AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 5,
2010
REGISTRATION
STATEMENT NO. 333-166720
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
POST-EFFECTIVE
AMENDMENT NO.1
TO
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
SINOCOKING
COAL AND COKE
CHEMICAL
INDUSTRIES, INC.
(Exact
name of registrant as specified in its charter)
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Florida
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3312
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59-3404233
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(State
or Other Jurisdiction of Incorporation or Organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer
Identification
No.)
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Kuanggong
Road and Tiyu Road 10th Floor,
Chengshi
Xin Yong She, Tiyu Road, Xinhua District,
Pingdingshan,
Henan Province, China 467000
Telephone
No. +86-3752882999
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Jianhua
Lv, Chief Executive Officer
Kuanggong
Road and Tiyu Road 10th Floor,
Chengshi
Xin Yong She, Tiyu Road, Xinhua District,
Pingdingshan,
Henan Province, China 467000
Telephone
No. +86-3752882999
COPY TO:
Kevin
K. Leung, Esq.
Edgar
Park, Esq.
Dominador
Tolentino, Esq.
Richardson
& Patel LLP
10900
Wilshire Blvd., Suite 500
Los
Angeles, CA 90024
(310)
208-1182
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
FROM TIME
TO TIME AFTER THE
EFFECTIVE
DATE OF THIS REGISTRATION STATEMENT
(Approximate
date of commencement of proposed sale to the public)
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company x
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CALCULATION
OF REGISTRATION FEE
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Title of Each Class of
Securities to be Registered
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Amount to
be
Registered
(1)
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Proposed
Maximum
Per Share
Offering Price
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Proposed
Maximum
Aggregate
Offering
Price
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Amount of
Registration
Fee
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Common
stock, $0.001 par value per share
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7,344,935 | $ | 17.38 | (2) | $ | 127,654,970 | $ | 9,101.80 | ||||||||
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Common
stock, $0.001 par value per share (issuable upon exercise of common stock
purchase warrants)
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3,789,631 | $ | 12.00 | (3) | $ | 45,475,572 | $ | 3,242.41 | ||||||||
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Common
stock, $0.001 par value per share (issuable upon exercise of common stock
purchase warrants)
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250,000 | $ | 6.00 | (4) | $ | 1,500,000 | $ | 106.95 | ||||||||
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Total
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11,384,566 | $ | 12,451.16 | (5) | ||||||||||||
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(1)
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Pursuant
to Rule 416 under the Securities Act of 1933, as amended (the “Securities
Act”), this registration statement shall be deemed to cover additional
securities (i) to be offered or issued in connection with any provision of
any securities purported to be registered hereby to be offered pursuant to
terms which provide for a change in the amount of securities being offered
or issued to prevent dilution resulting from stock splits, stock
dividends, or similar transactions and (ii) of the same class as the
securities covered by this registration statement issued or issuable prior
to completion of the distribution of the securities covered by this
registration statement as a result of a split of, or a stock dividend on,
the registered securities.
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(2)
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Estimated
solely for the purpose of calculating the amount of the registration fee
pursuant to Rule 457(c) of the Securities Act based upon the average of
the high and low prices of the common stock of the Registrant as reported
on the NASDAQ Capital Market on May 7,
2010.
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(3)
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Warrants
issued to accredited investors, calculated in accordance with Rule 457(g)
under the Securities Act on the basis of an exercise price of $12.00 per
share.
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(4)
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Warrants issued
to placement agents, calculated in accordance with Rule 457(g) under the
Securities Act on the basis of an exercise price of $6.00 per
share.
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(5)
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The
amount of $12,451.16 was previously
paid.
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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.
The
information in this prospectus is not complete and is subject to change.
The securities described herein may not be sold until the registration statement
filed with the Securities and Exchange Commission covering the subject
securities is declared effective. This prospectus is not an offer to sell
securities and no offer to buy securities is being solicited in any state where
the offer or sale is not permitted.
PROSPECTUS
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC.
11,384,566
shares of Common Stock
This
prospectus covers the resale by selling security holders named beginning on
page 44 of this prospectus, of up to 11,384,566 shares of our common
stock, $0.001 par value per share, which includes the following shares issued to
investors in our private placement financings under Regulation D and Regulation
S, completed on March 11, 2010:
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2,343,268
shares of common stock issued to non-U.S.
investors;
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1,171,634
shares of common stock underlying warrants issued to non-U.S.
investors;
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5,001,667
shares of common stock issued to U.S. investors;
and
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2,867,997
shares of common stock underlying warrants issued to U.S. investors and
placement agents.
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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 currently listed on the NASDAQ Capital Market under the symbol
“SCOK.” The last reported per share price for our common stock was $8.29
as quoted on the NASDAQ Capital Market on September 29, 2010.
INVESTING
IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS”
BEGINNING ON PAGE 3.
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 , 2010
No offers
to sell are made, nor are offers sought, to buy these securities in any
jurisdiction in which the offer or sale is not permitted. The reader
should assume that the information contained in this prospectus is accurate as
of the date on the cover page of this prospectus only. Our business,
financial condition, results of operations, and prospectus may have changed
since that date.
TABLE
OF CONTENTS
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Page
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Special
Note Regarding Forward-Looking Statements
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1
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Prospectus
Summary
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2
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Risk
Factors
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3
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Business
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17
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Use
of Proceeds
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43
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Selling
Security Holders
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43
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Plan
of Distribution
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74
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Legal
Matters
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75
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Experts
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75
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Description
of Property
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76
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Summary
Financial Data
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76
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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77
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Legal
Proceedings
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91
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Management
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91
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Executive
Compensation
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94
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Security
Ownership of Certain Beneficial Holders and Management
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100
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Certain
Relationships and Related Party Transactions
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102
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Description
of Securities
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104
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Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure
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106
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Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
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106
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Additional
Information
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107
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Index
to Consolidated Financial Statements
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108
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All
statements contained in this prospectus, other than statements of historical
facts, that address future activities, events or developments, are
forward-looking statements, including, but not limited to, statements containing
the words “believe,” “anticipate,” “expect,” “project,” “may,” “might,” “will”
and words of similar import. These statements are based on certain
assumptions and analyses made by us in light of our experience and our
assessment of historical trends, current conditions and expected future
developments as well as other factors we believe are appropriate under the
circumstances. Whether actual results will conform to the expectations and
predictions of management, however, is subject to a number of risks and
uncertainties that may cause actual results to differ materially. Such
risks are in the section entitled “Risk Factors” beginning on page 3 of
this prospectus.
1
This
summary provides a brief overview of the key aspects of our business and
our securities. The reader should read the entire prospectus
carefully, especially the risks of investing in our common stock discussed under
“Risk Factors.” Some of the statements contained in this prospectus, including
statements under “Summary” and “Risk Factors” as well as those noted in the
documents incorporated herein by reference, are forward-looking statements and
may involve a number of risks and uncertainties. We note that our actual
results and future events may differ significantly based upon a number of
factors. The reader should not put undue reliance on the forward-looking
statements in this document, which speak only as of the date on the cover of
this prospectus.
References
to “we,” “our,” “us,” the “Company,” the “registrant,” or “SinoCoking” refer to
SinoCoking Coal and Coke Chemical Industries, Inc., a Florida corporation,
including its consolidated subsidiaries and VIE controlled
entities.
Our
Business
SinoCoking
Coal and Coke Chemical Industries, Inc. is a vertically integrated coal and coke
producer based in Henan Province, People’s Republic of China (“PRC” or
“China”). We use coal from both our own mines and that of third-party
mines to produce basic and value-added coal products such as thermal coal,
washed metallurgical coal, and chemical and metallurgical coke for steel
manufacturers, power generators, and various industrial users. We also
produce and sell coal, including raw (unprocessed) and washed coal (which is
coal that has been prepared for coking or thermal uses), medium coal and coal
slurries (by-products of the coal-washing process), and coal tar (a by-product
of the coke manufacturing process).
Corporate
Structure
We
operate our business through our wholly owned subsidiary Top Favour Limited, a
British Virgin Islands international business company (“Top Favour”), and
various entities owned and controlled by it. Top Favour is a holding
company that, through its wholly owned subsidiary Pingdingshan Hongyuan
Energy Science and Technology Development Co., Ltd. (“Hongyuan”), and the
variable interest entity (VIE) that it controls and owns, Henan Province
Pingdingshan Hongli Coal & Coke Co., Ltd. (“Hongli”), operates our coal
and coke producing business located in Henan Province in the central region of
the People’s Republic of China (“PRC” or “China”). Hongli produces coke,
coal, coal byproducts and electricity through its branch operation, Baofeng
Coking Factory (“Baofeng Coking”), and its wholly owned subsidiaries, Baofeng
Hongchang Coal Co., Ltd. (“Hongchang Coal”) and Baofeng Hongguang Environment
Protection Electricity Generating Co., Ltd. (“Hongguang Power”), which we refer
to collectively as the “Baofeng Subsidiaries.” We refer to Hongli and the
Baofeng Subsidiaries collectively as “Hongli Group.” The
Company controls Hongli Group through contractual arrangements with Hongli
Group and its owners. These contractual arrangements provide for
management and control rights, and in addition entitle the Company to
receive the earnings and control the assets of Hongli Group. Other than
the interests in these contractual arrangements, neither the
Company nor Hongyuan has any equity interests in Hongli Group. We
refer to the Company, Top Favour, Hongyuan and Hongli Group collectively as
“SinoCoking.”
Recent
$44 Million Private Placement Financing
On March
11, 2010 we completed two private placement financings, pursuant to exemptions
under Regulation S and Regulation D respectively, in which we sold and issued
units consisting of common stock and common stock warrants, for a purchase price
of USD $6.00 per unit, resulting in aggregate proceeds of $44 million
(collectively referred to as the “financing”). Each unit consisted of one
(1) share of common stock and a warrant for the purchase of 0.5 shares of common
stock with an exercise price of $12.00 per share. The investor warrants
are exercisable for a period of five years from the date of issuance. The
financing was conducted pursuant to Securities Purchase Agreements dated
February 5 and March 10, 2010, in two closings.
In
connection with the foregoing, we entered into a registration rights agreement
with the U.S. investors pursuant to which we agreed to file a registration
statement to register both the shares of common stock, and the common stock
underlying the warrants, issued in the financing. We also agreed to
undertake commercially reasonable efforts to register the shares of common stock
and the common stock underlying the warrants issued to the non-U.S.
investors in the financing.
2
Madison
Williams and Company, LLC (“Madison Williams”) and Rodman & Renshaw,
LLC (“Rodman & Renshaw”), a wholly owned subsidiary of Rodman & Renshaw
Capital Group, Inc. acted as placement agents in the financing.
The
financing resulted in total gross proceeds to the Company of $44 million, and
the issuance by us of a total of 7,344,935 shares of common stock, and five-year
warrants for the purchase of an additional 3,789,631 shares of common stock with
an exercise price of $12.00 per share and five-year warrants for the
purchase of 250,000 shares of common stock with an exercise price of $6.00 per
share. For further details concerning the above financing, please refer to
the disclosures on page 27 of this prospectus.
We are
registering 11,384,566 shares of our common stock for sale by the selling
security holders identified in the section of this prospectus entitled “Selling
Security Holders,” issued to them in our $44 million private placement
financing. In accordance with our registration rights agreement that we
entered into with investors in the financing (more fully described below), we
are registering for resale the following: (i) 2,343,268 shares of common stock
issued to non-U.S. investors; (ii) 1,171,634 shares of common stock underlying
warrants issued to non-U.S. investors; (iii) 5,001,667 shares of common stock
issued to U.S. investors; and (iv) 2,867,997 shares of common stock underlying
warrants issued to U.S. investors and placement agents. Information
regarding our common stock is included in the section of this prospectus
entitled “Description of Securities.”
The
shares of common stock offered under this prospectus may be sold by the selling
security holders on the public market, in negotiated transactions with a
broker-dealer or market maker as principal or agent, or in privately negotiated
transactions not involving a broker or dealer. Information regarding the
times and manner in which the shares of common stock offered under this
prospectus may be offered and sold is provided in the sections of this
prospectus entitled “Plan of Distribution.” We will not receive any of the
proceeds from those sales. The registration of the shares of common stock
offered under this prospectus does not necessarily mean that any of these shares
will ultimately be offered or sold by the selling security holders.
General
Information
Our
principal executive offices are located at Kuanggong Road and Tiyu Road 10th
Floor, Chengshi Xin Yong She, Tiyu Road, Xinhua District, Pingdingshan, Henan
Province, China 467000, and our telephone number is +86-3752882999.
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.
3
Risks
Related To Business
Our
business and results of operations are dependent on coal and coke markets, which
may be cyclical.
The
principal source of our revenue is from the sale of coal and coke within China
(or the “PRC”), thus the business and operating results are highly dependent on
domestic Chinese demand for coal and coke. The Chinese coal and coke
markets are cyclical and exhibit fluctuation in supply and demand from year to
year. They are subject to numerous factors beyond our control, including,
but not limited to, general economic conditions in the PRC and fluctuations in
industries with high demand for coal, such as the power and steel
industries. These factors are also linked to or influenced by global
economic conditions. Fluctuations in supply and demand for coal and coke
affect their prices, which in turn affect our operating and financial
performance. We have seen substantial price fluctuations in these
commodities in the past and believe that such fluctuations may
continue. The demand for coal and coke are primarily influenced by the
pace of domestic economic growth and development, and the demand for coal and
coke from the power, steel, and construction industries. The supply of
coal and coke, on the other hand, are primarily affected by the geographic
location of coal mines, the volume of coal and coke produced by the domestic and
international coal suppliers, tariffs duties and trade controls, value-added
taxes (VAT) imposed on imports, international freight costs, and the quality and
price of competing sources of coal and coke. Alternative fuels, such as
natural gas, oil and nuclear power, and alternative energy sources, such as
hydroelectric power, wind, geothermal and solar, also have influences on the
market demand for coal and coke. Excess supply of coal or coke or
significant reduction in the demand for our coal or coke by domestic power or
steel producers may have an adverse effect on their prices, which would in turn
cause a decline in our profitability. In addition, any significant decline
in PRC domestic coal or coke prices could materially and adversely affect our
business and results of operations.
Our
mining and coking operations are inherently subject to changing conditions that
can affect our profitability.
SinoCoking’s
mining and coking operations are inherently subject to changing conditions that
can affect levels of production and production costs for varying lengths of time
and can result in decreases in profitability. SinoCoking is exposed to
commodity price risk related to the purchase of diesel fuel, wood, explosives
and steel. In addition, weather and natural disasters (such as
earthquakes, landslides, flooding, and other similar occurrences), unexpected
maintenance problems, key equipment failures, fires, variations in thickness of
the layer, or seam, of coal, amounts of overburden, rock and other natural
materials, variations in rock and other natural materials and variations in
geological conditions can be expected in the future to have, a significant
impact on our operating results. Prolonged disruption of production at the
mine would result in a decrease in our revenues and profitability, which could
be material. Other factors affecting the production and sale of our coal
and coke that could result in decreases in our profitability
include:
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sustained
high pricing environment for raw materials, including, among other things,
diesel fuel, explosives and steel;
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changes
in the laws and/or regulations that we are subject to, including
permitting, safety, labor and environmental
requirements;
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labor
shortages; and
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changes
in the coal and coke market and general economic
conditions.
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Our
coal and coke operations are extensively regulated by the PRC government and
government regulations may limit its activities and adversely affect its
business operations.
SinoCoking’s
coal and coke operations, like those of other Chinese natural resources and
energy companies, are subject to extensive regulations administered by the PRC
government. Central governmental authorities, such as the National Development
and Reform Commission, the State Environmental Protection Administration, the
Ministry of Land and Resources, the State Administration of Coal Mine Safety,
the State Bureau of Taxation, and provincial and local authorities and agencies
exercise extensive control over various aspects of China’s coal mining and
transportation (including rail and sea transport). These controls affect
the following material aspects of our operations:
4
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exploration,
exploitation and mining rights and
licensing;
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rehabilitation
of mining sites after mining is
completed;
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recovery
rate requirements;
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industry-specific
taxes and fees;
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target
of our capital investments;
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pension
funds appropriation; and
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environmental
and safety standards.
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We
believe that our operations are in compliance with applicable legal and
regulatory requirements. However, there can be no assurance that the central,
provincial or local governments in the PRC will not impose new, stricter
regulations or interpretations of existing regulations that would require
additional expenditures by us to comply. We may face significant
constraints on its ability to implement its business strategies or to carry out
or expand business operations. We may also be materially and adversely
affected by future changes in certain regulations and policies of the PRC
government in respect of the coal or coke industry. New legislation or
regulations may be adopted that may materially and adversely affect our
operations, our cost structure or demand for our products. In addition,
new legislation or regulations or different or more stringent interpretation of
existing laws and regulations may also require us to substantially change our
existing operations or incur significant costs.
The PRC
government has become increasingly concerned with mine safety issues,
particularly in light of several recent accidental explosions in coal mines
(operated by other companies) due to inadequate internal safety measures,
and as reflected by the implementation of the State Council’s Regulation on
Phase-out of Small Coal Mines. Moreover, additional new legislation
or regulations may be adopted, or the enforcement of existing laws could become
more stringent, either of which may have a significant impact on our mining
operations or customers’ ability to use coal and may require its customers to
significantly change operations or to incur substantial costs. In 2008,
the Henan Province mining authorities and related government bureaus conducted
industry-wide coal mine safety inspections as a part of the government’s policy
and efforts to reduce mining accidents and improve safety.
The Hongchang Mine was inspected in September, October and December of
2008, and during the course of these inspections, mining activity was
temporarily halted or reduced. This and future interruptions in coal
extraction due to mining safety inspections, albeit temporary, may have a
material effect on the Company’s financial results
and operations.
The Henan
Province Pingdingshan Municipal Bureau of Land and Resources will require coking
factories with a furnace height of less than 4.3 meters to phase out their
operations in the next two to three years. SinoCoking’s existing coking
furnace is 3 meters in height and as a result, we plan to phase out our existing
coking factory in the next two to three years, and replace these facilities with
a new coking facility that exceeds these regulatory standards. These
government regulations will not affect our mining or coal washing
operations.
SinoCoking’s
future success may depend substantially upon our ability to successfully build
and operate the new coking factory and related facilities.
A central
element of our business plan involves the construction and operation of a new
coking factory and related facilities. We commenced construction of this
new factory and related facilities on March 3, 2010. While we believe the
successful completion of the construction of these facilities as planned will be
profitable, prior to completion there can be no assurance that SinoCoking will
be able to complete construction as planned or operate the coking factory, or
that if completed we will be able to operate the new factory profitably.
The future profitability of our coking operations will also depend on our
ability to secure washed coal on a cost-effective basis.
5
Our
business operations may be adversely affected by present or future environmental
regulations.
As a
producer of coal and coke products, SinoCoking is subject to significant,
extensive, and increasingly stringent environmental protection laws and
regulations in China. These laws and regulations:
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impose
fees for the discharge of waste
substances;
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require
the establishment of reserves for reclamation and
rehabilitation;
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require
the payment of fines for serious environmental offences;
and
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allow
the Chinese Government, at its discretion, to close any facility that
fails to comply with environmental regulations or government orders,
requiring such facilities to comply or cease
operations.
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Our
operations may produce waste water, gas and solid waste materials. Currently,
the PRC government is moving toward more rigorous enforcement of applicable laws
and regulations as well as the adoption and enforcement of more stringent
environmental standards. Our current amounts of capital expenditure for
environmental regulatory compliance may not be sufficient if additional
regulations are imposed and may need to allocate additional funds for such
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.
In
addition, China is a signatory to the 1992 United Nations Framework Convention
on Climate Change and the 1997 Kyoto Protocol, which are intended to limit
emissions of greenhouse gases. Efforts to control greenhouse gas emission
in China could result in reduced use of coal and coke if customers switch
to sources of fuel with lower carbon dioxide emissions, which in turn could
reduce the revenues of our businesses and have a material adverse effect on
results of operations.
Demand
for coal and coke and their respective prices are closely linked to
consumption patterns of the power and steel industries in China.
Any changes in consumption patterns could affect our operations and
profitability.
Demand
for coal and coke and the prices that we will be able to obtain for the products
are closely linked to consumption patterns of the power generation and steel
industries in China. These consumption patterns are influenced by factors
beyond our control, including the demand for electricity; demand for steel;
government regulation; technological developments and the location,
availability, quality and price of competing sources of coal and coke;
alternative fuels, such as natural gas, oil and nuclear power, and alternative
energy sources, such as hydroelectric power, wind, geothermal and solar.
Any reduction in the demand for coal or coke by the domestic power and steel
industries may cause a decline in demand and revenue from our products which
would reduce our profitability.
If
transportation for our coal or coke becomes unavailable or uneconomic for our
customers, our ability to sell our products could suffer.
Transportation
costs represent a significant portion of the total cost of coal and, as a
result, the cost of transportation is a critical factor in a customer’s
purchasing decision. Increases in transportation costs could make our
products a less competitive source of energy or could make some of our offerings
less competitive than other sources of coal or coke. We rely upon
trucking, national, provincial and local highways and roadways, and the national
railway system to transport our products. Regulation of, and the overall
cost of using these forms of transportation may be outside of our control,
changes in the accessibility and cost of these forms of transportation could
affect our ability to deliver our products to our customers, and thus the
attractiveness of our products relative to competing alternatives. In
addition, these modes of transportation depend upon the support of the national,
provincial and local governments for their maintenance and operation, and their
reliability will depend on the actions and resources of these
governments.
6
Risks
inherent to mining could increase the cost of operating our
business.
Our
mining operations are subject to conditions beyond our control that can delay
coal deliveries or increase the cost of mining for varying lengths of
time. These conditions include weather and natural disasters (such as
earthquakes, landslides, flooding, and other similar occurrences), unexpected
maintenance problems, key equipment failures, fires, variations in thickness of
the layer, or seam, of coal, amounts of overburden, rock and other natural
materials, variations in rock and other natural materials and variations in
geological conditions.
As with
all companies that have coal mining operations, our operations are affected by
mining conditions such as a deterioration in the quality or thickness of faults
and/or coal seams, pressure in mine openings, presence of gas and/or water
inflow and propensity to spontaneous combustion, as well as operational risks
associated with industrial or engineering activity, such as mechanical
breakdowns. Although the Company has 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 coal
output or the temporary suspension of operations.
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. As a result, our operations, like other coal
mining and coking companies, could experience accidents that cause property
damage and personal injuries. Although the Company has implemented safety
measures at our operations, and provide on-the-job training for our employees,
and, in accordance with relevant laws set aside approximately 9.6% of employees’
total remuneration for employees’ health insurance, there can be no assurance
that industry-related accidents will not occur in the future.
The
Company does not currently maintain fire, or other property insurance covering
our properties, equipment or inventories. In addition, the Company does not
maintain any business interruption insurance or any third party liability
insurance to cover claims in respect of personal injury, property or
environmental damage arising from accidents on our properties. Any
uninsured losses and liabilities incurred by the Company could have a material
adverse effect on our financial condition and results of operations. For
instance, if it occurred, a major mining accident could prompt
government-mandated closure of some or all of our mining operations, which would
then require us to spend significant resources on remediation which could
consume our available capital resources, and until remediated, we would
be required to obtain our raw coal inputs from other third party suppliers
at a higher price, which would adversely affect our gross margins on coal and
coke products. Although the likelihood of a major mining accident would be
extremely difficult to predict, we note that we have never suffered a casualty
or major mining-related accident since inception, we have never been found to be
out of compliance with government safety standards, and management believes our
mining operations are safer than the industry average in
China.
SinoCoking’s
ability to operate effectively could be impaired if the Company loses key
personnel or fails to attract qualified personnel.
The
Company manages our business with a number of key personnel, the loss of any of
which could have a material adverse effect on operations. In addition, as
business develops and expands, the Company believes that our future success will
depend greatly on our continued ability to attract and retain highly
skilled and qualified personnel. The Company cannot assure that key
personnel will continue to be employed by or that the Company will be able to
attract and retain qualified personnel in the future. We employ our key
personnel on an at-will basis, which means that either the Company or the
employee may generally terminate the employment relationship at any time for any
reason. Accordingly, if we are not able to effectively fill vacancies of
departing key persons, our business may be impaired. Further, we note that
our management is heavily dependent on the skills, experience, contacts, and
business relationships of our founder and Chief Executive Officer, Mr. Jianhua
Lv. Accordingly, the loss of our CEO could cause significant impairment to
the business of our Company.
7
A
downturn in global economic conditions may materially adversely affect our
business and results of operations.
Our
business and results of operations are affected by international, national and
regional economic conditions. Financial markets in the United States, Europe and
Asia have experienced significant disruption in the past year, including among
other things, heightened volatility in security prices, constrained liquidity
and credit availability, rating downgrades of certain investments and declining
values of others. The Company is unable to predict the likely duration and
severity of the current disruptions in financial markets, credit availability,
and adverse economic conditions throughout the world. These economic
developments affect businesses in a number of ways that could result in
unfavorable consequences to the Company. Adverse global economic
conditions, including within the PRC, could negatively affect commodity prices,
or may cause our current or potential customers to delay or reduce purchases
which could, in turn, result in reductions in sales volumes or prices,
materially and adversely affecting results of operations and cash flows.
Volatility and disruption of global financial markets could limit customers'
ability to obtain adequate financing to maintain operations and proceed
with planned or new capital spending initiatives, leading to a reduction in
sales volume that could materially and adversely affect results of operations
and cash flow. In addition, a decline in our customers' ability to pay as
a result of an economic downturn may lead to increased difficulties in the
collection of accounts receivable, higher levels of reserves for doubtful
accounts and write-offs of accounts receivable, and higher operating costs as a
percentage of revenues.
Certain
of our shareholders control a significant amount of our common
stock.
Approximately
32% of our outstanding common stock is controlled by one holding entity, of
which our founder and Chief Executive Officer, Mr. Jianhua Lv is a director and
beneficiary. Accordingly, Mr. Lv presently has significant relative voting
power and influence over any action requiring shareholder approval, including
the election of our directors.
If
the Company makes any acquisitions, it may disrupt or have a negative impact on
the business.
If the
Company makes acquisitions, it could have difficulty integrating personnel,
operations of the acquired companies with its own. In addition, the
key personnel of the acquired business may not be willing to work for the
Company. SinoCoking cannot predict the affect expansion which may have on
our core business. Regardless of whether the Company is successful in
making one or more acquisitions, the negotiations could disrupt our ongoing
business, distract the management and employees and increase our expenses. In
addition to the risks described above, acquisitions are accompanied by a number
of inherent risks, including, without limitation, the following:
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delays
and waiting periods associated with required safety inspections, as well
as government licensing or permitting
procedures;
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the
difficulty of integrating acquired resources, products, services or
operations;
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the
potential disruption of the ongoing businesses and distraction of the
management and the management of acquired
companies;
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the
difficulty of incorporating acquired resources, facilities, operations or
products into the existing
business;
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difficulties
in disposing of the excess or idle facilities of an acquired company or
business and expenses in maintaining such
facilities;
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difficulties
in maintaining uniform standards, controls, procedures and
policies;
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the
potential impairment of relationships with employees and customers as a
result of any integration of new management
personnel;
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the
effect of any government regulations which relate to the business
acquired;
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potential
unknown liabilities associated with acquired businesses and the associated
operations, or the need to spend significant amounts to retool, reposition
or modify the existing operations;
or
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the
defense of any litigation, whether or not successful, resulting from
actions of the acquired company prior to the
acquisition.
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For
instance, as a required part of the process of consolidating mines in China, a
consolidator is required to undergo safety inspections which apply to its
existing and operating mines as well as acquired mines. These government
inspections, as well as the required permitting and permitting process, may
require substantial time to complete, and this may cause interruptions our coal
mining operations. Further, if safety issues are identified by government
mine inspection authorities, we may be required to undertake costly and
time-consuming remedial measures in order to restore production.
Our
business could be impaired to the extent that management is unable to succeed in
addressing any of these risks or other problems encountered in connection with
these acquisitions, many of which cannot be presently identified, these risks
and problems could disrupt our ongoing business, distract the management and
employees, increase our expenses and adversely affect our results of
operations.
A
large portion of our current revenue is derived from relatively few
customers.
SinoCoking
depended on four major customers for a substantial portion of its revenue
in fiscal 2009. Nonrenewal or termination of SinoCoking’s arrangements with
these customers may have a materially adverse effect on SinoCoking’s revenue. In
the event that any one of its major customers does not renew or terminates its
arrangement with SinoCoking, there can be no assurance that SinoCoking will be
able to enter into another arrangement similar in scope. Additionally,
there can be no assurance that SinoCoking’s business will not remain largely
dependent on a limited customer base accounting for a substantial portion
of revenue.
Risks
Related To Doing Business in China
Our
operations are primarily located in China and may be adversely affected by
changes in the policies of the PRC government.
The
political environment in the PRC and the policies of the PRC government may
adversely affect our business operations. The PRC has operated as a
socialist state since 1949. In recent years, however, the government has
introduced economic reforms aimed at creating a “socialist market economy” and
policies have been implemented to allow business enterprises greater autonomy in
their operations. Changes in the political leadership of the PRC may have
a significant effect on laws and policies related to the current economic
reforms program, other policies affecting business and the general political,
economic and social environment in the PRC, including the introduction of
measures to control inflation, changes in the rate or method of taxation, the
imposition of additional restrictions on currency conversion and remittances
abroad, and foreign investment. These effects could substantially impair
our business, profits or prospects. Moreover, economic reforms and growth
in the PRC have been more successful in certain provinces than in others, and
the continuation or increases of such disparities could affect the political or
social stability of the PRC.
The
PRC government exerts substantial influence over the manner in
which companies in China must conduct their business
activities.
The PRC
only recently has permitted greater provincial and local economic autonomy and
private economic activities. The government of the PRC has exercised and
continues to exercise substantial control over virtually every sector of the
Chinese economy through regulation and state ownership. Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in the PRC or
particular regions thereof, and if this were to occur, we could be required
to divest the interests we then hold in Chinese properties or joint
ventures. Any such developments could have a material adverse effect on
our business, operations, financial condition and prospects.
9
Future
inflation in China may inhibit economic activity and adversely affect our
operations.
In recent
years, the Chinese economy has experienced periods of rapid expansion and within
which some years with high rates of inflation and deflation, which have led to
the adoption by the PRC government, from time to time, of various corrective
measures designed to restrict the availability of credit or regulate growth and
contain inflation. While inflation has moderated since 1995, high
inflation may in the future cause the PRC government to impose controls on
credit and/or prices, or to take other action, which could inhibit economic
activity in China, and thereby adversely affect our business operations and
prospects.
We
may be restricted from freely converting the Renminbi to other currencies in a
timely manner.
The
Renminbi is not a freely convertible currency at present. We receive all
of our revenue in Renminbi, which may need to be converted to other currencies,
primarily U.S. dollars, in order to be remitted outside of the
PRC. Effective July 1, 1996, foreign currency “current account”
transactions by foreign investment enterprises, including sino-foreign joint
ventures, are no longer subject to the approval of State Administration of
Foreign Exchange (“SAFE,” formerly, “State Administration of Exchange Control”),
but need only a ministerial review, according to the Administration of the
Settlement, Sale and Payment of Foreign Exchange Provisions promulgated in 1996
(the “FX regulations”). “Current account” items include international
commercial transactions, which occur on a regular basis, such as those relating
to trade and provision of services. Distributions to joint venture parties
also are considered “current account transactions.” Other non-current
account items, known as “capital account” items, remain subject to SAFE
approval. Under current regulations, we can obtain foreign currency in
exchange for Renminbi from swap centers authorized by the government. We
do not anticipate problems in obtaining foreign currency to satisfy our
requirements; however, there is no assurance that foreign currency shortages or
changes in currency exchange laws and regulations by the PRC government will not
restrict us from freely converting Renminbi in a timely manner.
We
may be unable to enforce our rights due to policies regarding the regulation of
foreign investments in China.
The PRC’s legal system is a civil law system
based on written statutes in which decided legal cases have little value as
precedents, unlike the common law system prevalent in the United States.
The PRC does not have a well-developed, consolidated body of laws governing
foreign investment enterprises. As a result, the administration of laws
and regulations by government agencies may be subject to considerable
discretion and variation, and may be
subject to influence by external forces unrelated to the legal merits of a
particular matter. China’s regulations and policies with respect
to foreign investments are evolving. Definitive regulations and policies
with respect to such matters as the
permissible percentage of foreign investment and permissible rates of equity returns
have not yet been published. Statements regarding these evolving policies
have been conflicting and any such policies, as administered, are likely to be subject to broad
interpretation and discretion and to be modified, perhaps on a case-by-case
basis. The uncertainties regarding such regulations and policies present
risks that the Company will not be able to achieve our business
objectives. There
can be no assurance that we will be able to enforce any legal rights it may have
under our contracts or otherwise.
We
depend upon the acquisition and maintenance of licenses to conduct our business
in the PRC.
In order
to conduct business in the PRC, we need licenses from the appropriate government
authorities, including general business licenses and licenses and/or permits
specific to our industry. The loss or failure to obtain or maintain these
licenses in full force and effect will have a material adverse impact on our
ability to conduct our business and on our financial condition. Mining
licenses in China are generally subject to periodic renewal, and license fees
associated with renewal may be subject to negotiation between the Company and
the relevant government authorities. The government may in the future
decide to increase these fees, or impose levies or surcharges on coal mine and
mineral extraction rights. No assurance can be given regarding the timing
or magnitude of these types of government actions.
10
Price
controls may affect both our revenues and net income.
The laws
of the PRC provide the government broad power to fix and adjust prices.
Although coal and coke are not presently subject to direct price controls by the
PRC government, we cannot give any assurance that these products will not be
made subject to such controls in the future. To the extent that these
products are subject to price controls, our revenue, gross profit, gross margin
and net income may be adversely affected since the revenue we derive may become
limited and we may face no limitation on our costs. In such a scenario, we
may not be able to pass on any increases in costs to our customers.
Further, if price controls affect both the revenue and the costs,
our ability to operate profitably and the extent of the profitability will
be effectively subject to determination by the applicable PRC regulatory
authorities.
Since
our officers and directors reside outside of the United States, it may be
difficult for you to enforce your rights against them or enforce United States
court judgments against them in the PRC.
Our
directors and executive officers reside in the PRC and all of our assets are
located in the PRC. It may therefore be difficult or impossible for United
States investors to enforce their legal rights, to effect service of process
upon our directors or officers or to enforce judgments of United States courts
predicated upon civil liabilities and criminal penalties of our directors and
officers under federal securities laws. Further, it is unclear if
extradition treaties now in effect between the United States and the PRC would
permit effective enforcement of criminal penalties of the federal securities
laws.
Since
we may not be able to obtain business insurance in the PRC, we may not be
protected from risks that are customarily covered by insurance in the United
States.
At
present, business insurance is not readily available in the PRC. To the
extent that we suffer a loss of a type which would normally be covered by
insurance in the United States, such as product liability and general liability
insurance, we would incur significant expenses in both defending any action and
in paying any claims that result from a settlement or judgment.
Since
our funds are held in banks which do not provide insurance, the failure of any
bank in which we deposit our funds could affect our ability to continue in
business.
Banks and
other financial institutions in the PRC do not provide insurance for funds held
on deposit. As a result, in the event of a bank failure, we may not have
access to funds on deposit. Depending upon the amount of money we maintain
in a bank that fails, our inability to have access to cash could impair
operations, and, if we are not able to access funds to pay our suppliers,
employees and other creditors, we may be unable to continue in
business.
Failure
to comply with the United States Foreign Corrupt Practices Act could subject us
to penalties and other adverse consequences.
We are
subject to the United States Foreign Corrupt Practices Act, which generally
prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business. Foreign companies, including some that may compete with us, are
not subject to these prohibitions. Corruption, extortion, bribery,
pay-offs, theft and other fraudulent practices occur from time-to-time in the
PRC. We can make no assurance, however, that our employees or other agents
will not engage in such conduct for which SinoCoking might be held
responsible. If our employees or other agents are found to have engaged in
such practices, SinoCoking could suffer severe penalties and other consequences
that may have a material adverse effect on our business, financial condition and
results of operations.
Fluctuations
in the exchange rate could have an adverse effect upon our business and reported
financial results.
We
conduct our business in Renminbi, thus our functional currency is the Renminbi,
while our reporting currency is the U.S. dollar. The value of the Renminbi
against the U.S. dollar and other currencies may fluctuate and is affected by,
among other things, the political situation as well as economic policies and
conditions. On July 21, 2005, the PRC government changed its decade old policy
of pegging its currency to the U.S. currency. Under the current policy, the
Renminbi is permitted to fluctuate within a narrow and managed band against a
basket of certain foreign currencies. This change in policy has resulted in
an approximate 17% appreciation of the Renminbi against the U.S. dollar between
July 21, 2005 and March 23, 2009. However, there remains significant
international pressure on the PRC government to adopt an even more flexible
currency policy, which could result in a further and more significant
appreciation of the RMB against the U.S. dollar. To the extent any of our
future revenues are denominated in currencies other than the United States
dollar, we would be subject to increased risks relating to foreign currency
exchange rate fluctuations which could have a material adverse affect on our
financial condition and operating results since operating results are reported
in United States dollars and significant changes in the exchange rate could
materially impact our reported earnings.
11
Risks
Related to the Offering and Securities Offered
Since
we have broad discretion in how we can use the net proceeds from our recent USD
$44 million private placement financing, we may use the net proceeds in ways in
which the shareholders might disagree.
We intend
to use the net proceeds from our recent financing principally for construction
of a new coking plant. However, management will have broad flexibility and
discretion in applying the net proceeds of the financing. Our shareholders
will be relying on the judgment of management with regard to the use of these
net proceeds, and will not have the opportunity, as part of their investment
decision, to assess whether the proceeds are being used in a manner which
in their opinion such proceeds should be used. It is possible that the net
proceeds will be invested in a way that does not yield a favorable, or any,
return for SinoCoking. The failure of management to use such funds
effectively could have a material adverse effect on our business, financial
condition, operating results and cash flow.
The
rights of the holders of common stock may be impaired by the potential issuance
of dilutive securities, namely preferred stock, convertible debt, and additional
common stock.
Our board
of directors has the right, without shareholder approval, to issue other
dilutive securities with voting, dividend, conversion, liquidation or other
rights which could adversely affect the voting power and equity interest of the
holders of our common stock. These additional securities could be issued
with the right to more than one vote per share, and/or could be utilized as a
method of discouraging, delaying or preventing a change of control. The
possible impact on takeover attempts could adversely affect the price of the
common stock. Although we have no present intention to issue any
additional dilutive securities for financing purposes, we may issue such shares
in the future.
Under our
charter and relevant corporate and securities law, the board of directors may
approve the issuance of Company common stock in connection with certain types
of transactions such as of acquisitions of other companies or mining
assets, without obtaining shareholder approval. As a result, additional
securities may be issued in the event of such transactions, resulting in
dilution of the holdings of all pre-transaction shareholders, even though one or
more of the Company’s shareholders may disagree with the Company’s decision to
acquire a target or assets.
Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley Act could have a material adverse effect on the
business and operating results and shareholders could lose confidence in our
financial reporting.
Internal
controls are necessary for us to provide reliable financial reports and
effectively prevent fraud. If we cannot provide reliable financial reports
or prevent fraud, our operating results could be harmed. Under current SEC
regulations, we will be required to include an auditor’s report on internal
controls over financial reporting in our annual 10-K reports with the SEC.
Failure to achieve and maintain an effective internal control environment,
regardless of whether we are required to maintain such controls, could also
cause investors to lose confidence in our reported financial information, which
could have a material adverse effect on our stock price. Although we are
not aware of circumstances that would impair our ability to maintain effective
internal controls, we have not yet obtained an independent audit of our internal
controls, and, as a result, we are not aware of any deficiencies which would
result from such an audit. Further, at such time as the Company is
required to comply with the internal controls requirements of Sarbanes Oxley, we
may incur significant expenses in having our internal controls audited and in
implementing any changes which are required.
12
Because
of our cash requirements as well as potential government restrictions, we may be
unable to pay dividends.
The
payment of dividends to our shareholders would require payment of dividends by
our PRC subsidiaries and controlled companies to SinoCoking Coal and Coke
Chemical Industries, Inc. a Florida parent corporation. This, in turn,
would require a conversion of Renminbi into US dollars and repatriation of funds
to the United States. Although our subsidiary Hongyuan’s classification as
a wholly owned foreign enterprise under PRC law permits it to declare dividends
and repatriate our funds to the Florida parent company in the United States, any
change in this status or the regulations permitting such repatriation could
prevent it from doing so. Any inability to repatriate funds to the Florida
parent company would in turn prevent payments of dividends to our
shareholders. We do not presently intend to pay dividends.
Our
stock price may be affected by our failure to meet projections and estimates of
earnings developed either by us or by independent securities
analysts.
Our
operating results may fall below the expectations of securities analysts and
investors. In this event, the market price of our common stock would
likely be materially adversely affected.
The
volatility of and limited trading market in our common stock may make it
difficult for the investors to sell the common stock for a positive return on
their investment.
The
public market for our common stock has historically been very volatile.
Any future market price for our shares is likely to continue to be very
volatile. In addition, there has been little or no market for our stock
until very recently, and our common stock has been and may in the future, be
thinly traded with relatively high bid-ask spreads. These factors may make
it more difficult for our shareholders to sell shares of our common stock, and
at prices that our shareholders may expect.
We
will incur increased costs as a public company which may affect our
profitability.
Prior to
our reverse takeover transaction with Top Favour Limited, SinoCoking operated as
a private company in China. As a public company, SinoCoking has incurred
and will continue to incur significant legal, accounting and other expenses
that it did not as a private company. SinoCoking is subject to
the SEC’s rules and regulations relating to public disclosure. SEC
disclosures generally involve a substantial expenditure of financial
resources. In addition, the Sarbanes-Oxley Act of 2002, as well as new
rules subsequently implemented by the SEC, have required changes in corporate
governance practices of public companies. We expect that if we undertake
compliance with these new rules and regulations we will significantly increase
our legal and financial compliance costs and make some activities more
time-consuming and costly. For example, we anticipate that we will be
required to maintain independent board committees and adopt policies regarding
internal controls and disclosure controls and procedures. For example,
management may need to increase compensation for senior executive officers,
engage senior financial officers able to adopt financial reporting and control
procedures, allocate a budget for an investor and public relations program, and
increase our financial and accounting staff in order to meet the demands and
financial reporting requirements as a public reporting company. Such
additional personnel, public relations, reporting and compliance costs will
affect our financial results.
Generally,
we have not paid any cash dividends to our shareholders and no cash dividends
will be paid in the foreseeable future.
We do not
anticipate paying cash dividends on our common stock in the foreseeable future
and it may not have sufficient funds legally available to pay dividends.
Even if the funds are legally available for distribution, we may nevertheless
decide or may be unable to pay any dividends. We intend to retain all
earnings for our operations.
13
If
we were to become subject to the penny stock rules, it may have difficulty in
selling our common stock.
Listed
companies with a stock price trading at less than $5.00 per share will be
subject to the SEC’s penny stock rules, which impose additional sales practice
requirements and restrictions on broker-dealers that sell our stock to persons
other than established customers and institutional accredited investors.
In the event that we become subject to these rules, these rules may affect
the ability of broker-dealers to sell our common stock and may affect your
ability to sell any common stock you may own. According to the SEC, the
market for penny stocks has suffered in recent years from patterns of fraud and
abuse. Such patterns include:
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Control
of the market for the security by one or a few broker-dealers that are
often related to the promoter or
issuer;
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Manipulation
of prices through prearranged matching of purchases and sales and false
and misleading press releases;
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Boiler
room practices involving high pressure sales tactics and unrealistic price
projections by inexperienced sales
persons;
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Excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
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The
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the
inevitable collapse of those prices with consequent investor
losses.
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Our
common stock is newly listed, has a limited public float, a short trading
history, and has been relatively thinly traded. As a result, in the near
future and beyond, liquidity in our shares may be limited, and you may be unable
to sell at or near the purchased price or at all if you need to sell your shares
or otherwise liquidate your holdings.
We cannot
predict the extent to which an active public market for the common stock will
develop or be sustained. Our common stock became listed very recently on
NASDAQ in February 2010, and our shares have only a limited amount of trading
history. This situation is attributable to a number of factors, including
the fact that our common stock has a limited public float, and we are a newly
listed public reporting company that is relatively unknown to stock analysts,
stock brokers, institutional investors and others in the investment community
that generate or influence sales volume. As a consequence, there have been
and may be periods of several days or more when trading activity in the shares
is or will be minimal or non-existent, as compared to a seasoned issuer that has
a large and steady volume of trading activity that will generally support
continuous sales without an adverse effect on share price. We cannot
provide any assurance that a broader or more active public trading market for
our common stock will develop or be sustained in the future, or that any
particular level of trading volume in our stock will be sustained.
The
market price of our common stock is expected to be particularly volatile given
our status as a relatively small company with a small float that could lead to
wide fluctuations in our share price. The price at which you purchase our
common stock may not be indicative of the price that will prevail in the trading
market. You may be unable to sell your common stock at or above your
purchase price if at all, which may result in substantial losses to
you.
The
market for our common stock is expected to be characterized by significant price
volatility when compared to seasoned issuers, and we anticipate that our share
price will continue to be more volatile than a seasoned issuer for some
time. Volatility in share prices is attributable to a number of
factors. In the near future, our common stock is expected to be
sporadically and/or thinly traded. As a consequence of this lack of
liquidity, the trading of relatively small quantities of shares by our
shareholders may disproportionately influence the price of those shares in
either direction. The price for our shares could, for example, decline
precipitously in the event a large number of our common shares are sold on the
market without commensurate demand, as compared to a seasoned issuer which could
better absorb those sales without adverse impact on our share price. The
following factors also may add to the volatility in the price of our common
stock: actual or anticipated variations in our quarterly or annual operating
results; adverse outcomes; additions to or departures of key personnel, as well
as other items discussed under this Risk Factor section, as well as elsewhere in
our reports, filings and public disclosures. Many of these factors are
beyond our control and may decrease the market price of our common stock,
regardless of our operating performance. We cannot make any predictions or
projections as to what the prevailing market price for our common stock will be
at any time, including as to whether our common stock will sustain any
particular trading price, or as to what effect the sale of shares or the
availability of common shares for sale at any time will have on the then
prevailing market price.
14
Volatility
in our common stock price may subject SinoCoking to securities
litigation.
The
future market for our common stock may be characterized by significant price
volatility when compared to seasoned issuers, and we expect our share price will
be more volatile than a seasoned issuer for the indefinite future. As of
the present date, we have a very limited number of freely tradable shares, which
may exacerbate volatility and result in exaggerated price changes in the common
stock. In the past, plaintiffs have often initiated securities class
action litigation against a company following periods of volatility in the
market price of our securities. We may, in the future, be the target of
similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and
resources.
Past
activities during the period prior to our reverse takeover transaction on
February 5, 2010 relating to our prior business then known as “Ableauctions.com,
Inc.” may lead to future liability.
Prior to
our acquisition of Top Favour Limited (the BVI holding company for SinoCoking’s
business) on February 5, 2010, the Company, then named “Ableauctions.com, Inc.”
engaged in businesses unrelated to our current operations. Although
certain previously controlling shareholders of Ableauctions.com and its related
liquidating trust have provided certain indemnifications against any loss,
liability, claim, damage or expense arising out of or based on any breach of or
inaccuracy in any of their representations, warranties and covenants made
regarding such acquisition, including a $1 million reserve fund set aside by a
liquidating trust for purposes of paying any indemnification claims by us,
any liabilities relating to such prior business against which we are not
completely indemnified may have a material adverse effect on us (and indirectly
our shareholders) may not be able to benefit from any funds in
reserve.
Reverse
takeover transactions of the type to conducted between the Company (then known
as Ableauctions.com) and Top Favour are often heavily scrutinized by the SEC and
we may encounter difficulties or delays in obtaining future regulatory
approvals.
Historically,
the SEC and the U.S. national exchanges have not generally favored transactions
in which a privately held company merges into a public reporting company with
listed securities. On June 29, 2005, the SEC adopted rules dealing with
private company mergers into dormant or inactive public companies.
Although our Company was not a dormant inactive public company at the time of
the reverse takeover transaction, we anticipate that the Company will be
scrutinized carefully by the SEC and possibly by the Financial Industry
Regulatory Authority. Further, the SEC or other regulatory authority may
unexpectedly assert a different interpretation of its rules, than the
interpretation relied upon, used by, or considered reasonable the Company and
its advisors, and by other companies conducting similar or analogous
transactions, which could increase the cost of, or adversely affect our ability
to, file and achieve effectiveness for our registration statements, or interfere
with or negate the ability of the Company its shareholders to rely upon Rule 144
or similar rules.
Future
sales of shares of our common stock may decrease the price for such
shares.
Actual
sales, or the prospect of sales by our shareholders, may have a negative effect
on the market price of the shares of our common stock. We may also
register certain shares of our common stock that are subject to outstanding
convertible securities, if any, or reserved for issuance under our stock option
plans. Once such shares are registered, they can be freely sold in the
public market upon exercise of the options. At any given time, if any of
our shareholders either individually or in the aggregate cause a large number of
securities to be sold in the public market, or if the market perceives that
these holders intend to sell a large number of securities, such sales or
anticipated sales could result in a substantial reduction in the trading price
of shares of our common stock and could also impede our ability to raise future
capital.
15
The
elimination of monetary liability against our directors, officers and employees
under state law and the existence of indemnification rights to our directors,
officers and employees may result in substantial expenditures by us and may
discourage lawsuits against our directors, officers and employees.
Our
articles of incorporation contain specific provisions that eliminate or limit
the liability of directors for monetary damages to us and our shareholders, and
we are prepared to give such indemnification to our directors and officers to
the extent permissible under state law. We may also maintain or enter
into, from time to time, contractual agreements that obligate us to indemnify
our officers under employment agreements, and similar contractual agreements
with our directors. The foregoing indemnification obligations could
result in us incurring substantial expenditures to cover the cost of settlement
or damage awards against directors and officers, in the event of actions against
our officers and directors, which we may be unable to recoup. These
provisions and resultant costs may also discourage us from bringing a lawsuit
against directors and officers for breaches of their fiduciary duties, and may
similarly discourage the filing of derivative litigation by our shareholders
against the directors and officers even though such actions, if successful,
might otherwise benefit the Company and its shareholders.
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 such factors as:
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actual
or anticipated fluctuations in our quarterly operating
results;
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changes
in financial estimates by securities research
analysts;
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conditions
in the commodities markets;
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changes
in the economic performance or market valuations of other companies in our
industry;
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announcements
by us or our competitors of new or competitive products, acquisitions,
strategic partnerships, joint ventures or capital
commitments;
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addition
or departure of key personnel;
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fluctuations
of foreign exchange rates between RMB and the U.S.
dollar;
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commercial
litigation; and
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general
economic or political conditions in
China.
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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.
We
may need additional capital, and the sale of additional shares or other equity
securities could result in additional dilution to our shareholders.
We
believe that our current cash and cash equivalents, anticipated cash flow from
operations, availability of borrowings under the new loan, and the net proceeds
from this offering will be sufficient to meet our anticipated cash needs for the
near future. We may, however, require additional cash resources due to
changed business conditions or other future developments, including any
investments or acquisitions we may decide to pursue. If our resources are
insufficient to satisfy our cash requirements, we may seek to sell additional
equity or debt securities or obtain additional credit. The sale of
additional equity securities could result in additional dilution to our
shareholders. Incurring indebtedness would result in increased debt
service obligations and could result in operating and financing covenants that
would restrict our operations. We cannot assure you that financing will be
available in amounts or on terms acceptable to it, if at all.
16
The
registration and potential sale, either pursuant to our prospectus or pursuant
to Rule 144, by certain selling security holders of a significant number of
shares could encourage short sales by third parties.
There may
be significant downward pressure on our stock price caused by the sale or
potential sale of a significant number of shares by certain of selling security
holders pursuant to the Company’s effective registration statement on Form S-1
and prospectus or under Rule 144, which could allow short sellers of our stock
an opportunity to take advantage of any decrease in the value of our
stock. The presence of short sellers in our common stock may further
depress the price of our common stock. If the selling security holders
sell a significant number of shares of common stock, the market price of our
common stock may decline. Furthermore, the sale or potential sale of the
offered securities pursuant to the prospectus and the depressive effect of such
sales or potential sales could make it difficult for us to raise funds from
other sources.
General
Overview
SinoCoking
Coal and Coke Chemical Industries, Inc. (the “Company”) is a vertically
integrated coal and coke producer based in Henan Province, People’s Republic of
China (“PRC” or “China”). We use coal from both our own mines and that of
third-party mines to produce basic and value-added coal products such as thermal
coal, washed metallurgical coal, and chemical and metallurgical coke for steel
manufacturers, power generators, and various industrial users. We also
produce and sell coal, including raw (unprocessed) and washed coal (which is
coal that has been prepared for coking or thermal uses), medium coal and coal
slurries (by-products of the coal-washing process), and coal tar (a by-product
of the coke manufacturing process).
All of
our business is conducted by Henan Province Pingdingshan Hongli Coal & Coke
Co., Ltd. (“Hongli”), which we control through contractual arrangements that
Hongli and its owners have entered into with Pingdingshan Hongyuan Energy
Science and Technology Development Co., Ltd. (“Hongyuan”). These contractual
arrangements provide for management and control rights, and in addition entitle
us to receive the earnings and control the assets of Hongli Group.
Hongyuan
is wholly owned by Top Favour Limited (“Top Favour”), our wholly owned
subsidiary. Hongli produces coke, coal, coal byproducts and electricity
through its branch operation, Baofeng Coking Factory (“Baofeng Coking”), and its
wholly owned subsidiaries, Baofeng Hongchang Coal Co., Ltd. (“Hongchang Coal”)
and Baofeng Hongguang Environment Protection Electricity Generating Co., Ltd.
(“Hongguang Power”), which we refer to collectively as the “Baofeng
Subsidiaries.” We refer to Hongli and the Baofeng Subsidiaries
collectively as “Hongli Group.” We refer to the Company, Top Favour,
Hongyuan and Hongli Group collectively as “SinoCoking.”
Our
Industry
World
Coal Reserves
According
to the Energy Information Administration (“EIA”), total recoverable reserves of
coal around the world are estimated at 929 billion metric tons.
Historically, estimates of world recoverable coal reserves, although relatively
stable, have declined gradually from 1,145 billion metric tons in 1991
to 1,083 billion metric tons in 2000 and 929 billion metric
tons in 2006. Although coal deposits are widely distributed, 80% of
the world’s recoverable reserves are located in five countries: the United
States (28.0%), Russia (19.0%), China (14.0%), India (10.0%) and Australia
(9.0%). In 2006 those five countries, taken together, produced 4.9
billion metric tons (95.8 quadrillion BTU) of coal, representing 71.0%
(75.0% on a BTU basis) of total world coal production. By rank, anthracite
and bituminous coal account for 51.0% of the world’s estimated recoverable coal
reserves on a tonnage basis, and sub-bituminous and lignite coal account for
50.0%. In 2006, coal accounted for 27% of world energy consumption, of
which 62% was shipped to electricity producers, 34% to industrial consumers, and
most of the remaining 4% to coal consumers in the residential and commercial
sectors. Coal’s share of total world energy consumption is expected to
increase to 28% in 2030.
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Quality
and geological characteristics of coal deposits are important parameters for
coal reserves. Coal is a heterogeneous source of energy, with quality (for
example, characteristics such as heat, sulfur, and ash content) varying
significantly by region and even within individual coal seams. At the top
end of the quality spectrum are premium-grade bituminous coals, or coking coals,
used to manufacture coke for the steelmaking process. The heat content of
bituminous coal ranges from 21.0 million to 30.0 million BTU/ton (approximately
5,300 to 7,550 kcal/kg) on a moist, mineral-matter-free basis. Coking
coals produced in the United States have an estimated heat content of 26.3
million BTU per ton (approximately 6,600 kcal/kg) and relatively low sulfur
content of approximately 0.9 percent by weight. At the other end of the
spectrum are reserves of low-BTU lignite. On a BTU basis, lignite reserves
show considerable variation. Estimates published by the International
Energy Agency for 2005 indicate that the average heat content of lignite in
major producing countries varies from a low of 4.4 million BTU per ton
(approximately 1,100 kcal/kg) in Greece to a high of 12.4 million BTU per
ton (approximately 3,100 kcal/kg) in Canada.
The
growth rate for world coal consumption is expected to be 1.9% from 2006 to 2015
and 1.6% from 2015 to 2030, generally reflecting the growth trends for both
world GDP and world primary energy consumption.
Coal
Consumption and Demand in China
According
to EIA, China and India together will account for 90 percent of the projected
increase in world coal consumption from 2006 to 2030. Strong economic
growth is projected for both countries (averaging 6.4 percent per year in China
and 5.6 percent per year in India from 2006 to 2030), and much of the increase
in their demand for energy, particularly in the electric power and industrial
sectors, is expected to be met by coal.
Coal use
in China’s electricity sector is projected to increase from 24.9 quadrillion BTU
in 2006 to 57.3 quadrillion BTU in 2030, at an average rate of 3.5% per
year. At the beginning of 2006, China had an estimated 350 gigawatts of
coal-fired capacity in operation. To meet the demand for electricity that
is expected to accompany its rapid economic growth, an additional 600 gigawatts
of coal-fired capacity (net of retirements) is projected to be brought on line
in China by 2030, requiring large financial investments in new coal-fired power
plants and associated transmission and distribution systems.
Approximately
half of China’s coal use in 2006 was in the non-electricity sectors, principally
in the industrial sector. In 2006, China was the world’s leading producer
of both steel and pig iron, and between 2006 and 2030, coal demand in China’s
non-electricity sectors is expected to increase by 13.9 quadrillion BTU.
Despite such substantial growth, however, the non-electricity share of total
coal demand is expected to decline to 41.0% in 2030. Because China has
only limited reserves of oil and natural gas, coal remains the primary source of
energy in its industrial sector, even as electricity’s share of total industrial
energy use rises from 18.0% percent in 2006 to an expected 28.0% in
2030.
Coal
Production in China
EIA
estimates that China’s coal production increased from 1,459 million short metric
tons in 2001 to 2,804 million short metric tons in 2007. China contributed
approximately 40.0% to world coal production in 2007 whereas in 2001, it
contributed 28.0%.
Bituminous
coal comprised 75.0% of China’s coal production. China’s bituminous coal
production increased from 1,138 million short metric tons in 2001 to 1,984
million short metric tons in 2006.
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From 2006
to 2030, coal production in China is projected to increase by 52.8 quadrillion
BTU or 2,617 million short metric tons. Management believes that the
production estimates suggest that most of the demand for coal in China will
continue to be met by domestic production.
After
reaching a peak in the first half of 2008, coal prices, as measured by the
Qinhuangdao benchmark spot price (Shanxi blend, 5,500 kcal/kg), saw sharp
declines in the latter half of 2008. Coal prices are expected to stay in
the 550 RMB/ton range for 2009 through 2011, as the global economy recovers and
coal demand increases. However, coal prices could see near-term
declines as China's five power giants together with China Resources are expected
to purchase imported coal at lower international prices, which may impose great
pressure on domestic coal pricing.
Coking
Industry in China
Coke
is a hardened, solid carbonaceous residue derived from low-ash, low-sulfur
bituminous coal from which the volatile constituents are driven off by
baking in an oven without oxygen at high temperatures so that the fixed carbon
and residual ash are fused together. The two major types of coke are
metallurgical coke and chemical coke, which are primarily used in the
manufacture of pig iron, which is a major component in the production of
steel. Metallurgical coke is classified into three grades depending on the
level of carbon and other mineral content – Grade I coke, which is suitable for
larger furnaces and has a high heat yield compared to Grade II and Grade
III. The quality of coke has a significant impact on the production of
iron. Compared to the other grades of coke, Grade I coke produces the
least ash and is the highest quality, therefore yielding more iron and achieving
higher productivity.
World
metallurgical coke production reached 612 million metric tons in 2008, a slight
increase in production from 2007. China is currently the powerhouse in the
global coke industry, producing 374 million metric tons of coke in 2008,
accounting for 60% of total global production. Japan, the second largest
coke producer in the world, produces 42 million metric tons annually and holds a
7% market share. For the first five months of 2009, China produced 126
million metric tons of coke, down 7.4 percent from the previous year.
China is by far the most important market for metallurgical coke in every key
aspect covering production, consumption and export. Locality has been a
major driving force behind metallurgical coke production capacity growth in
north, northeast and east of China. These areas have large pools of coal
reserves and are strategically located near the coal ports - boosting the supply
chain of metallurgical coke market. The availability and close proximity
to both imported and domestic coal coupled with existing transportation
infrastructure have provided the catalyst for expansion of the metallurgical
coke market. Steel production and demand distribution is also closely
mirrored by metallurgical coke production and demand. Increased number of
steel coke production facilities growing in these areas has sparked the building
of new metallurgical coke plants looking to meet new increasing
demand.
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Coke
Uses and By-Products
As
mentioned above, metallurgical coke is primarily used for steel manufacturing.
Chemical coke, however, commonly referred in China to as gas coke, is mainly
used in China to produce synthesis gas, a gas mixture largely of hydrogen and
carbon monoxide that is combustible and often used as a fuel source or as an
intermediate for the production of other chemicals including methanol,
formaldehyde and ammonia. 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. Chemical coke, on the other hand, must have
more than 80% fixed carbon, less than 18% ash content, less than 1% sulfur
content and less than 3% volatile matter.
Coal tar
is a by-product of the distillation of metallurgical coal in coke processing.
Coal tar in turn is distilled into many fractions to yield a number of useful
organic products, including benzene, toluene, naphthalene and anthracene.
The Company’s tar is sold mainly to producers of naphthalene, anthracene, carbon
lack and water proofing materials. Coal gas is obtained as a by-product in
the preparation of coke. Its composition varies but largely consists of
hydrogen and methane with small amounts of other hydrocarbons, carbon monoxide,
carbon dioxide and nitrogen.
China
Coke Pricing
The
Shanxi Coking Industry Association lowered its reference price for coke sales in
September 2009 by RMB 80/ton. In September, the free-on-rail price for
coke with sulphur content less than 0.7% and ash content below 12.5% would be
RMB 1,780/ton, inclusive of VAT, down RMB 80/ton from August. The move follows a
price cut just two weeks before, when the SCIA lowered its August reference
price by RMB 20/ton to RMB 1,860/ton. Meanwhile, the association asked
coke enterprises to limit production by 60%-70% to reduce coke stocks and
stabilize market supply. The Hebei Coke & Chemical Industry
Association cut the Grade II or "2nd Grade" met coke reference price
by RMB 150/ton to RMB 1,700/ton for September. In 2009, the association
suggested that PRC coke producers cut production by 30% to support coke
prices.
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Coke
prices saw significant declines from their peaks in the first half of 2008, as
there was reduced demand from the iron and steel industries. Prices have
subsequently been volatile for most of 2009, closing at 1,780 RMB/ton at the end
of September. Since September 2009, coke prices have increased
approximately 10%, resulting from improved economic conditions and increased
steel demand. The price of coke closed at 1,970 RBM/ton in the beginning
of May 2010.
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Due to
the Chinese central government’s regulations, all the unqualified coking
facilities with furnace height of less than 4.3 meters will have to be shut down
within a short period. As a result, management believes coke will be in
short supply future years.
Corporate
History and Structure of SinoCoking
The
Company is a Florida corporation, originally incorporated as “J. B. Financial
Services, Inc.” on September 30, 1996. From the date of its incorporation
until August 24, 1999, the Company had no material business and no material
revenues, expenses, assets or liabilities. The Company changed its name to
"Ableauctions.com, Inc." on July 19, 1999, and subsequently operated an online
auction business and a real estate business.
On
December 30, 2009, the Company’s shareholders approved a Plan and Agreement of
Share Exchange, dated July 17, 2009 (the “Exchange Agreement”), with Top
Favour, under which, the Company (formerly named “Ableauctions.com,
Inc.”) agreed to acquire all of the outstanding capital stock of Top Favour in
exchange for the issuance of 13,117,952 shares of its common stock to the
shareholders of Top Favour (the “Acquisition”). The Acquisition was
consummated at 5:00 p.m. Pacific time on February 5, 2010 (the “Closing
Date”).
On the
Closing Date:
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The
Company ceased operating all of its businesses that existed and were held
prior to the Closing Date;
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The
Company changed its name from “Ableauctions.com, Inc.” to “SinoCoking Coal
and Coke Chemical Industries, Inc.” to reflect the business of Top Favour,
and it effected a 1-for-20 reverse stock split of its issued and
outstanding shares of common stock, by filing an amendment to its articles
of incorporation with Florida’s Department of
State;
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All
of the Company’s directors and officers prior to the Acquisition resigned,
and successor officers and directors designated by Top Favour were
appointed to the board and
management;
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All
of the pre-Acquisition assets of the Company (e.g. relating to online
auctions, liquidation, real estate services, finance and development) were
transferred to a liquidating trust (the “Liquidating Trust”); these assets
included the capital stock of the Company’s pre-Acquisition
subsidiaries;
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The
Liquidating Trust assumed all of the Company’s pre-Acquisition
liabilities;
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Top
Favour and its subsidiaries and controlled companies became subsidiaries
and controlled companies of the
Company;
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The
business, operations and assets of Top Favour (e.g., production of coal
and coke) became the sole business, operations and assets of the
Company.
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The
operations of the Company’s former pre-Acquisition subsidiaries, now held by the
Liquidating Trust, are in the process of being wound down and will eventually be
liquidated. Any proceeds from the liquidation which remain after the
payment of liabilities and expenses relating to the liquidation will be
distributed by the Liquidating Trust to the shareholders of record prior to the
consummation of the Acquisition.
Top
Favour is a holding company that was incorporated in the British Virgin Islands
on July 2, 2008. Since incorporation, Top Favour has not conducted (and
presently does not conduct) any substantive operations of its own except to
serve as a holding company that owns 100% of the equity interest of
Hongyuan.
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Hongyuan
is a PRC limited liability company and the wholly owned subsidiary of Top
Favour. Hongyuan was approved as a wholly foreign owned enterprise (“WFOE”) by
the Henan provincial government on February 26, 2009 and formally organized on
March 18, 2009. Other than activities relating to its contractual
arrangements with Hongli, Hongyuan has no separate operations of its
own.
Hongli is
a limited liability company organized in the PRC on July 5, 1996. Hongli
holds the government licenses and approvals necessary to operate SinoCoking’s
businesses in China. Hongyuan does not own any equity interests in Hongli,
but controls and receives the economic benefits of its business operations
through contractual arrangements. In turn, Top Favour is the 100% owner
and parent company of Hongyuan.
Baofeng
Coking was established on May 31, 2002 as a branch of Hongli. Baofeng
Coking produces SinoCoking’s coke products.
Hongchang
Coal is a limited liability company that was organized in the PRC on July 19,
2007. Hongchang Coal is a wholly owned subsidiary of Hongli and operates
SinoCoking’s coal mining operations.
Hongguang
Power is a limited liability company that was organized in the PRC on August 1,
2006. Hongguang Power is also wholly owned by Hongli and operates
SinoCoking’s electricity generating operations.
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SinoCoking’s
current corporate structure is illustrated below.
Contractual Arrangements with Hongli Group and its Owners
Our
relationship with Hongli Group and its owners is governed by a series of
contractual arrangements (or VIE agreements), under which Hongyuan, the WFOE,
holds and exercises ownership and management rights over the Hongli Group.
Neither the Company, Top Favour nor Hongyuan owns any direct equity interest in
Hongli Group; however, the contractual arrangements with Hongli Group and
its owners are designed to provide the Company with rights equivalent in all
material respects to those it would possess as the sole equity holder of the
Hongli Group entities, including absolute control rights and the rights to their
assets, property and income. According to a legal opinion issued by our
PRC counsel, the contractual arrangements constitute valid and binding
obligations of the parties to such agreements, and are enforceable and valid in
accordance with the laws of the PRC.
On March
18, 2009, Hongyuan entered into the following contractual arrangements with
Hongli Group and its owners:
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Consulting Services
Agreement. Pursuant to the consulting services agreement, Hongyuan
provides the Hongli Group companies with general consulting services relating to
their business management and operations on an exclusive basis.
Additionally, Hongyuan owns any intellectual property rights that are developed
during the course of providing these services. Each Hongli Group company
pays a quarterly consulting service fee in Renminbi (“RMB”) equal to its net
income for such quarter to Hongyuan. The consulting services agreement is
in effect unless and until terminated by written notice of either party in the
event that: (a) the other party causes a material breach of the agreement,
provided that if the breach does not relate to a financial obligation of the
breaching party, that party may attempt to remedy the breach within 14 days
following the receipt of the written notice; (b) the other party becomes
bankrupt, insolvent, is the subject of proceedings or arrangements for
liquidation or dissolution, ceases to carry on business, or becomes unable to
pay its debts as they become due; (c) Hongyuan terminates its operations; (d)
Hongli Group’s business license or any other approval for its business
operations is terminated, cancelled or revoked; or (e) circumstances arise which
would materially and adversely affect the performance or the objectives of the
consulting services agreement. Additionally, Hongyuan may terminate
the consulting services agreement without cause.
Operating Agreement.
Pursuant to the operating agreement, Hongyuan provides guidance and instructions
on each Hongli Group company’s daily operations, financial management and
employment issues. In addition, Hongyuan agrees to guarantee the
performance of each Hongli Group company under any agreements or arrangements
relating to its business arrangements with any third party. In return, the
owners of Hongli Group must designate Hongyuan’s candidates as their
representatives on each Hongli Group company’s board of directors, and Hongyuan
has the right to appoint senior executives of each Hongli Group company.
Additionally, each Hongli Group company agrees to pledge its accounts
receivable and all of its assets to Hongyuan. Moreover, each Hongli Group
company agrees not to engage in any transactions that could materially affect
its assets, liabilities, rights or operations without Hongyuan’s prior consent,
including without limitation, incurrence or assumption of any indebtedness, sale
or purchase of any assets or rights, incurrence of any encumbrance on any of its
assets or intellectual property rights in favor of a third party or transfer of
any agreements relating to its business operation to any third party. The
term of this agreement is the maximum period of time permitted by law unless
sooner terminated by any other agreements reached by all parties or upon a
30-day written notice from Hongyuan. The term may be extended only upon
Hongyuan’s written confirmation prior to the expiration of the agreement, with
the extended term to be mutually agreed upon by the parties. Under current
PRC Contract Law, there is no limitation on the maximum term permitted by law
for the operating agreement. As long as the operating agreement is not
terminated or discharged according to contract or by operation of the law and
the contractual parties still exist, there is no limitation on term of the
operating agreement. However, the PRC government may issue new laws and
regulations in connection with these types of operating agreements which may
limit the terms of such agreements in the future.
Equity Pledge
Agreement. Under the equity pledge agreement, the owners of Hongli
Group pledged all of their equity interests in Hongli Group to Hongyuan to
guarantee each Hongli Group company’s performance of its obligations under the
consulting services agreement. If a Hongli Group company or the owners
breach their respective contractual obligations, Hongyuan, as pledgee, will be
entitled to certain rights, including, but not limited to, the right to vote
with, control and sell the pledged equity interests. The owners of Hongli
Group also agreed that upon occurrence of any event of default, Hongyuan
shall be granted an exclusive, irrevocable power of attorney to take actions in
the place and stead of the owners to carry out the security provisions of the
equity pledge agreement, and take any action and execute any instrument as
required by Hongyuan to accomplish the purposes of the agreement. The
owners of Hongli Group agreed not to dispose of the pledged equity interests or
take any actions that would prejudice Hongyuan’s interest. This agreement
will expire two years from the fulfillment of Hongli Group’s obligations under
the consulting services agreement.
Option Agreement. Under
the option agreement, the owners of Hongli Group irrevocably granted Hongyuan or
its designee an exclusive option to purchase, to the extent permitted under
Chinese law, all or part of the equity interests in Hongli Group for the cost of
the owners’ initial contributions to the registered capital of each Hongli Group
company or the minimum amount of consideration permitted by applicable
Chinese law. Hongyuan or its designee has sole discretion to decide
when to exercise the option, whether in part or in full. The term of this
agreement is ten years from January 1, 2006 and may be extended prior to its
expiration by written agreement of the parties.
25
Proxy Agreement.
Pursuant to the proxy agreement, the owners of Hongli Group irrevocably granted
a Hongyuan designee the right to exercise all voting rights of the owners with
respect to their ownership interests in accordance with applicable laws and each
Hongli Group company’s governing charters. This agreement may not be
terminated without the unanimous consent of all parties, except that Hongyuan
may terminate the proxy agreement with or without cause upon 30-day written
notice to the owners.
Recent
$44 Million Private Placement Financing
On March
11, 2010, we completed two private placement financings, pursuant to exemptions
under Regulation S and Regulation D respectively, in which we sold and issued
units consisting of common stock and common stock warrants, for a purchase price
of USD $6.00 per unit, resulting in aggregate proceeds of $44 million
(collectively referred to as the “financing”). Each unit consisted of one
(1) share of common stock and a warrant for the purchase of 0.5 shares of common
stock with an exercise price of $12.00 per share. The investor warrants
are exercisable for a period of five years from the date of issuance. The
financing was conducted pursuant to Securities Purchase Agreements dated
February 5 and March 10, 2010, in two closings. On the initial closing
date of February 5, 2010 (“Initial Closing”), the Company issued a total of
1,180,892 shares of common stock, and warrants for the purchase of 590,446
shares of common stock, to investors. On the second closing on March 11,
2010 (the “Final Closing”), we sold and issued 6,164,043 of our units
(consisting of 6,164,043 shares of common stock, and warrants for the purchase
of 3,081,188 shares of common stock with an exercise price of $12.00 per share),
at a purchase price of USD $6.00 per unit, to both U.S. investors and non-U.S.
persons. Each unit consisted of one (1) share of common stock and a
warrant for the purchase of 0.5 shares of common stock with an exercise price of
$12.00 per share. The investor warrants issued in the Final Closing are
exercisable for a period of five years from the date of issuance, however unlike
the warrants issued in the Initial Closing they are also callable at our
election six months after the date of issuance if our common stock trades
at a price equal to at least 150% of the exercise price (or $18.00 per share)
with an average trading volume of at least 150,000 shares of Common Stock (as
adjusted for any stock splits, stock dividends, combinations and the like) per
trading day for at least 10 consecutive trading days and provided that the
underlying shares of common stock are registered under an effective registration
statement.
In
connection with the foregoing, we entered into a registration rights agreement
with the U.S. investors pursuant to which the Company agreed to file a
registration statement to register both the shares of common stock, and the
common stock underlying the warrants, issued in the financing, within 60 days
after the closing date of March 11, 2010. We agreed to use our best
efforts to have the registration statement declared effective by the SEC within
120 days (or 180 days in the event of a full review of the registration
statement by the SEC) of the Final Closing, subject to certain exceptions.
We also agreed to undertake commercially reasonable efforts to register
the shares of common stock and the shares of common stock underlying warrants
issued to the non-U.S. investors in the financing.
Madison
Williams and Company, LLC (“Madison Williams”) and Rodman & Renshaw,
LLC (“Rodman & Renshaw”), a wholly owned subsidiary of Rodman & Renshaw
Capital Group, Inc. (collectively the “placement agents”), acted as joint
placement agents in connection with the financing. Under a placement agent
agreement between us and these placement agents dated March 8, 2010 (and
executed and delivered on March 11, 2010), we agreed to pay the placement agents
a cash fee equal to seven percent (7%) of the aggregate gross proceeds from the
sale of securities to the U.S. accredited investors, plus reimbursement of fees
and expenses, and reasonable fees and expenses of placement agent legal
counsel. In addition, under the placement agreement, we agreed to issue
warrants for the purchase of up to 250,000 shares of common stock, with an
exercise price of $6.00 per share, containing terms and provisions otherwise
similar to the terms provided under the investor warrants described above.
We issued the foregoing warrants to the placement agents on March 11,
2010. In addition, we also separately agreed to issue warrants to Madison
Williams for the purchase of up to 117,163 shares of common stock with an
exercise price of $12.00 per share, containing terms and provisions otherwise
similar to the investor warrants, as compensation for placement agent services
in relation to the sale of our securities to the non-U.S. investors in the
financing.
The
financing resulted in total gross proceeds to the Company of $44 million, and
the issuance by us of a total of 7,344,935 shares of common stock, and five-year
warrants for the purchase of an additional 3,789,631 shares of common stock with
an exercise price of $12.00 per share and five-year warrants for the purchase of
250,000 shares of common stock with an exercise price of $6.00 per share.
The proceeds from this financing will be used to finance our expansion
plans (see “Expansion Plans” on page 31 of this prospectus).
26
Principal
Products
SinoCoking’s
principal product is coke, which it produces from coal that it mines as well as
coal that it purchases. We produce and sell two types of coke,
metallurgical coke primarily used in steel manufacturing and chemical coke (also
known as gas coke in the PRC) used mainly for synthesis gas production. We
also produce and sell coal, including raw coal, “washed coal” (which is
processed coal that is ready for coking), and “medium coal” and coal slurries
(both of which are byproducts of the coal-washing process). We also use
byproducts from our coke manufacturing process to produce and sell coal
tar. During the fiscal year ended June 30, 2010, we produced
approximately 138,000 metric tons of coke, 243,000 metric tons of raw coal and
5,000 metric tons of coal tar, as compared to approximately 154,648 metric tons
of coke, 261,000 metric tons of raw coal and 7,510 metric tons of coal tar
during the fiscal year ended June 30, 2009.
Description
of Operations
Overview
We are
based in Henan Province in the central part of China, known as a coal-rich
region of the country. Our operations are located in Baofeng County, a
part of Pingdingshan Prefecture south of the provincial capital of
Zhengzhou. We extract coal from a mine in Zhaozhuang Village in Baofeng
County, and truck the coal to our plant site in the adjacent Hangzhuang Village,
where the bulk of the coal is processed and used by us to make coke.
Finished coke is loaded onsite onto railcars on SinoCoking’s private rail line
and transported to customers through the connected state-owned rail
system. Castoffs of the coal-washing process are sold to industrial end
users and traders primarily as fuel for electricity and heat. Coal tar is
extracted from the gas emitted during the coking process and sold, and the gas
is then piped into an onsite electric plant to produce electricity to power
SinoCoking’s operations. Excess electricity, if any is generated, is sold
to the state-owned electricity grid.
Coal
Mining Operations
Through
Hongchang Coal, a subsidiary of Hongli, SinoCoking currently operates
underground coal mines that are accessible by public and private roads.
Coal extracted from these mines consists of bituminous coal, and based on
historical mining activity, approximately 8% of the coal extracted from these
mines typically possesses properties that meet the requirements for coking
(metallurgical) coal; however, this percentage varies depending on mine
conditions and particular area of the seams mined.
The site
of these mines originally encompassed four separate coal mines: Yongshun,
Tanglishu, Liangshuiquan and Zhaoxi, which were separately operated by parties
unrelated to SinoCoking pursuant to resource mining permits effective from
January 2003 through May 2007. In 2005, Hongli acquired the resource
mining permits and the mining rights for all of these mines, assumed the ongoing
mining operations, and initiated a consolidation of the mines, which was
completed in 2006. In July 2007, the Henan provincial government granted
Hongchang Coal a new resource mining permit for the consolidated mine commonly
known as the Baofeng Mine, and referred to in the mining permit and throughout
this report as the “Hongchang Mine.” For further information regarding our
mining properties and rights, see the section below entitled “Property Plant and
Equipment.”
Coal is
extracted from the Hongchang Mine using the “room and pillar” method, in
which a coal stratum is divided into horizontal planes and the coal is removed
from each plane while leaving “pillars” of un-mined materials as supports,
working from the uppermost plane down. Each plane is further
divided into grids to determine the optimal pillar placements.
Drilling and blasting techniques are used to extract the coal.
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 2.5 metric tons, and approximately 400 crates are carried to
the surface during each 24-hour mining shift. Rock material is used for
floor ballast with the excess sent to the surface for disposal. Air
compressors are provided for underground air tool use. Electrical power is
supplied internally from our 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.
27
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 exhaustive 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
annual coal production volumes of the Hongchang Mine for the years ended June
30, 2006 to 2010, are as follows:
|
Fiscal
Year
|
Annual Production
( metric tons )
|
|||
|
2006
|
143,536
|
|||
|
2007
|
134,638
|
|||
|
2008
|
204,991
|
*
|
||
|
2009
|
260,938
|
*
|
||
|
2010
|
242,878
|
*
|
||
|
|
*
|
While production volume in fiscal
2008, 2009 and 2010 exceeded the amount specified on Hongchang Coal’s coal
production permit, such practice is common in Henan Province, and was
accepted by the government because the mining right for the extracted coal
and taxes from sales of such coal were
paid.
|
The
extracted coal is trucked to our processing plant located approximately two
kilometers from the mine site for washing and sorting at our coal washing
facility. Samples are taken prior to and after the coal washing process to
analyze and determine coking readiness based primarily on moisture, ash, sulfur
and volatile contents. Out of the washed coal produced by SinoCoking, a
portion may or may not be sold to customers as washed coal, and certain portions
of washed coal, provided that it meets certain chemical and thermal
requirements, is used by the Company to make coke.
Coal
Trading
In
addition to mining coal, SinoCoking also engages in coal trading for
profit. Depending on market conditions, SinoCoking may broker coal from
small independent mine operators in our 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. If purchased coal meets
requirements for coking, SinoCoking will generally use it to produce coke;
otherwise, it holds and sells the coal when market conditions are
favorable. For the fiscal year ended June 30, 2010, SinoCoking acquired
approximately 321,019 metric tons of coal from these small mines to trade, as
compared to approximately 110,868 metric tons for the fiscal year ended June
30, 2009.
Total
annual coal purchases from third parties by SinoCoking for the years ended June
30, 2006 to 2010, were as follows:
|
Fiscal Year
|
Annual
Purchases
(metric tons)
|
|||
|
2006
|
40,152
|
|||
|
2007
|
78,393
|
|||
|
2008
|
189,741
|
|||
|
2009
|
169,100
|
|||
|
2010
|
336,014
|
|||
28
Washed
Coal
SinoCoking
operates a coal-washing facility at our plant site that is capable of processing
up to 750,000 metric tons of coal per year. Under current Chinese coking
industry standards, raw coal with no more than 1% sulfur content is deemed
suitable for coking, although other factors are also considered. Thus, in
addition to low sulfur content, the industry preference is for lower ash content
and volatile matter. While much of the coal from the Hongchang Mine
is generally suitable for coking based on these parameters, the coal must
nevertheless be washed before it is ready for the coking ovens, in order to
reduce ash and sulfur content, and to increase thermal value. SinoCoking
uses a water-based jig washing process, which is prevalent in China.
SinoCoking uses both underground and recycled water for our coal washing
operations. Sorting machines that can process up to 600 metric tons per
hour sort the washed coal according to size. Washed coal is also typically
blended with other coal in order to achieve the proper chemical composition
and thermal value for coking.
Approximately
1.33 - 1.38 metric tons of raw coal yield 1 metric ton of washed coal. The
bulk of the washed coal produced is intended for SinoCoking’s coking plant,
although on occasion it sells small amounts if the pricing is favorable.
In addition to washed coal, the coal-washing process produces two
byproducts:
|
(1)
|
“Medium”
coal (sometimes referred to as “mid-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
electricity generation, and domestic and industrial heating applications;
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 to
produce a blended mixture.
|
SinoCoking’s
approximate annual production volumes of washed coal and the two byproducts of
the coal-washing process for the years ended June 30, 2006 to 2010 were as
follows:
|
Annual Production ( metric tons )
|
||||||||||||
|
Fiscal
Year
|
Washed Coal
|
Medium
Coal*
|
Coal
Slurries*
|
|||||||||
|
2006
|
98,574
|
12,400
|
15,200
|
|||||||||
|
2007
|
208,317
|
27,200
|
33,300
|
|||||||||
|
2008
|
297,120
|
40,700
|
49,700
|
|||||||||
|
2009
|
243,958
|
32,800
|
40,100
|
|||||||||
|
2010
|
217,852
|
43,570
|
29,047
|
|||||||||
**
Estimated by management based on quantities of raw coal used as input for coal
washing operations.
Coke
Manufacturing
Coke is a
hardened, solid carbonaceous residue derived from low-ash, low-sulfur bituminous
coal from which the volatile constituents are driven off by baking in an oven
without oxygen at high temperatures so that the fixed carbon and residual ash
are fused together. Volatile constituents of the coal include water, coal-gas,
and coal-tar. SinoCoking produces two types of coke: metallurgical coke and
chemical coke.
Metallurgical
coke is primarily used for steel manufacturing. Chemical coke, commonly referred
in China to as gas coke, is mainly used in China to produce synthesis gas, a gas
mixture largely of hydrogen and carbon monoxide that is combustible and often
used as a fuel source or as an intermediate for the production of other
chemicals including methanol, formaldehyde and ammonia. 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. Chemical coke, on the
other hand, must have more than 80% fixed carbon, less than 18% ash
content, less than 1% sulfur content and less than 3% 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, except that SinoCoking may
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 SinoCoking produces is based on market demands, although historically its
customers have only required Grade II and III metallurgical coke. For the
fiscal year ended June 30, 2010, 100% of the coke produced by SinoCoking was
Grade II. For the fiscal year ended June 30, 2009, approximately 76.96% of the
coke produced by SinoCoking was Grade II, 15.57% was Grade III, and the balance,
7.47%, was chemical coke.
29
Metallurgical
coke and chemical coke are produced using an identical manufacturing process.
SinoCoking produces coke onsite from a series of three WG-86 Type coke ovens
lined up in a row with an annual capacity of 250,000 metric tons.
SinoCoking’s metallurgical coke has typical characteristics of 85% fixed carbon,
less than 12% ash, less than 1.9% volatile matter and less than 0.7%
sulfur. SinoCoking’s chemical coke, on the other hand, has typical
characteristics of more than 80% fixed carbon, less than 18% ash, less than 3%
volatile matter and less than 0.8% sulfur.
Coal that
is either extracted from the Hongchang Mine or purchased by SinoCoking and
processed at its coal-washing facility is sent to a coal blending room where it
is crushed and blended to achieve an optimal coking mixture. 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 adjacent to SinoCoking’s private rail line to be air-dried.
Coke samples are taken at several stages during the process and analyzed in our
testing facility, and data is recorded daily and kept by technicians.
After drying, the coke is sorted according to size to meet customer
requirements.
SinoCoking’s
annual production volumes of metallurgical coke and chemical coke for the years
ended June 30, 2006 to 2010 are as follows:
|
Annual Production ( metric tons )
|
||||||||||||
|
Fiscal Year
|
Metallurgical
Coke
|
Chemical
Coke
|
Total
|
|||||||||
|
2006
|
48,321
|
23,699
|
72,020
|
|||||||||
|
2007
|
88,364
|
61,800
|
150,164
|
|||||||||
|
2008
|
147,773
|
78,145
|
225,922
|
|||||||||
|
2009
|
143,092
|
11,550
|
154,648
|
|||||||||
|
2010
|
138,417
|
0
|
138,417
|
|||||||||
Substantially
all of the coal from the Hongchang Mine that is suitable for coking is used to
make coke after the coal washing process. The amount of
metallurgical-quality coal supplied by the Hongchang Mine, however, is often not
sufficient for SinoCoking’s full production capacity, and it regularly
sources from third parties.
Coke
Emissions Recycling
During
the coking process, the coal’s volatile contents, including water and coal tar,
are driven off in gaseous forms when heated in the coke oven. Rather
than allowing this coal gas to be emitted into the environment, SinoCoking
captures the coal gas for recycling. In the recycling process, coal gas is
captured and piped into a cooling tower, where coal tar is separated out of the
gas by condensation, and sold to dealers as a fuel byproduct (see section
below entitled “Coal Byproducts”). The remaining purified coal gas is then
used by SinoCoking to generate electricity, by burning it as a fuel to generate
steam that drives steam-powered turbines.
30
Coal
Byproducts
As
described above, SinoCoking produces coal tar from the condensation of raw coal
gas. Coal tar is an ingredient of coal tar pitch used in the aluminum
industry, and can be further refined to create chemicals and additives such as
fine phenol, fine naphthalene and modified pitch that can be used as raw
material in making concrete sealant, wood treatment compounds, agricultural
pesticides and other chemical products. The coal tar industry in China is
currently fragmented and populated with many small producers.
SinoCoking’s
annual production volumes of coal tar for the years ended June 30, 2006 to 2010
are as follows:
|
Fiscal Year
|
Annual Production
( metric tons )
|
|||
|
2006
|
3,307
|
|||
|
2007
|
7,330
|
|||
|
2008
|
10,870
|
|||
|
2009
|
7,510
|
|||
|
2010
|
5,239
|
|||
Other
coal byproducts of the coking process include benzene, sulfur-based chemicals
and methanol, which SinoCoking presently does not produce but plans to do so in
the future.
Electricity
Generation
After
coal tar is separated, the resulting purified coal gas is piped to two onsite
3,000-kilowatt power stations (the Daying power station and the Sunling power
station) to generate electricity, each of which has an estimated maximum
generating capacity of 26,280,000 kilowatt-hours per year. The electricity
that is generated is used primarily to power SinoCoking’s operations at the
plant and mine site. SinoCoking estimates that the replacement cost of
this electricity, if it had to be purchased from the state-owned utility, would
be in excess of USD $1 million per year. From time to time, depending
on usage and supply and demand conditions, SinoCoking may sell electricity to
the Baofeng Power Bureau, which is the local state-owned electric utility
company, at rates fixed by applicable regulatory authorities. SinoCoking
may also purchase electricity from time to time, as needs arise, from the
Baofeng Power Bureau.
Expansion
Plans
New Coking Facility. On
March 3, 2010, SinoCoking commenced construction on a new state-of-the-art
coking facility near the Company’s current operations in Pindingshan city, in
Henan Province, China. This new facility is expected to have an estimated
coke-producing capacity of up to 900,000 metric tons per year, including coal
gas-generated power producing capabilities, and the ability to produce an
expanded range of other chemical refinery products. SinoCoking presently
relies on its three parallel WG-86 type coke ovens, which have certain technical
limitations. SinoCoking’s current facilities have a production capacity of
up to 250,000 metric tons per year. The new coking facility will be
capable of utilizing a broader range of coal inputs compared to the company’s
existing plant, with even lower thermal properties (a G-index as low as
50). Since the average cost of inputs will decrease, this is expected to
enable SinoCoking to produce coke at a better profit margin. The new
facility is also expected to generate an additional 66.5 million Kilowatt hours
of electricity each year from the conversion of heat emitted from the coal-gas
powered system, which is used to power steam generators. The new facility
will also produce purified coal gas as a fuel source for use by city
residents. The Company’s plans to provide coal gas to local residents have
received approval from the city of Daying, which will involve providing coal gas
to consumers at a price per thermal equivalent unit that is an estimated 20%
less than the current price of liquid natural gas (LNG), a competing
alternative. In addition, SinoCoking anticipates that the new coking
facility will expand its product portfolio, enabling it to offer its customers
other products such as crude benzol, sulfur, and ammonium sulfate.
31
Mine Acquisition
Program. On February 19, 2010, SinoCoking announced its acquisition
program under which it plans to consolidate local area coal mines as a part of
the government-directed consolidation of the coal mining industry in the
Pindingshan region of Henan Province, China. According to government
sources, Henan province in central China is in the process of consolidating coal
mines with a production capacity below 300,000 metric tons per year, and will
only approve new mines with an output capacity of at least 450,000 metric tons
per year. The Henan plan is a part of a general policy in China to
consolidate its coal industry in order to improve production efficiency and
reduce coal mine accidents. On February 19, 2010 the Company identified
ten mine-owning target companies. The aggregate licensed production
capacity of the mines operated by these target companies is 1.5 million metric
tons per year. In addition, the aggregate coal reserves of these companies
is estimated to be 25 million metric tons, based on Chinese geological
standards. The Company is conducting its own due diligence investigation
of each prospective target. SinoCoking anticipates acquiring a majority
interest in each of these target companies, subject to its due diligence review
and at its discretion, before the end of 2010.
Land Use Rights. On
December 9, 2008, SinoCoking entered into an agreement with the Henan Province
Pingdingshan Municipal Bureau of Land and Resources to permit Hongli to acquire
land use rights for up to 1,270,000 square meters of industrial-zoned vacant
land in Baofeng County. Per the agreement the total cost to acquire
these land use rights is $21,954,490 (or RMB 149,860,000). Under the
agreement, the Company may, but was not obligated to, pay the foregoing amount
to acquire the land use rights, and the Company would not incur any penalty if
it did not exercise its option to acquire the land use rights. Hongli
could have also acquired rights to all or any lesser portion of the land as it
may elect, and the total cost would be pro-rated accordingly. The
Pingdingshan Municipal Bureau of Land and Resources granted Hongli an extension
of the option exercise period November 2009, and accordingly Hongli could have
exercised its option to acquire the aforesaid land use rights by making payment
by the end of June 30, 2010. The Company decided not to exercise its
option to acquire the land use rights and thus no payments in connection with
this agreement were made as of June 30, 2010.
Sales
and Marketing
With
respect to the sale of coke products, SinoCoking typically enters into
non-binding annual letters of intent that set forth current year supply
quantities, suggested pricing, and monthly delivery schedules with its customers
at the beginning of each year. The terms of the letters of intent are
usually negotiated during the Annual National Coal Trading Convention organized
by the China Coal Transport and Distribution Association. A significant
portion of SinoCoking’s coke sales in fiscal 2008 were made through attendance
at this convention. Changes in delivery quantity and pricing, which
is based on open market pricing at the time of delivery, must be documented in a
final written contract on a 30-day advance notice submitted by the party making
the change and accepted by the other party. Almost all of SinoCoking’s
current customers enter into these non-binding annual letters of intent, and are
generally required to make payment upon delivery of each shipment of
product. Other customers are asked to prepay for their orders. In
pricing its products, SinoCoking considers factors such as the prices offered by
competitors, the quality and grade of the product sold, the volume in national
and regional coal inventory build-up and forecasted future trends for coal and
coke prices. The remaining portion of SinoCoking’s coke sales is
derived from purchase orders placed by customers throughout the year when they
require additional coke.
SinoCoking
has a flexible credit policy and adjusts credit terms for different types of
customers. Depending on the customer, SinoCoking may allow open accounts,
or require acceptance bills or cash on delivery. SinoCoking considers the
creditworthiness and the requested credit amount of each customer when
determining the appropriate payment arrangements and credit terms, which
generally do not exceed a period over 90 days. SinoCoking evaluates the
creditworthiness of potential new customers before entering into sales contracts
and reassesses customer creditworthiness on an annual basis. For customers
without an established history, SinoCoking requires immediate
settlement of accounts upon delivery.
Coke Sales.
SinoCoking’s annual sales volumes of coke for the years ended June 30, 2006,
2007, 2008, 2009 and 2010, and the weighted average selling price per metric ton
for each fiscal year, were as follows:
32
|
Coke Sales
|
||||||||
|
Fiscal
Year
|
Annual Sales*
(metric
tons)
|
Weighted
Average
Price Per Ton
(USD)
|
||||||
|
2006
|
71,159 | $ | 121 | |||||
|
2007
|
152,049 | $ | 159 | |||||
|
2008
|
225,779 | $ | 249 | |||||
|
2009
|
154,631 | $ | 197 | |||||
|
2010
|
132,911 | $ | 208 | |||||
| * Includes sales of metallurgical coke and chemical coke. | ||||||||
Raw Coal Sales.
SinoCoking’s annual sales volumes of raw coal for the years ended June 30, 2006,
2007, 2008, 2009 and 2010, and the weighted average selling price per ton for
each fiscal year, were as follows:
|
Raw Coal Sales
|
||||||||
|
Fiscal Year
|
Annual Sales*
(metric tons)
|
Weighted Average
Price Per Ton
(USD)
|
||||||
|
2006
|
52,578 | $ | 26 | |||||
|
2007
|
44,626 | $ | 42 | |||||
|
2008
|
20,737 | $ | 18 | |||||
|
2009
|
229,480 | $ | 58 | |||||
|
2010
|
369,379 | $ | 62 | |||||
* Includes raw
coal sold to customers consisting of coal extracted from the Hongchang
Mine as well as coal purchased by SinoCoking as part of its coal trading
activities, and includes raw coal and raw coal/medium coal/coal slurry
mixtures. These figures exclude any raw coal used internally in
SinoCoking’s operations as raw material to produce washed coal and
coke.
The
weighted average price per metric ton shown in the above table reflects the
weighted average price per metric ton of coal product sold by SinoCoking in the
period shown. Sales prices per metric ton are influenced largely by the
quality and composition of the coal product sold. For instance, in 2008
the Company sold relatively little raw coal, and the composition of raw coal
products sold in 2008 consisted largely of lower-value product such as coal
slurry. Generally, the thermal value of the coal, together with its
chemical composition and other properties such as moisture, ash, sulfur, and
other chemical content, affect the price at which the Company can sell
coal. Sale prices for raw coal are also affected by general market
conditions, supply and demand.
Washed Coal Sales.
SinoCoking’s annual sales volumes of washed coal for the years ended June 30,
2006, 2007, 2008, 2009 and 2010, and the weighted average selling price per ton
for each fiscal year, were as follows:
|
Washed Coal Sales
|
||||||||
|
Fiscal
Year
|
Annual
Sales
(metric
tons)
|
Weighted
Average
Price Per Ton
(USD)
|
||||||
|
2006
|
6,645 | $ | 64 | |||||
|
2007
|
45,734 | $ | 64 | |||||
|
2008
|
1,860 | $ | 86 | |||||
|
2009
|
55,360 | $ | 118 | |||||
|
2010
|
55,598 | $ | 127 | |||||
The
weighted average price per metric ton shown in the above table reflects the
weighted average price per metric ton of coal product sold by SinoCoking in the
period shown. The Company's sales prices per ton of washed coal are
heavily influenced by the quality and composition of the coal product
sold. Washed coal prices are also influenced by general market conditions
in the washed coal market, i.e., aggregate supply and demand.
33
Coal Tar Sales.
SinoCoking’s annual sales volumes of coal tar for the years ended June 30, 2006,
2007, 2008, 2009 and 2010, and the weighted average selling price per ton for
each fiscal year, were as follows:
|
Coal Tar Sales
|
||||||||
|
Fiscal Year
|
Annual
Sales
(metric
tons)
|
Weighted
Average
Price Per Ton
(USD)
|
||||||
|
2006
|
3,307 | $ | 195 | |||||
|
2007
|
7,330 | $ | 200 | |||||
|
2008
|
10,756 | $ | 278 | |||||
|
2009
|
7,646 | $ | 153 | |||||
|
2010*
|
6,182 | $ | 214 | |||||
SinoCoking
produces coal tar as a byproduct of the coking process, however, it currently
does not have a separate process for refining and preparing coal tar to create a
homogenous coal tar product. Accordingly, the quality and characteristics
of coal tar produced varies from time to time (depending on inputs), based on
such factors as thermal value, and moisture, ash, sulfur, and other chemical
contents, and this affects the price at which the Company can sell its coal
tar. The price of coal tar sold by the Company is also affected by overall
market demand and supply, which is influenced by a variety of factors which may
include higher prices for oil and oil derivatives, stronger demand for
construction materials, fertilizers, and related industrial
chemicals.
Customers
SinoCoking
sells all of its products within China. Its four biggest customers
collectively accounted for approximately 93 % of SinoCoking’s total sales
revenue in fiscal 2010 as follows:
|
|
·
|
Hunan Loudi Zhongyuan Trading Co.
Ltd. accounted for approximately $25.72 million in revenue, representing
approximately 43.6% of total
sales;
|
|
|
·
|
Wuhan Tieying Trading Co., Ltd.
accounted for approximately $20.13 million in revenue, representing
approximately 34.1% of total
sales;
|
|
|
·
|
Daye Xinye Special Steel Co.,
Ltd. accounted for approximately $7.11 million in revenue, representing
approximately 12% of total sales;
and
|
|
|
·
|
Wuhan Railway Zhongli Group Co.,
Ltd. accounted for approximately $2.15 million in revenue, representing
approximately 3.65% of total
sales.
|
By
product types, SinoCoking’s largest coke customer was Hunan Loudi Zhongyuan
Trading Ltd, which accounted for 61.66% of the coke sold in fiscal 2010; Wuhan
Tieying Trading Ltd was the biggest coal customer, accounting for 66.52% of the
coal sales in fiscal 2010; and Wang Fashun, who accounted for 14.64% of the
coal tar sold in fiscal 2010, was the single largest coal tar
customer.
Company
sales personnel conduct routine visits to customers. SinoCoking has
long-standing relationships with these customers, and management believes that
these relationships are stable.
Transportation
and Distribution
SinoCoking owns and operates a private
rail track 4.5 kilometers in length that connects SinoCoking’s plant to the
Chinese national railway system at both the East Pingdingshan Railway Station
and the Baofeng Railway Station. Industrial loaders load coal and coke
from SinoCoking’s platform onto railcars to be transported to customers
primarily in central and southeastern China in the provinces of Henan, Hubei,
Hunan and Fujian. SinoCoking’s private railway permits it to exercise
control over the transportation cost and execution of its products.
Customers can also arrange for trucks to take delivery of products from
the plant site.
34
Competitors
SinoCoking
competes primarily with coal and coke producers in the central, eastern and
southern regions of China, such as Shanxi Coking Co., Ltd., a major coke
producer, and Shenhua Group, a major coal producer. SinoCoking also
competes against Pingdingshan Coal Group, the largest regional coal producer,
which also sells coke and coal tar. Local coke competitors include Hongyue
Coke Factory, Dongxin Coke Factory and Hongjiang Coke Factory. In
addition, SinoCoking competes against coal washing operations such as Fange
Zhuang Washing Factory. Competitive factors include geographic location,
quality (i.e. thermal value, ash and sulfur content, washing and processing, and
other characteristics), and reliability of delivery.
Suppliers
Since
SinoCoking requires substantially more coking coal than what the Hongchang Mine
produces, SinoCoking also sources coal from local coal mines. SinoCoking
mainly purchases from local and other coal producers from other provinces.
In fiscal 2010, Pingdingshan Shilong District Zhaoling Industrial Coal Ltd
supplied 29.2% of SinoCoking's coal purchases, and Pingdingshan Shilong District
Tianyuan Coal Ltd supplied an additional 22.2%. These suppliers are
able to supply SinoCoking with coal of such qualities and quantities consistent
with SinoCoking’s coking requirements, and their proximities to SinoCoking’s
plant also afford convenience. In September 2010, the Company entered into
an agreement with Zhengyun Coal Distribution Co., Ltd. (“Zhengyun Coal”) to
purchase up to 3 million metric tons of raw and clean coal annually.
Zhengyun Coal is a subsidiary and the sales division of Zhengzhou Coal Industry
Group, a Shanghai Stock Exchange listed company (ticker 600121) and one of the
top six state-owned coal mining companies in Henan Province. The strategic
cooperation agreement with Zhengyun Coal will provide the Company with up to 2
million metric tons of raw coal and 1 million metric tons of washed coal.
Pursuant to this agreement, the Company has signed monthly purchase orders for
August and September deliveries for raw coal at $87 per metric ton, and the
Company has also orally reached an agreement to set the washed coal price at
$141-$151, both of which are below current market prices and at levels enjoyed
by large state-owned enterprises in China. Zhengyun Coal has also agreed
verbally to give the Company the option to take monthly delivery up to 250,000
metric tons of raw and washed coal, but it is not obligated to exercise such
option.
As with
its coke and coal sales, SinoCoking meets its coking coal needs by entering into
non-binding annual letters of intent with these suppliers that set forth supply
quantities, suggested pricing and monthly delivery schedules at the beginning of
the year. Subject to changes in delivery quantity and pricing, which is
based on the open market price of metallurgical coal at the time of delivery and
agreed to by the parties, SinoCoking generally makes payment upon each delivery
throughout the year.
SinoCoking
believes that it has established stable cooperative relationships with these
suppliers. At the same time, SinoCoking can readily find other sources of
metallurgical coal that is close to its plant, as Henan Province is one of
China’s coal producing centers. Further, the Company also started to
import coal materials from outside of Henan province in order to reduce the risk
of supply fluctuations in Henan province.
SinoCoking’s
other principal raw materials include water, which is provided without charge in
the form of treated underground water by the operator of the Hangzhuang Coal
Mines, and electricity, most of which SinoCoking generates onsite from its own
power stations and which is supplemented from the local state-owned utility as
needed. SinoCoking also requires wood and steel for its operations, and
sources these materials from close-by suppliers on a per purchase order
basis. These materials are readily available and there is no shortage of
suppliers to choose from.
35
Employees
SinoCoking
currently has 545 employees, of which 385 are mine workers, 122 are coking plant
workers, and 38 are employed in an administrative or executive capacity.
Since December 31, 2009, our management made certain changes to personnel job
descriptions resulting in a reduction in the number of employees categorized as
“administrative or executive.” Both the mining operations and the
coking plant operate year round in three shifts of eight hours per day. In
compliance with the Employment Contract Law of
PRC, SinoCoking has written contracts with all of their employees.
SinoCoking considers its relationship with its employees to be
good.
Research
and Development
As of the
year ended June 30, 2010, SinoCoking did not conduct any research and
development activities. SinoCoking does plan to initiate a program
focusing on the extraction of chemicals from coal, and the anticipated costs and
benefits of the production and sale of such byproducts is being
considered.
Intellectual
Property
SinoCoking
currently has no patents, trademarks, in-bound or outbound licenses, franchises,
or royalty arrangements.
Regulation
SinoCoking
operates in an industry that is highly regulated by local, city and provincial
government authorities in the PRC. Applicable regulations include those
relating to safety, production, environmental, energy use and labor. While
it is not practicable to summarize all applicable laws, the following is a list
of names of significant laws and regulations that apply to our
business:
Laws and
regulations concerning safety of coal mines:
|
|
●
|
Law
of Mine Safety
|
|
|
●
|
Production
Safety Law, which applies to production activities in
general.
|
|
|
●
|
Law
of the Coal Industry
|
|
|
●
|
Regulations
on Coal Mine Safety Supervision and
Inspection
|
|
|
●
|
Regulations
on Coal Mine Explosives Control
|
|
|
●
|
Special
Provisions for the Prevention of Coal Mine
Incidents
|
|
|
●
|
Requirements
for Basic Production Conditions for Coal
Mines
|
|
|
●
|
Penalties
for Coal Mine Safety Violations
|
|
|
●
|
Penalties
for Production Safety Violations
|
Laws and
regulations concerning environmental protection and energy
conservation:
|
|
●
|
Law
of the Prevention and Control of Solid Waste Environmental Pollution,
which applies to entities whose production activities may generate
pollutive solid waste.
|
|
|
●
|
Law
of the Prevention and Control of Atmospheric Pollution, which set
restrictions in coal burning and emissions that cause air
pollution.
|
36
|
|
●
|
Mineral
Resources Law, which regulates the extraction of mineral resources
including coal.
|
|
|
●
|
Law
Regarding the Prevention and Control of Water Pollution, which regulates
pollution of underground water caused by mining
activities.
|
|
|
●
|
Land
Administration Law, which restricts mining activities on agricultural
land.
|
|
|
●
|
Law
of Prevention and Control of Radioactive Pollution, which regulates and
prohibits the release of radioactive pollution caused by certain mining
activities.
|
|
|
●
|
Laws
of Water and Soil Conservation, which regulates mining activities with the
aim of preventing soil erosion.
|
|
|
●
|
Environmental
Protection Law, which contains certain general provisions that apply to
the operation of coal mines.
|
Laws and
regulations concerning labor:
|
|
●
|
Labor
Law, which protects workers, and contains provisions that apply to a broad
range of industry including the mining
industry.
|
Environmental
Protection Measures
SinoCoking
incorporates measures to reduce the environmental impacts of its operations.
SinoCoking’s large-sized furnace reduces the frequency of coal loading and
trundling, thereby reducing the amount of dust and soot that is generated.
SinoCoking captures coal gas emitted during the coking process to generate
electricity which it uses in its operations. SinoCoking also recycles
water - water that is used for coal washing is treated to remove phenol and
other contaminants, and then re-used in the coal washing operation.
SinoCoking also uses recycled water, in the form of treated underground water,
to quench coke and for its power stations, which is provided without cost by the
nearby Hanzhuang Coal Mines, which mining rights are owned and operated by
unrelated third parties. Additionally, SinoCoking uses sound insulation to
reduce noise pollution, and plants vegetation throughout its plant to help
mitigate environmental impacts.
Safety
SinoCoking's
management believes that the Company is in material compliance with all laws and
regulations that are applicable to it, including safety laws and
regulations. SinoCoking’s mining operations employ an automatic hazard
detection system as required by the PRC government, which includes air
monitoring, automatic power shut-down, and underground worker tracking
systems. Companies with mining operations are required to report
violations or mining incidents and casualties to the government
authorities. Since inception, except for ordinary and minor injuries,
SinoCoking has suffered no major accidents and no casualties in connection with
its mining operations, and SinoCoking has not suffered any reportable
incident. Under PRC law, companies with mining operations are subject to
random and periodic safety inspections by government mine regulators.
Since inception, SinoCoking has not been found to be in material violation of
any mining regulations. As we have no record of violations or mining
incidents, management considers our safety record to be excellent.
Property,
Plant and Equipment
Real
Property and Leasehold Property
As of
June 30, 2010, the net book value of our property, plant and equipment,
excluding construction-in-progress was $17,100,613. The Hongchang Mine and
its related facilities are located in Henan Province. As of June 30, 2010, our
mines, land and facilities collectively occupied an area of approximately
748,413 square meters, in a single location in Pingdingshan City in Henan
Province. Of this land, the Hongchang Mine cover s 653,400 square meters,
and our current coking and coal facilities occupy approximately 96,013 square
meters. Under PRC law, we have freely transferable land use rights for a
term of 36 years commencing from the respective dates when we acquired such land
use rights. Based on our business development requirements, we may seek
opportunities to acquire additional land and to obtain the relevant governmental
approvals.
37
As described above, SinoCoking (through its
controlled subsidiary Hongli) previously held an option under an agreement with
the Henan Province Pingdingshan Municipal Bureau of Land and Resources which
provided Hongli the right to acquire land use rights for up to 1,270,000 square
meters of additional industrial-zoned vacant land in Baofeng County. Per
the agreement, the total cost to acquire these land use rights is $21,954,490
(or RMB 149,860,000) and payment was required to exercise such option by June
30, 2010. As of June 30, 2010, the Company decided that it would not
exercise its option to purchase the land use rights and thus no payments
were made in connection with the agreement
The map
below shows the location of Pingdingshan City in Henan Province, in central
China:
38
Coal
Mines and Production Facilities
The
Hongchang Mine is located in the central part of Hunan Province. A
series of roadways provide access to the Hongchang Mine. Extracted coal is
transported by truck to our washing and coking facilities. Coal and coke
products are mainly transported to our customers by rail using the national
railway system.
The
Hongchang Mine originally consisted of four underground mines: the Yongshun
mine, the Liangshuiquan mine, the Zhaoxi secondary mine and the Zhaozhuang
Tanglishu mine. These mines were positioned adjacent to one another, and
although once owned and operated by different parties, these mines made use
of common passageways and mine shafts. In June 2005 we acquired the Yongshun
mine (built in 1996) and the Zhaoxi secondary mine (built in 1988) from Quinmin
Chen. Also in June 2005, we acquired the Liangshuiquan mine (built in
1984) from Minjie Li. In April 2005 we acquired the Zhaozhuang
Tanglishu mine (built in 1984) from Liuqing He and Jiti Li. Hongli assumed
the ongoing mining operations of these mines and initiated the consolidation of
these mines, which consolidation process was completed in 2006. SinoCoking
now operates the Hongchang Mine as one unified mining operation.
All portions
of the Hongchang Mine are currently in operation, and none of the mines we
operate are presently undergoing major repair work. No major renovations
are being undertaken for these mines at this time. The Company plans to
conduct exploration and development activities once the amount of coal extracted
from the Hongchang Mine approaches the maximum estimated amount of
proven and probable reserves.
39
The map below indicates the location of
the Hongchang Mine and SinoCoking’s facilities in Pingdingshan:
We are
currently extracting raw coal at the rate of 300,000 metric tons per year from
the Hongchang Mine. Since acquisition in 2005, we have extracted a total
of 986,981 metric tons from the Hongchang Mine, and, prior to this time, the
predecessor owners of these mines extracted a total of 345,000 metric
tons.
The
mining equipment and facilities used in the Hongchang Mine was originally
installed in 2005, and generally has an estimated useful life of 5 years;
however, it is difficult to predict which mining equipment will require
replacement in the future. The total cost of replacement of the
plant and equipment used in the Hongchang Mine is approximately RMB 15 million
(approximately USD $2.2 million). The total annual average cost of
operating the Hongchang Mine, as currently estimated based on an average output
per year of 300,000 metric tons per year, is $16 per ton, or an aggregate of
approximately $4.78 million per year. The principal pieces of equipment
used in our mining operations, including safety system, underground
transportation system and loading system, were manufactured in the
PRC.
All of
our coal mines are underground mines. The following table sets out
detailed information for the Hongchang Mine:
40
|
|
Hongchang Mine
|
|||
|
Background
data:
|
||||
|
Commencement
of construction
|
1984
|
|||
|
Commencement
of commercial production
|
1987
|
|||
|
Coalfield
area (square kilometers)
|
0.31 | |||
|
Reserve
data:(1)
|
||||
|
Total
in-place proven and probable reserves(2)(3)
|
2,479,000 | |||
|
Mining
recovery rate (%) (4)
|
60 | % | ||
|
Coal
washing recovery rate (%) (5)
|
75 | % | ||
|
Depth
of mines (meters
underground)
|
80
– 200 meters
|
|||
|
First
seam: 1.14 meters
|
||||
|
Average
thickness of main coal seams (meters) (6)
|
Second
seam: 5.50 meters
|
|||
|
Type
of coal
|
Thermal/Metallurgical
|
|||
|
Leased/owned
|
Owned
|
|||
|
Assigned/unassigned(7)
|
Assigned
|
|||
|
Sulfur
content (%)
|
||||
|
First seam
|
2.64 | |||
|
Second seam
|
0.55 | |||
|
Water
content (%)
|
||||
|
First seam
|
0.83 | |||
|
Second seam
|
1.5 | |||
|
Ash
content (%)
|
||||
|
First seam
|
15.3 | |||
|
Second seam
|
14.0 | |||
|
Volatility
content (%)
|
||||
|
First seam
|
32.5 | |||
|
Second seam
|
29.0 | |||
|
Thermal
Value (megajoules per
kilogram)
|
||||
|
First seam
|
32.3 | |||
|
Second seam
|
31.5 | |||
|
Production
data: (in metric
tons)
|
||||
|
Designed
raw coal production capacity (per
year)
|
300,000 | |||
|
Raw
coal production:
|
||||
|
2005
and prior
|
334,000 | |||
|
2006
|
143,536 | |||
|
2007
|
134,638 | |||
|
2008
|
204,991 | |||
|
2009
|
260,938 | |||
|
2010
|
242,878 | |||
|
Cumulative
raw coal production
|
||||
|
as
of June 30, 2010
|
986,981 | |||
|
(1)
|
The
reserve data including (i) total in-place proven and probable
reserves, (ii) mining and coal preparation plant recovery rates;
(iii) depth of mine; and (iv) average thickness of main coal
seam are based on the relevant information from a report dated November
2005 issued by of our provincial mining authorities, the Regional
Geological Survey Team of the Henan Bureau of Geology and Mineral
Exploration and Development (the “2005 Mining Report”), and records
of the Company. Non-accessible reserves are defined as the
portion of identified resources estimated to be not accessible by
application of one or more accessibility factors within an area. We
note that the degree of assurance between what would meet the definition
of “proven reserves” on the one hand, and “probable reserves” on the other
hand, cannot be readily defined. Accordingly, pursuant to the SEC’s
Industry Guide 7 – Description of Property by Issuers Engaged or to be
Engaged in Significant Mining Operations, in the table above we report
proven and probable reserves on a combined
basis.
|
|
(2)
|
In-place
reserves refer to coal in-situ prior to the deduction of pillars of
support, barriers or constraints. According to the 2005 Mining
Report, the Hongchang Mine was initially found to have total estimated
reserves and resources of 2.81 million metric tons. 334,000 metric
tons were removed during exploration, leaving approximately 2.47 million
metric tons of estimated reserves and resources. Of this amount of
in-place proven and probable reserves, the Hongchang Mine has a total
estimated recoverable coal of approximately 1.22 million metric tons
according to the 2005 Mining
Report.
|
41
|
(3)
|
All
of the Hongchang Mine utilize the room-and-pillar method of underground
extraction.
|
|
(4)
|
The
mining recovery rate represents estimated coal recovered or extracted as a
percentage of coal reserves. The Company does not calculate actual
recovery rate. For purposes of this table, the Company utilizes an
estimate based on applicable geological standards, which may or may not
equal the actual recovery rate for extracted
coal.
|
|
(5)
|
Coal
washing recovery rate refers to the rate of recovery of coal in the
production of our washed coal
products.
|
|
(6)
|
The
Hongchang Mine contains two major seams, referred to in this table as the
“First Seam” and the “Second Seam.”
|
|
(7)
|
“Assigned”
reserves refer to coal which has been committed to a particular mining
complex (mine shafts, mining equipment, and plant facilities), and all
coal which has been leased by the company to others. “Unassigned” reserves
refer to coal which has not been committed, and which would require new
mineshafts, mining equipment, or plant facilities before operations could
begin on the property.
|
Mining
Rights
We have
mining rights for the Hongchang Mine under a consolidated mining permit dated
July 6, 2007 issued by the Office of Land Resources of Henan Province.
Hongli initially acquired the resource mining permits and the mining rights to
the Hongchang Mine and assumed mining operations in July 2005 when it acquired
the Hongchang Mine.
Similar
to other coal producers in the PRC, the Hongchang Mine, including the mine site
and the underlying coal and other minerals, are owned by the PRC
government. Accordingly, the amount of coal that SinoCoking can extract
from the mine is based on a mining right issued by the Henan Province
Department of Land and Resources. The mining right is issued pursuant to a
reserves appraisal report submitted by government authorized mining engineers,
upon approval of such appraisal report by the Henan Province Department of Land
and Resources. The amount of coal that can be extracted under the mining
right represents what we can economically and legally extract under applicable
PRC law and regulations and as determined by the Department of Land and
Resources.
Under our
current mining rights, we are theoretically permitted to extract up to 2,479,000
metric tons of coal from the Hongchang Mine, which represents its estimated
in-place proven and probable reserves. Out of the proven and probable
reserves, the Pingdingshan Coal Mine Design and Research Institute estimated
that 1,215,100 metric tons are recoverable. In August 2007, Hongli made
payment of 4.46 million RMB (approximately USD $0.6 million), toward partial
payment for its mining rights for the 2,479,000 metric tons of total
reserves. An additional payment is anticipated to become due, when charged
by the government, in the estimated amount of USD $0.4 million as a final
payment in connection with these mining rights. The exact amount of
the additional payment will depend on market prices as determined by the Henan
Province Department of Land and Resources, and negotiations between us and the
Department of Land and Resources. Our current mining rights permit
SinoCoking to extract coal from the Hongchang Mine until September 2013, until
and unless these rights are extended.
42
The
amount that must be paid for mining rights is generally determined on a per ton
basis on proven and probable reserves (and not based on actual recoverable
coal), as well as prevailing market prices as determined by the Henan Province
Department of Land and Resources. In the event that further exploration
results in an extension of estimated proven and probable reserves (if SinoCoking
desires to extract these additional reserves), or if SinoCoking will continue
mining the Hongchang Mine beyond September 2013, it must then obtain an
additional permit from the Henan Province Department of Land and Resources and
may be subject to additional fees to acquire or modify its mining rights.
We expect that the cost of further exploration in and around the Hongchang Mine
would be borne by us. As of June 30, 2010, a total of 986,981 metric tons
out of the estimated 1,215,100 metric tons of recoverable reserves have been
extracted from the Hongchang Mine. Based on the estimated 1.22 million
metric tons of proven and probable reserves that are recoverable per the 2005
Mining Report, the Hongchang Mine has an additional 238,119 metric tons of
recoverable coal remaining, and at current extraction rates the Hongchang Mine
is expected to exhaust its reserves by the end of calendar 2012. The
Company has been conducting additional geological studies, and is expecting to
report more coal reserves from this mine to the local mining authority for
further mining. SinoCoking notes that the estimated 1,215,100 metric tons
of recoverable reserves is a government estimate created and used by local
mining authorities to determine permissible extraction rates, the duration of
our mining license, and to approve mine designs and that it is subject to
revision. SinoCoking also utilizes this estimate for accounting purposes,
to amortize its mining rights. Currently estimated recoverable coal may
not necessarily be consistent with the results of future mining, engineering and
feasibility studies or reports.
Railway
Assets
Currently,
the Company has rail assets consisting of approximately 4.5 kilometers of
special purpose coal transportation railway tracks that serve to facilitate the
transportation of coal from the Company’s yard to the national railway system,
and ultimately to its customers. SinoCoking does not own its own railcars
and locomotives, but instead pays access fees to the PRC government for the use
of government-owned and operated railcars and locomotives. These railcars
are loaded with coal and coke products at the Company’s yard for delivery
through the national railway system.
We will
not receive any proceeds from the sale of common stock by the selling security
holders. However, we may receive up to approximately $47 million upon
exercise of the warrants issued to the investors and placement agents in the
financing transactions described above, the underlying shares of which are
included in the registration statement of which this prospectus is a part.
These warrants may be exercised by their holders using cash, or under certain
circumstances they may be exercised by their holders pursuant to a cashless
exercise provision. In instances where warrants are exercised without
cash, we will not receive any proceeds from the warrants. The exercise of
these warrants by their holders will result in the issuance by us of additional
shares of common stock. We anticipate that the proceeds received, if any,
from the exercise of the warrants, will be used for general corporate purposes,
including the funding of our working capital requirements.
All
proceeds from the sale of common stock 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 respective obligations of each of the selling security holders, we
are responsible for the fees, costs and expenses of this prospectus and related
registration of our shares, which includes our legal and accounting fees,
printing costs and filing and other miscellaneous fees and
expenses.
SELLING
SECURITY HOLDERS
We are
registering the following securities:
|
|
●
|
2,343,268
shares of common stock issued to non-U.S.
investors;
|
|
|
●
|
1,171,634
shares of common stock underlying warrants issued to non-U.S.
investors;
|
|
|
●
|
5,001,667
shares of common stock issued to U.S. investors;
and
|
|
|
●
|
2,867,997
shares of common stock underlying warrants issued to U.S. investors and
placement agents.
|
43
We are
registering these securities in order to permit the selling security holders to
dispose of the shares of our common stock held by them, from time to time.
The selling security holders may sell all, some, or none of their shares that
are being registered. See “Plan of Distribution.”
The table
below lists the selling security holders and other information regarding the
beneficial ownership of the shares of common stock by each of the selling
security holders. Column B lists the number of shares of common stock
beneficially owned by each selling security holder as of September 24, 2010
(assuming full exercise of the warrants held by such selling security holder, if
any). Column C lists the shares of common stock covered by this prospectus
that may be disposed of by each of the selling security holders. Column D
lists the number of shares of common stock that will be beneficially owned by
the selling security holders assuming all of the shares covered by this
prospectus are sold. Column E lists the percentage of class beneficially
owned by the selling security holders assuming all of the shares covered by this
prospectus are sold, based on 20,871,192 shares of common stock issued and
outstanding on September 24, 2010.
We cannot
provide an estimate of the number of securities that any of the selling security
holders will hold in the future. For purposes of this table, beneficial
ownership is determined in accordance with the rules of the SEC, and includes
voting power and investment power with respect to such securities.
The
inclusion of any securities in the following table does not constitute an
admission of beneficial ownership by the persons named below. Except as
indicated in the footnotes to the table, no selling security holder has had any
material relationship with us or our affiliates during the last three
years. Except as indicated below, no selling security holder is the
beneficial owner of any additional shares of common stock or other equity
securities issued by us or any securities convertible into, or exercisable or
exchangeable for, our equity securities. Except as indicated below, no
selling security holder is a registered broker-dealer or an affiliate of a
broker-dealer.
Selling
Security Holder Table
|
Name
(A)
|
Securities
Beneficially
Owned Prior to
Offering(1)
(B)
|
Securities
Being
Offered
(C)
|
Securities
Beneficially
Owned After
Offering (2)
(D)
|
% Beneficial
Ownership After
Offering (4)
(E)
|
||||||||||||
|
Michael
Miller TTEE FBO Aarnel Funding
Corp. Pension Plan (5)
|
37,500
|
(6)
|
37,500
|
(6)
|
0
|
0
|
%
|
|||||||||
|
Alder
Capital Partners I LP (7)
|
150,000
|
(8)
|
150,000
|
(8)
|
0
|
0
|
%
|
|||||||||
|
Allan
Rothstein (9)
|
22,500
|
(10)
|
22,500
|
(10)
|
0
|
0
|
%
|
|||||||||
|
Alpha
Capital Anstalt (11)
|
52,500
|
(12)
|
52,500
|
(12)
|
0
|
0
|
%
|
|||||||||
|
Anson
Investments Master Fund, LP (13)
|
37,500
|
(14)
|
37,500
|
(14)
|
0
|
0
|
%
|
|||||||||
|
Anthony
G. Polak ( 4 ) (15)
|
15,000
|
(16)
|
15,000
|
(16)
|
0
|
0
|
%
|
|||||||||
|
Anthony
Polak "S" ( 4 ) (17)
|
15,000
|
(18)
|
15,000
|
(18)
|
0
|
0
|
%
|
|||||||||
|
Ardsley
Offshore Fund, Ltd (19) (317)
|
30,960
|
(20)
|
30,960
|
(20)
|
0
|
0
|
%
|
|||||||||
|
Ardsley
Partners Fund II, LP (21) (317)
|
159,315
|
(22)
|
159,315
|
(22)
|
0
|
0
|
%
|
|||||||||
44
|
Name
(A)
|
Securities
Beneficially
Owned Prior to
Offering(1)
(B)
|
Securities
Being
Offered
(C)
|
Securities
Beneficially
Owned After
Offering (2)
(D)
|
% Beneficial
Ownership After
Offering (4)
(E)
|
||||||||||||
|
Ardsley
Partners Institutional Fund, LP (23)
(317)
|
127,065 | (24) | 127,065 | (24) | 0 | 0 | % | |||||||||
|
Atlas
Allocation Fund, LP (25)
|
52,500 | (26) | 52,500 | (26) | 0 | 0 | % | |||||||||
|
Bai
Ye Feng (27)
|
123,750 | (28) | 123,750 | (28) | 0 | 0 | % | |||||||||
|
Barry
Honig (29)
|
62,501 | (30) | 62,501 | (30) | 0 | 0 | % | |||||||||
|
Ben
T. Morris ( 4 ) (31)
|
13,500 | (32) | 13,500 | (32) | 0 | 0 | % | |||||||||
|
Bridgeway
Asset Management Ltd. (33)
|
26,250 | (34) | 26,250 | (34) | 0 | 0 | % | |||||||||
|
Brio
Capital LP (35)
|
28,001 | (36) | 28,001 | (36) | 0 | 0 | % | |||||||||
|
Burt
Stangarone ( 4 ) (37)
|
18,750 | (38) | 18,750 | (38) | 0 | 0 | % | |||||||||
|
Cape
One Financial Master Fund Ltd. (39)
|
49,500 | (40) | 49,500 | (40) | 0 | 0 | % | |||||||||
|
Capital
Ventures International ( 4 ) (41)
|
300,000 | (42) | 300,000 | (42) | 0 | 0 | % | |||||||||
|
Carpe
Diem Partners LLC (43)
|
30,000 | (44) | 30,000 | (44) | 0 | 0 | % | |||||||||
|
Celenian
Appreciation Fund, LP (45)
|
30,000 | (46) | 30,000 | (46) | 0 | 0 | % | |||||||||
|
Clough
Asia Fund, Ltd. (47) (318)
|
12,000 | (48) | 12,000 | (48) | 0 | 0 | % | |||||||||
|
Clough
Investment Partners I, LP (49) (318)
|
44,175 | (50) | 44,175 | (50) | 0 | 0 | % | |||||||||
|
Clough
Investment Partners II, LP (51) (318)
|
5,325 | (52) | 5,325 | (52) | 0 | 0 | % | |||||||||
|
Clough
Offshore Fund, Ltd (53) (318)
|
25,500 | (54) | 25,500 | (54) | 0 | 0 | % | |||||||||
|
Daybreak
Special Situations Master Fund, Ltd. (55)
|
97,500 | (56) | 97,500 | (56) | 0 | 0 | % | |||||||||
|
Del
Rey Management LP (57)
|
37,500 | (58) | 37,500 | (58) | 0 | 0 | % | |||||||||
45
|
Name
(A)
|
Securities
Beneficially
Owned Prior to
Offering(1)
(B)
|
Securities
Being
Offered
(C)
|
Securities
Beneficially
Owned After
Offering (2)
(D)
|
% Beneficial
Ownership After
Offering (4)
(E)
|
||||||||||||
|
Domaco
Venture Capital Fund (59) (319)
|
15,000 | (60) | 15,000 | (60) | 0 | 0 | % | |||||||||
|
Don
Weir & Julie E. Weir JTTIC ( 4 ) (61)
|
12,000 | (62) | 12,000 | (62) | 0 | 0 | % | |||||||||
|
Don
A. Sanders ( 4 ) (63)
|
25,500 | (64) | 25,500 | (64) | 0 | 0 | % | |||||||||
|
Emily
Polak (65)
|
7,500 | (66) | 7,500 | (66) | 0 | 0 | % | |||||||||
|
Empery
Asset Master, Ltd (67) (320)
|
63,000 | (68) | 63,000 | (68) | 0 | 0 | % | |||||||||
|
EOS
Holdings, LLC (69)
|
120,000 | (70) | 120,000 | (70) | 0 | 0 | % | |||||||||
|
Equity
Interest, Inc. (71) (319)
|
7,500 | (72) | 7,500 | (72) | 0 | 0 | % | |||||||||
|
Eugene
Rintels Trust (73)
|
10,500 | (74) | 10,500 | (74) | 0 | 0 | % | |||||||||
|
Excalibur
Special Opportunities LP (75)
|
249,999 | (76) | 249,999 | (76) | 0 | 0 | % | |||||||||
|
Far
Ventures, LLC (77)
|
4,500 | (78) | 4,500 | (78) | 0 | 0 | % | |||||||||
|
Futurtec,
LP (79)
|
37,500 | (80) | 37,500 | (80) | 0 | 0 | % | |||||||||
|
Gemini
Master Fund, Ltd (81)
|
15,000 | (82) | 15,000 | (82) | 0 | 0 | % | |||||||||
|
Greenberg
Capital LLC (83)
|
6,000 | (84) | 6,000 | (84) | 0 | 0 | % | |||||||||
|
Greenview
Capital (85)
|
100,001 | (86) | 100,001 | (86) | 0 | 0 | % | |||||||||
|
Greg
Freihofner (87)
|
12,750 | (88) | 12,750 | (88) | 0 | 0 | % | |||||||||
|
GRQ
Consultants, Inc. 401K (89)
|
147,500 | (90) | 147,500 | (90) | 0 | 0 | % | |||||||||
|
Guerrilla
Partners, LP (91) (321)
|
90,000 | (92) | 90,000 | (92) | 0 | 0 | % | |||||||||
46
|
Name
(A)
|
Securities
Beneficially
Owned Prior to
Offering(1)
(B)
|
Securities
Being
Offered
(C)
|
Securities
Beneficially
Owned After
Offering (2)
(D)
|
% Beneficial
Ownership After
Offering (4)
(E)
|
||||||||||||
|
Hammerman
Capital Partners, LP (93)(322)
|
47,501 | (94) | 47,501 | (94) | 0 | 0 | % | |||||||||
|
HCP
Opportunity Fund LP (95) (322)
|
87,500 | (96) | 87,500 | (96) | 0 | 0 | % | |||||||||
|
Hartz
Capital Investments, LLC (97) (320)
|
63,000 | (98) | 63,000 | (98) | 0 | 0 | % | |||||||||
|
Heller
Capital Investments (99)
|
30,000 | (100) | 30,000 | (100) | 0 | 0 | % | |||||||||
|
High
Capital Funding, LLC (101)
|
12,000 | (102) | 12,000 | (102) | 0 | 0 | % | |||||||||
|
Hua-Mei
21st Century
Partners, LP (103) (321)
|
150,000 | (104) | 150,000 | (104) | 0 | 0 | % | |||||||||
|
Hudson
Bay Fund LP (105) (323)
|
307,500 | (106) | 307,500 | (106) | 0 | 0 | % | |||||||||
|
Hudson
Bay Overseas Fund Ltd (107) (323)
|
442,500 | (108) | 442,500 | (108) | 0 | 0 | % | |||||||||
|
Iroquois
Master Fund Ltd (109)
|
52,500 | (110) | 52,500 | (110) | 0 | 0 | % | |||||||||
|
Jamie
Polak ( 4 ) (111)
|
7,500 | (112) | 7,500 | (112) | 0 | 0 | % | |||||||||
|
Jayhawk
Private Equity Fund II, LP (113)
|
450,000 | (114) | 450,000 | (114) | 0 | 0 | % | |||||||||
|
Jeffrey
Grodko (115)
|
12,000 | (116) | 12,000 | (116) | 0 | 0 | % | |||||||||
|
Jeffrey
A. Grossman (117)
|
37,500 | (118) | 37,500 | (118) | 0 | 0 | % | |||||||||
|
JW
Partners, LP (119)
|
6,000 | (120) | 6,000 | (120) | 0 | 0 | % | |||||||||
|
Katherine
U. Sanders ( 4 ) (121)
|
12,000 | (122) | 12,000 | (122) | 0 | 0 | % | |||||||||
|
Kensington
Partners, LP (123)
|
187,500 | (124) | 187,500 | (124) | 0 | 0 | % | |||||||||
|
Lawrence
Kaplan (125)
|
37,500 | (126) | 37,500 | (126) | 0 | 0 | % | |||||||||
|
Lennox
Capital Partners, LP (127)
|
52,500 | (128) | 52,500 | (128) | 0 | 0 | % | |||||||||
|
Linda
Hechter (129)
|
18,750 | (130) | 18,750 | (130) | 0 | 0 | % | |||||||||
47
|
Name
(A)
|
Securities
Beneficially
Owned Prior to
Offering(1)
(B)
|
Securities
Being
Offered
(C)
|
Securities
Beneficially
Owned After
Offering (2)
(D)
|
% Beneficial
Ownership After
Offering (4)
(E)
|
||||||||||||
|
Marc
Freeman (131)
|
18,501 | (132) | 18,501 | (132) | 0 | 0 | % | |||||||||
|
Marion
Lynton (133) (317)
|
5,160 | (134) | 5,160 | (134) | 0 | 0 | % | |||||||||
|
Markets
Edge, Ltd (135)
|
11,250 | (136) | 11,250 | (136) | 0 | 0 | % | |||||||||
|
Michael
and Betsy Brauser (137)
|
75,000 | (138) | 75,000 | (138) | 0 | 0 | % | |||||||||
|
Michael
Florence (139)
|
4,500 | (140) | 4,500 | (140) | 0 | 0 | % | |||||||||
|
Micro
Pipe Fund I, LLC (141)
|
63,000 | (142) | 63,000 | (142) | 0 | 0 | % | |||||||||
|
Mondo
Limited (143)
|
60,000 | (144) | 60,000 | (144) | 0 | 0 | % | |||||||||
|
Mountain
Special Sitations Fund LLC (145)
|
45,000 | (146) | 45,000 | (146) | 0 | 0 | % | |||||||||
|
Next
View Capital, LP (147)
|
225,000 | (148) | 225,000 | (148) | 0 | 0 | % | |||||||||
|
Octagon
Capital Partners (149)
|
60,000 | (150) | 60,000 | (150) | 0 | 0 | % | |||||||||
|
Old
Mill Capital Partners, LP (151)
|
15,000 | (152) | 15,000 | (152) | 0 | 0 | % | |||||||||
|
Option
Opportunities Co. (153) (324)
|
23,750 | (154) | 23,750 | (154) | 0 | 0 | % | |||||||||
|
Osmium
Special Situations Fund Ltd (155)
|
1,475,000 | (156) | 1,475,000 | (156) | 0 | 0 | % | |||||||||
|
Overbrook
Capital, LLC (157)
|
11,250 | (158) | 11,250 | (158) | 0 | 0 | % | |||||||||
|
Paragon
Capital LP (159)
|
123,750 | (160) | 123,750 | (160) | 0 | 0 | % | |||||||||
|
Paul
Hickey ( 4 ) (161)
|
26,250 | (162) | 26,250 | (162) | 0 | 0 | % | |||||||||
|
Richard
Molinsky (163)
|
15,000 | (164) | 15,000 | (164) | 0 | 0 | % | |||||||||
|
RL
Capital Partners ( 4 ) (165)
|
75,000 | (166) | 75,000 | (166) | 0 | 0 | % | |||||||||
|
Ronald
Lazar ( 4 ) (167)
|
7,500 | (168) | 7,500 | (168) | 0 | 0 | % | |||||||||
48
|
Name
(A)
|
Securities
Beneficially
Owned Prior to
Offering(1)
(B)
|
Securities
Being
Offered
(C)
|
Securities
Beneficially
Owned After
Offering (2)
(D)
|
% Beneficial
Ownership After
Offering (4)
(E)
|
||||||||||||
|
Sanders
2003 Children’s Trust ( 4 ) (169)
(325)
|
12,000 | (170) | 12,000 | (170) | 0 | 0 | % | |||||||||
|
Sanders
Opportunity Fund (Inst), LP ( 4 ) (171) (325)
|
57,225 | (172) | 57,225 | (172) | 0 | 0 | % | |||||||||
|
Sanders
Opportunity Fund LP ( 4 ) (173) (325)
|
17,775 | (174) | 17,775 | (174) | 0 | 0 | % | |||||||||
|
SDS
Capital Group SPC, Ltd (175)
|
26,250 | (176) | 26,250 | (176) | 0 | 0 | % | |||||||||
|
Shira
Capital LLC ( 4 ) (177)
|
45,000 | (178) | 45,000 | (178) | 0 | 0 | % | |||||||||
|
Steve
Mazur (179)
|
22,500 | (180) | 22,500 | (180) | 0 | 0 | % | |||||||||
|
Suresh
Madan & Sarita Madan (181)
|
18,750 | (182) | 18,750 | (182) | 0 | 0 | % | |||||||||
|
T
Squared China Fund LLC (183) (326)
|
12,500 | (184) | 12,500 | (184) | 0 | 0 | % | |||||||||
|
T
Squared Investments LLC (185) (326)
|
62,501 | (186) | 62,501 | (186) | 0 | 0 | % | |||||||||
|
Taylor
International Fund, Ltd (187)
|
60,000 | (188) | 60,000 | (188) | 0 | 0 | % | |||||||||
|
The
USX China Fund (189)
|
37,500 | (190) | 37,500 | (190) | 0 | 0 | % | |||||||||
|
Trillion
Growth China LP (191)
|
37,500 | (192) | 37,500 | (192) | 0 | 0 | % | |||||||||
|
Triumph
Small Cap Fund, Inc. (193)
|
6,000 | (194) | 6,000 | (194) | 0 | 0 | % | |||||||||
|
Walter
J. Lipinski (195)
|
6,000 | (196) | 6,000 | (196) | 0 | 0 | % | |||||||||
|
Warberg
Opportunistic Trading Fund LP (197) (324)
|
41,501 | (198) | 41,501 | (198) | 0 | 0 | % | |||||||||
|
Westpark
Capital, L.P. (199)
|
37,500 | (200) | 37,500 | (200) | 0 | 0 | % | |||||||||
49
|
Name
(A)
|
Securities
Beneficially
Owned Prior to
Offering(1)
(B)
|
Securities
Being
Offered
(C)
|
Securities
Beneficially
Owned After
Offering (2)
(D)
|
% Beneficial
Ownership After
Offering (4)
(E)
|
||||||||||||
|
Wilmark
of Nevada, Inc. (201)
|
120,000 | (202) | 120,000 | (202) | 0 | 0 | % | |||||||||
|
Aijun
Du (203)
|
477,000 | (204) | 477,000 | (204) | 0 | 0 | % | |||||||||
|
Aili
Fan (205)
|
3,000 | (206) | 3,000 | (206) | 0 | 0 | % | |||||||||
|
Bin
Zheng (207)
|
180,000 | (208) | 180,000 | (208) | 0 | 0 | % | |||||||||
|
Changxi
Wang (209)
|
1,500 | (210) | 1,500 | (210) | 0 | 0 | % | |||||||||
|
Chijie
Yang (211)
|
4,500 | (212) | 4,500 | (212) | 0 | 0 | % | |||||||||
|
Cuihong
Ding (213)
|
3,000 | (214) | 3,000 | (214) | 0 | 0 | % | |||||||||
|
Dongliang
Li (215)
|
156,285 | (216) | 156,285 | (216) | 0 | 0 | % | |||||||||
|
En
Li (217)
|
45,000 | (218) | 45,000 | (218) | 0 | 0 | % | |||||||||
|
Fei
Sun (219)
|
62,973 | (220) | 62,973 | (220) | 0 | 0 | % | |||||||||
|
Fengying
Fan (221)
|
245,973 | (222) | 245,973 | (222) | 0 | 0 | % | |||||||||
|
Guanghao
Cheng (223)
|
46,119 | (224) | 46,119 | (224) | 0 | 0 | % | |||||||||
|
Guo
Yang (225)
|
3,000 | (226) | 3,000 | (226) | 0 | 0 | % | |||||||||
|
Haiyan
Wei (227)
|
3,000 | (228) | 3,000 | (228) | 0 | 0 | % | |||||||||
|
Hanqing
Chen (229)
|
367,647 | (230) | 367,647 | (230) | 0 | 0 | % | |||||||||
|
Huiying
Xu (231)
|
1,500 | (232) | 1,500 | (232) | 0 | 0 | % | |||||||||
|
Jia
Yao (233)
|
3,000 | (234) | 3,000 | (234) | 0 | 0 | % | |||||||||
|
Jianwei
Zheng (235)
|
1,500 | (236) | 1,500 | (236) | 0 | 0 | % | |||||||||
|
Jing
Xie (237)
|
3,000 | (238) | 3,000 | (238) | 0 | 0 | % | |||||||||
|
Jingliang
Zheng (239)
|
3,000 | (240) | 3,000 | (240) | 0 | 0 | % | |||||||||
|
Kunfeng
Zhang (241)
|
570,000 | (242) | 570,000 | (242) | 0 | 0 | % | |||||||||
50
|
Name
(A)
|
Securities
Beneficially
Owned Prior to
Offering(1)
(B)
|
Securities
Being
Offered
(C)
|
Securities
Beneficially
Owned After
Offering (2)
(D)
|
% Beneficial
Ownership After
Offering (4)
(E)
|
||||||||||||
|
Kunyang
Li (243)
|
90,000 | (244) | 90,000 | (244) | 0 | 0 | % | |||||||||
|
Lili
Wang (245)
|
435,000 | (246) | 435,000 | (246) | 0 | 0 | % | |||||||||
|
Liming
Wang (247)
|
30,000 | (248) | 30,000 | (248) | 0 | 0 | % | |||||||||
|
Meiping
Wang (249)
|
750 | (250) | 750 | (250) | 0 | 0 | % | |||||||||
|
Nengyi
Jiang (251)
|
6,000 | (252) | 6,000 | (252) | 0 | 0 | % | |||||||||
|
Ning
Sha (253)
|
3,000 | (254) | 3,000 | (254) | 0 | 0 | % | |||||||||
|
Peican
Li (255)
|
15,000 | (256) | 15,000 | (256) | 0 | 0 | % | |||||||||
|
Peijing
Li (257)
|
15,000 | (258) | 15,000 | (258) | 0 | 0 | % | |||||||||
|
Pingsheng
Li (259)
|
9,000 | (260) | 9,000 | (260) | 0 | 0 | % | |||||||||
|
Sanping
Lv (261)
|
1,500 | (262) | 1,500 | (262) | 0 | 0 | % | |||||||||
|
Tong
Liu (263)
|
3,000 | (264) | 3,000 | (264) | 0 | 0 | % | |||||||||
|
Weiwei
Zan (265)
|
1,800 | (266) | 1,800 | (266) | 0 | 0 | % | |||||||||
|
Wenyi
Liao (267)
|
1,500 | (268) | 1,500 | (268) | 0 | 0 | % | |||||||||
|
Xingwu
Zhou (269)
|
180,000 | (270) | 180,000 | (270) | 0 | 0 | % | |||||||||
|
Xushuai
Wang (271)
|
365,223 | (272) | 365,223 | (272) | 0 | 0 | % | |||||||||
|
Yancai
Wang (273)
|
3,000 | (274) | 3,000 | (274) | 0 | 0 | % | |||||||||
|
Yang
Wang (275)
|
98,829 | (276) | 98,829 | (276) | 0 | 0 | % | |||||||||
|
Yansong
Sun (277)
|
4,500 | (278) | 4,500 | (278) | 0 | 0 | % | |||||||||
|
Yaopeng
Wu (279)
|
15,000 | (280) | 15,000 | (280) | 0 | 0 | % | |||||||||
|
Yingying
Zhang (281)
|
4,500 | (282) | 4,500 | (282) | 0 | 0 | % | |||||||||
|
Yufen
Jiao (283)
|
3,000 | (284) | 3,000 | (284) | 0 | 0 | % | |||||||||
51
|
Name
(A)
|
Securities
Beneficially
Owned Prior to
Offering(1)
(B)
|
Securities
Being
Offered
(C)
|
Securities
Beneficially
Owned After
Offering (2)
(D)
|
% Beneficial
Ownership After
Offering (4)
(E)
|
||||||||||||
|
Zhanjun
Lou (285)
|
1,800 | (286) | 1,800 | (286) | 0 | 0 | % | |||||||||
|
Zhengkai
Zhu (287)
|
36,603 | (288) | 36,603 | (288) | 0 | 0 | % | |||||||||
|
Zhonghua
Liu (289)
|
3,000 | (290) | 3,000 | (290) | 0 | 0 | % | |||||||||
|
Zhuli
Li (291)
|
5,400 | (292) | 5,400 | (292) | 0 | 0 | % | |||||||||
|
Madison
Williams and Company LLC (3) (293) (327)
|
98,865 | (294) | 98,865 | (294) | 0 | 0 | % | |||||||||
|
Rodman
& Renshaw LLC ( 3 ) (295) (328)
|
54,000 | (296) | 54,000 | (296) | 0 | 0 | % | |||||||||
|
MW
Equity Pool LLC ( 3 ) (297) (327)
|
148,298 | (298) | 148,298 | (298) | 0 | 0 | % | |||||||||
|
Ramnarain
Jaigobind (4) (299) (328)
|
20,870 | (300) | 20,870 | (300) | 0 | 0 | % | |||||||||
|
Eric
Lord (4) (301) (328)
|
5,227 | (302) | 5,227 | (302) | 0 | 0 | % | |||||||||
|
Kevin
Mangan (4) (303) (328)
|
2,402 | (304) | 2,402 | (304) | 0 | 0 | % | |||||||||
|
KaiKai
Dong (4) (305) (328)
|
2,000 | (306) | 2,000 | (306) | 0 | 0 | % | |||||||||
|
Chirag
Choudhary (4) (307) (328)
|
9,741 | (308) | 9,741 | (308) | 0 | 0 | % | |||||||||
|
Harry
Ioannou (4) (309) (328)
|
12,828 | (310) | 12,828 | (310) | 0 | 0 | % | |||||||||
|
George
Anagnostou (4) (311) (328)
|
5,273 | (312) | 5,273 | (312) | 0 | 0 | % | |||||||||
|
Jonah
Raskas (4) (313) (328)
|
3,303 | (314) | 3,303 | (314) | 0 | 0 | % | |||||||||
|
Philip
Riggio (4) (315) (328)
|
4,356 | (316) | 4,356 | (316) | 0 | 0 | % | |||||||||
|
(1)
|
Unless
otherwise indicated, the selling security holders listed in the table
above acquired the securities being offered in the February and March
closings of the Company’s $44 million private placement financing
described above. The securities in both closings consisted of units
purchased at $6.00 each, with each unit consisting of one share of common
stock, and a five year warrant for the purchase of 0.5 shares of common
stock with and exercise price of $12.00 per whole share. Percentages
stated in the above table are based on a total of 20,871,192 shares of
common stock outstanding as of September 24,
2010.
|
|
(2)
|
Assumes
that all of the shares offered hereby are sold and that shares owned
before the offering but not offered hereby are not
sold.
|
|
(3)
|
This
securityholder is a broker-dealer, and is therefore deemed an
“underwriter” under the Securities Act of 1933 as
amended.
|
|
(4)
|
This
security holder is an affiliate of a broker-dealer. Each affiliate
of a broker-dealer represents that such affiliate (a) purchased or
acquired the securities to be resold in the ordinary course of business,
and (b) had no agreements or understandings, directly or indirectly, with
any person to distribute the securities at the time of their purchase or
acquisition. Further, each affiliate of a broker-dealer represents
that the affiliated broker-dealer received these securities as
compensation for underwriting activities, prior to their assignment to the
affiliate.
|
|
(5)
|
The
address of this security holder is 31 Pierce Lane, Norwich VT 05055.
Michael Miller, as trustee of this security holder, has dispositive and
voting power over these securities and may be deemed to be the beneficial
owner of these securities.
|
|
(6)
|
Includes
25,000 shares of Common Stock and 12,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
52
|
(7)
|
The
address of this security holder is 1223 Camino Del Mar, Del Mar,
California 92014. Michael Licosati, as managing partner of this security
holder, has dispositive and voting power over these securities and may be
deemed to be the beneficial owner of these securities.
|
|
(8)
|
Includes
100,000 shares of Common Stock and 50,000 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(9)
|
The
address of this security holder is 98 Cuttermill Road, Suite 370, South,
Great Neck, NY 11021.
|
|
(10)
|
Includes
15,000 shares of Common Stock and 7,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(11)
|
The
address of this security holder is Dradafent 79490 Furstentuns cms Vaduz,
Lichtenstein. Konrad Ackerman, as director of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these securities.
|
|
(12)
|
Includes
35,000 shares of Common Stock and 17,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(13)
|
The
address of this security holder is 5950 Berkshire Lane, Suite 510, Dallas,
TX 75225. Bruce Winson, as portfolio manager of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these securities.
|
|
(14)
|
Includes
25,000 shares of Common Stock and 12,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(15)
|
The
address of this security holder is 8 Elskip Lane, Greenwich, CT
06831.
|
|
(16)
|
Includes
10,000 shares of Common Stock and 5,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(17)
|
The
address of this security holder is 8 Elskip Lane, Greenwich, CT
06831.
|
|
(18)
|
Includes
10,000 shares of Common Stock and 5,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(19)
|
The
address of this security holder is c/o Ardsley Partners, 262 Harbor Drive,
4th Floor,
Stamford, CT 06902. Philip J. Hempleman, as general partner of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(20)
|
Includes
20,640 shares of Common Stock and 10,320 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(21)
|
The
address of this security holder is c/o Ardsley Partners, 262 Harbor Drive,
4th Floor,
Stamford, CT 06902. Philip J. Hempleman, as general partner of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(22)
|
Includes
106,210 shares of Common Stock and 53,105 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
53
|
(23)
|
The
address of this security holder is c/o Ardsley Partners, 262 Harbor Drive,
4th Floor,
Stamford, CT 06902. Philip J. Hempleman, as general partner of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(24)
|
Includes
84,710 shares of Common Stock and 42,355 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(25)
|
The
address of this security holder is 8214 Westchester Drive, Suite 650,
Dallas, TX 75225. Robert H. Alpert, as president of this security holder,
has dispositive and voting power over these securities and may be deemed
to be the beneficial owner of these securities.
|
|
(26)
|
Includes
35,000 shares of Common Stock and 17,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(27)
|
The
address of this security holder is Flat F, 9/F, Tower 1, Harbour Green
No.8 Sham Mong Road, Tai Kok Tsui Kowloon, Hong Kong.
|
|
(28)
|
Includes
82,500 shares of Common Stock and 41,250 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(29)
|
The
address of this security holder is 595 S Federal Highway, Suite 600, Boca
Raton, FL 33432.
|
|
(30)
|
Includes
41,667 shares of Common Stock and 20,834 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(31)
|
The
address of this security holder is 5800 JP Morgan Chase Tower, Austin, TX
77002.
|
|
(32)
|
Includes
9,000 shares of Common Stock and 4,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(33)
|
The
address of this security holder is Suite 2021, Two Pacific Place, 88
Queensway, Hong Kong. Li Wen Ying, as sole director and shareholder of
this security holder, has dispositive and voting power over these
securities and may be deemed to be the beneficial owner of these
securities.
|
|
(34)
|
Includes
17,500 shares of Common Stock and 8,750 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(35)
|
The
address of this security holder is 401 E. 34th Street, Suite
South 33C, New York, NY 10016. Shaye Hirsch, as managing partner of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(36)
|
Includes
18,667 shares of Common Stock and 9,334 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(37)
|
The
address of this security holder is 76 Childs Rd., Basking Ridge, NJ
07920.
|
54
|
(38)
|
Includes
12,500 shares of Common Stock and 6,250 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(39)
|
The
address of this security holder is 410 Park Ave, Suite 1500, New York, NY
10022. Reid Drescher, as managing member of the investment manager of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(40)
|
Includes
33,000 shares of Common Stock and 16,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(41)
|
The
address of this security holder is 101 California St, Suite 3250, San
Francisco, CA, 94111. Heights Capital Management, Inc., the authorized
agent of this security holder, has discretionary authority to vote and
dispose of these securities held by this security holder and may be deemed
to be the beneficial owner of these securities. Martin Kobinger, in his
capacity as investment manager of Heights Capital Management, Inc. may
also be deemed to have the investment discretion and voting power over
these securities. Mr. Kobinger disclaims any such beneficial ownership of
these securities.
|
|
(42)
|
Includes
200,000 shares of Common Stock and 100,000 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(43)
|
The
address of this security holder is 3400 N. Lake Shore Drive, 2nd Floor, Chicago, IL
60657. John Ziegelman, as president and chief executive officer of
Carpe Diem Capital Management, LLC, which is investment manager of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(44)
|
Includes
20,000 shares of Common Stock and 10,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(45)
|
The
address of this security holder is 338 Spear Street, Suite 8D, San
Francisco, CA 94105. Ikro Yoon, as managing member of Celenian Capital
LLC, which is general partner of this security holder, has dispositive and
voting power over these securities and may be deemed to be the beneficial
owner of these securities.
|
|
(46)
|
Includes
20,000 shares of Common Stock and 10,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(47)
|
The
address of this security holder is One Post Office Square, 40th Floor, Boston, MA
02109. Eric A. Brock, as partner of general partner of this security
holder, has dispositive and voting power over these securities and may be
deemed to be the beneficial owner of these securities.
|
|
(48)
|
Includes
8,000 shares of Common Stock and 4,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(49)
|
The
address of this security holder is One Post Office Square, 40th Floor, Boston, MA
02109. Eric A. Brock, as partner of general partner of this security
holder, has dispositive and voting power over these securities and may be
deemed to be the beneficial owner of these securities.
|
|
(50)
|
Includes
29,450 shares of Common Stock and 14,725 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
55
|
(51)
|
The
address of this security holder is One Post Office Square, 40th Floor, Boston, MA
02109. Eric A. Brock, as partner of general partner of this security
holder, has dispositive and voting power over these securities and may be
deemed to be the beneficial owner of these securities.
|
|
(52)
|
Includes
3,550 shares of Common Stock and 1,775 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(53)
|
The
address of this security holder is One Post Office Square, 40th Floor, Boston, MA
02109. Eric A. Brock, as partner of investment advisor of this security
holder, has dispositive and voting power over these securities and may be
deemed to be the beneficial owner of these securities.
|
|
(54)
|
Includes
17,000 shares of Common Stock and 8,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(55)
|
The
address of this security holder is 100 East Cook Avenue, Suite 100
Libertyville IL 60048. Larry Butz and John Prinz, as managing partners of
general partner of this security holder, have dispositive and voting power
over these securities and may be deemed to be the beneficial owner of
these securities.
|
|
(56)
|
Includes
65,000 shares of Common Stock and 32,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(57)
|
The
address of this security holder is 877 West Main Street #600, Boise,
ID 83702. Gregory A. Bied, as managing partner of this security
holder, has dispositive and voting power over these securities and may be
deemed to be the beneficial owner of these
securities.
|
|
(58)
|
Includes
25,000 shares of Common Stock and 12,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(59)
|
The
address of this security holder is 195 Beech St. Eastchester, NY 10709.
Jack Polak, as general partner of this security holder, has dispositive
and voting power over these securities and may be deemed to be the
beneficial owner of these securities.
|
|
(60)
|
Includes
10,000 shares of Common Stock and 5,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(61)
|
The
address of this security holder is 303 Green Belt, Houston, TX
77079.
|
|
(62)
|
Includes
8,000 shares of Common Stock and 4,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(63)
|
The
address of this security holder is 600 Travis St #5800, Houston, TX
77002.
|
|
(64)
|
Includes
17,000 shares of Common Stock and 8,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(65)
|
The
address of this security holder is 229 Chrystie St., Apt 1107, New York,
NY 10002.
|
|
(66)
|
Includes
5,000 shares of Common Stock and 2,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
56
|
(67)
|
The
address of this security holder is c/o Empery Asset Management LP, 120
Broadway, Suite 1019, New York, NY 10271. Empery Asset Management, LP, the
authorized agent of this security holder, has discretionary authority to
vote and dispose of these securities held by this security holder and may
be deemed to be the beneficial owner of these securities. Martin Hoe and
Ryan Lane, in their capacity as investment managers of Empery Asset
Management LP, may also be deemed to have investment discretion and voting
power over the securities. Mr. Hoe and Mr. Lane disclaim any beneficial
ownership of these securities.
|
|
(68)
|
Includes
42,000 shares of Common Stock and 21,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(69)
|
The
address of this security holder is 2560 Highvale Rd., Las Vegas, NV 89134.
Jon Richard Carnes, as manager of this security holder, has dispositive
and voting power over these securities and may be deemed to be the
beneficial owner of these securities.
|
|
(70)
|
Includes
80,000 shares of Common Stock and 40,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(71)
|
The
address of this security holder is 195 Beech St. Eastchester, NY 10709.
Jack Polak, as president of this security holder, has dispositive and
voting power over these securities and may be deemed to be the beneficial
owner of these securities.
|
|
(72)
|
Includes
5,000 shares of Common Stock and 2,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(73)
|
The
address of this security holder is 560 Ridge Rd, Winnetka, IL
60093.
|
|
(74)
|
Includes
7,000 shares of Common Stock and 3,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(75)
|
The
address of this security holder is 150 Bloor Street Suite 14, Toronto, ON
M5S 2X9, Canada. William Hechter, as president of this security holder,
has dispositive and voting power over these securities and may be deemed
to be the beneficial owner of these securities.
|
|
(76)
|
Includes
166,666 shares of Common Stock and 83,333 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(77)
|
The
address of this security holder is 9 Daniel Drive, Glen Cove, NY 11542.
Steven M. Farber and S. Edmond Farber, as managing members of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(78)
|
Includes
3,000 shares of Common Stock and 1,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(79)
|
The
address of this security holder is 111 Great Neck Rd., Suite 301, Great
Neck, NY 11021. Ido Klear, as president of Futurtec Capital
Corporation, the general partner of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these
securities.
|
57
|
(80)
|
Includes
25,000 shares of Common Stock and 12,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(81)
|
The
address of this security holder is c/o Gemini Strategies, LLC, 135
Liverpool Drive, Suite C, Cardiff, CA 92007. Steven Winters, as president
of the investment manager of this security holder, has dispositive and
voting power over these securities and may be deemed to be the beneficial
owner of these securities.
|
|
(82)
|
Includes
10,000 shares of Common Stock and 5,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(83)
|
The
address of this security holder is 1000 Woodbury Road, Suite 207,
Woodbury, NY 11797. David Greenberg, as president of this security holder,
has dispositive and voting power over these securities and may be deemed
to be the beneficial owner of these securities.
|
|
(84)
|
Includes
4,000 shares of Common Stock and 2,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(85)
|
The
address of this security holder is 100 East Cook Avenue, Suite 101
Libertyville IL 60048. Gene Maher, as principal of this security holder,
has dispositive and voting power over these securities and may be deemed
to be the beneficial owner of these
securities.
|
|
(86)
|
Includes
66,667 shares of Common Stock and 33,334 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(87)
|
The
address of this security holder is 2 Sharon Lane, Scarsdale,
NY 10583.
|
|
(88)
|
Includes
8,500 shares of Common Stock and 4,250 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(89)
|
The
address of this security holder is 595 S Federal Highway, Suite 600, Boca
Raton, FL 33432. Barry Honig, as trustee of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these securities.
|
|
(90)
|
Includes
98,333 shares of Common Stock and 49,167 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(91)
|
The
address of this security holder is 237 Park Avenue, 9th Floor, New York,
NY 10017. Peter Siris and Leigh Curry, as managing directors of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(92)
|
Includes
60,000 shares of Common Stock and 30,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(93)
|
The
address of this security holder is 1232 Rose Lane, Lafayette, CA 94549.
Jason A. Hammerman, as managing member of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these securities.
|
|
(94)
|
Includes
31,667 shares of Common Stock and 15,834 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
58
|
(95)
|
The
address of this security holder is 1232 Rose Lane, Lafayette, CA 94549.
Jason A. Hammerman, as managing member of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these securities.
|
|
(96)
|
Includes
58,333 shares of Common Stock and 29,167 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(97)
|
The
address of this security holder is c/o Empery Asset Management LP, 121
Broadway, Suite 1019, New York, NY 10271. Empery Asset Management LP, the
authorized agent of this security holder, has discretionary authority to
vote and dispose of these securities held by this security holder and may
be deemed to be the beneficial owner of these securities. Martin Hoe and
Ryan Lane, in their capacity as investment managers of Empery Asset
Management LP, may also be deemed to have investment discretion and voting
power over these securities. Mr. Hoe and Mr. Lane disclaim any beneficial
ownership of these securities.
|
|
(98)
|
Includes
42,000 shares of Common Stock and 21,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(99)
|
The
address of this security holder is 700 E. Palisade Avenue, Englewood
Cliffs, NJ 07632. Ronald I. Heller, as Chief Information Officer of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(100)
|
Includes
20,000 shares of Common Stock and 10,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(101)
|
The
address of this security holder is 333 Sandy Springs Circle, Suite 230,
Atlanta, GA 30328. Frank E. Hart, as manager, Frea A. Brasch, as
chief financial officer, and David A. Rapaport, as executive vice
president and of this security holder, has dispositive and voting
power over these securities and may be deemed to be the beneficial owner
of these securities.
|
|
(102)
|
Includes
8,000 shares of Common Stock and 4,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(103)
|
The
address of this security holder is 237 Park Avenue, 9th Floor, New York,
NY 10017. Peter Siris and Leigh Curry, as managing directors of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(104)
|
Includes
100,000 shares of Common Stock and 50,000 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(105)
|
The
address of this security holder is 120 Broadway, 4th Floor, New York,
NY 10271. Hudson Bay Capital Management, L.P., the investment manager of
this security holder, has voting and investment power over these
securities held by this security holder and may be deemed to be the
beneficial owner of these securities. Sander Gerber, in his capacity as
managing member of Hudson Bay Capital GP LLC, which is general partner of
Hudson Bay Capital Management, L.P., may also be deemed to have investment
discretion and voting power over these securities. Mr. Gerber disclaims
any beneficial ownership of these securities.
|
|
(106)
|
Includes
205,000 shares of Common Stock and 102,500 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
59
|
(107)
|
The
address of this security holder is 120 Broadway, 4th Floor, New York,
NY 10271. Hudson Bay Capital Management, L.P., the investment manager of
this security holder, has voting and investment power over these
securities held by this security holder and may be deemed to be the
beneficial owner of these securities. Sander Gerber, in his capacity as
managing member of Hudson Bay Capital GP LLC, which is general partner of
Hudson Bay Capital Management, L.P., may also be deemed to have investment
discretion and voting power over these securities. Mr. Gerber disclaims
any beneficial ownership of these securities.
|
|
(108)
|
Includes
295,000 shares of Common Stock and 147,500 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(109)
|
The
address of this security holder is 641 Lexington Ave. 26th Fl, New York, NY
10022. Joshua Silverman, as authorized signatory of this security holder,
has dispositive and voting power over these securities and may be deemed
to be the beneficial owner of these
securities.
|
|
(110)
|
Includes
35,000 shares of Common Stock and 17,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(111)
|
The
address of this security holder is 220 Riverside Blvd, Apt 7-T, New York,
NY 10069.
|
|
(112)
|
Includes
5,000 shares of Common Stock and 2,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(113)
|
The
address of this security holder is 930 Tahoe Blvd., 802-281, Incline
Village, NV, 89451. Kent C. McCarthy, as manager of this security holder,
has dispositive and voting power over these securities and may be deemed
to be the beneficial owner of these securities.
|
|
(114)
|
Includes
300,000 shares of Common Stock and 150,000 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(115)
|
The
address of this security holder is 1865 E. 28th St., Brooklyn, NY
11229.
|
|
(116)
|
Includes
8,000 shares of Common Stock and 4,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(117)
|
The
address of this security holder is 35 Rochelle Dr., New City, NY
10956.
|
|
(118)
|
Includes
25,000 shares of Common Stock and 12,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(119)
|
The
address of this security holder is 900 Third Avenue, Suite 1401, New York,
NY 10022. Jason Wild, as managing member of this security holder,
has dispositive and voting power over these securities and may be deemed
to be the beneficial owner of these securities.
|
|
(120)
|
Includes
4,000 shares of Common Stock and 2,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(121)
|
The
address of this security holder is 4014 Inverness Drive, Houston, TX
77019.
|
60
|
(122)
|
Includes
8,000 shares of Common Stock and 4.000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(123)
|
The
address of this security holder is 767 Third Avenue, 16th Fl., New York, NY
10017. Richard J. Keim, as general partner of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these securities.
|
|
(124)
|
Includes
125,000 shares of Common Stock and 62,500 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(125)
|
The
address of this security holder is 2000 S Ocean Blvd., Boca Raton, FL
33432.
|
|
(126)
|
Includes
25,000 shares of Common Stock and 12,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(127)
|
The
address of this security holder is 2101 Cedar Springs Road, Suite 1230,
Dallas, TX 75201. Richard D. Squires, as president of the general
partner of this security holder, has dispositive and voting power over
these securities and may be deemed to be the beneficial owner of these
securities.
|
|
(128)
|
Includes
35,000 shares of Common Stock and 17,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(129)
|
The
address of this security holder is 205 Vesta Drive, Toronto, ON M5P 3A1,
Canada.
|
|
(130)
|
Includes
12,500 shares of Common Stock and 6,250 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(131)
|
The
address of this security holder is 315 Rosemary Road, Toronto, Ontario M5P
3E4.
|
|
(132)
|
Includes
12,334 shares of Common Stock and 6,167 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(133)
|
The
address of this security holder is c/o Ardsley Partners, 262 Harbor Drive,
4th Floor,
Stamford, CT 06902. Philip J. Hempleman, as general manager of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(134)
|
Includes
3,440 shares of Common Stock and 1,720 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(135)
|
The
address of this security holder is 1116 Pheasant Lane, Collegeville, PA
19426. Maj Soueidan, as general partner of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these securities.
|
|
(136)
|
Includes
7,500 shares of Common Stock and 3,750 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(137)
|
The
address of this security holder is 3164 NE 31st Ave., Lighthouse
Point, FL 33064.
|
61
|
(138)
|
Includes
50,000 shares of Common Stock and 25,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(139)
|
The
address of this security holder is 150 Signet Drive, Toronto ON M9L
1T9.
|
|
(140)
|
Includes
3,000 shares of Common Stock and 1,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(141)
|
The
address of this security holder is 301 Mission Ave Ste 209, Oceanside, CA
92054. David Mickelson, as managing member of this security holder,
has dispositive and voting power over these securities and may be deemed
to be the beneficial owner of these securities.
|
|
(142)
|
Includes
42,000 shares of Common Stock and 21,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(143)
|
The
address of this security holder is 57-63 Line Wall Road, PO Box 199,
Gibraltar, Israel. Albert Flores, Desmond Reoch, Brenda Avellano and
Lesley Nuttall, as directors of this security holder, has dispositive and
voting power over these securities and may be deemed to be the beneficial
owner of these securities.
|
|
(144)
|
Includes
40,000 shares of Common Stock and 20,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(145)
|
The
address of this security holder is c/o EagleRock Capital Management- 24
West 40th Street, 10th Floor, New York,
NY 10018. Nader Tavakoli, as managing member of this security
holder, has dispositive and voting power over these securities and may be
deemed to be the beneficial owner of these securities.
|
|
(146)
|
Includes
30,000 shares of Common Stock and 15,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(147)
|
The
address of this security holder is 180 Crestview Drive, Deerfield, IL
60015. Stewart Flink, as manager of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these securities.
|
|
(148)
|
Includes
150,000 shares of Common Stock and 75,000 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(149)
|
The
address of this security holder is 155 West 68th St, # 27E, New
York, NY 10023. Steven Hart, as general partner of this security
holder, has dispositive and voting power over these securities and may be
deemed to be the beneficial owner of these securities.
|
|
(150)
|
Includes
40,000 shares of Common Stock and 20,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(151)
|
The
address of this security holder is 15750 1H-10 West, San Antonio,
TX 78249. Jeffrey Dabbs, as managing member of this security holder,
has dispositive and voting power over these securities and may be deemed
to be the beneficial owner of these
securities.
|
62
|
(152)
|
Includes
10,000 shares of Common Stock and 5,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(153)
|
The
address of this security holder is 339 Sheridan Road, Winnetka, IL 60093.
Daniel Warsh, as authorized representative of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these
securities.
|
|
(154)
|
Includes
15,833 shares of Common Stock and 7,917 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(155)
|
The
address of this security holder is Canons Court, 22 Victoria St.,
Hamilton, HM 11, Bermuda. Christopher Kuchanny, as chairman of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(156)
|
Includes
983,333 shares of Common Stock and 491,667 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(157)
|
The
address of this security holder is 288 Lancaster Ave, Bldg 1, Ste 3,
Frazer, PA 19355. Michael Markowski, as president of this security holder,
has dispositive and voting power over these securities and may be deemed
to be the beneficial owner of these securities.
|
|
(158)
|
Includes
7,500 shares of Common Stock and 3,750 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(159)
|
The
address of this security holder is 110 East 59th Street, 29th Floor, New York,
NY 10022. Alan P. Donenfeld, as general partner of this security
holder, has dispositive and voting power over these securities and may be
deemed to be the beneficial owner of these securities.
|
|
(160)
|
Includes
82,500 shares of Common Stock and 41,250 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(161)
|
The
address of this security holder is 9243 N. Emerald Lake Cove, Cedar Hills,
Utah 84062.
|
|
(162)
|
Includes
17,500 shares of Common Stock and 8,750 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(163)
|
The
address of this security holder is 51 Loro’s Hwy East, Weston, CT
06883.
|
|
(164)
|
Includes
10,000 shares of Common Stock and 5,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(165)
|
The
address of this security holder is c/o Maxim Group, 405 Lexington Avenue,
2nd Floor, New
York, NY 10174. Ronald Lazar and Anthony Polak, as managing members of
this security holder, has dispositive and voting power over these
securities and may be deemed to be the beneficial owner of these
securities.
|
|
(166)
|
Includes
50,000 shares of Common Stock and 25,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(167)
|
The
address of this security holder is 200 Winston Drive # 3109 Cliffside
Park, NJ 07010-3234.
|
63
|
(168)
|
Includes
5,000 shares of Common Stock and 2,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(169)
|
The
address of this security holder is 600 Travis St #5800, Houston, TX 77002.
Don Weir, as trustee of this security holder, has dispositive and voting
power over these securities and may be deemed to be the beneficial owner
of these securities.
|
|
(170)
|
Includes
8,000 shares of Common Stock and 4,000 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(171)
|
The
address of this security holder is 600 Travis St #5800, Houston, TX 77002.
Don Weir, as vice president of this security holder, has dispositive and
voting power over these securities and may be deemed to be the beneficial
owner of these securities.
|
|
(172)
|
Includes
38,150 shares of Common Stock and 19,075 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(173)
|
The
address of this security holder is 600 Travis St #5800, Houston, TX 77002.
Don Weir, as vice president of this security holder, has dispositive and
voting power over these securities and may be deemed to be the beneficial
owner of these securities.
|
|
(174)
|
Includes
11,850 shares of Common Stock and 5,925 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(175)
|
The
address of this security holder is c/o SDS Management LLC, 53 Forest
Avenue, 2nd Floor, Old
Greenwich, CT 06870. Steve Derby, as managing member of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(176)
|
Includes
17,500 shares of Common Stock and 8,750 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(177)
|
The
address of this security holder is 71 S. Wacker Drive, Suite 1900,
Chicago, IL 60606. Montgomery Cornell, as assistant secretary of
this security holder, has dispositive and voting power over these
securities and may be deemed to be the beneficial owner of these
securities.
|
|
(178)
|
Includes
30,000 shares of Common Stock and 15,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(179)
|
The
address of this security holder is 66 Glenbrook Road, Suite 2121,
Stamford, CT 06902.
|
|
(180)
|
Includes
15,000 shares of Common Stock and 7,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(181)
|
The
address of this security holder is 157 Old Yonge Street, Toronto, ONT M2P
1R1.
|
|
(182)
|
Includes
12,500 shares of Common Stock and 6,250 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
64
|
(183)
|
The
address of this security holder is 1325 6th Avenue, Floor 27,
New York, NY 10019. Thomas Sauve and Mark Jensen have, as managing
members of this security holder, has dispositive and voting power over
these securities and may be deemed to be the beneficial owner of these
securities.
|
|
(184)
|
Includes
8,333 shares of Common Stock and 4,167 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(185)
|
The
address of this security holder is 1325 6th Avenue, Floor 27,
New York, NY 10019. Thomas Sauve and Mark Jensen have, as managing members
of this security holder, has dispositive and voting power over these
securities and may be deemed to be the beneficial owner of these
securities.
|
|
(186)
|
Includes
41,667 shares of Common Stock and 20,834 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(187)
|
The
address of this security holder is 714 South Dearborn Street, 2nd Floor, Chicago, IL
60605. Steve Taylor, as chairman of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these securities.
|
|
(188)
|
Includes
40,000 shares of Common Stock and 20,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(189)
|
The
address of this security holder is 5100 Poplar Ave, Ste 3119 Memphis, TN
38137. Stephen L. Parr, as manager of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these securities.
|
|
(190)
|
Includes
25,000 shares of Common Stock and 12,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(191)
|
The
address of this security holder is 1000, 888-3rd, St S.W., Calgary, AB,
T2P 5C5, Canada. Corey Mitchell, as president of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these securities.
|
|
(192)
|
Includes
25,000 shares of Common Stock and 12,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(193)
|
The
address of this security holder is 1000 Woodbury Road, Suite 207,
Woodbury, NY 11797. Kenneth Orr, as chief executive officer of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(194)
|
Includes
4,000 shares of Common Stock and 2,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(195)
|
The
address of this security holder is 6089 S. Oswego St., Greenwood Village,
CO 80111.
|
|
(196)
|
Includes
4,000 shares of Common Stock and 2,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
65
|
(197)
|
The
address of this security holder is 95 Revere Drive, Suite A, Northbrook,
IL 60062. Daniel Warsh, as member of Warberg Asset Management LLC,
which is general partner of this security holder, has dispositive and
voting power over these securities and may be deemed to be the beneficial
owner of these securities.
|
|
(198)
|
Includes
27,667 shares of Common Stock and 13,834 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(199)
|
The
address of this security holder is 4965 Preston Park Blvd #220, Plano,
Texas 75093. Patrick J. Brosnahan, as general partner of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(200)
|
Includes
25,000 shares of Common Stock and 12,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(201)
|
The
address of this security holder is 1393 N. Bennett Circle, Farmington,
Utah 84025. Bryant D. Cragun, as president of this security holder, has
dispositive and voting power over these securities and may be deemed to be
the beneficial owner of these securities.
|
|
(202)
|
Includes
80,000 shares of Common Stock and 40,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(203)
|
The
address of this security holder is 94 Jianshe Rd., Building 19, Unit 5, Rm
202, Huiyuan District, Luohe, Henan Province, People’s Republic of
China
|
|
(204)
|
Includes
318,000 shares of Common Stock and 159,000 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(205)
|
The
address of this security holder is 22 Gongren Village, Rm 22, Gaozhuang
Town, Shilong District, Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(206)
|
Includes
2,000 shares of Common Stock and 1,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(207)
|
The
address of this security holder is 80 N. Guangming Rd., Building 2, Rm 4,
Xinhua District, Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(208)
|
Includes
120,000 shares of Common Stock and 60,000 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(209)
|
The
address of this security holder is 13 W. Tiyu Rd., Building 2, Rm 8,
Xinhua District, Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(210)
|
Includes
1,000 shares of Common Stock and 500 shares of Common Stock underlying the
Warrants issued to this selling security holder in the Financing, all of
which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(211)
|
The
address of this security holder is Xingfu St., Rm 202, Xinhua District,
Pingdingshan, Henan Province, People’s Republic of
China.
|
66
|
(212)
|
Includes
3,000 shares of Common Stock and 1,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(213)
|
The
address of this security holder is Linping Village, Group 4, Rm 26,
Shuanghe Town, Zhongxiang, Hebei Province, People’s Republic of
China.
|
|
(214)
|
Includes
2,000 shares of Common Stock and 1,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(215)
|
The
address of this security holder is Beijing St., Rm#1-1, Xigang District,
Dalian, Liaoning Province, People’s Republic of China.
|
|
(216)
|
Includes
104,190 shares of Common Stock and 52,095 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(217)
|
The
address of this security holder is Baozhuang Village, Liangwa Town, Lushan
County, Henan Province, People’s Republic of China.
|
|
(218)
|
Includes
30,000 shares of Common Stock and 15,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(219)
|
The
address of this security holder is 25 N. Xisanhuan Rd., Economics
Department 2005, Haidian District, Beijing, People’s Republic of
China.
|
|
(220)
|
Includes
41,982 shares of Common Stock and 20,991 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(221)
|
The
address of this security holder is 100 Central Jianshe Rd., Building 4, Rm
61, Xinhua District, Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(222)
|
Includes
163,982 shares of Common Stock and 81,991 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(223)
|
The
address of this security holder is 166 Fuxing Rd., Chengguan Town, Jia
County, Henan Province, People’s Republic of China.
|
|
(224)
|
Includes
30,746 shares of Common Stock and 15,373 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(225)
|
The
address of this security holder is East Guangcheng Rd., Rm 22, Ruzhou,
Henan Province, People’s Republic of China.
|
|
(226)
|
Includes
2,000 shares of Common Stock and 1,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(227)
|
The
address of this security holder is Jizhuang Village, Rm 6, Xuezhuang Town,
Xinhua District, Pingdingshan, Henan Province, People’s Republic of
China.
|
67
|
(228)
|
Includes
2,000 shares of Common Stock and 1,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(229)
|
The
address of this security holder is 8 Shanshuidong Rd., No. 40, Hongqiao
Garden, Binghu District, Wuxi, Jiangsu Province, People’s Republic of
China.
|
|
(230)
|
Includes
245,098 shares of Common Stock and 122,549 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(231)
|
The
address of this security holder is 26 E. Nanhuan Rd., Rm 9, Zhanhe
District, Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(232)
|
Includes
1,000 shares of Common Stock and 500 shares of Common Stock underlying the
Warrants issued to this selling security holder in the Financing, all of
which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(233)
|
The
address of this security holder is 14 Fuxing Rd., Building 4, Rm 322,
Haidian District, Beijing, People’s Republic of China.
|
|
(234)
|
Includes
2,000 shares of Common Stock and 1,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(235)
|
The
address of this security holder is 270 W. Jianshe Rd., Building 1, Rm 14,
Xinhua District, Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(236)
|
Includes
1,000 shares of Common Stock and 500 shares of Common Stock underlying the
Warrants issued to this selling security holder in the Financing, all of
which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(237)
|
The
address of this security holder is Yuanding Rd., Academy of Education,
Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(238)
|
Includes
2,000 shares of Common Stock and 1,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(239)
|
The
address of this security holder is 2 E. Yongan St., Rm3, Erqi District,
Zhengzhou, Henan Province, People’s Republic of China.
|
|
(240)
|
Includes
2,000 shares of Common Stock and 1,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(241)
|
The
address of this security holder is 1 S. East Jianshe Rd., Building 5, Unit
3, Rm 8, Weidong District, Pingdingshan, Henan Province, People’s Republic
of China.
|
|
(242)
|
Includes
380,000 shares of Common Stock and 190,000 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(243)
|
The
address of this security holder is 2 Street, Rm 9, Shuangpaifang Village,
Suiyang District, Shangqiu, Henan Province, People’s Republic of
China.
|
68
|
(244)
|
Includes
60,000 shares of Common Stock and 30,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(245)
|
The
address of this security holder is No. F11, Dushuyizhi, Daxing District,
Beijing, People’s Republic of China.
|
|
(246)
|
Includes
290,000 shares of Common Stock and 145,000 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(247)
|
The
address of this security holder is Fanrong St, Building 22-55, Weidong
District, Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(248)
|
Includes
20,000 shares of Common Stock and 10,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(249)
|
The
address of this security holder is 3 E. Kaiyuan Rd., Building 9, Rm 28,
Weidong District, Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(250)
|
Includes
500 shares of Common Stock and 250 shares of Common Stock underlying the
Warrants issued to this selling security holder in the Financing, all of
which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(251)
|
The
address of this security holder is Qingshanyi Village, Building 41, Rm
602, Meilie District, Sanming, Fujian Province, People’s Republic of
China.
|
|
(252)
|
Includes
4,000 shares of Common Stock and 2,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(253)
|
The
address of this security holder is 118 Diba St., Rm 1, Economic and
Technical Development District, Zhengzhou, Henan Province, People’s
Republic of China.
|
|
(254)
|
Includes
2,000 shares of Common Stock and 1,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(255)
|
The
address of this security holder is 100 N. Central Jianshe Rd., Building 4,
Rm 61, Xinhua District, Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(256)
|
Includes
10,000 shares of Common Stock and 5,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(257)
|
The
address of this security holder is 100 N. Central Jianshe Rd., Building 4,
Rm 61, Xinhua District, Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(258)
|
Includes
10,000 shares of Common Stock and 5,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(259)
|
The
address of this security holder is Qingshanyi Village, Building 37, Rm
206, Meilie District, Sanming, Fujian Province, People’s Republic of
China.
|
69
|
(260)
|
Includes
6,000 shares of Common Stock and 3,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(261)
|
The
address of this security holder is 28 Tiyu Rd., Building 11, Rm 41, Xinhua
District, Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(262)
|
Includes
1,000 shares of Common Stock and 500 shares of Common Stock underlying the
Warrants issued to this selling security holder in the Financing, all of
which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(263)
|
The
address of this security holder is Beilijia, Liulitun, Building 9, Rm 404,
Chaoyang District, Beijing, People’s Republic of
China.
|
|
(264)
|
Includes
2,000 shares of Common Stock and 1,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(265)
|
The
address of this security holder is Gebei St., Rm 56, Xunhua District,
Zhangjiakou, Hebei Province, People’s Republic of
China.
|
|
(266)
|
Includes
1,200 shares of Common Stock and 600 shares of Common Stock underlying the
Warrants issued to this selling security holder in the Financing, all of
which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(267)
|
The
address of this security holder is 48 Dongsheng St., Rm 13, Mianjiang
District, Chengdu, Sichuan Province, People’s Republic of
China.
|
|
(268)
|
Includes
1,000 shares of Common Stock and 500 shares of Common Stock underlying the
Warrants issued to this selling security holder in the Financing, all of
which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(269)
|
The
address of this security holder is Dajiangbiantun, Wujiang Village, Rm 53,
Pingnan Town, Pingnan County, Guangxi Province, People’s Republic of
China.
|
|
(270)
|
Includes
120,000 shares of Common Stock and 60,000 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(271)
|
The
address of this security holder is 25 N. Xisanhuan Rd., Economics
Department 2005, Haidian District, Beijing, People’s Republic of
China.
|
|
(272)
|
Includes
243,482 shares of Common Stock and 121,741 shares of Common Stock
underlying the Warrants issued to this selling security holder in the
Financing, all of which we are registering for resale pursuant to the
Securities Purchase Agreement.
|
|
(273)
|
The
address of this security holder is Shangdong Village, Rm 62, Shangdian
Town, Wugang, Henan Province, People’s Republic of
China.
|
|
(274)
|
Includes
2,000 shares of Common Stock and 1,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(275)
|
The
address of this security holder is 60 S. Xueyuan Rd., Building 2, Rm 9,
Haidian District, Beijing, People’s Republic of
China.
|
70
|
(276)
|
Includes
65,886 shares of Common Stock and 32,943 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(277)
|
The
address of this security holder is Zhongxin St, Building 3, Unit 1, Rm
201, Tiedong District, Zaozhuang, Shandong Province, People’s Republic of
China.
|
|
(278)
|
Includes
3,000 shares of Common Stock and 1,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(279)
|
The
address of this security holder is 21 S. Kaiyuan Rd., Unit 2, Rm 22,
Zhanhe District, Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(280)
|
Includes
10,000 shares of Common Stock and 5,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(281)
|
The
address of this security holder is South Aiqun Lane, Building 6, Rm 4,
Yangzhuang Town, Baofeng County, Henan Province, People’s Republic of
China.
|
|
(282)
|
Includes
3,000 shares of Common Stock and 1,500 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(283)
|
The
address of this security holder is 1 W. Hanghai Rd., Building 11, Unit 2,
Rm 31, Zhongyuan District, Zhengzhou, Henan Province, People’s Republic of
China.
|
|
(284)
|
Includes
2,000 shares of Common Stock and 1,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(285)
|
The
address of this security holder is 1 Renming Rd., Building 1, Unit 3, Rm
301, Chengguan Town, Baofeng County, Henan Province, People’s Republic of
China.
|
|
(286)
|
Includes
1,200 shares of Common Stock and 600 shares of Common Stock underlying the
Warrants issued to this selling security holder in the Financing, all of
which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(287)
|
The
address of this security holder is 5 W. Chang’an St., Xicheng District,
Beijing, People’s Republic of
China.
|
|
(288)
|
Includes
24,402 shares of Common Stock and 12,201 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(289)
|
The
address of this security holder is 10 E. Yanhe Rd., Building 2, Rm 15,
Weidong District, Pingdingshan, Henan Province, People’s Republic of
China.
|
|
(290)
|
Includes
2,000 shares of Common Stock and 1,000 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(291)
|
The
address of this security holder is 2 Shanghai Rd., Building 1, Unit 2, Rm
301, Economic and Technical Development District, Urmuqi, People’s
Republic of China.
|
71
|
(292)
|
Includes
3,600 shares of Common Stock and 1,800 shares of Common Stock underlying
the Warrants issued to this selling security holder in the Financing, all
of which we are registering for resale pursuant to the Securities Purchase
Agreement.
|
|
(293)
|
The
address of this security holder is 527 Madison Avenue, 14th & 15th Floors, New York,
NY 10022. William Sprague, as chairman of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(294)
|
Includes
46,865 shares of Common Stock underlying the Warrants at an exercise price
of $12.00 per share and 52,000 shares of Common Stock underlying the
Warrants at an exercise price of $6.00 per share for a period of 60 months
issued to this selling security holder in the first and second round of
Financing respectively, all of which we are registering for resale
pursuant to the Securities Purchase
Agreement.
|
|
(295)
|
The
address of this security holder is 1251 Avenue of the Americas, 20th Floor, New York,
NY 10020. David Horin, as chief financial officer of this security holder,
has dispositive and voting power over these securities and may be deemed
to be the beneficial owner of these
securities.
|
|
(296)
|
Includes
54,000 shares of Common Stock underlying the Warrants at an exercise price
of $6.00 per share for a period of 60 months issued to this selling
security holder in the Financing, all of which we are registering for
resale pursuant to the Securities Purchase
Agreement.
|
|
(297)
|
The
address of this security holder is 527 Madison Avenue, 14th & 15th Floors, New York,
NY 10022. William Sprague, as chairman of this
security holder, has dispositive and voting power over these securities
and may be deemed to be the beneficial owner of these
securities.
|
|
(298)
|
Includes
70,298 shares of Common Stock underlying the Warrants at an exercise price
of $12.00 per share and 78,000 shares of Common Stock underlying the
Warrants at an exercise price of $6.00 per share for a period of 60 months
issued to this selling security holder in the first and second round of
Financing respectively, all of which we are registering for resale
pursuant to the Securities Purchase
Agreement.
|
|
(299)
|
The
address of this security holder is c/o Rodman & Renshaw LLC, 1251
Avenue of the Americas, 20th Floor, New York,
NY 10020.
|
|
(300)
|
Includes
20,870 shares of Common Stock underlying the Warrants at an exercise price
of $6.00 per share for a period of 60 months issued to this selling
security holder in the Financing, all of which we are registering for
resale pursuant to the Securities Purchase
Agreement.
|
|
(301)
|
The
address of this security holder is c/o Rodman & Renshaw LLC, 1251
Avenue of the Americas, 20th Floor, New York,
NY 10020.
|
|
(302)
|
Includes
5,227 shares of Common Stock underlying the Warrants at an exercise price
of $6.00 per share for a period of 60 months issued to this selling
security holder in the Financing, all of which we are registering for
resale pursuant to the Securities Purchase
Agreement.
|
|
(303)
|
The
address of this security holder is c/o Rodman & Renshaw LLC, 1251
Avenue of the Americas, 20th Floor, New York,
NY 10020.
|
|
(304)
|
Includes
2,402 shares of Common Stock underlying the Warrants at an exercise price
of $6.00 per share for a period of 60 months issued to this selling
security holder in the Financing, all of which we are registering for
resale pursuant to the Securities Purchase
Agreement.
|
|
(305)
|
The
address of this security holder is c/o Rodman & Renshaw LLC, 1251
Avenue of the Americas, 20th Floor, New York,
NY 10020.
|
|
(306)
|
Includes
2,000 shares of Common Stock underlying the Warrants at an exercise price
of $6.00 per share for a period of 60 months issued to this selling
security holder in the Financing, all of which we are registering for
resale pursuant to the Securities Purchase
Agreement.
|
72
|
(307)
|
The
address of this security holder is 211 W. 56th St., New York, NY
10019.
|
|
(308)
|
Includes
9,741 shares of Common Stock underlying the Warrants at an exercise price
of $6.00 per share for a period of 60 months issued to this selling
security holder in the Financing, all of which we are registering for
resale pursuant to the Securities Purchase
Agreement.
|
|
(309)
|
The
address of this security holder is 162-17 13th Ave., Whitestone, NY
11357.
|
|
(310)
|
Includes
12,828 shares of Common Stock underlying the Warrants at an exercise price
of $6.00 per share for a period of 60 months issued to this selling
security holder in the Financing, all of which we are registering for
resale pursuant to the Securities Purchase
Agreement.
|
|
(311)
|
The
address of this security holder is c/o Rodman & Renshaw LLC, 1251
Avenue of the Americas, 20th Floor, New York,
NY 10020.
|
|
(312)
|
Includes
5,273 shares of Common Stock underlying the Warrants at an exercise price
of $6.00 per share for a period of 60 months issued to this selling
security holder in the Financing, all of which we are registering for
resale pursuant to the Securities Purchase
Agreement.
|
|
(313)
|
The
address of this security holder is 301 Overlook Road, New Rochelle, NY
10804.
|
|
(314)
|
Includes
3,303 shares of Common Stock underlying the Warrants at an exercise price
of $6.00 per share for a period of 60 months issued to this selling
security holder in the Financing, all of which we are registering for
resale pursuant to the Securities Purchase
Agreement.
|
|
(315)
|
The
address of this security holder is 1 Lillian Terrace, Darien, CT
06820.
|
|
(316)
|
Includes
4,356 shares of Common Stock underlying the Warrants at an exercise price
of $6.00 per share for a period of 60 months issued to this selling
security holder in the Financing, all of which we are registering for
resale pursuant to the Securities Purchase
Agreement.
|
|
(317)
|
Under
common control and are deemed affiliates of one
another.
|
|
(318)
|
Under
common control and are deemed affiliates of one
another.
|
|
(319)
|
Under
common control and are deemed affiliates of one
another.
|
|
(320)
|
Under
common control and are deemed affiliates of one
another.
|
|
(321)
|
Under
common control and are deemed affiliates of one
another.
|
|
(322)
|
Under
common control and are deemed affiliates of one
another.
|
|
(323)
|
Under
common control and are deemed affiliates of one
another.
|
|
(324)
|
Under
common control and are deemed affiliates of one
another.
|
|
(325)
|
Under
common control and are deemed affiliates of one
another.
|
|
(326)
|
Under
common control and are deemed affiliates of one
another.
|
73
|
(327)
|
We
are registering the ordinary shares underlying the placement agent
warrants issuable to Madison Williams and Company LLC, as lead
placement agent in the Financing of which a portion has been
assigned to MW Equity Pool, LLC, to purchase up to an aggregate of
117,163 shares at $12.00 per share and 130,000 shares at $6.00 per
share. These placement agent warrants were issued in conjunction
with our private placements completed on February 5, 2010 and March 11,
2010. Madison Williams and Company LLC is a registered
broker-dealer. Madison Williams and Company LLC earned these
securities as compensation for investment banking
services.
|
|
(328)
|
We
are registering the ordinary shares underlying the placement agent
warrants issuable to Rodman & Renshaw, LLC, the co-placement agent in
the Financing, to purchase up to an aggregate of 120,000 shares at $6.00
per share. These placement agent warrants were issued in conjunction
with our private placement completed on March 11, 2010. Rodman &
Renshaw, LLC is a registered broker-dealer. Rodman & Renshaw,
LLC earned these securities as compensation for investment banking
services. A portion of these placement agent warrants have been
assigned to principals and employees of Rodman & Renshaw,
LLC.
|
PLAN OF
DISTRIBUTION
Each
selling security holder (each, a “Selling Shareholder” and collectively, the
“Selling Shareholders”) of the common stock and any of their pledgees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock on the NASDAQ Capital Market or any other stock exchange,
market or trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. A
Selling Shareholder may use any one or more of the following methods when
selling shares:
|
|
●
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
●
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
|
●
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
|
●
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
●
|
privately
negotiated transactions;
|
|
|
●
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a
part;
|
|
|
●
|
broker-dealers
may agree with the Selling Shareholders to sell a specified number of such
shares at a stipulated price per
share;
|
|
|
●
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
|
●
|
a
combination of any such methods of sale;
or
|
|
|
●
|
any
other method permitted pursuant to applicable
law.
|
The
Selling Shareholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended (the “Securities Act”), if available, rather than under
this prospectus.
Broker-dealers
engaged by the Selling Shareholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts
from the Selling Shareholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this prospectus, in the case of an
agency transaction not in excess of a customary brokerage commission in
compliance with FINRA NASD Rule 2440; and in the case of a principal transaction
a markup or markdown in compliance with NASD IM-2440.
74
The
following Selling Shareholders are registered broker-dealers, agents or
affiliates of broker-dealers that are deemed to be “underwriters” within the
meaning of the Securities Act in connection with their sales: Anthony G.
Polak, Anthony Polak "S", Ben T. Morris, Burt Stangarone, Don Weir & Julie
E. Weir JTTIC, Don A. Sanders, Katherine U. Sanders, Jamie Polak, Paul Hickey,
Sanders Opportunity Fund (Inst), LP, RL Capital Partners, Ronald Lazar, Sanders
2003 Children’s Trust, Sanders Opportunity Fund (Inst), LP, Sanders
Opportunity Fund LP, Shira Capital LLC, Madison Williams and Company LLC, and
Rodman & Renshaw LLC, MW Equity Pool LLC, Eric Lord, Kevin Mangan, KaiKai
Dong, Chirag Choudhary, Harry Ionnnou, George Anagnostou, Jonah Raskas, and
Philip Riggio. In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of the shares purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act. Each Selling Shareholder has informed the Company that it
does not have any written or oral agreement or understanding, directly or
indirectly, with any person to distribute the Common Stock.
We are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the Selling
Shareholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
Since
Selling Shareholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act including Rule 172 thereunder. In addition, any
securities covered by this prospectus which qualify for sale pursuant to Rule
144 under the Securities Act may be sold under Rule 144 rather than under this
prospectus. There is no underwriter or single coordinating broker acting
in connection with the proposed sale of the resale shares by the Selling
Shareholders.
We agreed
to keep this prospectus and the registration statement which this prospectus
forms a part effective until the earlier of (i) the date on which the shares may
be resold by the Selling Shareholders without registration and without regard to
any volume or manner-of-sale limitations by reason of Rule 144, without the
requirement for the Company to be in compliance with the current public
information under Rule 144 under the Securities Act or any other rule of similar
effect or (ii) all of the shares have been sold pursuant to this prospectus
or Rule 144 under the Securities Act or any other rule of similar
effect. The resale shares will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In
addition, in certain states, the resale shares may not be sold unless they have
been registered or qualified for sale in the applicable state or an exemption
from the registration or qualification requirement is available and is complied
with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Shareholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of the common stock by the Selling Shareholders or any other
person. We will make copies of this prospectus available to the Selling
Shareholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including
by compliance with Rule 172 under the Securities Act).
LEGAL
MATTERS
The
validity of the shares issued by us in our financing on March 11, 2010, to be
resold under this prospectus, has been passed upon by Richardson Patel LLP in
Los Angeles, California.
EXPERTS
The
consolidated financial statements of SinoCoking and its subsidiaries as of June
30, 2010 and 2009 and for the years ended June 30, 2010 and 2009
appearing in this prospectus and registration statement have been audited by
Frazer Frost, LLP (successor entity of Moore Stephens Wurth Frazer & Torbet
LLP), an independent registered public accounting firm, as set forth in their
report appearing herein, and are included in reliance upon such reports given on
the authority of such firm as experts in auditing and
accounting.
75
DESCRIPTION
OF PROPERTY
SinoCoking’s
Properties
SinoCoking’s
principal executive office is in downtown Pingdingshan, approximately 60
kilometers from its plant, which headquarters its executive and administrative
staff and oversees its operations. SinoCoking entered into a lease for the
premises with the Pingdingshan Credit Cooperative in June 2008, for an annual
rent of USD $8,760 (RMB 66,900). The lease is generally renewable upon
expiration and requires an upfront payment of the annual rent in the amount of
$6,328 upon execution of the lease.
SinoCoking’s
plant is in nearby Baofeng County, situated on a parcel of land of approximately
160,000 square meters. The Baofeng municipal government issued the land
use right for the plant site to SinoCoking on October 20, 1989.
SinoCoking’s operational office and rail track, as well as its coal washing,
coking and power generating facilities, are all located onsite.
The land
on which the Hongchang Mine is located is owned by the PRC. However,
SinoCoking owns the buildings that house the mining offices and miners’ living
quarters, as well as the onsite mining facilities and equipment. The
disclosures regarding the Hongchang Mine as required under SEC
Industry Guide 7 for extractive enterprises are set forth above under the
section titled “Business.”
Our VIE,
Hongli, has an agreement with the Henan Province Pingdingshan Municipal Bureau
of Land and Resources on December 9, 2008 to permit Hongli to acquire land use
rights for up to 1,270,000 square meters of industrial-zoned vacant land in
Baofeng County. Per the agreement the total cost to acquire these land use
rights is $21,954,490 (or RMB 149,860,000). Under the agreement, the
Company could have, but was not obligated to, pay the foregoing amount to
acquire the land use rights, and the Company would not incur any penalty if it
did not exercise its option to acquire the land use rights. Hongli
could have also acquired rights to all or any lesser portion of the land as it
may elect, and the total cost would have been pro-rated accordingly. The
Pingdingshan Municipal Bureau of Land and Resources granted Hongli an extension
of the option exercise period November 2009, and accordingly Hongli could have
exercised its option to acquire the aforesaid land use rights by making
payment by the end of June 30, 2010. The Company decided not to exercise
its option to acquire the land use rights and thus no payments in connection
with this agreement were made as of June 30, 2010.
For the
year ending June 30, 2010, we paid (through Hongli) a total of approximately
34.45 million RMB (USD $5.0 million) to property owners under agreements which
will allow SinoCoking to expand its campus onto 250,125 square meters of
adjacent land formerly used for residential purposes. We anticipate
spending an additional 50 million RMB (approximately USD $7.4 million) to
reconfigure this land for industrial use, which will serve as the site for our
new coking facility and related structures. Management believes that the
close proximity of this land to the Company’s existing facilities, and that
unlike new land, utility connections and service lines have already been
established, will permit cost-effective expansion and the ability to fully
utilize power generated by the Company’s coking operations.
SUMMARY
FINANCIAL DATA
The
summary financial data set forth below should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our financial statements and the related notes included
elsewhere in this prospectus. We derived the financial data as of June 30,
2010 and 2009 from our financial statements included in this
prospectus. The historical results are not necessarily indicative of the
results to be expected for any future period. All monetary amounts are expressed
in U.S. dollars.
76
|
Year
Ended
|
||||||||
|
June
30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Income
Statement Data:
|
||||||||
|
Revenue
|
$ | 59,027,490 | $ | 51,395,992 | ||||
|
Cost
of Revenue
|
36,577,438 | 27,523,329 | ||||||
|
Gross
Profit
|
22,450,052 | 23,872,663 | ||||||
|
Total
Operating Expenses
|
2,829,547 | 2,638,889 | ||||||
|
Income
from Operations
|
19,620,505 | 21,233,774 | ||||||
|
Total
Other Income (Expense)
|
23,831,016 | (774,249 | ) | |||||
|
Income
Before Income Taxes
|
43,451,521 | 20,459,525 | ||||||
|
Provision
for Income Taxes
|
4,517,024 | 3,491,590 | ||||||
|
Net Income
|
$ | 38,934,497 | $ | 16,967,935 | ||||
|
Earnings per
share:
|
||||||||
|
Basic
|
$ | 2.49 | $ | 1.29 | ||||
|
Diluted
|
$ | 2.44 | $ | 1.29 | ||||
|
Weighted average Number of
Common Shares:
|
||||||||
|
Basic
|
15,623,823 | 13,117,952 | ||||||
|
Diluted
|
15,942,451 | 13,117,952 | ||||||
|
Change
in Fair Value of Warrant Liabilities
|
(24,016,407 | ) | - | |||||
|
Adjusted
Net Income
|
$ | 14,918,090 | $ | 16,967,935 | ||||
|
Adjusted
Earnings Per Share - basic
|
$ | 0.95 | $ | 1.29 | ||||
|
Adjusted
Earnings Per Share - diluted
|
0.94 | 1.29 | ||||||
|
Weighted
Average Number of Common Shares - basic
|
15,623,823 | 13,117,952 | ||||||
|
Weighted
Average Number of Common Shares - diluted
|
15,942,451 | 13,117,952 | ||||||
|
As of June 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Balance
Sheet Data:
|
||||||||
|
Cash
and Cash Equivalents
|
$ | 17,403,008 | $ | 278,399 | ||||
|
Working
Capital
|
36,592,948 | 3,508,022 | ||||||
|
Total
Assets
|
114,174,540 | 47,487,813 | ||||||
|
Total
Liabilities
|
21,303,651 | 12,280,771 | ||||||
|
Total
Shareholders’ Equity
|
62,434,802 | 35,207,042 | ||||||
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion and analysis of the results of our operations and financial
condition for the fiscal years ended June 30, 2010 and 2009 should be read in
conjunction with the Summary Financial Data, our financial statements, and the
notes to those financial statements that are included elsewhere in this
prospectus. All monetary figures are presented in U.S. dollars, unless otherwise
indicated.
Forward-Looking
Statements
The
statements in this discussion that are not historical facts are “forward-looking
statements.” The words “may,” “will,” “expect,” “believe,” “anticipate,”
“intend,” “could,” “estimate,” “continue”, the negative forms thereof, or
similar expressions, are intended to identify forward-looking statements,
although not all forward-looking statements are identified by those words or
expressions. Forward-looking statements by their nature involve substantial
risks and uncertainties, certain of which are beyond our control. Actual
results, performance or achievements may differ materially from those expressed
or implied by forward-looking statements depending on a variety of
important factors, including, but not limited to, weather, local, regional,
national and global coke and coal price fluctuations, levels of coal and coke
production in the region, the demand for raw materials such as iron and steel
which require coke to produce, availability of financing and interest rates,
competition, changes in, or failure to comply with, government regulations,
costs, uncertainties and other effects of legal and other administrative
proceedings, and other risks and uncertainties. We are not undertaking to
update or revise any forward-looking statement, whether as a result of new
information, future events or circumstances or otherwise.
77
Overview
We are
engaged in the coal energy business through our wholly owned subsidiary Top
Favour Limited (“Top Favour”), which is a holding company that, through its
wholly owned subsidiary Pingdingshan Hongyuan Energy Science and Technology
Development Co., Ltd. (“Hongyuan”), controls Henan Province Pingdingshan Hongli
Coal & Coke Co., Ltd. (“Hongli”), a coal and coal-coke producer in
Henan Province in the central region of the People’s Republic of China (“PRC” or
“China”). Hongli produces coke, coal, coal byproducts and electricity
through its branch operation, Baofeng Coking Factory, and its wholly owned
subsidiaries, Baofeng Hongchang Coal Co., Ltd. and Baofeng Hongguang Environment
Protection Electricity Generating Co., Ltd., which we refer to collectively as
the “Baofeng Subsidiaries.” We refer to Hongli and Baofeng Subsidiaries
collectively as “Hongli Group.” Top Favour controls Hongli Group through
contractual arrangements with Hongli Group and its owners. These
contractual arrangements provide for management and control rights, and in
addition entitle Top Favour to receive the earnings and control the assets of
Hongli Group. Other than the interests in these contractual arrangements,
neither Top Favor nor Hongyuan has any equity interests in Hongli Group.
We refer to Top Favour, Hongyuan and Hongli Group collectively as
“SinoCoking.”
SinoCoking
Coal and Coke Chemical Industries, Inc. (the “Company”) is a vertically
integrated coal and coke producer based in Henan Province, People’s Republic of
China (“PRC” or “China”). We use coal from both our own mines and that of
third-party mines to produce basic and value-added coal products such as thermal
coal, washed metallurgical coal, and chemical and metallurgical coke for steel
manufacturers, power generators, and various industrial users. We also
produce and sell coal, including raw (unprocessed) and washed coal (which is
coal that has been prepared for coking or thermal uses), medium coal and coal
slurries (by-products of the coal-washing process), and coal tar (a by-product
of the coke manufacturing process).
All of
our business is conducted by Henan Province Pingdingshan Hongli Coal & Coke
Co., Ltd. (“Hongli”), which we control through contractual arrangements that
Hongli and its owners have entered into with Pingdingshan Hongyuan Energy
Science and Technology Development Co., Ltd. (“Hongyuan”). These contractual
arrangements provide for management and control rights, and in addition entitle
us to receive the earnings and control the assets of Hongli Group.
Hongyuan
is wholly owned by Top Favour Limited, our wholly owned subsidiary. Hongli
produces coke, coal, coal byproducts and electricity through its branch
operation, Baofeng Coking Factory (“Baofeng Coking”), and its wholly owned
subsidiaries, Baofeng Hongchang Coal Co., Ltd. (“Hongchang Coal”) and Baofeng
Hongguang Environment Protection Electricity Generating Co., Ltd. (“Hongguang
Power”), which we refer to collectively as the “Baofeng Subsidiaries.” We
refer to Hongli and the Baofeng Subsidiaries collectively as “Hongli
Group.” We refer to the Company, Top Favour, Hongyuan and Hongli Group
collectively as “SinoCoking.”
On July
17, 2009, the Company entered into a Share Exchange Agreement with Top Favour,
subsequently amended in November 2009, under which it agreed to acquire
100% of the issued and outstanding shares of capital stock of Top Favour, and in
exchange, the Company agreed to issue up to approximately 13.2 million shares of
common stock to the former shareholders of Top Favour. The reverse
takeover under the Share Exchange Agreement was accounted for as reverse
acquisition. The legal acquiror was the Company and the accounting
acquiror was Top Favour. The remaining assets and liabilities
outstanding of the Company prior to the reverse takeover were disposed of prior
to the closing. The financial statements of the combined company are
in substance, the financial statements of Top Favour.
78
Note
Regarding Change in Fiscal Year
On April
14, 2010, the Company changed its fiscal year end from December 31 to a new
fiscal year end of June 30. Prior to the Acquisition, Top Favour
maintained a fiscal year ending June 30, and the Company maintained a fiscal
year end of December 31. In order to report its financial condition and
results of operations in a manner consistent with the past accounting practice
of Top Favour, the Company changed its fiscal year end to June 30.
Critical
Accounting Policies
Our
management’s discussion and analysis of our financial condition and results of
operations are based on our financial statements that have been prepared in
accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported net sales and expenses
during the reporting periods. On an ongoing basis, we evaluate our
estimates and assumptions. We base our estimates on historical experience
and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under
different assumptions or conditions.
While our
significant accounting policies are described in Note 2 to our financial
statements under the section above titled “Financial Statements,” we believe
that the following accounting policies are the most critical to aid you in fully
understanding and evaluating this management discussion and
analysis:
Use of
Estimates
The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. The more significant areas requiring the use of management
estimates and assumptions relate to coal reserves that are the basis for future
cash flow estimates and units-of-production depletion calculations; asset
impairments; valuation allowances for deferred income taxes; reserves for
contingencies and litigation and the fair value and accounting treatment of
certain financial instruments. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. Accordingly, actual results may differ significantly
from these estimates. In addition, different assumptions or conditions could
reasonably be expected to yield different results.
Estimate of recoverable coal
reserves. SinoCoking capitalizes its mineral rights at fair value
when acquired, including amounts associated with any value beyond proven and
probable reserves, and amortized to operations as depletion expense using the
units-of-production method over the estimated recoverable coal. The
Hongchang Mine was acquired in 2005 for a book value of $13,102,000 with
estimated total recoverable coal of 1,215,000 metric tons ($10.78 per metric
ton). If the estimated recoverable coal reserves were to increase or
decrease, future depletion expense would decrease or increase
accordingly.
Estimate of asset
impairment. The Company evaluates long lived tangible and
intangible assets for impairment, at least annually, but more often whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable from its estimated future cash flows, in accordance with the
Financial Accounting Standard Board’s (FASB’s) accounting guidance regarding
“Disposal of Long-Lived Assets.” Recoverability is measured by comparing
the asset’s net book value to the related projected undiscounted cash flows from
these assets, considering a number of factors including past operating results,
budgets, economic projections, and market trends. If the net book value of
the asset exceeds the related undiscounted cash flows, the asset is considered
impaired, and a second test is performed to measure the amount of impairment
loss. Based on its review, the Company believes that, as of June 30, 2010,
there was no impairment of long lived assets.
79
Estimate of valuation allowances for
deferred income taxes. Effective January 1, 2007, the Company
adopted FASB’s accounting standard which indicates a tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be
sustained in a tax examination, with a tax examination being presumed to
occur. The amount recognized is the largest amount of tax benefit that has
a greater than 50% likelihood of being realized on examination. For tax
positions not meeting the “more likely than not” test, no tax benefit is
recorded. SinoCoking is incorporated in the United States and has incurred
a net operating loss for the year ended June 30, 2010, which may be available to
reduce future years’ taxable income. Management believes that the
realization of the benefits arising from this loss appears to be uncertain due
to the Company’s limited operating history and continuing losses for U.S income
tax purposes. Accordingly, the Company has provided a 100% valuation
allowance at June 30, 2010. The Company’s management reviews this
valuation allowance periodically and makes adjustments as
necessary.
Estimate of reserves for
contingencies and litigation. From time to time, the Company is
involved in legal matters arising in the ordinary course of business.
Management currently is not aware of any legal matters or pending litigation
that would have a significant effect on the Company’s consolidated financial
statements as of June 30, 2010.
Estimate of the fair value and
accounting treatment of certain financial instruments. The Company
uses the FASB’s accounting standard regarding fair value of financial
instruments and related fair value measurements. Those accounting
standards established a three-level valuation hierarchy for disclosures of fair
value measurement and enhance disclosures requirements for fair value
measures. The carrying amounts reported in the accompanying consolidated
balance sheets for receivables, payables and short term loans qualify as
financial instruments are a reasonable estimate of fair value because of the
short period of time between the origination of such instruments, their expected
realization and, if applicable, the stated rate of interest is equivalent to
rates currently available. The three levels of valuation hierarchy are
defined as follows:
Level 1
Inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
Level 2
Inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the assets or
liability, either directly or indirectly, for substantially the full term of the
financial instruments.
Level 3
Inputs to the valuation methodology are unobservable and significant to the fair
value.
The
Company’s warrants are not traded in an active securities market; therefore the
Company estimates the fair value of those warrants using the Cox-Ross-Rubinstein
binomial model on the issuance dates and June 30, 2010 using the Level 3
valuation hierarchy.
Due to
the short trading history of the Company’s stock, expected volatility is based
primarily on other similar public companies’ historical volatilities, which are
traded on United States stock markets. Historical volatility was computed
using daily pricing observations for recent periods that correspond to the term
of the warrants. The Company believes this method produces an estimate
that is representative of the Company’s expectations of future volatility over
the expected term of these warrants. The Company currently has no reason
to believe future volatility over the expected remaining life of these warrants
is likely to differ materially from historical volatility. The expected
life is based on the remaining term of the warrants. The risk-free
interest rate is based on U.S. Treasury securities according to the remaining
term of the warrants.
Revenue
Recognition
The
Company recognizes revenue from the sale of coal and coke, its principal
products, at the date of shipment to customers when a formal arrangement exists,
the price is fixed or determinable, the delivery is completed, no other
significant obligations of the Company exist and collectability
is reasonably assured. This generally occurs when coal is loaded onto
trains or trucks at one of the Company’s loading facilities or at third party
facilities. Accordingly, management is required to apply its own judgment
regarding collectability based on its experience and knowledge of its current
customers, and thus exercise a certain degree of discretion.
80
Hongguan
Power, subsidiary of Hongli, generates electricity which is mostly used
internally by Baofeng Coking. The accounting effect of this activity is
that the Company includes the cost of production of electricity in its overall
operating costs. Any surplus electricity generated by Hongguang Power is
required by local regulation to be supplied and sold to the national power
grid. The value of the surplus electricity would be calculated based
on actual kilowatt-hours produced and transmitted and at a fixed rate determined
under contract.
Accounts
Receivables
During
the normal course of business, the Company extends short-term unsecured credit
to its customers, however, collection normally occurs within 90 days.
Management regularly reviews aging of receivables and changes in payment trends
by its customers, and records a reserve when management believes collection of
amounts due are at risk. Accounts considered uncollectible are written
off. The Company regularly reviews the creditworthiness of its customers
and, based on the results of the credit review, determines whether extended
payment terms can be granted to or, in some cases, partial prepayment is
required from certain customers.
In the
past two fiscal years, based on management’s judgment regarding collectability,
and based on its judgment no reserve for uncollectable accounts has been
made. If the composition and nature of SinoCoking’s customer base were to
significantly change, if the Company began to extend longer term credit to its
customers, if conditions became apparent that prompt management to question the
collectability of accounts receivable, or any combination of these or other
similar factors arise, then this could oblige management to establish a reserve
for uncollectible accounts, which would have an adverse effect of the value of
reported accounts receivable.
Intangible - Mineral
Rights
SinoCoking
capitalizes its mineral rights at fair value when acquired, including amounts
associated with any value beyond proven and probable reserves, and amortized to
operations as depletion expense using the units-of-production method over the
estimated recoverable coal.
Mining
and mine assets are a significant portion of SinoCoking’s business, and
SinoCoking’s use of the “units-of-production” method of amortization has
important effects on how its mining activities and assets are reported.
Under this method, the tonnage of actual coal extracted, as a percentage of
estimated recoverable coal, is used to calculate depletion expense for a given
period. The remainder of estimated recoverable coal in the ground is
reported as an intangible asset on the Company’s balance sheet, also based on
the percentage of estimated recoverable coal that remains in the ground.
See also our discussion of estimates of recoverable coal above in “Use of
Estimates.”
The Hongchang
Mine was acquired for, and have a book value of $13,102,000, and an estimated
total recoverable coal of 1,215,000 metric tons. In the fiscal year 2010,
the Company extracted a total of 242,878 metric tons of coal from
the Hongchang Mine, which is 19.99 % of the total estimated recoverable
coal. The Company recorded a depletion expense of $2,813,566 in this
period.
Recently
issued accounting pronouncements
In
January 2010, FASB issued ASU No. 2010-01– Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is
not a stock dividend for purposes of applying Topics 505 and 260 (Equity and
Earnings Per Share). The amendments in this update are effective for interim and
annual periods ending on or after December 15, 2009, and should
be applied on a retrospective basis. The adoption of this ASU did not have
impact on the Company’s consolidated financial statements.
81
In
January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that
exchanges a group of assets that constitutes a business or nonprofit activity
for an equity interest in another entity. The amendments in this update are
effective beginning in the period that an entity adopts SFAS No. 160,
“Non-controlling Interests in Consolidated Financial Statements – An
Amendment of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of
the date the amendments in this update are included in the Accounting Standards
Codification, the amendments in this update are effective beginning in the
first interim or annual reporting period ending on or after December 15, 2009.
The amendments in this update should be applied retrospectively to the first
period that an entity adopted SFAS No. 160. The adoption of this ASU did not
have a material impact on the Company’s consolidated financial
statements.
In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair
Value Measurements. This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers. 2) Activity in Level 3 fair value measurements. In
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), a reporting entity should present separately information about
purchases, sales, issuances, and settlements (that is, on a gross basis rather
than as one net number). This update provides amendments to Subtopic 820-10 that
clarifies existing disclosures as follows: 1) Level of disaggregation. A
reporting entity should provide fair value measurement disclosures for each
class of assets and liabilities. A class is often a subset of assets or
liabilities within a line item in the statement of financial position. A
reporting entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation techniques. A
reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements. Those disclosures are required for fair value measurements
that fall in either Level 2 or Level 3. The new disclosures and clarifications
of existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. These disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. The Company is currently evaluating the impact of this ASU, however, the
Company does not expect the adoption of this ASU to have a material impact on
its consolidated financial statements.
In
February 2010, FASB issued ASU No. 2010-9 –Amendments to Certain Recognition and
Disclosure Requirements. This update addresses certain implementation issues
related to an entity’s requirement to perform and disclose subsequent-events
procedures, removes the requirement that public companies disclose the date of
their financial statements in both issued and revised financial statements.
According to the FASB, the revised statements include those that have been
changed to correct an error or conform to a retrospective application of U.S.
GAAP. The amendment is effective for interim and annual reporting periods in
fiscal year ending after June 15, 2010. The adoption of this ASU did not have a
material impact on the Company’s consolidated financial statements.
In March
2010, FASB issued ASU No. 2010-10 –Amendments for Certain Investment Funds. This
update defers the effective date of the amendments to the consolidation
requirements made by FASB Statement 167 to a reporting entity’s interest in
certain types of entities. The deferral will mainly impact the evaluation of
reporting enterprises’ interests in mutual funds, private equity funds,
hedge funds, real estate investment entities that measure their investment at
fair value, real estate investment trusts, and venture capital funds. The ASU
also clarifies guidance in Statement 167 that addresses whether fee
arrangements represent a variable interest for all service providers and
decision makers. The ASU is effective for interim and annual reporting periods
in fiscal year beginning after November 15, 2009. The adoption of this ASU
did not have a material impact on the Company’s consolidated financial
statements.
In March
2010, FASB issued ASU No. 2010-11 –Scope Exception Related to Embedded Credit
Derivatives. Embedded credit-derivative features related only to the transfer of
credit risk in the form of subordination of one financial instrument to another
are not subject to potential bifurcation and separate accounting as clarified by
recently issued FASB guidance. Other embedded credit-derivative features are
required to be analyzed to determine whether they must be accounted for
separately. This update provides guidance on whether embedded credit-derivative
features in financial instruments issued by structures such as collateralized
debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and
separate accounting. The guidance is effective at the beginning of a company’s
first fiscal quarter beginning after June 15, 2010. The Company does not expect
the adoption of this ASU will have a material impact on the Company’s
consolidated financial statements.
82
In April
2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades,” or ASU 2010-13. ASU 2010-13 provides amendments to
Topic 718 to clarify that an employee share-based payment award with an exercise
price denominated in currency of a market in which a substantial porting of the
entity’s equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010. The Company is currently evaluating the impact of this ASU; however,
the Company does not expect the adoption of this ASU will have a material
impact on its consolidated financial statements.
Results
of Operations
General. In fiscal
2010, the Company continued its strategy of increasing its coal trading
activities, while the Chinese government’s policy of slowing down the growth of
the economy started to affect the market demand for coke products in the
4th quarter
of 2010. In fiscal year 2009, the percentage of revenue SinoCoking earned
was approximately 62% from coke products and 38% from coal products. In
fiscal year 2010, the percentage of revenue was 49% from coke products and 51%
from its coal products due to the weak demand of coke in the 4th quarter
of fiscal 2010.
In late
June 2010, the Henan Province authorities and related government bureaus
conducted industry-wide coal mine safety inspections as a part of the
government’s efforts to reduce mining accidents and improve safety before mine
consolidations are finalized. The Baofeng Mines were temporarily closed
and will be reopened upon completion of the government inspections which
have yet to take place. Generally, raw coal extracted from the Company’s
own mines has lower cost per ton compared to raw coal purchased on the open
market from third party suppliers. The government’s mine consolidation
program in Henan province has had a negative impact on the total local
production of the coal, and thus the raw coal and washed coal prices increased,
which, in turn, caused the Company’s average cost of production in fiscal 2010
to increase accordingly. Management does not immediately anticipate any
additional safety inspections or pending stoppages of mining activities by the
government after the mine consolidations are completed in Henan province.
However, it has no means of predicting the timing, frequency or duration of
safety inspections, or whether additional inspections will be conducted in the
near or long term future, except that mine safety and design inspections are
generally required as a routine part of the mine consolidation process, when
additional mining properties are acquired.
On a
macro level, management has observed the following trends, which may have a
direct impact on the Company’s operations in the near future: (1) the
consolidation process in Henan province affected the total supply of the
metallurgical coal supply in the region, and therefore affected the prices of
coal products to increase; (2) government-initiated policies to consolidate the
coking industry are expected to accelerate, hastening the closure of small-sized
and less-efficient coking facilities in China, and (3) the central government
has continued to pursue policies to provide economic stimulus as necessary in
order to maintain momentum and growth in domestic consumption. Management
believes these factors have been working to restore demand levels of all coal
related product, especially for coke, in the long term.
Revenues. SinoCoking’s
revenues increased by $7,631,498 or 14.85%, in fiscal 2010, with total revenues
of $59,027,490 as compared to fiscal 2009 with total revenues of
$51,395,992.
83
These
increases were caused primarily by a strong increase in coal product sales
revenue, offset by a moderate decrease in revenue from coke sales.
Starting from the second quarter of fiscal 2010, the Henan province government
started its consolidating process for all local private coal mines which
included the temporary closure of coal mines so that safety inspections could
take place. Such closures resulted in a decrease in the available coal
supply in the market and prices for coal increased accordingly. In
response, the Company started to increase its coal products sales in order to
maintain its profitability. In the second half of the fourth quarter of fiscal
2010, the adverse impact of the Chinese government’s policy of slowing down the
domestic economy began affecting the demand for our coke products, and thus the
Company’s revenue from coke sales decreased. In the fiscal 2010,
SinoCoking increased its coal product revenue by 52.63% as compared to the
same period ending June 30, 2009. In the second half of the calendar year
2009, the market demand for coke products rebounded, and the market prices for
coke also began to recover, peaking at $230 per ton in December 2009.
Shortly after the end of 2009, local market prices for coke products began to
moderate, fluctuating between $200 to $230 per metric ton. In response to
these trends, in the first calendar quarter in 2010, the Company resumed coke
production and sales, increasing production significantly though not to the
levels achieved in the same period in 2009. However, in the fourth quarter
of fiscal 2010, weak demand for coke affected the Company’s coke sales, and thus
the contribution of coke sales to the Company’s total revenues was less than in
fiscal 2009. However, the coke market, after June 30, 2010,
subsequently recovered due to the decreased supply of coal material, and
therefore both the demand and the price of coke increased. Management
anticipates that this trend will continue, and the coke market will recover
in the near future. At the same time, as further discussed below, the
Company continued to increase its sales of coal products in response to market
prices for coal that were considered favorable by management.
SinoCoking’s
revenues for the fiscal 2010 and 2009, respectively, categorized by product type
(coke products and coal products), were as follows:
|
Revenues
|
||||||||||||
|
Coke
Products
|
Coal
Products
|
Total
|
||||||||||
|
Revenues
|
||||||||||||
|
Fiscal
Year 2009
|
$ | 31,706,265 | $ | 19,689,727 | $ | 51,395,992 | ||||||
|
Fiscal
Year 2010
|
28,974,918 | 30,052,572 | 59,027,490 | |||||||||
|
Increase
(decrease) in US$
|
$ | (2,731,347 | ) | $ | 10,362,845 | $ | 7,631,498 | |||||
|
%
Increase (decrease) in US$
|
(8.61 | )% | 52.63 | % | 14.85 | % | ||||||
|
Quantity
Sold (metric tons)
|
||||||||||||
|
Fiscal
Year 2009
|
162,277 | 284,840 | 447,117 | |||||||||
|
Fiscal
Year 2010
|
139,093 | 424,977 | 564,069 | |||||||||
|
Increase
(decrease)
|
(23,184 | ) | 140,137 | 116,952 | ||||||||
|
%
Increase (decrease)
|
(14.29 | )% | 49.20 | % | 26.16 | % | ||||||
Coke
products include finished coke, a key raw material for producing steel, and coal
tar, a byproduct of the coke manufacturing process which can be used for various
industrial applications. Coal products include washed and raw coal, which
is used by customers primarily for electricity generation and heating
applications. As used in this discussion and analysis, the “raw coal”
category includes both thermal and metallurgical coal that is unwashed and
relatively unprocessed, in addition to coal washing byproducts such as coal
slurry.
Average
sale prices for the Company’s four principal products for the fiscal 2010 and
2009 ending June 30, were as follows,
|
Average
Sale Prices
|
Coke
|
Coal
Tar
|
Raw
Coal
|
Washed
Coal
|
||||||||||||
|
Fiscal
Year 2009
|
$ | 197 | $ | 153 | $ | 58 | $ | 119 | ||||||||
|
Fiscal
Year 2010
|
208 | 214 | 62 | 127 | ||||||||||||
|
Increase
(decrease) in US$
|
11 | 61 | 4 | 8 | ||||||||||||
|
%
Increase (decrease) in US$
|
5.60 | % | 39.87 | % | 6.90 | % | 6.72 | % | ||||||||
Average
sale prices are driven by a number of factors, including the particular
composition and grade or quality of the coal or coke sold by the Company,
prevailing market prices for these products in the Chinese local and national
market, prevailing market prices in the global marketplace, timing of sales,
delivery terms, purchase order negotiations between the Company and its
customers, and relationships with those customers. Management
believes that the changes in average selling prices in the fiscal 2010 were
primarily driven by changes in coal product composition, external market
forces and the timing of sales by the Company.
84
Management
generally sells coal inventory and sells the Company’s coal products when prices
are stable at seasonally high levels, or at levels that are considered above
historical norms. The average price of the raw coal was calculated based
the weight of the unprocessed coal, coal by products from coal washing process,
and mixed thermal coal. Since the raw coal market price was correspondingly
stable, the change of the price in raw coal category reflects the weight changes
among the different coal product other than washed coal. Management notes that
average selling prices for coal products are also influenced by changes in the
mixtures of coals (with different grades and heat content) that is sold to
customers. As noted below in this discussion, SinoCoking changed the
composition of the coal mixtures for its coal products sold in the three
and twelve month periods ending June 30, 2010, specifically, due to
relatively strong demand for thermal coal, which enabled the Company to
sell coal mixtures of lower thermal grade without major reductions in price
per ton.
Coke
product revenues for the fiscal year ending June 30, 2009 and 2010 were as
follows:
|
Coke
Products
|
||||||||||||
|
Coke
|
Coal
Tar
|
Total
|
||||||||||
|
Revenues
|
||||||||||||
|
Fiscal
2009
|
$ | 30,534,755 | $ | 1,171,510 | $ | 31,706,265 | ||||||
|
Fiscal
2010
|
27,650,175 | 1,324,743 | 28,974,918 | |||||||||
|
Increase
(decrease) in US$
|
(2,884,580 | ) | 153,233 | (2,731,347 | ) | |||||||
|
%
Increase (decrease) in US$
|
(9.45 | )% | 13.08 | % | (8.61 | )% | ||||||
|
Quantity
Sold (metric tons)
|
||||||||||||
|
Fiscal
2009
|
154,631 | 7,646 | 162,277 | |||||||||
|
Fiscal
2010
|
132,911 | 6,182 | 139,093 | |||||||||
|
Increase
(decrease)
|
(21,720 | ) | (1,464 | ) | (23,184 | ) | ||||||
|
%
Increase (decrease)
|
(14.05 | )% | (19.15 | )% | (14.29 | )% | ||||||
In the
fiscal 2010, the Company’s revenue from the sale of coke products decreased by
9.45%, as compared to the year ending June 30, 2009. The decrease for the
fiscal 2010 was mainly due to the soft demand for coke in the fourth quarter of
fiscal 2010, although the sales price stayed at the same level. In the first
quarter of calendar year 2010, the Chinese coke market started to recover and
thus the Company increased its coke production and expected further growth to
occur in the following months. However, starting in the second quarter of
calendar year 2010, affected by the steel production controls by the Chinese
government, the demand for coke weakened, and the contribution of coke sales to
our total revenues for the entire fiscal 2010 was less than management’s
expectation, and total sales revenue of coke for fiscal 2010 decreased. With the
current shortage of supply in coal market, and with the pending closing of
the unqualified small scale coking factories in China, the demand for coke
in the market has slightly recovered since late July 2010, and management
believes that such recovery will continue in the coming
months.
The coal
tar revenue increased by 13.08% in fiscal 2010, or $153,233, as compared to
$1,171,510 for the fiscal 2009. This increase was primarily driven by an
increase in the unit sales price of coal tar, from $153 in fiscal 2009 to $214
in fiscal 2010. The increase in unit sales price was mainly due to an increase
in the quality of coal tar sold, and prices for fossil-fuel-related products
also generally rebounded in fiscal 2010.
Coal
product revenues for the fiscal 2010 and 2009 were as follows:
|
Coal
Products
|
||||||||||||
|
Raw
Coal
|
Washed
Coal
|
Total
|
||||||||||
|
Revenues
|
||||||||||||
|
Fiscal
2009
|
$ | 13,151,325 | 6,538,402 | $ | 19,689,727 | |||||||
|
Fiscal
2010
|
22,964,448 | 7,088,124 | 30,052,572 | |||||||||
|
Increase
(decrease) in US$
|
9,813,123 | 549,722 | 10,362,845 | |||||||||
|
%
Increase (decrease) in US$
|
74.62 | % | 8.41 | % | 52.63 | % | ||||||
|
Quantity
Sold (metric tons)
|
||||||||||||
|
Fiscal
2009
|
229,480 | 55,360 | 284,840 | |||||||||
|
Fiscal
2010
|
369,379 | 55,598 | 424,977 | |||||||||
|
Increase
(decrease)
|
139,899 | 238 | 140,137 | |||||||||
|
%
Increase (decrease)
|
60.96 | % | 0.43 | % | 49.20 | % | ||||||
85
SinoCoking
sharply increased its sales, both in terms of revenue and volume, of coal
products in the fiscal 2010, as compared to the year ending June 30, 2009.
During this period, raw coal and washed coal market prices trended upward in the
months leading up to the end of 2009, due to colder weather which led to higher
demand for thermal coal. Management viewed this period in 2009 as a
favorable environment for coal trading. During the period from late
calendar year 2009 to early calendar year 2010, the Company sold thermal coal
(included under the “raw coal” category) to its customers at prices above
seasonal and annual norms, during winter months when the market supply for
thermal coal was low. The Company sold coal inventory consisting of both
coal acquired from third party suppliers, as well as coal extracted from its own
mines. In fiscal year 2010, the Company also sold lower grade mixtures of
thermal coal, at a lower average price per ton. The Company sold 369,379
tons of various mixtures and composites of raw coals and realized more than $23
million in revenue in fiscal year 2010, resulting in a 74.62% increase in
revenue from the sale of raw coal as compared to the previous year. The
Company also sold approximately 55,600 tons of washed coal in fiscal 2010,
resulting in revenues of approximately $7 million.
In the
fiscal 2010, SinoCoking’s results also reflect the Company’s strategy of selling
a larger volume of coal products relative to coke products. During
that time period, the Company increased its inventory of raw coal (especially
thermal coal) from both its mining operations and open market purchases, which
it anticipated during the winter months. SinoCoking sold approximately
55,598 tons of washed coal during fiscal 2010, most of which were sold in the
first 6 months of fiscal 2010. Since the beginning of calendar year 2010,
inventories of washed coal were already considered to be low, and rather than
sell the washed coal, the Company opted to maintain a minimum level of washed
coal in inventory that was considered by management to be sufficient to ensure
an adequate buffer of supplies for its coking operations. In 2009, as
discussed, the Company increased its coal trading activities, and began buying
and selling more coal products in order to boost revenue and maintain cash flow
and profitability. In the quarter ending September 30, 2009, the Company
sold a significant amount of washed coal, however, during the third fiscal
quarter ended March 31, 2010, the Company did not sell any washed coal as it
began to utilize all of its stock of washed coal to increase coke production.
Management anticipated that the consolidation conducted by the Henan provincial
government would have a significant negative impact on the coal product market,
and thus the Company kept its washed coal inventory to maintain its coking
operation.
Cost of Revenue. Cost
of revenue increased from $27,523,329 to $36,577,438 for the fiscal 2010, as
compared to fiscal 2009. The increase in cost of revenue was primarily a
result of a sharp increase of coal product sales, especially our coal
trading activity, offset by a reduction in coke product sales. In order to
meet customer demand for coke products, the Company increased its purchase of
raw coal from external suppliers, resulting in a higher cost of inputs compared
to raw coal sourced from its own coal mines.
Gross Profit. Gross
profit decreased by $1,422,611 or 5.96%, to $22,450,052 in the fiscal 2010 from
$23,872,663 in fiscal year 2009. The main reason for the decrease of the
gross profit was the decrease of our coke sales and the increase in the cost of
revenue.
Operating Expenses. Operating
expenses, which consisted of selling expenses and general and administrative
expenses, increased by $190,658, or 7.22% in fiscal 2010 as compared to the
fiscal 2009. The selling expense decreased by $237,959 because the
Company changed its selling policy, which, in turn, led to a decrease
in transportation expenses. The reverse merger and equity financing expense
increased the Company’s overall general and administrative expenses over $1.2
million, and the maintenance fee for listing as an U.S. Public Company increased
the total general and administrative expense in the amount of approximately $1.2
million. At the same time, the expenses for the Company’s business operations
decreased approximately $0.9 million due to the following reasons: (a) the
Company’s bad debt accrued decreased by approximately $290,000 in fiscal 2009;
(b) the expense for the new coking facility project decreased by approximately
$240,000, and (c) the expense for pollution prevention decreased by
approximately $130,000 because no payment was required by the government in
fiscal 2010.
86
Other Income and
Expense. Other income and expense contains finance expense, net,
income and expense not directly related to the Company’s main operations, and
change in fair value of warrants.
Finance expense decreased by $620,882,
or 67.92% from $914,072 for fiscal 2009 to $293,190 for to the fiscal 2010. This
decrease was mainly driven by lower average outstanding loan balances during
2010. The Company paid off its bank loans during the first two quarters of fiscal
2010, Even though the Company borrowed $14.73 million at end of May 2010, the loan interest
expense was lower than the prior year. In addition, the majority of the related
party loans were paid before June 30, 2009, the Company imputed interest expense of
$490,274 relating to loans borrowed from the related parties while it only
imputed an interest expense of $67,269 in fiscal 2010.
The
Company had net other income of $107,799 in fiscal 2010 as compared to $139,823
in fiscal 2009, decrease of $32,024, or 22.9%. The Company received $140,000
government grant in fiscal 2009. Net income of current year represented the
recovery of uncollectible accounts which was charged to bad debt expense in
prior years.
Change in
fair value of warrants amounted to $24,016,417 for the year ended June 30, 2010.
The Company had no such gain in prior year. In connection with the private
placement equity financing disclosed in Note 19, the Company issued warrants
exercisable for 4,039,636 shares of the Company’s common stock on February 5,
2010 and March 11, 2010. As a result of the reverse acquisition disclosed in
Note 3, the functional currency of the Company changed from US dollar to RMB
starting from February 5, 2010, the completion date of the transaction. The
Company’s warrants are not considered indexed to the Company’s own stock, and as
such, all future changes in the fair value of those warrants need to be
recognized currently in earnings and the warrants were recorded as derivative
instruments. The Company used the Cox-Ross-Rubinstein binomial model to value
the warrants issued in relation to the equity financing, amounting to in
$94,605,650 on the warrant issuance dates. Gross cash proceeds from this equity
financing was approximately $44 million and 100% allocated to the warrants
issued. The exceeded value of warrants of $40,153,156 was reflected as a loss
due to a change in fair value of warrants. This loss was offset by the change of
value of warrants between June 30, 2010 and the issuance date of $64,169,573,
resulting in the net gain on change fair value of warrants of
$24,016,417.
Provision for Income
Taxes. Provision for income
taxes increased by $1,025,434, for the fiscal 2010, as compared to the same
period ending June 30, 2009, due primarily to the Company receiving more tax
exemptions in fiscal 2009 as compared to fiscal 2010.
Net (loss) income. Net income, including
the change on fair value of warrants, was $38,934,497 for fiscal year 2010, as
compared to $16,967,935 for fiscal 2009.
The
Company uses non-GAAP adjusted net income to measure the performance of the
Company’s business internally by excluding non-cash charges related to warrants,
and believes that the non-GAAP adjusted financial measure allows the Company to
focus on managing business operating performance because the measure reflects
the Company’s essential operating activities and provides a consistent method of
comparison to historical periods. We believe that providing this non-GAAP
measure that the Company uses internally is useful to investors for a
number of reasons. The non-GAAP measure provides a consistent basis for
investors to understand our financial performance in comparison to historical
periods without variation of non-recurring items and non-operating related
charges. In addition, it allows investors to evaluate the Company’s
performance using the same methodology and information as that used by the
Company’s management. Non-GAAP measures are subject to inherent limitations
because they do not include all of the expenses included under GAAP and because
they involve the exercise of judgment regarding which charges are excluded from
the non-GAAP financial measure. However, the Company compensates for these
limitations by providing the relevant disclosure of the items
excluded.
The
following table provides a non-GAAP financial measure and a reconciliation of
that non-GAAP measure to the GAAP net income.
87
|
Fiscal
|
||||||||
|
2010
|
2009
|
|||||||
|
Net
income
|
$ | 38,934,497 | $ | 16,967,935 | ||||
|
Change
in fair value of warrant liabilities
|
( 24,016,407 | ) | - | |||||
|
Adjusted
net income
|
$ | 14,918,090 | $ | 16,967,935 | ||||
|
Earnings
per share- basic
|
$ | 2.49 | $ | 1.29 | ||||
|
Earnings
per share- diluted
|
$ | 2.44 | $ | 1.29 | ||||
|
Adjusted
earnings per share - basic
|
$ | 0.95 | $ | 1.29 | ||||
|
Adjusted
earnings per share - diluted
|
$ | 0.94 | $ | 1.29 | ||||
|
Weighted
average number of common shares - basic
|
15,623,823 | 13,117,952 | ||||||
|
Weighted
average number of common shares - diluted
|
15,942,451 | 13,117,952 | ||||||
Excluding
those non-cash expenses, adjusted net income of the fiscal 2010 and 2009 were
approximately $15 million and $17 million, respectively, and resulted in $0.95
and $1.29 basic earnings per share, and $0.94 and $1.29 diluted earnings per
share for the fiscal 2010 and 2009, respectively.
The
decrease of our adjusted net income for fiscal 2010, as compared with the fiscal
2009, was primarily because of the approximately $1.4 million decrease in gross
profit, $1.5 million expense related to reverse merger and equity financing
expense incurred after the Company went to public, and a $1 million increase of
the provision for income tax as stated above.
Liquidity
and Capital Resources
In
summary, our cash flows are as follows:
|
Year Ended June 30,
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Net
cash provided by (used in) operating activities
|
$ | 17,781,765 | $ | 11,890,214 | $ | 13,060,249 | ||||||
|
Net
cash provided by (used in) investing activities
|
(32,903,855 | ) | (10,503,647 | ) | (8,471,010 | ) | ||||||
|
Net
cash provided by (used in) financing activities
|
32,170,537 | (5,832,642 | ) | (937,425 | ) | |||||||
Net
Cash Provided by Operating Activities
Net cash
provided by operating activities was $17,781,765 in fiscal year 2010, an
increase of $5,891,549, or 49.55%, as compared with $11,890,214 for fiscal year
2009.
During
fiscal 2010, the cash increase was mainly due to a decrease in account
receivables of $1.18 million and an increase in advances to suppliers of $2.9
million. The decrease in account receivables was primarily due to the
Company’s better sales credit control and timely receivable collection.
The Company was in the process of acquiring several coal
mines. Due to the potential acquisitions, some of the coal mines did not
demand advances for purchases.
88
The cash
increase was offset by the following factors: (1) an increase in inventories of
$2.1 million, (2) a decrease in customer deposit of $3.65 million, and (3) a
decrease in taxes payable of $1.46 million. The increase in inventory
corresponded with the anticipated increase in sales. The decrease in
customer deposit was mainly because the Company received a large customer
deposit in the prior fiscal year while sales demand of for the Company’s
coke products was strong. The demand of coke product was more
moderate in 2010. The decrease in taxes payable was caused by the large
amount of income taxes and value tax payment that the Company made in the
current year.
Net
Cash Used in Investing Activities
During
the fiscal year ending June 30, 2010 the Company had net cash used for investing
activities of approximately $33 million, and in fiscal 2009, it had capital
expenditures of approximately 10.5 million. For the fiscal year ending
June 30, 2010, the Company made payments of: (1) approximately $5.1
million toward the expansion and redevelopment of adjacent formerly residential
land, (2) approximately $8.8 million was paid for the mine acquisitions, (3)
approximately $12.2 million in construction-related expenditures for its
new coking facility, and (4) approximately $4.3 million toward the construction
of new coal mining underground constructions, as well as a $2.5 million loan to
an unrelated party. The increase in capital expenditures in this period as
compared to the same period in 2009 was mainly due to the construction and land
redevelopment expenditures, as well as the mine acquisitions. In fiscal
2009, the Company spent approximately $10.5 million to pay for the new coking
facility construction and improvement of underground construction for further
operation.
Net
Cash Used in Financing Activities
The net
cash received as a result of financing activity was approximately $32 million.
In February and March 2010, the Company raised approximately $44 million by
issuing common stock with cash at a cost of approximately $2.26 million. In May
2010, the Company used $17,010,000 as collateral to obtain the $14,730,000 (RMB
100,000,000) bank loan from the Shanghai Pudong Development Bank for its
Hongyuan subsidiary. This loan bears an interest obligation of 4.78% per annum,
and the $17,010,000 was deposited as a 6 months deposit in the bank with
interest benefit of 1.3% per annum. The Company then deposited approximately
$5.8 million to obtain the credit in the form of 6 months interest free
notes in the amount of $11.6 million in order to finance its further investment
for its 900,000 tons coking facility construction project. In fiscal 2010, the
Company also repaid $2.2 million bank loan in September 2009. In fiscal year
2009, the Company had the net use of cash from financing activities. The main
usage of the cash was to repay a related party loan in the amount of
approximately $5.2 million, and repay a matured bank loan of approximately
$1.1 million.
Capital
Resources
Funding
for the Company’s business activities has historically been provided by cash
flow from operations, short-term bank loan financing, and loans from individuals
including from its major shareholder Mr. Lv and Mr. Liuchang Yang, who is a
director of the Company.
The
Company does not have any outstanding loans under lines of credit.
The
business plan of the Company involves growing its business through (1) expansion
and modernization of its production facilities and achieving greater energy
efficiency while also lessening environmental impact; (2) recapturing more
coking by-products for refinement into useful industrial chemicals, and
production of more high value-added chemical products; (3) acquisition of other
coal mines to source raw materials; (4) strategic cooperation with
Zhengzhon Coal Industry Group in order to indirectly control the coal resource
and also secure the Company’s internal material requirements and stable supply
for coal product trading; and (5) purifying and selecting level 10
washed coal, which is highly demanded in the market from the 2 million metric
tons of raw coal provided by Zhengzhon Coal, in order to increase the Company’s
product categories, secure sufficient raw coal material for the 900,000
metric tons coking facility project, and increase the Company’s
profitability. Any future facility expansion and acquisitions will require
additional financing and/or equity capital and will be dependent upon the
availability of financing arrangements and capital at the time;
SinoCoking
has commenced action on two major initiatives as a part of its growth plan, that
are expected to require capital resources:
89
|
1.
|
New Coking
Facility. On
March 3, 2010, SinoCoking announced that it began construction of its new
coking facility to be located beside the Company’s current facilities in
Pingdingshan City. The Company estimates that the new coking
facility will cost approximately $70 million to complete, and as described
elsewhere in this prospectus, is expected to begin production of
metallurgical and chemical coke, coal gas and various chemical products by
early 2011.
|
|
2.
|
Mine
Acquisitions.
On February 19, 2010, SinoCoking announced its plan of acquisition, in
which it will seek consolidation of coal mines in the Henan province, as a
part of a general policy in the coal mining industry in Henan Province to
improve production efficiency and improve safety. On that date,
SinoCoking announced 22 private company targets with an aggregate licensed
production capacity of 3.3 million metric tons of coal per year. The
Company intends to acquire a controlling stake in selected private
mine-owning companies using cash, its common stock, or a combination of
both as consideration for these
acquisitions.
|
In the
quarter ending December 31, 2009, the Company obtained a letter of intent from
the Pingdingshan Rural Cooperative Bank, confirming the bank’s intention to loan
the Company up to 300 million RMB (approximately USD $42 million), unsecured at
an annual interest rate of 5.2% to finance the construction of its new
coking facility. This letter of intent expired on June 30, 2010. In the first
quarter of 2010, SinoCoking raised $44 million in gross proceeds from the sale
of common stock and warrants.
SinoCoking’s
management presently anticipates that its recent equity issuance, its access to
credit, and cash flow from operations, together will provide sufficient capital
resources to pursue and complete the construction of its new coking facility and
proposed mine acquisitions. We intend to utilize existing cash, cash flow
from operations and bank loans, to finance the cash portion of the consideration
to be paid for our acquisitions. We may consider the issuance of
additional equity securities in order to finance our mine
acquisitions.
We have
not experienced any material losses since inception relating to accidents or
other similar events. Please refer to the risk factor entitled “We may
suffer losses resulting from industry-related accidents and lack of insurance”
on page 7 of this prospectus.
Capital
Expenditures
During
the year ending June 30, 2010, the Company had capital expenditures of $30.4
million, and in fiscal 2009, it had capital expenditures of approximately $10.5
million. These capital expenditures were made in order to purchase
vehicles, mining equipment and coking equipment for the Company’s new 900,000
ton per year coking facility currently under construction, as well as expansion
of its coal mining facilities. Specifically, for the year ending June 30,
2010, the Company made payments of approximately $5.1 million toward the
expansion and redevelopment of adjacent formerly residential land (see Item
2. Properties), approximately $8.8 million was paid for the mine
acquisitions, approximately $12.2 million in construction-related
expenditures for its new coking facility, and approximately $4.25
million for the construction of new coal mining tunnels. The increase
in capital expenditures in this period as compared to the same period in 2009
was mainly due to the construction and land redevelopment expenditures, as well
as the mine acquisitions. Continued high levels of capital expenditures
are anticipated over the next year and until completion of the new coking
facility, which the Company plans to complete by 2011.
Quantitative
and Qualitative Disclosures about Market Risk
The
Company does not use derivative financial instruments and has no foreign
exchange contracts. The Company’s financial instruments consist of cash
and cash equivalents, trade accounts receivable, accounts payable and long-term
obligations. The Company generally considers investments in highly liquid
instruments purchased with a remaining maturity of 90 days or less at the date
of purchase to be cash equivalents. However, in order to manage the
foreign exchange risks, the company may in the future engage in hedging
activities to manage its financial exposure related to currency exchange
fluctuation. In these hedging activities, the Company might use
fixed-price, forward, futures, financial swaps and option contracts traded in
the over-the-counter markets or on exchanges, as well as long-term structured
transactions when feasible. Currently the Company does not engage in any
of these types of currency hedging transactions.
90
Interest Rates. The Company’s
exposure to market risk for changes in interest rates relates primarily to its
short-term obligations. Accordingly, fluctuations in applicable interest
rates would not have a material impact on the fair value of these
securities. At June 30, 2010, the Company had approximately $40.3 million
in cash. A hypothetical 10% increase or decrease in applicable interest rates
would not have a material impact on the Company’s earnings or loss, or the fair
market value or cash flows of these instruments.
Foreign Exchange Rate.
All of the sales and inputs of the Company are transacted in Renminbi
(“RMB”). As a result, changes in the relative values of U.S. Dollars and
RMB affect the company’s reported levels of revenues and profitability as the
results are translated into U.S. Dollars for reporting purposes. However,
since the Company conducts its sales and purchases inputs in RMB, fluctuations
in exchange rates are not expected to significantly affect financial stability,
or gross and net profit margins. The Company does not currently expect to
incur significant foreign exchange gains or losses, or gains or losses
associated with any foreign operations.
Commodity Prices. The
Company is a coal and coke producer, and as discussed elsewhere in this report,
its business is affected by prevailing market prices for coal and coke.
However, the Company does not currently engage in any hedging activities, such
as futures, forwards, or options contracts, with respect to any of its inputs or
the products it sells.
Off-Balance
Sheet Arrangements
We have
not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered into
any derivative contracts that are indexed to our shares and classified as
shareholder’s equity or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity. We do not have any variable
interest in any unconsolidated entity that provides financing, liquidity, market
risk or credit support to us or engages in leasing, hedging or research and
development services with us.
LEGAL PROCEEDINGS
We know
of no material, existing or pending legal proceedings against us, nor are we
involved as a plaintiff in any material proceeding or pending litigation. There
are no proceedings in which any of our directors, officers or affiliates, or any
registered or beneficial stockholder, is an adverse party or has a material
interest adverse to our company.
MANAGEMENT
Our
directors and executive officers, their ages, their respective offices and
positions, and their respective dates of election or appointment are as
follows:
|
Name
|
Age
|
Position Held
|
Officer/Director since
|
|||
|
Jianhua
Lv
|
42
|
President,
Chief Executive Officer and Chairman of the Board
|
February
5, 2010
|
|||
|
Liuchang
Yang
|
55
|
Vice
President, Secretary and Director
|
February
5, 2010
|
|||
|
Zan
(“Sam”) Wu
|
33
|
Chief
Financial Officer
|
February
5, 2010
|
|||
|
Hui
Zheng
|
38
|
Vice
President of Operations and Director
|
February
5, 2010
|
|||
|
Yushan
Jiang
|
56
|
Independent
Director
|
February
5, 2010
|
|||
|
Jin
Yao
|
62
|
Independent
Director
|
February
5, 2010
|
|||
|
Hui
Huang
|
43
|
Independent
Director
|
February
5, 2010
|
|||
|
Haoyi
Zhang
|
37
|
Independent
Director
|
February
5, 2010
|
91
Business
Experience
The
following is a summary of the educational background and business experience
during the past five years of each of our directors and executive
officers. The following information includes the person’s principal
occupation during the period, and the name and principal business of the
organization by which he or she was employed.
Jianhua Lv has been the executive
director and chairman of Hongli since 1996, when he founded the company.
Prior to this, from 1989 to 1996 Mr. Lv held a number of positions at the Henan
Province Pingdingshan Coal Group, where he developed many years of experience in
the coal and coking industries. In early 2007, Mr. Lv was appointed as a
standing committee member of the Chinese People’s Political Consultative
Conference of Baofeng, Henan Province, and as a standing committee member of the
National People’s Congress of Baofeng, Henan Province. Mr. Lv has been
honored as an outstanding entrepreneur of the year in 2003 and 2004. Mr.
Lv holds a bachelor’s degree from Henan University in Chinese, a master’s degree
in economics from Henan University, and a master of law degree from the Central
Party School.
Liuchang Yang has served as a
director of Hongli since 2003, and as its Vice Chairman since January
2006. Prior to this, Mr. Yang held various offices at our predecessors
from 1983 to 2005, including secretary, deputy director, director and general
manager of human resources. Mr. Yang has extensive experience in
management, human resources and administration. Mr. Yang holds a
bachelor’s degree in Law from Beijing University, a degree from the Center Party
School in Economics and Management, and a graduate degree in Finance and Banking
from the Chinese Academy of Social Sciences.
Zan (“Sam”) Wu has served as the chief
financial officer of Hongli since July 2009. Prior to this, Mr. Wu worked
as an auditor at the Zhong Rui Hui Accounting Firm from 2000 to 2001. Mr.
Wu was a financial analyst at VIR Consultancy Ltd. from 2003 to 2004. From
2004 through 2006, Mr. Wu held the positions of assistant manager and financial
manager at Domino Scientific Equipment Ltd. Mr. Wu was the chief
representative of Global American, Inc. (China Representative Office) from 2006
– 2009. Mr. Wu holds a bachelor’s degree in accounting from the Capital
University of Economics and Business and a master’s degree in financial
management and control from Aston Business School.
Hui Zheng has served as vice
manager of Human Resources at Henan Province Pingdingshan Hongli Coal & Coke
Co., Ltd. (SinoCoking) since 2006. Prior to this Mr. Zheng worked at
SinoCoking as a statistician, secretary and vice-dean from 1998 until
2006. Mr. Zheng has worked in the materials industry since 1996. Mr.
Zheng holds a degree from Zhengzhou University.
Yushan Jiang has served as the
chief executive officer of the Pingdingshan Coal Group Shoushan Coking Co., Ltd.
since February 2007. Prior to this, from 2001 to 2007, he was chief
engineer at the Henan Tianhong Coking Company. Prior to this Mr.
Jiang developed expensive experience in the coking industry as he held numerous
positions since 1972 as a worker, director, and head of research and development
for various coking operations. Mr. Jiang is also currently a
vice-director and member of the Coking Committee of the Henan Province Metals
Association, and vice-secretary of the Henan Province Institute of Coal &
Coke. Mr. Jiang holds a Bachelor’s degree in Coal and Chemistry from the
Wuhan College of Iron & Steel.
Jin Yao is vice-chairman of
the China Division of the Asia Pacific CEO Association, a position he has held
since 2003. Prior to this Mr. Yao served as general manager at the Beijing
Gaoping Technology Development Company from 1989 to 2003. Mr. Yao holds a
bachelor’s degree and a master’s degree in Electrical Engineering from the
Beijing Institute of Technology.
Hui Huang is the chairman and
chief executive officer of Wuhan Pingdingshan Coal and Wuhan Steel Unification
Coking Company. Mr. Huang has also served as director of sales and
administration of the same company from 1985 to 1996. He then served as
director of the Economics and Technology Cooperation Center of the Pingdingshan
Coal Group (now known as the Wuhan Pingdingshan Coal and Wuhan Steel Unification
Coking Company) from 1996 to 2008, of which he is now chairman of the
board. Mr. Huang is also a director of the China Association of
Comprehensive Resource Utilization, a vice-director of the Henan Institute of
Coal (a branch of the China Association of Comprehensive Resource Utilization),
and vice-secretary of the Pingdingshan Youth Union.
92
Haoyi Zhang serves as the
chief financial officer of Henan Pinggao Electricity Ltd., one of the major
A-Share public companies traded on the Shanghai Stock Exchange, a position he
has held since January 2005. From January 2005 to March 2009, he served as the
chief accountant of Henan Pinggao DongZhi Gao Ya Kaiguan Ltd., a Sino-Japanese
Joint Venture with Toshiba, concurrently with his position as the chief
financial officer at Henan Pinggao Electricity Ltd. From April to December
2004, he served as the chief accountant of Henan Pinggao DongZhi Gao Ya Kaiguan
Ltd. Mr. Zhang held numerous positions from July 1995 to March 2004 as the
deputy director, the director, the deputy chief accountant, the assistant
general manager and the chief accountant at China Beifang Industry Company,
Xiamen Branch. Mr. Zhang holds a Bachelor’s degree in Accounting from
Xiamen University and an EMBA degree from Xian Jiaotong University.
There are
no family relationships among our current directors or executive
officers.
During
the past ten years none of our current directors or executive officers was
involved in any legal proceedings described in subparagraph (f) of Item 401 of
Regulations S-K.
Mr. Lv
and Mr. Yang were appointed to their respective director and officer positions,
and Mr. Wu was appointed to his officer position, because they had held similar
positions at Hongli, and upon the closing of the Acquisition on February 5,
2010, they assumed these respective positions. Messrs. Huang and Jiang
were selected to serve as independent directors on the board because of their
deep and substantial experience in the coal and coking industry. Mr. Jin
Yao was selected to serve as an independent director because of his extensive
senior level experience and expertise in the management and governance of major
China-based enterprises. Mr. Haoyi Zhang was selected to serve on as an
independent director because of his expertise in public company matters, with
particular expertise in accounting, auditing, controls and procedures and
financial matters.
Board
of Directors
Our board
of directors is currently composed of seven members. All members of our
board of directors serve in this capacity until their terms expire or until
their successors are duly elected and qualified. Our bylaws provide that
the authorized number of directors will be not less than one and not more than
seven.
Director
Independence and Board Committees
Based
upon information submitted to the Company, the board of directors has determined
that Mr. Yushan Jiang, Mr. Jin Yao, Mr. Hui Huang and Mr. Haoyi Zhang are each
“independent” under the listing standards of the NASDAQ Stock
Market.
The board
of directors has an audit committee that was established in accordance with
section 3(a)(58)(A) of the Securities Exchange Act of 1934. The audit
committee members include Mr. Haoyi Zhang (chairman), Mr. Jin Yao and Mr. Yushan
Jiang. Mr. Zhang is the audit committee financial expert who is
independent, as independence for audit committee members is defined in the
listing standards of the NASDAQ Stock Market. The audit committee operates
under a written charter adopted by the board of directors on February 16,
2010.
The board
of directors established a compensation committee on February 16, 2010.
The compensation committee consists of Jin Yao, Hui Huang and Yushan Jiang, each
of whom is an independent director. Jin Yao is the chairman of this
committee. Our compensation committee oversees and, as appropriate, makes
recommendations to the board of directors regarding the annual salaries and
other compensation of our executive officers, and other related policies, and
provides assistance and recommendations with respect to our compensation
policies and practices. The compensation committee operates under a
written charter adopted by the board of directors on February 16,
2010.
93
The board
of directors established a nominating committee on February 16, 2010. The
nominating committee consists of Jin Yao, Hui Huang and Yushan Jiang, each of
whom is an independent director. Hui Huang is the chairman of this
committee. Our nominating committee assists in the selection of director
nominees, approves director nominations to be presented for shareholder approval
at our annual shareholder meetings and fill any vacancies on our board of
directors, considers any nominations of director candidates validly made by
shareholders, and reviews and considers developments in corporate governance
practices. The nominating committee operates under a written charter
adopted on February 16, 2010.
Section
16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our directors, executive officers and persons
who own more than 10% of our common stock to file reports of ownership and
changes in ownership of our common stock with the Securities and Exchange
Commission. Directors, executive officers and persons who own more than
10% of our common stock are required by Securities and Exchange Commission
regulations to furnish to the Company copies of all Section 16(a) forms they
file.
To our
knowledge, based solely upon review of the copies of such reports received or
written representations from the reporting persons, the Company believes that
during our 2010 fiscal year, our directors, executive officers and persons who
owned more than 10% of our common stock complied with all Section 16(a) filing
requirements.
Code
of Ethics
The
Company has adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The Company will
provide a copy of our code of ethics to any person who requests a copy in
writing to the Secretary of the Company, including the e-mail address or
facsimile number of the requesting party. Any written requests should be
mailed to the Company at Kuanggong Road and Tiyu Road 10th Floor, Chengshi Xin
Yong She, Tiyu Road, Xinhua District, Pingdingshan, Henan Province, P.R. China
467000.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
This
compensation discussion and analysis describes the material elements of the
compensation awarded to our current executive officers. This compensation
discussion focuses on the information contained in the following tables and
related footnotes and narrative for the last completed fiscal year. The
compensation committee of our board of directors currently oversees the design
and administration of our executive compensation program.
Our
current executive compensation program may from time to time include the
following principal components: (i) base salary, (ii) discretionary
annual cash bonuses, and (iii) stock incentive plan awards, and (iv)
perquisites and benefits.
Our
Compensation Philosophy and Objectives
Our
philosophy regarding compensation of our executive officers includes the
following principles:
|
|
●
|
our
compensation program should reward the achievement of our strategic
initiatives and short- and long-term operating and financial
goals;
|
|
|
●
|
compensation
should appropriately reflect differences in position and
responsibility;
|
|
|
●
|
compensation
should be reasonable; and
|
94
|
|
●
|
the
compensation program should be understandable and
transparent.
|
In order
to implement such compensation principles, we have developed the following
objectives for our executive compensation program:
|
|
●
|
overall
compensation levels must be sufficiently competitive to attract and retain
talented leaders and motivate those leaders to achieve superior
results;
|
|
|
●
|
a
portion of total compensation should be contingent on, and variable with,
achievement of objective corporate performance goals, and that portion
should increase as an executive’s position and responsibility
increases;
|
|
|
●
|
total
compensation should be higher for individuals with greater responsibility
and greater ability to influence our achievement of operating goals and
strategic initiatives;
|
|
|
●
|
the
number of elements of our compensation program should be kept to a
minimum, and those elements should be readily understandable by and easily
communicated to executives, shareholders, and others;
and
|
|
|
●
|
executive
compensation should be set at responsible levels to promote a sense of
fairness and equity among all employees and appropriate stewardship of
corporate resources among
shareholders.
|
Determination
of Compensation Awards
The
compensation committee of our board of directors is provided with the primary
authority to determine the compensation awards available to our executive
officers. To aid the compensation committee in making its determination
for the current fiscal year, our current senior management provided
recommendations to the compensation committee regarding the compensation of our
executive officers.
Compensation
Benchmarking and Peer Group
Our
compensation committee did not rely on any consultants or utilize any peer
company comparisons or benchmarking in setting executive compensation levels for
fiscal 2010. However, our management informally considered competitive
market practices by reviewing publicly available information relating to
compensation of executive officers at other comparable companies in making its
recommendations to our board of directors regarding our executives’ compensation
for fiscal 2010. As our Company grows, we expect to take steps, including
the utilization of peer company comparisons and/or hiring of compensation
consultants, to ensure that the compensation committee has a comprehensive
picture of the compensation paid to our executives and with a goal toward total
direct compensation for our executives that are on a par with the median total
direct compensation paid to executives in peer companies if annually established
target levels of performance at the Company and business segment level are
achieved.
Elements
of Compensation
The
principal elements of our executive compensation are:
|
|
●
|
base
salary;
|
|
|
●
|
discretionary
annual cash bonuses;
|
|
|
●
|
stock
incentive plan awards; and
|
|
|
●
|
perquisites
and other compensation.
|
95
While
base salary is generally included as an element of compensation of our executive
officers in every year, the granting of bonuses, stock incentive awards and
perquisites is determined on a case-by-case basis. During the fiscal
year ended December 31, 2009, our compensation program consisted solely of base
salary. For fiscal 2010, executive compensation consists of base salary,
and we have no immediate plans to include bonuses, stock option grants or
perquisites as elements of executive compensation.
Base
Salaries
Base
salary is used to recognize the experience, skills, knowledge and
responsibilities required of our employees, including our named executive
officers. When establishing base salaries for 2010, subject to the
provisions of each person’s employment agreement, our compensation committee and
management considered a number of factors, including the seniority of the
individual, the functional role of the position, the level of the individual’s
responsibility, the ability to replace the individual, the base salary of the
individual at their prior employment and the number of well qualified candidates
to assume the individual’s role. Generally, we believe that executive base
salaries should be targeted near the median of the range of salaries for
executives in similar positions at comparable companies.
Discretionary
Annual Cash Bonuses
Our
compensation committee has discretion to recommend and approve the annual cash
bonus for our Chief Executive Officer and each other named executive
officer. Bonus awards will be generally based on our management’s
recommendations and ultimately approved by our compensation committee.
There were no bonuses granted in fiscal 2010. The annual bonuses, if
any, are intended to compensate officers for individual performance, for our
overall financial performance, and for achieving important operational and
financial milestones during the relevant fiscal year.
Stock
Incentive Plan Awards
Our stock
option plans are designed to provide long term incentives to our executives and
other employees and award recipients, to increase shareholder value through
competent, effective management of the Company. Management believes that
the ability to grant stock options as a component of compensation will provide
the Company with an advantage in attracting qualified management and employees
to our Company. There were no stock option awards granted in fiscal
2010. Stock option award decisions, if any are granted, will be evaluated
on a case-by-case basis giving consideration to factors such as the recipient’s
qualifications and abilities, the nature of the recipient’s position, and the
recipient’s ability to contribute to the Company’s development and achievement
of its business objectives.
Perquisites
and Other Compensation
Our
compensation committee may include perquisites and other benefits as an element
of compensation from time to time on a discretionary basis. Presently the
Company does not include perquisites or other benefits as a part of executive
compensation.
Management’s
Role in the Compensation-Setting Process
Our
management plays an important role in our compensation-setting process. The most
significant aspects of management’s role are evaluating other executive
officers’ performances, recommending business performance targets and
objectives, and recommending salary levels and option awards. Our management
makes recommendations to our compensation committee regarding our executive’s
compensation packages. During this process, management may be asked to provide
the compensation committee with their evaluation of the executive officers’
performances, the background information regarding our strategic financial and
operational objectives, and compensation recommendations as to the executive
officers.
96
Executive
Compensation – Summary Compensation Table
The
following summary compensation table indicates the cash and non-cash
compensation earned during our last two completed fiscal years by our principal
executive officer, principal financial officer, except as otherwise indicated
below. No other officer of the Company had total compensation in excess of
$100,000 per year during the above-mentioned periods.
|
Name and principal
position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensa-
tion
($)
|
Non-
qualified
Deferred
Compensa-
tion
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
||||||||||||||||||||||||
|
Jianhua
Lv
|
2010
|
80,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 80,000 | |||||||||||||||||||||||
|
President,
CEO and Chairman of the Board
|
2009
|
8,357 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 8,357 | |||||||||||||||||||||||
|
Zan
Wu
|
2010
|
50,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 50,000 | |||||||||||||||||||||||
|
CFO
(2)
|
2009
|
n/a | n/a | n/a | n/a | n/a | n/a | n/a | $ | n/a | |||||||||||||||||||||||
|
Abdul
Ladha
|
2009
|
156,000 | (4) | 0 | 0 | 0 | 0 | 0 | 781,842 | (5) | $ | 937,842 | |||||||||||||||||||||
|
Former
President, CEO and Director (3)
|
2008
|
156,000 | (4) | 0 | 0 | 0 | 0 | 0 | 0 | $ | 0 | ||||||||||||||||||||||
|
(1)
|
Mr. Lv was appointed as the
Company’s president, chief executive officer and chairman of the board on
February 5, 2010 in connection with the Company’s acquisition of Top
Favour. Compensation reported above consists of compensation
received as the principal executive officer of Hongli, and is translated
from Chinese RMB to U.S. Dollars using an exchange rate of 6.82 RMB to US
$1.00 for 2009 and 7.29 RMB to US $1.00 for
2008.
|
|
(2)
|
Mr. Wu was appointed the
Company’s chief financial officer on February 5, 2010 in connection with
the Company’s acquisition of Top Favour. Prior to this date Mr. Wu
served as Chief Financial Officer of Hongli since July 2009 (commencing in
fiscal 2010).
|
|
(3)
|
Mr. Ladha resigned as the
Company’s president, chief executive officer and director on February 5,
2010 in connection with the Company’s acquisition of Top Favour. Mr.
Ladha’s compensation is reported for the fiscal year ended December 31,
2008 and 2009, when the Company, then named “Ableauctions.com, Inc.”, had
a fiscal year ending December 31. On April 14, 2010, the Company
changed its fiscal year end from December 31 to June
30.
|
|
(4)
|
All of the compensation paid to
Mr. Ladha was paid to him in Canadian dollars. The table above sets
forth the amount of Mr. Ladha’s compensation as reported in U.S. dollars,
using an exchange rate of $0.87601 U.S. dollars per Canadian
dollar.
|
|
(5)
|
This amount consists of a fee
paid to Mr. Ladha pursuant to the Development Agreement the predecessor
Company (then known as “Ableacutions.com, Inc.,” entered into on October
6, 2008 for his services in connection with a project by the predecessor
company which was completed prior to the merger with
SinoCoking.
|
Outstanding
Equity Awards
The following table shows the
outstanding equity awards granted to our highest paid executive officers as of
June 30, 2010. Equity awards granted to Mr. Ladha were granted
in connection with his service as a director.
97
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
|||||||||||||||||||||||||||||||||
|
OPTION
AWARDS
|
STOCK
AWARDS
|
||||||||||||||||||||||||||||||||
|
Name
|
Number
of
securities
underlying
unexercised
options
(#)
Exercisable
|
Number
of
securities
underlying
unexercised
options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
underlying
unexercised
unearned
options
(#)
|
Option
exercise
price
($)
|
Option
expiration
date
|
Number
of
shares
or
units
of
stock
that
have
not
vested
(#)
|
Market
value
of
shares
or
units
of
stock
that
have
not
vested
($)
|
Equity
incentive
plan
awards:
number
of
unearned
shares,
units
or
other
rights
that
have
not
vested
(#)
|
Equity
incentive
plan
awards:
Market
or
payout
value
of
unearned
shares,
units
or
other
rights
that
have
not
vested
(#)
|
||||||||||||||||||||||||
|
Abdul
Ladha
|
6,059 | (1) | 0 | 0 | $ | 96.00 |
11/16/2014
|
0 | 0 | 0 | 0 | ||||||||||||||||||||||
|
(1)
|
The
number of shares underlying the above option, as well as the option
exercise price, reflect a 1-for-12 reverse stock split effected in January
2009, and a 1-for-20 reverse stock split effected in February
2010.
|
Grants
of Plan-Based Awards
Retirement
Plans
We
currently have no plans that provide for the payment of retirement benefits, or
benefits that will be paid primarily following retirement, including but not
limited to tax-qualified defined benefit plans, supplemental executive
retirement plans, tax-qualified defined contribution plans and nonqualified
defined contribution plans.
Potential
Payments upon Termination or Change-in-Control
We
currently have no contract, agreement, plan or arrangement, whether written or
unwritten, that provides for payments to a named executive officer at,
following, or in connection with any termination, including without limitation
resignation, severance, retirement or a constructive termination of a named
executive officer, or a change in control of the Company or a change in the
named executive officer’s responsibilities, with respect to each named executive
officer.
Employment
Agreements
We
entered into an employment agreement with Mr. Jianhua Lv, our president and
chief executive officer, on February 5, 2010. The compensation committee
of the board of directors approved and established Mr. Lv’s salary at a rate of
USD $160,000 per annum for the 2010 fiscal year, beginning from February
2010. Mr. Lv agreed that in the event that he departs from the Company for
any reason, he will refrain from using or disclosing our confidential
information in any manner which might be detrimental to or conflict with the
business interests of the Company. Both the Company and Mr. Lv have the
right to terminate Mr. Lv’s employment with or without cause by giving prior
notice. Any disputes arising from Mr. Lv’s employment, termination of
his employment or breach of any covenant of good faith related to his employment
shall be conclusively settled by final and binding decision of the court located
in Henan Province, China. Mr. Lv’s agreement does not provide for any
fixed term or duration, and Mr. Lv is employed by the Company on an at-will
basis.
98
We
entered into an employment agreement with Mr. Zan (“Sam”) Wu, our chief
financial officer, treasurer and secretary, on February 5, 2010. The
compensation committee of the board of directors approved and established Mr.
Wu’s salary at a rate of USD $120,000 per annum for the 2010 fiscal year,
beginning from February 2010. Mr. Wu agreed that in the event that he
departs from the Company for any reason, he will refrain from using or
disclosing our confidential information in any manner which might be detrimental
to or conflict with the business interests of the Company. Both the
Company and Mr. Wu have the right to terminate Mr. Wu’s employment with or
without cause by giving prior notice. Any disputes arising from Mr. Wu’s
employment, termination of his employment or breach of any covenant of good
faith related to his employment shall be conclusively settled by final and
binding decisions of the court located in Henan Province, China. Mr. Wu’s
agreement does not provide for any fixed term or duration, and Mr. Wu is
employed by the Company on an at-will basis.
The
Company had an employment agreement with our former chief executive officer,
Abdul Ladha, that was dated April 1, 2002, which was terminated on February 5,
2010 in connection with the Acquisition. Mr. Ladha’s cash compensation was
$156,000 per year, and he was also entitled to receive an automobile allowance
of $500 per month (although this benefit was not paid to him during the past two
fiscal years). The employment agreement with Mr. Ladha was terminated in
connection with the Acquisition of Top Favour and resulting change of control,
and the Company incurred no liability as a result of the agreement’s
termination.
Director
Compensation
The
following table provides compensation information for our directors during the
fiscal year ended June 30, 2010:
|
Name
|
Fees
Earned or
Paid in Cash
($)
|
Stock
Awards
($)(1)
|
Option
Awards ($)(1)
|
Non-Equity
Incentive Plan
Compensation ($)
|
Non-Qualified
Deferred
Compensation
Earnings ($)
|
All Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
|
Jianhua
Lv (2)
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
|
Liuchang
Yang
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
|
Hui
Zheng
|
$ | 5,287 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 5,287 | ||||||||||||||
|
Yushan
Jiang
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
|
Jin
Yao
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
|
Hui
Huang
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
|
Haoyi
Zhang
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||
|
(1)
|
Reflects dollar amount expensed
by the Company during the applicable fiscal year for financial statement
reporting purposes pursuant to FAS 123R. FAS 123R requires the
Company to determine the overall value of the stock award as of the date
of grant, and to then expense that value over the service period over
which the stock award becomes exercisable (vested). As a general
rule, for time in service based stock awards, the Company will immediately
expense any stock award or portion thereof that is vested upon grant,
while expensing the balance on a pro rata basis over the remaining vesting
term of the stock award.
|
|
(2)
|
This individual’s compensation is
reflected in the Summary Compensation Table on page 97 above.
|
All of
our current directors were appointed on February 5, 2010 in connection with the
Acquisition of Top Favour. On February 5, 2010, we entered into letter
agreements with all of our current directors with a term of one (1) year and
pursuant to which we agreed to pay cash compensation in the amount of $10,000 to
each of our current directors for their services on our board of directors in
2010.
99
Corporate
Governance
There
have been no material changes to the procedures by which security holders may
recommend nominees to our board of directors.
The board
of directors has an audit committee that was established in accordance with
section 3(a)(58)(A) of the Securities Exchange Act of 1934. The audit
committee members include Haoyi Zhang (chairman), Jin Yao and Yushan
Jiang. Mr. Zhang is the audit committee financial expert who is
independent, as independence for audit committee members is defined in the
listing standards of the NASDAQ Stock Market.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information, as of September 27, 2010, regarding the
beneficial ownership of the Company’s common stock by any person known to the
Company to be the beneficial owner of more than 5% of the outstanding common
stock, by directors and certain executive officers, and by all directors and
executive officers of the Company as a group. All officers and directors
above utilize the following address for correspondence purposes: Kuanggong Road
and Tiyu Road 10th Floor, Chengshi Xin Yong She, Tiyu Road, Xinhua District,
Pingdingshan, Henan Province, China 467000.
|
Name
and Address
|
Amount
and Nature of
Beneficial
Ownership
|
Percent
(%) of Class*
|
||||||
|
Jianhua
Lv (1)
|
6,694,091 | 32.1 | % | |||||
|
Liuchang
Yang (2)
|
574,566 | 2.8 | % | |||||
|
Zan
(“Sam”) Wu
|
0 | 0 | % | |||||
|
Hui
Zheng
|
0 | 0 | % | |||||
|
Hui
Huang
|
0 | 0 | % | |||||
|
Yushan
Jiang
|
0 | 0 | % | |||||
|
Jin
Yao
|
0 | 0 | % | |||||
|
Haoyi
Zhang
|
0 | 0 | % | |||||
|
All
Officers and Directors as a Group (8 total)
|
7,268,657 | 34.8 | % | |||||
|
Honour
Express Limited (3)
|
6,694,091 | 32.1 | % | |||||
|
|
*
|
Applicable percentage ownership
is based on 20,871,192 shares of common stock issued and outstanding as of
September 27, 2010.
|
|
|
(1)
|
Represents
shares held directly by Honour Express Limited, a British Virgin Islands
international business company (“Honour Express”). Jianhua Lv is a
director of Honour Express, and in such capacity, Mr. Lv may be deemed to
have voting and dispositive power over the shares held directly by Honour
Express. Mr. Lv is also an indirect beneficiary, as he holds an
option to acquire shares of Honour Express. Pursuant to a certain
Incentive Option Agreement dated July 6, 2009, as amended (“Incentive
Option Agreement”), Mr. Lv has the right to acquire 100% of the issued and
outstanding capital stock of Honour Express from a nominee who holds the
shares of capital stock of Honour Express, subject to certain
conditions. Mr. Lv’s address is: 10th Floor, Chengshi Xin Yong She,
Tiyu Road, Xinhua District, Pingdingshan, Henan Province, People’s
Republic of China, 467000.
|
|
|
(2)
|
Mr.
Liuchang Yang’s address is: 10th Floor, Chengshi Xin Yong She, Tiyu Road,
Xinhua District, Pingdingshan, Henan Province, People’s Republic of China,
467000.
|
|
|
(3)
|
The
address of Honour Express Limited is: P.O. Box 957, Offshore
Incorporations Centre, Road Town, Tortola, British Virgin
Islands.
|
To our
knowledge, none of our directors, officers or affiliates, or any 5% or greater
shareholder of the Company, or any associate or any such directors, officers or
affiliates, is a party that is adverse to the Company in any material legal
proceeding.
100
Securities
authorized for issuance under equity compensation plans
The
Company maintains the following equity compensation plans. The discussions
below give effect to the 1-for-12 reverse stock split the Company effected on
January 15, 2009 and the 1-for-20 reverse stock split the Company effected on
February 5, 2010.
2002
Stock Option Plan for Directors
In 2002,
the board of directors adopted a 2002 Stock Option Plan for Directors (the
“Directors Plan”). The purpose of the Directors Plan is to attract and
retain the services of experienced and knowledgeable individuals to serve as our
directors. On the date the Directors Plan was adopted, the total number of
shares of common stock subject to it was 11,057. This number of shares may
be increased on the first day of January of each year so that the common stock
available for awards will equal 5% of the common stock outstanding on that date,
provided, however, that the number of shares included in the Directors Plan
may not exceed more than 10% of all shares of common stock outstanding.
The Directors Plan is administered by the board of directors, or any committee
that may be authorized by the board of directors, so long as any such committee
is made up of Non-Employee Directors, as that term is defined in Rule 16(b)-3(b)
of the Securities Exchange Act of 1934. The grant of an option under the
Directors Plan is discretionary. The exercise price of an option must be
the fair market value of the common stock on the date of grant. An option
grant may be subject to vesting conditions. Options may be exercised in
cash, or with shares of the common stock of the Company already owned by the
person. The term of an option granted pursuant to the Directors Plan may
not be more than 10 years. The Directors Plan was adopted and approved by
the board of directors on October 11, 2002 and the Directors Plan shall
terminate 10 years from such approval date.
2002
Consultant Stock Plan
In 2002,
the board of directors adopted a 2002 Consultant Stock Plan (the “Consultants
Plan”). The purpose of the Consultants Plan is to be able to offer
consultants and others who provide services to the Company the opportunity to
participate in our growth by paying for such services with equity awards.
The total number of shares of common stock subject to the Consultants Plan was
increased from 27,084 to 133,334 as approved by the board of directors in
2003. The Consultants Plan is administered by the board of directors, or
any committee that may be authorized by the board of directors.
Persons eligible for awards under the Consultants Plan may receive options to
purchase common stock, stock awards or stock restricted by vesting
conditions. The exercise price of an option must be no less than 85% of
the fair market value of the common stock on the date of grant. An option
grant may be subject to vesting conditions. Options may be exercised in
cash, or with shares of the common stock of the Company already owned by the
person or with a fully recourse promissory note, subject to applicable
law. The term of an option granted pursuant to the Consultants Plan may
not be more than 10 years. The Consultants Plan terminates on the first
business day prior to the 10 year anniversary of the date on which the plan was
adopted by the board of directors, which was May 28, 2002.
1999
Stock Option Plan
In 1999,
the board of directors adopted a 1999 Stock Option Plan (the “Option
Plan”). The purpose of the Option Plan is to be able to retain the
services of employees and consultants and others who are valuable to the Company
and to offer incentives to such persons to achieve the objectives of our
shareholders. The total number of shares of common stock subject to the
Option Plan is 45,417. The Option Plan is administered by the board of
directors, or any committee that may be authorized by the board of directors, so
long as any such committee is made up of Non-Employee Directors, as that term is
defined in Rule 16(b)-3(b) of the Securities Exchange Act of 1934.
Employees eligible for awards under the Option Plan may receive incentive
options to purchase common stock. If a recipient does not receive an
incentive option, he or she will receive a non-qualified stock option. The
exercise price of an option must be no less than the fair market value of the
common stock on the date of grant, unless the recipient of an award owns 10% or
more of our common stock, in which case the exercise price of an incentive stock
option must not be less than 110% of the fair market value. An option
grant may be subject to vesting conditions. Options may be exercised in
cash, or with shares of the common stock of the Company already owned by the
recipient of the award. The term of an option granted pursuant to the
Option Plan may not be more than five years if the option is an incentive option
granted to a recipient who owns 10% or more of our common stock, or 10 years for
all other recipients and for recipients of non-qualified stock options.
Incentive Stock Options may be granted under the Option Plan until the day
immediately preceding the 10 year anniversary of the date on which the Option
Plan was adopted by the board of directors, which was October 14, 1999.
Non-Qualified Stock Options may be granted under the Option Plan until the
Option Plan is terminated by the board of directors in its sole
discretion.
101
The
following table illustrates, as of June 30, 2010, information relating to all of
our equity compensation plans.
|
Plan
Category
|
Number
of
securities to
be
issued
upon
exercise
of
outstanding
options,
warrants
and
rights
|
Weighted
average
exercise
price
of
outstanding
options,
warrants
and
rights
|
Number
of
securities
remaining
available
for
future
issuance
under
equity
compensation
plans
|
|||||||||
|
Equity
Compensation Plan Approved by Security Holders – 2002
Consultant Stock Plan
|
0 | N/A | 0 | |||||||||
|
Equity
Compensation Plan Approved by Security Holders – 1999 Stock Option
Plan
|
6,059 | (1) | $ | 96.00 | 0 | |||||||
|
Equity
Compensation Plan Not Approved by Security Holders – 2002 Stock Option
Plan for Directors
|
4,792 | (1) | $ | 75.13 | 0 | |||||||
(1) This
number reflects the reverse stock splits that were effected in January 2009 and
February 2010.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Set forth
below are our related party transactions since July 1, 2008:
Acquisition
of Top Favour
On
December 30, 2009, the Company’s shareholders approved a Plan and Agreement of
Share Exchange, dated July 17, 2009 (the “Exchange Agreement”), with Top Favour
Limited, a British Virgin Islands international business company (“Top Favour”),
pursuant to which, on the terms and subject to the conditions set forth therein,
the registrant (formerly named “Ableauctions.com, Inc.”) agreed to acquire all
of the outstanding capital stock of Top Favour in exchange for the issuance
of 13,117,952 shares of its common stock to the shareholders of Top Favour (the
“Acquisition”). The Acquisition was consummated at 5:00 p.m. Pacific time
on February 5, 2010 (the “Closing Date”).
The
Closing Date of the Acquisition is sometimes referred to in this report as
the “Change of Control Date.” On the Change of
Control Date of February 5, 2010:
|
|
●
|
The
registrant ceased operating its historical auctions and real
estate-related businesses, described
below;
|
|
|
●
|
The
registrant changed its name from “Ableauctions.com, Inc.” to “SinoCoking
Coal and Coke Chemical Industries, Inc.” to reflect the business of Top
Favour, a coal and coke producer in Central
China;
|
102
|
|
●
|
All
of the registrant’s directors and officers prior to the Acquisition
resigned, and successor officers and directors designated by Top Favour
Limited were appointed to the board and
management;
|
|
|
●
|
All
of the pre-Acquisition assets of the registrant (e.g. relating to online
auctions, liquidation, real estate services, finance and development) were
transferred to a liquidating trust (the “Liquidating Trust”); these assets
included the capital stock of the registrant’s pre-Acquisition
subsidiaries;
|
|
|
●
|
The
Liquidating Trust assumed all of the registrant’s pre-Acquisition
liabilities;
|
|
|
●
|
Top
Favour Limited and its controlled companies and subsidiaries became
controlled companies and subsidiaries of the
registrant;
|
|
|
●
|
The
business, operations and assets of Top Favour Limited (e.g., production of
coal and coke) became the sole business, operations and assets of the
registrant.
|
Liquidation
of Registrant’s Former Business
The
operations of the registrant’s former pre-Acquisition subsidiaries, now held by
the Liquidating Trust, are in the process of being wound down and will
eventually be liquidated. Any proceeds from the liquidation which remain
after the payment of liabilities and expenses relating to the liquidation will
be distributed by the Liquidating Trust to the shareholders of record prior to
the consummation of the Acquisition.
Related
Party Transactions
The
following is a description of the related party transactions of SinoCoking
during the last two completed fiscal years ending June 30, 2010 and
2009.
The
Company also advanced funds to Mr. Hui Zheng, the Director and Vice President of
Operation, for him to perform business and acquisition developments activities
on behalf the Company. As of June 30, 2010 and 2009, due from Mr. Hui Zheng
amounted to $418,410 and $0, respectively. Mr. Zheng had returned
the full amount to un-used funds of $418,410 to the Company by end of August
2010.
The
Company has loans from Mr. Jianhua Lv, a majority shareholder, President and CEO
of the Company, and Mr. Liuchang Yang, Director and Vice President. Mr. Lv and
Mr. Yang provided the funds for the Company’s acquisitions of the coal mine,
Baofeng Coking and to fund construction of the power plant. These loans are
unsecured, payable on demand and bear no interest.
The
Company had paid off the loans related to the aforesaid business acquisitions
before June 30, 2009. Mr. Lv and Mr. Yang also advanced monies to the Company
for daily operations. The Company overpaid Mr. Yang and resulting in receivable
from Mr. Yang amounted to $58,642 as of June 30, 2010. Mr. Yang returned the
overpayment amount of $58,642 on September 26, 2010.
The
Company imputed the interest on loans from Mr. Lv and Mr. Yang based on the
prevailing rate which was 5.48%, 8.89% and 8.74% for the years ended June 30,
2010, 2009 and 2008. Imputed interest on the loans from related parties amounted
$67,269, $450,054 and $431,123 for the years ended June 30, 2010, 2009 and 2008,
respectively. Imputed interest was transferred to additional paid-in
capital.
Payables
to Mr. Lv, and Mr. Yang as of June 30, 2010 and 2009 are as
follows:
|
Due
to Related
Parties
|
June
30,
2010
|
June
30, 2009
|
Term
|
Manner
of Settlement
|
||||||
|
Mr.
Jianhua Lv
|
$ | 51,381 | $ | 1,281,304 |
Short
term
|
Cash
|
||||
|
Mr.
Liuchang Yang
|
- | 259,033 |
Short
term
|
Cash
|
||||||
|
Total
|
$ | 51,381 | $ | 1,540,337 | ||||||
103
DESCRIPTION
OF SECURITIES
The
following information describes the material features of our capital
stock and material provisions of our articles of incorporation and our
bylaws, both as amended and in effect as of the date of this prospectus.
Please also refer to the full text of our articles of incorporation
and bylaws that have been incorporated by reference or filed with the SEC as
exhibits.
Common
Stock
Our
authorized capital stock consists of 100,000,000 shares of common stock, par
value $0.001 per share. Each shareholder is entitled to one vote for each
share held on all matters to be voted upon by the shareholders. Our shares of
common stock have no preemptive, conversion, or redemption rights. If we are
liquidated, dissolved or wound up, the holders of common stock are entitled to
share in proportion to the percentage of their ownership all assets remaining
after payment of liabilities. All of our issued and outstanding shares of
common stock are fully paid and non-assessable. Our articles of
incorporation do not provide for cumulative voting in the election of
directors. The holders of shares of our common stock will be entitled to
such cash dividends as may be declared from time to time by our board of
directors from funds available therefor.
Options
and Warrants
On the
initial closing date of the financing on February 5, 2010 (“Initial Closing”),
we issued warrants for the purchase of 590,446 shares of common stock, with an
exercise price of $12.00 per share to non-U.S. investors.
On the
second closing on March 11, 2010 (the “Final Closing”), we issued warrants for
the purchase of 3,672,468 shares of common stock with an exercise price of
$12.00 per share to both U.S. investors and non-U.S. investors. The
investor warrants issued in the Final Closing are exercisable for a period of
five years from the date of issuance, however unlike the warrants issued in the
Initial Closing they are also callable at our election six months after the date
of issuance if our common stock trades at a price equal to at least 150% of the
exercise price (or $18.00 per share) with an average trading volume of at least
150,000 shares of Common Stock (as adjusted for any stock splits, stock
dividends, combinations and the like) per trading day for at least 10
consecutive trading days and provided that the underlying shares of common stock
are registered under an effective registration statement.
At the
Final Closing we issued warrants for the purchase of up to 250,000 shares of
common stock, with an exercise price of $6.00 per share, to the placement agents
in connection with placement agent services rendered in the offering of units to
U.S. investors. For further information regarding these warrants issued in
the Initial Closing and Final Closing, please refer to the paragraph above
entitled “Recent $44 Million
Private Placement Financing.”
On March
18, 2010, we issued warrants for the purchase of up to 117,163 shares of common
stock, with an exercise price of $12.00 per share, to Madison Williams, in
connection with placement agent services rendered in the offering of units to
non-U.S. investors.
We have
issued and outstanding options for the purchase of up to 11,122 shares of common
stock under our 1999 Stock Option Plan and 2002 Directors Plan, with exercise
prices ranging from $36.00 to $96 per share. These options were
outstanding prior to the Acquisition. The common stock underlying these
options is not being registered under this prospectus and related
registration statement.
104
In 2008 (prior to the Acquisition) the
Company issued a warrant to Abdul Ladha, former CEO of the Company, for the
purchase of up to 36,973 shares of common stock, at an
exercise price of $48.00
per share, as adjusted to take into account a
1-for-12 reverse stock split in January 2009, and a 1-for-20 reverse stock split
in February 2010. The common stock underlying this warrant is not being
registered under this prospectus and related registration
statement.
MARKET
PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The table
below indicated the trading prices of the Company’s common stock on the Nasdaq
Capital Market since the date of the Acquisition on February 5,
2010:
Common
Stock Price Ranges After Acquisition
|
2010
|
||||||||
|
Quarter
Ended
|
High
|
Low
|
||||||
|
June
30, 2010
|
$ | 30.90 | $ | 11.75 | ||||
|
March
31, 2010 (1)
|
$ | 46.50 | $ | 8.80 | ||||
(1) From
February 5, 2010 forward.
On
September 29, 2010, the last sale price of the Company’s common stock (under the
trading symbol “SCOK”) was $8.29.
As of
June 30, 2010, there were approximately 744 record holders of the Company’s
common stock. This number does not include an indeterminate number of
shareholders whose shares are held by brokers in street name.
Prior to
the Acquisition (when the Company operated as Ableauctions) and during the
twelve month period ending December 31, 2009, the Company’s common stock traded
on the NYSE Amex (formerly the American Stock Exchange) under the symbol “AAC”,
and had traded on this exchange since June 29, 2000. Prior to June 29,
2000, the Company’s common stock traded on the Over-the-Counter Bulletin Board
(OTCBB) under the symbol “ABLC.” The range of high and low sale prices per
share for the Company’s common stock for each quarter during the period from
January 1, 2008 through December 31, 2009, as published by NYSE Amex, is set
forth below. The table gives effect to a 1-for-12 stock split that the
Company effected on January 15, 2009, and the 1-for-20 reverse stock split that
was effected on February 5, 2010 in conjunction with the
Acquisition.
Historical
Quarterly Common Stock Price Ranges Prior to Acquisition
|
2009
|
||||||||
|
Quarter
Ended
|
High
|
Low
|
||||||
|
December
31, 2009
|
$ | 15.80 | $ | 8.40 | ||||
|
September
30, 2009
|
$ | 18.80 | $ | 8.40 | ||||
|
June
30, 2009
|
$ | 16.20 | $ | 4.20 | ||||
|
March
31, 2009
|
$ | 9.00 | $ | 3.40 | ||||
|
2008
|
||||||||
|
Quarter
Ended
|
High
|
Low
|
||||||
|
December
31, 2008
|
$ | 7.20 | $ | 4.80 | ||||
|
September
30, 2008
|
$ | 14.40 | $ | 9.60 | ||||
|
June
30, 2008
|
$ | 19.20 | $ | 19.20 | ||||
|
March
31, 2008
|
$ | 36.00 | $ | 31.20 | ||||
105
On
February 5, 2010, the last sale price of the Company’s common stock (under the
trading symbol “AAC”) prior to listing on Nasdaq was $1.30 ($26.00 after giving
effect to the 1-for-20 reverse stock split effective on February 5,
2010.)
On the
Change of Control Date of February 5, 2010, the Company’s common stock was
delisted from NYSE Amex, and assigned the symbol “SCOK.” Our common stock
began trading on the NASDAQ Capital Market under the symbol “SCOK” on February
17, 2010.
Our
transfer agent is Interwest Stock Transfer, Inc., whose address is 1981 Murray
Holladay Road, Suite 100, Salt Lake City, Utah 84117 and whose telephone number
is (801) 272-9294.
Other
than the distribution of our pre-Acquisition assets of to the Liquidating Trust,
and the assumption by the Liquidating Trust of our pre-Acquisition liabilities,
the Company has not paid dividends on its common stock since inception.
The decision to pay dividends on common stock is within the discretion of the
board of directors. It is our current policy to retain any future earnings
to finance the operations and growth of our business.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
As
reported in our Current Report on Form 8-K filed with the SEC on April 16, 2010,
Effective April 14, 2010, Frazer Frost LLP (successor entity of Moore Stephens
Wurth Frazer and Torbet, LLP), whose address is 135 South State College Blvd.,
Suite 300, Brea, California 92821, was engaged to serve as the new certifying
accountant to audit the Company’s financial statements. Frazer Frost
LLP previously acted as certifying accountant for Top Favour Limited, which
was acquired by the Company on February 5, 2010. The appointment of Frazer
Frost LLP was made in connection with the foregoing acquisition by the
Company.
The
former accountant, Cinnamon Jang Willoughby and Company, which merged with
Meyers Norris Penny LLP, Chartered Accountants (“MNP”) on January 4, 2010
(“Former Accountant”), was appointed on June 19, 2008 as auditor of the Company
(then named “Ableauctions.com, Inc.”). The reports of the Former
Accountant on the Company’s financial statements for the fiscal years ended
December 31, 2008 and 2009 did not contain any adverse opinion or disclaimer of
opinion, nor was the report modified as to uncertainty, audit scope, or
accounting principles.
The
engagement of Frazer Frost LLP as the Company’s new certifying independent
accountant was approved by the audit committee of the Company’s board of
directors.
DISCLOSURE
OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Pursuant
to our Articles of Incorporation, the Company will indemnify any of our officers
and directors or any former officer or directors for such expenses and
liabilities, in such manner, under such circumstances to such extent as
permitted by the Florida Business Corporation Act, Section 607.0850, as
amended.
Florida
law permits a corporation, under specified circumstances, to indemnify our
directors, officers, employees or agents against expenses (including attorney’s
fees), judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers,
employees or agents acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reason to believe their
conduct was unlawful. In a derivative action, that is, one by or in the
right of the corporation, indemnification may be made only for expenses actually
and reasonably incurred by directors, officers, employees or agents in
connection with the defense or settlement of an action or suit, and only with
respect to a matter as to which they will have acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation, except that no indemnification will be made if such person has
been adjudged liable to the corporation, unless and only to the extent that the
court in which the action or suit was brought determines upon application
that the defendant directors, officers, employees or agents are fairly and
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.
106
Our
Articles of Incorporation contain a provision stating that no director will be
liable to the Company or to our stockholders for monetary damages for breach of
fiduciary duty as a director. The intention of the foregoing provisions is
to eliminate the liability of our directors to the fullest extent permitted by
Florida law.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
ADDITIONAL
INFORMATION
We are
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Reports filed with the SEC pursuant to the
Exchange Act, including proxy statements, annual and quarterly reports, and
other reports that we have filed can be inspected and copied at the Public
Reference Section of the SEC at 100 F. Street N.E., Room 1580, Washington,
D.C. 20549, at prescribed rates. You may obtain information on the operation of
the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC
also maintains an Internet website that contains reports, proxy statements and
other information about issuers, like us, that file electronically with the SEC.
The address of that website is www.sec.gov.
We currently do not maintain a corporate website, however, management is in the
process of considering various proposals for establishment of a corporate
website.
107
|
Pages
|
|||
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
||
|
Consolidated
Balance Sheets as of June 30, 2010 and 2009
|
F-2
|
||
|
Consolidated
Statements of Income and Other Comprehensive Income for the Years Ended
June 30, 2010 and 2009
|
F-3
|
||
|
Consolidated
Statements of Shareholders’ Equity
|
F-4
|
||
|
Consolidated
Statements of Cash Flows for the Years Ended June 30, 2010 and
2009
|
F-5
|
||
|
Notes
to the Consolidated Financial Statements
|
F-6
|
108
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Shareholders
of SinoCoking Coal and Coke Chemical Industries, Inc
We have
audited the accompanying consolidated balance sheets of SinoCoking Coal and Coke
Chemical Industries, Inc and Subsidiaries as of June 30, 2010 and 2009, and the
related consolidated statements of income and comprehensive income,
shareholders’ equity, and cash flows for each of the years in the two-year
period ended June 30, 2010. SinoCoking Coal and Coke Chemical Industries, Inc
and Subsidiaries’ management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of SinoCoking Coal and Coke Chemical
Industries, Inc as of June 30, 2010 and 2009, and the results of its operations
and its cash flows for each of the years in the two-year period ended June 30,
2010 in conformity with accounting principles generally accepted in the United
States of America.
/s/
Frazer Frost, LLP (successor entity of Moore Stephens Wurth Frazer & Frost,
LLP)
Brea,
California
September
28, 2010
F-1
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
CONSOLIDATED
BALANCE SHEETS
|
June
30, 2010
|
June
30, 2009
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS
|
||||||||
|
Cash
|
$ | 17,403,008 | $ | 278,399 | ||||
|
Restricted
cash
|
22,902,000 | - | ||||||
|
Loans
receivable
|
2,513,308 | - | ||||||
|
Notes
receivable
|
1,045,830 | 358,808 | ||||||
|
Accounts
receivable, trade, net
|
5,304,684 | 6,454,663 | ||||||
|
Other
receivables
|
479,121 | 225,288 | ||||||
|
Other
receivables - related parties
|
477,052 | - | ||||||
|
Inventories
|
2,261,816 | 107,187 | ||||||
|
Advances
to suppliers
|
5,509,780 | 8,364,448 | ||||||
|
Total
current assets
|
57,896,599 | 15,788,793 | ||||||
|
PLANT
AND EQUIPMENT, net
|
20,930,413 | 16,954,659 | ||||||
|
OTHER
ASSETS
|
||||||||
|
Prepayments
for land use rights
|
5,074,485 | - | ||||||
|
Prepayments
for mine acquisitions
|
8,858,398 | - | ||||||
|
Prepayments
for construction of new operating plant
|
16,789,806 | 7,462,008 | ||||||
|
Intangible
- land use rights, net
|
1,892,292 | 1,945,811 | ||||||
|
Intangible
- mineral rights, net
|
2,629,437 | 5,233,992 | ||||||
|
Other
assets
|
103,110 | 102,550 | ||||||
|
Total
other assets
|
35,347,528 | 14,744,361 | ||||||
|
Total
assets
|
$ | 114,174,540 | $ | 47,487,813 | ||||
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Accounts
payable, trade
|
$ | 291,750 | $ | 244,570 | ||||
|
Notes
payable
|
2,946,000 | - | ||||||
|
Short
term loans - bank
|
14,730,000 | 2,219,475 | ||||||
|
Short
term loans - others
|
515,550 | 1,098,750 | ||||||
|
Due
to related party
|
51,381 | 1,540,337 | ||||||
|
Other
payables and accrued liabilities
|
1,433,121 | 744,058 | ||||||
|
Customer
deposits
|
106,830 | 3,751,327 | ||||||
|
Taxes
payable
|
1,229,019 | 2,682,254 | ||||||
|
Total
liabilities
|
21,303,651 | 12,280,771 | ||||||
|
OTHER
LIABILITIES
|
||||||||
|
Warrant
derivative liability
|
30,436,087 | - | ||||||
|
Total
other liabilities
|
30,436,087 | - | ||||||
|
Total
liabilities
|
51,739,738 | 12,280,771 | ||||||
|
COMMITMENTS
AND CONTINGENCIES
|
||||||||
|
STOCKHOLDERS'
EQUITY
|
||||||||
|
Common
stock, $0.001 par value, 100,000,000 authorized,
|
||||||||
|
20,871,192
and 13,117,952 issued and outstanding as of
|
||||||||
|
June
30, 2010 and 2009, respectively
|
20,871 | 13,118 | ||||||
|
Additional
paid-in capital
|
67,269 | 3,531,959 | ||||||
|
Statutory
reserves
|
1,837,395 | 1,127,710 | ||||||
|
Retained
earnings
|
59,373,726 | 29,754,451 | ||||||
|
Accumulated
other comprehensive income
|
1,135,541 | 779,804 | ||||||
|
Total
shareholders' equity
|
62,434,802 | 35,207,042 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 114,174,540 | $ | 47,487,813 | ||||
See
report of independent registered public accounting firm
The
accompanying notes are an integral part of these consolidated financial
statements.
F-2
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE
YEARS ENDED JUNE 30, 2010 AND 2009
|
2010
|
2009
|
|||||||
|
REVENUE
|
$ | 59,027,490 | $ | 51,395,992 | ||||
|
COST
OF REVENUE
|
36,577,438 | 27,523,329 | ||||||
|
GROSS
PROFIT
|
22,450,052 | 23,872,663 | ||||||
|
OPERATING
EXPENSES:
|
||||||||
|
Selling
|
494,943 | 732,902 | ||||||
|
General
and administrative
|
2,334,604 | 1,905,987 | ||||||
|
Total
operating expenses
|
2,829,547 | 2,638,889 | ||||||
|
INCOME
FROM OPERATIONS
|
19,620,505 | 21,233,774 | ||||||
|
OTHER
INCOME (EXPENSE), NET
|
||||||||
|
Finance
expense, net
|
(293,190 | ) | (914,072 | ) | ||||
|
Other
income, net
|
107,799 | 139,823 | ||||||
|
Change
in fair value of warrants
|
24,016,407 | - | ||||||
|
Total
other income (expense), net
|
23,831,016 | (774,249 | ) | |||||
|
INCOME
BEFORE INCOME TAXES
|
43,451,521 | 20,459,525 | ||||||
|
PROVISION
FOR INCOME TAXES
|
4,517,024 | 3,491,590 | ||||||
|
NET
INCOME
|
38,934,497 | 16,967,935 | ||||||
|
OTHER
COMPREHENSIVE INCOME
|
||||||||
|
Foreign
currency translation adjustments
|
355,737 | 74,264 | ||||||
|
COMPREHENSIVE
INCOME
|
$ | 39,290,234 | $ | 17,042,199 | ||||
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES
|
||||||||
|
Basic
|
15,623,823 | 13,117,952 | ||||||
|
Diluted
|
15,942,451 | 13,117,952 | ||||||
|
EARNINGS
PER SHARE
|
||||||||
|
Basic
|
$ | 2.49 | $ | 1.29 | ||||
|
Diluted
|
$ | 2.44 | $ | 1.29 | ||||
See
report of independent registered public accounting firm
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
|
Accumulated
|
||||||||||||||||||||||||||||||||
|
Additional
|
Retained
(deficit) earnings
|
other
|
||||||||||||||||||||||||||||||
|
Common
Stock
|
paid-in
|
Contribution
|
Statutory
|
comprehensive
|
||||||||||||||||||||||||||||
|
Shares
|
Par
Value
|
capital
|
receivable
|
reserves
|
Unrestricted
|
income
|
Total
|
|||||||||||||||||||||||||
|
BALANCE,
June 30, 2008
|
13,117,952 | $ | 13,118 | $ | 3,032,685 | $ | (1,000 | ) | $ | 573,412 | $ | 13,340,814 | $ | 705,540 | $ | 17,664,569 | ||||||||||||||||
|
Net
income
|
16,967,935 | 16,967,935 | ||||||||||||||||||||||||||||||
|
Adjustment
of statutory reserve
|
554,298 | (554,298 | ) | - | ||||||||||||||||||||||||||||
|
Shareholder
contribution
|
9,000 | 1,000 | 10,000 | |||||||||||||||||||||||||||||
|
Shareholder
cash contribution and by forfeited imputed interest
|
490,274 | 490,274 | ||||||||||||||||||||||||||||||
|
Foreign
currency translation adjustments
|
74,264 | 74,264 | ||||||||||||||||||||||||||||||
|
BALANCE,
June 30, 2009
|
13,117,952 | $ | 13,118 | $ | 3,531,959 | $ | - | $ | 1,127,710 | $ | 29,754,451 | $ | 779,804 | $ | 35,207,042 | |||||||||||||||||
|
Shares
and warrants issued in reverse merger recapitalization
|
405,710 | 406 | (406 | ) | - | |||||||||||||||||||||||||||
|
Shares
and warrants sold for cash
|
7,344,935 | 7,345 | 44,062,265 | 44,069,610 | ||||||||||||||||||||||||||||
|
Offering
costs related to shares and warrants sold
|
(12,015,273 | ) | (12,015,273 | ) | ||||||||||||||||||||||||||||
|
Warrants
issued reclassified to derivative liability
|
(35,578,543 | ) | (8,491,067 | ) | (44,069,610 | ) | ||||||||||||||||||||||||||
|
Cumulative
effect of reclassification of existing warrants
|
(631,002 | ) | (631,002 | ) | ||||||||||||||||||||||||||||
|
Fractional
shares due to the one-for-twenty reverse split
|
2,595 | 2 | (2 | ) | - | |||||||||||||||||||||||||||
|
Net
income
|
38,934,497 | 38,934,497 | ||||||||||||||||||||||||||||||
|
Adjustment
of statutory reserve
|
709,685 | (193,153 | ) | 516,532 | ||||||||||||||||||||||||||||
|
Imputed
interests on loans from related parties waived
|
67,269 | 67,269 | ||||||||||||||||||||||||||||||
|
Foreign
currency translation adjustments
|
355,737 | 355,737 | ||||||||||||||||||||||||||||||
|
BALANCE,
June 30, 2010
|
20,871,192 | $ | 20,871 | $ | 67,269 | $ | - | $ | 1,837,395 | $ | 59,373,726 | $ | 1,135,541 | $ | 62,434,802 | |||||||||||||||||
See
report of independent registered public accounting firm
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
For
the years ended June 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
income
|
$ | 38,934,497 | $ | 16,967,935 | ||||
|
Adjustments
to reconcile net income to cash
|
||||||||
|
provided
by operating activities:
|
||||||||
|
Depreciation
|
3,195,093 | 2,013,441 | ||||||
|
Amortization
and depletion
|
2,685,745 | 2,877,364 | ||||||
|
Bad
debt expense
|
216 | 293,000 | ||||||
|
Change
in fair value of warrants
|
(24,016,407 | ) | - | |||||
|
Additional
capital increased by forfeited imputed interest
|
67,269 | 490,274 | ||||||
|
Capitalized
interest
|
- | (35,914 | ) | |||||
|
Reservation
of mine maintenance fee
|
516,532 | - | ||||||
|
Change
in operating assets and liabilities
|
||||||||
|
Notes
receivables
|
(682,133 | ) | (358,808 | ) | ||||
|
Accounts
receivable, trade
|
1,179,942 | (3,180,319 | ) | |||||
|
Other
receivables
|
(43,272 | ) | 774,999 | |||||
|
Other
receivables - related party
|
(416,620 | ) | - | |||||
|
Inventories
|
(2,144,832 | ) | 100,353 | |||||
|
Advances
to suppliers
|
2,897,074 | (6,710,962 | ) | |||||
|
Accounts
payable, trade
|
(173,590 | ) | (3,346,930 | ) | ||||
|
Other
payables and accrued liabilities
|
893,161 | (954,832 | ) | |||||
|
Customer
deposits
|
(3,649,307 | ) | 3,237,596 | |||||
|
Taxes
payable
|
(1,461,603 | ) | (276,983 | ) | ||||
|
Net
cash provided by operating activities
|
17,781,765 | 11,890,214 | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Principal
of loans receivable
|
(2,513,308 | ) | - | |||||
|
Payments
on equipment and construction-in-progress
|
(7,061,654 | ) | (3,041,639 | ) | ||||
|
Prepayment
on land use rights
|
(5,052,782 | ) | - | |||||
|
Prepayment
on mine acquisitions
|
(8,820,510 | ) | - | |||||
|
Prepayments
on construction-in-progress
|
(13,876,235 | ) | (7,462,008 | ) | ||||
|
Refunds
of long-term prepayments
|
4,420,634 | - | ||||||
|
Net
cash used in investing activities
|
(32,903,855 | ) | (10,503,647 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Increase
in restricted cash
|
(22,876,800 | ) | - | |||||
|
Shareholder
contribution
|
- | 10,000 | ||||||
|
Proceeds
from sale of common stock and warrants
|
44,069,610 | - | ||||||
|
Cash
offering cost related to common stock
|
(2,263,391 | ) | - | |||||
|
Cash
proceeds from notes payables
|
2,933,400 | - | ||||||
|
Cash
proceeds from short-term bank loans
|
14,667,001 | - | ||||||
|
Repayments
to short-term bank loans
|
(2,222,051 | ) | (1,180,790 | ) | ||||
|
Cash
proceeds from short-term loans - others
|
- | 586,000 | ||||||
|
Repayment
to short-term loans - others
|
(586,680 | ) | - | |||||
|
Repayments
to related parties
|
(1,550,552 | ) | (5,247,852 | ) | ||||
|
Net
cash provided by (used in) financing activities
|
32,170,537 | (5,832,642 | ) | |||||
|
EFFECT
OF EXCHANGE RATE ON CASH
|
76,162 | 19,345 | ||||||
|
INCREASE
(DECREASE) IN CASH
|
17,124,609 | (4,426,730 | ) | |||||
|
CASH,
beginning of year
|
278,399 | 4,705,129 | ||||||
|
CASH,
end of year
|
$ | 17,403,008 | $ | 278,399 | ||||
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
||||||||
|
Cash
paid for income tax
|
$ | 8,902,126 | $ | 3,451,585 | ||||
|
Cash
paid for interest expense
|
$ | 85,219 | $ | 286,194 | ||||
|
NON-CASH
TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES
|
||||||||
|
Reclassification
of long-term prepayments to other receivables
|
||||||||
|
due
to contracts were cancelled
|
$ | 208,271 | $ | - | ||||
|
Warrants
issued for placement agent fee
|
$ | 9,751,882 | $ | - | ||||
See
report of independent registered public accounting firm
The
accompanying notes are an integral part of these consolidated financial
statements.
F-5
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Note
1 – Nature of business and organization
SinoCoking
Coal and Coke Chemical Industries, Inc. (“SinoCoking” or the “Company”) was
organized on September 30, 1996, under the laws of the State of Florida as J.B.
Financial Services, Inc. On July 19, 1999, the Company changed its name to
Ableauctions.com, Inc. On February 5, 2010, in connection with a share exchange
transaction as described below, the Company changed its name to “SinoCoking Coal
and Coke Chemical Industries, Inc.”
On
February 5, 2010, the Company completed a share exchange transaction with Top
Favour Limited (“Top Favour (BVI)”), and Top Favour (BVI) became a wholly-owned
subsidiary of the Company. Immediately prior to the closing the share exchange
transaction, all of the assets and liabilities of Ableauction.com, Inc’s former
business had been transferred to a liquidating trust, including the capital
stock of its former subsidiaries. After the share exchange transaction, Top
Favour (BVI)’s shareholders owned approximately 97% of the issued and
outstanding shares. The management members of Top Favour (BVI) became the
directors and officers of the Company. The share exchange transaction was
accounted for as a reverse acquisition and recapitalization and as a result, the
consolidated financial statements of the Company (the legal acquirer) is, in
substance, those of Top Favour (BVI) (the accounting acquirer), with the assets
and liabilities, and revenues and expenses, of the Company being included
effective from the date of the share exchange transaction. As the share exchange
transaction was accounted for as a reverse acquisition and recapitalization,
there was no gain or loss recognized on the transaction. The historical
financial statements for periods prior to February 5, 2010 are those of Top
Favour (BVI) except that the equity section and earnings per share have been
retroactively restated to reflect the reverse acquisition. See more details in
Note 3.
Top
Favour (BVI) was incorporated in the British Virgin Islands on July 2,
2008. Through its wholly-owned subsidiary Pingdingshan Hongyuan Energy
Science and Technology Development Co., Ltd. (“Hongyuan”), which was formed on
March 18, 2009 with a registered capital of $3,000,000 under the laws of the
People’s Republic of China (“PRC” or China), and the variable interest
entity (“VIE”) - Henan Pingdingshan Hongli Coal & Coking Co., Ltd.
(“Hongli”), the Company produces and sells coal, coke, coal gas-generated
electricity, and other coking by-products in the People’s Republic of China
(“PRC” or China).
Henan
Pingdingshan Hongli Coal & Coking Co., Ltd. (“Hongli”) was incorporated as a
trading and holding Company on June 5, 1996 under the laws of the PRC. In
addition to operating the Baofeng Coking Factory (“Baofeng Coking”), Hongli
sells coal and coke to its customers, most of whom are energy trading companies
that procure coking coal for steel manufacturers and chemical refineries in
China. Hongli has a registered capital of RMB 8,080,000 and is located in
the city of Pingdingshan, Henan Province.
Baofeng
Coking is a division of Hongli and was established in May 2002.
Hongli and Baofeng Coking are engaged in coal selling, coal washing and coking,
using raw coal produced by its affiliate or purchased from other raw or washed
coal vendors.
Baofeng
Hongchang Coal Co., Ltd. (“Hongchang Coal”) was formed in July 19, 2007 under
the laws of the PRC and is 100% owned by Hongli. Hongchang Coal owns the coal
mining rights for three underground coal mines and produces raw coal for
industrial and thermal applications, and a portion of which is suitable for coke
production. Total proven coal reserves for all three mines as of July 2007
were 2,475,000 metric tons, of which the Company is permitted to extract (under
a license from government for which it pays fees) up to 1,215,000 metric
tons. The majority of its products are internally sold to Baofeng Coking
and Hongli.
Baofeng
Hongguang Power Co., Ltd. (“Hongguang Power”) was formed on August 1, 2006,
which is a 100% owned subsidiary of Hongli. Hongguang Power operates its
2x3000-kilowatt (kw) power plant and provides electricity to Baofeng Coking,
generated from the coal gas emitted from the coking process of Baofeng
Coking. Hongguang is required by the local government to sell the
surplus electricity (in excess of what is supplied to and consumed by Baofeng
Coking, if any) to the national power grid.
See
report of independent registered public accounting firm.
F-6
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Hongli
and its operating subsidiaries hold the approved licenses necessary to operate
the coal mining, coal sales, coking and power plant businesses in China. PRC law
currently has limits on foreign ownership of these types of companies. To comply
with these foreign ownership restrictions and in order for Top Favour (BVI) to
obtain control over Hongli’s PRC operating entities, on March 18, 2009. Top
Favour (BVI), through Hongyuan, entered into contractual arrangements with
Hongli on March 18, 2009 (“Contractual Arrangements”).
Note
2 – Summary of Significant Accounting Policies
Principles of
consolidation
The
accompanying consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. The
consolidated financial statements include the financial statements of the
Company, its wholly-owned subsidiaries – Top Favour (BVI), Hongyuan and its VIEs
– Hongli and its subsidiaries. All significant inter-company transactions and
balances between the Company, its subsidiaries and VIEs are eliminated upon
consolidation.
In
accordance with FASB’s accounting standard for consolidation of variable
interest entities, VIEs are generally entities that lack sufficient equity to
finance their activities without additional financial support from other parties
or whose equity holders lack adequate decision making ability. All VIEs with
which the Company is involved must be evaluated to determine the primary
beneficiary of the risks and rewards of the VIE. The primary beneficiary is
required to consolidate the VIE for financial reporting purposes. As a result of
these contractual arrangements (Note 1), Top Favour (BVI) is obligated to absorb
a majority of the risk of loss from Hongli’s activities and Top Favour (BVI) is
enabled to receive a majority of its expected residual returns. Top Favour (BVI)
accounts for Hongli as a VIE and is the primary beneficiary. The primary
beneficiary is required to consolidate the VIE for financial reporting
purposes.
ASC 810
addresses whether certain types of entities referred to as VIEs, should be
consolidated in a company’s consolidated financial statements. These Contractual
Arrangements entered into between BVI and Hongli through Hongyuan are comprised
of a series of agreements, including:
|
|
(1)
|
a
Consulting Services Agreement, through which Hongyuan has the right to
advise, consult, manage and operate Hongli and its subsidiaries
(“Operating Companies”), collect, and own all of the respective net
profits of the Operating Companies;
|
|
|
(2)
|
an
Operating Agreement, through which Hongyuan has the right to recommend
director candidates and appoint the senior executives of the Operating
Companies, approve any transactions that may materially affect the assets,
liabilities, rights or operations of the Operating Companies, and
guarantee the contractual performance by the Operating Companies of any
agreements with third parties, in exchange for a pledge by the Operating
Companies of their respective accounts receivable and
assets;
|
|
|
(3)
|
a
Proxy Agreement, under which the shareholders of the Operating Companies
have vested their voting control over the Operating Companies to Hongyuan
and will only transfer their equity interests in the Operating Companies
to Hongyuan or its designee(s);
|
|
|
(4)
|
an
Option Agreement, under which the shareholders of the Operating Companies
have granted Hongyuan the irrevocable right and option to acquire all of
its equity interests in the Operating Companies, or, alternatively, all of
the assets of the Operating Companies;
and
|
|
|
(5)
|
an
Equity Pledge Agreement, under which the shareholders of the Operating
Companies have pledged all of their rights, title and interest in the
Operating Companies to Hongyuan to guarantee the Operating Companies’
performance of their respective obligations under the Consulting Services
Agreement.
|
Since Top
Favour (BVI), Hongyuan and Hongli are under common control, the above corporate
structure including the above Contractual Arrangements have been accounted for
as a reorganization of entities and the consolidation of Top Favour (BVI),
Hongyuan and Hongli has been accounted for at historical cost and prepared on
the basis as if the aforementioned exclusive agreements between Top Favour (BVI)
and Hongli had become effective as of the beginning of the first period
presented in the accompanying consolidated financial statements.
See
report of independent registered public accounting firm.
F-7
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Use of
estimates
The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. The more significant areas requiring
the use of management estimates and assumptions relate to coal reserves that are
the basis for future cash flow estimates and units-of-production depletion
calculations; asset impairments; valuation allowances for deferred income taxes;
reserves for contingencies and the fair value and accounting treatment of
certain financial instruments. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. Accordingly, actual results may differ significantly
from these estimates. In addition, different assumptions or conditions could
reasonably be expected to yield different results.
Stock-based
compensation
We record
share-based compensation expense based upon the grant date fair value of
share-based awards. The value of the award is principally recognized as expense
ratably over the requisite service periods. We use the Black-Scholes Merton
(“BSM”) option-pricing model, which incorporates various assumptions including
volatility, expected life and interest rates to determine fair value. The
Company’s expected volatility assumption is based on the historical volatility
of Company’s stock. The expected life assumption is primarily based on the
simplified method of the terms of the options. The risk-free interest rate for
the expected term of the option is based on the U.S. Treasury yield
curve in effect at the time of grant.
Stock
compensation expense is recognized based on awards expected to vest. GAAP
requires forfeitures to be estimated at the time of grant and revised in
subsequent periods, if necessary, when actual forfeitures differ from those
estimates. There were no estimated forfeitures as the Company has a short
history of issuing options.
Revenue
recognition
The
Company's revenue recognition policies are in compliance with FASB’s accounting
standards. Coal and coke sales are recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company exist
and collectability is reasonably assured. This generally occurs when coal
and coke is loaded onto trains or trucks at one of the Company’s loading
facilities or at third party facilities.
Most if
not all of the electricity generated by Hongguan Power is typically used
internally by Baofeng Coking. Supply of surplus electricity generated by
Hongguang Power to the national power grid is mandated by the local utilities
board. The value of the surplus electricity supplied, if it exists, is
calculated based on actual kilowatt-hours produced and transmitted and at a
fixed rate determined under contract.
Coal and
coke sales represent the invoiced value of goods, net of a value-added tax
(VAT), sales discounts and actual returns at the time when product is sold to
the customer.
Shipping and handling
costs
Shipping
and handling costs related to costs of the raw materials purchased is included
in cost of revenues. Total shipping and handling costs amounted to $25,248
and $202,849 for the years ended June 30, 2010 and 2009,
respectively.
See
report of independent registered public accounting firm.
F-8
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Foreign currency
translation and
other comprehensive income
The
reporting currency of the Company is the US dollar. The functional currency of
the Company and the BVI is the US dollar compared to the functional currency its
subsidiaries and VIEs in the PRC which is the Chinese Renminbi
(RMB).
For the
subsidiaries and VIEs whose functional currencies are other than the US dollar,
all assets and liabilities accounts were translated at the exchange rate on the
balance sheet date; shareholders’ equity is translated at the historical rates
and items in the statement of operations are translated at the average rate for
the period. Items in the cash flow statement are also translated at average
translation rates for the period, therefore, amounts reported on the statement
of cash flows will not necessarily agree with changes in the corresponding
balances on the balance sheet. Translation adjustments resulting from this
process are included in accumulated other comprehensive income in the statement
of shareholders’ equity. The resulting transaction gains and losses that
arise from exchange rate fluctuations on transactions denominated in a currency
other than the functional currency are included in the results of operations as
incurred. For the years ended June 30, 2010 and 2009, the transaction gains and
losses were not significant.
The
balance sheet amounts, with the exception of equity, at June 30, 2010 and 2009
were translated at RMB 6.79 to $1 and RMB 6.83 to $1, respectively. The
average translation rates applied to income and cash flow statement amounts for
the years ended June 30, 2010 and were at RMB 6.82 to $1 and RMB 6.83 to $1,
respectively.
Fair value of financial
instruments
The
Company uses the Financial Accounting Standard Board’s (“FASB”) accounting
standard regarding fair value of financial instruments and related fair value
measurements. Those accounting standards established a three-level valuation
hierarchy for disclosures of fair value measurement and enhance disclosures
requirements for fair value measures. The carrying amounts reported in the
accompanying consolidated balance sheets for receivables, payables and short
term loans qualify as financial instruments are a reasonable estimate of fair
value because of the short period of time between the origination of such
instruments, their expected realization and, if applicable, the stated rate of
interest is equivalent to rates currently available. The three levels of
valuation hierarchy are defined as follows:
|
Level
1
|
Inputs
to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
|
|
Level
2
|
Inputs
to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the
assets or liability, either directly or indirectly, for substantially the
full term of the financial instruments.
|
|
Level 3
|
Inputs
to the valuation methodology are unobservable and significant to the fair
value.
|
The
following table sets forth by level within the fair value hierarchy our
financial assets and liabilities that were accounted for at fair value on a
recurring basis as of June 30, 2010:
|
|
Carrying Value at
June 30, 2010
|
Fair Value Measurement at
June 30, 2010
|
||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||||
|
Warrant
liability
|
$ | 30,436,087 | $ | — | $ | $ | 30,436,087 | |||||||||
The
Company’s warrants are not traded in an active securities market; therefore the
Company estimates the fair value to those warrants using the Cox-Ross-Rubinstein
binomial model on the issuance dates and June 30, 2010.
See
report of independent registered public accounting firm.
F-9
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
|
Warrants 1
|
Warrants 2
|
Warrants 3
|
Warrants 4
|
Warrants 5
|
||||||||||||||||
|
#
of shares exercisable
|
||||||||||||||||||||
| 590,446 | 3,082,027 | 117,163 | 250,000 | 36,973 | ||||||||||||||||
|
Valuation
date
|
2/5/2010
|
3/11/2010
|
3/11/2010
|
3/11/2010
|
2/5/2010
|
|||||||||||||||
|
Exercise
price
|
$ | 12.00 | $ | 12.00 | $ | 12.00 | $ | 6.00 | $ | 48.00 | ||||||||||
|
Stock
price
|
$ | 26.00 | $ | 31.75 | $ | 33.63 | $ | 31.75 | $ | 26.00 | ||||||||||
|
Expected
term(year)
|
5.00 | 5.00 | 5.00 | 5.00 | 7.18 | |||||||||||||||
|
Risk-free
interest rate
|
2.23 | % | 2.43 | % | 2.43 | % | 2.43 | % | 3.04 | % | ||||||||||
|
Expected
volatility
|
80 | % | 80 | % | 80 | % | 80 | % | 80 | % | ||||||||||
|
Warrants 1
|
Warrants 2
|
Warrants 3
|
Warrants 4
|
Warrants 5
|
||||||||||||||||
|
#
of shares exercisable
|
||||||||||||||||||||
| 590,446 | 3,082,027 | 117,163 | 250,000 | 36,973 | ||||||||||||||||
|
Valuation
date
|
6/30/2010
|
6/30/2010
|
6/30/2010
|
6/30/2010
|
6/30/2010
|
|||||||||||||||
|
Exercise
price
|
$ | 12.00 | $ | 12.00 | $ | 12.00 | $ | 6.00 | $ | 48.00 | ||||||||||
|
Stock
price
|
$ | 12.30 | $ | 12.30 | $ | 12.30 | $ | 12.30 | $ | 12.30 | ||||||||||
|
Expected
term(year)
|
4.61 | 4.70 | 4.72 | 4.70 | 6.78 | |||||||||||||||
|
Risk-free
interest rate
|
1.63 | % | 1.67 | % | 1.67 | % | 1.67 | % | 2.38 | % | ||||||||||
|
Expected
volatility
|
80 | % | 80 | % | 80 | % | 80 | % | 80 | % | ||||||||||
Due to
the short trading history of the Company’s stock, the expected volatility is
based primarily on other similar public companies’ historical volatilities,
which are traded on United States stock markets. Historical volatility was
computed using daily pricing observations for recent periods that correspond to
the term of the warrants. The Company believes this method produces an
estimate that is representative of the Company’s expectations of future
volatility over the expected term of these warrants. The Company currently has
no reason to believe future volatility over the expected remaining life of these
warrants is likely to differ materially from historical volatility. The
expected life is based on the remaining term of the warrants. The risk-free
interest rate is based on U.S. Treasury securities according to the remaining
term of the warrants.
In
addition to assets and liabilities that are recorded at fair value on a
recurring basis, the Company is required to record assets and liabilities at
fair value on a non-recurring basis. Generally, assets are recorded at
fair value on a non-recurring basis as a result of impairment
charges. For the years ended June 30, 2010 and 2009, there were no
impairment charges.
The
Company did not identify any other assets and liabilities that are required to
be presented on the consolidated balance sheets at fair value.
Cash
The
Company considers all highly liquid investments with original maturities of
three months or less at the time of purchase to be cash equivalents for cash
flow statement purposes. Cash includes cash on hand and demand deposits in
accounts maintained with state owned banks within the PRC and with banks in Hong
Kong and in the United States of America.
See
report of independent registered public accounting firm.
F-10
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Restricted
cash
Restricted
cash represent amounts set aside by the Company in accordance with the Company’s
debt agreements with certain financial institutions. These cash amounts are
designated for the purpose of paying down the principal amounts owed to the
financial institutions, and these amounts are held at the same financial
institutions with which the Company has debt agreements in the PRC. Due to the
short-term nature of the Company’s debt obligations to these banks, the
corresponding restricted cash balances have been classified as current in the
consolidated balance sheets.
Accounts receivables, trade,
net
During
the normal course of business, the Company extends unsecured credit to its
customers. Management regularly reviews aging of receivables and changes in
payment trends by its customers, and records a reserve when management believes
collection of amounts due are at risk. Accounts considered uncollectible are
written off. The Company regularly reviews the credit worthiness of its
customers and, based on the results of the credit review, determines whether
extended payment terms can be granted to or, in some cases, partial prepayment
is required from certain customers.
Other
receivables
Other
receivables mainly include advances to employees for general business purpose.
No interest is charged to other receivable. Management regularly reviews aging
of receivables and changes in payment trends and records a reserve when
management believes collection of amounts due are at risk. Accounts considered
uncollectible are written off.
Inventories
Inventories
are stated at the lower of cost or market, using the weighted average cost
method. Inventories consist of raw materials and supplies, work in
process, and finished goods. Raw materials mainly consist of coal (mined
and purchased), rail, steel, wood and additives used in the Company. The
cost of finished goods included (1) direct costs of raw materials, (2) direct
labor, (3) indirect production costs, such as allocable utilities cost, and (4)
indirect labor related to the production activities, such as assembling and
packaging. Management compares the cost of inventories with the market value and
an allowance is made for writing down the inventory to its market value, if
lower than cost. On an ongoing basis, inventories are reviewed for potential
write-down for estimated obsolescence or unmarketable inventories equal to the
difference between the costs of inventories and the estimated net
realizable value based upon forecasts for future demand and market conditions.
When inventories are written-down to the lower of cost or market, it is not
marked up subsequently based on changes in underlying facts and
circumstances. As of June 30, 2010 and 2009, the management believed that
no allowance for inventory valuation was deemed necessary.
Advances to
suppliers
The
Company advances monies to certain suppliers for raw materials purchase and
construction contracts. These advances are interest-free and
unsecured.
Plant and equipment,
net
Plant and
equipment are stated at cost. Expenditures for maintenance and repairs are
charged to earnings as incurred; while additions, renewals and betterments that
extend the useful life are capitalized. When items of plant and equipment
are retired or otherwise disposed, the related cost and accumulated depreciation
are removed from the respective accounts, and any gain or loss is included in
operations. Mine development costs are capitalized and amortized by the units of
production method over estimated total recoverable proven and probable reserves.
Depreciation of plant and equipment is provided using the straight-line method
for substantially all assets with estimated lives as follows:
See
report of independent registered public accounting firm.
F-11
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
|
Estimated Useful Life
|
|
|
Building
and plant
|
20
years
|
|
Machinery
and equipment
|
10-20
years
|
|
Other
equipment
|
1-5
years
|
|
Transportation
equipment
|
5-7
years
|
Construction-in-progress
(“CIP”) includes direct costs of construction of mining tunnel improvements.
Interest incurred during the period of construction, if material, is
capitalized. For the years ended June 30, 2010 and 2009, $0 and $35,914
interest was capitalized into construction in progress, respectively. All other
interest is expensed as incurred. Construction-in-progress is not
depreciated until such time the assets are completed and put into service.
Maintenance, repairs and minor renewals are charged to expense as incurred.
Major additions and betterment to property and equipment are
capitalized.
Land use rights,
net
Costs to
obtain land use rights are recorded based on the fair value at acquisition and
amortized over 36 years, the contractual period of the rights. Under the
accounting standard regarding treatment of goodwill and other intangible assets,
all goodwill and certain intangible assets determined to have indefinite lives
are not amortized but tested for impairment at least annually. Intangible assets
other than goodwill will be amortized over their useful lives and reviewed at
least annually for impairment.
Intangible - mineral rights,
net
Mineral
rights are capitalized at fair value when acquired, including amounts associated
with any value beyond proven and probable reserves, and amortized to operations
as depletion expense using the units-of-production method over the estimated
proven and probable recoverable tones. The Company’s coal reserves are
controlled through direct ownership which generally lasts until the recoverable
reserves are depleted.
Impairment of long - lived
assets
The
Company evaluates long lived tangible and intangible assets for impairment, at
least annually, but more often whenever events or changes in circumstances
indicate that the carrying value may not be recoverable from its estimated
future cash flows, in accordance with the accounting guidance regarding
“Disposal of Long-Lived Assets”. Recoverability is measured by comparing
the asset’s net book value to the related projected undiscounted cash flows from
these assets, considering a number of factors including past operating results,
budgets, economic projections, market trends and product development
cycles. If the net book value of the asset exceeds the related
undiscounted cash flows, the asset is considered impaired, and a second test is
performed to measure the amount of impairment loss. Based on its review,
the Company believes that, as June 30, 2010 and 2009, there was no impairment of
long lived assets.
Asset retirement cost and
obligations
The
Company adopted the accounting standard to account for the asset retirement cost
and obligations to retire tangible long-lived assets. This standard generally
requires that the Company’s legal obligations associated with the retirement of
long-lived assets are recognized at fair value at the time the obligations are
incurred. Obligations are incurred at the time development of a mine commences
for underground mines or construction begins for support facilities, refuse
areas and slurry ponds. If an entity has a conditional asset retirement
obligation, a liability should be recognized when the fair value of the
obligations can be reasonably estimated.
See
report of independent registered public accounting firm.
F-12
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
The
obligation’s fair value is determined using discounted cash flow techniques and
is accreted over time to its expected settlement value. Upon initial recognition
of a liability, a corresponding amount is capitalized as part of the carrying
amount of the related long-lived asset. Amortization of the related asset is
calculated on a unit-of-production method by amortizing the total estimated cost
over the salable reserves as determined under Securities and Exchange Commission
(SEC) Industry Guide 7, multiplied by the production during the
period.
Asset
retirement costs generally include the cost of reclamation (the process of
bringing the land back to its natural state after completion of exploration
activities) and environmental remediation (the physical activity of taking steps
to remediate, or remedy, any environmental damage caused).
In May
2009, Henan Bureau of Finance and Bureau of Land and Resource issued regulation
for “Mine Environment Control and Environment Recovery” (“Mine Recovery
Regulations”) which require mining companies to file an Evaluation Report
Regarding Mining Environmental Impact (“Evaluation Report”) before December 31,
2010. The corresponding authorities will determine whether to approve the
Evaluation Report after performing on-site investigation, and the asset
retirement obligation will be determined by the authorities based on the
approved filing.
The
Company did not record such asset retirement obligation as of June 30, 2010 and
2009 because the Company did not have sufficient information to reasonably
estimate the fair value of such obligation. The range of time over which the
Company may settle the obligation is unknown and cannot be reasonably estimated.
In addition, the settlement method for the obligation cannot be reasonably
determined. The amount of the obligation to be determined by the government
authorities is affected by several factors, such as the extend of remediation
required in and around the mining area, the methods to be used to remediate the
mining site, and the government grants which may or may not be credited to the
mining companies.
The
Company will recognize the liability in the period in which sufficient
information is available to reasonably estimate its fair value.
Income
taxes
Income
taxes provided on the liability method in respect of temporary differences
arising from differences between the carrying amount of assets and liabilities
in the financial statements and the corresponding tax basis used in the
computation of assessable tax profit. In principle, deferred tax
liabilities are recognized for all taxable temporary differences, and deferred
tax assets are recognized to the extent that it is probably that taxable profit
will be available against which deductible temporary differences can be
utilized. Deferred tax is calculated at the tax rates that are expected to
apply to the period when the asset is realized or the liability is
settled. Deferred tax is charged or credited in the income statement,
except when it related to items credited or charged directly to equity, in which
case the deferred tax is also dealt with in equity.
A tax
position is recognized as a benefit only if it is “more likely than not” that
the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax
benefit that is greater than 50% likely of being realized on examination.
For tax positions not meeting the “more likely than not” test, no tax benefit is
recorded. Penalties and interest incurred related to underpayment of income tax
are classified as income tax expense in the period incurred. No
significant penalties or interest relating to income taxes have been incurred
during the years ended June 30, 2010 and 2009. GAAP also provides guidance
on de-recognition, classification, interest and penalties, accounting in interim
periods, disclosures and transition.
Chinese income
taxes
The
Company’s subsidiary and VIEs are operating in the PRC and are governed by the
income tax laws of the PRC and various local income tax laws (“Income Tax
Laws”). The Company’s subsidiary and
VIEs are generally subject to an income tax at a statutory rate of 25% of
taxable income, which is based on the net income reported in the statutory
financial statements after appropriate tax adjustment.
See
report of independent registered public accounting firm.
F-13
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Value added tax
(“VAT”)
Sales
revenue represents the invoiced value of goods, net of a value-added tax
(VAT). All of the Company’s coal and coke that are sold in the PRC are
subject to a Chinese value-added tax at a rate of 17% of the gross sales
price. This VAT may be offset by VAT paid by the Company on raw materials
and other materials included in the cost of producing their finished
products. The Company recorded VAT payable and VAT receivable net of
payments in the consolidated financial statements. The VAT tax return is
filed to offset the payables against the receivables.
Warrant derivative
liability
A
contract is designated as an asset or a liability and is carried at fair value
on a company’s balance sheet, with any changes in fair value recorded in a
company’s results of operations. The Company then determines which
options, warrants and embedded features require liability accounting and records
the fair value as a derivative liability. The changes in the values of these
instruments are shown in the accompanying consolidated statements of income and
other comprehensive income as “change in fair value of warrants”.
Due to
the reverse merger on February 5, 2010, the Company adopted the provisions of an
accounting standard regarding instruments that are indexed to an entity’s own
stock. This accounting standard specifies that a contract that would
otherwise meet the definition of a derivative but is both (a) indexed to the
Company’s own stock and (b) classified in stockholders’ equity in the statement
of financial position would not be considered a derivative financial
instrument. It provides a new two-step model to be applied in determining
whether a financial instrument or an embedded feature is indexed to an issuer’s
own stock and thus able to qualify for the scope exception within the standards.
As a result of the adoption of this accounting standard, all warrants
issued after the February 5, 2010 reverse acquisition were recorded as
derivative liability because the strike price of the warrants is denominated in
US dollar, a currency other than the Company’s functional currency
RMB.
Prior to
February 5, 2010, the Existing warrants previously treated as equity pursuant to
the derivative treatment exemption are no longer afforded equity treatment
because the strike price of the warrants is denominated in US dollar, a currency
other than the Company’s functional currency RMB. Therefore, the warrants are
not considered indexed to the Company’s own stock, and as such, all future
changes in the fair value of these warrants will be recognized currently in
earnings until such time as the warrants are exercised or expire. The
Company has reclassified the fair value of the Existing warrants of $631,002
from equity to liability status as if these warrants were treated as a
derivative liability at February 5, 2010.
Earnings per
share
The
Company reports earnings per share in accordance with the provisions of FASB’s
related accounting standard. This standard requires presentation of basic and
diluted earnings per share in conjunction with the disclosure of the methodology
used in computing such earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average common shares outstanding during the period. Diluted
earnings per share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock. Dilution is computed by applying the treasury stock method.
Under this method, option and warrants were assumed to be exercised at the
beginning of the period ( or at the time of issuance, if later), and as if funds
obtained thereby were used to purchase common stock at the average market price
during the period.
Comprehensive
income
FASB’s
accounting standard regarding comprehensive income establishes requirements for
the reporting and display of comprehensive income, its components and
accumulated balances in a full set of general purpose financial statements. This
accounting standard defines comprehensive income to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, it also requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in financial statement that is presented with
the same prominence as other financial statements. The Company's only current
component of comprehensive income is the foreign currency translation
adjustments.
See
report of independent registered public accounting firm.
F-14
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Related
parties
Parties
are considered to be related to the Company if the parties, directly or
indirectly, through one or more intermediaries, control, are controlled by, or
are under common control with the Company. Related parties also include
principal owners of the Company, its management, members of the immediate
families of such principal owners and management, and other parties with which
the Company may deal if one party controls or can significantly influence the
management or operating policies of the other to an extent that one of the
transacting parties might be prevented from fully pursuing its own separate
interests.
Recently issued accounting
pronouncements
In
January 2010, FASB issued ASU No. 2010-01– Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is
not a stock dividend for purposes of applying Topics 505 and 260 (Equity and
Earnings Per Share). The amendments in this update are effective for interim and
annual periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. The adoption of this ASU did not have impact on the
Company’s consolidated financial statements.
In
January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that exchanges
a group of assets that constitutes a business or nonprofit activity for an
equity interest in another entity. The amendments in this update are effective
beginning in the period that an entity adopts SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If
an entity has previously adopted SFAS No. 160 as of the date the amendments in
this update are included in the Accounting Standards Codification, the
amendments in this update are effective beginning in the first interim or annual
reporting period ending on or after December 15, 2009. The amendments in this
update should be applied retrospectively to the first period that an entity
adopted SFAS No. 160. The adoption of this ASU did not have a material impact
on the Company’s consolidated financial statements.
In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair
Value Measurements. This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers. 2) Activity in Level 3 fair value measurements. In
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), a reporting entity should present separately information about
purchases, sales, issuances, and settlements (that is, on a gross basis rather
than as one net number). This update provides amendments to Subtopic 820-10 that
clarifies existing disclosures as follows: 1) Level of disaggregation. A
reporting entity should provide fair value measurement disclosures for each
class of assets and liabilities. A class is often a subset of assets or
liabilities within a line item in the statement of financial position. A
reporting entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation techniques. A
reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements. Those disclosures are required for fair value measurements that
fall in either Level 2 or Level 3. The new disclosures and clarifications of
existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. These disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. The Company is currently evaluating the impact of this ASU, however, the
Company does not expect the adoption of this ASU will have a material
impact on its consolidated financial statements.
See
report of independent registered public accounting firm.
F-15
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
In
February 2010, FASB issued ASU No. 2010-9 –Amendments to Certain Recognition and
Disclosure Requirements. This update addresses certain implementation issues
related to an entity’s requirement to perform and disclose subsequent-events
procedures, removes the requirement that public companies disclose the date of
their financial statements in both issued and revised financial statements.
According to the FASB, the revised statements include those that have been
changed to correct an error or conform to a retrospective application of U.S.
GAAP. The amendment is effective for interim and annual reporting periods
in fiscal year ending after June 15, 2010. The adoption of this ASU did not
have a material impact on the Company’s consolidated financial
statements.
In March
2010, FASB issued ASU No. 2010-10 –Amendments for Certain Investment Funds. This
update defers the effective date of the amendments to the consolidation
requirements made by FASB Statement 167 to a reporting entity’s interest in
certain types of entities. The deferral will mainly impact the evaluation of
reporting enterprises’ interests in mutual funds, private equity funds, hedge
funds, real estate investment entities that measure their investment at fair
value, real estate investment trusts, and venture capital funds. The ASU also
clarifies guidance in Statement 167 that addresses whether fee arrangements
represent a variable interest for all service providers and decision makers. The
ASU is effective for interim and annual reporting periods in fiscal year
beginning after November 15, 2009. The adoption of this ASU did not have a
material impact on the Company’s consolidated financial statements.
In March
2010, FASB issued ASU No. 2010-11 –Scope Exception Related to Embedded Credit
Derivatives. Embedded credit-derivative features related only to the transfer of
credit risk in the form of subordination of one financial instrument to another
are not subject to potential bifurcation and separate accounting as clarified by
recently issued FASB guidance. Other embedded credit-derivative features are
required to be analyzed to determine whether they must be accounted for
separately. This update provides guidance on whether embedded credit-derivative
features in financial instruments issued by structures such as collateralized
debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and
separate accounting. The guidance is effective at the beginning of a company’s
first fiscal quarter beginning after June 15, 2010. The Company does not expect
the adoption of this ASU to have a material impact on the Company’s consolidated
financial statements.
In April
2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades,” or ASU 2010-13. ASU 2010-13 provides amendments to
Topic 718 to clarify that an employee share-based payment award with an exercise
price denominated in currency of a market in which a substantial porting of the
entity’s equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010. The Company is currently evaluating the impact of this ASU; however,
the Company does not expect the adoption of this ASU will have a material
impact on its consolidated financial statements.
Note
3 - Business acquisition
On
February 5, 2010, the Company (formerly known as Ableacutions.com, Inc)
completed a share exchange transaction with Top Favour (BVI), and Top Favour
(BVI) became a wholly-owned subsidiary of the Company. Immediately prior to the
closing the share exchange transaction, all of the assets and liabilities of
Ableauction.com, Inc’s former business had been transferred to a liquidating
trust, including the capital stock of its former subsidiaries. On the closing
date, the Company issued 13,117,952 of its common shares to Top Favour (BVI)’s
shareholders in exchange for 100% of the capital stock of Top Favour (BVI).
Prior to the share exchange transaction, the Company had 405,710 shares of
common stock issued and outstanding. After the share exchange transaction, the
Company had 13,523,662 shares of common stock outstanding, and Top Favour
(BVI)’s shareholders owned approximately 97% of the issued and outstanding
shares. The management members of Top Favour (BVI) became the directors and
officers of the Company. The share exchange transaction was accounted for as a
reverse acquisition and recapitalization and as a result, the consolidated
financial statements of the Company (the legal acquirer) is, in substance, those
of Top Favour (BVI) (the accounting acquirer), with the assets and liabilities,
and revenues and expenses, of the Company being included effective from the date
of the share exchange transaction. As the share exchange transaction
was accounted for as a reverse acquisition and recapitalization, there was
no gain or loss recognized on the transaction. Acquisition-related
costs incurred to effect the business combination, including finder’s
fee, advisory, legal, accounting, valuation, and other professional and
consulting fees, were $1,127,612 and accounted for as expense for the year ended
June 30, 2010.
See
report of independent registered public accounting firm.
F-16
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Note
4 – Enterprise-wide reporting
Based on
qualitative and quantitative criteria established by the FASB accounting
standard regarding disclosures about segments of an enterprise and related
information, the Company considers itself, including coal mining, coking and the
sales of all products as a result of these business activities, to be operating
within one reportable segment. All of the Company’s products are sold within the
PRC. Major products and respective revenues for the years ended June 30
are as summarized as follows:
|
2010
|
2009
|
|||||||
|
Coke
|
$ | 27,650,175 | $ | 30,534,755 | ||||
|
Coal
tar
|
1,324,743 | 1,171,510 | ||||||
|
Raw
coal
|
22,964,448 | 13,151,325 | ||||||
|
Washed
coal
|
7,088,124 | 6,538,402 | ||||||
|
Total
|
$ | 59,027,490 | $ | 51,395,992 | ||||
Note
5 – Concentration and credit risk
The
Company’s operations are all carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC, and by the general state
of the PRC’s economy. The Company’s operations in the PRC are subject to
specific considerations and significant risks not typically associated with
companies in North America and Western Europe. These include risks associated
with, among others, the political, economic and legal environments and foreign
currency exchange. The Company’s results may be adversely affected by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.
Financial
instruments, which subject the Company to concentration of credit risk, consist
of cash. The Company maintains balances at financial institutions located in PRC
and Hong Kong. Balances at financial institutions or state owned banks within
the PRC are not covered by insurance. Balances at financial institutions
which, from time to time, may exceed Hong Kong Deposit Protection Board insured
limits for the banks located in Hong Kong. As of June 30, 2010 and 2009,
the Company had cash deposits including, restricted cash, which were not covered
by insurance of $39,791,148 and $5,679, respectively. The Company has not
experienced any losses in such accounts.
For the
years ended June 30, 2010 and 2009, all of the Company’s sales were generated in
the PRC as well as account receivables.
For the
year ended June 30, 2010, 89.7% of the Company’s total revenues were from three
major customers accounted individually for 43.6%, 34.1%, and 12.0% of total
revenues, respectively. Account receivables with those three customers were 0%,
58.7%, and 11.9% of the total account receivable balance at June 30, 2010,
respectively. For the year ended June 30, 2009, 65.2% of the Company’s
total revenues were from four major customers accounted individually for 29.0%,
13.2%, 12.2% and 10.8% of total revenues, respectively. Account receivables with
those four customers were 36.2%, 56.3%, 0% and 0% of the total account
receivable balance at June 30, 2009, respectively.
See
report of independent registered public accounting firm.
F-17
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
For the
years ended June 30, 2010 and 2009, all of the Company’s purchases of raw
materials, as well as accounts payable were generated in the PRC. For the
year ended June, 2010, three major suppliers provided 62.5% of the raw materials
purchase with each supplier individually accounted for 29.2%, 22.2% and 11.1%,
respectively. For the year ended June, 2009, three major suppliers provided
40.6% of the raw materials purchase with each supplier individually accounted
for 15.3%, 15.2% and 10.1%, respectively. The Company held no account payable
from its major suppliers as of June 30, 2010 and 2009.
Note
6 – Loans receivable
On March
22 and May 8, 2010, the Company entered into two loan agreements with the same
third-party company and loaned the company $1,013,308 and $1,500,000,
respectively. These loans are due on demand, non-secured, and with an annual
interest rate of 3%. As of June 30, 2010, loans receivables amounted to
$2,513,308. On September 27, 2010, the Company received repayment of $1.47
million.
Note
7 – Notes receivable
Notes
receivable represent trade accounts receivable due from various customers where
the customers’ bank has guaranteed payment of the receivable. This amount is
non-interest bearing and is normally paid within three to nine months. The
Company is allowed to submit their request for payment to the customer’s bank
earlier than the scheduled payment date. However, the early request will incur
an interest charge and a processing fee. Notes receivable amounted to $1,045,830
and $358,808 as of June 30, 2010 and 2009, respectively.
Note
8 - Accounts receivable, net
Accounts
receivable consisted of the following:
|
June 30, 2010
|
June 30, 2009
|
|||||||
|
Accounts
receivable
|
$ | 5,304,900 | $ | 6,454,663 | ||||
|
Allowance
for bad debt
|
216 | - | ||||||
|
Accounts
receivable, net
|
$ | 5,304,684 | $ | 6,454,663 | ||||
For the
years ended June 30, 2010 and 2009, the Company wrote off $0 and $293,000,
respectively, in uncollectible receivables. As of June 30, 2010 and
2009, management recorded a reserve for allowance for doubtful accounts of $216
and $0, respectively.
Note
9 – Inventories
Inventories
as of June 30, 2010 and 2009 consisted of the following:
|
June 30, 2010
|
June 30, 2009
|
|||||||
|
Raw
materials
|
$
|
157,717
|
$
|
31,994
|
||||
|
Work
in process
|
587,886
|
-
|
||||||
|
Supplies
|
21,744
|
-
|
||||||
|
Finished
goods
|
1,494,469
|
75,193
|
||||||
|
Total
|
$
|
2,261,816
|
$
|
107,187
|
||||
See
report of independent registered public accounting firm.
F-18
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Note
10 – Advances to suppliers
Advances
to suppliers are monies deposited or advanced to unrelated vendors for future
inventory purchases, which consist mainly of raw coal purchases. Most of
Company’s vendors require a certain amount of money to be deposited with them as
a guarantee that the Company will receive their purchases on a timely basis and
with favorable pricing.
Advances
to suppliers as of June 30, 2010 and 2009 amounted to $5,509,780 and $8,364,448,
respectively.
Note
11 – Prepayments
Prepayment for land use
right
Prepayments
for land use right are monies advanced for land use rights to expand the new
coking factory. As of June 30, 2010, prepayments for land use right amounted to
$5,074,485. Prepayments were paid to the previous residences who lived in the
place the new coking factory will be located. The prepayment is not
refundable. The Company estimates that the total cost of obtaining land use
rights will be $10,311,000 (RMB70,000,000). The land use right is expected to be
acquired by June, 2011.
Prepayment for mine
acquisitions
The
Company was in the process of acquiring several coal mines with annual
production scale equal or less than 150,000 to 300,000 tonnes. As of June 30,
2010, the Company had prepaid $8,858,398 to six potential acquisition targets,
and no acquisition was complete as of June 30, 2010.
Prepayment for construction
of new operating plant
Prepayments
for construction are mainly monies advanced to contractors or equipment
suppliers related to the new operating plant that is expected to produce up
to 900,000 tonnes of coke per year, coal gas-generated power, and other chemical
refinery by-products.
In addition, the Company made prepayment of approximately $1.8
million in 2010 to improve Hongchang’s existing mining tunnel.
As of June 30, 2010, this project has not been started yet.
The total
contract price amounted to approximately $32,156,000. Prepayments for
construction, as of June 30, 2010 and 2009, amounted to $12,789,806 and
$7,462,008, respectively.
Note
12 –Plant and equipment, net
Property,
plant and equipment as of June 30, 2010 and 2009 consisted of the
following:
|
June 30, 2010
|
June 30, 2009
|
|||||||
|
Buildings
and improvements
|
$
|
10,074,777
|
$
|
10,020,060
|
||||
|
Mine
development cost
|
10,643,945
|
5,004,179
|
||||||
|
Machinery
and equipment
|
5,678,274
|
5,619,835
|
||||||
|
Other
Equipment
|
482,716
|
392,019
|
||||||
|
Total
|
26,879,712
|
21,036,093
|
||||||
|
Less
accumulated depreciation
|
(9,779,099
|
) |
(6,534,598
|
)
|
||||
|
Construction-in-progress
|
3,829,800
|
2,453,164
|
||||||
|
Total, net
|
$
|
20,930,413
|
$
|
16,954,659
|
||||
Depreciation
expense for the years ended June 30, 2010 and 2009 amounted to $3,195,093 and
$2,013,441, respectively.
See
report of independent registered public accounting firm.
F-19
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
CIP at
June 30, 2010 was related to the new coking factory. No depreciation is provided
for construction-in-progress until such time the assets are completed and placed
into service.
|
Total in CIP
|
Estimate cost to
|
Estimated
|
Estimated
|
||||||||||
|
Project
|
as of 6/30/2010
|
Complete
|
Total Cost
|
Completion Date
|
|||||||||
|
New
Coking factory
|
$ | 3,829,800 | $ | 53,910,200 | $ | 57,740,000 |
June
2011
|
||||||
CIP at
June 30, 2009 was related to Hongchang Coal’s mining tunnel improvement project
costing approximately $5.42 million. This project was completed in August
2009.
Note
13 – Intangible – land use rights, net
Land use
rights, net consisted of the following as of June 30, 2010 and
2009:
|
June 30, 2010
|
June 30, 2009
|
||||||
|
Land
use rights
|
$ | 2,309,237 | $ | 2,296,695 | |||
|
Accumulated
amortization
|
(416,945 | ) | (350,884 | ) | |||
|
Total land use rights, net
|
$ | 1,892,292 | $ | 1,945,811 | |||
Amortization
expense for the years ended June 30, 2010 and 2009 amounted to $63,871 and
$63,798, respectively.
Amortization
expense for the next five years and thereafter is as follows:
|
Year ended June 30,
|
Amortization
Expense
|
|||
|
2011
|
$ |
64,145
|
||
|
2012
|
64,145
|
|||
|
2013
|
64,145
|
|||
|
2014
|
64,145
|
|||
|
2015
|
64,145
|
|||
|
thereafter
|
1,571,567
|
|||
|
Total
|
$
|
1,892,292
|
||
Note
14 – Intangible - mineral rights, net
Mineral
rights, net, consisted of the followings as of June 30, 2010 and
2009.
|
June 30, 2010
|
June 30, 2009
|
|||||||
|
Mineral
rights
|
$
|
13,173,377
|
$
|
13,101,831
|
||||
|
Accumulated
depletion
|
(10,543,940
|
)
|
(7,867,839
|
)
|
||||
|
Total, net
|
$
|
2,629,437
|
$
|
5,233,992
|
||||
See
report of independent registered public accounting firm.
F-20
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Depletion
expense for the years ended June 30, 2010 and 2009 amounted to $2,621,874 and
$2,813,566, respectively. Depletion expenses were charged to cost of revenue in
the period incurred using unit-of-production method.
Note
15 – Notes payable
Notes
payable represented the line of credit extended by the banks. When purchasing
raw materials, the Company often issues a short term note payable to the vendor
funded with draws on the lines of credit. This short term note payable was
guaranteed by the banks for its complete face value through a letter of
credit and matures within three to six months of issuance.
On June
18, 2010, the Company entered into a note payable agreement with a local bank.
Pursuant to the agreement, the bank agreed to extend the line of credit in total
of $2,946,000(RMB20million) matured at December 18, 2010, to the Company for it
to purchase raw coal. The bank required the Company to deposit 50% of the notes
payable balance at the bank as a guarantee deposit which is classified on the
balance sheet as restricted cash. In addition, this note payable was guaranteed
by the Company’s Chief Executive Officer and Hongli. The bank charged processing
fees based on 0.05% of the face value of the note. As of June 30, 2010,
notes payable amounted to $2,946,000.
Note
16 – Short-term loans
Short-term
loans represent amounts due to various banks and individuals and are due either
on demand or normally within one year. These loans generally can be renewed with
the banks or the individual creditors.
Short-term loans -
Bank
The
Company had short-term bank loans amounted to $14,730,000 and $2,219,475 at June
30, 2010 and 2009, respectively. The Company has paid off the outstanding bank
loan at June 30, 2009, which amounted to $2,219,475, before June 30,
2010.
On May
30, 2010, Hongyuan entered a one-year loan agreement with a local bank to borrow
$14,730,000 (RMB100 million) with per annum interest rate of 4.301%,
or 90% of the interest rate of the same-term bank loan announced by
the People’s Bank of China, which was 4.779% at the time of signing the loan
agreement and June 30, 2010. This bank loan matures on May 30,
2011 and collateral was pledged by Top Favour (BVI) through a bank deposit
with the same bank of $17,010,000 with an interest rate of 1.3%. The loan
was also guaranteed by the Company’s CEO Mr. Jianhua Lv.
In
connection with this one-year bank loan, on May 15, 2010, the Company entered
into a forward currency exchange contract with a local bank. Pursuant to the
agreement, at the Company’s option, the Company is able to exchange $20,000,000
into RMB with the exchange rate at $1 to RMB6.7 on October 31, 2010. As of June
30, 2010, and the date of this filing, the Company does not intend to execute
such option.
Weighted
average interest rate were 3.25% and 8.89% for the years ended June 2010 and
2009, respectively. Total interest expense on short term loans for the years
ended June 30, 2010 and 2009 amounted to $85,219 and $308,618, respectively,
after $0 and $35,914 were capitalized into
construction-in-progress.
Short-term loans -
Others
The
Company borrowed short-term loans from a third party and the outstanding balance
was $1,098,750(RMB7,500,000) as of June 30, 2009. $586,000 (RMB4,000,000) of
those loans was interest free and was paid off in 2010. The rest of
$515,550(RMB3, 500,000) was charged at the interest rate of the similar bank
loan, which was 5.4% and $11.52% for the year ended June 30, 2010 and 2009,
respectively, and remained outstanding as of June 30,
2010.
Note
17 – Other payables and accrued liabilities
Other
payables mainly consisted of customer deposits to be returned, and accrued
liabilities mainly consisted of salary, utility, professional service, and other
general and administrative expenses incurred.
See
report of independent registered public accounting firm.
F-21
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Other
payables and accrued liabilities consisted of the following as of June 30, 2010
and 2009:
|
June 30, 2010
|
June 30, 2009
|
|||||||
|
Customer
deposits to be returned
|
$
|
823,241
|
$
|
-
|
||||
|
Accrued
liabilities
|
609,880
|
744,058
|
||||||
|
Total
|
$
|
1,433,121
|
$
|
744,058
|
||||
Note
18 – Taxes
Income
Tax
The PRC
does not allow consolidation or group filing for corporate income tax purposes.
Income and losses from members of the same consolidated group (for financial
reporting purposes) are not allowed to offset one another. Therefore, total
taxable income (loss) subject to actual PRC corporate tax within the
consolidated group does not necessarily equal to the consolidated net income
before income tax of the consolidated group. The PRC tax administration system
does not necessarily retroactively recognize or allow accounting adjustments
that are discovered and posted after the income tax returns are filed as
additional taxable income or deductions for the tax year to which such
post-filing accounting adjustments relate. The Company considers any US GAAP
adjustments to its financial statements made after the statutory tax returns are
filed to be permanent differences for the purpose of reconciling differences
of income tax provision and actual PRC income tax liabilities.
SinoCoking
is subject to the United States federal income tax provisions. Top Favour (BVI),
however, is a tax-exempt company incorporated in the British Virgin Islands, and
conducts all of its business through its subsidiaries and VIEs, Hongyuan,
Hongli, Baofeng Coking, Hongchang Coal and Hongquang Power.
Hongyuan,
Hongli, Baofeng Coking, Hongchang Coal and Hongguang Power are subject to 25%
enterprise income tax rate in China.
For the
year ended June 30, 2009, Baofeng Coking received an income tax exemption
amounting to approximately $1,900,000. There was no such exemption received for
the year ended June 30, 2010.
As
approved by a local tax bureau, Hongchang Coal owed total income tax for the
12-month ended December 31, 2010 and 2009 of approximately $370,000 each
calendar year, regardless the actual taxable income in that period.
The
estimated tax savings due to the reduced tax rate for the years ended June 30,
2010 and 2009 amounted to $902,291 and $1,900,000, respectively. If
the statutory income tax had been applied, the Company would have decreased
basic and diluted earnings per share from $2.49 to $2.43 and from $2.44 to
$2.38 for the year ended June 30, 2010, respectively, and decreased basic and
diluted earnings per share from $1.29 to $1.15 for the year ended June 30,
2009.
The
provision for income taxes consisted of the following for the years ended June
30, 2010 and 2009:
|
2010
|
2009
|
|||||||
|
US
current income tax expense
|
$ | - | $ | - | ||||
|
BVI
current income tax expense
|
- | - | ||||||
|
PRC
current income tax expense
|
4,517,024 | 3,491,590 | ||||||
|
Total
provision for income taxes
|
$ | 4,517,024 | $ | 3,491,590 | ||||
See
report of independent registered public accounting firm.
F-22
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
The
following table reconciles the statutory rates to the Company’s effective tax
rate for the years ended June 30, 2010 and 2009:
|
2010
|
2009
|
|||||||
|
U.S.
Statutory rate
|
34.0
|
%
|
34.0
|
%
|
||||
|
Foreign
income not recognized in U.S.A
|
(34.0
|
)%
|
(34.0
|
)%
|
||||
|
BVI
income tax
|
0.0
|
%
|
0.0
|
%
|
||||
|
PRC
income tax
|
25.0
|
%
|
25.0
|
%
|
||||
|
China
income tax exemption
|
(4.2
|
)%
|
(10.9
|
)%
|
||||
|
Other
item (1)
|
(10.4
|
)%
|
3.0
|
%
|
||||
|
Effective
rate
|
10.4
|
%
|
17.1
|
%
|
||||
(1) The
(10.4%) for the year ended June 30, 2010 mainly represents change in fair
value of warrants of $24,016,407 incurred by SinoCoking was not subject to the
income tax. 3.0% for the year ended June 30, 2009 represents operating losses
incurred by Hongquang and Hongchang. Management believes the losses may not be
recovered through future operations.
SinoCoking
is incorporated in the U.S. and has incurred a net operating loss for income tax
purposes for 2010. As of June 30, 2010, the estimated net operating loss
carryforwards for U.S. income tax purposes amounted to $812,918 which may be
available to reduce future years’ taxable income. These carryforwards will
expire, if not utilized, beginning in 2010 and continue through 2030. Management
believes that the realization of the benefits arising from this loss appears to
be uncertain due to the Company’s limited operating history and continuing
losses for U.S. income tax purposes. Accordingly, the Company has provided a
100% valuation allowance at June 30, 2010. The valuation allowance at June 30,
2010 was $276,392. The Company’s management reviews this valuation allowance
periodically and makes adjustments as necessary.
The
Company has cumulative undistributed earnings of foreign subsidiaries of
approximately $16.3 million as of June 30, 2010, which was included in
consolidated retained earnings and will continue to be reinvested in its
operations in China. Accordingly, no provision has been made for U.S.
deferred taxes related to future repatriation of these earnings, nor is it
practicable to estimate the amount of income taxes that would have to be
provided if we concluded that such earnings will be remitted in the
future.
Value Added
Tax
The
Company incurred VAT on sales and VAT on purchases in the PRC amounting to
$12,735,437 and $7,189,738 for the year ended June 30, 2010, and $9,285,223 and
$3,272,861 for the year ended June 30, 2009, respectively.
Sales and
purchases are recorded net of VAT collected and paid as the Company acts as an
agent for the government. VAT taxes are not impacted by the income tax
holiday.
Taxes
Payable
Taxes
payable as of June 30, 2010 and 2009 consisted of the following:
|
June 30, 2010
|
June 30, 2009
|
|||||||
|
VAT
|
$
|
59,848
|
$
|
502,867
|
||||
|
Income
tax
|
723,966
|
1,906,975
|
||||||
|
Others
|
445,205
|
272,412
|
||||||
|
Total
taxes payable
|
$
|
1,229,019
|
$
|
2,682,254
|
||||
See
report of independent registered public accounting firm.
F-23
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Note
19 – Private placement equity financing
Simultaneously
with the reverse acquisition, on February 5, 2010, immediately following the
1-for-20 reverse stock split and share exchange, the Company executed a private
placement financing in which it sold and issued 1,180,892 units for the
aggregated proceeds of $7,085,352, at a purchase price of $6.00 per unit, to 34
non-U.S. investors. Each unit consists of one share of common stock and a
warrant (“Investor warrants”) for the purchase of 0.5 shares of common stock
with an exercise price of $12.00 per whole share. The Investor warrants are
exercisable for a period of five years from the date of issuance.
On March
11, 2010, the Company conducted a subsequent closing of its private placement
financing in which it sold and issued 6,164,043 of its units at a purchase price
of $6.00 per unit, to both U.S. and non-U.S. investors. The gross proceeds from
this subsequent closing of the private placement was approximately $37 million,
each unit consists of one share of common stock and a warrant (“Callable
investor warrants”) for the purchase of 0.5 shares of common stock with an
exercise price of $12.00 per share. The Callable investor warrants are
exercisable for a period of five years from the date of issuance, and are
callable at the Company’s election six months after the date of issuance if the
Company’s common stock treads at a price equal to at least 150% of the exercise
price (or $18.00 per share) with an average trading volume of at least 150,000
shares of Common Stock (as adjusted for any stock splits, stock dividends,
combination and the like) per trading date for at least 10 consecutive trading
days and the underlying shares of common stock are registered.
In
connection with the foregoing, the Company entered into a registration rights
agreement with the U.S. investors under with the Company agreed to file a
registration statement to register both the shares of common stock, and the
common stock underlying the warrants, that were issued to the U.S. investors in
the financing, within 60 days after the closing date of March 11, 2010. The
Company agreed to use its best efforts to have this registration statement
declared effective by the Commission within 120 days, subject to certain
exceptions. The Company also agreed to undertake commercially reasonable efforts
to register the shares of common stock and warrants issued to the non-U.S.
investors in the initial closing on February 5, 2010, was well as the securities
issued to non-U.S. investors on March 11, 2010. The registration statement was
filed with SEC on May 11, 2010 and was declared effective by the SEC on
September 13, 2010.
Madison
Williams & Company, LLC and Rodman & Renshaw, LLC, acted as joint
placement agents in connection with the March 11, 2010 equity financing. Under
an agreement with the Placement agents, the Company agreed to pay the placement
agents a cash fee equal to 7% of the aggregate gross proceeds from the sales of
securities to the U.S. accredited investors, plus reimbursement of fees and
expenses, and reasonable fees and expenses of placement agent legal counsel. In
addition, the Company agreed to issue warrants (“Callable agent warrants”) for
the purchase of up to 250,000 shares of common stock, with an exercise price of
$6.00 per share. In addition, the Company issued $117,163 callable warrants to
Madison Williams & Company on March 18, 2010, with an exercise price of
$12.00 per share, in connection with the second closing of the financing on
March 11, 2010. Warrants issued to placement agents contain terms and provisions
otherwise similar to the terms provided under the Callable investor warrants
described above. The Company used the Cox-Ross-Rubinstein binomial model to
value the warrants issued, which amounted to $9,751,886. In addition, the
placement agents received cash payment of $2,188,391. $3,524,206 of total
payments made to the placement agents was capitalized, and $8,491,067 was
charged to retained earnings.
See
report of independent registered public accounting firm.
F-24
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
The
following table summarizes the securities issued and expenses incurred in
connection with this Equity financing.
|
# of shares of
underlying
common stock
|
Value
|
|||||||
|
Investor
warrants@12.00
|
590,446 | $ | 11,898,728 | |||||
|
Callable
investor warrants@12.00
|
3,082,027 | 72,324,038 | ||||||
|
Total value of warrants to investors
|
3,672,473 | 84,222,766 | ||||||
|
Gross
cash proceeds from Equity financing $44,069,610
|
||||||||
|
Gross
cash proceeds allocated to warrants
|
(44,069,610 | ) | ||||||
|
Exceeded amount charged to current period expense
|
$ | 40,153,156 | ||||||
|
Common stock issued to investors
|
7,344,935 | $ | - | |||||
|
Callable
agent warrants @6.00
|
250,000 | $ | 6,791,519 | |||||
|
Callable
agent warrants @12.00
|
117,163 | 2,960,363 | ||||||
|
7%
cash fee paid to placement agents
|
2,188,391 | |||||||
|
Legal
fee in connection with Equity financing
|
75,000 | |||||||
|
Total issuance costs
|
12,015,273 | |||||||
|
Less
beginning balance in paid in capital
|
(3,524,206 | ) | ||||||
|
Remaining
amount of issuance costs charged to retained earnings
|
$ | 8,491,067 | ||||||
Note
20 – Capital transactions
Stock
split
On
February 5, 2010, the Company effected a 1-for-20 reverse splits of its
outstanding common shares. All references to share and per-share data for
all periods presented in the consolidated financial statements have been
adjusted to give effect to the 1-for-20 common share reverse split.
Quotation on
exchange
On
February 8, 2010, SinoCoking’s common stock began quotation on the
Over-the-Counter Bulletin Board under the new stock symbol “SCOK”.
On February 18, 2010, SinoCoking’s common stock commenced trading on the
NASDAQ Capital Market under the symbol “SCOK”.
Issuance of capital
stock
Immediately
before the closing reverse acquisition disclosed in Note 3, the Company had
405,710 shares of outstanding common stock on February 5, 2010.
In
connection with the reverse acquisition, on February 5, 2010, the Company issued
13,117,952 shares of the Company’s common stock.
In
connection with the private placement equity financing disclosed in Note 17, the
Company issued 1,180,892 and 6,164,043 shares of the Company’s common stock to
investors at the first closing date February 5, 2010, and the second closing
date of March, 11, 2010, respectively.
The
Company issued 2,593 round-up shares of common stock in connection with the
reverse acquisition and private placement equity financing.
Options
2002
Stock Option Plan for Directors
See
report of independent registered public accounting firm.
F-25
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
In 2002,
the Board of Directors adopted a 2002 Stock Option Plan for Directors (the
“Directors Plan”). The purpose of the Directors Plan is to attract and retain
the services of experienced and knowledgeable individuals to serve as its
directors. On the date the Directors Plan was adopted, the total number of
shares of common stock subject to it was 11,057. This number of shares may be
increased on the first day of January of each year so that the common stock
available for awards will equal 5% of the common stock outstanding on that date,
provided, however, that the number of shares included in the Directors Plan may
not exceed more than 10% of all shares of common stock outstanding. The
Directors Plan is administered by the Board of Directors, or any Committee that
may be authorized by the Board of Directors. The grant of an option under the
Directors Plan is discretionary. The exercise price of an option must be the
fair market value of the common stock on the date of grant. An option grant may
be subject to vesting conditions. Options may be exercised in cash, or with
shares of the common stock of the registrant already owned by the person. The
term of an option granted pursuant to the Directors Plan may not be more than 10
years.
2002
Consultant Stock Plan
In 2002
the Board of Directors adopted a 2002 Consultant Stock Plan (the “Consultants
Plan”). The purpose of the Consultants Plan is to be able to offer consultants
and others who provide services to the registrant the opportunity to participate
in the registrant’s growth by paying for such services with equity awards. The
Consultants Plan is administered by the Board of Directors, or any Committee
that may be authorized by the Board of Directors. Persons eligible for awards
under the Consultants Plan may receive options to purchase common stock, stock
awards or stock restricted by vesting conditions. The exercise price of an
option must be no less than 85% of the fair market value of the common stock on
the date of grant. An option grant may be subject to vesting conditions. Options
may be exercised in cash, or with shares of the common stock of the registrant
already owned by the person or with a fully recourse promissory note, subject to
applicable law. The term of an option granted pursuant to the Consultants Plan
may not be more than 10 years.
1999
Stock Option Plan
In 1999
the Board of Directors adopted a 1999 Stock Option Plan (the “Option Plan”). The
purpose of the Option Plan is to enable the Company retain the services of
employees and consultants and others who are valuable to the registrant and to
offer incentives to such persons to achieve the objectives of the registrant’s
shareholders. The total number of shares of common stock subject to the Option
Plan is 45,417. The Option Plan is administered by the Board of Directors, or
any Committee that may be authorized by the Board of Directors. Employees
eligible for awards under the Option Plan may receive incentive options to
purchase common stock. If a recipient does not receive an incentive option, he
or she will receive a non-qualified stock option. The exercise price of an
option must be no less than the fair market value of the common stock on the
date of grant, unless the recipient of an award owns 10% or more of the
registrant’s common stock, in which case the exercise price of an incentive
stock option must not be less than 110% of the fair market value. An option
grant may be subject to vesting conditions. Options may be exercised in cash, or
with shares of the common stock of the registrant already owned by the recipient
of the award. The term of an option granted pursuant to the Option Plan may not
be more than five years if the option is an incentive option granted to a
recipient who owns 10% or more of the registrant’s common stock, or 10 years for
all other recipients and for recipients of non-qualified stock
options.
On
February 5, 2010, the completion date of the reverse acquisition disclosed in
Note 3, there were options exercisable for 11,124 shares of the Company’s common
stock outstanding.
Under the
Directors Plan, there were options exercisable to 4,792 shares of the Company’s
common stock. Options exercisable for 1,666 shares of the Company’s common stock
were granted on October 11, 2002, with exercise price of $36.00 per share and on
expiration date of October 15, 2012. Options exercisable for 3,126 shares of the
Company’s common stock were granted on November 16, 2004, with exercise price of
$96.00 per share and an expiration date of November 16, 2014.
See
report of independent registered public accounting firm.
F-26
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Under the
Option Plan, there were outstanding options exercisable to 6,332 shares of the
Company’s common stock. Options exercisable for 6,059 shares of the Company’s
common stock were granted on November 14, 2004, with exercise price of $96.00
per share and expire on November 14, 2014. Options exercisable for 273 shares of
the Company’s common stock were granted on May 2, 2003, with an exercise price
of $60.00 per share and an expiration date of May 2, 2010.
Those
outstanding options were fully vested before the reserve acquisition was
completed on February 5, 2010, and through June 30, 2010 no additional options
have been granted, and options under Option Plan exercisable for 273 shares of
the Company’s common stock were forfeit.
The
following consisted of the outstanding and exercisable options at June 30,
2010
|
Outstanding Options
|
Exercisable Options
|
||||||||||||||
|
Number
|
Average
Remaining
|
Average
|
Number
|
Average
Remaining
|
Average
|
||||||||||
|
Of Options
|
Contract Life
|
Exercise Price
|
of Options
|
Contractual Life
|
Exercise Price
|
||||||||||
|
10,851
|
4.02
years
|
$ | 86.00 |
10,851
|
4.02
years
|
$ | 86.00 | ||||||||
A summary
of changes in options activity is presented as follows:
|
Options
|
||||
|
Outstanding,
June 30, 2009
|
- | |||
|
Granted
|
11,124 | |||
|
Forfeited
|
273 | |||
|
Exercised
|
- | |||
|
Outstanding,
June 30, 2010
|
10,851 | |||
Warrants
In
connection with the equity financing disclosed in Note 17, the Company issued
warrants exercisable into 4,039,636 shares of the Company’s common stock. In
addition, the Company had existing warrants exercisable into 36,973 shares of
the Company’s common stock (“Existing warrants”) outstanding on February 5,
2010.
The
Company adopted the provisions of an accounting standard regarding instrument
that are Indexed to an Entity’s Own Stock. This accounting standard
specifies that a contract that would otherwise meet the definition of a
derivative but is both (a) indexed to the Company’s own stock and (b) classified
in stockholders’ equity in the statement of financial position would not be
considered a derivative financial instrument. It provides a new two-step
model to be applied in determining whether a financial instrument or an embedded
feature is indexed to an issuer’s own stock and thus able to qualify for the
scope exception within the standards.
As a
result, the Existing warrants previously treated as equity pursuant to the
derivative treatment exemption are no longer afforded equity treatment because
the strike price of the warrants is denominated in US dollar, a currency other
than the Company’s functional currency RMB. Therefore the warrants are not
considered indexed to the Company’s own stock, and as such, all future changes
in the fair value of these warrants will be recognized currently in earnings
until such time as the warrants are exercised or expire. The Company
reclassified the fair value of the Existing warrants of $631,002 from equity to
liability status as if these warrants were treated as a derivative liability at
February 5, 2010.
See
report of independent registered public accounting firm.
F-27
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
The newly
issued warrants exercisable into 4,039,636 shares of the Company’s common stock
were also recorded as derivative instruments on the corresponding issuance
dates.
The value
of warrants liabilities was $30,436,087 at June 30, 2010 and $94,605,650 at the
issuance dates. The decrease of fair value of warrants resulted in $64,169,563
gain on change in fair value of warrants. This gain offset by the excess amount
of the fair value of warrants at the issuance dates and the gross cash proceeds
through equity financing of $40,153,156(See Note 19), resulting in net gain on
change value of warrants of $24,016,407 for the year ended June 30,
2010.
A summary
of changes in warrant activity is presented as follows:
|
Existing warrants
@$48.00 (1)
|
Investor
warrants
@12.00 (2)
|
Callable
warrants
@$12.00
(3)(5)
|
Callable
warrants
@6.00
(4)(5)
|
Total
|
||||||||||||||||
|
Outstanding,
June 30, 2009
|
- | - | - | - | ||||||||||||||||
|
Granted
|
36,973 | 590,446 | 3,199,190 | 250,000 | 4,076,609 | |||||||||||||||
|
Forfeited
|
- | - | - | - | - | |||||||||||||||
|
Exercised
|
||||||||||||||||||||
|
Outstanding,
June 30, 2010
|
36,973 | 590,446 | 3,199,190 | 250,000 | 4,076,609 | |||||||||||||||
|
|
(1)
|
The
warrants underlying 36,973 shares of the Company’s common stock are
exercisable at any time until April 9, 2017 and with remaining contractual
term of 6.78 years as of June 30,
2010.
|
|
|
(2)
|
The
warrants underlying 590,446 shares of the Company’s common stock are
exercisable at any time until February 5, 2015, with remaining contractual
term of 4.61 years as of June 30,
2010.
|
|
|
(3)
|
The
warrants underlying 3,082,027 and 117,163 shares of the Company’s common
stock are exercisable at any time until March 11, 2015 and March 18, 2015,
respectively, with remaining contractual term of 4.70 and 4.72 years as of
June 30, 2010, respectively.
|
|
|
(4)
|
The
warrants underlying 250,000 shares of the Company’s common stock are
exercisable until March 11, 2015, with remaining contractual term of
4.70 years as of June 30, 2010.
|
|
|
(5)
|
The
Callable warrants are exercisable for a period of five years from the date
of issuance, and are callable at the Company’s election six months after
the date of issuance if the Company’s common stock treads at a price equal
to at least 150% of the exercise price with an average trading
volume of at least 150,000 shares of Common Stock (as adjusted for any
stock splits, stock dividends, combination and the like) per trading date
for at least 10 consecutive trading days and the underlying shares of
common stock are registered.
|
See
report of independent registered public accounting firm.
F-28
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
Note
21 – Earnings per Share
The
following is a reconciliation of the basic and diluted earnings per share
computation:
|
2010
|
2009
|
|||||||
|
Net
income for earnings per share
|
$ | 38,934,497 | $ | 16,967,525 | ||||
|
Weighted
average shares used in basic computation
|
15,623,823 | 13,117,952 | ||||||
|
Diluted
effect of warrants
|
318,628 | - | ||||||
|
Weighted
average shares used in diluted computation
|
15,942,451 | 13,117,952 | ||||||
|
Earnings
per share - Basic
|
$ | 2.49 | $ | 1.29 | ||||
|
Earnings
per share – Diluted
|
$ | 2.44 | $ | 1.29 | ||||
As of
June 30, 2010, the Company had warrants and option exercisable in aggregate of
4,087,460 of the Company’s common stock. For the year ended June 30, 2010, all
outstanding options were excluded from the diluted earnings per share
calculation due to the anti-dilution feature while warrants underlying 4,039,631
shares of the Company’s common stock were included in the diluted earnings per
share calculation using treasury method. The Company had no warrants
and options outstanding on June 30, 2009, and therefore no diluted effect on the
earnings per share calculation for year ended June 30, 2009.
Note
22 – Commitments and contingencies
Land Use
Option
The
Company’s VIE, Hongli, entered an agreement with the Henan Province
Pingdingshan Municipal Bureau of Land and Resources on December 9, 2008 to
permit Hongli to acquire land use rights for up to 1,270,000 square meters of
industrial-zoned vacant land in Baofeng County. Per the agreement, the
total cost to acquire these land use rights is $21,954,490 (or RMB 149,860,000).
Under the agreement, the Company could have, but was not obligated to, pay
the foregoing amount to acquire the land use rights, and the Company would not
incur any penalty if it did not exercise its option to acquire the land use
rights. Hongli could have also acquired rights to all or any lesser
portion of the land as it may elect, and the total cost would have been
pro-rated accordingly. The Pingdingshan Municipal Bureau of Land and
Resources granted Hongli an extension of the option exercise period November
2009, and accordingly Hongli could have exercised its option to acquire the
aforesaid land use rights by making payment by the end of June 30, 2010.
The Company decided not to exercise its option to acquire the land use rights
and thus no payments in connection with this agreement were made as of June 30,
2010.
Purchase Commitment
The
Company entered into several contracts with contractors and suppliers
for the construction of the new coking facility and purchasing
equipment. As of June 30, 2010, the total contract amount was approximately
$32,156,000. The Company had make payments for approximately of $20,620,000, and
the remaining $11,536,000 will be paid based on the construction
progress.
Note
23 – Statutory reserves
The laws
and regulations of the PRC require that before foreign invested enterprise can
legally distribute profits, it must first satisfy all tax liabilities, provide
for losses in previous years, and make allocations, in proportions determined at
the discretion of the board of directors, after the statutory reserves. The
statutory reserves include the statutory surplus reserve fund and the enterprise
expansion fund.
See
report of independent registered public accounting firm.
F-29
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
The
Company is required to transfer 10% of its net income, as determined in
accordance with the PRC Company Law, to the statutory surplus reserve fund until
such reserve balance reaches 50% of the Company’s registered capital. The
transfer must be made before distribution of any dividends to shareholders. The
surplus reserve fund is non-distributable other than during liquidation and can
be used to fund previous years’ losses, if any, and may be utilized for business
expansion or converted into share capital by issuing new shares to existing
shareholders in proportion to their shareholdings or by increasing the par value
of the shares currently held by them, provided that the remaining reserve
balance after such issue is not less than 25% of the registered
capital.
The
enterprise fund may be used to acquire plant and equipment or to increase the
working capital to expend on production and operation of the business. No
minimum contribution is required
As of
June 30, 2010, the Company’s VIE Hongli and Hongchang’s statutory surplus
reserves both had reached 50% of each entity’s registered capital and
Hongguang did not make any contribution to the statutory reserve resulting from
their net operating losses.
Hongchang
coal is required by the PRC government to reserve safety and maintenance expense
to the cost of production based on the actual quantity of coal exploited.
The amount of reserves is determined within the unit price range provided by
Ministry of Finance of PRC. Currently, Hongchang Coal reserves at RMB 6
per metric ton for safety expense and RMB 8.5 per metric
ton for maintenance expense.
The
component of statutory reserves and the future contributions required pursuant
to PRC Company Law are as follows as of June 30, 2010 and 2009:
|
June 30, 2010
|
June 30, 2009
|
50% of
registered
capital
|
Future
contributions
required as of
June 30, 2010
|
|||||||||||||
|
Hongli
|
$
|
548,204
|
$
|
548,204
|
$
|
548,204
|
$
|
-
|
||||||||
|
Hongguang
|
-
|
-
|
1,514,590
|
1,514,590
|
||||||||||||
|
Hongchang
|
218,361
|
25,208
|
218,361
|
-
|
||||||||||||
|
Hongyuan
|
-
|
-
|
1,500,000
|
1,500,000
|
||||||||||||
|
Statutory
surplus reserve
|
766,565
|
573,412
|
3,781,155
|
3,014,590
|
||||||||||||
|
Mine
reproduction reserve
|
1,070,830
|
554,298
|
-
|
-
|
||||||||||||
|
Total
statutory reserve
|
$
|
1,837,395
|
$
|
1,127,710
|
$
|
3,781,155
|
$
|
3,014,590
|
||||||||
Note
25 – Related party transactions
The
Company also advanced funds to Mr. Hui Zheng, the Director and Vice President of
Operation, for him to perform business and acquisition developments activities
on behalf the Company. As of June 30, 2010 and 2009, due from Mr. Hui Zheng
amounted to $418,410 and $0, respectively. Mr. Zheng had returned
the full amount of unused funds of $418,410 to the Company by the end of August
2010.
The
Company borrowed funds from Mr. Jianhua Lv, a majority shareholder, President
and CEO of the Company, and Mr. Liuchang Yang, Director and Vice President. Mr.
Lv and Mr. Yang provided the funds for the Company’s acquisitions of the coal
mine, Baofeng Coking and to fund construction of the power plant. These loans
are unsecured, payable on demand and bear no interest.
The
Company had paid off the loans related to the aforementioned business
acquisitions before June 30, 2009. Mr. Lv and Mr. Yang also advanced monies to
the Company for daily operations. The Company overpaid Mr. Yang and resulting in
receivable from Mr. Yang amounted to $58,642 as of June 30, 2010. Mr. Yang
returned the overpayment amount of $58,642 on September 26, 2010.
See
report of independent registered public accounting firm.
F-30
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
The
Company imputed the interest on loans from Mr. Lv and Mr. Yang based on the
prevailing rate which was 5.31% and 8.89% for the years ended June 30, 2010 and
2009, respectively. Imputed interest on the loans from related parties amounted
$67,269 and $490,274 for the years ended June 30, 2010 and 2009,
respectively. Imputed interest was transferred to additional paid-in
capital.
Payables
to Mr. Lv, and Mr. Yang as of June 30, 2010 and 2009 are as
follows:
|
Due to Related
Parties
|
June 30,
2010
|
June 30, 2009
|
Term
|
Manner of Settlement
|
|||||||
|
Mr.
Jianhua Lv
|
$ | 51,381 | $ | 1,281,304 |
Short
term
|
Cash
|
|||||
|
Mr.
Liuchang Yang
|
- | 259,033 |
Short
term
|
Cash
|
|||||||
|
Total
|
$ | 51,381 | $ | 1,540,337 | |||||||
Note
26 – Subsequent events
Additional note
payable
On July
2, 2010 and July 22, 2010, the Company entered into two note payable agreements
with a local bank and the bank agreed to extend to the Company a line of credit
in the total amount of $8,838,000 (RMB30 million per each agreement) maturing on
January 2, 2011 and January 22, 2011, respectively. The bank required the
Company to deposit 50% of the note payable outstanding balance at the bank as a
guarantee deposit and the Company had deposited $4,419,000 before June 30, 2010
and recorded it as restricted cash. In addition, the bank will charge
processing fees based on 0.05% of the face value of the note.
Effective of registration
form S-1
The
Company’s registration statement Form S-1 was declared effective by
the SEC on September 13, 2010.
Coal mine
acquisition
On August
10, 2010, Hongli entered two equity purchase agreements to acquire 60% of equity
interests of Baofeng Shuangrui Coal Co., Ltd., which operates Shuangrui Coal
Mine, and Baofeng Xingsheng Coal Co., Ltd., which operates Xingsheng Coal Mine,
for total consideration of approximately $12.4 million. The coal mines, located
in Baofeng County, Henan Province, are similar in size, each with 2 million
metric tons of estimated coal reserves. Each mining company’s annual coal
production is currently 150,000 metric tons.
Pursuant
to the Agreements, Hongli will pay the owners of each mining company an
aggregate purchase price of $6.2 million in cash, of which approximately $1.5
million was provided as a refundable deposit to examine the financial
information, licenses, and reserve data.
See
report of independent registered public accounting firm.
F-31
SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
The
purchase will be made under the following schedule for each mining
company:
1)
$1.77
million within 30 business days from August 10, 2010, and the Company paid $1.47
million in July 2010;
2) $0.7
million within 20 business days from the completion of the transfer of equity
interests to Hongli;
3) $0.7
million within six months from the completion of the transfer of equity
interests to Hongli;
4) The
remaining balance within one year from the completion of the transfer of equity
interests to Hongli;
5) If
total annual output is less than 150,000 metric tons, Hongli is entitled to an
additional 10% of equity interests; and
6) If
coal reserves are less than 2 million metric tons, Hongli is entitled to an
additional 10% of equity interests.
As of
September 28, 2010, the company has prepaid $5.89 million (RMB40 million)
relating to those two acquisitions.
Raw material purchase
agreement
On August
27, 2010, the Company entered into an agreement with Zhengyun Coal Distribution
Co., Ltd. (“Zhengyun Coal”) to purchase up to 3 million metric tons of raw and
clean coal annually. Zhengyun Coal is a subsidiary and the sales division
of Zhengzhou Coal Industry Group, a coal mining companies in Henan Province. The
Company has signed monthly purchase orders with Zhengyun Coal to
deliver in total 40,000 metric tons of raw coal in August and September
2010.
Increase of registered
capital in Hongli
In order
for Hongli, the Company’s VIE, to retain its coal trading license, the local
government required Hongli to increase its registered capital. To
facilitate the retention of its coal trading license, the shareholders of Hongli
satisfied the required payments for Hongli’s increased registered capital of
$2,946,000 (RMB 20,000,000) effectively on August 26, 2010. Hongli is in
the process of registering the capital with the appropriate legal
authority. The shareholders of Hongli and Top Favour (BVI), through
Hongyuan, are also in the process of amending the Contractual Arrangements in
relation to the increased registered capital, voting control, and the right and
option to acquire the additional equity interests in the Operating
Companies.
See
report of independent registered public accounting firm.
F-32
_________,
2010
11,384,566
Shares
SinoCoking
Coal and Coke
Chemical
Industries, Inc.
Common
Stock
PROSPECTUS
Until
, all
dealers that buy, sell or trade shares of our common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers’ obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The
following table sets forth the costs and expenses, payable by the Company in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee.
|
Securities
and Exchange Commission registration fee
|
$ | 12,451.16 | ||
|
Printing
and engraving expenses
|
1,000.00 | * | ||
|
Blue
Sky fees and expenses
|
1,000.00 | * | ||
|
Legal
fees and expenses
|
75,000.00 | * | ||
|
Accounting
fees and expenses
|
25,000.00 | * | ||
|
Miscellaneous
|
5,000.00 | * | ||
|
Total
|
$ | 119,451.16 |
*
Estimated
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant
to our Articles of Incorporation, the Company will indemnify any of its officers
and directors or any former officer or directors for such expenses and
liabilities, in such manner, under such circumstances to such extent as
permitted by the Florida Business Corporation Act, Section 607.0850, as
amended.
Florida
law permits a corporation, under specified circumstances, to indemnify its
directors, officers, employees or agents against expenses (including attorney’s
fees), judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, that is, one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they will have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification will be made if such person has been
adjudged liable to the corporation, unless and only to the extent that the court
in which the action or suit was brought determines upon application that
the defendant directors, officers, employees or agents are fairly and reasonably
entitled to indemnity for such expenses despite such adjudication of
liability.
Our
Articles of Incorporation contain a provision stating that no director will be
liable to the Company or to its shareholders for monetary damages for breach of
fiduciary duty as a director. The intention of the foregoing provisions is
to eliminate the liability of our directors to the fullest extent permitted by
Florida law.
The
Company maintains a policy of directors’ and officers’ liability insurance for
the purpose of indemnification.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
109
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES
The
following is a summary of our transactions during the last three years involving
sales of our securities that were not registered under the Securities Act of
1933, as amended (the “Act”):
On April
9, 2007, Mr. Abdul Ladha, our former Chief Executive Officer, President, Chief
Financial Officer and a director entered into a Securities Purchase Agreement
with the Company pursuant to which he purchased units consisting of one share of
common stock and warrants to purchase three shares of common stock, at a price
of $0.20 per unit. Mr. Ladha purchased a total of 2,941,175 units,
representing 2,941,175 shares of common stock and warrants to purchase
additional 8,823,525 shares, for a total purchase price of $588,235. The
warrants have an exercise price of $0.20, a term of 10 years and will expire, if
not exercised, on April 9, 2017. The issuances of our securities in
connection with this transaction was exempt from registration requirements in
reliance on Section 4(2) of the Securities Act of 1933. The Company did not
engage in general solicitation or advertising in making this offering and the
acquirer occupied an insider status relative to the Company that
afforded to him effective access to the information registration would
otherwise provide.
On August
19, 2008 Abdul Ladha, our former Chief Executive Officer, President, Chief
Financial Officer and a director, entered into an Agreement to Convert Debt (the
“Conversion Agreement”) pursuant to which Mr. Ladha agreed to accept units
consisting of 1 share of our common stock and a warrant to purchase 1.5 shares
of our common stock as partial payment of certain loans made to us. On
July 15, 2008, Mr. Ladha loaned us $124,762.95 in principal amount and on July
24, 2008 Mr. Ladha loaned us $374,288.85 in principal amount. The loans
accrued interest at the prime rate as announced by Royal Bank of Canada plus 1%
and were due on demand. Pursuant to the Conversion Agreement, Mr. Ladha
agreed to accept units consisting of 4,800,000 shares of common stock and a
warrant for the purchase of 7,200,000 shares of common stock as full payment of
$384,000 in principal amount of the loans. The number of units to be
issued was computed by using the last sale price of our common stock on Tuesday,
August 19, 2008, which was $0.08. The warrant exercise price was $0.09 and
the warrant term was 5 years. The units were to be issued to Mr. Ladha
immediately following approval of our additional listing application by the
American Stock Exchange. The American Stock Exchange approved the listing
application on October 2, 2008. On that date, Mr. Ladha exercised the
warrant to purchase all 7,200,000 shares of common stock. The issuances of
our common stock in connection with the Conversion Agreement and the exercise of
the warrant were exempt from registration requirements in reliance on Section
4(2) of the Securities Act of 1933. The Company did not engage in general
solicitation or advertising in making this offering and the acquirer occupied an
insider status relative to the Company that afforded to him effective access to
the information registration would otherwise provide.
On
October 6, 2008, in conjunction with the execution of a Development Agreement
among the Company, Abdul Ladha, who was our former chief executive officer,
chief financial officer and a director, Overture Development Corporation, Surrey
Central City Holdings Ltd. and Bullion Reef Holdings Ltd., we issued a
convertible promissory note (the “Note”) for the purchase of one-half of the
issued capital stock of Surrey Central City Holdings Ltd., a corporation wholly
owned by Bullion Reef Holdings Ltd. The sole shareholder of Bullion Reef
Holdings Ltd. is the Ladha Family Trust (the “Trust”). Although Mr. Ladha
is not a beneficiary of the Trust, his family members are beneficiaries.
The Development Agreement and the Note permitted Bullion Reef Holdings Ltd. to
convert up to $1 million in principal amount and all of the interest accrued
thereon into shares of our common stock at the price of $0.432 per share.
The issuance of the Note was exempt from registration pursuant to Regulation D,
as promulgated under the Securities Act (“Regulation D”). We made this
determination based on the representations of the Note holder, which included,
in pertinent part, that it was an “accredited investor” as that term is defined
in Regulation D and that it was acquiring our securities, for investment
purposes for their own respective accounts and not as nominees or agents, and
not with a view to the resale or distribution thereof, and that they
understood that the securities may not be sold or otherwise disposed of without
registration under the Securities Act or an applicable exemption
therefrom.
On April
30, 2009, Bullion Reef Holdings Ltd. assigned the Note (as defined in the
October 6, 2008 transaction discussed immediately above), one-half to Mr. Abdul
Ladha and one-half to his spouse, Mrs. Hanifa Ladha. On July 27, 2009 Mr.
and Mrs. Ladha each converted his or her interest in the Note into 1,204,021
shares of our common stock, which represented a conversion by each of them of
$500,000 in principal amount and $20,136.99 in accrued interest. The
issuance of the common stock in connection with the conversion of the Note was
exempt from registration pursuant to Regulation D. We made this
determination based on the representations of the investors, which included, in
pertinent part, that they were “accredited investors” as that term is defined in
Regulation D and that it was acquiring our securities, for investment purposes
for their own respective accounts and not as nominees or agents, and not with a
view to the resale or distribution thereof, and that they understood that the
securities may not be sold or otherwise disposed of without registration
under the Securities Act or an applicable exemption therefrom.
110
On
February 5, 2010, pursuant to the Exchange Agreement, as amended, for the
Acquisition of Top Favour, we issued 13,117,952 shares of our common stock to
the Top Favour Shareholders in exchange for 100% of the issued and outstanding
capital stock of Top Favour. The issuance of these securities was exempt
from registration pursuant to Regulation D and Regulation S. We made this
determination based on the representations of the Top Favour Shareholders, which
included, in pertinent part, that they were either “accredited investors” as
that term is defined in Regulation D, or that they were not a "U.S. person" as
that term is defined in Rule 902(k) of Regulation S under the Securities Act,
and that they were acquiring our securities, for investment purposes for their
own respective accounts and not as nominees or agents, and not with a view to
the resale or distribution thereof, and that they understood that the securities
may not be sold or otherwise disposed of without registration under the
Securities Act or an applicable exemption therefrom.
On
February 5, 2010, the Company executed a private placement financing in which it
sold and issued 1,180,892 units, at a purchase price of USD $6.00 per unit, to
34 non-U.S. investors under Regulation S, as promulgated under the Securities
Act of 1933. Each unit consists of one (1) share of common stock and a
warrant for the purchase of 0.5 shares of common stock with an exercise price of
$12.00 per share. The investor warrants are exercisable for a period of
five years from the date of issuance. The issuance of these shares was exempt
from registration pursuant to Regulation S. We made this determination
based on the representations of the investors, which included, in pertinent
part, that such investors were not a "U.S. person" as that term is defined in
Rule 902(k) of Regulation S under the Securities Act, and that such investors
were acquiring our securities, for investment purposes for their own respective
accounts and not as nominees or agents, and not with a view to the resale or
distribution thereof, and that such investors understood that the securities may
not be sold or otherwise disposed of without registration under the Securities
Act or an applicable exemption therefrom.
On March
11, 2010, the Company executed a private placement financing in which it sold
and issued an aggregate 6,164,043 units, at a purchase price of USD $6.00 per
unit, to 104 U.S. investors under Regulation D, as promulgated under the
Securities Act (“Regulation D”) and 17 non-U.S. investors under Regulation S, as
promulgated under the Securities Act of 1933 (“Regulation S”). Each unit
consists of one (1) share of common stock and a warrant for the purchase of 0.5
shares of common stock with an exercise price of $12.00 per share. The
investor warrants are exercisable for a period of five years from the date of
issuance. In addition, we issued warrants for the purchase of an aggregate
367,163 shares of common stock to placement agents Madison Williams and Rodman
& Renshaw as compensation for their services in connection with the March
Financing and the February Financing (described above). The issuance of
these securities was exempt from registration pursuant to Regulation D and
Regulation S. We made this determination based on the representations of the
investors, which included, in pertinent part, that the investors were
“accredited investors” as that term is defined in Regulation D, or that the
investors were not a "U.S. person" as that term is defined in Rule 902(k) of
Regulation S under the Securities Act, and that such investors were acquiring
our securities, for investment purposes for their own respective accounts
and not as nominees or agents, and not with a view to the resale or distribution
thereof, and that such investors understood that the securities may not be sold
or otherwise disposed of without registration under the Securities Act or an
applicable exemption therefrom.
ITEM
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
Exhibits
See
“Exhibit Index” below, which follows the signature page to this registration
statement.
(b)
Financial Statement Schedules
111
See the
index to Financial Statements included on page F-1 for a list of the Financials
Statements in this registration statement.
ITEM
17. UNDERTAKINGS
(a)
The undersigned registrant hereby
undertakes:
|
|
(1)
|
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
|
|
|
(i)
|
To
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933 (the "Securities Act");
|
|
|
(ii)
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus file with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the
effective registration statement;
and
|
|
|
(iii)
|
Include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration
statement.
|
|
|
(2)
|
That,
for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement of relating to the securities offered therein, and
the offering of the such securities at that time shall be deemed to be the
initial bona fide offering thereof.
|
|
|
(3)
|
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
|
|
|
(4)
|
That,
for the purpose of determining liability under the Securities Act of 1933
to any purchaser, if the registrant is subject to Rule 430C, each
prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements
relying on Rule 430B or other than prospectuses filed in reliance on Rule
430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or prospectus
that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration
statement
|
will, as
to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
112
|
(b)
|
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
|
113
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Pingdingshan, Henan
Province, People’s Republic of China on October 5, 2010.
|
SINOCOKING
COAL AND COKE
|
|
|
CHEMICAL
INDUSTRIES, INC.
|
|
|
By:
|
/s/ Jianhua Lv
|
|
Jianhua
Lv
|
|
|
Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
By:
|
/s/ Zan Wu
|
|
Zan
(“Sam”) Wu
|
|
|
Chief Financial Officer
|
|
|
(Principal
Financial and Accounting
Officer)
|
|
Pursuant
to the requirements of the Securities Act of 1933, as amended, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated:
|
Signature
|
Title
|
Date
|
||
|
/s/ Jianhua Lv
|
October
5, 2010
|
|||
|
Jianhua
Lv
|
President,
Chief Executive Officer and Chairman of the Board
|
|||
|
/s/ Zan Wu
|
October
5, 2010
|
|||
|
Zan
(“Sam”) Wu
|
Chief
Financial Officer
|
|||
|
/s/
Hui Zheng
|
October
5, 2010
|
|||
|
Hui
Zheng
|
Vice
President of Operations and Director
|
|||
|
/s/
Liuchang Yang
|
October
5, 2010
|
|||
|
Liuchang
Yang
|
Vice
President, Secretary and Director
|
|||
|
/s/
Yushan Jiang
|
October
5, 2010
|
|||
|
Yushan
Jiang
|
Director
|
|||
|
/s/
Jin Yao
|
October
5, 2010
|
|||
|
Jin
Yao
|
Director
|
|||
|
/s/
Haoyi Zhang
|
October
5, 2010
|
|||
|
Haoyi
Zhang
|
Director
|
|||
|
/s/
Hui Huang
|
October
5, 2010
|
|||
|
Hui
Huang
|
Director
|
114
EXHIBIT
INDEX
|
Exhibit No.
|
Description
|
|
|
2.1
|
Share
Exchange Agreement dated July 17, 2009 between Ableauctions.com, Inc.,
Abdul Ladha and Hanifa Ladha and Top Favour Limited and the shareholders
of Top Favour Limited (13)
|
|
|
2.2
|
First
Amendment to the Share Exchange Agreement between Ableauctions.com, Inc.,
Abdul Ladha and Hanifa Ladha and Top Favour Limited and the shareholders
of Top Favour Limited dated November 25, 2009 (17)
|
|
|
3.1
|
Articles
of Incorporation, as amended (incorporated by reference to Exhibits 3.1,
3.2, 3.3, 3.4 and 3.5 of the Registration Statement on Form 10-SB)
(1)
|
|
|
3.2
|
Articles
of Amendment to Articles of Incorporation (2)
|
|
|
3.3
|
Bylaws
(Incorporated by reference to Exhibit 3.6 of the Registration Statement on
Form 10-SB) (1)
|
|
|
4.1
|
Specimen
Stock Certificate of SinoCoking Coal and Coke Chemical Industries, Inc.
(2)
|
|
|
5.1
|
Opinion
of Richardson & Patel LLP (22)
|
|
|
10.1
|
1999
Stock Option Plan (Incorporated by reference to Exhibit 4.2 of the
Registration Statement on Form S-8 (4)
|
|
|
10.2
|
2002
Stock Option Plan for Directors (3)
|
|
|
10.3
|
2002
Consultant Stock Plan (5)
|
|
|
10.4
|
Joint
Venture Agreement dated July 28, 2006 between Stanford Development
Corporation, Canitalia Industries Ltd. and 44991 B.C. Ltd.
(6)
|
|
|
10.5
|
Employment
Agreement dated April 1, 2002 between Abdul Ladha and the
Company**
|
|
|
10.6
|
Securities
Purchase Agreement dated April 9, 2007 (7)**
|
|
|
10.7
|
Warrant
Agreement dated April 9, 2007 (7)**
|
|
|
10.8
|
Letter
Agreement between Axion Investment Corp. and Royal Bank of Canada
(8)
|
|
|
10.9
|
Development
Agreement dated October 6, 2008 between the Company, Abdul Ladha, Overture
Development Corporation, Surrey Central City Holdings Ltd. and Bullion
Reef Holdings Ltd. (9)**
|
|
|
10.10
|
First
Amendment dated October 22, 2008 to Development Agreement dated October 6,
2008 (10)**
|
|
|
10.11
|
Second
Amendment dated October 27, 2008 to Development Agreement dated October 6,
2008 (11)**
|
|
|
10.12
|
Third
Amendment dated January 13, 2009 to Development Agreement dated October 6,
2008 (12)**
|
|
|
10.13
|
License
Agreement dated May 15, 2009 between the Company and iCollector
Technologies Ltd. and ABC Live Auction World Ltd. (15)
|
|
|
10.14
|
License
Agreement dated June 1, 2009 between the Company and RapidFusion, Inc. and
Pacific Amber Technologies, Inc. (15)
|
|
|
10.15
|
Voting
Agreement dated July 17, 2009 between Abdul Ladha and Hanifa Ladha and Top
Favour Limited (13)
|
|
|
10.16
|
Sample
indemnity agreement between Ableauctions.com, Inc. and each of its
directors (14)
|
|
|
10.17
|
Agreement
establishing the Able (U.S.) Liquidating Trust (15)
|
|
|
10.18
|
Agreement
establishing the Able (U.S.) Distribution Trust (15)
|
|
|
10.19
|
Agreement
establishing the Able (Canada) Distribution Trust (15)
|
|
|
10.20
|
Transfer
and Assignment of Assets and Assumption of Liabilities
(15)
|
|
|
10.21
|
Form
of Securities Purchase Agreement (Regulation S) (2)
|
|
|
10.22
|
Form
of Warrant dated February 5, 2010 (Regulation S) (2)
|
|
|
10.23
|
Form
of Director’s Offer and Acceptance Letter (2)
|
|
|
10.24
|
Form
of Officer’s Offer and Acceptance Letter (2)
|
|
|
10.25
|
Consulting
Services Agreement (2)
|
|
|
10.26
|
Operating
Agreement (2)
|
|
|
10.27
|
Equity
Pledge Agreement (2)
|
|
|
10.28
|
Option
Agreement (2)
|
|
|
10.29
|
Voting
Rights Proxy Agreement (2)
|
115
|
10.30
|
Lease
Agreement (2)
|
|
|
10.31
|
Form
of Warrant dated March 11, 2010 (Regulation S) (18)
|
|
|
10.32
|
Form
of Securities Purchase Agreement (Regulation D) (18)
|
|
|
10.33
|
Form
of Registration Rights Agreement (18)
|
|
|
10.34
|
Form
of Warrant dated March 11, 2010 (Regulation D) (18)
|
|
|
10.35
|
Placement
Agent Agreement (18)
|
|
|
10.36
|
Equity
Interests Transfer Agreement between Henen Province Pingdingshan Hongli
Coal & Coke Co., Ltd. on the one hand, and Dongping Wu, Xiaoling Zhao
and Dianqing Li on the other, for the Shuangrui Equity Interests dated as
of August 10, 2010 (21)
|
|
|
10.37
|
Equity
Interests Transfer Agreement between Henan Province Pingdingshan Hongli
Coal & Coke Co., Ltd. on the one hand, and Mingxun Du and Xingling Li
on the other, for the Xingsheng Equity Interests dated as of August 10,
2010 (21)
|
|
|
14
|
Code
of Ethics (16)
|
|
|
21.2
|
Subsidiaries
of SinoCoking Coal and Coke Chemical Industries, Inc.
(15)
|
|
|
23.1
|
Consent
of Frazer & Frost LLP*
|
|
|
23.2
|
Consent
of Richardson & Patel LLP (included in Exhibit 5.1)
(22)
|
|
|
24.1
|
Power
of attorney (included as a part of the signature page to registration
statement) (20)
|
|
|
99.1
|
Legal
Opinion of Allbright Law Offices
(2)
|
*
Filed herewith.
** Denotes
an agreement with management.
|
(1)
|
Incorporated
by reference to the Form 10-SB filed by the Company with the Securities
and Exchange Commission on November 18,
1999.
|
|
(2)
|
Incorporated
by reference to the Current Report on Form 8-K filed by the Company with
the Securities and Exchange Commission on February 8,
2010.
|
|
(3)
|
Incorporated
by reference to the Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002 filed by the Company with the Securities and Exchange
Commission on March 27, 2003.
|
|
(4)
|
Incorporated
by reference to the Form S-8 Registration Statement filed by the Company
with the Securities and Exchange Commission on June 13,
2003.
|
|
(5)
|
Incorporated
by reference to the Form S-8 Registration Statement filed by the Company
with the Securities and Exchange Commission on May 8,
2002.
|
|
(6)
|
Incorporated
by reference to the Quarterly Report on Form 10-QSB for the period ended
September 30, 2006 filed by the Company on November 13,
2006.
|
|
(7)
|
Incorporated
by reference to the Current Report on Form 8-K filed by the Company with
the Securities and Exchange Commission on April 11,
2007.
|
|
(8)
|
Incorporated
by reference to the Current Report on Form 8-K filed by the Company with
the Securities and Exchange Commission on July 30,
2007.
|
|
(9)
|
Incorporated
by reference to the Current Report on Form 8-K filed by the Company with
the Securities and Exchange Commission on October 9,
2008.
|
|
(10)
|
Incorporated
by reference to the Current Report on Form 8-K filed by the Company with
the Securities and Exchange Commission on October 23,
2008.
|
|
(11)
|
Incorporated
by reference to the Current Report on Form 8-K filed by the Company with
the Securities and Exchange Commission on November 3,
2008.
|
116
|
(12)
|
Incorporated
by reference to the Current Report on Form 8-K filed by the Company with
the Securities and Exchange Commission on January 15,
2009.
|
|
(13)
|
Incorporated
by reference to the Current Report on Form 8-K filed by the Company with
the Securities and Exchange Commission on July 17,
2009.
|
|
(14)
|
Incorporated
by reference to the registration statement on Form S-1 filed by the
Company with the Securities and Exchange Commission on July 2,
2002.
|
|
(15)
|
Incorporated
by reference to the registration statement on Form 10-K filed by the
Company with the Securities and Exchange Commission on March 31,
2010.
|
|
(16)
|
Incorporated
by reference to the Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2003 filed by the Company on March 30,
2004.
|
|
(17)
|
Incorporated
by reference to the Form 8-K Current Report filed by the Company with the
Securities and Exchange Commission on November 25,
2009.
|
|
(18)
|
Incorporated
by reference to the Form 8-K Current Report filed by the Company with the
Securities and Exchange Commission on March 15,
2010.
|
|
(19)
|
Incorporated
by reference to the registration statement on Form S-1 filed by the
Company with the Securities and Exchange Commission on May 11,
2010.
|
|
(20)
|
Incorporated
by reference to the registration statement on Form S-1/A filed by the
Company with the Securities and Exchange Commission on July 20,
2010.
|
|
(21)
|
Incorporated
by reference to the Form 8-K Current Report filed by the Company with the
Securities and Exchange Commission on August 10,
2010.
|
|
(22)
|
Incorporated
by reference to the registration statement on Form S-1/A filed by the
Company with the Securities and Exchange Commission on August 25,
2010.
|
117