L&L Management Provides Detailed Repudiation to the GeoInvesting Allegations

Finally regarding Hong Xing, GeoInvesting's article attempts to question the validity of L&L's reported results by confusing the ownership structure of Hong Xing and other coal washing plants used by the Company.  During the period in question, L&L owned two (2) washing facilities, DaPuAn and Hong Xing.  Hong Xing is owned via a subsidiary, Tai Fung.  Tai Fung also has access to a third party washing facility, HunTai.  Tai Fung generates coal washing revenue both from Hong Xing and HunTai.  During fiscal 2013, Hong Xing/Tai Fung represented approximately 20% of consolidated total company sales, not 39% as alleged by GeoInvesting, while HunTai/TaiFung represented approximately 19% of Company sales. Both facilities in total represented 39%, GeoInvesting's claim of 39% is wrong.

Although the Company has previously disclosed this ownership structure, the article claims that L&L's description of its growth is inconsistent with this revenue structure, and is thus misleading.  In fact, during the fourth fiscal quarter conference call on July 31, 2013, L&L management discussed coal washing results in the context of year-over-year comparisons.  Coal washing production did in fact increase "modestly" year-over-year from 434,000 tons in FY 2012 to 474,000 tons in FY 2013.

2.  LouZhou and LaShu Mine Acquisitions:

The second major allegation focuses on the November 2012 transfer of the DaPing Coal Mine and Zonelin Coking facility to Union Energy, in exchange for the LuoZhou and LaShu Coal Mines.  Effective on November 18, 2012, L&L transferred cash, its 60% ownership in DaPing mine, and its 98% interest in Zonelin to Union Energy in exchange for a 95% interest in the LuoZhou and Lashu mines.  An independent audit firm rendered a fairness valuation report on the transaction, in addition to the Company's auditors approval.  L&L produced for the Board and the Committee the fully executed acquisition agreements, the fairness valuation report, and other documents verifying the transaction. 

Despite attempts by GeoInvesting to confuse the relationship between L&L and Union Energy, the partnership is in fact straightforward and fully disclosed.  Over time, L&L has joint-ventured with Union Energy in owning and operating the LuoZhou, Lashu and Weishe mines.  The Company elected to continue using the Union Energy's name for those mines because of its strategic value:  First, Union Energy has developed great goodwill by operating a number of mines in the area. Second, as a named consolidator, any mine affiliated with Union Energy has complied with the provision in the Guizhou Province's consolidation policy that encourages smaller mines in similar geographic areas to be affiliated with larger mining companies that possess an annual production capacity of 1-2 million tons.  Union Energy is a reputable company in the region.  The fact L&L opted to not change the name of the mines or signage at the mines has no bearing on the validity of L&L's ownership rights.

L&L has acted to comply with the law governing coal mine consolidation in Guizhou province, yet GeoInvesting's allegations demonstrate their fundamental misunderstanding of this policy, and Chinese business practice in general.  Union Energy still owns DaPing Mine, but to satisfy administrative requirements under the Guizhou coal mine consolidation policy, DaPing is affiliated with another ownership group in the same region.  This affiliation arrangement is purely administrative, and has no influence on ownership rights or the economic benefits that will accrue to Union Energy. 

The allegation is false that Zonelin was torn down and not operational prior to L&L's transfer of ownership to Union Energy.  Zonelin produced 21,042 tons during the second quarter of FY2012 (ended October 31, 2012) and 3,392 tons during the 18 days L&L owned Zonelin in November 2012.  The Company has produced documentation to substantiate this production, as well as a satisfaction letter from Luoping National Tax Bureau stating all taxes owed by Zonelin as of December 2012 were paid.  In addition to the licenses, equipment, and other intrinsic value of Zonelin, Union Energy informed L&L that it collected government subsidies and tax credits as part of a government program to improve coking plants in the region.  This activity took place subsequent to the transfer of ownership to Union Energy.

Summary of GeoInvesting Allegations and L&L Responses.

The list below summarizes the false GeoInvesting's allegations, and L&L rebuttal to refute the allegations;

1)  "LLEN's Hong Xing Coal Washing Factory, accounting for 39% of fiscal 2013 revenues, has been shut down since 2012."

As noted above, L&L produced for its Board and the Committee invoices, payroll records, cash disbursement, receipts, and other documentation that clearly demonstrate that the facility was open during the entire period in question. As explained above, GeoInvesting's 39% was wrong.

2)  "Hong Xing did not file or pay any taxes to the Shizong County Local Tax Bureau..."

As noted above, this bureau serves a local (county) jurisdiction and is not responsible for national tax collections.  The Company produced to the Board and the Committee all relevant tax filings for sales and national taxes, as well as a copy of its most recent SAIC filings. The Shizhong (National) State Tax Bureau issued a satisfaction letter to L&L on October 25, 2013 stating that all taxes have been paid and Hong Xing is in good standing.

3)  "On July 31, 2013, the LLEN management team falsely claimed in its fiscal 2013 earnings conference call '...we've been trending up modestly on the coal washing side...'"

As noted above, during this conference call L&L management correctly discussed coal washing results in the context of year-over-year comparisons.  Coal washing production did in fact increase "modestly" year-over-year from 434,000 tons in FY 2012 to 474,000 tons in FY 2013.

4)  "LLEN's purportedly revenue producing Zonelin Coking Plant was shuttered and demolished a few months prior to LLEN's claimed $12.4M sale/exchange of Zonelin Coking Plant."     

The allegation that Zonelin was torn down and not operational prior to L&L's transfer of ownership to Union Energy is false.  Zonelin produced 21,042 tons during the second quarter of FY2012 (ended October 31, 2012) and 3,392 tons during the 18 days L&L owned Zonelin in November 2012.  The Company has produced documentation to substantiate this production, as well as a satisfaction letter from Luoping National Tax Bureau stating all taxes owed by Zonelin as of December 2012 were paid.  In addition to the licenses, permits, and other intrinsic value of Zonelin, Union Energy informed L&L that it collected government subsidies and preferential treatment as part of a government program.  This activity took place subsequent to the transfer of ownership to Union Energy.

5)  "The government mandated decision to shut down the Zonelin Coking Plant was first issued on June 6, 2012.  On September 10, 2012, the demolition was scheduled."

As early as June 2012 the Ministry of Information and Technology of the People's Republic of China declared its intent to encourage cleaner and more efficient production at smaller coking plants. The allegation implies that Zonelin was torn down in September and not operational prior to L&L's transfer of ownership to Union Energy is false. Union Energy has informed L&L that parts of the facility have been torn down pending further evaluation. This happened after L&L transferred ownership to Union Energy. Union Energy also informed L&L that it collected government subsidies and preferential treatment as part of the government program.

6)  "LLEN does not own the Hong Xing Coal Washing Factory according to officially chopped (sealed) SAIC records."

As noted above, GeoInvesting does not know Hong Xing is owned by L&L via a subsidiary, Tai Fung.  Tai Fung generates coal washing revenue from Hong Xing and a third party facility, HunTai. 

7)  "Officially chopped SAIC filings show that neither Union Energy nor LLEN own the DaPing mine and Zonelin Coking Plant."

GeoInvesting is not aware that in order to satisfy administrative production requirements under the Guizhou Provincial coal consolidation policy, DaPing is administratively affiliated with another ownership group in the region.  Regarding Zonelin, L&L has produced documentation to affirm its ownership prior to the November 18, 2012 transfer.  Our partner, 2% owner, and listed legal representative for Zonelin—prior to its transfer—was Mr. Laozhong Yang.  As the law allows, the SAIC filing bears the name of Mr. Yang.  (Mr. Yang is also the Company's local partner in the Hong Xing Washing Plant.)  The Company cautions investors to understand that in China, legal representatives can be cited in SAIC filings even if they are not the owners of a company.

8)  "The demolition of the Zonelin Coking Plant prior to its alleged swap to Union Energy casts doubt on LLEN's acquisition of the LuoZhou and LaShu mines..."

As noted above, Zone Union Energy has informed L&L that parts of the facility have been torn down pending further evaluation.  The Company has produced documentation to substantiate production before the transfer in November 2012 as well as documents to substantiate its transfer of ownership to Union Energy.

9)  "The Chinese government assigned the right to consolidate the DaPing mine to another company (not Union Energy)..."

As noted above, in order to satisfy administrative production requirements under the Guizhou Provincial coal consolidation policy, DaPing is administratively affiliated with another ownership group in the region. Union Energy is located in North Guizhou.

10)  "Current SAIC filings show that Union Energy owns the LuoZhou and LaShu mines."

As noted above, L&L has joint-ventured with Union Energy in owning and operating the LuoZhou, LaShu and Weishe mines.  L&L produced to the Board and the Committee the fully executed acquisition agreements, a fairness letter, and other documents verifying the transaction.  Union Energy is a strong, reputable company in the region and the current ownership structure allows the Company to enjoy the benefits of their brand while reducing mining risks to the Company.  The fact L&L opted to not change the name of the mines or signage at the mines has no bearing on the validity of L&L's ownership rights. If GeoInvesting only reviewed the SAIC filings, it would not understand the ownership structure.

11)  "Interviews of Union Energy management who all repeatedly assert that, while they are familiar with LLEN, Union Energy, not LLEN, is the owner of the LuoZhou and LaShu mines."

L&L does not know the identity of the "Union Energy management" who made these assertions, but the Company acknowledges that some employees outside of the senior leadership at Union Energy may have misunderstood the ownership structure and misrepresented it to GeoInvesting.  As noted above, L&L has joint-ventured with Union Energy in owning and operating the LuoZhou, LaShu and Weishe mines, and the mines continue to enjoy partial ownership by Union Energy and signage and other outward indications of Union Energy's participation in the ventures.  L&L produced for the Board and the Committee the fully executed acquisition agreements, a valuation fairness letter, and other documents verifying the transaction.

12)  "Articles in local PRC newspapers and official government websites clearly show that Union Energy, not LLEN, acquired and owns the LaShu and LuoZhou mines."

As noted above, L&L has joint-ventured with Union Energy in owning and operating the LuoZhou, LaShu and Weishe mines. Local websites indicate the name of Union Energy because the Company, for strategic reasons, has decided not to change the name of the mines when L&L acquired them.  L&L produced for the Board and the Committee the fully executed acquisition agreements, a valuation fairness letter, and other documents verifying the transaction.

13)  "Signage apparently recently erected at both mines bears Union Energy's name, not LLEN's."

As noted above, L&L elected to continue using the Union Energy name for those mines because of its strategic value.  The Company believes that Union Energy has developed much goodwill by operating or affiliating with a number of mines in the area.  As a named consolidator, any mine affiliated with Union Energy has complied with Guizhou Province's consolidation policy.

14)  "Union Energy's participation in the Guizhou provincial mine consolidation process is ongoing and well documented.  Union Energy was assigned to acquire the LuoZhou and LaShu mines in March 2013 and just finalized the acquisition of mining rights for both mines in August 2013."

Union Energy owned both LuoZhou and LaShu since 2011. In November 2012, the L&L acquired controlling interest in both mines from Union Energy. The announcement in August 2013 that GeoInvesting cites mischaracterizes a purely administrative announcement that approved a backlog of previously filed mining right assignments including LuoZhou and LaShu. This was done after the government finalized parts of the consolidation policy and issued a letter to the mines in June 2013.

15)  "The nominee who claimed to hold LLEN's equity ownership in the DaPuAn mine and SuTsong mine is an individual who appears not to exist."

Mr. Jun Han's identification number was improperly recorded when filed with the local business registration office.  Mr. Han's correct identification number is 530102 1959 1104 2119.

16)  "LLEN made a misrepresentative statement regarding the legal status of the DaPuAn mine and SuTsong mine."

Again, GeoInvesting is not familiar with China laws, nor understands fully our company's subsidiaries. Thus, GeoInvesting confused the Company's legal structure, and status.  The law of Yunnan Province changed in the past requiring the sole proprietorship ownership of DaPuAn Mine to be owned by a legal entity, a one-man company that is not available in the US. In addition, in China, the law allows a legal person to represent an entity as an agent of the real owner, which is not also available under the US law.  Accordingly, the ownership of DaPuAn Mine was changed from a sole proprietorship to Shizong Hengtai Coal Mining Co, Ltd.  L&L later entered an agreement with the legal person of Shizong Hengtai Ltd; Mr. Laozhong Yang, who is our local partner, after DaPuAn Mine was renamed. In the agreement signed by Shizong Hengtai and L&L on June 21, 2012, it confirms that L&L owns 80% of the equity of Shizong Hengtai Coal Mining Co., Ltd. The Company produced for the Board and the Committee appropriate documents supporting the name changes, including fully executed agreements and legal opinions from the large, reputable law firm; (Beijing) DaCheng Law Firm.

For Further Information, please contact:

L&L Energy, Inc.
Investor Relations
+1 (206) 264-8065
ir@llenergyinc.com

SOURCE L&L Energy, Inc.