Lignol announces financial results for 2013

Lignol Energy Corporation (TSXV: LEC) ("LEC" or "the Company"), a leading technology company in the advanced biofuels and renewable chemicals sector, today announced its financial results for the year ended April 30, 2013 (all figures in Canadian dollars, unless otherwise noted).

"In Fiscal 2013 we successfully attracted two new investors who now each own more than 25 percent of the Company, and with their support, have acquired a majority and controlling stake in the largest biodiesel plant in Australia (owned by TBF with an annual capacity of 140 million litres) and also own an investment of 21 percent in ARW which is currently the largest producer of biodiesel in Australia with an annual capacity of 150 million litres", said Ross MacLachlan, President and Chief Executive Officer. "Subject to raising additional finance, this has positioned LEC to potentially report future consolidated revenues and the potential to generate cash flows to support the ongoing commercialization of LIL's technology."

Fiscal 2013 Highlights:

• Closed a series of equity financings raising a total of $6.97 million and issued a $2.245 million debenture which was converted into equity within the year;
• Established a secured credit facility for up to $5 million with Difference Capital Funding Inc. ("DCF");
• Made a series of strategic investments/acquisitions:
  • Acquired a 21 percent interest in Australian Renewable Fuels ("ARW")
  • Acquired a 40 percent interest in Territory Biofuels Limited ("TBF")
• Lignol Innovations Limited ("LIL"):
  • Completed the successful optimization of ethanol production with Novozymes
  • Expanded its number of issued patents to 15
  • Made further advances in HP-L ^TM lignin application development
  • Secured its first commercial supply agreement for HP-L™ lignin in the thermoplastics sector

Subsequent Event Highlights:

• Replaced the DCF line of credit with a secured revolving credit facility of up to $12.5 million
• Agreed to provide TBF with further equity funding of up to A$1 million potentially increasing LEC's investment to up to approximately 66% of the issued and outstanding shares of TBF

Subsequent Events:

On May 27, 2013, the Company announced that it had agreed to acquire an additional 2.67 million shares of TBF for A$1.0 million as part of a financing which also provides for the further issuance of approximately 0.25 million shares of TBF to other shareholders of TBF. Upon completion, LEC became the majority shareholder of TBF with approximately 54% of the issued shares of TBF and approximately 60% on a fully diluted basis.

On August 14, 2013, the Company announced that it had replaced its secured credit facility of $5 million with DCF, which was amended on July 9, 2013 for up to $6.25 million (the "Amended Loan" or the "Drawn Amount"), with a new secured revolving credit facility (the "Note") of up to $12.5 million with DCF.  Under the terms of the Note, 50% of the unpaid principal amount and accrued and unpaid interest on such amount will be payable on the closing of an equity financing of at least $20 million (as long as none of the outstanding Warrants, as defined below, remain unexercised) and the remaining unpaid principal amount and accrued and unpaid interest on such an amount are payable on December 31, 2014. Amounts drawn under this facility will bear interest at 9% per annum and any amount owing under the Amended Loan (the "Drawn Amount") is deemed to be a borrowing under the Note.  The Company agreed to pay DCF a commitment fee of $0.2 million, of which $0.1 million had already been paid in respect of the earlier credit facilities. In consideration for providing the Note, DCF is entitled to receive 3,555 warrants to purchase common shares in the capital of LEC (each a "Warrant Share") for each $1,000 drawn down under the Note, which allows for the issue of up to approximately 44.4 million warrants (the "Warrants") which if fully exercised would provide LEC with $6.66 million and would result in DCF owning 48.3 percent of LEC on a partially diluted basis, assuming the exercise of only DCF's warrants. DCF has received 21,418,875 Warrants in respect of the Drawn Amount. Each Warrant is non-transferrable, shall expire on December 31, 2014 and entitle the holder to purchase one Warrant Share at an exercise price of $0.15 per share (the "Exercise Price"), subject to any adjustments necessary to comply with applicable securities laws and requirements of the TSX Venture Exchange or any other stock exchange in which the Lender's securities are listed.

On August 19, 2013, the Company announced it had agreed to provide TBF with equity funding of up to A$1 million over the course of the next several months. The first tranche of A$0.5 million is payable in two instalments: the first instalment of A$0.2 million has been made and the second instalment of A$0.3 million is due on or before September 15, 2013. The opportunity to subscribe for the remaining A$0.5 million worth of shares of TBF will be offered to existing shareholders of TBF (other than LEC) who may subscribe on the basis of their proportionate entitlement and LEC has agreed to fund any amounts not subscribed by those existing shareholders and to close this round of financing no later than October 31, 2013. The closing of this entire transaction is subject to regulatory approval.

The consolidated financial statements of the Company for the year ended April 30, 2013 include the accounts of LEC, its wholly owned subsidiary LIL and its controlling interest in TBF.  The Company acquired a 40 percent interest in TBF effective April 15, 2013, and determined, from a regulatory and reporting perspective, that it had achieved control over TBF on that date and as a result, has consolidated the results of TBF's operations and its balance sheet from the date of April 30, 2013. The impact of consolidating TBF resulted in the inclusion of assets totaling $19.1 million (including $18 million in biorefinery plant and storage tank assets), and total liabilities of $21.0 million, which included $15.4 in long term liability, representing a long term lease for the storage tanks. Had TBF been consolidated from May 1, 2012, the impact would have been to increase LEC's consolidated loss by approximately $0.7 million (amount unaudited).

The activities of LEC during the year were largely directed to increasing its investment in ARW from 11 percent to 21 percent, and to providing funding for the acquisition of a controlling interest in TBF, as well as continuing to investigate other investments in similar energy-related projects. During the year, LEC's wholly-owned subsidiary LIL actively pursued commercial and technical partnerships to advance the commercialization of its technology.

The Company's investments in ARW are carried at market value, fluctuations in market value are adjusted on a quarterly basis, and income is recorded at the time dividends are declared or received, if any. ARW has a June 30 year end, issues financial statements twice per year for the Six Months ended December 31 and for the year ended June 30. Quarterly Newsletters are also sent out to shareholders. This information is available on ARW's website under the heading Investor Relations.

On August 5, 2013, ARW issued their June 30 2013 Investors Newsletter in which they reported (unaudited figures on which LEC is relying but has not verified, and for which LEC should not be held accountable):

"ARfuels expects net profit for the year ending 30 June 2013 to be approximately $2.2 million, subject to audit clearance. This represents a turnaround of more than $9 million on the previous year's result and provides a solid platform for continued earnings growth. The $2.2 million result will be achieved after taking into account approximately $1.6 million of one-off expenses unique to the 2013 year. This result also includes the accounting gain on the derivative (profit) of $1.1 million reported in the 31 December 2012 half-year result."

One-off expenses included: capital raising costs ($500k), a foreign exchange reserve relating to previous years written off ($500k), some historical bad debt write-offs, the full impact of the fire at Largs Bay including the carrying costs of staff and other overheads, and additional training and maintenance costs for the Picton and Largs Bay plants as we brought those plants back on line to meet export orders.

LEC Financial Results

For the three month period ended April 30, 2013 ("Q4 FY13"), the Company reported a net loss of $1.6 million, or $0.01 per share (basic and fully diluted) compared to a net loss of $0.4 million or $0.02 per share (basic and fully diluted) for the three month period ended April 30, 2012 ("Q4 FY12"). The $1.2 million increase in the net loss for the current period was due to an increase in research and development expenses of $0.2 million, increased operating costs of $1.3 million arising from increased professional, strategic advisory, and legal fees related to the various financings and acquisition transactions and related costs, a decrease in government and corporate contributions of $0.2 million, offset by the other gain of $0.5 million. The other (non-cash) gain related to the acquisition of addition ARW shares during the quarter.

LEC Going Concern

The Company entered into a secured credit facility of $5 million in February 2013, which was amended on July 9, 2013 for up to $6.25 million (the "Amended Loan"), and this was replaced with a new secured revolving credit facility with Difference Capital Financial Inc. ("DCF") for up to $12.5 million in August 2013 (as further described in Notes 10 and 24 to the Consolidated Financial Statements).  A total of $5 million had been drawn on the credit facility as of April 30, 2013; and by August 28, 2013 a total of $9.75 million had been drawn down.

LEC currently forecasts that its working capital requirements for the next twelve months may exceed the combination of its current working capital, and those funds which are expected to be received in the future under its revolving secured credit facility and those funds which are expected to be received in the future from LIL's existing government grants and corporate relationships.  The ability of LEC to continue as a going concern is dependent upon its ability to continue to fund its business objectives and to be able to repay amounts drawn under the DCF credit facility. There can be no assurance that LEC will be able to obtain further financing on favourable terms and in such event, LEC's working capital may not be sufficient to meet its stated business objectives.

These consolidated financial statements have been prepared on a going concern basis which assumes that the Company will continue its operations for the foreseeable future and contemplates the realization of assets and the settlement of liabilities in the normal course of business. The conditions and risks noted above cast significant doubt on the validity of that assumption.

These financial statements do not give effect to any adjustments to the amounts and classification of assets and liabilities that may be necessary and could potentially be material, should the Company be unable to continue as a going concern.

Liquidity and Capital Resources

LEC has historically financed its working capital requirements largely through public and private sales of equity securities, and more recently through access to a line of credit. The ongoing funding requirements of its wholly owned subsidiary LIL were met out of these funds together with funds received directly by LIL in the form of government grants and corporate contributions. LEC's recent investments in ARW and TBF have also been made out of its general working capital and from the Company's line of credit with DCF.

At April 30, 2013, LEC and its subsidiaries, had $2.4 million in cash and cash equivalents and up to $2.9 million in future funding receivable from contracted government and corporate funding agreements, and $10.9 million in current liabilities. The Company had a $3.1 million surplus in net shareholders' equity after taking into account an accumulated deficit of $35.7 million.

The $2.9 million in funding receivable in the future from contracted government and corporate funding agreements has not yet been recognized in the financial statements. This remaining balance of funding is available in the future subject to the satisfaction of certain conditions specified in the relevant agreements, which includes LIL completing the body of work required in respect of the previous round of funding, demonstrating the ability to incur in the future the budgeted program expenditures, and continuing to meet all of its reporting requirements. Receipt of this additional funding is also conditional in certain cases upon having sufficient matching funds and completion of the funding agreements and there can be no assurance that this funding will be received. The funding receivable under these awards is intended to be applied against future expenses incurred under various development programs.

As noted in the LEC Going Concern note above, in order to continue funding its operations, LEC will continue to explore a number of different options. There can be no assurance that LEC will be able to obtain further financing on favourable terms and in such event, LEC's working capital may not be sufficient to meet its stated business objectives (see also "Risks and Uncertainties").

The Company continues to manage and defer non-priority expenditures, while at the same leveraging all available funding sources to extend, as much as is possible, the overall availability of its resources.

Lignol's complete financial statements for the three months and fiscal year ended April 30, 2013 and the related Management's Discussion & Analysis of Financial Condition and Results of Operations are available at the Company's website, www.lignol.ca, or at www.sedar.com under the Company's profile. These financial statements were prepared in accordance with the required adoption of International Financial Reporting Standards.

About Lignol Energy Corporation ("LEC")

Lignol Energy Corporation is an emerging producer of biofuels, biochemicals and renewable materials from waste biomass.  LEC is actively involved in the management of its wholly owned subsidiary Lignol Innovations Ltd. and in the management of Territory Biofuels Limited, in which it has a controlling interest. LEC owns a 21 percent interest in Australian Renewable Fuels Ltd., however it should be noted that LEC has no direct influence or any representation on the board of directors of ARW.  The Company intends to invest in, or otherwise obtain, equity interests in energy related projects, which have synergies with the company and have the potential to generate near term cash flow.

Lignol Innovations Ltd. ("LIL")

The Company's wholly owned subsidiary, LIL is a leading technology company in the advanced biofuels and renewable chemicals sector undertaking the development of biorefining technologies for the production of advanced biofuels, including fuel-grade ethanol, and other renewable chemicals from non-food cellulosic biomass feedstocks. LIL's modified solvent based pre-treatment technology facilitates the rapid, high-yield conversion of cellulose to ethanol and the production of value-added biochemical co-products, including high purity HP-L^TM lignin. HP-L^TM lignin represents a new class of high purity lignin extractives (and their subsequent derivatives) which can be engineered to meet the chemical properties and functional requirements of a range of industrial applications that until now has not been possible with traditional lignin by-products generated from other processes. LIL is executing on its development plan through strategic partnerships to further develop and integrate its core technologies on a commercial scale.

Territory Biofuels Limited ("TBF")

The Company presently owns a controlling 56% equity stake in TBF (and is in the process of increasing that stake to up to 66 percent) , a company which owns a large scale biorefining facility located in Darwin, Northern Territory which includes a Lurgi-designed biodiesel plant and the largest glycerine refinery in Australia. The facility was commissioned in 2008 at a cost of A$80 million, along with 38 million litres of related tankage, now leased by TBF. The biodiesel plant is the largest in Australia with a rated capacity of 140 million litres per year. The plant was originally built to run on palm oil and food-grade vegetable oil; however the plant was shut down in 2009 due to challenging technical and economic conditions. To take advantage of current market opportunities, TBF is in the process of raising funds to restart the existing facility utilizing a specific grade of palm oil; environmentally certified, Refined Bleached & Deodorized (RBD) palm oil. In 2014, TBF plans to integrate new feedstock pre-treatment technologies and catalysts to process a broader range of feedstocks such as lower quality tallow, used cooking oil and palm sludge oil; a waste product from palm oil mill extraction. LEC has appointed a majority of the Board of TBF which includes two executives and directors of LEC, one of whom is Chairman of the Board. Since obtaining a controlling interest on April 15, 2013, LEC has been actively engaged in the operations of TBF and in supporting TBF to obtain access to additional finance so as to restart the Darwin plant and to enable the company to commence commercial operations.

Australian Renewable Fuels ("ARW")

The Company currently owns a 21% investment in ARW, a company listed on the Australian Stock Exchange (ASX:ARW), which is the largest biodiesel producer in Australia owning three plants with a total nameplate capacity of 150 million litres per annum. ARW's three plants were built with an initial investment of over A$100 million. ARW has made significant changes in recent years to become a more cost effective producer of high quality biodiesel to address growing biofuel demand in the Australian market. In March 2013, ARW completed an equity financing of A$12.3 million, which was partially funded by LEC, for the purpose of repaying existing debt and to provide additional working capital. Further information about ARW can be found at www.arfuels.com.au