UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30,
2012

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

For the transition period from ______to______.

BIRCH BRANCH, INC.

(Exact name of registrant as specified in
Charter)

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

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

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

Anyang County, Henan Province, China
455141

(Address of Principal Executive Offices)

+86 372 323 7890

(Issuer Telephone number)

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

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



Yes xNo o



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 xNo o



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 oAccelerated Filer oNon-Accelerated Filer oSmaller 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 August 8, 2012: 32,047,222.















BIRCH BRANCH, INC.



QUARTERLY REPORT ON FORM 10-Q

August 14, 2012



TABLE OF CONTENTS



|                               |                                                                                       |    | PAGE
|------------------------------ | ------------------------------------------------------------------------------------- | -- | ----
|PART 1 – FINANCIAL INFORMATION |                                                                                       | 2 
|                               |                                                                                       |    |     
|Item 1.                        | Financial Statements (Unaudited)                                                      |    | 2   
|                               |                                                                                       |    |     
|Item 2.                        | Management’s Discussion and Analysis of Financial Condition and Results of Operations |    | 21  
|                               |                                                                                       |    |     
|Item 3.                        | Quantitative and Qualitative Disclosures About Market Risk                            |    | 34  
|                               |                                                                                       |    |     
|Item 4.                        | Controls and Procedures                                                               |    | 34  
|                               |                                                                                       |    |     
|PART II – OTHER INFORMATION    |                                                                                       | 35
|                               |                                                                                       |    |     
|Item 1.                        | Legal Proceedings                                                                     |    | 35  
|                               |                                                                                       |    |     
|Item 1A.                       | Risk Factors                                                                          |    | 35  
|                               |                                                                                       |    |     
|Item 2.                        | Unregistered Sales of Equity Securities and Use of Proceeds                           |    | 35  
|                               |                                                                                       |    |     
|Item 3.                        | Defaults Upon Senior Securities                                                       |    | 35  
|                               |                                                                                       |    |     
|Item 4.                        | Mine Safety Disclosures                                                               |    | 35  
|                               |                                                                                       |    |     
|Item 5.                        | Other Information                                                                     |    | 35  
|                               |                                                                                       |    |     
|Item 6.                        | Exhibits                                                                              |    | 35  
|                               |                                                                                       |    |     
|SIGNATURES                     |                                                                                       | 36



|
|
|



CAUTIONARY STATEMENT ON FORWARD-LOOKING
INFORMATION



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



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



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



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



CERTAIN TERMS USED IN THIS REPORT



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











PART I – FINANCIAL
INFORMATION



Item 1. Financial Statements.

Birch Branch, Inc.

Consolidated Balance Sheets

As of June 30, 2012 and December 31, 2011

(Stated in US Dollars)



|                                              |  | 6/30/2012   |             |  | 12/31/2011 |  
|--------------------------------------------- |  | ----------- | ----------- |  | ---------- | -
|                                              |  | (Unaudited) |             |  | (Audited)  |  
|Assets                                        |  |             |             |  |            |  
|Current assets:                               |  |             |             |  |            |  
|Cash                                          |  | $           | 3,991,097   |  |            | $
|Restricted cash                               |  |             | 165,136,404 |  |            |  
|Bank notes receivable                         |  |             | 4,280,051   |  |            |  
|Trade receivables, net                        |  |             | 34,958,447  |  |            |  
|Other receivables                             |  |             | 9,978,039   |  |            |  
|Related party receivables                     |  |             | 9,829,010   |  |            |  
|Inventories                                   |  |             | 33,472,936  |  |            |  
|Advances to suppliers and prepayments         |  |             | 74,745,332  |  |            |  
|Deposits                                      |  |             | 2,982,340   |  |            |  
|Total current assets                          |  |             | 339,373,656 |  |            |  
|                                              |  |             |             |  |            |  
|Non-current assets:                           |  |             |             |  |            |  
|Property, plant and equipment, net            |  |             | 142,308,930 |  |            |  
|Construction in Progress                      |  |             | 30,366,688  |  |            |  
|Intangible assets, net                        |  |             | 825,524     |  |            |  
|Long-term investments                         |  |             | 25,752,825  |  |            |  
|Total non-current assets                      |  |             | 199,253,967 |  |            |  
|                                              |  |             |             |  |            |  
|Total assets                                  |  | $           | 538,627,623 |  |            | $
|                                              |  |             |             |  |            |  
|Liabilities and Stockholders’ Equity          |  |             |             |  |            |  
|                                              |  |             |             |  |            |  
|Liabilities                                   |  |             |             |  |            |  
|                                              |  |             |             |  |            |  
|Current liabilities:                          |  |             |             |  |            |  
|Bank notes payable                            |  | $           | 231,298,113 |  |            | $
|Short term bank loans                         |  |             | 75,052,570  |  |            |  
|Accounts payable                              |  |             | 98,957,591  |  |            |  
|Accrued liabilities                           |  |             | 3,081,508   |  |            |  
|Taxes payable                                 |  |             | 15,898,875  |  |            |  
|Other payable                                 |  |             | 9,773,273   |  |            |  
|Long-term bank loans, current portion         |  |             | 6,324,211   |  |            |  
|Capital lease obligation, current portion     |  |             | 4,134,631   |  |            |  
|Customer deposits                             |  |             | 19,812,313  |  |            |  
|Total current liabilities                     |  |             | 464,333,085 |  |            |  
|                                              |  |             |             |  |            |  
|Non-current liabilities:                      |  |             |             |  |            |  
|Notes payable to related party                |  |             | 64,392,843  |  |            |  
|Forgivable loans                              |  |             | 7,008,806   |  |            |  
|Long-term bank loans                          |  |             | -           |  |            |  
|Capital lease obligation, non-current portion |  |             | 10,198,819  |  |            |  
|Total non-current liabilities                 |  |             | 81,600,468  |  |            |  
|Total liabilities                             |  | $           | 545,933.553 |  |            | $



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



2







Birch Branch, Inc.

Consolidated Balance Sheets

As of Jun 30, 2012 and December 31, 2011

(Stated in US Dollars)



|                                                                                                                                                             |  | 6/30/2012   |             |   | 12/31/2011 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------- | ----------- | - | ---------- | -
|                                                                                                                                                             |  | (Unaudited) |             |   | (Audited)  |  
|Stockholders’ Equity                                                                                                                                         |  |             |             |   |            |  
|Preferred stock, 50,000,000 shares authorized, $0 par value, 0 shares issued and outstanding                                                                 |  | $           | -           |   |            | $
|Common stock, 500,000,000 shares authorized, $0 par value, 32,047,222 and 32,047,222 shares issued and outstanding as of June 30, 2012 and December 31, 2011 |  |             | 6,963,403   |   |            |  
|Statutory reserve                                                                                                                                            |  |             | 234,683     |   |            |  
|Retained earnings                                                                                                                                            |  |             | (21,410,453 | ) |            |  
|Accumulated other comprehensive income                                                                                                                       |  |             | 6,472,224   |   |            |  
|Non-controlling interest                                                                                                                                     |  |             | 434,213     |   |            |  
|Total stockholders’ equity                                                                                                                                   |  |             | (7,305,930  | ) |            |  
|                                                                                                                                                             |  |             |             |   |            |  
|Total liabilities and equity                                                                                                                                 |  | $           | 538,627,623 |   |            | $



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



3







Birch Branch, Inc.

Consolidated Statements of Operations

For the three months and six months ended
June 30, 2012 and 2011

(Stated in US Dollars)



|                                                |  | Three Months Ended June 30, |             |   | Six Months Ended June 30, |  
|----------------------------------------------- |  | --------------------------- | ----------- | - | ------------------------- | -
|                                                |  | 2012                        |             |   | 2011                      |  
|                                                |  | (Unaudited)                 |             |   | (Unaudited)               |  
|Revenues                                        |  | $                           | 124,421,166 |   |                           | $
|Cost of revenues                                |  |                             | 122,241,886 |   |                           |  
|Gross profit                                    |  |                             | 2,179,280   |   |                           |  
|                                                |  |                             |             |   |                           |  
|Operating expenses:                             |  |                             |             |   |                           |  
|Sales and marketing                             |  |                             | 4,740,319   |   |                           |  
|General and administrative                      |  |                             | 2,715,185   |   |                           |  
|Total operating expenses                        |  |                             | 7,455,504   |   |                           |  
|                                                |  |                             |             |   |                           |  
|Income (loss) from operations                   |  |                             | (5,276,224  | ) |                           |  
|                                                |  |                             |             |   |                           |  
|Other income (expenses):                        |  |                             |             |   |                           |  
|Interest income                                 |  |                             | 1,069,337   |   |                           |  
|Interest expense                                |  |                             | (6,154,606  | ) |                           |  
|Other income                                    |  |                             | 526,092     |   |                           |  
|Other expenses                                  |  |                             | (11,459     | ) |                           |  
|Total other income (expenses)                   |  |                             | (4,570,636  | ) |                           |  
|                                                |  |                             |             |   |                           |  
|Income (loss) before provision for income taxes |  |                             | (9,846,860  | ) |                           |  
|                                                |  |                             |             |   |                           |  
|Provision for (benefit from) income taxes       |  |                             | -           |   |                           |  
|                                                |  |                             |             |   |                           |  
|Net income (loss)                               |  | $                           | (9,846,860  | ) |                           | $
|                                                |  |                             |             |   |                           |  
|Net income attributable to:                     |  |                             |             |   |                           |  
|- Common stockholders                           |  |                             | (9,844,267  | ) |                           |  
|- Non-controlling interest                      |  |                             | (2,593      | ) |                           |  
|                                                |  |                             |             |   |                           |  
|Other Comprehensive Income/(Loss)               |  |                             |             |   |                           |  
|Foreign currency translation adjustments        |  |                             | (14,046     | ) |                           |  
|Total Comprehensive Income/(Loss)               |  | $                           | (9,860,906  | ) |                           | $
|                                                |  |                             |             |   |                           |  
|Earnings per share                              |  |                             |             |   |                           |  
|- Basic                                         |  | $                           | (0.31       | ) |                           | $
|- Diluted                                       |  | $                           | (0.31       | ) |                           | $
|                                                |  |                             |             |   |                           |  
|Weighted average shares outstanding             |  |                             |             |   |                           |  
|- Basic                                         |  |                             | 32,047,222  |   |                           |  
|- Diluted                                       |  |                             | 32,047,222  |   |                           |  



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



4







Birch Branch, Inc.

Consolidated Statements of Stockholders’
Equity

As of June 30, 2012 and December 31, 2011

(Stated in US Dollars)



|                                                  |  |               |            |  |            |   |   |           |  |   |           |  |  |             |         |  |               |   |             | Accumulated |  |   |         |  
|------------------------------------------------- |  | ------------- | ---------- |  | ---------- | - | - | --------- |  | - | --------- |  |  | ----------- | ------- |  | ------------- | - | ----------- | ----------- |  | - | ------- | -
|                                                  |  |               |            |  |            |   |   |           |  |   |           |  |  |             |         |  | Non-          |   |             | Other       |  |   |         |  
|                                                  |  | Common Stock  |            |  | Registered |   |   | Statutory |  |   | Retained  |  |  | controlling |         |  | Comprehensive |   |             | Total       | 
|                                                  |  | No. of Shares |            |  | Amount     |   |   | Capital   |  |   | Reserve   |  |  | Earnings    |         |  | Interest      |   |             | Income      |  |   | Equity  |  
|Balance at January 1, 2011 (Audited)              |  |               | 32,047,222 |  |            | $ | - |           |  | $ | 6,963,403 |  |  | $           | 234,683 |  |               | $ | 38,499,365  |             |  | $ | 427,395 |  
|Apportionment of loss to non-controlling interest |  |               |            |  |            |   |   |           |  |   |           |  |  |             |         |  |               |   | (12,143     | )           |  |   | 12,143  |  
|Net income for year ended December 31, 2011       |  |               |            |  |            |   |   |           |  |   |           |  |  |             |         |  |               |   | (32,117,864 | )           |  |   |         |  
|Foreign currency translation gain                 |  |               |            |  |            |   |   |           |  |   |           |  |  |             |         |  |               |   |             |             |  |   |         |  
|Balance at December 31, 2011 (Audited)            |  |               | 32,047,222 |  |            | $ | - |           |  | $ | 6,963,403 |  |  | $           | 234,683 |  |               | $ | 6,369,358   |             |  | $ | 439,538 |  
|Apportionment of loss to non-controlling interest |  |               |            |  |            |   |   |           |  |   |           |  |  |             |         |  |               |   | 5,325       |             |  |   | (5,325  | )
|Net income for six months ended June 30, 2012     |  |               |            |  |            |   |   |           |  |   |           |  |  |             |         |  |               |   | (27,785,136 | )           |  |   |         |  
|Foreign currency translation gain                 |  |               |            |  |            |   |   |           |  |   |           |  |  |             |         |  |               |   |             |             |  |   |         |  
|Balance at June 30, 2011                          |  |               | 32,047,222 |  |            | $ | - |           |  | $ | 6,963,403 |  |  | $           | 234,683 |  |               | $ | (21,410,453 | )           |  | $ | 434,213 |  



5









Birch Branch, Inc.

Consolidated Statements of Cash Flows

For the six months ended
June 30, 2012 and 2011

(Stated in US Dollars)



|                                                                                          |  | Six Months Ended June 30, |            
|----------------------------------------------------------------------------------------- |  | ------------------------- | -----------
|                                                                                          |  | 2012                      |            
|Cash flows from operating activities:                                                     |  |                           |            
|Net loss                                                                                  |  | $                         | (27,785,136
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                           |            
|Depreciation and amortization                                                             |  |                           | 7,076,021  
|Bad debt expense                                                                          |  |                           | -          
|                                                                                          |  |                           |            
|Change in assets and liabilities:                                                         |  |                           |            
|Increase in Trade receivables                                                             |  |                           | (19,036,586
|Decrease/(Increase) in Inventories                                                        |  |                           | 16,884,785 
|Increase in Prepayments and other receivables                                             |  |                           | (10,065,097
|Decrease/(Increase) in Related party receivables                                          |  |                           | 612,017    
|Increase in Accounts payable                                                              |  |                           | 28,706,225 
|Decrease in Other payables and current liabilities                                        |  |                           | 18,133,509 
|Net cash provided by (used in) operating activities                                       |  |                           | 14,525,738 
|                                                                                          |  |                           |            
|Cash flows from investing activities:                                                     |  |                           |            
|Increase in restricted cash                                                               |  |                           | (22,073,739
|Long-term investment in equities                                                          |  |                           | (1,247,125 
|Acquisitions of property, plant and equipment                                             |  |                           | (10,596,516
|Increase in construction in progress                                                      |  |                           | (14,383,931
|Increase in Bank notes receivable                                                         |  |                           | (4,133,976 
|Collection/(Advance) loans to individuals and companies                                   |  |                           | (227,762   
|Advance to related parties                                                                |  |                           | (6,918,283 
|Net cash used in investing activities                                                     |  |                           | (59,581,332
|                                                                                          |  |                           |            
|Cash flows from financing activities:                                                     |  |                           |            
|Proceeds from borrowings from bank and others                                             |  |                           | 40,316,843 
|Repayment of bank borrowings and others                                                   |  |                           | (32,221,853
|Increase in bank notes payable                                                            |  |                           | 43,231,899 
|Repayment of capital lease obligation                                                     |  |                           | (1,654,603 
|Proceeds from deposit for capital lease obligation                                        |  |                           | 339,926    
|Proceeds from forgivable loans                                                            |  |                           | 733,607    
|Payment to related parties                                                                |  |                           | (6,239,608 
|Net cash provided by financing activities                                                 |  |                           | 44,506,211 
|                                                                                          |  |                           |            
|Net increase in cash                                                                      |  |                           | 1,286,110  
|                                                                                          |  |                           |            
|Effect of exchange rate changes                                                           |  |                           | 1,835,493  
|                                                                                          |  |                           |            
|Cash at beginning of the period                                                           |  |                           | 2,704,987  
|                                                                                          |  |                           |            
|Cash at end of the period                                                                 |  | $                         | 3,991,097  
|                                                                                          |  |                           |            
|Supplemental disclosure of cash flow information:                                         |  |                           |            
|Interest received                                                                         |  | $                         | 985,879    
|Interest paid                                                                             |  |                           | 9,976,831  
|                                                                                          |  |                           |            
|Non-Cash Investing and Financing Activities:                                              |  |                           |            
|Addition of PPE transferred from CIP                                                      |  | $                         | 69,382,559 
|Accounts Payable for constructions                                                        |  | $                         | 976,872    



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



6







Birch Branch, Inc.

Notes to Unaudited Consolidated Financial
Statements

As of June 30, 2012 and December 31, 2011



| | 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 until December 16, 2006.Unless the
context requires or is otherwise indicated, the term the “Company” includes BRBH and the following entities, after
giving effect to the Share Exchange (as defined herein):
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | II. | Intermediary Holding Companies
| | --- | ------------------------------



| | a.) | Shun Cheng Holdings 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 WOFE”) was incorporated as a wholly-foreign
owned entity.  Anyang WOFE is wholly-owned by Shun Cheng HK.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | III. | Operating Entities
| | ---- | ------------------



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



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



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



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



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



7







Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2012 and December 31, 2011



| | B. | Variable Interest Entity Agreement
| | -- | ----------------------------------



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



| | I. | Entrusted Management Agreement
| | -- | ------------------------------



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



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



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



| | II. | Exclusive Option Agreement
| | --- | --------------------------



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



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



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



| | III. | Shareholders' Voting Proxy Agreement
| | ---- | ------------------------------------



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



8







Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2012 and December 31, 2011



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



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



| | IV. | Shares Pledge Agreement
| | --- | -----------------------



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



| | 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.



| | 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 WOFE, SC Coke, and Longdu. All intercompany
transactions, such as sales, cost of sales, and balances due to/due from, investment in subsidiaries, and subsidiaries’ capitalization
have been eliminated.



9







Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2012 and December 31, 2011



| | 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. | 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 six months ended June 30, 2012 and 2011. Currency translation adjustment results from translation to U.S. Dollar for financial
reporting purposes are recorded in other comprehensive income as a component of owners’ equity.  A summary of the
conversion rates for the periods presented is as follows:



|                                               |  | 6/30/2012 |        |  | 12/31/2011 |  |        | 6/30/2011 | 
|---------------------------------------------- |  | --------- | ------ |  | ---------- |  | ------ | --------- | 
|Period/year end RMB: U.S. Dollar exchange rate |  |           | 6.3249 |  |            |  | 6.3647 |           | 
|Average RMB: U.S. Dollar exchange rate         |  |           | 6.3074 |  |            |  | 6.4735 |           | 



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.



| | E. | 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. | 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.



10







Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2012 and December 31, 2011



| | 3. | Trade Receivables
| | -- | -----------------



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



|                                                        |  | 6/30/2012 |            |  | 12/31/2011 |  
|------------------------------------------------------- |  | --------- | ---------- |  | ---------- | -
|Trade Receivables                                       |  | $         | 39,229,881 |  |            | $
|Less: Allowance for Bad Debt                            |  |           | 4,271,434  |  |            |  
|Trade Receivables, net                                  |  |           | 34,958,447 |  |            |  
|                                                        |  |           |            |  |            |  
|Allowance for Bad Debts                                 |  |           |            |  |            |  
|Beginning Balance                                       |  |           | 4,271,434  |  |            |  
|Provision for bad debts                                 |  |           | -          |  |            |  
|Less: Allowance write back because of bad debt recovery |  |           | -          |  |            |  
|Ending Balance                                          |  | $         | 4,271,434  |  |            | $



| | 4. | Other Receivables
| | -- | -----------------



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



|                                                                                                 |  | 6/30/2012 |           |  | 12/31/2011 |  
|------------------------------------------------------------------------------------------------ |  | --------- | --------- |  | ---------- | -
|Project safety deposit                                                                           |  | $         | 7,905     |  |            | $
|Non-collateralized, non-interest bearing loans to individuals and companies receivable on demand |  |           | 4,012,458 |  |            |  
|Others                                                                                           |  |           | 5,957,676 |  |            |  
|                                                                                                 |  | $         | 9,978,039 |  |            | $



| | 5. | Inventories
| | -- | -----------



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



|                                        |  | 6/30/2012 |            |  | 12/31/2011 |  
|--------------------------------------- |  | --------- | ---------- |  | ---------- | -
|Raw materials                           |  | $         | 4,321,659  |  |            | $
|Work in process and semi-finished goods |  |           | 7,130,174  |  |            |  
|Finished goods                          |  |           | 22,021,103 |  |            |  
|Total inventories                       |  | $         | 33,472,936 |  |            | $



| | 6. | Advances to Suppliers and Prepayments
| | -- | -------------------------------------



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



|                                            |  | 6/30/2012 |            |  | 12/31/2011 |  
|------------------------------------------- |  | --------- | ---------- |  | ---------- | -
|Construction projects prepayments           |  | $         | -          |  |            | $
|Prepayments for raw materials in operations |  |           | 74,745,332 |  |            |  
|Prepaid taxes                               |  |           | -          |  |            |  
|                                            |  | $         | 74,745,332 |  |            | $



11







Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2012 and December 31, 2011



| | 7. | Property, Plant and Equipment, net
| | -- | ----------------------------------



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



|                                                 |  |         |             |  | Accumulated  |   |            |     | 
|------------------------------------------------ |  | ------- | ----------- |  | ------------ | - | ---------- | --- | 
|6/30/2012                                        |  | At Cost |             |  | Depreciation |   |            | Net | 
|Buildings and plant                              |  | $       | 35,820,788  |  |              | $ | 5,700,997  |     | 
|Machinery and equipment                          |  |         | 135,429,558 |  |              |   | 25,484,969 |     | 
|Electronic equipment                             |  |         | 1,103,353   |  |              |   | 533,441    |     | 
|Vehicles                                         |  |         | 3,770,939   |  |              |   | 2,341,233  |     | 
|Wastewater treatment and environmental equipment |  |         | 822,364     |  |              |   | 577,432    |     | 
|Total plant and equipment                        |  | $       | 176,947,002 |  |              | $ | 34,638,072 |     | 



|                                                 |  |         |            |  | Accumulated  |   |            |     | 
|------------------------------------------------ |  | ------- | ---------- |  | ------------ | - | ---------- | --- | 
|12/31/2011                                       |  | At Cost |            |  | Depreciation |   |            | Net | 
|Buildings and plant                              |  | $       | 35,576,186 |  |              | $ | 4,820,117  |     | 
|Machinery and equipment                          |  |         | 1,388,507  |  |              |   | 848,902    |     | 
|Electronic equipment                             |  |         | 3,604,960  |  |              |   | 1,982,054  |     | 
|Vehicles                                         |  |         | 54,974,689 |  |              |   | 19,277,467 |     | 
|Wastewater treatment and environmental equipment |  |         | 817,221    |  |              |   | 505,907    |     | 
|Total plant and equipment                        |  | $       | 96,361,563 |  |              | $ | 27,434,447 |     | 



Depreciation
expenses related to plant andequipment were $ 7,025,020 and $ 4,180,356 for the six months ended June 30, 2012 and 2011,
respectively.



| | 8. | Construction in Progress
| | -- | ------------------------



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



|Description                        |  | 6/30/2012 |            |  | 12/31/2011 |  
|---------------------------------- |  | --------- | ---------- |  | ---------- | -
|Coking furnace                     |  | $         | 340,921    |  |            | $
|Office buildings                   |  |           | 4,988,510  |  |            |  
|Plant and facilities               |  |           | 1,914,984  |  |            |  
|Sewage system                      |  |           | 566,186    |  |            |  
|Deposits for construction projects |  |           | 22,556,087 |  |            |  
|                                   |  | $         | 30,366,688 |  |            | $



| | 9. | Investments
| | -- | -----------



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



|Investment                                          |  | Ownership |       |   | Type |  |        | 6/30/2012 | 
|--------------------------------------------------- |  | --------- | ----- | - | ---- |  | ------ | --------- | 
|Anyang Rural Credit Cooperative - Tongye Branch     |  |           | 11.26 | % |      |  | Equity |           | 
|Anyang Urban Credit Cooperative                     |  |           | 11.26 | % |      |  | Equity |           | 
|Ansteel Group Metallurgy Stove Co., Ltd.            |  |           | 19    | % |      |  | Equity |           | 
|Anyang Xinlong Coal (Group) Hongling Coal Co., Ltd. |  |           | 16    | % |      |  | Equity |           | 
|                                                    |  |           |       |   |      |  |        |           | 



12







Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2012 and December 31, 2011



| | 10. | Bank Notes Payable
| | --- | ------------------



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



|Financial Institution                                   |  | Due Date |            |  | 6/30/2012 |  
|------------------------------------------------------- |  | -------- | ---------- |  | --------- | -
|                                                        |  |          |            |  |           |  
|Guangdong Development Bank - Anyang Branch              |  |          | 9/5/2012   |  |           |  
|Guangdong Development Bank - Anyang Branch              |  |          | 9/16/2012  |  |           |  
|Guangdong Development Bank - Anyang Branch              |  |          | 9/19/2012  |  |           |  
|Guangdong Development Bank - Anyang Branch              |  |          | 9/20/2012  |  |           |  
|Guangdong Development Bank - Anyang Branch              |  |          | 9/6/2012   |  |           |  
|Guangdong Development Bank - Anyang Branch              |  |          | 9/27/2012  |  |           |  
|Guangdong Development Bank - Anyang Branch              |  |          | 10/16/2012 |  |           |  
|Guangdong Development Bank - Anyang Branch              |  |          | 10/27/2012 |  |           |  
|Guangdong Development Bank - Anyang Branch              |  |          | 11/30/2012 |  |           |  
|China Construction Bank - Zhongzhou Branch              |  |          | 9/19/2012  |  |           |  
|Shanghai Pudong Development Bank -Zhengzhou Branch      |  |          | 7/5/2012   |  |           |  
|Shanghai Pudong Development Bank -Zhengzhou Branch      |  |          | 7/6/2012   |  |           |  
|Shanghai Pudong Development Bank -Zhengzhou Branch      |  |          | 7/6/2012   |  |           |  
|Shanghai Pudong Development Bank -Zhengzhou Branch      |  |          | 8/21/2012  |  |           |  
|Shanghai Pudong Development Bank -Zhengzhou Branch      |  |          | 9/21/2012  |  |           |  
|Shanghai Pudong Development Bank -Zhengzhou Branch      |  |          | 9/28/2012  |  |           |  
|Shanghai Pudong Development Bank -Zhengzhou Branch      |  |          | 11/24/2012 |  |           |  
|Shanghai Pudong Development Bank -Zhengzhou Branch      |  |          | 12/5/2012  |  |           |  
|Shanghai Pudong Development Bank -Zhengzhou Branch      |  |          | 12/7/2012  |  |           |  
|Shanghai Pudong Development Bank -Zhengzhou Branch      |  |          | 12/7/2012  |  |           |  
|Shanghai Pudong Development Bank -Zhengzhou Branch      |  |          | 12/12/2012 |  |           |  
|Shanghai Pudong Development Bank -Zhengzhou Branch      |  |          | 12/26/2012 |  |           |  
|Commercial Bank of Anyang                               |  |          | 8/6/2012   |  |           |  
|Commercial Bank of Anyang                               |  |          | 11/29/2012 |  |           |  
|Commercial Bank of Anyang                               |  |          | 10/1/2012  |  |           |  
|Commercial Bank of Anyang                               |  |          | 12/11/2012 |  |           |  
|Bank of Luoyang - Zhengzhou Branch                      |  |          | 10/11/2012 |  |           |  
|Bank of Luoyang - Zhengzhou Branch                      |  |          | 10/26/2012 |  |           |  
|Bank of Luoyang - Zhengzhou Branch                      |  |          | 12/27/2012 |  |           |  
|China Everbright Bank - Zhengzhou Branch                |  |          | 7/30/2012  |  |           |  
|China Everbright Bank - Zhengzhou Branch                |  |          | 8/20/2012  |  |           |  
|China Everbright Bank - Zhengzhou Branch                |  |          | 8/21/2012  |  |           |  
|China Everbright Bank - Zhengzhou Branch                |  |          | 10/12/2012 |  |           |  
|China Everbright Bank - Zhengzhou Branch                |  |          | 12/20/2012 |  |           |  
|China Everbright Bank - Zhengzhou Branch                |  |          | 8/15/2012  |  |           |  
|China Everbright Bank - Zhengzhou Branch                |  |          | 8/27/2012  |  |           |  
|China Everbright Bank - Zhengzhou Branch                |  |          | 10/26/2012 |  |           |  
|China Everbright Bank - Zhengzhou Branch                |  |          | 11/8/2012  |  |           |  
|Bank of Mingsheng - Zhengzhou Branch                    |  |          | 8/8/2012   |  |           |  
|Bank of Mingsheng - Zhengzhou Branch                    |  |          | 8/13/2012  |  |           |  
|Bank of Mingsheng - Zhengzhou Branch                    |  |          | 10/20/2012 |  |           |  
|Bank of Mingsheng - Zhengzhou Branch                    |  |          | 12/4/2012  |  |           |  
|Bank of Mingsheng - Zhengzhou Branch                    |  |          | 12/15/2012 |  |           |  
|Bank of Mingsheng - Zhengzhou Branch                    |  |          | 10/24/2012 |  |           |  
|China Citic Bank- Anyang Branch                         |  |          | 11/21/2012 |  |           |  
|China Citic Bank- Anyang Branch                         |  |          | 11/25/2012 |  |           |  
|China Citic Bank- Anyang Branch                         |  |          | 11/28/2012 |  |           |  
|Bank of  Ping Ding Shan                                 |  |          | 9/26/2012  |  |           |  
|China Merchants Bank - Anyang Branch                    |  |          | 9/13/2012  |  |           |  
|Bank of China-Huojiacun Branch                          |  |          | 9/15/2012  |  |           |  
|Industrial Bank-Weiyi Branch                            |  |          | 7/9/2012   |  |           |  
|Industrial Bank-Weiyi Branch                            |  |          | 7/10/2012  |  |           |  
|Industrial Bank-Weiyi Branch                            |  |          | 7/12/2012  |  |           |  
|Industrial Bank-Weiyi Branch                            |  |          | 8/28/2012  |  |           |  
|Industrial and Commercial Bank of China - Shuiye Branch |  |          | 10/27/2012 |  |           |  
|China Minsheng Banking Corp.                            |  |          | 8/15/2012  |  |           |  
|                                                        |  |          |            |  |           |  
|                                                        |  |          |            |  |           | $



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 2 E - Restricted Cash.



13







Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2012 and December 31, 2011



| | 11. | Loans
| | --- | -----



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



|                                                    |  |  |      |  | Due |      |            | Interest |      |  |        |          
|--------------------------------------------------- |  |  | ---- |  | --- | ---- | ---------- | -------- | ---- |  | ------ | ---------
|Name of Creditors                                   |  |  | Note |  |     | Date |            |          | Rate |  |        | 6/30/2012
|Anyang Rural Credit Cooperative - Tongye Branch     |  |  | A    |  |     |      | 3/23/2013  |          |      |  | 10.933 | %        
|Shanghai Pudong Development Bank - Zhengzhou Branch |  |  | B    |  |     |      | 9/11/2012  |          |      |  | 6.710  | %        
|Shanghai Pudong Development Bank - Zhengzhou Branch |  |  | C    |  |     |      | 3/23/2013  |          |      |  | 7.820  | %        
|Shanghai Pudong Development Bank - Zhengzhou Branch |  |  | D    |  |     |      | 8/21/2012  |          |      |  | 6.710  | %        
|Bank of China - Huojiacun Branch                    |  |  | E    |  |     |      | 9/27/2012  |          |      |  | 7.216  | %        
|Commercial Bank of Anyang                           |  |  | F    |  |     |      | 6/14/2013  |          |      |  | 6.310  | %        
|Agricultural Bank of China - Anyang Branch          |  |  | G    |  |     |      | 10/10/2012 |          |      |  | 8.856  | %        
|Agricultural Bank of China - Anyang Branch          |  |  | H    |  |     |      | 10/10/2012 |          |      |  | 8.856  | %        
|Agricultural Bank of China - Anyang Branch          |  |  | I    |  |     |      | 10/10/2012 |          |      |  | 8.856  | %        
|Agricultural Bank of China - Anyang Branch          |  |  | J    |  |     |      | 10/10/2012 |          |      |  | 8.856  | %        
|Guangdong Development Bank - Anyang Branch          |  |  | K    |  |     |      | 7/14/2012  |          |      |  | 7.216  | %        
|Bank of Luoyang - Zhengzhou Branch                  |  |  | M    |  |     |      | 7/14/2012  |          |      |  | 7.872  | %        
|Bank of Luoyang - Zhengzhou Branch                  |  |  | N    |  |     |      | 4/9/2013   |          |      |  | 7.872  | %        
|Bank of Luoyang – Zhengzhou Branch                  |  |  |      |  |     |      | 12/20/2012 |          |      |  | 7.020  | %        
|China Citic Bank – Anyang Branch                    |  |  | O    |  |     |      | 1/8/2013   |          |      |  | 7.544  | %        
|China Merchants Bank - Anyang Branch                |  |  | P    |  |     |      | 11/9/2012  |          |      |  | 7.544  | %        
|China Merchants Bank - Anyang Branch                |  |  | Q    |  |     |      | 11/30/2012 |          |      |  | 7.544  | %        
|Zhengzhou Bank - Nongye Eastern Road Branch         |  |  | R    |  |     |      | 12/14/2012 |          |      |  | 8.528  | %        
|Industrial Bank - Weiyi Branch                      |  |  | S    |  |     |      | 1/13/2013  |          |      |  | 7.216  | %        
|ICBC - Shuiye Branch                                |  |  | T    |  |     |      | 9/7/2012   |          |      |  | 7.216  | %        
|ICBC - Shuiye Branch                                |  |  | U    |  |     |      | 10/1/2012  |          |      |  | 7.216  | %        
|China Construction Bank - Anyang Branch             |  |  | V    |  |     |      | 9/26/2012  |          |      |  | 6.655  | %        
|China Construction Bank - Anyang Branch             |  |  | W    |  |     |      | 10/26/2012 |          |      |  | 6.710  | %        
|China Citic Bank - Anyang Branch                    |  |  | X    |  |     |      | 7/26/2012  |          |      |  | 7.216  | %        
|Tongye Credit Cooperatives - Anyang Branch          |  |  | Y    |  |     |      | 12/21/2012 |          |      |  | 15.088 | %        
|                                                    |  |  |      |  |     |      |            |          |      |  |        |          
|                                                    |  |  |      |  |     |      |            |          |      |  |        |          



14







Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2012 and December 31, 2011



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



| | A. | Guaranteed by Henan Hubo Cement Co., Ltd and Linzhou Hongqiqu Electrical Carbon co., Ltd
| | -- | ----------------------------------------------------------------------------------------

| | B. | Guaranteed by Anyang Liyuan Coking Co., Ltd and shareholders (Xinshun Wang, xinming Wang and Junsheng Cheng)
| | -- | ------------------------------------------------------------------------------------------------------------

| | C. | Guaranteed by Anyang Liyuan Coking Co., Ltd
| | -- | -------------------------------------------

| | D | Guaranteed by Anyang Liyuan Coking Co., Ltd
| | - | -------------------------------------------

| | E. | Guaranteed by Henan Xinlei Coking Group Co., Ltd
| | -- | ------------------------------------------------

| | F. | Guaranteed by Linzhou Hongqiqu electrical Carbon Co., Ltd
| | -- | ---------------------------------------------------------

| | G | Guaranteed by Henan Hubo Cement Co., Ltd
| | - | ----------------------------------------

| | H. | Guaranteed by Henan Hubo Cement Co., Ltd
| | -- | ----------------------------------------

| | I. | Guaranteed by Henan Hubo Cement Co., Ltd
| | -- | ----------------------------------------

| | J. | Guaranteed by Henan Hubo Cement Co., Ltd
| | -- | ----------------------------------------

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

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

| | N. | Guaranteed by Xinlei Group Cheng Chen Coking and Xinshun Wang
| | -- | -------------------------------------------------------------

| | O. | Guaranteed by Henan Chengyu Coking Co., Ltd
| | -- | -------------------------------------------

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

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

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

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

| | T. | Guaranteed by Cleaned coal
| | -- | --------------------------

| | U | Guaranteed by Cleaned coal
| | - | --------------------------

| | V. | Guaranteed by Linzhou Hongqiqu electrical Carbon Co., Ltd
| | -- | ---------------------------------------------------------

| | W | Guaranteed by Linzhou Hongqiqu electrical Carbon Co., Ltd
| | - | ---------------------------------------------------------

| | X | Guaranteed by Henan Shuncheng Group Coking Co., Ltd and Henan Small Corporation Investment Co., Ltd
| | - | ---------------------------------------------------------------------------------------------------

| | Y | Guaranteed by Anyang Nianxinpu Steel Co., Ltd
| | - | ---------------------------------------------



| | 12. | Other Payable
| | --- | -------------



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



|                                                          |  | 6/30/2012 |           |  | 12/31/2011 |  
|--------------------------------------------------------- |  | --------- | --------- |  | ---------- | -
|Project safety deposit                                    |  | $         | 1,702,817 |  |            | $
|Payable for raw materials in operation                    |  |           | -         |  |            |  
|Advances from individuals and companies payable on demand |  |           | 8,017,071 |  |            |  
|Others                                                    |  |           | 53,385    |  |            |  
|                                                          |  |           |           |  |            |  
|                                                          |  | $         | 9,773,273 |  |            | $



| | 13. | Notes Payable to Related Party
| | --- | ------------------------------



|Creditor               |  | Note |   |  | 6/30/2012 |   |            | 12/31/2011 | 
|---------------------- |  | ---- | - |  | --------- | - | ---------- | ---------- | 
|Chairman, Wang Xinshun |  |      | A |  |           | $ | 24,728,950 |            | 
|SC Coke Shareholders   |  |      | B |  |           |   | 39,663,893 |            | 
|                       |  |      |   |  |           | $ | 64,392,843 |            | 



15







Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2012 and December 31, 2011



| | A. | Notes Payable to Wang Xinshun
| | -- | -----------------------------



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



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



| | B. | Notes Payable to SC Coke Shareholders
| | -- | -------------------------------------



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



On June 21, 2010, the SC Coke
Shareholders entered into an agreement with the third party lenders to assume the obligations of the third party lenders, and concurrently
the third party lenders released SC Coke from any liability.



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



| | 14. | Forgivable Loans
| | --- | ----------------



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



16







Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2012 and December 31, 2011



| | 15. | Related Party Transactions
| | --- | --------------------------



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



| | A. | Trade Receivables and Revenue
| | -- | -----------------------------



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



There was an ending balance in
accounts receivable from Angang of approximately $47,801 as of June 30, 2012.



Revenue recorded in the consolidated
financial statements from Angang amounts to approximately $ 699,732 for the six months ended June 30, 2012.



| | B. | Deposits and Cost of Revenues
| | -- | -----------------------------



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



SC Coke had outstanding prepayment
to Bailianpo of $434,997 as of June 30, 2012.



There were purchase transactions
from Bailianpo amounted to approximately $63,713 for the six months ended June 30, 2012.



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



SC Coke has an ending balance in
accounts receivable from Anyang Xinlong of $61,314 as of June 30, 2012.



| | C. | Advance to relatives of the Chairman
| | -- | ------------------------------------

As of June 30, 2012 and December
31, 2011, the advances to relatives of the Chairman are $9,284,898 and $2,351,815, respectively



17







Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2012 and December 31, 2011



| | 16. | Income Taxes
| | --- | ------------



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



|Entity                                       |  | Country of Domicile |     |  | Income Tax Rate | 
|-------------------------------------------- |  | ------------------- | --- |  | --------------- | 
|                                             |  |                     |     |  |                 | 
|Birch Branch, Inc.                           |  |                     | USA |  |                 | 
|Shuncheng Holdings HongKong Ltd.             |  |                     | HK  |  |                 | 
|Anyang Shuncheng Energy Technology Co., Ltd. |  |                     | PRC |  |                 | 
|Henan Shuncheng Group Coal Coke Co., Ltd.    |  |                     | PRC |  |                 | 
|Henan Shuncheng Group Longdu Trade Co., Ltd. |  |                     | PRC |  |                 | 



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 six months ended June 30, 2012 and 2011, respectively:



|                                         |  | 6/30/2012 |             |   | 6/30/2011 |  
|---------------------------------------- |  | --------- | ----------- | - | --------- | -
|Income (loss) before tax:                |  |           |             |   |           |  
|USA                                      |  | $         | -           |   |           | $
|HK                                       |  |           | 4           |   |           |  
|PRC                                      |  |           | (26,746,368 | ) |           |  
|Total:                                   |  | $         | (26,746,364 | ) |           | $
|                                         |  |           |             |   |           |  
|Provision for income taxes:              |  |           |             |   |           |  
|US Federal                               |  |           | -           |   |           |  
|State                                    |  |           | -           |   |           |  
|PRC                                      |  | $         | -           |   |           | $
|Total provision for taxes (tax benefit): |  | $         | -           |   |           | $
|                                         |  |           |             |   |           |  
|Effective tax rate                       |  |           | 25          | % |           |  



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



|                                  |  | 6/30/2012 |     |   | 6/30/2011 | 
|--------------------------------- |  | --------- | --- | - | --------- | 
|US statutory tax rate             |  |           | 35  | % |           | 
|Lower rates in the PRC            |  |           | -10 | % |           | 
|Accrual and reconciling items     |  |           |     |   |           | 
|Fully reserved net Operating Loss |  |           | -25 | % |           | 
|Effective tax rate:               |  |           | 0   | % |           | 



18







Birch Branch, Inc.

Notes to Consolidated Financial Statements

As of June 30, 2012 and December 31, 2011



| | 17. | Commitments and Contingencies
| | --- | -----------------------------



Third Party Guarantees



SC Coke entered into agreements
as a guarantor of debt for seventeen companies (the “guarantees”) in the amount of approximately $114,942,526
at June 30, 2012. Of the aforementioned guarantees, seven of the thirty companies have, in turn, guaranteed debts of approximately
$69,566,317 on behalf of SC Coke at June 30, 2012.  SC Coke has not historically incurred any losses due to such debt
guarantees.  Additionally, the Company has determined that the fair value of the guarantees is immaterial.  For
more details of the outstanding guarantees, see the table below:



|                                            |  |                                                    |  | Guarantee |            |  |           |  
|------------------------------------------- |  | -------------------------------------------------- |  | --------- | ---------- |  | --------- | -
|Guarantee Beneficiary                       |  | Creditor                                           |  | End       |            |  | 6/30/2011 |  
|Linzhou Hongqiqu Electrical Carbon Co., Ltd |  | Agricultural Bank of China - Linzhou Branch        |  |           | 2013.4.16  |  |           |  
|Linzhou Hongqiqu Electrical Carbon Co., Ltd |  | Agricultural Bank of China - Linzhou Branch        |  |           | 2013.1.11  |  |           |  
|Linzhou Hongqiqu Electrical Carbon Co., Ltd |  | Agricultural Bank of China - Linzhou Branch        |  |           | 2013.5.20  |  |           |  
|Linzhou Hongqiqu Electrical Carbon Co., Ltd |  | Agricultural Bank of China - Linzhou Branch        |  |           | 2013.6.18  |  |           |  
|Linzhou Hongqiqu Electrical Carbon Co., Ltd |  | Agricultural Bank of China - Linzhou Branch        |  |           | 2012.9.2   |  |           |  
|Linzhou Hongqiqu Electrical Carbon Co., Ltd |  | Agricultural Bank of China - Linzhou Branch        |  |           | 2013.2.13  |  |           |  
|Henan Hubo Cement Co., Ltd.                 |  | Bank of China - Anyang Branch                      |  |           | 2012.11.14 |  |           |  
|Henan Liyuan Coking Co., Ltd                |  | China Merchants Bank - Anyang Branch               |  |           | 2013.1.31  |  |           |  
|Henan Liyuan Coking Co., Ltd                |  | Shanghai Pudong Development Bank -Zhengzhou Branch |  |           | 2013.12.20 |  |           |  
|Henan Liyuan Coking Co., Ltd                |  | Shanghai Pudong Development Bank -Zhengzhou Branch |  |           | 2012.8.16  |  |           |  
|Henan Liyuan Coking Co., Ltd                |  | China Merchants Bank - Anyang Branch               |  |           | 2012.9.20  |  |           |  
|Henan Liyuan Coking Co., Ltd                |  | China Merchants Bank - Anyang Branch               |  |           | 2012.8.1   |  |           |  
|Henan Liyuan Coking Co., Ltd                |  | Bank of Luoyang - Zhengzhou Branch                 |  |           | 2012.8.20  |  |           |  
|Henan Liyuan Coking Co., Ltd                |  | Bank of China - Pangeng Branch                     |  |           | 2013.3.23  |  |           |  
|Henan Chengyu Coking Co., Ltd               |  | Guangdong Development Bank - Anyang Branch         |  |           | 2012.9.20  |  |           |  
|Henan Xinlei Group                          |  | China Minsheng Banking - Zhengzhou Branch          |  |           | 2012.10.10 |  |           |  
|Henan Fengtai Food Co.,                     |  | China Minsheng Banking - Zhengzhou Branch          |  |           | 2012.8.26  |  |           |  
|Anyang Zhanqian Materials Co.               |  | Shanghai Pudong Development Bank -Zhengzhou Branch |  |           | 2013.1.15  |  |           |  
|Anyang Houde Trade Co., Ltd                 |  | Citic Bank - Anyang Branch                         |  |           | 2013.6.15  |  |           |  
|Anyang Xinpu Steel Co., Ltd                 |  | City Cooperative                                   |  |           | 2013.6.4   |  |           |  
|Anyang Qili Cement Co., Ltd                 |  | Bank of Anyang                                     |  |           | 2013.5.5   |  |           |  
|Anyang Hongyuan Yinsheng Steel Co., Ltd     |  | Bank of Anyang                                     |  |           | 2013.5.5   |  |           |  
|Henan Shuncheng Group Longdu Trade Co., Ltd |  | Citic Bank - Anyang Branch                         |  |           | 2012.7.27  |  |           |  
|Henan Yuxin Acticated Carbon Co., Ltd       |  | China Construction Bank - Anyang Branch            |  |           | 2013.1.4   |  |           |  
|Anyang Lichuang Trade Co.                   |  | Guangdong Development Bank - Anyang Branch         |  |           | 2012.9.10  |  |           |  
|Henan Yulong Coking Co., Ltd                |  | Tongye Credit Union                                |  |           | 2013.2.15  |  |           |  
|Linzhou Fengbao Pipe Co., Ltd               |  | China Minsheng Banking - Anyang Branch             |  |           | 2013.3.30  |  |           |  
|Anyang Zhongyang Industrial Co., Ltd        |  | Shanghai Pudong Development Bank -Zhengzhou Branch |  |           | 2012.9.6   |  |           |  
|Anyang Zhongyang Industrial Co., Ltd        |  | Shanghai Pudong Development Bank -Zhengzhou Branch |  |           | 2012.9.20  |  |           |  
|Anyang Zhongyang Industrial Co., Ltd        |  | Bank of Luoyang - Zhengzhou Branch                 |  |           | 2012.11.26 |  |           |  
|                                            |  |                                                    |  |           |            |  |           |  
|                                            |  |                                                    |  |           |            |  |           | $



19







Capital Lease Obligations



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



|Quarter ending June 30, 2012:       |  | Principal |            |  | Payments |  
|----------------------------------- |  | --------- | ---------- |  | -------- | -
|2012                                |  | $         | 2,179,057  |  |          | $
|2013                                |  |           | 3,995,914  |  |          |  
|2014                                |  |           | 4,349,836  |  |          |  
|2015                                |  |           | 2,640,541  |  |          |  
|2016                                |  |           | 1,168,102  |  |          |  
|Total future minimum lease payments |  | $         | 14,333,450 |  |          | $



Accrued Payment of Enterprise
Income Taxes



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



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



20







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



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



Background



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



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



Corporate History



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



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



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



21











Contractual Arrangements



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



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



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



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



22







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



Overview



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



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



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



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



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



23











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



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



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



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



Results of Operations



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



Revenues.During the
three months ended June 30, 2012, the primary business of production and sale of coke has contributed 87% of SC Coke’s total
revenues.



24







Primary Products



SC Coke’s revenues for the three
months ended June 30, 2012 and 2011, contributed by its primary products of coke and refined coal, were as follows:





|                                |  | Revenues |             |   |              |  
|------------------------------- |  | -------- | ----------- | - | ------------ | -
|                                |  | Coke     |             |   | Refined Coal |  
|Revenues                        |  |          |             |   |              |  
|Three months ended June 30 2012 |  | $        | 107,840,834 |   |              | $
|Three months ended June 30 2011 |  |          | 90,114,622  |   |              |  
|Increase (decrease)             |  | $        | 17,726,212  |   |              | $
|% Increase (decrease)           |  |          | 20          | % |              |  
|As Percentage of Total Revenues |  |          |             |   |              |  
|Three months ended June 30 2012 |  |          | 87          | % |              |  
|Three months ended June 30 2011 |  |          | 84          | % |              |  
|Quantity Sold (metric tons)     |  |          |             |   |              |  
|Three months ended June 30 2012 |  |          | 429,184     |   |              |  
|Three months ended June 30 2011 |  |          | 365,026     |   |              |  
|Increase (decrease)             |  |          | 64,158      |   |              |  
|% Increase (decrease)           |  |          | 18          | % |              |  
|Average Price Per Ton           |  |          |             |   |              |  
|Three months ended June 30 2012 |  | $        | 251.27      |   |              | $
|Three months ended June 30 2011 |  |          | 246.87      |   |              |  
|Increase (decrease)             |  | $        | 4.40        |   |              | $
|% Increase (decrease)           |  |          | 2           | % |              |  





Revenues for the three months ended June
30, 2012 increased significantly from the revenues for the three months ended June 30, 2011 by 18,945,781, from $90,114,622 primarily
from the up in coke market.



Sales volume for coke benefited
from the coke market, while sales volume for refined coal increased due to the decrease in the amount of refined coal
available for external sales. Sales volume for coke for the three months ended June 30, 2012 increased over the comparable
period in 2011 by 18% (from 365,026 tons to 429,184 tons); and there was no sales on refined coal for the three months ended
June 30, 2011.



Product unit price for coke was
kept at a  low level. When compared with the same period of 2011, average sales price per ton for coke increased from
$246.87 to $251.27.



Because of the up in product unit price
and sales volume, revenues generated from coke and refined coal increased from $90 million for the three months ended June 30,
2011 to $109 million for the three months ended June 30, 2012.



25







Secondary Products



SC Coke’s secondary product revenues
for the three months ended June 30, 2012 and 2011were as follows:





|                                |  | Medium |         |   | Crude  |   |           |           |  |   |          |   |  |     |           |   | Coke  |   |            | Coke   |  |   |          |   |  |       |          
|------------------------------- |  | ------ | ------- | - | ------ | - | --------- | --------- |  | - | -------- | - |  | --- | --------- | - | ----- | - | ---------- | ------ |  | - | -------- | - |  | ----- | ---------
|                                |  | Coal   |         |   | Benzol |   |           | Amsulfate |  |   | Coal Gas |   |  | Tar |           |   | Grain |   |            | Powder |  |   | Others   |   |  | Total |          
|Revenues                        |  |        |         |   |        |   |           |           |  |   |          |   |  |     |           |   |       |   |            |        |  |   |          |   |  |       |          
|Three months ended June 30 2011 |  | $      | 235,791 |   |        | $ | 4,652,583 |           |  | $ | 396,644  |   |  | $   | 1,619,523 |   |       | $ | 6,716,248  |        |  | $ | 345,565  |   |  | $     | 3,367,512
|Three months ended June 30 2012 |  | $      | 140,726 |   |        | $ | 4,424,130 |           |  | $ | 214,295  |   |  | $   | 845,313   |   |       | $ | 5,352,929  |        |  | $ | 21,654   |   |  | $     | 3,779,245
|Change                          |  | $      | (95,065 | ) |        | $ | (228,453  | )         |  | $ | (182,349 | ) |  | $   | (774,210  | ) |       | $ | (1,363,319 | )      |  | $ | (323,911 | ) |  | $     | 411,733  
|% Change                        |  |        | -40     | % |        |   | -5        | %         |  |   | -46      | % |  |     | -48       | % |       |   | -20        | %      |  |   | -94      | % |  |       | 12       
|As% of Total Revenues           |  |        |         |   |        |   |           |           |  |   |          |   |  |     |           |   |       |   |            |        |  |   |          |   |  |       |          
|Three months ended June 30 2011 |  |        | 0.22    | % |        |   | 4.31      | %         |  |   | 0.37     | % |  |     | 1.50      | % |       |   | 6.22       | %      |  |   | 0.32     | % |  |       | 3.12     
|Three months ended June 30 2012 |  |        | 0.11    | % |        |   | 3.56      | %         |  |   | 0.17     | % |  |     | 0.68      | % |       |   | 4.30       | %      |  |   | 0.02     | % |  |       | 3.04     





Along with the increase in coke production
and sales, the total revenue of our secondary products decreased to $15.4 million for the three months ended June 30, 2012 from
$17.8 million for the three months ended June 30, 2011, which was a decrease of 14%. Revenue contribution from secondary products
as a percentage of total revenues was 12%, for the three months ended June 30, 2012, compared with 16% for the three months ended
June 30, 2011. The decreased percentage of revenues contributed by secondary products was primarily from the decrease in the sales
of tar.



Of the secondary products, the largest
contributor to revenue was tar sales. Tar sales decreased by 20% from $6.7 million for the three months ended June 30, 2011 to
$5.4 million for the three months ended June 30, 2012.



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 $101 million
for the three months ended June 30, 2011 to $122 million for the three months ended June 30, 2012. The primary reasons for this
increase were the increase in production and raw material costs. Gross profit decreased from $6.8 million for the three months
ended June 30, 2011 to $2.2 million loss for the three months ended June 30, 2012; and gross profit margin decreased from 6.3%
for the three months ended June 30, 2011 to 1.8% loss for the three months ended June 30, 2012, due to an increase in the average
unit raw material price.



Operating Expenses. Operating expenses
increased by 44% from $5.2 million for the three months ended June 30, 2011 to $7.5 million in the three months ended June 30,
2012. Operating expenses are comprised of sales and marketing expenses and general and administrative expenses. Sales and marketing
expenses increased marginally from $2.7 million for the three months ended June 30, 2011 to $4.7 million in the three months ended
June 30, 2012 which is due to the increased freight expense along with the increased sales. General and administrative expenses
slightly increased from $2.5 million for the three months ended June 30, 2011 to $2.7 million for the three months ended June 30,
2012 .



Interest Income
and Expense. Interest expense for the three months ended June 30, 2011 was $4 million compared to interest expense for the
three months ended June 30, 2012 of $6.2 million, due to an increase in bank notes payable during the period. Interest income increased
by $0.6 million for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011.



Provision for Income Taxes. Provision
for income taxes in the three months ended June 30, 2012 was nil compared to provision for income taxes for the three months ended
June 30, 2011 of $0.2 million. SC Coke and Longdu were subject to a corporate income tax rate of 25% during the three months ended
June 30, 2012 and 2011.



Net Income. SC Coke recorded net
loss of $9.8 million for the three months ended June 30, 2012 compared to net loss of $1.2 million for the three months ended June
30, 2011. The decrease was primarily due to the reasons explained above.



26







Results of Operations



Six Months ended June 30, 2012 Compared
to the Six Months ended June 30, 2011



Revenues.During the
six months ended June 30, 2012, the primary business of production and sale of coke has contributed 85% of SC Coke’s total
revenues.



Primary Products



SC Coke’s revenues for the six months
ended June 30, 2012 and 2011, contributed by its primary products of coke and refined coal, were as follows:





|                                |  | Revenues |             |   |              |  
|------------------------------- |  | -------- | ----------- | - | ------------ | -
|                                |  | Coke     |             |   | Refined Coal |  
|Revenues                        |  |          |             |   |              |  
|Six months ended June 30 2012   |  | $        | 170,309,843 |   |              | $
|Six months ended June 30 2011   |  |          | 154,882,569 |   |              |  
|Increase (decrease)             |  | $        | 15,427,274  |   |              | $
|% Increase (decrease)           |  |          | 10          | % |              |  
|As Percentage of Total Revenues |  |          |             |   |              |  
|Six months ended June 30 2012   |  |          | 85          | % |              |  
|Six months ended June 30 2011   |  |          | 82          | % |              |  
|Quantity Sold (metric tons)     |  |          |             |   |              |  
|Six months ended June 30 2012   |  |          | 679,346     |   |              |  
|Six months ended June 30 2011   |  |          | 624,167     |   |              |  
|Increase (decrease)             |  |          | 55,179      |   |              |  
|% Increase (decrease)           |  |          | 9           | % |              |  
|Average Price Per Ton           |  |          |             |   |              |  
|Six months ended June 30 2012   |  | $        | 250.70      |   |              | $
|Six months ended June 30 2011   |  |          | 248.14      |   |              |  
|Increase (decrease)             |  | $        | 2.56        |   |              | $
|% Increase (decrease)           |  |          | 1           | % |              |  





Revenues for the six months ended June
30, 2012 increased significantly from the revenues for the six months ended June 30, 2011 by 16,313,501, from $155,215,911 primarily
from the up in Coke Market.



Sales volume for coke benefited from the
Coke Market, while sales volume for refined coal increased due to the decrease in the amount of refined coal available for external
sales. Sales volume for the six months ended June 30, 2012 increased over the comparable period in 2011 by 9% (from 624,167 tons
to 679,346 tons).



Product unit price for coke was kept under
low level. When compared with the same period of 2011, average sales price per ton for coke increased slightly from $248.14 to
$250.70.



Because of the up in product unit price
and sales volume, revenues generated from coke and refined coal increased from $155 million for the six months ended June 30, 2011
to $172 million for the six months ended June 30, 2012.





27











Secondary Products



SC Coke’s secondary product revenues
for the six months ended June 30, 2012 and 2011were as follows:





|                              |  | Medium |          |   | Crude  |   |           |           |  |   |          |   |  |     |           |   | Coke  |   |            | Coke   |  |   |          |   |  |       |          
|----------------------------- |  | ------ | -------- | - | ------ | - | --------- | --------- |  | - | -------- | - |  | --- | --------- | - | ----- | - | ---------- | ------ |  | - | -------- | - |  | ----- | ---------
|                              |  | Coal   |          |   | Benzol |   |           | Amsulfate |  |   | Coal Gas |   |  | Tar |           |   | Grain |   |            | Powder |  |   | Others   |   |  | Total |          
|Revenues                      |  |        |          |   |        |   |           |           |  |   |          |   |  |     |           |   |       |   |            |        |  |   |          |   |  |       |          
|Six months ended June 30 2011 |  | $      | 708,890  |   |        | $ | 6,993,527 |           |  | $ | 696,753  |   |  | $   | 2,615,823 |   |       | $ | 13,407,290 |        |  | $ | 347,746  |   |  | $     | 6,252,095
|Six months ended June 30 2012 |  | $      | 151,643  |   |        | $ | 7,451,937 |           |  | $ | 820,679  |   |  | $   | 1,684,181 |   |       | $ | 10,885,453 |        |  | $ | 21,654   |   |  | $     | 7,219,346
|Change                        |  | $      | (557,247 | ) |        | $ | 458,410   |           |  | $ | 123,926  |   |  | $   | (931,642  | ) |       | $ | (2,521,837 | )      |  | $ | (326,092 | ) |  | $     | 967,251  
|% Change                      |  |        | -79      | % |        |   | 7         | %         |  |   | 18       | % |  |     | -36       | % |       |   | -19        | %      |  |   | -94      | % |  |       | 15       
|As% of Total Revenues         |  |        |          |   |        |   |           |           |  |   |          |   |  |     |           |   |       |   |            |        |  |   |          |   |  |       |          
|Six months ended June 30 2011 |  |        | 0.38     | % |        |   | 3.72      | %         |  |   | 0.37     | % |  |     | 1.39      | % |       |   | 7.13       | %      |  |   | 0.19     | % |  |       | 3.33     
|Six months ended June 30 2012 |  |        | 0.08     | % |        |   | 3.71      | %         |  |   | 0.41     | % |  |     | 0.84      | % |       |   | 5.42       | %      |  |   | 0.01     | % |  |       | 3.60     





Along with the increase in coke production
and sales, the total revenue of our secondary products decreased to $29.1 million for the six months ended June 30, 2012 from $32.7
million for the six months ended June 30, 2011, which was a decrease of 11%. Revenue contribution from secondary products as a
percentage of total revenues was 15%, for the six months ended June 30, 2012, compared with 17% for the six months ended June 30,
2011. The decreased percentage of revenues contributed by secondary products was primarily from the decrease in the sales of tar.



Of the secondary products, the largest
contributor to revenue was tar sales. Tar sales decreased by 19% from $13.4 million for the six months ended June 30, 2011 to $10.9
million for the six months ended June 30, 2012.



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 $173 million
for the six months ended June 30, 2011 to $204 million for the six months ended June 30, 2012. The primary reasons for this increase
were the increase in production and raw material costs. Gross profit decreased from $15.4 million for the six months ended June
30, 2011 to $3.3 million loss for the six months ended June 30, 2012; and gross profit margin decreased from 8.2% for the six months
ended June 30, 2011 to 1.6% loss for the six months ended June 30, 2012, due to an increase in the average unit raw material price.



Operating Expenses. Operating expenses
increased by 43% from $9.4 million for the six months ended June 30, 2011 to $13.5 million for the six months ended June 30, 2012.
Operating expenses are comprised of sales and marketing expenses and general and administrative expenses. Sales and marketing expenses
increased marginally from $4.8 million for the six months ended June 30, 2011 to $6.2 million for the six months ended June 30,
2012, which is due to the increased freight expenses along with the increased sales. General and administrative expenses increased
from $4.6 million for the six months ended June 30, 2011 to $7.3 million for the six months ended June 30, 2012 due to the inventory
impairment provision accrued in the six months ended June 30, 2012.



Interest Income and Expense. Interest
expense for the six months ended June 30, 2011 was $7.9 million compared to interest expense for the six months ended June 30,
2012 of $13.8 million, due to an increase in bank notes payable during the period. Interest income increased by $1.3 million for
the six months ended June 30, 2012 as compared to the six months ended June 30, 2011.



Net Income. SC Coke recorded net
loss of $27.8 million for the six months ended June 30, 2012 compared to net loss of $0.6 million for the six months ended June
30, 2011. The decrease was due to the reasons explained above.



Liquidity and Capital Resources



Net Cash Provided by Operating Activities



Net cash provided by operating activities
for the three months ended June 30, 2012 was $9,662,543 compared with net cash used by operating activities for the three months
ended June 30, 2011 of $2,195,367. Net cash provided by inventory was $11,743,537 for the three months ended June 30, 2012 compared
with net cash used of approximately $2,330,535 for the three months ended June 30, 2011.





28







Net cash provided by operating activities
for the six months ended June 30, 2012 was $14,525,738 compared with net cash used by operating activities for the six months
ended June 30, 2011 of $16,488,498. Net cash used by prepayment and other receivable was $10,065,097 for the six months ended
June 30, 2012 compared with net cash used of approximately $25,778,631 for the six months ended June 30, 2011. Net cash provided
by inventory was $16,884,785 for the six months ended June 30, 2012 compared with net cash used of approximately $4,855,376 for
the six months ended June 30, 2011. Moreover, Net cash provided by other payable and current liabilities was $18,133,509 for the
six months ended June 30, 2012 compared with net cash used of $10,149,136 for the six months ended June 30, 2011. However, net
cash used by accounts receivable was $19,036,586 for the six months ended June 30, 2012 compared with net cash provided of $1,926,474
for the six months ended June 30, 2011.



Net Cash Used in Investing Activities



Net cash used in investing activities
for the three months ended June 30, 2012 was $3,708,448 compared to $63,525,373 for the three months ended June 30, 2011. Net
cash provided by restricted cash was $6,688,049 for the three months ended June 30, 2012 compared with net cash used of
approximately $41,442,101 for the three months ended June 30, 2011. Net cash used by construction in progress was
$1,699,995 for the three months ended June 30, 2012 compared with net cash used of $16,358,806 for the three months ended
June 30, 2011.



Net cash used in investing activities was
$59,581,332 for the six months ended June 30, 2012 as compared to $80,902,289 for the six months ended June 30, 2011. The primary
reason was that we have invested in building our infrastructures and increased in restricted cash in the first half of 2011.



Net Cash Provided by (Used in) Financing
Activities



Net cash used by financing activities in
the three months ended June 30, 2012 was $7,484,986 compared with net cash provided in financing activities of $64,617,516 for
the three months ended June 30, 2011. Net cash used by bank notes payable was $15,144,320 for the three months ended June 30, 2012
compared with net cash provided of approximately $47,289,792 for the three months ended June 30, 2011.



Net cash used in financing activities was
$44,506,211 for the six months ended June 30, 2012 as compared to $98,669,472 for the six months ended June 30, 2011. Net cash
provided by bank notes payable was $43,231,899 for the six months ended June 30, 2012 compared with net cash provided of approximately
$79,680,310 for the six months ended June 30, 2011. And, for the six months ended June 30, 2012, SC Coke repaid loans of $6,239,608
to related parties.



Capital Resources



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



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



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



29







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



Because of SC Coke’s rapid capacity
expansion, its internally generated funds from operations have historically been insufficient to meet its liquidity requirements.
The growth of SC Coke has been dependent on outside financings to meet its liquidity, working capital and expansion expenditures.
As of June 30, 2012, total loans payable were $81.4 million (excluding $64.4 million related party loan from SC Coke’s sole
director), among which $81.4 million was 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 were payable outstanding at June 30, 2012 were $75
million.



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



Capital Expenditures



During the year ended June 30, 2012, SC
Coke made approximately additional capital expenditures of $3.8 million. Such additional capital expenditures were primarily used
for the purchases of coking equipment, upgrades and improvements to its coke production facilities.



Foreign Currency Translation Gains and
Losses



During three months ended June 30, 2012,
SC Coke recognized a foreign currency translation loss of $0.01 million as compared to a foreign currency translation gain of $0.8
million for the three months ended June 30, 2011 due to a slightly decrease in the value of the RMB to the U.S. Dollar in the second
quarter. During six months ended June 30, 2012, SC Coke recognized a foreign currency translation gain of $1.9 million as compared
to a foreign currency translation gain of $1.0 million for the six months ended June 30, 2011 due to a increase in the value of
the RMB to the U.S. Dollar and the increase in SC Coke’s overall debt to equity ratio.



Off-Balance Sheet Arrangements



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



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





30







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



As of June 30, 2012, SC Coke guaranteed
the obligations of seventeen companies of approximately $115 million in total principal outstanding. SC Coke’s potential
liability under guarantees could include interest, default interest and the obligation to pay costs of collection in addition to
principal amounts to which the guarantees relate.



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



Inflation



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



Critical Accounting Policies and Estimates



Basis of Presentation



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



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





31







Use of Estimates



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



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



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



Bank Notes Receivable/Payable



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



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



Revenue Recognition and Trade Receivables



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



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



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



Plant and Equipment



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



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



32







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



Long-term Investments



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



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



Guarantees



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



Forgivable Loans



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



33







Item 3. Quantitative and Qualitative Disclosures About
Market Risk.



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



Item 4. Controls and Procedures.



Evaluation of Disclosure Controls and Procedures



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



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



Changes in Internal Control over Financial Reporting



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





34







PART II – OTHER INFORMATION



Item 1. Legal Proceedings.



None.



Item 1A. Risk Factors.



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



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



None.



Item 3. Defaults Upon Senior Securities.



None.



Item 4. Mine Safety Disclosures.



Not applicable.



Item 5. Other Information.



None.



Item 6. Exhibits.



(a)  Exhibits



|Exhibit
        Number |  | Description                                                                                                                                       
|---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|31.1                   |  | Certification of Chief Executive Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|                       |  |                                                                                                                                                   
|31.2                   |  | Certification of Chief Financial Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|                       |  |                                                                                                                                                   
|32.1                   |  | Certification of Chief Executive Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|                       |  |                                                                                                                                                   
|32.2                   |  | Certification of Chief Financial Officer, pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|                       |  |                                                                                                                                                   
|101*                   |  | Interactive Data File (Form 10-Q for the quarterly period ended June 30, 2012 furnished in XBRL)                                                  



*    To be filed by amendment
and shall not be filed or a part of a registration statement or prospectus for purposes of Sections 11 or
12 of the Securities Act of 1933, as amended, deemed not filed for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, and otherwise not subject to liability under these sections.



35







SIGNATURES



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



|                      | BIRCH BRANCH, INC.
|--------------------- | ------------------
|                      |                   
|Date: August 14, 2012 | By:               
|                      |                   
|                      |                   
|                      |                   
|Date: August 14, 2012 | By:               
|                      |                   
|                      |                   











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