UNITED
STATES





SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549








FORM
10-Q









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




For
the quarterly period ended September 30, 2010




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





For the transition period from
______to______.




BIRCH
BRANCH, INC.


Exact
name of registrant as specified in Charter




Colorado
              
              333-126654
              
              84-1124170(State
      or other jurisdiction of
                incorporation
      or organization)
              
              (Commission
      File No.)
              
              (IRS
      Employee Identification No.)





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


Henan
Province, Anyang County, Cai Cun Road Intersection, Henan Shuncheng


Group
Coal Coke Co., Ltd. (New Building), China 455141




(Address
of Principal Executive Offices)









+86
372 323 7890


(Issuer
Telephone number)









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




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


Yes x No  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes  ̈ No  ̈




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




Large
Accelerated Filer  ̈     Accelerated
Filer  ̈     Non-Accelerated
Filer  ̈     Smaller
Reporting Company x




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


Yes  ̈ No x




State the
number of shares outstanding of each of the issuer’s classes of common equity as
of the latest applicable date: as of November 15, 2010, 32,047,222 shares
of common stock.









BIRCH
BRANCH, INC.




FORM
10-Q




September
30, 2010




Table
of Content





PART I— FINANCIAL INFORMATION
            3Item 1.
            Financial Statements
            3Item 2.
            Management’s Discussion and Analysis of Financial Condition
            4Item 3.
            Quantitative and Qualitative Disclosures About Market Risk
            18Item 4T.
            Control and Procedures
            18PART II— OTHER INFORMATION
            1919Item 1
            Legal Proceedings
            19Item 1A
            Risk Factors
            19Item 2.
            Unregistered Sales of Equity Securities and Use of Proceeds
            19Item 3.
            Defaults Upon Senior Securities
            19Item 4.
            (Removed and Reserved)
            19Item 5.
            Other Information
            19Item 6.
            Exhibits
            19




2




PART
I— FINANCIAL INFORMATION




Item
1. Financial Information




Birch
Branch, Inc.
 
 Reviewed
Consolidated Financial Statements
 
 September
30, 2010 and December 31, 2009
 
 (Stated
in US Dollars)
  3
 
 Birch
Branch, Inc.
 
 Contents
                PageConsolidated
      Balance Sheets (unaudited)
                F-3
      - F-4Consolidated
      Statements of Operations (unaudited)
                F-5Consolidated
      Statements of Equity (unaudited)
                F-6Consolidated
      Statements of Cash Flows (unaudited)
                F-7Notes
      to Consolidated Financial Statements (unaudited)
                F-8
      - F-28
  F-1
  REPORT
OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
 
 To:
              The
      Board of Directors and Stockholders
of
 Birch
Branch, Inc.
 
 We have
reviewed the accompanying interim consolidated balance sheets of Birch Branch,
Inc. (the “Company”) as of September 30, 2010, and the related statements of
operations, stockholders’ equity, and cash flows for the three-month and
nine-month periods ended September 30, 2010. These interim consolidated
financial statements are the responsibility of the Company's
management.
 
 We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole.  Accordingly, we do not express such an
opinion.
 
 Based on
our review, we are not aware of any material modifications that should be made
to the accompanying interim consolidated financial statements for them to be in
conformity with U.S. generally accepted accounting principles.
 
 San
      Mateo, California
              Samuel
      H. Wong & Co., LLPOctober
      21, 2010
              Certified
      Public Accountants
  F-2
  Birch
Branch, Inc.
 Consolidated
Balance Sheets
 As of
September 30, 2010 and December 31, 2009
 (Stated
in US Dollars)
 
 9/30/2010
                                        
                                        
                                        12/31/2009Note
                                        
                                        (unaudited)
                                        
                                        
                                        (audited)AssetsCurrent
      assets:Cash
                                        
                                        2D
                                        
                                        $
                                        4,637,983
                                        
                                        
                                        $
                                        5,749,945Restricted
      cash
                                        
                                        2E
                                        
                                        
                                        86,516,326
                                        
                                        
                                        
                                        52,404,530Bank
      notes receivable
                                        
                                        2F
                                        
                                        
                                        10,991,267
                                        
                                        
                                        
                                        4,658,384Trade
      receivables
                                        
                                        2G,
      3
                                        
                                        
                                        15,984,311
                                        
                                        
                                        
                                        11,342,082Other
      receivables
                                        
                                        4
                                        
                                        
                                        10,553,772
                                        
                                        
                                        
                                        -Inventories
                                        
                                        2H,5
                                        
                                        
                                        51,202,372
                                        
                                        
                                        
                                        32,426,320Advances
      to suppliers and prepayments
                                        
                                        6
                                        
                                        
                                        63,161,593
                                        
                                        
                                        
                                        67,797,396Total
      current assets
                                        
                                        
                                        
                                        
                                        243,047,624
                                        
                                        
                                        
                                        174,378,657Deposits
      for construction projects
                                        
                                        
                                        
                                        
                                        21,109,739
                                        
                                        
                                        
                                        9,578,896Property,
      plant and equipment, net
                                        
                                        2I,7
                                        
                                        
                                        91,848,861
                                        
                                        
                                        
                                        65,386,090Intangible
      assets, net
                                        
                                        2J
                                        
                                        
                                        960,517
                                        
                                        
                                        
                                        -Long-term
      investments
                                        
                                        2K,
      8
                                        
                                        
                                        19,939,843
                                        
                                        
                                        
                                        15,420,649Total
      non-current assets
                                        
                                        
                                        
                                        
                                        133,858,960
                                        
                                        
                                        
                                        90,385,635Total
      assets
                                        
                                        
                                        
                                        $
                                        376,906,584
                                        
                                        
                                        $
                                        264,764,292Liabilities and
      Stockholders’ EquityLiabilitiesCurrent
      liabilities:Bank
      notes payable
                                        
                                        9
                                        
                                        $
                                        108,707,183
                                        
                                        
                                        $
                                        59,234,774Accounts
      payable
                                        
                                        
                                        
                                        
                                        49,577,577
                                        
                                        
                                        
                                        23,211,187Accrued
      liabilities
                                        
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        438,928Taxes
      payable
                                        
                                        
                                        
                                        
                                        11,190,316
                                        
                                        
                                        
                                        8,390,646Loans
                                        
                                        10
                                        
                                        
                                        37,622,609
                                        
                                        
                                        
                                        67,299,038Other
      payable
                                        
                                        11
                                        
                                        
                                        27,235,309
                                        
                                        
                                        
                                        10,254,272Capital
      lease obligation, current portion
                                        
                                        16
                                        
                                        
                                        1,410,545
                                        
                                        
                                        
                                        989,829Customer
      deposits
                                        
                                        
                                        
                                        
                                        9,306,712
                                        
                                        
                                        
                                        7,829,089Total
      current liabilities
                                        
                                        
                                        
                                        
                                        245,050,251
                                        
                                        
                                        
                                        177,647,763Non-current
      liabilities:Notes
      payable to related party
                                        
                                        12
                                        
                                        
                                        73,715,502
                                        
                                        
                                        
                                        35,635,066Forgivable
      loans
                                        
                                        13
                                        
                                        
                                        5,192,184
                                        
                                        
                                        
                                        5,192,184Capital
      lease obligation, non-current portion
                                        
                                        16
                                        
                                        
                                        4,202,948
                                        
                                        
                                        
                                        5,163,274Total
      non-current liabilities
                                        
                                        
                                        
                                        
                                        83,110,634
                                        
                                        
                                        
                                        45,990,524Total
      liabilities
                                        
                                        
                                        
                                        $
                                        328,160,885
                                        
                                        
                                        $
                                        223,638,287
  The
accompanying notes are an integral part of these consolidated financial
statements
  F-3
  Birch
Branch, Inc.
 Consolidated
Balance Sheets
 As of
September 30, 2010 and December 31, 2009
 (Stated
in US Dollars)
 
 9/30/2010
                      
                      
                      12/31/2009(unaudited)
                      
                      
                      (audited)Stockholders’EquityPreferred
      stock, 50,000,000 shares authorized, $0 par value, 0 shares issued and
      outstanding
                      
                      $
                      -
                      
                      
                      $
                      -Common
      stock, 500,000,000 shares authorized, $0 par value, 32,047,222 shares
      issued and outstanding - Registered Capital
                      
                      
                      6,963,403
                      
                      
                      
                      6,395,907Statutory
      reserve
                      
                      
                      234,683
                      
                      
                      
                      234,683Retained
      earnings
                      
                      
                      38,395,456
                      
                      
                      
                      31,426,894Accumulated
      other comprehensive income
                      
                      
                      2,690,621
                      
                      
                      
                      2,595,677Non-controlling
      interest
                      
                      
                      461,536
                      
                      
                      
                      472,844Total
      stockholders’ equity
                      
                      
                      48,745,699
                      
                      
                      
                      41,126,005Total
      liabilities and equity
                      
                      $
                      376,906,584
                      
                      
                      $
                      264,764,292
  The
accompanying notes are an integral part of these consolidated financial
statements
  F-4
  Birch
Branch, Inc.
 Consolidated
Statements of Operations
 For the
three and nine months ended September 30, 2010 and 2009
 (Stated
in US Dollars)
 
 Three months ended
                        
                        
                        Nine months endedNote
                        
                        9/30/2010
                        
                        
                        9/30/2009
                        
                        
                        9/30/2010
                        
                        
                        9/30/2009Revenues
                        
                        2Q
                        
                        $
                        75,905,127
                        
                        
                        $
                        62,121,057
                        
                        
                        $
                        214,963,094
                        
                        
                        $
                        139,491,569Cost
      of revenues
                        
                        
                        
                        
                        65,795,972
                        
                        
                        
                        49,229,117
                        
                        
                        
                        194,549,920
                        
                        
                        
                        120,130,096Gross
      profit
                        
                        
                        
                        
                        10,109,155
                        
                        
                        
                        12,891,940
                        
                        
                        
                        20,413,174
                        
                        
                        
                        19,361,473Operating
      expenses:Sales
      and marketing
                        
                        2S
                        
                        
                        1,340,123
                        
                        
                        
                        921,912
                        
                        
                        
                        3,156,111
                        
                        
                        
                        2,908,166General
      and administrative
                        
                        
                        
                        
                        1,238,560
                        
                        
                        
                        654,154
                        
                        
                        
                        4,350,169
                        
                        
                        
                        2,847,022Total
      operating expenses
                        
                        
                        
                        
                        2,578,683
                        
                        
                        
                        1,576,067
                        
                        
                        
                        7,506,280
                        
                        
                        
                        5,755,189Income
      (loss) from operations
                        
                        
                        
                        
                        7,530,472
                        
                        
                        
                        11,315,874
                        
                        
                        
                        12,906,894
                        
                        
                        
                        13,606,285Other
      income (expense):Interest
      income
                        
                        
                        
                        
                        203,366
                        
                        
                        
                        402,236
                        
                        
                        
                        704,770
                        
                        
                        
                        851,543Interest
      expense
                        
                        
                        
                        
                        (1,682,796
                        )
                        
                        
                        (755,483
                        )
                        
                        
                        (4,316,250
                        )
                        
                        
                        (1,712,756
                        )Other
      income
                        
                        
                        
                        
                        100,407
                        
                        
                        
                        176,851
                        
                        
                        
                        495,854
                        
                        
                        
                        272,308Other
      expense
                        
                        
                        
                        
                        (240,219
                        )
                        
                        
                        (230,235
                        )
                        
                        
                        (388,980
                        )
                        
                        
                        (216,729
                        )Gain
      on investment
                        
                        
                        
                        
                        109,941
                        
                        
                        
                        -
                        
                        
                        
                        109,941
                        
                        
                        
                        2,536,071Total
      other income (expense)
                        
                        
                        
                        
                        (1,509,301
                        )
                        
                        
                        (406,631
                        )
                        
                        
                        (3,394,665
                        )
                        
                        
                        1,730,437Income
      (loss) before provision for income taxes
                        
                        2T, 15
                        
                        
                        6,021,171
                        
                        
                        
                        10,909,243
                        
                        
                        
                        9,512,229
                        
                        
                        
                        15,336,722Provision
      for (benefit from) income taxes
                        
                        
                        
                        
                        (1,535,184
                        )
                        
                        
                        (3,133,989
                        )
                        
                        
                        (2,554,975
                        )
                        
                        
                        (4,335,325
                        )Net
      income (loss)
                        
                        
                        
                        $
                        4,485,987
                        
                        
                        $
                        7,775,254
                        
                        
                        $
                        6,957,254
                        
                        
                        $
                        11,001,397Net
      income attributable to:-
      Common stockholders
                        
                        
                        
                        $
                        4,449,937
                        
                        
                        $
                        7,740,543
                        
                        
                        $
                        6,968,562
                        
                        
                        $
                        10,950,686-
      Non-controlling interest
                        
                        
                        
                        $
                        36,050
                        
                        
                        $
                        34,711
                        
                        
                        $
                        (11,308
                        )
                        
                        $
                        50,711Earnings
      per share
                        
                        20-
      Basic
                        
                        
                        
                        $
                        0.14
                        
                        
                        $
                        0.34
                        
                        
                        $
                        0.22
                        
                        
                        $
                        0.24-
      Diluted
                        
                        
                        
                        $
                        0.14
                        
                        
                        $
                        0.34
                        
                        
                        $
                        0.22
                        
                        
                        $
                        0.24Weighted
      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
  F-5
  Birch
Branch, Inc.
 Consolidated
Statements of Stockholders’ Equity
 As of
September 30, 2010 and December 31, 2009
 (Stated
in US Dollars)
 
 AccumulatedNon-
                                
                                
                                OtherShares
                                
                                
                                Registered
                                
                                
                                Statutory
                                
                                
                                Retained
                                
                                
                                controlling
                                
                                
                                Comprehensive
                                
                                
                                TotalOutstanding
                                
                                
                                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 as amendment to share exchange agreement
                                
                                
                                (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
                                
                                
                                540,472
                                
                                
                                
                                567,496
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                567,496Apportionment
      of loss to non-controlling interest
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                11,308
                                
                                
                                
                                (11,308
                                )
                                
                                
                                -
                                
                                
                                
                                -Net
      income
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                6,957,254
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                6,957,254Currency
      translation adjustment
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                94,944
                                
                                
                                
                                94,944Balance
      at September 30, 2010
                                
                                
                                32,047,222
                                
                                
                                $
                                6,963,403
                                
                                
                                $
                                234,683
                                
                                
                                $
                                38,395,456
                                
                                
                                $
                                461,536
                                
                                
                                $
                                2,690,621
                                
                                
                                $
                                48,745,699
  Nine months
                    
                    
                    Twelve months
                    
                    
                    Accumulated9/30/2010
                    
                    
                    12/31/2009
                    
                    
                    TotalComprehensive IncomeNet
      income
                    
                    $
                    6,957,254
                    
                    
                    $
                    15,849,675
                    
                    
                    $
                    22,806,929Other
      Comprehensive IncomeForeign
      currency translation adjustment
                    
                    
                    94,944
                    
                    
                    
                    165,972
                    
                    
                    
                    260,916Total
      Comprehensive Income
                    
                    $
                    7,052,198
                    
                    
                    $
                    16,015,647
                    
                    
                    $
                    23,067,845
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  F-6
  Birch
Branch, Inc.
 Consolidated
Statements of Cash Flows
 For the
three-month and nine-month ended September 30, 2010 and 2009
 (Stated
in US Dollars)
 
 Three months ended
                        
                        
                        Nine months ended9/30/2010
                        
                        
                        9/30/2009
                        
                        
                        9/30/2010
                        
                        
                        9/30/2009Cash
      flows from operating activities:Net
      income (loss)
                        
                        $
                        4,485,987
                        
                        
                        $
                        7,775,254
                        
                        
                        $
                        6,957,254
                        
                        
                        $
                        11,001,397Adjustments
      to reconcile net income to net cash (used in)provided
      by operating activities:Share
      based compensation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        567,496
                        
                        
                        
                        -Depreciation
      and amortization
                        
                        
                        1,490,416
                        
                        
                        
                        1,062,272
                        
                        
                        
                        4,393,944
                        
                        
                        
                        3,118,607Change
      in assets and liabilities:Notes
      and trade receivables, and customer deposits
                        
                        
                        20,291,702
                        
                        
                        
                        24,870,128
                        
                        
                        
                        2,892,642
                        
                        
                        
                        24,875,716Inventories
                        
                        
                        (16,497,730
                        )
                        
                        
                        (3,987,851
                        )
                        
                        
                        (18,776,052
                        )
                        
                        
                        (6,668,603
                        )Prepayments
      and other current assets
                        
                        
                        (19,785,724
                        )
                        
                        
                        (44,834,660
                        )
                        
                        
                        (19,785,724
                        )
                        
                        
                        (46,741,374
                        )Notes
      and accounts payable
                        
                        
                        30,459,669
                        
                        
                        
                        8,999,407
                        
                        
                        
                        75,434,208
                        
                        
                        
                        (371,474
                        )Other
      payables and current liabilities
                        
                        
                        11,639,379
                        
                        
                        
                        52,487,114
                        
                        
                        
                        21,223,994
                        
                        
                        
                        50,955,388Net
      cash provided by operating activities
                        
                        
                        32,083,699
                        
                        
                        
                        46,371,664
                        
                        
                        
                        72,907,762
                        
                        
                        
                        36,169,657Cash
      flows from investing activities:Restricted
      cash
                        
                        
                        (21,745,302
                        )
                        
                        
                        (29,056,596
                        )
                        
                        
                        (34,111,796
                        )
                        
                        
                        (29,056,596
                        )Disposition/(purchase)
      of long-term investment in equities
                        
                        
                        (224,474
                        )
                        
                        
                        7,049,873
                        
                        
                        
                        (4,519,194
                        )
                        
                        
                        7,033,914Acquisitions
      of property, plant and equipment
                        
                        
                        (36,198,852
                        )
                        
                        
                        (9,282,021
                        )
                        
                        
                        (51,966,454
                        )
                        
                        
                        (10,493,414
                        )Deposits
      for capital expenditures
                        
                        
                        18,103,201
                        
                        
                        
                        28,856,751
                        
                        
                        
                        8,618,379
                        
                        
                        
                        24,144,010Net
      cash used in investing activities
                        
                        
                        (40,065,427
                        )
                        
                        
                        (2,431,993
                        )
                        
                        
                        (81,979,065
                        )
                        
                        
                        (8,372,086
                        )Cash
      flows from financing activities:Proceeds
      from borrowings from bank and others
                        
                        
                        38,080,436
                        
                        
                        
                        26,685,325
                        
                        
                        
                        38,080,436
                        
                        
                        
                        -Repayment
      of borrowings of bank and others
                        
                        
                        (32,408,285
                        )
                        
                        
                        (104,611,119
                        )
                        
                        
                        (29,676,429
                        )
                        
                        
                        (28,601,277
                        )Repayment
      of capital lease obligation
                        
                        
                        (240,188
                        )
                        
                        
                        -
                        
                        
                        
                        (539,610
                        )
                        
                        
                        -Net
      cash provided by financing activities
                        
                        
                        5,431,963
                        
                        
                        
                        (77,925,794
                        )
                        
                        
                        7,864,397
                        
                        
                        
                        (28,601,277
                        )Net
      (decrease) increase in cash
                        
                        
                        (2,549,765
                        )
                        
                        
                        (33,986,123
                        )
                        
                        
                        (1,206,906
                        )
                        
                        
                        (803,706
                        )Effect
      of exchange rate changes
                        
                        
                        892,570
                        
                        
                        
                        2,077,472
                        
                        
                        
                        94,944
                        
                        
                        
                        2,207,476Cash
      at beginning of the period
                        
                        
                        6,295,178
                        
                        
                        
                        37,467,137
                        
                        
                        
                        5,749,945
                        
                        
                        
                        4,154,716Cash
      at end of the period
                        
                        $
                        4,637,983
                        
                        
                        $
                        5,558,486
                        
                        
                        $
                        4,637,983
                        
                        
                        $
                        5,558,486Supplemental
      disclosure of cash flow information:Interest
      received
                        
                        $
                        203,366
                        
                        
                        $
                        402,236
                        
                        
                        $
                        704,770
                        
                        
                        $
                        851,543Interest
      paid
                        
                        
                        (1,682,796
                        )
                        
                        
                        (755,483
                        )
                        
                        
                        (4,316,250
                        )
                        
                        
                        (1,712,756
                        )Income
      taxes paid
                        
                        
                        (5,488,166
                        )
                        
                        
                        -
                        
                        
                        
                        (8,344,002
                        )
                        
                        
                        (1,287,863
                        )
  The
accompanying notes are an integral part of these consolidated financial
statements
  F-7
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 1.
              The
      Company and 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 via a variable interest entity agreement detailed
below.
 
 III.
              Operating
      Entities
 
 All of
the Company’s operations are located in the PRC, and are conducted through its
operating entities detailed below:
 
 a.)           Henan
Shuncheng Group Coal Coke Co., Ltd. (“SC Coke”) is a limited liability company
organized in the PRC on August 27, 1997 as Anyang ShunCheng Washing Co.,
Ltd.  In February 2005, the name was changed to Coal Coking Co.,
Ltd.  In August 2007, the name was changed to the current name of
Henan Shuncheng Group Coal Coke Co., Ltd.  SC Coke has three
shareholders: Wang Xinshun, Wang Xinming and Cheng Junsheng (collectively, the
“SC Coke Shareholders”) owning 60%, 20% and 20% interests,
respectively.
  SC Coke
is located in the Henan Province coal chemical industry cluster area in Anyang
County, about 40 kilometers (approximately 25 miles) to the northwest of Anyang
City.  SC Coke is principally engaged in the processing of coal into
coke, and related byproducts of cleaned coal, tar, crude benzene, and ammonium
sulfate.
  b.)           Henan
Shuncheng Group Longdu Trade Co., Ltd. (“Longdu”) is a limited liability company
organized in the PRC on May 25, 2004.  SC Coke holds an 86% interest
in Longdu.  The Company’s Chairman, Mr. Wang Xinshun, owns a 5%
interest in Longdu.
  F-8
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 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
operating entities (similar to a subsidiary) 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 pay 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.
  F-9
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 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 Agreements
 
 On June
28, 2010, BRBH closed a share exchange transaction (the “Share Exchange”) in
which BRBH issued 30,233,750 common shares to the former shareholders of Shun
Cheng HK in exchange for all of the issued and outstanding shares of Shun Cheng
HK.  In connection with the Share Exchange, certain shareholders of
BRBH agreed to cancel 435,123 common shares and BRBH issued 540,472 common
shares to financial consultants.  Immediately prior to the closing of
the Share Exchange there were 1,708,123 common shares
outstanding.  Upon completion of the Share Exchange and transactions
contemplated by the Share Exchange agreement, there were 32,047,222 common
shares outstanding.  Immediately following the closing of the Share
Exchange, the former shareholders of Shun Cheng HK and the original shareholders
of BRBH own approximately 95% and approximately 5% of BRBH’s issued and
outstanding common shares, respectively.
  The Share
Exchange has been accounted for as a recapitalization of Shun Cheng HK in which
BRBH (the legal acquirer) is considered the accounting acquiree and Shun
Cheng HK (the legal acquiree) is considered the accounting
acquirer.  As a result of the Share Exchange, BRBH is deemed to be a
continuation of the business of Shun Cheng HK.  Accordingly, the
financial data included in the accompanying consolidated financial statements
for all periods prior to June 28, 2010 is that of the accounting acquirer Shun
Cheng HK.  The historical stockholders’ equity of the accounting
acquirer prior to the Share Exchange has been retroactively restated as if the
Share Exchange occurred as of the beginning of the first period
presented.
  F-10
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 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
subsidiaries’ capitalization have been eliminated.
  The
Company regrouped certain accounts in the December 31, 2009 consolidated balance
sheet to improve comparability with September 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.
  F-11
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 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. The Company can: (a) redeem the notes for
face value at maturity, (b) endorse the notes to the Company’s vendors as a form
of payment instrument, or (c) factor the notes to a bank.  In the
event that the Company 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. The Company 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, the Company does not allocate costs to the
byproducts.
  I.
              Plant
      and Equipment
 
 Plant and
equipment are stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line basis 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. Gaines or losses on disposals
are included in cost of revenues.
 
 The
Company 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.
  F-12
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 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.
  J.
              Intangible
      Assets
 
 Land Use
Rights are stated at cost less accumulated amortization. Amortization is
provided over its useful life, using the straight-line method.  The
useful life of the land use right is 30 years.
 
 K.
              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 or fair value whichever is
lower.
  L.
              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.
  The
Company’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
September 30, 2010, the Company 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 the
Company’s long lived assets have enabled the Company to experience significant
profit growth during the nine months ended September 30, 2010 and
2009.
  M.
              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.
  F-13
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 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.
  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.
 
 The
Company’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 the Company’s financial assets and liabilities in
accordance with the hierarchy set forth in ASC 820-10:
  At September, 2010
                  
                  Quoted in
                  
                  
                  SignificantActive Markets
                  
                  
                  Other
                  
                  
                  Significantfor Identical
                  
                  
                  Observable
                  
                  
                  UnobservableAssets
                  
                  
                  Inputs
                  
                  
                  Inputs(Level 1)
                  
                  
                  (Level 2)
                  
                  
                  (Level 3)
                  
                  
                  TotalFinancial
      assets:Cash
                  
                  $
                  4,637,983
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  4,637,983Restricted
      cash
                  
                  
                  86,516,326
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  86,516,326Notes
      receivables
                  
                  
                  -
                  
                  
                  
                  10,991,267
                  
                  
                  
                  -
                  
                  
                  
                  10,991,267Total
      financial assets
                  
                  
                  91,154,309
                  
                  
                  
                  10,991,267
                  
                  
                  
                  -
                  
                  
                  
                  102,145,576Financial
      liabilities:Notes
      payable
                  
                  
                  -
                  
                  
                  
                  108,707,183
                  
                  
                  
                  -
                  
                  
                  
                  108,707,183Total
      financial liabilities
                  
                  $
                  -
                  
                  
                  $
                  108,707,183
                  
                  
                  $
                  -
                  
                  
                  $
                  108,707,183
  F-14
 
 Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 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 nine months ended
September 30, 2010.
 
 N.
              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.
 
 O.
              Foreign
      Currency Translation
 
 The
accompanying consolidated financial statements are presented in U.S. Dollars.
The functional currency of the Company’s operating entities is the RMB, the
official currency of the PRC. Capital accounts of the consolidated financial
statements are translated into U.S. Dollars from RMB at their historical
exchange rates when the capital transactions occurred.  Assets and
liabilities are translated at the exchange rates as of the balance sheet
date.  Income and expenditures are translated at the average exchange
rates for the nine months ended September 30, 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:
  9/30/2010
                    
                    12/31/2009
                    
                    9/30/2009Period/year
      end RMB: U.S. Dollar exchange rate
                    
                    6.6981
                    
                    6.8372
                    
                    6.8376Average
      RMB: U.S. Dollar exchange rate
                    
                    6.8164
                    
                    6.8408
                    
                    6.8425
  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.
  P.
              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.
  F-15
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 Q.
              Revenue
      Recognition
 
 In
accordance with ASC 605-10, the Company recognizes revenue upon receipt of an
acceptance of goods document issued by its customers. Each customer enters into
an annual master sales agreement with the Company which will indicate a total
volume for the year, and an acceptable range of prices, given market
fluctuations on a short term basis, for the Company’s coke and coal byproducts.
Final determination of the price for coke is determined on individual purchase
orders which lie in the aforementioned price range. The Company’s coke and coal
byproducts are fully usable at the point of shipment. From a revenue recognition
perspective, the Company believes that collectability of the revenue is
reasonably assured at the time that customers acknowledge receipt and accept the
Company’s product. The Company has not experienced any material return of
products, and as such, it has not prepared allowances for returns.
  Customer
payments received prior to completion of the above criteria are recorded as a
liability on the Company’s balance sheet as unearned revenue.
 
 R.
              Shipping
      and Handling Costs
 
 Shipping
and handling costs billed to customers are recorded net of the amount collected.
Shipping and handling expense are included in sales and marketing
expenses.
 
 S.
              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.
 
 T.
              Income
      Taxes
 
 The
Company has implemented ASC 740, Accounting for Income Taxes.
Income tax liabilities computed according to the United States, Hong Kong 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 quarter review of its tax position for
the nine months ended September 30, 2010, 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.
  F-16
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 U.
              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.
  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.
  In
October 2009, the FASB issued ASU No. 2009-13 “Revenue Recognition (Topic 605):
Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging
Issues Task Force”. This update provides application guidance on whether
multiple deliverables exist, how the deliverables should be separated and how
the consideration should be allocated to one or more units of accounting. This
update establishes a selling price hierarchy for determining the selling price
of a deliverable. The selling price used for each deliverable will be based on
vendor-specific objective evidence, if available, third-party evidence if
vendor-specific objective evidence is not available, or estimated selling price
if neither vendor-specific or third-party evidence is available. The Company
will be required to apply this guidance prospectively for revenue arrangements
entered into or materially modified after January 1, 2011; however, earlier
application is permitted. The management is in the process of evaluating the
impact of adopting this ASU on the Company’s financial statements.
 
 The FASB
issued ASU-2010-09 (Topic 855) to amend guidance on subsequent events to remove
the requirement for SEC filers (as defined in ASU 2010-09) to disclose the date
through which an entity has evaluated subsequent events. This change alleviates
potential conflicts with current SEC guidance. An SEC filer is still required to
evaluate subsequent events through the date financial statements are issued, but
disclosure of that date is no longer required. The amendments in ASU 2010-09
became effective upon issuance of the guidance. Management adopted this
pronouncement as of July 1, 2010.
  F-17
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 3.
              Trade
      Receivables
  The
Company’s trade receivables as of September 30, 2010 and December 31, 2009, as
well as the activity in the Company’s allowance for bad debts for the nine
months ended September 30, 2010 and the year ended December 31, 2009 are set
forth below:-
  9/30/2010
                          
                          
                          12/31/2009Trade
      Receivables
                          
                          $
                          19,342,672
                          
                          
                          $
                          14,960,708Less:
      Allowance for Bad Debt
                          
                          
                          3,358,361
                          
                          
                          
                          3,618,626Trade
      Receivables, net
                          
                          
                          15,984,311
                          
                          
                          
                          11,342,082Allowance for Bad DebtsBeginning
      Balance
                          
                          
                          3,618,626
                          
                          
                          
                          317,787Provision
      for bad debts
                          
                          
                          -
                          
                          
                          
                          3,300,839Less: Bad Debt Written
      Off
                          
                          
                          -
                          
                          
                          
                          -Reversals
                          
                          
                          (260,265
                          )
                          
                          
                          -Ending
      Balance
                          
                          $
                          3,358,361
                          
                          
                          $
                          3,618,626
 
 4.
              Other
      Receivables
 
 Other
receivables at September 30, 2010 and December 31, 2009 is detailed in the table
below.
  9/30/2010
                    
                    
                    12/31/2009Project
      safety deposit
                    
                    $
                    1,749,355
                    
                    
                    $
                    -Non-collateralized,
      non-interest bearing loans to individuals receivable on
    demand
                    
                    
                    8,555,871
                    
                    
                    
                    -Others
                    
                    
                    248,546
                    
                    
                    
                    -$
                    10,553,772
                    
                    
                    $
                    -
 
 5.
              Inventories
 
 The
components of the Company’s inventories as of September 30, 2010 and December
31, 2009 are as follows:-
  9/30/2010
                        
                        
                        12/31/2009Raw
      materials
                        
                        $
                        10,733,440
                        
                        
                        $
                        6,580,843Work
      in process and semi-finished goods
                        
                        
                        26,152,193
                        
                        
                        
                        22,118,983Finished
      goods
                        
                        
                        14,316,739
                        
                        
                        
                        3,726,494Total
      inventories
                        
                        $
                        51,202,372
                        
                        
                        $
                        32,426,320
  F-18
 
 Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 6.
              Advances
      to Suppliers and Prepayments
 
 The
components of the Company’s advances to suppliers and prepayments as of
September 30, 2010 and December 31, 2009 are as follows:-
  9/30/2010
                    
                    
                    12/31/2009Construction
      projects prepayments
                    
                    $
                    -
                    
                    
                    $
                    14,957,919Prepayments
      for raw materials in operations
                    
                    
                    58,571,870
                    
                    
                    
                    52,839,477Prepaid
      expenses
                    
                    
                    1,379,735
                    
                    
                    
                    -Prepaid
      taxes
                    
                    
                    3,209,988
                    
                    
                    
                    -$
                    63,161,593
                    
                    
                    $
                    67,797,396
  7.
              Property,
      Plant and Equipment, net
 
 The
components of the Company’splant
and equipment are as follows:-
 
 Accumulated9/30/2010
                      
                      At Cost
                      
                      
                      Depreciation
                      
                      
                      NetBuildings
      and plant
                      
                      $
                      21,613,245
                      
                      
                      $
                      2,425,759
                      
                      
                      $
                      19,187,486Machinery
      and equipment
                      
                      
                      36,390,570
                      
                      
                      
                      12,701,261
                      
                      
                      
                      23,689,309Electronic
      equipment
                      
                      
                      751,916
                      
                      
                      
                      230,809
                      
                      
                      
                      521,107Vehicles
                      
                      
                      3,537,520
                      
                      
                      
                      1,482,364
                      
                      
                      
                      2,055,156Others
                      
                      
                      709,361
                      
                      
                      
                      296,734
                      
                      
                      
                      412,627Construction
      in progress
                      
                      
                      45,983,176
                      
                      
                      
                      -
                      
                      
                      
                      45,983,176Total
      plant and equipment
                      
                      $
                      108,985,788
                      
                      
                      $
                      17,136,927
                      
                      
                      $
                      91,848,861
 
 Accumulated12/31/2009
                        
                        At 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
expenses related to plant and equipment were $4,393,944 and $4,140,370 for the
nine months and twelve months ended September 30, 2010 and December 31, 2009,
respectively. The construction in progress sub-account is detailed
below:-
  Description
                      
                      9/30/2010
                      
                      
                      12/31/2009Coking
      furnace
                      
                      $
                      12,643,919
                      
                      
                      $
                      151,665Office
      buildings
                      
                      
                      5,251,535
                      
                      
                      
                      2,438,888Plant
      and facilities
                      
                      
                      13,594,282
                      
                      
                      
                      11,687,086Sewage
      system
                      
                      
                      623,856
                      
                      
                      
                      511,223Equipment
      peripherals
                      
                      
                      13,869,583
                      
                      
                      
                      4,018,061$
                      45,983,176
                      
                      
                      $
                      18,806,924
  F-19
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 8.
              Investments
 
 The
following tabulation presents SC Coke’s investment in non-controlled entities,
which are not included in the consolidation.
  Investment
                    
                    Ownership
                    
                    
                    Type
                    
                    9/30/2010Anyang
      Rural Credit Cooperative - Tongye Branch
                    
                    
                    11.26
                    %
                    
                    Equity
                    
                    $
                    4,299,727Anyang
      Urban Credit Cooperative
                    
                    
                    11.26
                    %
                    
                    Equity
                    
                    
                    6,104,874Ansteel
      Group Metallurgy Stove Co., Ltd.
                    
                    
                    19
                    %
                    
                    Equity
                    
                    
                    2,326,033Anyang
      Xinlong Coal (Group) Hongling Coal Co., Ltd.
                    
                    
                    16
                    %
                    
                    Equity
                    
                    
                    7,209,209$
                    19,939,843
 
 9.
              Bank
      Notes Payable
  The
following table provides the name of the financial institution, due date, and
amounts outstanding at September 30, 2010 for the Company’s bank notes
payable.
  Financial Institution
                          
                          Due Date
                          
                          9/30/2010China
      Citic Bank - Zhengzhou Branch
                          
                          12/01/2010
                          
                          $
                          5,971,844China
      Citic Bank - Zhengzhou Branch
                          
                          10/15/2010
                          
                          
                          2,985,921China
      Citic Bank - Zhengzhou Branch
                          
                          01/28/2011
                          
                          
                          2,985,921Shanghai
      Pudong Development Bank - Zhengzhou Branch
                          
                          12/28/2010
                          
                          
                          5,225,362Shanghai
      Pudong Development Bank - Zhengzhou Branch
                          
                          12/29/2010
                          
                          
                          4,478,882Shanghai
      Pudong Development Bank - Zhengzhou Branch
                          
                          01/02/2011
                          
                          
                          10,450,725Shanghai
      Pudong Development Bank - Zhengzhou Branch
                          
                          10/08/2010
                          
                          
                          2,985,921Guangdong
      Development Bank - Anyang Branch
                          
                          10/01/2010
                          
                          
                          1,492,961Guangdong
      Development Bank - Anyang Branch
                          
                          12/09/2010
                          
                          
                          5,673,251Guangdong
      Development Bank - Anyang Branch
                          
                          12/10/2010
                          
                          
                          5,076,066Guangdong
      Development Bank - Anyang Branch
                          
                          01/06/2011
                          
                          
                          5,225,362Guangdong
      Development Bank - Anyang Branch
                          
                          01/26/2011
                          
                          
                          5,971,843Guangdong
      Development Bank - Anyang Branch
                          
                          03/10/2011
                          
                          
                          2,234,962Henan
      Rural Credit Cooperative - Tongye Branch
                          
                          03/11/2011
                          
                          
                          4,478,882Henan
      Rural Credit Cooperative - Tongye Branch
                          
                          03/26/2011
                          
                          
                          2,538,033Henan
      Rural Credit Cooperative - Tongye Branch
                          
                          12/26/2010
                          
                          
                          1,492,961Henan
      Rural Credit Cooperative - Tongye Branch
                          
                          03/29/2011
                          
                          
                          2,368,072Commercial
      Banks of China - Anyang Branch
                          
                          03/09/2011
                          
                          
                          4,478,882Bank
      of Luoyang - Zhengzhou Branch
                          
                          03/01/2011
                          
                          
                          4,478,882The
      Industrial and Commercial Bank of China - Shuiye Branch
                          
                          10/26/2010
                          
                          
                          1,492,961The
      Industrial and Commercial Bank of China - Shuiye Branch
                          
                          01/30/2011
                          
                          
                          1,492,961China
      Everbright Bank - Zhengzhou Branch
                          
                          12/22/2010
                          
                          
                          7,464,803China
      Everbright Bank - Zhengzhou Branch
                          
                          01/23/2011
                          
                          
                          4,478,882China
      Everbright Bank - Zhengzhou Branch
                          
                          01/28/2011
                          
                          
                          5,971,843China
      Everbright Bank - Zhengzhou Branch
                          
                          02/20/2011
                          
                          
                          3,030,710China
      Construction Bank - Zhongzhou Branch
                          
                          01/20/2011
                          
                          
                          4,180,290$
                          108,707,183
  F-20
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 The bank
notes payable do not carry a stated interest rate, but do carry a specific due
date.  These notes are negotiable documents issued by financial
institutions on the Company’s behalf to vendors. These notes can either be
endorsed by the vendor to other third parties as payment, or prior to coming
due, they can factor these notes to other financial institutions. These notes
are short term in nature and, as such, the Company does not calculate imputed
interest with respect to them. These notes are collateralized by the Company’s
deposits as described in Note 2E - Restricted Cash.
 
 10.
              Loans
 
 The
components of the Company’s loans payable are as follows:
 
 Due
                            
                            InterestName of Creditors
                            
                            Note
                            
                            Date
                            
                            Rate
                            
                            
                            9/30/2010Henan
      Rural Credit Cooperatives - Anyang Branch
                            
                            A
                            
                            03/22/2011
                            
                            
                            8.8500
                            %
                            
                            $
                            4,478,882Shanghai
      Pudong Development Bank - Zhengzhou Branch
                            
                            B
                            
                            12/24/2010
                            
                            
                            5.3460
                            %
                            
                            
                            5,971,483Bank
      of China - Anyang Branch
                            
                            C
                            
                            07/28/2011
                            
                            
                            5.8410
                            %
                            
                            
                            2,985,921China
      Construction Bank -  Anyang Branch
                            
                            D
                            
                            07/28/2011
                            
                            
                            6.3700
                            %
                            
                            
                            2,985,921Agricultural
      Bank of China - Anyang Branch
                            
                            E
                            
                            09/25/2011
                            
                            
                            5.3100
                            %
                            
                            
                            4,478,882Industrial
      and Commercial Bank of China - Shuiye Branch
                            
                            F
                            
                            02/09/2011
                            
                            
                            5.3460
                            %
                            
                            
                            1,791,552Guangdong
      Development Bank - Anyang Branch
                            
                            G
                            
                            07/19/2011
                            
                            
                            5.3100
                            %
                            
                            
                            2,985,921Guangdong
      Development Bank - Anyang Branch
                            
                            H
                            
                            06/07/2011
                            
                            
                            5.3100
                            %
                            
                            
                            1,492,960Guangdong
      Development Bank - Anyang Branch
                            
                            I
                            
                            01/18/2011
                            
                            
                            5.3100
                            %
                            
                            
                            2,985,921Guangdong
      Development Bank - Anyang Branch
                            
                            J
                            
                            07/14/2011
                            
                            
                            5.3100
                            %
                            
                            
                            1,492,960Henan
      Urban Credit Cooperative - Anyang Branch
                            
                            K
                            
                            04/13/2011
                            
                            
                            6.6375
                            %
                            
                            
                            2,985,921Bank
      of Luoyang - Zhengzhou Branch
                            
                            L
                            
                            01/27/2011
                            
                            
                            5.3100
                            %
                            
                            
                            2,985,921$
                            37,622,609
  SC Coke
has collateralized its debt obligations above.  Refer to notes below
for collateral corresponding to each obligation.
  A.
              Guaranteed
      by Linzhou Hongqiqu Electrical Carbon Co., Ltd and Henan Hubo Cement Co.,
      Ltd
 B.
              Guaranteed
      by Anyang New Tianhe Cement Co.,
LLC
 C.
              Guaranteed
      by Xinlei Group Cheng Chen Coking Co.,
Ltd.
 D.
              Guaranteed
      by Linzhou Hexin Casting Co., Ltd.
 E.
              Guaranteed
      by Henan Hubo Cement Co., Ltd.
 F.
              Guaranteed
      by the Company’s inventory
 G.
              Guaranteed
      by Henan Hubo Cement Co., Ltd and Anyang Liyuan Coking Co.,
      Ltd
 H.
              Guaranteed
      by Henan Hubo Cement Co., Ltd and Xinlei Group Cheng Chen
      Coking
 I.
              Guaranteed
      by Henan Hubo Cement Co., Ltd and Liyuan Coking Co.,
  Ltd
 J.
              Guaranteed
      by Henan Hubo Cement Co., Ltd and Anyang Liyuan Coking Co.,
      Ltd
 K.
              Guaranteed
      by Anyang Liyuan Coking Co., Ltd
 L.
              Guaranteed
      by Anyang Bailianpo Coal Co., Ltd.
  F-21
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 11.
              Other
      Payable
 
 Other
payable at September 30, 2010 and December 31, 2009 is detailed in the table
below.
  9/30/2010
                    
                    
                    12/31/2009Project
      safety deposit
                    
                    $
                    659,051
                    
                    
                    $
                    167,836Unbilled
      purchase payable
                    
                    
                    22,441,823
                    
                    
                    
                    3,785,000Payable
      for raw materials in operation
                    
                    
                    290,252
                    
                    
                    
                    566,602Non-collateralized,
      non-interest bearing loans from individuals payable on
    demand
                    
                    
                    3,048,798
                    
                    
                    
                    5,159,865Others
                    
                    
                    795,385
                    
                    
                    
                    574,969$
                    27,235,309
                    
                    
                    $
                    10,254,272
 12.
              Notes
      Payable to Related Party
  Creditor
                      
                      Note
                      
                      
                      9/30/2010Chairman,
      Wang Xinshun
                      
                      A
                      
                      
                      $
                      34,612,360SC
      Coke Shareholders
                      
                      B
                      
                      
                      
                      39,103,142$
                      73,715,502
 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 nine months ended September 30, 2010.
  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.
  F-22
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 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.
 
 13.
              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.
 
 14.
              Related
      Party Transactions
  SC Coke
has specified the following transactions with related parties with ending
balances as of September 30, 2010:-
  A.
              Trade
      Receivables and Revenue
  (a)
              Angang
      Steel Group Metallurgy Furnace Co., Ltd (Angang), in which SC Coke owns a
      19% stake, is one of the customers of SC
Coke.
  There is
an ending balance in accounts receivable from Angang of approximately $1,256,450
as of September 30, 2010.
  Revenue
recorded in the consolidated financial statements from Angang amounts to
approximately $3,123,316 for the nine months ended September 30,
2010.
  B.
              Deposits
      and Cost of Revenues
  (a)
              The
      Chairman and majority owner, Mr. Wang Xinshun, owns a 43.86% interest in
      Anyang Bailianpo Coal Co., Ltd. (Bailianpo) which provides raw coal to SC
      Coke.
  SC Coke
had outstanding prepayment to Bailianpo of $11,492,978 as of September 30,
2010.
  Cost of
revenues related to purchases from Bailianpo included in the consolidated
financial statements amounts to approximately $13,337,464 for the nine months
ended September 30, 2010.
  F-23
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 (b)
              SC
      Coke holds a 16% interest in Anyang Xinlong Coal (Group) Hongling Coal
      Co., Ltd. (Anyang Xinlong), which is a coal mine located in Anyang County
      providing SC Coke with a substantial portion of its coking coal
      requirements.
  SC Coke
has an ending balance in accounts payable to Anyang Xinlong of $404,591 as of
September 30, 2010.
  Cost of
revenues related to purchases from Anyang Xinlong included in the consolidated
financial statements amounts to approximately $6,887,465 for the nine months
ended September 30, 2010.
 
 15.
              Income
      Taxes
  The
Company and its operating entities are subject to income tax under the
jurisdictions where they operate. The following table details the Company and
its operating entities, and the statutory tax rates to which they are
subject:
  Entity
                                      
                                      Country of Domicile
                                      
                                      Income Tax RateBirch Branch, Inc.
                                      
                                      USA
                                      
                                      15.00% - 35.00%Shuncheng
      Holdings HongKong Ltd.
                                      
                                      HK
                                      
                                      16.50%Anyang
      Shuncheng Energy Technology Co., Ltd.
                                      
                                      PRC
                                      
                                      25.00%Henan
      Shuncheng Group Coal Coke Co., Ltd.
                                      
                                      PRC
                                      
                                      25.00%Henan
      Shuncheng Group Longdu Trade Co., Ltd.
                                      
                                      PRC
                                      
                                      25.00%
  Although
the Company is subject to United States income taxes, it is a holding company
with no operations or profits within the U.S. borders. The Company currently
only incurs expenses in the United States that are associated with being a
public company.
  Income
(loss) before taxes and provision for taxes (tax benefit) consisted of the
following for the nine months ended September 30, 2010 and 2009,
respectively:
  9/30/2010
                      
                      
                      9/30/2009Income
      (loss) before tax:USA
                      
                      $
                      (567,496
                      )
                      
                      $
                      -HK
                      
                      
                      (14,492
                      )
                      
                      
                      -PRC
                      
                      
                      10,346,708
                      
                      
                      
                      15,336,722Total
                      
                      
                      9,512,229
                      
                      
                      
                      15,336,722Provision
      for income taxes:US
      Federal
                      
                      
                      -
                      
                      
                      
                      -State
                      
                      
                      -
                      
                      
                      
                      -PRC
                      
                      
                      2,554,975
                      
                      
                      
                      4,335,325Total
      provision for taxes (tax benefit)
                      
                      $
                      2,554,975
                      
                      
                      $
                      4,335,325Effective
      tax rate
                      
                      
                      26.86
                      %
                      
                      
                      28.27
                      %
  F-24
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 The
differences between the U.S. federal statutory income tax rates and the
Company’s effective tax rate for the nine months ended September 30, 2010 and
2009 are shown in the following table:
  9/30/2010
                    
                    
                    9/30/2009US
      statutory tax rate
                    
                    
                    34
                    %
                    
                    
                    34
                    %Lower
      rates in the PRC
                    
                    
                    -9
                    %
                    
                    
                    -9
                    %Tax
      holiday
                    
                    
                    -
                    
                    
                    
                    -Accrual
      and reconciling items
                    
                    
                    1.86
                    %
                    
                    
                    3.27
                    %Effective
      tax rate
                    
                    
                    26.86
                    %
                    
                    
                    28.27
                    %
 
 16.
              Commitments
      and Contingencies
  Third
Party Guarantees
  SC Coke
entered into agreements as a guarantor of debt for thirteen companies
(the “guarantees”) in the amount of approximately $65,167,734 million at
September 30, 2010. Of the aforementioned guarantees, five of the thirteen
companies have, in turn, guaranteed debts of approximately $2,985,921 million on
behalf of SC Coke at September 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 Beneficiary
                                  
                                  Creditor
                                  
                                  End
                                  
                                  9/30/2010Anshan
      Minshan Metal Co., Ltd.
                                  
                                  Avic
      International
                                  
                                  09/15/2013
                                  
                                  $
                                  4,478,882Anyang
      New Tianhe Cement Co., Ltd
                                  
                                  Guangdong
      Development Bank - Anyang Branch
                                  
                                  07/27/2011
                                  
                                  
                                  5,971,843Anyang
      Public Transportation Department
                                  
                                  China
      Commercial Bank - Anyang Branch
                                  
                                  10/30/2011
                                  
                                  
                                  2,985,921Xinlei
      Group Cheng Chen Coking
                                  
                                  Guangdong
      Development Bank - Anyang Branch
                                  
                                  03/29/2011
                                  
                                  
                                  6,718,323Anyang
      Liyuan Coking Co., Ltd.
                                  
                                  Guangdong
      Development Bank - Anyang Branch
                                  
                                  12/24/2010
                                  
                                  
                                  8,211,284Yuzhou
      Lingwei Cement Co., Ltd.
                                  
                                  Bank
      of China - Yuzhou Branch
                                  
                                  12/09/2010
                                  
                                  
                                  5,971,842Henan
      Hubo Cement Co., Ltd.
                                  
                                  Bank
      of China - Anyang Branch
                                  
                                  05/05/2011
                                  
                                  
                                  1,492,961Henan
      Hubo Cement Co., Ltd.
                                  
                                  Bank
      of China - Anyang Branch
                                  
                                  11/13/2010
                                  
                                  
                                  2,985,921Henan
      Hubo Cement Co., Ltd.
                                  
                                  Guangdong
      Development Bank - Anyang Branch
                                  
                                  07/26/2011
                                  
                                  
                                  1,940,849Henan
      Hubo Cement Co., Ltd.
                                  
                                  Guangdong
      Development Bank - Anyang Branch
                                  
                                  07/26/2011
                                  
                                  
                                  1,642,257Shangqiu
      Jinhubo Cement Co., Ltd.
                                  
                                  Guangdong
      Development Bank - Anyang Branch
                                  
                                  01/26/2011
                                  
                                  
                                  5,225,364Anyang
      Hongxiang Coal Co., Ltd.
                                  
                                  Agricultural
      Bank of China - Anyang Branch
                                  
                                  03/19/2011
                                  
                                  
                                  671,832Linzhou
      Hongqiqu Electrical Carbon Co., Ltd
                                  
                                  Agricultural
      Bank of China - Linzhou Branch
                                  
                                  01/29/2011
                                  
                                  
                                  1,492,961Linzhou
      Hongqiqu Electrical Carbon Co., Ltd
                                  
                                  Agricultural
      Bank of China - Linzhou Branch
                                  
                                  12/14/2010
                                  
                                  
                                  1,492,961Linzhou
      Hongqiqu Electrical Carbon Co., Ltd
                                  
                                  Agricultural
      Bank of China - Linzhou Branch
                                  
                                  01/09/2011
                                  
                                  
                                  4,478,882Linzhou
      Hongqiqu Electrical Carbon Co., Ltd
                                  
                                  Agricultural
      Bank of China - Linzhou Branch
                                  
                                  04/27/2011
                                  
                                  
                                  2,985,921Xinlei
      Group Cheng Chen Coking
                                  
                                  Henan
      Rural Credit Cooperative - Tongye Branch
                                  
                                  03/22/2011
                                  
                                  
                                  2,985,921Anyang
      Zhenli Cement Co., Ltd.
                                  
                                  Henan
      Rural Credit Cooperative - Anyang Branch
                                  
                                  02/03/2011
                                  
                                  
                                  447,888Henan
      Yulong Coking Co., Ltd.
                                  
                                  Henan
      Rural Credit Cooperative - Tongye Branch
                                  
                                  03/22/2011
                                  
                                  
                                  2,985,921$
                                  65,167,734
  F-25
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
  Capital
Lease Obligations
  SC Coke
has entered into a non-cancellable lease agreement for certain machinery and
equipment. The following table details SC Coke’s commitments for minimum lease
payments and the related principal outstanding at September 30,
2010:-
  Year ending December 31:
                    
                    Principal
                    
                    
                    Payments2011
                    
                    $
                    668,718
                    
                    
                    $
                    916,2092012
                    
                    
                    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.
 
 17.
              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 September 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.
  F-26
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 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 September 30, 2010, the
exchange rate between RMB and US Dollars fluctuated between $1.00 to RMB 6.8372
and $1.00 to RMB 6.6981. 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.
 
 18.
              Share
      Based Compensation
  For the
nine months ended September 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.
 
 19.
              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 issued and 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. As of October 21, 2010, the Company has not closed the private financing.
These warrants have been forfeited.
  F-27
  Birch
Branch, Inc.
 Notes to
Consolidated Financial Statements
 As of
September 30, 2010 and December 31, 2009
 And for
the nine months ended September 30, 2010 and 2009
 
 20.
              Earnings
      Per Share
  3 months
                  
                  
                  3 months
                  
                  
                  9 months
                  
                  
                  9 monthsended
                  
                  
                  ended
                  
                  
                  ended
                  
                  
                  ended9/30/2010
                  
                  
                  9/30/2009
                  
                  
                  9/30/2010
                  
                  
                  9/30/2009Basic
      earnings per share numerator:Net
      income attributable to common shareholders
                  
                  $
                  4,449,937
                  
                  
                  $
                  7,740,543
                  
                  
                  $
                  6,968,562
                  
                  
                  $
                  10,950,686Basic
      weighted average shares outstanding:
                  
                  
                  32,047,222
                  
                  
                  
                  32,047,222
                  
                  
                  
                  32,047,222
                  
                  
                  
                  32,047,222Additions
      from potentially dilutive eventsWarrants
      issued to consultants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Diluted
      weighted average shares outstanding:
                  
                  
                  32,047,222
                  
                  
                  
                  32,047,222
                  
                  
                  
                  32,047,222
                  
                  
                  
                  32,047,222Earnings
      per share-
      Basic
                  
                  $
                  0.14
                  
                  
                  $
                  0.34
                  
                  
                  $
                  0.22
                  
                  
                  $
                  0.24-
      Diluted
                  
                  $
                  0.14
                  
                  
                  $
                  0.34
                  
                  
                  $
                  0.22
                  
                  
                  $
                  0.24Weighted
      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
  F-28





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 the products of Henan Shuncheng
Group Coal Coke Co., Ltd (“SC Coke”); 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.





Background





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





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





Corporate
History





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


4


On May
14, 2010, BRBH entered into a share exchange agreement (the “Share Exchange
Agreement”) with Shun Cheng Holdings Hong Kong Limited (“Shun Cheng HK”), the
former shareholders of Shun Cheng HK (the “Shun Cheng HK Shareholders”), and 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.





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










Contractual
Arrangement




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, and 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.


5




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.





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.




Business
Overview




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




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





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




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


6


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










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




The PRC
government 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 September 30, 2010 Compared to Three Months Ended September 30,
2009




Revenues. 
During the three months ended September 30, 2010, the primary business of
production and sale of coke and refined coal has contributed 84% of our 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 our 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 September 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 September 30, 2010
                      
                      $
                      59,817,115
                      
                      
                      $
                      4,181,910
                      
                      
                      $
                      63,999,024Three
      Months Ended September 30, 2009
                      
                      
                      29,353,932
                      
                      
                      
                      14,293,603
                      
                      
                      
                      43,647,535Increase
      (decrease)
                      
                      $
                      30,463,182
                      
                      
                      $
                      (10,111,693
                      )
                      
                      $
                      20,351,489%
      Increase (decrease)
                      
                      
                      103.78
                      %
                      
                      
                      (70.74)
                      %
                      
                      
                      46.63
                      %As
      Percentage of Total RevenuesThree
      Months Ended September 30, 2010
                      
                      
                      78.81
                      %
                      
                      
                      5.51
                      %
                      
                      
                      84.31
                      %Three
      Months Ended September 30, 2009
                      
                      
                      47.25
                      %
                      
                      
                      23.01
                      %
                      
                      
                      70.26
                      %





7




Revenues
                  (Unaudited)Coke
                
                
                Refined Coal
                
                
                TotalQuantity
      Sold (metric tons)Three
      Months Ended September 30, 2010
                
                
                286,383
                
                
                
                23,143
                
                
                
                312,022Three
      Months Ended September 30, 2009
                
                
                164,005
                
                
                
                120,315
                
                
                
                296,389Increase
      (decrease)
                
                
                122,378
                
                
                
                (97,172
                )
                
                
                15,634%
      Increase (decrease)
                
                
                74.62
                %
                
                
                (80.76
                )%
                
                
                8.87
                %Average
      Price Per TonThree
      Months Ended September 30, 2010
                
                $
                236
                
                
                $
                170Three
      Months Ended September 30, 2009
                
                
                180
                
                
                
                119Increase
      (decrease)
                
                $
                56
                
                
                $
                51%
      Increase (decrease)
                
                
                31.20
                %
                
                
                42.66
                %




Revenues
for the three months ended September 30, 2010 increased substantially from
the revenues for the three months ended September 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
September 30, 2010 increased over the comparable period in 2009 by 74.62% (from
164,005 tons to 286,383 tons); and over the same period, refined coal sales
volume decreased by 80.76% (from 120,315 tons to 23,143 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 $180 to $236 and refined coal increased from
$119 to $170, for the three months ended September 30, 2010. 
Contribution as a percentage of total revenues for coke and refined coal
decreased from 85.38% to84.31 % for the three months ended September 30,
2010.




Because
of the recovery in product unit price and sales volume, revenues generated from
coke and refined coal increased from $43.6 million for the three months
ended September 30, 2009 to $63.9 million for the three months ended
September 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 September 30,
2010 and 2009  were as follows:




Medium
                    Coal
                  
                  
                  Crude
                    Benzol
                  
                  
                  Ammonium
                    Sulfate
                  
                  
                  Coal Gas
                  
                  
                  Tar
                  
                  
                  Others
                  
                  
                  Total(Unaudited)RevenuesThree
      Months Ended September 30, 2010
                  
                  $
                  1,197,007
                  
                  
                  $
                  382,295
                  
                  
                  $
                  248,167
                  
                  
                  $
                  2,085,785
                  
                  
                  $
                  6,334,168
                  
                  
                  $
                  1,658,681
                  
                  
                  $
                  11,906,103Three
      Months Ended September 30, 2009
                  
                  
                  2,298,519
                  
                  
                  
                  424,965
                  
                  
                  
                  165,064
                  
                  
                  
                  1,088,989
                  
                  
                  
                  3,016,998
                  
                  
                  
                  11,478,987
                  
                  
                  
                  18,473,522Change
                  
                  $
                  (1,101,512
                  )
                  
                  $
                  (42,670
                  )
                  
                  $
                  83,103
                  
                  
                  $
                  996,796
                  
                  
                  $
                  3,317,170
                  
                  
                  $
                  (9,820,306
                  )
                  
                  $
                  (6,567,419
                  )%
      Change
                  
                  
                  (47.92
                  )%
                  
                  
                  (10.04
                  )%
                  
                  
                  50.35
                  %
                  
                  
                  91.53
                  %
                  
                  
                  109.95
                  %
                  
                  
                  (85.55
                  )%
                  
                  
                  (35.55
                  )%




8




Medium
                      Coal
                    
                    
                    Crude
                      Benzol
                    
                    
                    Ammonium
                      Sulfate
                    
                    
                    Coal Gas
                    
                    
                    Tar
                    
                    
                    Others
                    
                    
                    TotalAs
      % of Total RevenuesThree
      Months Ended September 30, 2010
                    
                    
                    1.58
                    %
                    
                    
                    3.41
                    %
                    
                    
                    0.33
                    %
                    
                    
                    2.75
                    %
                    
                    
                    8.34
                    %
                    
                    
                    2.19
                    %
                    
                    
                    15.69
                    %Three
      Months Ended September 30, 2009
                    
                    
                    3.70
                    %
                    
                    
                    0.68
                    %
                    
                    
                    0.27
                    %
                    
                    
                    1.7
      5
                    %
                    
                    
                    4.86
                    %
                    
                    
                    18.48
                    %
                    
                    
                    29.74
                    %




Along
with the increase in coke production and sales, the total revenue of our
secondary products significantly decreased to approximately $11.9 million in the
three months ended September 30, 2010 from approximately $18.4 million in the
three months ended September 30, 2009, which was a decrease of
approximately 35.55%, similarly as a result of the recovery in the global
economic environment.  Revenue contribution from secondary products as a
percentage of total revenues decreased from approximately 29.74% in the three
months ended September 30, 2009 to approximately 15.69% in the three months
ended September 30, 2010.  This increase in the percentage of revenues
contributed by secondary products was primarily from the decrease in the sales
of Crude Benzol 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 approximately 109.95% from approximately  $3.0
million in the three months ended September 30, 2009 to approximately $6.3
million in the three months ended September 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 approximately $49.2
million in the three months ended September 30, 2009 to approximately
$65.8million in the three months ended September 30, 2010.  The primary
reasons for this increase were due to the increase in production and raw
material costs.  The gross profit decreased in the three months ended
September 30, 2010 compared to the three months ended September 30, 2009 from
approximately 12.9 million to approximately 10.11 million; and gross profit
margin decreased from approximately 20.8% in the three months ended September
30, 2009 to 13.3% in the three months ended September 30, 2010, due to an
increase in the average cost of raw materials.




Operating Expenses. 
Operating expenses increased by 62.5% from approximately $1.6 million in the
three months ended September 30, 2009 to approximately $2.6 million in the
three months ended September 30, 2010.  Operating expenses are
comprised of sales and marketing expenses and general and administrative
expenses.  Sales and marketing expenses increased from $0.9 million in the
three months ended September 30, 2009 to approximately $1.3 million in the
three months ended September 30, 2010.  General and administrative expenses
increased from approximately $0.7 million in the three months ended
September 30, 2009 to approximately $1.2 million in the three months ended
September 30, 2010.




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




Interest Income and
Expense.  Interest expense for the three months ended
September 30, 2009 was approximately $0.8 million compared to interest
expense for the three months ended September 30, 2010 of approximately $1.7
million, due to an increase in average balance of bank loans during the
period.  Interest income for the three months ended September 30, 2009
was approximately $0.4 million compared to interest expense for the three months
ended September 30, 2010 of approximately $0.2 million.




Gain on Investment. 
Gain on investment for the three months ended September 30, 2010 was
approximately $0.1 million, which was arising from the dividend from
Ansteel Group Metallurgy Stove Co., Ltd., a non-controlled entity of SC Coke. We
did not generate any gain on investment for the three months ended
September 30, 2009.





Provision for Income
Taxes.  Provision for income taxes in the three months ended
September 30, 2010 was approximately $1.5 million compared to provision for
income taxes for the three months ended September 30, 2009 of approximately
$3.1 million.  SC Coke and Longdu were subject to a corporate income tax
rate of 25% during the three months ended September 30, 2010 and
2009.




Net Income.  We recorded
net income of approximately $4.4 million for the three months ended
September 30, 2010 compared to net income of approximately $7.8 million for the
three months ended September 30, 2009, representing a decrease of $3.4 million
or 43%.   The decrease was primarily attributed to the decrease in gross
profit. September 30.


9


Nine
Months Ended September 30, 2010 Compared to Nine Months Ended September 30,
2009




Revenues.During the
nine months ended September 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 nine months ended September 30, 2010 and 2009, contributed by
its primary products of coke and refined coal, were as follows:




Revenues
                  (Unaudited)Coke
                
                
                Refined Coal
                
                
                TotalRevenuesNine
      Months Ended September 30, 2010
                
                $
                174,197,694
                
                
                $
                9,220,616
                
                
                $
                183,418,309Nine
      Months Ended September 30, 2009
                
                
                82,839,606
                
                
                
                27,639,896
                
                
                
                110,479,502Increase
      (decrease)
                
                $
                91,358,087
                
                
                $
                (18,419,280
                )
                
                $
                72,938,807%
      Increase (decrease)
                
                
                110.28
                %
                
                
                (66.64
                )%
                
                
                66.02
                %As
      Percentage of Total RevenuesNine
      Months Ended September 30, 2010
                
                
                81.04
                %
                
                
                4.29
                %
                
                
                85.33
                %Nine
      Months Ended September 30, 2009
                
                
                59.39
                %
                
                
                19.81
                %
                
                
                79.20
                %Quantity
      Sold (metric tons)Nine
      Months Ended September 30, 2010
                
                
                835,633
                
                
                
                49,469
                
                
                
                885,102Nine
      Months Ended September 30, 2009
                
                
                454,650
                
                
                
                229,013
                
                
                
                683,663Increase
      (decrease)
                
                
                380,983
                
                
                
                (179,544
                )
                
                
                201,439%
      Increase (decrease)
                
                
                83.80
                %
                
                
                (78.40
                )%
                
                
                29.46
                %Average
      Price Per TonNine
      Months Ended September 30, 2010
                
                $
                222
                
                
                $
                181Nine
      Months Ended September 30, 2009
                
                
                182
                
                
                
                121Increase
      (decrease)
                
                $
                40
                
                
                $
                60%
      Increase (decrease)
                
                
                21.98
                %
                
                
                49.17
                %




Revenues
for the nine months ended September 30, 2010 increased substantially from
the revenues for the nine months ended September 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 nine months ended September 30, 2010 increased over the comparable period in
2009 by 83.80% (from 454,650 tons to 835,633 tons); and over the same period,
refined coal sales volume decreased by 78.40% (from 229,013 tons to 49,469
tons).


10




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 $182 to $222 and refined coal increased from
$121 to $181, for the nine months ended September 30, 2010.  Contribution
as a percentage of total revenues for coke and refined coal remained stable at
approximately 84% in both periods.




Because
of the recovery in product unit price and sales volume, revenues generated from
coke and refined coal increased from approximately $110.5 million for the
nine months ended September 30, 2009 to approximately $183.4 million for the
nine months ended September 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 nine months ended September 30, 2010 and 2009
were as follows:




Medium
                      Coal
                    
                    
                    Crude
                      Benzol
                    
                    
                    Ammonium
                      Sulfate
                    
                    
                    Coal Gas
                    
                    
                    Tar
                    
                    
                    Others
                    
                    
                    Total(Unaudited)RevenuesNine
      Months Ended September 30, 2010
                    
                    $
                    1,608,811
                    
                    
                    $
                    3,558,116
                    
                    
                    $
                    534,272
                    
                    
                    $
                    3,752,910
                    
                    
                    $
                    15,592,884
                    
                    
                    $
                    6,497,792
                    
                    
                    $
                    31,544,785Nine
      Months Ended September 30, 2009
                    
                    
                    2,924,421
                    
                    
                    
                    2,551,043
                    
                    
                    
                    471,904
                    
                    
                    
                    2,016,466
                    
                    
                    
                    7,494,867
                    
                    
                    
                    13,553,366
                    
                    
                    
                    29,012,067Change
                    
                    $
                    (1,315,610
                    )
                    
                    $
                    1,007,073
                    
                    
                    $
                    62,368
                    )
                    
                    $
                    1,736,444
                    
                    
                    $
                    8,098,017
                    
                    
                    $
                    (7,055,574
                    )
                    
                    $
                    2,532,718%
      Change
                    
                    
                    (44.99
                    )
      %
                    
                    
                    39.48
                    %
                    
                    
                    13.22
                    %
                    
                    
                    86.11
                    %
                    
                    
                    108.05
                    %
                    
                    
                    (52.06
                    )
      %
                    
                    
                    8.73
                    %As
      % of Total RevenuesNine
      Months Ended September 30, 2010
                    
                    
                    0.75
                    %
                    
                    
                    1.20
                    %
                    
                    
                    0.25
                    %
                    
                    
                    1.75
                    %
                    
                    
                    7.25
                    %
                    
                    
                    3.02
                    %
                    
                    
                    14.67
                    %Nine
      Months Ended September 30, 2009
                    
                    
                    2.10
                    %
                    
                    
                    1.83
                    %
                    
                    
                    0.34
                    %
                    
                    
                    1.45
                    %
                    
                    
                    5.37
                    %
                    
                    
                    9.72
                    %
                    
                    
                    20.80
                    %




Along
with the increase in coke production and sales, the total revenue of our
secondary products significantly increased to $31.5 million in the nine months
ended September 30, 2010 from approximately $29.0 million in the nine months
ended September 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 decreased from 20.80%
in the nine months ended September 30, 2009 to approximately 14.67 % in the
nine months ended September 30, 2010.  This increase in the percentage
of revenues contributed by secondary products was primarily from the increase in
the sales of tar .




Of the
secondary products, the largest contributor to revenue was from tar
sales.  Tar sales increased by 108.05% from approximately $7.5 million
in the nine months ended September 30, 2009 to approximately $15.6 million in
the nine months ended September 30, 2010.  Other secondary products
sales also experienced a large sales decrease from $16.4 million for the nine
months ended September 30, 2009 to approximately $8.1 million for the nine
months ended September 30, 2010.


11


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 approximately $120.1 million in the nine months ended September 30, 2009 to
approximately $194.5 million in the nine months ended September 30,
2010.  The primary reasons for this increase were due to the increase
in production and raw material costs.  Gross profit increased from
$19.4 million in the nine months ended September 30, 2009 to $20.4 million in
the nine months ended September 30, 2010; and gross profit margin decreased from
13.9% in the nine months ended September 30, 2009 to 9.5% in the nine months
ended September 30, 2010, due to an increase in the average cost of raw
materials.




Operating
Expenses.  Operating expenses increased by 29.3% from $5.8 million in
the nine months ended September 30, 2009 to $7.5 million in the nine months
ended September 30, 2010.  Operating expenses are comprised of sales
and marketing expenses and general and administrative expenses.  Sales
and marketing expenses increased marginally from $2.9 million in the nine months
ended September 30, 2009 to $3.1 million in the nine months ended September 30,
2010.  General and administrative expenses increased from
approximately $2.8 million in the nine months ended September 30, 2009 to
approximately $4.3 million in the nine months ended September 30, 2010 due to
costs associated with the Share Exchange among the Company and the former
shareholders of Shun Cheng HK during the nine months ended September 30,
2010.




Other
Income and Expense.   Other income for the nine months ended September
30,2009 was $0.3 million compared to other income of $0.5 million for the
nine months ended September 30, 2010 due to an increase in sales of waste
material created during the production process.




Interest
Income and Expense.  Interest expense for the nine months ended
September 30, 2009 was $1.7 million compared to interest expense for the
nine months ended September 30, 2010 of $4.3 million, due to an increase in
average balance of bank loans during the period.  Interest income
decreased marginally by $0.1 million in the nine months ended September 30, 2010
as compared to the nine months ended September 30, 2009.




Gain on
Investment .  Gain on investment for the nine months ended September
30, 2010 was $0.1 million when compared to $2.6 million for the nine months
ended September 30, 2009. This substantial decrease in gain on investment was
primarily attributable to which was mainly arising from the dividend from
non-controlled entities of SC Coke .




Provision
for Income Taxes .  Provision for income taxes in the nine months
ended September 30, 2010 was $2.6 million compared to provision for income taxes
for the nine months ended September 30, 2009 of $4.3 million.  SC
Coke and Longdu were subject to a corporate income tax rate of 25% during the
nine months ended September 30, 2010 and 2009.




Net
Income.   We recorded net income of approximately $7 million for the
nine months ended September 30, 2010 compared to net income of approximately $11
million for the nine months ended September 30, 2009.  The decrease
was primarily attributed to the decrease of $2.5 million of gain on investment
and the increase of $2.6 million of interest expense.




Liquidity
and Capital Resources




Nine
Months Ended September 30, 2010 Compared to Nine Months Ended September 30,
2009




Net Cash Provided by
Operating Activities




Net cash
provided by operating activities for the nine months ended September 30, 2010
was approximately $72.9 million compared with net cash provided by
operating activities for the nine months ended September 30, 2009 of
approximately $36.2 million.  Net cash provided by customer deposits
and notes receivable was approximately $2.9 million for the nine months ended
September 30, 2010 compared with net cash provided of approximately $24.9
million for the nine months ended September 30, 2009.  However, net
cash provided by notes and accounts payable was approximately $75.4 million
for the nine months ended September 30, 2010 compared with net cash used of $0.4
million for the nine months ended September 30, 2009.




Net Cash Used in Investing
Activities




Net cash
used in investing activities for the nine months ended September 30, 2010 was
$81.9 million compared to $8.4 million for the nine months ended September 30,
2009.  The primary reasons were the acquisition of property, plant and
equipment increasing by $41.5 million from approximately $10.5 million for the
nine months ended September 30, 2009 to approximately $52 million for the
nine months ended September 30, 2010 and the deposits for capital expenditures
decreased by $15 million.




Net Cash Provided by (Used
in) Financing Activities




Net cash
provided by financing activities in the nine months ended September 30, 2010 was
$7.9 million compared with net cash used in financing activities of $28.6
million for the nine months ended September 30, 2009.  In the nine
months ended September 30, 2010, SC Coke received proceeds from loans of
$38.1 million and repaid loans of
$29.7 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.


12




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.





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





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





Because of SC Coke’s rapid capacity expansion, its internally
generated funds from operations have historically been insufficient to meet its
liquidity requirements.  SC Coke has been dependent on financings to
meet its liquidity, working capital and expansion expenditures.  As of
September 30, 2010, total loans payable were $37.6 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 September 30,
2010 were $108.7 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 nine months ended September 30, 2010, SC Coke made capital expenditures
of $52 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.


13





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
September 30, 2010, we held restricted cash of $86.5 million, which provides
collateral for our bank notes payable, but not short term debt instruments. SC
Coke had short-term loans payable of $37.6 million at September 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.





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 September 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.




Foreign
Currency Translation Gains and Losses




During
the nine months ended September 30, 2010, SC Coke recognized a foreign currency
translation gain of approximately $0.1 million as compared to a foreign currency
translation gain of $2.2 million for the nine months ended September 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.





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.


14


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




As of
September 30, 2010, SC Coke guaranteed the obligations of sthirteen companies of
approximately $65.2 million in total principal outstanding.  SC Coke’s
potential liability under guarantees could include interest, default interest
and the obligation to pay costs of collection in addition to principal amounts
to which the guarantees relate.




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




Inflation




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





Critical
Accounting Policies and Estimates




Basis
of Presentation





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





We
consolidated the financial position, results of operations, and cash flows of SC
Coke and Longdu based on accounting guidance found in FASB ASC 810 Consolidation
of Variable Interest Entities which calls for us to consider various factors
indicative of the relationship between the 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 as wholly-owned subsidiaries.




Use
of Estimates




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


15





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





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





Bank
Notes Receivable/Payable




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




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




Revenue
Recognition and Trade Receivables




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




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




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





Plant
and Equipment




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




Repairs
and maintenance costs are expensed as incurred. Gain or loss on disposals are
immaterial and included in cost of revenues for the six months ended 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.





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





Long-term Investments




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


16


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





Guarantees




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





Forgivable
Loans




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 of SC Coke’s permanent capital, which is restricted for growth
purposes and cannot be used to pay dividends.





Income
Taxes




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





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.




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.


17


In
October 2009, the FASB issued ASU No. 2009-13 “Revenue Recognition (Topic 605):
Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging
Issues Task Force”. This update provides application guidance on whether
multiple deliverables exist, how the deliverables should be separated and how
the consideration should be allocated to one or more units of accounting. This
update establishes a selling price hierarchy for determining the selling price
of a deliverable. The selling price used for each deliverable will be based on
vendor-specific objective evidence, if available, third-party evidence if
vendor-specific objective evidence is not available, or estimated selling price
if neither vendor-specific or third-party evidence is available. The Company
will be required to apply this guidance prospectively for revenue arrangements
entered into or materially modified after January 1, 2011; however, earlier
application is permitted. The management is in the process of evaluating the
impact of adopting this ASU on the Company’s financial statements.





The FASB
issued ASU-2010-09 (Topic 855) to amend guidance on subsequent events to remove
the requirement for SEC filers (as defined in ASU 2010-09) to disclose the date
through which an entity has evaluated subsequent events. This change alleviates
potential conflicts with current SEC guidance. An SEC filer is still required to
evaluate subsequent events through the date financial statements are issued, but
disclosure of that date is no longer required. The amendments in ASU 2010-09
became effective upon issuance of the guidance. Management adopted this
pronouncement as of July 1, 2010.




Item
3.      Quantitative and Qualitative Disclosures About Market
Risk





Not
required for smaller reporting companies.





Item
4T.    Evaluation of Disclosure Controls and Procedures





a)  
Evaluation of Disclosure
Controls. Our Chief Executive Officer and Chief Accounting Officer
evaluated the effectiveness of our disclosure controls and procedures as of the
end of our third quarter 2010 pursuant to Rule 13a-15(b) of the Securities and
Exchange Act.  Disclosure controls and procedures are controls and
other procedures that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, as appropriate to allow
timely decisions regarding required disclosure. Based on his evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of September 30,
2010.





It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of control systems, there can be no assurance
that any design will succeed in achieving its stated goals under all
potential future conditions.





(b)
  Changes in internal
control over financial reporting. There have been no changes in our
internal control over financial reporting that occurred during the last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.


18




PART
II - OTHER INFORMATION




Item
1. Legal Proceedings.




We are
not presently parties to any litigation, nor to our knowledge and belief is any
litigation threatened or contemplated.





Item
1A. Risk Factors





Not
applicable because we are a smaller reporting company.





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





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 issued and 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.




Item
3. Defaults Upon Senior Securities.




None




Item
4. Removed and
Reserved.




Item
5. Other Information.




None




Item
6. Exhibits.




(a)        
Exhibits




31.1
Certification of Chief Executive Officer  pursuant to Section 302 of
Sarbanes Oxley Act of 2002
 31.2
Certification of Chief Executive Officer  pursuant to Section 302 of
Sarbanes Oxley Act of 2002
 32.1
Certification of Chief Executive Officer  pursuant to Section 906 of
Sarbanes Oxley Act of 2002
 32.2
Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes
Oxley Act of 2002
  19




SIGNATURES




In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.




BIRCH
      BRANCH, INC.RegistrantDate: November
      15, 2010
              
              By:/s/Wang
      FengWang
      FengPresident,
      Chief Executive Officer and Principal Financial
      Officer
  Date: November
      15, 2010
              
              By:/s/Lei
      WAngLei
      WangChief
      Financial Officer




20