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UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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WASHINGTON,
DC 20549
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FORM
8-K
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CURRENT
REPORT
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Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
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Date
of Report (Date of earliest event reported):
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June
28, 2010 |
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Birch
Branch, Inc.
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(Exact
name of registrant as specified in charter)
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Colorado
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333-126654
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84-1124170
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(State
or Other Jurisdiction
of
Incorporation)
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(Commission
File
Number)
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(IRS
Employer
Identification
No.)
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c/o
Henan Shuncheng Group Coal Coke Co., Ltd.
Henan
Province, Anyang County, Cai Cun Road Intersection, Henan Shuncheng Group
Coal Coke Co.,
Ltd.
(New Building), China 455141
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(Address
of Principal Executive Offices)
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Registrant’s telephone number, including area code:
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+86
372 323 7890 |
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2560
W. Main Street, Suite 200, Littleton,
CO 80120
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(Former
name or former address, if changed since last report)
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Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any
of the following provisions:
¨ Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
¨ Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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CURRENT
REPORT ON FORM 8-K
TABLE
OF CONTENTS
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Item 1.01
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Entry into a Material Definitive
Agreement
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2
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Item 2.01
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Completion of Acquisition or Disposition of
Assets
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3
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SHARE EXCHANGE
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3
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OVERVIEW
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4
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THE SHARE EXCHANGE
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4
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SHARE CANCELLATION
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5
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DESCRIPTION OF THE COMPANY
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6
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Item 2.02
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Results of Operations and Financial
Condition
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58
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SELECTED CONSOLIDATED FINANCIAL
DATA
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58
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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59
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
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82
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MANAGEMENT
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86
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EXECUTIVE COMPENSATION
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89
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CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
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93
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LEGAL PROCEEDINGS
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97
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DESCRIPTION OF SECURITIES
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97
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MARKET PRICE OF AND DIVIDENDS ON THE COMPANY’S
COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
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98
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RECENT SALES OF UNREGISTERED
SECURITIES
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99
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INDEMNIFICATION OF DIRECTORS AND
OFFICERS
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99
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Item 3.02
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Unregistered Sales of Equity
Securities
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100
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Item 5.01
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Changes in Control of
Registrant
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100
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Item 5.02
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Departure of Directors or Certain Officers;
Election of Directors; Appointment of Certain Officers; Compensatory
Arrangements of Certain Officers
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100
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Item 5.03
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Amendments to Articles of Incorporation or Bylaws;
Change in Fiscal Year
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101
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Item 5.06
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Change in Shell Company
Status
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101
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Item 9.01
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Financial Statements and
Exhibits
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101
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EXPLANATORY
NOTE
As used in this Current Report,
unless the context requires or is otherwise indicated, the terms “we,” “us,”
“our,” the “Registrant,” the “Company,” “our company” and similar expressions
include the following entities, after giving effect to the Share Exchange
(as defined below):
(i) Birch
Branch, Inc., a Colorado corporation (“BRBH”), which is a publicly traded
company;
(ii) Shun
Cheng Holdings HongKong Limited, a company organized under the laws of Hong Kong
and a wholly-owned subsidiary of BRBH (“Shun Cheng HK”);
(iii) Anyang
Shuncheng Energy Technology Co., Ltd., a Chinese wholly-foreign owned enterprise
subsidiary of Shun Cheng HK (“Anyang WFOE”);
(iv) Henan
Shuncheng Group Coal Coke Co., Ltd., a Chinese variable interest entity that
Anyang WFOE controls through certain contractual arrangements (“SC Coke”);
and
(v) Henan
Shuncheng Group Longdu Trade Co., Ltd., a Chinese company which is 86% owned by
SC Coke (“Longdu”). Wang Xinshun, the sole director and holder of a
60% interest in SC Coke, also owns a 5% interest in Longdu.
“China”
or “PRC” refers to the People’s Republic of China, excluding Hong Kong, Macau
and Taiwan. “RMB” or “Renminbi” refers to the legal currency of China
and “$” or “U.S. Dollars” refers to the legal currency of the United
States. The Company maintains its books and accounting records in
Renminbi. Unless otherwise stated, the translations of RMB into U.S.
Dollars have been made at the rate of exchange of $1.00 to RMB 6.84, the
approximate average exchange rate for the quarter ended March 31, 2010.
We make no representation that the RMB or U.S. Dollar amounts referred to
in this Current Report could have been or could be converted into U.S. Dollars
or RMB, as the case may be, at any particular rate or at all. “GAAP”
unless otherwise indicated refers to United States generally accepted accounting
principles.
Except
as otherwise provided, “fiscal year” means the fiscal year ended June 30 for
BRBH and the fiscal year ended December 31 for SC Coke.
When
used herein to describe SC Coke’s current products, “coke” refers to
metallurgical coke unless otherwise indicated.
Item
1.01 Entry into a Material Definitive Agreement.
On June
28, 2010, BRBH entered into an Amendment (the “Amendment”) to the Share Exchange
Agreement dated May 14, 2010, by and among, Shun Cheng HK, Shun Cheng Holdings
Limited (“SC Holdings”), Global Chinese Alliance Development Ltd., Fuhai
International Investment Group Limited, Fuyutai International Investment Group
Limited, Golden Hill International Investment Group Limited, Jinmao Investment
Group Limited, Kangchen International Investment Group Limited, Renhe
International Investment Group Limited, USA International Finance Consulting
Group Ltd., USA Wall Street Capital United Investment Group Limited, Wanjinlin
International Investment Group Limited (collectively, the “Shun Cheng HK
Shareholders”), Timothy Brasel, the former sole director, sole executive officer
and a principal shareholder of BRBH prior to the consummation of the Share
Exchange, Brasel Family Partners Ltd, LaMirage Trust, Mathis Family Partners,
LTD, Lazzeri Family Trust, Hu Qingying, Ong Hock Seng and SCM Capital LLC
(collectively, the “BRBH Principal Shareholders”), to provide for certain
changes to the Share Exchange Agreement (as defined below) regarding, among
other things, the management of BRBH after the closing of the transactions
contemplated by the Share Exchange Agreement and the updating of certain
information pursuant to the Share Exchange Agreement. The execution
of the Share Exchange Agreement was previously reported in the Company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”)
on May 20, 2010. Unless the context requires otherwise, the Amendment
to the Share Exchange Agreement and the Share Exchange Agreement are
collectively referred to as the “Share Exchange Agreement.”
The
transactions contemplated by the Share Exchange Agreement closed on June 28,
2010 (the “Closing Date”). On the Closing Date, simultaneously with
the closing of the Share Exchange, BRBH entered into a Cancellation Agreement
with certain shareholders of BRBH (the “Cancellation Agreement”), pursuant to
which 435,123 shares of BRBH common stock held by such shareholders were
cancelled (the “Share Cancellation”).
For
additional information regarding the terms of the Share Exchange Agreement and
the transactions contemplated thereby, the Cancellation Agreement and the Share
Cancellation, see the descriptions thereof in Item 2.01 below, which disclosure
is incorporated herein by reference in response to this Item
1.01. The description of the Share Exchange Agreement and the
Cancellation Agreement herein does not purport to be complete and is qualified
in its entirety by reference to the full text of the Share Exchange Agreement,
which is filed as Exhibit 2.1 and Exhibit 2.2, and the Cancellation Agreement,
which is filed as Exhibit 10.1 to this Current Report. The Share
Exchange Agreement and the Cancellation Agreement have been included to provide
investors and security holders with information regarding their
terms. They are not intended to provide any other factual information
about the Company or the other parties thereto. The Share Exchange
Agreement and the Cancellation Agreement contain customary representations and
warranties the parties thereto made to, and solely for the benefit of, the other
parties thereto. Accordingly, investors and security holders should
not rely on the representations and warranties as characterizations of the
actual state of facts, since they were only made as of the date of such
agreement. In addition, the Share Exchange Agreement is modified by
the underlying disclosure schedules. Moreover, information concerning
the subject matter of the representations and warranties may change after the
date of such agreement, which subsequent information may or may not be fully
reflected in the Company’s public disclosures.
Item
2.01 Completion of Acquisition or Disposition of Assets.
SHARE
EXCHANGE
On the
Closing Date, BRBH acquired all of the issued and outstanding shares of Shun
Cheng HK from the Shun Cheng HK Shareholders in exchange for the issuance by
BRBH to the Shun Cheng HK Shareholders of an aggregate of 30,233,750
newly-issued shares of BRBH common stock, no par value per share, which, upon
completion of the transactions contemplated by the Share Exchange, including the
Share Cancellation (as described below) constituted approximately 95% of BRBH’s
issued and outstanding common stock (the “Share Exchange”). Upon
consummation of the Share Exchange, Shun Cheng HK became a wholly-owned
subsidiary of BRBH.
On the
Closing Date, simultaneously with the closing of the Share Exchange, BRBH
entered into the Cancellation Agreement with Brasel Family Partners Ltd.,
LaMirage Trust, Lazzeri Family Trust, Mathis Family Partners LTD, Lazzeri Equity
Partners 401(k) Plan and Shun Cheng HK, pursuant to which 435,123 shares of
BRBH’s common stock held by such parties were cancelled.
OVERVIEW
The
corporate structure of the Company, after taking into account the Share
Exchange, is as follows:
THE
SHARE EXCHANGE
Pursuant
to the terms and conditions of the Share Exchange Agreement, as of the Closing
Date:
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The
Shun Cheng HK Shareholders exchanged all of their equity in Shun Cheng HK,
consisting of 100% of the issued and outstanding shares of Shun Cheng HK,
for an aggregate of 30,233,750 shares of BRBH common stock, and, as a
result, Shun Cheng HK became a wholly-owned subsidiary of
BRBH;
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Wang
Xinshun was appointed Chairman of the Board of Directors of BRBH effective
as of the Closing Date and Wang Feng, Huang Qi Fa, David Chen and Li De
Xin were appointed as members of the Board of Directors effective on the
expiration of the 10 day period after the date of the filing of a Schedule
14(f) with the SEC (the “Effective Date”) and Timothy Brasel resigned as
sole director of BRBH effective on the Effective Date. All
directors hold office for one-year terms or until their successors are
duly elected and qualified;
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Timothy
Brasel resigned
as our sole executive officer effective as of the Closing Date and
simultaneously therewith new officers were appointed, as
follows:
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Officers
are elected by the Board of Directors and serve at the discretion of the
Board. Pursuant to the Share Exchange Agreement, BRBH and the BRBH
Principal Shareholders agreed to use their best efforts to ensure Mr. Brasel
will remain a director until the expiration of the 10 day period after the date
of the filing of a Schedule 14(f) with the SEC and that BRBH will not take
certain corporate actions without the prior written consent of Shun Cheng HK;
and
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Each
of BRBH, the BRBH Principal Shareholders, Shun Cheng HK and the Shun Cheng
HK Shareholders provided customary representations, warranties and
covenants, and the Share Exchange Agreement provides for certain
indemnification obligations.
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The
description of the Share Exchange Agreement above does not purport to be
complete and is qualified in its entirety by reference to the full text of the
Share Exchange Agreement, which is filed as Exhibit 2.1 and Exhibit 2.2 to this
Current Report.
Upon the
consummation of the Share Exchange Agreement, there were 32,047,222 shares of
BRBH common stock issued and outstanding, including 540,472 shares of common
stock issued to financial consultants in connection with the Share
Exchange. After taking into account the shares issued to the Shun
Cheng HK Shareholders, the issuances to the financial consultants described in
more detail in Item 3.02 below and the Share Cancellation, approximately 5% of
such issued and outstanding shares were held by the BRBH Principal Shareholders
and their affiliates and other BRBH shareholders.
Our
shares of common stock are currently listed on the Over the Counter Bulletin
Board (“OTCBB”).
The
transactions contemplated by the Share Exchange Agreement were intended to be a
“tax-free” reorganization pursuant to the provisions of Sections 351 and/or 368
of the Internal Revenue Code of 1986, as amended.
SHARE
CANCELLATION
On the
Closing Date, in connection with the Share Exchange Agreement, we entered into
the Cancellation Agreement with certain shareholders of BRBH and Shun
Cheng HK, pursuant to which 435,123 shares of BRBH common stock held by such
shareholders were cancelled. The Cancellation Agreement contains
customary representations, warranties, covenants and indemnification
provisions.
DESCRIPTION
OF THE COMPANY
Corporate
History
BRBH was
incorporated in the State of Colorado on September 28, 1989. BRBH was
previously a residential real estate holding company. In September
2006, BRBH sold its real estate assets to its then
president. Effective December 6, 2006, BRBH’s plan was to evaluate
the structure and complete a merger with, or acquisition of, prospects
consisting of private companies, partnerships or sole
proprietorships. Prior to the Share Exchange, BRBH was considered a
“shell” company. From and after the Closing Date of the Share
Exchange Agreement, BRBH was no longer a “shell” company and its primary
operations consist of the business and operations of SC Coke which are conducted
in Tongye Town, Anyang County, Henan Province, China.
Through
the Share Exchange, BRBH acquired Shun Cheng HK, as described under the heading
“Description of Operations,” is a Hong Kong company that was established on
December 18, 2009. Since inception, Shun Cheng HK has not conducted
any substantive operations of its own, except to serve as a holding company that
owns 100% of the equity of Anyang WFOE.
Anyang
WFOE, a PRC limited liability company established on March 17, 2010, is a wholly
owned subsidiary of Shun Cheng HK. Anyang WFOE was approved as a
wholly-foreign owned enterprise by the Henan provincial government on March 15,
2010 and formally organized on March 17, 2010. Other than activities
relating to its contractual arrangements with SC Coke, Anyang WFOE has no
separate operations of its own. Anyang WFOE does not own any equity
interests in SC Coke, but controls and receives the economic benefits of its
business operations through contractual arrangements as described below under
the heading “Contractual Arrangements with SC Coke and its
Shareholders.”
SC Coke
is a limited liability company organized in the PRC on August 27,
1997. SC Coke produces coke, refined coal and coal and coke
byproducts in Henan Province in the central region of the PRC. SC
Coke holds an 86% interest in its operating subsidiary, Longdu, a limited
liability company organized in the PRC on May 25, 2004. Wang Xinshun,
the sole director and holder of a 60% interest in SC Coke owns a 5% interest in
Longdu. Longdu operates a coal-washing facility and produces refined
coal, medium coal and coal slurry.
SC Coke
also holds a 19% interest in Angang Steel Group Metallurgy Furnace Co., Ltd.
(“Angang Steel”). SC Coke has provided coal gas and, from time to
time, small quantities of 25 to 40 millimeter coke to Angang Steel to supplement
the coke supplied from its main suppliers, which Angang Steel then uses to
produce activated lime for steel production.
In
addition, SC Coke holds an 11.26% interest in Anyang Commercial Bank Co. Ltd.
(“Anyang Commercial”) and a 16% interest in Anyang Xinlong Coal (Group) Hongling
Coal Co. Ltd (“Anyang Xinlong”). Anyang Commercial is a bank located
in Anyang City that currently has one outstanding loan of approximately $2.9
million to SC Coke at an interest rate of 7.965% per annum, which loan matures
on April 13, 2011. Anyang Xinlong owns a coal mine located in Anyang
County that provides SC Coke with a substantial portion of its coking coal
requirements. Pursuant to a loan agreement dated March 31, 2010, SC
Coke borrowed $4.4 million from Anyang Xinlong on an interest-free
basis. This loan agreement had no specific repayment terms, and
according to PRC laws, Anyang Xinlong could have required SC Coke to repay the
principal of the loan at any time. For additional information
regarding transactions involving certain loans to SC Coke, including the loan by
Anyang Xinlong, see the description below under the heading “Certain Other
Recent Transactions.”
SC Coke’s
sole director and majority shareholder, Wang Xinshun, owns a 43.86% interest in
Anyang County Bailianpo Coal Co., Ltd. (“Bailianpo”), which supplies raw coal to
SC Coke and Longdu. In 2009, the raw coal supplied by Bailianpo represented in
the aggregate approximately 7% of the total amount of raw coal purchased by SC
Coke.
Contractual
Arrangements with SC Coke and its Shareholders
The
Company’s relationships with SC Coke and its shareholders are governed by a
series of contractual arrangements, described below, through which the Company
exercises management rights over SC Coke (collectively, the “VIE
Agreements”). None of BRBH, Shun Cheng HK, nor Anyang WFOE owns any
direct equity interest in SC Coke. On March 19, 2010, Anyang WFOE
entered into the following contractual arrangements with SC Coke and its
shareholders:
Entrusted Management
Agreement. Pursuant to the entrusted management agreement
between Anyang WFOE, SC Coke and the SC Coke Shareholders (as defined below)
(the “Entrusted Management Agreement”), SC Coke and its shareholders agreed to
entrust the business operations of SC Coke and its management to Anyang WFOE
until Anyang WFOE acquires all of the
assets or equity of SC Coke (as more fully described under “Exclusive Option
Agreement” below). Under the Entrusted Management Agreement, Anyang
WFOE manages SC Coke’s operations and assets, and controls all of SC Coke’s cash
flow and assets through entrusted or designated bank accounts. In
turn, it is entitled to any of SC Coke’s net earnings as a management fee, and
is obligated to pay all SC Coke’s debts to the extent SC Coke is not able to pay
such debts. Such management fees payable by SC Coke shall accrue
until such times as the parties shall mutually agree. The Entrusted
Management Agreement will remain in effect until the acquisition of all assets
or equity of SC Coke by Anyang WFOE is completed.
Shareholders’ Voting Proxy
Agreement. Under the shareholders’ voting proxy agreement (the
“Shareholders’ Voting Proxy Agreement”) between Anyang WFOE and the SC Coke
Shareholders, the SC Coke Shareholders irrevocably and exclusively appointed the
board of directors of Anyang WFOE as their proxy to vote on all matters that
require SC Coke shareholder approval. The Shareholders’ Voting Proxy
Agreement shall not be terminated prior to the completion of acquisition of all
assets or equity of SC Coke by Anyang WFOE.
Exclusive Option
Agreement. Under the exclusive option agreement (the
“Exclusive Option Agreement”) between Anyang WFOE, SC Coke and the SC Coke
Shareholders, the SC Coke Shareholders granted Anyang WFOE an irrevocable
exclusive purchase option to purchase all or part of the shares or assets of SC
Coke. The option is exercisable at any time on or after the Closing
Date, but only to the extent that such purchase does not violate any PRC law
then in effect. The exercise price shall be the minimum price
permitted under the PRC law then applicable, and such price, subject to
applicable PRC law, shall be refunded to Anyang WFOE or SC Coke for no
consideration or the minimum consideration permitted under the PRC Law then
applicable, whichever is more, in a manner decided by Anyang WFOE, at its
reasonable discretion.
Shares Pledge
Agreement. Under the shares pledge agreement among Anyang
WFOE, SC Coke and the SC Coke Shareholders (the “Shares Pledge Agreement”), the
SC Coke Shareholders pledged all of their equity interests in SC Coke, including
the proceeds thereof, to guarantee all of Anyang WFOE’s rights and benefits
under the Entrusted Management Agreement, the Exclusive Option Agreement and the
Shareholders’ Voting Proxy Agreement. Prior to termination of the Shares Pledge
Agreement, the pledged equity interests cannot be transferred without Anyang
WFOE’s prior consent.
Pursuant
to a Waiver dated May 14, 2010, Anyang WFOE has waived any existing default by
SC Coke under the Entrusted Management Agreement and agreed not to declare any
default under such agreement or any other relevant agreement between March 19,
2010 and the Closing Date.
The
description of the VIE Agreements above does not purport to be complete and is
qualified in its entirety by reference to the full text of the VIE Agreements
which are filed as Exhibits 10.2, 10.3, 10.4, 10.5 and 10.9 to this Current
Report. The VIE Agreements have been included to provide investors
and security holders with information regarding their terms. They are
not intended to provide any other factual information about the Company or the
other parties thereto. The VIE Agreements
contain customary representations and warranties the parties thereto made to,
and solely for the benefit of, the other parties
thereto. Accordingly, investors and security holders should not rely
on the representations and warranties as characterizations of the actual state
of facts, since they were only made as of the date of such
agreement. Moreover, information concerning the subject matter of the
representations and warranties may change after the date of such agreement,
which subsequent information may or may not be fully reflected in the Company’s
public disclosures.
Call
Option Agreements with Certain Shareholders of Shun Cheng HK
Shareholders
Wang
Xinshun has entered into call option agreements, dated as of May 14, 2010
(collectively, the “Call Option Agreements”), with the sole shareholder of SC
Holdings and various shareholders of other Shun Cheng HK Shareholders pursuant
to which Wang Xinshun is entitled to purchase up to 100% of the issued and
outstanding shares of SC Holdings and such other Shun Cheng HK Shareholders at a
price of $0.0001 per share for a period of five years upon satisfaction of
certain conditions. Specifically, (i) if Wang Xinshun enters into an
employment agreement to serve as SC Coke’s Chief Executive Officer for a term of
at least five years; (ii) if SC Coke achieves at least 80% of the anticipated
after tax net income of $18 million as determined under GAAP for the fiscal year
ending December 31, 2010, he will be entitled to purchase 50% of the shares of
SC Holdings; (iii) if SC Coke achieves at least 80% of the anticipated after tax
net income of $10 million for the six month period from January 1, 2011 to June
30, 2011, he will be entitled to purchase up to 100% (or the balance) of the
remaining shares of SC Holdings. Under the Call Option Agreements,
Wang Xinshun acquired the exclusive right to exercise all of the voting rights
in respect of the shares of SC Holdings and the other Shun Cheng HK Shareholders
subject to the agreements. Upon completion of the Share Exchange, SC
Holdings and such shareholders of other Shun Cheng HK Shareholders owned in the
aggregate approximately 74.5% of BRBH’s issued and outstanding shares of common
stock.
The
description of the Call Option Agreements above does not purport to be complete
and is qualified in its entirety by reference to the full text of the Call
Option Agreements which are filed as Exhibits 10.10, 10.11, 10.12, 10.13, 10.14,
10.15 and 10.16 to this Current Report. The Call Option Agreements
have been included to provide investors and security holders with information
regarding their terms. They are not intended to provide any other
factual information about the Company or the other parties
thereto. The Call Option Agreements contain customary representations
and warranties the parties thereto made to, and solely for the benefit of, the
other parties thereto. Accordingly, investors and security holders
should not rely on the representations and warranties as characterizations of
the actual state of facts, since they were only made as of the date of such
agreement. Moreover, information concerning the subject matter of the
representations and warranties may change after the date of such agreement,
which subsequent information may or may not be fully reflected in the Company’s
public disclosures.
Certain
Other Recent Transactions
On March
31, 2010, Anyang Xinlong, Anyang Huichang Coal Washing Co., Ltd., and Anyang
Jindu Coal Co., Ltd. (collectively, the “Lenders”) each entered into loan
agreements with SC Coke. The original principal amounts of these
loans were approximately $4.4 million, $24.7 million and $5.9 million,
respectively. The loans had no repayment terms. On June 21, 2010, the
SC Coke Shareholders agreed to assume the obligations of SC Coke to the Lenders,
and the Lenders released SC Coke from any liability. On the same
date, the SC Coke Shareholders entered into a Debt Agreement with SC Coke for
the original principal amount of approximately $35 million, which amount is
equal to the principal amount assumed by the SC Coke
Shareholders. The principal terms of the loan are:
(a) 15 year term, commencing on June 21, 2010, (b) 2% fixed annual
interest on a non-compounding basis, (c) SC Coke has the option, but not
the obligation, to pay interest prior to maturity, and (d) the SC Coke
Shareholders cannot declare a default prior to maturity.
Principal
Products
SC Coke’s
principal products are “refined coal” (which is coal processed by coal washing)
and coke (which results from the blending of various types of refined coal and
subsequently heating such mixed refined coal at high temperatures in a brick
oven to produce coke). The majority of refined coal is used by
SC Coke in its coke manufacturing process and the balance is sold to its
customers. Metallurgical coke is primarily used in iron and steel
manufacturing. Over the past three years, refined coal and coke have
contributed an average of approximately more than 89% of SC Coke’s annual
revenues. SC Coke also sells medium coal and coal slurry (which are
byproducts produced from its refined coal process), tar, crude benzol and ammonium
sulfate (“amsulfate”) (which are byproducts produced from its coke manufacturing
process) and both sells and uses coal gas to provide electricity for its
internal operations (which is a byproduct produced from its coke manufacturing
process). During the fiscal year ended December 31, 2009, SC Coke
produced approximately 722,000 metric tons (“tons”) of coke, 596,000 tons of
refined coal (inclusive of Longdu), 42,000 tons of tar,
7,900 tons of crude benzol, 8,500 tons of
amsulfate and 300 million cubic meters of coal gas.
Description
of Operations
Production
Process
SC Coke’s
production process is as follows:
SC Coke
is based in the Henan Province in the central part of China. SC
Coke’s operations are located in Tongye Town, Anyang County, Henan Province,
PRC, which is 40 kilometers from Anyang City. SC Coke and Longdu
purchase raw coal from numerous mines, including Anyang Xinlong and Bailianpo,
and suppliers deliver coal to SC Coke’s facilities in Tongye Town and Longdu’s
facility in Matoujian Town, where the coal is processed, through a coal washing
process, to obtain refined coal which is used by SC Coke to make coke or is sold
to third parties. The production of refined coal also results in two
byproducts - medium coal and coal slurry. The coke produced by SC
Coke is either loaded onsite onto railcars on its private rail line and
transported to customers through the connected national railway system or loaded
onto trucks and transported to customers by highway.
Byproducts of the coking process are either sold to customers or recycled for
consumption by SC Coke. The tar gas emitted during the coking process
results in four byproducts - tar, crude benzol, amsulfate, and coal
gas. Coal gas is also consumed internally by SC Coke, providing an
energy source for its ovens, and is utilized to produce electricity through
onsite electric power generators to provide electricity for SC Coke’s
operations. Excess coal gas remaining is then piped and sold to
Angang Steel.
Coke
Manufacturing
Metallurgical
coke is primarily used in iron and steel manufacturing. China has a
national standard for coke, based upon a variety of metrics including, ash and
sulfur content, mechanical strength, volatility, moisture content and end-coke
content. According to the national standard, metallurgical coke is
classified into three grades – Grade I, Grade II and Grade III, with Grade I
being the highest quality. SC Coke currently only produces Grade II
metallurgical coke.
SC Coke
is also currently in the process of building a Coke Dry Quenching (“CDQ”)
facility which is designed to allow SC Coke to reduce emissions, generate
Certified Emission Reductions (“CER”) which can be sold, and potentially improve
the coke quality, and so that it can possibly produce Grade I metallurgical
coke. The CDQ facility expansion is discussed in additional detail
under “Expansion Plans” below.
SC Coke
also plans to expand its plant with two new coke ovens and a facility to hold
the new coke ovens. The additional coke ovens contained in the
facility are expected to increase SC Coke’s annual production capacity by
approximately 1.3 million tons to a total of approximately 3 million
tons.
In SC
Coke’s coke production process, five types of raw coal (with different levels of
volatility) are currently purchased and blended by SC Coke in the following
approximate proportions:
|
Type
|
|
Proportion
|
|
Coking
coal
|
|
20
to 25%
|
|
One-third
coke coal (high volatility)
|
|
20
to 25%
|
|
Low
sulfur rich coal (medium to high volatility)
|
|
10%
|
|
High
sulfur rich coal (medium to high volatility)
|
|
15%
|
|
Lean
coal (low volatility)
|
|
20
to 25%
|
After the
five types of raw coal have been unloaded at SC Coke’s plant, they are stored on
site in an open air storage facility with wind prevention retention walls, and
transported into batching towers by a mechanical conveyer where the raw coal is
subsequently mixed into a refined coal blend. The blended refined
coal is crushed and mixed before being sent, by mechanical conveyor, into
delivery coke carts and tamped into the correct size and shape according to the
specifications of SC Coke’s ovens. After tamping, the refined coal is
mechanically delivered into the ovens where it is treated at a high temperature
for a period of between 18 to 24 hours to produce coke. The coke is
transported by receiving coke carts to a coke quenching tower located adjacent
to the plant where water is currently used to quench the coke. After
cooling, the coke is transported by mechanical conveyor to the distribution
center near the private rail line owned by SC Coke, and thereafter it is
transported by rail or road to customers.
SC Coke
currently produces coke onsite from a series of five coke ovens with an annual
capacity of up to approximately 1.7 million tons. SC Coke produces
coke between the size of 25 to 40 millimeters which complies, and is consistent,
with the Chinese national specifications for Grade II coke. Such coke
must comply with the following national standards:
|
|
●
|
a
specified mechanical
strength;
|
|
|
●
|
a
volatility less than 1.8%;
|
|
|
●
|
a
moisture content less than 12.0%;
and
|
|
|
●
|
an
end-coke content less than 12.0%.
|
Tar gas
is emitted during the coke production process. SC Coke processes the
tar gas to produce byproducts which can be sold or recycled. This
process consists of: (i) air cooling and condensation of the tar gas
to extract tar, (ii) deaminating the residual gas (using sulfuric acid which
produces a chemical reaction when mixed with ammonia) to produce amsulfate,
(iii) “washing” the residual gas to produce crude benzol, and (iv) removing
the sulfur from the residual gas to produce coal gas which can be recycled for
use in connection with heat generation in the coke production process and to
generate electricity for SC Coke’s self consumption. Excess coal gas
is then piped and sold to Angang Steel. Based on the normal range of
volatility in SC Coke’s refined coal blend, as currently constituted, 100 tons
of coke will generally yield to SC Coke approximately the following amounts of
coke byproducts: 4 to 4.5 tons of tar, 1 ton of crude benzol, 1.1
tons of amsulfate, and 400 to 420 cubic meters of coal gas.
SC Coke’s
annual production volumes of coke for the fiscal years ended December 31, 2007,
2008 and 2009, were approximately as follows:
|
|
|
Annual
|
|
|
Fiscal
|
|
Production
|
|
|
Year
|
|
(Tons)
|
|
| |
|
|
|
|
2007
|
|
|
514,820 |
|
| |
|
|
|
|
|
2008
|
|
|
545,643 |
|
| |
|
|
|
|
|
2009
|
|
|
722,175 |
|
Refined
Coal
SC Coke
and Longdu operate coal-washing facilities that are capable of producing in
excess of 2 million tons of refined coal per year. Raw coal contains
impurities, such as shale, that require separation to obtain refined
coal. SC Coke and Longdu use both water-based jig and dense medium
separation washing processes to produce refined coal. The water-based
jig process relies on the use and flow of water to separate coal from shale as
they have different densities; it is a more conventional process that has the
advantages of requiring simpler equipment and a faster process, which enables
large scale production. SC Coke and Longdu have easy access to an
abundance of water at a low price. SC Coke and Longdu are permitted
by the local government to utilize underground water at their
sites. In contrast, the dense medium separation process is a newer
technology that has the advantage of higher recovery rates and a smaller area
required for operations. Dense medium separation utilizes the
differences in the densities of coal and shale, which when processed, allows the
coal, which is lighter, to be separated from the heavier shale.
Approximately
1.3 tons of raw coal yield 1 ton of refined coal. The refined coal
produced by SC Coke and Longdu is both used by SC Coke in its coking plant and
sold to customers. In fiscal 2009, SC Coke consumed
approximately 987,000 tons of refined coal (from internal production and
external purchase) and sold approximately 245,000 tons of refined
coal. In addition to refined coal, the coal-washing process produces
two byproducts:
|
|
●
|
“Medium”
coal, a PRC coal industry classification, is coal that does not have
sufficient thermal value for coking, and is mixed with raw coal and coal
slurry (described below), and sold for home and industrial heating
purposes; and
|
|
|
●
|
Coal
slurry, sometimes called coal slime, are the castoffs and debris from the
coal washing process. Coal slurry can be used as a fuel with
low thermal value, and is sold “as is” or mixed with “medium”
coal.
|
SC Coke’s
annual production volumes of refined coal for the fiscal years ended December
31, 2007, 2008 and 2009, were approximately as follows:
|
|
|
Annual
|
|
|
Fiscal
|
|
Production
|
|
|
Year
|
|
(Tons)
|
|
| |
|
|
|
|
2007
|
|
|
810,186 |
|
| |
|
|
|
|
|
2008
|
|
|
555,316 |
|
| |
|
|
|
|
|
2009
|
|
|
595,518 |
|
Coke
Byproducts
Tar
Tar is an
ingredient of asphalt, and is commonly used in the treatment of psoriasis, as an
ingredient in certain disinfectants and for roofing and insulation
applications.
SC Coke’s
annual production volumes of tar for the fiscal years ended December 31, 2007,
2008 and 2009, were approximately as follows:
|
|
|
Annual Production
|
|
|
Fiscal Year
|
|
(Tons)
|
|
| |
|
|
|
|
2007
|
|
|
10,024 |
|
| |
|
|
|
|
|
2008
|
|
|
19,105 |
|
| |
|
|
|
|
|
2009
|
|
|
42,103 |
|
Amsulfate
Amsulfate
is used mainly as an agricultural fertilizer and can also be used in garment
manufacturing, and in the leather and medical industries. SC Coke’s
annual production volumes of amsulfate for the fiscal years ended December 31,
2007, 2008 and 2009, were approximately as follows:
|
|
|
Annual Production
|
|
|
Fiscal Year
|
|
(Tons)
|
|
| |
|
|
|
|
2007
|
|
|
4,935 |
|
| |
|
|
|
|
|
2008
|
|
|
6,536 |
|
| |
|
|
|
|
|
2009
|
|
|
8,555 |
|
Crude
Benzol
Crude
benzol is a base material which, when further processed, can produce products
such as benzene. Derivative products made from crude benzol are used
in dyes, pesticides, spice production, solvents or bonds in paint making, paint
spraying, shoemaking, and furniture manufacturing. SC
Coke’s annual production volumes of crude benzol for the fiscal years ended
December 31, 2007, 2008 and 2009, were approximately as follows:
|
|
|
Annual Production
|
|
|
Fiscal Year
|
|
(Tons)
|
|
| |
|
|
|
|
2007
|
|
|
1,671 |
|
| |
|
|
|
|
|
2008
|
|
|
1,557 |
|
| |
|
|
|
|
|
2009
|
|
|
7,915 |
|
Coal
Gas
SC Coke
uses coal gas for internal use to generate heat for its ovens and to produce
electricity. Any excess gas is piped and sold to Angang
Steel. Prior to 2008, there were no external sales of coal gas and
the excess coal gas was flared off to minimize discharge into the
environment. In 2008, SC Coke purchased a 19% interest in Angang
Steel and entered into a contract with Angang Steel to pipe and sell the excess
coal gas produced by SC Coke to Angang Steel.
SC Coke’s
annual production of coal gas for the fiscal years ended December 31, 2007, 2008
and 2009, were approximately as follows:
|
|
|
Annual Production
|
|
|
|
|
(Million Cubic
|
|
|
Fiscal Year
|
|
Meters)
|
|
| |
|
|
|
|
2007
|
|
|
214 |
|
| |
|
|
|
|
|
2008
|
|
|
227 |
|
| |
|
|
|
|
|
2009
|
|
|
300 |
|
Electricity
Generation
Electricity
that is generated by SC Coke is used to power SC Coke’s operations at its
plant. SC Coke estimates that the replacement cost of this
electricity, if it had to be purchased from the state-owned utility, would be in
excess of $800,000 (based on usage and prices in 2009) per year. For
the fiscal year ended December 31, 2009, SC Coke generated approximately 72.6
million kilowatt-hours of useable electrical power for self
consumption. In 2009, SC Coke consumed approximately $830,000 of
electricity from the state electricity grid.
Expansion
Plans
SC Coke
plans to expand its plant with two new coke ovens. In December 2009,
SC Coke started construction on the two additional 5.5 meter coke
ovens. SC Coke estimates that the expansion will be completed by
December 2010, but SC Coke expects that the additional ovens will not go into
operation until the first quarter of 2011, although no assurances can be made
that the construction will be completed, or operations commenced, by such
dates. As of the date hereof, SC Coke has completed approximately 30%
of the plant construction and issued purchase orders for approximately 60% of
the total required equipment necessary to complete the expansion. The
total cost of such plant expansion is expected to be approximately $85 million
and is expected to be financed by debt and/or equity financings and internally
generated cash flow. To date, SC Coke has expended approximately $9 million on
the expansion. If additional financing is not obtained, SC Coke may
need to reduce, defer or cancel its expansion plans.
SC Coke
is currently conducting the required environmental impact assessment for the
expansion of its plant and expects to be completed within the next several
months. Upon completion of the assessment, SC Coke will provide its
report to the appropriate environmental protection authority for
approval. SC Coke cannot provide any assurances whether or when it
will obtain the approval from the environmental protection
authority.
In August
2009, SC Coke started construction of a CDQ facility. Currently, SC
Coke utilizes water quenching, and the water containing coke dust vaporizes and
is released into the atmosphere. In the CDQ facility, red-hot coke
will be cooled by gas circulating within an enclosed system, thereby preventing
the release of airborne coke dust. The thermal energy of the red-hot coke, which
is lost in the conventional system, will be collected and reused as steam to be
used as heat and to generate electricity in the CDQ system. This
technology uses less fossil fuel and results in lower carbon dioxide
emissions. The CDQ project has received approval from the PRC
government and has been designated a Clean Development Mechanism project by the
Chinese government, which qualifies for CERs. The cost of
constructing this facility is expected to be approximately $30 million, of which
approximately $15 million has been expended to date. Because the CDQ
is an environmental conservation project, a portion of the total cost of the
project is expected to be provided pursuant to grants by the Chinese
government. To date, SC Coke has received grants in the amount of
approximately $1.1 million. There can be no assurance that additional
grants will be received. Any funding requirements not satisfied
through grants by the Chinese government are expected to be financed through
internal cash flow. See discussion below under the heading “Clean
Development Mechanism.” SC Coke estimates that the construction on
the CDQ facility will be completed by August 2010, although no assurances can be
made that the construction will be completed by such date. The
CDQ project has received PRC government approval to sell no more than 450,000
tons of carbon dioxide equivalent CER produced before December 31, 2012 to a
purchaser authorized by the German government, at a purchase price of at least
€9.5 per ton of carbon dioxide equivalent CER pursuant to a transfer contract
between SC Coke and the purchaser. While the CDQ is expected to
annually generate approximately 170,000 tons of carbon dioxide equivalent CER,
there is no certainty that SC Coke will achieve this amount of CER, or that it
will complete the CDQ project within expected costs and timeframes, or that it
will be able to sell the CER for at least €9.5 per CER.
An
additional benefit of the CDQ facility is that it is expected to increase the
quality of coke produced, which may enable the coke produced by SC Coke to
comply with the higher national standards for Grade I metallurgical
coke. However, there is no assurance that the CDQ facility will, by
itself, enable SC Coke to produce Grade I metallurgical coke.
Sales
and Marketing
SC Coke’s
customers purchase refined coal or coke pursuant to both long term and short
term contracts. The long term contracts are typically on an annual
basis and specify the volume to be purchased by the customer, with monthly price
adjustments to reflect prevailing market conditions. In 2009,
approximately 28% of SC Coke’s coke sales revenue, and approximately 36% of its refined coal
sales revenue, as a percentage of SC Coke’s top ten customers, were from long
term contracts. Short term contracts are typically on a monthly basis
and specify the volume to be purchased and price terms.
SC Coke
has a flexible credit policy and adjusts credit terms for different types of
customers. SC Coke generally evaluates a customer’s creditworthiness
to determine appropriate payment terms. Depending on the customer, SC
Coke may allow open accounts, or require bank notes payable or cash on
delivery. Bank notes payable are issued by local PRC banks and can be
exchanged for cash payments at varying discounted amounts based on the terms of
the bank notes payable issued. SC Coke also considers the requested
credit amount, background, financial condition of the client, and the length of
such customer’s relationship with SC Coke, among other factors, when determining
the payment arrangements and credit terms, which generally are payable within 60
to 90 days of delivery. For customers without a strong credit
history, SC Coke generally requires immediate settlement of accounts upon
product delivery.
SC Coke
has a sales force which is segregated between local and national sales teams,
and both teams are based in Anyang; however, the national sales force conducts
at least bi-monthly sales visits to existing customers and to prospective
customers. The local sales force is focused on managing customer
relationships within and in the vicinity of Henan province.
In
pricing its products, SC Coke considers factors such as the prices offered by
competitors, the quality and grade of the product sold, the volume in national
and regional coal inventory build-up, forecasted trends for coal and coke
prices, and price guidance from various government coke-related
associations. However, the actual prices of products are highly
dependent on the transportation costs of delivery to customers since shipping
and handling costs are paid by SC Coke and billed to its customers.
SC Coke’s
sales for the fiscal years ended December 31, 2007, 2008 and 2009 by product are
summarized below.
|
Annual Sales by Product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
of
|
|
|
|
|
|
|
|
|
|
|
of
|
|
|
Percentage
|
|
|
Refined
|
|
|
Percentage
|
|
|
Fiscal
|
|
|
|
|
Coke
|
|
|
of Total
|
|
|
Coal
|
|
|
of Total
|
|
|
Year
|
|
Total
Sales
|
|
|
(Tons)
|
|
|
Sales
|
|
|
(Tons)
|
|
|
Sales
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
121,797,131 |
|
|
|
495,341 |
|
|
|
58.53 |
% |
|
|
413,887 |
|
|
|
37.28 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
223,474,560 |
|
|
|
501,214 |
|
|
|
58.33 |
% |
|
|
448,848 |
|
|
|
36.28 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
206,729,105 |
|
|
|
748,331 |
|
|
|
74.60 |
% |
|
|
244,803 |
|
|
|
15.22 |
% |
Coke Sales. SC
Coke’s annual sales volumes of coke for the years ended December 31, 2007, 2008
and 2009 and the average selling price per ton for each fiscal year, were
approximately as follows:
|
Coke Sales
|
|
|
Fiscal Year
|
|
Annual
Sales
(Tons)
|
|
|
Average Selling
Price Per Ton
|
|
| |
|
|
|
|
|
|
|
|
|
2007
|
|
|
495,341 |
|
|
$ |
144 |
|
| |
|
|
|
|
|
|
|
|
|
2008
|
|
|
501,214 |
|
|
$ |
260 |
|
| |
|
|
|
|
|
|
|
|
|
2009
|
|
|
748,331 |
|
|
$ |
206 |
|
Refined Coal
Sales. SC Coke’s annual sales volumes of refined coal for the
years ended December 31, 2007, 2008 and 2009, and the average selling price per
ton for each fiscal year, were approximately as follows:
|
Refined Coal Sales
|
|
|
|
|
Annual
|
|
|
Average
|
|
|
|
|
Sales
|
|
|
Price Selling
|
|
|
Fiscal Year
|
|
(Tons)
|
|
|
Per Ton
|
|
| |
|
|
|
|
|
|
|
|
|
2007
|
|
|
413,887 |
|
|
$ |
110 |
|
| |
|
|
|
|
|
|
|
|
|
2008
|
|
|
448,848 |
|
|
$ |
181 |
|
| |
|
|
|
|
|
|
|
|
|
2009
|
|
|
244,803 |
|
|
$ |
128 |
|
Tar Sales. SC
Coke’s annual sales volumes of coal tar for the years ended December 31, 2007,
2008 and 2009, and the average selling price per ton for each fiscal year, were
approximately as follows:
|
|
|
|
|
|
|
|
|
Average
Selling
Price Per
Ton
|
|
| |
|
|
|
|
|
|
|
|
|
2007
|
|
|
10,024 |
|
|
$ |
244 |
|
| |
|
|
|
|
|
|
|
|
|
2008
|
|
|
19,105 |
|
|
$ |
329 |
|
| |
|
|
|
|
|
|
|
|
|
2009
|
|
|
42,103 |
|
|
$ |
127 |
|
Amsulfate
Sales. SC Coke’s annual sales volumes of amsulfate for the
years ended December 31, 2007, 2008 and 2009, and the average selling price per
ton for each fiscal year, were approximately as follows:
|
Amsulfate Sales
|
|
|
Fiscal
Year
|
|
Annual
Sales
(Tons)
|
|
|
Average
Selling
Price
Per Ton
|
|
| |
|
|
|
|
|
|
|
|
|
2007
|
|
|
4,935 |
|
|
$ |
86 |
|
| |
|
|
|
|
|
|
|
|
|
2008
|
|
|
6,262 |
|
|
$ |
175 |
|
| |
|
|
|
|
|
|
|
|
|
2009
|
|
|
8,555 |
|
|
$ |
81 |
|
Crude Benzol
Sales. SC Coke’s annual sales volumes of crude benzol for the
years ended December 31, 2007, 2008 and 2009, and the average selling price per
ton for each fiscal year, were approximately as follows:
|
Crude Benzol Sales
|
|
|
Fiscal Year
|
|
Annual
Sales
(Tons)
|
|
|
Average Selling
Price Per Ton
|
|
| |
|
|
|
|
|
|
|
|
|
2007
|
|
|
1,508 |
|
|
$ |
537 |
|
| |
|
|
|
|
|
|
|
|
|
2008
|
|
|
1,424 |
|
|
$ |
523 |
|
| |
|
|
|
|
|
|
|
|
|
2009
|
|
|
8,422 |
|
|
$ |
577 |
|
Coal Gas. SC
Coke’s annual sales volumes of coal gas for the years ended December 31, 2007,
2008 and 2009, and the average selling price per cubic meter for each fiscal
year, were approximately as follows:
|
|
|
|
Fiscal Year
|
|
Annual
Sales
(Million
Cubic
Meters)
|
|
|
Average Selling
Price Per Cubic
Meter
|
|
| |
|
|
|
|
|
|
|
|
|
2007
|
|
|
0 |
|
|
|
N/A |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
25.0 |
|
|
$ |
0.06 |
|
| |
|
|
|
|
|
|
|
|
|
2009
|
|
|
52.7 |
|
|
$ |
0.06 |
|
Product
and Suppliers Quality Control
SC Coke
adopts rigorous and frequent sampling and testing to ensure quality control over
its products in the coke and coke byproduct manufacturing
processes. SC Coke maintains an onsite testing laboratory to
perform the testing.
Raw
materials received from suppliers are subject to testing for suitability prior
to their use by SC Coke. This pre-qualification process can take
between two weeks to several months, depending on the type of raw
material. Different raw materials are subject to different testing
criteria. SC Coke also maintains a list of suppliers who are able to
produce coal suitable for SC Coke’s needs if its regular suppliers are unable to
meet its demands.
Samples
of raw materials and products are numerically tagged, identified and stored for
internal audit purposes to ensure that sample testing errors are
minimized. Internal audits generally take place on a bi-weekly
basis. Samples are typically kept for approximately one month at the
laboratory before transfer to SC Coke’s warehouse for reuse in the coke or coke
byproduct manufacturing processes.
In the
coke production process, refined coal is sampled and tested before transfer into
SC Coke’s stockpile. Samples at the stockpile are tested before
blending. Once the blending and crushing is completed before tamping,
the blended refined coal is tested every two hours. To the extent any
issues are identified during the testing process, SC Coke refines the incorrect
blend at separate batching towers. Coke at the distribution center is
tested before transport to customers. This testing is usually
performed every 4 hours.
Customers
SC Coke
sells all of its products within China. Its customers are
concentrated in North China, East China, Central China and South
China. SC Coke sells its coke to mostly national and provincial steel
manufacturing companies and sells its refined coal to coke producers and
others.
SC Coke’s
largest coke customer was Huzhou Huatuo Energy Co. Ltd., which accounted for 13%
of coke revenue sales in 2009. SC Coke’s top five coke customers
accounted for approximately 59% of coke revenue sales in
2009.
The
largest five customers of refined coal accounted for 71% of refined coal sales
revenue in fiscal 2009. Jiyuan City Jinma Coking Co. Ltd. was the
largest customer of refined coal and accounted for approximately 18% of refined
coal sales revenue in 2009.
Company
sales personnel conduct routine visits to customers. SC Coke has
long-standing relationships with these customers, and management believes that
these relationships are stable.
SC Coke’s
top ten major customers accounted for approximately 56% of its revenue in
fiscal 2009; non-renewal or termination of SC Coke’s arrangements with these
customers would have a materially adverse effect on SC Coke’s revenue. In
the event that any one of its major customers does not renew or terminates its
arrangement with SC Coke, there can be no assurance that SC Coke will be able to
enter into another arrangement similar in scope. Additionally, there
can be no assurance that SC Coke’s business will not remain largely dependent on
a limited customer base accounting for a substantial portion of its
revenue.
Transportation
and Distribution
SC Coke
owns and operates a private rail track approximately 1.7 kilometers in length
that connects SC Coke’s plant to the Chinese national railway system at the
Henan An-Li Railway Lizhen Railway Station. Refined coal and coke are
loaded from SC Coke’s platform onto railcars to be transported to customers
primarily in Central Eastern China, which includes the provinces of Hebei,
Henan, Shandong, Hubei, Anhui, Guangdong, Jiangsu and Zhejiang. SC Coke
also transports its products to customers by truck. In 2009,
approximately 58% of SC Coke’s product sales were delivered to customers by
railway network and 42% of products were delivered by road
transportation.
Competitors
Although
SC Coke’s current primary products are refined coal and coke, it considers
itself as primarily a coke producer. SC Coke intends to continue to
expand its coke production volumes and internal consumption of refined
coal. Refined coal sales as a percentage of SC Coke’s total revenue
has been declining since 2007. This trend is likely to continue with
the current expansion of SC Coke’s production facility. As such, SC
Coke’s main competitors are now, and likely to be for the foreseeable future,
coke producers.
SC Coke
competes in the coke market at the national, provincial and local levels. There
are several large coke producers, such as Shanxi Coking Co., Ltd and Shenhua
Group that provide and sell coke on a national level. However, the
availability and cost of transportation to customers may often be a factor which
limits these large producers from competing effectively in local markets. A key
provincial competitor is Pingmei Group, part of the Pingdingshan Coal Group, a
large state-owned company which produces coal, refined coal and
coke. Pingdingshan Coal Group’s operations are located in
Pingdingshan City, Henan Province, which is approximately 300 kilometers from SC
Coke. Local competitors include Linzhou Xinda Coking Co. Ltd, Henan
Province Xinlei Group Co. Ltd, Henan Province Liyuan Coking Co. Ltd and Henan
Province Yulong Coking Co. Ltd. Competitive factors that influence
coke sales include geographic location and available transportation to
customers, product prices, long-standing client relationships, payment terms,
reliability of delivery, quality and grade of coke, and quality of customer
service. The principal competitive factor that influences SC Coke’s
sale of its byproducts is price.
Suppliers
SC Coke
and Longdu source raw coal from local coal mines, including mines in which SC
Coke has an ownership interest, for its refined coal production and refined coal
for its coke production. The mine operated by Bailianpo, in which SC
Coke’s sole director and majority shareholder owns a 43.86% interest, provides
approximately half of the amount of raw coal it mines to SC Coke and
Longdu. Bailianpo supplied approximately 7% of SC Coke and Longdu’s
raw coal in 2009. SC Coke and Bailianpo are parties to a purchase
agreement pursuant to which SC Coke will buy 150,000 tons of raw coal per year
at a price of approximately $104 per ton. The agreement with
Bailianpo has a term that expires on December 31, 2013, and is subject to
certain adjustments and renegotiation based on the price published by the mining
bureau in China. In addition, SC Coke purchases coking coal from
Anyang Xinlong (an affiliate of SC Coke), which supplied approximately 50% by
dollar value of SC Coke’s coking coal purchased in 2009. SC Coke and
Anyang Xinlong are parties to a purchase agreement pursuant to which SC Coke
will buy 120,000 tons of raw coal per year at a price of approximately $104 per
ton. The agreement with Anyang Xinlong has a term that expires on
December 31, 2013, and is subject to certain adjustments and renegotiation based
on the price published by the mining bureau in China.
SC Coke
supplies approximately 33% of its own refined coal requirements (by dollar value
in 2009) and procures the balance from external suppliers. Local
suppliers provide five types of raw coal comprising coking coal, one-third coke,
low sulfur rich coal, high sulfur rich coal and lean coal In 2009, SC
Coke’s coal supply arrangements by dollar value were as follows: (1)
all of SC Coke’s coking coal supply was provided by 3 companies (including
Anyang Xinlong, in which SC Coke holds a 16% interest, which supplied
approximately 50% by dollar value); (2) all of SC Coke’s one-third coal was
purchased from one supplier; (3) approximately 38% of SC Coke’s purchase of low
sulfur rich coal was from one supplier; (4) all high sulfur rich coal was
purchased from one supplier; and (5) approximately 50% of SC Coke’s lean coal
requirements was from one supplier. Refined coal can be purchased
from other suppliers if any of these types of raw coal are unavailable, or
available in insufficient amounts.
Generally,
SC Coke’s suppliers contract for its main raw materials, namely raw coal and
refined coal, on a monthly basis with monthly renewals. The prices
and volumes fluctuate each month, and prices are based on then-prevailing market
conditions. Purchases from most suppliers require 100% advance
payments.
SC Coke
believes that it has established stable cooperative relationships with
its suppliers, but also expects it could, if necessary, readily find
alternative sources of coal near its plant, as Henan Province is one of China’s
main coal producing centers.
SC Coke’s
other principal raw materials include water drawn from underground sources, for
which SC Coke has the requisite permits, and electricity, approximately 50% of
which SC Coke generates onsite from its own power stations and which is
supplemented from the local state-owned utility as necessary. SC Coke
also uses raw materials, such as sulfuric acid, in the manufacture of
amsulfate. These
materials are readily available and there is no shortage of other suppliers to
choose from if there is any shortfall.
Employees
SC Coke
currently has in excess of 1,100 employees, of which approximately 125 are
professional technicians who possess national professional certification within
their area of expertise, including such areas as high pressure coke oven
operators, heavy equipment and crane operators and chemical, civil and
electrical engineers. Of the total employees, 866 are employed in SC
Coke’s plant while 310 employees serve in administrative and executive services
capacities. SC Coke’s sales department currently has approximately 23
employees, of which 12 are responsible for customer accounts and
relationships.
In
compliance with the Employment
Contract Law of PRC, SC Coke has written contracts with all of their
employees for a term of 3 to 5 years. The employment agreements
include the positions, responsibilities and salaries of the respective
employees, as well as the circumstances under which employment may be
terminated, and in
compliance with the Employment
Contract Law of PRC. SC Coke considers its relationship
with its employees to be good.
Under the
Employment Contract Law of
PRC, upon the termination of an employment agreement by SC Coke without
cause or expiration of an employment agreement without an offer to renew, SC
Coke is obligated to pay the applicable employee compensation equal to one
month’s salary for each year the employee has been employed by SC Coke, up to a
maximum of twelve years (“Compensation”), except where (1) the employee has
committed a crime or the employee’s actions or inactions have resulted in a
material adverse effect on SC Coke; (2) the employee receives pension payments;
(3) the employee dies or is declared dead or missing; or (4) SC Coke offers to
renew the employment agreement with equal or higher consideration and the
employee does not accept it. In these cases, SC Coke is not required
to pay any Compensation and may terminate an employment agreement without prior
notice. If the employee’s salary is greater than three times the
average salary for the last year in Anyang City, the Compensation will be
calculated by multiplying such average salary by three, and then multiplying the
product obtained by the number of years the employee was employed by SC Coke, up
to a maximum of twelve years.
SC Coke
may terminate an employment agreement upon 30 days prior written notice or
without prior notice upon an extra payment of one month salary and with
Compensation payable to such employee, for any of the following
reasons: (1) sickness or non-working injury and after medical
treatment an employee is not able to do the original work or other assignments
designated by SC Coke; (2) an employee is unable to perform his job and after
training or position adjustment and is still unable to perform his job at a
suitable level; and (3) the employment cannot be performed due to a fundamental
change of circumstances and the employer and employee fail to reach an agreement
to change the original employment contract.
If SC
Coke terminates an employment agreement prior to its expiration for any reason
other than as described above, the employee has the right to either enforce the
agreement or to terminate the agreement and require SC Coke to pay an amount
equal to twice the Compensation.
An
employee may at any time terminate the employee’s employment agreement upon 30
days prior written notice.
SC
Coke Facilities
SC Coke’s
principal executive office, coking factory and coal washing factory are in
Tongye Town, Anyang County, Henan Province. In addition, SC Coke has another
office in the Xingshe Office Building, East of Wenfeng Avenue, Wenfeng District,
Anyang City, Henan Province. SC Coke’s administrative headquarters is located
2.5 kilometers from the coking factory and is situated on a parcel of land of
approximately 110,770 square meters, leased through a land occupation agreement
with Xiacai Villagers Committee; the building occupies approximately 30,942
square meters.
SC Coke’s
coking factory and coal washing factory are located in Tongye Town, Anyang
County, Henan Province, approximately 40 kilometers from Anyang City. The coking
factory is situated on a parcel of land of approximately 260,000 square meters
and the factory is approximately 80,000 square meters. The People’s Government
of Anyang County issued to SC Coke several land use right certificates for the
site of the coking factory for 61,576.02 square meters in December of 2003. In
addition, SC Coke also leases approximately 198,420 square meters of land on
which the coking factory is located pursuant to several land occupation
agreements it has entered into with various village committees and
villagers. SC Coke’s coal washing facility is located approximately 4
kilometers from its coking factory on land leased pursuant to several land
occupation agreements with villagers in Nanxilu Village. The coal
washing facility is approximately 58,000 square meters.
The land
occupation agreements entered by SC Coke with various village committees and
villagers for the above land in Tongye Town generally have terms of more than 10
years with consideration of between RMB 1.5 to RMB 3 per square meter per
year.
“Land use
rights” are granted to an individual or entity after payment of a land use right
fee is made to the applicable state or rural collective economic organization
and individuals. Land use rights allow the holder of the right to use
the land for a specified long-term period. SC Coke has a land use
right, expiring in 2051, for a total of approximately 4,149.3 square meters
located in the Xingshe Office Building and owns approximately 8,479 square
meters of total floor space in the Xingshe Office Building.
The land
on which the coke plant of SC Coke is located is collective owned land, which
includes farmland and woodland. On December 31, 2008, the People’s
Government of Anyang County issued an approval to permit SC Coke to occupy and
use part of the farmland and woodland in Shitang, Fujiagou and South Tongye
Village. However, since SC Coke is using this agricultural land for
non-agricultural uses; it would need to apply to turn such collective owned
agricultural land to PRC state owned land or collective owned construction land,
which application is subject to approval of the provincial government of Henan
Province. Since SC Coke is currently using such agricultural land for
non-agricultural purposes, the PRC government has the right to confiscate the
land and impose fines on SC Coke at RMB 10 to 20 per square meter for arable
land occupied and no more than RMB 10 per square meter for land occupied other
than arable land. In addition, SC Coke may be required to cease any
new construction and remove any completed construction on such
land. There can be no assurance that confiscation and/or the
imposition of fines will not occur.
SC Coke
has mortgaged its office in Xingshe office and a portion of its machinery and
equipment to banks to secure loans it has obtained from the banks.
Longdu
operates a coal-washing facility near Laohegou Village, Matoujian Town, Longan
District, Anyang City, Henan Province, that is capable of producing up to 11,000
tons of refined coal annually.
Seasonality
SC Coke’s
sales in the first quarter are generally lower due to the reduced commercial
activity during the traditional Chinese New Year holiday.
Research
and Development
As of the
year ended December 31, 2009, SC Coke did not conduct any research and
development activities. However, while coke production is a very
mature industry, SC Coke intends to develop research and development initiatives
in partnership with local Chinese universities or research organizations to do
basic research and development to improve and achieve greater efficiencies in
the coke production process.
Intellectual
Property
SC Coke
currently has no patents, trademarks, in-bound or outbound licenses, franchises,
or royalty arrangements. Pursuant to technology development
agreements, SC Coke has agreed to provide funding of up to approximately $0.9
million regarding intellectual property development.
Governmental
Regulation
The
following is a summary of the principal governmental laws and regulations that
are or may be applicable to SC Coke’s operations. The scope and
enforcement of many of the laws and regulations in the PRC described below are
uncertain.
Coal
Business
According
to the Coal Trading Supervision Regulation issued by the National Development
and Reform Commission, any enterprise engaging in the business of the sale of
coal, washed and selected coal products, and processing and sale of coal for
civilian use is required to obtain a Coal Trading Qualification Certificate,
which is valid for three years and may be renewable upon application 30 days
before expiration. Currently, SC Coke holds a valid Coal Trading
Qualification Certificate, which expires October 31, 2010.
Under the
Work Safety Law of the
PRC, the Work Safety
Permit Regulation and Work Safety Permit Implemental
Regulation for Dangerous Chemical Products Manufacturer, an enterprise
which manufactures flammable and/or explosive chemical products is required to
obtain a Work Safety Permit before it starts producing such
products. A Work Safety Permit is valid for three years and may be
renewed after application and documentation and on-site examination as needed by
the relevant authority. Currently, SC Coke has a valid Work Safety Permit for
coke, tar, benzol and gas, which expires April 18, 2013.
According
to the National Industrial
Product Manufacture License Regulation of the PRC and its implementing
rules, enterprises producing dangerous chemical products are required to obtain
a National Industrial Product Manufacture License, which is valid for five years
and renewable upon application to the provincial Administration of Quality
Supervision, Inspection and Quarantine six months before expiration. Currently,
SC Coke has a valid National Industrial Product Manufacture License for organic
dangerous chemicals, which expires August 27, 2013.
Under the
Prevention and Control of
Radioactive Pollution Law of the PRC and the Regulation for Safety and
Protection of Radioisotopes and Radiation Apparatus, any enterprise
engaging in the business of the sale, manufacture and use of radioisotopes and
radiation apparatus is required to obtain a Radiation Safety License, which is
valid for five years and may be renewed upon application within three months
before expiration. Currently, SC Coke holds a valid Radiation Safety
License, which expires June 27, 2013.
Environmental
Impact Assessment
According
to the Environment Protection Law of the PRC, the Environment Impact Assessment
Law of the PRC and the Construction Project Environment Protection Regulations
promulgated by the State Council on November 29, 1998, any enterprise which
constructs a fixed asset investment project is required to submit an
environmental impact assessment to an environmental protection administrative
authority for approval. If such enterprise embarks on the
construction without submission of the environmental impact assessment or
approval by the applicable environmental protection administrative authority,
they will be required to provide the environmental impact assessment and may be
subject to a fine ranging from approximately $7,310 to $29,240. For
each new construction and expansion of a fixed asset investment project, SC Coke
is required to conduct an environmental impact assessment.
On May
10, 2010, the Environmental Protection Bureau of Anyang County (the “EPBAC”)
issued an environmental protection administrative penalty notice to SC Coke for
the construction of five coke ovens and related facilities without obtaining the
approval of an environmental impact assessment and ordered SC Coke to stop
construction and imposed a fine from approximately $7,310 to
$29,240. SC Coke has appealed to, and is waiting for a final decree
from, the EPBAC. The construction of two new coke ovens may be
delayed until SC Coke completes, and obtains approval of, an environmental
impact assessment for those ovens. Any failure to obtain such
approval may have a material adverse effect on SC Coke.
Other
than as described above, SC Coke has conducted environmental impact assessments
for its current production projects, which have been approved by the relevant
environmental protection administrative authorities.
Pollution
Emission
According
to the Tentative Plan of
Pollution Emission License issued by the State Administration of
Environment Protection (currently the Ministry of Environment Protection), on
January 2, 2004, the local environmental protection government department may
issue a pollution emission license for a period of two
years. However, there is no formal legislation concerning the
pollution emission license. In practice, enterprises will apply for a
new pollution emission license to the local environment protection government
department prior to the permit’s expiration. A pollution emission
license is valid for two years and may be renewed after application and on-site
examination as needed by the relevant authority. Currently, SC Coke has a
pollution emission license issued by the Environmental Protection Bureau of
Henan Province which expires on August 14, 2010.
On April
23, 2010, the EPBAC issued a pollutant over-limit rectification notice to SC
Coke for coke oven gas and dust emissions and required SC Coke to rectify and
control emissions within accepted limits. SC Coke rectified the
condition and reported to EPBAC on May 13, 2010. SC Coke estimates
that there will be no contingent liability resulting from such notice, although
there can be no assurance that the EPBAC will not assess a penalty for the
excess emissions.
Clean
Development Mechanism (“CDM”)
To
implement the 1992 United
Nations Framework Convention on Climate Change and the 1997 Kyoto Protocol to which
China is a signatory, the National Development and Reform Commission, Ministry
of Science and Technology, Ministry of Finance and Ministry of Foreign Affairs
promulgated the Clean
Development Mechanism Projects Administration Regulation on October 12,
2005. According to such regulation, a CDM project is required to be
approved by the National Development and Reform Commission and the Chinese
government is entitled to collect 2% of the revenue from the sale of CERs by a
Chinese entity. On April 9, 2009, the National Development and Reform
Commission issued an approval to certify the CDQ project of SC Coke as a CDM
project and to approve SC Coke to sell a maximum of 450,000 tons of carbon
dioxide equivalent CERs to a purchaser authorized by the German government at a
purchase price of at least €9.5 per ton of carbon dioxide equivalent
CER.
Dividend
Distribution
The
Company’s operations are conducted through SC Coke. It relies on
dividends and other distributions from Anyang WFOE and SC Coke to provide it
with its cash flow and allow it to pay dividends on the shares and meet its
other obligations. The principal regulations governing distribution
of dividends paid by wholly foreign-owned enterprises include:
● Wholly
Foreign-Owned Enterprise Law (1986), as amended; and
● Implementation
Rules on Wholly Foreign-Owned Enterprise Law (1990), as amended.
Under
these regulations, wholly foreign-owned enterprises in China may pay dividends
only out of their accumulated profits, if any, determined in accordance with PRC
accounting standards and regulations. In addition, wholly
foreign-owned enterprises in China are required to set aside at least 10% of
their after-tax profit based on PRC accounting standards each year to its
general reserves until the accumulative amount of such reserves reach 50% of its
registered capital. These reserves are not distributable as cash
dividends.
Foreign
Currency Exchange
On August
29, 2008, the State Administration of Foreign Exchange (“SAFE”) issued the
Notice of the General Affairs Department of the State Administration of Foreign
Exchange on the Relevant Operating Issues concerning the Improvement of the
Administration of Payment and Settlement of Foreign Currency Capital of
Foreign-funded Enterprises (“Circular 142”). Circular 142 requires
that RMB converted from the foreign currency-denominated capital of a
foreign-invested company may only be used for purposes within the business scope
approved by the applicable governmental authority and may not be used for equity
investments within the PRC unless specifically provided for
otherwise. The use of such Renminbi capital may not be changed
without SAFE’s approval and may not in any case be used to repay Renminbi loans
if the proceeds of such loans have not been used.
Regulation
of Foreign Exchange in Certain Onshore and Offshore Transactions
In
October 2005, SAFE issued the Notice on Issues Relating to the Administration of
Foreign Exchange in Fund-raising and Return Investment Activities of Domestic
Residents Conducted by Offshore Special Purpose Companies (“SAFE Notice 75”)
which became effective as of November 1, 2005, and was further supplemented by
two implementation notices issued by the SAFE on November 24, 2005 and May 29,
2007, respectively. Under SAFE Notice 75, prior registration with the local SAFE
branch is required for PRC residents to establish or to control an offshore
company for the purposes of financing that offshore company with assets or
equity interests in an onshore enterprise located in the PRC. An
amendment to registration or filing with the local SAFE branch by such PRC
resident is also required for the injection of equity interests or assets of an
onshore enterprise in the offshore company or overseas funds raised by such
offshore company, or any other material change involving a change in the capital
of the offshore company.
Under
SAFE Notice 75, PRC residents are further required to repatriate into the PRC
all of their dividends, profits or capital gains obtained from their
shareholdings in the offshore entity within 180 days of their receipt of such
dividends, profits or capital gains. The registration and filing
procedures under SAFE Notice 75 are prerequisites for other approval and
registration procedures necessary for capital inflow from the offshore entity,
such as inbound investments or shareholders loans, or capital outflow to the
offshore entity, such as the payment of profits or dividends, liquidating
distributions, equity sale proceeds, or the return of funds upon a capital
reduction. The failure to comply with such registration requirements
may subject Anyang WFOE to restrictions including, but not limited to, the
increase of the registered capital of Anyang WFOE, loans to Anyang WFOE, and
dividend distributions abroad from Anyang WFOE.
Regulations
of Overseas Investments and Listings
On August
8, 2006, six PRC regulatory agencies, including the Ministry of Commerce
(“MOFCOM”), the State Assets Supervision and Administration Commission, the
State Administration for Taxation, the State Administration for Industry and
Commerce, the China Securities Regulatory Commission (“CSRC”) and SAFE, jointly
adopted the Provisions on the
Mergers and Acquisitions of Domestic Enterprises by Foreign Investors
(the “New M&A Rule”), which became effective on September 8,
2006. This regulation, among other things, includes provisions that
purport to require that an offshore special purpose company (“SPV”) which is
formed for purposes of listing of equity interests in PRC companies through the
acquisition of PRC company equity with foreign equity as consideration and which
is controlled directly or indirectly by PRC companies or individuals obtain the
approval of the CSRC prior to the listing and trading of such SPV’s securities
on a stock exchange outside of the PRC.
On
September 21, 2006, the CSRC published procedures regarding its approval of
listings by SPVs outside of the PRC. The CSRC approval procedures
require the filing of a number of documents with the CSRC. It would
generally take several months to complete the approval process. Based on our
understanding of current PRC laws and as advised by our PRC counsel, SC Coke
believes the structure of our restructuring, including the VIE Agreements and
Call Option Agreements, is not subject to the New M&A Rule.
Environmental
Protection Measures
With
increased focus and regulations on environmental protection by the Chinese
government, SC Coke has adopted numerous measures and invested in capital
equipment to reduce the environmental impact from its operations.
There are
several operational processes at SC Coke that produce environmental
discharge: coal dust from raw and refined coal preparation and
storage, gas emitted from the coke production and wastewater.
The main
discharge from the raw and refined coal operations is coal dust. To
reduce coal dust, SC Coke has adopted several measures. Coal
stockpiles are surrounded with retaining walls to increase wind protection and
sprayed with treated wastewater to
reduce coal dust discharge into the environment. Additionally, coal
is delivered to the batching tower and coke ovens in enclosed delivery systems
which reduce coal dust discharge. SC Coke also employs dedusting
equipment and high pressure “smokeless” coal loading technology to reduce coal
dust discharge in the coal delivery process.
The main
discharge from the coke production is tar gas which contains toxins, such as
ammonia and sulfur dioxide. SC Coke’s plant is designed to process
the tar gas into products: such as tar, amsulfate, crude benzol and
coal gas which can be utilized and sold. Ammonia is treated with
sulfuric acid resulting in the production of amsulfate. The SC Coke
plant is fitted with wet flue gas desulfurization equipment to remove sulfur
dioxide in order to product coal gas which can be internally used for
electricity and heat generation, or piped and sold.
SC Coke
has installed wastewater treatment equipment with an annual capacity of 2.6
million cubic meters. SC Coke’s industrial and domestic wastewater is
biologically treated and the clean wastewater after treatment is used in the
quenching process, spraying the road to reduce dust emissions, and reducing the
dust in the coal field.
In
addition to the construction of its CDQ facility, SC Coke intends to continue to
refine its production processes and invest in capital equipment to reduce
environmental discharge to comply with more stringent regulations by the Chinese
government. SC Coke does not currently apportion any of its annual
budget to environmental protection measures; however, SC Coke internally
assesses and reviews potential projects that may enhance environmental
protection and operating efficiencies and results. As an example, SC
Coke is preliminarily evaluating the economic feasibility of recycling sulphuric
acid used to produce amsulfate through the deamination process.
Principal
Executive Office
The
principal executive office of SC Coke is located at Henan Province, Anyang
County, Cai Cun Road Intersection, Henan Shuncheng Group Coal Coke Co., Ltd.
(New Building), China 455141. SC Coke’s telephone number is +86 372
323 7890.
RISK
FACTORS
There
are numerous and varied risks, known and unknown, that may prevent the Company
from achieving its goals. The risks described below are not the only ones the
Company will face. If any of these risks actually occurs, the Company’s
business, financial condition or results of operation may be materially
adversely affected. In such case, the trading price of the Company’s common
stock could decline and investors in the Company’s common stock could lose all
or part of their investment.
Risks
Relating to SC Coke’s Business
SC
Coke’s future operating results have been and may continue to be affected by
fluctuations in raw material prices. SC Coke may not be able to pass
on cost increases to customers.
SC Coke’s
operating profits have been and may continue to be negatively affected by
fluctuations in the price of raw materials which consist primarily of raw coal
and refined coal. SC Coke is subject to short-term coal price
volatility. SC Coke may, based on operations and prevailing market
conditions, periodically purchase raw materials at higher prices. In
the past, SC Coke has been unable to pass the cost increase of raw materials on
to customers and may not be able to do so in the future. This has
adversely affected and may continue to adversely affect SC Coke’s gross margins,
profitability and operations. SC Coke’s sales agreements with
customers generally contain provisions that permit the parties to adjust the
contract price of the coke that SC Coke produces upward or downward at specified
times. For example, SC Coke may adjust these contract prices because
of increases or decreases in the price of raw materials from SC Coke’s mining
suppliers, general inflation or deflation, or changes in the cost of producing
coke caused by such things as changes in taxes, fees, royalties or the laws
regulating the mining, production, sale or use of raw coal and refined
coal. However, SC Coke may not be able to pass on cost increases to
customers. Market prices for raw coal and refined coal fluctuate in
most regions in China. In 2009, the raw coal
prices remained at a relatively higher level due to shortage in supply because
many smaller coal mines were temporarily shut down by the Shanxi provincial
government to effect coal mine consolidation. SC Coke was not able to
fully pass these cost increases on to its customers and may not be able to do so
with any future increases in the cost of raw materials. Since raw coking coal is
more limited in supply, its price tends to be more volatile. A
general rise in coking coal prices also may adversely affect the price of, and
demand for, coke and products made with coke such as iron and
steel. This may in turn lead to a fall in demand for SC Coke’s
products.
Factors
beyond our control could impact the amount and pricing of coal supplied by third
parties.
SC Coke
purchases coal, including raw coking coal and refined coal, from third
parties. Operational difficulties, changes in demand for contract
mine operators from SC Coke’s competitors and other factors beyond SC Coke’s
control could affect the availability, pricing and quality of coal suppliers,
including raw coking coal, produced for it by independent contract mine
operators. Disruptions in supply, increases in prices paid for raw
coal and refined coal produced by or purchased from third parties, or the
availability of more lucrative direct sales opportunities for SC Coke’s
purchased coal sources could increase its costs or lower SC Coke’s volumes,
either of which could negatively affect SC Coke’s profitability and operations.
In addition, mine accidents, weather-related problems, strikes, lock-outs or
other events experienced by SC Coke’s suppliers could impair SC Coke ability to
supply coal to customers if it is not able to find substitute sources to obtain
its coal.
The
demand for SC Coke’s products are cyclical and is affected by industrial
economic conditions. Downturns in the economy may reduce demand for
SC Coke’s products and its revenues could decline.
Because
SC Coke does not export its products out of China, its business and operating
results are primarily dependent upon China’s domestic demand for metallurgical
coke. However, because the domestic demand for metallurgical coke in
China is impacted by the international demand for metallurgical coke, SC Coke is
also susceptible to fluctuations in the international markets. The
domestic and international metallurgical coke markets are cyclical and exhibit
fluctuations in supply and demand from year to year and are subject to numerous
factors beyond SC Coke’s control, including, but not limited to, economic
conditions in China, global economic conditions and fluctuations in industries
with high demand for metallurgical coke, such as the steel, iron and power
industries. A significant decline in demand or excess supply for
metallurgical coke may have a material adverse effect on SC Coke’s business and
results of operations.
In
addition, nearly all of SC Coke’s sales are concentrated in the North China,
East China, Central China and South China. Accordingly, SC Coke is
susceptible to fluctuations in business caused by adverse economic conditions in
those regions. Difficult economic conditions in other geographic
areas into which SC Coke may expand may also adversely affect its business,
operations and finances.
If
any of SC Coke’s sales agreements for its primary products of coke and refined
coal terminates or expires, its revenues and operating profits could
suffer.
A
substantial portion of SC Coke’s primary product sales are made to customers
under short term monthly sales agreements. It is common business practice in
China that metallurgical coke and refined coal sale agreements are entered into
for monthly terms, with monthly renewals. This practice makes it
difficult for SC Coke to forecast long-term purchase and sale quantities and can
negatively affect its ability to manage inventory. These agreements
may be terminated or breached by a customer. We cannot provide any assurances
that SC Coke will be able to renew any of these agreements on terms equally or
more favorable to SC Coke. Non-renewal or termination of SC Coke’s agreements
with any of, or a material breach by, these customers could have a material
adverse effect on SC Coke’s revenue.
In
the past, SC Coke has derived a significant portion of its sales from a few
large customers. If SC Coke were to lose any such customers, its
business, operating results and financial condition could be materially and
adversely affected
SC
Coke’s customer base for its primary products, which contribute a high
percentage of revenues, has been highly concentrated. As of December
31, 2009, SC Coke’s top ten customers for its primary products contributed
approximately 56% of its sales revenue, while its largest customer contributed
approximately 10% of its sales revenue. SC Coke’s total number of
customers is relatively concentrated and limited, and any adverse developments
to any one of their business operations, or any material breach, termination or
non-renewal of agreements by such customers, could have an adverse impact on SC
Coke's business, operating results and financial condition.
Consolidation
in the Chinese iron and steel industries may adversely affect SC Coke's business
operations.
Many of
SC Coke’s customers are iron and steel manufacturing companies. On
March 20, 2009, the General Office of the State Council issued the Blueprint for
the Adjustment and Revitalization of the Iron and Steel Industry which sets
forth the PRC government’s objectives of, among other things, controlling the
total national capacity of, and encouraging consolidation in, the steel industry
from 2009 to 2011. As a result, the number of iron and steel
manufacturers will likely decrease, with an emergence of larger iron and steel
companies formed by strategic alliances and mergers and
acquisitions. This consolidation may have the effect of reducing the
number of customers available to purchase SC Coke’s products and may result in
the loss of current customers who are acquired by other iron and steel
manufacturing companies, which have their own suppliers. If any of
the foregoing occurs, SC Coke's business, market position, growth prospects and
operating results may be adversely affected.
PRC
coal mining industry consolidation may adversely affect SC Coke's business
operations.
In order
to enhance coal mining safety, coal exploration efficiency and environmental
protection, the PRC government has taken initiatives to consolidate the coal
mining industry. This consolidation may have the effect of reducing
the supply of coal available to SC Coke. In addition, if a supplier
of SC Coke is acquired, the terms of any supply contracts may no longer be
available as part of the consolidation. If any of the foregoing
occurs, SC Coke's business, market position, growth prospects and operating
results may be adversely affected.
Iron
and steel consumption is highly cyclical, and worldwide overcapacity in the iron
and steel industries and the availability of alternative products have resulted
in intense competition.
Iron and
steel consumption is highly cyclical and volatile and generally follows economic
and industrial conditions both worldwide and in regional markets. The
iron and steel industries have often been characterized by excess global supply,
which has led to substantial price decreases during periods of economic
weakness. Substitute materials are increasingly available for many iron and
steel products, which further reduces demand for iron and steel. Any
downturn in the iron and steel industries may have an adverse effect on SC
Coke's business, market position, growth prospects and operating
results.
Restrictions
on financing in the real estate industry may affect SC Coke's business
operations.
In order
to address concerns regarding the real estate market, the PRC government has
placed certain restrictions on the ability of purchasers to obtain financing for
the acquisition of residential and commercial real estate. These
restrictions, in turn, may negatively impact the demand for iron and
steel. Many of SC Coke’s customers are national and provincial iron
and steel manufacturing companies. If SC Coke’s iron and steel
company customers reduce their purchases from SC Coke as a result of any such
restrictions, SC Coke’s business and operations would be adversely
affected.
There
can be no assurance that any byproducts of the coking process SC Coke plans to
sell will achieve significant market acceptance or will generate significant
revenue.
SC Coke
plans to increase its coke production capacity which will increase byproducts
available for sale to third party customers. SC Coke can offer no
assurances that customers will purchase such byproducts from it or will purchase
the increased volume of such byproducts that it may offer for
sale. SC Coke's inability or failure to position and/or price any
byproducts competitively could have a material adverse effect on its business,
results of operations or financial position.
SC
Coke is unable to shut down its coke production process if demand for its coke
products decreases.
SC Coke
produces coke using coke ovens which are made of brick. Since the
bricks must be maintained at a relatively constant temperature, any prolonged
significant reduction in the temperature could permanently damage the coke
ovens. Accordingly, in the event demand for SC Coke’s products were
to decrease, SC would be unable to stop production, even if such production is
uneconomical.
A
reduction in coke production would result in a lower volume of SC Coke’s
byproducts available for sale.
SC Coke
sells the byproducts of its coke production process to third
parties. If SC Coke were to decrease production of coke, the amount
of byproducts available for sale would be reduced. Any reduction in
coke production will adversely impact SC Coke’s revenue which will be
exacerbated by the consequential reduction in coke byproducts available for
sale, which in turn may have a material adverse effect on its business and
results of operations.
SC
Coke relies on a limited number of third-party suppliers for its supply of coal
and refined coke and the loss of any such supplier could have a material adverse
effect on our operations.
SC
Coke is dependent upon its relationships with a limited number of local third
parties for its supply of coal. While SC Coke expects to increase the
number of suppliers it uses as its business expands, if any of these suppliers,
and in particular its largest supplier, terminate their supply relationship with
SC Coke, it may be unable to procure sufficient amounts of coal to fulfill its
needs. If SC Coke is unable to obtain adequate quantities of coal to
meet the demand for its products, SC Coke's customers could seek to purchase
products from other suppliers, which could have a material adverse effect on SC
Coke's revenues.
Disruption
in the transportation of SC Coke's coking products or difficulties experienced
with respect to the transportation of its coke ore refined coal could make its
operations less competitive and result in the loss of customers.
Coke and
refined coal producers and processors primarily depend upon rail and trucking to
deliver coal to markets. While SC Coke's customers typically arrange
and pay for transportation of coke and refined coal from its facilities to the
point of use, any disruption of these transportation services because of natural
disasters, weather-related problems, strikes, lock-outs or other events could
temporarily impair SC Coke's ability to supply coke and refined coal to
customers and thus could adversely affect its results of
operations. If transportation for SC Coke's coke and refined coal
becomes unavailable or uneconomic for its customers, its ability to sell coke
and refined coal could suffer. Transportation costs can represent a
significant portion of the total cost of coke and refined coal. Since
SC Coke’s customers typically pay that cost, it is a critical factor in a
distant customer’s purchasing decision. If transportation costs SC
Coke charges its customers are not competitive, the customer may elect to
purchase from another company.
SC Coke may not complete plant
construction or expansion projects, or it may complete projects on materially
different terms or on a different schedule than initially anticipated, and it
may not be able to achieve the intended benefits of any such project, if
completed.
SC Coke
is currently in the process of expanding its plant and completing its CDQ
facility and may undertake additional expansion projects in the
future. SC Coke anticipates that it will be required to seek
additional financing in the future to fund current and future plant construction
and expansion projects and may not be able to secure such financing on favorable
terms, if at all. If additional financing is not obtained, SC Coke
may need to limit, defer, or cancel its expansion plans. In addition,
projects may not be able to be completed on time as a result of natural
disasters, weather conditions, delays in obtaining or failure to obtain
regulatory approvals, delays in obtaining key materials, labor difficulties,
difficulties with partners or potential partners, a decline in the credit
strength of counterparties or vendors, or other factors beyond SC Coke’s
control. Even if plant construction and expansion projects are
completed, the total costs of the projects may be higher than anticipated and
the performance of SC Coke's business following the completion of any projects
may not meet expectations. Also, SC Coke may not be able to continue
to meet the requirements for incentives granted by the PRC government or such
programs could be modified or eliminated altogether. Further, SC Coke may not be
able to timely and effectively integrate the projects into its operations and
such integration may result in unforeseen operating difficulties or
unanticipated costs. Any of these or other factors could adversely
affect SC Coke's ability to realize the anticipated benefits from the plant
construction and expansion projects.
SC
Coke may not be able to meet quality specifications required by its customers
and as a result could incur economic penalties or the cancellation of agreements
which would reduce its sales and profitability.
Most of
SC Coke’s coke sales agreements contain provisions requiring it to deliver coke
meeting quality thresholds for certain characteristics such as sulfur content,
ash content, mechanical strength, volatility, moisture content and end-coke
content. If SC Coke is not able to meet these specifications,
because, for example, it is not able to source coal of the proper quality, it
may incur penalties, including price adjustments, the rejection of deliveries or
termination of the contracts.
SC
Coke’s business is highly competitive and increased competition could reduce its
sales, earnings and profitability.
The coal
washing and coke businesses are highly competitive in China, and SC Coke faces
substantial competition in connection with the marketing and sale of its
products. Most of SC Coke’s competitors are well established, have
greater financial, marketing, personnel and other resources, have been in
business for longer periods of time than it has, and have products that have
gained wide customer acceptance in the marketplace. The greater
financial resources of SC Coke’s competitors permit them to implement extensive
marketing and promotional programs. SC Coke could fail to expand its
market share, and could fail to maintain its current share. Increased
competition could also result in overcapacity in the Chinese coke industry in
general. Any overcapacity could reduce processed coke prices in the
future and SC Coke’s profitability would be impaired.
SC
Coke's success depends on attracting and retaining qualified
personnel.
SC Coke
is highly dependent on the knowledge of governmental issues of Wang Xinshun, its
sole director, and the operational expertise of its Chief Executive Officer,
Wang Feng and Li De Xin, its Chief Operating Officer, and the loss of any of
their services and support would have a material and adverse impact on SC Coke's
operations. If one or more of SC Coke's key personnel are unable or
unwilling to continue in their present positions, it may not be able to easily
replace them, and it may incur additional expenses to recruit and train new
personnel. The loss of SC Coke's key personnel could severely disrupt
its business and its financial condition and results of operations could be
materially and adversely affected. Furthermore, since the industries
SC Coke invests in are characterized by high demand and intense competition for
talent, it may need to offer higher compensation and other benefits in order to
attract and retain key personnel in the future. There can be no
assurances that SC Coke will be able to attract or retain the key personnel
needed to achieve its business objectives. If SC Coke were to lose
the services of its key senior managers, its ability to operate would be
impaired. SC Coke does not have key-man life insurance on the lives
of its executives.
SC Coke's
future success will depend in large part on its continued ability to attract and
retain other highly qualified management and operational personnel, as well as
personnel with expertise in SC Coke's field and industry. SC Coke
faces competition for personnel from other companies and
organizations. If SC Coke's recruitment and retention efforts are
unsuccessful, its business operations could suffer.
SC
Coke does not have any registered patents and it may not be able to maintain the
confidentiality of its processes.
SC Coke
has no patents covering its coking and washing processes and it relies on the
confidentiality of its coking and cleaning processes in producing a competitive
product. The confidentiality of its know-how may not be maintained
and it may lose any meaningful competitive advantage which might arise through
its proprietary processes.
A
prolonged downturn in global economic conditions may materially adversely affect
SC Coke's business.
SC Coke's
business and results of operations are affected by international, national and
regional economic conditions. Financial markets in Asia, the United
States and Europe have recently been experienced extreme disruption, including,
among other things, extreme volatility in security prices, severely diminished
liquidity and credit availability, ratings downgrades of certain investments and
declining values of others. These economic developments affect
businesses such as SC Coke's and those of its customers in a number of ways that
could result in unfavorable consequences to it. Current economic
conditions or a deepening economic downturn in the PRC and elsewhere may cause
SC Coke's current or potential customers to delay or reduce purchases which
could, in turn, result in reductions in SC Coke's sales volumes or prices,
materially and adversely affecting its results of operations and cash
flows. Volatility and disruption of global financial markets could
limit SC Coke's customers’ ability to obtain adequate financing to maintain
their operations and proceed with capital spending initiatives, leading to a
reduction in sales volume that could materially and adversely affect its results
of operations and cash flow. In addition, a decline in SC Coke's
customers’ ability to pay as a result of the economic downturn may lead to
increased difficulties in SC Coke’s collection of its accounts receivable,
higher levels of reserves for doubtful accounts and write-offs of accounts
receivable, as well as higher operating costs as a percentage of
revenues.
SC Coke may be
required to repay obligations under guarantees it has executed in favor of other
local entities.
From time
to time, SC Coke provides guarantees of loans and other obligations for other,
unrelated local enterprises. As of December 31, 2009, SC Coke had
seven guarantees of approximately $33.5 million in total principal outstanding
with terms up to five years, and at March 31, 2010, SC Coke had ten guarantees
of approximately $44.4 million in total principal outstanding with terms up to
five years. 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 guarantees
relate. Since 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 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. Although SC Coke may look to the debtor
for repayment of any such amounts paid to the bank on behalf of the debtor, SC
Coke's evaluation of the potential liability may prove to be inaccurate and
liabilities may exceed estimates. Changes in the economic environment
could leave SC Coke exposed for obligations that SC Coke has guaranteed which
could have a materially negative impact on the ongoing business of SC
Coke.
SC
Coke’s current debt and other obligations, including amounts it may be liable
for under guarantees, may harm its financial condition and results of
operations.
SC Coke’s
total consolidated short- and long-term debt as of March 31, 2010 was
$163.26 million. SC Coke’s level of indebtedness could result in
the following:
● it
could affect SC Coke's ability to satisfy its outstanding
obligations;
● a
substantial portion of SC Coke's cash flows from operations will have to be
dedicated to interest and principal payments and may not be available for
operations, working capital, capital expenditures, expansion, acquisitions or
general corporate or other purposes;
● it
may impair SC Coke's ability to obtain additional financing in the
future;
● it
may limit SC Coke's flexibility in planning for, or reacting to, changes in its
business and industry and the markets in which it competes;
● it
may make SC Coke more vulnerable to downturns in its business, its industry or
the economy in general; and
● it
may place SC Coke at a competitive disadvantage relative to its competitors with
less indebtedness.
As of
December 31, 2009, SC Coke had seven guarantees of approximately $33.5 million
in total principal outstanding with terms up to five years, and at March 31,
2010, SC Coke had ten guarantees of approximately $44.4 million in total
principal outstanding with terms up to five years.
SC Coke’s
operations may not generate sufficient cash to enable it to service all of its
obligations, including any obligations for which it may become liable pursuant
to guarantees it has executed in favor of third parties. If SC Coke
fails to make a payment on certain of its obligations, this could cause it to be
in default on such obligations and the mortgages on its assets by SC Coke to
secure such obligations may be enforced to repay the underlying outstanding
indebtedness, which would adversely affect the production capabilities and
operations of SC Coke.
SC
Coke has historically been funded by Wang Xinshun, the sole director of SC Coke,
through shareholder loans.
Historically,
Wang Xinshun has loaned funds to SC Coke in order to allow it to implement its
business plan and to fund the expansion of its operations, including its current
plant expansion. These loans have traditionally been provided on a
more favorable basis than SC Coke could have obtained by borrowing funds from a
bank. We can offer no assurances that financing to SC Coke from Wang
Xinshun or any unrelated parties, will be available in the future on favorable
terms, or at all. The failure to obtain funding to implement SC
Coke’s business plan and to expand its operations might adversely affect its
business, and operating results.
SC
Coke’s principal shareholders have control over SC Coke and may have conflicts
of interest with SC Coke.
SC Coke
is owned by three principal shareholders, including its sole director, Wang
Xinshun, who owns a 60% interest in SC Coke. The shareholders of SC
Coke may have, or may develop in the future, conflicts of interest with SC
Coke. Wang Xinshun holds a 43.86% interest in a mine which is one of
SC Coke’s raw coal suppliers. By limiting or eliminating SC Coke’s
supply, these suppliers could adversely impact SC Coke’s production and revenue,
which in turn may have a material adverse effect on its business and results of
operations.
If
SC Coke fails to obtain additional financing it will be unable to execute its
business plan.
As SC
Coke continues to grow, it continues to require capital
infusions. Under its current business strategy, SC Coke’s ability to
grow will depend on the availability of additional funds, suitable acquisition
targets or joint venture partners at an acceptable cost, meeting SC Coke's
liability requirements, and working capital. SC Coke's ability to
compete effectively, to reach agreements with acquisition targets on
commercially reasonable terms, to secure critical financing and to attract
professional technicians are critical to its success. SC Coke will
need additional funds to finance its expansion plans and may need additional
financing to make future acquisitions, continue improving its coal processing
facilities, and to obtain regulatory approvals for its
operations. Should such needs arise, SC Coke intends to seek
additional funds through public or private equity or debt financing, strategic
transactions and/or from other sources. However, there are no
assurances that future funding will be available on favorable terms or at
all. If additional funding is not obtained, SC Coke may 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. Further, the benefits
of an acquisition may take considerable time to develop and we cannot assure
investors that any particular acquisition or joint venture will produce the
intended benefits. Moreover, the identification and completion of
these transactions may require SC Coke to expend significant management time and
effort and other resources.
Terrorist
attacks or military conflict could result in disruption of our
business.
Terrorist
attacks and threats, escalation of military activity in response to such attacks
or acts of war may negatively affect SC Coke's business, financial condition and
results of operations. SC Coke's business is affected by general
economic conditions, fluctuations in consumer confidence and spending, and
market liquidity, which can decline as a result of numerous factors outside of
its control, such as terrorist attacks and acts of war. Future
terrorist attacks, rumors or threats of war, actual conflicts involving China or
its allies, or military or trade disruptions affecting SC Coke’s customers may
materially adversely affect SC Coke's operations. As a result, there could be
delays or losses in transportation and deliveries of processed coal to its
customers, decreased sales of coal and extensions of time for payment of
accounts receivable from customers. Strategic targets such as
energy-related assets may be at greater risk of terrorist attacks than other
targets. In addition, disruption or significant increases in energy
prices could result in government-imposed price controls. Any, or a
combination, of these occurrences could have a material adverse effect on SC
Coke's business, financial condition and results of operations.
SC
Coke’s industry is heavily regulated and it may not be able to comply with all
such regulations and it may be required to incur substantial costs in complying
with such regulations.
SC Coke
is subject to extensive regulation by China’s National Development and Reform
Commission and Ministry of Environmental Protection, and by other provincial,
county and local authorities in jurisdictions in which its products are
processed or sold, regarding the processing, storage, and distribution of its
product. SC Coke's processing facilities are subject to periodic
inspection by national, provincial, county and local authorities. SC
Coke may not be able to comply with current laws and regulations, or any future
laws and regulations. To the extent that new regulations are adopted,
SC Coke will be required to adjust its activities in order to comply with such
regulations. SC Coke may be required to incur substantial costs in
order to comply. SC Coke's failure to comply with applicable laws and
regulations could subject it to civil remedies, including fines, injunctions,
recalls or seizures, as well as potential criminal sanctions, which could have a
material and adverse effect on SC Coke's business, operations and
finances. Changes in applicable laws and regulations may also have a
negative impact on its sales.
The
government regulation of SC Coke’s coal processing and coke production
operations imposes additional costs on SC Coke, and future regulations could
increase those costs or limit its ability to crush, clean and process coking
coal. China’s provincial, county and local authorities regulate
matters such as employee health and safety, permitting and licensing
requirements, air quality standards, water pollution, plant and wildlife
protection and the discharge of materials into the environment. SC
Coke may delay commencement, expansion or continuation of its coal processing
operations. In addition, third parties and governmental agencies in
some cases have the power under such laws and regulations to require remediation
of environmental conditions and, in the case of governmental agencies, to impose
fines and penalties. The possibility exists that new legislation
and/or regulations and orders may be adopted that may materially and adversely
affect its operations, its cost structure and/or its customers’ ability to
produce coke or use coal. New legislation or administrative
regulations (or judicial interpretations of existing laws and regulations),
including proposals related to the protection of the environment that would
further regulate and tax the coal industry, may also require SC Coke and its
customers to change their operations significantly and/or incur increased
costs. These factors and legislation, if enacted, could have a
material adverse effect on SC Coke’s financial condition and results of
operations.
SC Coke
also believes that it is in compliance in all material respects with the
numerous laws, regulations, rules, specifications and permits, approvals and
registrations relating to human health and safety and the environment except
where noncompliance would not have a material adverse effect on its business,
financial condition and results of operations.
In
connection with the ownership and operation of SC Coke's properties (including
locations to which it may have sent waste in the past) and the conduct of its
business, it potentially may be liable for damages or cleanup, investigation or
remediation costs. SC Coke's budgeted amount for environmental
regulatory compliance may not be sufficient, and it may need to allocate
additional funds for this purpose. If SC Coke fails to
comply with current or future environmental laws and regulations, it may be
required to pay penalties or fines or take corrective actions, any of which may
have a material adverse effect on its business operations and financial
condition.
No
assurance can be given that all potential environmental liabilities have been
identified or properly quantified or that any prior owner, operator, or tenant
has not created an environmental condition unknown to SC
Coke. Moreover, no assurance can be given that (i) future laws,
ordinances or regulations will not impose any material environmental liability
or (ii) the current environmental condition of SC Coke’s properties will not be
affected by the condition of land or operations in the vicinity of the
properties or by third parties unrelated to SC Coke.
It is
possible that compliance with a new regulatory requirement could impose
significant compliance costs on SC Coke's business. Such costs could
have a material adverse effect on SC Coke's business, financial condition and
results of operations.
In
addition, China is a signatory to the 1992 United Nations Framework Convention
on Climate Change and the 1997 Kyoto Protocol, which are
intended to limit greenhouse gas emissions. On March 14, 2006, the
PRC Government released the outline of the Eleventh Five-Year Plan for National
Economic and Social Development, which sets goals to decrease the amount of
energy consumed per unit of GDP by 20 percent and to reduce the emission of
certain major pollutants by ten percent. In addition, recent
discussions between the PRC government and U.S. government on clean energy
initiatives, including the reduction of CO2 level and
the use low-carbon coal, which initiatives may be incorporated in the Twelfth
Five-Year Plan for National Economic and Social Development, may have
significant effects on SC Coke's business operations. If efforts to
reduce energy consumption, to use low-carbon coal, and to control greenhouse gas
emissions reducing coal consumption are adopted, SC Coke's revenue would
decrease and its business would be adversely affected.
SC
Coke's business will suffer if it cannot obtain, maintain or renew necessary
permits or licenses.
All PRC enterprises in the coal
industry are required to obtain from various PRC governmental authorities
certain permits and licenses, including, without limitation, a business license,
a Coal Trading Qualification Certificate, a Work Safety Permit for coke, tar,
benzol and sulfoximine, a pollution emission license and a National Industrial
Product Manufacture License.
These
permits and licenses are subject to periodic renewal and/or reassessment by the
relevant PRC government authorities, including permits which expire in less than
one year, and the standards of compliance required in relation thereto may from
time to time be subject to change. SC Coke intends to apply for
renewal and/or reassessment of such permits and licenses when required by
applicable laws, including renewal of its current Pollution Emission License to
include its expanded plant prior to the start of production in its plant, and
regulations and believes it can renew its permits in the ordinary course of its
business, however, we cannot assure you that SC Coke can obtain, maintain or
renew the permits and licenses or accomplish the reassessment of such permits
and licenses in a timely manner. Any changes in compliance standards,
or any new laws or regulations that may prohibit or render it more restrictive
for us to conduct SC Coke's business or increase its compliance costs may
adversely affect our operations or profitability. Any failure by SC
Coke to obtain, maintain or renew the licenses, permits and approvals may have a
material adverse effect on the operation of SC Coke's business. In addition, SC
Coke may not be able to carry on business without such permits and licenses
being renewed and/or reassessed.
SC Coke
is also required to conduct an environmental impact assessment for the expansion
project and file such assessment with the local government. Although
SC Coke is currently in the process of conducting the environmental impact
assessment, we cannot assure you that SC Coke can make the filing and/or obtain
the requisite approval for the environmental impact assessment in a timely
manner. Any failure by SC Coke to make the filing and obtain the
approval for environmental impact assessment for expansion may delay the
construction of such expansion and subject SC Coke to a fine of approximately
$7,310 to $29,240 if SC Coke commences construction of expansion without
conducting environmental impact assessment, and as a result may have a material
adverse effect on SC Coke's business expansion.
SC
Coke may suffer losses resulting from industry-related accidents and lack of
insurance.
SC Coke
operates coal related facilities that may be affected by water, gas, fire or
structural problems and earthquakes and other natural disasters. As a
result, SC Coke, like other companies operating coke production facilities, have
experienced accidents that have caused property damage and personal
injuries. Although SC Coke continuously reviews its existing
operational standards, including insurance coverage, and it has implemented
safety measures and provided on-the-job training for our employees and workers,
there can be no assurance that industry-related accidents, natural disasters and
earthquakes will not occur in the future. Additionally, the risk of
accidental contamination or injury from handling and disposing of SC Coke
products cannot be completely eliminated. In the event of an
accident, SC Coke could be held liable for resulting damages. The
insurance industry in China is still in its development stage and Chinese
insurance companies offer limited business insurance products. SC
Coke currently has work-related injury insurance for its employees at its plant,
but it does not currently maintain fire, casualty or other property insurance
covering its properties, equipment or inventories. In addition, SC
Coke does not maintain any business interruption insurance or any third
party liability insurance to cover claims related to personal
injury, property or environmental damage arising from accidents on its
properties. Any
uninsured losses and liabilities incurred by SC Coke could have a material
adverse effect on its financial condition and results of
operations.
SC
Coke needs to manage growth in operations to maximize its potential growth and
achieve its expected revenues, and its failure to manage growth would cause a
disruption of its operations resulting in the failure to generate revenue at
levels it expects.
In
order to maximize potential growth in SC Coke’s current and potential markets,
it is expanding its production operations. This expansion will place
a significant strain on SC Coke’s management and its operational, accounting and
information systems. SC Coke anticipates that it will need to
continue to improve its financial controls, operating procedures, and management
information systems. SC Coke will also need to effectively recruit,
train, motivate and manage its employees. SC Coke’s failure to manage
its growth could disrupt its operations and ultimately prevent it from
generating the revenues it expects to achieve.
If
SC Coke’s land use rights are revoked, it would have no operational
capabilities.
Under
Chinese law land is owned by the state or rural collective economic
organizations. The state issues to tenants the rights to use
property. Use rights can be revoked and the tenants forced to vacate at any time
when redevelopment of the land is in the public interest. The public
interest rationale is interpreted quite broadly and the process of land
appropriation may be less than transparent. SC Coke relies on these
land use rights as the cornerstone of its operations, and the loss of such
rights would have a material adverse effect on our company. According
to PRC laws and regulations, any individual or organization which needs to
use land for non-agricultural construction is required to apply for state owned
land, except (i) to build a villager’s house; (ii) to build public facilities,
or (iii) for a village/county-owned enterprise’s operation. However,
if a village/county-owned enterprise is merged, acquired or reorganized by other
enterprises, the collective land previously possessed by such
village/county-owned enterprise can be used by the acquirer for non-agricultural
construction. Since SC Coke is not a village/county-owned enterprise,
the construction of part of its coking plant in Fujiagou Village and
Dongjie Village and its office building in Xiacai Village using collective owned
land through occupation agreements with village committees and individual
villagers is not protected by relevant laws and regulations. If the
villagers or villager committees breach the occupation agreements and do not
allow SC Coke to use the land, SC Coke cannot force such villagers or villager
committees to carry out the occupation agreements, but can only stop paying
compensation as provided in the occupation agreements. The land on
which the plant of SC Coke is located is collective owned land, which includes
farmland and woodland. On December 31, 2008, the People’s Government
of Anyang County issued an approval to permit our Company occupying and using
part of the farmland and woodland in Shitang, Fujiagou and South Tongye
Village. However, since SC Coke is using this agricultural land for
non-agricultural uses it would need to apply for PRC state owned land or
collective owned construction land. Since SC Coke is currently using
such agricultural land for non-agricultural purposes, the PRC government has the
right to confiscate the land and impose a significant fine.
Climate
change poses both regulatory and physical risks that could adversely impact SC
Coke’s business, financial position, results of operations and
liquidity.
Climate
change could have a potential economic impact on us and climate change
mitigation programs and regulations could increase SC Coke's costs. Energy costs
could be higher as a result of climate change regulations. SC Coke's
costs could increase if utility companies pass on their costs, such as those
associated with carbon taxes, emission cap and trade programs, or renewable
portfolio standards. In addition, climate change may increase the frequency or
intensity of natural disasters. We cannot assure you that climate
change will not adversely impact SC Coke's business, financial position, results
of operations and liquidity.
SC
Coke is past due in the payment of certain taxes.
At
December 31, 2009, SC Coke had approximately $3 million of overdue enterprise
income taxes. As a result, SC Coke is subject to an overdue fine at
the rate of 0.05% per day of the amount of taxes in arrears, commencing from the
day the tax payment is overdue. The tax authority may also impose an
additional fine of 50% to five times the underpaid taxes. SC Coke has available
funds to cover the underpaid tax and overdue fine, but may not have sufficient
funds available to pay the additional fine. Wang Xinshun, the sole
director of SC Coke, and SC Coke entered into a tax indemnity agreement on May
23, 2010, pursuant to which Wang Xinshun 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, and any such indemnity payment will be solely deducted from the principal
amount of the loan Wang Xinshun provided to SC Coke. According to
applicable PRC law, the tax authority may, upon approval of the commissioner and
a tax bureau (or a sub-bureau) at the county level or above, adopt the following
mandatory enforcement measures: (i) notify in writing the bank or other
financial institution where the SC Coke has opened an account to withhold the
amount of taxes from its deposits; and/or (ii) distrain, seal up or sell by
auction the commodities, goods, or other properties of SC Coke, the value of
which shall be equivalent to the amount of taxes payable. In
addition, if SC Coke’s legal representative, who currently is Wang Xinshun needs
to leave China, SC Coke shall pay the taxes payable and overdue fine or provide
a guaranty to the tax authority before the legal representative leaves the
country. If SC Coke or the legal representative neither pays the
taxes payable and the overdue fine nor provides a guaranty, the tax authority
may notify the exit authority to stop the legal representative from leaving the
country. SC Coke must also report to the tax authority before it
disposes its real estate or assets of high value. The tax authority
may within three years from the day the tax payment is overdue pursue the
collection of the taxes in arrears and the overdue fine. In case of
any particular circumstance, the period for pursuing the collection of the taxes
in arrears may be extended to five years. The tax authority may also
order SC Coke to pay, within a prescribed time limit, the tax
payable. If SC Coke still fails to pay the amount of taxes within
such time limit, the tax authority may, in addition to pursuing the payment of
tax payable, may impose a fine of from 50% to five times of the tax
underpaid. “Evasion of tax” includes circumstances where a taxpayer
does not pay or underpays the taxes payable after having been notified by the
tax authority to do so. For a taxpayer who evades taxes, the tax
authority can pursue the payment of the unpaid or underpaid taxes, the overdue
fine, and impose a fine with the amount from 50% to five times of the taxes
unpaid or underpaid. For evasion of taxes, there is no limit for
pursuance time. If the tax evaded is more than 10% and less than 30%
of tax payable and is between approximately $1,462 to $14,620, or the taxpayer
is punished by tax authority twice for tax evasion and evades tax more than
approximately $1,462 again, the taxpayer is subject to a fine at 100% to five
times of the tax evaded, and its legal representative is subject to imprisonment
of less than three years; if the tax evaded is more than 30% of tax payable and
is more than approximately $14,620, the taxpayer is subject to a fine at 100% to
five times of the tax evaded, and its legal representative is subject to
imprisonment of three to seven years. The unfavorable resolution of
any potential tax or other proceeding or action could require us to make
significant payments in overdue taxes, penalties and fines or otherwise record
charges that may adversely affect our results of operations and financial
condition. As of
the date of this Current Report, SC Coke has not been notified by a tax
authority to pay all or any portion of the underpaid taxes nor, to the knowledge
of SC Coke, has any tax authority commenced collection or enforcement
measures.
If
we do not implement necessary improvements to our internal control over
financial reporting in an efficient and timely manner, or if we discover
additional deficiencies and weaknesses in existing systems and controls, we
could be subject to regulatory enforcement and investors may lose confidence in
our ability to operate in compliance with existing internal control rules and
regulations, which could result in a decline in our share price.
The PRC
historically has been deficient in western style management and financial
reporting concepts and practices, as well as in modern banking, and other
control systems. We may have difficulty in hiring and retaining a sufficient
number of qualified employees to work in the PRC and we may experience
difficulty in establishing management, legal and financial controls, collecting
financial data and preparing financial statements, books of account and
corporate records and instituting business practices that meet western
standards.
Our
ability to manage our operations and growth requires us to maintain effective
operations, compliance and management controls, as well as internal control over
financial reporting. Our internal controls over financial reporting are designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of consolidated financial statements for external purposes
in accordance with accounting principles generally accepted in the United
States. As a result of an evaluation of our internal control
procedures we have identified material weakness in our internal control over
financial reporting. Specifically, SC Coke has determined that it has
a material weakness related to its ability to prepare financial statements in
accordance with GAAP. SC Coke came to this conclusion based on the
following significant deficiencies:
● SC
Coke holds a number of investments in other China-based companies. SC
Coke failed to properly identify the entities that required consolidation and
the proper accounting treatment for the other entities where it did not have
significant ownership or significant control and influence.
● SC
Coke failed to perform appropriate inventory and sales cut-off during its
year-end close procedures.
● SC
Coke failed to properly reconcile its cash accounts during its year-end close
procedures.
● SC
Coke failed to identify significant GAAP disclosures during the preparation of
its financial statements.
While SC
Coke has begun to, or is intending to, take various measures to remediate the
material weaknesses, and intends to continue to evaluate and strengthen its
internal controls over financial reporting systems, these efforts require
significant time and resources. If we are unable to establish adequate internal
controls over financial reporting systems, we may encounter difficulties in the
audit or review of our financial statements by our independent public
accountants, which in turn may have a material adverse effect on our ability to
comply with the reporting obligations imposed upon us by the
SEC.
It may be
difficult to design and implement effective internal control over financial
reporting for combined operations following the Share Exchange and perhaps
other businesses which may be acquired in the future. In addition,
differences in existing controls of acquired businesses may result in weaknesses
that require remediation when internal controls over financial reporting are
combined.
If we
fail to maintain an effective system of internal control, we may be unable to
produce reliable financial reports or prevent fraud. If we are unable to assert
that our internal control over financial reporting is effective at any time in
the future, or if our independent registered public accounting firm is unable to
attest to the effectiveness of internal controls, is unable to deliver a report
at all or can deliver only a qualified report, we could be subject to regulatory
enforcement and investors may lose confidence in our ability to operate in
compliance with existing internal control rules and regulations, which could in
any such instance result in a decline in our share price.
Risks
Relating to the Company and our Corporate Structure
Our
corporate structure, in particular the VIE Agreements, are subject to
significant risks, as set forth in the following risk factors.
We
are primarily a holding company and depend on distributions from our
subsidiaries to meet our financial obligations.
Our
company has an offshore holding structure commonly used by Chinese enterprises
seeking to be listed on a securities exchange outside the PRC. We are
a corporation which owns Shun Cheng HK, Shun Cheng HK owns Anyang WFOE and
Anyang WFOE has contractual arrangements pursuant to which it controls the
operations of SC Coke. Our operations are conducted exclusively
through SC Coke, in which we own no equity interest. The operations
of SC Coke are our sole source of revenues. We have no operations
independent of those of Anyang WFOE and SC Coke and its
subsidiary. As a result, we are dependent upon the performance of SC
Coke and its subsidiary and will be subject to the financial, business and other
factors affecting such entities as well as general economic and financial
conditions. As substantially all of our operations are conducted
through SC Coke, we are dependent on the cash flow received by SC Coke to meet
our obligations. The claims of our shareholders will be structurally
subordinated to all existing and future liabilities and obligations, and trade
payables, of our subsidiaries and SC Coke. In the event of our
bankruptcy, liquidation or reorganization, our assets and those of our
subsidiaries and will be available to satisfy the claims of our shareholders
only after all of Anyang WFOE’s liabilities and obligations have been paid in
full.
The
PRC government may determine that the VIE Agreements are not in compliance with
applicable PRC laws, rules and regulations.
In the
PRC it is widely understood that foreign invested enterprises are forbidden or
restricted in their ability to engage in certain businesses or industries which
are considered sensitive to the economy. While we intend to
centralize our management and operation in the PRC without being restricted to
conduct certain business activities which are important to our current or future
business but are restricted or might be restricted in the future, we believe our
VIE Agreements will be essential for our business operation. In order
for Anyang WFOE to manage and operate our business through SC Coke in the PRC,
the VIE Agreements were entered into under which almost all the business
activities of SC Coke are managed and operated by Anyang WFOE and almost all
economic benefits and risks arising from the business of SC Coke are transferred
to Anyang WFOE.
There are
risks involved with the operation of SC Coke under the VIE Agreements. If the
VIE Agreements are considered to be in breach of any existing or future PRC laws
or regulations, the relevant regulatory authorities would have broad discretion
in dealing with such breach, including:
● discontinuing
or restricting the operations of Anyang WFOE or SC Coke;
● imposing
conditions or requirements in respect of the VIE Agreements with which Anyang
WFOE may not be able to comply;
● requiring
us to restructure the relevant ownership structure or operations;
● taking
other regulatory or enforcement actions that could adversely affect our
business; and
● voiding
the VIE Agreements.
Any of
these actions could have a material adverse impact on our business, financial
condition and results of operations.
We
depend upon the VIE Agreements in conducting our business in the PRC, which may
not be as effective as direct ownership.
Following
the Share Exchange, we will conduct our business in the PRC and generate the
relevant revenues through the VIE Agreements. The VIE Agreements may
not be as effective in providing us with control over SC Coke as direct
ownership. The VIE Agreements are governed by PRC laws and provide
for the resolution of disputes through arbitration pursuant to PRC
laws. Accordingly, the VIE Agreements would be interpreted in
accordance with PRC laws. If SC Coke or its shareholders fail to
perform the obligations under the VIE Agreements, we may have to rely on legal
remedies under PRC laws, including seeking specific performance or injunctive
relief, and claiming damages, and there is a risk that we may be unable to
obtain these remedies. The legal environment in China is not as developed as in
other jurisdictions. As a result, uncertainties in the PRC legal
system could limit our ability to enforce the VIE Agreements and
therefore our rights under the VIE Agreements may not be fully protected
under PRC laws.
The
pricing arrangement under the VIE Agreements may be challenged by the PRC tax
authorities.
We could
face adverse tax consequences if the PRC tax authorities determine that the VIE
Agreements were not entered into based on arm’s length
negotiations. If the PRC tax authorities determine that the VIE
Agreements were not entered into on an arm’s length basis, they may adjust the
income and expenses of SC Coke and/or Anyang WFOE for
PRC tax purposes, which could result in higher tax liability.
We
rely on the approval certificates and business license held by SC Coke and any
deterioration of the relationship between Anyang WFOE and SC Coke could
materially and adversely affect the overall business operation of our
company.
Following
the Share Exchange, and pursuant to the VIE Agreements, our business in China
will be undertaken on the basis of the approvals, certificates and business
license as well as other requisite licenses held by SC Coke. There can be no
assurance that SC Coke will be able to renew its licenses or certificates when
their terms expire with substantially similar terms as the ones they currently
hold.
Further,
our relationship with SC Coke is governed by the VIE Agreements, which are
intended to provide us, through our indirect ownership of Anyang WFOE, with
effective control over the business operations of SC Coke. However,
the VIE Agreements may not be effective in providing direct control over the
applications for and maintenance of the licenses required for SC Coke’s business
operations. SC Coke could violate the VIE Agreements, go bankrupt,
suffer from difficulties in its business or otherwise become unable to perform
its obligations under the VIE Agreements and, as a result, our operations,
reputation, business and stock price could be severely harmed.
If
Anyang WFOE exercises the purchase options over SC Coke’s equity pursuant to the
VIE Agreements, the payment of purchase price could materially and adversely
affect the financial position of our company.
Under the
VIE Agreements, Anyang WFOE holds an option to purchase all or a portion of the
equity of SC Coke at a minimum price permitted under then-applicable PRC laws
and regulations at the time of the exercise of the option, and such price,
subject to applicable PRC law, shall be refunded to Anyang WFOE or SC Coke at no
consideration in an appropriate manner decided by Anyang WFOE. In the
case that applicable PRC laws and regulations require an appraisal of the equity
interest or provide other restrictions on the purchase price, the purchase price
shall be the lowest price permitted under the applicable PRC laws and
regulations. As SC Coke is already a contractually controlled
affiliate to our company, Anyang WFOE’s purchase of SC Coke’s equity would not
bring immediate benefits to our company and the exercise of the option and
payment of the purchase prices could adversely affect the financial position of
our company.
Past
company activities prior to the Share Exchange may lead to future liability for
the Company.
Prior
to the closing of the Share Exchange on June 28, 2010, we were engaged in a
business that is unrelated to our current operations. Although
certain of our shareholders prior to the Share Exchange have provided certain
indemnifications against losses, subject to certain limitations, arising out of
or based on breaches of representations and warranties made in connection with
the Share Exchange Agreement, any liabilities relating to such prior business
against which we are not completely indemnified may have a material adverse
effect on our financial condition and results of operations.
We
may not be able to consolidate the financial results of our affiliated company
or such consolidation could materially adversely affect our operating results
and financial condition.
For PRC
regulatory reasons, much of our operations are/will be conducted through
affiliated company which currently is considered for accounting purposes as an
variable interest entity (“VIE”), and we are considered the primary beneficiary,
enabling us to consolidate its financial results in our consolidated financial
statements. In the event that in the future a company we hold as a
VIE would no longer meet the definition of a VIE, or we are deemed not to be the
primary beneficiary, we would not be able to consolidate line by line that
entity's financial results in our consolidated financial statements for PRC
purposes. Also, if in the future an affiliate company becomes a VIE
and we become the primary beneficiary, we would be required to consolidate that
entity's financial results in our consolidated financial statements for PRC
purposes. If such entity's financial results were negative, this
could have a corresponding negative impact on our operating results for PRC
purposes. However, any material variations in the accounting
principles, practices and methods used in preparing financial statements for PRC
purposes from the principles, practices and methods generally accepted in the
United States and in the SEC accounting regulations must be discussed,
quantified and reconciled in financial statements for United States and SEC
purposes.
Risks
Relating to Doing Business in China
The
PRC’s economic policies could negatively affect our business, financial
condition and results of operations.
Substantially
all of our assets are located in the PRC and all of our revenue is generated in
domestic PRC markets. We anticipate that sales of our products in
China will continue to represent all of our total sales in the foreseeable
future. Accordingly, our results of operations and prospects are
subject, to a significant extent, to the economic, political and legal
developments in the PRC. The PRC economy differs from the economies
of most developed countries in many respects, including: the amount of
government involvement; the level of development; the growth rate; the control
of foreign exchange; and the allocation of resources, including initiatives to
consolidate the coal mining and iron and steel industries.
While
the PRC’s economy has experienced significant growth in the past twenty years,
such growth has been uneven, both geographically and among various sectors of
the economy. The PRC government has implemented various measures to
encourage economic growth and guide the allocation of resources. Some
of these measures benefit the overall economy of the PRC, but they may also have
a negative affect on us. For example, our operating results and
financial condition may be adversely affected by the government control over
capital investments or changes in tax regulations. We cannot assure
you that such growth will continue.
The
economy of the PRC has been changing from a planned economy to a more
market-oriented economy. In recent years, the PRC government has
implemented measures emphasizing the utilization of market forces for economic
reform and the reduction of state ownership of productive assets, and the
establishment of corporate governance in business enterprises; however, a
substantial portion of productive assets in the PRC are still owned by the
government. In addition, the PRC government continues to play a
significant role in regulating industry development by imposing industrial
policies. It also exercises significant control over the PRC’s
economic growth through the allocation of resources, the control of payment of
foreign currency-denominated obligations, the setting of monetary policy and the
provision of preferential treatment to particular industries or
companies. Also, since early 2004, the PRC government has implemented
certain measures to control the pace of economic growth, including certain price
controls on raw coking coal.
Any
adverse change in the economic conditions or government policies in China could
have a material adverse effect on the overall economic growth and the level of
energy investments and expenditures in China, which in turn could lead to a
reduction in demand for our products and consequently have a material adverse
effect on our business and prospects.
Our
business is largely subject to the uncertain legal environment in China and your
ability to sue and enforce judgments could be limited.
As the
production of SC Coke’s products is carried out completely in the PRC, we are
subject to and have to operate within the framework of the PRC legal
system. Any changes in the laws or policies of the PRC or the
implementation thereof, for example in areas such as foreign exchange controls,
tariffs, trade barriers, taxes, export license requirements and environmental
protection, may have a material impact on our operations and financial
performance.
The
Chinese legal system is a civil law system based on written
statutes. Unlike common law systems, it is a system in which
precedents set in earlier legal cases are not generally followed. The
overall effect of legislation enacted over the past 20 years has been to enhance
the protections afforded to foreign invested enterprises in
China. However, these laws, regulations and legal requirements are
relatively recent and are evolving rapidly, and their interpretation and
enforcement involve uncertainties. These uncertainties could limit
the legal protections available to foreign shareholders, such as the right of
foreign invested enterprises to hold licenses and permits such as requisite
business licenses. Also, because our officers will likely be residing
in the PRC at the time such a suit is initiated, achieving service of process
against such persons would be extremely difficult. Furthermore,
because the majority of our assets are located in the PRC, it would also be
extremely difficult to access those assets to satisfy an award entered against
us in a United States court. Moreover, we have been advised that the
PRC does not have treaties with the United States providing for the reciprocal
recognition and enforcement of judgments of courts. Any, or all, of
these factors may adversely affect the legal protections afforded to
you.
Following
the Effective Date of the Share Exchange, all of our directors and officers,
will reside outside of the United States. In addition, Anyang WFOE
and SC Coke are located in the PRC and all of its assets are located outside of
the United States. China does not have a treaty with United States providing for
the reciprocal recognition and enforcement of judgments of courts. It
may be difficult, if not impossible, to acquire jurisdiction over those persons
if a lawsuit is initiated against us and/or our officers and directors by a
shareholder or group of shareholders in the United States. It may
therefore be difficult for investors in the United States to enforce their legal
rights based on the civil liability provisions of the United States federal
securities laws against us in the courts of either the United States or the PRC
and, even if civil judgments are obtained in courts of the United States, to
enforce such judgments in the PRC courts. Further, it is unclear if extradition
treaties now in effect between the United States and the PRC would permit
effective enforcement against us or our officers and directors of criminal
penalties, under the United States federal securities laws or
otherwise.
We
may have limited legal recourse under PRC laws if disputes arise under our
contracts with third parties.
The PRC
government has enacted some laws and regulations dealing with matters such as
corporate organization and governance, foreign investment, commerce, taxation
and trade. However, their experience in implementing, interpreting and enforcing
these laws and regulations is limited, and our ability to enforce commercial
claims or to resolve commercial disputes is unpredictable. If our new business
ventures are unsuccessful, or other adverse circumstances arise from these
transactions, we face the risk that the parties to these ventures may seek ways
to terminate the transactions, or, may hinder or prevent us from accessing
important information regarding the financial and business operations of these
acquired companies. The resolution of these matters may be subject to the
exercise of considerable discretion by agencies of the PRC government, and
forces unrelated to the legal merits of a particular matter or dispute may
influence their determination. Any rights we may have to specific performance,
or to seek an injunction under PRC laws, in either of these cases, are severely
limited, and without a means of recourse by virtue of the Chinese legal system,
we may be unable to prevent these situations from occurring. The occurrence of
any such events could have a material adverse effect on our business, financial
condition and results of operations. Although legislation in China over the past
30 years has significantly improved the protection afforded to various forms of
foreign investment and contractual arrangements in China, these laws,
regulations and legal requirements are relatively new and their interpretation
and enforcement involve uncertainties, which could limit the legal protection
available to us, and foreign investors, including you. The inability to enforce
or obtain a remedy under any of our future agreements could result in a
significant loss of business, business opportunities or capital and could have a
material adverse impact on our operations.
The
PRC government exerts substantial influence over the manner in which we must
conduct our business activities.
The PRC
only recently has permitted provincial and local economic autonomy and private
economic activities. The PRC government has exercised and continues
to exercise substantial control over virtually every sector of the PRC economy
through regulation and state ownership. Our ability to operate in the
PRC may be harmed by changes in its laws and regulations, including those
relating to taxation, import and export tariffs, environmental regulations, land
use rights, property and other matters. We believe that SC Coke's
operations are in material compliance with all applicable legal and regulatory
requirements. However, the central or local governments of the
jurisdictions in which we operate may impose new, stricter regulations or
interpretations of existing regulations that would require additional
expenditures and efforts on our part to ensure our compliance with such
regulations or interpretations.
Accordingly,
government actions in the future including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies could have a significant effect on economic conditions in the PRC or
particular regions thereof, and could require us to divest ourselves of any
interest we then hold in Chinese properties or joint ventures.
Failure
to comply with PRC regulations relating to the establishment of offshore special
purpose companies by PRC residents may subject our PRC resident shareholders to
personal liability, limit our ability to acquire PRC companies or to inject
capital into our PRC subsidiary, limit our PRC subsidiary's ability to
distribute profits to us or otherwise materially adversely affect
us.
In
October 2005, SAFE issued the Notice on Relevant Issues in the Foreign Exchange
Control over Financing and Return Investment Through Special Purpose Companies
by Residents Inside China, generally referred to as Circular 75, which required
PRC residents to register with the competent local SAFE branch before
establishing or acquiring control over an offshore special purpose company, or
SPV; under Notice 75, a “special purpose company” refers to an offshore entity
established or controlled, directly or indirectly, by PRC residents for the
purpose of seeking offshore equity financing on the strength of the domestic
assets or interests owned by such PRC residents in onshore companies. Internal
implementing guidelines issued by SAFE, which became public in June 2007 (known
as Notice 106), expanded the reach of Circular 75 by (1) purporting to cover the
establishment or acquisition of control by PRC residents of offshore entities
which merely acquire “control” over domestic companies or assets, even in the
absence of legal ownership; (2) adding requirements relating to the source of
the PRC resident's funds used to establish or acquire the offshore entity; (3)
covering the use of existing offshore entities for offshore financings; (4)
purporting to cover situations in which an offshore SPV establishes a new
subsidiary in China or acquires an unrelated company or unrelated assets in
China; and (5) making the domestic affiliate of the SPV responsible for the
accuracy of certain documents which must be filed in connection with any such
registration, notably, the business plan which describes the overseas financing
and the use of proceeds. Amendments to registrations made under
Circular 75 are required in connection with any increase or decrease of capital,
transfer of shares, mergers and acquisitions, equity investment or creation of
any security interest in any assets located in China to guarantee offshore
obligations, and Notice 106 makes the offshore SPV jointly responsible for these
filings. In the case of an SPV which was established, and which acquired a
related domestic company or assets, before the implementation date of Circular
75, a retroactive SAFE registration was required to have been completed before
March 31, 2006; this date was subsequently extended indefinitely by Notice 106,
which also required that the registrant establish that all foreign exchange
transactions undertaken by the SPV and its affiliates were in compliance with
applicable laws and regulations. Failure to comply with the requirements of
Circular 75, as applied by SAFE in accordance with Notice 106, may result in
fines and other penalties under PRC laws for evasion of applicable foreign
exchange restrictions. Any such failure could also result in the
SPV's subsidiaries being impeded or prevented from distributing their profits
and the proceeds from any reduction in capital, share transfer or liquidation to
the SPV, or from engaging in other transfers of funds into or out of
China.
Based on
our understanding of current PRC laws and as advised by our PRC counsel, we
believe our current controlling shareholders are not PRC residents and are not
subject to Circular 75 and Notice 106, and therefore are not required to
register with the relevant branch of SAFE, however, we cannot provide any
assurances that the relevant PRC authority will not have a different
opinion. Moreover, because of uncertainty over how Circular 75 will
be interpreted and implemented, and how or whether SAFE will apply it to us, we
cannot predict how it will affect our business operations or future
strategies. For example, our present and prospective PRC
subsidiaries’ ability to conduct foreign exchange activities, such as the
remittance of dividends and foreign currency-denominated borrowings, may be
subject to compliance with Circular 75 and Notice 106 by our PRC resident
beneficial holders.
In
addition, PRC residents may not always be able to complete the necessary
registration procedures required by Circular 75 and Notice 106. We
also have little control over either our present or prospective direct or
indirect shareholders or the outcome of such registration
procedures. A failure by our current or prospective PRC resident
beneficial holders or future PRC resident shareholders to comply with Circular
75 and Notice 106, if SAFE requires it, could subject these PRC resident
beneficial holders to fines or legal sanctions, restrict our overseas or
cross-border investment activities, limit our subsidiaries' ability to make
distributions or pay dividends or affect our ownership structure, which could
adversely affect our business and prospects.
Ambiguities
in the New M&A Rule implemented on September 8, 2006 relating to
acquisitions of assets and equity interests of Chinese companies by foreign
persons may present risks in our compliance status under the
regulations.
On
September 8, 2006, the MOFCOM, together with several other government agencies,
promulgated the New M&A Rule to regulate the merger and acquisition of
PRC equity and assets by foreign investors.
The
transactions contemplated by the VIE Agreements are structured in a manner such
that consummation of the transactions would not bring these transactions within
the regulatory scope of the New M&A Rule. However, due to the
ambiguities in the meaning of many provisions of the New M&A Rule, until
there has been clarification either by pronouncements, regulations or
practices, there is some
uncertainty in the scope of the regulations. Moreover, the
ambiguities may provide to the authorities wide latitude in the enforcement of
the regulations and the transactions to which they may or may not
apply. Therefore, it is possible that the future issuance of new
regulations and pronouncements for the purposes of clarifying the application of
New M&A Rule may require SC Coke to obtain approval from the appropriate
authority for the transactions contemplated by the VIE Agreements, and failure
to obtain such approval, if required, may cause the PRC government to take
actions that adversely affect the VIE Agreements, including voiding the VIE
Agreements, which as a result may have a material adverse effect on our control
of and revenue from SC Coke.
The New
M&A Rule, among other things, also includes provisions that purport to
require that an SPV which is formed for purposes of listing of equity interests
in PRC companies through the acquisition of PRC equity with foreign equity as
consideration, and which is controlled directly or indirectly by PRC companies
or individuals, obtain the approval of the CSRC prior to the listing and trading
of such SPV’s securities on an overseas stock exchange (excluding the over the
counter market).
Anyang
WFOE was directly incorporated by Shun Cheng HK as a foreign investment
enterprise under PRC law, and there was no acquisition of the equity of a “PRC
domestic company” as defined under the New M&A Rules. In
addition, the VIE arrangements between Anyang WFOE and SC Coke are not clearly
defined and considered as transactions to which the New M&A Rule would apply
and the OTCBB is not an overseas stock exchange as defined in New
M&A Rule. Therefore, SC Coke did not seek prior CSRC
approval.
In the
future if we decide to be listed on a national or other securities exchange the
CRSC may require that we obtain its approval for a future offering on such stock
exchange. Such offering may be delayed until we obtain CSRC approval,
which may take several months, if obtaining such approval is even practicable at
all. The uncertainty of obtaining CSRC approval may have a material
adverse effect on our ability to obtain financing in the future.
We
may face regulatory uncertainties that could restrict our ability to issue
equity compensation to our directors and employees and other parties who are PRC
citizens or residents under PRC law.
On
April 6, 2007, SAFE issued the "Operating Procedures for Administration of
Domestic Individuals Participating in the Employee Stock Ownership Plan or Stock
Option Plan of An Overseas Listed Company, also known as "Circular 78" For
any equity compensation plan which is so covered and is adopted by a non-PRC
listed company after April 6, 2007, Circular 78 requires all
participants who are PRC citizens to register with and obtain approvals from
SAFE prior to their participation in the plan. In addition, Circular 78
also requires PRC citizens within three months after the issuance of
Circular 78 to register with SAFE and make the necessary applications and
filings if they participated in an overseas listed company's covered equity
compensation plan prior to April 6, 2007. We may adopt an equity
compensation plan after the closing of this offering and may make option grants
to some of our directors and senior officers, most of whom are PRC citizens.
Circular 78 may require PRC citizens who receive option grants to register
with SAFE. We believe that the registration and approval requirements
contemplated in Circular 78 will be burdensome and time-consuming. If it is
determined that any of our equity compensation plans failure to comply with such
provisions, this may subject us and recipients of such options to fines and
legal sanctions and prevent us from being able to grant equity compensation to
our PRC employees. In that case, our ability to compensate our employees and
directors through equity compensation would be hindered and our business
operations may be adversely affected.
The
PRC economic cycle may negatively impact our operating results.
The rapid
growth of the PRC economy before 2008 generally led to higher levels of
inflation. The PRC economy has more recently experienced a slowing of its growth
rate. A number of factors have contributed to this slow-down,
including appreciation of the Renminbi, the currency of China, which has
adversely affected China’s exports. In addition, the slow-down has
been exacerbated by the recent global crisis in the financial services and
credit markets, which has resulted in significant volatility and dislocation in
the global capital markets. It is uncertain how long the global
crisis in the financial services and credit markets will continue and the
significance of the adverse impact it may have on the global economy in general,
or the Chinese economy in particular. Slowing economic growth in
China could result in slowing growth and demand for our services which could
reduce our revenues. In the event of a recovery in the PRC, renewed high growth
levels may again lead to inflation. Government attempts to control inflation may
adversely affect the business climate and growth of private enterprise. In
addition, our profitability may be adversely affected if prices for our products
rise at a rate that is insufficient to compensate for the rise in
inflation.
The
fluctuation of the Renminbi may materially and adversely affect the value of our
common stock.
The value
of the Renminbi against the United States Dollar and other currencies may
fluctuate and is affected by, among other things, changes in the PRC’s political
and economic conditions. Any significant revaluation of the RMB may
materially and adversely affect our cash flows, revenues and financial
condition.
Conversely,
if we decide to convert our RMB into United States Dollars for the purpose of
making payments for dividends on our common stock or for other business purposes
and the United States Dollar appreciates against the RMB, the United States
Dollar equivalent of the RMB we convert would be reduced. Any
significant devaluation of RMB may reduce our operation costs in United States
Dollars, but may also reduce our earnings in United States
Dollars. In addition, the depreciation of significant United States
Dollar denominated assets could result in a charge to our income statement and a
reduction in the value of these assets.
Since
1994, the PRC has set the value of the RMB to the United States
Dollar. We do not believe that this policy has had a material effect
on our business. There can be no assurance that RMB will not be
subject to devaluation. We may not be able to hedge effectively
against RMB devaluation, so there can be no assurance that future movements in
the exchange rate of RMB and other currencies will not have an adverse effect on
our financial condition. In addition, there can be no assurance that
we will be able to obtain sufficient foreign exchange to pay dividends or
satisfy other foreign exchange requirements in the future.
At
various times during recent years, the United States and the PRC have had
disagreements over political and economic issues. Controversies may
arise in the future between these two countries. Any political or
trade controversies between the United States and the PRC could adversely affect
the market price of our common stock and our ability to access United States
capital markets.
Governmental
control of currency conversion may affect the value of your
investment.
The PRC
government imposes controls on the convertibility of RMB into foreign currencies
and, in certain cases, the remittance of currency out of China. We receive all
of our revenues in RMB. Shortages in the availability of foreign
currency may restrict the ability of our PRC subsidiary and our affiliated
entities to remit sufficient foreign currency to pay dividends or other payments
to us. Under existing PRC foreign exchange regulations, payments of
current account items, including profit distributions, interest payments and
expenditures from trade-related transactions, can be made in foreign currencies
without prior approval from the PRC State Administration of Foreign Exchange by
complying with certain procedural requirements. However, approval
from appropriate government authorities is required where RMB is to be converted
into foreign currency and remitted out of China to pay capital expenses such as
the repayment of bank loans denominated in foreign currencies.
Because
our operations are located in China, information about our operations are not
readily available from independent third-party sources.
Because
SC Coke, is based in China shareholders may have greater difficulty in obtaining
information about SC Coke on a timely basis than would shareholders of an
entirely U.S.-based company. SC Coke’s operations will continue to be
conducted in China and shareholders may have difficulty in obtaining information
about SC Coke from sources other than SC Coke itself. Information
available from newspapers, trade journals, or local, regional or national
regulatory agencies will not be readily available to
shareholders. Shareholders will be dependent upon SC Coke’s
management for reports of SC Coke’s progress, development, activities and
operations.
Because
our funds are held in banks which do not provide insurance, the failure of any
bank in which we deposit our funds could affect our ability to continue our
business.
Banks and
other financial institutions in the PRC do not provide insurance for funds held
on deposit. As a result, in the event of a bank failure, we may not
have access to funds on deposit. Depending upon the amount of money
we maintain in a bank that fails, our inability to have access to our cash could
impair our operations, and, if we are not able to access funds to pay our
suppliers, employees and other creditors, we may be unable to continue our
business.
We
must comply with the Foreign Corrupt Practices Act.
We are
required to comply with the United States Foreign Corrupt Practices Act, which
prohibits U.S. companies from engaging in bribery or other prohibited payments
to foreign officials for the purpose of obtaining or retaining business. Foreign
companies, including some of our competitors, are not subject to these
prohibitions. Corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices occur from time-to-time in mainland China. If our
competitors engage in these practices, they may receive preferential treatment
from personnel of some companies, giving our competitors an advantage in
securing business or from government officials who might give them priority in
obtaining new licenses, which would put us at a disadvantage. Although we inform
our personnel that such practices are illegal, we can not assure you that our
employees or other agents will not engage in such conduct for which we might be
held responsible. If our employees or other agents are found to have engaged in
such practices, we could suffer severe penalties.
Due
to various restrictions under PRC laws on the distribution of dividends by our
PRC operating companies, we may not be able to pay dividends to our
shareholders.
The
Wholly-Foreign Owned Enterprise Law (1986), as amended and the Wholly-Foreign
Owned Enterprise Law Implementing Rules (1990), as amended and the Company Law
of the PRC (2006) contain the principal regulations governing dividend
distributions by wholly foreign owned enterprises. Under these regulations,
wholly foreign owned enterprises, such as Anyang WFOE, may pay dividends only
out of their accumulated profits, if any, determined in accordance with PRC
accounting standards and regulations. Additionally, Anyang WFOE is required to
set aside 10% of its after tax profits each year, if any, to fund certain
reserve funds until the total amount of such reserve exceeds 50 percent of the
registered capital of Anyang WFOE. These reserves are not
distributable as cash dividends except in the event of liquidation and cannot be
used for working capital purposes. Furthermore, if our PRC subsidiary and SC
Coke incur debt on their own in the future, the instruments governing the debt
may restrict its ability to pay dividends or make other payments. If we or our
subsidiaries and affiliated entities are unable to receive all of the revenues
from our operations due to these contractual or dividend arrangements, we may be
unable to pay dividends on our common stock.
Under
the Enterprise Income Tax Law, we may be classified as a “resident enterprise”
of China. Such classification will likely result in unfavorable tax consequences
to us and our non-PRC shareholders.
China
passed a new Enterprise Income Tax Law, or the EIT Law, and its implementing
rules, both of which became effective on January 1, 2008. Under the EIT Law, an
enterprise established outside of China with “de facto management bodies” within
China is considered a “resident enterprise,” meaning that it can be treated in a
manner similar to a Chinese enterprise for enterprise income tax purposes. The
implementing rules of the EIT Law define de facto management as “substantial and
overall management and control over the production and operations, personnel,
accounting, and properties” of the enterprise.
We may be
deemed to be a resident enterprise by Chinese tax authorities. If the PRC tax
authorities determine that we are a “resident enterprise” for PRC enterprise
income tax purposes, a number of unfavorable PRC tax consequences could follow.
First, we may be subject to the enterprise income tax at a rate of 25% on our
worldwide taxable income as well as PRC enterprise income tax reporting
obligations. In our case, this would mean that income such as interest on
financing proceeds and non-China source income would be subject to PRC
enterprise income tax at a rate of 25%. Second, although under the EIT Law and
its implementing rules dividends paid to us from our PRC subsidiary and
affiliated entities would qualify as “tax-exempt income,” we cannot guarantee
that such dividends will not be subject to a 10% withholding tax, as the PRC
foreign exchange control authorities, which enforce the withholding tax, have
not yet issued guidance with respect to the processing of outbound remittances
to entities that are treated as resident enterprises for PRC enterprise income
tax purposes. Finally, it is possible that future guidance issued with respect
to the new “resident enterprise” classification could result in a situation in
which a 10% withholding tax is imposed on dividends we pay to our non-PRC
shareholders and with respect to gains derived by our non-PRC shareholders from
transferring our shares. We are actively monitoring the possibility of “resident
enterprise” treatment for the 2010 tax year and are evaluating appropriate
organizational changes to avoid this treatment, to the extent
possible.
If we
were treated as a “resident enterprise” by PRC tax authorities, we would be
subject to taxation in both the United States and China, and our PRC tax may not
be creditable against our United States. tax.
Cultural,
political and language differences.
There are
material cultural, political and language differences between China and the
United States, which make business negotiations and doing business more
difficult in China than in the United States. Furthermore, continuing
trade surpluses, a result of greater Chinese exports to the U.S. than U.S.
exports to China, have become a sensitive political issue in the United States,
and various members of Congress have threatened trade sanctions against China
should the country continue a trade surplus with the United States. In addition,
continuing strong economic growth in China with possible military buildup may
result in American economic sanctions against China that could adversely affect
the financial position and results of operations of the
Company. There are additional challenges caused by distance,
conflicting and changing laws and regulations, foreign laws, trading and
investment policies and the burdens of complying with a wide variety of laws and
regulations. These risks could in turn materially and adversely
affect the Company’s business, operating results and financial
condition.
Risks
Relating to the Market for our Common Stock
There
is a substantial lack of liquidity of our common stock and volatility
risks.
Our
common stock is quoted in the OTCBB under the symbol “BRBH.” The
liquidity of our common stock may be very limited and affected by our limited
trading market. The OTCBB market is an inter-dealer market much less
regulated than the major exchanges, and is subject to abuses, volatilities and
shorting. There is currently no broadly followed and established
trading market for our common stock. An established trading market
may never develop or be maintained. Active trading markets generally
result in lower price volatility and more efficient execution of buy and sell
orders. Absence of an active trading market reduces the liquidity of
the shares traded.
The
trading volume of our common stock may be limited and sporadic. This
situation is attributable to a number of factors, including the fact that we are
a small company which is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares until such time as we became more seasoned and viable. As a
consequence, there may be periods of several days or more when trading activity
in our shares is minimal or non-existent, as compared to a seasoned issuer which
has a large and steady volume of trading activity that will generally support
continuous sales without an adverse effect on share price. We cannot
give you any assurance that a broader or more active public trading market for
our common stock will develop or be sustained, or that current trading
levels will be sustained. As a result of such trading activity, the
quoted price for our common stock on the OTCBB may not necessarily be a reliable
indicator of our fair market value. In addition, if our shares of
common stock cease to be quoted, holders would find it more difficult to dispose
of, or to obtain accurate quotation as to the market value of, our common stock
and as a result, the market value of our common stock likely would
decline.
The
market price for our stock may be volatile and subject to fluctuations in
response to factors, including the following:
● the
increased concentration of the ownership of our shares by a limited number of
affiliated shareholders following the Share Exchange may limit interest in our
securities;
● variations
in quarterly operating results from the expectations of securities analysts or
investors;
● revisions
in securities analysts’ estimates or reductions in security analysts’
coverage;
● announcements
of new products or services by us or our competitors;
● reductions
in the market share of our products;
● announcements
by us or our competitors of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
● general
technological, market or economic trends;
● investor
perception of our industry or prospects;
● insider
selling or buying;
● investors
entering into short sale contracts;
● regulatory
developments affecting our industry; and
● additions
or departures of key personnel.
The
market price for our common stock is particularly volatile given our status as a
relatively small company with a small and thinly traded “float” that could lead
to wide fluctuations in our share price. The market for our common
stock is characterized by significant price volatility when compared to seasoned
issuers, and we expect that our share price will continue to be more volatile
than a seasoned issuer for the indefinite future. The volatility in
our share price is attributable to a number of factors. First, as
noted above, our common stock are sporadically and/or thinly
traded. As a consequence of this lack of liquidity, the trading of
relatively small quantities of shares by our shareholders may disproportionately
influence the price of those shares in either direction. The price
for our shares could, for example, decline precipitously in the event that a
large number of our common stock are sold on the market without
commensurate demand, as compared to a seasoned issuer which could better absorb
those sales without adverse impact on its share price. Secondly, BRBH
is a speculative or “risky” investment due to our lack of revenues or profits to
date and uncertainty of future market acceptance for our current and potential
products. As a consequence of this enhanced risk, more risk-adverse
investors may, under the fear of losing all or most of their investment in the
event of negative news or lack of progress, be more inclined to sell their
shares on the market more quickly and at greater discounts than would be the
case with the stock of a seasoned issuer.
Many of
these factors are beyond our control and may decrease the market price of our
common stock, regardless of our operating performance. We cannot make
any predictions or projections as to what the prevailing market price for our
common stock will be at any time, including as to whether our common stock will
sustain their current market prices, or as to what effect that the sale of
shares or the availability of common stock for sale at any time will have on the
prevailing market price.
Our
common stock may never be listed on a major stock exchange.
We
anticipate seeking the listing of our common stock on a national or other
securities exchange at some time in the future, assuming that we can satisfy the
initial listing standards for such. We currently do not satisfy the
initial listing standards, and cannot ensure that we will be able to satisfy
such listing standards or that our common stock will be accepted for listing on
any such exchange. Should we fail to satisfy the initial listing
standards of such exchanges, or our common stock is otherwise rejected for
listing, the trading price of our common stock could suffer, the trading market
for our common stock may be less liquid, and our common stock price may be
subject to increased volatility.
A
decline in the price of our common stock could affect our ability to raise
further working capital and adversely impact our ability to continue
operations.
A
prolonged decline in the price of our common stock could result in a reduction
in the liquidity of our common stock and a reduction in our ability to raise
capital. Because a portion of our continued operations is expected to
be financed through the sale of equity securities, a decline in the price of our
common stock could be especially detrimental to our liquidity and our
operations. Such reductions may force us to reallocate funds from
other planned uses and may have a significant negative effect on our business
plan and operations, including SC Coke’s ability to develop new products and
continue our current operations. If our common stock price declines,
we can offer no assurance that we will be able to raise additional capital or
generate funds from operations sufficient to meet our obligations. If
we are unable to raise sufficient capital in the future, we may not be able to
have the resources to continue our normal operations.
Our
corporate actions are substantially controlled by our principal shareholders and
affiliated entities.
Our
Chairman of the Board may become entitled to acquire equity ownership of
shareholders of BRBH holding approximately 74.5% of our outstanding common
stock. The Chairman could, directly or indirectly, exert substantial
influence over matters such as electing directors, approving mergers or other
business combination transactions and other matters requiring shareholder
approval. In addition, because of the percentage of ownership and
voting concentration in these principal shareholders, elections of our board of
directors may generally be within the control of these shareholders and their
affiliated entities. While all of our shareholders are entitled to
vote on matters submitted to our shareholders for approval, the concentration of
shares and voting control may at some point lie with these principal
shareholders. As such, it would be difficult for shareholders to
propose and have approved proposals not supported by
management. There can be no assurances that matters voted upon by our
officers and directors in their capacity as shareholders will be viewed
favorably by all shareholders of the Company. This concentration of
ownership may have the effect of delaying, preventing or deterring a change in
control of our Company. It could also deprive our shareholders of an
opportunity to receive a premium for their shares as part of a sale of our
Company and it may affect the market price of our common stock.
Concentrated
ownership of our common stock creates a risk of sudden changes in our common
stock price.
The sale
by any of our large shareholders of a significant portion of that shareholder’s
holdings could have a material adverse effect on the market price of our common
stock.
Sales
of our currently issued and outstanding stock may become freely tradable
pursuant to Rule 144 and may dilute the market for your shares and have a
depressive effect on the price of the shares of our common stock.
A
substantial majority of the outstanding shares of common stock are “restricted
securities” within the meaning of Rule 144 under the Securities Act of 1933, as
amended (the “Securities Act”) (“Rule 144”). As restricted shares,
these shares may be resold only pursuant to an effective registration statement
or under the requirements of Rule 144 or other applicable exemptions from
registration under the Securities Act and as required under applicable state
securities laws. Rule 144 provides in essence that a non-affiliate
who has held restricted securities for a period of at least six months (one year
after filing Form 10 information with the SEC for shell companies such as BRBH
and former shell companies) may sell their shares of common
stock. Under Rule 144, affiliates who have held restricted securities
for a period of at least six months (one year after filing Form 10 information
with the SEC for shell companies such as BRBH and former shell companies) may,
under certain conditions, sell every three months, in brokerage transactions, a
number of shares that does not exceed the greater of 1% of a company's
outstanding shares of common stock or the average weekly trading volume during
the four calendar weeks prior to the sale (the four calendar week rule does not
apply to companies quoted on the OTCBB). A sale under Rule 144 or under any
other exemption from the Securities Act, if available, or pursuant to subsequent
registrations of our shares of common stock, may have a depressive effect upon
the price of our shares of common stock in any active market that may
develop.
The
securities issued in connection with the Share Exchange are restricted
securities and may not be transferred in the absence of registration or the
availability of a resale exemption.
The
shares of common stock being issued in connection with the Share Exchange and
the other transactions described herein are being issued in reliance on an
exemption from the registration requirements under Section 4(2) of the
Securities Act and Regulation D promulgated thereunder or Regulation
S. Consequently, theses securities will be subject to restrictions on
transfer under the Securities Act and may not be transferred in the absence of
registration or the availability of a resale exemption. In
particular, in the absence of registration, such securities cannot be resold to
the public until certain requirements under Rule 144 promulgated under the
Securities Act have been satisfied, including certain holding period
requirements. As a result, a purchaser who receives any such
securities issued in connection with the Share Exchange may be unable to sell
such securities at the time or at the price or upon such other terms and
conditions as the purchaser desires, and the terms of such sale may be less
favorable to the purchaser than might be obtainable in the absence of such
limitations and restrictions.
If
we issue additional shares in the future, it will result in the dilution of our
existing shareholders.
Our
Articles of Incorporation authorize the issuance of up to 500,000,000 shares of
common stock with no par value per share and 50,000,000 shares of preferred
stock with no par value per share. Our board of directors may choose
to issue some or all of such shares to provide additional financing in the
future. The issuance of any such shares will result in a reduction of
the book value and market price of the outstanding shares of our common
stock. If we issue any such additional shares, such issuance will
cause a reduction in the proportionate ownership and voting power of all current
shareholders. Further, such issuance may result in a change of
control of our Company.
We
do not plan to declare or pay any dividends to our shareholders in the near
future.
We have
not declared any dividends in the past, and we do not intend to distribute
dividends in the near future. The declaration, payment and amount of
any future dividends will be made at the discretion of the board of directors
and subject to PRC law, and will depend upon, among other things, the results of
operations, cash flows and financial condition, operating and capital
requirements, and other factors as the board of directors considers
relevant. There is no assurance that future dividends will be paid,
and if dividends are paid, there is no assurance with respect to the amount of
any such dividend.
The
requirements of being a public company may strain our resources and distract
management.
As a
public company, we are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley
Act of 2002 (the “Sarbanes-Oxley Act”). These requirements are
extensive. The Exchange Act requires that we file annual, quarterly
and current reports with respect to our business and financial
condition. The Sarbanes-Oxley Act requires that we maintain effective
disclosure controls and procedures and internal controls over financial
reporting. In order to maintain and improve the effectiveness of our
disclosure controls and procedures and internal control over financial
reporting, significant resources and management oversight is
required. This may divert management’s attention from other business
concerns, which could have a material adverse effect on our business, financial
condition and results of operations. Effective internal controls,
particularly those related to revenue recognition, are necessary for us to
produce reliable financial reports and are important to help prevent
fraud. As a result, our failure to achieve and maintain effective
internal controls over financial reporting could result in the loss of investor
confidence in the reliability of our financial statements, which in turn could
harm our business and negatively impact the trading price of our stock.
Furthermore, we anticipate that we will incur considerable costs and use
significant management time and other resources in an effort to comply with
Section 404 and other requirements of the Sarbanes-Oxley Act.
If
we are late in filing our quarterly or annual reports with the SEC, we may be
de-listed from the OTCBB.
Under
OTCBB rules relating to the timely filing of periodic reports with the SEC, any
OTCBB issuer who fails to file a periodic report (Form 10-Qs or 10-Ks) by the
due date of such report, three (3) times during any twenty-four (24) month
period are de-listed from the OTCBB. Therefore, if we are late in
filing a periodic report three times in any twenty-four (24) month period and
are de-listed from the OTCBB, our securities may become worthless and we may be
forced to curtail or abandon our business plan.
Public
company compliance may make it more difficult to attract and retain officers and
directors.
The
various rules and regulations to which we are subject as a public company make
certain activities more time consuming and costly and require the expenditure of
significant resources for compliance-related matters. As a public
company, we also expect that these rules and regulations may make it more
difficult and expensive for us to obtain director and officer liability
insurance in the future and we may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the same or similar
coverage. As a result, it may be more difficult for us to
attract and retain qualified persons to serve on our board of directors or as
executive officers.
Persons
associated with securities offerings, including consultants, may be deemed to be
broker dealers.
In the
event that any of our securities are offered without engaging a registered
broker-dealer, we may face claims for rescission and other
remedies. If any claims or actions were to be brought against us
relating to our lack of compliance with the broker-dealer requirements, we could
be subject to penalties, required to pay fines, make damages payments or
settlement payments, or repurchase such securities. In addition, any
claims or actions could force us to expend significant financial resources to
defend our Company, could divert the attention of our management from our core
business and could harm our reputation.
Future
changes in financial accounting standards or practices may cause adverse
unexpected financial reporting fluctuations and affect reported results of
operations.
A change
in accounting standards or practices can have a significant effect on our
reported results and may even affect its reporting of transactions completed
before the change is effective. New accounting pronouncements and
varying interpretations of accounting pronouncements have occurred and may occur
in the future. Changes to existing rules or the questioning of
current practices may adversely affect our reported financial results or the way
we conducts business.
“Penny
Stock” rules may make buying or selling our common stock difficult.
Trading
in our common stock is subject to the “penny stock” rules. The SEC
has adopted regulations that generally define a penny stock to be any equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions. These rules require that any broker-dealer that
recommends our common stock to persons other than prior customers and accredited
investors, must, prior to the sale, make a special written suitability
determination for the purchaser and receive the purchaser’s written agreement to
execute the transaction. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated with trading in the penny stock market. In addition,
broker-dealers must disclose commissions payable to both the broker-dealer and
the registered representative and current quotations for the securities they
offer. The additional burdens imposed upon broker-dealers by such
requirements may discourage broker-dealers from effecting transactions in our
common stock, which could severely limit the market price and liquidity of our
common stock.
We
have the right to issue up to 50,000,000 shares
of preferred stock, which may adversely affect the voting power of
the holders of our other securities and may deter hostile takeovers or delay
changes in management control.
We may
issue up to 50,000,000 shares of preferred stock from time to time in one or
more series, and with such rights, preferences and designations as our board of
directors may determine from time to time. To date, our board of
directors has not authorized any class or series of preferred
stock. However, our board of directors, without further approval of
our common shareholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights, liquidation preferences and
other rights and restrictions relating to any series of our preferred
stock. Issuances of shares of preferred stock, while providing
flexibility in connection with possible financings, acquisitions and other
corporate purposes, could, among other things, adversely affect the voting power
of the holders of our other securities and may, under certain circumstances,
have the effect of deterring hostile takeovers or delay changes in management
control.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The
information contained in this Current Report, including in the documents
incorporated by reference into this Current Report, includes some statements
that are not purely historical and that are “forward-looking statements” as
defined by the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements include, but are not limited to, statements regarding
our and our management’s expectations, hopes, beliefs, intentions or strategies
regarding the future, including our financial condition, results of operations,
and the expected impact of the Share Exchange on the parties’ individual and
combined financial performance. In addition, any statements that
refer to projections, forecasts or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. The words “anticipates,” “believes,” “continues,”
“could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,”
“potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and
similar expressions, or the negatives of such terms, may identify
forward-looking statements, but the absence of these words does not mean that a
statement is not forward-looking.
The
forward-looking statements contained in this Current Report are based on current
expectations and beliefs concerning future developments and the potential
effects on the parties and the Share Exchange and related
transactions. There can be no assurance that future developments
actually affecting us will be those anticipated. These
forward-looking statements involve a number of risks, uncertainties (some of
which are beyond our control) or other assumptions that may cause actual results
or performance to be materially different from those expressed or implied by
these forward-looking statements, including the following:
|
|
·
|
reliance
on the iron and steel industries as customers for SC Coke’s
products;
|
|
|
·
|
SC
Coke’s ability to develop and market new
products;
|
|
|
·
|
changes
in user demand for SC Coke’s
products;
|
|
|
·
|
changes
in SC Coke’s product mix;
|
|
|
·
|
fluctuations
in the availability of raw materials and components needed for SC Coke’s
products;
|
|
|
·
|
changes
in SC Coke’s pricing policies and the pricing policies of SC Coke’s
competitors and suppliers;
|
|
|
·
|
the
availability and cost of products from SC Coke’s
suppliers;
|
|
|
·
|
SC
Coke’s ability to compete effectively with its current and any future
competitors;
|
|
|
·
|
dependence
on a limited number of suppliers;
|
|
|
·
|
the
impact on us of the underpayment of certain taxes by SC
Coke;
|
|
|
·
|
SC
Coke’s ability to use its
facilities;
|
|
|
·
|
general
and cyclical economic and business
conditions;
|
|
|
·
|
SC
Coke’s expansion and possible effects of
expansion;
|
|
|
·
|
SC
Coke’s ability to manage its rapid
growth;
|
|
|
·
|
SC
Coke’s ability to integrate acquisitions (if any) or projects into its
operations;
|
|
|
·
|
SC
Coke’s dependence on certain senior
managers;
|
|
|
·
|
SC
Coke’s dependence on financings, in particular short term loans, to
finance operations and expansion;
|
|
|
·
|
our
ability to raise additional capital to fund our operations and any
expansion;
|
|
|
·
|
our
highly leveraged capital structure;
|
|
|
·
|
obligations
under guarantees in favor of third
parties;
|
|
|
·
|
legislative
or regulatory changes in China that affect our
operations;
|
|
|
·
|
the
cost of complying with current and future governmental regulations and the
impact of any changes in the regulations on our
operations;
|
|
|
·
|
inflation
and fluctuations in foreign currency exchange
rates;
|
|
|
·
|
SC
Coke’s ability to obtain and maintain all necessary government
certifications, approvals, and/or licenses to conduct its
business;
|
|
|
·
|
adverse
changes in the securities markets;
|
|
|
·
|
development
of a public trading market for our securities;
and
|
|
|
·
|
the
other factors referenced in this Current Report, including, without
limitation, under the sections entitled “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,”
and “Description of the Company.”
|
These
risks and uncertainties, along with others, are also described above under the
heading “Risk Factors.” Should one or more of these risks or
uncertainties materialize, or should any of our assumptions prove incorrect,
actual results may vary in material respects from those projected in these
forward-looking statements. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required under applicable securities
laws.
Item
2.02 Results of Operations and Financial
Condition.
SELECTED
CONSOLIDATED FINANCIAL DATA
The data
set forth below is not necessarily indicative of the results of future
operations and should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this Current Report and also
with “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
|
|
|
Year Ended December 31
(Unaudited)
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Consolidated
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Primary
Products:
|
|
|
|
|
|
|
|
|
|
|
Coke
|
|
$ |
154,228,464 |
|
|
$ |
130,343,780 |
|
|
$ |
71,288,846 |
|
|
Refined
Coal
|
|
|
31,453,873 |
|
|
|
81,069,716 |
|
|
|
45,403,547 |
|
|
|
|
|
185,682,337 |
|
|
|
211,413,496 |
|
|
|
116,692,393 |
|
|
Secondary
Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium
Coal
|
|
|
2,752,286 |
|
|
|
983,156 |
|
|
|
1,007,033 |
|
|
Crude
Benzol
|
|
|
4,857,926 |
|
|
|
744,120 |
|
|
|
809,675 |
|
|
Amsulfate
|
|
|
691,519 |
|
|
|
1,096,800 |
|
|
|
425,177 |
|
|
Coal
Gas
|
|
|
2,965,957 |
|
|
|
1,617,915 |
|
|
|
- |
|
|
Tar
|
|
|
5,352,688 |
|
|
|
6,287,161 |
|
|
|
2,446,778 |
|
|
Others
|
|
|
4,426,392 |
|
|
|
1,331,912 |
|
|
|
416,075 |
|
|
|
|
|
21,046,768 |
|
|
|
12,061,064 |
|
|
|
5,104,738 |
|
|
Total
Revenue
|
|
|
206,729,105 |
|
|
|
223,474,560 |
|
|
|
121,797,131 |
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw
Materials
|
|
|
162,832,842 |
|
|
|
197,988,554 |
|
|
|
106,597,426 |
|
|
Labor
|
|
|
2,462,086 |
|
|
|
1,373,637 |
|
|
|
937,934 |
|
|
Manufacturing
|
|
|
8,114,477 |
|
|
|
4,887,253 |
|
|
|
2,879,386 |
|
|
Sales
and Marketing
|
|
|
3,862,220 |
|
|
|
4,025,694 |
|
|
|
2,463,094 |
|
|
General
and Administrative
|
|
|
9,710,677 |
|
|
|
4,415,816 |
|
|
|
2,850,351 |
|
|
Income
from Operations
|
|
|
19,746,803 |
|
|
|
10,783,606 |
|
|
|
6,068,940 |
|
|
Other
Income (expenses)
|
|
|
1,447,727 |
|
|
|
(1,787,875 |
) |
|
|
(1,366,677 |
) |
|
Income
before provision for income taxes
|
|
|
21,194,530 |
|
|
|
8,995,731 |
|
|
|
4,702,263 |
|
|
Provision
for income taxes
|
|
|
5,344,855 |
|
|
|
2,289,532 |
|
|
|
1,521,463 |
|
|
Net
income
|
|
$ |
15,849,675 |
|
|
$ |
6,706,199 |
|
|
$ |
3,180,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Restricted Cash
|
|
$ |
58,154,475 |
|
|
$ |
26,873,633 |
|
|
$ |
13,482,137 |
|
|
Total
assets
|
|
$ |
264,764,292 |
|
|
$ |
168,521,248 |
|
|
$ |
116,512,320 |
|
|
Total
long-term liabilities
|
|
$ |
45,990,524 |
|
|
$ |
30,754,363 |
|
|
$ |
19,112,131 |
|
|
Stockholders’
equity
|
|
$ |
41,126,005 |
|
|
$ |
25,110,358 |
|
|
$ |
16,986,804 |
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion should be read in
conjunction with the other sections of this Current Report, including “Risk
Factors,” “Description of the Company” and the Financial Statements attached
hereto as Exhibits 99.1 and, 99.2 and the related exhibits. The
various sections of this discussion contain a number of forward-looking
statements, all of which are based on the Company’s current expectations and
could be affected by the uncertainties and risk factors described throughout
this Current Report. See “Cautionary Statement Regarding Forward-Looking
Statements.” The Company’s actual results may differ
materially.
Background
All of
our business operations are carried out by SC Coke, which is a vertically
integrated coke producer whose facilities and operations are based solely in the
PRC, principally in Henan Province.
We
control SC Coke and its operations through a series of contractual arrangements
between Anyang WFOE, on the one hand, and SC Coke and its shareholders, on the
other hand. Please see “Contractual Arrangements with SC Coke and its
Shareholders” above for a description of these contractual arrangements and
their impact on our consolidated financial statements.
On May
14, 2010, BRBH entered into the Share Exchange Agreement pursuant to which the
Shun Cheng HK Shareholders transferred all of the issued and outstanding
securities of Shun Cheng HK to BRBH in exchange for 30,233,750 shares of BRBH
common stock. Upon the closing of the Share Exchange, Shun Cheng HK
became a wholly-owned subsidiary of BRBH. The acquisition of Shun
Cheng HK has been accounted for as a reverse merger. For accounting
purposes, Shun Cheng HK is the acquirer in the reverse acquisition transaction
and, consequently, its financial results have been reported on a historic
basis.
For a
description of additional terms and conditions of the Share Exchange Agreement
and the Share Exchange, see the descriptions thereof in Items 1.01 and 2.01
above, which disclosures are incorporated herein by reference in response to
this Item 2.02.
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; 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 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
correspondingly 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. Correspondingly,
the price and demand for coke has also evidenced 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. 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 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 March 31, 2010 Compared to Three Months Ended March 31,
2009
Revenues. SC
Coke’s primary business is the production and sale of coke and refined
coal. From the refined coal production process, byproducts such as
medium coal and coal slurry are produced and sold. From coke
production, SC Coke also 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. SC Coke refers to such refined coal and coke
byproducts as “secondary products.”
Over the
last three fiscal years, the primary business of production and sale of coke and
refined coal has contributed more than 89% of SC Coke’s total
revenues. However, because refined coal is a raw material for coke
production, as coke production increases, our internal consumption of refined
coal increases, which reduces the amount of SC Coke’s own refined coal available
for external sales. This trend is likely to continue with the new
capacity expansion expected to come into production in early
2011.
Primary
Products
SC Coke’s
revenues for the three month periods ended March 31, 2010 and 2009, contributed
by its primary products of coke and refined coal, were as follows:
|
|
|
Revenues
(Unaudited)
|
|
|
|
|
|
|
|
Coke
|
|
|
Refined Coal
|
|
|
Total
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2010
|
|
$ |
53,726,539 |
|
|
$ |
1,963,136 |
|
|
$ |
55,689,675 |
|
|
Three
Months Ended March 31, 2009
|
|
|
21,780,601 |
|
|
|
760,962 |
|
|
|
22,541,563 |
|
|
Increase
(decrease)
|
|
$ |
31,945,938 |
|
|
$ |
1,202,174 |
|
|
$ |
33,148,112 |
|
|
%
Increase (decrease)
|
|
|
146.67 |
% |
|
|
157.98 |
% |
|
|
147.05 |
% |
|
As
Percentage of Total Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2010
|
|
|
83.40 |
% |
|
|
3.05
|
% |
|
|
86.45
|
% |
|
Three
Months Ended March 31, 2009
|
|
|
82.51 |
% |
|
|
2.88
|
% |
|
|
85.40
|
% |
|
Quantity
Sold (metric tons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2010
|
|
|
251,453 |
|
|
|
12,100 |
|
|
|
263,553 |
|
|
Three
Months Ended March 31, 2009
|
|
|
97,418 |
|
|
|
5,536 |
|
|
|
102,954 |
|
|
Increase
(decrease)
|
|
|
154,035 |
|
|
|
6,564 |
|
|
|
160,599 |
|
|
%
Increase (decrease)
|
|
|
158.12 |
% |
|
|
118.57 |
% |
|
|
155.99 |
% |
|
Average
Price Per Ton
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2010
|
|
$ |
214.00 |
|
|
$ |
162.00 |
|
|
|
|
|
|
Three
Months Ended March 31, 2009
|
|
|
224.00 |
|
|
|
137.00 |
|
|
|
|
|
|
Increase (decrease)
|
|
$ |
(10.00 |
) |
|
$ |
25.00 |
|
|
|
|
|
|
% Increase (decrease)
|
|
|
-4.46 |
% |
|
|
18.25 |
% |
|
|
|
|
Revenues
for the three month period ended March 31, 2010 increased substantially from the
revenues for the three month period ended March 31, 2009, primarily from the
recovery in the global economic environment and the demand for coke from the
steel mills in and near the Henan Province.
Sales
volume and product unit price for both coke and refined coal both benefited from
this recovery. Sales volume for the three month period ended March
31, 2010 from the three month period ended March 31, 2009 for coke increased by
158.1% (from 97,418 tons to 251,453 tons); and over the same period, refined
coal sales volume increased by 118.6% (from 5,536 tons to 12,100
tons).
Average
sales price per ton for coke decreased from $224 to $214 and refined coal
increased from $137 to $162, for the three month period ended March 31, 2010
from the three month period ended March 31, 2009. Contribution
as a percentage of total revenues for coke and refined coal remained stable at
approximately 86% in both periods.
Because
of the recovery in product unit price and sales volume, revenues increased from
$22.5 million to $55.7 million for the three month period ended March 31,
2010 from the three month period ended March 31, 2009.
SC Coke
believes that the significant drop in prices and volumes for its products as a
result of the global financial crisis in 2009 has abated in 2010 and it is
likely to experience less volatility in product prices for the remaining periods
in 2010. SC Coke anticipates higher sales volume for the remaining
quarters in 2010, after the seasonal effects of the Chinese New Year holidays,
which annually occurs in the period ending March 31. This holiday
results in a reduction in economic activity in China and an increase in deferred
purchases from our customers.
Secondary
Products
SC Coke’s
secondary product revenues for the three month periods ended March 31, 2010 and
2009 were as follows:
|
|
|
Medium
Coal
|
|
|
Crude
Benzol
|
|
|
Amsulfate
|
|
|
Coal Gas
|
|
|
Tar
|
|
|
Others
|
|
|
Total
|
|
|
Revenues
|
|
(Unaudited)
|
|
|
Three
Months Ended March 31, 2010
|
|
$ |
30,720 |
|
|
$ |
1,666,179 |
|
|
$ |
127,267 |
|
|
$ |
664,131 |
|
|
$ |
3,803,394 |
|
|
$ |
2,435,954 |
|
|
$ |
8,727,645 |
|
|
Three
Months Ended March 31, 2009
|
|
|
290,655 |
|
|
|
898,256 |
|
|
|
167,967 |
|
|
|
289,195 |
|
|
|
1,657,757 |
|
|
|
550,644 |
|
|
|
3,854,474 |
|
|
Change
|
|
$ |
(259,935 |
) |
|
$ |
767,923 |
|
|
$ |
(40,700 |
) |
|
$ |
374,936 |
|
|
$ |
2,145,637 |
|
|
$ |
1,885,310 |
|
|
$ |
4,873,171 |
|
|
%
Change
|
|
|
(89.43 |
)% |
|
|
85.49
|
% |
|
|
(24.23 |
)% |
|
|
129.65
|
% |
|
|
129.43
|
% |
|
|
342.38
|
% |
|
|
126.43
|
% |
|
As
% of Total Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2010
|
|
|
0.05
|
% |
|
|
2.59
|
% |
|
|
0.20
|
% |
|
|
1.03
|
% |
|
|
5.90
|
% |
|
|
3.78
|
% |
|
|
13.55
|
% |
|
Three
Months Ended March 31, 2009
|
|
|
1.10
|
% |
|
|
3.40
|
% |
|
|
0.64
|
% |
|
|
1.10
|
% |
|
|
6.28
|
% |
|
|
2.09
|
% |
|
|
14.60
|
% |
Along
with the increase in coke production and sales, the total revenue of our
secondary products significantly increased to $8.7 million from $3.9 million,
which was an increase of 126.4% from the three months ended March 31, 2009 to
the three months ended March 31, 2010. Revenue contribution from
secondary products as a percentage of total revenues decreased from 14.6% in the
three months ended March 31, 2009 to 13.6% in the three months ended March 31,
2010. This decrease in the percentage of revenues contributed by
secondary products was primarily from the decrease in the sales of medium coal
and amsulfate.
Of the
secondary products, the largest contributor to revenue was from tar
sales. Tar sales increased by 129.4% from $1.7 million in the three
months ended March 31, 2009 to $3.8 million in the three months ended March 31,
2010. Other secondary products sales also experienced a large sales
increase; other secondary products sales increased from $0.6 million for the
three months ended March 31, 2009 to $2.4 million for the three months ended
March 31, 2010.
Medium
coal sales decreased from $0.3 million for the three months ended March 31, 2009
to $0.03 million the three months ended March 31, 2010, as medium coal sales
were affected by the availability and purchase of raw coal to be processed into
refined coal. Medium coal is a byproduct from the raw coal washing
process to obtain refined coal. Amsulfate sales also declined in the
three months ended March 31, 2009 compared to the three months ended March 31,
2010, decreasing from $0.2 million to $0.1 million. Amsulfate sales
were affected by slower delivery schedules from customers because of the Chinese
New Year holidays; however, this is expected to be a temporary
situation.
Our
results of operations are affected by the seasonal effect of the Chinese New
Year holidays in the first quarter of each calendar year (typically in January
or February). This holiday results in a reduction in economic
activity in China and an increase in deferred purchases from our
customers.
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 $24.8 million in the three months ended March 31, 2009
to $59.4 million in the three months ended March 31, 2010. The
primary reasons for this increase were from the increase in production and raw
material costs. Refined coal production costs increased from $117 in
the three months ended March 31, 2009 to $187 in the three months ended March
31, 2010. Coke production increased from approximately 122,000 tons
in the three months ended March 31, 2009 to 251,000 tons in the three months
ended March 31, 2010.
Due to
the factors above, gross profit increased from $1.6 million in the three months
ended March 31, 2009 to $5.0 million in the three months ended March 31, 2010;
and gross profit margin increased from 5.9% in the three months ended March 31,
2009 to 7.7% in the three months ended March 31, 2010.
Operating Expenses.
Operating expenses increased by 23.8% from $2.1 million in the three months
ended March 31, 2009 to $2.6 million in the three months ended March 31,
2010. Operating expenses is comprised of sales and marketing expenses
and general and administrative expenses. Sales and marketing expenses
increased marginally from $0.8 million in the three months ended March 31, 2009
to $0.9 million in the three months ended March 31, 2010. However,
general and administrative expenses increased from $1.3 million in the three
months ended March 31, 2009 to $1.7 million in the three months ended March 31,
2010 due to a bad debt write-off of $0.4 million.
Other Income and
Expense. Other expense for the three months ended March 31,
2009 was $0.4 million compared with other expense for the three months ended
March 31, 2010 of $0.8 million. This increase in other expense was
primarily from the increase in interest expense of $0.6 million in the three
months ended March 31, 2009 to $1.2 million in the three months ended March 31,
2010. Interest income and other income increased by $0.2 million in
the three months ended March 31, 2010 from March 31, 2009.
Provision for Income
Taxes. Provision for income taxes in the three months
ended March 31, 2010 was $0.5 million; SC Coke recorded a tax benefit of $0.2
million in the three months ended March 31, 2009 as SC Coke suffered a loss
before income tax of $0.9 million. SC Coke’s statutory tax rate was
25% for both periods.
Net Income. As a
result of the combination of the factors described above, SC Coke recorded net
income of $1.1 million for the three months ended March 31, 2010 compared to a
net loss of $0.7 million for the three months ended March 31,
2009.
Liquidity
and Capital Resources
Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009
Net
Cash Provided by (Used in) Operating Activities
Net cash
provided by operating activities for the three months ended March 31, 2010 was
$3.0 million compared with net cash used in operating activities for the three
months ended March 31, 2009 of $1.5 million. Net cash used in trade
receivables was $8.8 million for the three months ended March 31, 2010 compared
with net cash provided of $16.6 million for the three months ended March 31,
2009. However, net cash provided by accounts payable was $12.9
million for the three months ended March 31, 2010 compared with net cash used of
$3.5 million for the three months ended March 31, 2009.
Net
Cash Used in Investing Activities
Net cash
used in investing activities for the three months ended March 31, 2010 was $7.0
million compared to $2.5 million for the three months ended March 31,
2009. The primary reason was the increase in long-term investment of
$4.4 million resulting from SC Coke’s additional investment in Anyang Commercial
(in which SC Coke was already a shareholder) during the three months ended
March 31, 2010. As a result of this increase in SC Coke’s
investment, the equity interest in Anyang Commercial increased from 9.27% to
11.26%.
Net
Cash Provided by Financing Activities
Net cash
provided by financing activities in the three months ended March 31, 2010 was
$3.9 million compared with $11.6 million for the three months ended March 31,
2009. In the three months ended March 31, 2010, SC Coke received
proceeds from loans of $16.4 million and repaid loans of $18.8 million; and a
net increase in bank notes payable of $3.5 million. Included in the
loan proceeds is $4.4 million received from Anyang Xinlong (in which SC Coke
owns a 16% interest). These proceeds were received pursuant to a loan
agreement.
On March
31, 2010, the Lenders each entered into loan agreements with SC
Coke. The original principal amounts of these loans were
approximately $4.4 million, $24.7 million and $5.9 million,
respectively. The loans had no repayment terms. On June
21, 2010, the SC Coke Shareholders agreed to assume the obligations of SC Coke
to the Lenders and the Lenders released SC Coke from any
liability. On the same date, the SC Coke Shareholders entered into a
Debt Agreement with SC Coke for the original principal amount of approximately
$35 million, which amount is equal to the principal amount assumed by the SC
Coke Shareholders. The principal terms of the loan are:
(a) 15 year term, commencing on June 21, 2010, (b) 2% fixed annual
interest on a non-compounding basis, (c) SC Coke has the option, but not
the obligation, to pay interest prior to maturity, and (d) the SC Coke
Shareholders cannot declare a default prior to maturity.
Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008
Revenues. SC
Coke’s revenues decreased from $223 million for the fiscal year ended
December 31, 2008 (“fiscal 2008”) to $207 million for the fiscal year
ended December 31, 2009 (“fiscal 2009”), representing a decrease of $16 million,
or 7.2%. The global financial crisis in 2008, which was particularly
pronounced towards the latter part of 2008 and the beginning of 2009, caused a
decrease in the market prices for coke resulting in decreased total revenues for
2009. However, revenues from coke sales and overall output increased
as a result of increased capacity from an additional oven brought into
production. This increased coke production correspondingly resulted
in the decreased refined coal sales, as internal consumption of refined coal for
the coke production process increased.
Primary
Products
SC Coke’s
revenues for the fiscal years ended December 31, 2009 and 2008, contributed by
its primary products of coke and refined coal, were as follows:
|
|
|
Revenues
(Unaudited)
|
|
|
|
|
|
|
|
Coke
|
|
|
Refined Coal
|
|
|
Total
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009
|
|
$ |
154,228,464 |
|
|
$ |
31,453,873 |
|
|
$ |
185,682,337 |
|
|
Fiscal
2008
|
|
|
130,343,780 |
|
|
|
81,069,716 |
|
|
|
211,413,496 |
|
|
Increase
(decrease)
|
|
$ |
23,884,684 |
|
|
$ |
(49,615,843 |
) |
|
$ |
(25,731,159 |
) |
|
%
Increase (decrease)
|
|
|
18.32 |
% |
|
|
(61.20 |
)% |
|
|
(12.17 |
)% |
|
As
Percentage of Total Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009
|
|
|
74.60 |
% |
|
|
15.22
|
% |
|
|
89.82
|
% |
|
Fiscal
2008
|
|
|
58.33 |
% |
|
|
36.28
|
% |
|
|
94.60
|
% |
|
Quantity
Sold (metric tons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009
|
|
|
748,331 |
|
|
|
244,803 |
|
|
|
993,134 |
|
|
Fiscal
2008
|
|
|
501,214 |
|
|
|
448,848 |
|
|
|
950,062 |
|
|
Increase
(decrease)
|
|
|
247,117 |
|
|
|
(204,045 |
) |
|
|
43,072 |
|
|
%
Increase (decrease)
|
|
|
49.30 |
% |
|
|
(45.46 |
)% |
|
|
(4.53 |
)% |
|
Average
Price Per Ton
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009
|
|
$ |
206.10 |
|
|
$ |
128.49 |
|
|
|
|
|
|
Fiscal
2008
|
|
|
260.06 |
|
|
|
180.62 |
|
|
|
|
|
|
Increase
(decrease)
|
|
$ |
(53.96 |
) |
|
$ |
(52.13 |
) |
|
|
|
|
|
%
Increase (decrease)
|
|
|
(20.75 |
)% |
|
|
(28.86 |
)% |
|
|
|
|
Revenues
from coke sales increased as a percentage of total revenues from 58.3% to 74.6%;
and refined coal sales as a percentage of total revenues declined from 36.3% to
15.2% for fiscal 2008 and 2009, respectively. The declining trend in
revenue contribution from refined coal sales is expected to continue as long as
the demand for and production of coke increase. SC Coke expects this
trend to continue to decline when it expands its coke production capacity by
approximately 1.3 million tons, presently expected to occur in
2011.
SC Coke’s
total revenues declined by 7.2% less than the decline of 12.2% in its primary
products revenue contribution because of increased production, better recycling
and usage of secondary coke byproducts.
Coke
sales tonnage increased to 748,331 tons in fiscal 2009 from 501,214 tons from
the prior fiscal year. As internal consumption of refined coal
increased, the external sales of refined coal declined from 448,848 tons to
244,803 tons.
The
average sale price realized by SC Coke for coke declined by approximately 20.8%,
and declined approximately 28.9% for refined coal, in fiscal 2009 as compared to
the prior year. While prices of coke recovered in the latter part of 2009 from
the lows in 2008, average prices in 2009 remained lower than in
2008.
SC Coke’s
management believes that the forces that led to a reduction in coke demand in
late 2008 to 2009 are temporary in nature, and believes that the resumption of
economic growth in China is expected to cause a rebound in demand and increase
in the market prices for coke and refined coal in 2010.
Secondary
Products
Secondary
products revenues for the fiscal years ended December 31, 2009 and 2008 were as
follows:
|
|
|
Medium
Coal
|
|
|
Crude
Benzol
|
|
|
Amsulfate
|
|
|
Coal Gas
|
|
|
Tar
|
|
|
Others
|
|
|
Total
|
|
|
Revenues
|
|
(Unaudited)
|
|
|
Fiscal
2009
|
|
$ |
2,752,286 |
|
|
$ |
4,857,926 |
|
|
$ |
691,519 |
|
|
$ |
2,965,957 |
|
|
$ |
5,352,688 |
|
|
$ |
4,426,392 |
|
|
$ |
21,046,768 |
|
|
Fiscal
2008
|
|
|
983,156 |
|
|
|
744,120 |
|
|
|
1,096,800 |
|
|
|
1,617,915 |
|
|
|
6,287,161 |
|
|
|
1,331,912 |
|
|
|
12,061,064 |
|
|
Change
|
|
$ |
1,769,130 |
|
|
$ |
4,113,806 |
|
|
$ |
(405,281 |
) |
|
$ |
1,348,042 |
|
|
$ |
(934,473 |
) |
|
$ |
3,094,480 |
|
|
$ |
8,985,704 |
|
|
%
Change
|
|
|
179.94
|
% |
|
|
552.84
|
% |
|
|
(36.95 |
)% |
|
|
83.32
|
% |
|
|
(14.86 |
)% |
|
|
232.33
|
% |
|
|
74.50
|
% |
|
As
% of Total Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009
|
|
|
1.33
|
% |
|
|
2.35
|
% |
|
|
0.33
|
% |
|
|
1.43
|
% |
|
|
2.59
|
% |
|
|
2.14
|
% |
|
|
10.18
|
% |
|
Fiscal
2008
|
|
|
0.44
|
% |
|
|
0.33
|
% |
|
|
0.49
|
% |
|
|
0.72
|
% |
|
|
2.81
|
% |
|
|
0.60
|
% |
|
|
5.40
|
% |
With the
increase in coke production in fiscal 2009, the total revenue for these
byproducts significantly increased to $21 million from $12 million, an increase
of 74.5%. Revenue contribution as a percentage of total revenues
increased from 5.4% in fiscal 2008 to 10.2% in fiscal 2009. This
trend of increasing revenue contribution from coke byproducts is anticipated to
continue as the coke production of SC Coke increases.
Of the
coke byproducts, the increase in crude benzol sales was the most significant,
rising from $0.7 million in fiscal 2008 to $4.9 million in fiscal 2009, an
increase of 552.8%; and as a percentage of total revenues increased from 0.3% to
2.4% from fiscal 2008 to fiscal 2009. While tar sales remained the
largest component in fiscal year 2009 in absolute terms, tar sales declined from
$6.3 million in fiscal 2008 to $5.4 million in fiscal 2009; and declined as a
percentage of total revenues from 2.8% to 2.6%.
SC Coke
intends to better utilize and increase efficiencies from the production of coke
byproducts as the recycling of such products for sale has increased its revenues
and provided better environmental protection; without such recycling, these
byproducts would potentially be discharged as waste.
Cost of Goods Sold and Gross
Profit. Cost of goods sold is comprised of raw material, labor and
manufacturing costs.
Cost of
goods sold decreased to $173 million in fiscal 2009 from $204 million in fiscal
2008.
Cost of
goods sold for fiscal years December 31, 2009 and 2008 were as
follows:
|
|
|
Cost of Goods Sold
(Unaudited)
|
|
|
|
|
Total
|
|
|
Raw
Material Costs
|
|
|
|
|
Fiscal
2009
|
|
$ |
162,832,842 |
|
|
Fiscal
2008
|
|
|
197,988,554 |
|
|
Increase
(decrease)
|
|
$ |
(35,155,712 |
) |
|
%
Increase (decrease)
|
|
|
(17.76 |
) |
|
Labor
Costs
|
|
|
|
|
|
Fiscal
2009
|
|
$ |
2,462,086 |
|
|
Fiscal
2008
|
|
|
1,373,637 |
|
|
Increase
(decrease)
|
|
$ |
1,088,449 |
|
|
%
Increase (decrease)
|
|
|
79.24 |
|
|
Manufacturing
Costs
|
|
|
|
|
|
Fiscal
2009
|
|
$ |
8,114,477 |
|
|
Fiscal
2008
|
|
|
4,887,253 |
|
|
Increase
(decrease)
|
|
$ |
3,227,224 |
|
|
%
Increase (decrease)
|
|
|
66.03 |
|
|
Total
Cost of Goods Sold
|
|
|
|
|
|
Fiscal
2009
|
|
$ |
173,409,405 |
|
|
Fiscal
2008
|
|
|
204,249,444 |
|
|
Increase
(decrease)
|
|
$ |
(30,840,039 |
) |
|
%
Increase (decrease)
|
|
|
(15.10 |
) |
In fiscal
2009, total raw material costs decreased by 17.8% to $163 million from $198
million in fiscal 2008, primarily driven by the weak global economic conditions
which resulted in a decrease in raw material costs. However, labor
costs increased from $1.4 million in fiscal 2008 to $2.5 million in fiscal 2009
as the total number of employees increased as a result of the increase in
capacity and wage inflation in China. The increased production levels
also contributed to an increase in manufacturing costs of 66.0% from $4.9
million in fiscal 2008 to $8.1 million in fiscal 2009.
Because
of the factors above, gross profit increased from $19 million in fiscal 2008 to
$33 million in fiscal 2009; and gross profit margin increased from 8.6% in
fiscal 2008 to 16.1% in fiscal 2009.
Operating
Expenses. Operating expenses increased by 61.9% from $8.4
million in fiscal 2008 to $13.6 million in fiscal 2009. Operating
expense is comprised of sales and marketing expenses and general and
administrative expenses. Sales and marketing expenses declined from
$4.0 million in fiscal 2008 to $3.9 million in fiscal 2009. General
and administrative expenses increased from $4.4 million to $9.7 million from
fiscal 2008 to fiscal 2009 primarily because of: (i) property taxes, land use
taxes and associated stamp duties which increased from $0.5 million to $2.0
million in the same period; and (ii) bad debt expense. In fiscal
2009, SC Coke took legal action against one of its customers for non-payment of
$3.0 million. The Intermediate People’s Court of Shijiazhuang of
Hebei Province entered a final judgment on October 23, 2009, ruling that the
defendant pay approximately $3 million, plus interest to SC Coke, and SC Coke is
seeking to enforce the judgment. Due to uncertainty regarding
enforcement and financial prudence, it has taken a one-time charge as a bad debt
expense for this amount.
Other Income and
Expense. Other income for fiscal 2009 consisted mainly
of interest income and investment income. Investment income of $2.5
million was from dividends paid from its long-term investment in Anyang Xinlong
which resulted in net other income in fiscal 2009 of $1.4 million compared to a
net other expense of $1.8 million in fiscal 2008.
Provision for Income
Taxes. Provision for income taxes increased from $2.3 million
in fiscal 2008 to $5.3 million in fiscal 2009. SC Coke’s statutory
tax rate for both fiscal years was 25%. At December 31, 2009, SC Coke
had approximately $3 million of overdue enterprise income taxes. As a
result, SC Coke is subject to an overdue fine at the rate of 0.05% per day of
the amount of taxes in arrears, commencing from the day the tax payment is
overdue. The tax authority may also impose an additional fine of 50%
to five times the underpaid taxes. SC Coke has available funds to
cover the underpaid tax and overdue fine, but may not have sufficient funds
available to pay the additional fine. Wang Xinshun, the sole director
of SC Coke, and SC Coke entered into a tax indemnity agreement on May 23, 2010,
pursuant to which Wang Xinshun 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, and any
such indemnity payment will be solely deducted from the principal amount of the
loan Wang Xinshun provided to SC Coke.
Net Income. As a
result of the combination of the factors described above, SC Coke’s net income
increased by 135.8% to $15.8 million for fiscal 2009, from $6.7 million in
fiscal 2008 and net margin increased by 156.7% from 3.00% in fiscal year 2008 to
7.7% in fiscal 2009.
Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007
Primary
Products
SC Coke’s
revenues increased from $122 million for the fiscal year ended December 31, 2007
(“fiscal 2007”) to $223 million for fiscal 2008, representing an increase of
$102 million, or 83.6%. The significant increase in total revenues
resulted from an increase in coke prices in fiscal 2008. The average
coke sales price increased from $144 per ton to $261 per ton from fiscal 2007 to
fiscal 2008, an increase of 80.7%.
SC Coke’s
revenues for the fiscal years ended December 31, 2008 and 2007, contributed by
its primary products of coke and refined coal, were as follows:
|
|
|
Revenues
(Unaudited)
|
|
|
|
|
|
|
|
Coke
|
|
|
Refined Coal
|
|
|
Total
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
$ |
130,343,780 |
|
|
$ |
81,069,716 |
|
|
$ |
211,413,496 |
|
|
Fiscal
2007
|
|
|
71,288,846 |
|
|
|
45,403,547 |
|
|
|
116,692,393 |
|
|
Increase
(decrease)
|
|
$ |
59,054,394 |
|
|
$ |
35,666,169 |
|
|
$ |
94,721,103 |
|
|
%
Increase (decrease)
|
|
|
82.84 |
% |
|
|
78.55 |
% |
|
|
81.17 |
% |
|
As
Percentage of Total Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
|
58.33 |
% |
|
|
36.28
|
% |
|
|
94.60
|
% |
|
Fiscal
2007
|
|
|
58.53 |
% |
|
|
37.28
|
% |
|
|
95.81
|
% |
|
Quantity
Sold (metric tons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
|
501,214 |
|
|
|
448,848 |
|
|
|
950,062 |
|
|
Fiscal
2007
|
|
|
495,341 |
|
|
|
413,887 |
|
|
|
909,228 |
|
|
Increase
(decrease)
|
|
|
5,873 |
|
|
|
34,961 |
|
|
|
40,834 |
|
|
%
Increase (decrease)
|
|
|
1.19 |
% |
|
|
8.45 |
% |
|
|
4.49 |
% |
|
Average
Price Per Ton
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
$ |
260.06 |
|
|
$ |
180.62 |
|
|
|
|
|
|
Fiscal
2007
|
|
|
143.92 |
|
|
|
109.70 |
|
|
|
|
|
|
Increase
(decrease)
|
|
$ |
116.14 |
|
|
$ |
70.92 |
|
|
|
|
|
|
%
Increase (decrease)
|
|
|
80.70 |
% |
|
|
64.65 |
% |
|
|
|
|
The
increase in revenue contribution from coke sales of 82.8% resulted primarily
from the increase in average coke price per ton from $144 to $260 from fiscal
2007 to 2008 representing an increase of 80.1%. Consequently, coke
sales revenue increased from $71.3 million to $130.3 million from fiscal 2007 to
fiscal 2008.
Refined
coal sales revenue contribution also benefited from a significant average price
per ton increase from $110 to $181 from fiscal 2007 to fiscal 2008, an increase
of 64.65%. This resulted in an increase in revenue contribution from
refined coal by 78.6% from $45.4 million to $81.1 million from fiscal 2007 to
fiscal 2008.
Revenues
from coke and refined coal sales as a percentage of total revenues in the fiscal
years ended 2007 and 2008 remained stable at approximately 58% and 37%,
respectively.
Coke
sales by tonnage increased from 495,341 tons in fiscal 2007 and 501,214 tons in
fiscal 2008, representing an increase of 1.2%. Refined coal sale
volume increased by 8.5% from 413,887 tons in fiscal 2007 to 448,848 tons in
fiscal 2008 and refined coal average price increased by 64.65% and resulted in
the increased refined coal sales revenue.
While the
average sales price for coke and refined coal were substantially higher in 2008,
the onset of the global financial crisis led to a significant fall in product
prices from late 2008 which continued into fiscal 2009.
Against
this background of a weakening global economy beginning in late 2008, SC Coke’s
management focused its efforts on increasing production, achieving better
utilization and improving recycling, of secondary coke byproducts in an effort
to reduce and mitigate, to the extent possible, the impact of a deterioration in
SC Coke’s financial results.
Secondary
Products
Secondary
products revenues for the fiscal years ended December 31, 2008 and 2007 were as
follows:
|
|
|
Medium
Coal
|
|
|
Crude
Benzol
|
|
|
Amsulfate
|
|
|
Coal Gas
|
|
|
Tar
|
|
|
Others
|
|
|
Total
|
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
$ |
983,156 |
|
|
$ |
744,120 |
|
|
$ |
1,096,800 |
|
|
$ |
1,627,915 |
|
|
$ |
6,287,161 |
|
|
$ |
1,331,912 |
|
|
$ |
12,061,064 |
|
|
Fiscal 2007
|
|
|
1,007,033 |
|
|
|
809,675 |
|
|
|
425,177 |
|
|
|
- |
|
|
|
2,446,778 |
|
|
|
416,075 |
|
|
|
5,104,738 |
|
|
Change
|
|
$ |
(23,877 |
) |
|
$ |
(65,555 |
) |
|
$ |
671,623 |
|
|
$ |
1,627,915 |
|
|
$ |
3,840,383 |
|
|
$ |
915,837 |
|
|
$ |
6,956,326 |
|
|
% Change
|
|
|
(2.37 |
)% |
|
|
(8.10 |
)% |
|
|
157.96
|
% |
|
NA |
% |
|
|
156.96
|
% |
|
|
220.11
|
% |
|
|
136.27
|
% |
|
As
% of Total Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2008
|
|
|
0.44
|
% |
|
|
0.33
|
% |
|
|
0.49
|
% |
|
|
0.72
|
% |
|
|
2.81
|
% |
|
|
0.60
|
% |
|
|
5.40
|
% |
|
Fiscal
2007
|
|
|
0.83
|
% |
|
|
0.66
|
% |
|
|
0.35
|
% |
|
|
0.00
|
% |
|
|
2.01
|
% |
|
|
0.34
|
% |
|
|
4.19
|
% |
Total
revenues from these byproducts increased by 136.3% to $5.1 million to $12.1
million for fiscal 2007 and fiscal 2008. Revenue contribution from
coke byproduct sales as a percentage of total revenues increased from 4.2% in
fiscal 2007 to 5.4% in 2008.
Of the
coke byproducts, tar sales contributed the most revenue, amounting to $2.4
million and $6.3 million in fiscal 2007 and fiscal 2008, respectively, an
increase of 157.0%. Amsulfate revenue also experienced robust growth,
increasing by 158.0% from $0.4 million to $1.1 million from fiscal 2007 to
fiscal 2008.
Cost of Goods Sold and Gross
Profit. Cost of goods sold increased to $204 million in fiscal 2008
from $110 million in fiscal 2007.
Cost of
goods sold for fiscal years 2008 and 2007 were as
follows:
|
|
Cost
of Goods
Sold
(Unaudited)
|
|
|
|
Total
|
|
|
Raw
Material Costs
|
|
|
|
Fiscal
2008
|
$ |
197,988,554 |
|
|
Fiscal
2007
|
|
106,597,426 |
|
|
Increase
(decrease)
|
$ |
91,391,128 |
|
|
%
Increase (decrease)
|
|
85.73 |
|
|
Labor
Costs
|
|
|
|
|
Fiscal
2008
|
$ |
1,373,637 |
|
|
Fiscal
2007
|
|
937,934 |
|
|
Increase
(decrease)
|
$ |
435,703 |
|
|
%
Increase (decrease)
|
|
46.45 |
|
|
Manufacturing
Costs
|
|
|
Fiscal
2008
|
$ |
4,887,253 |
|
|
Fiscal
2007
|
|
2,879,386 |
|
|
Increase
(decrease)
|
$ |
2,007,867 |
|
|
%
Increase (decrease)
|
|
69.73 |
|
|
Total
Cost of Goods Sold
|
|
|
Fiscal
2008
|
$ |
204,249,444 |
|
|
Fiscal
2007
|
|
110,414,746 |
|
|
Increase
(decrease)
|
$ |
93,834,698 |
|
|
%
Increase (decrease)
|
|
84.98 |
|
Total raw
material costs increased by 85.7% to $198 million in fiscal 2008 from $107
million in fiscal 2007, primarily driven by the strong economic
environment. Labor costs increased from $0.9 million in fiscal 2007
to $1.4 million in fiscal 2008 due to increases in total employees and increased
wages for SC Coke’s workforce. Manufacturing costs grew by 69.7% from
$2.9 million in fiscal 2007 to $4.9 million in fiscal 2008.
Operating
Expenses. Operating expenses increased from $5.3 million in
fiscal 2007 to $8.4 million to fiscal 2008. Operating expenses
comprise sales and marketing expenses and general and administrative
expenses. Sales and marketing expenses increased from $2.5 million to
$4.0 million in fiscal 2007 to fiscal 2008, respectively, in tandem with
stronger sales. General and administrative expenses increased from
$2.9 million to $4.4 million from fiscal 2007 to fiscal 2008.
Other Income and
Expense. Other expense increased from $1.4 million to $1.8
million from fiscal 2007 to fiscal 2008 primarily from the increase in interest
expense related to additional borrowing. Interest expense
increased from $1.6 million to $2.2 million from fiscal 2007 to fiscal
2008.
Provision for Income
Taxes. Provision for income taxes increased from $1.5 million
in fiscal year 2007 to $2.3 million in fiscal year 2008. SC Coke’s
statutory tax rate was 25% in fiscal 2008 and 33% in fiscal 2007.
Net Income. As a
result of the combination of the factors described above, SC Coke’s net income
increased by 109.4% to $6.7 million for fiscal 2008 from $3.2 million in fiscal
2007, and net margin increased by 15.4% from 2.6% in fiscal 2007 to 3.0% in
fiscal 2008.
Liquidity
and Capital Resources
Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008
Net
Cash Used in Operating Activities
Net cash
used in operating activities for fiscal 2009 was $22.9 million, compared to $2.9
million for fiscal 2008. The primary reason was the increase in
deposits and other current assets, which increased from net cash provided of
$8.7 million to net cash used of $43.7 million for fiscal 2009. These
deposits are primarily provided to suppliers of raw materials and deposits for
the purchase of equipment; as of the end of fiscal 2009, these deposits totaled
$61.9 million. SC Coke’s raw material suppliers are either PRC
state-owned or private-owned enterprises; state-owned enterprise suppliers
require advanced payments for the full amount of the goods, and private
enterprise suppliers typically require a significant deposit prior to
delivery. We expect that the requirement for such advanced payments
to our suppliers will continue in the future.
In
addition, because of the global financial crisis, SC Coke’s management focused
its efforts on improving collections and reducing accounts
receivables. Net cash provided by accounts receivable was $22.2
million for fiscal 2009, compared with net cash used in connection with accounts
receivable of $23.2 million for fiscal 2008. Also, during this
period, many suppliers were more cautious about providing credit and the terms
on which such credit was provided, which led to net cash used by accounts
payable of $23.2 million in fiscal 2009, compared to net cash provided in
connection with accounts payable of $3.2 million in fiscal 2008.
Net
Cash Used in Investing Activities
Net cash
used in investing activities for fiscal 2009 was $24.5 million compared to $20.4
million in fiscal 2008. The primary use of funds in both years was
payments in connection with capital expenditures and deposits for capital goods
purchases, including the purchase of new coking equipment, as a new oven was
commissioned in fiscal 2009. Net cash used in capital expenditure in
fiscal 2009 was $16.8 million compared to $22.8 million in fiscal 2008 and
deposits for capital expenditures increased from $0.4 million in fiscal 2008 to
$6.5 million in fiscal 2009.
Net
Cash Provided by Financing Activities
Net cash
provided by financing activities for fiscal 2009 was $48.8 million compared to
$23.3 million in fiscal 2008. The primary source of cash
provided in fiscal 2009 was due to an increase in loans of $37.0 million ($59.7
million of loans which were repaid and proceeds of a new loan of
$96.7 million were received at the end of fiscal 2009). Related
party loans of $8.9 million in fiscal 2009 and $7.6 million in fiscal 2008 were
obtained from SC Coke’s sole director Wang Xinshun. The total
outstanding payable balance of these related party loans as of the end of fiscal
2009 was $35.6 million. These related party loans were interest free
and had no specified 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 at December 31, 2009. The principal
terms of the loan are: (a) 12 year term, beginning as of 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 beginning 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.
Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007
Net
Cash (Used in) Provided by Operating Activities
Net cash
used in operating activities for fiscal 2008 was $2.9 million compared to net
cash provided of $12.2 million for fiscal 2007. The primary reason
for the increased amount of net cash provided in fiscal 2007 was the ability of
SC Coke to obtain better credit terms from its suppliers, and accounts payable
increased by $28.7 million in fiscal 2007 compared to an increase of $3.2
million in fiscal 2008. The increase in accounts receivables in fiscal 2008 of
$23.2 million was the primary reason for the change in net cash provided in
fiscal 2007 to net cash used in fiscal 2008.
Net
Cash Used in Investing Activities
Net cash
used in investing activities for fiscal 2008 was $20.4 million as compared to
$21.7 million in the fiscal 2007. Capital expenditures of $22.8
million were the primary reason for net cash used in fiscal 2008 compared with
$7.9 million in fiscal 2007. Additionally, in fiscal 2007 SC Coke
made two long term investments amounting to $8.9 million, of which approximately
$2.2 million was for its 19% stake in Angang Steel and $6.7 million was related
to its investment in Anyang Xinlong.
Net
Cash Provided by Financing Activities
Net cash
provided from financing activities for fiscal 2008 was $23.3 million compared to
$9.6 million in fiscal 2007. During fiscal 2008, loans payable
were increased by $18.4 million ($29.5 million of loans were repaid during
the year and new loans of $47.9 million were obtained). The primary
reason for the net cash provided in fiscal 2007 was a related party loan from SC
Coke’s sole director Wang Xinshun of $7.9 million. These related
party loans were interest free and had no specified repayment terms at the time
the loans were made. Total outstanding balance of these related party
loans in fiscal 2008 was $26.7 million. While these
related party loans have been provided on favorable terms, we have no assurance
such related party loans will continue to be provided on favorable terms to us;
or made available to us when required; or that we will continue to enjoy
deferment of partial or full repayment of the related party loans in the
future.
Capital
Sources
Funding
for our business activities has historically been provided by cash flow from
operations, and short-term lender financing, including loans from SC Coke’s sole
director Wang Xinshun and/or from short term and long term bank loans obtained
from local financial institutions.
The
original loans from Wang Xinshun were interest free and had no repayment
terms. On May 23, 2010, SC Coke entered into a loan agreement
with its sole director regarding outstanding loans to SC Coke of $35.6 million
as at December 31, 2009. The principal terms of the loan are: (a) 12
year term, beginning as of 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 beginning 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.
Because
of SC Coke’s rapid capacity expansion, its internally generated funds from
operations have been insufficient to meet its liquidity
requirements. SC Coke has been dependent on financings to meet its
liquidity, working capital and expansion expenditures. As of December
31, 2009, total loans payable were $67.3 million (excluding the related party
loan from its sole director), all of which are short term and payable in the
next 12 months. These loans have interest rates ranging from 5.8% to
11.2%, and certain of the loans are collateralized. The loans are
guaranteed by various parties in exchange for corresponding guarantees obtained
from SC Coke. For a description of such guarantees, refer to
“Off-Balance Sheet Arrangements.” If such bank financings become
unavailable to us and/or additional funding is not obtained, we may not be able
to meet our financing obligations, which could have a material adverse impact on
our business. If SC Coke is required to satisfy obligations of any of
its guarantees, it could have a material adverse impact on its financial
condition.
As part
of our operations, SC Coke issues bank notes payable as payments to its
suppliers. These bank notes payable are issued by financial
institutions and require deposits from SC Coke, ranging from 50% to 100% of the
bank notes issued. Bank notes payable outstanding as at March 31,
2010 was $62.8 million.
SC Coke’s
management intends to continue the growth in its business through (1) increased
coking production volumes to seek to achieve greater economies of scale which it
believes will increase productivity and energy efficiency; (2) better recycling
and usage of coking byproducts which have higher profit margins and create less
environmental impact; and (3) potential acquisitions or equity participation in
third party coal mines to source raw materials. Growth through
facility expansion and acquisition will require additional bank financing and/or
equity capital, and therefore the sustainability of such growth will be
dependent upon the availability of financing arrangements and capital, if any,
on acceptable terms. SC Coke’s management believes that the costs
associated with its expansion activities will be funded through cash flows from
operations and additional short and long-term debt obligations and/or raising
funds through equity offerings, if any such financing is available on terms
acceptable to the Company. If additional funding is not obtained, SC
Coke will need to reduce, defer or cancel development programs, planned
initiatives or overhead expenditures, to the extent necessary. The
failure to fund SC Coke’s capital requirements would have a material adverse
effect on its business, financial condition and results of
operations.
As
described in the “Overview”, Shun Cheng HK entered into a share exchange
agreement with BRBH, the BRBH Principal Shareholders and the Shun Cheng HK
Shareholders, whereby it will become a wholly owned subsidiary of
BRBH. As a result of the Share Exchange and the VIE Agreements,
the principal business of the combined Company will be the business and
operations of SC Coke, and BRBH will continue to be a reporting entity subject
to the requirements of the Exchange Act. SC Coke believes that its
affiliation with a public company may afford it better access to capital markets
and financing.
Capital
Expenditures
During
fiscal 2009, SC Coke made capital expenditures of $25.6 million and in fiscal
2008 SC Coke invested $22.8 million in capital expenditures. These
capital expenditures were primarily for purchase of coking equipment, upgrades
and improvements to its coke production facility.
Additionally,
SC Coke intends to invest in the building of additional coking production
capacity of 1.3 million tons, which is expected to be commissioned in early
2011. The testing and full ramp-up of capacity is targeted to be
completed in the first quarter of 2011.
The total
investment required for the new 1.3 million ton coke facility, including two
additional ovens, is expected to be approximately $85 million and is expected to
be financed by debt and/or equity financings and internally generated cash
flow. Construction work, which includes site preparation, foundation
and construction, began in late 2009 and is anticipated to require approximately
10 to 12 months to complete. As of the date hereof,
approximately 30% of the construction work has been completed and SC Coke has
issued purchase orders for approximately 60% of the total required
equipment. Payment terms for the construction work involves monthly
progress payments of 70% of the invoiced amounts. Equipment will be
predominantly locally sourced in China and is substantially similar to existing
equipment. To date, SC Coke has expended approximately $9 million on
the expansion. If additional financing is not obtained, SC Coke may
need to reduce, defer or cancel its expansion plans.
With the
new production capacity, total coking production is planned to reach 3.0 million
tons annually. Accordingly, we expect to achieve different economies
of scale, both in coke and coke byproducts production, than our current
operations.
The
financing for the completion of the facility is expected to come
from: (1) internally generated funds, (2) debt financing from local
financial institutions, and (3) future equity financing. If SC Coke
is unable to obtain additional funding, it will need to reduce, defer or cancel
development programs, planned initiatives or overhead expenditures, to the
extent necessary. The failure to fund SC Coke’s capital requirements
could have a material adverse effect on its business, financial condition and
results of operation.
Quantitative
and Qualitative Disclosures about Market Risk
We do not
use derivative financial instruments and we have no foreign exchange
contracts. SC Coke’s financial instruments consist of cash and cash
equivalents, trade accounts receivable, accounts payable and long-term
obligations. We generally consider investments in highly liquid
instruments purchased with a remaining maturity of 90 days or less at the date
of purchase to be cash equivalents.
Interest
Rates. SC Coke generally does not invest in or hold debt
securities. Accordingly, fluctuations in applicable interest rates
would not have a material impact on SC Coke. At March 31, 2010, we
held restricted cash of $49.6 million, which provides collateral for our bank
notes payable, but not short term debt instruments. SC Coke has
short-term loans payable at $64.9 million at March 31, 2010. These
notes have interest rates ranging from 5.84% to 10.6%. Due to the
short-term nature of the notes, a hypothetical 10% increase or decrease in
applicable interest rates is not expected to have a material impact on SC Coke’s
earnings, loss or cash flows.
Foreign
Exchange Rate. All of the transactions of SC Coke are transacted in
Renminbi. As a result, changes in the relative values of U.S. Dollars
and RMB affect the Company’s reported levels of revenues and profitability as
the results are translated into U.S. Dollars for reporting
purposes. However, since SC Coke conducts its sales and purchase in
RMB, fluctuations in exchange rates are not expected to significantly affect
financial stability, or gross and net profit margins. SC Coke does
not currently expect to incur significant foreign exchange gains or losses, or
gains or losses associated with any foreign operations.
Foreign
Currency Translation Gains
During
the fiscal year ended December 31, 2009, the RMB steadily rose against the U.S.
Dollar, and SC Coke recognized a foreign currency translation gain of $0.2
million.
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 are 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, Wang Xinshun, and
a mutual guarantee provided to SC Coke of approximately similar
amounts. Such guarantees are typically for a period of 2 years from
the date of issuance of the guarantees.
Changes
in the economic environment could leave SC Coke exposed for obligations that it
has guaranteed which could have a materially negative impact on our ongoing
business, and cause SC Coke to potentially be unable to meet its obligations
under other bank financings. Additionally, should any of the
companies for which SC Coke provides guarantees default, 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
March 31, 2010, SC Coke had ten guarantees of approximately $44.4 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.
Contractual
Obligations
The
following table describes our contractual commitments and obligations as of
December 31, 2009:
|
Contractual Obligations
|
|
Total
|
|
|
Less than
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More than
5 Years
|
|
|
Capital
Lease Obligations
|
|
$ |
6,153,103 |
|
|
$ |
989,829 |
|
|
$ |
2,922,033 |
|
|
$ |
2,241,241 |
|
|
$ |
0 |
|
|
Loan
Payable To Related Party
|
|
$ |
35,635,066 |
|
|
$ |
0 |
|
|
$ |
3,563,507 |
|
|
$ |
7,127,013 |
|
|
$ |
24,944,546 |
|
|
Loans
Payable
|
|
$ |
67,299,038 |
|
|
$ |
67,299,038 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
Bank
Notes Payable
|
|
$ |
59,234,774 |
|
|
$ |
59,234,774 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
Total
|
|
$ |
168,321,981 |
|
|
$ |
127,523,641 |
|
|
$ |
6,485,540 |
|
|
$ |
9,368,254 |
|
|
$ |
24,944,546 |
|
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 have arguably 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 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, 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, which requires us 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. Since 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. We have not made any material changes in the methodology
used in these accounting polices during the past two years.
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.
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 normal 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 small
chance of default, 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.
Concentration
of Credit and Other Risks
Financial
instruments which potentially subject SC Coke to concentrations of credit risk
consist principally of cash, bank notes receivable, and trade
receivables. SC Coke holds all its deposits and bank notes receivable
with banks in China. In China, there is no equivalent federal deposit
insurance as in the United States; as such these amounts held in banks in China
are not insured. SC Coke has not experienced any losses in such bank
accounts through December 31, 2009. In an effort to mitigate any
potential risk, SC Coke periodically evaluates the credit quality of the
financial institutions which holds the deposits and bank notes and SC Coke holds
its cash and bank notes in multiple banks supported by the local and Central
Government of the PRC.
SC Coke
does not require collateral or other security to support the trade
receivables. SC Coke is exposed to credit risk in the event of
non-payment by customers to the extent of amounts recorded on the balance sheet
of SC Coke. Three customers accounted for 10% or more of SC Coke’s
trade receivables balance as of December 31, 2009 and December 31,
2008. Two, one, and three customers individually accounted for more
than 10% of our consolidated revenue in the years ended December 31, 2009, 2008,
and 2007, respectively.
The
operations of SC Coke are located in the PRC. Accordingly, SC Coke’s
business, financial condition, and results of operations may be influenced by
the political, economical, and legal environment in the PRC. The PRC
government controls its foreign currency reserves through restrictions on
imports and conversion of Renminbi into foreign currency. In July
2005, the PRC government adjusted its exchange rate policy from “Fixed Rate” to
“Floating Rate”. During January 2008 to January 2009, the exchange
rate between RMB and US Dollars has fluctuated from $1.00 to RMB 7.3141 and
$1.00 to RMB 6.8542, respectively. For the quarter ended March 31,
2010, the exchange rate has been stable, and was approximately at $1.00 to RMB
6.84. There can be no assurance that the exchange rate will remain
stable. The Renminbi could appreciate or depreciate against the US
Dollar. SC Coke’s financial condition and results of operations may
also be affected by changes in the value of certain currencies other than the
Renminbi in which its earnings and obligations are
denominated.
Inventories
Inventories
of SC Coke are stated at the lower of cost or market. Cost is
determined on a standard cost basis, which approximates actual cost on a
first-in, first-out (FIFO) method. Lower of cost or market is
evaluated by considering obsolescence, excessive levels of inventory,
deterioration, and other factors. Adjustments to reduce the cost of
inventory to its net realizable value, if required, are made for estimated
excess or obsolescence and are charged to cost of
revenues. Currently, SC Coke does not allocate costs to the
byproducts. However, due to the rapid inventory turnover, differences
to the financial statements are considered immaterial.
Property,
Plant and Equipment
Property
and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line basis
over the estimated useful lives of the related assets.
Repairs
and maintenance costs are expensed as incurred. Gain or loss on
disposals are immaterial and included in cost of revenues for the years ended
December 31, 2009, 2008, and 2007. SC Coke capitalizes interest
attributable to capital construction projects in accordance with Accounting
Standards Codification subtopic 835-20, Capitalization of Interest, which
defines that interest shall 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.
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 and it has
determined that it did not have significant control or influence in 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.
Fair
Value of Financial Instruments
SC Coke’s
financial instruments consist mainly of cash, restricted cash, bank notes
receivable, and debt obligations. Bank notes receivable are reflected in the
accompanying financial statements at historical cost, which approximates fair
value due to the short-term nature of these instruments. Based on the
borrowing rates currently available to SC Coke for loans and similar terms and
average maturities, the fair value of debt obligations also approximates its
carrying value due to the short-term nature of the instruments. While SC Coke
believes its valuation methodologies are appropriate and consistent with other
market participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could result in a
different estimate of fair value at the reporting date.
In
January 2008, SC Coke adopted SFAS 159, the Fair Value Option for Financial
Assets and Financial Liabilities, now known as the provisions of
Accounting Standards Codification subtopic 825-10 (formerly SFAS 159), Fair Value Option for Financial
Assets and Financial Liabilities, and have elected not to measure any of our current
eligible financial assets or liabilities at fair value. SFAS 159 was issued to
allow entities to
voluntarily choose to measure certain financial assets and liabilities at fair
value (fair value option). The fair value option
may be elected on an instrument-by-instrument basis and is irrevocable, unless
a new election
date occurs. If the fair value option is elected for an instrument, SFAS 159
specifies that unrealized gains and
losses for that instrument shall be reported in earnings at each subsequent
reporting date. SFAS
159 is effective January 1, 2008. We did not elect the fair value option for our
financial assets and liabilities
existing on January 1, 2008, and did not elect the fair value option for any
financial assets or liabilities
transacted during the twelve months ended December 31,
2009.
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 provide 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.
Government
Assistance
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.
Sales
Returns Allowance
SC Coke
estimates future product returns related to current period product
revenue. SC Coke analyzes historical returns, and changes in customer
demand and acceptance of its products when evaluating the adequacy of the sales
returns allowance. Significant management judgment and estimates must
be made and used in connection with establishing the sales returns allowance in
any accounting period. Material differences may result in the amount
and timing of SC Coke’s revenue for any period if management made different
judgments or utilized different estimates. Based on their analysis, SC Coke did
not record any provision for sales returns as of December 31, 2009 and
2008.
Shipping
and Handling Costs
Shipping
and handling costs billed to customers are recorded net of the amount
collected.
Advertising
Advertising
and promotion costs are expensed as they are incurred.
Income
Taxes
SC Coke
accounts for income taxes in accordance with ASC 740, Income Taxes (ASC 740)
(formerly SFAS 109 Accounting
for Income Taxes). ASC 740 requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the 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.
The Company adopted accounting policies in accordance to 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 during the years ended
December 31, 2009 and 2008. We adopted the provisions of ASC 740,
Income Taxes, on
January 1, 2009. This Interpretation clarifies the accounting for income taxes
by prescribing the minimum recognition threshold a tax position is required to
meet before being recognized in our financial statements. The Interpretation
also provides guidance for the measurement and classification of tax positions,
interest and penalties, and requires additional disclosure on an annual basis.
The cumulative effect of the change was not material. Following
implementation, the ongoing recognition of changes in measurement of uncertain
tax positions will be reflected as a component of income tax expense. Interest
and penalties incurred associated with unresolved income tax positions will
continue to be included in other income (expense).
Recent
Accounting Pronouncements
The FASB
issued SFAS No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles, a replacement of FASB Statement No. 162 (SFAS 168)
in June 2009, which approved the FASB Accounting Standards Codification
(Codification) as the single source of authoritative United States accounting
and reporting standards for all non-governmental entities, except for guidance
issued by the SEC. The Codification, which changes the referencing of financial
standards, is effective for interim or annual financial periods ending after
September 15, 2009. Therefore, in these consolidated financial statements, all
references made to generally accepted accounting principles in the United States
(GAAP) use the new Codification numbering system prescribed by the FASB. The
adoption of this standard did not have an impact on the results of operations or
the SC Coke’s financial statements.
In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160).
SFAS 160 was primarily codified into ASC topic 810, Consolidation (ASC 810). The
standard changes the accounting for noncontrolling (minority) interests in consolidated financial
statements including the requirements to classify noncontrolling interests as
a component of
consolidated equity, and the elimination of “minority interest” accounting in
results of operations with
earnings attributable to noncontrolling interests reported as part of
consolidated earnings. Additionally,
ASC 810 revises the accounting for both increases and decreases in a
parent’s controlling ownership
interest. ASC 810 is effective for fiscal years beginning after December 15,
2008. In
connection with the adoption of noncontrolling provision, SC Coke retroactively
reclassified into consolidated equity the
historical balances related to the noncontrolling interests in
Longdu. Noncontrolling interests represents the aggregate interest in
consolidated entities held by other
owners. Income allocated to noncontrolling interests is based on the agreed
upon income
allocation. At December 31, 2009, the carrying amount of noncontrolling
interests in Longdu was
$472,844.
In May
2009, the FASB issued SFAS No. 165, Subsequent Events, codified
under ASC Section 855, Subsequent Events, which is
effective for interim and annual periods ending after June 15, 2009. ASC 855
provides guidance to establish general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. ASC 855 also
requires entities to disclose the date through which subsequent events were
evaluated as well as the rationale for why that date was selected. This
disclosure should alert all users of financial statements that an entity has not
evaluated subsequent events after that date in the set of financial statements
being presented. The Company adopted the provisions of ASC 855 in 2009 and it
did not have a material impact on its consolidated financial position, results
of operations or cash flows.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pre-Share
Exchange
As of
June 28, 2010, there were 1,708,123 shares of common stock outstanding.
The following table sets forth certain information concerning the number
of BRBH’s common shares owned beneficially immediately prior to the closing of
the Share Exchange by: (i) each person (including any group) known to us to own
five percent (5%) or more of any class of BRBH’s voting securities, (ii) each of
BRBH’s directors and executive officers, and (iii) all officers and directors as
a group. Unless otherwise indicated, the shareholders listed possess
sole voting and investment power with respect to the common shares
shown.
|
Name and Address of Beneficial Owner
|
|
Number of Shares
Beneficially Owned (1)
|
|
|
Percentage of Class
Beneficially Owned
Before the Transaction
(2)
|
|
|
Executive Officers and
Directors
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Timothy
Brasel (3)
5770
South Beech Court
Greenwood
Village, CO 80121
|
|
|
268,869 |
|
|
|
15.7 |
% |
| |
|
|
|
|
|
|
|
|
|
All
Executive Officers and Directors as a group (one person)
|
|
|
268,869 |
|
|
|
15.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
5% Shareholders
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Ong
Hock Seng
Block
5, Room 502,
DanShuiWan
HuaYuan,
MaDang
Road, Lane 588,
Shanghai,
China 200025
|
|
|
423,946 |
|
|
|
24.8 |
% |
| |
|
|
|
|
|
|
|
|
|
SCM
Capital LLC
One
Gorham Island
Suite
303
Westport,
Connecticut 06880
|
|
|
477,375 |
|
|
|
27.9 |
% |
| |
|
|
|
|
|
|
|
|
|
Mathis
Family Partners, LTD
2560
W. Main Street, Suite 200
Littleton,
CO 80123
|
|
|
148,782 |
|
|
|
8.7 |
% |
| |
|
|
|
|
|
|
|
|
|
Lazzeri
Family Trust
2560
W. Main Street, Suite 200
Littleton,
CO 80123
|
|
|
148,781 |
|
|
|
8.7 |
% |
(1) Under
Rule 13d-3, a beneficial owner of a security includes any person who, directly
or indirectly, through any contract, arrangement, understanding, relationship,
or otherwise has or shares: (i) voting power, which includes the power to vote,
or to direct the voting of shares; and (ii) investment power, which includes the
power to dispose or direct the disposition of shares. Certain shares
may be deemed to be beneficially owned by more than one person (if, for example,
persons share the power to vote or the power to dispose of the shares). In
addition, shares are deemed to be beneficially owned by a person if the person
has the right to acquire the shares (for example, upon exercise of an option)
within 60 days of the date as of which the information is
provided. In computing the percentage ownership of any person, the
amount of shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of these
acquisition rights.
(2) Percentages
are rounded to the nearest one-tenth of one percent. The percentage
of class is based on 1,708,123 shares of common stock issued and outstanding
immediately prior to the closing of the transactions contemplated by the Share
Exchange Agreement on June 28, 2010.
(3) Includes
shares either held directly, as custodian for a minor child or through entities
that are controlled by Timothy Brasel.
Post-Share
Exchange
The
following table sets forth certain information regarding our common stock
beneficially owned on the Closing Date (after giving effect to the closing of
the transactions contemplated by the Share Exchange Agreement, including the
Share Cancellation), for (i) each shareholder known to be the beneficial owner
of 5% or more of BRBH’s outstanding common stock, (ii) each current and incoming
executive officer and director, and (iii) all current and incoming executive
officers and directors as a group. The address for each beneficial
owner, unless otherwise noted, is c/o Henan Shuncheng Group Coal Coke Co., Ltd.,
Henan Province, Anyang County, Cai Cun Road Intersection, Henan Shuncheng Group
Coal Coke Co., Ltd. (New Building), China 455141. The Company’s
telephone number is +86 372 323 7890.
|
Name and Address of Beneficial Owner
|
|
Number of Shares
Beneficially Owned (1)
|
|
|
Percentage of Class (2)
|
|
|
5% Shareholders
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Shun
Cheng Holdings Limited (3)
P.O.
Box 957
Offshore
Corporations Centre
Road
Town, Tortola
British
Virgin Islands
|
|
|
14,799,421 |
|
|
|
46.2 |
% |
| |
|
|
|
|
|
|
|
|
|
Li
Weitian (4)
Suite
806
1220
N. Market Street
Wilmington,
DE 19801
|
|
|
6,364,203 |
|
|
|
19.9 |
% |
| |
|
|
|
|
|
|
|
|
|
USA Wall Street Capital United
Investment Group Limited (5)
Suite
806
1220
N. Market Street
Wilmington,
DE 19801
|
|
|
1,829,142 |
|
|
|
5.7 |
% |
|
Executive Officers and
Directors
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Wang
Xinshun (3)
Chairman
of the Board
c/o
Henan Shuncheng Group Coal Coke Co., Ltd.
Henan
Province, Anyang County,
Cai
Cun Road Intersection,
Henan
Shuncheng Group Coal Coke Co., Ltd.
(New
Building), China 455141
|
|
|
23,869,547 |
|
|
|
74.5 |
% |
| |
|
|
|
|
|
|
|
|
|
Wang
Feng
Director;
Chief Executive Officer
c/o
Henan Shuncheng Group Coal Coke Co., Ltd.
Henan
Province, Anyang County,
Cai
Cun Road Intersection,
Henan
Shuncheng Group Coal Coke Co., Ltd.
(New
Building), China 455141
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
Li
De Xin
Director;
Chief Operating Officer
c/o
Henan Shuncheng Group Coal Coke Co., Ltd.
Henan
Province, Anyang County,
Cai
Cun Road Intersection,
Henan
Shuncheng Group Coal Coke Co., Ltd.
(New
Building), China 455141
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
Huang
Qi Fa
Director
Room
401, No. 293
Lane
1188, Lai Fang Road
Songiang,
Shanghai 201615
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— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
David
Chen (6)
Director
Room
1508,
OOCL
Plaza
841
Yang An Road (M)
Shanghai,
China 200040
|
|
|
222,222 |
|
|
|
* |
|
| |
|
|
|
|
|
|
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|
|
Timothy
Brasel (7)
5770
South Beech Court
Greenwood
Village, CO 80121
|
|
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268,869 |
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
|
All
Executive Officers and Directors as a group (six persons)
|
|
|
24,360,638 |
|
|
|
76.0 |
% |
* less
than 1%
(1) Under
Rule 13d-3, a beneficial owner of a security includes any person who, directly
or indirectly, through any contract, arrangement, understanding, relationship,
or otherwise has or shares: (i) voting power, which includes the power to vote,
or to direct the voting of shares; and (ii) investment power, which includes the
power to dispose or direct the disposition of shares. Certain shares
may be deemed to be beneficially owned by more than one person (if, for example,
persons share the power to vote or the power to dispose of the shares). In
addition, shares are deemed to be beneficially owned by a person if the person
has the right to acquire the shares (for example, upon exercise of an option)
within 60 days of the date as of which the information is
provided. In computing the percentage ownership of any person, the
amount of shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of these
acquisition rights.
(2) Percentages
are rounded to the nearest one-tenth of one percent. The percentage
of class is based on 32,047,222 shares of common stock issued and outstanding as
of June 28, 2010 upon the closing of the transactions contemplated by the Share
Exchange Agreements. An aggregate of 435,123 shares were
cancelled as part of the Share Exchange.
(3) Wang
Xinshun and the sole shareholder of SC Holdings and various shareholders of
other Shun Cheng HK Shareholders are parties to the Call Option Agreements,
pursuant to which Wang Xinshun is entitled to purchase up to 100% of the issued
and outstanding shares of (i) SC Holdings and (ii) such other Shun Cheng HK
Shareholders, at a price of $0.0001 per share for a period of five years upon
satisfaction of certain conditions. Upon completion of the Share
Exchange, SC Holdings and such shareholders of other Shun Cheng HK Shareholders
owned in the aggregate approximately 74.5% of BRBH’s issued and outstanding
shares of common stock. Under the Call Option Agreements, Wang
Xinshun also acquired the exclusive right to exercise all of the voting rights
in respect of the shares of SC Holdings and the other Shun Cheng HK
Shareholders subject to the agreements.
(4) BRBH
has been advised that Li Weitian has sole voting and dispositive power over the
shares held by USA Wall Street Capital United Investment Group Limited
(1,829,142 shares), Jinmao Investment Group Limited (1,511,687 shares), Global
Chinese Alliance Development Ltd. (1,511,687 shares) and USA International
Finance Consulting Group Ltd. (1,511,687 shares).
(5) Li
Weitian has sole voting and dispositive power over the shares held by USA Wall
Street Capital United Investment Group Limited.
(6) Includes
222,222 shares held by Shine Media Group Ltd. over which Mr. Chen exercises
control.
(7) Includes
shares either held directly, as custodian for a minor child or through entities
that are controlled by Timothy Brasel.
Change
in Control
Reference
is made to Item 5.01 of this Current Report for a description of the change in
control of BRBH as a result of the transactions disclosed herein which is hereby
incorporated by reference.
MANAGEMENT
Prior to
the Share Exchange, Timothy Brasel served as BRBH’s sole director and BRBH’s
President, Chief Executive Officer and Chief Financial Officer. On
the Closing Date, there was a change in our Board of Directors and executive
officers.
Timothy Brasel, age 59, was our President, Chief
Executive Officer, Chief Financial Officer from June 30, 2009 until the Closing
Date. Mr. Brasel has resigned as a director of BRBH, effective upon
the expiration of the 10-day period after the filing of a Schedule 14(f) with
the SEC. Mr. Brasel resigned as President, Chief Executive Officer
and Chief Financial Officer as of the Closing Date. From June 2009 to
present, Mr. Brasel has been President, Chief Executive Officer and Chief
Financial Officer and since March 2008 a Director of Princeton Acquisitions
Inc., a public shell company. From 1987 to present, Mr. Brasel has been
President and a Director of Bleu Ridge Consultants, Inc. Mr. Brasel currently
devotes the majority of his time to managing his various business investments.
From 2001 to 2003, Mr. Brasel was a Director in Mountain States Lending, Inc.
Over five years ago, Mr. Brasel served as a director of six publicly held
shells. These companies are ILMI Corporation, Studio Capital Corp., Calneva
Capital Corp., Zirconium Capital Corp., Hightop Capital Corp., and Royal Belle
Capital Corp. From December 1996 until September 1998, he served as President
and Director of Cypress Capital, Inc., which completed an acquisition of Terra
Telecommunications, Inc. during September 1998. From September 1995 until
January 1999, he served as President and a Director of High Hopes, Inc., which
completed an acquisition of certain technology from Sanga e-Health LLC during
January 1999. From May 1995 until August 1997, Mr. Brasel served as President
and a director of Universal Capital Corp., which completed an acquisition of
Remarc International Inc. during August 1997. From February 1996 until February
1997, Mr. Brasel served as President and a director of Capital 2000, Inc. which
completed an acquisition of United Shields Corporation in February 1997. From
July 1996 until December 1997, Mr. Brasel served as President and a director of
Mahogany Capital, Inc., which completed an acquisition of Pontotoc Production
Company, Inc. during December 1997. From July 1996 until May 1998, Mr. Brasel
served as President and a director of Walnut Capital, Inc., which completed a
merger with Links Ltd. during May 1998. From March 1990 until September 1994,
Mr. Brasel served as President, Secretary, Treasurer and a Director of Prentice
Capital, Inc., a publicly held blank-check company which completed an
acquisition of Universal Footcare, Inc. From March 1990 until August 1993, Mr.
Brasel was President, Secretary and a director of Brasel Ventures, Inc., a
publicly held blank-check company, which completed an acquisition of American
Pharmaceutical Company. Mr. Brasel received a Bachelor of Science degree in
Business Administration from Morningside College, Sioux City, Iowa.
Appointment
of New Officers and Directors
Upon
closing of the Share Exchange, the following individuals were named to the board
of directors (as of the Effective Date, except for Wang Xinshun, who was
appointed effective as of the Closing Date) and executive management (as of the
Closing Date) of BRBH:
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Wang
Xinshun
|
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49
|
|
Chairman
of the Board
|
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Wang
Feng
|
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45
|
|
Director;
Chief Executive Officer
|
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Li
De Xin
|
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62
|
|
Director;
Chief Operating Officer
|
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David
Chen
|
|
42
|
|
Director
|
|
Huang
Qi Fa
|
|
46
|
|
Director
|
Wang
Xinshun is a founder and the sole director of SC Coke (formerly known as
Anyang Shuncheng Coal Washing Co., Ltd prior to February 2005), a position he
has held since February 2005. Since May 2008 Mr. Wang has also
served as the General Manager of Bailianpo, in which he owns a 43.86%
interest. From August 1997 to January 2005 Mr. Wang serviced
as general manager of Anyang Shuncheng Coal Washing Co., Ltd. Mr.
Wang founded Anyang Tiexi Coal Washery in March 1991 where he worked as a
factory director until July 1997. Mr. Wang serves on the board of
directors of Angang Steel Group Metallurgy Furnace Co., Ltd., Anyang Commercial
Bank Co. Ltd. and Bailianpo. Mr. Wang graduated from Henan
Engineering School in June 2009. Mr. Wang’s experience in the coal
and coke industry and the operation and management of large-scale coke and
refined coal operations are valuable resources in formulating business strategy,
addressing business opportunities and resolving operational issues that arise
from time to time.
Li De Xin
has served as the General Manager of SC Coke since April, 2006. From July 1999
to March 2006, Mr. Li served as the Factory Director of Anyang Iron and Steel
Group Coking Plant and as Deputy Factory Director from June 1989 to
June 1999. Mr. Li is also an executive director of the China Coking
Industry Association and a director of the Henan Coking Committee of Chinese
Society of Metals. Mr. Li graduated from Wuhan Institute
of Iron and Steel (now known as Wuhan University of Science and Technology) in 1985. Mr.
Li has been the General Manager of SC Coke since 2006 and has been
responsible for all of its operations. His expertise in coke, refined
coal and other chemical products makes him qualified to serve on the board of
directors.
Wang Feng
has served as Assistant General Manager of SC Coke since January
2000. Mr. Wang served as officer from August 1986 until July 1992, as
the Head of Human Resources Department from August 1992 to June 1994 and as
Chief of Office from July 1994 to December 1998, at Anyang Chemical Fiber
Industry Co., Ltd. Mr.
Wang graduated from Zhengzhou University in 1986. Mr.
Wang has been the Assistant General Manager of SC Coke since 2000 and
has been responsible for SC Coke’s operations related to supply, sales and
financing. His business experience makes him qualified to serve on
the board of directors.
David Chen
has
served as the director of Huashan Capital since February 2009. Since June
2006, Mr. Chen has served as the Non-Executive Chairman of Sancon Resources
Recovery, Inc., a successor to MKA Capital, Inc., where Mr. Chen served as the
CEO since its inception in 2004. He has been the president and CEO of Shine
Media Acquisition Corp., a blank check company, since its inception in June
2005. He was the former CEO of Hartcourt Companies Inc from 2002 to 2004, a
consolidator of IT distribution companies, and CEO of V2 Technology, a
videoconferencing technology company. Mr. Chen holds a Bachelor of Economics
degree from Monash University of Australia. Mr. Chen’s extensive
experience in the financial industry and with public companies listed in the
United States makes him qualified to serve on the board of
directors.
Huang Qi
Fa has served as the Chief Financial Officer at Shanghai KuaiLu
Investment Group since March 2010. From January 2005 to March 2009,
Mr. Huang served as the Assistant General Manager of Beijing Yongtuo Certified
Public Accountants Co., Ltd. Mr. Huang subsequently served as the
deputy chief accountant at Hugang International Consulting Group from April 2009
to March 2010. Mr. Huang received his bachelor’s degree from Anhui
Agricultural University in 1987. Mr. Huang is a Certified Public
Accountant, a registered real estate appraiser, a registered consulting engineer
and a registered land appraiser. His more than twenty years of
experience in audit, tax and management consultancy and knowledge of various
financial matters makes him qualified to serve on the board of
directors.
BRBH
intends to hire after the Closing a chief financial officer who has experience
with public accounting, the requirements of both GAAP and the Sarbanes-Oxley
Act.
Family
Relationships
There are
no family relationships between or among any of the current and incoming
directors or executive officers.
Involvement
in Certain Legal Proceedings
To the
knowledge of BRBH, no executive officer or director has been involved in the
last ten years in any of the following:
● Any
bankruptcy petition filed by or against any business or property of such person,
or of which such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time;
● Any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses);
● Being
subject to any order, judgment, or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities or banking activities;
● Being
found by a court of competent jurisdiction (in a civil action), the SEC or the
Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed,
suspended, or vacated;
● Being
the subject of or a party to any judicial or administrative order, judgment,
decree or finding, not subsequently reversed, suspended or vacated relating to
an alleged violation of any federal or state securities or commodities law or
regulation, or any law or regulation respecting financial institutions or
insurance companies, including but not limited to, a temporary or permanent
injunction, order of disgorgement or restitution, civil money penalty or
temporary or permanent cease-and-desist order, or removal or prohibition order,
or any law or regulation prohibiting mail, fraud, wire fraud or fraud in
connection with any business entity; or
● Being
the subject of or a party to any sanction or order, not subsequently reversed,
suspended or vacated, of any self-regulatory organization (as defined in Section
3(a)(26) of the Exchange Act, any registered entity (as defined in Section
1(a)(29) of the Commodity Exchange Act), or any equivalent exchange,
association, entity or organization that has disciplinary authority over its
members or persons associated with a member.
Board
Meetings; Board Committees and Director Independence
The board
of directors held no formal meetings during the most recently completed fiscal
year. All proceedings of the board of directors were conducted by
resolutions consented to in writing by all the directors and filed with the
minutes of the proceedings of the directors. Such resolutions
consented to in writing by the directors entitled to vote on that resolution at
a meeting of the directors are, according to the corporate laws of the State of
Colorado and our By-laws, as valid and effective as if they had been passed at a
meeting of the directors duly called and held.
As of
this date BRBH’s board of directors has not appointed a nominating committee,
audit committee or compensation committee, or committees performing similar
functions nor does it have a written nominating, compensation or audit committee
charter. The
board of directors does not believe that it is necessary to have such committees
because it believes the functions of such committees can be adequately performed
by the board of directors. Further, BRBH is not a “listed company”
under SEC rules and thus is not required to have an audit, compensation or
nominating committee. Accordingly, the Registrant does not have an
“audit committee financial expert” as such term is defined in the rules
promulgated under the Securities Act and the Exchange
Act. The functions ordinarily handled by these committees are
currently handled by the entire board of directors. The board of directors
intends, however, to review the governance structure and institute board
committees as necessary and advisable in the future, to facilitate the
management of BRBH’s business.
We are
presently evaluating whether any of the current or incoming directors are
considered “independent” as the term is used in Item 7(d)(3)(iv) of Schedule 14A
under the Exchange Act. We are not currently subject to any law, rule
or regulation, however, requiring that all or any portion of our board of
directors include “independent” directors.
We do not
have any defined policy or procedure requirements for shareholders to submit
recommendations or nominations for directors. We believe that, given
the early stages of our development, a specific nominating policy would be
premature and of little assistance until our business operations develop to a
more advanced level. We do not currently have any specific or minimum
criteria for the election of nominees to the board of directors and we do not
have any specific process or procedure for evaluating such nominees. Our board
of directors assesses all candidates, whether submitted by management or
shareholders, and makes recommendations for election or
appointment.
We intend
to appoint such persons and form such committees as are required to meet the
corporate governance requirements imposed by a U.S. national securities
exchange. Therefore, we intend that a majority of our directors
eventually will be independent directors and at least one of our new independent
directors will qualify as an “audit committee financial
expert.” Additionally, we will adopt charters relative to each such
committee.
A
shareholder who wishes to communicate with our board of directors may do so by
directing a written request addressed to our chief executive officer at the
address appearing on the face page of this Current Report. We do not
have a policy regarding the attendance of board members at the annual meeting of
shareholders.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Compensation
Before the Share Exchange
Prior to
the closing of the Share Exchange on June 28, 2010, we were a “blank check”
shell company. The sole officer and director of BRBH did not receive
any compensation or other perquisites for serving in such
capacities.
Prior to
the closing of the Share Exchange, our current named executive officers were
compensated by SC Coke until the closing of the Share Exchange, including for
the years ended December 31, 2007, 2008 and 2009. SC Coke paid to
such executives a nominal salary and discretionary bonus. The Board
of Directors believes that the salaries paid to our executive officers during
2007, 2008 and 2009 reflect the fair value of the services provided to SC Coke,
as measured by the local market in China.
Compensation
After the Share Exchange
Summary
Compensation Table
Former
Executive Officers
The
following summary compensation table below sets forth the cash and non-cash
compensation carried during the fiscal year of the Company ended December 31,
2009 by its former President, Chief Executive Officer and Chief Financial
Officer.
SUMMARY
COMPENSATION TABLE
Name and
Principal
Position
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|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings ($)
|
|
|
All Other
Compensation
($)
|
|
|
|
|
|
Timothy
Brasel,
|
|
2009
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
former
President,
|
|
2008
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
Chief
Executive Officer and Chief Financial Officer
|
|
2007
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Incoming
Executive Officers
The
following summary compensation table indicates the cash and non-cash
compensation earned during the fiscal year of SC Coke ended December 31, 2009 by
the incoming chief executive officer, chief operating officer and each of the
other three highest paid executives of SC Coke, if any, whose total compensation
exceeded $100,000 during the fiscal year ended December 31, 2009.
Name and
Principal
Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings ($)
|
|
|
All Other
Compensation
($)
|
|
|
|
|
|
Wang
Xinshun
|
|
2009
|
|
|
5,263 |
|
|
|
82,456 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
87,719 |
|
|
Chairman
|
|
2008
|
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|
5,263 |
|
|
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23,977 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
29,240 |
|
|
|
|
2007
|
|
|
5,263 |
|
|
|
9,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,620 |
|
|
Wang
Feng
|
|
2009
|
|
|
5,263 |
|
|
|
53,216 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
58,479 |
|
|
Chief
Executive
|
|
2008
|
|
|
5,263 |
|
|
|
16,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,930 |
|
|
Officer
|
|
2007
|
|
|
5,263 |
|
|
|
6,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,696 |
|
|
Li
De Xin
|
|
2009
|
|
|
5,263 |
|
|
|
53,216 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
58,479 |
|
|
Chief
Operating
|
|
2008
|
|
|
5,263 |
|
|
|
16,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,930 |
|
|
Officer
|
|
2007
|
|
|
5,263 |
|
|
|
6,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,696 |
|
Grants
of Plan-Based Awards in Fiscal 2009
There
were no option or other equity grants in 2009.
Outstanding
Equity Awards at 2009 Fiscal Year End
There
were no options or other equity awards outstanding in 2009.
Option
Exercises and Stock Vested in Fiscal 2009
There
were no option exercises or stock vested in 2009.
Pension
Benefits
There
were no pension benefit plans in effect in 2009.
Nonqualified
Defined Contribution and Other Nonqualified Deferred Compensation
Plans
There
were no nonqualified defined contribution or other nonqualified deferred
compensation plans in effect in 2009.
Employment
Contracts and Termination of Employment and Change-in-Control
Arrangements
Through
December 31, 2009, and the period ending on the date of this Current Report,
BRBH had no employment contracts, compensatory plans or arrangements, including
payments to be received from us, with respect to any director or executive
officer of BRBH which would in any way result in payments to any such person
because of his or her resignation, retirement or other termination of employment
with BRBH or any subsidiary, any change in control of BRBH, or a change in the
person’s responsibilities following a change in control of BRBH.
On June
28, 2010, we entered into employment agreements with Wang Xinshun, our incoming
Chairman of the Board, Wang Feng, our incoming Chief Executive Officer, and Li
De Xin, our incoming Chief Operating Officer.
The term
of each agreement is five years, during which each executive officer will be
entitled to a base salary of approximately $5,000 per year, subject to increase
by the Board of Directors. In addition to the base salary, each
executive officer will be eligible to receive discretionary bonuses at times and
in amounts to be determined by the Board of Directors or an applicable committee
thereof. Each executive officer will be eligible to receive grants of
stock options or other equity compensation awards pursuant to an equity
compensation plan to be adopted by the Board of Directors, subject to the
approval of our shareholders, after the closing of the Share
Exchange.
Each
executive officer is entitled to receive, at our expense, medical, health and
social insurance coverage. In addition, subject to certain insurable
conditions and the completion of requisite documentation, each executive officer
is entitled to long term disability insurance coverage providing for “lifetime”
disability benefits and life insurance each in an amount to be determined by the
Board of Directors. We will also make available to each executive
officer any and all other executive or fringe benefits made available to our
other executives, including tax filing preparation services for the first year
of the term in an amount not to exceed approximately $1,500. Each
executive officer is entitled to paid vacation of a duration we provide to our
other executives.
Each
executive officer will be provided with liability insurance coverage generally
provided to our officers and managers. We agreed to indemnify each
executive officer against all costs, damages and expenses, including attorneys’
fees, that may be incurred as a result of claims by third parties arising out of
or from the executive officer’s lawful acts as our employee, provided that such
acts are not grossly negligent and are performed in good faith and in a manner
reasonably believed by such executive officer to be in the best interests of our
company.
During
the term of the agreements, and for one year thereafter, the executive officers
cannot, directly or indirectly, own, manage, control, participate in, consult
with, render services for, or in any other manner engage in any business, or as
an investor in or lender to any business (in each case including on the
executive officer’s own behalf or on behalf of another entity) that competes
either directly or indirectly with us in our business, in any market in which we
operate, or are considering operating at any given point in time during the
term. Each executive officer is permitted to be a passive owner of
less than 5% of the outstanding stock of a publicly traded corporation that
engages in a competing business, so long as the executive officer does not have
a direct or indirect participation in the business of such
corporation.
The
executive officer’s employment may be terminated: (i) by us immediately upon his
death; (ii) by us upon fifteen days’ notice during the continuance of any
Disability (as defined below) of the executive officer; (iii) by us without Good
Cause (as defined below); (iv) by us for Good Cause (as defined below) upon
notice specifying the particular circumstances forming the basis thereof; (v) by
the executive officer voluntarily other than for Good Reason (as defined below);
or (vi) by the executive officer for Good Reason (as defined below) upon notice
specifying the particular circumstances forming the basis thereof.
“Disability”
means an inability by the executive officer to perform a substantial portion his
or her duties hereunder by reason of physical or mental incapacity or disability
for a total of one hundred twenty (120) days or more in any consecutive period
of three hundred and sixty five (365) days, as determined by the Board of
Directors in its good faith judgment.
“Good
Cause” means: (i) the commission of a felony, or a crime involving moral
turpitude, or the commission of any other act or omission involving dishonesty,
disloyalty, or fraud with respect to our company; (ii) conduct tending to bring
us or any of our affiliates into substantial public disgrace or disrepute; (iii)
substantial and repeated failure to perform duties as reasonably directed by the
Board of Directors; (iv) gross negligence or willful misconduct with respect to
us or any of our affiliates; or (v) any material misrepresentation by the
executive officer under the agreement; provided, however, that such Good Cause
will not exist unless we provide the executive officer with written notice
specifying in reasonable detail the factors constituting such Good Cause, as
applicable, and such factors have not been cured by the executive officer within
thirty (30) days after such notice or such longer period as may reasonably be
necessary to accomplish the cure.
“Good
Reason” means the occurrence of any of the following events: (i) the assignment
to the executive officer of any duties inconsistent in any material respect with
his or her then position (including status, offices, titles and reporting
relationships), authority, duties or responsibilities, or any other action or
actions by us that, when taken as a whole, results in a significant diminution
in his or her position, authority, duties or responsibilities, excluding for
this purpose any isolated, immaterial and inadvertent action not taken in bad
faith and which is remedied by us promptly after receipt of notice thereof
provided by the executive officer; (ii) a material breach by us of one or more
provisions of the agreement, provided that such Good Reason will not exist
unless the executive officer has provided us with written notice specifying in
reasonable detail the factors constituting such material breach and such
material breach has not been cured by us within thirty (30) days after such
notice or such longer period as may reasonably be necessary to accomplish the
cure; (iii) any purported termination by us of the executive officer’s
employment otherwise than as expressly permitted by the agreement; or
(iv) a change in control whereby (A) a person (other than a person who is
our officer or director on June 28, 2010), including a group as defined in
Section 13(d)(3) of the Exchange Act, becomes, or obtains the right to become,
the beneficial owner of our securities having fifty one percent (51%) or more of
the combined voting power of our then outstanding securities, (B) we consummate
a merger in which we are not the surviving entity, (C) all or substantially all
of our assets are sold, or (D) our shareholders approve the dissolution or
liquidation of our company.
If the
executive officer is terminated by us without Good Cause or if the executive
officer resigns for Good Reason, he or she will be entitled to receive as
severance one year’s base salary and the immediate vesting of all granted but
unvested option grants. If either executive officer were terminated
as of the date hereof, each executive officer would be entitled to receive
approximately $5,000.
For a
discussion of the employment contracts SC Coke executes with all other
employees, see “Description of the Company – Employees” above.
Compensation
of Directors
We do not
currently have an established policy to provide compensation to members of our
Board of Directors for their services in that capacity. We intend to
develop such a policy in the near future. It is currently anticipated that
non-employee directors will receive a fee at the rate of $20,000 per year for
service as a director, and be eligible to receive awards which may
granted pursuant to an equity compensation plan, if approved by our
shareholders.
Equity
Compensation Plans
Currently,
we intend to adopt a stock option plan, restricted stock plan and/or other
equity compensation plan for the benefit of directors, officers, employees and
other eligible participants. If a determination is made to implement any such
plans, they will be submitted to shareholders for their consideration, at which
time shareholders would be provided with detailed information regarding such
plan(s). If approved, and awards are granted, they will likely have a
dilutive effect on BRBH’s shareholders as well as affect BRBH’s net income and
stockholders’ equity, although the actual results cannot be determined until
after any such plans are implemented.
Compensation
Committee Interlocks and Insider Participation
No
interlocking relationship exists between our board of directors and the board of
directors or compensation committee of any other company, nor has any
interlocking relationship existed in the past.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
BRBH has
no properties has no agreements to acquire any properties. Since January 2007,
it has utilized the offices of a major shareholder of BRBH, located at 2560 W.
Main Street, Suite 200, Littleton, Colorado 80120. Prior
to the Share Exchange, BRBH paid $1,500 per month for reimbursement of
out-of-pocket expenses such as telephone, postage, supplies and administrative
support to a company controlled by a shareholder of BRBH. BRBH paid
$18,000 for these expenses for the year ended June 30, 2009.
VIE
Arrangements
Shun
Cheng HK owns 100% of the issued and outstanding capital stock of Anyang WFOE, a
wholly foreign owned enterprise incorporated under the laws of the
PRC. On March 19, 2010, Anyang WFOE entered into the VIE Agreements
with SC Coke, a company incorporated under the laws of the PRC, and its
shareholders (the principal shareholder being Wang Xinshun, SC Coke’s sole
director), in which Anyang WFOE effectively assumed management of the business
operations of SC Coke and has the right to appoint the members of the board of
directors of SC Coke. The VIE Agreements are comprised of a series of
agreements, including an Entrusted Management Agreement, a Shareholders’ Voting
Proxy Agreement, and Exclusive Option Agreement and Shares Pledge Agreement,
through which Anyang WFOE manages SC Coke’s operations and assets, and controls
all of SC Coke’s cash flow and assets through entrusted or designated bank
accounts. In turn, it is be entitled to any of SC Coke’s net earnings
as a management fee, and will be obligated to pay all SC Coke’s debts to the
extent SC Coke is not able to pay such debts. Additionally, SC Coke’s
shareholders have pledged all of their equity interests in SC Coke, including
the proceeds thereof, to guarantee all of Anyang WFOE’s rights and benefits
under the VIE Agreements. In order to further reinforce Anyang WFOE’s
rights to control and operate SC Coke, SC Coke’s shareholders have granted
Anyang WFOE the exclusive right to purchase all or part of the shares or assets
of SC Coke through an Exclusive Option Agreement.
Through
Anyang WFOE, BRBH operates and controls SC Coke through the VIE
Agreements. Anyang WFOE used the contractual arrangements to acquire
control of SC Coke, instead of using a complete acquisition of SC Coke’s assets
or equity to make SC Coke a wholly-owned subsidiary of Anyang WFOE because: (i)
PRC laws governing share exchanges with foreign entities, which became effective
on September 8, 2006, make the consequences of such acquisitions uncertain and
(ii) other than by share exchange transactions, PRC laws require SC Coke to be
acquired for cash and SC Coke was not able to raise sufficient funds to pay the
full appraised value for SC Coke’s assets or shares as required under PRC
laws.
Share
Exchange
On June
28, 2010, BRBH completed the Share Exchange with Shun Cheng HK, the former
shareholders of Shun Cheng HK and the BRBH Principal Shareholders. At the
closing, Shun Cheng HK became a wholly-owned subsidiary of BRBH and 100% of the
issued and outstanding securities of Shun Cheng HK were exchanged for securities
of BRBH. An aggregate of 30,233,750 shares of common stock were
issued to the shareholders of Shun Cheng HK. As of the close of the
Share Exchange, the Shun Cheng shareholders owned approximately 95% of the
issued and outstanding stock of BRBH. At the closing of the Share
Exchange, certain shareholders of BRBH agreed to the cancellation of an
aggregate of 435,123 shares to purchase shares of common stock held by them such
that there were 186,941 shares of common stock owned by them immediately after
the Share Exchange. On the Closing Date of the Share Exchange, Wang
Xinshun was appointed Chairman of the Board of Directors and Wang Feng, Huang Qi
Fa, David Chen and Li De Xin were appointed as members of the Board of Directors
effective on the Effective Date and Timothy Brasel
resigned as an officer effective as of the closing of the Share Exchange and as
sole director of BRBH effective on the Effective Date. The Board also
appointed Wang Feng as our Chief Executive Officer and Li De Xin as our Chief
Operating Officer effective as of the Closing Date.
Call
Option Agreements
As
described above under the caption “Description of the Company—Call Option
Agreements with Certain Shareholders of Shun Cheng HK Shareholders,” Wang
Xinshun, the sole shareholder of SC Holdings and various shareholders of other
Shun Cheng HK Shareholders are parties to the Call Option Agreements, pursuant
to which Wang Xinshun is entitled to purchase up to 100% of the issued and
outstanding shares of SC Holdings and such other Shun Cheng HK Shareholders at a
price of $0.0001 per share for a period of five years upon satisfaction of
certain conditions. Under the Call Option Agreements, Wang Xinshun also acquired
the exclusive right to exercise all of the voting rights in respect of the
shares of SC Holdings and the other Shun Cheng HK Shareholders subject to the
agreements.
Loans
From Wang Xinshun
From time
to time, Wang Xinshun, the sole director and majority shareholder of SC Coke,
has made loans to SC Coke. As of December 31, 2009 and March 31,
2010, the outstanding balance of all such loans was $35,635,066 and $35,645,982,
respectively. As of the date of this Current Report, the outstanding
balance owed by SC Coke to Wang Xinshun is approximately $35.7
million. Wang Xinshun entered into a loan agreement (the “Loan
Agreement”) with SC Coke dated May 23, 2010, which has a twelve year term,
commencing on December 31, 2009. Pursuant to the Loan Agreement, any
loans provided to SC Coke prior to December 31, 2009 are provided interest-free
and any amounts borrowed after such date will accrue interest at an interest
rate of 3%. During the first two years of the Loan Agreement’s term,
SC Coke may, but is not required to, pay any interest on the borrowed
amounts. On December 31, 2011, any accrued and unpaid interest will
be added to the principal amount of the loan and, commencing on January 1, 2012,
the outstanding indebtedness will be amortized over the remaining 10 years of
the loan and SC Coke is required to make monthly interest and principal payments
to Wang Xinshun. Wang Xinshun further agreed that no default will be
declared against SC Coke prior to the expiration of the ten year loan term on
December 31, 2021.
Loan
Agreements with Related Parties
On March
31, 2010, Anyang Xinlong (in which SC Coke owns a 16% interest) and the other
Lenders, Anyang Huichang Coal Washing Co., Ltd. and Anyang Jindu Coal Co., Ltd.,
each entered into loan agreements with SC Coke. The original
principal amounts of these loans were approximately $4.4 million, $24.7
million and $5.9 million, respectively. The loans had no repayment
terms. On June 21, 2010, the SC Coke Shareholders agreed to
assume the obligations of SC Coke to the Lenders and the Lenders released SC
Coke from any liability. On the same date, the SC Coke Shareholders
entered into a Debt Agreement with SC Coke for the original principal amount of
approximately $35 million, which amount is equal to the principal amount assumed
by the SC Coke Shareholders. The principal terms of the loan are:
(a) 15 year term, commencing on June 21, 2010, (b) 2% fixed annual
interest on a non-compounding basis, (c) SC Coke has the option, but not
the obligation, to pay interest prior to maturity, and (d) the SC Coke
Shareholders cannot declare a default prior to maturity.
Guarantees
Wang
Xinshun, the sole director and majority shareholder of SC Coke, Wang Xinming,
the head officer of 1st coal
washing department of SC Coke, Cheng Junsheng, the head officer of Supply and
Sale Department and their spouses, and Bailianpo, in which Wang Xinshun has a
43.86% interest, have executed various joint liability guarantees for the
benefit of SC Coke under certain loan agreements and equipment financing
agreements of SC Coke. Under such guarantees, the guarantors
generally agree to pay the payment obligations of SC Coke under the related loan
agreement or equipment financing agreement if SC Coke fails to repay its debt
when it is due.
Relationships
with Coal Suppliers
Wang
Xinshun, the sole director and majority shareholder of SC Coke currently holds a
43.86% interest in Bailianpo, an entity which is the owner of a coal
mine. Prior to his acquisition of this interest, Wang Xinshun was the
general manager of such mine.
As of
December 31, 2009 and March 31, 2010, SC Coke had net deposits of approximately
$7.1 million and $4.9 million, respectively, with Bailianpo; and cost of
revenues related to purchases from Bailianpo was approximately $3.4 million for
the year ended December 31, 2009 and approximately $4.1 million for the three
months ended March 31, 2010. Subsequently, SC Coke and Bailianpo
entered into a new purchase agreement pursuant to which SC Coke will buy 150,000
tons of raw coal per year at a price of approximately $103.80 per
ton. The agreement with Bailianpo has a term that expires on
December 31, 2013 and is subject to certain adjustments and renegotiation
based on the price published by the mining bureau in China.
SC Coke
also purchases coking coal from Anyang Xinlong, in which SC Coke owns a 16%
interest. SC Coke had net deposits of approximately $0 and $62,000
with Anyang Xinlong at December 31, 2009 and March 31, 2010, respectively; and
cost of revenues related to purchases from Anyang Xinlong was approximately
$10.9 million for the year ended December 31, 2009 and approximately $2.1
million for the three months ended March 31, 2010. SC Coke and Anyang
Xinlong are parties to a purchase agreement pursuant to which SC Coke will buy
120,000 tons of raw coal per year at a price of approximately $103.80 per
ton. The agreement with Anyang Xinlong has a term that expires on
December 31, 2013 and is subject to certain adjustments and renegotiation based
on the price published by the mining bureau in China.
In
addition, SC Coke is party to a loan agreement with Anyang Xinlong dated March
31, 2010, pursuant to which Anyang Xinlong agreed to lend $4.4 million to SC
Coke on an interest free basis. This loan agreement had no specific
repayment terms, and according to current PRC laws, Anyang Xinlong could have
required SC Coke to repay the principal at any time.
Ownership
Interest in Longdu by Wang Xinshun
Wang
Xinshun, the sole director and majority shareholder of SC Coke, currently holds
a 5% interest in SC Coke’s subsidiary Longdu.
Consultancy
Arrangements
SC Coke
has entered into a Listing & Financing Consultancy Agreement (the “Financing
Consultancy Agreement”) with USA Wall Street Capital United Investment Group
Limited (“USA Wall Street”) dated as of June 1, 2010 pursuant to which USA Wall
Street agreed to provide financial consultancy services. Pursuant to
the terms of the Financing Consultancy Agreement, USA Wall Street provided
financial consulting services to SC Coke prior to and in connection with the
Share Exchange in exchange for which it was entitled to receive 20% of the
equity of Shun Cheng HK. In connection with the closing of the Share
Exchange, USA Wall Street, collectively with other entities under common control
with it, received 6,364,203 shares of common stock of BRBH.
In
connection with the Share Exchange, an aggregate of 222,222 shares of common
stock were issued to Shine Media Group Ltd. as payment for consulting services
rendered. Shine Media Group Ltd. is an entity controlled by Mr. Chen
(who was named to the Board of Directors as of the Effective Date).
Longdu
SC Coke
has an 86% equity interest in Longdu. Longdu operates a coal-washing
facility which produces refined coal, medium coal and coal slurry. SC
Coke is Longdu’s main customer and Longdu provides all of the refined coal it
produces to SC Coke. 100% of Longdu’s revenues for fiscal 2009 was
from sales to SC Coke.
Family
Relationships
The three
shareholders of SC Coke are Wang Xinshun, who holds a 60% interest, Cheng
Junsheng and Wang Xinming, who each hold a 20% interest. Wang Xinshun
is the sole director of SC Coke. Cheng Junsheng is the head officer
of the Supply & Sale Department of SC Coke. Wang Xinming is the
head officer of the 1st coal washing department of SC Coke. Cheng
Junsheng is Wang Xinshun’s nephew and Wang Xinming is Wang Xinshun’s
brother.
Trade
Receivables and Revenue
SC Coke
owns a 19% interest in Angang Steel, which is party to a coal purchase agreement
with SC Coke pursuant to which it purchases coal gas and, from time to time,
small quantities of 25 to 40 millimeter coke at market price. As of
December 31, 2009, there were approximately $906,000 in outstanding accounts
receivable owed from Angang Steel to SC Coke. As of March 31, 2010,
outstanding accounts receivable owed from Angang Steel to SC Coke was
approximately $0.8
million. Revenue from Angang Steel for the year ended December 31,
2009 and three months ended March 31, 2010 was approximately $3.7 million and $1.4 million,
respectively.
Policy
for Approval of Related Party Transactions
We do not
currently have a formal related party approval policy for review and approval of
transactions required to be disclosed pursuant to Item 404(a) of Regulation
S-K. We expect our board to adopt such a policy in the near
future.
LEGAL
PROCEEDINGS
Except
for the following proceedings, the Company does not have any material
proceedings pending nor is it aware of any pending investigation or threatened
litigation by any third party. On July 20, 2009, SC Coke, as the
plaintiff, sued Pingshan County Jingye Smelting Co., Ltd., a customer of SC
Coke, as the defendant, for outstanding payment of coal sold by SC
Coke. The Intermediate People’s Court of Shijiazhuang of Hebei
Province entered a final judgment on October 23, 2009, ruling that the defendant
pay approximately $3 million, plus interest to SC Coke, and SC Coke is seeking
to enforce the judgment.
DESCRIPTION
OF SECURITIES
General
BRBH’s
authorized capital stock consists of 500,000,000 shares of common stock, no par
value per share and 50,000,000 shares of preferred stock, no par value per
share. After the closing of the Share Exchange, but prior to the
issuance of 222,222 shares of common stock to a financial consultant, which is
described in more detail in Item 3.02 below, BRBH had 31,825,000 shares of
common stock issued and outstanding held by approximately 393 shareholders of
record.
Common
Stock
The
holders of BRBH’s common stock are entitled to one vote per share on each matter
submitted to a vote at a meeting of BRBH’s shareholders. Holders of
common stock do not have cumulative voting rights. BRBH’s
shareholders have no pre-emptive rights to acquire additional shares of BRBH’s
common stock or other securities. Subject to preferences that may be
applicable to any then-outstanding preferred stock, holders of common stock are
entitled to share in all dividends that the board of directors, in its
discretion, declares from legally available funds. In the event of
liquidation, dissolution or winding up, subject to preferences that may be
applicable to any then-outstanding preferred stock, each outstanding share
entitles its holder to participate in all assets that remain after payment of
liabilities and after providing for each class of stock, if any, having
preference over the common stock.
Holders
of common stock have no conversion, preemptive or other subscription rights, and
there are no redemption or sinking fund provisions applicable to the common
stock. The rights of the holders of common stock are subject to any rights that
may be fixed for holders of preferred stock, when and if any preferred stock is
authorized and issued. All outstanding shares of common stock are
duly authorized, validly issued, fully paid and non-assessable.
On June
28, 2010, BRBH issued a warrant to SCM Capital LLC to purchase an aggregate of
1,922,833 shares of common stock and a warrant to SCM Capital LLC to purchase an
aggregate of 6% of the number of shares of common stock issued and outstanding
immediately following the closing of a private financing resulting in gross
proceeds of $25 million or more, less 1,922,833, each of which is described in
more detail below in Item 3.02. BRBH granted customary piggyback
registration rights with respect to the shares underlying the
warrants.
Preferred
Stock
Our Board
of Directors, without further approval of our shareholders, is authorized to fix
the dividend rights and terms, conversion rights, voting rights, redemption
rights, liquidation preferences and other rights and restrictions relating to
any series of preferred stock.
MARKET
PRICE OF AND DIVIDENDS ON THE COMPANY’S COMMON STOCK
AND
RELATED SHAREHOLDER MATTERS
BRBH’s
common stock is traded on the OTCBB under the symbol “BRBH”. There is
only a limited trading market for our stock and our shareholders may find it
difficult to sell their shares. The following table sets forth, for
the periods indicated, the reported high and low quotations for our common
stock as reported in the over-the-counter market.
|
|
|
High
|
|
|
Low
|
|
|
Fiscal
year ended
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
0.30 |
|
|
$ |
0.30 |
|
|
Second
Quarter
|
|
|
0.30 |
|
|
|
0.30 |
|
|
Third
Quarter
|
|
|
0.30 |
|
|
|
0.70 |
|
|
Fourth
Quarter
|
|
|
4.50 |
|
|
|
0.70 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
1.06 |
|
|
$ |
1.06 |
|
|
Second
Quarter
|
|
|
1.05 |
|
|
|
1.05 |
|
|
Third
Quarter
|
|
|
1.05 |
|
|
|
0.55 |
|
|
Fourth
Quarter
|
|
|
0.55 |
|
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
2.00 |
|
|
$ |
1.06 |
|
|
Second
Quarter
|
|
|
1.25 |
|
|
|
1.06 |
|
|
Third
Quarter
|
|
|
1.06 |
|
|
|
1.06 |
|
|
Fourth
Quarter
|
|
|
1.06 |
|
|
|
1.06 |
|
Shareholders
Immediately
after the closing of the Share Exchange, we had approximately 393 shareholders
of record of our issued and outstanding common stock.
Dividend
Policy
We do not
currently intend to pay any cash dividends in the foreseeable future on our
common stock and, instead, intend to retain earnings, if any, for future
operation and expansion. Any decision to declare and pay dividends in the future
will be made at the discretion of our board of directors and will depend on,
among other things, our results of operations, cash requirements, financial
condition, contractual restrictions and other factors that our board of
directors may deem relevant.
Equity
Compensation Plan Information
We
currently do not have any equity compensation plans.
RECENT
SALES OF UNREGISTERED SECURITIES
Reference
is made to Item 3.02 of this Current Report for a description of recent sales of
unregistered securities, which is hereby incorporated herein by
reference.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Section
7-109-102 of the Colorado Business Corporation Act (“CBCA”)
provides, in general, that a corporation incorporated under the laws of the
State of Colorado, such as us, may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (other than a derivative action
by or in the right of the corporation) by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another enterprise, against expenses (including attorneys’ fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person’s
conduct was unlawful. In the case of a derivative action, a Colorado corporation
may indemnify any such person against expenses (including attorneys’ fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification will be made in
respect of any claim, issue or matter as to which such person will have been
adjudged to be liable to the corporation unless and only to the extent that the
court conducting the proceeding determines such person is fairly and reasonably
entitled to indemnity for such expenses.
Our
Articles of Incorporation and Bylaws provide that we will indemnify our
directors, officers, employees and agents to the extent and in the manner
permitted by the provisions of the CBCA, as amended from time to time, subject
to any permissible expansion or limitation of such indemnification, as may be
set forth in any shareholders’ or directors’ resolution or by
contract.
Item
3.02 Unregistered Sales of Equity
Securities.
On June
28, 2010, and as described under Item 2.01 above, pursuant to the Share Exchange
Agreement, BRBH issued 30,233,750 shares of its common stock to the Shun Cheng
HK Shareholders in exchange for 100% of the issued and outstanding capital stock
of Shun Cheng HK. In connection with the Share Exchange, (i) an
aggregate of 318,250 shares of common stock were issued to Hu Qingying as
payment for consulting services rendered, (ii) an aggregate of 222,222 shares of
common stock were issued to Shine Media Group Ltd., which is an entity
controlled by Mr. Chen (who was named to the Board of Directors as of the
Effective Date), as payment for consulting services rendered, and (iii) a
warrant to purchase 1,922,833 shares of common stock, at an exercise price
of $4.50 per share, was issued to SCM Capital, LLC and a second warrant was also
issued to SCM Capital, LLC for the purchase, at the same exercise price, of 6%
of the number of shares of common stock issued and outstanding immediately
following the closing of a private financing resulting in gross proceeds of $25
million or more, less 1,922,833. Neither warrant is exercisable until
the closing of such private financing and each warrant is subject to forfeiture
in the event such private financing is not closed on or prior to August 31,
2010.
Such
securities were not registered under the Securities Act. These
securities qualified for exemption under Section 4(2) of the Securities Act
since the issuance securities by us did not involve a public
offering. The offering was not a “public offering” as defined in
Section 4(2) of the Securities Act and met the requirements to qualify for
exemption under Section 4(2) of the Securities Act.
Item
5.01 Changes in Control of
Registrant.
As
explained more fully above in Item 2.01, in connection with the Share Exchange,
BRBH issued 30,233,750 shares of its common stock to the Shun Cheng HK
Shareholders in exchange for the transfer of 100% of the outstanding shares of
Shun Cheng HK’s capital stock by the Shun Cheng HK Shareholders to
BRBH. As a result, the Shun Cheng HK Shareholders acquired control of
BRBH because the common shares issued to them equal approximately 95% of BRBH’s
outstanding shares of common stock (on a fully-diluted basis) on the Closing
Date of the Share Exchange. Each share of BRBH’s outstanding common
stock entitles the holders of common stock to one vote. Thus, the
Shun Cheng HK Shareholders hold the majority number of BRBH’s voting shares on a
fully diluted basis.
In
connection with the closing of the Share Exchange, and as explained more fully
in Item 2.01 above under the section titled “Management” and in Item 5.02 below,
effective on June 28, 2010, Timothy Brasel resigned as BRBH’s President, Chief
Executive Officer and Chief Financial Officer. Further, on June 28,
2010, the board of directors appointed Wang Xinshun as Chairman of the Board,
effective immediately and Wang Feng, Huang Qi Fa, David Chen and Li DeXin were
appointed as members of the Board of Directors effective on the expiration of
the 10 day period after the date of the filing of a Schedule 14(f) with the
SEC. Such Schedule will be filed and mailed to the Registrant’s
shareholders shortly after the filing of this Current Report.
The
closing of the transaction under the Share Exchange Agreement, which resulted in
the change of control of BRBH, occurred on June 28, 2010.
|
Item
5.02
|
Departure
of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain
Officers.
|
Effective
June 28, 2010, Timothy Brasel resigned as BRBH’s President, Chief Executive
Officer and Chief Financial Officer.
Effective
June 28, 2010, Wang Feng was appointed as Chief Executive Officer and Li De Xin
was appointed as Chief Operating Officer.
Effective
June 28, 2010, Wang Xinshun was appointed as a member of BRBH’s board of
directors as its Chairman. In addition, upon BRBH’s compliance with
the provisions of Section 14(f) of the Exchange Act and Rule 14(f)-1 thereunder,
the appointments of Wang Feng, Huang Qi Fa, David Chen and Li DeXin as new
members of BRBH’s board of directors and Timothy Brasel’s resignation from
BRBH’s board of directors will also become effective.
There are
no family relationships between or among any of the current and incoming
directors or executive officers. Other than the transactions in
connection with the Share Exchange, as described above in Item 2.01 and the
related party transactions described above in Item 2.02, no transactions
occurred in the last two years to which BRBH was a party in which the
above-mentioned officers and/or directors had or is to have a direct or indirect
material interest.
Descriptions
of the business backgrounds and any compensation arrangements with the newly
appointed or proposed directors and officers can be found in Item 2.01 above, in
the sections titled “Management” and “Executive Compensation,” and such
descriptions are incorporated herein by reference.
Item
5.03 Amendments to Articles of
Incorporation or Bylaws; Change in Fiscal Year.
Change
of Fiscal Year
On June
28, 2010, in connection with the
Share Exchange Agreement, BRBH changed its fiscal year end from June 30 to
December 31 to conform to the fiscal year end of SC Coke. Such change
will be reflected in the Company’s
Quarterly Report on Form 10-Q for the Company’s second fiscal quarter ended June
30, 2010.
Amendment
to Bylaws
Effective
June 28, 2010, the Company’s Board of Directors adopted amendments to the BRBH
Bylaws pursuant to the terms of the Share Exchange Agreement, which is described
under Item 2.01 of this Current Report. A copy of the Company’s
Amended and Restated Bylaws is attached to this Current Report as
Exhibit 3.3, and is incorporated herein by reference.
Item
5.06 Change in Shell Company
Status.
As
explained more fully in Item 2.01 above, BRBH was a “shell company” (as such
term defined in Rule 12b-2 under the Exchange Act) immediately before the
closing of the Share Exchange. As a result of the Share Exchange, Shun Cheng HK
became a wholly-owned subsidiary of BRBH and SC Coke became the main operational
business of BRBH, which is no longer a shell company. Reference is
made to Item 2.01 for a more complete description of the Share Exchange and the
business of BRBH subsequent to the Closing Date of the Share
Exchange.
Item
9.01 Financial Statements and
Exhibits.
|
|
(a)
|
Financial
Statements of the Business
Acquired.
|
The
audited consolidated financial statements of SC Coke for the fiscal years ended
December 31, 2009 and 2008 and 2007 are filed in this Current Report as Exhibit
99.1.
|
|
-
|
Independent
Auditors’ Report
|
|
|
-
|
Consolidated
Balance Sheets - December 31, 2009 and
2008
|
|
|
-
|
Consolidated
Statement of Operations for the years ended December 31, 2009, 2008 and
2007
|
|
|
-
|
Consolidated
Statements of Equity for the years ended December 31, 2009, 2008 and
2007
|
|
|
-
|
Consolidated
Statements of Cash Flows for the year ended December 31, 2009, 2008 and
2007
|
|
|
-
|
Notes
to Consolidated Financial
Statements
|
The
unaudited consolidated financial statements of SC Coke as of March 31, 2010 and
for the three months ended March 31, 2010 and 2009 are filed in this Current
Report as Exhibit 99.2.
|
|
(b)
|
Pro
Forma Financial Information.
|
The
Company’s unaudited pro forma financial statements are filed in this Current
Report on Form 8-K as Exhibit 99.3.
|
|
(c)
|
Shell
company transactions.
|
Reference
is made to Items 9.01(a) and 9.01(b) and the exhibits referred to therein, which
are incorporated herein by reference.
The
exhibits listed in the following Exhibit Index are filed as part of this Current
Report.
|
|
|
|
|
|
|
|
|
2.1
|
|
Share
Exchange Agreement, dated May 14, 2010, by and among Birch Branch, Inc.,
Timothy Brasel, Brasel Family Partners LTD, LaMirage Trust, Mathis Family
Partners, LTD, Lazzeri Family Trust, Hu Qingying, Ong Hock Seng and SCM
Capital LLC, Shun Cheng Holdings Limited, Wanjinlin International
Investment Group Limited, Jinmao Investment Group Limited, USA Wall Street
Capital United Investment Group Limited, Global Chinese Alliance
Development Ltd., USA International Finance Consulting Group Ltd., Golden
Hill International Investment Group Limited, Fuhai International
Investment Group Limited, Renhe International Investment Group Limited,
Fuyutai International Investment Group Limited, and Kangchen International
Investment Group Limited, and Shun Cheng Holdings HongKong
Limited.(1)
|
|
2.2
|
|
Amendment
No. 1 to the Share Exchange Agreement dated June 28, 2010 by and among
Birch Branch, Inc., Timothy Brasel, Brasel Family Partners LTD, LaMirage
Trust, Mathis
Family Partners, LTD, Lazzeri Family Trust, Hu Qingying, Ong Hock Seng,
SCM Capital LLC and Jim Gu, Shun Cheng Holdings Limited, Wanjinlin
International Investment Group Limited, Jinmao Investment Group Limited,
USA Wall Street Capital United Investment Group Limited, Global Chinese
Alliance Development Ltd., USA International Finance Consulting Group
Ltd., Golden Hill International Investment Group Limited, Fuhai
International Investment Group Limited, Renhe International Investment
Group Limited, Fuyutai International Investment Group Limited, and
Kangchen International Investment Group Limited, and Shun Cheng Holdings
HongKong Limited.*
|
|
3.1
|
|
Articles
of Incorporation of the Registrant.(2)
|
|
3.2
|
|
Certificate
of Amendment to the Articles of Incorporation of the
Registrant.(3)
|
|
3.3
|
|
Amended
and Restated Bylaws of the
Registrant.*
|
|
Exhibit
No.
|
|
Description
|
|
10.1
|
|
Cancellation
Agreement, dated June 28, 2010 by and among Birch Branch, Inc., Shun Cheng
Holdings HongKong Limited, Brasel Family Partners, LaMirage Trust, Lazzeri
Family Trust, Mathis Family Partners LTD, Lazzeri Equity Partners 401(k)
Plan.*
|
|
10.2
|
|
Entrusted
Management Agreement dated March 19,
2010 between Anyang Shuncheng Energy Technology Co., Ltd., Wang Xinshun, Wang
Xinming, Cheng Junsheng and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.3
|
|
Shareholders’
Voting Proxy Agreement dated March 19, 2010 between Anyang Shuncheng
Energy Technology Co., Ltd., Wang Xinshun, Wang
Xinming and Cheng Junsheng.*
|
|
10.4
|
|
Exclusive
Option Agreement dated March 19, 2010 between Anyang Shuncheng Energy
Technology Co., Ltd., Wang Xinshun, Wang Xinming, Cheng Junsheng and Henan
Shuncheng Group Coal Coke Co., Ltd.*
|
|
10.5
|
|
Shares
Pledge Agreement dated March 19,
2010 between Anyang Shuncheng Energy Technology Co., Ltd., Wang Xinshun, Wang
Xinming, Cheng Junsheng and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.6
|
|
Listing
& Financing Consultancy Agreement dated as of June 1, 2010 between
Henan Shuncheng Group Coal Coke Co., Ltd. and USA Wall Street Capital
United Investment Group Limited.*
|
|
10.7
|
|
Tax
Indemnity Agreement dated May 23, 2010 by and between Wang Xinshun and
Henan Shuncheng Group Coal Coke, Co., Ltd.*
|
|
10.8
|
|
Loan
Agreement dated May 23, 2010 by and between Wang Xinshun and Henan
Shuncheng Group Coal Coke, Co., Ltd.*
|
|
10.9
|
|
Waiver
dated May 14, 2010, 2010 by Anyang Shuncheng Energy Technology Co.,
Ltd.*
|
|
10.10
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang Xinshun and
Min YuXiang.*
|
|
10.11
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang Xinshun and
Li Yuet Har.*
|
|
10.12
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang Xinshun and
Wong Po Lok.*
|
|
10.13
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang
Xinshun and Tang Ching Kai.*
|
|
10.14
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang Xinshun and
Tang Hing On.*
|
|
10.15
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang Xinshun and
Tang Pak Chuen.*
|
|
10.16
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang Xinshun and
Makarov Sergey.*
|
|
10.17
|
|
Contract
for Sales of Coal dated December 29, 2009 between Anyang County Bailianpo
Coal Co., Ltd. and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.18
|
|
Contract
for Sales of Coal dated December 29, 2009 between Anyang Xinlong Coal
(Group) Hongling Coal Co. Ltd. and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.19
|
|
EPC
Contract of 160 t/h
CDQ Project dated June 30, 2009 between Ji Gang Group International
Engineering Company Limited and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.20
|
|
Construction
Contract dated December 16, 2009 between Hebei Lin Zhang Construction
Company and Henan Shuncheng Group Coal Coke Co., Ltd together with a
supplemental agreement dated June 22,
2010.*
|
|
No.
|
|
Description
|
|
10.21
|
|
Contract
for Design of Construction Project dated October 28, 2009 between Taiyuan
Jiatai Coal-chemical Technology Development & Design Co.
Ltd and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.22
|
|
Contract
for Coke Oven Equipment dated December 2, 2009 between Shanxi Sin Te Coke
Engineering Co Ltd and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.23
|
|
Agreement
of Iron Parts for Protecting Coke Oven dated December 3, 2009 between
Shandong Zibo Rumo Iron Co., Ltd and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.24
|
|
Debt
Transfer Agreement dated June 21, 2010 among Anyang Xinlong
Coal (Group) Hongling Coal Co., Ltd., Anyang Huichang Coal Washing Co.,
Ltd., Anyang Jindu Coal Co., Ltd., Wang Xinshun, Cheng Junsheng, Wang
Xinming and Henan Shuncheng Group Coal Coke Co., Ltd.*
|
|
10.25
|
|
Debt
Agreement dated June 21, 2010 among Wang Xin Shun, Wang Xin Ming, Cheng
Jun Sheng and Henan Shuncheng Group Coal Coke, Co.,
Ltd.*
|
|
10.26
|
|
Warrant
dated June 28, 2010 by Birch Branch, Inc. in favor of SCM Capital,
LLC.*
|
|
10.27
|
|
Warrant
dated June 28, 2010 by Birch Branch, Inc. in favor of SCM Capital,
LLC.*
|
|
10.28
|
|
Comprehensive
Credit Line Contract dated July 6, 2009 between Henan Shuncheng Group Coal
Coke Co., Ltd. and Anyang Branch of Guangdong Development Bank Co.,
Ltd.*
|
|
10.29
|
|
Loan
Agreement (Short-term) dated June 30, 2009 between Henan Shuncheng Group
Coal Coke Co., Ltd. and Anyang Branch, Bank of China.*
|
|
10.30
|
|
Short-Term
Loan Agreement dated June 29, 2009 between Henan Shuncheng Group Coal Coke
Co., Ltd and Zhengzhou Branch, Shanghai Pudong Development
Bank.*
|
|
10.31
|
|
Commodity
Financing Agreement dated December 19, 2009 between Henan Shuncheng Group
Coal Coke Co., Ltd and Anyang Shuiye Branch of Industrial and Commercial
Bank of China.*
|
|
10.32
|
|
Standard
Form of Employment Agreement.*
|
|
10.33
|
|
Financing
Leasing Contract dated November 3, 2009 between Henan Shuncheng Group Coal
Coke Co., Ltd. and AVIC I International Leasing Co.,
Ltd.*
|
|
10.34
|
|
Form
of Guarantee Agreement dated June 30, 2009 between Anyang Branch, Bank of
China and the Guarantors.*
|
|
10.35
|
|
Commodity
Financing Agreement (undated) between Anyang Shuiye branch of Industrial
and Commercial Bank of China and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.36
|
|
Letter
of Credit Issuance Contract dated November 17, 2009 between Henan
Shuncheng Group Coal Coke Co., Ltd and Henan Branch of China Construction
Bank.*
|
|
10.37
|
|
Letter
of Credit Issuance Contract (undated) between Henan Shuncheng Group Coal
Coke Co., Ltd and Henan Branch of China Construction
Bank.*
|
|
10.38
|
|
RMB
Loan Agreement dated January 28, 2010 between Henan Shuncheng Group Coal
Coke Co., Ltd and Zhengzhou Branch of the Bank of
Luoyang.*
|
|
10.39
|
|
Maximum
Amount Mortgage Agreement dated June 25, 2009 between Anyang Branch,
Agricultural Bank of China and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
No.
|
|
Description
|
|
10.40
|
|
Maximum
Amount Guarantee Agreement dated June 25, 2009 among Anyang Branch,
Agricultural Bank of China, Henan Anyang Hubo Cement Co., Ltd and Wang
Xinshun.*
|
|
10.41
|
|
Maximum
Amount Mortgage Agreement dated July 6, 2009 between Anyang Branch,
Guangdong Development Bank and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.42
|
|
Form
of Maximum Amount Guarantee Agreement dated July 6, 2009 between Anyang
Branch, Guangdong Development Bank and the Guarantors.*
|
|
10.43
|
|
Form
of Guarantee Agreement dated January 28, 2010 between Anyang Xinpu Steel
Co., Ltd and the Guarantors.*
|
|
10.44
|
|
Maximum
Amount Guarantee Agreement dated January 28, 2010 between Wang Xinshun and
Zhengzhou Branch of the Bank of Luoyang.*
|
|
10.45
|
|
Guarantee
Agreement dated December 15, 2009 between Linzhou Branch, Agricultural
Bank of China and Henan Shuncheng Group Coal Coke Co., Ltd and Wang
Haiyu.*
|
|
10.46
|
|
Guarantee
Agreement dated April 13, 2010 between Anyang Branch, Agricultural Bank of
China and Henan Shuncheng Group Coal Coke Co., Ltd and Wang
Wenke.*
|
|
10.47
|
|
Guarantee
Agreement dated January 29, 2010 between Linzhou Branch, Agricultural Bank
of China and Henan Shuncheng Group Coal Coke Co., Ltd and Wang
Haiyu.*
|
|
10.48
|
|
Guarantee
Agreement dated February 10, 2010 between Linzhou Branch, Agricultural
Bank of China and Henan Shuncheng Group Coal Coke Co., Ltd and Wang
Haiyu.*
|
|
10.49
|
|
Guarantee
Agreement dated March 22, 2010 among Tongye Credit Association of Anyang
Rural Credit Cooperation Association, Anyang Hubo Cement Co., Ltd, Linzhou
Hongqiqu Electrical Carbon Co., Ltd, Wang Xinshun, Wang Xinming and Cheng
Junsheng.*
|
|
10.50
|
|
Maximum
Guarantee Agreement dated July 22, 2009 between Anyang Branch, Guangdong
Development Bank and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.51
|
|
Maximum
Guarantee Agreement dated July 7, 2009 between Anyang Branch, Guangdong
Development Bank and Henan Shuncheng Group Coal & Coke Co.,
Ltd.*
|
|
10.52
|
|
Maximum
Amount Guarantee Agreement dated July 6, 2009 between Anyang Branch,
Guangdong Development Bank and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.53
|
|
Maximum
Amount Guarantee Agreement dated July 6, 2009 between Anyang Branch,
Guangdong Development Bank and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.54
|
|
Maximum
Guarantee Agreement dated June 26, 2009 among Anyang Xintianhe Cement Co.,
Ltd and Zhengzhou Branch, Shanghai Pudong Development
Bank.*
|
|
10.55
|
|
Form
of Maximum Amount Guarantee Agreement dated June 26, 2009 between the
Guarantors and Zhengzhou Branch, Shanghai Pudong Development
Bank.*
|
|
10.56
|
|
Guarantee
Agreement dated November 3, 2009 among AVIC I International Leasing Co.,
Ltd., Henan Shuncheng Group Coal Coke Co., Ltd., Wang Xinshun, Wu Fengyun,
Wang Xinming, Liang Chun’e, Cheng Junsheng and Wu
Lingling.*
|
|
No.
|
|
Description
|
|
10.57
|
|
Guarantee
Agreement dated November 3, 2009 between AVIC I International
Leasing Co., Ltd., Henan Shuncheng Group Coal Coke Co., Ltd. and Anyang
County Bailianpo Coal Co. Ltd.*
|
|
10.58
|
|
Equity
Pledge Agreement dated November 3, 2009 between AVIC I International
Leasing Co., Ltd. and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.59
|
|
Entrust
Purchase Agreement dated November 3, 2009 between AVIC I International
Leasing Co., Ltd. and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.60
|
|
Purchase
and Sales Contract of Coal dated March 3, 2010 between Anyang Zhujiao Coal
Industry Limited Liability Company and Henan Shuncheng Group Coal Coke
Co., Ltd.*
|
|
10.61
|
|
Purchase
and Sales Contract of Coal dated January 31, 2010 between Henan Shuncheng
Group Coal Coke Co., Ltd and Zaozhuang Hengxin Trade Co., Ltd and
Supplementary Agreement dated April 4, 2010.*
|
|
10.62
|
|
Purchase
and Sales Contract of Coal dated January 10, 2010 between Henan Shuncheng
Group Coal Coke Co., Ltd and Shandong Daotong Trade Co., Ltd and
Notification of Price Adjustment of Cleaned Washed Coal and supplemental
agreement dated January 22, 2010.*
|
|
10.63
|
|
Contract
for Sales of Industrial and Mineral Products dated January 1, 2010 between
Henan Shuncheng Group Coal Coke Co., Ltd. and Anyang Xinpu Steel Co., Ltd.
and Price Adjustment Agreement dated April 23, 2010.*
|
|
10.64
|
|
Annual
Contract for Sales of Industrial and Mineral Products dated April 15, 2010
between Henan Shuncheng Group Coal Coke Co., Ltd. and Rizhao Iron &
Steel Co., Ltd.*
|
|
10.65
|
|
Contract
for Sales of Coke dated July 21, 2009 between Henan Shuncheng Group Coal
Coke Co., Ltd. and Huzhou Huatuo Energy Co., Ltd. and Price Adjustment
Agreement dated April 15, 2010.*
|
|
10.66
|
|
Contract
for Sales of Industrial and Mineral Products dated April 1, 2010 between
Henan Shuncheng Group Coal Coke Co., Ltd. and Shagang Group Anyang
Yongxing Iron & Steel Co., Ltd.*
|
|
10.67
|
|
Mortgage
Agreement dated June 30, 2009 between Henan Shuncheng Group Coal Coke Co.,
Ltd. and Bank of China Anyang Branch.*
|
|
10.68
|
|
Employment
Agreement dated June 28, 2010 between Birch Branch, Inc. and Wang
Xinshun.*
|
|
10.69
|
|
Employment
Agreement dated June 28, 2010 between Henan Shuncheng Group Coal Coke Co.,
Ltd. and Wang Xinshun.*
|
|
10.70
|
|
Employment
Agreement dated June 28, 2010 between Birch Branch, Inc. and Wang
Feng.*
|
|
10.71
|
|
Employment
Agreement dated June 28, 2010 between Birch Branch, Inc. and Li
Dexin.*
|
|
10.72
|
|
Loan
Agreement dated June 25, 2009 between Henan Shuncheng Group Coal Coke Co.,
Ltd. and Anyang Branch, Agricultural Bank of
China.*
|
|
No.
|
|
Description
|
|
10.73
|
|
Loan
Agreement dated March 22, 2010 between Tongye Credit Association of Anyang
Rural Credit Cooperation Association and Henan Shuncheng Group Coal Coke
Co., Ltd.*
|
|
10.74
|
|
Guarantee
Agreement (undated) among Anyang Credit Association of Anyang Rural Credit
Cooperation Association, Neihuang County Credit Association of Anyang
Rural Credit Cooperation Association, Henan Shuncheng Group Coal Coke Co.,
Ltd., Chunxi Lv, Donglin Lv, Zhuxin Feng, Shulin Lv and Zhongquan
Liu.*
|
|
10.75
|
|
Loan
Agreement dated March 31, 2010 between Anyang Xinlong Coal (Group)
Hongling Coal Co., Ltd. and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.76
|
|
Loan
Agreement dated March 31, 2010 between Anyang Huichang Coal Washing Co.,
Ltd and Henan Shuncheng Group Coal Coke Co., Ltd.*
|
|
10.77
|
|
Guarantee
Agreement dated April 14, 2010 between Henan Liyuan Coke Co. Ltd. and
Anyang Commercial Bank Co. Ltd.*
|
|
10.78
|
|
Loan
Agreement dated April 14, 2010 between Henan Shuncheng Group Coal Coke
Co., Ltd and Anyang Commercial Bank Co., Ltd.*
|
|
10.79
|
|
Commodity
Financing Contract (undated) between Henan Shuncheng Group Coal Coke Co.,
Ltd. and Anyang Shuiye Branch, Industrial and Commercial Bank of
China.*
|
|
10.80
|
|
Guarantee
Agreement dated November 11, 2009 between Henan Shuncheng Group Coal Coke
Co., Ltd. and Anyang Branch, Bank of China.*
|
|
10.81
|
|
Guarantee
Agreement dated May 19, 2010 between Henan Shuncheng Group Coal Coke Co.,
Ltd. and Anyang Branch, Bank of China.*
|
|
10.82
|
|
Guarantee
Agreement dated April 4, 2010 between Tongye Branch, Anyang Credit
Association of Anyang Rural Credit Cooperation Association, Henan
Shuncheng Group Coal Coke Co., Ltd., Li Cheng Jie, Chung Shin Ying, Wu Xin
Wai, Li Wan Jun and Wang Chuen Jun.*
|
|
10.83
|
|
Guarantee
Agreement dated April 23, 2010 between Tongye Branch, Anyang Credit
Association of Anyang Rural Credit Cooperation Association and Henan
Shuncheng Group Coal Coke Co. Ltd.*
|
|
10.84
|
|
Maximum
Guarantee Agreement dated June 21, 2007 between Zhengzhou Branch, Shanghai
Pudong Development Bank and Henan Shuncheng Group Coal Coke Co
Ltd.*
|
|
10.85
|
|
Guarantee
Agreement dated March 31, 2010 among AVIC International Leasing Co., Ltd.,
Anshan Minshan Nonferrous Metal Co., Ltd. and Henan Shuncheng Group Coal
Coke Co. Ltd.*
|
|
10.86
|
|
Maximum
Guarantee Agreement dated January 5, 2010 between Henan Shuncheng Group
Coal Coke Co. Ltd. and Construction Bank of China.*
|
|
10.87
|
|
Guarantee
Agreement dated November 26, 2008 between Henan Shuncheng Group Coal Coke
Co. Ltd. and Anyang Commercial Bank.*
|
|
10.88
|
|
Guarantee
Agreement dated April 14, 2010 among Wang Xinshun, Chen Junsheng, Wang
Xinming and Anyang Commercial Bank Co.
Ltd.*
|
|
No.
|
|
Description
|
|
10.89
|
|
Loan
Agreement dated March 31, 2010 between Anyang Jindu Coal Co., Ltd. and
Henan Shun Cheng Group Coal Coke Co Ltd.*
|
|
99.1
|
|
Financial
Statements of Henan Shuncheng Group Coke & Coke Co., Ltd. for the
fiscal years ended December 31, 2009, 2008 and 2007.*
|
|
99.2
|
|
Financial
Statements of Henan Shuncheng Group Coke & Coke Co., Ltd. for the
three months ended March 31, 2010 and 2009.*
|
|
99.3
|
|
Pro
forma unaudited consolidated financial statements for the three months
ended March 31, 2010 and pro forma unaudited consolidated statement of
operations for the year ended December 31,
2009.*
|
|
(1)
|
Incorporated
by reference to Exhibit 2.1 to BRBH’s Form 8-K filed on May 20,
2010.
|
|
(2)
|
Incorporated
by reference to Exhibit 3.01 to BRBH’s Form 10-SB12G filed on September
13, 2004.
|
|
(3)
|
Incorporated
by reference to Exhibit 3.1.1 to BRBH’s Form 10-KSB filed on September 26,
2008.
|
|
(4)
|
Incorporated
by reference to Exhibit 3.05 to BRBH’s Form 10-SB12G filed on September
13, 2004.
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
|
Birch
Branch, Inc.
|
|
|
(Registrant)
|
|
|
|
| Date:
July
2, 2010 |
By:
|
/s/
Wang Feng
|
|
|
|
Wang
Feng
|
|
|
|
Chief
Executive
Officer
|
Exhibit
Index
|
|
|
|
|
|
|
|
|
2.1
|
|
Share
Exchange Agreement, dated May 14, 2010, by and among Birch Branch, Inc.,
Timothy Brasel, Brasel Family Partners LTD, LaMirage Trust, Mathis Family
Partners, LTD, Lazzeri Family Trust, Hu Qingying, Ong Hock Seng and SCM
Capital LLC, Shun Cheng Holdings Limited, Wanjinlin International
Investment Group Limited, Jinmao Investment Group Limited, USA Wall Street
Capital United Investment Group Limited, Global Chinese Alliance
Development Ltd., USA International Finance Consulting Group Ltd., Golden
Hill International Investment Group Limited, Fuhai International
Investment Group Limited, Renhe International Investment Group Limited,
Fuyutai International Investment Group Limited, and Kangchen International
Investment Group Limited, and Shun Cheng Holdings HongKong
Limited.(1)
|
|
2.2
|
|
Amendment
No. 1 to the Share Exchange Agreement dated June 28, 2010 by and among
Birch Branch, Inc., Timothy Brasel, Brasel Family Partners LTD, LaMirage
Trust, Mathis
Family Partners, LTD, Lazzeri Family Trust, Hu Qingying, Ong Hock Seng,
SCM Capital LLC and Jim Gu, Shun Cheng Holdings Limited, Wanjinlin
International Investment Group Limited, Jinmao Investment Group Limited,
USA Wall Street Capital United Investment Group Limited, Global Chinese
Alliance Development Ltd., USA International Finance Consulting Group
Ltd., Golden Hill International Investment Group Limited, Fuhai
International Investment Group Limited, Renhe International Investment
Group Limited, Fuyutai International Investment Group Limited, and
Kangchen International Investment Group Limited, and Shun Cheng Holdings
HongKong Limited.*
|
|
3.1
|
|
Articles
of Incorporation of the Registrant.(2)
|
|
3.2
|
|
Certificate
of Amendment to the Articles of Incorporation of the
Registrant.(3)
|
|
3.3
|
|
Amended
and Restated Bylaws of the Registrant.*
|
|
10.1
|
|
Cancellation
Agreement, dated June 28, 2010 by and among Birch Branch, Inc., Shun Cheng
Holdings HongKong Limited, Brasel Family Partners, LaMirage Trust, Lazzeri
Family Trust, Mathis Family Partners LTD, Lazzeri Equity Partners 401(k)
Plan.*
|
|
10.2
|
|
Entrusted
Management Agreement dated March 19,
2010 between Anyang Shuncheng Energy Technology Co., Ltd., Wang Xinshun, Wang
Xinming, Cheng Junsheng and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.3
|
|
Shareholders’
Voting Proxy Agreement dated March 19, 2010 between Anyang Shuncheng
Energy Technology Co., Ltd., Wang Xinshun, Wang
Xinming and Cheng Junsheng.*
|
|
10.4
|
|
Exclusive
Option Agreement dated March 19, 2010 between Anyang Shuncheng Energy
Technology Co., Ltd., Wang Xinshun, Wang Xinming, Cheng Junsheng and Henan
Shuncheng Group Coal Coke Co., Ltd.*
|
|
10.5
|
|
Shares
Pledge Agreement dated March 19,
2010 between Anyang Shuncheng Energy Technology Co., Ltd., Wang Xinshun, Wang
Xinming, Cheng Junsheng and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.6
|
|
Listing
& Financing Consultancy Agreement dated as of June 1, 2010 between
Henan Shuncheng Group Coal Coke Co., Ltd. and USA Wall Street Capital
United Investment Group Limited.*
|
|
10.7
|
|
Tax
Indemnity Agreement dated May 23, 2010 by and between Wang Xinshun and
Henan Shuncheng Group Coal Coke, Co., Ltd.*
|
|
10.8
|
|
Loan
Agreement dated May 23, 2010 by and between Wang Xinshun and Henan
Shuncheng Group Coal Coke, Co.,
Ltd.*
|
|
Exhibit
No.
|
|
Description
|
|
10.9
|
|
Waiver
dated May 14, 2010, 2010 by Anyang Shuncheng Energy Technology Co.,
Ltd.*
|
|
10.10
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang Xinshun and
Min YuXiang.*
|
|
10.11
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang Xinshun and
Li Yuet Har.*
|
|
10.12
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang Xinshun and
Wong Po Lok.*
|
|
10.13
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang
Xinshun and Tang Ching Kai.*
|
|
10.14
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang Xinshun and
Tang Hing On.*
|
|
10.15
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang Xinshun and
Tang Pak Chuen.*
|
|
10.16
|
|
Call
Option Agreement entered into as of May 14, 2010 between Wang Xinshun and
Makarov Sergey.*
|
|
10.17
|
|
Contract
for Sales of Coal dated December 29, 2009 between Anyang County Bailianpo
Coal Co., Ltd. and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.18
|
|
Contract
for Sales of Coal dated December 29, 2009 between Anyang Xinlong Coal
(Group) Hongling Coal Co. Ltd. and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.19
|
|
EPC
Contract of 160 t/h
CDQ Project dated June 30, 2009 between Ji Gang Group International
Engineering Company Limited and Henan Shuncheng Group Coal Coke Co., Ltd.*
|
|
10.20
|
|
Construction
Contract dated December 16, 2009 between Hebei Lin Zhang Construction
Company and Henan Shuncheng Group Coal Coke Co., Ltd together with a
supplemental agreement dated June 22, 2010.*
|
|
10.21
|
|
Contract
for Design of Construction Project dated October 28, 2009 between Taiyuan
Jiatai Coal-chemical Technology Development & Design Co.
Ltd and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.22
|
|
Contract
for Coke Oven Equipment dated December 2, 2009 between Shanxi Sin Te Coke
Engineering Co Ltd and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.23
|
|
Agreement
of Iron Parts for Protecting Coke Oven dated December 3, 2009 between
Shandong Zibo Rumo Iron Co., Ltd and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.24
|
|
Debt
Transfer Agreement dated June 21, 2010 among Anyang Xinlong
Coal (Group) Hongling Coal Co., Ltd., Anyang Huichang Coal Washing Co.,
Ltd., Anyang Jindu Coal Co., Ltd., Wang Xinshun, Cheng Junsheng, Wang
Xinming and Henan Shuncheng Group Coal Coke Co., Ltd.*
|
|
10.25
|
|
Debt
Agreement dated June 21, 2010 among Wang Xin Shun, Wang Xin Ming, Cheng
Jun Sheng and Henan Shuncheng Group Coal Coke, Co.,
Ltd.*
|
|
10.26
|
|
Warrant
dated June 28, 2010 by Birch Branch, Inc. in favor of SCM Capital,
LLC.*
|
|
10.27
|
|
Warrant
dated June 28, 2010 by Birch Branch, Inc. in favor of SCM Capital,
LLC.*
|
|
10.28
|
|
Comprehensive
Credit Line Contract dated July 6, 2009 between Henan Shuncheng Group Coal
Coke Co., Ltd. and Anyang Branch of Guangdong Development Bank Co.,
Ltd.*
|
|
10.29
|
|
Loan
Agreement (Short-term) dated June 30, 2009 between Henan Shuncheng Group
Coal Coke Co., Ltd. and Anyang Branch, Bank of
China.*
|
|
Exhibit
No.
|
|
Description
|
|
10.30
|
|
Short-Term
Loan Agreement dated June 29, 2009 between Henan Shuncheng Group Coal Coke
Co., Ltd and Zhengzhou Branch, Shanghai Pudong Development
Bank.*
|
|
10.31
|
|
Commodity
Financing Agreement dated December 19, 2009 between Henan Shuncheng Group
Coal Coke Co., Ltd and Anyang Shuiye Branch of Industrial and Commercial
Bank of China.*
|
|
10.32
|
|
Standard
Form of Employment Agreement.*
|
|
10.33
|
|
Financing
Leasing Contract dated November 3, 2009 between Henan Shuncheng Group Coal
Coke Co., Ltd. and AVIC I International Leasing Co.,
Ltd.*
|
|
10.34
|
|
Form
of Guarantee Agreement dated June 30, 2009 between Anyang Branch, Bank of
China and the Guarantors.*
|
|
10.35
|
|
Commodity
Financing Agreement (undated) between Anyang Shuiye branch of Industrial
and Commercial Bank of China and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.36
|
|
Letter
of Credit Issuance Contract dated November 17, 2009 between Henan
Shuncheng Group Coal Coke Co., Ltd and Henan Branch of China Construction
Bank.*
|
|
10.37
|
|
Letter
of Credit Issuance Contract (undated) between Henan Shuncheng Group Coal
Coke Co., Ltd and Henan Branch of China Construction
Bank.*
|
|
10.38
|
|
RMB
Loan Agreement dated January 28, 2010 between Henan Shuncheng Group Coal
Coke Co., Ltd and Zhengzhou Branch of the Bank of
Luoyang.*
|
|
10.39
|
|
Maximum
Amount Mortgage Agreement dated June 25, 2009 between Anyang Branch,
Agricultural Bank of China and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.40
|
|
Maximum
Amount Guarantee Agreement dated June 25, 2009 among Anyang Branch,
Agricultural Bank of China, Henan Anyang Hubo Cement Co., Ltd and Wang
Xinshun.*
|
|
10.41
|
|
Maximum
Amount Mortgage Agreement dated July 6, 2009 between Anyang Branch,
Guangdong Development Bank and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.42
|
|
Form
of Maximum Amount Guarantee Agreement dated July 6, 2009 between Anyang
Branch, Guangdong Development Bank and the Guarantors.*
|
|
10.43
|
|
Form
of Guarantee Agreement dated January 28, 2010 between Anyang Xinpu Steel
Co., Ltd and the Guarantors.*
|
|
10.44
|
|
Maximum
Amount Guarantee Agreement dated January 28, 2010 between Wang Xinshun and
Zhengzhou Branch of the Bank of Luoyang.*
|
|
10.45
|
|
Guarantee
Agreement dated December 15, 2009 between Linzhou Branch, Agricultural
Bank of China and Henan Shuncheng Group Coal Coke Co., Ltd and Wang
Haiyu.*
|
|
10.46
|
|
Guarantee
Agreement dated April 13, 2010 between Anyang Branch, Agricultural Bank of
China and Henan Shuncheng Group Coal Coke Co., Ltd and Wang
Wenke.*
|
|
10.47
|
|
Guarantee
Agreement dated January 29, 2010 between Linzhou Branch, Agricultural Bank
of China and Henan Shuncheng Group Coal Coke Co., Ltd and Wang
Haiyu.*
|
|
Exhibit
No.
|
|
Description
|
|
10.48
|
|
Guarantee
Agreement dated February 10, 2010 between Linzhou Branch, Agricultural
Bank of China and Henan Shuncheng Group Coal Coke Co., Ltd and Wang
Haiyu.*
|
|
10.49
|
|
Guarantee
Agreement dated March 22, 2010 among Tongye Credit Association of Anyang
Rural Credit Cooperation Association, Anyang Hubo Cement Co., Ltd, Linzhou
Hongqiqu Electrical Carbon Co., Ltd, Wang Xinshun, Wang Xinming and Cheng
Junsheng.*
|
|
10.50
|
|
Maximum
Guarantee Agreement dated July 22, 2009 between Anyang Branch, Guangdong
Development Bank and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.51
|
|
Maximum
Guarantee Agreement dated July 7, 2009 between Anyang Branch, Guangdong
Development Bank and Henan Shuncheng Group Coal & Coke Co.,
Ltd.*
|
|
10.52
|
|
Maximum
Amount Guarantee Agreement dated July 6, 2009 between Anyang Branch,
Guangdong Development Bank and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.53
|
|
Maximum
Amount Guarantee Agreement dated July 6, 2009 between Anyang Branch,
Guangdong Development Bank and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.54
|
|
Maximum
Guarantee Agreement dated June 26, 2009 among Anyang Xintianhe Cement Co.,
Ltd and Zhengzhou Branch, Shanghai Pudong Development
Bank.*
|
|
10.55
|
|
Form
of Maximum Amount Guarantee Agreement dated June 26, 2009 between the
Guarantors and Zhengzhou Branch, Shanghai Pudong Development
Bank.*
|
|
10.56
|
|
Guarantee
Agreement dated November 3, 2009 among AVIC I International Leasing Co.,
Ltd., Henan Shuncheng Group Coal Coke Co., Ltd., Wang Xinshun, Wu Fengyun,
Wang Xinming, Liang Chun’e, Cheng Junsheng and Wu
Lingling.*
|
|
10.57
|
|
Guarantee
Agreement dated November 3, 2009 between AVIC I International
Leasing Co., Ltd., Henan Shuncheng Group Coal Coke Co., Ltd. and Anyang
County Bailianpo Coal Co. Ltd.*
|
|
10.58
|
|
Equity
Pledge Agreement dated November 3, 2009 between AVIC I International
Leasing Co., Ltd. and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.59
|
|
Entrust
Purchase Agreement dated November 3, 2009 between AVIC I International
Leasing Co., Ltd. and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.60
|
|
Purchase
and Sales Contract of Coal dated March 3, 2010 between Anyang Zhujiao Coal
Industry Limited Liability Company and Henan Shuncheng Group Coal Coke
Co., Ltd.*
|
|
10.61
|
|
Purchase
and Sales Contract of Coal dated January 31, 2010 between Henan Shuncheng
Group Coal Coke Co., Ltd and Zaozhuang Hengxin Trade Co., Ltd and
Supplementary Agreement dated April 4, 2010.*
|
|
10.62
|
|
Purchase
and Sales Contract of Coal dated January 10, 2010 between Henan Shuncheng
Group Coal Coke Co., Ltd and Shandong Daotong Trade Co., Ltd and
Notification of Price Adjustment of Cleaned Washed Coal and supplemental
agreement dated January 22,
2010.*
|
|
Exhibit
No.
|
|
Description
|
|
10.63
|
|
Contract
for Sales of Industrial and Mineral Products dated January 1, 2010 between
Henan Shuncheng Group Coal Coke Co., Ltd. and Anyang Xinpu Steel Co., Ltd.
and Price Adjustment Agreement dated April 23, 2010.*
|
|
10.64
|
|
Annual
Contract for Sales of Industrial and Mineral Products dated April 15, 2010
between Henan Shuncheng Group Coal Coke Co., Ltd. and Rizhao Iron &
Steel Co., Ltd.*
|
|
10.65
|
|
Contract
for Sales of Coke dated July 21, 2009 between Henan Shuncheng Group Coal
Coke Co., Ltd. and Huzhou Huatuo Energy Co., Ltd. and Price Adjustment
Agreement dated April 15, 2010.*
|
|
10.66
|
|
Contract
for Sales of Industrial and Mineral Products dated April 1, 2010 between
Henan Shuncheng Group Coal Coke Co., Ltd. and Shagang Group Anyang
Yongxing Iron & Steel Co., Ltd.*
|
|
10.67
|
|
Mortgage
Agreement dated June 30, 2009 between Henan Shuncheng Group Coal Coke Co.,
Ltd. and Bank of China Anyang Branch.*
|
|
10.68
|
|
Employment
Agreement dated June 28, 2010 between Birch Branch, Inc. and Wang
Xinshun.*
|
|
10.69
|
|
Employment
Agreement dated June 28, 2010 between Henan Shuncheng Group Coal Coke Co.,
Ltd. and Wang Xinshun.*
|
|
10.70
|
|
Employment
Agreement dated June 28, 2010 between Birch Branch, Inc. and Wang
Feng.*
|
|
10.71
|
|
Employment
Agreement dated June 28, 2010 between Birch Branch, Inc. and Li
Dexin.*
|
|
10.72
|
|
Loan
Agreement dated June 25, 2009 between Henan Shuncheng Group Coal Coke Co.,
Ltd. and Anyang Branch, Agricultural Bank of China.*
|
|
10.73
|
|
Loan
Agreement dated March 22, 2010 between Tongye Credit Association of Anyang
Rural Credit Cooperation Association and Henan Shuncheng Group Coal Coke
Co., Ltd.*
|
|
10.74
|
|
Guarantee
Agreement (undated) among Anyang Credit Association of Anyang Rural Credit
Cooperation Association, Neihuang County Credit Association of Anyang
Rural Credit Cooperation Association, Henan Shuncheng Group Coal Coke Co.,
Ltd., Chunxi Lv, Donglin Lv, Zhuxin Feng, Shulin Lv and Zhongquan
Liu.*
|
|
10.75
|
|
Loan
Agreement dated March 31, 2010 between Anyang Xinlong Coal (Group)
Hongling Coal Co., Ltd. and Henan Shuncheng Group Coal Coke Co.,
Ltd.*
|
|
10.76
|
|
Loan
Agreement dated March 31, 2010 between Anyang Huichang Coal Washing Co.,
Ltd and Henan Shuncheng Group Coal Coke Co., Ltd.*
|
|
10.77
|
|
Guarantee
Agreement dated April 14, 2010 between Henan Liyuan Coke Co. Ltd. and
Anyang Commercial Bank Co. Ltd.*
|
|
10.78
|
|
Loan
Agreement dated April 14, 2010 between Henan Shuncheng Group Coal Coke
Co., Ltd and Anyang Commercial Bank Co., Ltd.*
|
|
10.79
|
|
Commodity
Financing Contract (undated) between Henan Shuncheng Group Coal Coke Co.,
Ltd. and Anyang Shuiye Branch, Industrial and Commercial Bank of
China.*
|
|
Exhibit
No.
|
|
Description
|
|
10.80
|
|
Guarantee
Agreement dated November 11, 2009 between Henan Shuncheng Group Coal Coke
Co., Ltd. and Anyang Branch, Bank of China.*
|
|
10.81
|
|
Guarantee
Agreement dated May 19, 2010 between Henan Shuncheng Group Coal Coke Co.,
Ltd. and Anyang Branch, Bank of China.*
|
|
10.82
|
|
Guarantee
Agreement dated April 4, 2010 between Tongye Branch, Anyang Credit
Association of Anyang Rural Credit Cooperation Association, Henan
Shuncheng Group Coal Coke Co., Ltd., Li Cheng Jie, Chung Shin Ying, Wu Xin
Wai, Li Wan Jun and Wang Chuen Jun.*
|
|
10.83
|
|
Guarantee
Agreement dated April 23, 2010 between Tongye Branch, Anyang Credit
Association of Anyang Rural Credit Cooperation Association and Henan
Shuncheng Group Coal Coke Co. Ltd.*
|
|
10.84
|
|
Maximum
Guarantee Agreement dated June 21, 2007 between Zhengzhou Branch, Shanghai
Pudong Development Bank and Henan Shuncheng Group Coal Coke Co
Ltd.*
|
|
10.85
|
|
Guarantee
Agreement dated March 31, 2010 among AVIC International Leasing Co., Ltd.,
Anshan Minshan Nonferrous Metal Co., Ltd. and Henan Shuncheng Group Coal
Coke Co. Ltd.*
|
|
10.86
|
|
Maximum
Guarantee Agreement dated January 5, 2010 between Henan Shuncheng Group
Coal Coke Co. Ltd. and Construction Bank of China.*
|
|
10.87
|
|
Guarantee
Agreement dated November 26, 2008 between Henan Shuncheng Group Coal Coke
Co. Ltd. and Anyang Commercial Bank.*
|
|
10.88
|
|
Guarantee
Agreement dated April 14, 2010 among Wang Xinshun, Chen Junsheng, Wang
Xinming and Anyang Commercial Bank Co. Ltd.*
|
|
10.89
|
|
Loan
Agreement dated March 31, 2010 between Anyang Jindu Coal Co., Ltd. and
Henan Shun Cheng Group Coal Coke Co Ltd.*
|
|
99.1
|
|
Financial
Statements of Henan Shuncheng Group Coke & Coke Co., Ltd. for the
fiscal years ended December 31, 2009, 2008 and 2007.*
|
|
99.2
|
|
Financial
Statements of Henan Shuncheng Group Coke & Coke Co., Ltd. for the
three months ended March 31, 2010 and 2009.*
|
|
99.3
|
|
Pro
forma unaudited consolidated financial statements for the three months
ended March 31, 2010 and pro forma unaudited consolidated statement of
operations for the year ended December 31,
2009.*
|
