PINX:BRBH Quarterly Report 10-Q/A Filing - 6/30/2012

Effective Date 6/30/2012

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

Amendment No. 1

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 x No 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 x No 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 o Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company x

 

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ¨ No x

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of August 8, 2012: 32,047,222.

 

 
 

Explanatory Note

 

The purposes of this Amendment No. 1 to Birch Branch Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012, filed with the Securities and Exchange Commission on August 14, 2012 (the “Form 10-Q”), are to 1) correct a typographical error as to the disclosure of total liability on page 2 of the Form 10-Q and revise total liability from $545,933.553 to $545,933,553, and 2) revise the disclosure of income (loss) before tax due to the PRC on page 18 of the Form 10-Q from $26,746,368 to $27,785,140 and total income (loss) before tax from $26,746,364 to $ 27,785,136. There are no other changes to the Form 10Q. This Amendment No. 1 to the Form 10-Q does not reflect subsequent events occurring after the original filing date of the Form 10-Q or modify or update in any way disclosures made in the Form 10-Q, as amended. 

 

 
 

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   $2,704,987 
Restricted cash   165,136,404    142,168,060 
Bank notes receivable   4,280,051    145,162 
Trade receivables, net   34,958,447    15,822,298 
Other receivables   9,978,039    7,514,142 
Related party receivables   9,829,010    3,500,715 
Inventories   33,472,936    50,042,822 
Advances to suppliers and prepayments   74,745,332    66,450,939 
Deposits   2,982,340    3,301,491 
Total current assets   339,373,656    291,650,616 
           
Non-current assets:          
Property, plant and equipment, net   142,308,930    68,927,116 
Construction in Progress   30,366,688    83,621,292 
Intangible assets, net   825,524    870,903 
Long-term investments   25,752,825    24,352,460 
Total non-current assets   199,253,967    177,771,771 
           
Total assets  $538,627,623   $469,422,387 
           
Liabilities and Stockholders’ Equity          
           
Liabilities          
           
Current liabilities:          
Bank notes payable  $231,298,113   $186,890,191 
Short term bank loans   75,052,570    66,538,879 
Accounts payable   98,957,591    68,841,304 
Accrued liabilities   3,081,508    660,695 
Taxes payable   15,898,875    12,199,742 
Other payable   9,773,273    9,179,612 
Long-term bank loans, current portion   6,324,211    3,142,331 
Capital lease obligation, current portion   4,134,631    4,087,562 
Customer deposits   19,812,313    8,202,109 
Total current liabilities   464,333,085    359,742,425 
           
Non-current liabilities:          
Notes payable to related party   64,392,843    70,190,769 
Forgivable loans   7,008,806    6,235,959 
Long-term bank loans   -    3,142,332 
Capital lease obligation, non-current portion   10,198,819    11,509,361 
Total non-current liabilities   81,600,468    91,078,421 
Total liabilities  $545,933,553   $450,820,846 

 

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    6,963,403 
Statutory reserve   234,683    234,683 
Retained earnings   (21,410,453)   6,369,358 
Accumulated other comprehensive income   6,472,224    4,594,559 
Non-controlling interest   434,213    439,538 
Total stockholders’ equity   (7,305,930)   18,601,541 
           
Total liabilities and equity  $538,627,623   $469,422,387 

 

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   2012   2011 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Revenues  $124,421,166   $107,899,146   $200,666,826   $187,932,441 
Cost of revenues   122,241,886    101,111,277    203,944,779    172,571,056 
Gross profit   2,179,280    6,787,869    (3,277,953)   15,361,385 
                     
Operating expenses:                    
Sales and marketing   4,740,319    2,674,728    6,157,072    4,800,537 
General and administrative   2,715,185    2,489,127    7,309,315    4,641,387 
Total operating expenses   7,455,504    5,163,855    13,466,387    9,441,924 
                     
Income (loss) from operations   (5,276,224)   1,624,014    (16,744,340)   5,919,461 
                     
Other income (expenses):                    
Interest income   1,069,337    445,038    2,096,381    776,897 
Interest expense   (6,154,606)   (3,978,828)   (13,837,291)   (7,920,141)
Other income   526,092    534,207    726,143    739,870 
Other expenses   (11,459)   (27,862)   (26,029)   (149,583)
Total other income (expenses)   (4,570,636)   (3,027,445)   (11,040,796)   (6,552,957)
                     
Income (loss) before provision for income taxes   (9,846,860)   (1,403,431)   (27,785,136)   (633,496)
                     
Provision for (benefit from) income taxes   -    (204,265)   -    - 
                     
Net income (loss)  $(9,846,860)  $(1,199,166)  $(27,785,136)  $(633,496)
                     
Net income attributable to:                    
- Common stockholders   (9,844,267)   (1,194,180)   (27,779,811)   (632,744)
- Non-controlling interest   (2,593)   (4,986)   (5,325)   (752)
                     
Other Comprehensive Income/(Loss)                    
Foreign currency translation adjustments   (14,046)   821,411    1,877,665    965,495 
Total Comprehensive Income/(Loss)  $(9,860,906)  $(377,755)  $(25,907,471)  $331,999 
                     
Earnings per share                    
- Basic  $(0.31)  $(0.04)  $(0.87)  $(0.02)
- Diluted  $(0.31)  $(0.04)  $(0.87)  $(0.02)
                     
Weighted average shares outstanding                    
- Basic   32,047,222    32,047,222    32,047,222    32,047,222 
- Diluted   32,047,222    32,047,222    32,047,222    32,047,222 

 

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

 

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   $3,366,695   $49,491,541 
Apportionment of loss to non-controlling interest                       (12,143)   12,143         - 
Net income for year ended December 31, 2011                       (32,117,864)             (32,117,864)
Foreign currency translation gain                                 1,227,864    1,227,864 
Balance at December 31, 2011 (Audited)   32,047,222   $-   $6,963,403   $234,683   $6,369,358   $439,538   $4,594,559   $18,601,541 
Apportionment of loss to non-controlling interest                       5,325    (5,325)        - 
Net income for six months ended June 30, 2012                       (27,785,136)             (27,785,136)
Foreign currency translation gain                                 1,877,665    1,877,665 
Balance at June 30, 2011   32,047,222   $-   $6,963,403   $234,683   $(21,410,453)  $434,213   $6,472,224   $(7,305,930)

 

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   2011 
Cash flows from operating activities:          
Net loss  $(27,785,136)  $(633,496)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Depreciation and amortization   7,076,021    4,229,481 
Bad debt expense   -    79,620 
           
Change in assets and liabilities:          
Increase in Trade receivables   (19,036,586)   (1,926,474)
Decrease/(Increase) in Inventories   16,884,785    (4,855,376)
Increase in Prepayments and other receivables   (10,065,097)   (25,778,631)
Decrease/(Increase) in Related party receivables   612,017    (561,584)
Increase in Accounts payable   28,706,225    23,107,098 
Decrease in Other payables and current liabilities   18,133,509    (10,149,136)
Net cash provided by (used in) operating activities   14,525,738    (16,488,498)
           
Cash flows from investing activities:          
Increase in restricted cash   (22,073,739)   (54,882,726)
Long-term investment in equities   (1,247,125)   - 
Acquisitions of property, plant and equipment   (10,596,516)   (3,638,778)
Increase in construction in progress   (14,383,931)   (21,636,736)
Increase in Bank notes receivable   (4,133,976)   (744,049)
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)   (80,902,289)
           
Cash flows from financing activities:          
Proceeds from borrowings from bank and others   40,316,843    29,617,521 
Repayment of bank borrowings and others   (32,221,853)   (24,137,708)
Increase in bank notes payable   43,231,899    79,680,310 
Repayment of capital lease obligation   (1,654,603)   11,663,302 
Proceeds from deposit for capital lease obligation   339,926    1,846,047 
Proceeds from forgivable loans   733,607    - 
Payment to related parties   (6,239,608)   - 
Net cash provided by financing activities   44,506,211    98,669,472 
           
Net increase in cash   1,286,110    2,024,762 
           
Effect of exchange rate changes   1,835,493    746,077 
           
Cash at beginning of the period   2,704,987    9,213,760 
           
Cash at end of the period  $3,991,097   $11,238,522 
           
Supplemental disclosure of cash flow information:          
Interest received  $985,879   $776,897 
Interest paid   9,976,831    9,863,174 
           
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    6.4640 
Average RMB: U.S. Dollar exchange rate   6.3074    6.4735    6.5482 

 

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

 

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   $20,093,732 
Less: Allowance for Bad Debt   4,271,434    4,271,434 
Trade Receivables, net   34,958,447    15,822,298 
           
Allowance for Bad Debts          
Beginning Balance   4,271,434    1,653,287 
Provision for bad debts   -    2,618,147 
Less: Allowance write back because of bad debt recovery   -    - 
Ending Balance  $4,271,434   $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   $110 
Non-collateralized, non-interest bearing loans to individuals and companies receivable on demand   4,012,458    3,784,696 
Others   5,957,676    3,729,336 
   $9,978,039   $7,514,142 

 

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   $1,588,832 
Work in process and semi-finished goods   7,130,174    19,162,264 
Finished goods   22,021,103    29,291,726 
Total inventories  $33,472,936   $50,042,822 

 

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    66,336,798 
Prepaid taxes   -    114,141 
   $74,745,332   $66,450,939 

  

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   $30,119,791 
Machinery and equipment   135,429,558    25,484,969    109,944,589 
Electronic equipment   1,103,353    533,441    569,912 
Vehicles   3,770,939    2,341,233    1,429,706 
Wastewater treatment and environmental equipment   822,364    577,432    244,932 
Total plant and equipment  $176,947,002   $34,638,072   $142,308,930 

  

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

 

Depreciation expenses related to plant and equipment were $ 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   $40,380,647 
Office buildings   4,988,510    5,662,946 
Plant and facilities   1,914,984    26,582,072 
Sewage system   566,186    35,526 
Deposits for construction projects   22,556,087    10,960,101 
   $30,366,688   $83,621,292 

 

9.Investments

 

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

 

Investment  Ownership   Type   6/30/2012 
Anyang Rural Credit Cooperative - Tongye Branch   11.26%   Equity   $5,818,274 
Anyang Urban Credit Cooperative   11.26%   Equity    9,451,375 
Ansteel Group Metallurgy Stove Co., Ltd.   19%   Equity    2,463,280 
Anyang Xinlong Coal (Group) Hongling Coal Co., Ltd.   16%   Equity    8,019,896 
             $25,752,825 

 

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    3,162,105 
Guangdong Development Bank - Anyang Branch   9/16/2012    3,162,105 
Guangdong Development Bank - Anyang Branch   9/19/2012    3,162,105 
Guangdong Development Bank - Anyang Branch   9/20/2012    1,581,053 
Guangdong Development Bank - Anyang Branch   9/6/2012    3,162,105 
Guangdong Development Bank - Anyang Branch   9/27/2012    1,581,053 
Guangdong Development Bank - Anyang Branch   10/16/2012    2,371,579 
Guangdong Development Bank - Anyang Branch   10/27/2012    3,162,105 
Guangdong Development Bank - Anyang Branch   11/30/2012    2,371,579 
China Construction Bank - Zhongzhou Branch   9/19/2012    6,324,212 
Shanghai Pudong Development Bank -Zhengzhou Branch   7/5/2012    6,324,212 
Shanghai Pudong Development Bank -Zhengzhou Branch   7/6/2012    3,162,105 
Shanghai Pudong Development Bank -Zhengzhou Branch   7/6/2012    3,162,105 
Shanghai Pudong Development Bank -Zhengzhou Branch   8/21/2012    1,581,053 
Shanghai Pudong Development Bank -Zhengzhou Branch   9/21/2012    3,162,105 
Shanghai Pudong Development Bank -Zhengzhou Branch   9/28/2012    3,162,105 
Shanghai Pudong Development Bank -Zhengzhou Branch   11/24/2012    2,371,579 
Shanghai Pudong Development Bank -Zhengzhou Branch   12/5/2012    5,059,369 
Shanghai Pudong Development Bank -Zhengzhou Branch   12/7/2012    4,743,158 
Shanghai Pudong Development Bank -Zhengzhou Branch   12/7/2012    3,162,105 
Shanghai Pudong Development Bank -Zhengzhou Branch   12/12/2012    3,004,000 
Shanghai Pudong Development Bank -Zhengzhou Branch   12/26/2012    2,371,579 
Commercial Bank of Anyang   8/6/2012    9,486,316 
Commercial Bank of Anyang   11/29/2012    6,324,211 
Commercial Bank of Anyang   10/1/2012    4,743,158 
Commercial Bank of Anyang   12/11/2012    3,162,105 
Bank of Luoyang - Zhengzhou Branch   10/11/2012    4,743,158 
Bank of Luoyang - Zhengzhou Branch   10/26/2012    1,581,053 
Bank of Luoyang - Zhengzhou Branch   12/27/2012    3,320,211 
China Everbright Bank - Zhengzhou Branch   7/30/2012    6,314,319 
China Everbright Bank - Zhengzhou Branch   8/20/2012    4,743,158 
China Everbright Bank - Zhengzhou Branch   8/21/2012    3,162,105 
China Everbright Bank - Zhengzhou Branch   10/12/2012    3,162,105 
China Everbright Bank - Zhengzhou Branch   12/20/2012    7,272,842 
China Everbright Bank - Zhengzhou Branch   8/15/2012    3,162,105 
China Everbright Bank - Zhengzhou Branch   8/27/2012    1,581,053 
China Everbright Bank - Zhengzhou Branch   10/26/2012    3,162,105 
China Everbright Bank - Zhengzhou Branch   11/8/2012    3,162,105 
Bank of Mingsheng - Zhengzhou Branch   8/8/2012    7,905,263 
Bank of Mingsheng - Zhengzhou Branch   8/13/2012    3,952,632 
Bank of Mingsheng - Zhengzhou Branch   10/20/2012    7,272,842 
Bank of Mingsheng - Zhengzhou Branch   12/4/2012    7,114,737 
Bank of Mingsheng - Zhengzhou Branch   12/15/2012    1,976,316 
Bank of Mingsheng - Zhengzhou Branch   10/24/2012    1,581,053 
China Citic Bank- Anyang Branch   11/21/2012    1,581,053 
China Citic Bank- Anyang Branch   11/25/2012    3,162,105 
China Citic Bank- Anyang Branch   11/28/2012    3,636,421 
Bank of  Ping Ding Shan   9/26/2012    9,486,316 
China Merchants Bank - Anyang Branch   9/13/2012    7,905,263 
Bank of China-Huojiacun Branch   9/15/2012    6,403,263 
Industrial Bank-Weiyi Branch   7/9/2012    7,905,263 
Industrial Bank-Weiyi Branch   7/10/2012    7,905,263 
Industrial Bank-Weiyi Branch   7/12/2012    6,324,211 
Industrial Bank-Weiyi Branch   8/28/2012    1,581,053 
Industrial and Commercial Bank of China - Shuiye Branch   10/27/2012    1,581,053 
China Minsheng Banking Corp.   8/15/2012    3,636,421 
           
        $231,298,113 

 

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%   4,743,158 
Shanghai Pudong Development Bank - Zhengzhou Branch   B    9/11/2012    6.710%   6,324,211 
Shanghai Pudong Development Bank - Zhengzhou Branch   C    3/23/2013    7.820%   6,324,211 
Shanghai Pudong Development Bank - Zhengzhou Branch   D    8/21/2012    6.710%   1,581,053 
Bank of China - Huojiacun Branch   E    9/27/2012    7.216%   3,162,105 
Commercial Bank of Anyang   F    6/14/2013    6.310%   3,162,105 
Agricultural Bank of China - Anyang Branch   G    10/10/2012    8.856%   1,106,737 
Agricultural Bank of China - Anyang Branch   H    10/10/2012    8.856%   1,581,053 
Agricultural Bank of China - Anyang Branch   I    10/10/2012    8.856%   1,581,053 
Agricultural Bank of China - Anyang Branch   J    10/10/2012    8.856%   3,636,421 
Guangdong Development Bank - Anyang Branch   K    7/14/2012    7.216%   4,743,158 
Bank of Luoyang - Zhengzhou Branch   M    7/14/2012    7.872%   3,162,105 
Bank of Luoyang - Zhengzhou Branch   N    4/9/2013    7.872%   3,162,105 
Bank of Luoyang – Zhengzhou Branch        12/20/2012    7.020%   1,581,053 
China Citic Bank – Anyang Branch   O    1/8/2013    7.544%   3,162,105 
China Merchants Bank - Anyang Branch   P    11/9/2012    7.544%   1,581,053 
China Merchants Bank - Anyang Branch   Q    11/30/2012    7.544%   1,581,053 
Zhengzhou Bank - Nongye Eastern Road Branch   R    12/14/2012    8.528%   4,743,158 
Industrial Bank - Weiyi Branch   S    1/13/2013    7.216%   4,743,158 
ICBC - Shuiye Branch   T    9/7/2012    7.216%   4,268,842 
ICBC - Shuiye Branch   U    10/1/2012    7.216%   2,845,895 
China Construction Bank - Anyang Branch   V    9/26/2012    6.655%   1,581,053 
China Construction Bank - Anyang Branch   W    10/26/2012    6.710%   3,162,105 
China Citic Bank - Anyang Branch   X    7/26/2012    7.216%   3,162,105 
Tongye Credit Cooperatives - Anyang Branch   Y    12/21/2012    15.088%   4,695,726 
                     
                  $81.376,781 

 

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
DGuaranteed by Anyang Liyuan Coking Co., Ltd
E.Guaranteed by Henan Xinlei Coking Group Co., Ltd
F.Guaranteed by Linzhou Hongqiqu electrical Carbon Co., Ltd
GGuaranteed 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
KGuaranteed by Henan Henan Chengyu Coking Co., Ltd and Henan Hubo Cement Co., Ltd
MGuaranteed 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
QGuaranteed 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
UGuaranteed by Cleaned coal
V.Guaranteed by Linzhou Hongqiqu electrical Carbon Co., Ltd
WGuaranteed by Linzhou Hongqiqu electrical Carbon Co., Ltd
XGuaranteed by Henan Shuncheng Group Coking Co., Ltd and Henan Small Corporation Investment Co., Ltd
YGuaranteed 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   $2,681,680 
Payable for raw materials in operation   -    20,542 
Advances from individuals and companies payable on demand   8,017,071    5,477,457 
Others   53,385    999,933 
           
   $9,773,273   $9,179,612 

 

13.Notes Payable to Related Party

 

Creditor  Note   6/30/2012   12/31/2011 
Chairman, Wang Xinshun   A   $24,728,950   $25,785,216 
SC Coke Shareholders   B    39,663,893    44,405,553 
        $64,392,843   $70,190,769 

 

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

 

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

 

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

 

   6/30/2012   6/30/2011 
Income (loss) before tax:          
USA  $-   $- 
HK   4    7 
PRC   (27,785,140)   (633,503)
Total:  $(27,785,136)  $(633,496)
           
Provision for income taxes:          
US Federal   -    - 
State   -    - 
PRC  $-   $- 
Total provision for taxes (tax benefit):  $-   $- 
           
Effective tax rate   25%   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%   35%
Lower rates in the PRC   -10%   -10%
Accrual and reconciling items        -25%
Fully reserved net Operating Loss   -25%     
Effective tax rate:   0%   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    3,162,105 
Linzhou Hongqiqu Electrical Carbon Co., Ltd   Agricultural Bank of China - Linzhou Branch   2013.1.11    4,743,158 
Linzhou Hongqiqu Electrical Carbon Co., Ltd   Agricultural Bank of China - Linzhou Branch   2013.5.20    3,162,105 
Linzhou Hongqiqu Electrical Carbon Co., Ltd   Agricultural Bank of China - Linzhou Branch   2013.6.18    7,905,263 
Linzhou Hongqiqu Electrical Carbon Co., Ltd   Agricultural Bank of China - Linzhou Branch   2012.9.2    7,905,263 
Linzhou Hongqiqu Electrical Carbon Co., Ltd   Agricultural Bank of China - Linzhou Branch   2013.2.13    3,162,105 
Henan Hubo Cement Co., Ltd.   Bank of China - Anyang Branch   2012.11.14    4,743,158 
Henan Liyuan Coking Co., Ltd   China Merchants Bank - Anyang Branch   2013.1.31    1,581,053 
Henan Liyuan Coking Co., Ltd   Shanghai Pudong Development Bank -Zhengzhou Branch   2013.12.20    7,905,263 
Henan Liyuan Coking Co., Ltd   Shanghai Pudong Development Bank -Zhengzhou Branch   2012.8.16    7,114,737 
Henan Liyuan Coking Co., Ltd   China Merchants Bank - Anyang Branch   2012.9.20    3,162,105 
Henan Liyuan Coking Co., Ltd   China Merchants Bank - Anyang Branch   2012.8.1    3,162,105 
Henan Liyuan Coking Co., Ltd   Bank of Luoyang - Zhengzhou Branch   2012.8.20    4,743,158 
Henan Liyuan Coking Co., Ltd   Bank of China - Pangeng Branch   2013.3.23    6,324,211 
Henan Chengyu Coking Co., Ltd   Guangdong Development Bank - Anyang Branch   2012.9.20    9,486,316 
Henan Xinlei Group   China Minsheng Banking - Zhengzhou Branch   2012.10.10    1,581,053 
Henan Fengtai Food Co.,   China Minsheng Banking - Zhengzhou Branch   2012.8.26    1,581,053 
Anyang Zhanqian Materials Co.   Shanghai Pudong Development Bank -Zhengzhou Branch   2013.1.15    1,581,053 
Anyang Houde Trade Co., Ltd   Citic Bank - Anyang Branch   2013.6.15    1,581,053 
Anyang Xinpu Steel Co., Ltd   City Cooperative   2013.6.4    7,114,737 
Anyang Qili Cement Co., Ltd   Bank of Anyang   2013.5.5    632,421 
Anyang Hongyuan Yinsheng Steel Co., Ltd   Bank of Anyang   2013.5.5    158,105 
Henan Shuncheng Group Longdu Trade Co., Ltd   Citic Bank - Anyang Branch   2012.7.27    3,162,105 
Henan Yuxin Acticated Carbon Co., Ltd   China Construction Bank - Anyang Branch   2013.1.4    1,897,263 
Anyang Lichuang Trade Co.   Guangdong Development Bank - Anyang Branch   2012.9.10    3,162,105 
Henan Yulong Coking Co., Ltd   Tongye Credit Union   2013.2.15    3,162,105 
Linzhou Fengbao Pipe Co., Ltd   China Minsheng Banking - Anyang Branch   2013.3.30    7,905,263 
Anyang Zhongyang Industrial Co., Ltd   Shanghai Pudong Development Bank -Zhengzhou Branch   2012.9.6    790,526 
Anyang Zhongyang Industrial Co., Ltd   Shanghai Pudong Development Bank -Zhengzhou Branch   2012.9.20    790,526 
Anyang Zhongyang Industrial Co., Ltd   Bank of Luoyang - Zhengzhou Branch   2012.11.26    1,581,053 
               
            $114,942,526 

  

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   $2,845,193 
2013   3,995,914    4,877,473 
2014   4,349,836    4,877,473 
2015   2,640,541    2,863,417 
2016   1,168,102    1,193,091 
Total future minimum lease payments  $14,333,450   $16,656,647 

  

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
 

PART II – OTHER INFORMATION

 

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.

 

21
 

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: September 6, 2012 By: /s/ Feng Wang
    Feng Wang
   

President, Chief Executive Officer and

Director

     
Date: September 6, 2012 By: /s/ Lei Wang
    Lei Wang
    Chief Financial Officer

  

22

PINX:BRBH Quarterly Report 10-Q/A Filling

PINX:BRBH Stock - Get Quarterly Report SEC Filing of PINX:BRBH stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

PINX:BRBH Quarterly Report 10-Q/A Filing - 6/30/2012
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