LLEN (LLFH) VALUATION We estimate the Company’s revenue run rate has risen to approximately $26.0 million per quarter. Based on performance in the October 2009 quarter, we expect L&L to be able to earn a 25% net profit margin and convert as much as 20% of sales to cash, implying earnings of $0.25 per share and cash flow from operations near $5.2 million per quarter. If we are correct in these projections, at a price earnings multiple of 10.0 times, suggests a forward value of $10.00 per share. Our price target of $7.25 falls short of this valuation exercise. We are concerned that investors may be unwilling to according the prevailing valuation multiples to LLFH shares until financing reports provide greater clarity and transparency. While generally favorable in our view, recent balance sheet changes might confuse some investors. Furthermore, the last quarter report held other surprises, including the revelation that the L&L International CEO, Dickson Lee, had previously violated laws related to the sale of securities and is prohibited from certain actions in certain states. Furthermore, the Company apparently has a tin ear with regard to expenses, spending $266,000 on a “China mansion.” While we believe the investment in accommodations for management in China could prove to be a bargain when compared to prevailing hotel rates, the expenditure comes directly after a dilutive equity offering that is resulting in the amortization of approximately $5.0 million in derivative security expense. Management has disclosed that the Company has applied for listing on a Nasdaq exchange. Approval for listing on a national exchange should be a catalyst for the stock price. Furthermore, we have learned in conversations with management that an accounting consultant has been engaged to advise the Company in compliance with the internal audit portions of Sarbannes-Oxley. Greater attention to internal controls may also help improve transparency and consistency in financial reporting that could ultimately boost investor confidence. http://www.crystalequityresearch.citymax.com/f/LLFH_Update_12-28-09.pdf
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