Edgar Filing: SINOCOKING COAL & COKE CHEMICAL INDUSTRIES, INC.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

	þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
			For the quarterly period ended March 31, 2010

	¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from ___________ to ___________.

Commission File Number 0-28179

SinoCoking Coal and Coke Chemical Industries, Inc.

(Exact name of issuer as specified in its charter)

Florida

(State or other jurisdiction of incorporation or organization)

65-0420146

(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:	Common Stock, par value $0.001 per share
Securities registered pursuant to Section 12(g) of the Act:	None

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

	Large Accelerated Filer o	Accelerated Filer o
	Non-accelerated filer o	Smaller reporting company þ

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

As of March 31, 2010, the Registrant had 20,871,192 shares of common stock outstanding.

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC.

FORM 10-Q

INDEX

		Page Number

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3

PART I. FINANCIAL INFORMATION		4

Item 1.	Financial Statements	4

	Consolidated Balance Sheets as of March 31, 2010 (unaudited) and June 30, 2009	4

	Consolidated Statements of Operations and Comprehensive Income (loss) for the Three and Nine Months Ended March 31, 2010 and 2009	5

	Consolidated Statements of Shareholders' Equity	6

	Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2010 and 2009 (unaudited)	7

	Notes to the Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48

Item 4.	Disclosure Controls and Procedures	49

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 3.	Defaults Upon Senior Securities	66

Item 4.	Submission of Matters to a Vote of Security Holders	66

Item 5.	Other Information	66

Item 6.	Exhibits	67

SIGNATURES		68

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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 51 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.

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PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2010 AND JUNE 30, 2009

ASSETS
	March 31, 2010			June 30, 2009
	(Unaudited)
CURRENT ASSETS
Cash	$	30,425,754		$	278,399
Notes receivable		2,628,800			358,808
Accounts receivable, trade, net		7,302,158			6,454,663
Other receivables		2,681,375			225,288
Inventories		3,384,057			107,187
Advances to suppliers		4,686,862			8,364,448
Total current assets		51,109,006			15,788,793

PROPERTY, PLANT AND EQUIPMENT, net		18,212,181			16,954,659

OTHER ASSETS
Prepayments for land use rights		5,053,815			-
Prepayments for construction		18,308,710			7,462,008
Intangible - Land use rights, net		1,900,555			1,945,811
Intangible - Mineral rights, net		3,201,726			5,233,992
Other assets		102,690			102,550
Total other assets		28,567,496			14,744,361

Total assets	$	97,888,683		$	47,487,813

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable, trade	$	161,940		$	244,570
Short term loans - Bank		-			2,219,475
Short term loans - Others		513,450			1,098,750
Due to related parties		225,495			259,033
Due to shareholders		1,313,466			1,281,304
Other payables and accrued liabilities		836,900			744,058
Customer deposits		1,799,607			3,751,327
Taxes payable		1,665,512			2,682,254
Total liabilities		6,516,370			12,280,771

OTHER LIABILITIES
Warrant derivative liability		94,322,156			-
Total other liabilities		94,322,156			-

Total liabilities		100,838,526			12,280,771

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
Common share, $0.001 par value, 100,000,000 authorized,
20,871,192 and 13,117,952 issued and outstanding as of
March 31, 2010 and June 30, 2009, respectively		20,871			13,118
Additional Paid-in capital		-			3,531,959
Statutory reserves		1,722,441			1,127,710
Retained (deficit) earnings		(5,554,935	)		29,754,451
Accumulated other comprehensive income		861,780			779,804
Total shareholders' equity		(2,949,843	)		35,207,042

Total liabilities and shareholders' equity	$	97,888,683		$	47,487,813

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

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE NINE MONTHS ENDED MARCH 31, 2010 AND 2009
(UNAUDITED)

	Three months ended March 31,						Nine months ended March 31,
	2010			2009			2010			2009

REVENUE	$	15,247,494		$	15,555,560		$	48,140,913		$	35,877,960

COST OF REVENUE		9,605,889			8,317,622			27,411,765			19,632,301

GROSS PROFIT		5,641,605			7,237,938			20,729,148			16,245,659

OPERATING EXPENSES:
Selling		96,549			10,798			400,544			371,879
General and administrative		1,369,063			258,673			1,823,661			931,784
Total operating expenses		1,465,612			269,471			2,224,205			1,303,663

INCOME FROM OPERATIONS		4,175,993			6,968,467			18,504,943			14,941,996

OTHER INCOME (EXPENSE), NET
Finance expense, net		(8,666	)		(104,871	)		(124,629	)		(739,781	)
Other income (expense), net		109,980			(10,230	)		109,791			140,351
Change in fair value of warrants		(39,869,662	)		-			(39,869,662	)		-
Total other expense, net		(39,768,348	)		(115,101	)		(39,884,500	)		(599,430	)

(LOSS) INCOME BEFORE INCOME TAXES		(35,592,355	)		6,853,366			(21,379,557	)		14,342,566

PROVISION FOR INCOME TAXES		1,283,907			3,116,723			4,213,029			3,674,429

NET (LOSS) INCOME		(36,876,262	)		3,736,643			(25,592,586	)		10,668,137

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment		29,304			(34,030	)		81,976			78,064

COMPREHENSIVE (LOSS) INCOME	$	(36,846,958	)	$	3,702,613		$	(25,510,610	)	$	10,746,201

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
Basic and Diluted		15,441,258			13,117,952			14,086,729			13,117,952

(LOSS) EARNINGS PER SHARE
Basic and Diluted	$	(2.39	)	$	0.28		$	(1.82	)	$	0.81

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

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

																Accumulated
											Retained deficit					other
	Common Stock				Paid-in			Contribution			Statutory					comprehensive
	Shares		Par Value		capital			Receivable			reserves		Unrestricted			(loss) income			Total
BALANCE, July 1, 2008		13,117,952	$	13,118	$	3,032,685		$	(1,000	)	$	573,412	$	13,340,814		$	705,540		$	17,664,569

Net income														10,668,137						10,668,137
Adjustment of Statutory reserve												-		-						-
Shareholder cash contribution and by forfeited imputed interest						459,792			-								78,064			537,856
Foreign currency translation adjustments																				-

BALANCE, March 31, 2009 (Unaudited)		13,117,952	$	13,118	$	3,492,477		$	(1,000	)	$	573,412	$	24,008,951		$	783,604		$	28,870,562

Net income														6,299,798						6,299,798
Adjustment of Statutory reserve												554,298		(554,298	)					-
Shareholder cash contribution and by forfeited imputed interest						39,482			1,000											40,482
Foreign currency translation adjustments																	(3,800	)		(3,800	)

BALANCE, June 30, 2009		13,117,952	$	13,118	$	3,531,959		$	-		$	1,127,710	$	29,754,451		$	779,804		$	35,207,042

Shares and warrants issued in reverse acquisition recapitalization		405,710		406		(406	)													-
Shares and warrants sold for cash		7,344,935		7,345		44,062,265														44,069,610
Offering costs related to shares and warrants sold						(12,015,273	)													(12,015,273	)
Warrants issued and 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 1- for - 20 reverse split		2,595		2		(2	)													-
Net loss														(25,592,586	)					(25,592,586	)
Adjustment of Statutory reserve												594,731		(594,731	)					-
Imputed interests on loans from related parties waived																				-
Foreign currency translation adjustments																	81,976			81,976

BALANCE, March 31, 2010 (Unaudited)		20,871,192	$	20,871	$	-		$	-		$	1,722,441	$	(5,554,935	)	$	861,780		$	(2,949,843	)

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

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES
(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2010 AND 2009
(UNAUDITED)

	Nine months ended March 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(25,592,586	)	$	10,668,137
Adjustments to reconcile net (loss) income to cash
provided by operating activities:
Depreciation		1,924,036			1,322,840
Amortization and depletion		2,086,470			1,676,011
Bad debt expense		-			213,681
Change in fair value of warrants		39,869,662			-
Additional capital increased by forfeited imputed interest		-			459,792
Change in operating assets and liabilities
Accounts receivable, trade		(838,340	)		(15,292,057	)
Other receivables		(2,455,188	)		148,835
Notes receivables		(2,268,574	)		-
Inventories		(3,275,383	)		128,477
Prepayment		(9,173	)		-
Cash received from shareholder		30,400			-
Advances to suppliers		3,696,666			(4,716,475	)
Accounts payable, trade		(82,926	)		(2,245,812	)
Other payables and accrued liabilities		91,788			101,626
Customer deposits		(1,956,041	)		1,989,969
Taxes payable		(1,019,987	)		2,571,284
Net cash provided by (used in) operating activities		10,200,824			(2,973,692	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment		(3,157,908	)		(148,238	)
Payment on purchase of HongChang		-			(967,520	)
Prepayments on construction-in-progress and land use rights		(15,883,831	)		(292,900	)
Net cash used in investing activities		(19,041,739	)		(1,408,658	)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from sale of common stock and warrants		44,069,610			-
Cash offering cost related to common stock		(2,263,391	)		-
Repayments to short-term loans		(2,808,156	)		(726,392	)
Proceeds from short-term loans		-			2,389,059
Payments to related parties		(33,878	)		(1,811,156	)
Net cash provided by (used in) financing activities		38,964,185			(148,489	)

EFFECT OF EXCHANGE RATE ON CASH		24,085			17,803

INCREASE (DECREASE) IN CASH		30,147,355			(4,513,036	)

CASH, beginning of period		278,399			4,705,129

CASH, end of period	$	30,425,754		$	192,093

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income tax	$	4,425,065		$	2,924,628
Cash paid for interest expense	$	106,789		$	131,744

NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES
Construction-in-progress transferred to fixed assets	$	2,455,508		$	2,750,534
Bank loan paid off by shareholder	$	-		$	1,625,595
Warrants issued for placement agent fee	$	9,751,882		$	-

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

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

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 Ableauctions.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). As of March 31, 2010, Hongyuan received registered capital of $3,000,000 from Top Favour (BVI).

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.

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

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 of 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);

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

(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. The Company’s consolidated assets do not include any collateral for Hongli’s obligations. The creditors of Hongli do not have recourse against Top Favour (BVI) and Hongyuan.

The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information and with the instructions to Securities and Exchange Commission, or SEC, Form 10-Q and Article 10 of SEC Regulation S-X and consistent with the accounting policies stated in the Company’s audited financial statements as of June 30, 2009 on Form S-1. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended June 30, 2009, included in form S-1 filed with the SEC.

Management has included all adjustments, consisting only of normal recurring accruals and adjustments, considered necessary, in the opinion of management, to give a fair presentation of our consolidated interim financial position as of March 31, 2010, and our consolidated results of operations and cash flows for the nine months ended March 31, 2010 and 2009. Interim results are not necessarily indicative the results of future quarters or a full year.

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.

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

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

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 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 $5,595 and $53,143 for the three month, and $20,921 and $133,220 for the nine months ended March 31, 2010 and 2009, respectively.

Foreign currency translation and other comprehensive income

The reporting currency of the Company is the US dollar. The functional currency of the Company is the US dollar compared to the functional currency of BVI which is the Hong Kong Dollar (HKD) and of 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 three months and nine months ended March 31, 2010 and 2009, the transaction gains and losses were not significant.

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

The balance sheet amounts with the exception of equity at March 31, 2010 and June 30, 2009 were translated at RMB6.82 to $1 and RMB 6.84 to $1, respectively, and at HKD7.76 to $1 and HKD7.75 to $1, respectively. The average translation rates applied to income and cash flow statement amounts for the three and nine months ended March 31, 2010 were at RMB6.82 to $1 and for the three and nine months ended March 31, 2009 were at RMB6.83 to $1. The average translation rates applied to income and cash flow statement amounts for the three and nine months ended March 31, 2010 were at HKD7.76 to $1 and for the three and nine months ended March 31, 2009 were at HKD7.75 to $1 and HKD7.77 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 March 31, 2010:

	Carrying Value at		Fair Value Measurement at
	March 31, 2010		March 31, 2010
			Level 1		Level 2	Level 3
Warrant liability (Unaudited)	$	94,322,156	$	—	$	$	94,322,156

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

	Warrants 1			Warrants 2			Warrants 3			Warrants 4			Warrants 5
# of shares exercisable		590,446			3,082,027			117,163			250,000			36,763
Valuation date	2/5/2010			3/11/2010			3/11/2010			3/11/2010			2/5/2010
Exercise price	$	12.00		$	12.00		$	12.00		$	6.00		$	48.00
Stock price	$	26.00		$	31.75		$	33.63		$	31.75		$	26.00
Expected term(year)		5.00			5.00			5.00			5.00			7.18
Risk-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 exercisable		590,446			3,082,027			117,163			250,000			36,763
Valuation date	3/31/2010			3/31/2010			3/31/2010			3/31/2010			3/31/2010
Exercise price	$	12.00		$	12.00		$	12.00		$	6.00		$	48.00
Stock price	$	30.90		$	30.90		$	30.90		$	30.90		$	30.90
Expected term(year)		4.85			4.95			4.97			4.95			7.03
Risk-free interest rate		2.48	%		2.53	%		2.53	%		2.53	%		3.29	%
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 three and nine months ended March 31, 2010, there were no impairment charges.

The Company did not identify any 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.

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

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

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. For the three and nine months ended March 31, 2010, the Company did not write off any uncollectible receivables. For the three months and nine months ended March 31, 2009, the Company wrote off $0 and $213,681 uncollectible receivables. As of March 31, 2010 and June 30, 2009, management did not record a reserve for allowance for doubtful accounts.

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 March 31, 2010 and June 30, 2009, the management believes 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.

Property, plant and equipment, net

Property, 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:

	Estimated Useful Life
Building and plant	30-40 years
Machinery and equipment	10-20 years
Other equipment	5 years
Transportation equipment	5-7 years

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

Construction-in-progress includes direct costs of construction of mining tunnel improvements. Interest incurred during the period of construction, if material, is capitalized. 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 tons. The Company’s coal reserves are controlled either 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 of March 31, 2010 and June 30, 2009, there was no impairment of long lived assets.

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 operations and other comprehensive income (loss) as “change in fair value of warrants”.

Due the reverse acquisition 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.

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.

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

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SINOCOKING COAL AND COKE CHEMICAL INDSUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

incurred. No significant penalties or interest relating to income taxes have been incurred during the three months and nine months ended March 31, 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”). Prior to January 1, 2008, the Company’s subsidiary and VIEs are generally subject to an income tax at an effective rate of 33% (30% national income taxes plus 3% local income taxes) on taxable income, which is based on the net income reported in the statutory financial statements after appropriate tax adjustments. The statutory rate has been changed to 25%, effective January 1, 2008.

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 13% or 17% of the gross sales price, respectively. 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.

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 adjustment.

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

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

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 to have a material impact on its consolidated financial statements.

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DSINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

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 Company does not expect the adoption of this ASU to 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.

Note 3 - Business acquisition

On February 5, 2010, the Company 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 Ableauctions.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 incurs to affect the business combination, including finder’s fee, advisory, legal, accounting, valuation, and other professional and consulting fees, were $1,211,785 and accounted for as expense for the three and nine months ended March 31, 2010.

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

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 are as summarized as follows:

	Three Months ended March 31,				Nine Months ended March 31,
	2010		2009		2010		2009
	(Unaudited)				(Unaudited)
Coke	$	8,315,510	$	7,848,510	$	22,268,692	$	25,180,329

Coal tar		358,820		190,654				868,491
						950,348
Raw coal		6,573,164		6,493,275		17,729,428		8,806,019

Washed coal		-		1,023,121		7,192,445		1,023,121
Total	$	15,247,494	$	15,555,560	$	48,140,913	$	35,877,960

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. As of March 31, 2010 and June 30, 2009, the Company had cash deposits which were not covered by insurance of $6,223,342 and $5,679, respectively. The Company has not experienced any losses in such accounts.

For the nine months ended March 31, 2010 and 2009, all of the Company’s sales were generated in the PRC as well as account receivables.

For the three months ended March 31, 2010, 66.1% of the Company’s total revenues were from three major customers accounted individually for 39.2%, 18.5%, and 8.4% of total revenues, respectively. For the nine months ended March 31, 2010, 93.5% of the Company’s total revenues were from the same three major customers accounting individually for 51.2%, 30.2%, and 12.1% of total revenues, respectively.

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

Accounts receivable balances with those three customers accounted for 48.8%, 46.9%, and 0% of the total accounts receivable as of March 31, 2010, respectively.

For the three months ended March 31, 2009, 72.28% of the Company’s total revenues were from two major customers accounted individually of 57.3% and 14.9%, respectively. For the nine months ended March 31, 2009, 85.1% of the Company’s total revenues were from the five major customers accounted individually of 30.0%, 17.8%, 15.7%, 11.7% and 9.9%, respectively.

For the nine months ended March 31, 2010 and 2009, all of the Company’s purchases of raw materials were generated in the PRC as well as accounts payable. For the three months ended March 31, 2010, three major suppliers provided 96.4% of the raw materials purchase with each supplier individually accounted for 60.9%, 20.6% and 14.8%, respectively. For the nine months ended March 31, 2010, two major suppliers provided 56.1% of the Company’s raw material purchases with each supplier individually accounting for 33.6% and 22.5%, respectively. As of March 31, 2010, there were no accounts payable balances associated with those suppliers.

For the three months ended March 31, 2009, two major suppliers provided 96.9% of the Company’ purchase of raw material with each supplier individually accounted for 51.4% and 45.5%, respectively. For the nine months ended March 31, 2009, three major suppliers provided 58.5% of the Company’ purchase of raw material with each supplier individually accounted for 25.0%, 20.5% and 12.9%, respectively.

Note 6 – 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 $2,628,800 and $358,808 as of March 31, 2010 and June 30, 2009, respectively.

Note 7 – Inventories

Inventories as of March 31, 2010 and June 30, 2009 consisted of the following:

	March 31, 2010 (Unaudited)		June 30, 2009
Raw materials	$	2,164,320	$	31,994
Work in process		753,563		-
Supplies		95,005		-
Finished goods		371,169		75,193
Total	$	3,384,057	$	107,187

Note 8 – 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.

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

Advances to suppliers as of March 31, 2010 and June 30, 2009 amounted to $4,686,862 and $8,364,448, respectively.

Note 9 – Prepayments for construction

Prepayment for land use right

Prepayments for land use rights are monies advanced for land acquired to expand the new coking factory. As of March 31, 2010, prepayments for land use right amounted to $5,053,815.

Prepayment for construction

Prepayments for construction are monies advanced to contractors or equipment suppliers related to the new coking factory and related facilities will be built to produce up to 900,000 tons of coke per year, coal gas-generated power, and other chemical refinery by-products.

The total contract price amounted to $35,534,168. Prepayments for construction as of March 31, 2010 and June 30, 2009 amounted to $18,308,710 and $7,462,008, respectively.

Note 10 – Property, plant and equipment, net

Property, plant and equipment as of March 31, 2010 and June 30, 2009 consisted of the following:

	March 31, 2010 (Unaudited)		June 30, 2009
Buildings and improvements	$	10,033,739	$	10,020,060
Mine development cost		10,606,488		5,004,179
Machinery and equipment		5,642,103		5,619,835
Other Equipment		398,194		392,019
Total		26,680,524		21,036,093
Less accumulated depreciation		(8,468,343)		(6,534,598)	)
Construction-in-progress		-		2,453,164
Total, net	$	18,212,181	$	16,954,659

Depreciation expense for the three months ended March 31, 2010 and 2009 amounted to $598,573 and $369,886, respectively, and amounted to $1,924,036 and $1,322,840 for the nine months ended March 31, 2010 and 2009, respectively. Construction-in-progress 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 11 – Intangible – land use rights, net

Land use rights, net consisted of the following as of March 31, 2010 and June 30, 2009:

	March 31, 2010 (Unaudited)				June 30, 2009

Land use rights	$	2,299,831		$	2,296,695
Accumulated amortization		(399,276	)		(350,884	)
Total land use rights, net	$	1,900,555		$	1,945,811

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

Amortization expense for the three and nine months ended March 31, 2010 amounted to $32,455 and $48,392, respectively. For the three and nine months and March 31, 2009, amortization expense amounted to $15,957 and $47,831 respectively.

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

Year ended June 30,	Amortization Expense
2010	$	15,965
2011		63,858
2012		63,858
2013		63,858
2014		63,858
thereafter		1,629,158
Total	$	1,900,555

Note 12 – Intangible - mineral rights, net

Mineral rights, net, consisted of the followings as of March 31, 2010 and June 30, 2009.

	March 31, 2010 (Unaudited)			June 30, 2009

Mineral rights	$	13,119,717		$	13,101,831
Accumulated depletion		(9,917,991	)		(7,867,839	)
Total, net	$	3,201,726		$	5,233,992

Depletion expense for the three months ended March 31, 2010 and 2009 amounted to $489,909 and $666, 942 respectively. For the nine months ended March 31, 2010 and 2009, depletion expense amounted to $2,038,078 and $1,628,180, respectively. Depletion expenses were charged to cost of revenue in the period incurred using unit-of-production method.

Note 13 – 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.

The Company had short-term bank loans amounted to $2,219,475 at June 30, 2009 and these loans have matured from August 2009 to March 2010. $483,450 of these bank loan balances were guaranteed by a third party and the remaining balances was guaranteed by Hongguang Power. The Company has paid off bank loan amounted to $2,219,475. Weighted average interest rates were 6.7% and 9.11% for the three and nine months ended March 31, 2010 respectively. Weighted average interest rates were $8.89% for the three and nine months ended March 31, 2009. Total interest expense on short term loans for the three months ended March 31, 2010 and 2009 amounted to $6,599 and $133,845, respectively, and were $85,634 and $277,385 for the nine months ended March 31, 2010 and 2009, respectively. For the three months and nine months ended March 31, 2010 and 2009, no interest was capitalized into construction-in-progress.

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

The Company also borrowed short-term loans from a third party, free of interest charge. As of March 31, 2010 and June 30, 2009, the loan balances due to this party amounted to $513,450 and $1,098,750, respectively.

Note 14 – Other payables and accrued liabilities

Other payables mainly consisted of payables to various contractors incurred in connection with the Company’s completed construction projects for the coal mines and its power plant. These payables for the construction projects bear no interest and are generally collateralized by the construction project in the form of mechanic’s liens.

Accrued liabilities mainly consisted of salary and utility expenses incurred.

Other payables and accrued liabilities consisted of the following as of March 31, 2010 and June 30, 2009:

	March 31, 2010 (Unaudited)		June 30, 2009

Construction payables	$	264,060	$	-
Other payables and accrued liabilities		572,840		744,058
Total	$	836,900	$	744,058

Note 15 – Taxes

Income Tax

Effective January 1, 2008, the New Enterprise Income Tax ("EIT") law replaced the existing laws for Domestic Enterprises ("DES") and Foreign Invested Enterprises ("FIEs") in the PRC. The new standard EIT rate of 25% has replaced the 33% rate previously applicable to both DES and FIEs. Companies established before March 16, 2007 will continue to enjoy tax holiday treatment approved by local government for a grace period of the next 5 years or until the tax holiday term is completed, whichever is sooner. Pursuant to the PRC tax law, net operating loss can be carried forward 5 years to offset future taxable income.

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.

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

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 three and nine months ended March 31, 2009, Baofeng Coking received an income tax exemption amounting to approximately $7,200,000. There was no such exemption received for the three and nine months ended March 31, 2010. As approved by a local tax bureau, Hongchang Coal owed total income tax for the 12-month ended December 31, 2009 of approximately $370,000, regardless the actual taxable income in that period.

The provision for income taxes consisted of the following for the three and nine months ended March 31, 2010 and 2009:

	Three months ended March 31,					Nine months ended March 31,
	2010 (Unaudited)		2009 (Unaudited)			2010 (Unaudited)		2009 (Unaudited)

US current income tax expense	$	-	$	-	$	-	$	-
BVI current income tax expense		-		-		-		-
PRC current income tax expense		1,283,907		3,116,723		4,213,029		3,674,429
Total provision for income taxes	$	1,283,907	$	3,116,723	$	4,213,029	$	3,674,429

The following table reconciles the statutory rates to the Company’s effective tax rate for the three and nine months ended March 31, 2010 and 2009:

	Three months ended March 31,						Nine months ended March 31,
	2010 (Unaudited)			2009 (Unaudited)			2010 (Unaudited)		2009 (Unaudited)

U.S. Statutory rate		34.00	%		34.00	%	34.00	%	34.00%
Foreign income not recognized in U.S.A		(34.00)	%		(34.00)	%	(34.00)	%	(34.00%)
BVI income tax		0.00	%		0.00	%	0.00	%	0.00%
PRC income tax		25.00	%		25.00	%	25.00	%	25.00%
China income tax exemption		(1.37)	%		(2.36)	%	(3.71)	%	(2.89%)
Other item (1)		(27.24)	%		22.84	%	(41.00)	%	3.51%
Effective rate		(3.61)	%		45.48	%	(19.71)	%	25.62%

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

(1) The (27.24%) and (41.00%) for the three and nine months ended at March 31, 2010, respectively, represents change in fair value of warrants of $39,869,662 incurred by SinoCoking in related to equity financing on February 5, 2010, and March 11, 2010. 22.84%, and the 3.51% for the three and nine months ended March 31, 2009, represents operating losses incurred by Hongquang and Hongchang. Management believes these 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 March 31, 2010, the estimated net operating loss carryforwards for U.S. income tax purposes amounted to $1,129,261 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 March 31, 2010. The valuation allowance at March 31, 2010 was $383,949. 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 $45.5 million as of March 31, 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 PRC amounting to $3,069,769 and $2,043,176 for the three months ended March 31, 2010, and $2,612,684 and $531,947 for the three months ended March 31, 2009, respectively.

VAT on sales and VAT on purchases in PRC amounted to $9,675,944 and $5,252,104 for the nine months ended March 31, 2010, and $6,607,927 and $2,294,242 for the nine months ended March 31, 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 March 31, 2010 and June 30, 2009 consisted of the following:

	March 31, 2010 (Unaudited)		June 30, 2009
VAT	$	260,288	$	502,867
Income tax		1,158,658		1,906,975
Others		246,566		272,412
Total taxes payable	$	1,665,512	$	2,682,254

Note 16 – 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

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

sold and issued 1,180,892 units for aggregate 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 whole 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 trades 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 which 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.

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. 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 $8,416,067 was charged to retained earnings.

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

	# of shares of underlying common stock		Value
Investor warrants @ 12.00		590,446	$	11,898,728
Callable investor warrants @ 12.00		3,082,027		72,324,038
Total value of warrants to investors		3,672,473		84,222,766
Gross cash proceeds from Equity financing $44,069,610
Gross cash proceeds allocated to warrants				(44,069,610	)
Exceeded amount charged to current period expense			$	40,153,156
Common stock issued to investors		7,344,935	$	-

Callable agent warrants @ 6.00		250,000	$	6,791,519
Callable agent warrants @ 12.00		117,163		2,960,363
7% cash fee paid to placement agents				2,188,391
Legal fee in connection with Equity financing				75,000
Total issuance costs				12,015,273
Less beginning balance in paid in capital				(3,524,206	)
Remaining amount of issuance costs charged to retained earnings			$	8,491,067

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Note 17 – 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 16, 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.

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

Options

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 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 full 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.

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

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.

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.

Those outstanding options were fully vested before the reserve acquisition was completed on February 5, 2010, and through March 31, 2010 no additional options have been granted or exercised.

The following consisted of the outstanding and exercisable options at March 31, 2010:

Outstanding Options

Exercisable Options

Number

Average

Remaining

Average

Number

Average

Remaining

Average

Of Options

Contract Life

Exercise Price

of Options

Contractual Life

Exercise Price

11,124

4.27 years

$86.00

11,124

4.27 years

$86.00

Warrants

In connection with the equity financing disclosed in Note 16, 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 36,763 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.

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 $$94,322,156 at March 31, 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)		Total

Outstanding, June 30, 2009	-	-			-		-
Granted	36,763	590,446	3,199,190		250,000		4,076,399
Forfeited	-	-	-		-		-
Exercised
Outstanding, March 31, 2010 (unaudited)	36,763	590,446	3,199,190		250,000		4,076,399

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

(1)

The warrants underlying 36,763 shares of the Company’s common stock are exercisable at any time until April 9, 2017 and with remaining contractual term of 7.03 years as of March 31, 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 4.85 years as of March 31, 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 4.95 and 4.97 years as of March 31, 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 4.95 years as of March 31, 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.

Note 18 – Earnings per Share

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

	3 months ended March 31,						9 months ended March 31,
	2010 (Unaudited)			2009 (Unaudited)			2010 (Unaudited)			2009 (Unaudited)
Net (loss) income for earnings per share	$	(36,876,262	)		$	3,736,643	$	(25,592,586	)	$	10,668,137
Weighted average shares used in basic and diluted computation		15,441,258				13,117,952		14,086,729			13,117,952
(Loss) Earnings per share-basic and diluted	$	(2.39	)		$	0.28	$	(1.82	)	$	0.81

As of March 31, 2010, the Company had warrants and option exercisable in aggregate of 4,082,458 of the Company’s common stock. For the three and nine months ended March 31, 2010, all outstanding warrants and options were excluded from the diluted earnings per share calculation as the Company had net losses. The Company had no warrants and options outstanding on March 31, 2009, and therefore no diluted effect on the earnings per share calculation for the three and nine months ended March 31, 2009.

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SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

(FORMERLY NAMED ABLEAUCTIONS.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

Note 19 – Commitments and contingencies

Lease Commitment

The Company leases its office space in downtown Pingdingshan under an operating lease with a one year term, which expires on June 30, 2010. The lease is generally renewable upon expiration and requires an up-front payment of the annual rent in the amount of $16,776 upon execution of the lease. Total future minimum rental payments as of March 31, 2010 amounted to $4,194.

Land Use Option

The Company’s 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), which rights would be effective for a 50 year period. Under the agreement, the Company may, but is not obligated to, pay the foregoing amount to acquire the land use rights. Hongli may acquire 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 may exercise its option to acquire the aforesaid land use rights by making payment by the end of June 30, 2010. Hongli will not incur any penalty if it does not exercise its option to acquire land use rights prior to June 30, 2010. As of March 31, 2010, Hongli had not made any payments to acquire the land use rights.

Note 20 – 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 common welfare fund.

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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.

Contributions into the common welfare fund is no longer required after 2006 in accordance with PRC Company Law.

As of March 31, 2010, the Company’s subsidiary Hongli and Hongchang’s statutory surplus reserves both had reached to 50% of the 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 certain amounts for mine reproduction maintenance based on the actual quantity of coal exploited.

The component of statutory reserves and the future contributions required pursuant to PRC Company Law are as follows as of March 31, 2010 and June 30, 2009:

	March 31, 2010 (unaudited)		June 30, 2009		50% of registered capital		Future contributions required as of March 31, 2010

Hongli	$	548,204	$	548,204	$	548,204	$	-
Hongguang		-		-		1,514,590		1,514,590
Hongchang (1)		218,321		25,208		206,535		-
Statutory surplus reserve		766,525		573,412		2,269,329		1,514,590
Mine reproduction reserve		955,916		554,298		-		-
Total statutory reserve	$	1,722,441	$	1,127,710	$	2,269,329	$	1,514,590

Note (1) the difference between statutory reserve of $218,321 and the 50% of registered capital of $206,535 was due to the effect of foreign currency exchange rate.

Note 21 – Related party transactions

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 of Hongli. 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 majority of the loans related to the aforesaid business acquisitions before June 30, 2009.

The Company imputed the interest on loans from Mr. Lv and Mr. Yang based on the prevailing rate which was 8.89% for the three months and nine months ended March 31, 2009. Imputed interest on the loans from related parties amounted $8,956 and $459,792 for the three and nine months ended March 31 2009, respectively. Imputed interest was transferred to additional paid-in capital.

Payables to Mr. Lv, and Mr. Yang as of March 31, 2010 and June 30, 2009 are as follows:

Due to Related Parties	March 31, 2010 (Unaudited)		June 30, 2009			Term	Manner of Settlement

Mr. Jianhua Lv	$	1,313,466		$	1,281,304	Short term	Cash
Mr. Liuchang Yang		225,495			259,033	Short term	Cash
Total	$	1,538,961		$	1,540,337

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ITEM 2.

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 three and nine months ended March 31, 2010 and 2009, should be read in conjunction with our financial statements, and the notes to those financial statements that are included elsewhere in this report. 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, a British Virgin Islands international business company (“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”.

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. On February 5, 2010 the share exchange transaction was completed. 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.

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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

Warrant Derivative Liability

Due the reverse acquisition 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.

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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 March 31, 2010. See Note 2 for the assumptions we used in the Cox-Ross-Rubinstein binomial model. Due to the short trading history of the Company’s common stock following the reverse acquisition, 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.

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.

SinoCoking’s VIE, Hongguan Power, 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 of its accounts receivable 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.

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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 Baofeng Mines were acquired for, and have a book value of $13,119,717, and an estimated total recoverable coal of 1,215,000 tons. In the fiscal year 2010, the Company extracted a total of 188,883 tons of coal from the Baofeng Mines, which is 15.5% of the total estimated recoverable coal. The Company recorded a depletion expense of $2,038,576 in this period.

Recently issued accounting pronouncements

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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.

Results of Operations

Three and Nine Months Ending March 31, 2009 Compared to Three and Nine Months Ending March 31, 2010

General. In the three and nine month periods ending March 31, 2010, the Company continued its strategy of increasing its coal trading activities, while the market for coke products, in management’s view, began to recover challenging conditions in late 2008 and the first half of 2009. In the nine month period ending March 31, 2010, the percentage of revenue was 48% from coke products and 52% from coal products, reflecting the Company’s shift toward coal product sales. Indicating a reversal of this trend, in the three months ending March 31, 2010, the percentage of revenue SinoCoking earned was originated approximately 57% from coke products and 43% from coal products.

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The Company also realized improved gross margins on coke and coal tar, although gross margins for raw coal decreased significantly as a result of coal trading activities which relied more heavily on coal sourced from third parties instead of from the Company’s own mines.

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 Baofeng Mines were inspected in September, October and December of 2008, and during the course of these inspections, mining activity was temporarily halted or reduced. The temporary reduction in coal extraction from the Baofeng Mines had various effects on the Company’s gross margins in 2008. Generally, raw coal extracted from the Company’s own mines is acquired at a lower cost per ton compared to raw coal purchased on the open market from third party suppliers. In the nine month period ending March 31, 2009, while the Company had sufficient thermal coal in stock, it had limited quantities of washed coal for coking purposes on hand. Accordingly, during the nine months ending March 31, 2009, the Company relied more on third party sources for washed coal which it used as an input to produce coke. Management does not immediately anticipate any additional safety inspections or pending stoppages of mining activities by the government, 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) since December 31, 2008 coke prices began to recover, and have been steadily trending upwards since March 2009, (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 that existed prior to the sharp pullback in global economic conditions experienced in the 2009 calendar year, and that these levels will be exceeded in the long term.

Revenues. SinoCoking’s revenues decreased by $308,066 or 1.98%, for the third quarter ending March 31, 2010, as compared to the corresponding period ending March 31, 2009. For the nine month period ending March 31, 2010, SinoCoking’s revenues increased by $12,262,953, or 34.18%, as compared to the corresponding nine month period ending March 31, 2009. The decrease in the quarter ending March 31, 2010 was caused by a decrease in coal product revenue in this quarter, offset by slight increase in coke product revenue. The increase for nine month period ending March 31, 2010 was caused primarily by a strong increase in coal product sales revenue, offset by a moderate decrease in revenue from coke sales. In the last calendar quarter of 2008, adverse global economic conditions began affecting coal and coke demand, and these effects continued into 2009, abating in the last half of 2009. However, coal product demand remained steady during these periods, and in response, in order to maintain profitability, in the first half of 2009 management decided to decrease coke production and increase coal sales and trading. In the nine months ending March 31, 2010, SinoCoking increased its coal product revenue by 153.55% as compared to the same period ending March 31, 2009. In the second half of the calendar year 2009, as market demand for coke products rebounded, 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, the Company resumed coke production and sales, selling more coke and less coal in the quarter ending March 31, 2010.

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SinoCoking’s revenues for the three month periods ending March 31, 2010 and 2009, respectively, categorized by product type (coke products and coal products), were as follows:

	Revenues

	Coke Products			Coal Products			Total
Revenues
Three Months Ending March 31, 2009	$	8,039,164		$	7,516,396		$	15,555,560
Three Months Ending March 31, 2010		8,674,329			6,573,165			15,247,494
Increase (decrease) in US$	$	635,165		$	(943,231)		$	(308,066)
% Increase (decrease) in US$		7.90	%		(12.55)	%		(1.98)	%
Quantity Sold (metric tons)
Three Months Ending March 31, 2009		40,187			208,129			248,316
Three Months Ending March 31, 2010		39,585			97,934			137,519
Increase (decrease)		(602	)		(110,195)			(110,797)
% Increase (decrease)		(1.50	)%		(52.93)	%		(44.60)	%

In the nine month period ending March 31, 2010, even through SinoCoking stepped up coke production toward the end of 2009 and in early 2010, coke product revenue in this period did not surpass the levels achieved in the same nine month period in the prior year. However, the Company nearly doubled its coal product revenue for the none month period ending March 31, 2010 as compared to the same period in the prior year. As further discussed below, the Company increased its sales of coal products in response to market prices for coal that were considered favorable by management during this period.

SinoCoking’s revenues for the nine month periods ended March 31, 2010 and 2009, categorized by product type (coke products and coal products), were as follows:

Revenues