UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
10-K





x
            ANNUAL REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
fiscal year ended June 30, 2010





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





For the
transition period from ___________ to ___________.




Commission
File Number 001-15931








SinoCoking
Coal and Coke Chemical Industries, Inc.


(Exact
name of issuer as specified in its charter)





Florida
                
                65-0420146(State
      or other jurisdiction of incorporation or organization)
                
                (I.R.S.
      employer identification
number)





Kuanggong
Road and Tiyu Road 10th Floor,


Chengshi
Xin Yong She, Tiyu Road, Xinhua District,


Pingdingshan,
Henan Province, China 467000


(Address
of principal executive offices and zip code)




+86-3752882999


(Registrant’s
telephone number, including area code)




Securities
registered pursuant to Section 12(b) of the Act:





Title
      of Each Class
                  
                  Name
      of Each Exchange on Which RegisteredCommon
      Stock $0.001 Par Value
                  
                  NASDAQ
      Capital Market





Securities
registered pursuant to Section 12(g) of the Act: None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes  ̈ No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes  ̈ No x





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 preceding 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 Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained herein, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. x





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” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer   ̈
              
              Accelerated
      filer   ̈Non-accelerated
      filer   ̈
              
              Smaller
      reporting company  x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes  ̈ No x





As of December
31, 2009, the last business day of the registrant’s most recently
completed second fiscal quarter, the
aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $3.05 million based on a closing price of $0.73 per
share of common stock as reported on such date.





The
registrant had a total of 20,871,192 shares of common stock outstanding as of
September 24, 2010.








SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC.





INDEX TO ANNUAL REPORT ON FORM
10-K


FOR
YEAR ENDED JUNE 30, 2010





PagePART
      IItem
      1.
                Business
                
                4Item
      1A.
                Risk
      Factors
                
                21Item
      1B.
                Unresolved
      Staff Comments
                
                32Item
      2.
                Properties
                
                32Item
      3.
                Legal
      Proceedings
                
                33Item
      4.
                Reserved
                
                33PART
      IIItem
      5.
                Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                
                33Item
      6.
                Selected
      Financial Data
                
                34Item
      7.
                Management’s
      Discussion and Analysis of Financial Conditions and Results of
      Operations
                
                34Item
      7A.
                Quantitative
      and Qualitative Disclosures About Market Risk
                
                46Item
      8.
                Financial
      Statements
                
                46Item
      9.
                Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                
                47Item
      9A.
                Controls
      and Procedures
                
                47Item
      9B.
                Other
      Information
                
                49PART
      IIIItem
      10.
                Directors,
      Executive Officers and Corporate Governance
                
                49Item
      11.
                Executive
      Compensation
                
                51Item
      12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                
                57Item
      13.
                Certain
      Relationships and Related Transactions
                
                59Item
      14.
                Principal
      Accounting Fees and Services
                
                60PART
      IVItem
      15.
                Exhibits,
      and Financial Statement Schedules
                
                61Signatures
                
                
                64


2


SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





All
statements contained in this report, other than statements of historical facts,
that address future activities, events or developments, are forward-looking
statements, including, but not limited to, statements containing the words
“believe,” “anticipate,” “expect,” “project,” “may,” “might,” “will” and words
of similar import.  These statements are based on certain assumptions
and analyses made by us in light of our experience and our assessment of
historical trends, current conditions and expected future developments as well
as other factors we believe are appropriate under the
circumstances.  Whether actual results will conform to the
expectations and predictions of management, however, is subject to a number of
risks and uncertainties that may cause actual results to differ
materially.  Such risks are in the section entitled “Risk Factors”
beginning on page 21 of this report.





Consequently,
all of the forward-looking statements made in this report are qualified by these
cautionary statements, and there can be no assurance that the actual results
anticipated by management will be realized or, even if substantially realized,
that they will have the expected consequences to or effects on our business
operations.


3





PART I





ITEM
1. BUSINESS





General
Overview




SinoCoking
Coal and Coke Chemical Industries, Inc. (the “Company”) is a
vertically-integrated coal and coke producer based in Henan Province, People’s
Republic of China (“PRC” or “China”).  We use coal from both our own
mines and that of third-party mines to produce basic and value-added coal
products such as thermal coal, washed metallurgical coal, and chemical and
metallurgical coke for steel manufacturers, power generators, and various
industrial users.  We also produce and sell coal, including raw
(unprocessed) and washed coal (which is coal that has been prepared for coking
or thermal uses), medium coal and coal slurries (by-products of the coal-washing
process), and coal tar (a by-product of the coke manufacturing
process).





All of
our business is conducted by Henan Province Pingdingshan Hongli Coal & Coke
Co., Ltd. (“Hongli”), which we control through contractual arrangements that
Hongli and its owners have entered into with Pingdingshan Hongyuan Energy
Science and Technology Development Co., Ltd. (“Hongyuan”). These contractual
arrangements provide for management and control rights, and in addition entitle
us to receive the earnings and control the assets of Hongli Group.





Hongyuan
is wholly owned by Top Favour Limited (“Top Favour”), our wholly owned
subsidiary.  Hongli produces coke, coal, coal byproducts and
electricity through its branch operation, Baofeng Coking Factory (“Baofeng
Coking”), and its wholly owned subsidiaries, Baofeng Hongchang Coal Co., Ltd.
(“Hongchang Coal”) and Baofeng Hongguang Environment Protection Electricity
Generating Co., Ltd. (“Hongguang Power”), which we refer to collectively as the
“Baofeng Subsidiaries.”  We refer to Hongli and the Baofeng
Subsidiaries collectively as “Hongli Group.”  We refer to the Company,
Top Favour, Hongyuan and Hongli Group collectively as “SinoCoking.”





Corporate
History and Structure of SinoCoking





The
Company is a Florida corporation, originally incorporated as “J. B. Financial
Services, Inc.” on September 30, 1996.  From the date of its
incorporation until August 24, 1999, the Company had no material business and no
material revenues, expenses, assets or liabilities.  The Company
changed its name to "Ableauctions.com, Inc." on July 19, 1999, and subsequently
operated an online auction business and a real estate business.





On
December 30, 2009, the Company’s shareholders approved a Plan and Agreement of
Share Exchange, dated July 17, 2009 (the “Exchange Agreement”), with Top Favour
under which the Company (formerly named “Ableauctions.com, Inc.”) agreed to
acquire all of the outstanding capital stock of Top Favour in exchange for the
issuance of 13,117,952 shares of its common stock to the shareholders of Top
Favour (the “Acquisition”).  The Acquisition was consummated at 5:00
p.m. Pacific time on February 5, 2010 (the “Closing Date”).





On the
Closing Date:





·
            The
      Company ceased operating all of its businesses that existed and were held
      prior to the Closing Date;





·
            The
      Company changed its name from “Ableauctions.com, Inc.” to “SinoCoking Coal
      and Coke Chemical Industries, Inc.” to reflect the business of Top Favour,
      and it effected a 1-for-20 reverse stock split of its issued and
      outstanding shares of common stock, by filing an amendment to its articles
      of incorporation with Florida’s Department of
  State;





·
            All
      of the Company’s directors and officers prior to the Acquisition resigned,
      and successor officers and directors designated by Top Favour were
      appointed to the board and
management;





·
            All
      of the pre-Acquisition assets of the Company (e.g. relating to online
      auctions, liquidation, real estate services, finance and development) were
      transferred to a liquidating trust (the “Liquidating Trust”); these assets
      included the capital stock of the Company’s pre-Acquisition
      subsidiaries;





·
            The
      Liquidating Trust assumed all of the Company’s pre-Acquisition
      liabilities;





·
            Top
      Favour and its subsidiaries and controlled companies became subsidiaries
      and controlled companies of the
Company;





·
            The
      business, operations and assets of Top Favour (e.g., production of coal
      and coke) became the sole business, operations and assets of the
      Company.


4


The
operations of the Company’s former pre-Acquisition subsidiaries, now held by the
Liquidating Trust, are in the process of being wound down and will eventually be
liquidated.  Any proceeds from the liquidation which remain after the
payment of liabilities and expenses relating to the liquidation will be
distributed by the Liquidating Trust to the shareholders of record prior to the
consummation of the Acquisition.





Top
Favour is a holding company that was incorporated in the British Virgin Islands
on July 2, 2008.  Since incorporation, Top Favour has not conducted
(and presently does not conduct) any substantive operations of its own except to
serve as a holding company that owns 100% of the equity interest of
Hongyuan.





Hongyuan
is a PRC limited liability company and the wholly owned subsidiary of Top
Favour. Hongyuan was approved as a wholly foreign owned enterprise (“WFOE”) by
the Henan provincial government on February 26, 2009 and formally organized on
March 18, 2009.  Other than activities relating to its contractual
arrangements with Hongli, Hongyuan has no separate operations of its
own.





Hongli is
a limited liability company organized in the PRC on July 5,
1996.  Hongli holds the government licenses and approvals necessary to
operate SinoCoking’s businesses in China.  Hongyuan does not own any
equity interests in Hongli, but controls and receives the economic benefits of
its business operations through contractual arrangements.  In turn,
Top Favour is the 100% owner and parent company of Hongyuan.





Baofeng
Coking was established on May 31, 2002 as a branch of Hongli.  Baofeng
Coking produces SinoCoking’s coke products.





Hongchang
Coal is a limited liability company that was organized in the PRC on July 19,
2007.  Hongchang Coal is a wholly-owned subsidiary of Hongli and
operates SinoCoking’s coal mining operations.





Hongguang
Power is a limited liability company that was organized in the PRC on August 1,
2006.  Hongguang Power is also wholly owned by Hongli and operates
SinoCoking’s electricity generating operations.





SinoCoking’s
current corporate structure is illustrated below.


5











Contractual
Arrangements with Hongli Group and its Owners





Our
relationship with Hongli Group and its owners is governed by a series of
contractual arrangements (or VIE agreements), under which Hongyuan, the WFOE,
holds and exercises ownership and management rights over the Hongli
Group.  Neither the Company, Top Favour nor Hongyuan owns any direct
equity interest in Hongli Group; however, the contractual arrangements with
Hongli Group and its owners are designed to provide the Company with rights
equivalent in all material respects to those it would possess as the sole equity
holder of the Hongli Group entities, including absolute control rights and the
rights to their assets, property and income.  According to a legal
opinion issued by our PRC counsel, the contractual arrangements constitute valid
and binding obligations of the parties to such agreements, and are enforceable
and valid in accordance with the laws of the PRC.





On March
18, 2009, Hongyuan entered into the following contractual arrangements with
Hongli Group and its owners:





Consulting Services
Agreement.  Pursuant to the consulting services agreement,
Hongyuan provides the Hongli Group companies with general consulting services
relating to their business management and operations on an exclusive
basis.  Additionally, Hongyuan owns any intellectual property rights
that are developed during the course of providing these
services.  Each Hongli Group company pays a quarterly consulting
service fee in Renminbi (“RMB”) equal to its net income for such quarter to
Hongyuan.  The consulting services agreement is in effect unless and
until terminated by written notice of either party in the event that: (a) the
other party causes a material breach of the agreement, provided that if the
breach does not relate to a financial obligation of the breaching party, that
party may attempt to remedy the breach within 14 days following the receipt of
the written notice; (b) the other party becomes bankrupt, insolvent, is the
subject of proceedings or arrangements for liquidation or dissolution, ceases to
carry on business, or becomes unable to pay its debts as they become due; (c)
Hongyuan terminates its operations; (d) Hongli Group’s business license or any
other approval for its business operations is terminated, cancelled or revoked;
or (e) circumstances arise which would materially and adversely affect the
performance or the objectives of the consulting services
agreement.  Additionally, Hongyuan may terminate the consulting
services agreement without cause.


6


Operating
Agreement.  Pursuant to the operating agreement, Hongyuan
provides guidance and instructions on each Hongli Group company’s daily
operations, financial management and employment issues.  In addition,
Hongyuan agrees to guarantee the performance of each Hongli Group company under
any agreements or arrangements relating to its business arrangements with any
third party.  In return, the owners of Hongli Group must designate
Hongyuan’s candidates as their representatives on each Hongli Group company’s
board of directors, and Hongyuan has the right to appoint senior executives of
each Hongli Group company.  Additionally, each Hongli Group company
agrees to pledge its accounts receivable and all of its assets to
Hongyuan.  Moreover, each Hongli Group company agrees not to engage in
any transactions that could materially affect its assets, liabilities, rights or
operations without Hongyuan’s prior consent, including without limitation,
incurrence or assumption of any indebtedness, sale or purchase of any assets or
rights, incurrence of any encumbrance on any of its assets or intellectual
property rights in favor of a third party or transfer of any agreements relating
to its business operation to any third party.  The term of this
agreement is the maximum period of time permitted by law unless sooner
terminated by any other agreements reached by all parties or upon a 30-day
written notice from Hongyuan.  The term may be extended only upon
Hongyuan’s written confirmation prior to the expiration of the agreement, with
the extended term to be mutually agreed upon by the parties.  Under
current PRC Contract Law, there is no limitation on the maximum term permitted
by law for the operating agreement. As long as the operating agreement is not
terminated or discharged according to contract or by operation of the law and
the contractual parties still exist, there is no limitation on term of the
operating agreement.  However, the PRC government may issue new laws
and regulations in connection with these types of operating agreements which may
limit the terms of such agreements in the future.





Equity Pledge
Agreement.  Under the equity pledge agreement, the owners of
Hongli Group pledged all of their equity interests in Hongli Group to Hongyuan
to guarantee each Hongli Group company’s performance of its obligations under
the consulting services agreement.  If a Hongli Group company or the
owners breach their respective contractual obligations, Hongyuan, as pledgee,
will be entitled to certain rights, including, but not limited to, the right to
vote with, control and sell the pledged equity interests.  The owners
of Hongli Group also agreed that upon occurrence of any event of default,
Hongyuan shall be granted an exclusive, irrevocable power of attorney to take
actions in the place and stead of the owners to carry out the security
provisions of the equity pledge agreement, and take any action and execute any
instrument as required by Hongyuan to accomplish the purposes of the
agreement.  The owners of Hongli Group agreed not to dispose of the
pledged equity interests or take any actions that would prejudice Hongyuan’s
interest.  This agreement will expire two years from the fulfillment
of Hongli Group’s obligations under the consulting services
agreement.





Option
Agreement.  Under the option agreement, the owners of Hongli
Group irrevocably granted Hongyuan or its designee an exclusive option to
purchase, to the extent permitted under Chinese law, all or part of the equity
interests in Hongli Group for the cost of the owners’ initial contributions to
the registered capital of each Hongli Group company or the minimum amount of
consideration permitted by applicable Chinese law.  Hongyuan or its
designee has sole discretion to decide when to exercise the option, whether in
part or in full.  The term of this agreement is ten years from January
1, 2006 and may be extended prior to its expiration by written agreement of the
parties.





Proxy
Agreement.  Pursuant to the proxy agreement, the owners of
Hongli Group irrevocably granted a Hongyuan designee the right to exercise all
voting rights of the owners with respect to their ownership interests in
accordance with applicable laws and each Hongli Group company’s governing
charters.  This agreement may not be terminated without the unanimous
consent of all parties, except that Hongyuan may terminate the proxy agreement
with or without cause upon 30-day written notice to the owners.





Principal
Products





SinoCoking’s
principal product is coke, which it produces from coal that it mines as well as
coal that it purchases.  We produce and sell two types of coke,
metallurgical coke primarily used in steel manufacturing and chemical coke (also
known as gas coke in the PRC) used mainly for synthesis gas
production.  We also produce and sell coal, including raw coal,
“washed coal” (which is processed coal that is ready for coking), and “medium
coal” and coal slurries (both of which are byproducts of the coal-washing
process).  We also use byproducts from our coke manufacturing process
to produce and sell coal tar.   During the fiscal year ended June
30, 2010, we produced approximately 138,000 metric tons of coke, 243,000 metric
tons of raw coal and 5,000 metric tons of coal tar, as compared to approximately
154,648 metric tons of coke, 261,000 metric tons of raw coal and 7,510 metric
tons of coal tar during the fiscal year ended June 30, 2009.


7


Description
of Operations





Overview





We are
based in Henan Province in the central part of China, known as a coal-rich
region of the country.  Our operations are located in Baofeng County,
a part of Pingdingshan Prefecture south of the provincial capital of
Zhengzhou.  We extract coal from a mine in Zhaozhuang Village in
Baofeng County, and truck the coal to our plant site in the adjacent Hangzhuang
Village, where the bulk of the coal is processed and used by us to make
coke.  Finished coke is loaded onsite onto railcars on SinoCoking’s
private rail line and transported to customers through the connected state-owned
rail system.  Castoffs of the coal-washing process are sold to
industrial end users and traders primarily as fuel for electricity and heat.
Coal tar is extracted from the gas emitted during the coking process and sold,
and the gas is then piped into an onsite electric plant to produce electricity
to power SinoCoking’s operations.  Excess electricity, if any is
generated, is sold to the state-owned electricity grid.





Coal
Mining Operations





Through
Hongchang Coal, a subsidiary of Hongli, SinoCoking currently operates
underground coal mines that are accessible by public and private
roads.  Coal extracted from these mines consists of bituminous coal,
and based on historical mining activity, approximately 8% of the coal extracted
from these mines typically possesses properties that meet the requirements for
coking (metallurgical) coal; however, this percentage varies depending on mine
conditions and particular area of the seams mined.





The site
of these mines originally encompassed four separate coal mines: Yongshun,
Tanglishu, Liangshuiquan and Zhaoxi, which were separately operated by parties
unrelated to SinoCoking pursuant to resource mining permits effective from
January 2003 through May 2007.  In 2005, Hongli acquired the resource
mining permits and the mining rights for all of these mines, assumed the ongoing
mining operations, and initiated a consolidation of the mines, which was
completed in 2006.  In July 2007, the Henan provincial government
granted Hongchang Coal a new resource mining permit for the consolidated mine
commonly known as the Baofeng Mine, and referred to in the mining permit and
throughout this report as the “Hongchang Mine.”  For further
information regarding our mining properties and rights, see the section below
entitled “Property Plant and Equipment.”





Coal is
extracted from the Hongchang Mine using the “room and pillar” method, in which a
coal stratum is divided into horizontal planes and the coal is removed from each
plane while leaving “pillars” of un-mined materials as supports, working from
the uppermost plane down.  Each plane is further divided into grids to
determine the optimal pillar placements.  Drilling and blasting
techniques are used to extract the coal.





All raw
coal is loaded and transported by a chain conveyor into crates which are carried
out to the surface by an electrical winch.  Each crate carries
approximately 2.5 metric tons, and approximately 400 crates are carried to the
surface during each 24-hour mining shift.  Rock material is used for
floor ballast with the excess sent to the surface for disposal.  Air
compressors are provided for underground air tool use. Electrical power is
supplied internally from our own power stations through state-owned power lines,
and supplied to the underground work site through a double-circuit cable
designed to mitigate and circumvent potential power supply
disruptions.





Normal
water inflow into the mine is controlled by a system of ditches, sumps, pumps
and drainpipes installed throughout the mine tunnels.  The mine’s
ventilation system includes an exhaustive fan on the surface of the main
incline.  Auxiliary fans are used as needed.  The present
mine fan is capable of satisfying ventilation demands of the mining
operation.





The
annual coal production volumes of the Hongchang Mine for the years ended June
30, 2006 to 2010, are as follows:





Fiscal
      Year
                
                Annual
      Production
                  (
      metric tons )2006
                
                
                143,5362007
                
                
                134,6382008
                
                
                204,991
                *2009
                
                
                260,938
                *2010
                
                
                242,878
                *





*
            While
      production volume in fiscal 2008, 2009 and 2010 exceeded the amount
      specified on Hongchang Coal’s coal production permit, such practice is
      common in Henan Province, and was accepted by the government because the
      mining right for the extracted coal and taxes from sales of such coal were
      paid.





The
extracted coal is trucked to our processing plant located approximately two
kilometers from the mine site for washing and sorting at our coal washing
facility.  Samples are taken prior to and after the coal washing
process to analyze and determine coking readiness based primarily on moisture,
ash, sulfur and volatile contents.  Out of the washed coal produced by
SinoCoking, a portion may or may not be sold to customers as washed coal, and
certain portions of washed coal, provided that it meets certain chemical and
thermal requirements, is used by the Company to make coke.


8


Coal
Trading





In
addition to mining coal, SinoCoking also engages in coal trading for
profit.  Depending on market conditions, SinoCoking may broker coal
from small independent mine operators in our surrounding areas who may lack the
means to transport coal from their mine sites or are otherwise unable to sell
their coal due the size of their operations.  If purchased coal meets
requirements for coking, SinoCoking will generally use it to produce coke;
otherwise, it holds and sells the coal when market conditions are
favorable.  For the fiscal year ended June 30, 2010, SinoCoking
acquired approximately 321,019 metric tons of coal from these small mines to
trade, as compared to approximately 110,868 metric tons for the fiscal year
ended June 30, 2009.





Total
annual coal purchases from third parties by SinoCoking for the years ended June
30, 2006 to 2010, were as follows:





Fiscal
    Year
                      
                      Annual
      Purchases
                        (metric
      tons)2006
                      
                      
                      40,1522007
                      
                      
                      78,3932008
                      
                      
                      189,7412009
                      
                      
                      169,1002010
                      
                      
                      336,014





Washed
Coal





SinoCoking
operates a coal-washing facility at our plant site that is capable of processing
up to 750,000 metric tons of coal per year.  Under current Chinese
coking industry standards, raw coal with no more than 1% sulfur content is
deemed suitable for coking, although other factors are also
considered.  Thus, in addition to low sulfur content, the industry
preference is for lower ash content and volatile matter.  While much
of the coal from the Hongchang Mine is generally suitable for coking based on
these parameters, the coal must nevertheless be washed before it is ready for
the coking ovens, in order to reduce ash and sulfur content, and to increase
thermal value.  SinoCoking uses a water-based jig washing process,
which is prevalent in China.  SinoCoking uses both underground and
recycled water for our coal washing operations.  Sorting machines that
can process up to 600 metric tons per hour sort the washed coal according to
size.  Washed coal is also typically blended with other coal in order
to achieve the proper chemical composition and thermal value for
coking.





Approximately
1.33 - 1.38 metric tons of raw coal yield 1 metric ton of washed
coal.  The bulk of the washed coal produced is intended for
SinoCoking’s coking plant, although on occasion it sells small amounts if the
pricing is favorable.  In addition to washed coal, the coal-washing
process produces two byproducts:





(1)
            “Medium”
      coal (sometimes referred to as “mid-coal”), a PRC coal industry
      classification, is coal that does not have sufficient thermal value for
      coking, and is mixed with raw coal and even coal slurries, and sold for
      electricity generation, and domestic and industrial heating applications;
      and





(2)
            Coal
      slurries, sometimes called coal slime, are the castoffs and debris from
      the washing process.   Coal slurries can be used as a fuel
      with low thermal value, and are sold “as is” or mixed with “medium” coal
      to produce a blended mixture.





SinoCoking’s
approximate annual production volumes of washed coal and the two byproducts of
the coal-washing process for the years ended June 30, 2006 to 2010 were as
follows:





Annual
      Production ( metric tons )Fiscal
                          Year
                        
                        Washed
      Coal
                        
                        
                        Medium
                          Coal*
                        
                        
                        Coal
                          Slurries*2006
                        
                        
                        98,574
                        
                        
                        
                        12,400
                        
                        
                        
                        15,2002007
                        
                        
                        208,317
                        
                        
                        
                        27,200
                        
                        
                        
                        33,3002008
                        
                        
                        297,120
                        
                        
                        
                        40,700
                        
                        
                        
                        49,7002009
                        
                        
                        243,958
                        
                        
                        
                        32,800
                        
                        
                        
                        40,1002010
                        
                        
                        217,852
                        
                        
                        
                        43,570
                        
                        
                        
                        29,047


9


*
            Estimated
      by management based on quantities of raw coal used as input for coal
      washing operations.





Coke
Manufacturing





Coke is a
hardened, solid carbonaceous residue derived from low-ash, low-sulfur bituminous
coal from which the volatile constituents are driven off by baking in an oven
without oxygen at high temperatures so that the fixed carbon and residual ash
are fused together. Volatile constituents of the coal include water, coal-gas,
and coal-tar. SinoCoking produces two types of coke: metallurgical coke and
chemical coke.





Metallurgical
coke is primarily used for steel manufacturing. Chemical coke, commonly referred
in China to as gas coke, is mainly used in China to produce synthesis gas, a gas
mixture largely of hydrogen and carbon monoxide that is combustible and often
used as a fuel source or as an intermediate for the production of other
chemicals including methanol, formaldehyde and ammonia.  China has
exacting national standards for coke, based upon a variety of metrics, including
most importantly, ash content, volatilization, caking qualities, sulfur content,
mechanical strength and abrasive resistance. Typically, metallurgical coke must
have more than 80% fixed carbon, less than 15% ash content, less than 0.8%
sulfur content and less than 1.9% volatile matter.  Chemical coke, on
the other hand, must have more than 80% fixed carbon, less than 18% ash content,
less than 1% sulfur content and less than 3% volatile
matter.  According to national standards, metallurgical coke is
classified into three grades – Grade I, Grade II and Grade III, with Grade I
being the highest quality – and chemical coke is its separate
grade.  Generally, customers do not provide specifications for coke,
except that SinoCoking may occasionally make requested adjustments, for instance
to moisture content, as requested by customers from time to time.  The
amount of each type of coke that SinoCoking produces is based on market demands,
although historically its customers have only required Grade II and III
metallurgical coke.  For the fiscal year ended June 30, 2010, 100% of
the coke produced by SinoCoking was Grade II. For the fiscal year ended June 30,
2009, approximately 76.96% of the coke produced by SinoCoking was Grade II,
15.57% was Grade III, and the balance, 7.47%, was chemical coke.





Metallurgical
coke and chemical coke are produced using an identical manufacturing process.
SinoCoking produces coke onsite from a series of three WG-86 Type coke ovens
lined up in a row with an annual capacity of 250,000 metric
tons.  SinoCoking’s metallurgical coke has typical characteristics of
85% fixed carbon, less than 12% ash, less than 1.9% volatile matter and less
than 0.7% sulfur.  SinoCoking’s chemical coke, on the other hand, has
typical characteristics of more than 80% fixed carbon, less than 18% ash, less
than 3% volatile matter and less than 0.8% sulfur.





Coal that
is either extracted from the Hongchang Mine or purchased by SinoCoking and
processed at its coal-washing facility is sent to a coal blending room where it
is crushed and blended to achieve an optimal coking mixture.  Samples
are taken from the coal blend and tested for moisture, chemical composition and
other properties. The crushed and blended coal is transported by conveyor to a
coal bin to be fed into the waiting oven below.  After processing
through the three temperature-controlled ovens at temperature of 1200°C (2,192
°F), hot coke is pushed out of the oven chamber onto a waiting coke cart,
transported to an adjacent quench tower where it is cooled with water spray, and
hauled to a platform area adjacent to SinoCoking’s private rail line to be
air-dried.  Coke samples are taken at several stages during the
process and analyzed in our testing facility, and data is recorded daily and
kept by technicians.  After drying, the coke is sorted according to
size to meet customer requirements.





SinoCoking’s
annual production volumes of metallurgical coke and chemical coke for the years
ended June 30, 2006 to 2010 are as follows:





Annual
      Production ( metric tons )Fiscal
      Year
                          
                          Metallurgical
                            Coke
                          
                          
                          Chemical
                            Coke
                          
                          
                          Total2006
                          
                          
                          48,321
                          
                          
                          
                          23,699
                          
                          
                          
                          72,0202007
                          
                          
                          88,364
                          
                          
                          
                          61,800
                          
                          
                          
                          150,1642008
                          
                          
                          147,773
                          
                          
                          
                          78,145
                          
                          
                          
                          225,9222009
                          
                          
                          143,092
                          
                          
                          
                          11,550
                          
                          
                          
                          154,6482010
                          
                          
                          138,417
                          
                          
                          
                          0
                          
                          
                          
                          138,417





Substantially
all of the coal from the Hongchang Mine that is suitable for coking is used to
make coke after the coal washing process.  The amount of
metallurgical-quality coal supplied by the Hongchang Mine, however, is often not
sufficient for SinoCoking’s full production capacity, and it regularly sources
from third parties.


10


Coke
Emissions Recycling





During
the coking process, the coal’s volatile contents, including water and coal tar,
are driven off in gaseous forms when heated in the coke oven.  Rather
than allowing this coal gas to be emitted into the environment, SinoCoking
captures the coal gas for recycling.  In the recycling process, coal
gas is captured and piped into a cooling tower, where coal tar is separated out
of the gas by condensation, and sold to dealers as a fuel byproduct (see section
below entitled “Coal Byproducts”).  The remaining purified coal gas is
then used by SinoCoking to generate electricity, by burning it as a fuel to
generate steam that drives steam-powered turbines.





Coal
Byproducts





As
described above, SinoCoking produces coal tar from the condensation of raw coal
gas.  Coal tar is an ingredient of coal tar pitch used in the aluminum
industry, and can be further refined to create chemicals and additives such as
fine phenol, fine naphthalene and modified pitch that can be used as raw
material in making concrete sealant, wood treatment compounds, agricultural
pesticides and other chemical products.  The coal tar industry in
China is currently fragmented and populated with many small
producers.





SinoCoking’s
annual production volumes of coal tar for the years ended June 30, 2006 to 2010
are as follows:





Fiscal
      Year
                
                Annual
      Production
                  (
      metric tons )2006
                
                
                3,3072007
                
                
                7,3302008
                
                
                10,8702009
                
                
                7,5102010
                
                
                5,239





Other
coal byproducts of the coking process include benzene, sulfur-based chemicals
and methanol, which SinoCoking presently does not produce but plans to do so in
the future.





Electricity
Generation





After
coal tar is separated, the resulting purified coal gas is piped to two onsite
3,000-kilowatt power stations (the Daying power station and the Sunling power
station) to generate electricity, each of which has an estimated maximum
generating capacity of 26,280,000 kilowatt-hours per year.  The
electricity that is generated is used primarily to power SinoCoking’s operations
at the plant and mine site.  SinoCoking estimates that the replacement
cost of this electricity, if it had to be purchased from the state-owned
utility, would be in excess of USD $1 million per year.  From time to
time, depending on usage and supply and demand conditions, SinoCoking may sell
electricity to the Baofeng Power Bureau, which is the local state-owned electric
utility company, at rates fixed by applicable regulatory
authorities.  SinoCoking may also purchase electricity from time to
time, as needs arise, from the Baofeng Power Bureau.





Expansion
Plans





New Coking
Facility.  On March 3, 2010, SinoCoking commenced construction
on a new state-of-the-art coking facility near the Company’s current operations
in Pindingshan city, in Henan Province, China.  This new facility is
expected to have an estimated coke-producing capacity of up to 900,000 metric
tons per year, including coal gas-generated power producing capabilities, and
the ability to produce an expanded range of other chemical refinery
products.  SinoCoking presently relies on its three parallel WG-86
type coke ovens, which have certain technical
limitations.  SinoCoking’s current facilities have a production
capacity of up to 250,000 metric tons per year.  The new coking
facility will be capable of utilizing a broader range of coal inputs compared to
the company’s existing plant, with even lower thermal properties (a G-index as
low as 50).  Since the average cost of inputs will decrease, this is
expected to enable SinoCoking to produce coke at a better profit
margin.  The new facility is also expected to generate an additional
66.5 million Kilowatt hours of electricity each year from the conversion of heat
emitted from the coal-gas powered system, which is used to power steam
generators.  The new facility will also produce purified coal gas as a
fuel source for use by city residents.  The Company’s plans to provide
coal gas to local residents have received approval from the city of Daying,
which will involve providing coal gas to consumers at a price per thermal
equivalent unit that is an estimated 20% less than the current price of liquid
natural gas (LNG), a competing alternative.  In addition, SinoCoking
anticipates that the new coking facility will expand its product portfolio,
enabling it to offer its customers other products such as crude benzol, sulfur,
and ammonium sulfate.


11


Mine Acquisition
Program.  On February 19, 2010, SinoCoking announced its
acquisition program under which it plans to consolidate local area coal mines as
a part of the government-directed consolidation of the coal mining industry in
the Pindingshan region of Henan Province, China.  According to
government sources, Henan province in central China is in the process of
consolidating coal mines with a production capacity below 300,000 metric tons
per year, and will only approve new mines with an output capacity of at least
450,000 metric tons per year.  The Henan plan is a part of a general
policy in China to consolidate its coal industry in order to improve production
efficiency and reduce coal mine accidents.  On February 19, 2010 the
Company identified ten mine-owning target companies.  The aggregate
licensed production capacity of the mines operated by these target companies is
1.5 million metric tons per year.  In addition, the aggregate coal
reserves of these companies is estimated to be 25 million metric tons, based on
Chinese geological standards.  The Company is conducting its own due
diligence investigation of each prospective target.  SinoCoking
anticipates acquiring a majority interest in each of these target companies,
subject to its due diligence review and at its discretion, before the end of
2010.





Land Use
Rights.  On December 9, 2008, SinoCoking entered into an
agreement with the Henan Province Pingdingshan Municipal Bureau of Land and
Resources to permit Hongli to acquire land use rights for up to 1,270,000 square
meters of industrial-zoned vacant land in Baofeng County.  Per the
agreement the total cost to acquire these land use rights is $21,954,490 (or RMB
149,860,000).  Under the agreement, the Company may, but was not
obligated to, pay the foregoing amount to acquire the land use rights, and the
Company would not incur any penalty if it did not exercise its option to acquire
the land use rights.  Hongli could have also acquired rights to all or
any lesser portion of the land as it may elect, and the total cost would be
pro-rated accordingly.  The Pingdingshan Municipal Bureau of Land and
Resources granted Hongli an extension of the option exercise period November
2009, and accordingly Hongli could have exercised its option to acquire the
aforesaid land use rights by making payment by the end of June 30,
2010.  The Company decided not to exercise its option to acquire the
land use rights and thus no payments in connection with this agreement were made
as of June 30, 2010.





Sales
and Marketing





With
respect to the sale of coke products, SinoCoking typically enters into
non-binding annual letters of intent that set forth current year supply
quantities, suggested pricing, and monthly delivery schedules with its customers
at the beginning of each year.  The terms of the letters of intent are
usually negotiated during the Annual National Coal Trading Convention organized
by the China Coal Transport and Distribution Association.  A
significant portion of SinoCoking’s coke sales in fiscal 2008 were made through
attendance at this convention.  Changes in delivery quantity and
pricing, which is based on open market pricing at the time of delivery, must be
documented in a final written contract on a 30-day advance notice submitted by
the party making the change and accepted by the other party.  Almost
all of SinoCoking’s current customers enter into these non-binding annual
letters of intent, and are generally required to make payment upon delivery of
each shipment of product.  Other customers are asked to prepay for
their orders.  In pricing its products, SinoCoking considers factors
such as the prices offered by competitors, the quality and grade of the product
sold, the volume in national and regional coal inventory build-up and forecasted
future trends for coal and coke prices.  The remaining portion of
SinoCoking’s coke sales is derived from purchase orders placed by customers
throughout the year when they require additional coke.





SinoCoking
has a flexible credit policy and adjusts credit terms for different types of
customers.  Depending on the customer, SinoCoking may allow open
accounts, or require acceptance bills or cash on delivery. SinoCoking considers
the creditworthiness and the requested credit amount of each customer when
determining the appropriate payment arrangements and credit terms, which
generally do not exceed a period over 90 days. SinoCoking evaluates the
creditworthiness of potential new customers before entering into sales contracts
and reassesses customer creditworthiness on an annual basis.  For
customers without an established history, SinoCoking requires immediate
settlement of accounts upon delivery.





Coke
Sales.  SinoCoking’s annual sales volumes of coke for the years
ended June 30, 2006, 2007, 2008, 2009 and 2010, and the weighted average selling
price per metric ton for each fiscal year, were as follows:





Coke
      SalesFiscal
      Year
                                        
                                        Annual
      Sales*
                                          (metric
                                          tons
      )
                                        
                                        
                                        Weighted
                                          Average
                                          Price
      Per Ton
                                          (USD)2006
                                        
                                        
                                        71,159
                                        
                                        
                                        $
                                        1212007
                                        
                                        
                                        152,049
                                        
                                        
                                        $
                                        1592008
                                        
                                        
                                        225,779
                                        
                                        
                                        $
                                        2492009
                                        
                                        
                                        154,631
                                        
                                        
                                        $
                                        1972010
                                        
                                        
                                        132,911
                                        
                                        
                                        $
                                        208


12





*
            Includes
      sales of metallurgical coke and chemical
coke.





Raw Coal
Sales.  SinoCoking’s annual sales volumes of raw coal for the
years ended June 30, 2006, 2007, 2008, 2009 and 2010, and the weighted average
selling price per ton for each fiscal year, were as follows:





Raw
      Coal SalesFiscal
      Year
                              
                              Annual
      Sales *
                                (
      metric tons )
                              
                              
                              Weighted
      Average
                                Price
      Per Ton
                                (USD)2006
                              
                              
                              52,578
                              
                              
                              $
                              262007
                              
                              
                              44,626
                              
                              
                              $
                              422008
                              
                              
                              20,737
                              
                              
                              $
                              182009
                              
                              
                              229,480
                              
                              
                              $
                              582010
                              
                              
                              369,379
                              
                              
                              $
                              62





*
            Includes
      raw coal sold to customers consisting of coal extracted from the Hongchang
      Mine as well as coal purchased by SinoCoking as part of its coal trading
      activities, and includes raw coal and raw coal/medium coal/coal slurry
      mixtures.  These figures exclude any raw coal used internally in
      SinoCoking’s operations as raw material to produce washed coal and
      coke.





The
weighted average price per metric ton shown in the above table reflects the
weighted average price per metric ton of coal product sold by SinoCoking in the
period shown.  Sales prices per metric ton are influenced largely by
the quality and composition of the coal product sold.  For instance,
in 2008 the Company sold relatively little raw coal, and the composition of raw
coal products sold in 2008 consisted largely of lower-value product such as coal
slurry.  Generally, the thermal value of the coal, together with its
chemical composition and other properties such as moisture, ash, sulfur, and
other chemical content, affect the price at which the Company can sell
coal.  Sale prices for raw coal are also affected by general market
conditions, supply and demand.





Washed Coal
Sales.  SinoCoking’s annual sales volumes of washed coal for
the years ended June 30, 2006, 2007, 2008, 2009 and 2010, and the weighted
average selling price per ton for each fiscal year, were as
follows:





Washed
      Coal SalesFiscal
      Year
                          
                          Annual
                            Sales
                            (
      metric
                            tons
      )
                          
                          
                          Weighted
                            Average
                            Price
      Per Ton
                            (USD)2006
                          
                          
                          6,645
                          
                          
                          $
                          642007
                          
                          
                          45,734
                          
                          
                          $
                          642008
                          
                          
                          1,860
                          
                          
                          $
                          862009
                          
                          
                          55,360
                          
                          
                          $
                          1182010
                          
                          
                          55,598
                          
                          
                          $
                          127





The
weighted average price per metric ton shown in the above table reflects the
weighted average price per metric ton of coal product sold by SinoCoking in the
period shown.  The Company's sales prices per ton of washed coal are
heavily influenced by the quality and composition of the coal product
sold.  Washed coal prices are also influenced by general market
conditions in the washed coal market, i.e., aggregate supply and
demand.





Coal Tar
Sales.  SinoCoking’s annual sales volumes of coal tar for the
years ended June 30, 2006, 2007, 2008, 2009 and 2010, and the weighted average
selling price per ton for each fiscal year, were as follows:





Coal
      Tar SalesFiscal
      Year
                        
                        Annual
                          Sales
                          (
      metric
                          tons
      )
                        
                        
                        Weighted
                          Average
                          Price
      Per Ton
                          (USD)2006
                        
                        
                        3,307
                        
                        
                        $
                        1952007
                        
                        
                        7,330
                        
                        
                        $
                        2002008
                        
                        
                        10,756
                        
                        
                        $
                        2782009
                        
                        
                        7,646
                        
                        
                        $
                        1532010*
                        
                        
                        6,182
                        
                        
                        $
                        214


13


SinoCoking
produces coal tar as a byproduct of the coking process; however, it currently
does not have a separate process for refining and preparing coal tar to create a
homogenous coal tar product.  Accordingly, the quality and
characteristics of coal tar produced varies from time to time (depending on
inputs), based on such factors as thermal value, and moisture, ash, sulfur, and
other chemical contents, and this affects the price at which the Company can
sell its coal tar.  The price of coal tar sold by the Company is also
affected by overall market demand and supply, which is influenced by a variety
of factors which may include higher prices for oil and oil derivatives, stronger
demand for construction materials, fertilizers, and related industrial
chemicals.





Customers





SinoCoking
sells all of its products within China.  Its four biggest customers
collectively accounted for approximately 93 % of SinoCoking’s total sales
revenue in fiscal 2010 as follows:





·
            Hunan
      Loudi Zhongyuan Trading Co. Ltd. accounted for approximately $25.72
      million in revenue, representing approximately 43.6% of total
      sales;





·
            Wuhan
      Tieying Trading Co., Ltd. accounted for approximately $20.13 million in
      revenue, representing approximately 34.1% of total
  sales;





·
            Daye
      Xinye Special Steel Co., Ltd. accounted for approximately $7.11 million in
      revenue, representing approximately 12% of total sales;
  and





·
            Wuhan
      Railway Zhongli Group Co., Ltd. accounted for approximately $2.15 million
      in revenue, representing approximately 3.65% of total
    sales.





By
product types, SinoCoking’s largest coke customer was Hunan Loudi Zhongyuan
Trading Ltd, which accounted for 61.66% of the coke sold in fiscal 2010; Wuhan
Tieying Trading Ltd was the biggest coal customer, accounting for 66.52% of the
coal sales in fiscal 2010; and Wang Fashun, who accounted for 14.64% of the coal
tar sold in fiscal 2010, was the single largest coal tar customer.





Company
sales personnel conduct routine visits to customers.  SinoCoking has
long-standing relationships with these customers, and management believes that
these relationships are stable.





Transportation
and Distribution





SinoCoking
owns and operates a private rail track 4.5 kilometers in length that connects
SinoCoking’s plant to the Chinese national railway system at both the East
Pingdingshan Railway Station and the Baofeng Railway
Station.  Industrial loaders load coal and coke from SinoCoking’s
platform onto railcars to be transported to customers primarily in central and
southeastern China in the provinces of Henan, Hubei, Hunan and
Fujian.  SinoCoking’s private railway permits it to exercise control
over the transportation cost and execution of its
products.   Customers can also arrange for trucks to take
delivery of products from the plant site.





Competitors





SinoCoking
competes primarily with coal and coke producers in the central, eastern and
southern regions of China, such as Shanxi Coking Co., Ltd., a major coke
producer, and Shenhua Group, a major coal producer.  SinoCoking also
competes against Pingdingshan Coal Group, the largest regional coal producer,
which also sells coke and coal tar.  Local coke competitors include
Hongyue Coke Factory, Dongxin Coke Factory and Hongjiang Coke
Factory.  In addition, SinoCoking competes against coal washing
operations such as Fange Zhuang Washing Factory.  Competitive factors
include geographic location, quality (i.e. thermal value, ash and sulfur
content, washing and processing, and other characteristics), and reliability of
delivery.


14


Suppliers





Since
SinoCoking requires substantially more coking coal than what the Hongchang Mine
produces, SinoCoking also sources coal from local coal
mines.  SinoCoking mainly purchases from local and other coal
producers from other provinces.   In fiscal 2010, Pingdingshan
Shilong District Zhaoling Industrial Coal Ltd supplied 29.2% of SinoCoking's
coal purchases, and Pingdingshan Shilong District Tianyuan Coal Ltd supplied an
additional 22.2%.    These suppliers are able to supply
SinoCoking with coal of such qualities and quantities consistent with
SinoCoking’s coking requirements, and their proximities to SinoCoking’s plant
also afford convenience.  In September 2010, the Company entered into
an agreement with Zhengyun Coal Distribution Co., Ltd. (“Zhengyun Coal”) to
purchase up to 3 million metric tons of raw and clean coal
annually.  Zhengyun Coal is a subsidiary and the sales division of
Zhengzhou Coal Industry Group, a Shanghai Stock Exchange listed company (ticker
600121) and one of the top six state-owned coal mining companies in Henan
Province.  The strategic cooperation agreement with Zhengyun Coal will
provide the Company with up to 2 million metric tons of raw coal and 1 million
metric tons of washed coal.  Pursuant to this agreement, the Company
has signed monthly purchase orders for August and September deliveries for raw
coal at $87 per metric ton, and the Company has also orally reached an agreement
to set the washed coal price at $141-$151, both of which are below current
market prices and at levels enjoyed by large state-owned enterprises in
China.  Zhengyun Coal has also agreed verbally to give the Company the
option to take monthly delivery up to 250,000 metric tons of raw and washed
coal, but it is not obligated to exercise such option.





As with
its coke and coal sales, SinoCoking meets its coking coal needs by entering into
non-binding annual letters of intent with these suppliers that set forth supply
quantities, suggested pricing and monthly delivery schedules at the beginning of
the year.  Subject to changes in delivery quantity and pricing, which
is based on the open market price of metallurgical coal at the time of delivery
and agreed to by the parties, SinoCoking generally makes payment upon each
delivery throughout the year.





SinoCoking
believes that it has established stable cooperative relationships with these
suppliers.  At the same time, SinoCoking can readily find other
sources of metallurgical coal that is close to its plant, as Henan Province is
one of China’s coal producing centers.  Further, the Company also
started to import coal materials from outside of Henan province in order to
reduce the risk of supply fluctuations in Henan province.





SinoCoking’s
other principal raw materials include water, which is provided without charge in
the form of treated underground water by the operator of the Hangzhuang Coal
Mines, and electricity, most of which SinoCoking generates onsite from its own
power stations and which is supplemented from the local state-owned utility as
needed.  SinoCoking also requires wood and steel for its operations,
and sources these materials from close-by suppliers on a per purchase order
basis.  These materials are readily available and there is no shortage
of suppliers to choose from.





Employees





SinoCoking
currently has 545 employees, of which 385 are mine workers, 122 are coking plant
workers, and 38 are employed in an administrative or executive
capacity.  Since December 31, 2009, our management made certain
changes to personnel job descriptions resulting in a reduction in the number of
employees categorized as “administrative or executive.”  Both the
mining operations and the coking plant operate year round in three shifts of
eight hours per day.  In compliance with the Employment Contract Law of
PRC, SinoCoking has written contracts with all of their
employees.  SinoCoking considers its relationship with its employees
to be good.





Research
and Development





As of the
year ended June 30, 2010, SinoCoking did not conduct any research and
development activities.  SinoCoking does plan to initiate a program
focusing on the extraction of chemicals from coal, and the anticipated costs and
benefits of the production and sale of such byproducts is being
considered.





Intellectual
Property





SinoCoking
currently has no patents, trademarks, in-bound or outbound licenses, franchises,
or royalty arrangements.





Regulation





SinoCoking
operates in an industry that is highly regulated by local, city and provincial
government authorities in the PRC.  Applicable regulations include
those relating to safety, production, environmental, energy use and
labor.  While it is not practicable to summarize all applicable laws,
the following is a list of names of significant laws and regulations that apply
to our business:





Laws and
regulations concerning safety of coal mines:





·
            Law
      of Mine Safety


·
            Production
      Safety Law, which applies to production activities in
    general


·
            Law
      of the Coal Industry


15


·
            Regulations
      on Coal Mine Safety Supervision and
Inspection


·
            Regulations
      on Coal Mine Explosives Control


·
            Special
      Provisions for the Prevention of Coal Mine
  Incidents


·
            Requirements
      for Basic Production Conditions for Coal
Mines


·
            Penalties
      for Coal Mine Safety Violations


·
            Penalties
      for Production Safety Violations





Laws and
regulations concerning environmental protection and energy
conservation:





·
            Law
      of the Prevention and Control of Solid Waste Environmental Pollution,
      which applies to entities whose production activities may generate
      pollutive solid waste


·
            Law
      of the Prevention and Control of Atmospheric Pollution, which set
      restrictions in coal burning and emissions that cause air
      pollution


·
            Mineral
      Resources Law, which regulates the extraction of mineral resources
      including coal


·
            Law
      Regarding the Prevention and Control of Water Pollution, which regulates
      pollution of underground water caused by mining
  activities


·
            Land
      Administration Law, which restricts mining activities on agricultural
      land


·
            Law
      of Prevention and Control of Radioactive Pollution, which regulates and
      prohibits the release of radioactive pollution caused by certain mining
      activities


·
            Laws
      of Water and Soil Conservation, which regulates mining activities with the
      aim of preventing soil erosion


·
            Environmental
      Protection Law, which contains certain general provisions that apply to
      the operation of coal mines





Laws and
regulations concerning labor:





·
            Labor
      Law, which protects workers, and contains provisions that apply to a broad
      range of industry including the mining
industry





Environmental
Protection Measures





SinoCoking
incorporates measures to reduce the environmental impacts of its operations.
SinoCoking’s large-sized furnace reduces the frequency of coal loading and
trundling, thereby reducing the amount of dust and soot that is
generated.  SinoCoking captures coal gas emitted during the coking
process to generate electricity which it uses in its
operations.  SinoCoking also recycles water - water that is used for
coal washing is treated to remove phenol and other contaminants, and then
re-used in the coal washing operation.  SinoCoking also uses recycled
water, in the form of treated underground water, to quench coke and for its
power stations, which is provided without cost by the nearby Hanzhuang Coal
Mines, which mining rights are owned and operated by unrelated third
parties.  Additionally, SinoCoking uses sound insulation to reduce
noise pollution, and plants vegetation throughout its plant to help mitigate
environmental impacts.





Safety





SinoCoking's
management believes that the Company is in material compliance with all laws and
regulations that are applicable to it, including safety laws and
regulations.  SinoCoking’s mining operations employ an automatic
hazard detection system as required by the PRC government, which includes air
monitoring, automatic power shut-down, and underground worker tracking
systems.  Companies with mining operations are required to report
violations or mining incidents and casualties to the government
authorities.  Since inception, except for ordinary and minor injuries,
SinoCoking has suffered no major accidents and no casualties in connection with
its mining operations, and SinoCoking has not suffered any reportable
incident.  Under PRC law, companies with mining operations are subject
to random and periodic safety inspections by government mine
regulators.  Since inception, SinoCoking has not been found to be in
material violation of any mining regulations.  As we have no record of
violations or mining incidents, management considers our safety record to be
excellent.





Property,
Plant and Equipment





Real
Property and Leasehold Property





As of
June 30, 2010, the net book value of our property, plant and equipment,
excluding construction-in-progress was $17,100,613.  The Hongchang
Mine and its related facilities are located in Henan Province. As of June 30,
2010, our mines, land and facilities collectively occupied an area of
approximately 748,413 square meters, in a single location in Pingdingshan City
in Henan Province.  Of this land, the Hongchang Mine cover s 653,400
square meters, and our current coking and coal facilities occupy approximately
96,013 square meters.  Under PRC law, we have freely transferable land
use rights for a term of 36 years commencing from the respective dates when we
acquired such land use rights.  Based on our business development
requirements, we may seek opportunities to acquire additional land and to obtain
the relevant governmental approvals.


16


As
described above, SinoCoking (through its controlled subsidiary Hongli)
previously held an option under an agreement with the Henan Province
Pingdingshan Municipal Bureau of Land and Resources which provided Hongli the
right to acquire land use rights for up to 1,270,000 square meters of additional
industrial-zoned vacant land in Baofeng County.  Per the agreement,
the total cost to acquire these land use rights is $21,954,490 (or RMB
149,860,000) and payment was required to exercise such option by June 30,
2010.  As of June 30, 2010, the Company decided that it would not
exercise its option to purchase the land use rights and thus no payments were
made in connection with the agreement.





The map
below shows the location of Pingdingshan City in Henan Province, in central
China:











Coal
Mines and Production Facilities





The
Hongchang Mine is located in the central part of Hunan Province.  A
series of roadways provide access to the Hongchang Mine.  Extracted
coal is transported by truck to our washing and coking
facilities.  Coal and coke products are mainly transported to our
customers by rail using the national railway system.





The
Hongchang Mine originally consisted of four underground mines: the Yongshun
mine, the Liangshuiquan mine, the Zhaoxi secondary mine and the Zhaozhuang
Tanglishu mine.  These mines were positioned adjacent to one another,
and although once owned and operated by different parties, these mines made use
of common passageways and mine shafts. In June 2005 we acquired the Yongshun
mine (built in 1996) and the Zhaoxi secondary mine (built in 1988) from Quinmin
Chen.  Also in June 2005, we acquired the Liangshuiquan mine (built in
1984) from Minjie Li.   In April 2005 we acquired the Zhaozhuang
Tanglishu mine (built in 1984) from Liuqing He and Jiti Li.  Hongli
assumed the ongoing mining operations of these mines and initiated the
consolidation of these mines, which consolidation process was completed in
2006.  SinoCoking now operates the Hongchang Mine as one unified
mining operation.


17


All
portions of the Hongchang Mine are currently in operation, and none of the mines
we operate are presently undergoing major repair work.  No major
renovations are being undertaken for these mines at this time.  The
Company plans to conduct exploration and development activities once the amount
of coal extracted from the Hongchang Mine approaches the maximum estimated
amount of proven and probable reserves.





The map
below indicates the location of the Hongchang Mine and SinoCoking’s facilities
in Pingdingshan:











We are
currently extracting raw coal at the rate of 300,000 metric tons per year from
the Hongchang Mine.  Since acquisition in 2005, we have extracted a
total of 986,981 metric tons from the Hongchang Mine, and prior to this time,
the predecessor owners of these mines extracted a total of 345,000 metric
tons.





The
mining equipment and facilities used in the Hongchang Mine was originally
installed in 2005, and generally has an estimated useful life of 5 years;
however, it is difficult to predict which mining equipment will require
replacement in the future.   The total cost of replacement of the
plant and equipment used in the Hongchang Mine is approximately RMB 15 million
(approximately USD $2.2 million).  The total annual average cost of
operating the Hongchang Mine, as currently estimated based on an average output
per year of 300,000 metric tons per year, is $16 per ton, or an aggregate of
approximately $4.78 million per year.  The principal pieces of
equipment used in our mining operations, including safety system, underground
transportation system and loading system, were manufactured in the
PRC.


18


All of
our coal mines are underground mines.  The following table sets out
detailed information for the Hongchang Mine:





Hongchang
      MineBackground
      data:Commencement
      of construction
                                
                                1984Commencement
      of commercial production
                                
                                1987Coalfield
      area (square kilometers)
                                
                                
                                0.31Reserve
      data:(1)Total
      in-place proven and probable reserves(2)(3)
                                
                                
                                2,479,000Mining
      recovery rate (%) (4)
                                
                                
                                60
                                %Coal
      washing recovery rate (%) (5)
                                
                                
                                75
                                %Depth
      of mines (meters
      underground)
                                
                                80
      – 200 metersFirst
      seam: 1.14 metersAverage
      thickness of main coal seams (meters)(6)
                                
                                Second
      seam: 5.50 metersType
      of coal
                                
                                Thermal/MetallurgicalLeased/owned
                                
                                OwnedAssigned/unassigned(7)
                                
                                AssignedSulfur
      content (%)First
      seam
                                
                                
                                2.64Second
      seam
                                
                                
                                0.55Water
      content (%)First
      seam
                                
                                
                                0.83Second
      seam
                                
                                
                                1.5Ash
      content (%)First
      seam
                                
                                
                                15.3Second
      seam
                                
                                
                                14.0Volatility
      content (%)First
      seam
                                
                                
                                32.5Second
      seam
                                
                                
                                29.0Thermal
      Value (megajoules per
      kilogram)First
      seam
                                
                                
                                32.3Second
      seam
                                
                                
                                31.5Production data:(in metric
      tons)Designed
      raw coal production capacity (per
    year)
                                
                                
                                300,000Raw
      coal production:2005
      and prior
                                
                                
                                334,0002006
                                
                                
                                143,5362007
                                
                                
                                134,6382008
                                
                                
                                204,9912009
                                
                                
                                260,9382010
                                
                                
                                242,878Cumulative
      raw coal productionas
      of  June 30, 2010
                                
                                
                                986,981





(1)
            The
      reserve data including (i) total in-place proven and probable reserves,
      (ii) mining and coal preparation plant recovery rates; (iii) depth of
      mine; and (iv) average thickness of main coal seam are based on the
      relevant information from a report dated November 2005 issued by of our
      provincial mining authorities, the Regional Geological Survey Team of the
      Henan Bureau of Geology and Mineral Exploration and Development (the “2005
      Mining Report”), and records of the
      Company.   Non-accessible reserves are defined as the
      portion of identified resources estimated to be not accessible by
      application of one or more accessibility factors within an
      area.  We note that the degree of assurance between what would
      meet the definition of “proven reserves” on the one hand, and “probable
      reserves” on the other hand, cannot be readily
      defined.  Accordingly, pursuant to the SEC’s Industry Guide 7 –
      Description of Property by Issuers Engaged or to be Engaged in Significant
      Mining Operations, in the table above we report proven and probable
      reserves on a combined basis.


19





(2)
            In-place
      reserves refer to coal in-situ prior to the deduction of pillars of
      support, barriers or constraints.  According to the 2005 Mining
      Report, the Hongchang Mine was initially found to have total estimated
      reserves and resources of 2.81 million metric tons.  334,000
      metric tons were removed during exploration, leaving approximately 2.47
      million metric tons of estimated reserves and resources.  Of
      this amount of in-place proven and probable reserves, the Hongchang Mine
      has a total estimated recoverable coal of approximately 1.22 million
      metric tons according to the 2005 Mining
Report.





(3)
            All
      of the Hongchang Mine utilize the room-and-pillar method of underground
      extraction.





(4)
            The
      mining recovery rate represents estimated coal recovered or extracted as a
      percentage of coal reserves.  The Company does not calculate
      actual recovery rate.  For purposes of this table, the Company
      utilizes an estimate based on applicable geological standards, which may
      or may not equal the actual recovery rate for extracted
    coal.





(5)
            Coal
      washing recovery rate refers to the rate of recovery of coal in the
      production of our washed coal
products.





(6)
            The
      Hongchang Mine contains two major seams, referred to in this table as the
      “First Seam” and the “Second Seam”.





(7)
            “Assigned”
      reserves refer to coal which has been committed to a particular mining
      complex (mine shafts, mining equipment, and plant facilities), and all
      coal which has been leased by the company to others. “Unassigned” reserves
      refer to coal which has not been committed, and which would require new
      mineshafts, mining equipment, or plant facilities before operations could
      begin on the property.





Mining
Rights





We have
mining rights for the Hongchang Mine under a consolidated mining permit dated
July 6, 2007 issued by the Office of Land Resources of Henan
Province.  Hongli initially acquired the resource mining permits and
the mining rights to the Hongchang Mine and assumed mining operations in July
2005 when it acquired the Hongchang Mine.





Similar
to other coal producers in the PRC, the Hongchang Mine, including the mine site
and the underlying coal and other minerals, are owned by the PRC
government.  Accordingly, the amount of coal that SinoCoking can
extract from the mine is based on a mining right issued by the Henan Province
Department of Land and Resources.  The mining right is issued pursuant
to a reserves appraisal report submitted by government authorized mining
engineers, upon approval of such appraisal report by the Henan Province
Department of Land and Resources.  The amount of coal that can be
extracted under the mining right represents what we can economically and legally
extract under applicable PRC law and regulations and as determined by the
Department of Land and Resources.





Under our
current mining rights, we are theoretically permitted to extract up to 2,479,000
metric tons of coal from the Hongchang Mine, which represents its estimated
in-place proven and probable reserves.  Out of the proven and probable
reserves, the Pingdingshan Coal Mine Design and Research Institute estimated
that 1,215,100 metric tons are recoverable.  In August 2007, Hongli
made payment of 4.46 million RMB (approximately USD $0.6 million), toward
partial payment for its mining rights for the 2,479,000 metric tons of total
reserves.  An additional payment is anticipated to become due, when
charged by the government, in the estimated amount of USD $0.4 million as a
final payment in connection with these mining rights.   The exact
amount of the additional payment will depend on market prices as determined by
the Henan Province Department of Land and Resources, and negotiations between us
and the Department of Land and Resources.  Our current mining rights
permit SinoCoking to extract coal from the Hongchang Mine until September 2013,
until and unless these rights are extended.





The
amount that must be paid for mining rights is generally determined on a per ton
basis on proven and probable reserves (and not based on actual recoverable
coal), as well as prevailing market prices as determined by the Henan Province
Department of Land and Resources.  In the event that further
exploration results in an extension of estimated proven and probable reserves
(if SinoCoking desires to extract these additional reserves), or if SinoCoking
will continue mining the Hongchang Mine beyond September 2013, it must then
obtain an additional permit from the Henan Province Department of Land and
Resources and may be subject to additional fees to acquire or modify its mining
rights.  We expect that the cost of further exploration in and around
the Hongchang Mine would be borne by us.  As of June 30, 2010, a total
of 986,981 metric tons out of the estimated 1,215,100 metric tons of recoverable
reserves have been extracted from the Hongchang Mine.  Based on the
estimated 1.22 million metric tons of proven and probable reserves that are
recoverable per the 2005 Mining Report, the Hongchang Mine has an additional
238,119 metric tons of recoverable coal remaining, and at current extraction
rates the Hongchang Mine is expected to exhaust its reserves by the end of
calendar 2012.  The
Company has been conducting additional geological studies, and is expecting to
report more coal reserves from this mine to the local mining authority for
futher mining.  SinoCoking notes that the estimated 1,215,100 metric
tons of recoverable reserves is a government estimate created and used by local
mining authorities to determine permissible extraction rates, the duration of
our mining license, and to approve mine designs and that it is subject to
revision .  SinoCoking also utilizes this estimate for accounting
purposes, to amortize its mining rights.  Currently estimated
recoverable coal may not necessarily be consistent with the results of future
mining, engineering and feasibility studies or reports.


20


Railway
Assets





Currently,
the Company has rail assets consisting of approximately 4.5 kilometers of
special purpose coal transportation railway tracks that serve to facilitate the
transportation of coal from the Company’s yard to the national railway system,
and ultimately to its customers.  SinoCoking does not own its own
railcars and locomotives, but instead pays access fees to the PRC government for
the use of government-owned and operated railcars and
locomotives.  These railcars are loaded with coal and coke products at
the Company’s yard for delivery through the national railway
system.





ITEM
1A. RISK FACTORS





RISK FACTORS





The
reader should carefully consider the risks described below together with all of
the other information included in this Annual Report on Form 10-K (“Form
10-K”).  The statements contained in or incorporated into this Form
10-K that are not historic facts are forward-looking statements that are subject
to risks and uncertainties that could cause actual results to differ materially
from those set forth in or implied by forward-looking statements.  If
any of the following risks actually occurs, our business, financial condition or
results of operations could be harmed. In that case, the trading price of our
common stock could decline, and an investor in our securities may lose all or
part of their investment.





Risks
Related To Business





Our
business and results of operations are dependent on coal and coke markets, which
may be cyclical.





The
principal source of our revenue is from the sale of coal and coke within China
(or the “PRC”), thus the business and operating results are highly dependent on
domestic Chinese demand for coal and coke.  The Chinese coal and coke
markets are cyclical and exhibit fluctuation in supply and demand from year to
year.  They are subject to numerous factors beyond our control,
including, but not limited to, general economic conditions in the PRC and
fluctuations in industries with high demand for coal, such as the power and
steel industries.  These factors are also linked to or influenced by
global economic conditions.  Fluctuations in supply and demand for
coal and coke affect their prices, which in turn affect our operating and
financial performance.  We have seen substantial price fluctuations in
these commodities in the past and believe that such fluctuations may
continue.  The demand for coal and coke are primarily influenced by
the pace of domestic economic growth and development, and the demand for coal
and coke from the power, steel, and construction industries.  The
supply of coal and coke, on the other hand, are primarily affected by the
geographic location of coal mines, the volume of coal and coke produced by the
domestic and international coal suppliers, tariffs duties and trade controls,
value-added taxes (VAT) imposed on imports, international freight costs, and the
quality and price of competing sources of coal and coke.  Alternative
fuels, such as natural gas, oil and nuclear power, and alternative energy
sources, such as hydroelectric power, wind, geothermal and solar, also have
influences on the market demand for coal and coke.  Excess supply of
coal or coke or significant reduction in the demand for our coal or coke by
domestic power or steel producers may have an adverse effect on their prices,
which would in turn cause a decline in our profitability.  In
addition, any significant decline in PRC domestic coal or coke prices could
materially and adversely affect our business and results of
operations.





Our
mining and coking operations are inherently subject to changing conditions that
can affect our profitability.





SinoCoking’s
mining and coking operations are inherently subject to changing conditions that
can affect levels of production and production costs for varying lengths of time
and can result in decreases in profitability.  SinoCoking is exposed
to commodity price risk related to the purchase of diesel fuel, wood, explosives
and steel.  In addition, weather and natural disasters (such as
earthquakes, landslides, flooding, and other similar occurrences), unexpected
maintenance problems, key equipment failures, fires, variations in thickness of
the layer, or seam, of coal, amounts of overburden, rock and other natural
materials, variations in rock and other natural materials and variations in
geological conditions can be expected in the future to have, a significant
impact on our operating results.  Prolonged disruption of production
at the mine would result in a decrease in our revenues and profitability, which
could be material.  Other factors affecting the production and sale of
our coal and coke that could result in decreases in our profitability
include:





·
            sustained
      high pricing environment for raw materials, including, among other things,
      diesel fuel, explosives and
steel;


21


·
            changes
      in the laws and/or regulations that we are subject to, including
      permitting, safety, labor and environmental
  requirements;


·
            labor
      shortages; and


·
            changes
      in the coal and coke market and general economic
    conditions.





Our
coal and coke operations are extensively regulated by the PRC government and
government regulations may limit its activities and adversely affect its
business operations.





SinoCoking’s
coal and coke operations, like those of other Chinese natural resources and
energy companies, are subject to extensive regulations administered by the PRC
government. Central governmental authorities, such as the National Development
and Reform Commission, the State Environmental Protection Administration, the
Ministry of Land and Resources, the State Administration of Coal Mine Safety,
the State Bureau of Taxation, and provincial and local authorities and agencies
exercise extensive control over various aspects of China’s coal mining and
transportation (including rail and sea transport).  These controls
affect the following material aspects of our operations:





·
            exploration,
      exploitation and mining rights and
licensing;


·
            rehabilitation
      of mining sites after mining is
completed;


·
            recovery
      rate requirements;


·
            industry-specific
      taxes and fees;


·
            target
      of our capital investments;


·
            pension
      funds appropriation; and


·
            environmental
      and safety standards.





We
believe that our operations are in compliance with applicable legal and
regulatory requirements. However, there can be no assurance that the central,
provincial or local governments in the PRC will not impose new, stricter
regulations or interpretations of existing regulations that would require
additional expenditures by us to comply.  We may face significant
constraints on its ability to implement its business strategies or to carry out
or expand business operations.  We may also be materially and
adversely affected by future changes in certain regulations and policies of the
PRC government in respect of the coal or coke industry.  New
legislation or regulations may be adopted that may materially and adversely
affect our operations, our cost structure or demand for our
products.  In addition, new legislation or regulations or different or
more stringent interpretation of existing laws and regulations may also require
us to substantially change our existing operations or incur significant
costs.





The PRC
government has become increasingly concerned with mine safety issues,
particularly in light of several recent accidental explosions in coal mines
(operated by other companies) due to inadequate internal safety measures, and as
reflected by the implementation of the State Council’s Regulation on Phase-out
of Small Coal Mines.  Moreover, additional new legislation or
regulations may be adopted, or the enforcement of existing laws could become
more stringent, either of which may have a significant impact on our mining
operations or customers’ ability to use coal and may require its customers to
significantly change operations or to incur substantial costs.  In
2008, the Henan Province mining authorities and related government bureaus
conducted industry-wide coal mine safety inspections as a part of the
government’s policy and efforts to reduce mining accidents and improve
safety.  The Hongchang Mine was inspected in September, October and
December of 2008, and during the course of these inspections, mining activity
was temporarily halted or reduced.  This and future interruptions in
coal extraction due to mining safety inspections, albeit temporary, may have a
material effect on the Company’s financial results and operations.





The Henan
Province Pingdingshan Municipal Bureau of Land and Resources will require coking
factories with a furnace height of less than 4.3 meters to phase out their
operations in the next two to three years.  SinoCoking’s existing
coking furnace is 3 meters in height and as a result, we plan to phase out our
existing coking factory in the next two to three years, and replace these
facilities with a new coking facility that exceeds these regulatory
standards.  These government regulations will not affect our mining or
coal washing operations.





SinoCoking’s
future success may depend substantially upon our ability to successfully build
and operate the new coking factory and related facilities.





A central
element of our business plan involves the construction and operation of a new
coking factory and related facilities.  We commenced construction of
this new factory and related facilities on March 3, 2010.  While we
believe the successful completion of the construction of these facilities as
planned will be profitable, prior to completion there can be no assurance that
SinoCoking will be able to complete construction as planned or operate the
coking factory, or that if completed we will be able to operate the new factory
profitably.  The future profitability of our coking operations will
also depend on our ability to secure washed coal on a cost-effective
basis.


22


Our
business operations may be adversely affected by present or future environmental
regulations.





As a
producer of coal and coke products, SinoCoking is subject to significant,
extensive, and increasingly stringent environmental protection laws and
regulations in China.  These laws and regulations:





·
            impose
      fees for the discharge of waste
substances;


·
            require
      the establishment of reserves for reclamation and
      rehabilitation;


·
            require
      the payment of fines for serious environmental offences;
    and


·
            allow
      the Chinese Government, at its discretion, to close any facility that
      fails to comply with environmental regulations or government orders,
      requiring such facilities to comply or cease
  operations.





Our
operations may produce waste water, gas and solid waste materials. Currently,
the PRC government is moving toward more rigorous enforcement of applicable laws
and regulations as well as the adoption and enforcement of more stringent
environmental standards.  Our current amounts of capital expenditure
for environmental regulatory compliance may not be sufficient if additional
regulations are imposed and may need to allocate additional funds for such
purpose.  If we fail to comply with current or future environmental
laws and regulations, we may be required to pay penalties or fines or take
corrective actions, any of which may have a material adverse effect on our
business operations and financial condition.





In
addition, China is a signatory to the 1992 United Nations Framework Convention
on Climate Change and the 1997 Kyoto Protocol, which are intended to limit
emissions of greenhouse gases.  Efforts to control greenhouse gas
emission in China could result in reduced use of coal and coke if customers
switch to sources of fuel with lower carbon dioxide emissions, which in turn
could reduce the revenues of our businesses and have a material adverse effect
on results of operations.





Demand
for coal and coke and their respective prices are closely linked to consumption
patterns of the power and steel industries in China.   Any
changes in consumption patterns could affect our operations and
profitability.





Demand
for coal and coke and the prices that we will be able to obtain for the products
are closely linked to consumption patterns of the power generation and steel
industries in China.  These consumption patterns are influenced by
factors beyond our control, including the demand for electricity; demand for
steel; government regulation; technological developments and the location,
availability, quality and price of competing sources of coal and coke;
alternative fuels, such as natural gas, oil and nuclear power, and alternative
energy sources, such as hydroelectric power, wind, geothermal and
solar.  Any reduction in the demand for coal or coke by the domestic
power and steel industries may cause a decline in demand and revenue from our
products which would reduce our profitability.





If
transportation for our coal or coke becomes unavailable or uneconomic for our
customers, our ability to sell our products could suffer.





Transportation
costs represent a significant portion of the total cost of coal and, as a
result, the cost of transportation is a critical factor in a customer’s
purchasing decision.  Increases in transportation costs could make our
products a less competitive source of energy or could make some of our offerings
less competitive than other sources of coal or coke.  We rely upon
trucking, national, provincial and local highways and roadways, and the national
railway system to transport our products.  Regulation of, and the
overall cost of using these forms of transportation may be outside of our
control, changes in the accessibility and cost of these forms of transportation
could affect our ability to deliver our products to our customers, and thus the
attractiveness of our products relative to competing alternatives.  In
addition, these modes of transportation depend upon the support of the national,
provincial and local governments for their maintenance and operation, and their
reliability will depend on the actions and resources of these
governments.





Risks
inherent to mining could increase the cost of operating our
business.





Our
mining operations are subject to conditions beyond our control that can delay
coal deliveries or increase the cost of mining for varying lengths of
time.  These conditions include weather and natural disasters (such as
earthquakes, landslides, flooding, and other similar occurrences), unexpected
maintenance problems, key equipment failures, fires, variations in thickness of
the layer, or seam, of coal, amounts of overburden, rock and other natural
materials, variations in rock and other natural materials and variations in
geological conditions.





As with
all companies that have coal mining operations, our operations are affected by
mining conditions such as a deterioration in the quality or thickness of faults
and/or coal seams, pressure in mine openings, presence of gas and/or water
inflow and propensity to spontaneous combustion, as well as operational risks
associated with industrial or engineering activity, such as mechanical
breakdowns.  Although the Company has conducted geological
investigations to evaluate such mining conditions and adapt our mining plans to
address them, there can be no assurance that the occurrence of any adverse
mining conditions would not result in an increase in our costs of production, a
reduction of coal output or the temporary suspension of
operations.


23


We
may suffer losses resulting from industry-related accidents and lack of
insurance.





We
operate coal mines and related facilities that may be affected by water, gas,
fire or structural problems.  As a result, our operations, like other
coal mining and coking companies, could experience accidents that cause property
damage and personal injuries.  Although the Company has implemented
safety measures at our operations, and provide on-the-job training for our
employees, and, in accordance with relevant laws set aside approximately 9.6% of
employees’ total remuneration for employees’ health insurance, there can be no
assurance that industry-related accidents will not occur in the
future.





The
Company does not currently maintain fire, or other property insurance covering
our properties, equipment or inventories. In addition, the Company does not
maintain any business interruption insurance or any third party liability
insurance to cover claims in respect of personal injury, property or
environmental damage arising from accidents on our properties.  Any
uninsured losses and liabilities incurred by the Company could have a material
adverse effect on our financial condition and results of operations. For
instance, if it occurred, a major mining accident could prompt
government-mandated closure of some or all of our mining operations, which would
then require us to spend significant resources on remediation which could
consume our available capital resources, and until remediated, we would be
required to obtain our raw coal inputs from other third party suppliers at a
higher price, which would adversely affect our gross margins on coal and coke
products.  Although the likelihood of a major mining accident would be
extremely difficult to predict, we note that we have never suffered a casualty
or major mining-related accident since inception, we have never been found to be
out of compliance with government safety standards, and management believes our
mining operations are safer than the industry average in China.





SinoCoking’s
ability to operate effectively could be impaired if the Company loses key
personnel or fails to attract qualified personnel.





The
Company manages our business with a number of key personnel, the loss of any of
which could have a material adverse effect on operations.  In
addition, as business develops and expands, the Company believes that our future
success will depend greatly on our continued ability to attract and retain
highly skilled and qualified personnel.  The Company cannot assure
that key personnel will continue to be employed by or that the Company will be
able to attract and retain qualified personnel in the future.  We
employ our key personnel on an at-will basis, which means that either the
Company or the employee may generally terminate the employment relationship at
any time for any reason.  Accordingly, if we are not able to
effectively fill vacancies of departing key persons, our business may be
impaired.  Further, we note that our management is heavily dependent
on the skills, experience, contacts, and business relationships of our founder
and Chief Executive Officer, Mr. Jianhua Lv.  Accordingly, the loss of
our CEO could cause significant impairment to the business of our
Company.





A
downturn in global economic conditions may materially adversely affect our
business and results of operations.





Our
business and results of operations are affected by international, national and
regional economic conditions. Financial markets in the United States, Europe and
Asia have experienced significant disruption in the past year, including among
other things, heightened volatility in security prices, constrained liquidity
and credit availability, rating downgrades of certain investments and declining
values of others. The Company is unable to predict the likely duration and
severity of the current disruptions in financial markets, credit availability,
and adverse economic conditions throughout the world. These economic
developments affect businesses in a number of ways that could result in
unfavorable consequences to the Company.  Adverse global economic
conditions, including within the PRC, could negatively affect commodity prices,
or may cause our current or potential customers to delay or reduce purchases
which could, in turn, result in reductions in sales volumes or prices,
materially and adversely affecting results of operations and cash flows.
Volatility and disruption of global financial markets could limit customers'
ability to obtain adequate financing to maintain operations and proceed with
planned or new capital spending initiatives, leading to a reduction in sales
volume that could materially and adversely affect results of operations and cash
flow.  In addition, a decline in our customers' ability to pay as a
result of an economic downturn may lead to increased difficulties in the
collection of accounts receivable, higher levels of reserves for doubtful
accounts and write-offs of accounts receivable, and higher operating costs as a
percentage of revenues.





Certain
of our shareholders control a significant amount of our common
stock.





Approximately
32% of our outstanding common stock is controlled by one holding entity, of
which our founder and Chief Executive Officer, Mr. Jianhua Lv is a director and
beneficiary.  Accordingly, Mr. Lv presently has significant relative
voting power and influence over any action requiring shareholder approval,
including the election of our directors.


24


If
the Company makes any acquisitions, it may disrupt or have a negative impact on
the business.





If the
Company makes acquisitions, it could have difficulty integrating personnel,
operations of the acquired companies with its own.  In addition, the
key personnel of the acquired business may not be willing to work for the
Company.  SinoCoking cannot predict the affect expansion which may
have on our core business.  Regardless of whether the Company is
successful in making one or more acquisitions, the negotiations could disrupt
our ongoing business, distract the management and employees and increase our
expenses. In addition to the risks described above, acquisitions are accompanied
by a number of inherent risks, including, without limitation, the
following:





·
            delays
      and waiting periods associated with required safety inspections, as well
      as government licensing or permitting
  procedures;


·
            the
      difficulty of integrating acquired resources, products, services or
      operations;


·
            the
      potential disruption of the ongoing businesses and distraction of the
      management and the management of acquired
  companies;


·
            the
      difficulty of incorporating acquired resources, facilities, operations or
      products into the existing
business;


·
            difficulties
      in disposing of the excess or idle facilities of an acquired company or
      business and expenses in maintaining such
  facilities;


·
            difficulties
      in maintaining uniform standards, controls, procedures and
      policies;


·
            the
      potential impairment of relationships with employees and customers as a
      result of any integration of new management
  personnel;


·
            the
      effect of any government regulations which relate to the business
      acquired;


·
            potential
      unknown liabilities associated with acquired businesses and the associated
      operations, or the need to spend significant amounts to retool, reposition
      or modify the existing operations;
or


·
            the
      defense of any litigation, whether or not successful, resulting from
      actions of the acquired company prior to the
  acquisition.





For
instance, as a required part of the process of consolidating mines in China, a
consolidator is required to undergo safety inspections which apply to its
existing and operating mines as well as acquired mines.  These
government inspections, as well as the required permitting and permitting
process, may require substantial time to complete, and this may cause
interruptions our coal mining operations.  Further, if safety issues
are identified by government mine inspection authorities, we may be required to
undertake costly and time-consuming remedial measures in order to restore
production.





Our
business could be impaired to the extent that management is unable to succeed in
addressing any of these risks or other problems encountered in connection with
these acquisitions, many of which cannot be presently identified, these risks
and problems could disrupt our ongoing business, distract the management and
employees, increase our expenses and adversely affect our results of
operations.





A
large portion of our current revenue is derived from relatively few
customers.





SinoCoking
depended on four major customers for a substantial portion of its revenue in
fiscal 2009.  Nonrenewal or termination of SinoCoking’s arrangements
with these customers may have a materially adverse effect on SinoCoking’s
revenue.  In the event that any one of its major customers does not
renew or terminates its arrangement with SinoCoking, there can be no assurance
that SinoCoking will be able to enter into another arrangement similar in
scope.  Additionally, there can be no assurance that SinoCoking’s
business will not remain largely dependent on a limited customer base accounting
for a substantial portion of  revenue.





Risks
Related To Doing Business in China





Our
operations are primarily located in China and may be adversely affected by
changes in the policies of the PRC government.





The
political environment in the PRC and the policies of the PRC government may
adversely affect our business operations.  The PRC has operated as a
socialist state since 1949.  In recent years, however, the government
has introduced economic reforms aimed at creating a “socialist market economy”
and policies have been implemented to allow business enterprises greater
autonomy in their operations.  Changes in the political leadership of
the PRC may have a significant effect on laws and policies related to the
current economic reforms program, other policies affecting business and the
general political, economic and social environment in the PRC, including the
introduction of measures to control inflation, changes in the rate or method of
taxation, the imposition of additional restrictions on currency conversion and
remittances abroad, and foreign investment.  These effects could
substantially impair our business, profits or prospects.  Moreover,
economic reforms and growth in the PRC have been more successful in certain
provinces than in others, and the continuation or increases of such disparities
could affect the political or social stability of the PRC.


25


The
PRC government exerts substantial influence over the manner in which companies
in China must conduct their business activities.





The PRC
only recently has permitted greater provincial and local economic autonomy and
private economic activities.  The government of the PRC has exercised
and continues to exercise substantial control over virtually every sector of the
Chinese economy through regulation and state ownership.  Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in the PRC or
particular regions thereof, and if this were to occur, we could be required to
divest the interests we then hold in Chinese properties or joint
ventures.  Any such developments could have a material adverse effect
on our business, operations, financial condition and prospects.





Future
inflation in China may inhibit economic activity and adversely affect our
operations.





In recent
years, the Chinese economy has experienced periods of rapid expansion and within
which some years with high rates of inflation and deflation, which have led to
the adoption by the PRC government, from time to time, of various corrective
measures designed to restrict the availability of credit or regulate growth and
contain inflation.  While inflation has moderated since 1995, high
inflation may in the future cause the PRC government to impose controls on
credit and/or prices, or to take other action, which could inhibit economic
activity in China, and thereby adversely affect our business operations and
prospects.





We
may be restricted from freely converting the Renminbi to other currencies in a
timely manner.





The
Renminbi is not a freely convertible currency at present.  We receive
all of our revenue in Renminbi, which may need to be converted to other
currencies, primarily U.S. dollars, in order to be remitted outside of the
PRC.  Effective July 1, 1996, foreign currency “current account”
transactions by foreign investment enterprises, including sino-foreign joint
ventures, are no longer subject to the approval of State Administration of
Foreign Exchange (“SAFE,” formerly, “State Administration of Exchange Control”),
but need only a ministerial review, according to the Administration of the
Settlement, Sale and Payment of Foreign Exchange Provisions promulgated in 1996
(the “FX regulations”).  “Current account” items include international
commercial transactions, which occur on a regular basis, such as those relating
to trade and provision of services.  Distributions to joint venture
parties also are considered “current account transactions.”  Other
non-current account items, known as “capital account” items, remain subject to
SAFE approval.  Under current regulations, we can obtain foreign
currency in exchange for Renminbi from swap centers authorized by the
government.  We do not anticipate problems in obtaining foreign
currency to satisfy our requirements; however, there is no assurance that
foreign currency shortages or changes in currency exchange laws and regulations
by the PRC government will not restrict us from freely converting Renminbi in a
timely manner.





We
may be unable to enforce our rights due to policies regarding the regulation of
foreign investments in China.





The PRC’s
legal system is a civil law system based on written statutes in which decided
legal cases have little value as precedents, unlike the common law system
prevalent in the United States.  The PRC does not have a
well-developed, consolidated body of laws governing foreign investment
enterprises.  As a result, the administration of laws and regulations
by government agencies may be subject to considerable discretion and variation,
and may be subject to influence by external forces unrelated to the legal merits
of a particular matter.  China’s regulations and policies with respect
to foreign investments are evolving.  Definitive regulations and
policies with respect to such matters as the permissible percentage of foreign
investment and permissible rates of equity returns have not yet been
published.  Statements regarding these evolving policies have been
conflicting and any such policies, as administered, are likely to be subject to
broad interpretation and discretion and to be modified, perhaps on a
case-by-case basis.  The uncertainties regarding such regulations and
policies present risks that the Company will not be able to achieve our business
objectives.  There can be no assurance that we will be able to enforce
any legal rights it may have under our contracts or otherwise.





We
depend upon the acquisition and maintenance of licenses to conduct our business
in the PRC.





In order
to conduct business in the PRC, we need licenses from the appropriate government
authorities, including general business licenses and licenses and/or permits
specific to our industry.  The loss or failure to obtain or maintain
these licenses in full force and effect will have a material adverse impact on
our ability to conduct our business and on our financial
condition.  Mining licenses in China are generally subject to periodic
renewal, and license fees associated with renewal may be subject to negotiation
between the Company and the relevant government authorities.  The
government may in the future decide to increase these fees, or impose levies or
surcharges on coal mine and mineral extraction rights.  No assurance
can be given regarding the timing or magnitude of these types of government
actions.


26


Price
controls may affect both our revenues and net income.





The laws
of the PRC provide the government broad power to fix and adjust
prices.  Although coal and coke are not presently subject to direct
price controls by the PRC government, we cannot give any assurance that these
products will not be made subject to such controls in the future.  To
the extent that these products are subject to price controls, our revenue, gross
profit, gross margin and net income may be adversely affected since the revenue
we derive may become limited and we may face no limitation on our
costs.  In such a scenario, we may not be able to pass on any
increases in costs to our customers.  Further, if price controls
affect both the revenue and the costs, our ability to operate profitably and the
extent of the profitability will be effectively subject to determination by the
applicable PRC regulatory authorities.





Since
our officers and directors reside outside of the United States, it may be
difficult for you to enforce your rights against them or enforce United States
court judgments against them in the PRC.





Our
directors and executive officers reside in the PRC and all of our assets are
located in the PRC.  It may therefore be difficult or impossible for
United States investors to enforce their legal rights, to effect service of
process upon our directors or officers or to enforce judgments of United States
courts predicated upon civil liabilities and criminal penalties of our directors
and officers under federal securities laws.  Further, it is unclear if
extradition treaties now in effect between the United States and the PRC would
permit effective enforcement of criminal penalties of the federal securities
laws.





Since
we may not be able to obtain business insurance in the PRC, we may not be
protected from risks that are customarily covered by insurance in the United
States.





At
present, business insurance is not readily available in the PRC.  To
the extent that we suffer a loss of a type which would normally be covered by
insurance in the United States, such as product liability and general liability
insurance, we would incur significant expenses in both defending any action and
in paying any claims that result from a settlement or judgment.





Since
our funds are held in banks which do not provide insurance, the failure of any
bank in which we deposit our funds could affect our ability to continue in
business.





Banks and
other financial institutions in the PRC do not provide insurance for funds held
on deposit.  As a result, in the event of a bank failure, we may not
have access to funds on deposit.  Depending upon the amount of money
we maintain in a bank that fails, our inability to have access to cash could
impair operations, and, if we are not able to access funds to pay our suppliers,
employees and other creditors, we may be unable to continue in
business.





Failure
to comply with the United States Foreign Corrupt Practices Act could subject us
to penalties and other adverse consequences.





We are
subject to the United States Foreign Corrupt Practices Act, which generally
prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business.  Foreign companies, including some that may compete with us,
are not subject to these prohibitions.  Corruption, extortion,
bribery, pay-offs, theft and other fraudulent practices occur from time-to-time
in the PRC.  We can make no assurance, however, that our employees or
other agents will not engage in such conduct for which SinoCoking might be held
responsible.  If our employees or other agents are found to have
engaged in such practices, SinoCoking could suffer severe penalties and other
consequences that may have a material adverse effect on our business, financial
condition and results of operations.





Fluctuations
in the exchange rate could have an adverse effect upon our business and reported
financial results.





We
conduct our business in Renminbi, thus our functional currency is the Renminbi,
while our reporting currency is the U.S. dollar.  The value of the
Renminbi against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, the political situation as well as economic
policies and conditions. On July 21, 2005, the PRC government changed its decade
old policy of pegging its currency to the U.S. currency. Under the current
policy, the Renminbi is permitted to fluctuate within a narrow and managed band
against a basket of certain foreign currencies. This change in policy has
resulted in an approximate 17% appreciation of the Renminbi against the U.S.
dollar between July 21, 2005 and March 23, 2009.  However, there
remains significant international pressure on the PRC government to adopt an
even more flexible currency policy, which could result in a further and more
significant appreciation of the RMB against the U.S. dollar.  To the
extent any of our future revenues are denominated in currencies other than the
United States dollar, we would be subject to increased risks relating to foreign
currency exchange rate fluctuations which could have a material adverse affect
on our financial condition and operating results since operating results are
reported in United States dollars and significant changes in the exchange rate
could materially impact our reported earnings.


27


Risks
Related to the Offering and Securities Offered





Since
we have broad discretion in how we can use the net proceeds from our recent USD
$44 million private placement financing, we may use the net proceeds in ways in
which the shareholders might disagree.





We intend
to use the net proceeds from our recent financing principally for construction
of a new coking plant.  However, management will have broad
flexibility and discretion in applying the net proceeds of the
financing.  Our shareholders will be relying on the judgment of
management with regard to the use of these net proceeds, and will not have the
opportunity, as part of their investment decision, to assess whether the
proceeds are being used in a manner which in their opinion such proceeds should
be used.  It is possible that the net proceeds will be invested in a
way that does not yield a favorable, or any, return for
SinoCoking.  The failure of management to use such funds effectively
could have a material adverse effect on our business, financial condition,
operating results and cash flow.





The
rights of the holders of common stock may be impaired by the potential issuance
of dilutive securities, namely preferred stock, convertible debt, and additional
common stock.





Our board
of directors has the right, without shareholder approval, to issue other
dilutive securities with voting, dividend, conversion, liquidation or other
rights which could adversely affect the voting power and equity interest of the
holders of our common stock.  These additional securities could be
issued with the right to more than one vote per share, and/or could be utilized
as a method of discouraging, delaying or preventing a change of
control.  The possible impact on takeover attempts could adversely
affect the price of the common stock.  Although we have no present
intention to issue any additional dilutive securities for financing purposes, we
may issue such shares in the future.





Under our
charter and relevant corporate and securities law, the board of directors may
approve the issuance of Company common stock in connection with certain types of
transactions such as of acquisitions of other companies or mining assets,
without obtaining shareholder approval.  As a result, additional
securities may be issued in the event of such transactions, resulting in
dilution of the holdings of all pre-transaction shareholders, even though one or
more of the Company’s shareholders may disagree with the Company’s decision to
acquire a target or assets.





Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley Act could have a material adverse effect on the
business and operating results and shareholders could lose confidence in our
financial reporting.





Internal
controls are necessary for us to provide reliable financial reports and
effectively prevent fraud.  If we cannot provide reliable financial
reports or prevent fraud, our operating results could be
harmed.  Under current SEC regulations, we will be required to include
an auditor’s report on internal controls over financial reporting in our annual
10-K reports with the SEC.  Failure to achieve and maintain an
effective internal control environment, regardless of whether we are required to
maintain such controls, could also cause investors to lose confidence in our
reported financial information, which could have a material adverse effect on
our stock price.  Although we are not aware of circumstances that
would impair our ability to maintain effective internal controls, we have not
yet obtained an independent audit of our internal controls, and, as a result, we
are not aware of any deficiencies which would result from such an
audit.  Further, at such time as the Company is required to comply
with the internal controls requirements of Sarbanes Oxley, we may incur
significant expenses in having our internal controls audited and in implementing
any changes which are required.





Because
of our cash requirements as well as potential government restrictions, we may be
unable to pay dividends.





The
payment of dividends to our shareholders would require payment of dividends by
our PRC subsidiaries and controlled companies to SinoCoking Coal and Coke
Chemical Industries, Inc. a Florida parent corporation.  This, in
turn, would require a conversion of Renminbi into US dollars and repatriation of
funds to the United States.  Although our subsidiary Hongyuan’s
classification as a wholly-owned foreign enterprise under PRC law permits it to
declare dividends and repatriate our funds to the Florida parent company in the
United States, any change in this status or the regulations permitting such
repatriation could prevent it from doing so.  Any inability to
repatriate funds to the Florida parent company would in turn prevent payments of
dividends to our shareholders.  We do not presently intend to pay
dividends.


28


Our
stock price may be affected by our failure to meet projections and estimates of
earnings developed either by us or by independent securities
analysts.





Our
operating results may fall below the expectations of securities analysts and
investors.  In this event, the market price of our common stock would
likely be materially adversely affected.





The
volatility of and limited trading market in our common stock may make it
difficult for the investors to sell the common stock for a positive return on
their investment.





The
public market for our common stock has historically been very
volatile.  Any future market price for our shares is likely to
continue to be very volatile.  In addition, there has been little or
no market for our stock until very recently, and our common stock has been and
may in the future, be thinly traded with relatively high bid-ask spreads. These
factors may make it more difficult for our shareholders to sell shares of our
common stock, and at prices that our shareholders may expect.





We
will incur increased costs as a public company which may affect our
profitability.





Prior to
our reverse takeover transaction with Top Favour Limited, SinoCoking operated as
a private company in China.  As a public company, SinoCoking has
incurred and will continue to  incur significant legal, accounting and
other expenses that it did not  as a private
company.  SinoCoking  is subject to the SEC’s rules and
regulations relating to public disclosure.  SEC disclosures generally
involve a substantial expenditure of financial resources.  In
addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently
implemented by the SEC, have required changes in corporate governance practices
of public companies.  We expect that if we undertake compliance with
these new rules and regulations we will significantly increase our legal and
financial compliance costs and make some activities more time-consuming and
costly.  For example, we anticipate that we will be required to
maintain independent board committees and adopt policies regarding internal
controls and disclosure controls and procedures.  For example,
management may need to increase compensation for senior executive officers,
engage senior financial officers able to adopt financial reporting and control
procedures, allocate a budget for an investor and public relations program, and
increase our financial and accounting staff in order to meet the demands and
financial reporting requirements as a public reporting company.  Such
additional personnel, public relations, reporting and compliance costs will
affect  our financial results.





Generally,
we have not paid any cash dividends to our shareholders and no cash dividends
will be paid in the foreseeable future.





We do not
anticipate paying cash dividends on our common stock in the foreseeable future
and it may not have sufficient funds legally available to pay
dividends.  Even if the funds are legally available for distribution,
we may nevertheless decide or may be unable to pay any dividends.  We
intend to retain all earnings for our operations.





If
we were to become subject to the penny stock rules, it may have difficulty in
selling our common stock.





Listed
companies with a stock price trading at less than $5.00 per share will be
subject to the SEC’s penny stock rules, which impose additional sales practice
requirements and restrictions on broker-dealers that sell our stock to persons
other than established customers and institutional accredited
investors.   In the event that we become subject to these rules,
these rules may affect the ability of broker-dealers to sell our common stock
and may affect your ability to sell any common stock you may
own.  According to the SEC, the market for penny stocks has suffered
in recent years from patterns of fraud and abuse.  Such patterns
include:





·
            Control
      of the market for the security by one or a few broker-dealers that are
      often related to the promoter or
issuer;


·
            Manipulation
      of prices through prearranged matching of purchases and sales and false
      and misleading press releases;


·
            Boiler
      room practices involving high pressure sales tactics and unrealistic price
      projections by inexperienced sales
persons;


·
            Excessive
      and undisclosed bid-ask differentials and markups by selling
      broker-dealers; and


·
            The
      wholesale dumping of the same securities by promoters and broker-dealers
      after prices have been manipulated to a desired level, along with the
      inevitable collapse of those prices with consequent investor
      losses.


29


Our
common stock is newly listed, has a limited public float, a short trading
history, and has been relatively thinly traded.  As a result, in the
near future and beyond, liquidity in our shares may be limited, and you may be
unable to sell at or near the purchased price or at all if you need to sell your
shares or otherwise liquidate your holdings.





We cannot
predict the extent to which an active public market for the common stock will
develop or be sustained.  Our common stock became listed very recently
on NASDAQ in February 2010, and our shares have only a limited amount of trading
history.  This situation is attributable to a number of factors,
including the fact that our common stock has a limited public float, and we are
a newly listed public reporting company that is relatively unknown to stock
analysts, stock brokers, institutional investors and others in the investment
community that generate or influence sales volume.  As a consequence,
there have been and may be periods of several days or more when trading activity
in the shares is or will be minimal or non-existent, as compared to a seasoned
issuer that has a large and steady volume of trading activity that will
generally support continuous sales without an adverse effect on share
price.  We cannot provide any assurance that a broader or more active
public trading market for our common stock will develop or be sustained in the
future, or that any particular level of trading volume in our stock will be
sustained.





The
market price of our common stock is expected to be particularly volatile given
our status as a relatively small company with a small float that could lead to
wide fluctuations in our share price.  The price at which you purchase
our common stock may not be indicative of the price that will prevail in the
trading market.  You may be unable to sell your common stock at or
above your purchase price if at all, which may result in substantial losses to
you.





The
market for our common stock is expected to be characterized by significant price
volatility when compared to seasoned issuers, and we anticipate that our share
price will continue to be more volatile than a seasoned issuer for some
time.  Volatility in share prices is attributable to a number of
factors.  In the near future, our common stock is expected to be
sporadically and/or thinly traded.  As a consequence of this lack of
liquidity, the trading of relatively small quantities of shares by our
shareholders may disproportionately influence the price of those shares in
either direction. The price for our shares could, for example, decline
precipitously in the event a large number of our common shares are sold on the
market without commensurate demand, as compared to a seasoned issuer which could
better absorb those sales without adverse impact on our share
price.  The following factors also may add to the volatility in the
price of our common stock: actual or anticipated variations in our quarterly or
annual operating results; adverse outcomes; additions to or departures of key
personnel, as well as other items discussed under this Risk Factor section, as
well as elsewhere in our reports, filings and public
disclosures.  Many of these factors are beyond our control and may
decrease the market price of our common stock, regardless of our operating
performance.  We cannot make any predictions or projections as to what
the prevailing market price for our common stock will be at any time, including
as to whether our common stock will sustain any particular trading price, or as
to what effect the sale of shares or the availability of common shares for sale
at any time will have on the then prevailing market price.





Volatility
in our common stock price may subject SinoCoking to securities
litigation.





The
future market for our common stock may be characterized by significant price
volatility when compared to seasoned issuers, and we expect our share price will
be more volatile than a seasoned issuer for the indefinite future.  As
of the present date, we have a very limited number of freely tradable shares,
which may exacerbate volatility and result in exaggerated price changes in the
common stock.  In the past, plaintiffs have often initiated securities
class action litigation against a company following periods of volatility in the
market price of our securities.  We may, in the future, be the target
of similar litigation.  Securities litigation could result in
substantial costs and liabilities and could divert management’s attention and
resources.





Past
activities during the period prior to our reverse takeover transaction on
February 5, 2010 relating to our prior business then known as “Ableauctions.com,
Inc.” may lead to future liability.





Prior to
our acquisition of Top Favour Limited (the BVI holding company for SinoCoking’s
business) on February 5, 2010, the Company, then named “Ableauctions.com, Inc.”
engaged in businesses unrelated to our current operations.  Although
certain previously controlling shareholders of Ableauctions.com and its related
liquidating trust have provided certain indemnifications against any loss,
liability, claim, damage or expense arising out of or based on any breach of or
inaccuracy in any of their representations, warranties and covenants made
regarding such acquisition, including a $1 million reserve fund set aside by a
liquidating trust for purposes of paying any indemnification claims by us, any
liabilities relating to such prior business against which we are not completely
indemnified may have a material adverse effect on us (and indirectly our
shareholders) may not be able to benefit from any funds in
reserve.


30


Reverse
takeover transactions of the type to conducted between the Company (then known
as Ableauctions.com) and Top Favour are often heavily scrutinized by the SEC and
we may encounter difficulties or delays in obtaining future regulatory
approvals.





Historically,
the SEC and the U.S. national exchanges have not generally favored transactions
in which a privately-held company merges into a public reporting company with
listed securities.  On June 29, 2005, the SEC adopted rules dealing
with private company mergers into dormant or inactive public
companies.  Although our Company was not a dormant inactive public
company at the time of the reverse takeover transaction, we anticipate that the
Company will be scrutinized carefully by the SEC and possibly by the Financial
Industry Regulatory Authority.  Further, the SEC or other regulatory
authority may unexpectedly assert a different interpretation of its rules, than
the interpretation relied upon, used by, or considered reasonable the Company
and its advisors, and by other companies conducting similar or analogous
transactions, which could increase the cost of, or adversely affect our ability
to, file and achieve effectiveness for our registration statements, or interfere
with or negate the ability of the Company its shareholders to rely upon Rule 144
or similar rules.





Future
sales of shares of our common stock may decrease the price for such
shares.





Actual
sales, or the prospect of sales by our shareholders, may have a negative effect
on the market price of the shares of our common stock.  We may also
register certain shares of our common stock that are subject to outstanding
convertible securities, if any, or reserved for issuance under our stock option
plans.  Once such shares are registered, they can be freely sold in
the public market upon exercise of the options.  At any given time, if
any of our shareholders either individually or in the aggregate cause a large
number of securities to be sold in the public market, or if the market perceives
that these holders intend to sell a large number of securities, such sales or
anticipated sales could result in a substantial reduction in the trading price
of shares of our common stock and could also impede our ability to raise future
capital.





The
elimination of monetary liability against our directors, officers and employees
under state law and the existence of indemnification rights to our directors,
officers and employees may result in substantial expenditures by us and may
discourage lawsuits against our directors, officers and employees.





Our
articles of incorporation contain specific provisions that eliminate or limit
the liability of directors for monetary damages to us and our shareholders, and
we are prepared to give such indemnification to our directors and officers to
the extent permissible under state law.  We may also maintain or enter
into, from time to time, contractual agreements that obligate us to indemnify
our officers under employment agreements, and similar contractual agreements
with our directors.  The foregoing indemnification obligations could
result in us incurring substantial expenditures to cover the cost of settlement
or damage awards against directors and officers, in the event of actions against
our officers and directors, which we may be unable to recoup.  These
provisions and resultant costs may also discourage us from bringing a lawsuit
against directors and officers for breaches of their fiduciary duties, and may
similarly discourage the filing of derivative litigation by our shareholders
against the directors and officers even though such actions, if successful,
might otherwise benefit the Company and its shareholders.





The
market price for our stock may be volatile.





The
market price for our stock may be volatile and subject to wide fluctuations in
response to such factors as:





·
            actual
      or anticipated fluctuations in our quarterly operating
      results;


·
            changes
      in financial estimates by securities research
  analysts;


·
            conditions
      in the commodities markets;


·
            changes
      in the economic performance or market valuations of other companies in our
      industry;


·
            announcements
      by us or our competitors of new or competitive products, acquisitions,
      strategic partnerships, joint ventures or capital
    commitments;


·
            addition
      or departure of key personnel;


·
            fluctuations
      of foreign exchange rates between RMB and the U.S.
  dollar;


·
            commercial
      litigation; and


·
            general
      economic or political conditions in
China.





In
addition, the securities market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies.  These market fluctuations may also
materially and adversely affect the market price of our stock.





We
may need additional capital, and the sale of additional shares or other equity
securities could result in additional dilution to our shareholders.





We
believe that our current cash and cash equivalents, anticipated cash flow from
operations, availability of borrowings under the new loan, and the net proceeds
from this offering will be sufficient to meet our anticipated cash needs for the
near future.  We may, however, require additional cash resources due
to changed business conditions or other future developments, including any
investments or acquisitions we may decide to pursue.  If our resources
are insufficient to satisfy our cash requirements, we may seek to sell
additional equity or debt securities or obtain additional credit.  The
sale of additional equity securities could result in additional dilution to our
shareholders.  Incurring indebtedness would result in increased debt
service obligations and could result in operating and financing covenants that
would restrict our operations.  We cannot assure you that financing
will be available in amounts or on terms acceptable to it, if at
all.


31


The
registration and potential sale, either pursuant to our prospectus or pursuant
to Rule 144, by certain selling security holders of a significant number of
shares could encourage short sales by third parties.





There may
be significant downward pressure on our stock price caused by the sale or
potential sale of a significant number of shares by certain of selling security
holders pursuant to the Company’s effective registration statement on Form S-1
and prospectus or under Rule 144, which could allow short sellers of our stock
an opportunity to take advantage of any decrease in the value of our
stock.  The presence of short sellers in our common stock may further
depress the price of our common stock.  If the selling security
holders sell a significant number of shares of common stock, the market price of
our common stock may decline.  Furthermore, the sale or potential sale
of the offered securities pursuant to the prospectus and the depressive effect
of such sales or potential sales could make it difficult for us to raise funds
from other sources.





ITEM 1B. UNRESOLVED STAFF COMMENTS





Not
applicable.





ITEM
2. PROPERTIES





SinoCoking’s
Properties





SinoCoking’s
principal executive office is in downtown Pingdingshan, approximately 60
kilometers from its plant, which headquarters its executive and administrative
staff and oversees its operations.  SinoCoking entered into a lease
for the premises with the Pingdingshan Credit Cooperative in June 2008, for an
annual rent of USD $8,760 (RMB 66,900).  The lease is generally
renewable upon expiration and requires an upfront payment of the annual rent in
the amount of $6,328 upon execution of the lease.





SinoCoking’s
plant is in nearby Baofeng County, situated on a parcel of land of approximately
160,000 square meters.  The Baofeng municipal government issued the
land use right for the plant site to SinoCoking on October 20,
1989.  SinoCoking’s operational office and rail track, as well as its
coal washing, coking and power generating facilities, are all located
onsite.





The land
on which the Hongchang Mine is located is owned by the PRC.  However,
SinoCoking owns the buildings that house the mining offices and miners’ living
quarters, as well as the onsite mining facilities and equipment.  The
disclosures regarding the Hongchang Mine as required under SEC Industry Guide 7
for extractive enterprises are set forth above under the section titled
“Business.”





Our VIE,
Hongli, has an agreement with the Henan Province Pingdingshan Municipal Bureau
of Land and Resources on December 9, 2008 to permit Hongli to acquire land use
rights for up to 1,270,000 square meters of industrial-zoned vacant land in
Baofeng County.  Per the agreement the total cost to acquire these
land use rights is $21,954,490 (or RMB 149,860,000).  Under the
agreement, the Company could have, but was not obligated to, pay the foregoing
amount to acquire the land use rights, and the Company would not incur any
penalty if it did not exercise its option to acquire the land use
rights.    Hongli could have also acquired rights to all or
any lesser portion of the land as it may elect, and the total cost would have
been pro-rated accordingly.  The Pingdingshan Municipal Bureau of Land
and Resources granted Hongli an extension of the option exercise period November
2009, and accordingly Hongli could have exercised its option to acquire the
aforesaid land use rights by making payment by the end of June 30,
2010.  The Company decided not to exercise its option to acquire the
land use rights and thus no payments in connection with this agreement were made
as of June 30, 2010.





For the
year ending June 30, 2010, we paid (through Hongli) a total of approximately
34.45 million RMB (USD $5.0 million) to property owners under agreements which
will allow SinoCoking to expand its campus onto 250,125 square meters of
adjacent land formerly used for residential purposes.  We anticipate
spending an additional 50 million RMB (approximately USD $7.4 million) to
reconfigure this land for industrial use, which will serve as the site for our
new coking facility and related structures.  Management believes that
the close proximity of this land to the Company’s existing facilities, and that
unlike new land, utility connections and service lines have already been
established, will permit cost-effective expansion and the ability to fully
utilize power generated by the Company’s coking operations.


32


ITEM 3. LEGAL PROCEEDINGS





We know
of no material, existing or pending legal proceedings against us, nor are we
involved as a plaintiff in any material proceeding or pending litigation. There
are no proceedings in which any of our directors, officers or affiliates, or any
registered or beneficial stockholder, is an adverse party or has a material
interest adverse to our company.





ITEM
4. RESERVED





PART
II





ITEM 5. MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASE OF EQUITY SECURITIES





Market
Information





The table
below indicated the trading prices of the Company’s common stock on the Nasdaq
Capital Market since the date of the Acquisition on February 5,
2010:





Common
Stock Price Ranges After Acquisition





2010Quarter
      Ended
                      
                      High
                      
                      
                      LowMarch
      31, 2010 (1)
                      
                      $
                      46.50
                      
                      
                      $
                      8.80June
      30, 2010
                      
                      $
                      30.90
                      
                      
                      $
                      11.75





(1) From
February 5, 2010 forward.





On
September 24, 2010, the last sale price of the Company’s common stock (under the
trading symbol “SCOK”) was $8.15.





As of
June 30, 2010, there were approximately 744 record holders of the Company’s
common stock.  This number does not include an indeterminate number of
shareholders whose shares are held by brokers in street name.





Prior to
the Acquisition (when the Company operated as Ableauctions) and during the
twelve month period ending December 31, 2009, the Company’s common stock traded
on the NYSE Amex (formerly the American Stock Exchange) under the symbol “AAC”,
and had traded on this exchange since June 29, 2000.  Prior to June
29, 2000, the Company’s common stock traded on the Over-the-Counter Bulletin
Board (OTCBB) under the symbol “ABLC”.  The range of high and low sale
prices per share for the Company’s common stock for each quarter during the
period from January 1, 2008 through December 31, 2009, as published by NYSE
Amex, is set forth below.  The table gives effect to a 1-for-12 stock
split that the Company effected on January 15, 2009, and the 1-for-20 reverse
stock split that was effected on February 5, 2010 in conjunction with the
Acquisition.





Historical
Quarterly Common Stock Price Ranges Prior to Acquisition





2008Quarter
      Ended
                            
                            High
                            
                            
                            LowMarch
      31, 2008
                            
                            $
                            36.00
                            
                            
                            $
                            31.20June
      30, 2008
                            
                            $
                            19.20
                            
                            
                            $
                            19.20September
      30, 2008
                            
                            $
                            14.40
                            
                            
                            $
                            9.60December
      31, 2008
                            
                            $
                            7.20
                            
                            
                            $
                            4.80





2009Quarter
      Ended
                        
                        High
                        
                        
                        LowMarch
      31, 2009
                        
                        $
                        9.00
                        
                        
                        $
                        3.40June
      30, 2009
                        
                        $
                        16.20
                        
                        
                        $
                        4.20September
      30, 2009
                        
                        $
                        18.80
                        
                        
                        $
                        8.40December
      31, 2009
                        
                        $
                        15.80
                        
                        
                        $
                        8.40





On
February 5, 2010, the last sale price of the Company’s common stock (under the
trading symbol “AAC”) prior to listing on Nasdaq was $1.30 ($26.00 after giving
effect to the 1-for-20 reverse stock split effective on February 5,
2010.)


33


On the
Change of Control Date of February 5, 2010, the Company’s common stock was
delisted from NYSE Amex, and assigned the symbol “SCOK”.   Our
common stock began trading on the NASDAQ Capital Market under the symbol “SCOK”
on February 17, 2010.





Our
transfer agent is Interwest Stock Transfer, Inc., whose address is 1981 Murray
Holladay Road, Suite 100, Salt Lake City, Utah 84117 and whose telephone number
is (801) 272-9294.





Other
than the distribution of our pre-Acquisition assets of to the Liquidating Trust,
and the assumption by the Liquidating Trust of our pre-Acquisition liabilities,
the Company has not paid dividends on its common stock since
inception.  The decision to pay dividends on common stock is within
the discretion of the board of directors.  It is our current policy to
retain any future earnings to finance the operations and growth of our
business.





Securities
Authorized for Issuance under Equity Compensation Plans





Please
see the discussion in Item 12 titled “Equity Compensation Plan Information”
below.





Sales
of Unregistered Securities





The information required under Item 701
of Regulations S-K has been previously included in a quarterly report on Form
10-Q or in a current report on Form 8-K.





ITEM 6. SELECTED FINANCIAL DATA





Not
applicable.





ITEM7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





The
following discussion and analysis of the results of our operations and financial
condition for the fiscal years ended June 30, 2010 and 2009 should be read in
conjunction with the Summary Financial Data, our financial statements, and the
notes to those financial statements that are included elsewhere in this Form
10-K. All monetary figures are presented in U.S. dollars, unless otherwise
indicated.





Forward-Looking
Statements





The
statements in this discussion that are not historical facts are “forward-looking
statements”. The words “may,” “will,” “expect,” “believe,” “anticipate,”
“intend,” “could,” “estimate,” “continue”, the negative forms thereof, or
similar expressions, are intended to identify forward-looking statements,
although not all forward-looking statements are identified by those words or
expressions. Forward-looking statements by their nature involve substantial
risks and uncertainties, certain of which are beyond our
control.  Actual results, performance or achievements may differ
materially from those expressed or implied by forward-looking statements
depending on a variety of important factors, including, but not limited to,
weather, local, regional, national and global coke and coal price fluctuations,
levels of coal and coke production in the region, the demand for raw materials
such as iron and steel which require coke to produce, availability of financing
and interest rates, competition, changes in, or failure to comply with,
government regulations, costs, uncertainties and other effects of legal and
other administrative proceedings, and other risks and
uncertainties.  We are not undertaking to update or revise any
forward-looking statement, whether as a result of new information, future events
or circumstances or otherwise.





Overview





We are
engaged in the coal energy business through our wholly owned subsidiary Top
Favour Limited (“Top Favour”), which is a holding company that, through its
wholly owned subsidiary Pingdingshan Hongyuan Energy Science and Technology
Development Co., Ltd. (“Hongyuan”), controls Henan Province Pingdingshan Hongli
Coal & Coke Co., Ltd. (“Hongli”), a coal and coal-coke producer in Henan
Province in the central region of the People’s Republic of China (“PRC” or
“China”).  Hongli produces coke, coal, coal byproducts and electricity
through its branch operation, Baofeng Coking Factory, and its wholly owned
subsidiaries, Baofeng Hongchang Coal Co., Ltd. and Baofeng Hongguang Environment
Protection Electricity Generating Co., Ltd., which we refer to collectively as
the “Baofeng Subsidiaries”.  We refer to Hongli and Baofeng
Subsidiaries collectively as “Hongli Group”.  Top Favour controls
Hongli Group through contractual arrangements with Hongli Group and its
owners.  These contractual arrangements provide for management and
control rights, and in addition entitle Top Favour to receive the earnings and
control the assets of Hongli Group.  Other than the interests in these
contractual arrangements, neither Top Favor nor Hongyuan has any equity
interests in Hongli Group.  We refer to Top Favour, Hongyuan and
Hongli Group collectively as “SinoCoking”.


34





SinoCoking
Coal and Coke Chemical Industries, Inc. (the “Company”) is a
vertically-integrated coal and coke producer based in Henan Province, People’s
Republic of China (“PRC” or “China”).  We use coal from both our own
mines and that of third-party mines to produce basic and value-added coal
products such as thermal coal, washed metallurgical coal, and chemical and
metallurgical coke for steel manufacturers, power generators, and various
industrial users.  We also produce and sell coal, including raw
(unprocessed) and washed coal (which is coal that has been prepared for coking
or thermal uses), medium coal and coal slurries (by-products of the coal-washing
process), and coal tar (a by-product of the coke manufacturing
process).





All of
our business is conducted by Henan Province Pingdingshan Hongli Coal & Coke
Co., Ltd. (“Hongli”), which we control through contractual arrangements that
Hongli and its owners have entered into with Pingdingshan Hongyuan Energy
Science and Technology Development Co., Ltd. (“Hongyuan”). These contractual
arrangements provide for management and control rights, and in addition entitle
us to receive the earnings and control the assets of Hongli Group.





Hongyuan
is wholly owned by Top Favour Limited, our wholly owned
subsidiary.  Hongli produces coke, coal, coal byproducts and
electricity through its branch operation, Baofeng Coking Factory (“Baofeng
Coking”), and its wholly owned subsidiaries, Baofeng Hongchang Coal Co., Ltd.
(“Hongchang Coal”) and Baofeng Hongguang Environment Protection Electricity
Generating Co., Ltd. (“Hongguang Power”), which we refer to collectively as the
“Baofeng Subsidiaries.”  We refer to Hongli and the Baofeng
Subsidiaries collectively as “Hongli Group.”  We refer to the Company, Top
Favour, Hongyuan and Hongli Group collectively as “SinoCoking.”





On July
17, 2009, the Company entered into a Share Exchange Agreement with Top Favour,
subsequently amended in November 2009, under which it agreed to acquire
100% of the issued and outstanding shares of capital stock of Top Favour, and in
exchange, the Company agreed to issue up to approximately 13.2 million shares of
common stock to the former shareholders of Top Favour.  The reverse
takeover under the Share Exchange Agreement was accounted for as reverse
acquisition.  The legal acquiror was the Company and the accounting
acquiror was Top Favour.  The remaining assets and liabilities
outstanding of the Company prior to the reverse takeover were disposed of prior
to the closing.  The financial statements of the combined company are
in substance, the financial statements of Top Favour.





Note
Regarding Change in Fiscal Year





On April
14, 2010, the Company changed its fiscal year end from December 31 to a new
fiscal year end of June 30.  Prior to the Acquisition, Top Favour
maintained a fiscal year ending June 30, and the Company maintained a fiscal
year end of December 31.  In order to report its financial condition
and results of operations in a manner consistent with the past accounting
practice of Top Favour, the Company changed its fiscal year end to June
30.





Critical
Accounting Policies





Our
management’s discussion and analysis of our financial condition and results of
operations are based on our financial statements that have been prepared in
accordance with accounting principles generally accepted in the United
States.  The preparation of these financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported net sales and expenses
during the reporting periods.  On an ongoing basis, we evaluate our
estimates and assumptions.  We base our estimates on historical
experience and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these estimates under
different assumptions or conditions.





While our
significant accounting policies are described in Note 2 to our financial
statements under the section above titled “Financial Statements,” we believe
that the following accounting policies are the most critical to aid you in fully
understanding and evaluating this management discussion and
analysis:




Use of
Estimates




The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. The more significant areas requiring the use of management
estimates and assumptions relate to coal reserves that are the basis for future
cash flow estimates and units-of-production depletion calculations; asset
impairments; valuation allowances for deferred income taxes; reserves for
contingencies and litigation and the fair value and accounting treatment of
certain financial instruments. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. Accordingly, actual results may differ significantly
from these estimates. In addition, different assumptions or conditions could
reasonably be expected to yield different results.


35





Estimate of recoverable coal
reserves.  SinoCoking capitalizes its mineral rights at fair
value when acquired, including amounts associated with any value beyond proven
and probable reserves, and amortized to operations as depletion expense using
the units-of-production method over the estimated recoverable
coal.  The Hongchang Mine was acquired in 2005 for a book value of
$13,102,000 with estimated total recoverable coal of 1,215,000 metric tons
($10.78 per metric ton).  If the estimated recoverable coal reserves
were to increase or decrease, future depletion expense would decrease or
increase accordingly.





Estimate of asset
impairment.  The Company evaluates long lived tangible and
intangible assets for impairment, at least annually, but more often whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable from its estimated future cash flows, in accordance with the
Financial Accounting Standard Board’s (FASB’s) accounting guidance regarding
“Disposal of Long-Lived Assets”.  Recoverability is measured by
comparing the asset’s net book value to the related projected undiscounted cash
flows from these assets, considering a number of factors including past
operating results, budgets, economic projections, and market
trends.  If the net book value of the asset exceeds the related
undiscounted cash flows, the asset is considered impaired, and a second test is
performed to measure the amount of impairment loss.  Based on its
review, the Company believes that, as of June 30, 2010, there was no impairment
of long lived assets.





Estimate of valuation allowances for
deferred income taxes. Effective January 1, 2007, the Company adopted
FASB’s accounting standard which indicates a tax position is recognized as a
benefit only if it is “more likely than not” that the tax position would be
sustained in a tax examination, with a tax examination being presumed to
occur.  The amount recognized is the largest amount of tax benefit that has
a greater than 50% likelihood of being realized on examination.  For
tax positions not meeting the “more likely than not” test, no tax benefit is
recorded.  SinoCoking is incorporated in the United States and has
incurred a net operating loss for the year ended June 30, 2010, which may be
available to reduce future years’ taxable income.  Management believes
that the realization of the benefits arising from this loss appears to be
uncertain due to the Company’s limited operating history and continuing losses
for U.S income tax purposes.  Accordingly, the Company has provided a
100% valuation allowance at June 30, 2010.  The Company’s management
reviews this valuation allowance periodically and makes adjustments as
necessary.





Estimate of reserves for
contingencies and litigation.  From time to time, the Company
is involved in legal matters arising in the ordinary course of business. 
Management currently is not aware of any legal matters or pending litigation
that would have a significant effect on the Company’s consolidated financial
statements as of June 30, 2010.





Estimate of the fair value and
accounting treatment of certain financial instruments.  The
Company uses the FASB’s accounting standard regarding fair value of financial
instruments and related fair value measurements.  Those accounting
standards established a three-level valuation hierarchy for disclosures of fair
value measurement and enhance disclosures requirements for fair value
measures.  The carrying amounts reported in the accompanying
consolidated balance sheets for receivables, payables and short term loans
qualify as financial instruments are a reasonable estimate of fair value because
of the short period of time between the origination of such instruments, their
expected realization and, if applicable, the stated rate of interest is
equivalent to rates currently available.  The three levels of
valuation hierarchy are defined as follows:




Level 1
Inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.




Level 2
Inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the assets or
liability, either directly or indirectly, for substantially the full term of the
financial instruments.




Level 3
Inputs to the valuation methodology are unobservable and significant to the fair
value.




The
Company’s warrants are not traded in an active securities market; therefore the
Company estimates the fair value of those warrants using the Cox-Ross-Rubinstein
binomial model on the issuance dates and June 30, 2010 using the Level 3
valuation hierarchy.




Due to
the short trading history of the Company’s stock, expected volatility is based
primarily on other similar public companies’ historical volatilities, which are
traded on United States stock markets.  Historical volatility was
computed using daily pricing observations for recent periods that correspond to
the term of the warrants.  The Company believes this method produces
an estimate that is representative of the Company’s expectations of future
volatility over the expected term of these warrants.  The Company
currently has no reason to believe future volatility over the expected remaining
life of these warrants is likely to differ materially from historical
volatility.  The expected life is based on the remaining term of the
warrants.  The risk-free interest rate is based on U.S. Treasury
securities according to the remaining term of the warrants.


36


Revenue
Recognition




The
Company recognizes revenue from the sale of coal and coke, its principal
products, at the date of shipment to customers when a formal arrangement exists,
the price is fixed or determinable, the delivery is completed, no other
significant obligations of the Company exist and collectability is reasonably
assured.  This generally occurs when coal is loaded onto trains or
trucks at one of the Company’s loading facilities or at third party
facilities.  Accordingly, management is required to apply its own
judgment regarding collectability based on its experience and knowledge of its
current customers, and thus exercise a certain degree of
discretion.





Hongguan
Power, subsidiary of Hongli, generates electricity which is mostly used
internally by Baofeng Coking.  The accounting effect of this activity
is that the Company includes the cost of production of electricity in its
overall operating costs.  Any surplus electricity generated by
Hongguang Power is required by local regulation to be supplied and sold to the
national power grid.  The value of the surplus electricity would be
calculated based on actual kilowatt-hours produced and transmitted and at a
fixed rate determined under contract.





Accounts
Receivables





During
the normal course of business, the Company extends short-term unsecured credit
to its customers, however, collection normally occurs within 90
days.  Management regularly reviews aging of receivables and changes
in payment trends by its customers, and records a reserve when management
believes collection of amounts due are at risk.  Accounts considered
uncollectible are written off.  The Company regularly reviews the
creditworthiness of its customers and, based on the results of the credit
review, determines whether extended payment terms can be granted to or, in some
cases, partial prepayment is required from certain customers.





In the
past two fiscal years, based on management’s judgment regarding collectability,
and based on its judgment no reserve for uncollectable accounts has been
made.  If the composition and nature of SinoCoking’s customer base
were to significantly change, if the Company began to extend longer term credit
to its customers, if conditions became apparent that prompt management to
question the collectability of accounts receivable, or any combination of these
or other similar factors arise, then this could oblige management to establish a
reserve for uncollectible accounts, which would have an adverse effect of the
value of reported accounts receivable.





Intangible - Mineral
Rights





SinoCoking
capitalizes its mineral rights at fair value when acquired, including amounts
associated with any value beyond proven and probable reserves, and amortized to
operations as depletion expense using the units-of-production method over the
estimated recoverable coal.





Mining
and mine assets are a significant portion of SinoCoking’s business, and
SinoCoking’s use of the “units-of-production” method of amortization has
important effects on how its mining activities and assets are
reported.  Under this method, the tonnage of actual coal extracted, as
a percentage of estimated recoverable coal, is used to calculate depletion
expense for a given period.  The remainder of estimated recoverable
coal in the ground is reported as an intangible asset on the Company’s balance
sheet, also based on the percentage of estimated recoverable coal that remains
in the ground.  See also our discussion of estimates of recoverable
coal above in “Use of Estimates”.





The Hongchang
Mine was acquired for, and have a book value of $13,102,000, and an estimated
total recoverable coal of 1,215,000 metric tons.  In the fiscal year
2010, the Company extracted a total of 242,878 metric tons of coal from
the Hongchang Mine, which is 19.99 % of the total estimated recoverable
coal.  The Company recorded a depletion expense of $2,813,566 in this
period.





Recently
issued accounting pronouncements





In
January 2010, FASB issued ASU No. 2010-01– Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is
not a stock dividend for purposes of applying Topics 505 and 260 (Equity and
Earnings Per Share). The amendments in this update are effective for interim and
annual periods ending on or after December 15, 2009, and should be applied
on a retrospective basis. The adoption of this ASU did not have impact on the
Company’s consolidated financial statements.


37





In
January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that exchanges
a group of assets that constitutes a business or nonprofit activity for an
equity interest in another entity. The amendments in this update are effective
beginning in the period that an entity adopts SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If
an entity has previously adopted SFAS No. 160 as of the date the amendments in
this update are included in the Accounting Standards Codification, the
amendments in this update are effective beginning in the first interim or
annual reporting period ending on or after December 15, 2009. The amendments in
this update should be applied retrospectively to the first period that an entity
adopted SFAS No. 160. The adoption of this ASU did not have a material impact on
the Company’s consolidated financial statements.





In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair
Value Measurements. This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers. 2) Activity in Level 3 fair value measurements. In
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), a reporting entity should present separately information about
purchases, sales, issuances, and settlements (that is, on a gross basis rather
than as one net number). This update provides amendments to Subtopic 820-10 that
clarifies existing disclosures as follows: 1) Level of disaggregation. A
reporting entity should provide fair value measurement disclosures for each
class of assets and liabilities. A class is often a subset of assets or
liabilities within a line item in the statement of financial position. A
reporting entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation techniques. A
reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements. Those disclosures are required for fair value measurements
that fall in either Level 2 or Level 3. The new disclosures and clarifications
of existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. These disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. The Company is currently evaluating the impact of this ASU, however, the
Company does not expect the adoption of this ASU to have a material impact on
its consolidated financial statements.





In
February 2010, FASB issued ASU No. 2010-9 –Amendments to Certain Recognition and
Disclosure Requirements. This update addresses certain implementation issues
related to an entity’s requirement to perform and disclose subsequent-events
procedures, removes the requirement that public companies disclose the date of
their financial statements in both issued and revised financial statements.
According to the FASB, the revised statements include those that have been
changed to correct an error or conform to a retrospective application of U.S.
GAAP. The amendment is effective for interim and annual reporting periods in
fiscal year ending after June 15, 2010. The adoption of this ASU did not have a
material impact on the Company’s consolidated financial statements.





In March
2010, FASB issued ASU No. 2010-10 –Amendments for Certain Investment Funds. This
update defers the effective date of the amendments to the consolidation
requirements made by FASB Statement 167 to a reporting entity’s interest in
certain types of entities. The deferral will mainly impact the evaluation of
reporting enterprises’ interests in mutual funds, private equity funds, hedge
funds, real estate investment entities that measure their investment at fair
value, real estate investment trusts, and venture capital funds. The ASU also
clarifies guidance in Statement 167 that addresses whether fee arrangements
represent a variable interest for all service providers and decision makers. The
ASU is effective for interim and annual reporting periods in fiscal year
beginning after November 15, 2009. The adoption of this ASU did not have a
material impact on the Company’s consolidated financial statements.





In March
2010, FASB issued ASU No. 2010-11 –Scope Exception Related to Embedded Credit
Derivatives. Embedded credit-derivative features related only to the transfer of
credit risk in the form of subordination of one financial instrument to another
are not subject to potential bifurcation and separate accounting as clarified by
recently issued FASB guidance. Other embedded credit-derivative features are
required to be analyzed to determine whether they must be accounted for
separately. This update provides guidance on whether embedded credit-derivative
features in financial instruments issued by structures such as collateralized
debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and
separate accounting. The guidance is effective at the beginning of a company’s
first fiscal quarter beginning after June 15, 2010. The Company does not expect
the adoption of this ASU will have a material impact on the Company’s
consolidated financial statements.


38





In April
2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades,” or ASU 2010-13. ASU 2010-13 provides amendments to
Topic 718 to clarify that an employee share-based payment award with an exercise
price denominated in currency of a market in which a substantial porting of the
entity’s equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010.  The Company is currently evaluating the impact of this ASU;
however, the Company does not expect the adoption of this ASU will have a
material impact on its consolidated financial statements.





Results
of Operations





General.  In fiscal
2010, the Company continued its strategy of increasing its coal trading
activities, while the Chinese government’s policy of slowing down the growth of
the economy started to affect the market demand for coke products in the
4th
quarter of 2010.  In fiscal year 2009, the percentage of revenue
SinoCoking earned was approximately 62% from coke products and 38% from coal
products.  In fiscal year 2010, the percentage of revenue was 49% from
coke products and 51% from its coal products due to the weak demand of coke in
the 4th quarter
of fiscal 2010.





In late
June 2010, the Henan Province authorities and related government bureaus
conducted industry-wide coal mine safety inspections as a part of the
government’s efforts to reduce mining accidents and improve safety before mine
consolidations are finalized.  The Baofeng Mines were temporarily
closed and will be reopened upon completion of the government inspections which
have yet to take place.  Generally, raw coal extracted from the
Company’s own mines has lower cost per ton compared to raw coal purchased on the
open market from third party suppliers.  The government’s mine
consolidation program in Henan province has had a negative impact on the total
local production of the coal, and thus the raw coal and washed coal prices
increased, which, in turn, caused the Company’s average cost of production in
fiscal 2010 to increase accordingly. Management does not immediately
anticipate any additional safety inspections or pending stoppages of mining
activities by the government after the mine consolidations are completed in
Henan province.  However, it has no means of predicting the timing,
frequency or duration of safety inspections, or whether additional inspections
will be conducted in the near or long term future, except that mine safety and
design inspections are generally required as a routine part of the mine
consolidation process, when additional mining properties are
acquired.





On a
macro level, management has observed the following trends, which may have a
direct impact on the Company’s operations in the near future: (1) the
consolidation process in Henan province affected the total supply of the
metallurgical coal supply in the region, and therefore affected the prices of
coal products to increase; (2) government-initiated policies to consolidate the
coking industry are expected to accelerate, hastening the closure of small-sized
and less-efficient coking facilities in China, and (3) the central government
has continued to pursue policies to provide economic stimulus as necessary in
order to maintain momentum and growth in domestic
consumption.  Management believes these factors have been working to
restore demand levels of all coal related product, especially for coke, in the
long term.





Revenues.  SinoCoking’s
revenues increased by $7,631,498 or 14.85%, in fiscal 2010, with total revenues
of $59,027,490 as compared to fiscal 2009 with total revenues of
$51,395,992.





These
increases were caused primarily by a strong increase in coal product sales
revenue, offset by a moderate decrease in revenue from coke
sales.  Starting from the second quarter of fiscal 2010, the Henan
province government started its consolidating process for all local private coal
mines which included the temporary closure of coal mines so that safety
inspections could take place.  Such closures resulted in a decrease in
the available coal supply in the market and prices for coal increased
accordingly.  In response, the Company started to increase its coal
products sales in order to maintain its profitability. In the second half of the
fourth quarter of fiscal 2010, the adverse impact of the Chinese government’s
policy of slowing down the domestic economy began affecting the demand for our
coke products, and thus the Company’s revenue from coke sales decreased. 
In the fiscal 2010, SinoCoking increased its coal product revenue by 52.63%
as compared to the same period ending June 30, 2009.  In the second half of
the calendar year 2009, the market demand for coke products rebounded, and the
market prices for coke also began to recover, peaking at $230 per ton in
December 2009.  Shortly after the end of 2009, local market prices for
coke products began to moderate, fluctuating between $200 to $230 per
ton.  In response to these trends, in the first calendar quarter in
2010, the Company resumed coke production and sales, increasing production
significantly though not to the levels achieved in the same period in
2009.  However, in the fourth quarter of fiscal 2010, weak demand for coke
affected the Company’s coke sales, and thus the contribution of coke sales to
the Company’s total revenues was less than in fiscal 2009.  However,
the coke market, after June 30, 2010, subsequently recovered due to the
decreased supply of coal material, and therefore both the demand and the price
of coke increased.  Management anticipates that this trend
will continue, and the coke market will recover in the near future.
 At the same time, as further discussed below, the Company continued to
increase its sales of coal products in response to market prices for coal that
were considered favorable by management.





SinoCoking’s
revenues for the fiscal 2010 and 2009, respectively, categorized by product type
(coke products and coal products), were as follows:


39





RevenuesCoke
                  Products
                
                
                Coal
                  Products
                
                
                TotalRevenuesFiscal
      Year 2009
                
                $
                31,706,265
                
                
                $
                19,689,727
                
                
                $
                51,395,992Fiscal
      Year 2010
                
                
                28,974,918
                
                
                
                30,052,572
                
                
                
                59,027,490Increase
      (decrease) in US$
                
                $
                (2,731,347
                )
                
                $
                10,362,845
                
                
                $
                7,631,498%
      Increase (decrease) in US$
                
                
                (8.61
                )%
                
                
                52.63
                %
                
                
                14.85
                %Quantity
      Sold (metric tons)Fiscal
      Year 2009
                
                
                162,277
                
                
                
                284,840
                
                
                
                447,117Fiscal
      Year 2010
                
                
                139,093
                
                
                
                424,977
                
                
                
                564,069Increase
      (decrease)
                
                
                (23,184
                )
                
                
                140,137
                
                
                
                116,952%
      Increase (decrease)
                
                
                (14.29
                )%
                
                
                49.20
                %
                
                
                26.16
                %





Coke
products include finished coke, a key raw material for producing steel, and coal
tar, a byproduct of the coke manufacturing process which can be used for various
industrial applications.  Coal products include washed and raw coal,
which is used by customers primarily for electricity generation and heating
applications.  As used in this discussion and analysis, the “raw coal”
category includes both thermal and metallurgical coal that is unwashed and
relatively unprocessed, in addition to coal washing byproducts such as coal
slurry.





Average
sale prices for the Company’s four principal products for the fiscal 2010 and
2009 ending June 30, were as follows,





Average
      Sale Prices
                
                Coke
                
                
                Coal
      Tar
                
                
                Raw
      Coal
                
                
                Washed
      CoalFiscal
      Year 2009
                
                $
                197
                
                
                $
                153
                
                
                $
                58
                
                
                $
                119Fiscal
      Year 2010
                
                
                208
                
                
                
                214
                
                
                
                62
                
                
                
                127Increase
      (decrease) in US$
                
                
                11
                
                
                
                61
                
                
                
                4
                
                
                
                8%
      Increase (decrease) in US$
                
                
                5.60
                %
                
                
                39.87
                %
                
                
                6.90
                %
                
                
                6.72%





Average
sale prices are driven by a number of factors, including the particular
composition and grade or quality of the coal or coke sold by the Company,
prevailing market prices for these products in the Chinese local and national
market, prevailing market prices in the global marketplace, timing of sales,
delivery terms, purchase order negotiations between the Company and its
customers, and relationships with those customers.   Management
believes that the changes in average selling prices in the fiscal 2010 were
primarily driven by changes in coal product composition, external market forces
and the timing of sales by the Company.





Management
generally sells coal inventory and sells the Company’s coal products when prices
are stable at seasonally high levels, or at levels that are considered above
historical norms.  The average price of the raw coal was calculated
based the weight of the unprocessed coal, coal by products from coal washing
process, and mixed thermal coal. Since the raw coal market price was
correspondingly stable, the change of the price in raw coal category reflects
the weight changes among the different coal product other than washed coal.
Management notes that average selling prices for coal products are also
influenced by changes in the mixtures of coals (with different grades and heat
content) that is sold to customers.   As noted below in this
discussion, SinoCoking changed the composition of the coal mixtures for its coal
products sold in the three and twelve month periods ending June 30, 2010,
specifically, due to relatively strong demand for thermal coal, which
enabled the Company to sell coal mixtures of lower thermal grade without
major reductions in price per ton.





Coke
product revenues for the fiscal year ending June 30, 2009 and 2010 were as
follows:




Coke
      ProductsCoke
                
                
                Coal
      Tar
                
                
                TotalRevenuesFiscal
      2009
                
                $
                30,534,755
                
                
                $
                1,171,510
                
                
                $
                31,706,265Fiscal
      2010
                
                
                27,650,175
                
                
                
                1,324,743
                
                
                
                28,974,918Increase
      (decrease) in US$
                
                
                (2,884,580
                )
                
                
                153,233
                
                
                
                (2,731,347
                )%
      Increase (decrease) in US$
                
                
                (9.45
                )%
                
                
                13.08
                %
                
                
                (8.61
                )%Quantity
      Sold (metric tons)Fiscal
      2009
                
                
                154,631
                
                
                
                7,646
                
                
                
                162,277Fiscal
      2010
                
                
                132,911
                
                
                
                6,182
                
                
                
                139,093Increase
      (decrease)
                
                
                (21,720
                )
                
                
                (1,464
                )
                
                
                (23,184
                )%
      Increase (decrease)
                
                
                (14.05
                )%
                
                
                (19.15
                )%
                
                
                (14.29
                )%


40





In the
fiscal 2010, the Company’s revenue from the sale of coke products decreased by
9.45%, as compared to the year ending June 30, 2009.  The decrease for
the fiscal 2010 was mainly due to the soft demand for coke in the fourth quarter
of fiscal 2010, although the sales price stayed at the same level. In the first
quarter of calendar year 2010, the Chinese coke market started to recover and
thus the Company increased its coke production and expected further growth to
occur in the following months. However, starting in the second quarter of
calendar year 2010, affected by the steel production controls by the Chinese
government, the demand for coke weakened, and the contribution of coke sales to
our total revenues for the entire fiscal 2010 was less than management’s
expectation, and total sales revenue of coke for fiscal 2010 decreased. With the
current shortage of supply in coal market, and with the pending closing of the
unqualified small scale coking factories in China, the demand for coke in
the market has slightly recovered since late July 2010, and management believes
that such recovery will continue in the coming months.





The coal
tar revenue increased by 13.08% in fiscal 2010, or $153,233, as compared to
$1,171,510 for the fiscal 2009. This increase was primarily driven by an
increase in the unit sales price of coal tar, from $153 in fiscal 2009 to $214
in fiscal 2010. The increase in unit sales price was mainly due to an increase
in the quality of coal tar sold, and prices for fossil-fuel-related products
also generally rebounded in fiscal 2010.





Coal
product revenues for the fiscal 2010 and 2009 were as follows:





Coal
      ProductsRaw
      Coal
                
                
                Washed
                  Coal
                
                
                TotalRevenuesFiscal
      2009
                
                $
                13,151,325
                
                
                
                6,538,402
                
                
                $
                19,689,727Fiscal 2010
                
                
                22,964,448
                
                
                
                7,088,124
                
                
                
                30,052,572Increase
      (decrease) in US$
                
                
                9,813,123
                
                
                
                549,722
                
                
                
                10,362,845%
      Increase (decrease) in US$
                
                
                74.62
                %
                
                
                8.41
                %
                
                
                52.63
                %Quantity
      Sold (metric tons)Fiscal
      2009
                
                
                229,480
                
                
                
                55,360
                
                
                
                284,840Fiscal
      2010
                
                
                369,379
                
                
                
                55,598
                
                
                
                424,977Increase
      (decrease)
                
                
                139,899
                
                
                
                238
                
                
                
                140,137%
      Increase (decrease)
                
                
                60.96
                %
                
                
                0.43
                %
                
                
                49.20
                %




SinoCoking
sharply increased its sales, both in terms of revenue and volume, of coal
products in the fiscal 2010, as compared to the year ending June 30,
2009.  During this period, raw coal and washed coal market prices
trended upward in the months leading up to the end of 2009, due to colder
weather which led to higher demand for thermal coal.  Management
viewed this period in 2009 as a favorable environment for coal
trading.  During the period from late calendar year 2009 to early
calendar year 2010, the Company sold thermal coal (included under the “raw coal”
category) to its customers at prices above seasonal and annual norms, during
winter months when the market supply for thermal coal was low.  The
Company sold coal inventory consisting of both coal acquired from third party
suppliers, as well as coal extracted from its own mines.  In fiscal
year 2010, the Company also sold lower grade mixtures of thermal coal, at a
lower average price per ton.  The Company sold 369,379 tons of various
mixtures and composites of raw coals and realized more than $23 million in
revenue in fiscal year 2010, resulting in a 74.62% increase in revenue from the
sale of raw coal as compared to the previous year.  The Company also
sold approximately 55,600 tons of washed coal in fiscal 2010, resulting in
revenues of approximately $7 million.





In the
fiscal 2010, SinoCoking’s results also reflect the Company’s strategy of selling
a larger volume of coal products relative to coke
products.   During that time period, the Company increased its
inventory of raw coal (especially thermal coal) from both its mining operations
and open market purchases, which it anticipated during the winter
months.  SinoCoking sold approximately 55,598 tons of washed coal
during fiscal 2010, most of which were sold in the first 6 months of fiscal
2010. Since the beginning of calendar year 2010, inventories of washed coal were
already considered to be low, and rather than sell the washed coal, the Company
opted to maintain a minimum level of washed coal in inventory that was
considered by management to be sufficient to ensure an adequate buffer of
supplies for its coking operations.   In 2009, as discussed, the
Company increased its coal trading activities, and began buying and selling more
coal products in order to boost revenue and maintain cash flow and
profitability.  In the quarter ending September 30, 2009, the Company sold
a significant amount of washed coal, however, during the third fiscal quarter
ended March 31, 2010, the Company did not sell any washed coal as it began to
utilize all of its stock of washed coal to increase coke production. Management
anticipated that the consolidation conducted by the Henan provincial government
would have a significant negative impact on the coal product market, and thus
the Company kept its washed coal inventory to maintain its coking
operation.


41





Cost of
Revenue.  Cost of revenue increased from $27,523,329 to
$36,577,438 for the fiscal 2010, as compared to fiscal 2009.  The
increase in cost of revenue was primarily a result of a sharp increase of
coal product sales, especially our coal trading activity, offset by a reduction
in coke product sales.  In order to meet customer demand for coke
products, the Company increased its purchase of raw coal from external
suppliers, resulting in a higher cost of inputs compared to raw coal sourced
from its own coal mines.





Gross
Profit.  Gross profit decreased by $1,422,611 or 5.96%, to
$22,450,052 in the fiscal 2010 from $23,872,663 in fiscal year
2009.  The main reason for the decrease of the gross profit was the
decrease of our coke sales and the increase in the cost of revenue.





Operating
Expenses.  Operating expenses, which consisted of selling
expenses and general and administrative expenses, increased by $190,658, or
7.22% in fiscal 2010 as compared to the fiscal 2009.  The selling
expense decreased by $237,959 because the Company changed its selling
policy, which, inturn, led to a decrease in transportation expenses.
The reverse merger and equity financing expense increased the Company’s overall
general and administrative expenses over $1.2 million, and the maintenance fee
for listing as an U.S. Public Company increased the total general and
administrative expense in the amount of approximately $1.2 million. At the same
time, the expenses for the Company’s business operations decreased approximately
$0.9 million due to the following reasons: (a) the Company’s bad debt accrued
decreased by approximately $290,000 in fiscal 2009; (b) the expense for the new
coking facility project decreased by approximately $240,000, and (c) the expense
for pollution prevention decreased by approximately $130,000 because no payment
was required by the government in fiscal 2010.




Other Income and
Expense.Other income
and expense contains finance expense, net, income and expense not directly
related to the Company’s main operations, and change in fair value of
warrants.





Finance
expense decreased by $620,882, or 67.92% from $914,072 for fiscal 2009 to
$293,190 for to the fiscal 2010. This decrease was mainly driven by lower
average outstanding loan balances during 2010. The Company paid off its bank
loans during the first two quarters of fiscal 2010, Even though the Company
borrowed $14.73 million at end of May 2010, the loan interest expense was lower
than the prior year. In addition, the majority of the related party loans were
paid before June 30, 2009, the Company imputed interest expense of $490,274
relating to loans borrowed from the related parties while it only
imputed an interest expense of $67,269 in fiscal 2010.





The
Company had net other income of $107,799 in fiscal 2010 as compared to $139,823
in fiscal 2009, decrease of $32,024, or 22.9%. The Company received $140,000
government grant in fiscal 2009. Net income of current year represented the
recovery of uncollectible accounts which was charged to bad debt expense in
prior years.





Change in
fair value of warrants amounted to $24,016,417 for the year ended June 30, 2010.
The Company had no such gain in prior year. In connection with the private
placement equity financing disclosed in Note 19, the Company issued warrants
exercisable for 4,039,636 shares of the Company’s common stock on February 5,
2010 and March 11, 2010. As a result of the reverse acquisition disclosed in
Note 3, the functional currency of the Company changed from US dollar to RMB
starting from February 5, 2010, the completion date of the transaction. The
Company’s warrants are not considered indexed to the Company’s own stock, and as
such, all future changes in the fair value of those warrants need to be
recognized currently in earnings and the warrants were recorded as derivative
instruments. The Company used the Cox-Ross-Rubinstein binomial model to value
the warrants issued in relation to the equity financing, amounting to in
$94,605,650 on the warrant issuance dates. Gross cash proceeds from this equity
financing was approximately $44 million and 100% allocated to the warrants
issued. The exceeded value of warrants of $40,153,156 was reflected as a loss
due to a change in fair value of warrants. This loss was offset by the change of
value of warrants between June 30, 2010 and the issuance date of $64,169,573,
resulting in the net gain on change fair value of warrants of
$24,016,417.




Provision for Income Taxes.
Provision for income taxes increased by $1,025,434, for the fiscal 2010, as
compared to the same period ending June 30, 2009, due primarily to the Company
receiving more tax exemptions in fiscal 2009 as compared to fiscal
2010.


42





Net (loss)
income.Net income, including the change on fair value of
warrants, was $38,934,497 for fiscal year 2010, as compared to $16,967,935 for
fiscal 2009.





The
Company uses non-GAAP adjusted net income to measure the performance of the
Company’s business internally by excluding non-cash charges related to warrants,
and believes that the non-GAAP adjusted financial measure allows the Company to
focus on managing business operating performance because the measure reflects
the Company’s essential operating activities and provides a consistent method of
comparison to historical periods.  We believe that providing this
non-GAAP measure that the Company uses internally is useful to investors for a
number of reasons.  The non-GAAP measure provides a consistent basis
for investors to understand our financial performance in comparison to
historical periods without variation of non-recurring items and non-operating
related charges.  In addition, it allows investors to evaluate the
Company’s performance using the same methodology and information as that used by
the Company’s management. Non-GAAP measures are subject to inherent limitations
because they do not include all of the expenses included under GAAP and because
they involve the exercise of judgment regarding which charges are excluded from
the non-GAAP financial measure.  However, the Company compensates for
these limitations by providing the relevant disclosure of the items
excluded.





The
following table provides a non-GAAP financial measure and a reconciliation of
that non-GAAP measure to the GAAP net income.




Fiscal2010
                                        
                                        
                                        2009Net
      income
                                        
                                        $
                                        38,934,497
                                        
                                        
                                        $
                                        16,967,935Change
      in fair value of warrant liabilities
                                        
                                        
                                        (
      24,016,407
                                        )
                                        
                                        
                                        -Adjusted
      net income
                                        
                                        $
                                        14,918,090
                                        
                                        
                                        $
                                        16,967,935Earnings
      per share- basic
                                        
                                        $
                                        2.49
                                        
                                        
                                        $
                                        1.29Earnings
      per share- diluted
                                        
                                        $
                                        2.44
                                        
                                        
                                        $
                                        1.29Adjusted
      earnings per share - basic
                                        
                                        $
                                        0.95
                                        
                                        
                                        $
                                        1.29Adjusted
      earnings per share - diluted
                                        
                                        $
                                        0.94
                                        
                                        
                                        $
                                        1.29Weighted  average
      number of common shares - basic
                                        
                                        
                                        15,623,823
                                        
                                        
                                        
                                        13,117,952Weighted  average
      number of common shares - diluted
                                        
                                        
                                        15,942,451
                                        
                                        
                                        
                                        13,117,952





Excluding
those non-cash expenses, adjusted net income of the fiscal 2010 and 2009 were
approximately $15 million and $17 million, respectively, and resulted in $0.95
and $1.29 basic earnings per share, and $0.94 and $1.29 diluted earnings per
share for the fiscal 2010 and 2009, respectively.





The
decrease of our adjusted net income for fiscal 2010, as compared with the fiscal
2009, was primarily because of the approximately $1.4 million decrease in gross
profit, $1.5 million expense related to reverse merger and equity financing
expense incurred after the Company went to public, and a $1 million increase of
the provision for income tax as stated above.





Liquidity
and Capital Resources




In summary, our cash flows are as
follows:





Year
      Ended June 30,2010
                
                
                2009
                
                
                2008Net
      cash provided by (used in) operating activities
                
                $
                17,781,765
                
                
                $
                11,890,214
                
                
                $
                13,060,249Net
      cash provided by (used in) investing activities
                
                
                (32,903,855
                )
                
                
                (10,503,647
                )
                
                
                (8,471,010
                )Net
      cash provided by (used in) financing activities
                
                
                32,170,537
                
                
                
                (5,832,642
                )
                
                
                (937,425
                )


43





Net
Cash Provided by Operating Activities




Net cash
provided by operating activities was $17,781,765 in fiscal year 2010, an
increase of $5,891,549, or 49.55%, as compared with $11,890,214 for fiscal year
2009.
  During
fiscal 2010, the cash increase was mainly due to a decrease in account
receivables of $1.18 million and an increase in advances to suppliers of $2.9
million.  The decrease in account receivables was primarily due to the
Company’s better sales credit control and timely receivable collection.The Company was in the process of acquiring several coal
mines.  Due to the potential acquisitions, some of the coal mines did not
demand advances for purchases.
  The cash
increase was offset by the following factors: (1) an increase in inventories of
$2.1 million, (2) a decrease in customer deposit of $3.65 million, and (3) a
decrease in taxes payable of $1.46 million.   The increase in inventory
corresponded with the anticipated increase in sales.   The
decrease in customer deposit was mainly because the Company received a large
customer deposit in the prior fiscal year while sales demand of for the
Company’s coke products was strong.  The demand of coke product was more
moderate in 2010.  The decrease in taxes payable was caused by the large
amount of income taxes and value tax payment that the Company made in the
current year.




Net
Cash Used in Investing Activities





During
the fiscal year ending June 30, 2010 the Company had net cash used for investing
activities of approximately $33 million, and in fiscal 2009, it had capital
expenditures of approximately 10.5 million.  For the fiscal year
ending June 30, 2010, the Company made payments of: (1) approximately  $5.1
million toward the expansion and redevelopment of adjacent formerly residential
land, (2) approximately $8.8 million was paid for the mine acquisitions, (3)
approximately  $12.2 million in construction-related expenditures for its
new coking facility, and (4) approximately $4.3 million toward the construction
of new coal mining underground constructions, as well as a $2.5 million loan to
an unrelated party.  The increase in capital expenditures in this
period as compared to the same period in 2009 was mainly due to the construction
and land redevelopment expenditures, as well as the mine acquisitions. In
fiscal 2009, the Company spent approximately $10.5 million to pay for the new
coking facility construction and improvement of underground construction for
further operation.




Net
Cash Used in Financing Activities





The net
cash received as a result of financing activity was approximately $32 million.
In February and March 2010, the Company raised approximately $44 million by
issuing common stock with cash at a cost of approximately $2.26 million. In May
2010, the Company used $17,010,000 as collateral to obtain the $14,730,000 (RMB
100,000,000) bank loan from the Shanghai Pudong Development Bank for its
Hongyuan subsidiary. This loan bears an interest obligation of 4.78% per annum,
and the $17,010,000 was deposited as a 6 months deposit in the bank with
interest benefit of 1.3% per annum. The Company then deposited approximately
$5.8 million to obtain the credit in the form of 6 months interest free
notes in the amount of $11.6 million in order to finance its further investment
for its 900,000 tons coking facility construction project. In fiscal 2010, the
Company also repaid $2.2 million bank loan in September 2009. In fiscal year
2009, the Company had the net use of cash from financing activities. The main
usage of the cash was to repay a related party loan in the amount of
approximately $5.2 million, and repay a matured bank loan of approximately
$1.1 million.




Capital Resources




Funding
for the Company’s business activities has historically been provided by cash
flow from operations, short-term bank loan financing, and loans from individuals
including from its major shareholder Mr. Lv and Mr. Liuchang Yang, who is a
director of the Company.





The
Company does not have any outstanding loans under lines of credit.




The
business plan of the Company involves growing its business through (1) expansion
and modernization of its production facilities and achieving greater energy
efficiency while also lessening environmental impact; (2) recapturing more
coking by-products for refinement into useful industrial chemicals, and
production of more high value-added chemical products; (3) acquisition of other
coal mines to source raw materials; (4) strategic cooperation with
Zhengzhon Coal Industry Group in order to indirectly control the coal resource
and also secure the Company’s internal material requirements and stable supply
for coal product trading; and (5) purifying and selecting level 10 washed
coal, which is highly demanded in the market from the 2 million metric tons of
raw coal provided by Zhengzhon Coal, in order to increase the Company’s product
categories, secure sufficient raw coal material for the 900,000 metric tons
coking facility project, and increase the Company’s profitability. Any future
facility expansion and acquisitions will require additional financing and/or
equity capital and will be dependent upon the availability of financing
arrangements and capital at the time;




SinoCoking
has commenced action on two major initiatives as a part of its growth plan, that
are expected to require capital resources:





1.
            New Coking
      Facility.  On March 3, 2010, SinoCoking announced that it
      began construction of its new coking facility to be located beside the
      Company’s current facilities in Pingdingshan City.  The Company
      estimates that the new coking facility will cost approximately $70 million
      to complete, and as described elsewhere in this Form 10-K, is expected to
      begin production of metallurgical and chemical coke, coal gas and various
      chemical products by early 2011.





2.
            Mine
      Acquisitions.  On February 19, 2010, SinoCoking announced
      its plan of acquisition, in which it will seek consolidation of coal mines
      in the Henan province, as a part of a general policy in the coal mining
      industry in Henan Province to improve production efficiency and improve
      safety.  On that date, SinoCoking announced 22 private company
      targets with an aggregate licensed production capacity of 3.3 million
      metric tons of coal per year.  The Company intends to acquire a
      controlling stake in selected private mine-owning companies using cash,
      its common stock, or a combination of both as consideration for these
      acquisitions.


44





In the
quarter ending December 31, 2009, the Company obtained a letter of intent from
the Pingdingshan Rural Cooperative Bank, confirming the bank’s intention to loan
the Company up to 300 million RMB (approximately USD $42 million), unsecured at
an annual interest rate of 5.2% to finance the construction of its new coking
facility. This letter of intent expired on June 30, 2010. In the first quarter
of 2010, SinoCoking raised $44 million in gross proceeds from the sale of common
stock and warrants.




SinoCoking’s
management presently anticipates that its recent equity issuance, its access to
credit, and cash flow from operations, together will provide sufficient capital
resources to pursue and complete the construction of its new coking facility and
proposed mine acquisitions.  We intend to utilize existing cash, cash
flow from operations and bank loans, to finance the cash portion of the
consideration to be paid for our acquisitions.   We may consider
the issuance of additional equity securities in order to finance our mine
acquisitions.





We have
not experienced any material losses since inception relating to accidents or
other similar events.  Please refer to the risk factor entitled “We
may suffer losses resulting from industry-related accidents and lack of
insurance” on page 24 of this annual report.




Capital
Expenditures




During
the year ending June 30, 2010, the Company had capital expenditures of $30.4
million, and in fiscal 2009, it had capital expenditures of approximately $10.5
million.  These capital expenditures were made in order to purchase
vehicles, mining equipment and coking equipment for the Company’s new 900,000
ton per year coking facility currently under construction, as well as expansion
of its coal mining facilities.  Specifically, for the year ending June
30, 2010, the Company made payments of approximately $5.1 million toward
the expansion and redevelopment of adjacent formerly residential land
(see Item 2. Properties), approximately $8.8 million was paid for the
mine acquisitions, approximately $12.2 million in construction-related
expenditures for its new coking facility, and approximately $4.25
million for the construction of new coal mining tunnels.  The
increase in capital expenditures in this period as compared to the same period
in 2009 was mainly due to the construction and land redevelopment expenditures,
as well as the mine acquisitions.  Continued high levels of capital
expenditures are anticipated over the next year and until completion of the new
coking facility, which the Company plans to complete by 2011.




Quantitative
and Qualitative Disclosures about Market Risk





The
Company does not use derivative financial instruments and has no foreign
exchange contracts.  The Company’s financial instruments consist of
cash and cash equivalents, trade accounts receivable, accounts payable and
long-term obligations.  The Company generally considers investments in
highly liquid instruments purchased with a remaining maturity of 90 days or less
at the date of purchase to be cash equivalents.  However, in order to
manage the foreign exchange risks, the company may in the future engage in
hedging activities to manage its financial exposure related to currency exchange
fluctuation.  In these hedging activities, the Company might use
fixed-price, forward, futures, financial swaps and option contracts traded in
the over-the-counter markets or on exchanges, as well as long-term structured
transactions when feasible.  Currently the Company does not engage in
any of these types of currency hedging transactions.





Interest
Rates.  The Company’s exposure to market risk for changes in
interest rates relates primarily to its short-term
obligations.  Accordingly, fluctuations in applicable interest rates
would not have a material impact on the fair value of these
securities.  At June 30, 2010, the Company had approximately $40.3
million in cash. A hypothetical 10% increase or decrease in applicable interest
rates would not have a material impact on the Company’s earnings or loss, or the
fair market value or cash flows of these instruments.





Foreign Exchange
Rate.  All of the sales and inputs of the Company are
transacted in Renminbi (“RMB”).  As a result, changes in the relative
values of U.S. Dollars and RMB affect the company’s reported levels of revenues
and profitability as the results are translated into U.S. Dollars for reporting
purposes.  However, since the Company conducts its sales and purchases
inputs in RMB, fluctuations in exchange rates are not expected to significantly
affect financial stability, or gross and net profit margins.  The
Company does not currently expect to incur significant foreign exchange gains or
losses, or gains or losses associated with any foreign
operations.





Commodity
Prices.  The Company is a coal and coke producer, and as
discussed elsewhere in this report, its business is affected by prevailing
market prices for coal and coke.  However, the Company does not
currently engage in any hedging activities, such as futures, forwards, or
options contracts, with respect to any of its inputs or the products it
sells.


45





Off-Balance
Sheet Arrangements





We have
not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered into
any derivative contracts that are indexed to our shares and classified as
shareholder’s equity or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity.  We do not have any variable
interest in any unconsolidated entity that provides financing, liquidity, market
risk or credit support to us or engages in leasing, hedging or research and
development services with us.





ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not
applicable.





ITEM
8. FINANCIAL STATEMENTS




The
Consolidated Financial Statements for the years ended June 30, 2010 and 2009
begin on the following page.




46




SinoCoking Coal and Coke Chemical Industries, Inc. Index to
Consolidated Financial Statements
  PagesReport
      of Independent Registered Public Accounting Firm
                              
                              F-1Consolidated
      Balance Sheets as of June 30, 2010 and 2009
                              
                              F-2Consolidated
      Statements of Income and Other Comprehensive Income for the Years Ended
      June 30, 2010 and 2009
                              
                              F-3Consolidated
      Statements of Shareholders’ Equity
                              
                              F-4Consolidated
      Statements of Cash Flows for the Years Ended June 30, 2010 and
      2009
                              
                              F-5Notes
      to the Consolidated Financial Statements
                              
                              F-6




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and
 Shareholders
of SinoCoking Coal and Coke Chemical Industries, Inc
  We have
audited the accompanying consolidated balance sheets of SinoCoking Coal and Coke
Chemical Industries, Inc and Subsidiaries as of June 30, 2010 and 2009, and the
related consolidated statements of income and comprehensive income,
shareholders’ equity, and cash flows for each of the years in the two-year
period ended June 30, 2010. SinoCoking Coal and Coke Chemical Industries, Inc
and Subsidiaries’ management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of SinoCoking Coal and Coke Chemical
Industries, Inc as of June 30, 2010 and 2009, and the results of its operations
and its cash flows for each of the years in the two-year period ended June 30,
2010 in conformity with accounting principles generally accepted in the United
States of America.
  /s/
Frazer Frost, LLP (successor entity of Moore Stephens Wurth Frazer & Frost,
LLP)
  Brea,
California
 September
28, 2010
  F-1




SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND
SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





CONSOLIDATED
BALANCE SHEETS





June
      30, 2010
                            
                            
                            June
      30, 2009ASSETSCURRENT
      ASSETSCash
                            
                            $
                            17,403,008
                            
                            
                            $
                            278,399Restricted
      cash
                            
                            
                            22,902,000
                            
                            
                            
                            -Loans
      receivable
                            
                            
                            2,513,308
                            
                            
                            
                            -Notes
      receivable
                            
                            
                            1,045,830
                            
                            
                            
                            358,808Accounts
      receivable, trade, net
                            
                            
                            5,304,684
                            
                            
                            
                            6,454,663Other
      receivables
                            
                            
                            479,121
                            
                            
                            
                            225,288Other
      receivables - related parties
                            
                            
                            477,052
                            
                            
                            
                            -Inventories
                            
                            
                            2,261,816
                            
                            
                            
                            107,187Advances
      to suppliers
                            
                            
                            5,509,780
                            
                            
                            
                            8,364,448Total
      current assets
                            
                            
                            57,896,599
                            
                            
                            
                            15,788,793PLANT
      AND EQUIPMENT, net
                            
                            
                            20,930,413
                            
                            
                            
                            16,954,659OTHER
      ASSETSPrepayments
      for land use rights
                            
                            
                            5,074,485
                            
                            
                            
                            -Prepayments
      for mine acquisitions
                            
                            
                            8,858,398
                            
                            
                            
                            -Prepayments
      for construction of new operating plant
                            
                            
                            16,789,806
                            
                            
                            
                            7,462,008Intangible
      - land use rights, net
                            
                            
                            1,892,292
                            
                            
                            
                            1,945,811Intangible
      - mineral rights, net
                            
                            
                            2,629,437
                            
                            
                            
                            5,233,992Other
      assets
                            
                            
                            103,110
                            
                            
                            
                            102,550Total
      other assets
                            
                            
                            35,347,528
                            
                            
                            
                            14,744,361Total
      assets
                            
                            $
                            114,174,540
                            
                            
                            $
                            47,487,813LIABILITIES AND SHAREHOLDERS'
      EQUITYCURRENT
      LIABILITIESAccounts
      payable, trade
                            
                            $
                            291,750
                            
                            
                            $
                            244,570Notes
      payable
                            
                            
                            2,946,000
                            
                            
                            
                            -Short
      term loans - bank
                            
                            
                            14,730,000
                            
                            
                            
                            2,219,475Short
      term loans - others
                            
                            
                            515,550
                            
                            
                            
                            1,098,750Due
      to related party
                            
                            
                            51,381
                            
                            
                            
                            1,540,337Other
      payables and accrued liabilities
                            
                            
                            1,433,121
                            
                            
                            
                            744,058Customer
      deposits
                            
                            
                            106,830
                            
                            
                            
                            3,751,327Taxes
      payable
                            
                            
                            1,229,019
                            
                            
                            
                            2,682,254Total
      liabilities
                            
                            
                            21,303,651
                            
                            
                            
                            12,280,771OTHER
      LIABILITIESWarrant
      derivative liability
                            
                            
                            30,436,087
                            
                            
                            
                            -Total
      other liabilities
                            
                            
                            30,436,087
                            
                            
                            
                            -Total
      liabilities
                            
                            
                            51,739,738
                            
                            
                            
                            12,280,771COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITYCommon
      stock, $0.001 par value, 100,000,000 authorized,20,871,192  and
      13,117,952 issued and outstanding as ofJune
      30, 2010 and 2009, respectively
                            
                            
                            20,871
                            
                            
                            
                            13,118Additional
      paid-in capital
                            
                            
                            67,269
                            
                            
                            
                            3,531,959Statutory
      reserves
                            
                            
                            1,837,395
                            
                            
                            
                            1,127,710Retained
      earnings
                            
                            
                            59,373,726
                            
                            
                            
                            29,754,451Accumulated
      other comprehensive income
                            
                            
                            1,135,541
                            
                            
                            
                            779,804Total
      shareholders' equity
                            
                            
                            62,434,802
                            
                            
                            
                            35,207,042Total
      liabilities and shareholders' equity
                            
                            $
                            114,174,540
                            
                            
                            $
                            47,487,813




See
report of independent registered public accounting firm




The
accompanying notes are an integral part of these consolidated financial
statements.





F-2





SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND
SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME


FOR THE
YEARS ENDED JUNE 30, 2010 AND 2009




2010
                
                
                2009REVENUE
                
                $
                59,027,490
                
                
                $
                51,395,992COST
      OF REVENUE
                
                
                36,577,438
                
                
                
                27,523,329GROSS
      PROFIT
                
                
                22,450,052
                
                
                
                23,872,663OPERATING
      EXPENSES:Selling
                
                
                494,943
                
                
                
                732,902General
      and administrative
                
                
                2,334,604
                
                
                
                1,905,987Total
      operating expenses
                
                
                2,829,547
                
                
                
                2,638,889INCOME
      FROM OPERATIONS
                
                
                19,620,505
                
                
                
                21,233,774OTHER
      INCOME (EXPENSE), NETFinance
      expense, net
                
                
                (293,190
                )
                
                
                (914,072
                )Other
      income, net
                
                
                107,799
                
                
                
                139,823Change
      in fair value of warrants
                
                
                24,016,407
                
                
                
                -Total
      other income (expense), net
                
                
                23,831,016
                
                
                
                (774,249
                )INCOME
      BEFORE INCOME TAXES
                
                
                43,451,521
                
                
                
                20,459,525PROVISION
      FOR INCOME TAXES
                
                
                4,517,024
                
                
                
                3,491,590NET
      INCOME
                
                
                38,934,497
                
                
                
                16,967,935OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation adjustments
                
                
                355,737
                
                
                
                74,264COMPREHENSIVE  INCOME
                
                $
                39,290,234
                
                
                $
                17,042,199WEIGHTED
      AVERAGE NUMBER OF COMMON SHARESBasic
                
                
                15,623,823
                
                
                
                13,117,952Diluted
                
                
                15,942,451
                
                
                
                13,117,952EARNINGS
      PER SHAREBasic
                
                $
                2.49
                
                
                $
                1.29Diluted
                
                $
                2.44
                
                
                $
                1.29




See
report of independent registered public accounting firm
  The
accompanying notes are an integral part of these consolidated financial
statements.   F-3




SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND
SUBSIDIARIES


(FORMERLY
NAMED  ABLEAUCTIONS.COM, INC.)





CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY





AccumulatedAdditional
                    
                    
                    
                    
                    
                    Retained
      (deficit) earnings
                    
                    
                    otherCommon
      Stock
                    
                    
                    paid-in
                    
                    
                    Contribution
                    
                    
                    Statutory
                    
                    
                    
                    
                    
                    comprehensiveShares
                    
                    
                    Par
      Value
                    
                    
                    capital
                    
                    
                    receivable
                    
                    
                    reserves
                    
                    
                    Unrestricted
                    
                    
                    income
                    
                    
                    TotalBALANCE,
      June 30, 2008
                    
                    
                    13,117,952
                    
                    
                    $
                    13,118
                    
                    
                    $
                    3,032,685
                    
                    
                    $
                    (1,000
                    )
                    
                    $
                    573,412
                    
                    
                    $
                    13,340,814
                    
                    
                    $
                    705,540
                    
                    
                    $
                    17,664,569Net
      income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    16,967,935
                    
                    
                    
                    
                    
                    
                    
                    16,967,935Adjustment
      of statutory reserve
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    554,298
                    
                    
                    
                    (554,298
                    )
                    
                    
                    
                    
                    
                    
                    -Shareholder
      contribution
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    9,000
                    
                    
                    
                    1,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    10,000Shareholder
      cash contribution and by forfeited imputed interest
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    490,274
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    490,274Foreign
      currency translation adjustments
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    74,264
                    
                    
                    
                    74,264BALANCE,
      June 30, 2009
                    
                    
                    13,117,952
                    
                    
                    $
                    13,118
                    
                    
                    $
                    3,531,959
                    
                    
                    $
                    -
                    
                    
                    $
                    1,127,710
                    
                    
                    $
                    29,754,451
                    
                    
                    $
                    779,804
                    
                    
                    $
                    35,207,042Shares
      and warrants issued in reverse merger recapitalization
                    
                    
                    405,710
                    
                    
                    
                    406
                    
                    
                    
                    (406
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -Shares
      and warrants sold for cash
                    
                    
                    7,344,935
                    
                    
                    
                    7,345
                    
                    
                    
                    44,062,265
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    44,069,610Offering
      costs related to shares and warrants sold
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (12,015,273
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (12,015,273
                    )Warrants
      issued reclassified to derivative liability
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (35,578,543
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (8,491,067
                    )
                    
                    
                    
                    
                    
                    
                    (44,069,610
                    )Cumulative
      effect of reclassification of existing warrants
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (631,002
                    )
                    
                    
                    
                    
                    
                    
                    (631,002
                    )Fractional
      shares due to the one-for-twenty reverse split
                    
                    
                    2,595
                    
                    
                    
                    2
                    
                    
                    
                    (2
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -Net
      income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    38,934,497
                    
                    
                    
                    
                    
                    
                    
                    38,934,497Adjustment
      of statutory reserve
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    709,685
                    
                    
                    
                    (193,153
                    )
                    
                    
                    
                    
                    
                    
                    516,532Imputed
      interests on loans from related parties waived
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    67,269
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    67,269Foreign
      currency translation adjustments
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    355,737
                    
                    
                    
                    355,737BALANCE,
      June 30, 2010
                    
                    
                    20,871,192
                    
                    
                    $
                    20,871
                    
                    
                    $
                    67,269
                    
                    
                    $
                    -
                    
                    
                    $
                    1,837,395
                    
                    
                    $
                    59,373,726
                    
                    
                    $
                    1,135,541
                    
                    
                    $
                    62,434,802




See
report of independent registered public accounting firm
  The
accompanying notes are an integral part of these consolidated financial
statements.


F-4





SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND
SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





CONSOLIDATED
STATEMENTS OF CASH FLOWS





For
      the years ended June 30,2010
                          
                          
                          2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                          
                          $
                          38,934,497
                          
                          
                          $
                          16,967,935Adjustments
      to reconcile net income to cashprovided
      by operating activities:Depreciation
                          
                          
                          3,195,093
                          
                          
                          
                          2,013,441Amortization
      and depletion
                          
                          
                          2,685,745
                          
                          
                          
                          2,877,364Bad
      debt expense
                          
                          
                          216
                          
                          
                          
                          293,000Change
      in fair value of warrants
                          
                          
                          (24,016,407
                          )
                          
                          
                          -Additional
      capital increased by forfeited imputed interest
                          
                          
                          67,269
                          
                          
                          
                          490,274Capitalized
      interest
                          
                          
                          -
                          
                          
                          
                          (35,914
                          )Reservation
      of mine maintenance fee
                          
                          
                          516,532
                          
                          
                          
                          -Change
      in operating assets and liabilitiesNotes
      receivables
                          
                          
                          (682,133
                          )
                          
                          
                          (358,808
                          )Accounts
      receivable, trade
                          
                          
                          1,179,942
                          
                          
                          
                          (3,180,319
                          )Other
      receivables
                          
                          
                          (43,272
                          )
                          
                          
                          774,999Other
      receivables - related party
                          
                          
                          (416,620
                          )
                          
                          
                          -Inventories
                          
                          
                          (2,144,832
                          )
                          
                          
                          100,353Advances
      to suppliers
                          
                          
                          2,897,074
                          
                          
                          
                          (6,710,962
                          )Accounts
      payable, trade
                          
                          
                          (173,590
                          )
                          
                          
                          (3,346,930
                          )Other
      payables and accrued liabilities
                          
                          
                          893,161
                          
                          
                          
                          (954,832
                          )Customer
      deposits
                          
                          
                          (3,649,307
                          )
                          
                          
                          3,237,596Taxes
      payable
                          
                          
                          (1,461,603
                          )
                          
                          
                          (276,983
                          )Net
      cash provided by operating activities
                          
                          
                          17,781,765
                          
                          
                          
                          11,890,214CASH
      FLOWS FROM INVESTING ACTIVITIES:Principal
      of loans receivable
                          
                          
                          (2,513,308
                          )
                          
                          
                          -Payments
      on equipment and construction-in-progress
                          
                          
                          (7,061,654
                          )
                          
                          
                          (3,041,639
                          )Prepayment
      on land use rights
                          
                          
                          (5,052,782
                          )
                          
                          
                          -Prepayment
      on mine acquisitions
                          
                          
                          (8,820,510
                          )
                          
                          
                          -Prepayments
      on construction-in-progress
                          
                          
                          (13,876,235
                          )
                          
                          
                          (7,462,008
                          )Refunds
      of long-term prepayments
                          
                          
                          4,420,634
                          
                          
                          
                          -Net
      cash used in investing activities
                          
                          
                          (32,903,855
                          )
                          
                          
                          (10,503,647
                          )CASH
      FLOWS FROM FINANCING ACTIVITIES:Increase
      in restricted cash
                          
                          
                          (22,876,800
                          )
                          
                          
                          -Shareholder
      contribution
                          
                          
                          -
                          
                          
                          
                          10,000Proceeds
      from sale of common stock and warrants
                          
                          
                          44,069,610
                          
                          
                          
                          -Cash
      offering cost related to common stock
                          
                          
                          (2,263,391
                          )
                          
                          
                          -Cash
      proceeds from notes payables
                          
                          
                          2,933,400
                          
                          
                          
                          -Cash
      proceeds from short-term bank loans
                          
                          
                          14,667,001
                          
                          
                          
                          -Repayments
      to short-term bank loans
                          
                          
                          (2,222,051
                          )
                          
                          
                          (1,180,790
                          )Cash
      proceeds from short-term loans - others
                          
                          
                          -
                          
                          
                          
                          586,000Repayment
      to short-term loans - others
                          
                          
                          (586,680
                          )
                          
                          
                          -Repayments
      to related parties
                          
                          
                          (1,550,552
                          )
                          
                          
                          (5,247,852
                          )Net
      cash provided by (used in) financing activities
                          
                          
                          32,170,537
                          
                          
                          
                          (5,832,642
                          )EFFECT
      OF EXCHANGE RATE ON CASH
                          
                          
                          76,162
                          
                          
                          
                          19,345INCREASE
      (DECREASE) IN CASH
                          
                          
                          17,124,609
                          
                          
                          
                          (4,426,730
                          )CASH,
      beginning of year
                          
                          
                          278,399
                          
                          
                          
                          4,705,129CASH,
      end of year
                          
                          $
                          17,403,008
                          
                          
                          $
                          278,399SUPPLEMENTAL
      CASH FLOW INFORMATION:Cash
      paid for income tax
                          
                          $
                          8,902,126
                          
                          
                          $
                          3,451,585Cash
      paid for interest expense
                          
                          $
                          85,219
                          
                          
                          $
                          286,194NON-CASH
      TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIESReclassification
      of long-term prepayments to other receivablesdue
      to contracts were cancelled
                          
                          $
                          208,271
                          
                          
                          $
                          -Warrants
      issued for placement agent fee
                          
                          $
                          9,751,882
                          
                          
                          $
                          -




See
report of independent registered public accounting firm
  The
accompanying notes are an integral part of these consolidated financial
statements.


F-5





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Note
1 – Nature of business and organization





SinoCoking
Coal and Coke Chemical Industries, Inc. (“SinoCoking” or the “Company”) was
organized on September 30, 1996, under the laws of the State of Florida as J.B.
Financial Services, Inc. On July 19, 1999, the Company changed its name to
Ableauctions.com, Inc. On February 5, 2010, in connection with a share exchange
transaction as described below, the Company changed its name to “SinoCoking Coal
and Coke Chemical Industries, Inc.”





On
February 5, 2010, the Company completed a share exchange transaction with Top
Favour Limited (“Top Favour (BVI)”), and Top Favour (BVI) became a wholly-owned
subsidiary of the Company. Immediately prior to the closing the share exchange
transaction, all of the assets and liabilities of Ableauction.com, Inc’s former
business had been transferred to a liquidating trust, including the capital
stock of its former subsidiaries. After the share exchange transaction, Top
Favour (BVI)’s shareholders owned approximately 97% of the issued and
outstanding shares. The management members of Top Favour (BVI) became the
directors and officers of the Company. The share exchange transaction was
accounted for as a reverse acquisition and recapitalization and as a result, the
consolidated financial statements of the Company (the legal acquirer) is, in
substance, those of Top Favour (BVI) (the accounting acquirer), with the assets
and liabilities, and revenues and expenses, of the Company being included
effective from the date of the share exchange transaction. As the share exchange
transaction was accounted for as a reverse acquisition and recapitalization,
there was no gain or loss recognized on the transaction. The historical
financial statements for periods prior to February 5, 2010 are those of Top
Favour (BVI) except that the equity section and earnings per share have been
retroactively restated to reflect the reverse acquisition. See more details in
Note 3.





Top
Favour (BVI) was incorporated in the British Virgin Islands on July 2,
2008.  Through its wholly-owned subsidiary Pingdingshan Hongyuan
Energy Science and Technology Development Co., Ltd. (“Hongyuan”), which was
formed on March 18, 2009 with a registered capital of $3,000,000 under the laws
of the People’s Republic of China (“PRC” or China),  and the variable
interest entity (“VIE”) - Henan Pingdingshan Hongli Coal & Coking Co., Ltd.
(“Hongli”), the Company produces and sells coal, coke, coal gas-generated
electricity, and other coking by-products in the People’s Republic of China
(“PRC” or China).





Henan
Pingdingshan Hongli Coal & Coking Co., Ltd. (“Hongli”) was incorporated as a
trading and holding Company on June 5, 1996 under the laws of the
PRC.  In addition to operating the Baofeng Coking Factory (“Baofeng
Coking”), Hongli sells coal and coke to its customers, most of whom are energy
trading companies that procure coking coal for steel manufacturers and chemical
refineries in China.  Hongli has a registered capital of RMB 8,080,000
and is located in the city of Pingdingshan, Henan Province.





Baofeng
Coking is a division of Hongli and was established in May
2002.  Hongli and Baofeng Coking are engaged in coal selling, coal
washing and coking, using raw coal produced by its affiliate or purchased from
other raw or washed coal vendors.





Baofeng
Hongchang Coal Co., Ltd. (“Hongchang Coal”) was formed in July 19, 2007 under
the laws of the PRC and is 100% owned by Hongli. Hongchang Coal owns the coal
mining rights for three underground coal mines and produces raw coal for
industrial and thermal applications, and a portion of which is suitable for coke
production.  Total proven coal reserves for all three mines as of July
2007 were 2,475,000 metric tons, of which the Company is permitted to extract
(under a license from government for which it pays fees) up to 1,215,000
metric tons.  The majority of its products are internally sold to
Baofeng Coking and Hongli.





Baofeng
Hongguang Power Co., Ltd. (“Hongguang Power”) was formed on August 1, 2006,
which is a 100% owned subsidiary of Hongli.  Hongguang Power operates
its 2x3000-kilowatt (kw) power plant and provides electricity to Baofeng Coking,
generated from the coal gas emitted from the coking process of Baofeng
Coking.  Hongguang is required by the local government to sell
the surplus electricity (in excess of what is supplied to and consumed by
Baofeng Coking, if any) to the national power grid.





See
report of independent registered public accounting firm.





F-6





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Hongli
and its operating subsidiaries hold the approved licenses necessary to operate
the coal mining, coal sales, coking and power plant businesses in China. PRC law
currently has limits on foreign ownership of these types of companies. To comply
with these foreign ownership restrictions and in order for Top Favour (BVI) to
obtain control over Hongli’s PRC operating entities, on March 18, 2009. Top
Favour (BVI), through Hongyuan, entered into contractual arrangements with
Hongli on March 18, 2009 (“Contractual Arrangements”).





Note
2 – Summary of Significant Accounting Policies





Principles of
consolidation





The
accompanying consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. The
consolidated financial statements include the financial statements of the
Company, its wholly-owned subsidiaries – Top Favour (BVI), Hongyuan and its VIEs
– Hongli and its subsidiaries. All significant inter-company transactions and
balances between the Company, its subsidiaries and VIEs are eliminated upon
consolidation.





In
accordance with FASB’s accounting standard for consolidation of variable
interest entities, VIEs are generally entities that lack sufficient equity to
finance their activities without additional financial support from other parties
or whose equity holders lack adequate decision making ability. All VIEs with
which the Company is involved must be evaluated to determine the primary
beneficiary of the risks and rewards of the VIE. The primary beneficiary is
required to consolidate the VIE for financial reporting purposes. As a result of
these contractual arrangements (Note 1), Top Favour (BVI) is obligated to absorb
a majority of the risk of loss from Hongli’s activities and Top Favour (BVI) is
enabled to receive a majority of its expected residual returns. Top Favour (BVI)
accounts for Hongli as a VIE and is the primary beneficiary. The primary
beneficiary is required to consolidate the VIE for financial reporting
purposes.





ASC 810
addresses whether certain types of entities referred to as VIEs, should be
consolidated in a company’s consolidated financial statements. These Contractual
Arrangements entered into between BVI and Hongli through Hongyuan are comprised
of a series of agreements, including:





(1)
            a
      Consulting Services Agreement, through which Hongyuan has the right to
      advise, consult, manage and operate Hongli and its subsidiaries
      (“Operating Companies”), collect, and own all of the respective net
      profits of the Operating Companies;





(2)
            an
      Operating Agreement, through which Hongyuan has the right to recommend
      director candidates and appoint the senior executives of the Operating
      Companies, approve any transactions that may materially affect the assets,
      liabilities, rights or operations of the Operating Companies, and
      guarantee the contractual performance by the Operating Companies of any
      agreements with third parties, in exchange for a pledge by the Operating
      Companies of their respective accounts receivable and
    assets;





(3)
            a
      Proxy Agreement, under which the shareholders of the Operating Companies
      have vested their voting control over the Operating Companies to Hongyuan
      and will only transfer their equity interests in the Operating Companies
      to Hongyuan or its designee(s);





(4)
            an
      Option Agreement, under which the shareholders of the Operating Companies
      have granted Hongyuan the irrevocable right and option to acquire all of
      its equity interests in the Operating Companies, or, alternatively, all of
      the assets of the Operating Companies;
and





(5)
            an
      Equity Pledge Agreement, under which the shareholders of the Operating
      Companies have pledged all of their rights, title and interest in the
      Operating Companies to Hongyuan to guarantee the Operating Companies’
      performance of their respective obligations under the Consulting Services
      Agreement.




Since Top
Favour (BVI), Hongyuan and Hongli are under common control, the above corporate
structure including the above Contractual Arrangements have been accounted for
as a reorganization of entities and the consolidation of Top Favour (BVI),
Hongyuan and Hongli has been accounted for at historical cost and prepared on
the basis as if the aforementioned exclusive agreements between Top Favour (BVI)
and Hongli had become effective as of the beginning of the first period
presented in the accompanying consolidated financial
statements.





See
report of independent registered public accounting firm.





F-7





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Use of
estimates




The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles 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 consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. The more significant areas requiring
the use of management estimates and assumptions relate to coal reserves that are
the basis for future cash flow estimates and units-of-production depletion
calculations; asset impairments; valuation allowances for deferred income taxes;
reserves for contingencies and the fair value and accounting treatment of
certain financial instruments. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. Accordingly, actual results may differ significantly
from these estimates. In addition, different assumptions or conditions could
reasonably be expected to yield different results.





Stock-based
compensation





We record
share-based compensation expense based upon the grant date fair value of
share-based awards. The value of the award is principally recognized as expense
ratably over the requisite service periods. We use the Black-Scholes Merton
(“BSM”) option-pricing model, which incorporates various assumptions including
volatility, expected life and interest rates to determine fair value. The
Company’s expected volatility assumption is based on the historical volatility
of Company’s stock. The expected life assumption is primarily based on the
simplified method of the terms of the options. The risk-free interest rate for
the expected term of the option is based on the U.S. Treasury yield
curve in effect at the time of grant.





Stock
compensation expense is recognized based on awards expected to
vest.  GAAP requires forfeitures to be estimated at the time of grant
and revised in subsequent periods, if necessary, when actual forfeitures differ
from those estimates.  There were no estimated forfeitures as the
Company has a short history of issuing options.





Revenue
recognition





The
Company's revenue recognition policies are in compliance with FASB’s accounting
standards. Coal and coke sales are recognized at the date of shipment to
customers when a formal arrangement exists, the price is fixed or determinable,
the delivery is completed, no other significant obligations of the Company exist
and collectability is reasonably assured.  This generally occurs when
coal and coke is loaded onto trains or trucks at one of the Company’s loading
facilities or at third party facilities.





Most if
not all of the electricity generated by Hongguan Power is typically used
internally by Baofeng Coking.  Supply of surplus electricity generated
by Hongguang Power to the national power grid is mandated by the local utilities
board.  The value of the surplus electricity supplied, if it exists,
is calculated based on actual kilowatt-hours produced and transmitted and
at a fixed rate determined under contract.





Coal and
coke sales represent the invoiced value of goods, net of a value-added tax
(VAT), sales discounts and actual returns at the time when product is sold to
the customer.





Shipping and handling
costs





Shipping
and handling costs related to costs of the raw materials purchased is included
in cost of revenues.  Total shipping and handling costs amounted to
$25,248 and $202,849 for the years ended June 30, 2010 and 2009,
respectively.





See
report of independent registered public accounting firm.





F-8





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Foreign currency
translation and
other comprehensive income





The
reporting currency of the Company is the US dollar. The functional currency of
the Company and the BVI is the US dollar compared to the functional currency its
subsidiaries and VIEs in the PRC which is the Chinese Renminbi
(RMB).





For the
subsidiaries and VIEs whose functional currencies are other than the US dollar,
all assets and liabilities accounts were translated at the exchange rate on the
balance sheet date; shareholders’ equity is translated at the historical rates
and items in the statement of operations are translated at the average rate for
the period. Items in the cash flow statement are also translated at average
translation rates for the period, therefore, amounts reported on the statement
of cash flows will not necessarily agree with changes in the corresponding
balances on the balance sheet. Translation adjustments resulting from this
process are included in accumulated other comprehensive income in the statement
of shareholders’ equity.  The resulting transaction gains and losses
that arise from exchange rate fluctuations on transactions denominated in a
currency other than the functional currency are included in the results of
operations as incurred. For the years ended June 30, 2010 and 2009, the
transaction gains and losses were not significant.




The
balance sheet amounts, with the exception of equity, at June 30, 2010 and 2009
were translated at RMB 6.79 to $1 and RMB 6.83 to $1, respectively. The
average translation rates applied to income and cash flow statement amounts for
the years ended June 30, 2010 and were at RMB 6.82 to $1 and RMB 6.83 to $1,
respectively.





Fair value of financial
instruments





The
Company uses the Financial Accounting Standard Board’s (“FASB”) accounting
standard regarding fair value of financial instruments and related fair value
measurements. Those accounting standards established a three-level valuation
hierarchy for disclosures of fair value measurement and enhance disclosures
requirements for fair value measures.  The carrying amounts reported
in the accompanying consolidated balance sheets for receivables, payables and
short term loans qualify as financial instruments are a reasonable estimate of
fair value because of the short period of time between the origination
of such instruments, their expected realization and, if applicable, the
stated rate of interest is equivalent to rates currently available. The three
levels of valuation hierarchy are defined as follows:





Level
      1
              Inputs
      to the valuation methodology are quoted prices (unadjusted) for identical
      assets or liabilities in active markets.Level
      2
              Inputs
      to the valuation methodology include quoted prices for similar assets and
      liabilities in active markets, and inputs that are observable for the
      assets or liability, either directly or indirectly, for substantially the
      full term of the financial instruments.Level 3
              Inputs
      to the valuation methodology are unobservable and significant to the fair
      value.





The
following table sets forth by level within the fair value hierarchy our
financial assets and liabilities that were accounted for at fair value on a
recurring basis as of June 30, 2010:





Carrying Value at
                                June 30, 2010
                              
                              
                              Fair Value Measurement at
                                June 30, 2010Level 1
                              
                              
                              Level 2
                              
                              
                              Level 3Warrant
      liability
                              
                              $
                              30,436,087
                              
                              
                              $
                              —
                              
                              
                              $
                              
                              
                              
                              $
                              30,436,087





The
Company’s warrants are not traded in an active securities market; therefore the
Company estimates the fair value to those warrants using the Cox-Ross-Rubinstein
binomial model on the issuance dates and June 30, 2010.





See
report of independent registered public accounting firm.





F-9





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Warrants 1
                
                
                Warrants 2
                
                
                Warrants 3
                
                
                Warrants 4
                
                
                Warrants 5#
      of shares exercisable590,446
                
                
                
                3,082,027
                
                
                
                117,163
                
                
                
                250,000
                
                
                
                36,973Valuation
      date
                
                2/5/2010
                
                
                3/11/2010
                
                
                3/11/2010
                
                
                3/11/2010
                
                
                2/5/2010Exercise
      price
                
                $
                12.00
                
                
                $
                12.00
                
                
                $
                12.00
                
                
                $
                6.00
                
                
                $
                48.00Stock
      price
                
                $
                26.00
                
                
                $
                31.75
                
                
                $
                33.63
                
                
                $
                31.75
                
                
                $
                26.00Expected
      term(year)
                
                
                5.00
                
                
                
                5.00
                
                
                
                5.00
                
                
                
                5.00
                
                
                
                7.18Risk-free
      interest rate
                
                
                2.23
                %
                
                
                2.43
                %
                
                
                2.43
                %
                
                
                2.43
                %
                
                
                3.04
                %Expected
      volatility
                
                
                80
                %
                
                
                80
                %
                
                
                80
                %
                
                
                80
                %
                
                
                80
                %





Warrants 1
                
                
                Warrants 2
                
                
                Warrants 3
                
                
                Warrants 4
                
                
                Warrants 5#
      of shares exercisable590,446
                
                
                
                3,082,027
                
                
                
                117,163
                
                
                
                250,000
                
                
                
                36,973Valuation
      date
                
                6/30/2010
                
                
                6/30/2010
                
                
                6/30/2010
                
                
                6/30/2010
                
                
                6/30/2010Exercise
      price
                
                $
                12.00
                
                
                $
                12.00
                
                
                $
                12.00
                
                
                $
                6.00
                
                
                $
                48.00Stock
      price
                
                $
                12.30
                
                
                $
                12.30
                
                
                $
                12.30
                
                
                $
                12.30
                
                
                $
                12.30Expected
      term(year)
                
                
                4.61
                
                
                
                4.70
                
                
                
                4.72
                
                
                
                4.70
                
                
                
                6.78Risk-free
      interest rate
                
                
                1.63
                %
                
                
                1.67
                %
                
                
                1.67
                %
                
                
                1.67
                %
                
                
                2.38
                %Expected
      volatility
                
                
                80
                %
                
                
                80
                %
                
                
                80
                %
                
                
                80
                %
                
                
                80
                %





Due to
the short trading history of the Company’s stock, the expected volatility is
based primarily on other similar public companies’ historical volatilities,
which are traded on United States stock markets. Historical volatility was
computed using daily pricing observations for recent periods that correspond to
the term of the warrants. The Company believes this method produces an
estimate that is representative of the Company’s expectations of future
volatility over the expected term of these warrants. The Company currently has
no reason to believe future volatility over the expected remaining life of these
warrants is likely to differ materially from historical volatility. The
expected life is based on the remaining term of the warrants. The risk-free
interest rate is based on U.S. Treasury securities according to the remaining
term of the warrants.





In
addition to assets and liabilities that are recorded at fair value on a
recurring basis, the Company is required to record assets and liabilities at
fair value on a non-recurring basis.  Generally, assets are recorded
at fair value on a non-recurring basis as a result of impairment
charges.  For the years ended June 30, 2010 and 2009, there were no
impairment charges.





The
Company did not identify any other assets and liabilities that are required to
be presented on the consolidated balance sheets at fair value.





Cash





The
Company considers all highly liquid investments with original maturities of
three months or less at the time of purchase to be cash equivalents for cash
flow statement purposes. Cash includes cash on hand and demand deposits in
accounts maintained with state owned banks within the PRC and with banks in Hong
Kong and in the United States of America.





See
report of independent registered public accounting firm.





F-10




SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Restricted
cash





Restricted
cash represent amounts set aside by the Company in accordance with the Company’s
debt agreements with certain financial institutions. These cash amounts are
designated for the purpose of paying down the principal amounts owed to the
financial institutions, and these amounts are held at the same financial
institutions with which the Company has debt agreements in the PRC. Due to the
short-term nature of the Company’s debt obligations to these banks, the
corresponding restricted cash balances have been classified as current in the
consolidated balance sheets.





Accounts receivables, trade,
net





During
the normal course of business, the Company extends unsecured credit to its
customers. Management regularly reviews aging of receivables and changes in
payment trends by its customers, and records a reserve when management believes
collection of amounts due are at risk. Accounts considered uncollectible are
written off. The Company regularly reviews the credit worthiness of its
customers and, based on the results of the credit review, determines whether
extended payment terms can be granted to or, in some cases, partial prepayment
is required from certain customers.





Other
receivables





Other
receivables mainly include advances to employees for general business purpose.
No interest is charged to other receivable. Management regularly reviews aging
of receivables and changes in payment trends and records a reserve when
management believes collection of amounts due are at risk. Accounts considered
uncollectible are written off.





Inventories




Inventories
are stated at the lower of cost or market, using the weighted average cost
method.  Inventories consist of raw materials and supplies, work in
process, and finished goods.  Raw materials mainly consist of coal
(mined and purchased), rail, steel, wood and additives used in the
Company.  The cost of finished goods included (1) direct costs of raw
materials, (2) direct labor, (3) indirect production costs, such as allocable
utilities cost, and (4) indirect labor related to the production activities,
such as assembling and packaging. Management compares the cost of inventories
with the market value and an allowance is made for writing down the inventory to
its market value, if lower than cost. On an ongoing basis, inventories are
reviewed for potential write-down for estimated obsolescence or unmarketable
inventories equal to the difference between the costs of inventories and
the estimated net realizable value based upon forecasts for future demand and
market conditions. When inventories are written-down to the lower of cost or
market, it is not marked up subsequently based on changes in underlying facts
and circumstances. As of June 30, 2010 and 2009, the management believed
that no allowance for inventory valuation was deemed necessary.





Advances to
suppliers





The
Company advances monies to certain suppliers for raw materials purchase and
construction contracts. These advances are interest-free and
unsecured.





Plant and equipment,
net




Plant and
equipment are stated at cost.  Expenditures for maintenance and
repairs are charged to earnings as incurred; while additions, renewals and
betterments that extend the useful life are capitalized.  When items
of plant and equipment are retired or otherwise disposed, the related cost and
accumulated depreciation are removed from the respective accounts, and any gain
or loss is included in operations. Mine development costs are capitalized and
amortized by the units of production method over estimated total recoverable
proven and probable reserves. Depreciation of plant and equipment is provided
using the straight-line method for substantially all assets with estimated lives
as follows:





See
report of independent registered public accounting firm.





F-11





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Estimated Useful LifeBuilding
      and plant
              20
      yearsMachinery
      and equipment
              10-20
      yearsOther
      equipment
              1-5
      yearsTransportation
      equipment
              5-7
      years





Construction-in-progress
(“CIP”) includes direct costs of construction of mining tunnel improvements.
Interest incurred during the period of construction, if material, is
capitalized.  For the years ended June 30, 2010 and 2009, $0 and $35,914
interest was capitalized into construction in progress, respectively. All other
interest is expensed as incurred.  Construction-in-progress is not
depreciated until such time the assets are completed and put into service.
Maintenance, repairs and minor renewals are charged to expense as incurred.
Major additions and betterment to property and equipment are
capitalized.





Land use rights,
net





Costs to
obtain land use rights are recorded based on the fair value at acquisition and
amortized over 36 years, the contractual period of the rights.  Under
the accounting standard regarding treatment of goodwill and other intangible
assets, all goodwill and certain intangible assets determined to have indefinite
lives are not amortized but tested for impairment at least annually. Intangible
assets other than goodwill will be amortized over their useful lives and
reviewed at least annually for impairment.





Intangible - mineral rights,
net





Mineral
rights are capitalized at fair value when acquired, including amounts associated
with any value beyond proven and probable reserves, and amortized to operations
as depletion expense using the units-of-production method over the estimated
proven and probable recoverable tones.  The Company’s coal reserves
are controlled through direct ownership which generally lasts until the
recoverable reserves are depleted.





Impairment of long - lived
assets





The
Company evaluates long lived tangible and intangible assets for impairment, at
least annually, but more often whenever events or changes in circumstances
indicate that the carrying value may not be recoverable from its estimated
future cash flows, in accordance with the accounting guidance regarding
“Disposal of Long-Lived Assets”.  Recoverability is measured by
comparing the asset’s net book value to the related projected undiscounted cash
flows from these assets, considering a number of factors including past
operating results, budgets, economic projections, market trends and product
development cycles.  If the net book value of the asset exceeds the
related undiscounted cash flows, the asset is considered impaired, and a second
test is performed to measure the amount of impairment loss.  Based on
its review, the Company believes that, as June 30, 2010 and 2009, there was no
impairment of long lived assets.





Asset retirement cost and
obligations





The
Company adopted the accounting standard to account for the asset retirement cost
and obligations to retire tangible long-lived assets. This standard generally
requires that the Company’s legal obligations associated with the retirement of
long-lived assets are recognized at fair value at the time the obligations are
incurred. Obligations are incurred at the time development of a mine commences
for underground mines or construction begins for support facilities, refuse
areas and slurry ponds. If an entity has a conditional asset retirement
obligation, a liability should be recognized when the fair value of the
obligations can be reasonably estimated.





See
report of independent registered public accounting firm.





F-12





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





The
obligation’s fair value is determined using discounted cash flow techniques and
is accreted over time to its expected settlement value. Upon initial recognition
of a liability, a corresponding amount is capitalized as part of the carrying
amount of the related long-lived asset. Amortization of the related asset is
calculated on a unit-of-production method by amortizing the total estimated cost
over the salable reserves as determined under Securities and Exchange Commission
(SEC) Industry Guide 7, multiplied by the production during the
period.




Asset
retirement costs generally include the cost of reclamation (the process of
bringing the land back to its natural state after completion of exploration
activities) and environmental remediation (the physical activity of taking steps
to remediate, or remedy, any environmental damage caused).





In May
2009, Henan Bureau of Finance and Bureau of Land and Resource issued regulation
for “Mine Environment Control and Environment Recovery” (“Mine Recovery
Regulations”) which require mining companies to file an Evaluation Report
Regarding Mining Environmental Impact (“Evaluation Report”) before December 31,
2010. The corresponding authorities will determine whether to approve the
Evaluation Report after performing on-site investigation, and the asset
retirement obligation will be determined by the authorities based on the
approved filing.





The
Company did not record such asset retirement obligation as of June 30, 2010 and
2009 because the Company did not have sufficient information to reasonably
estimate the fair value of such obligation. The range of time over which the
Company may settle the obligation is unknown and cannot be reasonably estimated.
In addition, the settlement method for the obligation cannot be reasonably
determined. The amount of the obligation to be determined by the government
authorities is affected by several factors, such as the extend of remediation
required in and around the mining area, the methods to be used to remediate the
mining site, and the government grants which may or may not be credited to the
mining companies.





The
Company will recognize the liability in the period in which sufficient
information is available to reasonably estimate its fair value.





Income
taxes





Income
taxes provided on the liability method in respect of temporary differences
arising from differences between the carrying amount of assets and liabilities
in the financial statements and the corresponding tax basis used in the
computation of assessable tax profit.  In principle, deferred tax
liabilities are recognized for all taxable temporary differences, and deferred
tax assets are recognized to the extent that it is probably that taxable profit
will be available against which deductible temporary differences can be
utilized.  Deferred tax is calculated at the tax rates that are
expected to apply to the period when the asset is realized or the liability
is settled.  Deferred tax is charged or credited in the income
statement, except when it related to items credited or charged directly to
equity, in which case the deferred tax is also dealt with in
equity.





A tax
position is recognized as a benefit only if it is “more likely than not” that
the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax
benefit that is greater than 50% likely of being realized on examination.
For tax positions not meeting the “more likely than not” test, no tax benefit is
recorded. Penalties and interest incurred related to underpayment of income tax
are classified as income tax expense in the period incurred.  No
significant penalties or interest relating to income taxes have been incurred
during the years ended June 30, 2010 and 2009.  GAAP also provides guidance
on de-recognition, classification, interest and penalties, accounting in interim
periods, disclosures and transition.





Chinese income
taxes





The
Company’s subsidiary and VIEs are operating in the PRC and are governed by the
income tax laws of the PRC and various local income tax laws (“Income Tax
Laws”).  The Company’s subsidiary and
VIEs are generally subject to an income tax at a statutory rate of 25% of
taxable income, which is based on the net income reported in the statutory
financial statements after appropriate tax adjustment.




See
report of independent registered public accounting firm.





F-13





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Value added tax
(“VAT”)





Sales
revenue represents the invoiced value of goods, net of a value-added tax
(VAT).  All of the Company’s coal and coke that are sold in the PRC
are subject to a Chinese value-added tax at a rate of 17% of the gross sales
price.  This VAT may be offset by VAT paid by the Company on raw
materials and other materials included in the cost of producing their finished
products.  The Company recorded VAT payable and VAT receivable net of
payments in the consolidated financial statements.  The VAT tax return
is filed to offset the payables against the receivables.





Warrant derivative
liability





A
contract is designated as an asset or a liability and is carried at fair value
on a company’s balance sheet, with any changes in fair value recorded in a
company’s results of operations.  The Company then determines which
options, warrants and embedded features require liability accounting and records
the fair value as a derivative liability. The changes in the values of these
instruments are shown in the accompanying consolidated statements of income and
other comprehensive income as “change in fair value of warrants”.





Due to
the reverse merger on February 5, 2010, the Company adopted the provisions of an
accounting standard regarding instruments that are indexed to an entity’s own
stock.  This accounting standard specifies that a contract that would
otherwise meet the definition of a derivative but is both (a) indexed to the
Company’s own stock and (b) classified in stockholders’ equity in the statement
of financial position would not be considered a derivative financial
instrument.  It provides a new two-step model to be applied in
determining whether a financial instrument or an embedded feature is indexed to
an issuer’s own stock and thus able to qualify for the scope exception within
the standards. As a result of the adoption of this accounting
standard, all warrants issued after the February 5, 2010 reverse acquisition
were recorded as derivative liability because the strike price of the warrants
is denominated in US dollar, a currency other than the Company’s functional
currency RMB.





Prior to
February 5, 2010, the Existing warrants previously treated as equity pursuant to
the derivative treatment exemption are no longer afforded equity treatment
because the strike price of the warrants is denominated in US dollar, a currency
other than the Company’s functional currency RMB. Therefore, the warrants are
not considered indexed to the Company’s own stock, and as such, all future
changes in the fair value of these warrants will be recognized currently in
earnings until such time as the warrants are exercised or expire. The
Company has reclassified the fair value of the Existing warrants of $631,002
from equity to liability status as if these warrants were treated as a
derivative liability at February 5, 2010.





Earnings per
share





The
Company reports earnings per share in accordance with the provisions of FASB’s
related accounting standard. This standard requires presentation of basic and
diluted earnings per share in conjunction with the disclosure of the methodology
used in computing such earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average common shares outstanding during the period. Diluted
earnings per share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock. Dilution is computed by applying the treasury stock method.
Under this method, option and warrants were assumed to be exercised at the
beginning of the period ( or at the time of issuance, if later), and as if funds
obtained thereby were used to purchase common stock at the average market price
during the period.





Comprehensive
income





FASB’s
accounting standard regarding comprehensive income establishes requirements for
the reporting and display of comprehensive income, its components and
accumulated balances in a full set of general purpose financial statements. This
accounting standard defines comprehensive income to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, it also requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in financial statement that is presented with
the same prominence as other financial statements. The Company's only current
component of comprehensive income is the foreign currency translation
adjustments.





See
report of independent registered public accounting firm.





F-14





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Related
parties




Parties
are considered to be related to the Company if the parties, directly or
indirectly, through one or more intermediaries, control, are controlled by, or
are under common control with the Company. Related parties also include
principal owners of the Company, its management, members of the immediate
families of such principal owners and management, and other parties with which
the Company may deal if one party controls or can significantly influence the
management or operating policies of the other to an extent that one of the
transacting parties might be prevented from fully pursuing its own separate
interests.





Recently issued accounting
pronouncements





In
January 2010, FASB issued ASU No. 2010-01– Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is
not a stock dividend for purposes of applying Topics 505 and 260 (Equity and
Earnings Per Share). The amendments in this update are effective for interim and
annual periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. The adoption of this ASU did not have impact on the
Company’s consolidated financial statements.





In
January 2010, FASB issued ASU No. 2010-02 – Accounting and Reporting for
Decreases in Ownership of a Subsidiary – a Scope Clarification. The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that exchanges
a group of assets that constitutes a business or nonprofit activity for an
equity interest in another entity. The amendments in this update are effective
beginning in the period that an entity adopts SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If
an entity has previously adopted SFAS No. 160 as of the date the amendments in
this update are included in the Accounting Standards Codification, the
amendments in this update are effective beginning in the first interim or annual
reporting period ending on or after December 15, 2009. The amendments in this
update should be applied retrospectively to the first period that an entity
adopted SFAS No. 160. The adoption of this ASU did not have a material impact
on the Company’s consolidated financial statements.





In
January 2010, FASB issued ASU No. 2010-06 – Improving Disclosures about Fair
Value Measurements. This update provides amendments to Subtopic 820-10 that
requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers. 2) Activity in Level 3 fair value measurements. In
the reconciliation for fair value measurements using significant unobservable
inputs (Level 3), a reporting entity should present separately information about
purchases, sales, issuances, and settlements (that is, on a gross basis rather
than as one net number). This update provides amendments to Subtopic 820-10 that
clarifies existing disclosures as follows: 1) Level of disaggregation. A
reporting entity should provide fair value measurement disclosures for each
class of assets and liabilities. A class is often a subset of assets or
liabilities within a line item in the statement of financial position. A
reporting entity needs to use judgment in determining the appropriate classes of
assets and liabilities. 2) Disclosures about inputs and valuation techniques. A
reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements. Those disclosures are required for fair value measurements that
fall in either Level 2 or Level 3. The new disclosures and clarifications of
existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. These disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. The Company is currently evaluating the impact of this ASU, however, the
Company does not expect the adoption of this ASU will have a material
impact on its consolidated financial statements.





See
report of independent registered public accounting firm.





F-15





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





In
February 2010, FASB issued ASU No. 2010-9 –Amendments to Certain Recognition and
Disclosure Requirements. This update addresses certain implementation issues
related to an entity’s requirement to perform and disclose subsequent-events
procedures, removes the requirement that public companies disclose the date of
their financial statements in both issued and revised financial statements.
According to the FASB, the revised statements include those that have been
changed to correct an error or conform to a retrospective application of U.S.
GAAP. The amendment is effective for interim and annual reporting periods
in fiscal year ending after June 15, 2010. The adoption of this ASU did not
have a material impact on the Company’s consolidated financial
statements.





In March
2010, FASB issued ASU No. 2010-10 –Amendments for Certain Investment Funds. This
update defers the effective date of the amendments to the consolidation
requirements made by FASB Statement 167 to a reporting entity’s interest in
certain types of entities. The deferral will mainly impact the evaluation of
reporting enterprises’ interests in mutual funds, private equity funds, hedge
funds, real estate investment entities that measure their investment at fair
value, real estate investment trusts, and venture capital funds. The ASU also
clarifies guidance in Statement 167 that addresses whether fee arrangements
represent a variable interest for all service providers and decision makers. The
ASU is effective for interim and annual reporting periods in fiscal year
beginning after November 15, 2009. The adoption of this ASU did not have a
material impact on the Company’s consolidated financial statements.





In March
2010, FASB issued ASU No. 2010-11 –Scope Exception Related to Embedded Credit
Derivatives. Embedded credit-derivative features related only to the transfer of
credit risk in the form of subordination of one financial instrument to another
are not subject to potential bifurcation and separate accounting as clarified by
recently issued FASB guidance. Other embedded credit-derivative features are
required to be analyzed to determine whether they must be accounted for
separately. This update provides guidance on whether embedded credit-derivative
features in financial instruments issued by structures such as collateralized
debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and
separate accounting. The guidance is effective at the beginning of a company’s
first fiscal quarter beginning after June 15, 2010. The Company does not expect
the adoption of this ASU to have a material impact on the Company’s consolidated
financial statements.





In April
2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades,” or ASU 2010-13. ASU 2010-13 provides amendments to
Topic 718 to clarify that an employee share-based payment award with an exercise
price denominated in currency of a market in which a substantial porting of the
entity’s equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010.  The Company is currently evaluating the impact of this ASU;
however, the Company does not expect the adoption of this ASU will have a
material impact on its consolidated financial statements.





Note
3 - Business acquisition





On
February 5, 2010, the Company (formerly known as Ableacutions.com, Inc)
completed a share exchange transaction with Top Favour (BVI), and Top Favour
(BVI) became a wholly-owned subsidiary of the Company. Immediately prior to the
closing the share exchange transaction, all of the assets and liabilities of
Ableauction.com, Inc’s former business had been transferred to a liquidating
trust, including the capital stock of its former subsidiaries. On the closing
date, the Company issued 13,117,952 of its common shares to Top Favour (BVI)’s
shareholders in exchange for 100% of the capital stock of Top Favour (BVI).
Prior to the share exchange transaction, the Company had 405,710 shares of
common stock issued and outstanding. After the share exchange transaction, the
Company had 13,523,662 shares of common stock outstanding, and Top Favour
(BVI)’s shareholders owned approximately 97% of the issued and outstanding
shares. The management members of Top Favour (BVI) became the directors and
officers of the Company. The share exchange transaction was accounted for as a
reverse acquisition and recapitalization and as a result, the consolidated
financial statements of the Company (the legal acquirer) is, in substance, those
of Top Favour (BVI) (the accounting acquirer), with the assets and liabilities,
and revenues and expenses, of the Company being included effective from the date
of the share exchange transaction. As the share exchange transaction
was accounted for as a reverse acquisition and recapitalization, there was
no gain or loss recognized on the transaction. Acquisition-related
costs incurred to effect the business combination, including finder’s
fee, advisory, legal, accounting, valuation, and other professional and
consulting fees, were $1,127,612 and accounted for as expense for the year ended
June 30, 2010.





See
report of independent registered public accounting firm.





F-16





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Note
4 – Enterprise-wide reporting




Based on
qualitative and quantitative criteria established by the FASB accounting
standard regarding disclosures about segments of an enterprise and related
information, the Company considers itself, including coal mining, coking and the
sales of all products as a result of these business activities, to be operating
within one reportable segment. All of the Company’s products are sold within the
PRC.  Major products and respective revenues for the years ended June
30 are as summarized as follows:





2010
                  
                  
                  2009Coke
                  
                  $
                  27,650,175
                  
                  
                  $
                  30,534,755Coal
      tar
                  
                  
                  1,324,743
                  
                  
                  
                  1,171,510Raw
      coal
                  
                  
                  22,964,448
                  
                  
                  
                  13,151,325Washed
      coal
                  
                  
                  7,088,124
                  
                  
                  
                  6,538,402Total
                  
                  $
                  59,027,490
                  
                  
                  $
                  51,395,992




Note
5 – Concentration and credit risk





The
Company’s operations are all carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC, and by the general state
of the PRC’s economy. The Company’s operations in the PRC are subject to
specific considerations and significant risks not typically associated with
companies in North America and Western Europe. 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
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.





Financial
instruments, which subject the Company to concentration of credit risk, consist
of cash. The Company maintains balances at financial institutions located in PRC
and Hong Kong. Balances at financial institutions or state owned banks within
the PRC are not covered by insurance.  Balances at financial
institutions which, from time to time, may exceed Hong Kong Deposit Protection
Board insured limits for the banks located in Hong Kong.  As of June
30, 2010 and 2009, the Company had cash deposits including, restricted cash,
which were not covered by insurance of $39,791,148 and $5,679, respectively. The
Company has not experienced any losses in such accounts.





For the
years ended June 30, 2010 and 2009, all of the Company’s sales were generated in
the PRC as well as account receivables.





For the
year ended June 30, 2010, 89.7% of the Company’s total revenues were from three
major customers accounted individually for 43.6%, 34.1%, and 12.0% of total
revenues, respectively. Account receivables with those three customers were 0%,
58.7%, and 11.9% of the total account receivable balance at June 30, 2010,
respectively.  For the year ended June 30, 2009, 65.2% of the Company’s
total revenues were from four major customers accounted individually for 29.0%,
13.2%, 12.2% and 10.8% of total revenues, respectively. Account receivables with
those four customers were 36.2%, 56.3%, 0% and 0% of the total account
receivable balance at June 30, 2009, respectively.





See
report of independent registered public accounting firm.





F-17





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





For the
years ended June 30, 2010 and 2009, all of the Company’s purchases of raw
materials, as well as accounts payable were generated in the PRC. For the
year ended June, 2010, three major suppliers provided 62.5% of the raw materials
purchase with each supplier individually accounted for 29.2%, 22.2% and 11.1%,
respectively. For the year ended June, 2009, three major suppliers provided
40.6% of the raw materials purchase with each supplier individually accounted
for 15.3%, 15.2% and 10.1%, respectively. The Company held no account payable
from its major suppliers as of June 30, 2010 and 2009.





Note
6 – Loans receivable





On March
22 and May 8, 2010, the Company entered into two loan agreements with the same
third-party company and loaned the company $1,013,308 and $1,500,000,
respectively. These loans are due on demand, non-secured, and with an annual
interest rate of 3%. As of June 30, 2010, loans receivables amounted to
$2,513,308. On September 27, 2010, the Company received repayment of $1.47
million.





Note
7 – Notes receivable





Notes
receivable represent trade accounts receivable due from various customers where
the customers’ bank has guaranteed payment of the receivable. This amount is
non-interest bearing and is normally paid within three to nine months. The
Company is allowed to submit their request for payment to the customer’s bank
earlier than the scheduled payment date. However, the early request will incur
an interest charge and a processing fee. Notes receivable amounted to $1,045,830
and $358,808 as of June 30, 2010 and 2009, respectively.





Note
8 - Accounts receivable, net





Accounts
receivable consisted of the following:





June 30, 2010
                              
                              
                              June 30, 2009Accounts
      receivable
                              
                              $
                              5,304,900
                              
                              
                              $
                              6,454,663Allowance
      for bad debt
                              
                              
                              216
                              
                              
                              
                              -Accounts
      receivable, net
                              
                              $
                              5,304,684
                              
                              
                              $
                              6,454,663





For the
years ended June 30, 2010 and 2009, the Company wrote off $0 and $293,000,
respectively, in uncollectible receivables.  As of June 30, 2010
and 2009, management recorded a reserve for allowance for doubtful accounts of
$216 and $0, respectively.





Note
9 – Inventories





Inventories
as of June 30, 2010 and 2009 consisted of the following:





June 30, 2010
                          
                          
                          June 30, 2009Raw
      materials
                          
                          $
                          157,717
                          
                          
                          $
                          31,994Work
      in process
                          
                          
                          587,886
                          
                          
                          
                          -Supplies
                          
                          
                          21,744
                          
                          
                          
                          -Finished
      goods
                          
                          
                          1,494,469
                          
                          
                          
                          75,193Total
                          
                          $
                          2,261,816
                          
                          
                          $
                          107,187





See
report of independent registered public accounting firm.





F-18





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Note
10 – Advances to suppliers





Advances
to suppliers are monies deposited or advanced to unrelated vendors for future
inventory purchases, which consist mainly of raw coal purchases. Most of
Company’s vendors require a certain amount of money to be deposited with them as
a guarantee that the Company will receive their purchases on a timely basis and
with favorable pricing.





Advances
to suppliers as of June 30, 2010 and 2009 amounted to $5,509,780 and $8,364,448,
respectively.





Note
11 – Prepayments





Prepayment for land use
right





Prepayments
for land use right are monies advanced for land use rights to expand the new
coking factory. As of June 30, 2010, prepayments for land use right amounted to
$5,074,485. Prepayments were paid to the previous residences who lived in the
place the new coking factory will be located.  The prepayment is not
refundable. The Company estimates that the total cost of obtaining land use
rights will be $10,311,000 (RMB70,000,000). The land use right is expected to be
acquired by June, 2011.





Prepayment for mine
acquisitions





The
Company was in the process of acquiring several coal mines with annual
production scale equal or less than 150,000 to 300,000 tonnes. As of June 30,
2010, the Company had prepaid $8,858,398 to six potential acquisition targets,
and no acquisition was complete as of June 30, 2010.




Prepayment for construction
of new operating plant





Prepayments
for construction are mainly monies advanced to contractors or equipment
suppliers related to the new operating plant that is expected to produce up
to 900,000 tonnes of coke per year, coal gas-generated power, and other chemical
refinery by-products.





’s existing mining tunnel.
As of June 30, 2010, this project has not been started yet.




The total
contract price amounted to approximately $32,156,000. Prepayments for
construction, as of June 30, 2010 and 2009, amounted to $12,789,806 and
$7,462,008, respectively.





Note
12 –Plant and equipment, net





Property,
plant and equipment as of June 30, 2010 and 2009 consisted of the
following:




June 30, 2010
                              
                              
                              June 30, 2009Buildings
      and improvements
                              
                              $
                              10,074,777
                              
                              
                              $
                              10,020,060Mine
      development cost
                              
                              
                              10,643,945
                              
                              
                              
                              5,004,179Machinery
      and equipment
                              
                              
                              5,678,274
                              
                              
                              
                              5,619,835Other
      Equipment
                              
                              
                              482,716
                              
                              
                              
                              392,019Total
                              
                              
                              26,879,712
                              
                              
                              
                              21,036,093Less
      accumulated depreciation
                              
                              
                              (9,779,099
                              )
                              
                              
                              (6,534,598
                              )Construction-in-progress
                              
                              
                              3,829,800
                              
                              
                              
                              2,453,164Total,
      net
                              
                              $
                              20,930,413
                              
                              
                              $
                              16,954,659





Depreciation
expense for the years ended June 30, 2010 and 2009 amounted to $3,195,093 and
$2,013,441, respectively.





See
report of independent registered public accounting firm.





F-19





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





CIP at
June 30, 2010 was related to the new coking factory. No depreciation is provided
for construction-in-progress until such time the assets are completed and placed
into service.




Total in CIP
                      
                      
                      Estimate cost to
                      
                      
                      Estimated
                      
                      EstimatedProject
                      
                      as of 6/30/2010
                      
                      
                      Complete
                      
                      
                      Total Cost
                      
                      Completion DateNew
      Coking factory
                      
                      $
                      3,829,800
                      
                      
                      $
                      53,910,200
                      
                      
                      $
                      57,740,000
                      
                      June  2011





CIP at
June 30, 2009 was related to Hongchang Coal’s mining tunnel improvement project
costing approximately $5.42 million. This project was completed in August
2009.





Note
13 – Intangible – land use rights, net





Land use
rights, net consisted of the following as of June 30, 2010 and
2009:





June 30, 2010
                              
                              
                              June 30, 2009Land
      use rights
                              $
                              2,309,237
                              
                              
                              $
                              2,296,695Accumulated
      amortization
                              
                              (416,945
                              )
                              
                              
                              (350,884
                              )Total
      land use rights, net
                              $
                              1,892,292
                              
                              
                              $
                              1,945,811





Amortization
expense for the years ended June 30, 2010 and 2009 amounted to $63,871 and
$63,798, respectively.





Amortization
expense for the next five years and thereafter is as follows:




Year ended June 30,
                      
                      Amortization
                        Expense2011
                      
                      $
                      64,1452012
                      
                      
                      64,1452013
                      
                      
                      64,1452014
                      
                      
                      64,1452015
                      
                      
                      64,145thereafter
                      
                      
                      1,571,567Total
                      
                      $
                      1,892,292





Note
14 – Intangible - mineral rights, net





Mineral
rights, net, consisted of the followings as of June 30, 2010 and
2009.





June 30, 2010
                  
                  
                  June 30, 2009Mineral
      rights
                  
                  $
                  13,173,377
                  
                  
                  $
                  13,101,831Accumulated
      depletion
                  
                  
                  (10,543,940
                  )
                  
                  
                  (7,867,839
                  )Total,
      net
                  
                  $
                  2,629,437
                  
                  
                  $
                  5,233,992





See
report of independent registered public accounting firm.





F-20





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Depletion
expense for the years ended June 30, 2010 and 2009 amounted to $2,621,874 and
$2,813,566, respectively. Depletion expenses were charged to cost of revenue in
the period incurred using unit-of-production method.





Note
15 – Notes payable





Notes
payable represented the line of credit extended by the banks. When purchasing
raw materials, the Company often issues a short term note payable to the vendor
funded with draws on the lines of credit. This short term note payable was
guaranteed by the banks for its complete face value through a letter of
credit and matures within three to six months of issuance.





On June
18, 2010, the Company entered into a note payable agreement with a local bank.
Pursuant to the agreement, the bank agreed to extend the line of credit in total
of $2,946,000(RMB20million) matured at December 18, 2010, to the Company for it
to purchase raw coal. The bank required the Company to deposit 50% of the notes
payable balance at the bank as a guarantee deposit which is classified on the
balance sheet as restricted cash. In addition, this note payable was guaranteed
by the Company’s Chief Executive Officer and Hongli. The bank charged processing
fees based on 0.05% of the face value of the note.  As of June 30,
2010, notes payable amounted to $2,946,000.





Note
16 – Short-term loans





Short-term
loans represent amounts due to various banks and individuals and are due either
on demand or normally within one year. These loans generally can be renewed with
the banks or the individual creditors.





Short-term loans -
Bank





The
Company had short-term bank loans amounted to $14,730,000 and $2,219,475 at June
30, 2010 and 2009, respectively. The Company has paid off the outstanding bank
loan at June 30, 2009, which amounted to $2,219,475, before June 30,
2010.





On May
30, 2010, Hongyuan entered a one-year loan agreement with a local bank to borrow
$14,730,000 (RMB100 million) with per annum interest rate of 4.301%,
or 90% of the interest rate of the same-term bank loan announced by
the People’s Bank of China, which was 4.779% at the time of signing the loan
agreement and June 30, 2010. This bank loan matures on May 30,
2011 and collateral was pledged by Top Favour (BVI) through a bank deposit
with the same bank of $17,010,000 with an interest rate of 1.3%. The loan
was also guaranteed by the Company’s CEO Mr. Jianhua Lv.


In
connection with this one-year bank loan, on May 15, 2010, the Company entered
into a forward currency exchange contract with a local bank. Pursuant to the
agreement, at the Company’s option, the Company is able to exchange $20,000,000
into RMB with the exchange rate at $1 to RMB6.7 on October 31, 2010. As of June
30, 2010, and the date of this filing, the Company does not intend to execute
such option.


Weighted
average interest rate were 3.25% and 8.89% for the years ended June 2010 and
2009, respectively. Total interest expense on short term loans for the years
ended June 30, 2010 and 2009 amounted to $85,219 and $308,618, respectively,
after $0 and $35,914 were capitalized into
construction-in-progress.





Short-term loans -
Others





The
Company borrowed short-term loans from a third party and the outstanding balance
was $1,098,750(RMB7,500,000) as of June 30, 2009. $586,000 (RMB4,000,000) of
those loans was interest free and was paid off in 2010.  The rest of
$515,550(RMB3, 500,000) was charged at the interest rate of the similar bank
loan, which was 5.4% and $11.52% for the year ended June 30, 2010 and 2009,
respectively, and remained outstanding as of June 30,
2010.





Note
17 – Other payables and accrued liabilities





Other
payables mainly consisted of customer deposits to be returned, and accrued
liabilities mainly consisted of salary, utility, professional service, and other
general and administrative expenses incurred.





See
report of independent registered public accounting firm.





F-21





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Other
payables and accrued liabilities consisted of the following as of June 30, 2010
and 2009:





June 30, 2010
                  
                  
                  June 30, 2009Customer
      deposits to be returned
                  
                  $
                  823,241
                  
                  
                  $
                  -Accrued
      liabilities
                  
                  
                  609,880
                  
                  
                  
                  744,058Total
                  
                  $
                  1,433,121
                  
                  
                  $
                  744,058





Note
18 – Taxes





Income
Tax





The PRC
does not allow consolidation or group filing for corporate income tax purposes.
Income and losses from members of the same consolidated group (for financial
reporting purposes) are not allowed to offset one another. Therefore, total
taxable income (loss) subject to actual PRC corporate tax within the
consolidated group does not necessarily equal to the consolidated net income
before income tax of the consolidated group. The PRC tax administration system
does not necessarily retroactively recognize or allow accounting adjustments
that are discovered and posted after the income tax returns are filed as
additional taxable income or deductions for the tax year to which such
post-filing accounting adjustments relate. The Company considers any US GAAP
adjustments to its financial statements made after the statutory tax returns are
filed to be permanent differences for the purpose of reconciling differences
of income tax provision and actual PRC income tax liabilities.





SinoCoking
is subject to the United States federal income tax provisions. Top Favour (BVI),
however, is a tax-exempt company incorporated in the British Virgin Islands, and
conducts all of its business through its subsidiaries and VIEs, Hongyuan,
Hongli, Baofeng Coking, Hongchang Coal and Hongquang Power.





Hongyuan,
Hongli, Baofeng Coking, Hongchang Coal and Hongguang Power are subject to 25%
enterprise income tax rate in China.





For the
year ended June 30, 2009, Baofeng Coking received an income tax exemption
amounting to approximately $1,900,000. There was no such exemption received for
the year ended June 30, 2010.





As
approved by a local tax bureau, Hongchang Coal owed total income tax for the
12-month ended December 31, 2010 and 2009 of approximately $370,000 each
calendar year, regardless the actual taxable income in that period.





The
estimated tax savings due to the reduced tax rate for the years ended June 30,
2010 and 2009 amounted to $902,291 and $1,900,000, respectively. If
the statutory income tax had been applied, the Company would have decreased
basic and diluted earnings per share from $2.49 to $2.43 and from $2.44 to
$2.38 for the year ended June 30, 2010, respectively, and decreased basic and
diluted earnings per share from $1.29 to $1.15 for the year ended June 30,
2009.





The
provision for income taxes consisted of the following for the years ended June
30, 2010 and 2009:





2010
                  
                  
                  2009US
      current income tax expense
                  
                  $
                  -
                  
                  
                  $
                  -BVI
      current income tax expense
                  
                  
                  -
                  
                  
                  
                  -PRC
      current income tax expense
                  
                  
                  4,517,024
                  
                  
                  
                  3,491,590Total
      provision for income taxes
                  
                  $
                  4,517,024
                  
                  
                  $
                  3,491,590





See
report of independent registered public accounting firm.





F-22





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010




The
following table reconciles the statutory rates to the Company’s effective tax
rate for the years ended June 30, 2010 and 2009:





2010
                  
                  
                  2009U.S.
      Statutory rate
                  
                  
                  34.0
                  %
                  
                  
                  34.0
                  %Foreign
      income not recognized in U.S.A
                  
                  
                  (34.0
                  )%
                  
                  
                  (34.0
                  )%BVI
      income tax
                  
                  
                  0.0
                  %
                  
                  
                  0.0
                  %PRC
      income tax
                  
                  
                  25.0
                  %
                  
                  
                  25.0
                  %China
      income tax exemption
                  
                  
                  (4.2
                  )%
                  
                  
                  (10.9
                  )%Other
      item (1)
                  
                  
                  (10.4
                  )%
                  
                  
                  3.0
                  %Effective
      rate
                  
                  
                  10.4
                  %
                  
                  
                  17.1
                  %





(1) The
(10.4%) for the year ended  June 30, 2010 mainly represents change in
fair value of warrants of $24,016,407 incurred by SinoCoking was not subject to
the income tax. 3.0% for the year ended June 30, 2009 represents operating
losses incurred by Hongquang and Hongchang. Management believes the losses may
not be recovered through future operations.





SinoCoking
is incorporated in the U.S. and has incurred a net operating loss for income tax
purposes for 2010. As of June 30, 2010, the estimated net operating loss
carryforwards for U.S. income tax purposes amounted to $812,918 which may be
available to reduce future years’ taxable income. These carryforwards will
expire, if not utilized, beginning in 2010 and continue through 2030. Management
believes that the realization of the benefits arising from this loss appears to
be uncertain due to the Company’s limited operating history and continuing
losses for U.S. income tax purposes. Accordingly, the Company has provided a
100% valuation allowance at June 30, 2010. The valuation allowance at June 30,
2010 was $276,392. The Company’s management reviews this valuation allowance
periodically and makes adjustments as necessary.





The
Company has cumulative undistributed earnings of foreign subsidiaries of
approximately $16.3 million as of June 30, 2010, which was included in
consolidated retained earnings and will continue to be reinvested in its
operations in China.  Accordingly, no provision has been made for U.S.
deferred taxes related to future repatriation of these earnings, nor is it
practicable to estimate the amount of income taxes that would have to be
provided if we concluded that such earnings will be remitted in the
future.





Value Added
Tax





The
Company incurred VAT on sales and VAT on purchases in the PRC amounting to
$12,735,437 and $7,189,738 for the year ended June 30, 2010, and $9,285,223 and
$3,272,861 for the year ended June 30, 2009, respectively.





Sales and
purchases are recorded net of VAT collected and paid as the Company acts as an
agent for the government. VAT taxes are not impacted by the income tax
holiday.





Taxes
Payable





Taxes
payable as of June 30, 2010 and 2009 consisted of the following:





June 30, 2010
                  
                  
                  June 30, 2009VAT
                  
                  $
                  59,848
                  
                  
                  $
                  502,867Income
      tax
                  
                  
                  723,966
                  
                  
                  
                  1,906,975Others
                  
                  
                  445,205
                  
                  
                  
                  272,412Total
      taxes payable
                  
                  $
                  1,229,019
                  
                  
                  $
                  2,682,254





See
report of independent registered public accounting firm.





F-23





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Note
19 – Private placement equity financing





Simultaneously
with the reverse acquisition, on February 5, 2010, immediately following the
1-for-20 reverse stock split and share exchange, the Company executed a private
placement financing in which it sold and issued 1,180,892 units for the
aggregated proceeds of $7,085,352, at a purchase price of $6.00 per unit, to 34
non-U.S. investors. Each unit consists of one share of common stock and a
warrant (“Investor warrants”) for the purchase of 0.5 shares of common stock
with an exercise price of $12.00 per whole share. The Investor warrants are
exercisable for a period of five years from the date of issuance.





On March
11, 2010, the Company conducted a subsequent closing of its private placement
financing in which it sold and issued 6,164,043 of its units at a purchase price
of $6.00 per unit, to both U.S. and non-U.S. investors. The gross proceeds from
this subsequent closing of the private placement was approximately $37 million,
each unit consists of one share of common stock and a warrant (“Callable
investor warrants”) for the purchase of 0.5 shares of common stock with an
exercise price of $12.00 per share. The Callable investor warrants are
exercisable for a period of five years from the date of issuance, and are
callable at the Company’s election six months after the date of issuance if the
Company’s common stock treads at a price equal to at least 150% of the exercise
price (or $18.00 per share) with an average trading volume of at least 150,000
shares of Common Stock (as adjusted for any stock splits, stock dividends,
combination and the like) per trading date for at least 10 consecutive trading
days and the underlying shares of common stock are registered.





In
connection with the foregoing, the Company entered into a registration rights
agreement with the U.S. investors under with the Company agreed to file a
registration statement to register both the shares of common stock, and the
common stock underlying the warrants, that were issued to the U.S. investors in
the financing, within 60 days after the closing date of March 11, 2010. The
Company agreed to use its best efforts to have this registration statement
declared effective by the Commission within 120 days, subject to certain
exceptions. The Company also agreed to undertake commercially reasonable efforts
to register the shares of common stock and warrants issued to the non-U.S.
investors in the initial closing on February 5, 2010, was well as the securities
issued to non-U.S. investors on March 11, 2010. The registration statement was
filed with SEC on May 11, 2010 and was declared effective by the SEC on
September 13, 2010.





Madison
Williams & Company, LLC and Rodman & Renshaw, LLC, acted as joint
placement agents in connection with the March 11, 2010 equity financing. Under
an agreement with the Placement agents, the Company agreed to pay the placement
agents a cash fee equal to 7% of the aggregate gross proceeds from the sales of
securities to the U.S. accredited investors, plus reimbursement of fees and
expenses, and reasonable fees and expenses of placement agent legal counsel. In
addition, the Company agreed to issue warrants (“Callable agent warrants”) for
the purchase of up to 250,000 shares of common stock, with an exercise price of
$6.00 per share. In addition, the Company issued $117,163 callable warrants to
Madison Williams & Company on March 18, 2010, with an exercise price of
$12.00 per share, in connection with the second closing of the financing on
March 11, 2010. Warrants issued to placement agents contain terms and provisions
otherwise similar to the terms provided under the Callable investor warrants
described above. The Company used the Cox-Ross-Rubinstein binomial model to
value the warrants issued, which amounted to $9,751,886. In addition, the
placement agents received cash payment of $2,188,391.  $3,524,206 of
total payments made to the placement agents was capitalized, and $8,491,067 was
charged to retained earnings.





See
report of independent registered public accounting firm.





F-24





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





The
following table summarizes the securities issued and expenses incurred in
connection with this Equity financing.


# of shares of
                    underlying
                    common stock
                  
                  
                  ValueInvestor
      warrants@12.00
                  
                  
                  590,446
                  
                  
                  $
                  11,898,728Callable
      investor warrants@12.00
                  
                  
                  3,082,027
                  
                  
                  
                  72,324,038Total
      value of warrants to investors
                  
                  
                  3,672,473
                  
                  
                  
                  84,222,766Gross
      cash proceeds from Equity financing $44,069,610Gross
      cash proceeds allocated to warrants
                  
                  
                  
                  
                  
                  
                  (44,069,610
                  )Exceeded
      amount charged to current period expense
                  
                  
                  
                  
                  
                  $
                  40,153,156Common
      stock issued to investors
                  
                  
                  7,344,935
                  
                  
                  $
                  -Callable
      agent warrants @6.00
                  
                  
                  250,000
                  
                  
                  $
                  6,791,519Callable
      agent warrants @12.00
                  
                  
                  117,163
                  
                  
                  
                  2,960,3637%
      cash fee paid to placement agents
                  
                  
                  
                  
                  
                  
                  2,188,391Legal
      fee in connection with Equity financing
                  
                  
                  
                  
                  
                  
                  75,000Total
      issuance costs
                  
                  
                  
                  
                  
                  
                  12,015,273Less
      beginning balance in paid in capital
                  
                  
                  
                  
                  
                  
                  (3,524,206
                  )Remaining
      amount of issuance costs charged to retained earnings
                  
                  
                  
                  
                  
                  $
                  8,491,067





Note
20 – Capital transactions





Stock
split





On
February 5, 2010, the Company effected a 1-for-20 reverse splits of its
outstanding common shares.  All references to share and per-share data
for all periods presented in the consolidated financial statements have been
adjusted to give effect to the 1-for-20 common share reverse split.





Quotation on
exchange





On
February 8, 2010, SinoCoking’s common stock began quotation on the
Over-the-Counter Bulletin Board under the new stock symbol
“SCOK”.   On February 18, 2010, SinoCoking’s common stock
commenced trading on the NASDAQ Capital Market under the symbol
“SCOK”.





Issuance of capital
stock





Immediately
before the closing reverse acquisition disclosed in Note 3, the Company had
405,710 shares of outstanding common stock on February 5, 2010.





In
connection with the reverse acquisition, on February 5, 2010, the Company issued
13,117,952 shares of the Company’s common stock.





In
connection with the private placement equity financing disclosed in Note 17, the
Company issued 1,180,892 and 6,164,043 shares of the Company’s common stock to
investors at the first closing date February 5, 2010, and the second closing
date of March, 11, 2010, respectively.





The
Company issued 2,593 round-up shares of common stock in connection with the
reverse acquisition and private placement equity financing.





Options





2002
Stock Option Plan for Directors





See
report of independent registered public accounting firm.





F-25





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





In 2002,
the Board of Directors adopted a 2002 Stock Option Plan for Directors (the
“Directors Plan”). The purpose of the Directors Plan is to attract and retain
the services of experienced and knowledgeable individuals to serve as its
directors. On the date the Directors Plan was adopted, the total number of
shares of common stock subject to it was 11,057. This number of shares may be
increased on the first day of January of each year so that the common stock
available for awards will equal 5% of the common stock outstanding on that date,
provided, however, that the number of shares included in the Directors Plan may
not exceed more than 10% of all shares of common stock outstanding. The
Directors Plan is administered by the Board of Directors, or any Committee that
may be authorized by the Board of Directors. The grant of an option under the
Directors Plan is discretionary. The exercise price of an option must be the
fair market value of the common stock on the date of grant. An option grant may
be subject to vesting conditions. Options may be exercised in cash, or with
shares of the common stock of the registrant already owned by the person. The
term of an option granted pursuant to the Directors Plan may not be more than 10
years.





2002
Consultant Stock Plan





In 2002
the Board of Directors adopted a 2002 Consultant Stock Plan (the “Consultants
Plan”). The purpose of the Consultants Plan is to be able to offer consultants
and others who provide services to the registrant the opportunity to participate
in the registrant’s growth by paying for such services with equity awards. The
Consultants Plan is administered by the Board of Directors, or any Committee
that may be authorized by the Board of Directors. Persons eligible for awards
under the Consultants Plan may receive options to purchase common stock, stock
awards or stock restricted by vesting conditions. The exercise price of an
option must be no less than 85% of the fair market value of the common stock on
the date of grant. An option grant may be subject to vesting conditions. Options
may be exercised in cash, or with shares of the common stock of the registrant
already owned by the person or with a fully recourse promissory note, subject to
applicable law. The term of an option granted pursuant to the Consultants Plan
may not be more than 10 years.





1999
Stock Option Plan





In 1999
the Board of Directors adopted a 1999 Stock Option Plan (the “Option Plan”). The
purpose of the Option Plan is to enable the Company retain the services of
employees and consultants and others who are valuable to the registrant and to
offer incentives to such persons to achieve the objectives of the registrant’s
shareholders. The total number of shares of common stock subject to the Option
Plan is 45,417. The Option Plan is administered by the Board of Directors, or
any Committee that may be authorized by the Board of Directors. Employees
eligible for awards under the Option Plan may receive incentive options to
purchase common stock. If a recipient does not receive an incentive option, he
or she will receive a non-qualified stock option. The exercise price of an
option must be no less than the fair market value of the common stock on the
date of grant, unless the recipient of an award owns 10% or more of the
registrant’s common stock, in which case the exercise price of an incentive
stock option must not be less than 110% of the fair market value. An option
grant may be subject to vesting conditions. Options may be exercised in cash, or
with shares of the common stock of the registrant already owned by the recipient
of the award. The term of an option granted pursuant to the Option Plan may not
be more than five years if the option is an incentive option granted to a
recipient who owns 10% or more of the registrant’s common stock, or 10 years for
all other recipients and for recipients of non-qualified stock
options.





On
February 5, 2010, the completion date of the reverse acquisition disclosed in
Note 3, there were options exercisable for 11,124 shares of the Company’s common
stock outstanding.





Under the
Directors Plan, there were options exercisable to 4,792 shares of the Company’s
common stock. Options exercisable for 1,666 shares of the Company’s common stock
were granted on October 11, 2002, with exercise price of $36.00 per share and on
expiration date of October 15, 2012. Options exercisable for 3,126 shares of the
Company’s common stock were granted on November 16, 2004, with exercise price of
$96.00 per share and an expiration date of November 16, 2014.





See
report of independent registered public accounting firm.





F-26





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Under the
Option Plan, there were outstanding options exercisable to 6,332 shares of the
Company’s common stock. Options exercisable for 6,059 shares of the Company’s
common stock were granted on November 14, 2004, with exercise price of $96.00
per share and expire on November 14, 2014. Options exercisable for 273 shares of
the Company’s common stock were granted on May 2, 2003, with an exercise price
of $60.00 per share and an expiration date of May 2, 2010.





Those
outstanding options were fully vested before the reserve acquisition was
completed on February 5, 2010, and through June 30, 2010 no additional options
have been granted, and options under Option Plan exercisable for 273 shares of
the Company’s common stock were forfeit.





The
following consisted of the outstanding and exercisable options at June 30,
2010





Outstanding Options
                                  
                                  
                                  Exercisable OptionsNumber
                                  
                                  Average
                                    Remaining
                                  
                                  Average
                                  
                                  
                                  Number
                                  
                                  Average
                                    Remaining
                                  
                                  AverageOfOptions
                                  
                                  ContractLife
                                  
                                  ExercisePrice
                                  
                                  
                                  ofOptions
                                  
                                  ContractualLife
                                  
                                  ExercisePrice10,851
                                  
                                  4.02
      years
                                  
                                  $
                                  86.00
                                  
                                  
                                  
                                  10,851
                                  
                                  4.02
      years
                                  
                                  $
                                  86.00




A summary
of changes in options activity is presented as follows:





OptionsOutstanding,
      June 30, 2009
                        
                        
                        -Granted
                        
                        
                        11,124Forfeited
                        
                        
                        273Exercised
                        
                        
                        -Outstanding,
      June 30, 2010
                        
                        
                        10,851





Warrants





In
connection with the equity financing disclosed in Note 17, the Company issued
warrants exercisable into 4,039,636 shares of the Company’s common stock. In
addition, the Company had existing warrants exercisable into 36,973 shares of
the Company’s common stock (“Existing warrants”) outstanding on February 5,
2010.





The
Company adopted the provisions of an accounting standard regarding instrument
that are Indexed to an Entity’s Own Stock.  This accounting standard
specifies that a contract that would otherwise meet the definition of a
derivative but is both (a) indexed to the Company’s own stock and (b) classified
in stockholders’ equity in the statement of financial position would not be
considered a derivative financial instrument.  It provides a new
two-step model to be applied in determining whether a financial instrument or an
embedded feature is indexed to an issuer’s own stock and thus able to qualify
for the scope exception within the standards.





As a
result, the Existing warrants previously treated as equity pursuant to the
derivative treatment exemption are no longer afforded equity treatment because
the strike price of the warrants is denominated in US dollar, a currency other
than the Company’s functional currency RMB. Therefore the warrants are not
considered indexed to the Company’s own stock, and as such, all future changes
in the fair value of these warrants will be recognized currently in earnings
until such time as the warrants are exercised or expire. The Company
reclassified the fair value of the Existing warrants of $631,002 from equity to
liability status as if these warrants were treated as a derivative liability at
February 5, 2010.





See
report of independent registered public accounting firm.





F-27





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





The newly
issued warrants exercisable into 4,039,636 shares of the Company’s common stock
were also recorded as derivative instruments on the corresponding issuance
dates.





The value
of warrants liabilities was $30,436,087 at June 30, 2010 and $94,605,650 at the
issuance dates. The decrease of fair value of warrants resulted in $64,169,563
gain on change in fair value of warrants. This gain offset by the excess amount
of the fair value of warrants at the issuance dates and the gross cash proceeds
through equity financing of $40,153,156(See Note 19), resulting in net gain on
change value of warrants of $24,016,407 for the year ended June 30,
2010.





A summary
of changes in warrant activity is presented as follows:





Existing warrants
                        @$48.00 (1)
                      
                      
                      Investor
                        warrants
                        @12.00 (2)
                      
                      
                      Callable
                        warrants
                        @$12.00
                        (3)(5)
                      
                      
                      Callable
                        warrants
                        @6.00
                        (4)(5)
                      
                      
                      TotalOutstanding,
      June 30, 2009
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      -Granted
                      
                      
                      36,973
                      
                      
                      
                      590,446
                      
                      
                      
                      3,199,190
                      
                      
                      
                      250,000
                      
                      
                      
                      4,076,609Forfeited
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -ExercisedOutstanding,
      June 30, 2010
                      
                      
                      36,973
                      
                      
                      
                      590,446
                      
                      
                      
                      3,199,190
                      
                      
                      
                      250,000
                      
                      
                      
                      4,076,609




(1)
            The
      warrants underlying 36,973 shares of the Company’s common stock are
      exercisable at any time until April 9, 2017 and with remaining contractual
      term of 6.78 years as of June 30,
2010.





(2)
            The
      warrants underlying 590,446 shares of the Company’s common stock are
      exercisable at any time until February 5, 2015, with remaining contractual
      term of 4.61 years as of June 30,
2010.





(3)
            The
      warrants underlying 3,082,027 and 117,163 shares of the Company’s common
      stock are exercisable at any time until March 11, 2015 and March 18, 2015,
      respectively, with remaining contractual term of 4.70 and 4.72 years as of
      June 30, 2010, respectively.





(4)
            The
      warrants underlying 250,000 shares of the Company’s common stock are
      exercisable until March 11, 2015, with remaining contractual term of
      4.70 years as of June 30, 2010.





(5)
            The
      Callable warrants are exercisable for a period of five years from the date
      of issuance, and are callable at the Company’s election six months after
      the date of issuance if the Company’s common stock treads at a price equal
      to at least 150% of the exercise price  with an average trading
      volume of at least 150,000 shares of Common Stock (as adjusted for any
      stock splits, stock dividends, combination and the like) per trading date
      for at least 10 consecutive trading days and the underlying shares of
      common stock are registered.





See
report of independent registered public accounting firm.





F-28





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





Note
21 – Earnings per Share





The
following is a reconciliation of the basic and diluted earnings per share
computation:





2010
                                  
                                  
                                  2009Net  income
      for earnings per share
                                  
                                  $
                                  38,934,497
                                  
                                  
                                  $
                                  16,967,525Weighted
      average shares used in basic computation
                                  
                                  
                                  15,623,823
                                  
                                  
                                  
                                  13,117,952Diluted
      effect of warrants
                                  
                                  
                                  318,628
                                  
                                  
                                  
                                  -Weighted
      average shares used in diluted computation
                                  
                                  
                                  15,942,451
                                  
                                  
                                  
                                  13,117,952Earnings
      per share - Basic
                                  
                                  $
                                  2.49
                                  
                                  
                                  $
                                  1.29Earnings
      per share – Diluted
                                  
                                  $
                                  2.44
                                  
                                  
                                  $
                                  1.29




As of
June 30, 2010, the Company had warrants and option exercisable in aggregate of
4,087,460 of the Company’s common stock. For the year ended June 30, 2010, all
outstanding options were excluded from the diluted earnings per share
calculation due to the anti-dilution feature while warrants underlying 4,039,631
shares of the Company’s common stock were included in the diluted earnings per
share calculation using treasury method.   The Company had no
warrants and options outstanding on June 30, 2009, and therefore no diluted
effect on the earnings per share calculation for year ended June 30,
2009.





Note
22 – Commitments and contingencies





Land Use
Option




The
Company’s  VIE, Hongli, entered an agreement with the Henan
Province Pingdingshan Municipal Bureau of Land and Resources on December 9, 2008
to permit Hongli to acquire land use rights for up to 1,270,000 square meters of
industrial-zoned vacant land in Baofeng County.  Per the agreement, the
total cost to acquire these land use rights is $21,954,490 (or RMB 149,860,000).
 Under the agreement, the Company could have, but was not obligated to, pay
the foregoing amount to acquire the land use rights, and the Company would not
incur any penalty if it did not exercise its option to acquire the land use
rights.    Hongli could have also acquired rights to all or any lesser
portion of the land as it may elect, and the total cost would have been
pro-rated accordingly.  The Pingdingshan Municipal Bureau of Land and
Resources granted Hongli an extension of the option exercise period November
2009, and accordingly Hongli could have exercised its option to acquire the
aforesaid land use rights by making payment by the end of June 30, 2010. 
The Company decided not to exercise its option to acquire the land use rights
and thus no payments in connection with this agreement were made as of June 30,
2010.





Purchase Commitment





The
Company entered into several contracts with contractors and suppliers
for the construction of the new coking facility and purchasing
equipment. As of June 30, 2010, the total contract amount was approximately
$32,156,000. The Company had make payments for approximately of $20,620,000, and
the remaining $11,536,000 will be paid based on the construction
progress.





Note
23 – Statutory reserves





The laws
and regulations of the PRC require that before foreign invested enterprise can
legally distribute profits, it must first satisfy all tax liabilities, provide
for losses in previous years, and make allocations, in proportions determined at
the discretion of the board of directors, after the statutory reserves. The
statutory reserves include the statutory surplus reserve fund and the enterprise
expansion fund.





See
report of independent registered public accounting firm.





F-29





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





The
Company is required to transfer 10% of its net income, as determined in
accordance with the PRC Company Law, to the statutory surplus reserve fund until
such reserve balance reaches 50% of the Company’s registered capital. The
transfer must be made before distribution of any dividends to shareholders. The
surplus reserve fund is non-distributable other than during liquidation and can
be used to fund previous years’ losses, if any, and may be utilized for business
expansion or converted into share capital by issuing new shares to existing
shareholders in proportion to their shareholdings or by increasing the par value
of the shares currently held by them, provided that the remaining reserve
balance after such issue is not less than 25% of the registered
capital.




The
enterprise fund may be used to acquire plant and equipment or to increase the
working capital to expend on production and operation of the business. No
minimum contribution is required





As of
June 30, 2010, the Company’s VIE Hongli and Hongchang’s statutory surplus
reserves both had reached 50% of each entity’s registered capital and
Hongguang did not make any contribution to the statutory reserve resulting from
their net operating losses.





Hongchang
coal is required by the PRC government to reserve safety and maintenance expense
to the cost of production based on the actual quantity of coal
exploited.  The amount of reserves is determined within the unit price
range provided by Ministry of Finance of PRC. Currently, Hongchang Coal reserves
at RMB 6 per metric ton for safety expense and RMB 8.5 per metric
ton for maintenance expense.





The
component of statutory reserves and the future contributions required pursuant
to PRC Company Law are as follows as of June 30, 2010 and 2009:





June 30, 2010
                      
                      
                      June 30, 2009
                      
                      
                      50% of
                        registered
                        capital
                      
                      
                      Future
                        contributions
                        required as of
                        June 30, 2010Hongli
                      
                      $
                      548,204
                      
                      
                      $
                      548,204
                      
                      
                      $
                      548,204
                      
                      
                      $
                      -Hongguang
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,514,590
                      
                      
                      
                      1,514,590Hongchang
                      
                      
                      218,361
                      
                      
                      
                      25,208
                      
                      
                      
                      218,361
                      
                      
                      
                      -Hongyuan
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,500,000
                      
                      
                      
                      1,500,000Statutory
      surplus reserve
                      
                      
                      766,565
                      
                      
                      
                      573,412
                      
                      
                      
                      3,781,155
                      
                      
                      
                      3,014,590Mine
      reproduction reserve
                      
                      
                      1,070,830
                      
                      
                      
                      554,298
                      
                      
                      
                      -
                      
                      
                      
                      -Total
      statutory reserve
                      
                      $
                      1,837,395
                      
                      
                      $
                      1,127,710
                      
                      
                      $
                      3,781,155
                      
                      
                      $
                      3,014,590





Note
25 – Related party transactions





The
Company also advanced funds to Mr. Hui Zheng, the Director and Vice President of
Operation, for him to perform business and acquisition developments activities
on behalf the Company. As of June 30, 2010 and 2009, due from Mr. Hui Zheng
amounted to $418,410 and $0, respectively.   Mr. Zheng had
returned the full amount of unused funds of $418,410 to the Company by the end
of August 2010.





The
Company borrowed funds from Mr. Jianhua Lv, a majority shareholder, President
and CEO of the Company, and Mr. Liuchang Yang, Director and Vice President. Mr.
Lv and Mr. Yang provided the funds for the Company’s acquisitions of the coal
mine, Baofeng Coking and to fund construction of the power plant. These loans
are unsecured, payable on demand and bear no interest.





The
Company had paid off the loans related to the aforementioned business
acquisitions before June 30, 2009. Mr. Lv and Mr. Yang also advanced monies to
the Company for daily operations. The Company overpaid Mr. Yang and resulting in
receivable from Mr. Yang amounted to $58,642 as of June 30, 2010. Mr. Yang
returned the overpayment amount of $58,642 on September 26, 2010.





See
report of independent registered public accounting firm.





F-30





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





The
Company imputed the interest on loans from Mr. Lv and Mr. Yang based on the
prevailing rate which was 5.31% and 8.89% for the years ended June 30, 2010 and
2009, respectively. Imputed interest on the loans from related parties amounted
$67,269 and $490,274 for the years ended June 30, 2010 and 2009,
respectively.  Imputed interest was transferred to additional paid-in
capital.





Payables
to Mr. Lv, and Mr. Yang as of June 30, 2010 and 2009 are as
follows:





Due to Related
                                  Parties
                                
                                June 30,
                                  2010
                                
                                
                                June 30, 2009
                                
                                Term
                                
                                Manner of SettlementMr.
      Jianhua Lv
                                
                                $
                                51,381
                                
                                
                                $
                                1,281,304
                                
                                Short
      term
                                
                                CashMr.
      Liuchang Yang
                                
                                
                                -
                                
                                
                                
                                259,033
                                
                                Short
      term
                                
                                CashTotal
                                
                                $
                                51,381
                                
                                
                                $
                                1,540,337





Note
26 – Subsequent events





Additional note
payable





On July
2, 2010 and July 22, 2010, the Company entered into two note payable agreements
with a local bank and the bank agreed to extend to the Company a line of credit
in the total amount of $8,838,000 (RMB30 million per each agreement) maturing on
January 2, 2011 and January 22, 2011, respectively. The bank required the
Company to deposit 50% of the note payable outstanding balance at the bank as a
guarantee deposit and the Company had deposited $4,419,000 before June 30, 2010
and recorded it as restricted cash.  In addition, the bank will charge
processing fees based on 0.05% of the face value of the note.





Effective of registration
form S-1





The
Company’s registration statement Form S-1 was declared effective by
the SEC on September 13, 2010.





Coal mine
acquisition





On August
10, 2010, Hongli entered two equity purchase agreements to acquire 60% of equity
interests of Baofeng Shuangrui Coal Co., Ltd., which operates Shuangrui Coal
Mine, and Baofeng Xingsheng Coal Co., Ltd., which operates Xingsheng Coal Mine,
for total consideration of approximately $12.4 million. The coal mines, located
in Baofeng County, Henan Province, are similar in size, each with 2 million
metric tons of estimated coal reserves. Each mining company’s annual coal
production is currently 150,000 metric tons.





Pursuant
to the Agreements, Hongli will pay the owners of each mining company an
aggregate purchase price of $6.2 million in cash, of which approximately $1.5
million was provided as a refundable deposit to examine the financial
information, licenses, and reserve data.





See
report of independent registered public accounting firm.





F-31





SINOCOKING
COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES


(FORMERLY
NAMED ABLEAUCTIONS.COM, INC.)





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2010





The
purchase will be made under the following schedule for each mining
company:





1) $1.77
million within 30 business days from August 10, 2010, and the Company paid $1.47
million in July 2010;


2) $0.7
million within 20 business days from the completion of the transfer of equity
interests to Hongli;


3) $0.7
million within six months from the completion of the transfer of equity
interests to Hongli;


4) The
remaining balance within one year from the completion of the transfer of equity
interests to Hongli;


5) If
total annual output is less than 150,000 metric tons, Hongli is entitled to an
additional 10% of equity interests; and


6) If
coal reserves are less than 2 million metric tons, Hongli is entitled to an
additional 10% of equity interests.




As of
September 28, 2010, the company has prepaid $5.89 million (RMB40 million)
relating to those two acquisitions.




Raw material purchase
agreement




On August
27, 2010, the Company entered into an agreement with Zhengyun Coal Distribution
Co., Ltd. (“Zhengyun Coal”) to purchase up to 3 million metric tons of raw and
clean coal annually.  Zhengyun Coal is a subsidiary and the sales division
of Zhengzhou Coal Industry Group, a coal mining companies in Henan Province. The
Company has signed monthly purchase orders with Zhengyun Coal to
deliver in total 40,000 metric tons of raw coal in August and September
2010.




Increase of registered
capital in Hongli
 
 In order
for Hongli, the Company’s VIE, to retain its coal trading license, the local
government required Hongli to increase its registered capital.  To
facilitate the retention of its coal trading license, the shareholders of Hongli
satisfied the required payments for Hongli’s increased registered capital of
$2,946,000 (RMB 20,000,000) effectively on August 26, 2010.  Hongli is
in the process of registering the capital with the appropriate legal
authority.  The shareholders of Hongli and Top Favour (BVI), through
Hongyuan, are also in the process of amending the Contractual Arrangements in
relation to the increased registered capital, voting control, and the right and
option to acquire the additional equity interests in the Operating
Companies.





See
report of independent registered public accounting firm.





F-32




ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES




As
reported in our Current Report on Form 8-K filed with the SEC on April 16, 2010,
Effective April 14, 2010, Frazer Frost LLP (successor entity of Moore Stephens
Wurth Frazer and Torbet, LLP), whose address is 135 South State College Blvd.,
Suite 300, Brea, California 92821, was engaged to serve as the new certifying
accountant to audit the Company’s financial statements.   Frazer
Frost LLP previously acted as certifying accountant for Top Favour Limited,
which was acquired by the Company on February 5, 2010.  The
appointment of Frazer Frost LLP was made in connection with the foregoing
acquisition by the Company.





The
former accountant, Cinnamon Jang Willoughby and Company, which merged with
Meyers Norris Penny LLP, Chartered Accountants (“MNP”) on January 4, 2010
(“Former Accountant”), was appointed on June 19, 2008 as auditor of the Company
(then named “Ableauctions.com, Inc.”).  The reports of the Former
Accountant on the Company’s financial statements for the fiscal years ended
December 31, 2008 and 2009 did not contain any adverse opinion or disclaimer of
opinion, nor was the report modified as to uncertainty, audit scope, or
accounting principles.





The
engagement of Frazer Frost LLP as the Company’s new certifying independent
accountant was approved by the audit committee of the Company’s board of
directors.





ITEM
9A. CONTROLS AND PROCEDURES





Regulations
under the Securities Exchange Act of 1934 (the “Exchange Act”) require public
companies to maintain “disclosure controls and procedures,” which are defined as
controls and other procedures that are designed to ensure that information
required to be disclosed by the issuer in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission’s rules and
forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuer’s management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.





The
Company conducted an evaluation, with the participation of its Chief Executive
Officer and its Chief Financial Officer, of the effectiveness of its disclosure
controls and procedures as of June 30, 2010.  Based on that
evaluation, its Chief Executive Officer and Chief Financial Officer concluded
that, as of June 30, 2010, the Company’s disclosure controls and procedures were
not effective due to the material weaknesses described in the “Management’s
Report on Internal Control over Financial Reporting” section below.





Notwithstanding management’s assessment
that our internal control over financial reporting was ineffective as of June
30, 2010 due to the material weaknesses described in the “Management’s Report on
Internal Control over Financial Reporting” section below, we believe that the
consolidated financial statements included in this Annual Report on Form 10-K
correctly present our financial condition, results of operations and cash flows
for the fiscal years covered thereby in all material respects.





Management’s
Report on Internal Control over Financial Reporting





The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting.  Internal control over
financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under
the Exchange Act as a process designed by, or under the supervision of, the
issuer’s principal executive and principal financial officers and effected by
the issuer’s board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America and
includes those policies and procedures that:


47





·
            Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the assets of the
      issuer;





·
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with accounting
      principles generally accepted in the United States of America and that
      receipts and expenditures of the Company are being made only in accordance
      with authorizations of management and directors of the issuer;
      and





·
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the issuer’s assets that
      could have a material effect on the financial
  statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.  All internal control
systems, no matter how well designed, have inherent
limitations.  Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.  Because of the inherent limitations of
internal control, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial
reporting.  However, these inherent limitations are known features of
the financial reporting process.  Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate, this
risk.





As of the
end of its most recent fiscal year, management as then constituted assessed the
effectiveness of its internal control over financial reporting based on the
criteria for effective internal control over financial reporting established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting
such assessments.  Based on that evaluation, management concluded
that, as of June 30, 2010, such internal control over financial reporting was
not effective because of the material weakness described below.




A
material weakness is a control deficiency, or combination of control
deficiencies, that result in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected on a timely basis.




A
significant deficiency is a deficiency, or a combination of deficiencies, in
internal control over financial reporting that is less severe than a material
weakness; yet important enough to merit attention by those response





The
specific material weaknesses identified by its Chief Executive Officer and Chief
Financial Officer as of June 30, 2010 is described as follows:




a)
              Inadequate U.S. GAAP expertise
      - The current staff in the accounting department is inexperienced
      in applying the United States generally accepted accounting principles
      (“U.S. GAAP”) standard and they were primarily engaged in ensuring
      compliance with PRC accounting and reporting requirement for our operating
      subsidiaries.  The staff needs substantial training to meet the
      higher demands of being a U.S. public company.  The current
      staff’s accounting skills and their understanding as to how to fulfill the
      requirements of U.S. GAAP-based reporting, including their skills related
      to subsidiary financial statements consolidation, is inadequate and
      resulted in a number of audit adjustments identified by our independent
      auditors.
 
 b)
              Inadequate internal audit
      resources - The Company lacks qualified resources to perform the
      internal audit functions properly.  In addition, the scope and
      effectiveness of the Company’s internal audit function are yet to be
      developed.  We are committed to establishing the internal audit
      functions but due to the limited qualified resources in the region, we
      were not able to hire sufficient internal audit resources to perform the
      internal audit functions properly.
 
 c)
              Inadequate control on corporate
      governance- During this fiscal year, we made certain material
      amount of purchases and a short term third party loan without proper
      preapproval process in accordance with the internal control policy over
      cash disbursements.
 
 This
Annual Report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm.
  Management’s
Remediation Initiatives
  In order
to remediate this weakness, we are increasing the number of our accounting staff
and professionals, and we also plan to hire an experienced financial adviser who
is familiar with the U.S. GAAP.  We are also planning to hire professionals
to help the Company implement a more efficient internal control system over
financial reporting using COSO internal control framework. Until we are
able to hire additional employees to remediate this weakness, management chose
to address the above-described weaknesses by reporting more frequently to its
audit committee and by having members of its audit committee review the
Company’s control procedures on a regular basis. In addition, we are planning to
use an Enterprise Resource Planning (“ERP”) system to improve our financial and
internal control system.  We have already started due diligence work
with UFIDA, Chinese biggest ERP system provider, and we expect to install and
implement an efficient ERP system in the near future.


48




Changes
in Internal Control over Financial Reporting





Other
than the changes described above, there have been no changes in its internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15 (f) under the Exchange Act) during the fourth quarter of fiscal 2010 that
have materially affected, or are reasonably likely to materially affect, its
internal control over financial reporting.





ITEM
9B. OTHER INFORMATION





None.





PART
III




ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE




Our
directors and executive officers, their ages, their respective offices and
positions, and their respective dates of election or appointment are as
follows:





Name
                              
                              Age
                              
                              Position Held
                              
                              Officer/Director sinceJianhua
      Lv
                              
                              42
                              
                              President,
      Chief Executive Officer and Chairman of the Board
                              
                              February
      5, 2010Liuchang
      Yang
                              
                              55
                              
                              Vice
      President, Secretary and Director
                              
                              February
      5, 2010Zan
      (“Sam”) Wu
                              
                              33
                              
                              Chief
      Financial Officer
                              
                              February
      5, 2010Hui
      Zheng
                              
                              38
                              
                              Vice
      President of Operations and Director
                              
                              February
      5, 2010Yushan
      Jiang
                              
                              56
                              
                              Independent
      Director
                              
                              February
      5, 2010Jin
      Yao
                              
                              62
                              
                              Independent
      Director
                              
                              February
      5, 2010Hui
      Huang
                              
                              43
                              
                              Independent
      Director
                              
                              February
      5, 2010Haoyi
      Zhang
                              
                              37
                              
                              Independent
      Director
                              
                              February
      5,
2010





Business
Experience





The
following is a summary of the educational background and business experience
during the past five years of each of our directors and executive
officers.  The following information includes the person’s principal
occupation during the period, and the name and principal business of the
organization by which he or she was employed.





Jianhua Lvhas been the
executive director and chairman of Hongli since 1996, when he founded the
company.  Prior to this, from 1989 to 1996 Mr. Lv held a number of
positions at the Henan Province Pingdingshan Coal Group, where he developed many
years of experience in the coal and coking industries.  In early 2007,
Mr. Lv was appointed as a standing committee member of the Chinese People’s
Political Consultative Conference of Baofeng, Henan Province, and as a standing
committee member of the National People’s Congress of Baofeng, Henan
Province.  Mr. Lv has been honored as an outstanding entrepreneur of
the year in 2003 and 2004.  Mr. Lv holds a bachelor’s degree from
Henan University in Chinese, a master’s degree in economics from Henan
University, and a master of law degree from the Central Party
School.


49





Liuchang Yang has served as a
director of Hongli since 2003 and as its Vice Chairman since January
2006.  Prior to this, Mr. Yang held various offices at our
predecessors from 1983 to 2005, including secretary, deputy director, director
and general manager of human resources.  Mr. Yang has extensive
experience in management, human resources and administration.  Mr.
Yang holds a bachelor’s degree in Law from Beijing University, a degree from the
Center Party School in Economics and Management, and a graduate degree in
Finance and Banking from the Chinese Academy of Social Sciences.





Zan (“Sam”) Wu has served as
the chief financial officer of Hongli since July 2009.  Prior to this, Mr.
Wu worked as an auditor at the Zhong Rui Hui Accounting Firm from 2000 to
2001.  Mr. Wu was a financial analyst at VIR Consultancy Ltd. from 2003 to
2004.  From 2004 through 2006, Mr. Wu held the positions of assistant
manager and financial manager at Domino Scientific Equipment Ltd.  Mr. Wu
was the chief representative of Global American, Inc. (China Representative
Office) from 2006 – 2009.  Mr. Wu holds a bachelor’s degree in accounting
from the Capital University of Economics and Business and a master’s degree in
financial management and control from Aston Business School.





Hui Zheng has served as vice
manager of Human Resources at Henan Province Pingdingshan Hongli Coal & Coke
Co., Ltd. (SinoCoking) since 2006.  Prior to this Mr. Zheng worked at
SinoCoking as a statistician, secretary and vice-dean from 1998 until
2006.  Mr. Zheng has worked in the materials industry since
1996.  Mr. Zheng holds a degree from Zhengzhou
University.





Yushan Jiang has served as the
chief executive officer of the Pingdingshan Coal Group Shoushan Coking Co., Ltd.
since February 2007.  Prior to this, from 2001 to 2007, he was chief
engineer at the Henan Tianhong Coking Company.   Prior to this
Mr. Jiang developed expensive experience in the coking industry as he held
numerous positions since 1972 as a worker, director, and head of research and
development for various coking operations.   Mr. Jiang is also
currently a vice-director and member of the Coking Committee of the Henan
Province Metals Association, and vice-secretary of the Henan Province Institute
of Coal & Coke.  Mr. Jiang holds a Bachelor’s degree in Coal and
Chemistry from the Wuhan College of Iron & Steel.





Jin Yao is vice-chairman of
the China Division of the Asia Pacific CEO Association, a position he has held
since 2003.  Prior to this Mr. Yao served as general manager at the
Beijing Gaoping Technology Development Company from 1989 to 2003.  Mr.
Yao holds a bachelor’s degree and a master’s degree in Electrical Engineering
from the Beijing Institute of Technology.





Hui Huang is the chairman and
chief executive officer of Wuhan Pingdingshan Coal and Wuhan Steel Unification
Coking Company.  Mr. Huang has also served as director of sales and
administration of the same company from 1985 to 1996.  He then served
as director of the Economics and Technology Cooperation Center of the
Pingdingshan Coal Group (now known as the Wuhan Pingdingshan Coal and Wuhan
Steel Unification Coking Company) from 1996 to 2008, of which he is now chairman
of the board.  Mr. Huang is also a director of the China Association
of Comprehensive Resource Utilization, a vice-director of the Henan Institute of
Coal (a branch of the China Association of Comprehensive Resource Utilization),
and vice-secretary of the Pingdingshan Youth Union.





Haoyi Zhang serves as the
chief financial officer of Henan Pinggao Electricity Ltd., one of the major
A-Share public companies traded on the Shanghai Stock Exchange, a position he
has held since January 2005. From January 2005 to March 2009, he served as the
chief accountant of Henan Pinggao DongZhi Gao Ya Kaiguan Ltd., a Sino-Japanese
Joint Venture with Toshiba, concurrently with his position as the chief
financial officer at Henan Pinggao Electricity Ltd.  From April to December
2004, he served as the chief accountant of Henan Pinggao DongZhi Gao Ya Kaiguan
Ltd. Mr. Zhang held numerous positions from July 1995 to March 2004 as the
deputy director, the director, the deputy chief accountant, the assistant
general manager and the chief accountant at China Beifang Industry Company,
Xiamen Branch.  Mr. Zhang holds a Bachelor’s degree in Accounting from
Xiamen University and an EMBA degree from Xian Jiaotong
University.





There are
no family relationships among our current directors or executive
officers.





During
the past ten years none of our current directors or executive officers was
involved in any legal proceedings described in subparagraph (f) of Item 401 of
Regulations S-K.




Mr. Lv
and Mr. Yang were appointed to their respective director and officer positions,
and Mr. Wu was appointed to his officer position, because they had held similar
positions at Hongli, and upon the closing of the Acquisition on February 5,
2010, they assumed these respective positions.  Messrs. Huang and
Jiang were selected to serve as independent directors on the board because of
their deep and substantial experience in the coal and coking
industry.  Mr. Jin Yao was selected to serve as an independent
director because of his extensive senior level experience and expertise in the
management and governance of major China-based enterprises.  Mr. Haoyi
Zhang was selected to serve on as an independent director because of his
expertise in public company matters, with particular expertise in accounting,
auditing, controls and procedures and financial matters.


50





Board
of Directors





Our board
of directors is currently composed of seven members.  All members of
our board of directors serve in this capacity until their terms expire or until
their successors are duly elected and qualified.  Our bylaws provide
that the authorized number of directors will be not less than one and not more
than seven.





Director
Independence and Board Committees





Based
upon information submitted to the Company, the board of directors has determined
that Mr. Yushan Jiang, Mr. Jin Yao, Mr. Hui Huang and Mr. Haoyi Zhang are each
“independent” under the listing standards of the NASDAQ Stock
Market.





The board
of directors has an audit committee that was established in accordance with
section 3(a)(58)(A) of the Securities Exchange Act of 1934.  The audit
committee members include Mr. Haoyi Zhang (chairman), Mr. Jin Yao and Mr. Yushan
Jiang.  Mr. Zhang is the audit committee financial expert who is
independent, as independence for audit committee members is defined in the
listing standards of the NASDAQ Stock Market.  The audit committee
operates under a written charter adopted by the board of directors on February
16, 2010.





The board
of directors established a compensation committee on February 16,
2010.  The compensation committee consists of Jin Yao, Hui Huang and
Yushan Jiang, each of whom is an independent director.  Jin Yao is the
chairman of this committee.  Our compensation committee oversees and,
as appropriate, makes recommendations to the board of directors regarding the
annual salaries and other compensation of our executive officers, and other
related policies, and provides assistance and recommendations with respect to
our compensation policies and practices.  The compensation committee
operates under a written charter adopted by the board of directors on February
16, 2010.





The board
of directors established a nominating committee on February 16,
2010.  The nominating committee consists of Jin Yao, Hui Huang and
Yushan Jiang, each of whom is an independent director.  Hui Huang is
the chairman of this committee.  Our nominating committee assists in
the selection of director nominees, approves director nominations to be
presented for shareholder approval at our annual shareholder meetings and fill
any vacancies on our board of directors, considers any nominations of director
candidates validly made by shareholders, and reviews and considers developments
in corporate governance practices.  The nominating committee operates
under a written charter adopted on February 16, 2010.





Section
16(a) of the Exchange Act





Section
16(a) of the Exchange Act requires our directors, executive officers and persons
who own more than 10% of our common stock to file reports of ownership and
changes in ownership of our common stock with the Securities and Exchange
Commission.  Directors, executive officers and persons who own more
than 10% of our common stock are required by Securities and Exchange Commission
regulations to furnish to the Company copies of all Section 16(a) forms they
file.





To our
knowledge, based solely upon review of the copies of such reports received or
written representations from the reporting persons, the Company believes that
during our 2010 fiscal year, our directors, executive officers and persons who
owned more than 10% of our common stock complied with all Section 16(a) filing
requirements.





Code
of Ethics





The
Company has adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions.  The Company will
provide a copy of our code of ethics to any person who requests a copy in
writing to the Secretary of the Company, including the e-mail address or
facsimile number of the requesting party.  Any written requests should
be mailed to the Company at Kuanggong Road and Tiyu Road 10th Floor, Chengshi
Xin Yong She, Tiyu Road, Xinhua District, Pingdingshan, Henan Province, P.R.
China 467000.





ITEM
11. EXECUTIVE COMPENSATION





Compensation
Discussion and Analysis





This
compensation discussion and analysis describes the material elements of the
compensation awarded to our current executive officers.  This
compensation discussion focuses on the information contained in the following
tables and related footnotes and narrative for the last completed fiscal
year.  The compensation committee of our board of directors currently
oversees the design and administration of our executive compensation
program.





Our
current executive compensation program may from time to time include the
following principal components: (i) base salary, (ii) discretionary
annual cash bonuses, and (iii) stock incentive plan awards, and (iv)
perquisites and benefits.


51





Our
Compensation Philosophy and Objectives





Our
philosophy regarding compensation of our executive officers includes the
following principles:





·
            our
      compensation program should reward the achievement of our strategic
      initiatives and short- and long-term operating and financial
      goals;





·
            compensation
      should appropriately reflect differences in position and
      responsibility;





·
            compensation
      should be reasonable; and





·
            the
      compensation program should be understandable and
    transparent.




In order
to implement such compensation principles, we have developed the following
objectives for our executive compensation program:





·
            overall
      compensation levels must be sufficiently competitive to attract and retain
      talented leaders and motivate those leaders to achieve superior
      results;





·
            a
      portion of total compensation should be contingent on, and variable with,
      achievement of objective corporate performance goals, and that portion
      should increase as an executive’s position and responsibility
      increases;





·
            total
      compensation should be higher for individuals with greater responsibility
      and greater ability to influence our achievement of operating goals and
      strategic initiatives;





·
            the
      number of elements of our compensation program should be kept to a
      minimum, and those elements should be readily understandable by and easily
      communicated to executives, shareholders, and others;
  and





·
            executive
      compensation should be set at responsible levels to promote a sense of
      fairness and equity among all employees and appropriate stewardship of
      corporate resources among
shareholders.





Determination
of Compensation Awards





The
compensation committee of our board of directors is provided with the primary
authority to determine the compensation awards available to our executive
officers.  To aid the compensation committee in making its
determination for the current fiscal year, our current senior management
provided recommendations to the compensation committee regarding the
compensation of our executive officers.




Compensation
Benchmarking and Peer Group





Our
compensation committee did not rely on any consultants or utilize any peer
company comparisons or benchmarking in setting executive compensation levels for
fiscal 2010.  However, our management informally considered
competitive market practices by reviewing publicly available information
relating to compensation of executive officers at other comparable companies in
making its recommendations to our board of directors regarding our executives’
compensation for fiscal 2010.  As our Company grows, we expect to take
steps, including the utilization of peer company comparisons and/or hiring of
compensation consultants, to ensure that the compensation committee has a
comprehensive picture of the compensation paid to our executives and with a goal
toward total direct compensation for our executives that are on a par with the
median total direct compensation paid to executives in peer companies if
annually established target levels of performance at the Company and business
segment level are achieved.





Elements
of Compensation





The
principal elements of our executive compensation are:





·
            base
      salary;





·
            discretionary
      annual cash bonuses;


52





·
            stock
      incentive plan awards; and





·
            perquisites
      and other compensation.




While
base salary is generally included as an element of compensation of our executive
officers in every year, the granting of bonuses, stock incentive awards and
perquisites is determined on a case-by-case basis.   During the
fiscal year ended December 31, 2009, our compensation program consisted solely
of base salary.  For fiscal 2010, executive compensation consists of
base salary, and we have no immediate plans to include bonuses, stock option
grants or perquisites as elements of executive compensation.





Base
Salaries





Base
salary is used to recognize the experience, skills, knowledge and
responsibilities required of our employees, including our named executive
officers.  When establishing base salaries for 2010, subject to the
provisions of each person’s employment agreement, our compensation committee and
management considered a number of factors, including the seniority of the
individual, the functional role of the position, the level of the individual’s
responsibility, the ability to replace the individual, the base salary of the
individual at their prior employment and the number of well qualified candidates
to assume the individual’s role.  Generally, we believe that executive
base salaries should be targeted near the median of the range of salaries for
executives in similar positions at comparable companies.





Discretionary
Annual Cash Bonuses





Our
compensation committee has discretion to recommend and approve the annual cash
bonus for our Chief Executive Officer and each other named executive
officer.  Bonus awards will be generally based on our management’s
recommendations and ultimately approved by our compensation
committee.  There were no bonuses granted in fiscal
2010.  The annual bonuses, if any, are intended to compensate officers
for individual performance, for our overall financial performance, and for
achieving important operational and financial milestones during the relevant
fiscal year.





Stock
Incentive Plan Awards





Our stock
option plans are designed to provide long term incentives to our executives and
other employees and award recipients, to increase shareholder value through
competent, effective management of the Company.  Management believes
that the ability to grant stock options as a component of compensation will
provide the Company with an advantage in attracting qualified management and
employees to our Company.  There were no stock option awards granted
in fiscal 2010.  Stock option award decisions, if any are granted,
will be evaluated on a case-by-case basis giving consideration to factors such
as the recipient’s qualifications and abilities, the nature of the recipient’s
position, and the recipient’s ability to contribute to the Company’s development
and achievement of its business objectives.





Perquisites
and Other Compensation





Our
compensation committee may include perquisites and other benefits as an element
of compensation from time to time on a discretionary basis.  Presently
the Company does not include perquisites or other benefits as a part of
executive compensation.




Management’s
Role in the Compensation-Setting Process





Our
management plays an important role in our compensation-setting process. The most
significant aspects of management’s role are evaluating other executive
officers’ performances, recommending business performance targets and
objectives, and recommending salary levels and option awards. Our management
makes recommendations to our compensation committee regarding our executive’s
compensation packages. During this process, management may be asked to provide
the compensation committee with their evaluation of the executive officers’
performances, the background information regarding our strategic financial and
operational objectives, and compensation recommendations as to the executive
officers.





Executive
Compensation – Summary Compensation Table





The
following summary compensation table indicates the cash and non-cash
compensation earned during our last two completed fiscal years by our principal
executive officer, principal financial officer, except as otherwise indicated
below.  No other officer of the Company had total compensation in
excess of $100,000 per year during the above-mentioned periods.


53




Name and principal
                              position
                            
                            Year
                            
                            Salary
                              ($)
                            
                            
                            Bonus
                              ($)
                            
                            
                            Stock
                              Awards
                              ($)
                            
                            
                            Option
                              Awards
                              ($)
                            
                            
                            Non-Equity
                              Incentive
                              Plan
                              Compensa-
                              tion
                              ($)
                            
                            
                            Non-
                              qualified
                              Deferred
                              Compensa-
                              tion
                              Earnings
                              ($)
                            
                            
                            All Other
                              Compensation
                              ($)
                            
                            
                            Total
                              ($)Jianhua
      Lv
                            
                            2010
                            
                            
                            80,000
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            $
                            80,000President,
      CEO and Chairman of the Board
                            
                            2009
                            
                            
                            8,357
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            $
                            8,357Zan
      Wu
                            
                            2010
                            
                            
                            50,000
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            $
                            50,000CFO
      (2)
                            
                            2009
                            
                            
                            n/a
                            
                            
                            
                            n/a
                            
                            
                            
                            n/a
                            
                            
                            
                            n/a
                            
                            
                            
                            n/a
                            
                            
                            
                            n/a
                            
                            
                            
                            n/a
                            
                            
                            $
                            n/aAbdul
      Ladha
                            
                            2009
                            
                            
                            156,000
                            (4)
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            781,842
                            (5)
                            
                            $
                            937,842Former
      President, CEO and Director (3)
                            
                            2008
                            
                            
                            156,000
                            (4)
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            
                            0
                            
                            
                            $
                            0


_______________________





(1)
            Mr.
      Lv was appointed as the Company’s president, chief executive officer and
      chairman of the board on February 5, 2010 in connection with the Company’s
      acquisition of Top Favour.  Compensation reported above consists of
      compensation received as the principal executive officer of Hongli, and is
      translated from Chinese RMB to U.S. Dollars using an exchange rate of 6.82
      RMB to US $1.00 for 2009 and 7.29 RMB to US $1.00 for
  2008.





(2)
            Mr.
      Wu was appointed the Company’s chief financial officer on February 5, 2010
      in connection with the Company’s acquisition of Top
      Favour.  Prior to this date Mr. Wu served as Chief Financial
      Officer of Hongli since July 2009 (commencing in fiscal
    2010).





(3)
            Mr.
      Ladha resigned as the Company’s president, chief executive officer and
      director on February 5, 2010 in connection with the Company’s acquisition
      of Top Favour. Mr. Ladha’s compensation is reported for the fiscal year
      ended December 31, 2008 and 2009, when the Company, then named
      “Ableauctions.com, Inc.”, had a fiscal year ending December
      31.  On April 14, 2010, the Company changed its fiscal year end
      from December 31 to June 30.





(4)
            All
      of the compensation paid to Mr. Ladha was paid to him in Canadian
      dollars.  The table above sets forth the amount of Mr. Ladha’s
      compensation as reported in U.S. dollars, using an exchange rate of
      $0.87601 U.S. dollars per Canadian
dollar.





(5)
            This
      amount consists of a fee paid to Mr. Ladha pursuant to the Development
      Agreement the predecessor Company (then known as “Ableacutions.com, Inc.,”
      entered into on October 6, 2008 for his services in connection with a
      project by the predecessor company which was completed prior to the merger
      with Sinocoking.




Outstanding
Equity Awards





The
following table shows the outstanding equity awards granted to our highest paid
executive officers as of June 30, 2010.  Equity awards granted to Mr.
Ladha were granted in connection with his service as a
director.


54





OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-ENDOPTION
      AWARDS
                                                            
                                                            STOCK
      AWARDSName
                                                            
                                                            Number
      of
                                                              securities
                                                              underlying
                                                              unexercised
                                                              options
      (#)
                                                              Exercisable
                                                            
                                                            Number
      of securities underlying unexercised options (#)
                                                              Unexercisable
                                                            
                                                            Equity
                                                              Incentive
                                                              Plan
                                                              Awards:
                                                              Number
      of
                                                              Securities
                                                              underlying
                                                              unexercised
                                                              unearned
                                                              options
      (#)
                                                            
                                                            Option
                                                              exercise
                                                              price
      ($)
                                                            
                                                            Option
                                                              expiration
                                                              date
                                                            
                                                            Number
      of
                                                              shares
      or
                                                              units
      of
                                                              stock
      that
                                                              have
      not
                                                              vested
      (#)
                                                            
                                                            Market
      value of shares or units of stock that have not vested ($)
                                                            
                                                            Equity
                                                              incentive
                                                              plan
                                                              awards:
                                                              number
      of
                                                              unearned
                                                              shares,
      units
                                                              or
      other
                                                              rights
      that
                                                              have
      not
                                                              vested
      (#)
                                                            
                                                            Equity
                                                              incentive
                                                              plan
                                                              awards:
                                                              Market
      or
                                                              payout
                                                              value
      of
                                                              unearned
                                                              shares,
                                                              units
      or
                                                              other
                                                              rights
                                                              that
      have
                                                              not
                                                              vested
      (#)Abdul
      Ladha
                                                            
                                                            
                                                            6,059
                                                            (1)
                                                            0
                                                            
                                                            0
                                                            
                                                            $
                                                            96.00
                                                            
                                                            11/16/2014
                                                            
                                                            
                                                            0
                                                            
                                                            0
                                                            
                                                            
                                                            0
                                                            
                                                            0


_______________





(1)
            The
      number of shares underlying the above option, as well as the option
      exercise price, reflect a 1-for-12 reverse stock split effected in January
      2009, and a 1-for-20 reverse stock split effected in February
      2010.





Grants
of Plan-Based Awards





Retirement
Plans





We
currently have no plans that provide for the payment of retirement benefits, or
benefits that will be paid primarily following retirement, including but not
limited to tax-qualified defined benefit plans, supplemental executive
retirement plans, tax-qualified defined contribution plans and nonqualified
defined contribution plans.





Potential
Payments upon Termination or Change-in-Control





We
currently have no contract, agreement, plan or arrangement, whether written or
unwritten, that provides for payments to a named executive officer at,
following, or in connection with any termination, including without limitation
resignation, severance, retirement or a constructive termination of a named
executive officer, or a change in control of the Company or a change in the
named executive officer’s responsibilities, with respect to each named executive
officer.





Employment
Agreements





We
entered into an employment agreement with Mr. Jianhua Lv, our president and
chief executive officer, on February 5, 2010.  The compensation
committee of the board of directors approved and established Mr. Lv’s salary at
a rate of USD $160,000 per annum for the 2010 fiscal year, beginning from
February 2010.  Mr. Lv agreed that in the event that he departs from
the Company for any reason, he will refrain from using or disclosing our
confidential information in any manner which might be detrimental to or conflict
with the business interests of the Company.  Both the Company and Mr.
Lv have the right to terminate Mr. Lv’s employment with or without cause by
giving prior notice.  Any disputes arising from Mr. Lv’s employment,
termination of his employment or breach of any covenant of good faith related to
his employment shall be conclusively settled by final and binding decision of
the court located in Henan Province, China.  Mr. Lv’s agreement does not
provide for any fixed term or duration, and Mr. Lv is employed by the Company on
an at-will basis.





We
entered into an employment agreement with Mr. Zan (“Sam”) Wu, our chief
financial officer, treasurer and secretary, on February 5, 2010.  The
compensation committee of the board of directors approved and established Mr.
Wu’s salary at a rate of USD $120,000 per annum for the 2010 fiscal year,
beginning from February 2010.  Mr. Wu agreed that in the event that he
departs from the Company for any reason, he will refrain from using or
disclosing our confidential information in any manner which might be detrimental
to or conflict with the business interests of the Company.  Both the
Company and Mr. Wu have the right to terminate Mr. Wu’s employment with or
without cause by giving prior notice.  Any disputes arising from Mr.
Wu’s employment, termination of his employment or breach of any covenant of good
faith related to his employment shall be conclusively settled by final and
binding decisions of the court located in Henan Province, China.  Mr. Wu’s
agreement does not provide for any fixed term or duration, and Mr. Wu is
employed by the Company on an at-will basis.


55





The
Company had an employment agreement with our former chief executive officer,
Abdul Ladha, that was dated April 1, 2002, which was terminated on February 5,
2010 in connection with the Acquisition.  Mr. Ladha’s cash
compensation was $156,000 per year, and he was also entitled to receive an
automobile allowance of $500 per month (although this benefit was not paid to
him during the past two fiscal years).  The employment agreement with
Mr. Ladha was terminated in connection with the Acquisition of Top Favour and
resulting change of control, and the Company incurred no liability as a result
of the agreement’s termination.





Director
Compensation





The
following table provides compensation information for our directors during the
fiscal year ended June 30, 2010:





Name
              
              Fees
                Earned or
                Paid in Cash
                ($)
              
              
              Stock
                Awards
                ($)(1)
              
              
              Option
                Awards ($)(1)
              
              
              Non-Equity
                Incentive Plan
                Compensation ($)
              
              
              Non-Qualified
                Deferred
                Compensation
                Earnings ($)
              
              
              All Other
                Compensation
                ($)
              
              
              Total
                ($)Jianhua
      Lv (2)
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Liuchang
      Yang
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Hui
      Zheng
              
              $
              5,287
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              5,287Yushan
      Jiang
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Jin
      Yao
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Hui
      Huang
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Haoyi
      Zhang
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -





(1)
            Reflects
      dollar amount expensed by the Company during the applicable fiscal year
      for financial statement reporting purposes pursuant to FAS
      123R.  FAS 123R requires the Company to determine the overall
      value of the stock award as of the date of grant, and to then expense that
      value over the service period over which the stock award becomes
      exercisable (vested).  As a general rule, for time in service
      based stock awards, the Company will immediately expense any stock award
      or portion thereof that is vested upon grant, while expensing the balance
      on a pro rata basis over the remaining vesting term of the stock
      award.





(2)
            This
      individual’s compensation is reflected in the Summary Compensation Table
      on page 54 above.





All of
our current directors were appointed on February 5, 2010 in connection with the
Acquisition of Top Favour.  On February 5, 2010, we entered into
letter agreements with all of our current directors with a term of one (1) year
and pursuant to which we agreed to pay cash compensation in the amount of
$10,000 to each of our current directors for their services on our board of
directors in 2010.





Corporate
Governance





There
have been no material changes to the procedures by which security holders may
recommend nominees to our board of directors.





The board
of directors has an audit committee that was established in accordance with
section 3(a)(58)(A) of the Securities Exchange Act of 1934.  The audit
committee members include Haoyi Zhang (chairman), Jin Yao and Yushan
Jiang.  Mr. Zhang is the audit committee financial expert who is
independent, as independence for audit committee members is defined in the
listing standards of the NASDAQ Stock Market.


56





ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS




The
following table sets forth information, as of September 27, 2010, regarding the
beneficial ownership of the Company’s common stock by any person known to the
Company to be the beneficial owner of more than 5% of the outstanding common
stock, by directors and certain executive officers, and by all directors and
executive officers of the Company as a group.  All officers and
directors above utilize the following address for correspondence purposes:
Kuanggong Road and Tiyu Road 10th Floor, Chengshi Xin Yong She, Tiyu Road,
Xinhua District, Pingdingshan, Henan Province, China 467000.





Name
      and Address
                      
                      Amount
      and Nature of
                        Beneficial
      Ownership
                      
                      Percent
      (%) of Class*Jianhua
      Lv (1)
                      
                      
                      6,694,091
                      
                      32.1%Liuchang
      Yang (2)
                      
                      
                      574,566
                      
                      2.8%Zan
      (“Sam”) Wu
                      
                      
                      0
                      
                      0%Hui
      Zheng
                      
                      
                      0
                      
                      0%Hui
      Huang
                      
                      
                      0
                      
                      0%Yushan
      Jiang
                      
                      
                      0
                      
                      0%Jin
      Yao
                      
                      
                      0
                      
                      0%Haoyi
      Zhang
                      
                      
                      0
                      
                      0%All
      Officers and Directors as a Group (8 total)
                      
                      
                      7,268,657
                      
                      34.8%Honour
      Express Limited (3)
                      
                      
                      6,694,091
                      
                      32.1%





*
            Applicable
      percentage ownership is based on 20,871,192 shares of common stock issued
      and outstanding as of September 27,
2010.





(1)
            Represents
      shares held directly by Honour Express Limited, a British Virgin Islands
      international business company (“Honour Express”).  Jianhua Lv
      is a director of Honour Express, and in such capacity, Mr. Lv may be
      deemed to have voting and dispositive power over the shares held directly
      by Honour Express.  Mr. Lv is also an indirect beneficiary, as
      he holds an option to acquire shares of Honour
      Express.  Pursuant to a certain Incentive Option Agreement dated
      July 6, 2009, as amended (“Incentive Option Agreement”), Mr. Lv has the
      right to acquire 100% of the issued and outstanding capital stock of
      Honour Express from a nominee who holds the shares of capital stock of
      Honour Express, subject to certain conditions.  Mr. Lv’s address
      is: 10th Floor, Chengshi Xin Yong She, Tiyu Road, Xinhua District,
      Pingdingshan, Henan Province, People’s Republic of China,
      467000.





(2)
            Mr.
      Liuchang Yang’s address is: 10th Floor, Chengshi Xin Yong She, Tiyu Road,
      Xinhua District, Pingdingshan, Henan Province, People’s Republic of China,
      467000.





(3)
            The
      address of Honour Express Limited is: P.O. Box 957, Offshore
      Incorporations Centre, Road Town, Tortola, British Virgin
      Islands.





To our
knowledge, none of our directors, officers or affiliates, or any 5% or greater
shareholder of the Company, or any associate or any such directors, officers or
affiliates, is a party that is adverse to the Company in any material legal
proceeding.





Securities
authorized for issuance under equity compensation plans




The
Company maintains the following equity compensation plans.  The
discussions below give effect to the 1-for-12 reverse stock split the Company
effected on January 15, 2009 and the 1-for-20 reverse stock split the Company
effected on February 5, 2010.





2002
Stock Option Plan for Directors





In 2002,
the board of directors adopted a 2002 Stock Option Plan for Directors (the
“Directors Plan”).  The purpose of the Directors Plan is to attract
and retain the services of experienced and knowledgeable individuals to serve as
our directors.  On the date the Directors Plan was adopted, the total
number of shares of common stock subject to it was 11,057.  This
number of shares may be increased on the first day of January of each year so
that the common stock available for awards will equal 5% of the common stock
outstanding on that date, provided, however, that the number of shares included
in the Directors Plan may not exceed more than 10% of all shares of common stock
outstanding.  The Directors Plan is administered by the board of
directors, or any committee that may be authorized by the board of directors, so
long as any such committee is made up of Non-Employee Directors, as that term is
defined in Rule 16(b)-3(b) of the Securities Exchange Act of
1934.  The grant of an option under the Directors Plan is
discretionary.  The exercise price of an option must be the fair
market value of the common stock on the date of grant.  An option
grant may be subject to vesting conditions.  Options may be exercised
in cash, or with shares of the common stock of the Company already owned by the
person.  The term of an option granted pursuant to the Directors Plan
may not be more than 10 years.  The Directors Plan was adopted and approved
by the board of directors on October 11, 2002 and the Directors Plan shall
terminate 10 years from such approval date.


57





2002
Consultant Stock Plan




In 2002,
the board of directors adopted a 2002 Consultant Stock Plan (the “Consultants
Plan”).  The purpose of the Consultants Plan is to be able to offer
consultants and others who provide services to the Company the opportunity to
participate in our growth by paying for such services with equity
awards.  The total number of shares of common stock subject to the
Consultants Plan was increased from 27,084 to 133,334 as approved by the board
of directors in 2003.  The Consultants Plan is administered by the
board of directors, or any committee that may be authorized by the board of
directors.  Persons eligible for awards under the Consultants Plan may
receive options to purchase common stock, stock awards or stock restricted by
vesting conditions.  The exercise price of an option must be no less
than 85% of the fair market value of the common stock on the date of
grant.  An option grant may be subject to vesting
conditions.  Options may be exercised in cash, or with shares of the
common stock of the Company already owned by the person or with a fully recourse
promissory note, subject to applicable law.  The term of an option
granted pursuant to the Consultants Plan may not be more than 10 years. 
The Consultants Plan terminates on the first business day prior to the 10 year
anniversary of the date on which the plan was adopted by the board of directors,
which was May 28, 2002.




1999
Stock Option Plan




In 1999,
the board of directors adopted a 1999 Stock Option Plan (the “Option
Plan”).  The purpose of the Option Plan is to be able to retain the
services of employees and consultants and others who are valuable to the Company
and to offer incentives to such persons to achieve the objectives of our
shareholders.  The total number of shares of common stock subject to
the Option Plan is 45,417.  The Option Plan is administered by the
board of directors, or any committee that may be authorized by the board of
directors, so long as any such committee is made up of Non-Employee Directors,
as that term is defined in Rule 16(b)-3(b) of the Securities Exchange Act of
1934.  Employees eligible for awards under the Option Plan may receive
incentive options to purchase common stock.  If a recipient does not
receive an incentive option, he or she will receive a non-qualified stock
option.  The exercise price of an option must be no less than the fair
market value of the common stock on the date of grant, unless the recipient of
an award owns 10% or more of our common stock, in which case the exercise price
of an incentive stock option must not be less than 110% of the fair market
value.  An option grant may be subject to vesting
conditions.  Options may be exercised in cash, or with shares of the
common stock of the Company already owned by the recipient of the
award.  The term of an option granted pursuant to the Option Plan may
not be more than five years if the option is an incentive option granted to a
recipient who owns 10% or more of our common stock, or 10 years for all other
recipients and for recipients of non-qualified stock options.  Incentive
Stock Options may be granted under the Option Plan until the day immediately
preceding the 10 year anniversary of the date on which the Option Plan was
adopted by the board of directors, which was October 14,
1999.  Non-Qualified Stock Options may be granted under the Option
Plan until the Option Plan is terminated by the board of directors in its sole
discretion.





The
following table illustrates, as of June 30, 2010, information relating to all of
our equity compensation plans.




Plan
      Category
                              
                              Number
      of
                                securitiesto
                                be
      issued
                                upon
                                exercise
      of
                                outstanding
                                options,
                                warrants
                                and
      rights
                              
                              
                              Weighted
                                average
                                exercise
                                price
      of
                                outstanding
                                options,
                                warrants
                                and
      rights
                              
                              Number
      of
                                securities
                                remaining
                                available
      for
                                future
                                issuance
                                under
      equity
                                compensation
                                plansEquity
      Compensation Plan Approved by Security Holders – 2002 ConsultantStock
      Plan
                              
                              
                              0
                              
                              
                              
                              N/A
                              
                              
                              0Equity
      Compensation Plan Approved by Security Holders – 1999 Stock Option
      Plan
                              
                              
                              6,059
                              (1)
                              
                              $
                              96.00
                              
                              
                              0Equity
      Compensation Plan Not Approved by Security Holders – 2002 Stock Option
      Plan for Directors
                              
                              
                              4,792
                              (1)
                              
                              $
                              75.13
                              
                              
                              0


58


__________________________




(1) This
number reflects the reverse stock splits that were effected in January 2009 and
February 2010.





ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE





Set forth
below are our related party transactions since July 1, 2008:





Acquisition
of Top Favour





On
December 30, 2009, the Company’s shareholders approved a Plan and Agreement of
Share Exchange, dated July 17, 2009 (the “Exchange Agreement”), with Top Favour
Limited, a British Virgin Islands international business company (“Top Favour”),
pursuant to which, on the terms and subject to the conditions set forth therein,
the registrant (formerly named “Ableauctions.com, Inc.”) agreed to acquire all
of the outstanding capital stock of Top Favour in exchange for the issuance of
13,117,952 shares of its common stock to the shareholders of Top Favour (the
“Acquisition”).  The Acquisition was consummated at 5:00 p.m. Pacific
time on February 5, 2010 (the “Closing Date”).





The
Closing Date of the Acquisition is sometimes referred to in this report as the
“Change of Control
Date”.  On the Change of Control Date of February 5,
2010:





●
            The
      registrant ceased operating its historical auctions and real
      estate-related businesses, described
below;





●
            The
      registrant changed its name from “Ableauctions.com, Inc.” to “SinoCoking
      Coal and Coke Chemical Industries, Inc.” to reflect the business of Top
      Favour, a coal and coke producer in Central
  China;





●
            All
      of the registrant’s directors and officers prior to the Acquisition
      resigned, and successor officers and directors designated by Top Favour
      Limited were appointed to the board and
  management;





●
            All
      of the pre-Acquisition assets of the registrant (e.g. relating to online
      auctions, liquidation, real estate services, finance and development) were
      transferred to a liquidating trust (the “Liquidating Trust”); these assets
      included the capital stock of the registrant’s pre-Acquisition
      subsidiaries;





●
            The
      Liquidating Trust assumed all of the registrant’s pre-Acquisition
      liabilities;





●
            Top
      Favour Limited and its controlled companies and subsidiaries became
      controlled companies and subsidiaries of the
  registrant;





●
            The
      business, operations and assets of Top Favour Limited (e.g., production of
      coal and coke) became the sole business, operations and assets of the
      registrant.





Liquidation
of Registrant’s Former Business





The
operations of the registrant’s former pre-Acquisition subsidiaries, now held by
the Liquidating Trust, are in the process of being wound down and will
eventually be liquidated.  Any proceeds from the liquidation which
remain after the payment of liabilities and expenses relating to the liquidation
will be distributed by the Liquidating Trust to the shareholders of record prior
to the consummation of the Acquisition.





Related
Party Transactions




The
following is a description of the related party transactions of SinoCoking
during the last two completed fiscal years ending June 30, 2010 and
2009.





The
Company also advanced funds to Mr. Hui Zheng, the Director and Vice President of
Operation, for him to perform business and acquisition developments activities
on behalf the Company. As of June 30, 2010 and 2009, due from Mr. Hui Zheng
amounted to $418,410 and $0, respectively.   Mr. Zheng had
returned the full amount to un-used funds of $418,410 to the Company by end of
August 2010.





The
Company has loans from Mr. Jianhua Lv, a majority shareholder, President and CEO
of the Company, and Mr. Liuchang Yang, Director and Vice President. Mr. Lv and
Mr. Yang provided the funds for the Company’s acquisitions of the coal mine,
Baofeng Coking and to fund construction of the power plant. These loans are
unsecured, payable on demand and bear no interest.


59





The
Company had paid off the loans related to the aforesaid business acquisitions
before June 30, 2009. Mr. Lv and Mr. Yang also advanced monies to the Company
for daily operations. The Company overpaid Mr. Yang and resulting in receivable
from Mr. Yang amounted to $58,642 as of June 30, 2010. Mr. Yang returned the
overpayment amount of $58,642 on September 24, 2010.





The
Company imputed the interest on loans from Mr. Lv and Mr. Yang based on the
prevailing rate which was 5.48%, 8.89% and 8.74% for the years ended June 30,
2010, 2009 and 2008. Imputed interest on the loans from related parties amounted
$67,269, $450,054 and $431,123 for the years ended June 30, 2010, 2009 and 2008,
respectively.  Imputed interest was transferred to additional paid-in
capital.





Payables
to Mr. Lv, and Mr. Yang as of June 30, 2010 and 2009 are as
follows:





Due
      to Related
                              Parties
                            
                            June
      30,
                              2010
                            
                            
                            June
      30, 2009
                            
                            Term
                            
                            Manner
      of SettlementMr.
      Jianhua Lv
                            
                            $
                            51,381
                            
                            
                            $
                            1,281,304
                            
                            Short
      term
                            
                            CashMr.
      Liuchang Yang
                            
                            
                            -
                            
                            
                            
                            259,033
                            
                            Short
      term
                            
                            CashTotal
                            
                            $
                            51,381
                            
                            
                            $
                            1,540,337





ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES





As
reported in our Current Report on Form 8-K filed with the SEC on April 16, 2010,
effective April 14, 2010, Frazer Frost LLP was engaged to serve as the new
certifying accountant to audit the Company’s financial
statements.   Frazer Frost LLP previously acted as
certifying accountant for Top Favour Limited, which was acquired by the Company
on February 5, 2010.  The appointment of Frazer Frost LLP was
made in connection with the foregoing acquisition by the Company. The following
table shows the fees that were billed for audit and other services provided by
Frazer Frost LLP during the 2010 fiscal year:





Fiscal
      Year
                      Ended
      June
                      30,
      2010Audit
      Fees (1)
                    
                    $
                    240,000Audit-related
      Fees (2)
                    
                    
                    34,000Tax
      Fees (3)
                    
                    
                    -All
      Other Fees (4)
                    
                    
                    -Total
                    
                    $
                    274,000





The
Company’s former accountant, Cinnamon Jang Willoughby and Company, which merged
with Meyers Norris Penny LLP, Chartered Accountants (“MNP”) on January 4, 2010
(“Former Accountant”), was appointed on June 19, 2008 as auditor of the Company
(then named “Ableauctions.com, Inc.”).  The following table shows the
fees that were billed for audit and other services provided by the Former
Accountant during the years ended December 31, 2009 and 2008, the Company’s
fiscal year ends prior to the acquisition of Top Favour Limited:





Fiscal
      Year Ended
                  December
      31,2009
                
                
                
                2008Audit
      Fees (1)
                
                $
                65,000
                
                
                $
                73,250Audit-related
      Fees (2)
                
                
                -
                
                
                
                -Tax
      Fees (3)
                
                
                -
                
                
                
                -All
      Other Fees (4)
                
                
                45,250
                
                
                
                49,755Total
                
                $
                110,250
                
                
                $
                123,005


60





(1)
            Audit Fees – This
      category includes the audit of our annual financial statements, review of
      financial statements included in our Quarterly Reports on Form 10-Q, and
      services that are normally provided by independent auditors in connection
      with statutory and regulatory filings or the engagement for fiscal
      years.  This category also includes advice on audit and
      accounting matters that arose during, or as a result of, the audit or the
      review of interim financial
statements.





(2)
            Audit-Related Fees –
      This category consists of assurance and related services by our
      independent auditors that are reasonably related to the performance of the
      audit or review of our financial statements and are not reported above
      under "Audit Fees."  The services for the fees disclosed under
      this category include consultation regarding our correspondence with the
      SEC.





(3)
            Tax Fees – This category
      consists of professional services rendered by our independent auditors for
      tax compliance and tax advice.  The services for the fees
      disclosed under this category include tax return preparation and technical
      tax advice.





(4)
            All Other Fees – This
      category consists of fees for other miscellaneous
  items.




ITEM
15. EXHIBITS





(1)
Financial Statements





The
following consolidated financial statements of SinoCoking are included in Part
II, Item 8 of this Report:





Report of
Independent Registered Public Accounting Firm




Consolidated
Balance Sheets at June 30, 2010 and 2009




Consolidated
Statements of Operations for the Years Ended June 30, 2010 and 2009




Consolidated
Statements of Stockholders’ Equity for the Years Ended June 30, 2010 and
2009




Consolidated
Statements of Cash Flows for the Years Ended June 30, 2010 and 2009




Notes to
Consolidated Financial Statements





(2)
Financial Statement Schedules




Schedules
are omitted because the required information is not present or is not present in
amounts sufficient to require submission of the schedule or because the
information required is given in the consolidated financial statements or the
notes thereto.




(3)
Exhibits





EXHIBIT
INDEX





Exhibit
      Number
                
                Description2.1
                
                Share
      Exchange Agreement dated July 17, 2009 between Ableauctions.com, Inc.,
      Abdul Ladha and Hanifa Ladha and Top Favour Limited and the shareholders
      of Top Favour Limited (13)2.2
                
                First
      Amendment to the Share Exchange Agreement between Ableauctions.com, Inc.,
      Abdul Ladha and Hanifa Ladha and Top Favour Limited and the shareholders
      of Top Favour Limited dated November 25, 2009 (17)3.1
                
                Articles
      of Incorporation, as amended (incorporated by reference to Exhibits 3.1,
      3.2, 3.3, 3.4 and 3.5 of the Registration Statement on Form 10-SB)
      (1)3.2
                
                Articles
      of Amendment to Articles of Incorporation (2)3.3
                
                Bylaws
      (Incorporated by reference to Exhibit 3.6 of the Registration Statement on
      Form 10-SB) (1)4.1
                
                Specimen
      Stock Certificate of SinoCoking Coal and Coke Chemical Industries, Inc.
      (2)5.1
                
                Opinion
      of Richardson &
Patel LLP*


61





10.1
                
                1999
      Stock Option Plan (Incorporated by reference to Exhibit 4.2 of the
      Registration Statement on Form S-8 (4)10.2
                
                2002
      Stock Option Plan for Directors (3)10.3
                
                2002
      Consultant Stock Plan (5)10.4
                
                Joint
      Venture Agreement dated July 28, 2006 between Stanford Development
      Corporation, Canitalia Industries Ltd. and 44991 B.C. Ltd.
    (6)10.5
                
                Employment
      Agreement dated April 1, 2002 between Abdul Ladha and the
      Company**10.6
                
                Securities
      Purchase Agreement dated April 9, 2007 (7)**10.7
                
                Warrant
      Agreement dated April 9, 2007 (7)**10.8
                
                Letter
      Agreement between Axion Investment Corp. and Royal Bank of Canada
      (8)10.9
                
                Development
      Agreement dated October 6, 2008 between the Company, Abdul Ladha, Overture
      Development Corporation, Surrey Central City Holdings Ltd. and Bullion
      Reef Holdings Ltd. (9)**10.10
                
                First
      Amendment dated October 22, 2008 to Development Agreement dated October 6,
      2008 (10)**10.11
                
                Second
      Amendment dated October 27, 2008 to Development Agreement dated October 6,
      2008 (11)**10.12
                
                Third
      Amendment dated January 13, 2009 to Development Agreement dated October 6,
      2008 (12)**10.13
                
                License
      Agreement dated May 15, 2009 between the Company and iCollector
      Technologies Ltd. and ABC Live Auction World Ltd. (15)10.14
                
                License
      Agreement dated June 1, 2009 between the Company and RapidFusion, Inc. and
      Pacific Amber Technologies, Inc. (15)10.15
                
                Voting
      Agreement dated July 17, 2009 between Abdul Ladha and Hanifa Ladha and Top
      Favour Limited (13)10.16
                
                Sample
      indemnity agreement between Ableauctions.com, Inc. and each of its
      directors (14)10.17
                
                Agreement
      establishing the Able (U.S.) Liquidating Trust (15)10.18
                
                Agreement
      establishing the Able (U.S.) Distribution Trust (15)10.19
                
                Agreement
      establishing the Able (Canada) Distribution Trust (15)10.20
                
                Transfer
      and Assignment of Assets and Assumption of Liabilities
  (15)10.21
                
                Form
      of Securities Purchase Agreement (Regulation S) (2)10.22
                
                Form
      of Warrant dated February 5, 2010 (Regulation S) (2)10.23
                
                Form
      of Director’s Offer and Acceptance Letter (2)10.24
                
                Form
      of Officer’s Offer and Acceptance Letter (2)10.25
                
                Consulting
      Services Agreement (2)10.26
                
                Operating
      Agreement (2)10.27
                
                Equity
      Pledge Agreement (2)10.28
                
                Option
      Agreement (2)10.29
                
                Voting
      Rights Proxy Agreement (2)10.30
                
                Lease
      Agreement (2)10.31
                
                Form
      of Warrant dated March 11, 2010 (Regulation S) (18)10.32
                
                Form
      of Securities Purchase Agreement (Regulation D) (18)10.33
                
                Form
      of Registration Rights Agreement (18)10.34
                
                Form
      of Warrant dated March 11, 2010 (Regulation D) (18)10.35
                
                Placement
      Agent Agreement (18)10.36
                
                Equity
      Interests Transfer Agreement between Henan Province Pingdingshan Hongli
      Coal & Coke Co., Ltd. on the one hand, and Dongping Wu, Xiaoling Zhao
      and Dianqing Li on the other, for the Shuangrui Equity Interests dated as
      of August 10, 2010 (20)10.37
                
                Equity
      Interests Transfer Agreement between Henan Province Pingdingshan Hongli
      Coal & Coke Co., Ltd. on the one hand, and Mingxun Du and Xingling
      Li  on the other, for the Xingsheng Equity Interests dated as of
      August 10, 2010 (20)14
                
                Code
      of Ethics (16)21.2
                
                Subsidiaries
      of SinoCoking Coal and Coke Chemical Industries, Inc.
  (15)23.1
                
                Consent
      of Frazer & Frost LLP*31.1
                Certification
      Pursuant to Rule 13a-14(a) and 15d-14(a) (4) of Chief Executive Officer
      *31.2
                Certification
      Pursuant to Rule 13a-14(a) and 15d-14(a) (4) of Chief Financial Officer
      *32.1
                Certification
      Pursuant to Section 1350 of Title 18 of the United States Code of Chief
      Executive Officer*32.2
                Certification
      Pursuant to Section 1350 of Title 18 of the United States Code of Chief
      Financial Officer*





*   Filed
herewith.


**  Denotes
an agreement with management.





(1)
            Incorporated
      by reference to the Form 10-SB filed by the Company with the Securities
      and Exchange Commission on November 18,
1999.


62




(2)
            Incorporated
      by reference to the Current Report on Form 8-K filed by the Company with
      the Securities and Exchange Commission on February 8,
  2010.





(3)
            Incorporated
      by reference to the Annual Report on Form 10-KSB for the fiscal year ended
      December 31, 2002 filed by the Company with the Securities and Exchange
      Commission on March 27, 2003.





(4)
            Incorporated
      by reference to the Form S-8 Registration Statement filed by the Company
      with the Securities and Exchange Commission on June 13,
    2003.





(5)
            Incorporated
      by reference to the Form S-8 Registration Statement filed by the Company
      with the Securities and Exchange Commission on May 8,
  2002.





(6)
            Incorporated
      by reference to the Quarterly Report on Form 10-QSB for the period ended
      September 30, 2006 filed by the Company on November 13,
    2006.





(7)
            Incorporated
      by reference to the Current Report on Form 8-K filed by the Company with
      the Securities and Exchange Commission on April 11,
  2007.





(8)
            Incorporated
      by reference to the Current Report on Form 8-K filed by the Company with
      the Securities and Exchange Commission on July 30,
  2007.





(9)
            Incorporated
      by reference to the Current Report on Form 8-K filed by the Company with
      the Securities and Exchange Commission on October 9,
  2008.





(10)
            Incorporated
      by reference to the Current Report on Form 8-K filed by the Company with
      the Securities and Exchange Commission on October 23,
  2008.





(11)
            Incorporated
      by reference to the Current Report on Form 8-K filed by the Company with
      the Securities and Exchange Commission on November 3,
  2008.





(12)
            Incorporated
      by reference to the Current Report on Form 8-K filed by the Company with
      the Securities and Exchange Commission on January 15,
  2009.





(13)
            Incorporated
      by reference to the Current Report on Form 8-K filed by the Company with
      the Securities and Exchange Commission on July 17,
  2009.





(14)
            Incorporated
      by reference to the registration statement on Form S-1 filed by the
      Company with the Securities and Exchange Commission on July 2,
      2002.





(15)
            Incorporated
      by reference to the registration statement on Form 10-K filed by the
      Company with the Securities and Exchange Commission on March 31,
      2010.





(16)
            Incorporated
      by reference to the Annual Report on Form 10-KSB for the fiscal year ended
      December 31, 2003 filed by the Company on March 30,
  2004.





(17)
            Incorporated
      by reference to the Form 8-K Current Report filed by the Company with the
      Securities and Exchange Commission on November 25,
  2009.





(18)
            Incorporated
      by reference to the Form 8-K Current Report filed by the Company with the
      Securities and Exchange Commission on March 15,
  2010.





(19)
              Incorporated
      by reference to the registration statement on Form S-1 filed by the
      Company with the Securities and Exchange Commission on May 11,
      2010.





(20)
            Incorporated
      by reference to the Form 8-K Current Report filed by the Company with the
      Securities and Exchange Commission on August 10,
  2010.


63





SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Dated:
      September 28, 2010
              SINOCOKING
      COAL AND COKE CHEMICAL INDUSTRIES, INC.By:
              /s/
      Jianhua LvJianhua
      LvChief
      Executive Officer(Principal
      Executive Officer)




Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.




Signature
                  
                  Title
                  
                  Date/s/
      Jianhua Lv
                  
                  Chairman
      of the Board, Chief Executive Officer and President
                    (Principal
      Executive Officer)
                  
                  September
      28, 2010Jianhua
      Lv/s/
      Zan Wu
                  
                  Chief
      Financial Officer
                    (Principal
      Financial Officer and Accounting Officer)
                  
                  September
      28, 2010Zan
      Wu/s/
      Liuchang Yang
                  
                  Vice
      President Operations and Director
                  
                  September
      28, 2010Liuchang
      Yang/s/
      Hui Huang
                  
                  Director
                  
                  September
      28, 2010Hui
      Huang/s/
      Jin Yao
                  
                  Director
                  
                  September
      28, 2010Jin
      Yao/s/
      Haoyi Zhang
                  
                  Director
                  
                  September
      28, 2010Haoyi
      Zhang/s/
      Yushan Jiang
                  
                  Director
                  
                  September
      28, 2010Yushan
      Jiang


64