UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

——————————

FORM 10-Q

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED ON JANUARY 31, 2014.

OR

[  ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 000-32505 

L & L ENERGY, INC.

 (Exact name of Registrant as specified in its charter)

Registrant's telephone number, including area code: (206) 264-8065

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes [X] No [   ] 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [  ] 

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.

Large accelerated filer [  ]     Accelerated filer [X]    Non-accelerated filer [  ]     Smaller reporting company [  ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes [   ] No [X]

Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of March 17, 2014, there were 43,470,705 shares of common stock outstanding, with par value of $0.001.

1

L & L ENERGY, INC.

Form 10-Q Quarterly Report

When we use the terms "we," "us," "our," "L & L" and "the Company," we mean L & L ENERGY, INC., a Nevada corporation, and its subsidiaries.

This report contains forward-looking statements that involve risks and uncertainties. Please see the sections entitled "Forward-Looking Statements" and "Risk Factors" below for important information to consider when evaluating such statements.

PART I – FINANCIAL INFORMATION

Item 1.   Financial Statements

L & L ENERGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Description of Business

L & L Energy, Inc. (“L&L” or the “Company”) is a Nevada corporation headquartered in Seattle, Washington. The Company’s China operations are based in Beijing, and its Taiwan operations are based in Taipei. The Company, which was founded 19 years ago in 1995, is an energy company.  The Company’s China operations focuses on coal and its Taiwan operations focus on clean energy. For the third quarter ended January 31, 2014, coal sales are generated entirely in China from coal mining, clean coal, coal wholesale and coal washing operations. At the present time, the Company conducts its coal (energy) operations in Yunnan and Guizhou provinces located in Southwest China. 

As of January 31, 2014, the Company has the following subsidiaries or operations in China:

·           Kunming Biaoyu Industrial Boiler Co., Ltd (KMC), which owns/controls coal wholesale operations, L&L Coal Partners (the “2 Mines” or “LLC”), which owns/controls two coal mining operations (DaPuAn Mine and SuTsong Mine) and DaPuAn Mine’s coal washing operations; KMC also owns BaoXing Economic Trade Co. which is in wholesale operations,

·           Yunnan L&L Tai Fung (“Tai Fung”), which owns/controls SeZone County Hong Xing Coal Washing Factory (“Hong Xing”) as well as coal wholesale and distribution operations. It also has access to a third party washing facility which it does not own. Hong Xing has been idled from the end of June 30, 2013.

·           Wei She Coal Mine (“WeiShe”),

·           DaXing L&L Co. Ltd.,

·           Guizhou LiWei Coal Co. Ltd.,

·           LaShu Coal Mine (“LaShu”),

·           LuoZhou Coal Mine (“LuoZhou”),

·           L&L (Taiwan) Energy Ltd.,

·           Beijing LiWeiJia Energy Technology. Ltd., and

·           GuiZhou DaFuYuan Coal Co. Ltd. (“DaFuYuan”).

Basis of Presentation

The consolidated financial statements include the accounts of L & L Energy, Inc. and its affiliates. All intercompany transactions, profits and balances have been eliminated in consolidation.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Principles

The accompanying unaudited consolidated financial statements of L&L have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods ending at January 31, 2014 presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year ended April 30, 2013, as reported in Form 10-K, have been omitted.

Principles of Consolidation

The fully consolidated financial statements include the accounts of (i) the Company, (ii) its 100% ownership of KMC, DaXing and Guizhou LiWei subsidiaries including coal wholesale, (iii) 80% of operations of LLC (“2 Mines”), (iv) 51% of WeiShe Mine, (v) 98% of TaiFung, and (ⅵ) 95% of LaShu and 95% of LuoZhou Mines. The Company fully consolidates 100% of the assets and liabilities of its subsidiaries and shows the non-controlling interests owned by their respective minority owners as Non-Controlling Interests.  The results of operations of our subsidiaries less amounts attributable to non-controlling interest owners are net income attributable to the Company.  All inter-company accounts and transactions are eliminated.

Use of Estimates

The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  By their nature, estimates are subject to an inherent degree of uncertainty.  Actual results may differ from management’s estimates.

Reclassification

Certain reclassifications have been made to current period consolidated financial statements and footnote to conform to the current period consolidated financial statement and footnote presentation. These reclassifications had no effect on net loss or cash flows as previously reported.

New Accounting Pronouncements

In July 2013, the FASB issued ASU 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) and the London Interbank Offered Rate (LIBOR) swap rate are considered as  Benchmark Interest Rate for Hedge Accounting Purposes.  Section 815-20-25-6, hedges involving the benchmark interest rate are addressed in paragraph 815-20-25-12(f) for fair value hedges) and paragraph 815-20-25-15(j) for cash flow hedges.  This amendment is effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013.  The Company adopted this guidance effective July 17, 2013 and the Company does not expect the implementation will have a material impact on its consolidated financial statements

NOTE 3. RISK FACTORS AND MANAGEMENT ACTIONS REGARDING TRADING HALT

On September 19, 2013, the Company formed a Special Independent Committee to conduct a review of allegations made against the Company by the GeoInvesting blog released on September 19, 2013. The Special Independent Committee has since engaged legal counsel and independent investigators.  On November 18, 2013, the NASDAQ Stock Market halted trading in our common stock and imposed an ongoing suspension in trading of the shares pending its request for additional information.  The issue regarding the NASDAQ's requests for additional information is ongoing and the Company's Special Independent Committee investigation is still being completed.  Management does not believe that this matter will materially affect the Company's ability to continue as an ongoing profitable concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

NOTE 4. BUSINESS COMBINATIONS

Acquisitions

For the year ended April 30, 2013, the Company acquired two businesses in the mining industry. The Company has been actively acquiring smaller coal companies who lack the capital and/or management expertise to maximize growth and safety. The Company will continue to seek opportunities to purchase other mining operations as well as coal washing and coal coking operations. The Company expects to realize operating synergies from each of the transactions, or the acquired operation has created, or will create, opportunities for the acquired entity to sell its services to our customers. Both of these factors resulted in a purchase price that contributed to the recognition of goodwill. The acquisitions are summarized as follows:

Each of the acquired businesses has been included in our results of operations since the date of closing. Accordingly, the operating results for the periods presented are not entirely comparable due to these acquisitions and related costs. In each acquisition, the excess of the purchase price over the fair value of the net identifiable assets acquired has been allocated to goodwill.

Purchase Price Allocations

The following tables summarize the estimated fair values of the assets acquired and liabilities assumed at the respective dates of acquisition for the above referenced transactions (in millions).

A brief description of each acquisition is as follows:

LuoZhou Coal Mine (“LuoZhou”) and LaShu Coal Mine (“LaShu”)

On November 18, 2012, the Company completed the acquisitions of the LuoZhou and LaShu Coal Mine when it entered into the Equity Ownership Transfer Agreement (the “Agreement”) with Guizhou Union Energy, Inc., a Chinese corporation (“Union”) and Guizhou Union Capital Investment Holding Co., Ltd., a Chinese corporation (“Union Capital”), to purchase 95% of the equity ownership interest of both LuoZhou and LaShu Coal Mine.

Under the Agreement, the purchase price for 95% of the ownership interest in both LuoZhou and LaShu Coal Mine was approximately RMB $233.3 million (equivalent to US$37.1 million). The purchase price for 95% of the ownership interest in LuoZhou was about RMB $140.5million (equivalent to US$22.3 million)and the purchase price for 95% of the ownership interest in LaShu Coal Mine was about RMB $92.9 million (equivalent to US$14.8 million), and both of these two mines (LuoZhou and LaShu) will be paid together by a cash outlay of approximately US $1.7 million and the transfer of the Company's interests in Zonelin Coking Plant (98%) and the DaPing Coal Mine (60%)which were valued at about $12.4 million and $23.0 million, respectively.  LuoZhou Coal Mine has $27 million tons of reserves. LaShu Coal Mine has $7.2 million tons of reserve.

Divestiture

Sale of HSC

In late 2009 to early 2010, the Company determined that it was in the best interest of the Company to expand on other prospective acquisitions that would provide a better return to its stockholders.  Therefore, on April 18, 2010, the Company entered into an Equity Sale and Purchase Agreement (the “Equity Sale Agreement”) with Guangxi Liuzhou Lifu Machinery Co., Ltd., whereby the Company sold its 93% equity ownership interest in HSC (Hon Shen Coal Co., Ltd.) for RMB $41,000,000 (equivalent to approximately US$6,000,000).  Guangxi Liuzhou Lifu Machinery Co., Ltd. assumed the obligation of the Company to pay to HSC RMB $23,800,000 (equivalent to approximately US$3,485,300) that remained payable to HSC pursuant to the Equity Sale and Purchase Agreement signed in December 2009.   Guangxi Liuzhou Lifu Machinery Co., Ltd. also agreed to pay the remaining balance of RMB $17,200,000(equivalent to approximately US$2,514,700) to the Company in three installments, (1) RMB $3,440,000 (approximately US$502,940) within six months of the sale, (2) RMB $5,160,000 (approximately US$754,410) between six months and twelve months after the sale, and (3) RMB $8,600,000 (approximately US$1,257,350) between twelve and twenty-four months after the sale.  Pursuant to the Equity Sale Agreement, if Guangxi Liuzhou Lifu Machinery Co., Ltd. does not make such scheduled payments, a penalty of 1% of the applicable payment will be assessed for any deadline that is missed.  Additionally, interest of 3.5% per annum of the applicable payment will be assessed as of the day after the applicable payment date.  The portions of the purchase price that are due within twelve months after the sale (i.e., the first two installments) are included as “Other receivables” on the Company’s consolidated balance sheets and the portion of the purchase price due within 24 months of the sale (i.e., the third installment) is included as a “Long-term receivable” on the Company’s consolidated balance sheets. The Company recorded US$834,181 as income from discontinued operations and recognized a gain of US$1,017,928 on the sale on April 18, 2010.  As of January 31, 2014, the outstanding receivable from the sale of HSC was US$224,453, which is expected to be received before April 30, 2014.

Sale of Ping Yi Mine

After the consideration of several factors including its continuing development strategies, the Company made the determination to dispose of the Ping Yi Mine.  On April 30, 2012, the Company entered into an Equity Sale and Purchase Agreement with Mr. Zhang, the previous owner of Ping Yi Mine, whereby the Company sold its 100% equity ownership interest in Ping Yi Mine for RMB $196,000,000, approximately US $31,000,000.  The payment was agreed to take the form of receipt with payment in two parts: (1) through receipt of coal extracted from the Ping Yi Mine subsequent to the disposal, including priority receipt of future coal from the Ping Yi Mine at a 5% discounted price compared to the market price until 70% of the payment is received; (2) through receipt of the use of Ping Yi Mine’s washing facilities subsequent to disposal, including  usage fees charged at a 3%~5% discounted price compared to the market price until 30% of the payment is received. The terms of the agreement state that full payment must be received within five years, and that 70% of total receipts must occur by the end of the third year from the date of the agreement. The Company received total payment of $1,519,999 as coal washing facilities service during this quarter.

The Company recorded $408,020 as income from discontinued operations for the year ended April 30, 2012. Additionally, the Company recorded $3,183,786 of costs to dispose related to the provision of discounting the estimated receipt of the payment over the payment term (refer to Note 5 and 11).

Sale of DaPing Coal Mine

After the consideration of several factors including its continuing development strategies, the Company made the determination to dispose of the DaPing Mine. On November 18, 2012, the Company decided to purchase two coal mines, which are LuoZhou and LaShu mines, by making a swap of the 60% equity interest in DaPing Mine and 98% equity interest in ZoneLin Coking Plant. The fair value of the 60% equity interest in DaPing was approximately $ 23 million, including $0.5 million on assets write-up per fair value measurement. The Company has no continuing involvement in the disposed business.

After the consideration of several factors including the continuing development strategies, the Company made the determination to dispose of the ZoneLin Coking Plant. On November 18, 2012, the Company decided to purchase two coal mines, which are LouZhou and LaShu Mines by making a swap of the 60% equity interest in DaPing Mine and 98% equity interest in ZoneLin Coking Plant. The fair value of the 100% equity interest in ZoneLin was RMB 77,786,000 (approximately $ 12.4 million, including $2.7 million on assets write-up per fair value measurement). The Company has no continuing involvement in the disposed business.

NOTE 5. PREPAID AND OTHER CURRENT ASSETS

Cash advances are made to coal suppliers to guarantee a certain delivery of coal to the Company at a specified time and price. Since the demand for coal is high, the Company enters into agreements with these suppliers, with cash deposits, to ensure a constant supply of coal to its washing facilities. By signing purchase agreements with suppliers which provide for the payment of deposits over a certain period of time, the company ensures that its suppliers will deliver their coal in a timely manner. Certain agreements impose penalties on the suppliers for non-compliance.

On June 10, 2013, we entered into an agreement for the prepayment of 25,000,000 RMB worth of coal with Guizhou Qian Hong Mining Resource Consulting Services, Ltd. (“Qian Hong”). On August 14, 2013, Ironridge Global IV, Ltd (“Ironridge”) agreed to complete the payment for us in exchange for free trading shares. The details of our transaction with Ironridge can be found below in NOTE 25, “Ironridge Transaction.” On August 20, 2013, pursuant to the Ironridge Transaction, Ironridge completed its payment to Qian Hong. As of October 31, 2013, the company received approximately 13% of the total amount under the prepayment agreement from Qian Hong Mining. As of January 31, 2014, the company received approximately 24% of the total amount under the prepayment agreement from Qian Hong Mining.

Additionally, the Company provides advances to employees for them to handle incidents in our mining operations as well as washing expansion projects as these facilities are far away from our operating center in Kunming and Guiyang.  There were no advances to officers or directors.

During last quarter, the Company paid a total of $2.7 million which has a current portion of $0.3 million for renting land to mine coal. This total payment will be amortized in 10 years period.

Prepaid expenses and other current assets consisted of the following:

NOTE 6. OTHER RECEIVABLES

Other receivables consisted of the following:

The Company made short-term loans to business partners in order to develop a long-term business relationship.  Such loans are considered consistent with accepted business practices in China.  These business partners are suppliers to the Company and the Company believes that these loans result in securing adequate supplies for the expansion of production capacity in its mines. As more fully discussed in Note 3, the Company sold its 100% equity ownership interest in Ping Yi Mine for RMB $196,000,000, approximately US $31,200,000 on April 30, 2012. The estimated receipt of payment is expected to generally occur within a five-year period, in accordance with the contract. As such, a valuation allowance was recorded to reflect the net present value of the payments during that period at a rate of 5%, which is with reference to the discount explicit in the agreement. The initial recording of this discount resulted in the recognition of a cost of disposal in the period when the disposal incurred, which will be accreted as interest income using the effective interest method over the life of the agreement. As of January 31, 2014, the receivable related to the disposal of the Ping Yi Mine, net of discount, amount to a total of $7,323,886 with a current portion of $7,094,403.

NOTE 7. INVENTORIES

Inventories primarily consist of coal located at facilities owned by LLC, DaXing, KMC, WeiShe,TaiFung, LuoZhou and LaShu. Inventories consisted of the following:

NOTE 8. PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT COSTS

Property, plant, equipment and mine development costs consisted of the following:

Mineral rights represent the exclusive right, granted by the Chinese government, to operate the five mines, namely DaPuAn, SuTsong, WeiShe, LuoZhou, and LaShu. The rights were acquired during the first quarter of 2008 as a result of the acquisition of the “2 Mines” on May 1, 2008 and on November 1, 2009, the acquisition of the WeiShe on February 3, 2012 and the acquisition of LuoZhou and LaShu on November 18, 2012, respectively.

The depreciation method used is based on two types of assets:

a. For fixed assets related to production, the Company uses unit of production method

b. For all other assets, the Company uses straight-line method

Depreciation expense was $2,005,264 and $6,101,572for the three and nine months ended January 31, 2014 respectively.

Depreciation expense was $2,231,774 and $5,124,945for the three and nine months ended January 31, 2013 respectively.

Amortization expense of asset retirement costs was $33,953 and $29,246 for the nine months ended January 31, 2014 and 2013.

NOTE 9.  CONSTRUCTION IN PROGRESS

Construction-in-progress includes mine development costs, ventilation and electrical system improvements, building of staff quarters, and construction of a sewage treatment system and road expansion for the washing facilities. Construction-in-progress was $49,054,291 and $34,679,059 as of January 31, 2014 and April 30, 2013, respectively.

NOTE 10.  INTANGIBLE ASSETS

Intangible assets consist of customer relationship and technology assets, and are being amortized over a period of 7 years.  Amortization expense for these assets was $63,577and $55,350 for the nine months ended January 31, 2014 and 2013, respectively. 

Intangible assets consisted of the following:

Land rights are related to the acquisition of the LuoZhou and LaShu mines.

The amortization schedule for the upcoming five years is as below (amount in thousands):        

NOTE 11. PREPAID AND OTHER ASSETS, NON-CURRENT

They represent the long-term restricted cash and the long-term prepayment. The long-term restricted cash amounts to $3,493,499 in bank deposits as of January 31, 2014, in which $3,000,000 is required to be held as collateral for a convertible note payable (see Note 17).  $2,383,037 is the long-term portion of the prepayment for a land rental. 

NOTE 12.  LONG-TERM RECEIVABLE

As more fully disclosed in Note 3 and Note 5, the Company has recorded a long-term receivable related to the disposal of the Ping Yi Mine as of January31, 2014, of $7,323,886, net of a present value discount of $3,183,786.The current portion of this balance is $7,094,403, which is included in other receivables on the accompanying consolidated balance sheets.

Related Party Notes Receivable

The Company loaned money to various entities that have non-controlling interest with the Company.

Controlling interest is defined as effective management control of the business entity or minimum 50% ownership.  “Non-controlling interest”, sometimes referred to as minority equity interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent.

The associates normally refer to business partners such as suppliers, customers, or people or party associated with our business entity.  For the purpose of this disclosure, there is no distinction between having “non-controlling interests with the Company” and “the Company having an interest in that third party”.

Related party transactions consist of due from related party, related party note receivable, related party payables, and due to officers.

Due from related party consisted of the following balances at January 31, 2014 and April 30, 2013:

Related party notes receivable consists of the following balances at January 31, 2014 and April 30, 2013:

Related Party Payable

Related party payable consisted of the following balances at January31, 2014 and April 30, 2013:

The payable to Union Energy (non-controlling interest holder of WeiShe, LuoZhou and LaShu mines), is not collateralized by any assets of the Company. The increase of payable to Robert lee is the interest accrued $342,365 in this quarter. The payable to Uninon Energy is free of interest.

  Through the Ironridge debt settlement (NOTE 25), $800,000 due to Dickson Lee was repaid by Ironridge.

  The Company has accrued interest payable of $163,373 as of January 31, 2014.

NOTE 14.  ASSET RETIREMENT OBLIGATION

With respect to the DaPuAn and SuTsong mines, the Company estimates the asset retirement obligation at a rate of 3 RMB per ton based on total reserves at the end of the useful lives of the mines. The Company expects to extract approximately 10 million tons of coal over the expected useful lives (29 and 17 years for DaPuAn and SuTsong Mine, respectively).  The interest rate used in the net present value calculation is 7%.

As for the WeiShe mine, which was acquired in February 2012, management estimates the asset retirement obligation at a rate of 3 RMB per ton based on total reserves at the end of the useful lives of the mine. The Company expects to extract approximately 19 million tons of coal over the expected useful life of thirty years. The interest rate used in the net present value calculation is 8%.

The LuoZhou and LaShu mines were acquired by the Company in November 2012. According to the mine reservation report, management expects to extract approximately 26.6 million tons of coal and 7 million tons of coal from LuoZhou and LaShu over the remaining 30 years, respectively. LuoZhou Mine and LaShu Minere are located in Guizhou Province and the management estimates the asset retirement obligation at a rate of 3RMB per ton based on total reserves at the end of the useful lives of the mines. The interest rate used in the net present value calculation of LaShu and LuoZhou mines were 29.06% and 27.01%, respectively.

During the quarter ended July 31, 2010, the Company revised the forecasted cash flows used for the net present value calculations for the DaPuAn and SuTsong mines. The revisions to estimated cash flows pertain to revisions in the estimated amount and timing of required reclamation activities throughout the lives of the respective mines and reflect changes in estimates of closure volumes, disturbed acreages and third-party unit costs as of July 31, 2010. The Company based these estimates on historical and anticipated results and trends and on various other assumptions that the Company is reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from management’s estimates. The Company evaluated the forecasted cash flows as of January 31, 2014, and no revision was deemed necessary.

The following is a summary of the change in the carrying amount of the asset retirement obligation during the period ended January 31, 2014 and the year ended April 30, 2013.

NOTE 15.  OTHER PAYABLES

Other payables consisted of the following:

None of these payables are collateralized by any assets of the Company.

NOTE 16.  TAXES PAYABLE

Taxes payable consisted of the following:

NOTE 17.  BANK LOANS

On March 19, 2013, the Company entered into a Business Loan Agreement with East West Bank of California, USA for a principal amount of $2,500,000, net of a bank fee of $15, at a fixed rate of 1.545%. This is a revolving line of credit loan to the Company for $2.5 million due on March 18, 2014. The collateral for the amount is a CD of $2,500,000 deposited with the lender. Mr. Dickson V. Lee, Chairman and CEO of the Company, acts as guarantor to the loan.

On March 22, 2013, the Company entered into a Business Loan Agreement with China Development Industrial Bank in Taiwan for a principal amount of $2,500,000 as a revolving line of credit loan. The interest rate is adjusted every three months with the fixed rate determined by the USD Libor rate plus 1.75% as shown in Reuters data source based in London at the beginning of every period. The loan expires in two years. The collateral for the amount is a CD of $2,500,000 deposited with the lender. There is no guarantor to this loan.

The Convertible Note can be converted into common shares of the Company at a conversion price $1.55 which is 80% of the 10 days volume weighted average price on Closing date.

The Investor Warrants has exercise price of $1.94 which represents the 10 days volume weighted average price of the Company stock at the Closing date and expire three years from the date of issuance.

Both the Convertible Note and Investor Warrants contain a price protection feature. If the Company, at any time or from time to time while the Convertible Note and Investor Warrants are outstanding, raises capital at a price per share that is less than the current conversion price or strike price, then the current conversion price or strike price will be adjusted downward. The Company determined the embedded conversion feature for the Convertible Note and the Investor Warrants to be a derivative liability in accordance with ASC Topic 815, Derivatives and Hedging and estimated the fair value of the derivative using Lattice Model as of December 10, 2012. Such estimates are revalued at each balance sheet date, with changes in value recorded as unrealized gains or losses in non-operating income (expense) in the Company's consolidated statements of comprehensive income.

On December 10, 2012, the Company recorded a derivative liability of $2,643,191 for the embedded conversion feature of the Convertible Note which was valued at $2,355,390 and the Investor Warrants which was valued at $287,801 and offset to an unamortized debt discount totaled $2,643,191. The debt discount will be amortized using effective interest method over 24 months. As of January 31, 2014, the Company amortized debt discount $285,548 and $671,000 as interest expense in the consolidated statements of comprehensive income for the three months and nine months ended January 31, 2014, respectively.

Pursuant to the Convertible Note, the Company agreed to establish an account with an agent designated by Phoenician and fund the account with payments from the note receivable from Bowie Resources LLC as collateral. (See Note 10) In addition, the Company agreed to file a registration statement to cover 100% of the common stock underlying the Investor Warrants to ensure Phoenician will have freely trading shares six months after shares issuance under the 144 Rule. The Company agreed to pay the one percent in common stock of the face amount of the Investor Warrants for every thirty day period, or portion thereof not declared effective within one hundred eighty days of closing, subject to a maximum of six percent if the Company shares cannot be freely traded after six months of shares issuance under the 144 Rule.

As of January 31, 2014, the outstanding balance of Convertible Note was $3,000,000 and none of the Investor Warrant shares have been exercised and therefore no common shares have been issued under the Rule.  The Company paid monthly interest on the Convertible Note.

In connection with the Convertible Note, the Company initially recorded $180,000 loan origination fee as deferred loan cost and amortized over 24 months using the effective interest method. In addition, the Company prepaid six months interest totaled $180,000 and recorded as prepaid interest.  The Company amortized loan cost of $22,692 and $67,549 as interest expense for the three months and nine months ended January 31, 2014, respectively.

During the nine months ended January 31, 2014, the fair value of the derivative instruments liability decreased by $4,405,953. This was recorded as unrealized gain on fair value of derivative instruments as non-cash expense in the accompanying consolidated statements of comprehensive income.

Activity for derivative instruments liability during the quarter ended January 31, 2014 was as follows:

The following is a summary of the assumptions used in the Lattice model as of the initial valuations of the derivative instruments issued during the quarter ended January  31, 2014 and the year ended April 30, 2013:

NOTE 19.  INCOME TAXES

Our effective tax rates were approximately 15% and 9% for the three months ended January 31, 2014 and 2013, respectively. Our effective tax rate was lower than the U.S. federal statutory rate due to the fact that our operations are carried out in foreign jurisdictions, which are subject to lower income tax rates, and the Company has net operating loss carry-forwards available to offset current and future taxable income.

NOTE 20.  STOCKHOLDERS’ EQUITY

Stock Issued for Compensation: 

For the three months ended January 31, 2014, the Company issued 50,000 shares of common stock to employees with share value of $84,000.  The Company cancelled  105,000 shares of common stock previously issued to employees with share value of $330,000.

For the three months ended January 31, 2014, the Company cancelled 536,662 shares of common stock previously issued to officers with share value of $1,610,962.

For the three months ended January 31, 2014, the Company cancelled 78,571 shares of common stock previously issued to board member with the share value of $237,500.

For the nine months ended January 31, 2014, the Company issued 76,763 shares of common stock to a board member with the share value of $345,000.

For the nine months ended January 31, 2014, the Company issued 3,333 shares of common stock to an officer with the share value of $74,298.

For the nine months ended January 31, 2014, the Company issued 125,100 shares of common stock to employees with the share value of $432,854.

For the nine months ended January 31, 2014, the Company issued 14,000 shares of common stock to an advisor with the share value of $34,760.

Share Issued for Ironridge Settlement

During the three months ended October 31, 2013, the Company issued a total of 5,933,779 shares of common stock to Ironridge Global IV, Ltd (“Ironridge”) as debt settlement, of which 1,079,915 shares was returned and cancelled.  The Company valued the net shares of 4,853,863 at the current trading price (between $2.86-$1.26) on the various issuance dates for a total value of $11,116,200.  The Company recorded the excess of the fair value of the shares over the debts settled of $6,101,488 as loss on debt settlement. (NOTE 25).

Treasury Stock:

As of January 31, 2014, the Company recovered zero shares of its common stock and owned a total of 286,595 of its own shares.

NOTE 21.  WARRANTS

Warrants Issued for Compensation

During the nine months ended of January 31, 2014 , the Company had no warrant issued or exercised for compensation.

Following is a summary of the status of warrants outstanding at January  31, 2014 :

Warrants Issued to Investors

On November 12, 2012, the Company issued 683,003 and 64,786 of four-year warrants to lenders. The warrants exercise prices are $2.10 and $1.92. The warrants are exercisable immediately.

On May 23, 2013, the Company issued warrants to purchase 232,558 shares of common stock to a lender. The warrants’ exercise price is $4.30 and it is exercisable immediately.

During the nine months ended January 31, 2014, the Company has no warrant issued or exercised to investors.

The table below is a summary of all warrants activity as of January 31, 2014:

NOTE 22.  NON-CONTROLLING INTEREST

As described in Note 1 to the consolidated financial statements, the Company has the majority controlling interest of L&L Coal Partners (2coal mining operations), Tai Fung, WeiShe, LuoZhou and LaShu. During the fiscal year 2010, the Company increased its ownership interest in L&L Coal Partners to 80% from 60% at April 30, 2009. The equity related to non-controlling interest as of July 31, 2013 represents 20% third party interest in L&L Coal Partners, 2% third party interest in Tai Fung, 49% third party interest in WeiShe, 5% third party interest in LuoZhou and 5% third party interest in LaShu. The non-controlling interest in WeiShe is measured at fair value at the acquisition date, with a discount rate of 16% which reflected the factor for lack of marketability.

Below is a schedule of changes in ownerships interest as of January31, 2014 and April 30, 2013:

NOTE 23.  EARNINGS PER SHARE

The Company had common shares, warrants and stock options issued and outstanding as of January 31, 2014.  Under the treasury stock method, the Company computed the diluted earnings per share as if all issued warrants, options and convertible debt were converted to common stock and cash proceeds were used to buy back common stock. The exercised prices of warrants and options are greater than fair market price.

NOTE 24.  COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

The Company held operating leases in the Seattle office, Beijing office, Guizhou office and Taiwan office. The leases of the Seattle office and Beijing office expire in October 2014 and December 2014, respectively.  The leases of the Guizhou office and the Taiwan office both expire in February 2014.The non-cancelable operating lease agreement requires that the Company pay certain operating expenses, including management fees to the leased premises. The future minimum rental payments in less than a year and in greater than a year are $195,923 and $0, respectively.

Legal Matters

On August 26, 2011, a federal securities law class action complaint was filed against the Company, certain officers and directors (i.e., Dickson V. Lee and Ian G. Robinson) and a former officer (i.e., Jung Mei (Rosemary) Wang) in the United States District Court, Western District of Washington at Seattle on behalf of a proposed class of all persons who purchased the common stock of the Company during the period August 13, 2009 through August 2, 2011, inclusive, and who were damaged thereby (the “Washington Securities Class Action”), alleging that the defendants violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934  by filing materially  false and misleading public statements from August 2009 to July 2011. On December 15, 2011, the court appointed Gregg Irvin as lead plaintiff, and plaintiff filed an amended complaint and a second amended complaint on February 8 and March 2, 2012, respectively, naming four other current and former directors as defendants (i.e., Shirley Kiang, Robert Lee, Dennis Bracy and Robert Okun).

On November 4, 2011, a complaint was filed by Larew P. Stouffer, in a shareholder derivative suit on behalf of the Company, which is a  nominal defendant, against certain of its then existing officers and/or directors (i.e., Dickson V. Lee, Norman Mineta, Ian G. Robinson, Robert W. Lee, Shirley Kiang, Dennis Bracy, Syd S. Peng) and certain former officers and/or directors (i.e., Edward L. Dowd, Andrew M. Leitch, Robert Okun, Joseph J. Borich, Jung Mei Wang and David Lin) in the First Judicial District Court of the State of Nevada for Carson City (the “Stouffer Derivative Suit”),  alleging that the defendants breached fiduciary duties to the Company and its shareholders, wasted corporate assets, were unjustly enriched , and committed other wrongful acts.

On November 15, 2011, a complaint was filed by Russell L. Bush,  in a shareholder derivative suit on behalf of the Company, which is a  nominal defendant, against its then existing directors (i.e., Dickson V. Lee, Norman Mineta, Ian G. Robinson, Robert W. Lee, Shirley Kiang, Dennis Bracy, Syd S. Peng) in the United States District Court, Western District of Washington at Seattle (collectively the “Washington Derivative Suits”), and along with the Stouffer Derivative Suit, the “Derivative Suits”), alleging that the defendants breached fiduciary duties and were unjustly enriched.

The Company has notified our insurance carrier of the Washington Securities Class Action, the Bush Suit and the Stouffer Suit.  The Company has also retained outside legal counsel.

On April 23, 2012, the Company and Dickson V. Lee and Ian G. Robinson filed a motion to dismiss the Washington Securities Class Action.  Proceedings in the Washington Derivative Suits were stayed pending the court’s ruling on the motion to dismiss.

On December 3, 2012, the United States District Court, Western District of Washington at Seattle granted the Company’s motion to dismiss the Securities Class Action lawsuit without prejudice, and gave plaintiff thirty days in which to seek the court’s permission to file another  amended complaint.

On January 2, 2013, plaintiff filed a motion for leave to file an amended complaint.  Pursuant to a stipulation of the parties, the court granted such leave, and on February 4, 2013, plaintiff filed a third amended complaint in the Washington Securities Class Action on behalf of a proposed class of all persons who purchased the common stock of the Company during the period August 13, 2009 through August 2, 2011, inclusive, and who were damaged thereby, against the Company, certain officers and/or directors (i.e., Dickson V. Lee and Ian G. Robinson) and a former officer (i.e., Jung Mei (Rosemary) Wang), alleging that the defendants violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 by filing materially false and misleading reports and financial statements with the SEC from August 2009 to July 2011.

Proceedings in the Bush Suit and Stouffer Suit continued to be stayed pending the court’s ruling on the second motion to dismiss.

On December 3, 2013, the United States District Court, Western District of Washington at Seattle denied the defendants’ second motion to dismiss.  The court has not yet issued a case scheduling order in the Washington Securities Class Action and there is no trial date.  

On September 23, 2013, a federal securities law class action complaint was filed against the Company, and certain officers and directors (i.e., Dickson V. Lee, Ian G. Robinson and Clayton Fong) in the United States District Court, Southern District of New York on behalf of a proposed class of all persons who purchased common stock of the Company during the period September 11, 2012 through September 18, 2013, inclusive, and who were damaged thereby (the “New York Securities Class Action”), alleging that the defendants violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 by filing materially false and misleading public statements from September 2012 to September 2013.    On December 23, 2013, the court appointed Robert Leonard as lead plaintiff.  No other deadlines have been established.

On October 18, 2013, a complaint was filed by Joseph D, Bessent, in a shareholder derivative suit on behalf of the Company, which is a nominal defendant, against certain its then existing officers and/or directors (i.e., Dickson V. Lee, Syd S. Peng, Mohan Datwani, Jingcai Yang, James Schaeffer, and Joseph Borich) in the Superior Court for the State of Washington in King County, Washington (the “Bessent  Suit”), alleging that the defendants breached fiduciary duties to the Company and its shareholders and committed other wrongful acts.

On December 9, 2013, a complaint was filed by Jay Finkelstein, in a shareholder derivative suit on behalf of the Company, which is a nominal defendant, against certain of its current and former officers and/or directors (i.e. Dickson V. Lee, Norman Mineta, Shirley Kiang, Ian Robinson, Dennis Bracy, Edward L. Dowd, Jr., Robert W. Lee, Robert A. Okun, Andrew M. Leitch, Edmund Moy, Dr. Syd S. Peng, Clayton Fong, Jungcai Yang, Mohan Datwani, Joseph Borich, and James Schaeffer) in the United States District Court, Western District of Washington at Seattle (the “Finkelstein Suit”), alleging that the defendants breached fiduciary duties to the Company and its shareholders and committed other wrongful acts.

On December 23, 2013, a complaint was filed by Loren Giesbrecht in a shareholder derivative suit on behalf of the Company, which is a nominal defendant, against certain of its then existing officers and/or directors (i.e., Dickson V. Lee, Syd S. Peng, Jingcai Yang, James Schaeffer, and Joseph Borich) in the United States District Court, District of Nevada (the “Giesbrecht  Suit”), alleging that the defendants breached fiduciary duties to the Company and its shareholders and committed other wrongful acts.

On January 10, 2013, United States District Court Judge Robert S. Lasnik, who is the judge presiding over the Washington Securities Class Action and the Bush  Suit, entered an order consolidating the Bush  Suit with the Finkelstein  Suit.  The court also approved the substitution of Finkelstein as the operative plaintiff in the consolidated Finkelstein  Suit. 

The Company has notified our insurance carriers of the New York Securities Class Action, the Bessent  Suit, the Finkelstein  Suit, and the Giesbrecht  Suit. The Company has retained outside legal counsel.

Although the Company continues to believe that all of the foregoing actions are without merit, it has agreed to conduct a global mediation with the plaintiffs on May 6, 2014.  Pending the global mediation, litigation activity in the cases is generally stayed.  The Company intends to vigorously defend any actions that are not settled.  

The Company is unable to estimate the amount or range of any potential loss in the event of an unfavorable outcome in any of the aforementioned legal proceedings.  As such, as of January 31, 2014, the Company has not accrued any liability in connection with potential losses from legal proceedings.

The majority of the Company sales, purchases and expense transactions are denominated in RMB (Chinese currency) and most of the Company’s assets and liabilities are also denominated in RMB.  The RMB is not freely convertible into foreign currencies under the current law.  In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions.  Remittances in currencies other than RMB may require certain supporting documentation in order to affect the remittance.

Environmental Remediation

The PRC adopted extensive environmental laws and regulations that affect the operations of the coal mining industry.  The outcome of environmental liabilities under proposed or future environmental legislation cannot be reasonably estimated at present, and could be material.  Under existing legislation, however, Company management believes that there are no probable liabilities that will have a material adverse effect on the financial position of the Company.

Chinese Government

The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America.  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 the governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversions and remittance abroad, and rates and methods of taxation, among other things.

Concentrations

For the nine months ended January 31, 2014, the Company had three major customers who purchased 34% of the Company’s total sales, and represented $5,970,045of accounts receivable balance in total as of January 31, 2014. In addition, the Company had two major suppliers who provided 30% of its total purchases, and the relevant account payables had been paid off as of January 31, 2014.

NOTE 25.  STOCK INCENTIVE PLAN

On September 9, 2010, the Company’s Board of Directors adopted the 2010 Stock Incentive Plan (the “2010 Plan”), which was approved by shareholders at an annual meeting of the shareholders held on the same date. On February 17, 2011, the Company filed anS-8 Registration Statement. The Stock Incentive Plan authorizes the Board of Directors or one or more of its members to grant options to eligible individuals to purchase shares of common stock of the Company to eligible individuals.  Eligible individuals may be employees, non-employee members of the Board or the board of directors of any Parent or Subsidiary, and consultants who provide valuable service to the company or its Parent or Subsidiary. Options to purchase common stock may be incentive stock options, stock units, stock appreciation rights or non-statutory stock options as determined by the Board of Directors or its delegate. 4,200,000 shares of common stock were reserved for issuance.

On September 16, 2013, the Company’s Board of Directors adopted the 2013 Stock Incentive Plan (the “2013 Plan”), which was approved by shareholders at an annual meeting of the shareholders held on the same date. As the end of January 31, 2014, the Company has not filed an S-8 Registration Statement. The Stock Incentive Plan authorizes the Board of Directors or one or more of its members to grant options to eligible individuals to purchase shares of common stock of the Company to eligible individuals.  Eligible individuals may be employees, non-employee members of the Board or the board of directors of any Parent or Subsidiary, and consultants who provide valuable service to the Company or its Parent or Subsidiary. Options to purchase common stock may be incentive stock options, stock units, stock appreciation rights or non-statutory stock options as determined by the Board of Directors or its delegate. 5,500,000 shares of common stock were reserved for issuance.

Each option agreement specifies the term as to when the option is to become exercisable. Standard options vest at a rate of at least 20% of the underlying shares per year over five years and have a maximum term of 10 years. However, in no event shall an incentive stock option granted to a 10% or greater stockholder be granted at an exercise price less than 110% of the fair market value of the stock on the date of grant.

During the nine months ended of January 31, 2014, the Company has issued 248,000 stock options as board compensation and no stock option was exercised.

The following table displays the weighted average assumptions that have been applied to estimate the fair value of stock option awards on the date of grant for the third quarter ended January 31, 2014:

(1)     Expected Life: The expected life was determined based on the option’s contractual term and employees’ expected early exercise and post-vesting employment termination behavior.

(2)     Risk Free Rate: The risk-free interest rate was based on U.S. Treasury yields with a remaining term that corresponds to the expected term of the option calculated on the granted date.

(3)     Expected Volatility: Expected volatility is computed based on the standard deviation of the continuously compounded rate of return of days when the stock price changed over the historical period of the expected life of the options.

(4)     Dividend Yield: The expected dividend yield is zero. The Company has not paid a dividend and does not anticipate paying dividends in there foreseeable future.

Stock compensation expense was recognized based on awards expected to vest. FASB ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.

The following summarizes pricing and term information for options outstanding as of January 31, 2014:

As of January 31, 2014, 311,000 of 528,000 stock options outstanding for compensation were exercisable.

The following table is a summary of stock option activity under the Stock Incentive Plan as of and for the nine months ended January 31, 2014:

NOTE 26.  IRONRIDGE SETTLEMENT

On August 14, 2013, L & L Energy, Inc. (“we,” “our,” the “Company”) entered into a stipulation for settlement of claims (the “Stipulation”) with Ironridge Global IV, Ltd. (“Ironridge”). Pursuant to an order of approval by the Superior Court of the State of California for the County of Los Angeles – Central District (the “Order”), the stipulation settled $4,999,153 of payments, which consisted of the following: $4,091,653 (25,000,000 RMB) to Guizhou Qian Hong Mining Resource Consulting Services, Ltd. (“Qian Hong”) as a prepayment for coal to be received at a future date, $107,500 to satisfy the payment of a short term loan to a non-related party, and $800,000 to satisfy the payment of debt to Mr. Dickson Lee, the CEO of L & L Energy, Inc., which Ironridge had purchased in exchange for payment in cash. In exchange, we agreed to  issue to Ironridge, shares of our common stock with an aggregate value equal to 105% of the amount owned, plus reasonable attorneys fees, divided by 88% of the following: the closing price of the Company’s common stock on the trading date immediately preceding the date of entry of the Order, not to exceed the arithmetic average of the individual volume weighted average price (“VWAP”)  of any five consecutive trading days during the Calculation Period (as defined hereinafter), less $0.05 per share (the “Final Amount”).

On August 16, 2013 (the “Issuance Date”) we issued 2,588,888 shares of the Company’s common stock to Ironridge (the “Initial Issuance”). Additionally, from the date of the Stipulation until that number of consecutive trading days following the Issuance Date required for the aggregate trading volume of our common stock to exceed $80 million, including after hour trades (the “Calculation Period”), if any individual VWAP of our common stock declines below the closing price on the trading date preceding the Order, for each $0.10 or portion thereof, we will, within two trading days, issue to Ironridge additional shares of common stock equal to 5% of the aggregate number of shares required to be issued to Ironridge prior to such issuance (each, an “Additional Issuance”). If, within two days, Ironridge does not receive the Additional Issuance in its account in electronic form and fully cleared for trading, the trading volume during such time shall not count toward aggregate trading volume and the Calculation Period shall be extended by one trading day. At the end of the Calculation Period, the number of shares issued will be adjusted based on the Final Amount.

Under the Stipulation, Ironridge is prohibited from holding any short position in our common stock, and may not to engage in or affect, directly or indirectly, any short sale until at least 180 days after the end of the calculation period described above. The Stipulation also provides that in no event shall the number of shares of the Company’s common stock issued to Ironridge, when aggregated with all other shares of our common stock then beneficially owned or controlled by Ironridge and its affiliates exceed 9.99% of the total number of shares of common stock outstanding after such issuance. The total amount of stock issued under the Stipulation is not to exceed 19.99% of our total outstanding shares before the Initial Issuance without shareholder approval.

The result of the Order and Stipulation is that a total of $4,999,153 of payments to various parties were satisfied by Ironridge in exchange for the issuance of shares of our common stock as provided above. In addition, pursuant to the satisfaction of the prepayment agreement with the Company, Qian Hong made its first shipment of coal to the Company in October 2013. As of October 31, 2013, the Company has received approximately 13% of the total amount under the prepayment agreement.

The Calculation Period ended on November 1, 2013. The Final Amount of common stock issued under this transaction was 4,853,863 shares, the total of which was valued at $11,116,200 by using the then current trading price on the various issuance dates (NOTE 19).

In accordance with the Order and Stipulation, we issued equity and experienced a book loss; however, this event does not affect our cash flow. This event has a material effect on the presentation of our financial statements. Therefore, we disclosed and recorded a $6,101,488 loss on debt settlement in the period ended October 31, 2013.  The Ironridge settlement transaction has been fully completed as of October 31, 2013.  No transaction activity during the third quarter ended as of January 31, 2014.

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