SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

______________________

AMENDMENT NO. 3

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

______________________

L & L ENERGY, INC.

(Exact name of registrant as specified in its charter)

130 Andover Park East

Suite 200

Seattle, WA 98188

(206) 264-8065

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

______________________

Dickson V. Lee, Chief Executive Officer
L&L Energy, Inc.
130 Andover Park East

Suite 200
Seattle, WA 98188

(206) 264-8065

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

______________________

Copies of all communications, including communications sent to agent for service, shall be sent to:

______________________

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.

                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. T

                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. £

                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. £

                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. £

                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.

SUBJECT TO COMPLETION, DATED September 28, 2010

Preliminary Prospectus

4,206,773 shares

L & L ENERGY, INC.

Common Stock

________________________

This prospectus covers the resale by selling security holders named starting on page 44, of up to 4,206,773 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”);

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

·            250,000 shares of common stock underlying the warrants issued in conjunction with our private placement financing completed on May 6, 2009 (the “May Financing”); and

·            250,000 shares of common stock issued upon the exercise of warrants issued in the May 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 $7.72 on Monday, September 27, 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 September 28, 2010

You should rely only on the information contained in this prospectus.  Neither we, the selling stockholders nor the underwriters, if any, 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.

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. Average selling prices for coal during the first half of 2010 have been higher than our 2009 average, and 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 approval of the PRC Government.  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 develop 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 we continue to grow quickly, we require 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. Our ability to compete effectively, to reach agreements with acquisition targets on commercially reasonable terms, to secure critical financing and to attract professional managers is critical to our 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 not be indicative of reserves that we actually recover.

                The coal reserves disclosed for the mines from which we have the right to 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.  However, we may only extract from the mines quantities that we are permitted to extract pursuant to mining rights granted to us by local governmental authorities.  In addition, 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 producer of coal products in China, we are subject to significant, extensive and increasingly stringent environmental protection laws, 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 comply in all material respects with existing Chinese 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 our 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 our key personnel are unable or unwilling to continue in their present positions, we may not be able to easily replace them, and we may incur additional expenses to recruit and train new personnel.  The loss of our key personnel could severely disrupt our business and its financial condition and results of operations could be materially and adversely affected.  Furthermore, since the industries we invest in are characterized by high demand and intense competition for talent, we may need to offer higher compensation and other benefits in order to attract and retain key personnel in the future.  We cannot assure investors that we 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 we do not currently maintain “key person” life insurance for any of our key personnel, we are in the process of obtaining a “key person” life insurance package for Mr. Lee and expect to obtain such insurance in the next 12 months.

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 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 of 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 Chinese subsidiaries, Kunming Biaoyu Industrial Boiler Co., Ltd. (“KMC”) and L&L Yunnan Tianneng Industry Co. Ltd. (“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 no assurance can be given that we will be able to do so, nor can we assure 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 for 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 and Chinese political, 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 to 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 securities.

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.  

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 August 18, 2010, the Renminbi appreciated to approximately RMB 6.79 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 30% of our outstanding common shares, representing approximately 30% 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.

We have not maintained sufficient documentation of our internal control over financial reporting for the year ended April 30, 2010, and our auditor, Kabani & Co. Inc., was unable to apply other procedures to satisfy themselves as to the effectiveness of our internal control over financial reporting.

                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.  Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of April 30, 2010 and concluded that the Company did not maintain sufficient documentation of its internal controls over financial reporting as of and for the fiscal year ended April 30, 2010.  In addition, our auditor, Kabani & Co. Inc., was unable to apply other procedures to satisfy themselves as to the effectiveness of the Company’s internal control over financial reporting.  Until we are able to ensure the effectiveness of our internal controls, any material weaknesses may materially adversely affect our ability to report accurately our financial condition and results of operations in a timely and reliable manner.  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.

New governmental regulation relating to greenhouse gas emissions may subject us to significant new costs and restrictions on our operations

Climate change is receiving increasing attention worldwide. Many scientists, legislators and others attribute climate change to increased levels of greenhouse gases, including carbon dioxide, which has led to significant legislative and regulatory efforts to limit greenhouse gas emissions. There are bills pending in Congress that would regulate greenhouse gas emissions through a cap-and-trade system under which emitters would be required to buy allowances to offset emissions of greenhouse gas. In addition, several states are considering various greenhouse gas registration and reduction programs. Certain of our manufacturing plants use significant amounts of energy, including electricity and gas, and emit amounts of greenhouse gas are likely to be affected by existing proposals. Greenhouse gas regulation could increase the price of the electricity we purchase, increase costs for our use of natural gas, potentially restrict access to or the use of natural gas, require us to purchase allowances to offset our own emissions or result in an overall increase in our costs of raw materials, any one of which could significantly increase our costs, reduce our competitiveness in a global economy or otherwise negatively affect our business, operations or financial results. While future emission regulation appears likely, it is too early to predict how this regulation will affect our business, operations or financial results

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained or incorporated by reference in this prospectus or in any prospectus supplement, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  We have used the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” and similar expressions to identify forward-looking statements.  These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to various risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. The following factors are among those that may cause actual results to differ materially from our forward-looking statements:  changing local, regional and global economic conditions and demand for coal and other fuels, availability of qualified workers, risks incident to operating coal mines and related businesses in China, ability to distribute our products as and where needed, our ability to obtain financing and to consummate acquisition, disposition or other transactions and the effect of such transactions on our business, regulatory constraints including environmental, worker safety, employee benefit and other regulatory matters, and other risks described from time to time in periodic and current reports that we file with the Securities and Exchange Commission (“SEC”).

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 or developments that we anticipate will be realized or, even if realized, that they will have the expected consequences to or effects on us and our subsidiaries or our businesses or operations. We undertake no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events, or other such factors that affect the subject of these statements, except where we are expressly required to do so by law.

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 selected financial data for the fiscal years ended April 30, 2010, 2009 and 2008 from our audited consolidated financial statements included elsewhere in this prospectus.  We derived the unaudited consolidated income statement data for the three months ended July 31, 2010 and 2009 and the consolidated balance sheet data as of July 31, 2010 from our unaudited consolidated financial statements included elsewhere in this prospectus.  The unaudited consolidated financial statements have been prepared on a basis consistent with the audited consolidated financial statements appearing elsewhere in this prospectus and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for fair presentation of such data.  Certain reclassifications have been made to the 2009 and 2008 consolidated financial statements to conform to the 2010 consolidated financial statement presentation. These reclassifications had no effect on net loss or cash flows as previously reported. Our historical results are not necessarily indicative of results to be expected for any future periods.

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, 2010, 2009 and 2008 and the three months ended July 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

We currently operate three mines, three coal washing facilities, one coking and one coal wholesale operation in China.  Although China has substantial coal resources, the industry is fragmented and inefficient including many small companies who lack economies of scale to maximize capacity. China’s mining companies have been unable to produce enough coal to meet China’s growing coal demand subsequently the government has implemented a policy of consolidation to increase capacity and improve efficiency and safety. L&L acquires small mines that lack the capital and management expertise to expand to the 300,000 tons a year minimum production required. L&L has successfully integrated and expanded three mines, all of which are well on their way to meeting the 300,000 tons a year threshold. We are confident that the consolidation policy will continue and create more acquisition opportunities for L&L.

Currently 70% of China’s energy is produced from coal resulting in China consuming over 40% of the world’s coal. It is estimated that demand will continue to increase for several decades, thus producing a favorable business environment for ongoing operations. We plan to continue leveraging on our in-China experience, U.S. management skills, and U.S. accounting knowledge to become a leading coal energy company in the coal-rich Yunnan and Guizhou Provinces. 

We plan to expand our coal business two ways first through expansion of existing operations in accordance with the consolidation policy and second through continued acquisitions of operations that lack the capital and management skills to expand to meet the minimum capacity required by the government.

Our operations are located in inland China, which is being developed at a faster rate than the coastal areas that have historically received most of the government’s focus. We expect this development to expand the demand for our 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 July 31, 2010 and Three Months Ended July 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 172.04% during the three months ended July 31, 2010 as compared to the same three month period in 2009 primarily as a result of 176.12% increase from 178,620 tons sold during the three months ended July 31, 2010 as compared to 64,689 tons sold during the three months ended July 31, 2009. In addition, the average price per ton sold decreased to $104.27 from $105.84 during the prior year due primarily to an $1.56 per ton sold decrease in purchased coal representing a percentage decrease of 1.48%. 

The changes attributable to our expanded capacity, which includes our mining operation expansion, were driven by the continuing growth of the GDP of China.  In addition, the economy of southern China is growing as a result of the China Central Government Western Development Program.  As a result, the region is experiencing increased demand for the purchase of energy, which leads to increased demand for coal-related products.  It is our belief that future expectation regarding coal demand in southern China including, Yunnan Province and Guangzhou, will continue to grow in the next twelve months.  In addition, we have established marketing offices in Guangzhou, Hong Kong, Liuzhou and Shenzen city and a subsidiary in Taiwan, where there is demand for coal and where coal is not produced.  Our entry into these areas will help to increase our sales and growth in the coal-related business.  Due to this anticipated demand for coal, it is our strategy to continue to increase our coal mining capacity, which can be achieved by both organic growth and mergers with and acquisitions of existing mining operations.

Total coal mining cost of goods sold increased 266.54% as sales increased, and thereby generated more direct labor and overhead expenses.  The increase in our extraction cost is due to our continuing efforts to enhance safety standards and costs associated with the maintenance of each of our three mining operations.  We believe that once safety standards reach a satisfactory level, extraction costs will not continue to increase in future periods. 

Total coal mining salaries and wages only increased 54.89% despite a 172.04% increase in real revenues due to capacity expansion and the acquisitions of the Ping-Ti coal mine.

Total coal mining selling, general and administrative expense increased 196.41% due to the increase of maintenance, safety, training and administrative expenses.

Total coal mining operating income increased 145.71% 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 16.42% during the three months ended July 31, 2010 as compared to the same three month period in 2009 primarily as a result of the sale of 42,098 tons during the three months ended July 31, 2010 as compared to 35,927 tons sold during the three months ended July 31, 2009, which decreased cost per ton sold to $120 due to an $0.78 per ton sold decrease in purchased coal representing a decrease of 0.65%.

The changes attributable to our expanded capacity, which includes our mining operation expansion, were driven by the continuing growth of the GDP of China.  In addition, the economy of southern China is growing as a result of the China Central Government Western Development Program.  As a result, the region is experiencing increased demand for the purchase of energy, which leads to increased demand for coal-related products.  It is our belief that future expectation regarding coal demand in southern China including, Yunnan Province and Guangzhou, will continue to grow in the next twelve months.  In addition, we have established marketing offices in Guangzhou, Hong Kong, Liuzhou and Shenzen city and a subsidiary in Taiwan, where there is demand for coal and where coal is not produced.  Our entry into these areas will help to increase our sales and growth in the coal-related business.  Due to this anticipated demand for coal, it is our strategy to continue to increase our coal mining capacity, which can be achieved by both organic growth and mergers with and acquisitions of existing mining operations.

Total wholesale coal cost of goods sold increased 5.25% due to the 16.42% increase in sales.

Total wholesale coal salaries and wages decreased 15.98% as there were fewer employees in the quarter ended July 31, 2010.

Total wholesale coal selling, general and administrative expense increased 884.68% due to increase in sales, and related selling expenses, such as transportation, marketing, sales, public relations, entertainment and warehouse rental expenses.

Total wholesale coal operating income increased 86.09% 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 was $7,018,405 during the three months ended July 31, 2010 as compared to $0 during the same three month period in 2009 as a result of the sale of 38,348 tons during the three months ended July 31, 2010 compared to 0 tons during the three months ended July 31, 2009, as L&L acquired its coking segment during the second fiscal quarter of 2010.

The introduction of our coking segment capacity, which includes our mining operation, were driven by the continuing growth of the GDP of China.  In addition, the economy of southern China is growing as a result of the China Central Government Western Development Program.  As a result, the region is experiencing increased demand for the purchase of energy, which leads to increased demand for coal-related products.  It is our belief that future expectation regarding coal demand in southern China including, Yunnan Province and Guangzhou, will continue to grow in the next twelve months.  In addition, we have established marketing offices in Guangzhou, Hong Kong, Liuzhou and Shenzen city and a subsidiary in Taiwan, where there is demand for coal and where coal is not produced.  Our entry into these areas will help to increase our sales and growth in the coal-related business.  Due to this anticipated demand for coal, it is our strategy to continue to increase our coal mining capacity, which can be achieved by both organic growth and mergers with and acquisitions of existing mining operations.

Coke cost of goods sold, salaries and wages, selling, general and administrative expense and operating income were all general as we acquired coking operation during second quarter of fiscal 2010.

Coal Washing Segment

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

Total coal washing revenue increased 1,757.42% during the three months ended July 31, 2010 as compared to the same three month period in 2009 primarily as a result of 208,741 tons sold during the three months ended July 31, 2010 compared to 13,050 tons sold during the three months ended July 31, 2009. Average price per ton sold increased to $138.75 from $119.49 due primarily to an $19.26 per ton sold increase in purchased coal representing an increase of 16.12 %.

The changes attributable to our expanded capacity, which includes our mining operation expansion, were driven by the continuing growth of the GDP of China.  In addition, the economy of southern China is growing as a result of the China Central Government Western Development Program.  As a result, the region is experiencing increased demand for the purchase of energy, which leads to increased demand for coal-related products.  It is our belief that future expectation regarding coal demand in southern China including, Yunnan Province and Guangzhou, will continue to grow in the next twelve months.  In addition, we have established marketing offices in Guangzhou, Hong Kong, Liuzhou and Shenzen city and a subsidiary in Taiwan, where there is demand for coal and where coal is not produced.  Our entry into these areas will help to increase our sales and growth in the coal-related business.  Due to this anticipated demand for coal, it is our strategy to continue to increase our coal mining capacity, which can be achieved by both organic growth and mergers with and acquisitions of existing mining operations.

Total coal washing cost of goods sold, salaries and wages, selling, general and administrative expense and operating income increased as we acquired coking operation during the second quarter of fiscal 2010.

Comparison of Fiscal Year Ended April 30, 2010 and Fiscal Year Ended April 30, 2009

Coal Mining Segment

Tons sold and the associated revenue for the twelve-month periods ending April 30, 2010 and 2009 were as follows:

Total coal mining revenue increased 103.64% during the twelve months ended April 30, 2010 as compared to the same twelve-month period of the prior year primarily as a result of the 509,664 tons sold during the twelve months ended April 30, 2010 compared to the 248,637 tons sold during the twelve months ended April 30, 2009.  Average price per ton sold during the fiscal year ended April 30, 2010 decreased to $109.51 per ton sold from $110.23 per ton sold during the fiscal year ended April 30, 2009, which represented a decrease of 0.65% per ton sold. 

The changes attributable to our expanded capacity, which includes our mining operation expansion, were driven by the continuing growth of the GDP of China.  In addition, the economy of southern China is growing as a result of the China Central Government Western Development Program.  As a result, the region is experiencing increased demand for the purchase of energy, which leads to increased demand for coal-related products.  It is our belief that future expectation regarding coal demand in southern China including, Yunnan Province and Guangzhou, will continue to grow in the next twelve months.  In addition, we have established marketing offices in Guangzhou, Hong Kong, Liuzhou and Shenzen city and a subsidiary in Taiwan, where there is demand for coal and where coal is not produced.  Our entry into these areas will help to increase our sales and growth in the coal-related business.  Due to this anticipated demand for coal, it is our strategy to continue to increase our coal mining capacity, which can be achieved by both organic growth and mergers with and acquisitions of existing mining operations.

Total coal cost of goods sold increased 70.93% as sales increased and generated more direct labor and overhead expenses.

Total coal mining salaries and wages decreased 24.56% due to increased production efficiency.

Total coal mining selling, general and administrative expenses increased 64.90% due to the increase of transportation cost, entertainment, car repair and maintenance, gas and other selling related expenses.

Total coal mining operating income increased 121.66% based upon the above factors.

Wholesale Coal Segment

Tons sold and the associated revenue or the twelve-month periods ending April 30, 2010 and 2009 were as follows:

Total wholesale coal revenue increased 17.26% during the twelve months ended April 30, 2010 as compared to the same twelve months period in 2009 primarily as a result of 118,782 tons sold during the twelve months ended April 30, 2010 compared to 85,908 tons sold during the twelve months ended April 30, 2009, which decreased cost per ton sold by 15.19%.

The changes attributable to our expanded capacity, which includes our mining operation expansion, were driven by the continuing growth of the GDP of China.  In addition, the economy of southern China is growing as a result of the China Central Government Western Development Program.  As a result, the region is experiencing increased demand for the purchase of energy, which leads to increased demand for coal-related products.  It is our belief that future expectation regarding coal demand in southern China including, Yunnan Province and Guangzhou, will continue to grow in the next twelve months.  In addition, we have established marketing offices in Guangzhou, Hong Kong, Liuzhou and Shenzen city and a subsidiary in Taiwan, where there is demand for coal and where coal is not produced.  Our entry into these areas will help to increase our sales and growth in the coal-related business.  Due to this anticipated demand for coal, it is our strategy to continue to increase our coal mining capacity, which can be achieved by both organic growth and mergers with and acquisitions of existing mining operations.

Total wholesale coal cost of goods sold increased 13.73% due to increased sales.

Total wholesale coal salaries and wages decreased 5.30% due to there being fewer employees.

Total wholesale coal selling, general and administrative expense decreased 22.90% due to improvements in efficiency and cost control during the twelve months.

Total wholesale coal operating income increased 73.02% based upon the above factors.

Coke Segment

Tons sold and the associated revenue or the twelve-month periods ending April 30, 2010 and 2009 were as follows:

Total coke sales revenue during the twelve months ended April 30, 2010 were $13,380,737 primarily as a result of the sale of 70,542 tons sold during the twelve months ended April 30, 2010, as the Company acquired the coking segment during the second quarter of 2010.

The changes attributable to our expanded capacity, which includes our mining operation expansion, were driven by the continuing growth of the GDP of China.  In addition, the economy of southern China is growing as a result of the China Central Government Western Development Program.  As a result, the region is experiencing increased demand for the purchase of energy, which leads to increased demand for coal-related products.  It is our belief that future expectation regarding coal demand in southern China including, Yunnan Province and Guangzhou, will continue to grow in the next twelve months.  In addition, we have established marketing offices in Guangzhou, Hong Kong, Liuzhou and Shenzen city and a subsidiary in Taiwan, where there is demand for coal and where coal is not produced.  Our entry into these areas will help to increase our sales and growth in the coal-related business.  Due to this anticipated demand for coal, it is our strategy to continue to increase our coal mining capacity, which can be achieved by both organic growth and mergers with and acquisitions of existing mining operations.

Total coke cost of goods sold, salaries and wages, selling, general and administrative expense and operating income were recognized as we acquired coking operation during second quarter of fiscal 2010.

Total coke operating income of $1,361,643 was recognized during the fiscal year ended April 30, 2010.

Coal Washing Segment

Tons sold and the associated revenue for the two fiscal years ended April 30, 2010 were as follows:

Total coal washing revenue during the twelve months ended April 30, 2010 was $27,285,179 primarily as a result of the sale of 190,140 tons during the twelve months ended April 30, 2010 compared to 0 tons sold during the twelve months ended April 30, 2009, as the Company acquired the washing segment during the first quarter of 2010.

The changes attributable to our expanded capacity, which includes our mining operation expansion, were driven by the continuing growth of the GDP of China.  In addition, the economy of southern China is growing as a result of the China Central Government Western Development Program.  As a result, the region is experiencing increased demand for the purchase of energy, which leads to increased demand for coal-related products.  It is our belief that future expectation regarding coal demand in southern China including, Yunnan Province and Guangzhou, will continue to grow in the next twelve months.  In addition, we have established marketing offices in Guangzhou, Hong Kong, Liuzhou and Shenzen city and a subsidiary in Taiwan, where there is demand for coal and where coal is not produced.  Our entry into these areas will help to increase our sales and growth in the coal-related business.  Due to this anticipated demand for coal, it is our strategy to continue to increase our coal mining capacity, which can be achieved by both organic growth and mergers with and acquisitions of existing mining operations.

Coal washing cost of goods sold, salaries and wages, selling, general and administrative expense and operating income were recognized as we acquired the coking operation during second quarter of fiscal 2010.

Total coal washing income recognized during the fiscal year ended April 30, 2010 was $1,757,011.

Comparison of Fiscal Year Ended April 30, 2010 and 2009

Total Revenue

During the fiscal year ended on April 30, 2010, our revenues increased by approximately 167% to $109,217,838 as compared to $40,938,128 in fiscal 2009.  Our revenue increase over the last fiscal year was through acquisitions and organically through expansion of current operations.  Organically, we increased the capacity of the DaPuAn and SuTsong (two Mines) and built a coal washing facility at our DaPuAn mine site.  We acquired Hong Xing Coal washing, Zone Lin Coking and Ping Yi Mine. These acquisitions were made in the third quarter of the fiscal year, which primarily added to the third and forth quarter numbers.

HSC operation, which we disposed of during fiscal 2010, was included in discontinued operations on the financial statements. The breakdown of revenue by entity of Two Mines, KMC, and TNI operations is approximately $40.6 million, $37.1 million, and $31.5 million of sales, respectively, for the year ended April 30, 2010. As China’s economy continues to grow at 8 to9% per year, it needs additional coal, creating a shortage of coal which drives the coal prices up.  During 2009, our coal related sales increased by approximately 75% to $40,938,128 as compared to $23,381,508 in 2008.  The sales reported on the Consolidated Statements of Income excludes sales generated by LEK sales because of our spin off of the LEK air compressor operation in January of 2009, and, as a result, the LEK sales are being treated as a discontinued operation and were not included, following U.S. generally accepted accounting principles (U.S. GAAP). The increase in our sales for the year ended April 30, 2009 is mainly due to our acquisition of a controlling equity interest in the 2 Mines, which occurred May 2008.  Our revenue of $40,938,128 only represents revenue generated from our coal businesses and does not include the LEK revenue of approximately $9 million, as U.S. GAAP requires LEK’s sales to be excluded in the Consolidated Statement of Income. LEK’s net income is also reported on a separate line in the Consolidated Statement of Income.

As of April 30, 2010, we controlled 100% of the KMC operations, 80% of 2 Mines, and 98% of TNI.  As of April 30, 2009, we controlled 100% of the KMC operations, and 60% of the equity ownership of 2 mines.

Cost of Revenue and Gross Profit

During the fiscal year ended April 30, 2010, our cost of sales increased by approximately 218% from $17,946,206 in fiscal 2009 to $57,036,887 in fiscal 2010.  Gross profit increased by approximately 127% from $22,991,922 in fiscal 2009 to $52,180,951 in fiscal 2010.  The gross profit margin was 47.8% in fiscal 2010 and 56.2% in fiscal 2009. Gross margins were lower primarily due to two factors.  First expansion into washing and coking are lower margin businesses, but vertical integration increases the overall value of the coal and adds stability to the supply chain. Second, expansion of capacity and increases in safety standards on new acquisitions require up front investments.

During the fiscal year ended April 30, 2009, the Company’s cost of revenues decreased by approximately 18% from $21,994,429 in fiscal 2008 to $17,946,206 in fiscal 2009. The gross profit increased by approximately 1,558% from $1,387,079 in fiscal 2008 to $22,991,922 in fiscal 2009. The increments of gross profit were mainly due to the increase of sales of the KMC operations, and the acquisition of 2 Mines operations which has a higher gross profit margin.

Total Operating Expenses

Total operating expense of $9,855,351 incurred in fiscal year ended April 30, 2010, representing an increase of $5,858,556 (or 147%) as compared to $3,996,795 in fiscal 2009. The increase was due to the growth of our business and the acquisitions which led to increase in personnel, legal and professional expenses.  Total operating expenses of $3,996,795 incurred in fiscal 2009, representing an increase of $3,109,331 (or 350%) as compared to $887,464 in fiscal 2008. The increase in total operating expenses was mainly due to the newly acquired two Mines, which resulted in an increase of our operating expenses, as well as personal cost and selling, general and administrative expenses.

Interest Expenses

Interest expense of $196,558 for the fiscal year ended April 30, 2010, representing a decrease of $68,628 (or 26%) from $265,186 in fiscal 2009. The decrease reflected in interest expense relates to lower average bank balances during the year.  Interest expenses of $265,186 in fiscal 2009, representing an increase of $240,251 (or 964%) from $24,935 in fiscal 2008. The increase reflected an increase in interest expenses due to debt assumed related to the newly acquired 2 Mines during 2009.

Other Expenses (Income)

Other income of $498,184 for the fiscal year ended April 30, 2010 is comprised of the cancellation of debt owed of the sellers of the 2 Mines after renegotiations.

Income Taxes

Income taxes of $4,531,088 for the fiscal year ended April 30, 2010, representing an increase of $3,277,030 (or 272%) from $1,219,457 in fiscal 2009. The increase reflected increment of net income for the period.  Income taxes of $1,219,457 for fiscal 2009, representing an increase of $1,032,996 (or 554%) from $186,461 in fiscal 2008. The increase reflected increment of net income for the period.

Discontinued Operations

Income from discontinued operation of $1,852,109 for the fiscal year ended April 30, 2010 represent $1,017,928 gain from disposal of HSC and $834,181 from net income from discontinued operations, while there was $237,741 loss from discontinued operation in the year ended April 30, 2009 represent $382,961 loss on disposal of LEK and $145,220 of net income from discontinued operations.  Income from discontinued operation of $806,368 for fiscal 2008 represent net income from discontinued operation from the LEK operations.

Non-controlling Interest

Non-controlling interest for the fiscal year ended April 30, 2010 was $7,040,555 representing a decrease of $274,775 (or 4%) from $7,315,330 for fiscal 2009.  The decrease of non-controlling interest is mainly due to increase of our equity ownership of our subsidiaries.  Non-controlling interest for fiscal 2009 was $7,315,330, representing an increase of $7,195,451(or 6,002%) from $119,879 for fiscal 2008.  The increase in non-controlling interest was mainly due to our increase in ownership from 60% to 80% related to the 2 Mines.

Net Income

Net income of $32,907,692 for the fiscal year ended April 30, 2010, representing an increase of $22,950,449 (or 230%) from $9,957,243 in fiscal 2009.  The increase is mainly due to the acquisition of PYC, HongXing and ZoneLin, and the improved efficiencies of the operations of the subsidiaries.  Net income of $9,957,243 for fiscal 2009, representing an increase of $8,982,774 (or 922%) from $974,469 in fiscal 2008. The increase in net income was a result of increased revenue generated from sales of coal from the newly acquired 2 Mines.

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 increase in our sales for fiscal 2009 was mainly due to our acquisition of a controlling equity interest in the DaPuAn and SuTsong Mines, which occurred May 2008.  The amount of the increase attributed to the DaPuAn and SuTsong acquisition total $27,406,869 in coal related sales for the year ended April 30, 2009.  The sales reported on the Consolidated Statements of Income exclude sales generated by LEK sales because of our disposal of the LEK air compressor operation in January of fiscal 2009.  See Note 21 (Discontinued Operation) to our Financial Statements. 

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 amount of the increase attributed to the DaPuAn and SuTong acquisition total $2,111,361 in operating expenses for the year ended April 30, 2009. 

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.

Change in Liquidity and Capital Resources:

The following factors affected the Company’s liquidity status and capital resources:

Net cash provided by financing activities was $12,140,692 during the year ended April 30, 2010, compared to $3,883,786 during the same period in 2009.  It shows an increase of $8,256,906 (or 213%), which was mainly due to the increase of proceeds from issuance of stock and proceeds from warrant conversion.  Net cash provided by financing activities was $727,009 for the year ended April 30, 2008 was mainly due to proceeds from issuance of stock and warrant conversion.

Net cash provided by financing activites was $767,130 during the three months ended July 31, 2010 as compared to 676,3413 during the comparable period of the prior year. Such proceeds were derived primarily from the issuance of common stock and exercise of warrants.

Operating activities: The amount of cash provided by our operating activities differs from our reported net income due to non-cash items, such as depreciation and amortization of fixed assets and stock-based compensation, which do not result in uses or sources of cash.  In addition, the changes in working capital, other assets and liabilities.  Net cash provided by operating activities was $29,619,129 for the year ended April 30, 2010.  For the year ended April 30, 2009, net cash flow provided by operating activities was $16,924,070. Accounts receivable only increased $398,939 despite a $68,279,710 or 166.8% increase in net revenues from fiscal 2009 to fiscal 2010.  The small increase in accounts receivable was due primarily to the fact that many of the Company's customers prepay amounts due to the Company.  The cash improvement incurred during the current year is due to an increase in net income mainly due to the acquisition of the HongXing and ZoneLin operations under TNI and PYC under KMC.  Net cash provided by operating activities was $109,814 for the year ended April 30, 2008.  The cash improvement incurred during the year ended April 30, 2009 is due to combined effects of an increase of the current year operating profit of both 2 Mines and KMC operations.

The increase was mainly due to the combined effect of an increase of accounts receivables of $395,469, an increase of net income of $22,950,449, an increase of prepaid and other assets of $10,237,627, an increase of other receivables of $9,766,579, a decrease of accounts payable of $9,208,435, an increase of accrued liabilities of $275,517 and an increase of customer deposits of $4,185,463.  The Company's operating cash flow is dependent upon its ability to and collect accounts receivable in a timely manner. The drivers of changes in accounts receivable are the timing of credit sales and the collection of the accounts receivable.  We extend credit to customers by the relationship history we have with them. Management evaluates our accounts receivables to estimate if they will ultimately be collected.  In performing this evaluation, significant judgment is used, including an analysis of specific risks on a customer-by-customer basis for larger accounts.

Net cash provided by operating activities during the three months ended July 31, 2010 was $18,580,601 as compared to $7,075,668 during the comparable period of the prior year. The increase in such net cash included an $8,415,720 increase in net income including non-controlling interest, and $2,343,622 increase in depreciation and amortization.  Offsetting such increase were, among other items, declines in income from non-controlling interest, and issuance of commons stock for services.

Investing activities: Net cash used in investing activities was $39,584,055 during the year ended April 30, 2010, compared to $17,266,929 used in investing activities during the same period in 2009.  The increase in net cash used of $22,357,126 (or an increase of 130%), was due to the acquisition of HSC, PYC and TNI (increase of $4,561,561), the acquisition of property and equipment of (increase of $10,490,031), construction-in-progress (increase of $13,040,826), decrease of intangible assets (decrease of $2,507,331) and a net disposal and acquisition of discontinued operations of non-controlling interest of $(2,023,803).  Net cash used in investing activities was $82,874 during the year ended on April 30, 2008.

Net cash used during the three months ended July 31, 2010 was $18,082,042 as compared to $6,377,438 during the comparable period of the prior year.  The increase in net cash used of $11,704,604 was mainly due to an increase in the Company’s acquisition of property and equipment of $672,840, an increase in the Company’s acquisition of intangible assets of $429,298, an increase in construction-in-progress of $9,790,105, a net disposal and acquisition of discontinued operation of non-controlling interest of $760,906 and an increase of loans made to business associates of $80,238.

Our most significant uses of cash in investing activities are the acquisition of the 2 Mines and capital expenditures for year ended April 30, 2009.  As for the year ended April 30, 2008, cash provided from investing activities is due to the disposal of property and equipment from KMC subsidiary.  We expend a certain amount each year on routine items to maintain the effectiveness of our business. 

Financing activities: We received $9,865,629, $833,786 and $246,165 of proceeds from issuance of stock and $3,915,955, $50,000 and $480,844 of proceeds from the exercise of warrants for the years ended April 30, 2010, 2009 and 2008, respectively.  The amounts we receive from warrant exercises are dependent upon our stock price and the expiration date of the warrant grants.  Net cash provided by financing activities was $12,140,692 during the fiscal year ended April 30, 2010, compared to $3,883,786 used during the same period in 2009. The increase of $8,256,900 (or 212%), was mainly due to the increase in proceeds from issuance of stock of $9,031,843, an increase in payments to business associates and bank loans of $1,052,494, an increase in proceeds from issuance of convertible debt of $100,000, an increase in the proceeds from warrant conversion of $3,865,955, a decrease in long-term payables of $3,000,000 and a decrease of the cost of the issuance of stock of $688,398.

The current assets of the Company were $64,864,019 and $36,606,700 on April 30, 2010 and April 30, 2009, respectively. The increase in current assets of $28,257,229 (or 77.2%) was primarily due to an increase of cash and cash equivalents of $2,228,658, prepaid and other current assets of $10,058,769, an increase of inventories of $8,080,610, an increase in accounts receivable of $398,939, an increase of other receivables of $7,490,248, and a decrease of related party notes receivable from business associates of $1,158,164.

The current liabilities were $32,890,762 and $16,110,409 on April 30, 2010 and April 30, 2009 respectively.  The increase of the current liabilities by $16,780,353 (or 104.2%) was primarily due to an increase in customer deposits of $3,637,335, an increase in other payables of $12,344,920, an increase in tax payable of $4,372,343, an increase of bank loan of $1,146,950, a decrease of amounts due to shareholders of $910,791, an increase in accrued and other liabilities of $271,899 and a decrease in accounts payable of $2,935,353.

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 $800,000.

Off-Balance Sheet Arrangements:

The Company does not have any off-balance sheet financing arrangements for the fiscal years ended April 30, 2010 and 2009.

Contractual Obligations

At April 30, 2010, we were contractually obligated to make injection of capital per our purchase agreements as follows:

Recent Financings

May 2009 Financing

On May 12, 2009, the Company issued to Silver Rock II, Ltd. (“Silver Rock”) an 8% convertible debenture (the “Debenture”) in the original principal amount of $100,000 which was due and payable on May 6, 2012. 

On November 5, 2009, Silver Rock converted the debenture plus accrued interest into 160,000 shares of Common Stock.  In connection with the issuance of the Debenture, the Company issued to Silver Rock a three-year warrant to purchase up to 500,000 shares of Common Stock at an exercise price of $1.40 per share (the “May Warrant Shares”).  On January 17, 2010, Silver Rock exercised its warrant and purchased 250,000 May Warrant Shares for an aggregate purchase price of $350,000.

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 Units (the “October Units”) to the October Buyers.  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 the October Warrants, the October Buyers also became entitled to purchase 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 adjustment 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.

                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 was 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”).  Since the Registration Statement was not declared effective by the SEC by July 5, 2010, the deadline for the Registration Statement to be declared effective, the Company is 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.  Based upon the Statements of Income reported in the 2010 Form 10-K, the October Escrow Shares are released back to Mr. Lee.

                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 Units (the “November Units”) to the November Buyers.  Each Unit purchased consisted of one share of 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 the November Warrants, the November Buyers also became entitled to purchase 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 adjustment 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.

                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 was 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”).  Since the Registration Statement was not declared effective by the SEC by August 3, 2010, the deadline for the Registration Statement to be declared effective, the Company is 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 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.  Based upon the Statement of Income reported on the 2010 Form 10-K, the November Escrow Shares are released to Mr. Lee.

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.  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.

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 TianRi 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.

                The following table details the reserves of our three mines: 

(1)     The reserves as reported for the three coal mines are in-place reserves, which refer to coal in-situ prior to the deduction of pillars of support, barriers or constraints for mining.

(2)     Coal preparation plant recovery rate refer to the wash plant recovery rate of raw coal used during the production of our clean coal products.

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.  The map below shows the location of DaPuAn Coal Mine:

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, 7,810,000 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, 2,136,000 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.

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 twelve-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 together while 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 ZoneLin 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 TianRi 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):

• We own approximately 9,000 square feet of office space located at 898 Beijing Road, Kunming City, China which is used as our China headquarters.

• We lease approximately 7,500 square feet of office space for our executive offices, located at 130 Andover Park East, Seattle, Washington 98188. The lease expires on July 31, 2011.

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

• We lease approximately 2,500 square feet of office space located at Civic Plaza, Suite 3401, Guangzhou, China, which is used 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 current executive officers and directors of the Company. The Board of Directors includes six 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 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 the Company for the past 14 years. He has extensive management experience with NYNEX (now Verizon) and KPMG in New York. Mr. Lee obtained his CPA 1983 and is currently licensed in Washington State.  Mr. Lee is fluent in Mandarin, Cantonese, and English and 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 the US and China.

                Mr. Norman Mineta, Vice-Chair, Independent Director – Mr. Mineta serves as vice chairman of Hill & Knowlton, a New York based international communications consulting firm. His political career began in 1967 and highlights include: mayor of San Jose, over 20 years as a member of the US House of Representatives, US Secretary of Transportation under President George W. Bush where he guided the creation of the Transportation Security Administration, and US Secretary of Commerce under President Bill Clinton. Mr. Mineta is a graduate of the University of California at Berkeley.

                Ms. Shirley Kiang, MBA, Chair of Compensation Committee - Ms. Kiang, has been a senior executive for over 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 US citizen and has close contacts in China and Taiwan.  Ms. Kiang has been a board member of the Company since 1998 and is Chairperson of the Compensation Committee.  Ms. Kiang holds a bachelor's degree in psychology and an MBA from the University of Massachusetts.  For the past five years Ms. Kiang has been associated L&L and no other company.

                Mr. Ian Robinson, CPA, Chair of Audit Committee – Mr. Robinson, Independent Director, is a former partner at Ernst & Young. Mr. Robinson served as Board Member of many US and Hong Kong publicly-listed companies and has forty years of experience in auditing and public reporting. He is a Fellow of the CPA Society of Australia and the CPA Society of Hong Kong.  For the past five years Mr. Robinson has worked at Robinson Consulting Inc. and he travels frequently between the US and Hong Kong.

                Mr. Edward L. Dowd, Jr., Independent Director - Mr. Dowd is a federal litigation attorney who has represented numerous clients before the SEC and the Department of Justice.  He served for six years as a US Attorney and was a former partner of Bryan Cave, LLP.  For the past five years, Mr. Dowd has also served as Chair of the Attorney General’s Committee on Environmental Issues.  His current focus involves corporate compliance and defense, environment and commercial litigation, public corruption, extortion, commercial, and securities cases.  Mr. Dowd is a partner of Dowd Bennett, LLP in St. Louis, MO.

                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 US Department of Energy, Pacific Northwest National Laboratory, Boeing, Microsoft, and Demand Energy Networks.  Mr. Bracy obtained his bachelor’s degree from the University of St. Louis.

                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 the strategic development of the Company's operations. Robert is a brother of Dickson V. Lee, CEO and Chairman of the Company.  Robert has been working for the 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 US 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 US Citizen, and received an MBA in Finance and Masters Degree in US Taxation from San Jose State University.

                Mr. Clayton Fong, Executive Vice President - US. Operations - Mr. Fong has served at senior levels in the White House and the California Governor's Office.  He served President George HW Bush as Deputy Assistant to the President for Public Liaison, Deputy Director of the US Office of Consumer Affairs and Deputy Associate Director of Presidential Personnel.  He was also the CEO of an organization with a payroll of over 1000 employees in 11 offices nationwide.  Mr. Fong has extensive experience in management, human resources, marketing, government affairs and international business.

EXECUTIVE COMPENSATION

                From 2005 to 2007, there were no executive officers or directors with compensation exceeding $100,000.  In the two years ended April 30, 2008 and 2009, certain directors and executive officers did receive compensation in excess of $100,000.  The following summary compensation table indicates the cash and non-cash compensation earned for the three fiscal years ended April 30, 2010, 2009 and 2008 by the three highest paid executive officers who served in one or more of such fiscal years.  Executives are entitled to salary, stock and warrant awards, that vest 100% in June of the year following grant date.  Stock and warrant awards will be forfeited if the executive does not remain with the Company until such award is fully vested. 

___________________

⁽¹⁾ The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended April 30, 2010, in accordance with Financial Accounting Standards Board ASC Topic 718, of restricted stock awards issued to the named directors.  For restricted stock awards, fair value is calculated using the closing price on the grant date.

⁽²⁾ The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended April 30, 2010, in accordance with Financial Accounting Standards Board Statement FAS 123(R), of Warrants issued including amounts from outstanding warrant awards granted during and prior to fiscal 2010.  No warrants were forfeited by any of the executive officers during fiscal 2010.  These amounts reflect the Company’s accounting expense for these awards, and do not correspond to the actual value that may be recognized by the executive officers

⁽³⁾ Compensation prorated for seven months.

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

Employment Agreements

Mr. Dickson V. Lee, Chairman and Chief Executive Officer, entered into an employment agreement with the Company dated May 1, 2009.  The employment agreement confirms the continuation of Mr. Lee’s position as the Chairman and Chief Executive Officer of the Company, as he has been serving in such a capacity since the formation of the Company.  Mr. Lee is an at-will employee and his employment will continue until terminated by him or the Company.  If Mr. Lee’s employment is terminated (i) by the Company without Cause (as such term is defined in the employment agreement) (ii) by Mr. Lee for Good Reason (as such term is defined in the employment agreement) or (iii) by Mr. Lee as a result of a change of control of the Company, then the Company will provide Mr. Lee with his base salary, annual bonus and benefits earned up to the effective date of termination, and in addition, Mr. Lee will be entitled to (a) acceleration of 100% of his outstanding warrants, which will immediately vest and become exercisable, and (b) reimbursement for COBRA benefits for a period of six months following the date of termination.  Pursuant to his employment letter agreement, Mr. Lee’s outside business activities must be secondary to his employment at the Company and should be disclosed to the Company.  Mr. Lee’s employment agreement provides that as compensation for his services as Chief Executive Officer, in 2009 Mr. Lee had a base salary of $174, 503 per annum, was granted 48,000 option awards values at $1.00 and other compensation of $16,667.  As compensation for his services as Chairman of the Board of Directors, in 2009 Mr. Lee was granted $45,000, paid 50% in cash and 50% in stock award, and 48,000 warrants with a strike price of $2.50.  Mr. Lee’s employment agreement provides that as of May 1, 2010 Mr. Lee’s base salary for his services as Chief Executive Officer is $400,000 per annum and Mr. Lee’s base salary for his role as Chairman of the Board of Directors may be waived.

Mr. Clayton Fong, Vice President US Operations, entered into a letter agreement confirming his employment, effective as of September 29, 2009.  Mr. Fong’s employment was subject to a probationary period from September 28, 2009 to December 31, 2009, after which the terms of his employment continue until either party terminates in writing at any time for any reason or no reason.  Mr. Fong is currently an at-will employee.  Pursuant to his employment letter agreement, Mr. Fong’s outside business activities must be secondary to his employment at the Company and should be disclosed to the Company.  Mr. Fong’s compensation is $17,000 per month ($10,000 in US funds and $7,000 in Rule 144 shares) plus benefits.  Mr. Fong’s employment letter agreement contained an agreement for Mr. Fong to sign a nondisclosure agreement because of his status as an insider of the Company.

Ms. Connie Wong, Executive VP of Corporate Development, entered into a letter agreement confirming her employment on May 12, 2010, effective as of June 1, 2010.  Pursuant to her employment letter agreement, Ms. Wong is entitled to an annual salary of $250,000 in cash, plus benefits and a signing bonus of 10,000 shares of the Company and 200,000 warrants vesting over a 3-year period, increased to 400,000 warrants if Ms. Wong remains with the Company for a further term of three years.  Ms. Wong will also receive a bonus based on her performance.  Pursuant to her employment letter agreement, Ms. Wong agreed to a waiver of claims against the Company if she leaves the Company involuntarily within the first year of employment, in consideration for being paid her remaining warrants up to 100,000 units.

Mr. Paul Lee, General Manager, China Operations, entered into an employment letter agreement with the Company on March 9, 2010.  Mr. Lee’s position is as an at-will employee and his term of employment will continue until either party terminates in writing at any time for any reason or no reason. Pursuant to his employment letter agreement, Mr. Lee’s outside business activities must be secondary to his employment at the Company and should be disclosed to the Company.  The Company will pay an additional $5,000 per month to Mr. Lee’s insurance company to hire an outside professional manager so that Mr. Lee can focus on the Company.  Mr. Lee is entitled to $10,000 per month in US funds, plus 2,500 shares of common stock per month, beginning May 1, 2010, plus stock bonus of 100,000 shares over three years.  Mr. Lee is also eligible for an annual performance bonus.  Mr. Lee’s employment letter agreement contained an agreement for Mr. Lee to sign a nondisclosure agreement because of his status as an insider of the Company.

Ms. Jung Mei (Rosemary) Wang, Acting-Chief Financial Officer, entered into an employment letter agreement with the Company on November 17, 2009.  Ms. Wang’s position is as an at-will employee and her term of employment will continue until either party terminates in writing at any time for any reason or no reason.  Pursuant to her employment letter agreement, Ms. Wang’s outside business activities must be secondary to her employment at the Company and should be disclosed to the Company.  Ms. Wang is entitled to $15,000 per month, which amount is payable 80% in US funds and 20% in common stock of the Company.  Shares will be issued once per year and will vest each quarter based on the first five-day average trading price for such quarter.

Mr. Paul Cheng, Chief Accounting Officer, entered into an employment agreement with the Company on September 8, 2010, with a starting date of employment of October 5, 2010.  Mr. Cheng is an at-will employee and his employment will continue until terminated by him or the Company.  If Mr. Cheng’s employment is terminated (i) by the Company without Cause (as such term is defined in the employment agreement) (ii) by Mr. Cheng for Good Reason (as such term is defined in the employment agreement) or (iii) by Mr. Cheng as a result of a change of control of the Company, then the Company will provide Mr. Cheng with his base salary, annual bonus and benefits earned up to the effective date of termination, and in addition, Mr. Cheng will be entitled to (a) acceleration of 100% of his outstanding warrants, which will immediately vest and become exercisable, and (b) reimbursement for COBRA benefits for a period of six months following the date of termination.  Pursuant to his employment letter agreement, Mr. Cheng’s outside business activities must be secondary to his employment at the Company and should be disclosed to the Company.  Mr. Cheng’s employment agreement provides that as compensation for his services as Chief Accounting Officer, he shall receive an annual base salary of $200,000.  Mr. Cheng shall also be considered for an annual bonus of up to six months of his annual base salary.  As a signing bonus, Mr. Cheng will receive 5,000 shares of the Company’s common stock seven months after his employment date.  Subject to approval of the Board of Directors, Mr. Cheng shall also receive incentive stock options to purchase 120,000 shares of the Company’s common stock, which will vest over a three-year period as follows: 33% after the completion of 12 months of service to the Company; 33% after the completion of 24 months of service to the Company; and 34% after the completion of 36 months of service to the Company.  The exercise price of each of Mr. Cheng’s options to purchase one share of the Company’s common stock shall be $0.50 per shares above the market closing price on the date such option is granted.

Board Member Contracts

Each member of the Board of Directors of the Company is required to sign a Board Member Contract.  Pursuant to the Board Member Contract, Directors serve a term which expires on the earlier of one year or until the next annual shareholders’ meeting, at which time such Director’s one-year term expires and such Director is subject to re-election.  The Board Member Contract provides that the Directors may be appointed to sit on a committee of the Board of the Directors.  The Board Member Contract sets forth the annual compensation for Directors as follows: $40,000 (prorated if less than one year of service); and for serving as a Committee Chair an additional $5,000 annually, prorated, if less than one year of service.  The contract provides that payment will be made 80% in cash and 20% in stock for Independent Members and 50% in cash and 50% in stock for Non-Independent Members, although the Board recently approved payment in such proportion of cash and stock and the Board member chooses.  Director compensation is subject to change by the Company’s Compensation Committee.  The Board Member Contract also sets forth the responsibilities of each of the Director and Company with respect to the directorship.

Mr. Norman Y. Mineta entered into a Board Member Contract with the Company on August 4, 2010 with the same term as provided in the form of Board Member Contract described above. Pursuant to such contract, Mr. Mineta accepted appointment as Vice-Chairman of the Board and Chair of the Nominations Committee and is entitled to receive additional compensation for his role as Vice-Chairman, for recognition of past experience and stature and for additional time commitments. Mr. Mineta's regular 12 month compensation will be $250,000 per year.  However, Mr. Mineta's initial term is 13 months and therefore for such initial term he is entitled to $270,834, which shall be paid $216,6667 in cash and 4,814 in shares, 2,407 of which shares vested on August 2, 2010 and 2,407 shares will vest on March 1, 2011.  Mr. Mineta's Board Member Contract is subject to change by the Company's Compensation Committee.

Director Compensation

This section provides information regarding the compensation for directors (in respect of services only as a director in the case of Mr. Dickson Lee) and amounts paid and securities awarded to these directors during fiscal 2010.  Directors may, at their option, elect to receive their total compensation in any ratio of cash to equity.

___________________

⁽¹⁾ The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended April 30, 2010, in accordance with Financial Accounting Standards Board ASC Topic 718, of restricted stock awards issued to the named directors.  For restricted stock awards, fair value is calculated using the closing price on the grant date. For information regarding the number of restricted stock units held by each director as of April 30, 2010, see the column “Stock Awards Outstanding” in the table below.

⁽²⁾ The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended April 30, 2010, in accordance with Financial Accounting Standards Board Statement FAS 123(R), of Warrants issued including amounts from outstanding warrant awards granted during and prior to fiscal 2010.  No warrants were forfeited by any of the directors during fiscal 2010.  These amounts reflect the Company’s accounting expense for these awards, and do not correspond to the actual value that may be recognized by the directors. For information regarding the number of warrants held by each director as of April 30, 2010, see the column “Warrants Outstanding” in the table below.

⁽³⁾ Compensation is $20,000 (pro rata - 6 months out of 12 months) plus $1,458 for chair of Green Energy Committee as of 1/18/10.

⁽⁴⁾ Compensation is $12,167 (pro rata - 3.65 months out of 12 months).

The directors held the following numbers of stock awards and warrant awards as of September 17, 2010:

___________________

⁽¹⁾ As of September 9, 2010, Mr. Borich was no longer a director or the Company.

Indemnification of Officers and Directors

                We are a Nevada corporation, and accordingly, we are subject to the corporate laws under the Nevada Revised Statutes. See Item 14 for a description of Section 78.7502 of the Nev. Rev. St.  Article XI of our Bylaws contain the following indemnification provision for our directors and officers:

“The corporation shall indemnify its directors and officers to the fullest extent not prohibited by the Nevada General Corporation Law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Nevada General Corporation Law or (iv) such indemnification is required to be made under subsection (d).”

                Such indemnification provision may be sufficiently broad to permit indemnification of our executive officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act. The Company has current directors’ and officers’ liability insurance (D&O insurance) covering our directors' and officers' activities conducted for and on behalf of L&L up to the amount of $5 million in the aggregate.  Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. There is no material litigation or proceeding pending involving our directors, executive officers, employees or other agents as to which indemnification is being sought, and we are not aware of any pending or threatened material litigation that may result in claims for indemnification by any of our directors or executive officers.

Officers and Directors Subject to Orders During the Past Ten Years

In March 2006, the California Corporation’s Commissioner issued an administrative order prohibiting Mr. Dickson V. Lee

from making offers or sales of securities in California unless and until such shares have been qualified, effecting transactions as

broker-dealer of the Company’s securities until Mr. Lee was registered as a broker-dealer, or offering or selling or buying or offering

to buy any security in California by means of any misleading statement. Mr. Lee has been in compliance with the order since its issue.

In February 2007, Dickson V. Lee was prohibited by FINRA from practicing as a broker by FINRA for one year. The one-year period

has since been completed and Mr. Lee is eligible to hold a broker license should he so choose.

In April 2007, the Department of Banking of the State of Connecticut issued a consent order against the Company and its officers ordering (i) the Company and its officers to refrain from violations of state securities laws, (ii) prohibiting the Company from selling securities in or from Connecticut for ten years and (iii) payment of an administrative fine. On November 9, 2009, the Company was granted relief from the 10 year prohibition and entered an order modifying the consent whereby the Company is permitted to sell securities so long as it complies with the terms of the order.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information as of September 17, 2010 with respect to persons known to the Company to be the beneficial owners of more than 5% of its voting securities and with respect to the beneficial ownership of such securities by each director of the Company and by all directors and executive officers of the Company as a group.  Shares of common stock subject to options, warrants or convertible securities exercisable or convertible within 60 days of September 17, 2010 are deemed outstanding for computing the percentage of the person or entity holding such options, warrants or convertible securities but are not deemed outstanding for computing the percentage of any other person.  To the best of our knowledge, subject to community and martial property laws, all persons named have sole voting and investment power with respect to such shares, except as otherwise noted.