UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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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, 2013.

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 [  ]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 11, 2013 there were 38,149,277 shares of common stock outstanding, with par value of $0.001.

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.

Item 1. Financial Statements

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Principles of Consolidation

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 Tai Fung, and (?) 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.

New Accounting Pronouncements

In July 2012, the FASB issued amended standards to simplify how entities test indefinite-lived intangible assets for impairment which improve consistency in impairment testing requirements among long-lived asset categories. These amended standards permit an assessment of qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. For assets in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, these amended standards eliminate the requirement to perform quantitative impairment testing as outlined in the previously issued standards. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012; however, early adoption is permitted. We do not expect these new standards to significantly impact our consolidated condensed financial statements.

In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05 (“ASU 2011-12”). ASU 2011-12 amends certain pending paragraphs from ASU 2011-05. This amendment allows companies to defer the effective date of the change in presentation on the face of the financial statements of reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. The effective date for all other amendments put forth in ASU No. 2011-05 are unaffected by this update. This update is effective for fiscal years and interim periods within those years beginning after December 15, 2011. The Company will adopt this guidance effective May 1, 2012, and we do not expect that its implementation will have a material impact on our consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”), to improve reporting and transparency of offsetting (netting) assets and liabilities and the related affects on the financial statements. ASU 2011-11 is effective for fiscal years and interim periods within those years beginning after January 31, 2013. The Company plans to adopt this guidance effective March 1, 2013, and we do not expect that its implementation will have a material effect on our consolidated financial statements.

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On March 8, 2011, the Company entered into an Operating Agreement to invest up to RMB 20,000,000 (equivalent to US$3,063,069) in a newly established entity, Tai Fung, a Chinese company established in SeZone Country, Yunnan Province, PRC. Tai Fung is a marketing and distributing company of coal throughout China. The net assets on acquisition date comprise only cash contributed by the 2% non-controlling interest.

The investment represent 98% control of Tai Fung and the investment is accounted for in accordance with ASC 805 and consolidated with the financial statements contained herein. The Company has paid RMB 4,178,718 (equivalent to US$665,539) and RMB 8,794,246 (equivalent to US$ 1,400,648) in fiscal year 2011 and 2012, respectively. The term of Tai Fung is initially set at six (6) years, subject to renewal upon mutual agreement of the founders.

WeiShe Coal Mine (“WeiShe”)

On February 3, 2012, the Company entered into the Weishe Coal Mine Equity Ownership Transfer Agreement (the “Agreement”) with Guizhou Union Energy, Inc., a Chinese corporation (“Union”), Guizhou Union Capital Investment Holding Co., Ltd., a Chinese corporation (“Union Capital”), and Mr. GuoXu Zhang, a Chinese citizen (“Mr. Zhang”), to purchase 51% of the equity ownership interest of WeiShe Coal Mine.      

Under the Agreement, the purchase price for 51% of the ownership interest in WeiShe Mine is about US$9.7 million, which will be paid in full by issuing 3,000,000 shares of common stock of the Company (“LLEN Stock”).  The 3,000,000 shares of Company Stock have been paid to Union or a designee of Union in installments, based on the satisfaction of certain conditions set forth in the Agreement. The stock price on February 3, 2012 was $3.22 per share. The non-controlling interest in WeiShe is measured at fair value at the acquisition date, with a discount rate approximately of 16% which reflected the factor of lack of marketability.

*Includes goodwill of $779,075

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On November 18, 2012, the Company completed the acquisitions of the LuoZhou and LaShu Coal Mine 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 RMB224.7 million (equivalent to US$37.1 million). The purchase price for 95% of the ownership interest in LuoZhou  was about RMB143.4 million (equivalent to US$22.8 million) and the purchase price for 95% of the ownership interest in LaShu Coal Mine was about RMB 90.3 million (equivalent to US$14.3 million), both of these two mines (LuoZhou and LaShu) will be paid together by a cash outlay of approximately $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 and $23.0 million respectively. LuoZhou Coal Mine has 27 million tons of reserves. LaShu Coal Mine has 7.2 million tons of reserve.

The estimated fair values of net assets acquired and presented below are preliminary and are based on the information that was available as of the acquisition date and at the time of the preparation of the financial statements. The Company believes that the information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed; however, the Company is awaiting the finalization of certain third-party valuations to finalize those fair values. Thus, the preliminary measurements of fair value set forth below are subject to change. The Company expects to finalize the valuation and complete the purchase price allocations as soon as practicable, but no later than one year from the respective acquisition date.

The following tables summarize the allocation of the purchase price to the fair values of the assets at the date of acquisition:

*Include goodwill of $1,651,981

*Includes goodwill of $397,617

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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 for 41,000,000 RMB (equivalent to approximately US$6,000,000).  Guangxi Liuzhou Lifu Machinery Co, Ltd assumed the obligation of the Company to pay to HSC 23,800,000 RMB (equivalent to approximately US$3,485,300) that remained payable to HSC pursuant to the December Agreement.  Guangxi Liuzhou Lifu Machinery Co, Ltd also agreed to pay the remaining balance of 17,200,000 RMB (equivalent to approximately US$2,514,700) to the Company in three installments, (1) 3,440,000 RMB (approximately US$502,940) within six months of the sale, (2) 5,160,000 RMB (approximately US$754,410) between six months and twelve months after the sale, and (3) 8,600,000 RMB (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, 2013, outstanding receivable from the sale of HSC was US$801, 256, which is expected to be received before April 30, 2013.

Sale of Ping Yi Mine

With consideration of several factors including 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 $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 Ping Yi Mine subsequent to the disposal, including priority receipt of future coal from 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 year three. As of January 31, 2013, the Company received total payment of $5,619,088 which $5,324,718 as prepayment of raw coal and $294,370 as coal washing facilities service.

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). Subsequently, the Company has written back $477,568 as income related to the provision for the nine months ended January 31, 2013.

Sale of DaPing Coal Mine

With consideration of several factors including 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 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 60% equity interest in DaPing is reasonably stated by the amount of approximately $ 23 million, including $0.5 million on assets write-up per fair value measurement.

Sale of ZoneLin Coking Plant 

With consideration of several factors including 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 is reasonably stated by the amount of RMB 77,786,000 (approximately $ 12.4 million, including $2.7 million on assets write-up per fair value measurement).

The cancellation of L&L Yunnan Tiannen Industry Co. Ltd. (“TNI”)

L&L Yunnan Tiannen Industry Co. Ltd (“TNI”), a trading company, of which the Company owned 98% equity interest, was cancelled with its registration in November, 2012. TNI owned ZoneLin100% equity. On November 18, 2012, the Company disposed ZoneLin through acquisition of LuoZhou and LaShu Coal Mine. ZoneLin is no longer a subsidiary of the Company. At this point, TNI no longer holds any other subsidiary. Given the fact that the Company also has other trading companies such as TaiFung, DaXing, in order to streamline the organization and improve efficiency, the Company decided to withdraw TNI, and transfer TNI’s related business to TaiFung. During the quarter ended January 31, 2013, the Company completed the process of TNI’s cancellation and related matters.

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NOTE 4.  PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

All of the Company’s Bill receivable is Bank Acceptance from our customers.  Bank’s Acceptance is a promised future payment, or time draft, which is accepted and guaranteed by a bank and drawn on a deposit at the bank by the buyer.  The bank acceptance specifies the amount of money, the date, and the company to which the payment is due.  After acceptance, the draft becomes an unconditional liability of the bank.  But the holder of the draft can sell (exchange) it for cash at a discount to a bank or endorse it to another company instead of cash payment.

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

Advances to suppliers were $21.6 million as of January 31, 2013 increased by approximately $4.5 million compared to April 30, 2012.  The company keeps a high prepayment to suppliers in order to lock up coal. Furthermore, the company acquired LaShu mine and LuoZhou mines in this quarter and the two mines contribute about $2.7 million to advances to suppliers.

Prepaid expenses and other current assets consisted of the following:

*Reclassification

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NOTE 7.  PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT

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

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NOTE 8.  CONSTRUCTION IN PROGRESS

Construction in progress includes mine development, ventilation and electrical system improvements, building of staff quarters, and beginning construction of a sewage treatment system and road expansion for the washing facilities.  Construction in progress was $11,200,140 and $26,417,686 as of January 31, 2013 and April 30, 2012, respectively. The $13 million decrease was primary due to construction in progress had been completed in last quarter and transferred out to fixed assets. Capitalized interest costs included in construction in progress were approximately $0 and $74,903 for the nine months ended January 31, 2013 and 2012, respectively.

NOTE 9.  INTANGIBLE ASSETS

Customer relationship and technology assets are being amortized over a period of 7 years.  Amortization expense for these assets was $55,350 and $124,837 for the nine months ended January 31, 2013 and 2012, respectively. 

Intangible assets consisted of the following:

*Reclassification

We have reclassified Mineral Rights to Property, Plant, Equipment and Mine Development. Mineral Rights were disclosed as Intangible Assets in prior financial statements. 

Land right was new item related to the acquisition of LuoZhou and LaShu mines.

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

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Other assets represent the long-term restricted cash which included bank deposits placed as guarantee for the future payments of costs related to land subsidence, restoration, rehabilitation and environment protections required by the coal authority, amount of $993,355 and $404,689 of Yunnan and Guizhou province as of January 31, 2013 and April 30, 2012, respectively.

NOTE 11.  LONG TERM RECEIVABLE

In fiscal year of 2011, the Company entered into several agreements with Colorado-based Bowie Resources, LLC and have loaned a total of approximately $7 million.  The loan originally carried an interest rate of 9%.  The loan was co-senior with another lender.  The total owing to the Company as of January 31, 2013 was $5,358,796 including previously accrued interest of $312,783.  On February 28, 2013, the Company received payment of US$5,545,056 from Bowie as the full and final payment for the settlement of the outstanding loan.

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 January 31, 2013, the amount is of $20,921,812, net of a present value discount of $3,005,231 provided in the 10K ended April 30, 2012

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The Company loaned money to various entities that have non-controlling interests (i.e. minority equity interest, or less than 50% equity interest in an entity.) with the Company.  Those loans are reflected in the consolidated balance sheets as related party notes receivables, and are secured by assets and machinery of the various mines or businesses, as indicated below.  Because these borrowers have business in which the Company has an interest or they are suppliers, customers, or people or party associated with our business entity, the Company considers these borrowers as related parties. The business purpose of these related party transactions relates to the maintenance of long-term business relationships.

There was no impact to the statements of income and other comprehensive income for the nine months ended January 31, 2013 and year ended April 30, 2012 as a result of these loans. For the nine months ended January 31, 2013, the total amount of loan repayments was approximate $6 million.

Related party notes receivable consisted of the following as of January 31, 2013:

Related party notes receivable consisted of the following as of April 30, 2012:

Related Party Payable

Related party payable consisted of the following:

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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 acquired in February 2012, the 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 Mine 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 is 8%.

During the quarter ended October 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 October 31, 2010. We based these estimates on historical and anticipated results and trends and on various other assumptions that we believe are 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. We evaluated the forecasted cash flows as of January 31, 2013, 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 quarter ended January 31, 2013 and year ended April 30, 2012.

*Reclassification

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NOTE 14.  OTHER PAYABLES

Other Payables consisted of the following:

*Reclassification

Total Other Payables was $32.0 million as of January 31, 2013. None of these payables are collateralized by any assets of the Company. $13.4 million is estimated resource surcharge payable of WeiShe Mine through acquisition. The estimated resources surcharge is determined by the coal reserve and surcharge per ton, which the guidance was issued by GuiZhou Land Resources Council. Payable to previous owners of DaPing Coal Mine was $5.6 million, which was reclassified from Due to Related Parties as the disposal. The other $7.3 million is for salary payable, notes payable, miscellaneous payment of fees related to maintenance, safety, employee training for security and environmental matters.

The Company issued a Note to an institutional lender to borrow US$3,000,000 loan with annual interest rate of 12%. This loan was collateralized by the loan from Bowie Resources LLC which has more information on Note 25.

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NOTE 15.  TAX PAYABLES

Taxes payable consisted of the following:

*Reclassification

Other Taxes Payables mainly include resources tax payable and business tax payable.

NOTE 16.  INCOME TAXES

Our effective tax rates were approximately 9% and 13% for the nine months ended January 31, 2013 and 2012, 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.

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For the three months ended January 31, 2013, the Company issued 9,564 shares of common stock to the Board of Directors, with the share value of $18,334.

For the three months ended January 31, 2013, the Company issued 15,000 shares of common stock with the share value of $27,450 for advisor.

For the three months ended January 31, 2013, the Company issued 3,279 shares of common stock with the share value of $6,000 for consultant.

Stock issued for Cash: 

For the three months ended January 31, 2013, 505,780 shares of common stock were issued to investor for cash proceed in the amount of $875,000. During the third quarter, no warrants were exercise, respectively.

Treasury Stock:

For three months ended January 31, 2013, no treasury stock has been purchased or sold by the Company.

NOTE 18.  WARRANTS

Warrants Issued for Compensation

The Company has authorized 1,100,000 Class D warrants to be issued to executives and 4,000,000 Class E warrants to be issued to Directors. 

During the year ended April 30, 2011, the Company issued 1,000 Class E warrants to a Director.  The warrants were fully vested as of April 30, 2011 and expire five years after issuance.  The grant date fair value was $8.92.  The Company issued 1,000 warrants to a non-employee. The warrants were fully vested as of April 30, 2011 and expire five years after issuance. The grant date fair value was $9.82.

The fair value was estimated on the date of the grant using the Black-Scholes option-pricing model. The following table displays the weighted average assumptions that have been applied to estimate the fair value of warrants on the date of grant for the three months ended January 31, 2013:

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(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 the foreseeable future.

For the three months ended as January 31, 2013, no warrant was issued or exercised for compensation.

Following is a summary of the status of warrants outstanding at January 31, 2013:

Warrants Issued to Investors

On May 12, 2009, the Company issued 500,000 seven year warrants to purchase shares of the Company’s common stock pursuant to a security purchase agreement.  The exercise price is $5.62 per common stock and is exercisable immediately.

On June 28, 2009, The Company issued to various investors 3,498,800 one year warrants to purchase shares of the Company’s common stock pursuant to a stock purchase agreement.  The warrants are immediately exercisable and the exercise price varies between $1.00 and $2.60 depending on the class of warrant.

On October 8, 2009, the Company issued to various investors 882,613 five year warrants to purchase shares of the Company’s common stock pursuant to a stock purchase agreement.  The exercise price is $5.62 per common stock and is exercisable immediately.  In connection with the stock issuance, the Company issued 109,682 five year warrants to the placement agent with an exercise price of $6.11 that are immediately exercisable.

On November 6, 2009, the Company issued to various investors 501,236 five year warrants to purchase shares of the Company’s common stock pursuant to a stock purchase agreement.  The exercise price is $5.62 per common stock and is exercisable immediately.  In connection with the stock issuance, the Company issued 66,832 five year warrants to the placement agent with an exercise price of $6.11 that are immediately exercisable.

On June 1, 2010, the Company received a payment of $50,000 from an investor for extending the expiration date from June 1, 2010 to December 31, 2010 of the remaining 1,000,000 shares associated with warrant K that the investor owns. The investor exercised all the 1,000,000 shares before the extended expiration date. As such, no warrants K were outstanding as of October 31, 2011.

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Effective on October 28, 2011, the Company issued promissory notes (unsecured) to certain accredited investors and employees of the Company in the principal amount of $384,872 of which $210,000 has been loaned to the company and $174,872 is considered irrevocable commitment contribution.  The proceeds of the notes were used primarily for general business purposes in the U.S.  The notes mature on the 330th day from the dates of receipt of cash contribution from the holders of the notes and the Company may prepay all or any portion of the notes without penalty.  Interest is payable on the unpaid balance of the notes at an annual rate of 10%. The interest payable on the promissory notes accrued in the amount of $15,262.71 as of April 30, 2012.   As further consideration for providing this financing, the holders of the notes have also received warrants to purchase an aggregate of 96,218 shares of the Company’s common stock at an exercise price of $4.00 per share.  The warrants expire at the end of the four-year period following the maturity dates of the corresponding promissory notes.  The issuance and sale of the warrants was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.

On November 2, 2011, the company issued 36,000 warrants to prior investor. The warrants were completely exercised and the exercise price is $0.83, respectively.

On January 9, 2013, the company granted 111,271 three year warrants to investor to purchase shares of the Company’s common stock pursuant to a stock purchase agreement.  The exercise price is $2.10 per common stock and is exercisable immediately.

During the third quarter ended January 31, 2013, the company has no warrant exercised to investors.

The table below is a summary of all warrants activity as of January 31, 2013:

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NOTE 19.  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 (3 coal mining and washing 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 January 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 16% which reflected the factor of lack of marketability. The non-controlling interest in LuoZhou and LaShu are measured at fair value at the acquisition date, with a discount rate 20% which reflected the factor of lack of marketability.

Below is a schedule of changes in ownerships interest as of January 31, 2013 and April 30, 2012:

NOTE 20.  EARNINGS PER SHARE

The Company only had common shares, warrants and stock options issued and outstanding as of January 31, 2013.  Under the treasury stock method of earnings per share, the Company computed the diluted earnings per share as if all issued warrants or options 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. The securities are anti dilutive and can be ignored in the diluted Earnings Per Share calculation.

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NOTE 21.  COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments

The Company held operating lease in the Seattle office and Beijing office. The lease will expire in July 2013 and December 2014, respectively. The non-cancelable operating lease agreement requires that the Company pays 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 $190,152 and $136,873 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 “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 reports and financial statements with the SEC 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 its 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 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 (the “Bush Derivative Suit”, 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 Potential Class Action and the Derivative Suits. The Company has retained outside legal counsel.

The Company is unable to estimate the amount or range of any potential loss in the event of an unfavorable outcome. As such, as of January 31, 2013, the Company has not accrued any liability in connection with potential losses from legal proceedings.

On April 23, 2012, the Company and Dickson V. Lee and Ian G. Robinson filed a motion to dismiss the Securities Class Action.  Proceedings in the 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, 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 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.

Pursuant to a stipulation of the parties and an order entered by the court, the Company’s motion to dismiss plaintiff’s third amended complaint is due April 12, 2013.  Proceedings in the Derivative Suits continue to be stayed.

The Company believes that these suits are without merit and intends to defend them vigorously.

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Foreign Currency

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, 2013, we had one major customer who purchased 19% of the Company’s total sales, and represented $11,059,781 of accounts receivable balance in total as of January 31, 2013.  In addition, we had one major supplier who provided 18% of our total purchases, and the relevant account payable had been paid off as at January 31, 2013. 

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NOTE 22.  STOCK INCENTIVE PLAN

On September 9, 2010, our Board of Directors adopted the 2010 Stock Incentive Plan (the “2010 Plan”), which was approved by our shareholders at our annual meeting of the shareholders held on the same date. On February 17, 2011, the company filed 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 our 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 us or our 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.

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.

On March 5, 2011, the Company granted 40,000 stock options to its Independent Director Dennis Bracy at an exercise price of $7.65. The stock options were fully vested as of April 30, 2011 and expire five years after issuance.  The grant date fair value for this stock option was $7.06.

On August 31, 2012, the Company granted 80,000 stock options in lieu of cash to each of Directors of Dickson Lee, Syd Peng and Clayton Fong at an exercise price of $2.00. The stock options will be vested quarterly as board compensation of Fiscal year 2013, and expired five years after vested. The grant date fair value for the stock options was $1.06.

For the three months ended January 31, 2013, 99,999 stock options above mentioned of board compensation has been vested.  No stock option has been exercised.

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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 three months ended January 31, 2013:

(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 base 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 forfeiture 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, 2013:

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The following table is a summary of stock option activity under the Stock Incentive Plan as of January 31, 2013 and changes for the year then ended:

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