L & L ENERGY, INC. - FORM S-1/A - May 11, 2010

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 11, 2010

AMENDMENT NO. 1 TO

REGISTRATION STATEMENT NO. 333-164229

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

L & L Energy, Inc.

(Exact name of registrant as specified in its charter)

Nevada

 (State or other jurisdiction of incorporation or organization)

1220

(Primary Standard Industrial Classification Code Number)

91-2103949
____________________________________________________________________________________________________________

(I.R.S. Employer Identification Number)

130 Andover Park East

Suite 101

Seattle, WA 98188

(206) 264-8065

(Address, including zip code, and telephone lumber, including area code, of registrant’s principal executive offices)

Dickson V. Lee, Chief Executive Officer

130 Andover Park East

Suite 101

Seattle, WA 98188

 (206) 264-8065

COPY TO:

D. Roger Glenn, Esq.

Glenn & Glenn

124 Main Street, Ste. 8

New Paltz NY 12561

(845) 256-8031

(Name, address, including zip code, and telephone number, including area code, of agent for service)

FROM TIME TO TIME AFTER THE

EFFECTIVE DATE OF THIS REGISTRATION STATEMENT

(Approximate date of commencement of proposed sale to the public)

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

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

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

A registration statement relating to these securities has been filed with the Securities and Exchange Commission.  These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective.  This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

Subject to completion, dated May 11, 2010

Prospectus

L & L ENERGY, INC.

3,706,773 shares of Common Stock

This prospectus covers the resale by selling security holders named starting on page 44, of up to 3,706,773 shares of our common stock, $0.001 par value per share (the “Common Stock”), which includes:

·         1,371,021 shares of common stock issued in conjunction with our private placement financing completed on October 8, 2009 (the “October Financing”);

·         932,295 shares of common stock underlying the warrants issued in conjunction with the October Financing;

·         835,389 shares of common stock issued in conjunction with our private placement financing completed on November 6, 2009 (the “November Financing”); and

·         568,068 shares of common stock underlying the warrants issued in conjunction with the November Financing.

These securities will be offered for sale from time to time by the selling security holders identified in this prospectus in accordance with the terms described in the section of this prospectus entitled “Plan of Distribution.”  We will not receive any of the proceeds from the sale of the common stock by the selling security holders.

Our common stock is listed on the Nasdaq Stock Market and is traded under the symbol “LLEN“. The last reported per share sales price for our common stock was $9.30 on Friday, May 7, 2010.

INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” BEGINNING ON PAGE 4.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this prospectus is, May 11, 2010

TABLE OF CONTENTS

You should rely only on the information contained in this prospectus.  Neither we, the selling stockholders nor the underwriters have authorized anyone to provide you with information different from that contained in this prospectus. We and the selling security holders are offering to sell, and seeking offers to buy, common stock only in jurisdictions where offers and sales are permitted.  The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock.

No action is being taken in any jurisdiction outside the United States to permit a public offering of the common stock or possession or distribution of this prospectus in that jurisdiction.  Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to that jurisdiction.

Market data and other statistical information used throughout this prospectus are based upon independent industry publications, government publications and other published information from third-party sources that we believe are reliable. None of the publications, reports or other published industry sources referred to in this prospectus were commissioned by us or prepared at our request and, except as we deemed necessary, we have not sought or obtained the consent from any of these sources to include their data in this prospectus.

PROSPECTUS SUMMARY

This summary contains basic information about us and this offering. The reader should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors.” Some of the statements contained in this prospectus, including statements under “Summary” and “Risk Factors” as well as those noted in the documents incorporated herein by reference, are forward-looking statements and may involve a number of risks and uncertainties. We note that our actual results and future events may differ significantly based upon a number of factors. The reader should not put undue reliance on the forward-looking statements in this document, which speak only as of the date on the cover of this prospectus.

References to “we,” “our,” “us,” the “Company,” or “L&L” refer to L&L Energy, Inc., a Nevada corporation, and its consolidated subsidiaries.

Our Business

                We engage in the businesses of coal mining, coal washing, coal coking and coal wholesaling.  Our operations are conducted in Yunnan and Guizhou provinces in the southwest region of the People’s Republic of China (“China” or “PRC”).  Our corporate executives are U.S.-trained and headquartered in Seattle, from which they monitor and control our operations in China to take advantage of that country’s growing demand for our products.  We have our China headquarters in Kumming City and two offices located at Guangzhou and Shenzhen to support operations. 

                Coal mining.  In China, all land and the underlying mineral resources, including coal, are owned by the China government.  It grants rights to extract coal to operators like us.  These rights limit the total amount of coal we are permitted to extract from each mine. Mining rights can be renewed and expanded if approved by government.   We may be able to renegotiate our mining limits in the future, although there is no assurance that we will be successful in doing so.  Mine operators like us normally pay an up-front fee when the rights to extract coal from a mine are received.  In addition, we pay a surcharge per ton of coal that we extract.   We have rights in four coal mines:

                                DaPuAn mine.  We presently extract coal at a rate in excess of 150,000 tons per year from this mine and are in the process of expanding this production to 300,000 tons per year as required by the government of China.  The total amount of coal we have a right to extract from this mine is 900,000 tons. 

                                SuTsong mine.  We presently extract coal at a rate in excess of 90,000 tons per year from this mine and are in the process of expanding this production to 150,000 tons per year as required by the government of China.  The total amount of coal that we have a right to extract from this mine is 540,000 tons.

                                Ping Yi mine.  We presently extract coal at a rate in excess of 150,000 tons per year from this mine and are in the process of expanding this production to 300,000 tons per year as required by the government of China.  The total amount of coal that we have a right to extract from this mine is 13.5 million tons.

                                TianRi Mine  This mine is still under development, and we have not received the right to extract any coal from it.  We have elected to slow the development of this mine in order to focus on acquiring other, existing mines for which rights to extract coal have been granted and which have revenues and profits. 

                Coal washing.   This process involves crushing coal and washing out soluble sulfur and ash compounds with water or other solvents.  This procedure also eliminates other impurities and wood debris in the coal and improves coal quality and increases its value.  Each ton of washed fine coal requires approximately 1.2 to 1.4 tons of raw coal.  Approximately 50% of our washed coal qualifies as coking coal because it meets certain chemical requirements and can be processed into highly-valued coke, which is a critical material for making steel.  There are two byproducts of the coal washing process:  medium coal, which does not have sufficient thermal value for coking and is sold for heating purposes; and coal slurries, which can be used as fuel with low thermal value.  We have two coal washing facilities with an aggregate 440,000 ton annual capacity. One facility is on the site of the DaPuAn mine, and one is free-standing.  We wash coal produced from our own mining operation and coal that we purchase from other coal suppliers.

                Coal coking.  The coking process bakes low-ash, low-sulfur bituminous coal at a high temperature in an oven without oxygen to rid the coal of volatile constituents such as water, coal-gas and coal-tar and to fuse the fixed carbon and residual ash

together to produce solid carbonaceous residue.  Our facilities produce metallurgical coke, which is higher quality coke used primarily for steel manufacturing.  Lesser quality coke is burned in electricity-generating plants.   We have one coking facility with a 150,000 ton capacity per year.  Historically, we have coked coal we purchased from others.  We plan, however, to begin coking coal extracted by us at the DaPuAn, SuTsong and Ping Yi mines.

                Coal wholesaling.  We buy and sell coal from and to others using two large coal storage facilities with railroad access.  We also act as broker to assist small independent mine operators who lack the means to transport coal from their mines or are otherwise unable to sell their coal themselves.

The Offering

We are registering 3,706,773 shares of our common stock for sale by the selling security holders identified in the section of this prospectus entitled “Selling Security Holders.”  As required by the Securities Purchase Agreements that we executed as part of the October Financing and the November Financing, we are registering for resale the following: (i) 2,206,410 shares of Common Stock issued to investors in the October and November Financing; (ii) 1,323,849 shares of Common Stock underlying the Warrants issued to the investors in the October Financing and the November Financing; (iii) 109,682 shares of Common stock underlying the warrant issued to the placement agent with an exercise price of $6.11 per share and five year term in connection with the October Financing; and (iv) 66,832 shares of Common Stock underlying the warrant with an exercise price of $6.11 per share and a five year term issued to the placement agent in connection with the November Financing.  Information regarding our Common Stock is included in the section of this prospectus entitled “Description of Securities.”

The shares of common stock offered under this prospectus may be sold by the selling security holders on the public market, in negotiated transactions with a broker-dealer or market maker as principal or agent, or in privately negotiated transactions not involving a broker or dealer. Information regarding the shares of common stock offered under this prospectus, and the times and manner in which they may be offered and sold is provided in the sections of this prospectus entitled “Plan of Distribution.”  We will not receive any of the proceeds from those sales. The registration of the shares of common stock offered under this prospectus does not necessarily mean that any of these shares will ultimately be offered or sold by the selling security holders.

General Information

                Our principal executive offices are located at 130 Andover Park East, Suite 101, Seattle, Washington 98188 and our telephone number is (206) 264-8065.

RISK FACTORS

The reader should carefully consider the risks described below together with all of the other information included in this prospectus.  The statements contained in or incorporated into this prospectus that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed.  In that case, the trading price of our common stock could decline, and an investor in our securities may lose all or part of their investment.

RISKS RELATING TO THE COMPANY AND ITS BUSINESS

Our business and results of operations depend on the volatile People’s Republic of China (“PRC”) domestic coal markets.

                Our business and operating results depend on the PRC domestic supply and demand for coal and coal products. The domestic coal markets are cyclical and have historically experienced pricing volatility, which reflects, among other factors, the conditions of the PRC and global economies and demand fluctuations in key industries that have high coal consumption.  Difficult economic conditions have resulted in lower coal prices, which in turn negatively affect our operational and financial performance.  Since reaching record high levels in 2008, domestic coal fell in 2009 due to weakening demand as a result of the global economic downturn. We expect our 2010 average selling prices for coal to be higher than our 2009 averages.  The domestic and international coal markets are affected by supply and demand. The demand for coal is primarily affected by the global economy and the performance of power generation, chemical, metallurgy and construction materials industries.  The availability and prices of alternative sources of energy, such as natural gas, oil, hydropower, solar and nuclear power also affect the demand for coal.  The supply of coal, on the other hand, is primarily affected by the geographical location of coal reserves, the transportation capacity of coal transportation railways, the volume of domestic and international coal supplies and the type, quality and price of competitors’ coal.  A significant rise in global

coal supply or a reduction in coal demand may have an adverse effect on coal prices, which in turn, may reduce our profitability and adversely affect our business and results of operations.

Our business is highly competitive and increased competition could reduce our sales, earnings and profitability.

                The coal business is highly competitive in China and we face substantial competition in connection with the marketing and sale of our products.  Some of our competitors are well established, have greater financial, marketing, personnel and other resources, have been in business for longer periods of time than we have, and have products that have gained wide customer acceptance in the marketplace.  The greater financial resources of our competitors will permit them to implement extensive marketing and promotional programs.  We could fail to expand our market share, and could fail to maintain our current share.  Increased competition could also result in overcapacity in the Chinese coal industry in general.  The coal industry in China has experienced overcapacity in the past.  During the mid-1970s and early 1980s, a growing coal market and increased demand for coal in China attracted new investors to the coal industry, spurred the development of new mines and resulted in added production capacity throughout the industry, all of which led to increased competition and lower coal prices.  Similarly, an increase in future coal prices could encourage the development of expanded capacity by new or existing coal processors.  Any overcapacity could reduce coal prices in the future and our profitability would be impaired.

Our results of operations depend on our ability to acquire new coal mines and other coal-related businesses.

                The recoverable coal reserves in mines decline as coal is extracted from them. Our ability to significantly increase our production capacity at existing mines is limited and thus our ability to increase our coal production will depend on acquiring new mines.  Our existing mines are the DaPuAn, SuTsong and Ping Yi Coal Mines.

                The coal related business in China is heavily regulated by the PRC government. The Company’s acquisition of new mines of PRC coal companies and the procurement of related licenses and permits are subject to the PRC Government approval.  Delays in securing or failure to secure relevant PRC Government approvals, licenses or permits, as well as any adverse change in government policies, may hinder our expansion plans, which may materially and adversely affect our profitability and growth prospects.  We cannot assure you that our future expansion or investments will be successful.

                We cannot assure you that we will be able to identify suitable acquisition targets or acquire these targets on competitive terms and in a timely manner.  We may not be able to successfully develop new coal mines or expand our existing ones in accordance with our development plans or at all.  We may also fail to acquire or develop additional coal washing and coking facilities in the future.  Failure to successfully acquire suitable targets on competitive terms, develop new coal mines or expand our existing coal mines could have an adverse effect on our competitiveness and growth prospects.

If we fail to obtain additional financing we will be unable to execute our business plan.

                As the Company continues to grow quickly, it requires capital infusions from the capital market.  Under our current business strategy, our ability to grow will depend on the availability of additional funds, suitable acquisition targets at an acceptable cost, and working capital. The Company’s ability to compete effectively, to reach agreements with acquisition targets on commercially reasonable terms, to secure critical financing and to attract professional managers are critical to the Company’s success. Despite our recent financings, which are described in this prospectus, we may need additional funds to make future acquisitions, continue improving our current coal mines and other coal processing facilities, and to obtain regulatory approvals for our operations.  Should such needs arise, we intend 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, we will need to reduce, defer or cancel development programs, planned initiatives or overhead expenditures, to the extent necessary. The failure to fund our capital requirements would have a material adverse effect on our 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 us to expend significant management time and effort and other resources.

Coal reserve estimates may be materially different from reserves that we may actually recover

                The coal reserves disclosed for the mines from which we have the right extract coal are the estimated quantities (based on applicable reporting regulations) that under present and anticipated conditions have the potential to be economically mined and processed.  There are numerous uncertainties inherent in estimating quantities of coal reserves and in projecting potential future rates of coal production including many factors beyond our control. In addition, reserve engineering is a subjective process of estimating underground deposits of reserves that cannot be measured in an exact manner and the accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment.  Estimates of different engineers may vary

and results of our mining/drilling and production subsequent to the date of an estimate may justify revision of estimates. Reserve estimates may require revision based on actual production experience and other factors.  In addition, several factors including the market price of coal, reduced recovery rates or increased production costs due to inflation or other factors may render certain estimated proved and probable coal reserves uneconomical to exploit and may ultimately result in a restatement of reserves.  This may have a material adverse effect on our business, operating results, cash flows and financial condition.

Our business operations may be adversely affected by present or future environmental regulations, and coal industry standards.

                As a Chinese producer of coal products, we are subject to significant, extensive and increasingly stringent environmental protection laws and governmental regulations on coal standards, and safety requirements. These laws and regulations:

            •      impose fees for the discharge of waste substances, pollutants;

            •      require provisions for reclamation and rehabilitation;

            •      impose fines for serious environmental offenses; and

            •      authorize the PRC Government to close down any facility that it determines has failed to comply with environmental regulations, operating standards, and suspend any coal operations that cause excessive environmental damage.

                Our coal mining, washing and coking operations meet all the existing China environmental and safety standards. Most of our operations are based on traditional, old coal extraction and processing techniques, which are popular in China, and which produce waste water, gas emissions and solid waste materials.  The PRC Government has tightened enforcement of applicable laws and regulations and adopted more stringent environmental standards, and operational standards. Our budgeted amount for environmental regulatory compliance may not be sufficient, and we may need to allocate additional funds for this purpose.  If we fail to comply with current or future environmental laws and regulations, we may be required to pay penalties or fines or take corrective actions, any of which may have a material adverse effect on our business operations and financial condition.  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 Chinese government and U.S. government on clean energy initiatives, including the reduction of CO2 levels 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 our business operations.  If efforts to reduce energy consumption, to use low-carbon coal, and to control greenhouse gas emissions reducing coal consumption, our revenue would decrease and our business would be adversely affected.

We depend on key persons and the loss of any key person could adversely affect our operations.

                The future success of our investments in China is dependent on the Company’s management team, including Mr. Dickson V. Lee, our Chairman and Chief Executive Officer, our professional team, and advisors, who are multi-lingual, understand cultural differences, and are adept at doing business internationally.  If one or more of the Company’s key personnel are unable or unwilling to continue in their present positions, the Company may not be able to easily replace them, and we may incur additional expenses to recruit and train new personnel.  The loss of the Company’s key personnel could severely disrupt the Company’s business and its financial condition and results of operations could be materially and adversely affected.  Furthermore, since the industries the Company invests in are characterized by high demand and intense competition for talent, the Company may need to offer higher compensation and other benefits in order to attract and retain key personnel in the future.  The Company cannot assure its investors that it will be able to attract or retain the key personnel needed to achieve our business objectives. Currently, only Mr. Lee is covered by a one-year term accident insurance policy in China, which is paid for by the Company. Although the Company currently does not maintain “key person” life insurance for any of its key personnel, the Company is in the process to obtaining a “key person” life insurance package for Mr. Lee and expects to obtain such insurance in 2010.

We may suffer losses resulting from industry-related accidents and lack of insurance.

                We operate coal mines and related facilities that may be affected by water, gas, fire or structural problems and earthquakes. As a result, we, like other companies operating coal mines, have experienced accidents that have caused property damage and personal injuries. Although the Company continuously reviews its existing operational standards, including insurance coverage, and it has implemented safety measures, fire training at our mining operations and provided on-the-job training for our employees and workers, there can be no assurance that industry-related accidents, earthquakes will not occur in the future.  The insurance industry in China is still in its development stage and the Chinese insurance companies offer only limited business insurance products.  We currently only have work-related injury insurance for our employees at the DaPuAn, SuTsong and Ping Yi Mines, and limited accident insurance for

staff working in China. Any uninsured losses and liabilities incurred by us could have a material adverse effect on our financial condition and results of operations.

Disruptions to the Chinese railway transportation system and the other limited modes of transportation by which we deliver our products may adversely affect our ability to sell our coal products.

                A substantial portion of the coal products we sell is transported to our customers by the Chinese national railway system. As the railway system has limited transportation capacity and cannot fully satisfy coal transportation requirements, discrepancies between capacity and demand for transportation exist in certain areas of the PRC. No assurance can be given that we will continue to be allocated adequate railway transport capacity or acquire adequate rail cars, or that we will not experience any material delay in transporting our coal as a result of insufficient railway transport capacity or rail cars.

                Some of our business operations depend on a single transportation carrier or a single mode of transportation to deliver our coal products. Disruption of any of these transportation services due to weather-related problems, flooding, drought, accidents, mechanical difficulties, strikes, lockouts, bottlenecks, and other events could temporarily impair our ability to supply coal to our customers. Our transportation providers may face difficulties in the future that may impair our ability to supply coal to our customers, resulting in decreased revenues.

Our continued operations of coal mines are dependent on our ability to obtain and maintain mining licenses and other PRC government approvals for our mining operations.

                Unlike land in the United States, much of which is owned by private individuals, the land and underlying minerals in China belongs to the Chinese government and is only leased to lessees such as the Company on a long-term basis, ranging from 40 to 70 years. 

                Like land in China, coal reserves are owned by the Chinese government, which issues a mining license when government leases exclusive mining rights to a mining operator on a long term basis (normally 50 years). This license allows the mining operators to operate and extract coal from the mine. Thus, coal mining licenses are the exclusive evidence for approval of a coal mine’s mining rights by the Chinese government. The government charges all mining operators an upfront fee plus a surcharge ranging from 2%-3% of the value of the coal excavated from the ground.

The coal industry in China is heavily regulated by the government for safety and operational reasons. Several licenses and permits are required in order to operate a coal mine. These licenses and permits, once issued, are reviewed typically once a year.

Our ownership structure is subject to regulatory controls, approvals and timely payments in connection with our acquisitions.  Failure to obtain such approvals or to timely remit required payments may cause the unwinding of our acquisitions.

           On October 21, 2005, the PRC State Administration of Foreign Exchange ("SAFE") issued a new circular ("Circular 75"), effective November 1, 2005, which repealed Circular 11 and Circular 29, which previously required Chinese residents to seek approval from SAFE before establishing any control of a foreign company or transfer of China-based assets or equity for the shares of the foreign company. SAFE also issued a news release about the issuance of its Circular 75 to make it clear that China’s national policies encourage the efforts by Chinese private companies and high technology companies to obtain offshore financing. Circular 75 confirmed that the uses of offshore special purpose vehicles (“SPV”) as holding companies for PRC investments are permitted as long as proper foreign exchange registrations are made with SAFE. As China starts to develop its legal system, additional legal, administrative, and regulatory rules and regulations may be enacted, and the Company may become subject to the additional rules and regulation applicable to the Company’s Chinese subsidiaries.

             Our subsidiaries KMC and TNI have been registered as American subsidiaries, and all required capital contributions have been made into them.  We are also in the process of registering our equity ownership interest in the DaPuAn and SuTsong Mines with the Chinese government, under the provisional name “L & L Coal Partners” through a nominee who is a Chinese citizen that holds our equity ownership in trust for the benefit of the Company under an agency agreement executed in April 2008.  Because this equity will be held by a nominee, no SAFE approval is necessary for it. The Company believes that Circular 75 and other related Circulars or regulations may likely be further clarified by SAFE, in writing or through oral comments by officials from SAFE, or through implementation by SAFE in connection with actual transactions.  However, failure by the Company to obtain the required PRC government approvals for the Company’s acquisitions or failure to remit all of the required payments for acquisitions may lead to such acquisitions being deemed void or the unwinding of such acquisitions.  Should this occur, we may seek to acquire the equity interest of our subsidiaries through other means, although we cannot guarantee that we will do so, nor can we guarantee that we will be successful if we do.

Risks inherent to mining could increase the cost of operating our business.

                Our coal mining operations are subject to conditions beyond our control that can delay coal deliveries or increase the cost of mining at particular mines for varying lengths of time.  These conditions include weather and natural disasters, unexpected maintenance problems, key equipment failures, variations in coal seam thickness, variations in the amount of rock and soil overlying the coal deposit, variations in rock and other natural materials and variations in geologic conditions.

                As with all underground coal mining companies, our operations are affected by mining conditions such as a deterioration in the quality or thickness of faults and/or coal seams, pressure in mine openings, presence of gas and/or water inflow and propensity to spontaneous combustion, as well as operational risks associated with industrial or engineering activity, such as mechanical breakdowns.  Although we have conducted geological investigations to evaluate such mining conditions and adapt our mining plans to address them, there can be no assurance that the occurrence of any adverse mining conditions would not result in an increase in our costs of production, a reduction of our coal output or the temporary suspension of our operations.

                Underground mining is also subject to certain risks such as methane outbursts and accidents caused by roof weakness and ground-falls. There can be no assurance that the occurrence of such events or conditions would not have a material adverse impact on our business and results of operations.

RISKS RELATED TO DOING BUSINESS IN CHINA

Our Chinese operations pose certain risks because of the evolving state of the Chinese economy, political, and legislative and regulatory systems.  Changes in the interpretations of existing laws and the enactment of new laws may negatively impact our business and results of operation.

Although our principal executive office is located in Seattle, Washington, all of our current coal business operations are conducted in China.  Accordingly, our results of operations, financial condition and prospects are subject to economic, political and legal developments in China.  China’s economy differs from the economies of most developed countries in many respects, including its levels of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources.  Doing business in China involves various risks including internal and international political risks, evolving national economic policies, governmental policy on coal industry, as well as financial accounting standards, expropriation and the potential for a reversal in economic conditions.  Since the late 1970s, the Chinese government has been reforming its economic system.  These policies and measures may from time to time be modified or revised.  While the Chinese economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China.  Furthermore, while the Chinese government has implemented various measures to encourage economic development and guide the allocation of resources, some of these measures may also have a negative effect on us.  For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.  Also, since early 2004, the Chinese government has implemented certain measures to control the pace of economic growth including certain levels of price controls on raw coking coal.  Such controls could cause our margins to be decreased.  In addition, such measures may cause a decrease in the level of economic activity in China, which in turn could adversely affect our results of operations and financial condition.  Adverse changes in economic policies of the Chinese government or in the laws and regulations, if any, could have a material and adverse effect on the overall economic growth of China, and could adversely affect our business operations.

           There are substantial uncertainties regarding the application of Chinese laws, especially with respect to existing and future foreign investments in China.  Despite China having its own securities laws and regulators, the Chinese legal system is in a developmental stage and has historically not enforced its Chinese securities law as rigidly as their U.S. counterparts. The interpretation and application of existing Chinese laws, regulations and policies, and the stated positions of the Chinese authorities may change and possible new laws, regulations or policies will impact our business and operations.  Because of the evolving nature of the law, it will be difficult for us to manage and plan for changes that may arise.  China’s judiciary is relatively inexperienced in enforcing corporate and commercial law, resulting in significant uncertainty as to the outcome of any litigation in China. Consequently, there is a risk that should a dispute arise between the Company and any party with whom the Company has entered into a material agreement in China, the Company may be unable to enforce such agreements under the Chinese legal system. Chinese law will govern almost all of the Company's acquisition agreements, many of which may also require the approval of Chinese government agencies. Thus, the Company cannot assure investors that the target business will be able to enforce any of the Company’s material agreements or that remedies will be available outside China.

           Our business is and will continue to be subject central, provincial, local and municipal regulation and licensing in China.  Compliance with such regulations and licensing can be expected to be a time-consuming, expensive process. Compliance with foreign country laws and regulations affecting foreign investment, business operations, currency exchange, repatriation of profits, and taxation, will increase the risk of investing in our stock.

We may have to incur unanticipated costs because of the unpredictability of the Chinese legal system.

The Chinese legal system has many uncertainties.  The Chinese legal system is based on written statutes.  Prior court decisions may be cited for reference but have limited precedential value.  Since 1979, Chinese legislation and regulations have enhanced the protections afforded to various forms of foreign investments in China.  However, China has not developed a fully integrated legal system and recently-enacted laws and regulations may not sufficiently cover all aspects of economic activities in China.  In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties.  In addition, the Chinese legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect.  As a result, we may not be aware of our violation of these policies and rules until some time after the violation.  In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

It will be difficult for any shareholder to commence a legal action against our executives.  Most of our assets are located in China.

           Because our directors and officer(s) reside both within and outside of the United States, it may be difficult for an investor to enforce his or her rights against them or to enforce United States court judgments against them if they live outside the United States.  Most of the Company's assets, are located in China, outside of the United States.  Additionally, the Company plans to continue acquiring other energy-related entities in China in the future. It may therefore be difficult for investors in the United States to enforce their legal rights, to effect service of process upon the Company or the Company's directors or officers, or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on the Company or the Company's directors and officers under federal securities laws.  Moreover, China currently does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgments of courts.

Our industry is heavily regulated and we may not be able to remain in compliance with all such regulations and we may be required to incur substantial costs in complying with such regulation.

We are subject to extensive regulation by China’s Mining Ministry, and by other provincial, county and local authorities in jurisdictions in which our products are processed or sold, regarding the processing, storage, and distribution of our product.  Our processing facilities are subject to periodic inspection by national, province, county and local authorities.  We 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, we will be required to adjust our activities in order to comply with such regulations.  We may be required to incur substantial costs in order to comply.  Our failure to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material and adverse effect on our business, operations and finances.  Changes in applicable laws and regulations may also have a negative impact on our sales.  

The government regulation of our operations imposes additional costs on us, and future regulations could increase those costs or limit our ability to crush, clean and process coking coal.  China’s central, provincial and local authorities regulate the coal mining industry with respect to matters such as employee health and safety, permitting and licensing requirements, air quality standards, water pollution, plant and wildlife protection, reclamation and restoration of mining properties after mining is completed, the discharge of materials into the environment, surface subsidence from underground mining and the effects that mining has on groundwater quality and availability.  We are required to prepare and present to China’s central, provincial and local authorities data pertaining to the effect or impact that any proposed processing of coal may have upon the environment.  The costs, liabilities and requirements associated with these regulations may be costly and time-consuming and may delay commencement, expansion or continuation of our coal processing operations. The possibility exists that new legislation and/or regulations and orders may be adopted that may materially and adversely affect our operations, our cost structure and/or our customers’ ability to 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 us and our customers to change operations significantly or incur increased costs.  Certain sales agreements contain provisions that allow a purchaser to terminate its contract if legislation is passed that either restricts the use or type of coal permissible at the purchaser’s plant or results in specified increases in the cost of coal or its use.  These factors and legislation, if enacted, could have a material adverse effect on our financial condition and results of operations.

We are subject to currency fluctuations from our Chinese operations and fluctuations in the exchange rate may negatively affect our expenses and results of operations, as well as the value of our assets and liabilities.

Effective July 21, 2005, The People’s Bank of China announced that the Renminbi (RMB) exchange rate regime changed from a fixed rate of exchange based upon the U.S. dollar to a managed floating exchange rate regime based upon market supply and demand of a basket of currencies.  On July 26, 2005, the exchange rate against the Renminbi was adjusted to 8.11 Renminbi per U.S.

dollar from 8.28 Renminbi per U.S. dollar, which represents an adjustment of approximately two percent.  As of January 4, 2010, Renminbi appreciated to approximately RMB 6.83 per U.S. Dollar.  It is expected that the revaluation of the Renminbi and the exchange rate of the Renminbi may continue to change in the future.  Fluctuations in the exchange rate between the Chinese RMB and the United States dollar could adversely affect our operating results.  Results of our business operations are translated at average exchange rates into United States Dollars for purposes of reporting results.  As a result, fluctuations in exchange rates may adversely affect our expenses and results of operations as well as the value of our assets and liabilities.  Fluctuations may adversely affect the comparability of period-to-period results.  We do not use hedging techniques to eliminate the effects of currency fluctuations.  Thus, exchange rate fluctuations could have a material adverse impact on our operating results and stock prices.

RISKS RELATED TO CORPORATE AND STOCK MATTERS

The market price for our stock may be volatile.

                The market price for our stock may be volatile and subject to wide fluctuations in response to factors including the following:

•          actual or anticipated fluctuations in our quarterly operating results;

•          changes in financial estimates by securities research analysts;

•          conditions in coal energy markets;

•          changes in the economic performance or market valuations of other coal energy companies;

•          announcements by us or our competitors of new products, acquisitions, strategic partnerships, joint ventures or capital commitments;

•          addition or departure of key personnel;

•          fluctuations of exchange rates between RMB and the U.S. dollar;

•          intellectual property litigation; and

•          general economic or political conditions in China.

In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our stock.

Our corporate actions are substantially influenced by our principal stockholders and affiliated entities.

                Our management members and their affiliated entities own or have the beneficial ownership right to approximately 33 % of our outstanding common shares, representing approximately 33 % of our voting power.  These stockholders, acting individually or as a group, could exert substantial influence over matters such as electing directors and approving mergers or other business combination transactions. In addition, because of the percentage of ownership and voting concentration in these principal stockholders and their affiliated entities, elections of our board of directors will generally be within the control of these stockholders and their affiliated entities.  While all of our stockholders are entitled to vote on matters submitted to our stockholders for approval, the concentration of shares and voting control presently lies with these principal stockholders and their affiliated entities. As such, it would be difficult for stockholders 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 stockholders will be viewed favorably by all stockholders of the company.

If we issue additional shares in the future, this may result in dilution to our existing stockholders.

                Our articles of incorporation, as amended, authorize the issuance of 120,000,000 shares of common stock and 2,500,000 shares of preferred stock.  Our board of directors has the authority to issue additional shares up to the authorized capital stated in the articles of incorporation.  Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future.  The issuance of any such shares may result in a reduction of the book value or market price of the outstanding shares of our common stock.  If we do issue any such additional shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all other stockholders. Further, any such issuance may result in a change of control of our Company.

                The Company’s business strategy calls for strategic acquisitions of other coal-related businesses. It is anticipated that future acquisitions will require cash and issuances of our capital stock, including our common stock, warrants, preferred shares, or convertible bonds in the future. To the extent we are required to pay cash for any acquisition, we anticipate that we would be required to obtain additional equity and/or debt financing from either the public sector, or private financing. Equity financing would result in dilution for our stockholders. Stock issuances and equity financing, if obtained, may not be on terms favorable to us, and could result in dilution to our stockholders at the time(s) of these stock issuances and equity financings.

                The authorized preferred stock constitutes what is commonly referred to as "blank check" preferred stock.  This type of preferred stock allows the Board of Directors to divide the preferred stock into series, to designate each series, to fix and determine separately for each series any one or more relative rights and preferences and to issue shares of any series without further stockholder approval.  Preferred stock authorized in series allows our Board of Directors to hinder or discourage an attempt to gain control of us by a merger, tender offer at a control premium price, proxy contest or otherwise. Consequently, the preferred stock could entrench our management.  In addition, the market price of our common stock could be materially and adversely affected by the existence of the preferred stock.

The application of the “penny stock” rules could adversely affect the market price of our common stock and increase your transaction costs to sell those shares.

                The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. If the trading price of our common stock falls below $5.00 per share, the open-market trading of our common stock is subject to the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”.  The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse.  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market.  The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation.  In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.  These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules.  Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities.  We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

                In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.  Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information.  Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers.  FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Stockholders should have no expectation of any dividends.

                The holders of our common stock are entitled to receive dividends when, as and if declared by the board of directors out of funds legally available therefore.  To date, we have not declared nor paid any cash dividends.  The board of directors does not intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in our business operations.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.

                We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its Annual Report, which contains management’s assessment of the effectiveness of our internal controls over financial reporting.  In addition, beginning with our Annual Report for the year ending April 30, 2010, an independent registered public accounting firm must attest to and report on management’s assessment of the effectiveness of our internal controls over financial reporting. Our management may conclude that our internal controls over our financial reporting are not effective. Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is

qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. 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. We also expect these developments will make it more difficult and more expensive for the Company to attract and retain additional members to the Board of Directors (both independent and non-independent), and additional executives.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements contained in this prospectus, other than statements of historical facts, that address future activities, events or developments, are forward-looking statements, including, but not limited to, statements containing the words “believe,” “anticipate,” “expect” and words of similar import. These statements are based on certain assumptions and analyses made by us in light of our experience and our assessment of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Whether actual results will conform to the expectations and predictions of management, however, is subject to a number of risks and uncertainties that may cause actual results to differ materially. Such risks are in the section entitled “Risk Factors” on page 4, and in our previous SEC filings.

Consequently, all of the forward-looking statements made in this prospectus are qualified by these cautionary statements, and there can be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business operations.

USE OF PROCEEDS

                We will not receive any proceeds from the sale of Common Stock by the selling security holders.  However, we may receive up to $8,518,532 upon exercise of the Warrants with exercise prices of $5.62 per share for the Warrants issued to accredited investors, and $6.11 per share for the warrants issued to the placement agents in the October Financing and November Financing, the underlying shares of which are included in the registration statement of which this prospectus is a part.  If received, such funds will be used for general corporate purposes, including working capital requirements.  All proceeds from the sale of such securities offered by the selling security holders under this prospectus will be for the account of the selling security holders, as described below in the sections entitled “Selling Security Holders” and “Plan of Distribution.”  With the exception of any brokerage fees and commissions which are the obligation of the selling security holders, we are responsible for the fees, costs and expenses of this offering.

SELECTED FINANCIAL DATA

The summary financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus.  We derived the financial data as of January 31, 2010 and April 30, 2009 and 2008, and for the nine months ended January 31, 2010 and 2009 and the years ended April 30, 2009 and 2008 from our financial statements included in this prospectus. The historical results are not necessarily indicative of the results to be expected for any future period. All monetary amounts are expressed in U.S. dollars.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations and financial condition of the Company for the fiscal years ended April 30, 2009 and  2008 and the nine-month periods ended January 31, 2010 and 2009 should be read in conjunction with the Selected Financial Data, the Company’s  financial statements, and the notes to those financial statements that are included elsewhere in this prospectus. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions.  Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this prospectus.  We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Overview

                The Company is engaged in and currently generates revenue from its coal mining, coal washing, coal wholesaling and coal coking businesses in China.  Although China has substantial coal resources, due to a lack of organizational skills (among other factors) within the coal industry, China’s mining companies have been unable to produce enough coal to meet China’s coal demand. As the Chinese economy continues with GDP growth at an estimated 7%-8% in 2009 with emphasis on domestic consumption, the Company plans to continue leveraging on its 14 years of in-country experience, U.S. management skills, and U.S. accounting knowledge to become a leading coal energy company in the coal-rich Yunnan Province. The Company plans to expand its coal business by acquiring and expanding upon existing operations, following China’s policy of eliminating small, inefficient coal mines and favoring larger, more efficient operations. Despite the worldwide financial crisis beginning in the fall of 2008, the Company has been able to increase sales and the size of its operations.

We believe that the coal industry in China will continue to consolidate and that we can take advantage of that trend.  Our operations are located in inland China, which is now being developed more than coastal areas, which have historically received most of the government’s focus. We expect this development to expand the demand for our coal.  Under current policy, demand for coal within a province must be satisfied from within that province.  Coal is not transported across province borders.  The provinces where we operate have a strong and growing demand for coal. 

We believe that China’s safety and environmental regulations will continue to become more onerous and will raise the barriers to entry in the coal industry.  We expect coal prices to continue to rise in 2010 from their low levels in 2008.

Our results of operations discussed below include those of the LEK air compressor business, which we disposed of in January 2009 and Hon Shen Coal Co., Ltd. (“HSC”), which we acquired effective November 30, 2009 and disposed of in April 2010.

Results of Operations

Comparison of Three Months Ended January 31, 2010 and Three Months Ended January 31, 2009

Revenue

Coal Mining Segment

Tons sold and the associated revenue for the three month periods were as follows:

Total coal mining revenue increased 158.40 % during the three months ended January 31, 2010 as compared to the same three month period in 2009 primarily as a result of 159,752 tons sold during the three months ended January 31, 2010 compared to 68,087 tons during the three months ended January 31, 2009. This increase was attributable to our expanded capacity and demand sufficient to purchase all our production.  The cost per ton sold increased to $110.71 due primarily to increased extraction costs, which is an increase of 10.13% from the prior period.

Total coal mining cost of goods sold increased as sales increased, and generated more direct labors and overhead expenses.

Total coal mining salaries and wages decreased as certain reclassifications were made from personnel cost to cost of goods.

Total coal mining selling, general and administrative expense increased due to the increase of transportation cost, entertainment, auto repair and maintenance, gas and other selling related expenses.

Total coal mining operating income increased based upon the above factors.

Wholesale Coal Segment

Tons sold and the associated revenue for the three month periods were as follows:

Total wholesale coal revenue increased 20.04% during the three months ended January 31, 2010 as compared to the same three month

period in 2009 primarily as a result of 27,904 tons sold during the three months ended January 31, 2010 compared to 24,392 tons during the three months ended January 31, 2009.  This increase was due to our ability to purchase more coal and to sufficient demand to allow us to resell all the coal we purchased.  The cost per ton sold increased to $135.29 due primarily to an $6.36 per ton increase in purchased coal, which is an increase of 4.93% from the prior period.

Total wholesale coal cost of goods sold increased due to increase in sales.

Total wholesale coal salaries and wages decreased as there were fewer employees in the quarter ended January 31, 2010.

Total wholesale coal selling, general and administrative expense increased due to increase in sales, and related selling expense, such as transportation, marketing and sales expenses.

Total wholesale coal operating income increased based upon the above factors.

Coke Segment

Tons sold and the associated revenue for the three-month periods were as follows:

Total coke sales revenue increased 100% during the three months ended January 31, 2010 as compared to the same three month period in 2009 primarily as a result of 49,701 tons sold during the three months ended January 31, 2010 compared to no tons during the three months ended January 31, 2009, as we acquired our coking segment during second quarter of fiscal 2010.

Total coke cost of goods sold increased by 100% as the Company acquired coking operation during second quarter of fiscal 2010.

Total coke salaries and wages increased by 100% as the Company acquired coking operation during second quarter of fiscal 2010.

Total coke selling, general and administrative expense increased by 100% as the Company acquired coking operation during second quarter of fiscal 2010.

Total coke operating income increased based upon the above factors

Coal Washing Segment

Tons sold and the associated revenue for the three month periods were as follows:

Total coal washing revenue increased 100% during the three months ended January 31, 2010 as compared to the same three month period in 2009 primarily as a result of 73,186 tons sold during the three months ended January 31, 2010 compared to no tons during the three months ended January 31, 2009, as L&L acquired washing segment during first quarter of fiscal 2010.

Total coal washing cost of goods sold increased by 100% as the Company acquired washing operation during first quarter of fiscal 2010.

Total coal washing salaries and wages increased by 100% as the Company acquired washing operation during first quarter of fiscal 2010.

Total coal washing selling, general and administrative expense increased by 100% as the Company acquired washing operation during first quarter of fiscal 2010.

Total coal washing operating income increased based upon the above factors.

Comparison of Nine Months Ended January 31, 2010 and Nine Months Ended January 31, 2009

Coal Mining Segment

Tons sold and the associated revenue for the nine-month periods were as follows:

Total coal sales revenue increased 80.07% during the nine months ended January 31, 2010 as compared to the same nine- month period in 2009 primarily as a result of 339,320 tons sold during the nine months ended January 31, 2010 compared to 188,550 tons during the nine months ended January 31, 2009. The cost per ton sold increased to $108.88 due primarily to a $0.07 per ton increase in extraction costs, which is an increase of 0.06% from the prior period.

Total coal cost of goods sold increased as sales increased and generated more direct labors and overhead expenses.

Total coal mining salaries and wages increased due to additional employees and regular salary increases.

Total coal mining selling, general and administrative expenses increased due to the increase of transportation cost, entertainment, car repair and maintenance, gas and other selling related expenses.

Total coal mining operating income increased based upon the above factors.

Wholesale Coal Segment

Tons sold and the associated revenue for the nine month periods were as follows:

Total wholesale coal revenue increased 14.09% during the nine months ended January 31, 2010 as compared to the same nine- month period in 2009 primarily as a result of 90,274 tons sold during the nine months ended January 31, 2010 compared to 68,908 tons during the nine months ended January 31, 2009.  The cost per ton sold decreased to $131.24 due primarily to a $19.46 per ton decrease in purchased coal, which is a decrease of 12.91% from the prior period.

Total wholesale coal cost of goods sold increase due to increase in sales.

Total wholesale coal salaries and wages decreased due to there being fewer employees.

Total wholesale coal selling, general and administrative expense increased due to improvement in efficiency and cost control during the nine months.

Total wholesale coal operating income increased based upon the above factors.

Coke Segment

Tons sold and the associated revenue for the nine month periods were as follows:

Total coke sales revenue increased during the nine months ended January 31, 2010 as compared to the same nine-month period in 2009 primarily as a result of 52,396 tons sold during the nine months ended January 31, 2010 compared to no tons during the nine months ended January 31, 2009, as we acquired our coking segment during the second quarter of fiscal 2010.

Total coke cost of goods sold increased as the Company acquired its coking operation during second quarter of fiscal 2010.

Total coke salaries and wages increased as the Company acquired its coking operation during second quarter of fiscal 2010

Total coke selling, general and administrative expenses increased by 100% as the Company acquired its coking operation during second quarter of fiscal 2010.

Total coke operating income increased based upon the above factors.

Coal Washing Segment

Tons sold and the associated revenue for the nine month periods were as follows:

Total coal washing revenue increased 100% during the nine months ended January 31, 2010 as compared to the same nine-month period in 2009 primarily as a result of 152,456 tons sold during the nine months ended January 31, 2010 compared to no tons during the nine months ended January 31, 2009, as we acquired our washing segment during the first quarter of fiscal 2010.

Total coal washing cost of goods sold increased by 100% as the Company acquired its washing operation during first quarter of fiscal 2010.

Total coal washing salaries and wages increased by 100% as the Company acquired its washing operation during first quarter of fiscal 2010.

Total coal washing selling, general and administrative expenses increased by 100% as the Company acquired its washing operation during first quarter of fiscal 2010.

Total coal washing operating income increased based upon the above factors.

Three Months Ended January 31, 2010 (“2010”) Compared to the Three Months Ended January 31, 2009 (“2009”)

Total Revenue

During the three-month period ended January 31, 2010, the Company sales increased by approximately 280% from $9,989,470 in 2009 to $37,956,263 in 2010.  The increase in revenue was mainly due to the increase of sales volume and price per unit as detailed in the table above.

Cost of Sales and Gross Profit

During the three-month period ended January 31, 2010, the Company cost of sales increased by approximately 407% from $4,321,136 in 2009 to $21,908,104 in 2010.  The gross profit increased by approximately 183% from $5,668,334 in 2009 to $16,048,159 in 2010.  . These increases were mainly due to the increase of sales of our existing operations and newly acquired PYC, HongXing and ZoneLin operations.

Total Operating expenses

Total operating expense of $2,986,044 incurred in the three months ended January 31, 2010, representing an increase of $1,476,744 (or 98%) as compared to $1,509,300 in 2009. The increase was due to an increase in personnel, legal and professional expenses as the Company expanded.

Interest expenses

Interest expense was $60,672 for the three months ended January 31, 2010, representing a decrease of $284,067 (or 82%) from $344,739 in 2009. The decrease reflected reduced balances of bank loans during the period.

Other Expenses (Income)

Other income of $12,907 for the three months ended January 31, 2010, represented a decrease of $74,812 (or 85%) compared to $87,719 in 2009.

Income Taxes

Income taxes of $1,924,006 for the three months ended January 31, 2010, represented an increase of $1,663,124 (or 638%) from $260,882 in 2009. The increase was due to increased net income during the period.

Discontinued Operations

There was no income from discontinued operations for the three months ended January 31, 2010, while there was $306,879 income from discontinued operations in 2009 due to the disposal of the LEK operation.

Non-controlling Interest

Non-controlling interest for the three months ended January 31, 2010 was $1,532,219, representing a decrease of $33,593 (or 2%) from $1,565,812 from the same period in 2009. The decrease of non-controlling interest is mainly due to changes of its equity ownership of the Company’s subsidiaries.

Net Income

Net income increased by $7,789,684 (or 440%) to $9,558,125 during the current quarter, compared to net income of $1,768,441 in 2009. The increase is mainly due to the acquisition of HSC, PYC, HongXing and ZoneLin, and the increase efficiencies of the operations of the subsidiaries.

Nine Months Ended January 31, 2010 (“2010”) Compared to the Nine Months Ended January 31, 2009 (“2009”)

Total Revenue

During the nine-month period ended January 31, 2010, the Company sales increased by approximately 143% from $30,900,400 in 2009 to $75,183,989 in 2010.  The increase in revenue was mainly due to the increase of sales volume and price per unit as detailed in the table above.

Cost of Sales and Gross Profit

During the nine-month period ended January 31, 2010, the Company cost of sales increased by approximately 193% from $13,787,078 in 2009 to $40,402,155 in 2010.  The gross profit increased by approximately 103% from $17,113,322 in 2009 to $34,781,834 in 2010. These increments were a result of the increase of sales of our existing operations, and the  acquisition of HSC, PYC, HongXing and ZoneLin.

Total Operating expenses

Total operating expense of $7,663,533 incurred in the nine months ended January 31, 2010, represented an increase of $3,953,220 (or 107%) as compared to $3,710,313 in 2009. The increase was due to an increase in personnel, legal and professional expenses as the Company expanded.

Interest expenses

Interest expense of $93,974 for the nine months ended January 31, 2010, represented a decrease of $345,986 (or 79%) from $439,960 in 2009. The decrease was due to lower principal balances of bank loans for the period.

Other Expenses (Income)

Other income of $641,962 for the nine months ended January 31, 2010, represented an increase of $639,245 (or 23,527%) compared to $2,717 in 2009. This amount consisted of $528,697 from sales of unused machines and scrap steel and cables, a $100,358 tax credit for hiring disabled personnel and $12,907 of interest income.

Income Taxes

Income taxes of $3,091,404 for the nine months ended January 31, 2010, represented an increase of $2,258,365 (or 271%) from $833,039 in 2009. The increase was due to increased net income for the period.

Discontinued Operations

There was no income from discontinued operations for the nine months ended January 31, 2010, while there was $237,741 income from discontinued operations in 2009 due to the disposal of LEK operation.

Non-controlling Interest

Non-controlling interest for the nine months ended January 31, 2010 was $5,375,850 representing an increase of $183,541 (or 4%) from $5,192,309 for the same period in 2009.

Net Income

Net income increased by $12,496,358 (or 186%) to $19,199,035 in 2010, compared to net income of $6,702,677 in 2009. The increase is mainly due to the acquisition of HSC, PYC, HongXing and ZoneLin, and the increased efficiencies of the operations of the subsidiaries.

Comparison of Fiscal Years Ended April 30, 2009 and 2008

                During the year ended on April 30, 2009, the Company’s coal related sales increased by approximately 75% to $40,938,128 as compared to $23,381,508 for 2008.  The sales reported on the Consolidated Statements of Income excludes sales generated by LEK sales because of our disposal of the LEK air compressor operation in January of 2009 See Note 21 (Discontinued Operation) to our Financial Statements.  The increase in our sales for 2009 was mainly due to our acquisition of a controlling equity interest in the DaPuAn and SuTsong Mines, which occurred May 2008. 

Total Operating expenses:

Total operating expenses for the year ended April 30, 2009 were $3,996,795 as compared to $887,464 for the year ended April 30,

2008, an increase of $3,109,331 (or 350%). The increase in total operating expenses was mainly due to the newly acquired 2 Mines, which resulted in an increase of our operating expenses, as well as personal cost and selling, general and administrative expenses in the amount of $2,111,361.

Interest expenses:

Interest expenses for the year ended April 30, 2009 were $265,186 as compared to $24,935 for the year ended April 30, 2008, an increase of $240,251 (or 963%). The increase reflected an increase in interest expenses due to the newly acquired DaPuAn and SuTsong  Mines during the year ended April 30, 2009.

Minority Interest:

Minority interest for the year ended of April 30, 2009 was $7,315,330 compared to the minority interest for the same period ended April 30, 2008 of $119,879. The increase in minority interest of $7,195,451 (6,002%) was due to the 40% of minority interest related to the newly acquired DaPuAn and SuTsong Mines.

Net Income:

Net income increased by $8,982,774 (or 921%) to $9,957,243 for the year ended April 30, 2009 as compared to net income of $974,469 for 2008. The increase in net income was a result of increased revenue generated from sales of coal from the newly acquired DaPuAn and SuTsong Mines sales which occurred during the current year ended April 30, 2009.

Liquidity and Capital Resources:

Operating activities: Net cash provided by operating activities was $16,319,001 during the nine months ended January 31, 2010, while in the same of period in 2009, the net cash provided by operating activities was $10,692,895,an increase in 2010 of $5,626,106 (or 53%).  The increase was mainly due to the combined effect of an increase of accounts receivables by $12,753,485, an increase of net income by $12,679,899, an increase of prepaid and other assets by $6,889,973, an increase of other receivable by $2,329,503, an increase in depreciation and amortization by $1,818,203, a decrease of accounts payable by $13,629,363, a decrease in cash provided of discontinued operation by $12,039,379, a decrease of accrued liabilities by $2,216,630 and a decrease of customer deposit by $2,032,458. The Company's operating cash flow is highly dependent upon its ability to and collect accounts receivable in a timely manner.

Investing activities: Net cash used in investing activities was $22,215,000 during the nine months ended January 31, 2010, compared to $3,406,682 used in investing activities during the same period in 2009. The increase in net cash used of $18,808,318 (or 552%), was  due to the acquisition of HSC, PYC and TNI, an increase in acquisition of property and equipment of $13,755,088, and a net disposal of discontinued operations of $3,737,194

Financing activities: Net cash provided by financing activities was $15,964,165 during the nine months ended January 31, 2010, compared to $604,413 used during the same period in 2009. The increase of $16,568.578 (or 2741%), was mainly due to the increase in proceeds from issuance of stock of $9,490,919, the increase in loans to associates of $5,983,636, the proceeds from warrant conversion by $2,598,000, a decrease of long-term payable of $3,000,000 and a decrease of cash used in financing activities of discontinued operation of $2,274,430..

The current assets of the Company were $49,558,092 and $42,485,102 on January 31, 2010 and April 30, 2009 respectively. The increase in current assets of $7,072,990 (or 16.6%) was primarily due to the increase of cash and equivalent by $10,105,610, the increase of prepaid and other current assets by $5,271,237, the increase of inventories by $4,449,147, the increase in accounts receivable of $1,957,087, the decrease of other receivables by $8,726,455, and the decrease of loan from business associates by $5,983,636.

The current liabilities were $22,318,360 and $16,110,409 on January 31, 2010 and April 30, 2009 respectively. The increase of the current liabilities by $6,207,951 (or 39%) was primarily due to the increase in customer deposits by $3,854,797, the increase in other payables by $ 3,128,253, the increase in tax payable by $1,787,973, the increase of bank loan by $1,742,313, the decrease of due to shareholder by $910,791, and the decrease in accounts payable by $3,197,673.

We have three short term bank loans with the total amount of $1,742,313. The interest rates were from 11.88% to 13.32%.

During the quarter ended January 31, 2010, we entered into three loan agreements with Yunnan Rural Credit Cooperatives with terms of one year to finance its working capital and coal washing facility expansion construction n. The terms are as follow:

1) RMB 3 million, effective January 21, 2010, with a maturity date of January 21, 2011, and interest rate of 11.88%;

2) RMB 3.5 million, effective April 13, 2009, with a maturity date of April 13, 2010, and interest rate of 13.32%;

3) RMB 5.4 million, effective November 28, 2009, with a maturity date of November 28, 2010, and interest rate of 13.32%;

LONG-TERM PAYABLE

During the third quarter of fiscal 2010, the Company entered into two loan agreements with banks in China.  The first loan was for RMB 14,300,000 or approximately $1,951,000.  This loan carried an interest rate of 5.4% per annum and matures on December 23, 2011.  The second loan was for RMB 15,000,000 or approximately $2,196,000.  The loan carries an interest rate of 9.7% per annum and matures on February 26, 2011.  Both loans are unsecured.  The long-term payables are owed to the sellers of the acquired businesses of PYC, TNI and HSC, in the amount of $3,392,235.

                                                               
                                                                                Item 303 – Contractual Obligation Table

Recent Financings

October 2009 Financing

                On October 8, 2009, (the "Company") entered into a Securities Purchase Agreement with accredited investors (the "October Buyers"), pursuant to which the Company sold issued Units (the "October Units") to the October Buyers, consisting of common stock and common stock warrants. Each Unit purchased consisted of one share of unregistered common stock of the Company (the "Common Stock") and 6/10ths of a warrant (the "October Warrants") to purchase a share of common stock at an exercise price of $5.62 per share and expiring in October 2014 (as exercised, collectively the "October Warrant Shares"). Each Unit was priced at $3.90.  On October 8, 2009, our common stock closed at $5.58 per share on the OTCBB.  The Company sold a total of 1,371,021 October Units for gross proceeds of $5,346,980 and representing 1,371,021 shares of Common Stock.  Pursuant to the terms of October Warrants, the October Buyers also became entitled to purchase up to approximately 822,613 shares of Common Stock of the Company at an exercise price of $5.62 per share.  The October Warrants have a term of 60 months after the issue date of October 8, 2009.  The exercise price and number of shares issuable upon exercise of the October Warrants are subject to customary adjustments provisions for stock splits, stock dividends, recapitalizations and the like.  The October Warrants also have a cashless exercise provision that such holders may utilize after six months from the issuance date of such warrant if a registration statement covering the shares of Common Stock underlying the October Warrants is not available to the Warrant holders and a provision which limits the October Warrant holders right to exercise the October Warrant if such exercise would result in the holder owning more than 9.99% of the Common Stock.  Laidlaw & Co. (UK) Ltd., a member of FINRA, acted as the placement agent for the transaction which was closed on October 8, 2009 at $5.58 per share of the last trading price.

                Pursuant to the Registration Rights Agreements (the “Registration Rights Agreement”) executed by and between the Company and the October Buyers in connection with the October Financing, the Company is required to file a registration statement on Form S-1 or Form S-3 (the "Registration Statement") within 90 days after the closing of the transaction for purposes of registering

the resale of all of the Common Stock and any shares of capital stock of the Company issued or issuable with respect to the October Warrant Shares and the October Warrants as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitations on exercises of the October Warrants (together with the October Warrant Shares, the "October Registrable Securities").  If the Company fails to timely file the Registration Statement by the filing deadline, it will be required to pay cash penalties in the amount of one percent (1%) of the October Unit price up to a maximum of six percent (6%), subject to the terms of the Registration Rights Agreement.

                Also, in connection with October Financing, Mr. Dickson V. Lee, the Company’s Chief Executive Officer, the Company and the October Buyers entered into a Make Good Escrow Agreement (the “October Make Good Agreement”) pursuant to which Mr. Lee agreed to place a certain number of the Company's common shares that he owns into escrow (the “October Escrow Shares”).  Pursuant to the terms of the October Make Good Agreement, one-half of the October Escrow Shares will be released back to Mr. Lee if the Company has equal to or more than $32,040,000 in after tax net income before non-controlling interest (calculated in accordance with U.S. GAAP, as reported in the Company’s Annual Report on Form 10-K for the fiscal year ending April 30, 2010 (“2010 Form 10-K”) and as adjusted under the terms of the October Make Good Agreement) for the fiscal year ending April 30, 2010; otherwise, these October Escrow Shares will be distributed to the October Buyers in proportion to each October Buyer’s purchase price for its October Units.  Likewise, the remaining half of the October Escrow Shares will be released back to Mr. Lee if the Company has equal to or more than $108,118,950 in net revenues (calculated in accordance with U.S. GAAP, as reported in the 2010 Form 10-K and as adjusted under the terms of the October Make Good Agreement); otherwise, these October Escrow Shares will be proportionately distributed to the October Buyers.

                The October Financing was completed through a private placement to accredited investors and is exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended ("Securities Act").  Laidlaw & Company (UK) Ltd. (“Laidlaw”) acted as the placement agent and financial advisor for this transaction.  Laidlaw received cash fees consisting of eight percent (8%) of the gross proceeds and warrants to purchase 109,682 shares of the Company's common stock at $6.11 per share under the same terms as the Unit warrants.

November 2009 Financing

                On November 6, 2009, (the "Company") entered into a Securities Purchase Agreement with accredited investors (the "November Buyers"), pursuant to which the Company sold issued Units (the "November Units") to the November Buyers, consisting of common stock and common stock warrants. Each Unit purchased consisted of one share of unregistered common stock of the Company (the "Common Stock") and 6/10ths of a warrant (the "November Warrants") to purchase a share of common stock at an exercise price of $5.62 per share and expiring in November 2014 (as exercised, collectively the "November Warrant Shares"). Each Unit was priced at $3.90.  On November 6, 2009, our common stock closed at $5.65 per share on the OTCBB.  The Company sold a total of 835,389 November Units for gross proceeds of $3,258,000 and representing 835,389 shares of Common Stock.  Pursuant to the terms of November Warrants, the November Buyers also became entitled to purchase up to approximately 501,236 shares of Common Stock of the Company at an exercise price of $5.62 per share.  The November Warrants have a term of 60 months after the issue date of November 6, 2009.  The exercise price and number of shares issuable upon exercise of the November Warrants are subject to customary adjustments provisions for stock splits, stock dividends, recapitalizations and the like.  The November Warrants also have a cashless exercise provision that such holders may utilize after six months from the issuance date of such warrant if a registration statement covering the shares of Common Stock underlying the November Warrants is not available to the Warrant holders and a provision which limits the November Warrant holders right to exercise the November Warrant if such exercise would result in the holder owning more than 9.99% of the Common Stock.  The November Financing closed on November 6, 2009 at $5.65 per share of the last trading price.

                Pursuant to the Registration Rights Agreements (the “Registration Rights Agreement”) executed by and between the Company and the November Buyers in connection with the November Financing, the Company is required to file a registration statement on Form S-1 or Form S-3 (the "Registration Statement") within 90 days after the closing of the transaction for purposes of registering the resale of all of the Common Stock and any shares of capital stock of the Company issued or issuable with respect to the November Warrant Shares and the November Warrants as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitations on exercises of the November Warrants (together with the November Warrant Shares, the "November Registrable Securities").  If the Company fails to timely file the Registration Statement by the filing deadline, it will be required to pay cash penalties in the amount of one percent (1%) of the November Unit price up to a maximum of six percent (6%), subject to the terms of the Registration Rights Agreement.

                Also, in connection with November Financing, Mr. Lee, the Company’s Chief Executive Officer, the Company and the November Buyers entered into a Make Good Escrow Agreement (the “November Make Good Agreement”) pursuant to which Mr. Lee agreed to place a certain number of the Company's common shares that he owns into escrow (the “November Escrow Shares”).  Under the terms of the November Make Good Agreement, since $3,258,000 was raised in this financing, the actual number of November Escrow Shares that are subject to this Make Good Agreement is approximately 395,615 shares (the “Actual November

Escrow Shares”).  Further, pursuant to the terms of the November Make Good Agreement, one-half of the Actual November Escrow Shares will be released back to Mr. Lee if the Company has equal to or more than $32,040,000 in after tax net income before non-controlling  interest (hereinafter referred to as the “2010 Actual ATNI” and which shall be calculated in accordance with U.S. GAAP, as reported in the Company’s Annual Report on Form 10-K for the fiscal year ending April 30, 2010 (the “2010 Form 10-K”) and as adjusted under the terms of the November Make Good Escrow Agreement) for the fiscal year ending April 30, 2010; otherwise, the aggregate number of Actual November Escrow Shares to be distributed to the November Buyers (with such distribution being in proportion to each November Buyer’s purchase price for its Units) are calculated as follows: (i) if the difference between the 2010 Guaranteed ATNI of $32,040,000 (the “2010 Guaranteed ATNI”) minus the 2010 Actual ATNI is equal to or greater than 50% of the 2010 Guaranteed ATNI, then the aggregate number of Actual November Escrow Shares to be distributed to the November Buyers in this financing on a pro rata basis shall equal 50% of the Actual Escrow Shares; or (ii) if the difference between the 2010 Guaranteed ATNI minus the 2010 Actual ATNI is less than 50% of the 2010 Guaranteed ATNI, then the aggregate number of Actual November Escrow Shares to be distributed to the November Buyers in this financing on a pro rata basis shall be calculated by multiplying: (A) 50% of the Actual November Escrow Shares times (B) a fraction with a numerator of the difference between the 2010 Guaranteed ATNI minus 2010 Actual ATNI multiplied by 2 and a denominator of the 2010 Guaranteed ATNI.  Likewise, under the November Make Good Agreement, the other remaining half of the Actual November Escrow Shares will be released back to Mr. Lee if the Company has equal to or more than $108,118,950 in net revenues (hereinafter referred to as the “2010 Actual Revenue” and which shall be calculated in accordance with U.S. GAAP, as reported in the 2010 Form 10-K and as adjusted under the terms of the November Make Good Escrow Agreement); otherwise, the aggregate number of Actual November Escrow Shares to be proportionately distributed to the November Buyers shall be calculated as follows: (i) if the difference between the 2010 Guaranteed Revenue of $108,118,950 (the “2010 Guaranteed Revenue”) minus the 2010 Actual Revenue is equal to or greater than 50% of the 2010 Guaranteed Revenue, then the aggregate number of Actual November Escrow Shares to be distributed to the November Buyers in this financing on a pro rata basis shall equal 50% of the Actual November Escrow Shares; or (ii) if the difference between the 2010 Guaranteed Revenue minus the 2010 Actual Revenue is less than 50% of the 2010 Guaranteed Revenue, then the aggregate number of Actual November Escrow Shares to be distributed to the November Buyers in the November Financing on a pro rata basis shall be calculated by multiplying: (A) 50% of the Actual November Escrow Shares times (B) a fraction with a numerator of the difference between the 2010 Guaranteed Revenue minus 2010 Actual Revenue multiplied by 2 and a denominator of the 2010 Guaranteed Revenue.  The November Financing was completed through a private placement to accredited investors and is exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended ("Securities Act").  Barretto Securities Inc. (“Barretto”) acted as the placement agent and financial advisor for this transaction.  Barretto received cash fees consisting of eight percent (8%) of the gross proceeds and warrants to purchase 66,832 shares of the Company's common stock at $6.11 per share under the same terms as the November Unit warrants.

Off-Balance Sheet Arrangements:

The Company does not have any off-balance sheet financing arrangements.

The Company's current ratio (current assets divided by current liabilities, a ratio used to determine the Company's ability to pay its short-term liabilities) is 2.77 as of October 31, 2009 compared to 2.63 as of April 30, 2009. As a general rule, the higher the current ratio, the more likely the Company will be able to pay its short-term bills.

Critical Accounting Policies and Estimates

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In doing so, the Company must make estimates and assumptions based on these principles. Many of the estimates and assumptions involved in the application of U.S. GAAP may have a material impact on the reported financial condition, operational performance, and the comparability of such reported information over different reporting periods. The nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters of the susceptibility of such matters to changes; the impact of estimates and assumptions on financial condition or operational performance may be material. There may be uncertainties attached to the estimates or assumptions, or may be difficult to measure or value.

As assumptions for specific sensitivities may change as a result of other possible outcomes, these estimates/assumptions may change in the future and may affect our reported amounts of assets, liabilities, revenue and expense, as well as disclosures of contingent assets and liabilities.

The Company’s internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only with the appropriate authorization of our management and directors; and (iii) provide reasonable assurance for the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

The following accounts may require estimates in computing the balances:

Principles of Consolidation – The fully consolidated financial statements include the accounts of the Company, and its 100% ownership of KMC subsidiary including coal wholesale and Ping coal mine, 80% of operations of LLC including both coal mining and coal washing, and 93% of HSC, and 98% of TNI (coal washing and coking operations).  The Company consolidates 100% of all subsidiaries and shows the minority interest as Non-Controlling Interests.  All significant inter-company accounts and transactions are eliminated.

Cash and Cash Equivalents – The Company considers all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalent consist of cash on deposit with banks and cash on hand.

Revenue Recognition – The Company’s revenue recognition policies are in compliance with ASC 605, which stipulates recognition of revenue when a formal arrangement exists, the price is fixed or determinable, the delivery to the customers’ site is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers. 

When the Company purchases coal from other mining companies, the customers pick up the coal directly from those mine premises or the coal is shipped directly from other coal mining companies.  Purchases and shipments of the coal from other mining companies are arranged at the same time.  Revenue of brokered coal is recognized at the time of delivery.

Accounts receivable – The Company’s policy is to maintain reserves for potential credit losses on accounts receivable.  Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.

Inventories – Inventories are stated at the lower of cost and net realizable value, as determined on moving average basis.

Use of Estimates – The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Based on our past experience, these estimates are reasonably accurate, have not been changed, and these estimates are reasonably not likely to be changed in the future.  Actual results could differ from those estimates.

Prior amounts have been updated from those presented in previously filed Forms 10-Q to reflect implementation of ASC 810-10), “Noncontrolling Interests in Consolidated Financial Statements”.

Foreign currency translation - The Company’s foreign subsidiaries maintain their financial statements in the local currency which has been determined to be the functional currency.  Substantially all overseas operations are conducted in China, using the functional currency Renminbi (RMB).  Assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the rates in effect at the balance sheet date.  Revenues and expenses are translated at average rates for the year.  Related translation adjustments are reported as a separate component of stockholders’ equity, whereas gains and losses resulting from foreign currency transactions are included in the results of operations. 

Asset Retirement Cost and Obligation – The Company follows Accounting for Asset Retirement Obligations, codified in FASB ASC Topic 410.  This Statement generally requires that the Company’s legal obligations associated with the retirement of long-lived assets are recognized at fair value at the time the obligations are incurred.  Obligations normally are incurred at the time development of a mine commences for underground mines or construction begins for support facilities and refuse areas. The obligation’s fair value is determined using discounted cash flow techniques and is accreted over time to its expected settlement value.  Upon initial recognition of a liability, a corresponding amount is capitalized as part of the carrying amount of the related long-lived asset.  Amortization of the related asset is calculated on a unit-of-production method by amortizing the total cost over the salable reserves determined under Industry Guide 7, multiplied by production during the period.

Environmental Costs – The PRC has adopted extensive environmental laws and regulations that affect the operations of the coal mining industry. The outcome of environmental liabilities under proposed or future environmental legislation cannot be

reasonably estimated at present, and could be material. Under existing legislation, however, Company management believes that there are no probable liabilities that will have a material adverse effect on the financial position of the Company.

Property, Plant, Equipment, and Mine Development – Property, plant equipment and Mine Development are stated at cost, less accumulated depreciation. Costs of mine development, expansion of the capacity of or extending the life of our mine are capitalized and principally amortized using the units-of-production method over the actual tons of coals produced directly benefiting from the capital expenditure. Mobile mining equipment and other fixed assets are stated at cost and depreciated on a straight-line basis over the estimated useful lives ranging from 10 to 12.5 years. Leasehold improvements are amortized over their estimated useful lives or the term of the lease, whichever is shorter. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs are generally expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations.

The estimated useful lives for each category of the fixed assets are as follows:  

Building, mining structure, and plant is related to our coal mining related operations. The mining structure includes the main and auxiliary mine shafts, underground tunnels, and other integrant mining infrastructure. Depreciation for the mine shafts is provided to write off the cost of the mining structure using the units of production method based on salable reserves determined under Industry Guide 7.

Based on updated geological reports and new estimated production volume, the estimated useful life of mining structures ranges from 20 to25 years.

Impairment of Long-Lived Assets – Long-lived assets, which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, as of January 31, 2010 and 2009, there were no impairments of its long-lived assets.

Monetary Policy – It is our general practice to establish an American-China joint venture, when feasible, to ensure the Company’s US presence in China. Under the Chinese law, American-China joint venture has little restriction regarding to the ability to transfer retained earnings from China to the US, or other countries outside China when tax is fully paid in China.

Income Taxes – The Company utilizes Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated 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 bases 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 the provisions of Accounting for Uncertainty in Income Taxes.  As a result of the implementation of FIN 48, the Company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by the accounting standards. The Company recognized no material adjustments to liabilities or stockholders’ equity. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the

benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income. The adoption of this accounting standard did not have a material impact on the Company’s financial statements.

Impact of Recent Accounting Pronouncements

In April 2009, the FASB issued ASC 320-10-65, “Recognition and Presentation of Other-Than-Temporary Impairments”. This amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. It does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. It is effective for interim and annual periods ending after June 15, 2009. The adoption did not have a material impact on the Company’s consolidated financial position or results of operations.

In April 2009, the FASB issued ASC 820-10-65, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”. It provides additional guidance for estimating fair value in accordance with ASC 820 when the volume and level of activity for the asset or liability have significantly decreased and includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP does not change the definition of fair value under ASC 820. The FSP is effective for interim and annual periods ending after June 15, 2009. The adoption did not have a material impact on the Company’s consolidated financial position or results of operations.

In May 2009, the FASB issued ASC 855, Subsequent Events. It establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It is effective for interim and annual periods ending after June 15, 2009. The adoption did not have a material impact on the Company’s consolidated financial position or results of operations.

In June 2009, the FASB issued The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (the Codification). The Codification became the single official source of authoritative, nongovernmental U.S. GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption did not have a material impact on the Company’s consolidated financial position or results of operations.

In September 2009 the New FASB Accounting Standards Update 2009-08 issued in Earnings Per Share (amendments to Section 260-10-S99). This update includes technical corrections to Topic 260-10-S99 Earnings Per Share, based on EITF Topic D-53, “Computation of Earnings Per Share for a Period that includes redemption or an induced conversion of a portion of a class of preferred stock” and EITF Topic D-42, “The effect of the calculation of Earnings Per Share for the redemption or induced conversion of preferred stock.” The adoption did not have a material impact on the Company’s consolidated financial position or results of operations.

ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820)—Improving Disclosures about Fair Value Measurements (“ASU 2010-06”) was issued in January 2010. This ASU amends ASC Subtopic 820-10, Fair Value Measurements and Disclosures—Overall, to require new disclosures regarding transfers in and out of Level 1 and Level 2, as well as activity in Level 3, fair value measurements. This ASU also clarifies existing disclosures over the level of disaggregation in which a reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. This ASU further requires additional disclosures about valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. ASU 2010-06 will be effective for financial statements issued by the Company for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. The Company expects to adopt ASU 2010-06 for the quarter ending July 31, 2010

The Company does not expect the implementation of any of the foregoing pronouncements to have a material impact on its results of operations or financial position.

DESCRIPTION OF BUSINESS

Our Current Corporate Structure

Our current organizational structure is as follows (the percentages depict the current equity interests):

(1)      In accordance with applicable PRC regulations on ownership of mining-related companies, this equity ownership is held in trust for the benefit of the Company by a Chinese citizen nominee.

ACQUISITIONS AND DISPOSITIONS OF BUSINESS ENTITIES IN CHINA

                The Company performs quantitative financial reviews to determine its acquisition and disposition strategies. With its management’s bilingual abilities, analytical skills, and China-in-Country experience that it has developed over the past 14 years, the Company communicates well with Chinese business communities and believes that it can continue to acquire, develop, and operate additional profitable energy operations in China.

Acquisitions

                In 2006, the Company acquired KMC, which conducts coal wholesaling, has been in the coal wholesale business for the 13 years and owns the Tian-Ri mine. The Company owns 100% of KMC’s equity.  In May 2008, the Company acquired controlling equity ownership interests in two operating coal mines located in Yunnan Province – the DaPuAn mine and the SuTsong mine . On January 1, 2010, we formed our subsidiary TNI and through it on that date acquired the ZoneLin coal coking operation and the SeZone County Hong Xing coal washing operation (“Hong Zing”).  On January 18, 2010, KMC acquired the Ping Yi Coal Mine (the “Ping Mine”).

OUR OPERATIONS

Coal Mine Operations

The Company has the exclusive right to extract coal from three mines: the DaPuAn mine, the SuTsong mine and the Ping mine.  In addition, we have certain rights in the coal in the TianRi mine, but it will require more investment before it is ready for excavation and we have suspended its development indefinitely.

DaPuAn Coal Mine

            DaPuAn Coal Mine is located in Bai Zi Chong, DaPuAn Village, Xiongbi Town, Shizong County, Yunnan Province, China.

It is an underground coal mine and is accessible by public roads.  

Prior to the Company’s acquisition of majority controlling interest of the DaPuAn mine, the mine was separately operated by SeZone County DaPuAn Coal Mine pursuant to resource mining permits effective from 2009 through 2015.  In May 2008, the Company acquired majority controlling ownership interest in the resource mining permits and the mining rights to the DaPuAn mine and assumed mining operations.  

The DaPuAn mine, including the mine site and the underlying coal and other minerals, is owned by the PRC.  Accordingly, the amount of coal that the Company can extract from the mine is based on a mining right issued by the Yunnan Province Municipal Bureau of Land and Resource.  The mining right is issued pursuant to a reserves appraisal report submitted by government authorized mining engineers, and the mining right is issued upon approval of such appraisal report by the Qujing Municipal Bureau of Land and Resource in Yunnan, China.  The amount of coal that can be extracted under the mining right represents what the Company can economically and legally extract under applicable PRC law and regulations and as determined by the Yunnan Province Municipal Bureau of Land and Resource.

Under current mining rights for the DaPuAn Mine, 900,000 tons of coal are permitted to be extracted from DaPuAn mine. These rights, originally for a 50 year term, have approximately 40 years remaining. The price is determined on a per ton basis, and is subject to change based on the prevailing market price as determined by the State Bureau of Coal Industry of Yunnan. The original owner paid the one-time extraction license fee when it acquired the original mining rights to the mine prior to our acquisition of the DaPuAn Mine.  We pay the required government taxes for the coal we extract from the DaPuAn Mine.

A resource mining permit issued by the Yunnan Province Municipal Bureau of Land and Resource specifies the coordinates of the DaPuAn Mine’s mining area and the mine’s designated annual production capacity.  The resource mining permit for the DaPuAn mine estimates that the mine’s capacity is 150,000 tons per year based on current mine operating conditions, but the Company is also in the process of expanding the mine’s capacity to 300,000 tons per year.

Coal extracted from DaPuAn coal mine is for industrial use.  Coal is extracted from DaPuAn mine using a fully-mechanized inclined shaft mining method in which the wellhead and the shaft station in the bottom of the mine are not in the same level and the mine path has an inclined angle with the shaft station of five degrees to 30 degrees.

We currently extract approximately coal at the rate of 150,000 tons per year from the DaPuAn Mine.  All raw coal is loaded and transported by a chain conveyor into crates which are carried out to the surface by an electrical winch.  Each crate carries approximately 0.75 metric tons, and approximately 800 crates are carried to the surface during each eight-hour mining shift.  Air compressors are provided for underground air tool use. Electrical power is supplied internally from the Company’s own power stations through state-owned power lines, and supplied to the underground work site through a double-circuit cable designed to mitigate and circumvent potential power supply disruptions.

Normal water inflow into the mine is controlled by a system of ditches, sumps, pumps and drainpipes installed throughout the mine tunnels.  The mine’s ventilation system includes exhaust fans on the surface of the main incline.  Auxiliary fans are used as needed.  The present fans are capable satisfying ventilation requirements of the mining operation.

                The DaPuAn Mine’s annual production volumes from 2005 to 2009 are as follows:

The extracted coal is transported by truck to a warehouse located approximately 300 meters from the mine site, processed at our coal-washing and sorted. Out of the coal produced at the DaPuAn Mine, typically a portion is sold to customers as raw coal, a portion is sold after the washing process as washed fine coal, and approximately 50% of the coal is sold as coking coal when it meets certain chemical requirements.  Coking coal is sent to a coking plant to further process it into high valued coke.  Coke is a critical material for making of steel. 

The following definitions apply to our mining operations:

•          Reserve. That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.  Note: Reserves are customarily stated in terms of “ore” when dealing with metalliferous minerals; when other materials such as coal, oil, shale, tar, sands, limestone, etc. are involved, an appropriate term such as “recoverable coal” may be substituted.

•          Proven (Measured) Reserves are reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings, or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling, and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.

•          Probable (Indicated) Reserves are reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.

                As reported in the Qujing Municipal Land and Mining Right Appraisal Firm report dated June 30, 2008, the total Proven (Measured) reserve for the DaPuAn Mine was 7.81 million tons.

SuTsong Coal Mine

            SuTsong Coal Mine is located in A’ang Town, Luoping County, Yunnan Province, China. The SuTsong coal mine is an underground coal mine and is accessible by public roads.  

Prior to the Company’s acquisition of majority controlling interest of the SuTsong mine, the mine was separately operated by LoPing County SuTsong Coal Mine pursuant to resource mining permits effective from 2009 through 2015.  In May 2008, the Company acquired majority controlling ownership interest in the resource mining permits and the mining rights to the SuTsong mine and assumed mining operations.  

The SuTsong mine, including the mine site and the underlying coal and other minerals, is owned by the PRC.  Accordingly, the amount of coal that the Company can extract from the mine is based on a mining right issued by Yunnan Province Municipal Bureau of Land and Resource.  The mining right is issued pursuant to a reserves appraisal report submitted by government authorized mining engineers, and the mining right is issued upon approval of such valuation report by the Qujing XiaGuang Geological Engineering Co. Ltd. in Yunnan, China.  The amount of coal that can be extracted under the mining right represents what the Company can economically and legally extract under applicable PRC law and regulations, and as determined by the by Yunnan Province Municipal Bureau of Land and Resource.

Under current mining rights for the SuTsong Mine, 540,000 tons of coal are permitted to be extracted from SuTsong mine. These rights, originally for a 50-year term, have approximately 40 years remaining. The coal price is determined on a per ton basis, and is subject to change based on the prevailing market price which is influenced by the State Bureau of Coal Industry of Yunnan.  The original owner paid the one-time extraction license fee when it acquired the original mining rights to the mine prior to our acquisition of the SuTsong Mine.  We pay the required government taxes for the coal we extract from the SuTsong Mine.

A resource mining permit issued by the Yunnan Province Municipal Bureau of Land and Resource specifies the coordinates of the SuTsong Mine’s mining area and the mine’s designated annual production capacity.  The resource mining permit for the SuTsong mine estimates that the mine’s capacity is 90,000 tons per year based on mine operating conditions, but we are in the process of expanding the mine’s capacity to150,000 tons per year.

Coal extracted from SuTsong coal mine is for industrial use.  Coal is extracted from SuTsong mine using a fully-mechanized inclined shaft mining method like the one described above for the DaPuAn Mine.

We currently extract coal at the rate of 90,000 tons  per year from the SuTsong Mine.  All raw coal is loaded and transported by a chain conveyor into crates which are carried out to the surface by an electrical winch.  Each crate carries approximately 0.75 metric tons, and approximately 480 crates are carried to the surface during each eight-hour mining shift.  Rock is used for floor material with the excess sent to the surface for disposal.  Air compressors are provided for underground air tool use.  Electrical power is supplied internally from the Company’s own power stations through state-owned power/utility lines, and supplied to the underground work site through a double-circuit cable designed to mitigate and circumvent potential power supply disruptions.

Normal water inflow into the mine is controlled by a system of ditches, sumps, pumps and drainpipes installed throughout the mine tunnels.  The mine’s ventilation system includes an exhaust fan on the surface of the main incline.  Auxiliary fans are used as needed.  The present mine fan is capable of satisfying ventilation demands of the mining operation. 

                The SuTsong Mine’s annual production volumes from 2005 to 2009 are as follows:

The extracted coal is shipped via trucks to warehouses located approximately 200 meters from the mine site and processed at our coal-washing facility for washing and sorting.  Samples are taken prior to and after the coal-washing process, to analyze and determine coking readiness which is based primarily on coal moisture, ash content, sulfur percentage, and volatile contents.  Out of the coal produced at the SuTsong Mine, typically a portion is sold to customers as raw coal, and certain portions as washed coal. 

                As reported in the Qujing XiaGuang Geological Engineering Co. Ltd. report dated July, 2007, the total Proven (Measured) reserve for the SuTsong Mine was 2.06 million tons.

Ping Yi Coal Mine

The Ping Yi Coal Mine is located in Pen Shan County, Ping Guang Town, Zhou Province, China.

It is an underground coal mine and is accessible by public roads.  

Prior to the Company’s acquisition of majority controlling interest of the Ping Yimine, the mine was separately operated by Bao Guo Zhang.  In January 2010, the Company acquired majority controlling ownership interest in the resource mining permits and the mining rights to the Ping Yi mine and assumed mining operations.  

The Ping Yi mine, including the mine site and the underlying coal and other minerals, is owned by the PRC.  Accordingly, the amount of coal that the Company can extract from the mine is based on a mining right issued by the Guizhou Province Municipal Bureau of Land and Resource.  The mining right is issued pursuant to a reserves appraisal report submitted by government authorized mining engineers, and the mining right is issued upon approval of such appraisal report by the Guizhou Province National Land Resources Survey and Planning Institute in Guizhou Province.  The amount of coal that can be extracted under the mining right represents what the Company can economically and legally extract under applicable PRC law and regulations and as determined by the Guizhou Province Municipal Bureau of Land and Resource.

Under current mining rights for the Ping Yi Mine, 13.5 million tons of coal are permitted to be extracted from Ping Yi mine. These rights are normally about 50 years, which have approximately 40 years remaining. The price is determined on a per ton basis, and is subject to change based on the prevailing market price as determined by the State Bureau of Coal Industry of Guizhou. The original owner paid the one-time extraction license fee when it acquired the original mining rights to the mine prior to our acquisition of the Ping Yi Mine.  We pay the required government taxes for the coal we extract from the Ping Yi Mine.

A resource mining permit issued by the Guizhou Province Municipal Bureau of Land and Resource specifies the coordinates of the Ping Yi Mine’s mining area and the mine’s designated annual production capacity.  The resource mining permit for the Ping Yi mine estimates that the mine’s capacity is 150,000 tons per year based on current mine operating conditions, but the Company is also in the process of expanding the mine’s capacity to 300,000 tons per year.

Coal extracted from Ping Yi coal mine is for industrial use.  Coal is extracted from Ping Yi mine using a fully-mechanized inclined shaft mining method in which the wellhead and the shaft station in the bottom of the mine are not in the same level and the mine path has an inclined angle with the shaft station of 18degrees.

We currently extract coal at the rate of 150,000 tons per year from the Ping Yi Mine.  All raw coal is loaded and transported by a chain conveyor into crates which are carried out to the surface by an electrical winch.  Each crate carries approximately 0.75 metric tons, and approximately 800 crates are carried to the surface during each eight-hour mining shift.  Air compressors are provided for underground air tool use. Electrical power is supplied internally from the Company’s own power stations through state-owned power lines, and supplied to the underground work site through a double-circuit cable designed to mitigate and circumvent potential power supply disruptions.

Normal water inflow into the mine is controlled by a system of ditches, sumps, pumps and drainpipes installed throughout the mine tunnels.  The mine’s ventilation system includes exhaust fans on the surface of the main incline.  Auxiliary fans are used as needed.  The present fans are capable satisfying ventilation requirements of the mining operation.

                The Ping Yi Mine’s approximate annual production volumes from 2005 to 2009 are as follows:

The extracted coal is transported by truck to a warehouse located near the mine site, processed at our coal-washing and sorted. Out of the coal produced at the Ping Yi Mine, typically a portion is sold to customers as raw coal, a portion is sold after the washing process as washed fine coal, and a majority of the coal is sold as coking coal.  Coking coal is sent to a coking plant to further process it into high valued coke.  Coke is a critical material for making of steel. 

                As reported in the “Guizhou Province National Land Resources Survey & Planning Institute report dated February 28, 2008, the total Proven (Measured) reserve for the Ping Yi Mine was 19.52 million tons.

TianRi Coal Mine (in a development stage)

                TianRi Coal Mine is still under development which has not received a commercial license to produce coal. We have postponed indefinitely its development while we focus on acquisitions of existing mines with coal operating licenses, revenue, and positive cash flows. We have an exploration license for the TianRi mine. TianRi Mine is located in Mohong Township, Fuyuan County, Yunnan Province, China, the same region where the DaPuAn and SuTsong Mines are located. 

The TianRi coal mine is an underground coal mine and is accessible by public roads. Its total Proven (Measured) reserve was reported to be 52.6 million tons by an independent appraiser (ZhongLan Mining Ltd. Co.) on May 20, 2007.  The TianRi Mine is not in a position to produce revenue nor it is expected to receive a mining operating license to start producing coal related income in a near future. All China coal mine reserves, the mine site, the underlying coal and other minerals are legally owned by the Chinese government.  Accordingly, any coal that the Company may extract from the mine will be based on a mining right/license issued by Yunnan Province Municipal Bureau of Land and Resource. The amount of coal authorized on a government mining license would be based on a reserves appraisal report submitted by government approved mining engineers. The TianRi Mine engaged ZhongLan Mining Ltd. Co. of Yunnan, China, to recommend an economically and legally extract amount under applicable PRC law and

regulations which is finalized by the Yunnan Province Municipal Bureau of Land and Resource. Until TianRi Mine receives a government mining license it will have no commercial value.

Prior to the Company’s acquisition of majority controlling interest of the TianRi mine through the Company’s acquisition of KMC, the mining right for the TianRi Mine was separately owned by KMC.

Coal Wholesale Operations

In addition to mining coal, we engage in coal trading for profit through our subsidiary KMC.  Depending on market conditions, KMC may broker coal from small independent mine operators in its surrounding areas who may lack the means to transport coal from their mine sites or are otherwise unable to sell their coal due the size of their operations. KMC has two large coal storage facilities for its consolidation and wholesale operations with railroad loading access.  For the 12 month period ended on October 31, 2009, KMC acquired approximately 110,000 tons of coal from these small mines to trade.

Coal Washing Operations

Coal washing involves crushing coal and washing out soluble sulfur compounds with water or other solvents.  This procedure eliminates impurities in the coal and improves its quality and increases its value.  Each ton of washed coal requires approximately 1.4 tons of raw coal.  Approximately 50% of washed coal qualifies as coking coal because it meets certain chemical requirements and can be processed into highly-valued coke, which is a critical material for making steel. The coal washing process eliminates impurity of the coal, and thus improve quality of the coal and increase value of coal products.  Test samples are taken prior to and after the coal-washing process, to analyze and determine efficiency of the washing process, and determine if coal is suitable as coking coal, based primarily on moisture, ash content, and sulfur percentage.  

We own three washing facilities with an aggregate annual capacity of approximately 1,040,000 tons.  The washing facility at our DaPuAn Mine site uses a more jig method of coal washing, has received provisional government approval, and is currently awaiting final government approval.

Approximately 1.3 - 1.4 tons of raw coal yield 1 ton of washed coal. We expect that a portion of the washed coal produced by our washing facilities will be for our own coking plant and the remaining portion of the washed coal will be sold to third party buyers.

In addition to washed coal, the coal-washing process produces two byproducts:

                (1)    “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 even coal slurries, and sold for home and industrial heating purposes; and

                (2)    Coal slurries, sometimes called coal slime, are the castoffs and debris from the washing process.   Coal slurries can be used as a fuel with low thermal value, and are sold “as is” or mixed with “medium” coal.

Coke Manufacturing Operations

Coke is a hardened, solid carbonaceous residue derived from baking low-ash, low-sulfur bituminous coal in an oven without oxygen at high temperatures so that the fixed carbon and residual ash are fused togetherwhile volatile constituents of the coal such as water, coal-gas, and coal-tar are driven off. We produce metallurgical coke.

Metallurgical coke is primarily used for steel manufacturing. China has exacting national standards for coke, based upon a variety of metrics, including most importantly, ash content, volatilization, caking qualities, sulfur content, mechanical strength and abrasive resistance. Typically, metallurgical coke must have more than 80% fixed carbon, less than 15% ash content, less than 0.8% sulfur content and less than 1.9% volatile matter.  According to national standards, metallurgical coke is classified into three grades – Grade I, Grade II and Grade III, with Grade I being the highest quality , and chemical coke is its separate grade.  Generally, customers do not provide specifications for coke.However, we occasionally make requested adjustments, for instance to moisture content, as requested by customers from time to time.  The amount of each type of coke that our coking facility produces is based on market demands, although historically its customers have only required Grade II and III metallurgical coke.  

On January 1, 2010 we acquired the ZoneLine coking operation, which has the capacity to produce 150,000 tons of coke annually. Coal s is sent to a coal blending room where it is crushed and blended to achieve an optimal coking blend.  Samples are taken from the coal blend and tested for moisture, chemical composition and other properties.  The crushed and blended coal is

transported by conveyor to a coal bin to be fed into the waiting oven below. After processing through the three temperature-controlled ovens at temperature of 1200°C (2,192 °F), hot coke is pushed out of the oven chamber onto a waiting coke cart, transported to an adjacent quench tower where it is cooled with water spray, and hauled to a platform area to be air-dried.  Coke samples are taken at several stages during the process and analyzed in the company’s testing facility, and data is recorded daily and kept by technicians.  After drying, the coke is sorted according to size to meet customer requirements.

                We plan to use a substantial portion of the metallurgic coke-quality coal extracted from the DaPuAn,  SuTsong and Ping Yi Mines for coke production.  If the amount of coal supplied by these mines is not sufficient for our full coke production capacity, however, then we will also purchase suitable coal from third parties to meet the needs of our coking plant. 

Coal Emission Recycling

                In the traditional coking process, small amounts of coking gas are emitted into air. Our coking facility has equipment to capture the emitted gas, and to recycle the gas emission into benzene and other byproducts in compliance with the Chinese environmental standards and requirements.

CUSTOMERS

            All our customers are located in the Yunnan and Guizhou provinces of China and are primarily in the steel industry (for metallurgical coke, which is one of the two critical materials for steel making) and the electrical/ utility industry (where heating coal is used to produce steams for electricity generation). In addition, there are cement factories that purchase our coal for cement making.  For the quarter ended October 31, 2009, we had two major customers who purchased over 10% of the Company’s total sales. They collectively accounted for approximately 42% (approximately $10.3 million USD) of our total sales. In addition, there are four major suppliers each provided over 10% of our total purchases. These suppliers collectively supplied approximately 75% (approximately $3 million USD) of the Company’s purchases and 56% (approximately $0.8 million USD) of total accounts payable.

DISTRIBUTION

                Our products distributed approximately 50% through direct sales, and approximately 50% through a third party wholesaler. Our direct sales force consists of approximately 200 full-time employees who market directly to our customers, who are mostly end users of coal with long-term sales agreements. While spot sales might be made to a customer if we have adequate capacity at the time, most of our sales are pursuant to agreements which are signed for two- to four-year terms, with monthly adjustments on pricing. Our customers are all located in the Yunnan and Guizhou Provinces, and are all accessible by rail lines, which is the most cost effective method for coal transport and which represents the main means of transporting coal products to our customers.

COMPETITORS

                In the Yunnan and Guizhou Provinces where we operate, there are other coal mines and wholesaling, coking and washing operations which directly compete with us. Some of our competitors may have greater financial, marketing, distribution or/and technological resources than we have, and they may have more well-known brand names in the market.

SOURCES AND AVAILABILITY OF RAW MATERIALS AND THE PRINCIPAL SUPPLIERS

                The primary materials used in our coal mining and processing operations are: (i) steel and logs to support underground tunnels for the mining operations; (ii) cement for the construction of underground tunnels; and (iii) water used in our coal washing and coking production process. We procure logs, steel and cement principally from local suppliers on a long term basis. Water is procured primarily from our own water drilling. The ultimate price of materials is set at market rates or determined through negotiation. We believe that we have well-established, cooperative relationships with our suppliers, enabling us to secure reliable supplies of the materials required in our production process. We believe that a number of alternative suppliers exist for the key materials required for coal operations, and therefore do not foresee any difficulty in obtaining adequate supplies.  For the year ended April 30, 2009, two major suppliers each provided over 10% of our total purchases. They collectively supplied approximately 60% (of the Company’s inventory.

                We use electricity in our operations from both local power companies and our own power facilities. Electricity prices in China are regulated by the government. Total electricity costs are not materially significant to our operations.

INTELLECTUAL PROPERTIES AND LICENSES

                We have no material patents, trademarks, or other intellectual property, except that we hold various coal operating licenses issued by the China government to operate coal mines, coal wholesaling, coal washing and coal coking operations as described above.

GOVERNMENT REGULATION

                All of our business revenue is generated from the coal industry in PRC and is subject to various PRC government regulations.  The following is a summary of the principal governmental laws and regulations that are or may be applicable to our operations in the PRC. The scope and enforcement of many of the laws and regulations in PRC described below are uncertain. We cannot predict the effect of further developments in the Chinese legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement of laws.

                The mining industry, including coal exploration, mining, coal washing and coal coking activities, is highly regulated in the PRC. Any company that wishes to enter into the coal business in PRC is required to obtain a coal license. Regulations issued or implemented by the State Council of PRC, the Ministry of Land and Resources, local environmental agencies and other government authorities cover many aspects of coal exploration, and coal mining. Chinese government regulations also monitor the scope of permissible business, shipment of coal, tariff policy and foreign investment allowed in PRC.

                The principal regulations governing the mining business in the PRC include:

.           China Mineral Resources Law, which requires a mining business to have exploration and mining licenses from provincial or local land and resources agencies.

.           China Mine Safety Law, which requires a mining business to have a safe production license and provides for random safety inspections of mining facilities.

.           China Environmental Law, which requires a mining project to obtain an environmental feasibility study of the project.

.           Foreign Exchange Controls. The principal regulations governing foreign exchange in the PRC are the Foreign Exchange Control Regulations (1996) and the Administration of Settlement, Sale and Payment of Foreign Exchange Regulations (1996), (“the Foreign Exchange Regulations”). Under the Foreign Exchange Regulations, Renminbi (“RMB”) is freely convertible into foreign currency for current account items, including the distribution of dividends. Conversion of RMB for capital account items, such as direct investment, loans and security investment, however, is still subject to the approval of the State Administration of Foreign Exchange (“SAFE”). Under the Foreign Exchange Regulations, foreign-invested enterprises are required to open and maintain separate foreign exchange accounts for capital account items. In addition, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from SAFE.

                Our operating subsidiaries in China have been approved by land and resources departments of local governments. Chinese regulations require that mining enterprises procure an exploration or mining license from the land and resource department of local governments before they can carry out exploration or mining activities. This license requires that an enterprise follow proper procedures in its own exploring or mining activities and in selling its products to customers. We have secured or are in the process of securing the necessary exploration or mining licenses from local governments. We have an exploration license for the Tian-Ri Coal Mine.

                Chinese regulations also require that a mining company must have a safety certification from the PRC Administration of Work Safety before it can engage in mining and extracting activities. All of our operating subsidiaries have obtained safety certification from the Administration of Work Safety of local governments. In addition, all of our operating subsidiaries have passed government safety inspections.  Our mining operations have been granted an environmental certification from the PRC Bureau of Environmental Protection.

All our subsidiaries that are required to register as American subsidiaries have done so, and all capital required to be contributed to them has been contributed.

EMPLOYEES

                As of January 4, 2010, the Company had approximately 1,400 full-time employees primarily located in China, of which approximately 300 are involved in management capacity and 1,100 are in coal related mining and operational capacity. Currently, there are about 12 people located in the Seattle office for the U.S. involved operations.  None of these employees are represented by

collective bargaining agreements. We have not experienced a work stoppage or a union action against the Company. Management believes that relations with the Company’s employees are good.  

DESCRIPTION OF PROPERTY

Company Offices, Production Facilities and Other Property: 

                As we operate in various parts of China, we own or lease the following buildings (the PRC government grants a 70-year renewable license to the owners of buildings to use the land underlying the buildings):

• The Company owns approximately 9,000 square feet of office space located at 898 Beijing Road, Kunming City, China which is our China headquarters.

• We lease approximately 4,280 square feet of office space for our executive offices, located at 130 Andover Park East, Seattle, Washington 98188. The lease expires on September 30, 2010.

• We also lease an office building, located at Suite 2503, United Plaza, Shenzhen, China, with approximately 1,600 sq ft in space as our Shenzhen office.

• We lease approximate 2,500 square feet of office space located at Citic Plaza, Suite 3401, Guangzhou, China as our south China center for new business development.

We believe that our existing facilities are well maintained and in good operating condition.

MANAGEMENT

                The following tables set forth information regarding the Company’s current executive officers and directors of the Company. The Board of Directors is comprised of only one class, and includes four independent directors and our Chairman, Mr. Dickson V. Lee. Except as otherwise described below, all of the directors will serve until the next annual meeting of stockholders or until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. Also provided herein are brief descriptions of the business experience of each director and executive officer during the past five years and an indication of directorships held by each director in other companies subject to the reporting requirements under the federal securities laws.

                Mr. Dickson V. Lee, Chairman of the Board and Chief Executive Officer - Mr. Lee founded the company in 1995 and has been associated with L&L for the past 14 years. He has extensive management experience with NYNEX (now Verizon), KPMG in New York. Mr. Lee was a New York CPA in 1983 and now is a Washington State CPA. Mr. Lee, who is fluent in Mandarin, Cantonese, and English, served as a judicial member of the Hong Kong SEC Insider Dealing Tribunal (a trial court) for six years. He earned an MBA from Dalhousie University and travels frequently between US and China.

                Ms. Shirley Kiang, MBA, Chair of Compensation Committee - Ms. Kiang, was a senior executive for 20 years with experience in corporate governance, and corporate management for high-tech firms in Silicon Valley, California and in Asia. Ms. Kiang is a U.S. citizen, has close contacts in China and Taiwan. She has been a board member since 1998. Ms. Kiang was a psychology major and earned her MBA degree in Finance from University of Massachusetts at Amherst, MA. Ms. Kiang does not work for any company for the past five years, except has been associated with L&L.

                Mr. Joseph J. Borich, MBA, Chair of Nomination Committee - Mr. Borich, Independent Director, is currently the Executive Director of the Washington State China Relations Council, and has held this position for the past five years. The Council represents

over 100 American corporations interested in China, including Boeing and Microsoft. Mr. Borich was the American Consul General to Shanghai of the U.S. embassy to China in 1990s. He also held many positions with the U.S. State Department for over twenty years service as a U.S. foreign officer. Mr. Borich served in the US Army including a tour in Vietnam in 1970s. He speaks Chinese.

                Mr. Ian Robinson, CPA, Chair of Audit Committee – Mr. Robinson, Independent Director, is a former partner at Ernst & Young. His prior experience included being a Board Member of many US and Hong Kong public listed companies, has forty years' experience in auditing and public reporting. He is a Fellow of the CPA Society of Australia, and Fellow of the CPA Society of Hong Kong. Mr. Robinson works at Robinson Consulting Inc. for the past five years, He travels frequently between the US and Hong Kong.

                Mr. Robert Lee, Board of Directors - Mr. Robert Lee, Director, is an experienced engineer who has 20 years of experience in mechanical engineering and organizational skills. Fluent in Mandarin and English, he focuses on strategic development of L&L’s operations. Robert is a brother of Dickson V. Lee, our CEO and Chairman. Robert has been working for Michigan State government for the past five years. Mr. Lee studied at Michigan State University in engineering and mathematics but did not receive a formal degree. He resides in East Lansing, Michigan.

                Ms. Jung Mei (Rosemary) Wang, CPA, Acting Chief Financial Officer – Ms. Wang is a U.S. Certified Public Accountant with 20 years of auditing experience in GAAP, taxation and internal controls of both public and private companies. Currently, Ms. Wang is a partner of Wang & Chou Accountancy Corp. a California-based accounting firm. She speaks both Mandarin and English, and has extensive knowledge of China. Rosemary is a U.S. Citizen, received a MBA degree in Finance, and Master Degree in U.S. Taxation from San Jose State University.

                Mr. Dennis Bracy, Independent Director - Mr. Bracy is the CEO of the US-China Clean Energy Forum and Chair of the Washington State China Relations Council.  A former advisor to executives, Senators, Governors and other public officials, he is considered a leading energy strategist.  His clients have included the U.S. Department of Energy, Pacific Northwest National Laboratory, Boeing, Microsoft, and Demand Energy Networks.  He earned his bachelor’s degree from the University of St. Louis.  

EXECUTIVE COMPENSATION

                For the past five year starting from 2005, there were no executives or directors with compensation exceeding $100,000, except for the most recent two years ended April 30, 2008 and 2009.  The following summary compensation table indicates the cash and non-cash compensation earned for two years ended April 30, 2009 and 2008 by each Chief Executive Officer that served in the most recent fiscal year, who are the two highest paid executives with total compensation exceeded $100,000 for the years ended April 30, 2009 and 2008.

Employment Agreements, Termination of Employment and Change-in-Control Arrangements with our Executive Officers

                We have employment agreements with our executive officers, and employees.  Our CEO, Dickson Lee, MBA, CPA will receive an annual compensation of $200,000 in cash with potential bonus for the year ended April 30, 2010, while Acting CFO, Rosemary Jung Mei Wang, CPA will receive an annual compensation of $144,000 in cash and $36,000 in stock with potential bonus for the year ended April 30, 2010. The compensation was approved by the Compensation Committee during a Board meeting to encourage good performance to enhance shareholders’ value.

Outstanding Equity Awards at Fiscal Year-End

                The Company may further grant executives cash and equity awards, to reward excellent performance to the Company.

Compensation of Directors

                The following director compensation disclosure reflects all compensation awarded to, earned by or paid to the directors below for the year ended April 30, 2009.