SC Coke
has specified the following transactions with related parties with ending
balances as of June 30, 2010 and December 31, 2009:




A.
            Trade
      Receivables and Revenue




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 is
an ending balance in accounts receivable from Angang of approximately $36,278
and $906,000 as of June 30, 2010 and December 31, 2009,
respectively.




Revenue
recorded in the consolidated financial statements from Angang amounts to
approximately $2,766,000 and $1,841,000 for the six months ended June 30, 2010
and 2009, respectively.




B.
            Deposits
      and Cost of Revenues




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 prepayments with Bailianpo of approximately $0 and $7,102,000 as
of June 30, 2010 and December 31, 2009, respectively.  Cost of
revenues related to purchases from Bailianpo included in the consolidated
financial statements amounts to approximately $8,142,000 and $1,104,000 for the
six months ended June 30, 2010 and 2009, respectively.




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.


19


Birch
Branch, Inc.


Notes
to Unaudited Interim Consolidated Financial Statements





(Unaudited)





SC Coke
did not have any prepayments with Anyang Xinlong outstanding at June 30,
2010 and December 31, 2009, respectively.  Cost of revenues related to
purchases from Anyang Xinlong included in the consolidated financial statements
amounts to approximately $4,192,000, and $3,488,000 for the six months ended
June 30, 2010 and 2009, respectively.




14.
            Income
      Taxes




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




Entity
                                
                                Country of Domicile
                                
                                Income Tax RateBirch
      Branch, Inc.
                                
                                USA
                                
                                15.00%
      - 35.00%Shuncheng
      Holdings HongKong Ltd.
                                
                                BVI
                                
                                0.00%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 consisted of the following for the
six months ended June 30, 2010 and 2009, respectively:




6/30/2010
                    
                    
                    6/30/2009Income
      (loss) before tax:USA
                    
                    $
                    (656,581
                    )
                    
                    $
                    -BVI
                    
                    
                    (326
                    )
                    
                    
                    -PRC
                    
                    
                    4,147,965
                    
                    
                    
                    4,427,479Total
                    
                    $
                    3,491,058
                    
                    
                    $
                    4,427,479Provision
      for income taxes:US
      Federal
                    
                    $
                    -
                    
                    
                    $
                    -State
                    
                    
                    -
                    
                    
                    
                    -PRC
                    
                    
                    1,019,791
                    
                    
                    
                    1,201,336Total
      provision for taxes
                    
                    $
                    1,019,791
                    
                    
                    $
                    1,201,336Effective
      tax rate
                    
                    
                    29.22
                    %
                    
                    
                    27.13
                    %




The
differences between the U.S. federal statutory income tax rates and the
Company’s effective tax rate for the six months ended June 30, 2010 and 2009 are
shown in the following table:




6/30/2010
                  
                  
                  6/30/2009US
      statutory tax rate
                  
                  
                  34.00
                  %
                  
                  
                  34.00
                  %Lower
      rates in the PRC
                  
                  
                  -9.00
                  %
                  
                  
                  -9.00
                  %Tax
      holiday
                  
                  
                  -
                  %
                  
                  
                  -
                  %Accrual
      and reconciling items
                  
                  
                  4.22
                  %
                  
                  
                  2.13
                  %Effective
      tax rate
                  
                  
                  29.22
                  %
                  
                  
                  27.13
                  %


20


Birch
Branch, Inc.


Notes
to Unaudited Interim Consolidated Financial Statements





(Unaudited)




15.
            Commitments
      and Contingencies




Third
Party Guarantees




SC Coke
entered into agreements as a guarantor of debt for twelve companies
(the “guarantees”) in the amount of approximately $46.0 million at June 30,
2010.  Of the aforementioned guarantees, six of the twelve companies
have, in turn, guaranteed debts of approximately $27.9 million on behalf of SC
Coke at June 30, 2010.  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:




GuaranteeGuarantee
                          
                          Creditor
                          
                          End
                          
                          6/30/2010Anshan
      Minshan Metal Co., Ltd.
                          
                          Avic
      International
                          
                          03/31/2012
                          
                          $
                          3,671,827Anyang
      City New Tianhe Cement Co., Ltd
                          
                          Guangdong
      Development Bank - Anyang Branch
                          
                          07/07/2011
                          
                          
                          5,874,923Anyang
      Hengxiang Coal Co., Ltd.
                          
                          Agricultural
      Bank of China - Anyang Branch
                          
                          04/13/2012
                          
                          
                          660,929Anyang
      Public Transportation Department
                          
                          China
      Commercial Bank - Anyang Branch
                          
                          11/25/2010
                          
                          
                          2,937,461Anyang
      Xingya Xidi Product Co., Ltd.
                          
                          Guangdong
      Development Bank - Anyang Branch
                          
                          07/22/2011
                          
                          
                          2,937,461Anyang
      Yujin Ash Co., Ltd.
                          
                          China
      Construction Bank
                          
                          01/05/2012
                          
                          
                          1,468,731Anyang
      Yulong Coking Co., Ltd.
                          
                          Henan
      Rural Credit Cooperative - Tongye Branch
                          
                          04/23/2011
                          
                          
                          2,937,461Henan
      Hubo Cement Co., Ltd.
                          
                          Bank
      of China - Anyang Branch
                          
                          11/11/2011
                          
                          
                          2,937,461Henan
      Hubo Cement Co., Ltd.
                          
                          Bank
      of China - Anyang Branch
                          
                          05/19/2012
                          
                          
                          1,468,731Henan
      Hubo Cement Co., Ltd.
                          
                          Guangdong
      Development Bank - Anyang Branch
                          
                          07/06/2011
                          
                          
                          1,615,604Henan
      Hubo Cement Co., Ltd.
                          
                          Guangdong
      Development Bank - Anyang Branch
                          
                          07/06/2011
                          
                          
                          1,909,350Linzhou
      City Hongqiqu Electrical Carbon Co., Ltd
                          
                          Agricultural
      Bank of China - Linzhou Branch
                          
                          12/15/2011
                          
                          
                          1,468,731Linzhou
      City Hongqiqu Electrical Carbon Co., Ltd
                          
                          Agricultural
      Bank of China - Linzhou Branch
                          
                          01/29/2012
                          
                          
                          1,468,731Linzhou
      City Hongqiqu Electrical Carbon Co., Ltd
                          
                          Agricultural
      Bank of China - Linzhou Branch
                          
                          02/10/2012
                          
                          
                          4,406,192Xinlei
      Group Cheng Chen Coking
                          
                          Henan
      Rural Credit Cooperative - Tongye Branch
                          
                          04/04/2011
                          
                          
                          2,937,461Xinpu
      Steel Co., Ltd
                          
                          Henan
      Rural Credit Cooperative - Anyang Branch
                          
                          01/04/2012
                          
                          
                          7,343,654$
                          46,044,708




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 June 30,
2010:


Year
      ending December 31:
                                
                                Principal
                                
                                
                                Payments2011
                                
                                $
                                668,718
                                
                                
                                $
                                916,209




21


Birch
Branch, Inc.


Notes
to Unaudited Interim Consolidated Financial Statements





(Unaudited)





Year
      ending December 31:
                      
                      Principal
                      
                      
                      Payments2012
                      
                      
                      1,413,345
                      
                      
                      
                      1,832,4182013
                      
                      
                      1,520,962
                      
                      
                      
                      1,832,4182014
                      
                      
                      1,636,773
                      
                      
                      
                      1,832,4182015
                      
                      
                      613,883
                      
                      
                      
                      659,148Total
      future minimum lease payments
                      
                      $
                      5,853,681
                      
                      
                      $
                      7,072,611




Past
Due Payment of Enterprise Income Taxes




At
December 31, 2009, SC Coke had approximately $3.0 million of overdue enterprise
income taxes.  As a result, SC Coke is subject to an overdue fine at
the rate of 0.05% per day of the amount of taxes in arrears, commencing from the
day the tax payment is overdue.  The tax authority may also impose an
additional fine of 50% to five times the underpaid taxes.  SC Coke has
recorded an accrued liability for the estimated taxes due and has determined
that there is no uncertain tax position to record relating to the potential
penalties and interest related to the overdue tax balance at this
time.




SC Coke
has available funds to cover the underpaid tax and overdue fine, but may not
have sufficient funds available to pay the additional 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.




16.
            Risks




Concentration
of Credit and Other Risks




Cash,
bank notes receivable, and trade receivables subject SC Coke to concentrations
of credit risk.  SC Coke holds all its deposits and bank notes
receivable with banks in China.  In China, there is no insurance
equivalent to the federal deposit insurance in the United States; as such these
amounts held in banks in China are not insured. SC Coke has not experienced any
losses in such bank accounts through June 30, 2010.




SC Coke
offers unsecured credit to its customers in the normal course of business;
therefore, SC Coke’s accounts receivable are subject to credit
risks.




Economic
and Political Risks




The
operations of SC Coke are located in the PRC.  Accordingly, the
Company’s business, financial condition, and results of operations may be
influenced by the political, economic, and legal environment in the
PRC.




The
Chinese Government controls its foreign currency reserves through restrictions
on imports and conversion of Renminbi into foreign currency.  In July
2005, the Chinese Government adjusted its exchange rate policy from “Fixed Rate”
to “Floating Rate”.  From December 31, 2009 to June 30, 2010, the
exchange rate between RMB and US Dollars fluctuated between $1.00 to RMB 6.8372
and $1.00 to RMB 6.8086.  There can be no assurance that the exchange
rate will remain stable.  The Renminbi could appreciate or depreciate
against the US Dollar.  The Company’s financial condition and results
of operations may also be affected by changes in the value of certain currencies
other than the Renminbi in which its earnings and obligations are
denominated.


22


Birch
Branch, Inc.


Notes
to Unaudited Interim Consolidated Financial Statements





(Unaudited)





17.
                Share Based
      Compensation




For the
six months ended June 30, 2010, the Company recorded an expense of $567,496
under the general and administrative account for the issuance of 540,472 common
shares at $1.05 per share.  The shares were issued to financial
consultants for services rendered in connection with the Share Exchange and
expected future financing transactions.  For the purposes of
calculating earnings per share, the Company has assumed that these shares were
issued on January 1, 2010.




18.
              Warrants
  On June 28, 2010, the Company issued to SCM Capital, LLC two
warrants.  The first warrant entitles the holder to purchase 1,922,833
common shares, at an exercise price of $4.50 per share.  The second
warrant entitles the holder to purchase 6% of the number of common shares issuedand
outstanding immediately following the closing of a private financing resulting
in gross proceeds of $25 million or more, less 1,922,833 common
shares.  Neither warrant is exercisable until the closing of such
private financing, and each warrant is subject to forfeiture
in the event such private financing is not closed on or prior to August 31,
2010.  Accordingly, the Company believes that the contingently
issuable shares are related to a capital transaction and are not compensatory in
nature but are potentially dilutive for purposes of calculating earnings
per share.




19.
            Earnings
      Per Share




3
      months
                          
                          
                          3
      months
                          
                          
                          6
      months
                          
                          
                          6
      monthsended
                          
                          
                          ended
                          
                          
                          ended
                          
                          
                          ended6/30/2010
                          
                          
                          6/30/2009
                          
                          
                          6/30/2010
                          
                          
                          6/30/2009Basic
      earnings per share numerator:Net
      income attributable to common shareholders
                          
                          $
                          1,396,362
                          
                          
                          $
                          3,903,378
                          
                          
                          $
                          2,518,626
                          
                          
                          $
                          3,210,143Basic
      weighted average shares outstanding:
                          
                          
                          32,047,222
                          
                          
                          
                          32,047,222
                          
                          
                          
                          32,047,222
                          
                          
                          
                          32,047,222Additions from potentially dilutive
      eventsWarrants issued to
    consultant
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Diluted
      weighted average shares outstanding:
                          
                          
                          32,047,222
                          
                          
                          
                          32,047,222
                          
                          
                          
                          32,047,222
                          
                          
                          
                          32,047,222Earnings
      per share-
      Basic
                          
                          $
                          0.04
                          
                          
                          $
                          0.12
                          
                          
                          $
                          0.08
                          
                          
                          $
                          0.10-
      Diluted
                          
                          $
                          0.04
                          
                          
                          $
                          0.12
                          
                          
                          $
                          0.08
                          
                          
                          $
                          0.10Weighted
      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


23




Birch
Branch, Inc.


Notes
to Unaudited Interim Consolidated Financial Statements





(Unaudited)


20.
              Subsequent
  Events





(A)           Loan
from Bank of China, Anyang
Branch




On July 20, 2010, SC Coke entered into a loan agreement
with Bank of China, Anyang Branch. personally and a third party guarantor




(B)           Loan
from China Construction Bank, Anyang
Branch




On July28, 2010,
SC Coke entered into a loan agreement with China Construction Bank, Anyang
Branch. the PRC prime rate, which was 5.310 on July 28, 2010


24




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




The
following discussion and analysis, as well as other sections in this Quarterly
Report on Form 10-Q, should be read in conjunction with the unaudited
interim consolidated financial statements and related notes to the unaudited
interim consolidated financial statements included elsewhere
herein.




The
information contained in this Quarterly Report includes some statements that are
not purely historical and that are “forward-looking statements” as defined by
the Private Securities Litigation Reform Act of 1995.  Such forward-looking
statements include, but are not limited to, statements regarding our and our
management’s expectations, hopes, beliefs, intentions or strategies regarding
the future, including our financial condition and results of operations. 
In addition, any statements that refer to projections, forecasts or other
characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements.  The words “anticipates,”
“believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,”
“might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,”
“should,” “will,” “would” and similar expressions, or the negatives of such
terms, may identify forward-looking statements, but the absence of these words
does not mean that a statement is not forward-looking.




The
forward-looking statements contained in this Quarterly Report are based on
current expectations and beliefs concerning future developments.  There can
be no assurance that future developments actually affecting us will be those
anticipated.  These forward-looking statements involve a number of risks,
uncertainties (some of which are beyond our control) or other assumptions that
may cause actual results or performance to be materially different from those
expressed or implied by these forward-looking statements, including reliance on
the iron and steel industries as customers for SC Coke’s products; SC
Coke’s ability to develop and market new products; changes in user demand for SC
Coke’s products; changes in SC Coke’s product mix; fluctuations in the
availability of raw materials and components needed for SC Coke’s products;
changes in SC Coke’s pricing policies and the pricing policies of SC Coke’s
competitors and suppliers; the availability and cost of products from SC Coke’s
suppliers; SC Coke’s ability to compete effectively with its current and any
future competitors; dependence on a limited number of suppliers; the impact on
us of the underpayment of certain taxes by SC Coke; SC Coke’s ability to use its
facilities; general and cyclical economic and business conditions; SC Coke’s
expansion and possible effects of expansion; SC Coke’s ability to manage its
rapid growth; SC Coke’s ability to integrate acquisitions (if any) or
projects into its operations; SC Coke’s dependence on certain senior managers;
SC Coke’s dependence on financings, in particular short term loans, to finance
operations and expansion; our ability to raise additional capital to fund our
operations and any expansion; our highly leveraged capital structure;
obligations under guarantees in favor of third parties; legislative or
regulatory changes in China that affect our operations; the cost of complying
with current and future governmental regulations and the impact of any changes
in the regulations on our operations; inflation and fluctuations in foreign
currency exchange rates; SC Coke’s ability to obtain and maintain all necessary
government certifications, approvals, and/or licenses to conduct its business;
adverse changes in the securities markets; development of a public trading
market for our securities; and other risks described in our Current Report on
Form 8-K filed with the SEC on July 2, 2010 and this Quarterly
Report.




Should
one or more of these risks or uncertainties materialize, or should any of our
assumptions prove incorrect, actual results may vary in material respects from
those projected in these forward-looking statements.  You should not place
undue reliance on forward-looking statements.  Such statements speak only
as to the date on which they are made, and we undertake no obligation to update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required under
applicable securities laws.


25


Background




On May
14, 2010, BRBH entered into a Share Exchange Agreement with Shun Cheng HK, the
former shareholders of Shun Cheng HK (the “Shun Cheng HK Shareholders”), and the
former principal shareholders of BRBH, pursuant to which the Shun Cheng HK
Shareholders agreed to transfer all of the issued and outstanding securities of
Shun Cheng HK to BRBH in exchange for 30,233,750 shares of BRBH common stock
(the “Share Exchange”).  The Share Exchange closed on June 28, 2010, at
which time Shun Cheng HK became a wholly-owned subsidiary of BRBH.  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.




All of
our business operations are carried out by SC Coke, which is a vertically
integrated coke producer whose facilities and operations are based solely in the
PRC, principally in Henan Province.




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 BRBH, Shun Cheng HK, nor Anyang WFOE owns any
direct equity interest in SC Coke.  On March 19, 2010, Anyang WFOE entered
into the following contractual arrangements with SC Coke and its
shareholders:




Entrusted Management
Agreement.Pursuant to the entrusted management agreement between
Anyang WFOE, 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 WFOE until Anyang WFOE 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 WFOE 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 WFOE
is completed.




Shareholders’ Voting Proxy
Agreement.Under the shareholders’ voting proxy agreement
(the “Shareholders’ Voting Proxy Agreement”) between Anyang WFOE and the SC
Coke Shareholders, the SC Coke Shareholders irrevocably and exclusively
appointed the board of directors of Anyang WFOE 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 WFOE.




Exclusive Option Agreement.Under the exclusive option agreement (the “Exclusive Option Agreement”)
between Anyang WFOE, on the one hand, and SC Coke and the SC Coke Shareholders,
on the other hand, the SC Coke Shareholders granted Anyang WFOE 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 WFOE 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 WFOE, at its reasonable discretion.


26


Shares Pledge Agreement.Under the shares pledge agreement between Anyang WFOE, 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 WFOE’s
rights and benefits under the Entrusted Management Agreement, the Exclusive
Option Agreement and the Shareholders’ Voting Proxy Agreement.  Prior to
termination of the Shares Pledge Agreement, the pledged equity interests cannot
be transferred without Anyang WFOE’s prior consent.




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









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.


27




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:







28





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 recently 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, may be 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 June 30, 2010 Compared to Three Months Ended June 30,
2009




Revenues.During the
three months ended June 30, 2010, the primary business of production and sale of
coke and refined coal has contributed 85% of SC Coke’s total revenues. 
However, because refined coal is a raw material for coke production, as coke
production increases, our internal consumption of refined coal increases, which
reduces the amount of SC Coke’s own refined coal available for external
sales.  This trend is likely to continue with the new capacity expansion
expected to come into production in early 2011.




Primary
Products




SC Coke’s
revenues for the three months ended June 30, 2010 and 2009, contributed by its
primary products of coke and refined coal, were as follows:




Revenues
                    (Unaudited)Coke
                  
                  
                  Refined Coal
                  
                  
                  TotalRevenuesThree
      Months Ended June 30, 2010
                  
                  $
                  60,654,040
                  
                  
                  $
                  3,075,570
                  
                  
                  $
                  63,729,610Three
      Months Ended June 30, 2009
                  
                  
                  31,705,073
                  
                  
                  
                  12,585,331
                  
                  
                  
                  44,290,404Increase
      (decrease)
                  
                  $
                  28,948,967
                  
                  
                  $
                  (9,509,761
                  )
                  
                  $
                  19,439,206%
      Increase (decrease)
                  
                  
                  91.31
                  %
                  
                  
                  (75.56%)
                  %
                  
                  
                  43.89
                  %As
      Percentage of Total RevenuesThree
      Months Ended June 30, 2010
                  
                  
                  81.26
                  %
                  
                  
                  4.12
                  %
                  
                  
                  85.38
                  %Three
      Months Ended June 30, 2009
                  
                  
                  62.20
                  %
                  
                  
                  24.69
                  %
                  
                  
                  86.89
                  %




29




Revenues
                    (Unaudited)Coke
                  
                  
                  Refined Coal
                  
                  
                  TotalQuantity
      Sold (metric tons)Three
      Months Ended June 30, 2010
                  
                  
                  297,797
                  
                  
                  
                  14,226
                  
                  
                  
                  312,022Three
      Months Ended June 30, 2009
                  
                  
                  193,227
                  
                  
                  
                  103,162
                  
                  
                  
                  296,389Increase
      (decrease)
                  
                  
                  104,570
                  
                  
                  
                  (88,936
                  )
                  
                  
                  15,634%
      Increase (decrease)
                  
                  
                  54.12
                  %
                  
                  
                  (86.21
                  )%
                  
                  
                  5.27
                  %Average
      Price Per TonThree
      Months Ended June 30, 2010
                  
                  $
                  204
                  
                  
                  $
                  216Three
      Months Ended June 30, 2009
                  
                  
                  164
                  
                  
                  
                  122Increase
      (decrease)
                  
                  $
                  40
                  
                  
                  $
                  94%
      Increase (decrease)
                  
                  
                  24.39
                  %
                  
                  
                  77.05
                  %


Revenues
for the three months ended June 30, 2010 increased substantially from the
revenues for the three months ended June 30, 2009, primarily from the recovery
in the global economic environment and the demand for coke from various steel
mills in and near the Henan Province.




Sales
volume for coke benefited from the global economic recovery, while sales volume
for refined coal decreased due to the decrease in the amount of refined coal
available for external sales.  Sales volume for the three months ended June
30, 2010 increased over the comparable period in 2009 by 54.12% (from 193,227
tons to 297,797 tons); and over the same period, refined coal sales volume
decreased by 86.21% (from 103,162 tons to 14,226 tons).




Product
unit price for both coke and refined coal benefited from the global economic
recovery.  When compared with the same period of 2009, average sales price
per ton for coke increased from $164 to $204 and refined coal increased from
$122 to $216, for the three months ended June 30, 2010.  Contribution as a
percentage of total revenues for coke and refined coal decreased from 86.89% to
85.38% for the three months ended June 30, 2010.




Because
of the recovery in product unit price and sales volume, revenues generated from
coke and refined coal increased from $44.3 million for the three months
ended June 30, 2009 to $63.7 million for the three months ended June 30,
2010.




SC Coke
believes that the significant drop in prices and volumes for its products as a
result of the global financial crisis in 2009 has abated in 2010 and it is
likely to experience less volatility in product prices for the balance of
2010.




Secondary
Products




SC Coke’s
secondary product revenues for the three months ended June 30, 2010 and 2009
were as follows:




Medium
                              Coal
                            
                            
                            Crude
                              Benzol
                            
                            
                            Ammonium
      Sulfate
                            
                            
                            Coal Gas
                            
                            
                            Tar
                            
                            
                            Others
                            
                            
                            Total(Unaudited)RevenuesThree
      Months Ended June 30, 2010
                            
                            $
                            381,084
                            
                            
                            $
                            1,509,642
                            
                            
                            $
                            158,838
                            
                            
                            $
                            1,002,995
                            
                            
                            $
                            5,455,322
                            
                            
                            $
                            2,403,156
                            
                            
                            $
                            10,911,037Three
      Months Ended June 30, 2009
                            
                            
                            335,247
                            
                            
                            
                            1,227,822
                            
                            
                            
                            138,873
                            
                            
                            
                            638,282
                            
                            
                            
                            2,820,112
                            
                            
                            
                            1,523,735
                            
                            
                            
                            6,684,071Change
                            
                            $
                            45,837
                            
                            
                            $
                            281,820
                            
                            
                            $
                            19,965
                            
                            
                            $
                            364,713
                            
                            
                            $
                            2,635,210
                            
                            
                            $
                            879,420
                            
                            
                            $
                            4,226,966%
      Change
                            
                            
                            13.67
                            %
                            
                            
                            22.95
                            %
                            
                            
                            14.38
                            %
                            
                            
                            57.14
                            %
                            
                            
                            93.44
                            %
                            
                            
                            57.71
                            %
                            
                            
                            63.24
                            %




30




Medium
                                                                Coal
                                                              
                                                              
                                                              Crude
                                                                Benzol
                                                              
                                                              
                                                              Ammonium
      Sulfate
                                                              
                                                              
                                                              Coal Gas
                                                              
                                                              
                                                              Tar
                                                              
                                                              
                                                              Others
                                                              
                                                              
                                                              TotalAs
      % of Total RevenuesThree
      Months Ended June 30, 2010
                                                              
                                                              
                                                              0.51
                                                              %
                                                              
                                                              
                                                              2.02
                                                              %
                                                              
                                                              
                                                              0.21
                                                              %
                                                              
                                                              
                                                              1.34
                                                              %
                                                              
                                                              
                                                              7.31
                                                              %
                                                              
                                                              
                                                              3.22
                                                              %
                                                              
                                                              
                                                              14.61
                                                              %Three
      Months Ended June 30, 2009
                                                              
                                                              
                                                              0.66
                                                              %
                                                              
                                                              
                                                              2.41
                                                              %
                                                              
                                                              
                                                              0.27
                                                              %
                                                              
                                                              
                                                              1.25
                                                              %
                                                              
                                                              
                                                              5.53
                                                              %
                                                              
                                                              
                                                              2.99
                                                              %
                                                              
                                                              
                                                              13.11
                                                              %




Along
with the increase in coke production and sales, the total revenue of our
secondary products significantly increased to $10.9 million in the three months
ended June 30, 2010 from $6.7 million in the three months ended June 30, 2009,
which was an increase of 63.24%, similarly as a result of the recovery in the
global economic environment.  Revenue contribution from secondary products
as a percentage of total revenues increased from 13.11% in the three months
ended June 30, 2009 to 14.61% in the three months ended June 30, 2010. 
This increase in the percentage of revenues contributed by secondary products
was primarily from the increase in the sales of tar and other secondary
products, which benefited from the recovery in the global economic
environment.




Of the
secondary products, the largest contributor to revenue was from tar sales. 
Tar sales increased by 93.44% from $2.8 million in the three months ended June
30, 2009 to $5.5 million in the three months ended June 30, 2010.  Other
secondary products sales also experienced a large sales increase from $3.9
million for the three months ended June 30, 2009 to $5.4 million for the three
months ended June 30, 2010.




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 $46.1 million in
the three months ended June 30, 2009 to $69.3 million in the three months ended
June 30, 2010.  The primary reasons for this increase were due to the
increase in production and raw material costs.  Gross profit increased from
$4.9 million in the three months ended June 30, 2009 to $5.3 million in the
three months ended June 30, 2010; and gross profit margin decreased from 9.6% in
the three months ended June 30, 2009 to 7.1% in the three months ended June 30,
2010, due to an increase in the average cost of raw materials.




Operating Expenses.Operating expenses increased by 11.0% from $2.1 million in the three
months ended June 30, 2009 to $2.3 million in the three months ended June 30,
2010.  Operating expenses are comprised of sales and marketing expenses and
general and administrative expenses.  Sales and marketing expenses
decreased marginally from $1.2 million in the three months ended June 30, 2009
to $0.95 million in the three months ended June 30, 2010.  General and
administrative expenses increased from $0.9 million in the three months ended
June 30, 2009 to $1.4 million in the three months ended June 30, 2010, due
to costs associated with the Share Exchange among the Company and the former
shareholders of Shun Cheng HK during the three months ended June 30,
2010.




Other Income and Expense.Other income is consistent at around $0.1 million for both the three
months ended June 30, 2009 and the three months ended June 30,
2010.




Interest Income and Expense.Interest expense for the three months ended June 30, 2009 was $0.4
million compared to interest expense for the three months ended June 30, 2010 of
$1.4 million, due to an increase in bank notes payable during the period. 
Interest income remains unchanged at $0.2 million for both the three months
ended June 30, 2010 and three months ended June 30, 2009.




Gain on Investment.Gain on investment for the three months ended June 30, 2010 was $0 when
compared to $2.6 million for the three months ended June 30,
2009.


31


Provision for Income Taxes.Provision for income taxes in the three months ended June 30, 2010 was
$0.5 million compared to provision for income taxes for the three months ended
June 30, 2009 of $1.4 million.  SC Coke and Longdu were subject to a
corporate income tax rate of 25% during the three months ended June 30, 2010 and
2009.




Net Income.SC Coke
recorded net income of $1.4 million for the three months ended June 30,
2010 compared to net income of $3.9 million for the three months ended June 30,
2009.  The decrease was primarily attributed to the gain on investment that
was recorded in the three months ended June 30, 2009 as compared to $0 gain on
investment recorded in the three months ended June 30, 2010.




Six
Months Ended June 30, 2010 Compared to Six Months Ended June 30,
2009




Revenues.During the
six months ended June 30, 2010, the primary business of production and sale of
coke and refined coal has contributed 86% of SC Coke’s total revenues. 
However, because refined coal is a raw material for coke production, as coke
production increases, our internal consumption of refined coal increases, which
reduces the amount of SC Coke’s own refined coal available for external
sales.  This trend is likely to continue with the new capacity expansion
expected to come into production in early 2011.




Primary
Products




SC Coke’s
revenues for the six months ended June 30, 2010 and 2009, contributed by its
primary products of coke and refined coal, were as follows:




Revenues
                          (Unaudited)Coke
                        
                        
                        Refined Coal
                        
                        
                        TotalRevenuesSix
      Months Ended June 30, 2010
                        
                        $
                        114,380,579
                        
                        
                        $
                        5,038,706
                        
                        
                        $
                        119,419,285Six
      Months Ended June 30, 2009
                        
                        
                        53,485,674
                        
                        
                        
                        13,346,293
                        
                        
                        
                        66,831,967Increase
      (decrease)
                        
                        $
                        60,894,905
                        
                        
                        $
                        (8,307,587
                        )
                        
                        $
                        52,587,318%
      Increase (decrease)
                        
                        
                        113.85
                        %
                        
                        
                        (62.25%
                        )%
                        
                        
                        78.69%
                        %As
      Percentage of Total RevenuesSix
      Months Ended June 30, 2010
                        
                        
                        82.25
                        %
                        
                        
                        3.62
                        %
                        
                        
                        85.88%
                        %Six
      Months Ended June 30, 2009
                        
                        
                        69.13
                        %
                        
                        
                        17.25
                        %
                        
                        
                        86.38%
                        %Quantity
      Sold (metric tons)Six
      Months Ended June 30, 2010
                        
                        
                        549,250
                        
                        
                        
                        26,326
                        
                        
                        
                        575,575Six
      Months Ended June 30, 2009
                        
                        
                        290,645
                        
                        
                        
                        108,698
                        
                        
                        
                        399,343Increase
      (decrease)
                        
                        
                        258,605
                        
                        
                        
                        (82,372
                        )
                        
                        
                        176,232%
      Increase (decrease)
                        
                        
                        88.98
                        %
                        
                        
                        (75.78
                        )%
                        
                        
                        44.13%
                        %Average
      Price Per TonSix
      Months Ended June 30, 2010
                        
                        $
                        208
                        
                        
                        $
                        191Six
      Months Ended June 30, 2009
                        
                        
                        184
                        
                        
                        
                        123Increase
      (decrease)
                        
                        $
                        24
                        
                        
                        $
                        68%
      Increase (decrease)
                        
                        
                        13.04
                        %
                        
                        
                        55.28
                        %




Revenues
for the six months ended June 30, 2010 increased substantially from the revenues
for the six months ended June 30, 2009, primarily from the recovery in the
global economic environment and the demand for coke from various steel mills in
and near the Henan Province.


32


Sales
volume for coke benefited from the global economic recovery, while sales volume
for refined coal decreased due to the decrease in the amount of refined coal
available for external sales.  Sales volume for the six months ended June
30, 2010 increased over the comparable period in 2009 by 88.98% (from 290,645
tons to 549,250 tons); and over the same period, refined coal sales volume
decreased by 75.78% (from 108,698 tons to 26,326 tons).




Product
unit price for both coke and refined coal benefited from the global economic
recovery.  When compared with the same period of 2009, average sales price
per ton for coke increased from $184 to $208 and refined coal increased from
$123 to $191, for the six months ended June 30, 2010.  Contribution as a
percentage of total revenues for coke and refined coal remained stable at
approximately 86% in both periods.




Because
of the recovery in product unit price and sales volume, revenues generated from
coke and refined coal increased from $66.8 million for the six months ended
June 30, 2009 to $119.4 million for the six months ended June 30,
2010.




SC Coke
believes that the significant drop in prices and volumes for its products as a
result of the global financial crisis in 2009 has abated in 2010 and it is
likely to experience less volatility in product prices for the balance of
2010.




Secondary
Products




SC Coke’s
secondary product revenues for the six months ended June 30, 2010 and 2009 were
as follows:




Medium
                                                                  Coal
                                                                
                                                                
                                                                Crude
                                                                  Benzol
                                                                
                                                                
                                                                Ammonium
      Sulfate
                                                                
                                                                
                                                                Coal Gas
                                                                
                                                                
                                                                Tar
                                                                
                                                                
                                                                Others
                                                                
                                                                
                                                                Total(Unaudited)RevenuesSix
      Months Ended June 30, 2010
                                                                
                                                                $
                                                                411,804
                                                                
                                                                
                                                                $
                                                                3,175,821
                                                                
                                                                
                                                                $
                                                                286,105
                                                                
                                                                
                                                                $
                                                                1,667,125
                                                                
                                                                
                                                                $
                                                                9,258,716
                                                                
                                                                
                                                                $
                                                                4,839,111
                                                                
                                                                
                                                                $
                                                                19,638,682Six
      Months Ended June 30, 2009
                                                                
                                                                
                                                                625,902
                                                                
                                                                
                                                                
                                                                2,126,078
                                                                
                                                                
                                                                
                                                                306,840
                                                                
                                                                
                                                                
                                                                927,477
                                                                
                                                                
                                                                
                                                                4,477,869
                                                                
                                                                
                                                                
                                                                2,074,379
                                                                
                                                                
                                                                
                                                                10,538,545Change
                                                                
                                                                $
                                                                (214,098
                                                                )
                                                                
                                                                $
                                                                1,049,743
                                                                
                                                                
                                                                $
                                                                (20,735
                                                                )
                                                                
                                                                $
                                                                739,648
                                                                
                                                                
                                                                $
                                                                4,780,847
                                                                
                                                                
                                                                $
                                                                2,764,732
                                                                
                                                                
                                                                $
                                                                9,100,137%
      Change
                                                                
                                                                
                                                                (34.21
                                                                )%
                                                                
                                                                
                                                                49.37
                                                                %
                                                                
                                                                
                                                                (6.76
                                                                )%
                                                                
                                                                
                                                                79.75
                                                                %
                                                                
                                                                
                                                                106.77
                                                                %
                                                                
                                                                
                                                                133.28
                                                                %
                                                                
                                                                
                                                                86.35
                                                                %As
      % of Total RevenuesSix
      Months Ended June 30, 2010
                                                                
                                                                
                                                                0.30
                                                                %
                                                                
                                                                
                                                                2.28
                                                                %
                                                                
                                                                
                                                                0.21
                                                                %
                                                                
                                                                
                                                                1.20
                                                                %
                                                                
                                                                
                                                                6.66
                                                                %
                                                                
                                                                
                                                                3.48
                                                                %
                                                                
                                                                
                                                                14.12
                                                                %Six
      Months Ended June 30, 2009
                                                                
                                                                
                                                                0.81
                                                                %
                                                                
                                                                
                                                                2.75
                                                                %
                                                                
                                                                
                                                                0.40
                                                                %
                                                                
                                                                
                                                                1.20
                                                                %
                                                                
                                                                
                                                                5.79
                                                                %
                                                                
                                                                
                                                                2.68
                                                                %
                                                                
                                                                
                                                                13.62
                                                                %




Along
with the increase in coke production and sales, the total revenue of our
secondary products significantly increased to $19.6 million in the six months
ended June 30, 2010 from $10.5 million in the six months ended June 30, 2009,
which was an increase of 86.35%, similarly as a result of the recovery in the
global economic environment.  Revenue contribution from secondary products
as a percentage of total revenues increased from 13.62% in the six months ended
June 30, 2009 to 14.12% in the six months ended June 30, 2010.  This
increase in the percentage of revenues contributed by secondary products was
primarily from the increase in the sales of tar and other secondary products,
which benefited from the recovery in the global economic
environment.


33


Of the
secondary products, the largest contributor to revenue was from tar
sales.  Tar sales increased by 106.77% from $4.5 million in the six
months ended June 30, 2009 to $9.3 million in the six months ended June 30,
2010.  Other secondary products sales also experienced a large sales
increase from $6.0 million for the six months ended June 30, 2009 to $10.3
million for the six months ended June 30, 2010.




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 $70.9
million in the six months ended June 30, 2009 to $128.8 million in the six
months ended June 30, 2010.  The primary reasons for this increase
were due to the increase in production and raw material costs.  Gross
profit increased from $6.5 million in the six months ended June 30, 2009 to
$10.3 million in the six months ended June 30, 2010; and gross profit margin
decreased from 8.4% in the six months ended June 30, 2009 to 7.4% in the six
months ended June 30, 2010, due to an increase in the average cost of raw
materials.




Operating
Expenses.  Operating expenses increased by 17.9% from $4.2
million in the six months ended June 30, 2009 to $4.9 million in the six months
ended June 30, 2010.  Operating expenses are comprised of sales and
marketing expenses and general and administrative expenses.  Sales and
marketing expenses decreased marginally from $2.0 million in the six months
ended June 30, 2009 to $1.8 million in the six months ended June 30,
2010.  General and administrative expenses increased from $2.2 million
in the six months ended June 30, 2009 to $3.1 million in the six months ended
June 30, 2010 due to costs associated with the Share Exchange among the Company
and the former shareholders of Shun Cheng HK during the six months ended June
30, 2010.




Other Income and
Expense.  Other income for the six months ended June 30,2009
was $0.1 million compared to other income of $0.2 million for the six
months ended June 30, 2010 due to an increase in sales of waste material created
during the production process.




Interest Income and
Expense.  Interest expense for the six months ended June 30,
2009 was $1.0 million compared to interest expense for the six months ended
June 30, 2010 of $2.6 million, due to an increase in bank notes payable
during the period.  Interest income increased marginally by $50,000 in
the six months ended June 30, 2010 as compared to the six months ended
June 30, 2009.




Gain on
Investment.  Gain on investment for the six months ended June
30, 2010 was $0 when compared to $2.6 million for the six months ended June 30,
2009.




Provision for Income
Taxes.  Provision for income taxes in the six months ended June
30, 2010 was $1.0 million compared to provision for income taxes for the six
months ended June 30, 2009 of $1.2 million.  SC Coke and Longdu
were subject to a corporate income tax rate of 25% during the six months ended
June 30, 2010 and 2009.




Net Income.  SC
Coke recorded net income of $2.5 million for the six months ended June 30, 2010
compared to net income of $3.2 million for the six months ended June 30,
2009.  The decrease was primarily attributed to the gain on investment
that was recorded in the six months ended June 30, 2009 as compared to $0 gain
on investment recorded in the six months ended June 30, 2010.


34




Liquidity
and Capital Resources




Six
Months Ended June 30, 2010 Compared to Six Months Ended June 30,
2009




Net Cash Provided by (Used
in) Operating Activities




Net cash
provided by operating activities for the six months ended June 30, 2010 was
$40.8 million compared with net cash used in operating activities for the
six months ended June 30, 2009 of $10.2 million.  Net cash used in
customer deposits and notes receivable was $10.7 million for the six months
ended June 30, 2010 compared with net cash provided of approximately $6,000 for
the six months ended June 30, 2009.  However, net cash provided by
notes and accounts payable was $45.0 million for the six months ended June
30, 2010 compared with net cash used of $9.4 million for the six months ended
June 30, 2009.




Net Cash Used in Investing
Activities




Net cash
used in investing activities for the six months ended June 30, 2010 was $41.9
million compared to $5.9 million for the six months ended June 30,
2009.  The primary reasons were the acquisition of property, plant and
equipment increasing by $14.5 million from $1.2 million for the six months ended
June 30, 2009 to $15.7 million for the six months ended June 30, 2010 and the
transfer of $12.4 million of funds to restricted cash during the six months
ended June 30, 2010 compared to no transfer of funds to restricted cash during
the six months ended June 30, 2009.




Net Cash Provided by
Financing Activities




Net cash
provided by financing activities in the six months ended June 30, 2010 was
$2.4 million compared with net cash provided by financing activities of
$49.3 million for the six months ended June 30, 2009.  In the six
months ended June 30, 2010, SC Coke received proceeds from loans of
$27.3 million and repaid loans of
$25.8 million.




Capital
Sources




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 Wang Xinshun, 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 Wang Xinshun 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.


35




Because
of SC Coke’s rapid capacity expansion, its internally generated funds from
operations have historically been insufficient to meet its liquidity
requirements.  SC Coke has been dependent on financings to meet its
liquidity, working capital and expansion expenditures.  As of June 30,
2010, total loans payable were $58.4 million (excluding the related party loan
from SC Coke’s sole director), all of which are short term and payable in the
next 12 months.  These loans have interest rates ranging from 5.31% to
8.85%, 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 payable outstanding at June 30, 2010
were $79.5 million.




SC Coke’s
management intends to continue the growth in 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 six months ended June 30, 2010, SC Coke made capital expenditures of
$15.8 million.  These capital expenditures were primarily for
purchases of coking equipment, upgrades and improvements to its coke production
facility.




Additionally,
SC Coke intends to invest in the building of additional coking production
capacity of 1.3 million tons, which is expected to be commissioned in early
2011.  The testing and full ramp-up of this production capacity is
anticipated to be completed in the first quarter of 2011.




The total
investment required for the new 1.3 million ton coke facility, including two
additional ovens, is expected to be approximately $85 million and is expected to
be financed by debt and/or equity financings and internally generated cash
flow.  Construction work, which includes site preparation, foundation
and construction, began in late 2009 and is anticipated to be available for use
by the end of May 2011.  As of the date hereof, approximately 50% of
the construction work has been completed.  Equipment to be included in
the new facility will be predominantly locally sourced in China and is
substantially similar to existing equipment.  To date, SC Coke has
expended approximately $11.7 million on the expansion.  If additional
financing is not obtained, SC Coke may need to reduce, defer or cancel its
expansion plans.


36




With the
new production capacity, total coking production is planned to reach 3.0 million
tons annually. Accordingly, we expect to achieve different economies of scale,
both in coke and coke byproducts production, than our current
operations.




The
financing for the completion of the facility is expected to come from: (1)
internally generated funds, (2) debt financing from local financial
institutions, and (3) future equity financing. If SC Coke is unable to obtain
additional funding, it 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 could have a material adverse
effect on its business, financial condition and results of
operation.




Quantitative
and Qualitative Disclosures about Market Risk




We do not
use derivative financial instruments and we have no foreign exchange contracts.
SC Coke’s financial instruments consist of cash and cash equivalents, trade
accounts receivable, accounts payable and long-term obligations. We generally
consider investments in highly liquid instruments purchased with a remaining
maturity of 90 days or less at the date of purchase to be cash
equivalents.




Interest Rates. SC Coke
generally does not invest in or hold debt securities. Accordingly, fluctuations
in applicable interest rates would not have a material impact on SC Coke. At
June 30, 2010, we held restricted cash of $64.8 million, which provides
collateral for our bank notes payable, but not short term debt instruments. SC
Coke had short-term loans payable of $58.4 million at June 30, 2010. These notes
have interest rates ranging from 5.84% to 10.6%. Due to the short-term nature of
the notes, a hypothetical 10% increase or decrease in applicable interest rates
is not expected to have a material impact on SC Coke’s earnings, loss or cash
flows.




Foreign Exchange
Rates.  All of the transactions of SC Coke are transacted in
Renminbi.  As a result, changes in the relative values of U.S. Dollars
and RMB affect the Company’s reported levels of revenues and profitability as
the results are translated into U.S. Dollars for reporting
purposes.  However, because SC Coke conducts its sales and purchases
in RMB, fluctuations in exchange rates are not expected to significantly affect
financial stability, or gross and net profit margins.  SC Coke does
not currently expect to incur significant foreign exchange gains or losses, or
gains or losses associated with any foreign operations.




Foreign
Currency Translation Gains and Losses




During
the six months ended June 30, 2010, SC Coke recognized a foreign currency
translation loss of $0.8 million as compared to a foreign currency translation
gain of $0.1 million for the six months ended June 30, 2009 due to a decrease in
the value of the U.S. Dollar to the RMB 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.


37




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, Wang Xinshun, 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
June 30, 2010, SC Coke guaranteed the obligations of twelve companies of
approximately $46.0 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.


38




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 WFOE 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 aswholly-ownedsubsidiaries.




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.


39





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 June 30,
2010 and 2009. 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.


40




Our
existing plant and equipment make up a very material portion of our asset base.
We are also actively adding toour
facilities in order to both increase capacity and efficiency. The selection of a
usefullifefor
assets heavily impacts the amount of depreciation that we record, and in turn
the results of our operations. In accordancewithPRC
tax law, the PRCnationalgovernment
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
reportingpurposes.




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 companiesin 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




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 are recorded as deferred income in the
liability section of the balance sheet when cash is received and will be
recognized as non-operating income when the fulfillment of the obligation has
occurred.




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


41


Income
Taxes




SC Coke
accounts for income taxes in accordance with ASC 740,Income Taxes (ASC 740)
(formerly SFAS 109Accounting
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).




Recent
Accounting Pronouncements




The FASB
issued SFAS No. 168,The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles, a replacement of FASB Statement No. 162 in June
2009, which approved the FASB Accounting Standards Codification (“Codification”)
as the single source of authoritative United States accounting and reporting
standards for all non-governmental entities, except for guidance issued by the
SEC. The Codification, which changes the referencing of financial standards, is
effective for interim or annual financial periods ending after September 15,
2009. Therefore, in our consolidated financial statements, all references made
to generally accepted accounting principles in the United States (GAAP) use the
new Codification numbering system prescribed by the FASB. The adoption of this
standard did not have an impact on our results of operations or financial
statements.


42




Item
3. Quantitative and Qualitative Disclosure About Market Risk




Although
disclosure under this Item 3 is not applicable to smaller reporting companies,
see “Quantitative and Qualitative Disclosure about Market Risk” in Item 2
above.




Item 4. Controls and Procedures




Evaluation
of Disclosure Controls and Procedures




Under the
supervision and with the participation of our management, including our Chief
Executive Officer who is also our Principal Financial Officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, as of the end of the period covered
by this Quarterly Report on Form 10- Q (the “Evaluation Date”). The evaluation
of our disclosure controls and procedures included a review of our processes and
the effect on the information generated for use in this Quarterly Report on Form
10-Q. In the course of this evaluation, we sought to identify any material
weaknesses in our disclosure controls and procedures and to confirm that any
necessary corrective action, including process improvements, was taken. The
purpose of this evaluation is to determine if, as of the Evaluation Date, our
disclosure controls and procedures were operating effectively such that the
information required to be disclosed in our SEC reports (i) was recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms, and (ii) was accumulated and communicated to our management,
including our Chief Executive Officer and Principal Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.




As of
June 30, 2010, the Company’s Chief Executive Officer who is also its Principal
Financial Officer has concluded that, as of that date, the Company’s controls
and procedures were not effective due to a material weakness (as defined in
Public Company Accounting Oversight Board Standard No. 2) in the Company’s
internal controls over financial reporting. Specifically, SC Coke has determined
that it has a material weakness related to its ability to prepare financial
statements in accordance with GAAP. SC Coke came to this conclusion based on the
following significant deficiencies:




·
            SC
      Coke holds a number of investments in other China-based companies. SC Coke
      failed to properly identify the entities that required consolidation and
      the proper accounting treatment for the other entities where it did not
      have significant ownership or significant control and
      influence.




·
            SC
      Coke failed to perform appropriate inventory and sales cut-off during its
      year-end close procedures.




·
            SC
      Coke failed to properly reconcile its cash accounts during its year-end
      close procedures.


43




·
            SC
      Coke failed to identify significant GAAP disclosures during the
      preparation of its financial
statements.




While SC
Coke has begun to, or is intending to, take various measures to remediate the
material weaknesses, and intends to continue to evaluate and strengthen its
internal controls over financial reporting systems, these efforts require
significant time and resources. If we are unable to establish adequate internal
controls over financial reporting systems, we may encounter difficulties in the
audit or review of our financial statements by our independent public
accountants, which in turn may have a material adverse effect on our ability to
comply with the reporting obligations imposed upon us by the SEC.




The
remedial measures being undertaken may not be fully effectuated or may be
insufficient to address the significant deficiencies we identified, and there
can be no assurance that significant deficiencies or material weaknesses in our
internal control over financial reporting will not be identified or occur in the
future. If additional significant deficiencies (or if material weaknesses) in
our internal controls are discovered or occur in the future, among other similar
or related effects: (i) the Company may fail to meet future reporting
obligations on a timely basis, (ii) the Company’s consolidated financial
statements may contain material misstatements, and (iii) the Company’s business
and operating results may be negatively impacted.




Based on
this evaluation, our Chief Executive Officer and Principal Financial Officer
concluded that, as of the Evaluation Date, our disclosure controls and
procedures were not operating effectively.




Changes
in Internal Control over Financial Reporting




There
were no changes in our internal control over financial reporting during the
three months ended June 30, 2010 that materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.






PART II - OTHER INFORMATION




Item
    6.
              Exhibits.




No.
              
              Description31.1
              
              Rule
      13a-14(a)/15d-14(a) Certification of Principal Executive and Financial
      Officer32.1
              
              Section
      1350 Certification of Chief Executive Officer and Principal Financial
      Officer


44





SIGNATURES




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




BIRCH
      BRANCH, INC.Date:  August
      23, 2010
            By: /s/ Wang
      FengWang
      FengPresident,
      Chief Executive Officer and Principal
              Financial
      Officer










Exhibit
Index




No.
            
            Description31.1
            
            Rule
      13a-14(a)/15d-14(a) Certification of Principal Executive and Financial
      Officer32.1
            
            Section
      1350 Certification of Chief Executive Officer and Principal Financial
      Officer