Birch Branch, Inc.
(Successor of Shun Cheng Holdings HongKong Limited)
Notes to Unaudited Pro Forma Condensed CONSOLIDATED
Financial Information
The following unaudited pro forma condensed consolidated financial information has been prepared to give effect to the proposed merger of Shun Cheng HK and BRBH as a reverse acquisition of assets and a recapitalization in accordance with accounting principles generally accepted in the United States. For accounting purposes Shun Cheng HK is considered to be acquiring BRBH in the merger.
Note 1 – Share Exchange Agreement
Through a share exchange agreement executed on May 14, 2010 and closed on June 28, 2010, attached herein as Exhibit 2.1, (the ‘Exchange Agreement’), Birch Branch, Inc, (BRBH) which is a public reporting company, acquired all of the issued and outstanding common shares of Shun Cheng Holdings HongKong Limited (“Shun Cheng HK”), a company organized under the laws of Hong Kong and its wholly-owned subsidiary Anyang Shuncheng Energy Technology Co, Ltd., a Chinese wholly-foreign owned enterprise, Henan Shuncheng Group Coal Coke Co., Ltd., a Chinese variable interest entity that Anyang Shuncheng Energy Technology Co., Ltd. controls though certain contractual arrangements, and Henan Shuncheng Group Coal Coke Co., Ltd., a Chinese company which is 86% owned by Henan Shuncheng Group Coal Coke Co., Ltd., from the Shun Cheng HK shareholders 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, when issued, constituted approximately 95% of BRBH’s issued and outstanding common stock. Upon consummation of the Share Exchange, Shun Cheng HK became a wholly-owned subsidiary of BRBH and the shareholders of Shun Cheng HK obtained a majority voting interest in BRBH. Accounting principles generally accepted in the United States of America require that the company whose shareholders retain the majority interest in a combined business be treated as the acquirer for accounting purpose, resulting in a reverse acquisition. Accordingly, the stock exchange transaction has been accounted for as a recapitalization of Shun Cheng HK.
The consenting former shareholders of BRBH who received shares in the Exchange are non-US persons (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and the Shares have been issued in an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended. We instructed our Transfer Agent to round up to one for any fractional interest which resulted in the calculation of the Exchange. The Exchange had the effect of increasing the issued and outstanding share capital of the Company from 1,708,123 shares to 32,047,222 shares. All references in the pro forma financial statements included in this current report to stock issued and stock outstanding have been retroactively adjusted as if the Exchange had taken place at the earliest date shown.
Shun Cheng HK was established on December 18, 2009, Anyang Shuncheng Energy Technology Co., Ltd., was approved as a wholly-foreign owned enterprise by the Henan provincial government on March 15, 2010 and formally organized on March 17, 2010, and on March 19, 2010 Henan Shuncheng Group Coal Coke Co., Ltd., entered into a variable interest entity agreement with Anyang Shuncheng Energy Technology Co., Ltd. Shun Cheng HK and Anyang Shuncheng Energy Technology Co. Ltd. were created solely to control Henan Shuncheng Group Coal Coke Co., Ltd and to complete the Share Exchange agreement and did not have any significant transactions since their formation. The unaudited pro forma condensed consolidated financial information gives effect to the reverse acquisition, the variable interest entity agreements and the formation of Shun Cheng HK and Anyang Shuncheng Energy Technology Co. Ltd., as if it had occurred at the earliest date in these pro forma statements.
Note 2 – Accounting Period Change
To coincide with the accounting cycle of our acquired subsidiary Shun Cheng HK, we have changed our fiscal year end from June 30th to December 31st. This change is reflected in the pro forma financial information.
Note 3 – Adjustments to unaudited Pro Forma Condensed Consolidated Financial Information
The accompanying unaudited pro forma condensed consolidated financial information gives effect to the Exchange Agreement as if it had occurred at an earlier date, and has been prepared for illustrative purposes only and is not necessarily indicative of the condensed consolidated financial position or results of operations in future periods or the results that actually would have been realized had Shun Cheng HK and BRBH been a combined company during the specified periods. The pro forma adjustments are based on the preliminary information available at the time of the preparation of this document. In addition, the unaudited pro forma condensed consolidated financial information gives effect only to the adjustments set forth in the accompanying notes and does not reflect any restructuring or acquisition related costs, or any potential cost savings or other synergies that management expects to realize as a result of the acquisition. The unaudited pro forma condensed consolidated financial information, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the historical consolidated financial statements found as exhibits 99.1 and 99.2 in this Form 8-K.
The adjustments to the unaudited pro forma condensed consolidated financial information as of March 31, 2010, December 31, 2009 and 2008 in connection with the proposed acquisition are presented below:
(a) This adjustment reflects the issuance of 30,233,750 shares of BRBH’s common stock (no par value) for the reverse acquisition of all issued and outstanding shares of Shun Cheng HK, the cancellation of 1,708,123 common shares of BRBH’s common stock held by the pre-acquisition principal shareholder of BRBH, and the elimination of pre-acquisition accumulated deficit and deferred loan fee of BRBH.
(b) This adjustment reflects the conversion of related party BRBH balances to common stock as well as the reversal of nonrecurring related party expenses primarily related to interest expense for related party loans.
