UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER THE SECURITIES ACT
OF 1933



For the three months ended March 31, 2014

Commission File No. 333-167964









CHINA SHOUGUAN MINING CORPORATION

(Exact name of registrant as specified in its
charter)

Nevada

(State or other jurisdiction of incorporation)

27-2513824

(IRS Employer Identification No.)

6009 Yitian Road

New World Center Rm. 3207

Futian District, Shenzhen

People’s Republic of China

Telephone 0086-755-82520008

Facsimile 0086-755-82520156

(Address and telephone number of registrant’s
principal executive offices)

__________________________

Frank J. Hariton

1065 Dobbs Ferry Road

White Plains, New York

Tel: 914 674 4373; Fax: 914 693 2963

(Name, address and telephone number of agent
for service)

__________________________

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

Securities registered pursuant to Section 12(g)
of the Act: Common Stock, $0.0001 par value

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

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

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No

Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes x No

Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer

Non-accelerated filer Smaller
reporting company x

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

Issuer's revenues for the three months ended
March 31, 2014 were $518,073.

As of March 31, 2014, there were 115,000,000
shares of our common stock issued and outstanding. The Company is now quoting at OTCQB for the symbol CHSO. The aggregate market
value of the voting stock held by non-affiliates of the registrant, computed by reference to the $0.0001 par value price per share
paid for the shares is approximately $7,318.



DOCUMENTS INCORPORATED BY REFERENCE

Some exhibits required to be filed hereunder,
are incorporated herein by reference to our original Form S-1 Registration Statement, filed under CIK No 0001493893 on July 1,
2010, and in amendments filed thereafter, on the SEC website at www.sec.gov.





1









TABLE OF CONTENTS

|PART I      |  |                                                                                                                  |   
|----------- |  | ---------------------------------------------------------------------------------------------------------------- | --
|ITEM 1.     |  | Business                                                                                                         | 4 
|ITEM 1A.    |  | Risk Factors                                                                                                     | 17
|ITEM 1B.    |  | Unresolved Staff
    Comments                                                                                    | 28
|ITEM 2.     |  | Properties                                                                                                       | 28
|ITEM 3.     |  | Legal Proceedings                                                                                                | 28
|ITEM 4.     |  | Mine Safety Disclosure                                                                                           | 28
|            |  |                                                                                                                  |   
|PART II     |  |                                                                                                                  |   
|ITEM 5.     |  | Market for Registrant’s
    Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 28
|ITEM 6.     |  | Selected Financial
    Data                                                                                      | 29
|ITEM 7.     |  | Management's Discussion
    and Analysis of Financial Condition and Results of Operations                        | 29
|ITEM 7A.    |  | Quantitative and
    Qualitative Disclosures About Market Risk                                                   | 40
|ITEM 8.     |  | Financial Statements                                                                                             | 42
|ITEM 9.     |  | Changes In and
    Disagreements with Accountants on Accounting and Financial Disclosure                         | 61
|ITEM 9A(T). |  | Controls and Procedures                                                                                          | 61
|ITEM 9B.    |  | Other Information                                                                                                | 61
|            |  |                                                                                                                  |   
|PART III    |  |                                                                                                                  |   
|ITEM 10.    |  | Directors and
    Executive Officers and Corporate Governance                                                    | 62
|ITEM 12.    |  | Security Ownership
    of Certain Beneficial Owners and Management and Related Stockholder Matters               | 66
|ITEM 13.    |  | Certain Relationships
    and Related Transactions and Director Independence                                     | 67
|            |  |                                                                                                                  |   
|PART IV     |  |                                                                                                                  |   
|ITEM 15     |  | Exhibits, Financial
    Statement Schedules                                                                      | 68
|            |  |                                                                                                                  |   
|SIGNATURES  |  |                                                                                                                  | 69







2







INFORMATION REGARDING FORWARD-LOOKING STATEMENTS



This Quarterly Report on Form 10-Q contains
forward-looking statements. These statements relate to future events or our future financial performance. These statements involve
known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or
implied by forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue," the negative of such terms or other comparable terminology.
These statements are only predictions. Actual events or results may differ materially.



Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.
We undertake no duty to update any of the forward-looking statements after the date of this report to conform such statements to
actual results or to changes in our expectations.



Readers are also urged to carefully review
and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business,
including without limitation the disclosures made in PART I. ITEM 1A:. Risk Factors and PART II. ITEM 6 "Management's Discussion
and Analysis or Plan of Operation" included herein.



Available Information



Our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports that we file with the U.S. Securities and
Exchange Commission (SEC) are available at the SEC's public reference room at 100 F Street, N.E., Washington, D.C. 20549. The
public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers
that file electronically with the SEC.

















3







PART I.





Item 1. Business





Overview



China ShouGuan Mining Corporation (“ShouGuan”,
“we” and the “Company”) was incorporated in the State of Nevada on May 4, 2010. We are a holding company
that conducts business operations in Shandong Province in the People’s Republic of China (PRC). On June 23, 2010, we entered
into a stock exchange transaction with the shareholders of Bei Sheng Limited (“BSL”), whereby we issued 100,000,000
shares of common stock in exchange for 100% of the ownership interest in BSL, for the purpose of re-domiciling BSL as a Nevada
corporation in the United States. These shares were issued as restricted securities under SEC Rule 144. As a result of the share
exchange transaction, BSL became our wholly-owned operating subsidiary in the PRC. Unless otherwise indicated, all references to
the Company throughout this annual report include the operations of BSL and its subsidiaries and variable interest entities (“VIEs”).



We were founded by a number of business professionals
and experts in China who specialize in mining technologies, mining resources management and financial and strategic management.
Our primary focus is on acquiring existing gold mine in Shandong province of the PRC. These potential targets are mostly run with
low productivity because of inadequate funds and primitive technologies. We plan to re-engineer and redevelop these gold mines
through the transfer of advanced exploration and mining technologies, capital injection and effective management.



Our business model includes sourcing of early
stage gold mines with good profit potential, conducting feasibility studies to identify suitable projects, leasing the suitable
mining sites and facilities and managing the mining operations on these selected sites, with the goal of acquiring the mine if
the operations prove to be satisfactory based on the review criteria set by our experienced management. In addition, we also provide
consulting services in areas related to mine exploration and analysis to our clients on a project-by-project basis.



Revenues are derived from the sales of gold
concentrates, the principal raw material used in gold smelting operation to produce gold. All mining operations are outsourced
to Chongqing Yitong Mine Construction Engineering Co., Ltd. an independent third-party subcontractor, and we only take possession
of the gold concentrates when they are sold to smelters. At that time, the selling prices are determined from two factors, the
amount of gold in the gold concentrates and the price of gold on the date of sale. The amount of gold in the gold concentrates
is determined and agreed upon between the Company and the smelters and then the selling price is determined according to the official
gold price at the time of sale as indicated by the Shanghai Gold Exchange (http://www.sge.sh), an entity governed by the PRC Government).
On the consulting side, revenues are derived on a project-by-project basis and payment is collected as we complete our service
as outlined in the scope of each individual project. In order to minimize the effect of fluctuations of gold price and
to achieve better economies of scale in operations, the Company decides to focus more on mine exploration.



We target to grow proactively through continual
sourcing of existing gold mines in the PRC and managing them. These projects will be executed by BSL and its VIEs. Cunli Ji Gold
Mine was the first project commenced in May 2009. To ensure all mines are legally and properly operated, all target gold mines
are required to have full sets of government-approved licenses before effecting commencement of any business operations.



On December 28, 2010, the Company’s Form
S-1 registration statement (the “Registration Statement”) was declared effective by the SEC, allowing us to sell a
total of 1,000,000 shares of our common stock and raise a total of $500,000, which we intend to use to implement our business operations
(the “Offering”). The Offering was expired on June 26, 2011 as stated in the Registration Statement and the Board of
Directors of the Company has held a special meeting and resolved to extend the offering period for an additional 180 days. On October
30, 2011, the Company consummated the sale to 19 accredited investors





4







of an aggregate of 1,000,000 shares of its common stock,
par value $0.0001, at a per share price of $0.201, or $201,000 in the aggregate, pursuant to certain subscription agreements. These
shares were subsequently issued on January 12, 2012. This offering was the initial public offering of common stock of China Shouguan
Mining Corporation. The Company is now quoting at OTCQB for the symbol CHSO.



In May 2009, we commenced our first project,
the Cunli Ji Mine, located in Shandong, China.



On May 4, 2009, we, through BSL and our VIE,
XinGuan, entered into a Master Agreement, an Operating Lease agreement and an Acquisition Agreement with Penglai City Gold Mining
Holding Co. Ltd. The Master Agreement sets out the general terms of the Operating Lease agreement and the Acquisition Agreement.
Pursuant to the Operating Lease Agreement, XinGuan agreed to pay a monthly rent of $14,641 (RMB 100,000) for the right to lease
and manage the gold mine for a term of 20 months, with a rental deposit of $2,925,174 (equivalent to RMB 20 million). Pursuant
to the terms of the Acquisition Agreement, XinGuan agreed to acquire the gold mine for a purchase consideration of $5,089,803 if
the following conditions are satisfied upon the expiry of the operating lease agreement: 1) average daily ore production from the
Cunli Ji Mine has reached 80 tons ore more for the year 2010, and 2) the mine has obtained ISO (or equivalent) certification on
or before January 3, 2011. The above agreement was subsequently extended to January 3, 2012. On January 3, 2012 the above transaction
was closed. The Cunliji Mine was acquired by the Company and the rental deposit became part of the purchase consideration.



On May 6, 2011, the Company, through its variable
interest entity, Yantai Jinguan Investment Co., Ltd. (“Yantai”), entered into a lease agreement with Longkou Dayuan
Gold Mining Co. Ltd., an unrelated third party being the legal owner and holding the mining license of the Dayuan gold mine (the
“Lease Property”) regarding Dayuan Gold Mine. Under the agreement, the Company agrees to pay the aggregate rental payments
of approximately $20 million for a term of 10 years commencing from April 1, 2011 through April 1, 2021 to obtain the right to
manage and operate the Lease Property in the repayment schedule, whereas the Company is committed to pay $12 million equal to 6
years’ rental, no later than September 30, 2011 and the remainder will be paid no later than March 1, 2017. On September
25, 2011, both parties signed a Supplemental Agreement agreed to defer the aforesaid balance of payment of $6 million to March
31, 2012. On January 21, 2013, the payment was agreed to further extend to September 30, 2013. At present, the balance payable
is around US$500,000 and both parties agreed to extend the payment to September 30, 2014.



In July 2013, the Yantai local government informed
the Company that the Shandong Province has promulgated a new local regulation. The regulation stated that all underground mines
in the territory which has a production of under 40,000 tonnes per year will all be forced to close down before the end of 2015.
As such, since Cunli Ji Mine falls within the category, the Company decided to sell the mine for money and to invest in mines in
other territories, which includes investing in mine exploration areas, and, acquiring or leasing some tailings environmental protection
projects.



On 21st February 2014 SSIC acquired
99% shareholdings of Daxinganling Yiguanyuan Mining Investment Company Limited (“DYM”) for a consideration of RMB4,000,000.
DYM focuses on mine exploration in the Daxinganling area in the Heilongjiang Province in north-eastern part of China. DYM has signed
a Memorandum of Understanding with Daxinganling Guolin Mining Company Limited, a wholly-owned subsidiary of the Daxinganling local
government in July 2013, which stated that the two parties would cooperate together to explore the precious metals mines in the
Daxinganling area. The completion of the acquisition and the exploration activities are expected to launch in the second quarter
of 2014.



On 31st March 2014, the Company
signed an agreement with Yantai Jinjian Smelting Technology Limited (85%) and Yantai Jihao Trading Limited (15%), where 100% interests
in XinGuan was transferred for a total consideration of approximately $7,300,000 (Equivalent to RMB45 million). It resulted in
a gain of $454,200 (equivalent to RMB2.78 million) compared with its net assets value. On the other hand, it resulted in a profit
of RMB9,000,000 for the Company compared with the original acquisition consideration in 2010.



The Company will restructure the whole group
following the completion of the selling of XinGuan and inclusion of DYM in the second quarter.





5







Corporate History and Structure







China ShouGuan Mining Corporation was incorporated
in the State of Nevada on May 4, 2010. On May 27, 2010, Harry Orfanos, our original director and incorporator in the State of Nevada,
resigned as our President and Chief Executive Officer and the Board of Directors appointed Mr. Feize Zhang to serve as our President,
Treasurer, Chief Executive Officer and Director, Mr. Ming Cheung as Secretary, Chief Financial Officer and Director and Mr.Jingfeng
Lv as Chief Technical Officer.

On June 23, 2010, we entered into a stock exchange
transaction with the shareholders of Bei Sheng Limited (“BSL”), whereby we issued 100,000,000 shares of common stock
in exchange for 100% of the ownership interest in BSL, for the purpose of re-domiciling BSL as a Nevada corporation in the United
States. These shares were issued as restricted securities under SEC Rule 144. As a result of the merger, BSL became our wholly-owned
operating subsidiary in the PRC.BSL was incorporated in the British Virgin Islands on December 17, 2009 as a limited liability
company for the purpose of holding 100% equity interest in Golden Wide International Limited (“GWIL”).



GWIL was incorporated in the Hong Kong Special
Administrative Region (“Hong Kong”) on June 18, 2009 as a limited liability company. GWIL formed Shoujin Business Consulting
(Shenzhen) Limited (“SBCL”) as a wholly foreign-owned enterprise under the laws of the PRC on April 23, 2010. SBCL
is principally engaged in the business of providing consulting services in the PRC.



Shenzhen Shouguan Investment Co., Ltd (“SSIC”)
is an investment holding company established in Shenzhen, on December 1, 2008. It is 70% owned by Mr. Feize Zhang, our Chairman
and CEO, 20% owned by Mr. Jingfeng Lv, our Chief Technical Officer, and 10% owned by Mr. Jianxi Yang, a director of Yantai JinGuan
Investment Limited, SSIC’s subsidiary.

Yantai JinGuan Investment Limited (“JinGuan”)
was incorporated in Yantai, the PRC and is a subsidiary held 99% by SSIC.

Penglai XinGuan Investment Limited (“XinGuan”)
was incorporated in Penglai, the PRC and is the wholly-owned subsidiary of JinGuan. XinGuan houses our licenses and operations
in Penglai, the PRC.

The following diagram illustrates our current
corporate structure:









6







To satisfy the investment restrictions in the
PRC mining business, the Company, through SBCL entered into and consummated certain contractual arrangements with SSIC, JinGuan
and XinGuan. As a result of these contractual arrangements, which obligates SBCL to absorb the risk of loss from the activities
of SSIC, JinGuan and XinGuan ,and enables SBCL to receive all of its expected residual returns, we account for SSIC, JinGuan and
XinGuan ,and their subsidiaries, as a variable interest entity (“VIE”) under U.S. GAAP and we consolidate their results
in our consolidated financial statements.

Since the Company, BSL, GWIL, SBCL and its
VIE arrangement as SSIC were under common control with the same ultimate beneficial owners, who are officers and directors of the
Company, the re-domiciling transaction and VIE arrangement was accounted for as a transfer of entities under common control and
all disclosures referencing business operations of our VIEs were made throughout this report as if the share exchange transaction
had become effective as of the beginning of the first period presented, even though the Company was not yet incorporated in Nevada.
As such, the Company, BSL and its subsidiaries and VIEs are hereinafter collectively referred to as the Company and all are consolidated
in our financial statements.



Prior to acquisition of the Company shares,
Mr. Zhang, Mr. Cheung and Mr. Lv were not affiliates of the Company. They were also not an affiliate of any of the Company’s
shareholders.



Contractual Arrangements



Gold mining is a highly restricted industry
in China. As such, it is extremely difficult for PRC gold mining companies to obtain government approval on having foreign ownership.
Accordingly, BSL's PRC subsidiary, SBCL, which is considered foreign-invested, is currently ineligible to directly own the required
exploration and mining licenses in China. Our exploration and mining business is currently provided through contractual arrangements
with BSL and its VIEs in China, which are currently SSIC and its subsidiaries, JinGuan and XinGuan.



BSL's VIEs sell gold concentrates directly
to our customers, which are typically the refinery plants in China. We have been and are expected to continue to be dependent on
our VIEs to operate our exploration and mining business. SBCL has entered into contractual arrangements with our VIEs, which enable
us to:



|- | exercise effective control over the VIEs;                                    
|- | -----------------------------------------------------------------------------
|- | receive substantially all of the economic benefits from the VIEs; and        
|- | have an exclusive option to purchase all of the equity interests in the VIEs.



SBCL entered into a series of agreements (“VIE
agreements”) amongst SSIC, JinGuan and XinGuan and the individual owners of SSIC, JinGuan and XinGuan and details of the
VIE agreements are as follows:



|1. | Exclusive Technical Service and Business Consulting Agreement, signed on May 15, 2010 - SBCL has the exclusive right to provide to SSIC, JinGuan and XinGuan, consulting services, including operational management, human resources management, research and development of the technologies related to the operations of SSIC, JinGuan and XinGuan. SSIC, JinGuan and XinGuan pay to SBCL annually consulting service fees in an amount equal to all of their revenue for such year. These agreements run for a 10-year term and are subject to automatic renewal for an additional 10 year term provided that no objection is made by both parties on the renewal.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. | Exclusive Option Agreement - SBCL has the option to purchase all of the assets and ownership of SSIC, JinGuan and XinGuan at any time.
|-- | --------------------------------------------------------------------------------------------------------------------------------------



|3. | Equity Pledge Agreement, signed on May 15, 2010 - SSIC, JinGuan and XinGuan agree to pledge their legal interests to SBCL as a security for the obligations under the Exclusive Technical Service and Business Consulting Agreement.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. | Proxy Agreement - SSIC, JinGuan and XinGuan irrevocably grant and entrust SBCL the right to exercise its voting and other stockholder rights.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------



|5. | Operating Agreement, signed on May 15, 2010 - SBCL agrees to participate in the operations of SSIC, JinGuan and XinGuan in different aspects.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------



With the above agreements, SBCL demonstrates
its ability to control SSIC, JinGuan and XinGuan as the primary beneficiaries and the operating results of the VIEs were included
in the consolidated financial statements.



As a result of the selling of Cunli Ji Mine the
Company decides to restructure the VIE structure of the whole group.

XinGuan commenced operations on our first mining
project, the Cunli Ji Gold Mine, in May 2009. XinGuan holds the operating right to Cunli Ji Gold Mine ("CJ Mine") with
all regulatory and government operating licenses in China.



7









On May 4, 2009, the Company, through BSL and
its VIE, XinGuan, entered into a Master Agreement, an Operating Lease Agreement and an Acquisition Agreement with Penglai City
Gold Mining Holding Co. Limited (PCGM), an unrelated third party which is the legal owner and holds the PRC State license to the
Cunli Ji Mine. The Master Agreement sets out the general terms of the Operating Lease Agreement and the Acquisition Agreement.
Pursuant to the terms of the Operating Lease Agreement, XinGuan agrees to pay a monthly rent of $14,641 (RMB 100,000) for the right
to lease and manage the gold mine for a term of 20 months, with a rental deposit of $2,925,174 (RMB 20 million). Pursuant to the
terms of the Acquisition Agreement, XinGuan agrees to acquire the gold mine for a purchase consideration of $5,089,803 if the following
conditions are satisfied upon the expiration of the Operating Lease Agreement: 1) average daily ore production from the Cunli Ji
Mine has reached production of 80 tons of ore or more for the year 2010, and 2) the Cunli Ji mine has obtained ISO (or equivalent)
certification on or before January 3, 2011, which was subsequently extended to January 3, 2012. On January 3, 2012 the above transaction
was closed. The Cunli Ji Mine was acquired by the Company and the rental deposit became part of the purchase consideration.



On September 1, 2009, XinGuan entered into
a Construction Project Agreement with Jinhai Mine Underground Engineering Ltd. ("Jinhai"), an unrelated third party,
to carry out the underground exploration and ancillary work at the CJ Mine. Jinhai will conduct all underground exploration activities
and construction work in accordance with the design and work drawings provided by XinGuan on a monthly basis and will be required
to meet all regulatory and safety standards specified by XinGuan and the PRC for underground mineral exploration operations in
the Shandong Province. The Agreement was effective on September 1, 2009 and was valid for one year. Through mutual consent by both
parties, this Agreement was renewed on August 28, 2010 for an additional year until August 28, 2011, with the contracted prices
and all other terms unchanged. No relationship exists between Jinhai, the subcontractor we rely on for all of our mining operations
in the PRC, and Penglai City Gold Mining Holding Co. Limited, the legal owner and holder of the PRC State license to the Cunli
Ji Mine; they are unrelated parties. On September 30, 2010, XinGuan and Jinhai mutually agreed to terminate the renewed agreement
unconditionally effective from November 1, 2010. On October 1, 2010, XinGuan entered into another Construction Project Agreement
with Wenzhou Mine Engineering Construction Group Co. Ltd. (“WMEC”), an unrelated third party, to carry out the underground
explorations and ancillary work at the Cunli Ji Mine. WMEC conducted all underground mineral exploration activities and construction
work in accordance with the design and work drawings provided by XinGuan on a monthly basis and will be required to meet all regulatory
and safety standards specified by XinGuan and the PRC for underground mineral exploration operations in the Shandong Province.
The Agreement was effective on October 1, 2010 and was valid for one year. It was further renewed for another year to September
30, 2012. On October 1, 2012, XinGuan entered into a new Construction Project Agreement with Chongqing Yitong Mine Construction
Engineering Co. Ltd. for one year to replace WMEC after the termination of the contract.



On June 18, 2010, XinGuan paid an additional
amount of $1,309,679 to PCGM as an additional rental deposit on the same terms as the original agreement. The additional deposit
would become part of the purchase consideration upon successful closing of the acquisition or will be refunded in full if the
mining operations do not meet the production levels set forth in the agreement.



The following contractual agreements were entered
into with unrelated third parties with regard to the operation of the Cunli Ji Mine:



|1. | Master Agreement signed on May 4, 2009 between XinGuan and Penglai City Gold Mining Holding Co. Ltd. - Sets out the general terms of the Operating Lease Agreement and the Acquisition Agreement.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. | Operating Lease Agreement signed on May 4, 2009 between XinGuan and Penglai City Gold Mining Holdings Co. Ltd. - XinGuan agreed to pay a monthly rent for the right to lease and manage the CJ Mine for a term of 20 months.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | Acquisition Agreement signed on May 4, 2009 between XinGuan and Penglai City Gold Mining Holding Co. Ltd. - XinGuan has the option to purchase the CJ Mine on or before January 3, 2011 if certain production and licensing conditions are met. The Agreement was subsequently extended to January 3, 2012. On January 3, 2012 the above transaction was closed and the Cunli Ji Mine was acquired by the Company.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





8







|4. | Construction Project Agreement, renewed and new agreement signed on same terms and conditions for an additional one year period on August 28, 2010 between XinGuan and Jinhai Mine Underground Engineering Limited. On September 30, 2010, XinGuan and Jinhai mutually agreed to terminate the renewed agreement unconditionally effective from November 1, 2010. On October 1, 2010, XinGuan entered into another Construction Project Agreement with WMEC, an unrelated third party, to carry out the underground mineral explorations and ancillary work at the Cunli Ji Mine. The Agreement was effective on October 1, 2010 and was valid for one year. It was further renew for another year until September 30, 2012. On October 1, 2012, XinGuan entered into a new Construction Project Agreement with Chongqing Yitong Mine Construction Engineering Co. Ltd. for one year to replace WMEC after the termination of the contract.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. | Gold Concentrate Processing Agreement, signed on July 1, 2009 between XinGuan and Shandong Humon Smelting Co., Ltd.
|-- | -------------------------------------------------------------------------------------------------------------------



Current Mining Property and Location





Cunli Ji Gold Mine (“CJ Mine”)



The Cunli Ji Gold Mine is located in Shandong
is a coastal province of eastern PRC. Shandong is located on the eastern edge of the North China Plain (see map below). From the
economic aspect, Shandong is one of the wealthiest provinces in China, with its economic development focuses on large enterprises
with well-known brand names. Shandong ranks first among the provinces in the production of precious metals such as gold and diamonds.
It is also the biggest industrial producer and one of the top manufacturing provinces in China. Shandong has also benefited from
South Korean and Japanese investment, due to its geographical proximity to those countries. In 2008, the nominal GDP and GDP per
capital for Shandong were RMB3.11 trillion (US$446 billion) and RMB33,083 (US$4,749) respectively, ranking second and seventh accordingly
in the country. Penglai City is a port, a town and an administrative subdivision of Yantai, which Yantai is a prefecture-level
city in Shandong province. Yantai is the largest fishing seaport in Shandong and a robust economic center today.







9







Mining Areas:



Cunli Ji Mine consists of three mining and
exploration areas namely, Cunliji Mining Area (”Cunliji”), Jiyingshan Exploration Area (”Jiyingshan”) and
Chenjiagou Exploration Area (”Chenjiagou”). The Cunliji Mining Area has an exploration right and a mining right while
both Jiyingshang and Chenjiagou each has an exploration right. Geographically, Jiyingshan locates in the middle of the whole site;
Chenjiagou on west to northwestern side; and Cunliji on the southeast side.



Location and Access:



The Cunli Ji Mine is an underground mine located
in Cunliji Town, Penglai, Shandong Province in the PRC covering a site area of 0.425 sq. km. The geological coordinate of the mine
is EL120°50′15′′ ~ EL120°50′49′′ and NL37°33′31′′ ~ NL37°32′12′′. The
CJ Mine consists of three mining areas, 1) Cunliji Mining Area (“Cunliji”), 2) Jiyingshan Exploration Area (“Jiyingshan”)
and 3) Chenjiagou Exploration Area (“Chenjiagou”). Jiyingshan locates roughly in the middle of the Cunli Ji Mine, Chenjiagou
on the west–northwest region and Cunliji on the southeast region. The whole site is 35 km to the south of Penglai City, Shandong
Province and 5 km to the east of Cunliji Town. It is under administrative division of Cunliji Town, Penglai City. There is 30 km
from the west of the Cunli Ji Mine to Longkou Port and 60 km from the east of the Cunli Ji Mine to Yantai Port. The Cunli Ji Mine
is easily accessible by interlinked highways including the Mou-Huang Highway (running from Mouping to Huang County) and the Peng-Qing
Highway (running from Penglai to Qingdao). Access to the underground workings at the Cunli Ji Mine is via a ramp from the surface
and connecting numerous levels.



Identifying Information of the Cunli Ji
Mine:







Mining license No.: 3700000720179

Gold Mining Ratification: Gold - State Approval
(2008) No.17

Exploration license No.: 3700000710963

Safety production license: (Shandong Approval)
FM Safety (2008) 06-0104

Safety production license: (Shandong Approval)
FM Safety (2008) 06-0187



Exploration Rights:

Exploration license No.: T37120080102000548

Exploration license No.: T37120080602009999



Area of the Cunli Ji Mine:







Cunliji Mining Area: 106.255 acres

Chenjiagou Exploration Area: 3995.69 acres

Jiyingshan Exploration Area: 437.90 acres







Regional Geology



The Cunli Ji Mine is located at the northern Jiao-Liao
uplift in China-Korean platform and in the east of Yi-Shu fault zone. The formation, belongs to the Penglai formation, a subdivision
of Ludong formation in Huabei region of China. Fault structures are developed with widespread strata in the region and magma activities
were once frequent. The geology of the region is characterized by the main fault structure running from NNE to NW, and the secondary
fault structures running South-North, East-West and North-East.





10









Rock Formations and Mineralization:



The Cunli Ji Mine is an underground gold mine.
Its mineral resources are mainly gold and others are lead, zinc and iron. The Cunliji Mining Area consists of five fault zones
in the region numbered as I, II, III, IV and V. The mine is mainly made of the beresite and granite. Gold ore body exists in the
altered rocks of fault structure of belts I and II. The ore minerals are mainly native gold, electrum, pyrite, galena, sphalerite,
and minor chalcopyrite. Useful elements in ores are mainly gold, then silver, lead, zinc, copper, etc. The ore body strikes 30°
and with dipping 70°~ 85°towards NW, average inclination 75 °. Strike length of the ore body is 300 m and the tendency
length is 180m. The veins are continuous while uneven in thickness from several centimeters to tens of centimeters, etc.. Veins
are developed well in the mining area, mainly including lamprophyre-veins and quartz-veins. The thickness of ore deposit is 0.87m
and the ore body strikes 35°, dipping 75°towards NW. Overall, the deposit is controlled by faults, and ore bodies still
are open in the depth of -277m.



The Jiyingshan and Chenjiagou Exploration Areas
mainly consist of quaternary loose rocks which are the alluvial and residual sediments. Structure of the mine areas is mainly faults,
which strikes mainly along north-east, north-east-east (NEE) and then north-west (NW) and east-west (EW). Exposed length of the
NE structure is around 100~300 m. The longest structure is 1200 m in length and 0.5~10m in width and strikes 10°- 45° towards
southeast, partly towards northwest. The steepest dip is around 60°- 90° with strikes around 75°. The main ore structure
includes dense block and fine veins. Dense massive structure of quartz veins or beresite with a strong silicification becomes a
massive homogenous ore. Ore mineral ingredients consist of mainly metallic minerals of pyrite, galena, electrum and free gold and
minor of chalcopyrite, sphalerite and pyrrhotite. Gangue minerals are mainly quartz, sericite, feldspar, then chlorite and calcite.



Work Completed and Present Conditions:



I) Cunliji Mining Area - The mine area consists
of two parts, one is mining area from the elevation 0m to 100m, the other is prospecting area under 0m. Currently only the 4 ore
bodies are mined.



II) Jiyingshan Exploration Area - The area
is divided into 3 parts that are Jiyingshan, Dacuijia and Shangwangjia. Currently exploration just has been done in the ore lode
of No.21 and No. 22 estimated resources in northern Jiyingshan occurrence, with thick and continuous ore bodies. The geological
condition of the ore lode of No.23 is the completely same with that of 21 and 22, while its resources estimation has not been done
for without engineering control.



III) Chenjiagou Exploration Area - It is the
one with the lowest work degree among the mining areas of the CJ Mine. From the current geological work, several alteration zones
have been found by geological mapping with light mountain project and exploration engineering. Several profiles have been done
in the middle of the area by using the IP ladder from which a better potential has been found with a fine seeing- mine effect.



Equipment, Infrastructure and Other Facilities
of the Cunli Ji Mine:





Mining equipment of the Cunli Ji Mine mainly
includes exploration machinery, ore mining machinery and mineral processing machinery. The machinery includes drillers, belt conveyor,
lift trucks, mining crusher, grinding mill, revolving screens, sand washer, etc. Site infrastructure includes roads, water supply
system, electric supply system, warehouses, living quarters, dining facilities and an administration building.



Current State of Exploration



As of the date of this report, the Cunli Ji
Mine property is without known reserves.



Mineral exploration was temporary halted in the
Dayuan Mine during the Chinese New Year holiday in January 2014 and February 2014 and hence gold concentrate was produced in the
following month only, i.e. March 2014. For the three months ended March 31, 2014, total gold ore production of the Dayuan Mine
was approximately 4,200 tons or a monthly average of 4,200 tons (using one-month average), with an average gold grade of 3.38 g/t.
Gold concentrate sold for the period was 12.54 kg. The production level, in units of daily tonnage of raw mineral rocks extracted,
averaged 182.6 tons/day (one-month average) during the period.



Both the Jiyingshan Exploration Area and the
Chenjiagou Exploration Area are exploratory in nature. First stage geochemical surveys have been completed.





11









We have engaged Shandong Zhaojin Exploration Co.,
Ltd. to carry out further exploration work on two major veins in the Cunliji Mining Area. However, we have no detailed plan or
timetable to explore these properties at this time.



On 31st March 2014, the Company
signed an agreement with Yantai Jinjian Smelting Technology Limited (85%) and Yantai Jihao Trading Limited (15%), where 100% interests
in XinGuan was transferred for a total consideration of approximately $7,300,000 (Equivalent to RMB45 million). It resulted in
a gain of $454,200 (equivalent to RMB2.78 million) compared with its net assets value. On the other hand, it resulted in a profit
of RMB9,000,000 for the Company compared with the original acquisition consideration in 2010.



Dayuan Gold Mine (“Dayuan Mine”)



The Dayuan Gold Mine is located
in Longkou city of Shandong, the PRC. Shandong is a coastal province of the Eastern PRC, which is located on the eastern edge
of the North China Plain (see map below). From the economic aspect, Shandong is one of the wealthiest provinces in China, with
its economic development focuses on large enterprises with well-known brand names. Shandong ranks first among the provinces in
the production of precious metals such as gold and diamonds. It is also the biggest industrial producer and one of the top manufacturing
provinces in China. Shandong has also benefited from South Korean and Japanese investment, due to its geographical proximity to
those countries.



Longkou , formerly Huang County, is a port city
in northeastern Shandong Province, on the eastern coast of the People's Republic of China. Longkou is a county-level city and
is administered by the prefecture-level city of Yantai. The total population of Longkou is 620,000. Longkou is quite mountainous
in the south and flat plains to the north. It has with low hills in the southeast and littoral plains in the northwest. There
are mountains and rivers surrounding Longkou.







12











Mine Area



The Dayuan Mine is located at the gold vein no.
117 of the Da Yuan mine area (“DY-117”) of the Longkou city. The mine area consists of the DY-117 Mine Area, which
has one mining right and one exploration right.



Location and Access



The Dayuan Mine is an underground mine located
at the gold vein no.117 of Da Yuan mining area, Xia Ding Jia Town, Longkou City of Shandong Province in the PRC covering a site
area of 0.3475sq. km. The geological coordinate of the mine is EL120°31’17” ~ EL120°31’52” and
NL37°28’32” ~ NL37°29’16”.



The Dayuan mine is located on northern low foothill
of Luo Shan, 20 km south of Huang Cheng of Longkou city. Longkou city is under the administration of Xia Ding Jia Town of Longkou
city. The Dayuan Mine is easily accessible by interlinked highways including Zhao-Huang Highway (running from Zhao Yuan city to
Huang Cheng city) on the west, 12 km from Highway 206 on the north, 15 km from Tong-San Highway (running from Tong Jiang city
to Sanya city) on the east, 30 km from Longkou Port in the northwest and 11 km from the Wen-San Highway (running from Wen Deng
city to San Shan Dao) on the south. Access to the underground workings at the Dayuan Mine is via a ramp from the surface and connecting
numerous levels.





Source of Power and Water:



The electricity supply in the DY-117 Mine Area
is mainly provided by East China Grid, with 500 kilo voltage of transmission base located close to the Dayuan Mine. The quaternary
unconfined aquifer layer nearby the Dayuan Mine represents the source of water supply.



Plant and Equipment of the Dayuan Mine (Modernization
and Physical Conditions):

We purchased all equipment, infrastructure and facilities of the Dayuan Mine from Longkou Datong Industry and Trade Co., Ltd. at
RMB 15,000,000 based on a Memorandum of Understanding for Equipment Transfer signed on March 8, 2011. All equipment, infrastructure
and facilities of the Dayuan Mine are believed in good condition and have been periodically upgraded.



Type of claim:







The gold in the mining area is deposited in a
lode or vein filled with mineral in the rock. The mining claim in the Dayuan Mine is granted by the Land and Resources Authority
of Shandong Province and is unpatented.



Identifying Information of the Dayuan Mine:







Mining Right:

Mining license no.: C3700002008094120000887

Gold mining ratification: Gold-State
Approval (2012) No.14

Concession period: From 29
December 2010 to 29 December 2013

Exploration license no.: 3700000310175

Safety production license:
(Shandong Approval) FM Safety (2008) 06-0216

Safety production license:
(Shandong Approval) FM Safety (2008) 06-0197

Area of the Dayuan Mine:



DY-117-(1) Mine Area: 92.54 acres

DY-117-(2) Mine Area: 69.188 acres



Regional Geology



The Dayuan Mine is located at the northwest of
Jiaodong Peninsula. Jiaodong refers to east of Jiaolai River in Shandong province, including Yantai, Weihai and the eastern Qingdao,
which together constitute the major part of Shandong Peninsula. The region is simple in term of geological structure, consisting
of loose sedimentary rock at the valley and widespread igneous rock, mainly granite, which gradually developed into mineral veins
(principally diorite porphyry) of different phases. Fault zones were developed in the region, with the Potouqing Fracture as the
main fault zone in the area. Vein no. 117 belongs to one of the secondary fault structures of Potouqing Fracture. The overall strike
of this vein is 45°, dipping 76°~ 85° towards SE, with 1800m in length above ground level, of which 580m in length
is within the Dayuan Mine.



Rock Formations and Mineralization:





The Dayuan Mine is an underground gold mine. It
is on the Zhaoyuan metallogenic zone, which belongs to the northern rim of Linglong Gold Field. The formation stemmed from the
southern side on the main fault zone of the Linglong Gold Field. The mineral ore resources are mainly gold, pyrite. Other minerals
are galena, chalcopyrite, sphalerite, quartz, sericite, feldspar and chlorite.





14









The DY-117 Mine Area consists of one gold vein
numbered 117, consisting of 2 ore bodies, namely 117-(1) and 117-(2). Overall strike of the ore bodies is 45°, dipping 76°~
85° towards SE. Ore body 117-(1) strikes 45° and with dipping 76°~ 85°towards SE. The tendency length of the ore
body within the mine is 580m. The vein is continuous and even in thickness ranging from 0.25m to 1.23m, with an average of 0.65m.
Gold grade of the ore body ranges from 1.36 Au g/ton to 9.87 Au g/ton, with an average of 4.44 Au g/ton. Ore body 117-(2) strikes
45° to 65° and with dipping 66°~ 77°towards NW. Its NE end is merged with the ore body 117-(1). The tendency length
of the ore body is also 580m. The vein is continuous and even in thickness ranging from 0.24m to 1.34m, with an average of 0.66m.
Gold grade of the ore body is estimated to range from 1.54 Au g/ton to 12.12 Au g/ton, with an average of 5.07 Au g/ton.



Work Completed and Present Conditions:



Both 117-(1) and 117-(2) ore bodies are explored
using vertical drilling wells and are open up to a depth of 610m. The DY-117 Mine Area consists of 6 plots with elevation of 200m,
160m, 120m, 90m, 50m and 10m respectively. The ore bodies at elevation of 50m and 10m were completely mined. Currently, there is
no exploratory work at the Dayuan Mine.



Equipment, Infrastructure and Other Facilities
of the Dayuan Mine:





Mining equipment of the Dayuan
Mine mainly includes exploration machinery, ore mining machinery and mineral processing machinery. The machinery includes drillers,
belt conveyor, lift trucks, mining crusher, grinding mill, revolving screens, sand washer, etc. Site infrastructure includes roads,
water supply system, electric supply system, warehouses, living quarters, dining facilities and an administration building.



Current State of Exploration:





As of the date of this
report, The Dayuan Mine property is without known reserves.



The Dayuan Mine commenced exploratory operation
in July 2011. Mineral exploration was temporary halted in the Dayuan Mine during the Chinese New Year holiday in January 2014 and
February 2014 and hence gold concentrate was produced in the following month only, i.e. March 2014. For the three months ended
March 31, 2014, total gold ore production of the Dayuan Mine was approximately 4,200 tons or a monthly average of 4,200 tons (using
one-month average), with an average gold grade of 3.38 g/t. Gold concentrate sold for the period was 12.54 kg. The production level,
in units of daily tonnage of raw mineral rocks extracted, averaged 182.6 tons/day (one-month average) during the period.



The Dayuan Mine is currently at the exploratory
stage. We have no detailed plan or timetable to explore the property at this time. So far, we do not have any plan to fund the
exploration program of this mine.



Description of Processing Facilities:



The processing facilities at Dayuan Mine Area
include a set of 12 processing machines consisting of ball mills, jiggers, screw classifiers, stirring tanks, flotation machine,
belt conveyors, concentrator and pressure filter. The raw ore is processed into gold concentrates through the following procedures.



Primary grinding takes place in a ball mill. The
ground product from the primary grinding process is first put through a jigger to recover the coarse gold particles then classified
in a screw classifier. Classifier underflow goes back to the ball mill. The overflow, sized at about 85% less than 0.074 mm, is
then sent to flotation; Flotation comprises a rougher stage and four cleaner stages on the rougher concentrate as well as three
scavenger flotation stages to yield the final concentrates; The final concentrates are then dehydrated by thickening and the thickener
underflow is then filtered.





15











Sample Collection, Preparation, Analysis
and Assay Control



A systematic procedure was developed for
the collection and preparation of percussion drill hole samples. We firstly identify gold bearing zones by collecting rock chip
samples from favorable locales for gold mineralization with reference to related literature survey and the geological map of the
mines. The target areas will be explored by trenching and rock-chip sampling. Depending on the sampling results, the target areas
are demarcated for detailed sampling in three-dimension. The rock sample produced from drilling are dry chips of drilled rock,
which is obtained from drill holes at equidistance. Each sample was about 1.0 meter in length, and not longer than 1.5 meter. The
samples are all taken by, or under the supervision of our geological experts. Based on the three-dimension sampling of the gold-bearing
zone (ore body), i.e. length, width, depth and grade, a global resource of the gold deposit is estimated.



Exploration geologists analyze and log
the sample to ascertain the prospective mineralisation within the drilled orebody. A representative sample is taken from the sack,
and is the sieved to remove excess dust. Once the desired sample has been washed and dried, exploration geologists will note the
weight percentage of the desired minerals in the sample. The samples will be stored in plastic cutting boxes before further chemical
analysis offsite. Samples of rocks or soil are then delivered to accredited laboratories for geochemical assay to determine metal
contents and detect geochemical anomalies. One of our accredited laboratories is Shandong Zhaojin Geological Exploration Co., Ltd.
(“Shandong Zhaojin”) Shandong Zhaojin. is granted the license for mineral exploration, geological drilling and exploration
and geological testing by Shandong Provincial Land Resources Department under the PRC government. For geochemical assay, rock and
soil samples are crushed, powdered, fused or digested in acid and then analyzed using different analytical methods. Since there
is always some loss of gold during the analytical procedure, the gold grade in the sample is believed unlikely to be overstated.
All samples were collected, handled and analyzed by Shandong Zhaojin using the standard preparation procedures in accordance with
the national standard GB/T1900-IS09000 "Quality management and quality assurance", which is considered adequate for the
preliminary level of evaluation. Quality control of all mine exploration projects in China is executed under the administration
of local exploration regulations, provincial regulations on exploration projects.



Our Proposed Business Strategy





Currently, most privately-owned gold mines
in China are poorly managed and operated and are usually mined to a depth of about 300 - 500 meters, far beyond a valid exploration
analysis of about 200~300 meters. Mining and exploration activities are generally done without any systematic planning and/or analysis.
This often leads to high waste of exploration / mining inputs and results in inefficient operations with low productivity. We intend
to re-engineer and redevelop our mining targets through the transfer of advanced exploration and mining technologies to identify
the geological features and locations of the ore bodies, as well as the formation trends of associated mineral veins. We feel that
the proposed business strategies of our experienced management team will provide a better solution to mine the ore bodies in a
more efficient and productive way. Our mining solutions include mining data collection and analysis, identification of ore locations
and running trends of veins, design of exploration and mining plans, on-site mine construction planning, formulation and customization
of mining methodologies, introduction of modern exploration and mining technologies to increase productivity, supervision of subcontracting
staff and provision of technical supports in relation to production management, mine ventilation, water discharge, system upgrade,
quality assurance, safety control, etc. Our current mineral exploration subcontractor is only responsible for the actual underground
exploration works like digging tunnels, underground transportation and mine extraction, and does not participate in any works related
to mine planning, data analysis, site identification and operational management.



Future potential mining projects







We target to grow proactively through continual
sourcing of existing gold mines in the PRC and managing them. Before investing in a potential mining project, we intend to go through
a series of procedures for preliminary assessment in order to determine the amount of minerals, if any, and therefore whether the
subject property should be acquired, based on the economic viability of extracting the potential minerals and profitably processing
them. To do so, we intend to engage geotechnical professionals to conduct such assessments and analyses.



16









We primarily base on two standard criteria
to assess potential acquisition targets. Firstly, whether the target mine is located on the major gold mineralization zone; Secondly,
whether the potential mine is located in an area with a “policy-friendly environment” in which we can operate the mine
smoothly under a favorable policy environment.



In July 2013, the Yantai local government informed
the Company that the Shandong Province has promulgated a new local regulation. The regulation stated that all underground mines
in the territory which has an production of under 40,000 tonnes per year will all be forced to close down before the end of 2015.
As such, since Cunli Ji Mine falls within the category, the Company decided to sell the mine for money and to invest in mines in
other territories, which includes investing in mine exploration areas, and, acquiring or leasing some tailings environmental protection
projects.



On 21st February 2014 SSIC acquired
99% shareholdings of Daxinganling Yiguanyuan Mining Investment Company Limited (“DYM”) for a consideration of RMB4,000,000.
DYM focuses on mine exploration in the Daxinganling area in the Heilongjiang Province in north-eastern part of China. DYM has signed
a Memorandum of Understanding with Daxinganling Guolin Mining Company Limited, a wholly-owned subsidiary of the Daxinganling local
government in July 2013, which stated that the two parties would cooperate together to explore the precious metals mines in the
Daxinganling area. The exploration activities are expected to launch in the second quarter of 2014.



Procedures for assessing a potential acquisition:



1) Two standard criteria must be satisfied;

2) Perform geological works including field
survey and field sampling;

3) Perform due diligence such as operations
and facilities, financial and legal documents, human resources, etc.



Item 1A. Risk Factors



The following risk factors should be considered
carefully in addition to the other information in this annual report.







RISKS ASSOCIATED WITH OUR COMPANY:



We are dependent on certain key personnel
and loss of these key personnel could have a material adverse effect on our business, financial condition and results of operations.



Messrs. Feize Zhang, our principal executive
officer, Terry Tsao, our principal financial officer and JingFeng Lv, our chief technical officer, have extensive contacts and
experience in the gold exploration and natural resource industry in China and we are dependent upon their abilities and services
to develop and market our business. They are responsible for overseeing all of our day-to-day business operations in the PRC of
our operating company, BSL, and its subsidiaries and VIEs, including the mining operations and negotiations for the sales of any
gold concentrates extracted. We may not be able to retain these executive officers/managers for any given period of time. The loss
of their services could have a material adverse effect upon our business operations, financial condition and results of operations.
In addition, we must attract, recruit and retain a sizeable workforce of technically competent employees in the PRC to run our
mining operations. Our ability to effectively implement our proposed business strategies and expand our operations will depend
upon the successful recruitment and retention of additional highly skilled and experienced management and other key personnel in
the PRC. If we cannot maintain highly experienced and skilled management teams, our business could fail and you could lose any
investment you make in our shares.





17









Since our business consists of managing
gold mining projects, the drop in the price of gold would negatively impact our asset values, cash flows, potential revenues and
profits.



We plan to pursue opportunities in properties
with gold mineralized material or reserves with exploration potential. The price that we pay to lease these properties will be
influenced, in large part, by the price of gold at the time of the leasing agreements. Our potential future revenues are expected
to be derived from the production and sale of gold from these properties, or from the sale of some of these properties. The value
of any gold reserves or other mineralized materials, and the value of any potential mineral production will vary in direct proportion
to changes in those mineral prices. The price of gold has fluctuated widely as a result of numerous factors beyond our control.
The effect of these factors on the price of gold and other minerals, and therefore the economic viability of any of our projects,
cannot accurately be predicted. Any drop in the price of gold and other minerals we may produce would negatively affect our asset
values, cash flows and potential revenues and profits.



We may not be able to find commercially
viable reserves.





Mineral exploration and development involve
a high degree of risk and few properties that are explored are ultimately developed into producing mines. The reserve estimates,
if any, are based only on prefeasibility studies that are inherited with following drawbacks:



| | - | Limited amount of drilling completed to date;
| | - | ---------------------------------------------



| | - | The process testing is limited to small pilot plants and bench scale testing;
| | - | -----------------------------------------------------------------------------



| | - | Difficulty in obtaining expected metallurgical recoveries when scaling up to production scale from pilot plant scale;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | - | Preliminary nature of the mine plans and processing concepts;
| | - | -------------------------------------------------------------



| | - | Preliminary nature of operating and capital cost estimates
| | - | ----------------------------------------------------------



| | - | Metallurgical flow sheets and recoveries still in development;
| | - | --------------------------------------------------------------



| | - | Limited history of prefeasibility studies that might underestimating capital and operating costs.
| | - | -------------------------------------------------------------------------------------------------



We cannot assure you
that any future mineral exploration and development activities will result in any discoveries of proven or probable reserves as
defined by the SEC. Further, we cannot provide any assurance that, even if we discover commercial quantities of mineralization,
a mineral property will be brought into commercial production. Development of our mineral property will follow only upon obtaining
sufficient funding and satisfactory exploration results.



Estimates of mineral reserves and of mineralized material are inherently
forward-looking statements, subject to error, which could force us to curtail or cease our business operations.





Estimates of mineral reserves and of mineralized
materials are inherently forward-looking statements subject to error. Unforeseen events and uncontrollable factors can have significant
adverse impacts on the estimates. Actual conditions inherently differ from estimates. The unforeseen adverse events and uncontrollable
factors may include: geologic uncertainties including inherent sample variability, metal price fluctuations, fuel price increases,
variations in mining and processing parameters, and adverse changes in environmental or mining laws and regulations. The timing
and effects of variances from estimated values cannot be predicted.



18







| | · | Geologic Uncertainty and
                                                Inherent Variability: Estimated reserves and additional mineralized materials are generally derived from appropriately spaced
                                                drilling to provide a high degree of assurance in the continuity of the mineralization, however, there is generally
                                                variability between duplicate samples taken adjacent to each other and between sampling points that cannot be reasonably
                                                eliminated. There are also unknown geologic details that are not always identified or correctly appreciated at the current
                                                level of delineation. This results in uncertainties that cannot be reasonably eliminated from the estimation process. Some of
                                                the resulting variances can have a positive effect and others can have a negative effect on mining operations. Acceptance of
                                                these uncertainties is part of any mining operation.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Metal Price Variability: The prices for gold, silver, copper and other precious metals fluctuate in response to many factors beyond anyone's ability to predict. The prices used in making the reserve estimates are disclosed and differ from daily prices quoted in the news media. The percentage change in the price of a metal cannot be directly related to the estimated reserve quantities, which are affected by a number of additional factors. For example, a ten percent (10%) change in price may have little impact on the estimated reserve quantities and affect only the resultant positive cash flow, or it may result in a significant change in the amount of reserves. Because mining occurs over a number of years, it may be prudent to continue mining for some period during which cash flows are temporarily negative for a variety of reasons, including a belief that the low price is temporary and/or the greater expense would be incurred in closing a property permanently.                                                                                                                                                                                  



| | · | Fuel Price Variability: The cost of fuel can be a major variable in the cost of mining; one that is not necessarily included in the contract mining prices obtained from mining contractors but is passed on to the overall cost of operation. Future fuel prices and their impact are difficult to predict, but could force us to curtail or cease our business operations.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Variations in Mining and Processing Parameters: The parameters used in estimating mining and processing efficiency are based on testing and experience with previous operations at the properties or on operations at similar properties. Various unforeseen conditions can occur that may materially affect the estimates. In particular, past operations indicate that care must be taken to ensure that proper ore grade control is employed and that proper steps are taken to ensure that the leaching operations are executed as planned. Unforeseen difficulties may occur in our current or future operations which would force us to curtail or cease our business operations.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Changes in Environmental and Mining Laws and Regulations: Our reserve estimates contain cost estimates based on compliance with current laws and regulations in the PRC. While there are no currently known proposed changes in these laws or regulations, significant changes have affected past operations of mining companies in China and if additional changes do occur in the future, we may or may not be able to comply with them and continue our operations.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We may not be able to successfully compete
with other mineral exploration and mining companies.



We compete with other mineral exploration and
mining companies or individuals, including large, well established mining companies with substantial capabilities and financial
resources in the PRC, to research and acquire rights to mineral properties containing gold and other minerals. There is a limited
supply of desirable mineral lands available for claim staking, lease or other acquisition in the PRC. We don't know if we will
be able to successfully acquire any prospective mineral properties against competitors with substantially greater financial resources
than we have. If we cannot successfully acquire other mining properties to manage and explore and generally expand our business
operations, our results of operations, financial condition and future revenues could be reduced and you could suffer a loss of
any investment you make in our shares.





19







We are subject to the many risks of doing
business internationally, including but not limited to the difficulty of enforcing liabilities in foreign jurisdictions.



We are a Nevada corporation and, as such, are
subject to the jurisdiction of the State of Nevada and the United States courts for purposes of any lawsuit, action or proceeding
by investors. An investor would have the ability to effect service of process in any action against the Company within the United
States. In addition, we are registered as a foreign corporation doing business in Shandong Province, PRC, and as such, are subject
to the local laws of Shandong Province governing an investors’ ability to bring actions in foreign courts and enforce liabilities
against a foreign private issuer, or any person, based on U.S. federal securities laws. Generally, a final and conclusive judgment
obtained by investors in U.S. courts would be recognized and enforceable against us in the Shandong Province courts having jurisdiction
without re-examination of the merits of the case.



Investors may experience difficulties in
effecting service of legal process, enforcing foreign judgments or bringing original actions in China based upon U.S. laws, including
the federal securities laws or other foreign laws against us or our management.



All
of our current operations are conducted in the PRC and all of our directors and officers are nationals and residents of China.
All or substantially all of the assets of these persons are located outside the United States and in the PRC. As a result, it may
not be possible to effect service of process within the United States or elsewhere outside China upon these persons. In addition,
uncertainty exists as to whether the courts of China would recognize or enforce judgments of U.S. courts obtained against us or
such officers and/or directors predicated upon the civil liability provisions of the securities laws of the United States or any
state thereof, or be competent to hear original actions brought in China against us or such persons predicated upon the securities
laws of the United States or any state thereof.



ll of our assets are located in China
and all of our revenues are derived from our operations in China. As a result, any changes in the political climate and/or economic
policies of the PRC government could have a significant impact upon our current and proposed future business operations in the
PRC and our results of operations and financial condition.



Our business operations may be adversely affected
by the current and future political and economic environment in the PRC. The PRC has operated as a socialist state since the mid-1900s
and is controlled by the Communist Party of China. The Chinese government exerts substantial influence and control over the manner
in which we must conduct our business activities. The PRC has only permitted provincial and local economic autonomy and private
economic activities since the late1970s. The government of the PRC has exercised and continues to exercise substantial control
over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to successfully operate
in China may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, import and
export tariffs, raw materials, environmental regulations, land use rights, property and other matters. Under current leadership,
the government of the PRC has been pursuing economic reform policies that encourage private economic activity and greater economic
decentralization; however, if the PRC significantly alters any of its current policies, with or without notice, it could have a
substantial adverse effect on our results of operations and financial condition and could result in a total loss of any investment
you make in our shares.



We are employing a VIE structure, which
could materially adversely affect our business operations if current regulations change in the PRC regarding VIE’s.



In order to comply with PRC regulatory requirements,
we operate our businesses operations through companies in the PRC with which we have contractual relationships, but in which we
do not have controlling ownership. We cannot be sure that the PRC government will continue to view our operating arrangements
to be in compliance with PRC regulations if any new laws

regarding operating businesses in the PRC through
VIEs may be adopted in the future. If we are determined not to be in





20







compliance, the PRC government could levy fines, revoke our
business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues,
require us to restructure our business, corporate structure or operations, impose additional conditions or requirements with which
we may not be able to comply, impose restrictions on our business operations or on our customers, or take other regulatory or enforcement
actions against us that could be harmful to our business.



In addition, our Exclusive Option Agreement
with SSIC, JinGuan and XinGuan and its shareholders gives our Chinese subsidiary, SBCL, the option to purchase all or part of the
equity interests in them. The option may not be exercised by SBCL if the exercise would violate any applicable laws and regulations
in China or cause any license or permit held by, and necessary for the operation of SSIC, JinGuan and XinGuan, to be cancelled
or invalidated. Under the laws of China, if a foreign entity, through a foreign investment company that it invests in, acquires
a domestic related company, China’s regulations regarding mergers and acquisitions may technically apply to the transaction.
If these regulations apply, an examination and approval of the transaction by China’s Ministry of Commerce (“MOFCOM”),
or its local counterparts would be required. In addition, an appraisal of the equity interest or the assets to be acquired would
also be mandatory. Since the scope of business activities (mining operations and consulting services), as defined in the business
license of SBCL, does not involve the MOFCOM approval and monitoring, we do not believe at this time that an approval or an appraisal
is required for SBCL to exercise its option to acquire SSIC, JinGuan and XinGuan. In light of the different views on this issue,
however, it is possible that the central MOFCOM office in Beijing will issue a standardized opinion imposing the approval and appraisal
requirement. If we are not able to purchase the equity of SSIC, JinGuan and XinGuan, then we will lose a substantial portion of
our ability to control SSIC, JinGuan and XinGuan and our ability to ensure that SSIC, JinGuan and XinGuan will act in our interests.
Our business in the PRC could be materially adversely affected if there are any changes to current regulations in the PRC which
would affect our business operations and current business agreements with our PRC operating company and its subsidiaries and VIEs,
resulting in a loss of any investment you make in our shares.



Our principal stockholder, who is also
an officer and director of our Company, has conflicts of interest which may not always be resolved favorably to our Company and
its stockholders.



We operate our businesses in China through
SSIC, JinGuan and XinGuan. Our chairman, CEO and principal shareholder, Mr. Feize Zhang, owns 70% of the equity interest in SSIC.
Conflicts of interests between his duties to us and to SSIC may arise. We cannot assure you that if and when conflicts of interest
arise, he will act in the best interests of our Company, or that any conflict of interest will be resolved in our favor. These
conflicts may result in management decisions that could negatively affect our operations and potentially result in the loss of
opportunities.



We could be subject to tax consequences
in the PRC that could negatively impact our business operations, revenues and results of operations.



Our arrangements with SSIC, JinGuan and XinGuan
and its shareholders may be subject to a transfer pricing adjustment by the PRC tax authorities which could have an adverse effect
on our income and expenses. We could face material and adverse tax consequences if the PRC tax authorities determine that our contracts
with SSIC, JinGuan and XinGuan and its shareholders were not entered into based on arm’s length negotiations. If the PRC
tax authorities determine that any of our contractual arrangements in the PRC were not entered into on an arm’s length basis,
they may adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. Such an adjustment may
require that we pay additional PRC taxes plus applicable penalties and interest, if any, which could materially affect our financial
condition and resulting revenues.



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



We are subject to the United States Foreign
Corrupt Practices Act, which generally prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign
officials for the purpose of obtaining or retaining business. In addition, we are required to maintain records that accurately
and fairly represent our transactions and have an adequate system of internal





21







accounting controls. Foreign companies, including
some that may compete with us, are not subject to these prohibitions, and therefore may have a competitive advantage over us. Our
executive officers and employees have not been subject to the United States Foreign Corrupt Practices Act prior to 2010. We have
no control over whether our employees or other agents will or will not engage in such conduct for which we might be held responsible.
If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences
that may have a material adverse effect on our business, financial condition and results of operations.



The PRC laws and regulations governing
our current business operations are sometimes vague and uncertain. Any changes in such PRC laws and regulations may have a material
and adverse effect on our business.



The PRC’s legal system is a civil law
system based on written statutes, in which system-decided legal cases have little value as precedents unlike the common law system
prevalent in the United States. There are substantial uncertainties regarding the interpretation and application of PRC laws and
regulations, including but not limited to the laws and regulations governing our business, or the enforcement and performance of
our arrangements with customers in the event of the imposition of statutory liens, death, bankruptcy and/or criminal proceedings.
The Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in
introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance,
commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume
of published cases and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws
and regulations involve significant uncertainties that are unclear at this time. New laws and regulations that affect existing
and proposed future businesses may also be applied retroactively. We are considered a “foreign persons” or “foreign
funded” enterprise under PRC laws, and as a result, we are required to comply with PRC laws and regulations. We cannot predict
what effect the interpretation of existing or new PRC laws or regulations may have on our businesses. If the relevant authorities
find us in violation of any PRC laws or regulations, they would have broad discretion in dealing with such a violation, including,
without limitation:



| | · | levying fines;
| | - | --------------



| | · | revoking our business and other licenses;
| | - | -----------------------------------------



| | · | requiring that we restructure our ownership or operations; and/or
| | - | -----------------------------------------------------------------



| | · | requiring that we discontinue any portion or all of our business operations in the PRC.
| | - | ---------------------------------------------------------------------------------------



Mining risks and insurance could negatively
effect on our profitability.



The business of mining for gold and other metals
is generally subject to a number of risks and hazards including environmental hazards, industrial accidents, labor disputes, unusual
or unexpected geological conditions, pressures, cave-ins, changes in the regulatory environment and natural phenomena such as inclement
weather conditions, floods, blizzards and earthquakes. At the present time, we have in effect statutory required social insurance
for all employees and mine workers and have obtained additional accidental insurance. There is currently no other insurance in
place for the mining site and management and even if we were to purchase additional insurance, we can't be sure that such insurance
would be available to us or that we could afford the premiums. Insurance coverage may not continue to be available or may not be
adequate to cover any resulting liability. In addition, insurance against risks such as environmental pollution or other hazards
as a result of exploration and production is not generally available to companies in the mining industry on acceptable terms. We
might also become subject to liability for pollution or other hazards which we may not be insured against, or which we may elect
not to insure against, because of premium costs or other reasons. Any losses from any of these events may cause us to incur significant
costs that could have a material adverse effect upon our financial performance and results of operations, which could negatively
impact any investment you make in our shares.



22







If we fail to maintain effective internal
controls over financial reporting, the price of our common stock may be adversely affected.



PRC companies have historically not adopted
a Western style of management and financial reporting concepts and practices, which includes strong corporate governance, internal
controls and computer, financial and other control systems. In addition, we may have difficulty in hiring and retaining a sufficient
number of qualified employees to work in the PRC. As a result of these factors, we may experience difficulty in establishing management,
legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records
and instituting business practices that meet Western standards for foreign subsidiaries. As a result, we may experience difficulties
in implementing and maintaining adequate internal controls as required under Section 404 of the Sarbanes-Oxley Act of 2002. This
could result in significant deficiencies or material weaknesses in our internal controls which could impact the reliability of
our financial statements and prevent us from complying with SEC rules and regulations and the requirements of the Sarbanes-Oxley
Act of 2002. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial
reporting, disclosure of management’s assessment of our internal controls over financial reporting or disclosure of our
public accounting firm’s attestation to or report on management’s assessment of our internal controls over financial
reporting may have an adverse impact on the price of our common stock.



Changes in interest rates could negatively
impact our results of operations, stockholders’ equity (deficit) and fair value of net assets.





Our investment activities and credit guarantee
activities expose us to interest rate and other market risks. Changes in interest rates, up or down, could adversely affect our
net interest yield. Although the yield we earn on our assets and our funding costs tend to move in the same direction in response
to changes in interest rates, either can rise or fall faster than the other, causing our net interest yield to expand or compress.
For example, due to the timing of maturities or rate reset dates on variable-rate instruments, when interest rates rise, our funding
costs may rise faster than the yield we earn on our assets. This rate change could cause our net interest yield to compress until
the effect of the increase is fully reflected in asset yields. Changes in the slope of the yield curve could also reduce our net
interest yield.



Interest rates can fluctuate for a number of
reasons, including changes in the fiscal and monetary policies of the federal government and its agencies, such as the Federal
Reserve. Federal Reserve policies directly and indirectly influence the yield on our interest-earning assets and the cost of our
interest-bearing liabilities. The availability of derivative financial instruments (such as options and interest rate and foreign
currency swaps) from acceptable counterparties of the types and in the quantities needed could also affect our ability to effectively
manage the risks related to our investment funding. Our strategies and efforts to manage our exposures to these risks may not be
effective in the future, which could negatively impact our results of operations and the price of our common stock.



RISKS RELATED TO DOING BUSINESS IN CHINA:



Adverse changes in political and economic
policies of the PRC government could impede the overall economic growth of China, which could reduce the demand for our products
and damage our business.



We conduct substantially all of our operations
and generate all of our revenues in China. Accordingly, our business, financial condition, results of operations and future revenue
prospects are affected significantly by economic, political and legal developments in China. The PRC economy differs from the economies
of most developed countries in many respects, including:



• the higher level of government involvement;

• the early stage of development of the
market-oriented sector of the economy;

• the rapid growth rate;

• the higher level of control over foreign
exchange; and

• the allocation of resources.



23







As the PRC economy has been transitioning from
a planned economy to a more market-oriented economy, the PRC government has implemented various measures to encourage economic
growth and guide the allocation of resources. While these measures may benefit the overall PRC economy, they may also have a negative
effect on us.



Although the PRC government has in recent years
implemented measures emphasizing the utilization of market forces for economic reform, the PRC government continues to exercise
significant control over economic growth in China through the allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and imposing policies that impact particular industries or companies in different ways.



Any adverse change in the economic conditions
or government policies in China could have a material adverse effect on the overall economic growth and the level of security and
surveillance investments and expenditures in China, which in turn could lead to a reduction in demand for our products and consequently
have a material adverse effect on our business and prospects.



The PRC government exerts substantial
influence over the manner in which we conduct our business activities.





The PRC government has exercised and continues
to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our
ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import
and export tariffs, environmental regulations, land use rights, property

and any number of other unknown matters.
The PRC central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or different
interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue
to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation
of economic policies, could have a significant effect on economic conditions in China, or particular regions in China, and could
require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures. Any of these actions by the
PRC government would severely and negatively impact our business operations and resulting revenues, which could result in a total
loss of any investment you make in our shares.



Restrictions on currency exchange may
limit our ability to receive and use our sales revenue effectively.





Most of our sales revenue and expenses are
denominated in Renminbi. Under PRC law, the Renminbi is currently convertible under the "current account," which includes
dividends and trade and service-related foreign exchange transactions, but not under the “capital account,” which includes
foreign direct investment and loans. Currently, the PRC operating subsidiaries and VIEs of BSL may purchase foreign currencies
for settlement of current account transactions, including payments of dividends to us, without the approval of the State Administration
of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, the relevant PRC governmental authorities
may limit or eliminate our ability to purchase foreign currencies in the future. Since a significant amount of our future revenue
will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenue
generated in Renminbi to fund our business activities outside China that are denominated in foreign currencies.



Foreign exchange transactions by PRC operating
subsidiaries under the capital account continue to be subject to significant foreign exchange controls and require the approval
of or need to register with PRC government authorities, including SAFE. In particular, if the PRC operating subsidiaries and/or
VIEs of BSL borrow foreign currency through loans from us or other foreign lenders, these loans must be registered with SAFE, and
if we finance the subsidiaries and/or VIEs by means of additional capital contributions, these capital contributions must be approved
by certain government authorities, including the Ministry of Commerce, or their respective local counterparts. These limitations
could affect the PRC operating subsidiaries’ and/or VIEs’ ability to obtain foreign exchange through debt or equity
financing, which could limit our business operations and impact our future revenues and financial condition.



24







Failure to comply with PRC regulations
relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident stockholders
to personal liability, limit our ability to acquire PRC companies or to inject capital into the operating PRC subsidiaries and/or
VIEs of BSL, limit BSL's PRC subsidiaries’/VIEs’ ability to distribute profits to us or otherwise materially adversely
affect us.





In October 2005, SAFE issued a public notice,
the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies
by Residents Inside China, or the SAFE Notice, which requires PRC residents to register with the competent local SAFE branch before
using onshore assets or equity interests held by them to establish offshore special purpose companies, or SPVs, for the purpose
of overseas equity financing. Under the SAFE Notice, such PRC residents must also file amendments to their registration in connection
with any increase or decrease of capital, transfer of shares, mergers and acquisitions, equity investment or creation of any security
interest in any assets located in China to guarantee offshore obligations. Moreover, if the SPVs were established and owned the
onshore assets or equity interests before the implementation date of the SAFE Notice, a retroactive SAFE registration is required
to have been completed before March 31, 2006. If any PRC resident stockholder of any SPV fails to make the required SAFE registration
and amended registration, the PRC subsidiaries of that SPV may be prohibited from distributing their profits and the proceeds
from any reduction in capital, share transfer or liquidation to the SPV. Failure to comply with the SAFE registration and amendment
requirements described above could also result in liability under PRC laws for evasion of applicable foreign exchange restrictions.



Because of uncertainty over how the SAFE Notice
will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business
operations or future strategies. For example, BSL's present and prospective PRC subsidiaries’ ability to conduct foreign
exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance
with the SAFE Notice by our PRC resident beneficial holders. In addition, such PRC residents may not always be able to complete
the necessary registration procedures required by the SAFE Notice. We also have little control over either our present or prospective
direct or indirect stockholders or the outcome of such registration procedures. A failure by our PRC resident beneficial holders
or future PRC resident stockholders to comply with the SAFE Notice, if SAFE requires it, could subject these PRC resident beneficial
holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit BSL's subsidiaries’/VIEs’
ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and
prospects.



We may be unable to complete a business
combination transaction efficiently or on favorable terms due to complicated merger and acquisition regulations which became effective
on September 8, 2006.



On August 8, 2006, six PRC regulatory agencies,
including the China Securities Regulatory Commission or CSRC, promulgated the Regulation on Mergers and Acquisitions of Domestic
Companies by Foreign Investors, which became effective on September 8, 2006. This new regulation, governs the approval process
by which a PRC company may participate in an acquisition of assets or equity interests. Depending on the structure of the transaction,
the new regulation will require the PRC parties to make a series of applications and supplemental applications to the government
agencies. In some instances, the application process may require the presentation of economic data concerning a transaction, including
appraisals of the target business and evaluations of the acquirer, which are designed to allow the government to assess the transaction.
Government approvals will have expiration dates by which a transaction must be completed and reported to the government agencies.
Compliance with the new regulations is likely to be more time consuming and expensive than in the past and the government can now
exert more control over the combination of two businesses. Accordingly, due to the new regulation, our ability to engage in business
combination transactions has become significantly more complicated, time consuming and expensive, and we may not be able to negotiate
a transaction that is acceptable to our stockholders or sufficiently protect their interests in a transaction.









25







The new regulation allows PRC government agencies
to assess the economic terms of a business combination transaction. Parties to a business combination transaction may have to submit
to the Ministry of Commerce and other relevant government agencies an appraisal report, an evaluation report and the acquisition
agreement, all of which form part of the application for approval, depending on the structure of the transaction. The regulations
also prohibit a transaction at an acquisition price obviously lower than the appraised value of the PRC business or assets and
in certain transaction structures, require that consideration must be paid within defined periods, generally not in excess of a
year. The regulation also limits our ability to negotiate various terms of the acquisition, including aspects of the initial consideration,
contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation
of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, such
regulation may impede our ability to negotiate and complete a business combination transaction on financial terms that satisfy
our investors and protect our stockholders’ economic interests.



In addition to the above risks, in many instances,
we will seek to structure transactions in a manner that avoids the need to make applications or a series of applications with Chinese
regulatory authorities under these new M&A regulations. If we fail to effectively structure an acquisition in a manner that
avoids the need for such applications or if the Chinese government interprets the requirements of the new M&A regulations in
a manner different from our understanding of such regulations, then acquisitions that we have effected may be unwound or subject
to rescission. Also, if the Chinese government determines that our structure of any of our acquisitions does not comply with these
new regulations, then we may also be subject to fines and penalties.



Under the New EIT Law, we may be classified
as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and
our non-PRC stockholders.





China passed a new Enterprise Income Tax Law,
or the New EIT Law, and its implementing rules, both of which became

effective on January 1, 2008. Under the New
EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a
“resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income
tax purposes. The implementing rules of the New EIT Law define de facto management as “substantial and overall management
and control over the production and operations, personnel, accounting, and properties” of the enterprise. Because the New
EIT Law and its implementing rules are new, no official interpretation or application of this new “resident enterprise”
classification is available. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each
case.



If the PRC tax authorities determine that we
are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could
follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise
income tax reporting obligations. In our case, this would mean that income such as interest on offering proceeds and non-China
source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although under the New EIT Law and its implementing
rules dividends paid to us from BSL's PRC subsidiaries/VIEs currently qualify as “tax-exempt income,” we cannot guarantee
that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce
the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated
as resident enterprises for PRC enterprise income tax purposes. Finally, it is possible that future guidance issued with respect
to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed
on dividends we pay to our non-PRC stockholders and with respect to gains derived by our non-PRC stockholders from transferring
our shares. We are actively monitoring the possibility of “resident enterprise” treatment for the 2009 tax year and
are evaluating appropriate organizational changes to avoid this treatment, to the extent possible. If we were treated as a “resident
enterprise” by PRC tax authorities, we would be subject to taxation in both the U.S. and China, and our PRC tax may not be
creditable against any U.S. taxes we may owe.





26









Fluctuations in exchange rates could
adversely affect our business and the value of our securities.



The value of the RMB against the U.S. dollar
and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions
and foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB
to the U.S. dollar. Under the revised policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket
of certain foreign currencies. Following the removal of the U.S. dollar peg, the RMB appreciated more than 20% against the U.S.
dollar over the following three years. Since July 2008, however, the RMB has traded within a narrow range against the U.S. dollar.
It is difficult to predict how long the current situation may last and when and how the RMB exchange rates may change going forward.



Our revenues and costs are mostly denominated
in RMB, while a significant portion of our financial assets are denominated in U.S. dollars. At the Cayman Islands holding company
level, we rely entirely on dividends and other fees paid to us by our subsidiaries and consolidated affiliated entities in China.
Any significant revaluation of RMB may materially and adversely affect our cash flows, revenues, earnings and financial position.
For example, an appreciation of RMB against the U.S. dollar would make any new RMB denominated investments or expenditure more
costly to us, to the extent that we need to convert U.S. dollars into RMB for such purposes. An appreciation of RMB against the
U.S. dollar would also result in foreign currency translation losses for financial reporting purposes when we translate our U.S.
dollar denominated financial assets into RMB, as RMB is our reporting currency. Conversely, a significant depreciation of the RMB
against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect
the price of our common stock.



We may be delayed by or unable to comply
with government and environmental laws, rules and regulations related to our operations which could severely impact our business
operations.



The mining industry is subject to extensive
regulations by the PRC government. These regulations govern a wide range of areas, including, but not limited to, investments,
exploration, production, mining rights, pricing, trading and investments. In addition, mining operations are subject to fees and
taxes, as well as safety and environmental protection laws and regulations.



Our proposed mineral exploration programs will
be subject to all of these extensive laws, rules and regulations. Various governmental permits will be required prior to implementation
of proposed exploration operations. We are not assured of receiving any such permits as and when needed for operations, or at all.
There is also no guarantee that new environmental or safety standards more stringent than those presently in effect will not be
enacted in the future, which could negatively affect our exploration programs. Also, the industry often finds itself in conflict
with the interests of private environmental groups which can have an adverse effect on the mining industry. Our planned exploration
program budgets for regulatory compliance, however, there is always a risk that new regulations could increase our time and costs
of doing business and prevent us from carrying out our exploration programs.



Item 1B. Unresolved Staff Comments



Not applicable.



Item 2. Properties



We do not currently own any properties.



The Company’s headquarters is located
in Futian District, Shenzhen, China. The address is Room 3207, New World Center, 6009 Yitian Road, Futian District, Shenzhen, China.
The monthly rental for the office is $3,480 with a contract lease period from March 1, 2009 to March 1, 2011. The contract was
renewed in March 2011 for a year from March 1, 2011 to March 1, 2012 and the monthly rental is $6,360. The contract was further
renewed in March 2012 for two years from March 1, 2012 to February 28, 2014 and the monthly rental is increased to $ 7,936. The
contract was further renewed in March 2014 for two years from March 1, 2014 to February 28, 2016 and the monthly rental is remained
the same.





27







The Company has a branch office in the City
of YanTai, ShanDong, China with the address of Room 501-503, Lantian International Building, 59 Changjiang Road, Development District,
Yantai, China with a contract lease period from March 1, 2013 to February 28, 2014 and an annual rental of RMB 93749.4. The contract
was further renewed in February 2014 for one year from March 1, 2014 to February 28, 2015 and the monthly rental is remained the
same.



On May 6, 2011, the Company, through its variable
interest entity, Yantai Jinguan Investment Co., Ltd. (“Yantai”), entered into a lease agreement with Longkou Dayuan
Gold Mining Co. Ltd., an unrelated third party being the legal owner and holding the mining license of the Dayuan gold mine (the
“Lease Property”) regarding Dayuan Gold Mine. Under the agreement, the Company agrees to pay the aggregate rental payments
of approximately $20 million for a term of 10 years commencing from April 1, 2011 through April 1, 2021 to obtain the right to
manage and operate the Lease Property in the repayment schedule, whereas the Company is committed to pay $12 million equal to 6
years’ rental, no later than September 30, 2011 and the remainder will be paid no later than March 1, 2017. On September
25, 2011, both parties signed a Supplemental Agreement agreed to defer the aforesaid balance of payment of $6 million to March
31, 2012. On January 21, 2013, the payment was agreed to further extend to September 30, 2013. At present, the balance payable
is around US$500,000 and both parties agreed to extend the payment to September 30, 2014.



Item 3. Legal Proceedings





We are not aware of any legal proceedings to
which we are a party or of which our property is the subject. None of our directors, officers, affiliates, any owner of record
or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, affiliate or security
holder are (i) a party adverse to us in any legal proceedings, or (ii) have a material interest adverse to us in any legal proceedings.
We are not aware of any other legal proceedings that have been threatened against us.



Item 4. Mine Safety Disclosure





Not applicable.



PART II.



ITEM 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.





The Company is now quoting at OTCQB for the
symbol CHSO. Pursuant to a registration statement on Form S-1 filed with the SEC on July 1, 2010 and made effective on December
28, 2010, we closed the offering on October 30, 2011. This offering was the initial public offering of common stock of China Shouguan
Mining Corporation.



Dividend Policy



We have never paid cash dividends and have
no plans to do so in the foreseeable future. Our future dividend policy will be determined by our Board of Directors and will depend
upon a number of factors, including our financial condition and performance, our cash needs and expansion plans, income tax consequences,
and the restrictions that applicable laws and our credit arrangements then impose.



Recent Sales of Unregistered Securities







None.





28







Item 6. Selected Financial Data.



The following tables summarize our consolidated
financial data for the periods presented. You should read the following financial information together with the information under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated
financial statements and the related notes to these consolidated financial statements appearing elsewhere in this Form 10-Q.



|Income Statement Data:                          |     | Three months ended March 31,
|----------------------------------------------- | --- | ----------------------------
|                                                |     | 2014                        
|Sales revenue                                   |     |                             
|-Product                                        | $   | 518,073                     
|Cost of sales                                   |     |                             
|-Product                                        | $   | (327,524)                   
|Gross profits                                   | $   | 190,549                     
|Administrative expenses                         | $   | (253,214)                   
|Interest expenses                               | $   | (39,207)                    
|Interest income                                 | $   | 219                         
|Gain on disposal of a subsidiary                | $(1 | 454,200                     
|Income tax expenses                             | $   | -                           
|Net income (loss)                               | $   | 352,547                     
|Net income (loss) per share (Basic and diluted) | $   | 0.00                        
|                                                |     |                             



|Balance Sheet Data:        |   | March 31, 2014 |   | December 31, 2013
|-------------------------- | - | -------------- | - | -----------------
|Cash and cash equivalents  | $ | 229,947        | $ | 248,983          
|Total assets               | $ | 15,529,726     | $ | 17,103,327       
|Total liabilities          | $ | 11,657,908     | $ | 13,530,010       
|Total stockholders' equity | $ | 3,871,818      | $ | 3,573,317        



Item 7. Manement's Discussion and Analysis
of Financial Condition and Results of Operations.



Forward Looking Statements



This report contains forward-looking statements.
All statements other than statements of historical facts contained in this report, including statements regarding our future results
of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking
statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any future results, performance or achievements expressed or implied
by the forward-looking statements.



In some cases, you can identify forward-looking
statements by terms such as "may," "will," "should," "expects," "plans," "anticipates,"
"could," "intends," "target," "projects," "contemplates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of these terms or other
similar words. These statements are only predictions. We have based these forward-looking statements largely on our current expectations
and projections about future events and financial trends that we believe may affect our business, financial condition and results
of operations. We discuss many of the risks in greater detail under the heading "Risk Factors." Also, these forward-looking
statements represent our estimates and assumptions only as of the date of this report. Except as required by law, we assume no
obligation to update any forward-looking statements after the date of this report.



29









This report also contains estimates and other
statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves
a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently
verified the statistical and other industry data generated by independent parties and contained in this report. In addition, projections,
assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily
subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors”
and elsewhere in this report. These and other factors could cause results to differ materially from those expressed in the estimates
made by the independent parties and by us.



Plan of Operation



China ShouGuan Mining Corporation (“ShouGuan”,
“we” and the “Company”) was incorporated in the State of Nevada on May 4, 2010. We are a holding company
that conducts business operations through BSL, our operating company, and its subsidiaries and variable interest entities (VIEs)
in Shandong Province in the People’s Republic of China (“PRC”).



Mr. Feize Zhang, our Chairman and CEO, Mr.
JingFeng Lv, our CTO and Mr. Jianxi Yang, a director of Yantai JinGuan Investment Limited, founded SSIC in December 2008 and later
in early 2009 established SSIC’s subsidiaries JinGuan and XinGuan. These executive officers and managers are experts in
China who specialize in mining technologies, mining resources management and financial and strategic management. Our primary focus
is on acquiring existing gold mine projects in Shandong province of the PRC. These potential targets are mostly run with low productivity
because of inadequate funds and primitive technologies. We plan to re-engineer and redevelop these gold mines through the transfer
of advanced exploration and mining technologies, capital injection and effective management.



These advanced exploration and mining technologies
include mining data collection and analysis, identification of ore locations and running trends of veins, design of exploration
and mining plans, on-site mine construction planning, formulation and customization of mining methodologies, introduction of modern
exploration and mining technologies, supervision of subcontracting staff and provision of technical supports in relation to production
management, mine ventilation, water discharge, system upgrade, quality assurance, safety control, etc. The underground mining works,
like digging tunnels and wells and the underground transport of ore extracts will all be outsourced to third party subcontractors.



Our business model includes sourcing of early
stage gold mines with good profit potential, conducting feasibility studies to identify suitable projects, leasing the suitable
mining sites and facilities, and managing the mineral exploration operations on these selected sites, with the goal of acquiring
the mine if the operations prove to be satisfactory, based on the review criteria set by our experienced management. In addition,
we provide consulting services in areas related to mine exploration and analysis to our clients.



Under the specific requirements of the SEC’s
Industry Guide 7(a)4(i), we are deemed as an exploration company principally engaging in gold mine exploration and exploration
activities. Raw rocks containing gold mineral are dug from the gold mines that are owned or leased by us and are converted to gold
concentrate through a number of physical processes.



Revenues are derived from the sales of gold
concentrates, the principal raw material used in gold smelting operation to produce gold. All mineral exploration activities are
outsourced to an independent third contractor and we only take possession of the gold concentrates when they are sold to smelters.
At that time, the selling prices are determined from two factors, the amount of gold in the gold concentrates and the price of
gold on the date of sale. The amount of gold in the gold concentrates is determined and agreed between the Company and the smelters
and then the selling price is determined according to the official gold price at the time of sale as indicated by the Shanghai
Gold Exchange (http://www.sge.sh), an entity governed by the PRC Government.



On the consulting side, revenues are derived
on a project-by-project basis and payment is collected as we complete our services as outlined in the scope of each individual
project.





30







We target to grow proactively through continual
sourcing of existing gold mines in the PRC and managing them. These projects will be executed by BSL and its subsidiaries, VIEs
or related companies in China. Cunli Ji Gold Mine was the first project commenced in May 2009. To ensure all mines are legally
and properly operated, all target gold mines are required to have full sets of government-approved licenses before effecting commencement
of any business operations.



There is a limited supply of desirable gold
mines in the PRC and we face strong competition for gold mining rights from other gold mining companies, most of which have greater
financial resources than we have, so we may not be able to acquire any attractive gold mining rights we find on acceptable terms.



Mining rights are amortized based on actual
units of production over estimated proven and/ or probable reserves of the mines, subject to impairment. We intend to carefully
review the mineral exploration plans and the reserve levels of our mines periodically. Accordingly, any material change in mineral
exploration s may have a negative impact on our operating results.



We currently rely on one subcontractor for
all of our mineral exploration operations in the PRC - Chongqing Yitong Mine Construction Engineering Co. Ltd. (“CYMC”),
which means our operations are affected by their performance and whose activities are substantially outside of our control. If
CYMC fails to achieve the conditions set forth in our agreement with them, e.g. monthly extraction volumes, gold concentrate processing
volumes, etc., or they otherwise fail to perform their obligations to us, we may be forced to terminate their services, which
would cause delays in our mineral exploration, require that we identify and engage one or more other third-party contractors to
do the work CYMC was doing, all of which would adversely affect our operating results. No relationship exists between CYMC, the
subcontractor we rely on for all of our mineral exploration operations in the PRC, and Penglai City Gold Mining Holding Co. Limited,
the legal owner and holder of the PRC State license to the CunliJi Mine; they are unrelated parties.



Our mineral exploration activities are subject
to a number of risks and hazards typical in the mining industry, including:



· environmental hazards;

· industrial accidents;

· unusual or unexpected geologic formations;

· explosive rock failures; and

· flooding and periodic interruptions
due to inclement or hazardous weather conditions.



Any such risks could result in:



· damage to or destruction of mineral
properties or production facilities;

· personal injury or death;

· environmental damage;

· delays in mining;

· monetary losses; and

· legal liability.



In addition, during the course of mineral exploration
activities, we use dangerous materials. We have established stringent rules relating to the storage, handling and use of such dangerous
materials, however, accidents could still occur. Should we be held liable for any such accident, we may be subject to penalties,
and possible criminal proceedings may be brought against our Company, BSL, its subsidiaries and/or VIEs or any of the employees.



We emphasize environmental protection in our
operations and related activities, and a significant financial commitment has been made towards the construction of environmental
protection facilities and the establishment of a sound environmental protection management and monitoring system. We are currently
in compliance with applicable environmental regulations of the PRC government, but any changes to these regulations may increase
our operating costs, which could adversely affect our results of operations.



31









We are also subject to numerous PRC rules and
regulations governing the mining industry, which are disclosed in detail in the Description of Business section of this report.
Our inability to comply with any of these current or future rules and/or regulations could severely impact our operations and financial
condition.



In addition, we provide mining management consulting
services to third party clients as an additional source of revenue. We only provide mining consulting services to mine owners.
We do not own, rent or participate in the mine operations of these clients. Instead, we utilize the described expertise of our
management team to help clients assess their mine conditions and provide technical advice, guidance and suggestions to further
improve management and operations of their mines, based on our management's experience.



Current Operations



Cunli Ji Mine



In May 2009, we commenced our first project,
the Cunli Ji Mine, located in Shandong, China.



On May 4, 2009, we, through BSL and our VIE,
XinGuan, entered into a Master Agreement, an Operating Lease agreement and an Acquisition Agreement with Penglai City Gold Mining
Holding Co. Ltd. The Master Agreement sets out the general terms of the Operating Lease agreement and the Acquisition Agreement.
Pursuant to the Operating Lease Agreement, XinGuan agreed to pay a monthly rent of $14,641 (RMB 100,000) for the right to lease
and manage the gold mine for a term of 20 months, with a rental deposit of $2,925,174 (equivalent to RMB 20 million). Pursuant
to the terms of the Acquisition Agreement, XinGuan agreed to acquire the gold mine for a purchase consideration of $5,089,803 if
the following conditions are satisfied upon the expiry of the operating lease agreement: 1) average daily ore production from the
Cunli Ji Mine has reached 80 tons ore more for the year 2010, and 2) the mine has obtained ISO (or equivalent) certification on
or before January 3, 2011. The above agreement was subsequently extended to January 3, 2012. On January 3, 2012 the above transaction
was closed. The Cunliji Mine was acquired by the Company and the rental deposit became part of the purchase consideration.



On September 1, 2009, XinGuan entered into
a Construction Project Agreement with Jinhai Mine Underground Engineering Ltd. ("Jinhai"), an unrelated third party,
to carry out the underground mineral exploration and ancillary work at the CJ Mine. Jinhai will conduct all underground exploration
activities and construction work in accordance with the design and work drawings provided by XinGuan on a monthly basis and will
be required to meet all regulatory and safety standards specified by XinGuan and the PRC for underground mineral exploration operations
in the Shandong Province. The Agreement was effective on September 1, 2009 and was valid for one year. Through mutual consent by
both parties, this Agreement was renewed on August 28, 2010 for an additional year until August 28, 2011, with the contracted prices
and all other terms unchanged. No relationship exists between Jinhai, the subcontractor we rely on for all of our mineral exploration
operations in the PRC, and Penglai City Gold Mining Holding Co. Limited, the legal owner and holder of the PRC State license to
the CunliJi Mine; they are unrelated parties. On September 30, 2010, XinGuan and Jinhai mutually agreed to terminate the renewed
agreement unconditionally effective from November 1, 2010.



On October 1, 2010, XinGuan entered into another
Construction Project Agreement with Wenzhou Mine Engineering Construction Group Co. Ltd. (“WMEC”), an unrelated third
party, to carry out the underground mineral exploration and ancillary work at the CJ Mine. WMEC will conduct all underground mineral
exploration activities and construction work in accordance with the design and work drawings provided by XinGuan on a monthly basis
and will be required to meet all regulatory and safety standards specified by XinGuan and the PRC for underground mining operations
in the Shandong Province. The Agreement was effective on October 1, 2010 and was valid for one year. It was further renewed for
another year until September 30, 2012. On October 1, 2012, XinGuan entered into a new Construction Project Agreement with Chongqing
Yitong Mine Construction Engineering Co. Ltd. for one year to replace WMEC after the termination of the contract.



In July 2013, the Yantai local government informed
the Company that the Shandong Province has promulgated a new local regulation. The regulation stated that all underground mines
in the territory which has a production of under 40,000 tonnes per year will all be forced to close down before the end of 2015.
As such, since Cunli Ji Mine falls within the category, the Company decided to sell the mine for money and to invest in mines in
other territories, which includes investing in mine exploration areas, and, acquiring or leasing some tailings environmental protection
projects.



32







On 31st March 2014, the Company
signed an agreement with Yantai Jinjian Smelting Technology Limited (85%) and Yantai Jihao Trading Limited (15%), where 100% interests
in XinGuan was transferred for a total consideration of approximately $7,300,000 (Equivalent to RMB45 million). It resulted in
a gain of $454,200 (equivalent to RMB2.78 million) compared with its net assets value. On the other hand, it resulted in a profit
of RMB9,000,000 for the Company compared with the original acquisition consideration in 2010.



Dayuan Mine



We do not own the Dayuan Mine. We leased the
mine through Jinguan.



On May 6, 2011, we, through our VIE, Yantai
Jinguan Investment Co., Ltd. (“Jinguan”), entered into a lease agreement with Longkou Dayuan Gold Mining Co. Ltd.,
an unrelated third party being the legal owner and holding the mining license of the Dayuan Gold Mine (“Dayuan Mine”)
regarding Dayuan Gold Mine. Under the agreement, we own the operating right and income right of the Dayuan Mine and we agreed to
pay the aggregate rental payments of approximately $20 million for a term of 10 years commencing from April 1, 2011 through April
1, 2021 to obtain the right to manage and operate Dayuan Gold Mine in the repayment schedule, whereas we are committed to pay an
upfront payment of $12 million equal to 6 years’ rental, no later than September 30, 2011 and the remainder will be paid
no later than March 1, 2017. On September 25, 2011, both parties signed a Supplemental Agreement agreed to defer the balance of
the upfront payment amounted to $6 million to March 31, 2012. On March 30, 2012, the payment was agreed to extend further to September
30, 2012 and then subsequently to September 30, 2013. At present, the balance payable is around US$500,000 and both parties agreed
to extend the payment to September 30, 2014.



The Dayuan Mine has one exploration right and
one mining right, which are granted by the Land and Resources Authority of Shandong Province and are unpatented. The concession
period of the mining right is from 29 December 2010 to 29 December 2013. The mine is 0.3475 sq, km in area and is deposited in
a lode or vein filled with mineral in the rock.



The Dayuan Mine commenced exploratory operation
in July 2011. Mineral exploration was temporary halted in the Dayuan Mine during the Chinese New Year holiday in January and
February 2014 and hence no gold concentrate was produced in these two months. For the three months ended March 31, 2014, total
gold ore production of the Dayuan Mine was approximately 4,200 tons or a monthly average of 4,200 tons (using a one-month average),
with an average gold grade of 3.38 g/t. Gold concentrate sold for the period was 12.54 kg. The production level, in units of daily
tonnage of raw mineral rocks extracted, averaged 182.6 tons/day (one-month average) during the period.



Currently we derive our revenue from the sales
of non-refined gold concentrates extracted from Dayuan Mine. Our expenses are mainly amortization of mining rights, the direct
costs associated with the operation and overhead expenses such as staff salaries, smelting and extracting fee, depreciation of
mining plants and other general administrative expenses.



At the moment, we are formulating an exploration
plan and related timetable for the Dayuan mine. So far, there is no detailed plan to conduct exploration on the Dayuan Mine. The
exploration programs of the Dayuan mines are currently funded by the internal fund generated from our operations and we have no
further plan to fund the exploration programs of the mine.



Others



On 21st February 2014 SSIC acquired
99% shareholdings of Daxinganling Yiguanyuan Mining Investment Company Limited (“DYM”) for a consideration of RMB4,000,000.
DYM focuses on mine exploration in the Daxinganling area in the Heilongjiang Province in north-eastern part of China. DYM has signed
a Memorandum of Understanding with Daxinganling Guolin Mining Company Limited, a wholly-owned subsidiary of the Daxinganling local
government in July 2013, which stated that the two parties would cooperate together to explore the precious metals mines in the
Daxinganling area. The completion of the acquisition and the exploration activities are expected to launch in the second quarter
of 2014.



33







Results of Operations



We do not believe there have been any recent
trends in production, sales, inventory, or the state of the costs or selling prices of our products since the financial year ending
2013, nor any known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect
on our net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause
reported financial information not necessarily to be indicative of future operating results or financial condition.



The following table set forth key components
of our results of operations for the three months ended March 31, 2014, compared to the three months ended March 31, 2013. All
numbers referenced are in U.S. Dollars:



Three Months Ended March 31, 2014 Compared
to the same period in 2013:



|                                                |             | Three months ended March 31, |             |           | 
|----------------------------------------------- | ----------- | ---------------------------- | ----------- | --------- | 
|                                                |             | 2014                         |             | 2013      | 
|Sales revenue                                   |             |                              |             |           | 
|-Product                                        | $           | 518,073                      |             | 1,088,598 | 
|Cost of sales                                   |             |                              |             |           | 
|-Product                                        | $           | (327,524)                    |             | (968,605) | 
|Gross profits                                   | $           | 190,549                      |             | 119,993   | 
|Administrative expenses                         | $           | (253,214)                    |             | (305,495) | 
|Loss from operations                            | $           | (62,665)                     |             | (185,502) | 
|Interest expenses                               | $           | (39,207)                     |             | (39,789)  | 
|Interest income                                 | $           | 219                          |             | 182       | 
|Gain on disposal of a subsidiary                |             | 454,200                      |             | -         | 
|Profit (Loss) before income tax                 | $           | 352,547                      |             | (225,109) | 
|Income tax expenses                             | $           | -                            |             | (6,099)   | 
|NET LOSS                                        | $           | 352,547                      |             | (231,208) | 
|Other comprehensive income (loss):              |             |                              |             |           | 
|- Foreign currency translation adjustment       | $           | (123,702)                    |             | 67,120    | 
|COMPREHENSIVE INCOME (LOSS)                     | $           | 228,845                      |             | (164,088) | 
|Weighted average common stock outstanding       | 115,000,000 |                              | 124,146,067 |           | 
|Net income (loss) per share (Basic and diluted) | $           | 0.00                         |             | (0.00)    | 
|                                                |             |                              |             |           | 

NM: Not meaningful





34







Net Revenues



We commenced gold mineral exploration activity
in May 2009 and began selling of gold concentrate in July 2009. Gold concentrate is mainly sold to smelting plants in the Shandong
Province, PRC. Apart from the selling of gold concentrate, we also provide mining consulting and technical services through our
own experts.



Revenue for the three months ended March 31, 2014
and 2013 comprised the following:



|                      |   | Three months ended March 31, |       
|--------------------- | - | ---------------------------- | ------
|                      |   | 2014                         | %     
|Sales revenue         |   |                              |       
|-Product              | $ | 518,073                      | 100.00
|Cost of sales         |   |                              |       
|-Product              | $ | (327,524)                    | 100.00
|                      |   |                              |       
|Gross profits  (loss) | $ | 190,549                      | 100.00
|                      |   |                              |       
|Gross profit margin   |   | 36.78%                       | n/a   



Net
revenue for the three months ended March 31, 2014 was $518,073 of sales revenues, which accounted for 100% of the total revenue.
No revenue was derived from service provision for the three months ended March 31, 2014and 2013, respectively.



Sales
revenue derived from sales of gold concentrate for the three months ended March 31, 2014decreased to $518,073, a decrease of $570,525, or 52%, from $1,088,598 for the three months ended March 31, 2013. The decrease
was mainly attributable to a decrease in gold concentrate sold as a result of comparatively similar gold grade in the area mined
during the three months ended March 31, 2014 and the decrease of world’s gold price.



No
revenue was derived from service provision for the three months ended March 31, 2014and 2013, respectively.



Cost of Revenue

Cost of revenue for the three months ended March 31, 2014 and 2013 were $327,524 and $968,605, respectively, and consisted primarily
of direct materials, direct labor, extracting fees, and other operating overhead, which were primarily attributable to the sales
of gold concentrates. Shipping and handling costs associated with the distribution of our products were borne by the customers.
The decrease in cost of revenue for the three months ended March 31, 2014 when comparing with the corresponding period in 2013
was mainly attributable to higher cost of exploration and development expenses to develop and operate the Dayuan Mine in 2013.



Gross Profit



We recorded a gross profit of $190,549 for
the three months ended March 31, 2014, an increase of $70,556 or 59%, from $119,993 for the three months ended March 31, 2013.
For the three months ended March 31, 2014, our gross profit margin for the sales of gold concentrate was 37%. Gross profit margin
for the three months ended March 31, 2013 was 11% for the sales of gold concentrate.The increase
in gross profit and gross profit margin were mainly attributable to the decrease in cost of exploration and development expenses
to develop and operate the Dayuan Mine.



General and Administrative Expenses



General and administrative expenses comprised
mainly of salaries and staff welfare expenses, legal and professional fees, entertainment expenses, traveling and hotel accommodation
expenses and office expenses. General and administrative expenses for the three months ended March 31, 2014, decreased by $52,281
or 17%, from $305,495 to $253,214 for the same comparable period in 2013. The decrease in general and administrative expenses was
due to the decrease of number of staff.





35









Income Tax Expense



Income tax expense amounted to $0 for the three
months ended March 31, 2014 and $6,099 for the three months ended March 31, 2013..



We have subsidiaries and VIEs that operated
in various countries: United States, British Virgin Islands, Hong Kong and the People’s Republic of China that are subject
to taxes in the jurisdictions in which they operate, as follows:



United States of America

We are incorporated in the State of Nevada
and are subject to the tax laws of the United States of America. Since no income is derived in the US, we believe that we are not
subject to US taxes.



British Virgin Islands

Under the current BVI law, BSL is not subject
to tax on its income or profits. In addition, dividends and capital gains from our investments in the BVI are not subject to income
taxes and no withholding tax is imposed on payments of dividends to the Company.



Hong Kong

GWIL is subject to Hong Kong Profits Tax, which
is charged at the statutory income rate of 16.5% on its assessable income.



The PRC

We have generated all of our income through
our subsidiaries and VIEs operating in the PRC for the three months ended March 31, 2014 and 2013. All entities in the PRC are
subject to the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”) at a unified income
tax rate of 25%.



Net Profit (Loss)



We recorded a net profit of $352,547 for the
three months ended March 31, 2014, an increase of $473,886 from a net loss of $231,208 for the three months ended March 31, 2013.
The increase was mainly attributable to the gain on disposal of a subsidiary $454,200.



Liquidity and Capital Resources



Our primary liquidity needs are to fund operational
expenses, capital expenditures and potential acquisition of gold mining properties in the Shandong province. To date, we have financed
our working capital requirements and capital expenditures through internally generated cash and capital contribution from our existing
shareholders.



As of March 31, 2014, our current assets were
$6,398,514, and our current liabilities were $11,443,717. Cash and cash equivalents totaled $229,947 as of March 31, 2014. Stockholders’
equity at March 31, 2014 was $3,871,818.



Net cash provided by operating activities was
$401,080 for the three months ended March 31, 2014 as compared to net cash used in operating activities of $521,943 for the three
months ended March 31, 2013. Net cash used in operating activities decreased by $923,023 was primarily due to the increase in deposits
and prepayments and the decrease in accounts receivable.



Net cash provided by investing activities amounted
to $203,526 for the three months ended March 31, 2014 as compared to net cash used in investing activities of $191,247 for the
three months ended March 31, 2013. Net cash provided by investing activities increased by $394,773 primarily due to the increase
in proceed from disposal of a subsidiary of $2,205,936, payments on leased mining rights of $1,348,072 and payments on construction
in progress of $653,611..



36









Net cash used in financing activities amounted
to $621,865 for the three months ended March 31, 2014 as compared to net cash provided by financing activities of $577,752 for
the three months ended March 31, 2013. Net cash used in financing activities increased by $1,199,617, primarily due to the increase
in repayment to notes and loans payable for various parties.



Off-Balance Sheet Arrangements



We have no off-balance sheet arrangements, financings
or other relationships.



Amount Due to a Related Party



As of March 31, 2014, amount due to a related
party represented temporary advances made by Mr. Zhang, the director of the Company, which was unsecured, interest-free with no
fixed repayment term. Imputed interest is considered insignificant.



Commitments and Contingencies



The Company is committed under several non-cancelable
operating leases for office premises and mining rights with the terms ranging from 1 to 10 years, with fixed monthly rentals or
scheduled payments. Total rent expenses (excluding amortization of prepaid mining rights) for the three months ended March 31,
2014 and 2013 was $30,398 and $27,827, respectively.



As of March 31, 2014, the Company has the aggregate
future minimum rental payments due under various non-cancelable operating leases in the next three years:



|Operating lease commitments
|---------------------------
|                           
|Years ending December 31,  
|                           
|2015                       
|2016                       
|2017                       
|2018                       
|Total:                     





37







Subsequent Events



In accordance with ASC Topic 855, “Subsequent
Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after March
31, 2014 up through the date the Company issued the audited consolidated financial statements. During the period, the Company did
not have any material recognizable subsequent events.



Critical Accounting Policies and Estimates



The discussion and analysis of the Company’s
results of operations and liquidity and capital resources are based on our audited consolidated financial statements for the three
months ended March 31, 2014 and 2013, which have been prepared in accordance with U.S. GAAP. In connection with the preparation
of consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments
that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. The assumptions, estimates
and judgments included within these estimates are based on historical experience, current trends and other factors we believe to
be relevant at the time the consolidated financial statements were prepared. On a regular basis, the accounting policies, assumptions,
estimates and judgments are reviewed to ensure that the consolidated financial statements are presented fairly and in accordance
with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ
from the assumptions and estimates, and such differences could be material.



The preparation of consolidated financial statements
in conformity with U.S. GAAP requires us to make estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions are used
for, but are not limited to: (1) inventory costs and reserves; (2) asset impairments (3) and depreciable lives of assets. Future
events and their effects cannot be predicted with certainty, and accordingly, accounting estimates require the exercise of judgment.
The accounting estimates used in the preparation of the consolidated financial statements will change as new events occur, as more
experience is acquired, as additional information is obtained and as our operating environment changes. We evaluate and update
these assumptions and estimates on an ongoing basis and may employ outside experts to assist us with these evaluations. Actual
results could differ from the estimates that have been used.



Significant accounting policies are discussed
in Note 3, Summary of Significant Accounting Policies, to the accompanying audited consolidated financial statements. We believe
the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results,
as they require management to make difficult, subjective or complex judgments, and to make estimates about the effect of matters
that are inherently uncertain.



Basis of Consolidation



The audited consolidated financial statements
include the financial statements of the Company, BSL and its subsidiaries and VIEs. All inter-company balances and transactions
between the Company, BSL and its subsidiaries and VIEs were eliminated upon consolidation. We adopted the Accounting Standards
Codification (“ASC”) Topic 810-10-5-8, “Variable Interest Entities”. ASC Topic 810-10-5-8 requires a variable
interest entity or VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIEs
or is entitled to receive a majority of the VIEs’ residual returns.



Variable Interest Entities (VIEs)



The Company, through BSL's subsidiary, SBCL,
entered into a series of agreements (“VIE agreements”) with SSIC, JinGuan and XinGuan, and the individual owners of
SSIC, JinGuan and XinGuan, and details of the VIE agreements are as follows:



38









|1. | Exclusive Technical Service and Business Consulting Agreement, signed on May 15, 2010 - SBCL has the exclusive right to provide to SSIC, JinGuan and XinGuan consulting services, including operational management, human resources management, research and development of the technologies related to the operations of SSIC, JinGuan and XinGuan. SSIC, JinGuan and XinGuan pays to SBCL annually consulting service fees in an amount equal to all of their revenue for such year. These agreements run for a 10-year term and are subject to automatic renewal for an additional 10 years, provided that no objection is made by both parties on the renewal.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. | Exclusive Option Agreement - SBCL has the option to purchase all assets and ownership of SSIC, JinGuan and XinGuan at any time.
|-- | -------------------------------------------------------------------------------------------------------------------------------



|3. | Equity Pledge Agreement, signed on May 15, 2010, - SSIC, JinGuan and XinGuan agree to pledge their legal interest to SBCL as a security for the obligations under the Exclusive Technical Service and Business Consulting Agreement.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. | Proxy Agreement - SSIC, JinGuan and XinGuan irrevocably grant and entrust SBCL the right to exercise its voting and other stockholder rights.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------



|5. | Operating Agreement, signed on May 15, 2010
        - SBCL agrees to participate in the operations of SSIC, JinGuan and XinGuan.
|-- | --------------------------------------------------------------------------------------------------------------------------------

With the above agreements, SBCL demonstrates
its ability to control SSIC, JinGuan and XinGuan as the primary beneficiary and the operating results of the VIEs are included
in the consolidated financial statements for the three months ended March 31, 2014 and 2013.



The Company will restructure the whole group following
the completion of the selling of XinGuan and inclusion of DYM in the second quarter.



Impairment of Long-lived Assets



All long-lived assets such as property, plant
and equipment held and used by the Company reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of
the carrying amount of assets to estimated discounted net cash flows expected to be generated by the assets. Future cash flows
are based on estimated quantities of gold and other recoverable metals, expected price of gold and other commodity (considering
current and historical prices, price trends and related factors), production levels and cash costs of production, capital and reclamation
costs, all based on detailed engineering life-of-mine plans. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.



Numerous factors including, but not limited
to, such things as unexpected grade changes, gold recovery problems, shortages of equipment and consumables, equipment failures,
and collapse of pit walls, could impact our ability to achieve forecasted production schedules from proven and probable reserves.
Additionally, commodity prices, capital expenditure requirements and reclamation costs could differ from the assumptions used in
the cash flow models used to assess impairment. The ability to achieve the estimated quantities of recoverable minerals from exploration
stage mineral interests involves further risks in addition to those factors applicable to mineral interests where proven and probable
reserves have been identified, due to the lower level of confidence that the identified mineralized material can ultimately be
mined economically.



Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered,
the selling price is fixed or determinable and collectibility is reasonably assured.





39









We derive revenues from the sales of non-refined
gold concentrate, whereas it usually takes 6 days for the production from non-refined gold concentrate to gold bullion. We generally
recognize revenues, net of value-added taxes ("VAT") at the time the gold bullion is produced and delivered to the customers,
smelters and/or refineries.



We are generally subject to VAT which is levied
on the majority of the products at the standard rate of 17% on the invoiced value of sales.; however, our VIE, PXIL has been granted
preferential tax treatment under the Chinese tax law of the “Notice from Ministry of Finance and State Tax Bureau in Relation
to Exemption of Value Added Tax on Gold Production” and “Notice regarding issues on Tax Policy on Gold Transaction”,
whereas gold produced and sold by gold mining and smelting enterprises are exempted from VAT.



Interest income is recognized on a time apportionment
basis, taking into account the principal amounts outstanding and the interest rates applicable.



Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.



We are exposed to the following concentrations
of risk:



(a) Major customers



For the three months ended March 31, 2014 and
2013, there was a single customer who accounted for 100% of the Company’s revenues with no accounts receivable balance at
period-end, respectively.



A customer is located in the PRC.



(b) Major vendors



For the three months ended March 31, 2014
and 2013, the vendors who account for 10% or more of the Company’s purchases and its outstanding balance at period-end date,
are presented as follows:



|         |        |  |  | Three
    months ended March 31, 2014 |         | March
    31, 2014             
|-------- | ------ |  |  | ------------------------------------- | ------- | -------------------------------
|Vendor   |        |  |  | Purchases                             |         | Percentage
        of purchases
|         |        |  |  |                                       |         |                                
|Vendor A |        |  |  | $                                     | 505,045 |                                
|Vendor B |        |  |  |                                       | 253,565 |                                
|         |        |  |  |                                       |         |                                
|         |        |  |  |                                       |         |                                
|         | Total: |  |  | $                                     | 758,610 |                                





|         |        |  |  | Three
months ended March 31, 2013 |         | March
    31, 2013             
|-------- | ------ |  |  | --------------------------------- | ------- | -------------------------------
|Vendor   |        |  |  | Purchases                         |         | Percentage
        of purchases
|         |        |  |  |                                   |         |                                
|Vendor A |        |  |  | $                                 | 542,616 |                                
|Vendor C |        |  |  |                                   | 136,813 |                                
|Vendor D |        |  |  |                                   | 83,041  |                                
|         |        |  |  |                                   |         |                                
|         | Total: |  |  | $                                 | 762,470 |                                



All vendors are located in the PRC.



40







Credit risk





Financial instruments that are potentially
subject to credit risk consist principally of accounts receivables. We believe the concentration of credit risk in its accounts
and retention receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms.
We do not generally require collateral from customers. Credit is extended based on evaluation of a customer's financial condition.
We evaluate the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information.



Exchange rate risk



Our reporting currency is US$, to date the
majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities are denominated
in RMB. As a result, we are exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations
in the exchange rate between US$ and RMB. If RMB depreciates against US$, the value of RMB revenues and assets as expressed in
US$ financial statements will decline. We do not hold any derivative or other financial instruments that expose to substantial
market risk.



Economic and political risks



Our operations are conducted in the PRC. Accordingly,
our business, financial condition and results of operations may be influenced by the political, economic and legal environment
in the PRC, and by the general state of the PRC economy. Our operations in the PRC are subject to special 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 environment and foreign currency exchange. The Company's results may be adversely affected by
changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

Industry risks





Our mineral exploration activities are subject
to extensive national and local governmental regulations in China, which regulations may be revised or expanded at any time. Generally,
compliance with these regulations requires the Company to obtain permits issued by government regulatory agencies. Certain permits
require periodic renewal or review of their conditions. We cannot predict whether it will be able to obtain or renew such permits
or whether material changes in permit conditions will be imposed. The inability to obtain or renew permits or the imposition of
additional conditions could have a material adverse effect on the Company's ability to develop and operate its mines.



Risk on changing price in gold



At present, the price of gold in the PRC is
generally in line with the price of gold in the international market. There are many factors influencing the price of gold in
the international market, including the international economic situation (in particular the economic situation in the US), petroleum
prices, fluctuations in the exchange rates of the US dollar, fluctuations in the stock and other financial investment markets
and various political, military, social and economic contingencies. These factors are beyond our control. Changes in the prices
of the gold in the PRC and in the exchange rate of RMB as a result of these may adversely affect our operating results.



Under the relevant PRC laws and regulations,
hedging activities presently are not permitted in gold tracing in the PRC market. We have not been involved in hedging transactions
or any alternative measures to manage the potential price risk.





41









Item 8. Financial Statements





Following are the financial statements for
the three months ended March 31, 2014 and 2013.

















CHINA SHOUGUAN
MINING CORPORATION

INDEX
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)





|                                                                                                                                |  | Page      
|------------------------------------------------------------------------------------------------------------------------------- |  | ----------
|                                                                                                                                |  |           
|Condensed
    Consolidated Balance Sheets as of March 31, 2014 And December 31, 2013 (Audited)                                  |  | F-2       
|                                                                                                                                |  |           
|Condensed
    Consolidated Statements of Operations And Comprehensive Income for the Three Months ended March 31, 2014 And 2013 |  | F-3       
|                                                                                                                                |  |           
|Condensed
    Consolidated Statements of Cash Flows for the Three Months ended March 31, 2014 And 2013                          |  | F-4       
|                                                                                                                                |  |           
|Condensed
    Consolidated Statement of Stockholders’ Equity for the Three Months ended March 31, 2014                          |  | F-5       
|                                                                                                                                |  |           
|Notes
    to Condensed Consolidated Financial Statements                                                                        |  | F-6 – F-19







42









CHINA SHOUGUAN
MINING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2014 AND DECEMBER 31, 2013

(Currency expressed in United States Dollars
(“US$”), except for number of shares)



|                                                                                                                        |  | March
    31, 2014 |             | December
    31, 2013
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----------- | ---------------------
|                                                                                                                        |  | (Unaudited)        |             | (Audited)            
|ASSETS                                                                                                                  |  |                    |             |                      
|Current assets:                                                                                                         |  |                    |             |                      
|Cash and cash equivalents                                                                                               |  | $                  | 229,947     |                      
|Deposits and prepayments                                                                                                |  |                    | 118,013     |                      
|Gold inventories                                                                                                        |  |                    | 259,237     |                      
|Consideration receivable                                                                                                |  |                    | 3,649,990   |                      
|Prepaid mining rights, current                                                                                          |  |                    | 2,141,327   |                      
|Assets held for sale                                                                                                    |  |                    | -           |                      
|Total current assets                                                                                                    |  |                    | 6,398,514   |                      
|                                                                                                                        |  |                    |             |                      
|Non-current assets:                                                                                                     |  |                    |             |                      
|Prepaid mining rights                                                                                                   |  |                    | 5,892,983   |                      
|Property, plant and equipment, net                                                                                      |  |                    | 2,426,766   |                      
|Construction in progress                                                                                                |  |                    | 811,463     |                      
|TOTAL ASSETS                                                                                                            |  | $                  | 15,529,726  |                      
|                                                                                                                        |  |                    |             |                      
|LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                    |  |                    |             |                      
|Current liabilities:                                                                                                    |  |                    |             |                      
|Accounts payable                                                                                                        |  | $                  | 514,349     |                      
|Amount due to a related party                                                                                           |  |                    | 188,640     |                      
|Loans payable, unsecured                                                                                                |  |                    | 9,027,974   |                      
|Note payable, related party                                                                                             |  |                    | 1,119,330   |                      
|Accrued liabilities and other payable                                                                                   |  |                    | 593,424     |                      
|Liabilities held for sale                                                                                               |  |                    | -           |                      
|                                                                                                                        |  |                    |             |                      
|Total current liabilities                                                                                               |  |                    | 11,443,717  |                      
|                                                                                                                        |  |                    |             |                      
|Long-term liabilities:                                                                                                  |  |                    |             |                      
|Loans payable, unsecured                                                                                                |  |                    | 214,191     |                      
|                                                                                                                        |  |                    |             |                      
|Total long-term liabilities                                                                                             |  |                    | 214,191     |                      
|                                                                                                                        |  |                    |             |                      
|Total liabilities                                                                                                       |  | $                  | 11,657,908  |                      
|                                                                                                                        |  |                    |             |                      
|Commitments and contingencies                                                                                           |  |                    |             |                      
|                                                                                                                        |  |                    |             |                      
|Stockholders’ equity:                                                                                                   |  |                    |             |                      
|Common stock, $0.0001 par value; 300,000,000 shares authorized; 115,000,000 shares issued and outstanding, respectively |  |                    | 11,500      |                      
|Additional paid-in capital                                                                                              |  |                    | 8,899,597   |                      
|Subscription receivable                                                                                                 |  |                    | (718,459)   |                      
|Statutory reserve                                                                                                       |  |                    | 308,898     |                      
|Accumulated other comprehensive income                                                                                  |  |                    | 364,794     |                      
|Accumulated deficits                                                                                                    |  |                    | (4,994,512) |                      
|                                                                                                                        |  |                    |             |                      
|Total stockholders’ equity                                                                                              |  |                    | 3,871,818   |                      
|                                                                                                                        |  |                    |             |                      
|TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                              |  | $                  | 15,529,726  |                      



F-2



See accompanying notes to condensed consolidated
financial statements.







43





CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND

COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED
MARCH 31, 2014 AND 2013

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)



|                                                               |  | Three
    months ended March 31,
|-------------------------------------------------------------- |  | --------------------------------
|                                                               |  | 2014                            
|Revenues, net:                                                 |  |                                 
|- Product sales                                                |  | $                               
|                                                               |  |                                 
|Cost of revenue                                                |  |                                 
|                                                               |  |                                 
|Gross profit                                                   |  |                                 
|                                                               |  |                                 
|Operating expenses:                                            |  |                                 
|General and administrative                                     |  |                                 
|Total operating expenses                                       |  |                                 
|                                                               |  |                                 
|Loss from operations                                           |  |                                 
|                                                               |  |                                 
|Other income (expense):                                        |  |                                 
|Interest expense                                               |  |                                 
|Interest income                                                |  |                                 
|Gain on disposal of a subsidiary                               |  |                                 
|                                                               |  |                                 
|Income (loss) before income taxes                              |  |                                 
|                                                               |  |                                 
|Income tax expense                                             |  |                                 
|                                                               |  |                                 
|NET INCOME (LOSS)                                              |  | $                               
|                                                               |  |                                 
|Other comprehensive income (loss):                             |  |                                 
|- Foreign currency translation (loss) gain                     |  |                                 
|                                                               |  |                                 
|COMPREHENSIVE INCOME (LOSS)                                    |  | $                               
|                                                               |  |                                 
|Net loss per share – Basic and diluted                         |  | $                               
|                                                               |  |                                 
|Weighted average common shares outstanding – Basic and diluted |  |                                 
|                                                               |  |                                 



F-3



See accompanying notes to condensed consolidated
financial statements.





44









CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2014
AND 2013

(Currency expressed in United States Dollars
(“US$”))

(Unaudited)



|                                                                                     |  | Three
    months ended March 31,
|------------------------------------------------------------------------------------ |  | --------------------------------
|                                                                                     |  | 2014                            
|Cash flows from operating activities:                                                |  |                                 
|Net income (loss )                                                                   |  | $                               
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                                 
|Depreciation of property, plant and equipment                                        |  |                                 
|Amortization of prepaid mining right                                                 |  |                                 
|Gain on disposal of a subsidiary                                                     |  |                                 
|Changes in operating assets and liabilities:                                         |  |                                 
|Accounts receivable                                                                  |  |                                 
|Deposits and prepayments                                                             |  |                                 
|Gold inventories                                                                     |  |                                 
|Accounts payable                                                                     |  |                                 
|Income tax payable                                                                   |  |                                 
|Accrued liabilities and other payable                                                |  |                                 
|                                                                                     |  |                                 
|Net cash provided by (used in) operating activities                                  |  |                                 
|                                                                                     |  |                                 
|Cash flows from investing activities:                                                |  |                                 
|Proceed from disposal of a subsidiary                                                |  |                                 
|Payments on leased mining rights                                                     |  |                                 
|Purchase of plant and equipment                                                      |  |                                 
|Payments on construction in progress                                                 |  |                                 
|                                                                                     |  |                                 
|Net cash provided by (used in) investing activities                                  |  |                                 
|                                                                                     |  |                                 
|Cash flows from financing activities:                                                |  |                                 
|Proceeds from short-term bank borrowing                                              |  |                                 
|Repayment to short-term bank borrowing                                               |  |                                 
|Proceeds from loans payable                                                          |  |                                 
|Repayment to loans payable                                                           |  |                                 
|Proceeds from related party note                                                     |  |                                 
|Repayment of related party note                                                      |  |                                 
|Advance from (repayment to) a related party                                          |  |                                 
|                                                                                     |  |                                 
|Net cash (used in) provided by financing activities                                  |  |                                 
|                                                                                     |  |                                 
|Effect of exchange rate changes on cash and cash equivalents                         |  |                                 
|                                                                                     |  |                                 
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                              |  |                                 
|                                                                                     |  |                                 
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                       |  |                                 
|                                                                                     |  |                                 
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                             |  | $                               
|                                                                                     |  |                                 
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                    |  |                                 
|Cash paid for income taxes                                                           |  | $                               
|Cash paid for interest                                                               |  | $                               



F-4



See accompanying notes to condensed consolidated
financial statements.





45







CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)



|                                        |  | Common
    stock |  | Additional
    paid-in capital |        | Subscription
    receivable |   | Statutory
        reserve |  | Accumulated
    other comprehensive income |           | Accumulateddeficits |   | Total
        stockholders’equity
|--------------------------------------- |  | ---------------- |  | ------------------------------ | ------ | --------------------------- | - | ------------------------- |  | ------------------------------------------ | --------- | ------------------- | - | ---------------------------------
|No.
    of shares                       |  | Amount          
|                                        |  |                  |  |                                |        |                             |   |                           |  |                                            |           |                     |   |                                  
|Balance as of January 1, 2014           |  | 115,000,000      |  | $                              | 11,500 |                             | $ | 8,899,597                 |  | $                                          | (718,459) |                     | $ | 645,781                          
|                                        |  |                  |  |                                |        |                             |   |                           |  |                                            |           |                     |   |                                  
|Disposal of a subsidiary                |  | -                |  |                                | -      |                             |   | -                         |  |                                            | -         |                     |   | (336,883)                        
|                                        |  |                  |  |                                |        |                             |   |                           |  |                                            |           |                     |   |                                  
|Foreign currency translation adjustment |  | -                |  |                                | -      |                             |   | -                         |  |                                            | -         |                     |   | -                                
|                                        |  |                  |  |                                |        |                             |   |                           |  |                                            |           |                     |   |                                  
|Net income for the period               |  | -                |  |                                | -      |                             |   | -                         |  |                                            | -         |                     |   | -                                
|Balance as of March 31, 2014            |  | 115,000,000      |  | $                              | 11,500 |                             | $ | 8,899,597                 |  | $                                          | (718,459) |                     | $ | 308,898                          









F-5



See accompanying notes to condensed consolidated
financial statements.





46









CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)



NOTE –
1	BASIS OF PRESENTATION



The accompanying unaudited condensed consolidated
financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United
States (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures
normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate
to make the information not misleading.



In the opinion of management, the consolidated
balance sheet as of December 31, 2013 which has been derived from audited financial statements and these unaudited condensed consolidated
financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods
presented. The results for the period ended March 31, 2014 are not necessarily indicative of the results to be expected for the
entire fiscal year ending December 31, 2014 or for any future period.



These unaudited condensed consolidated financial
statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements
and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2013.



NOTE –
2	ORGANIZATION AND BACKGROUND



China ShouGuan Mining Corporation (“CHSO”
or “the Company”) was incorporated in the State of Nevada on May 4, 2010.



The Company, through its subsidiaries and variable
interest entities, is principally engaged in the project management of gold mining operations in China. In May 2009, the Company
commenced its first project, the Cunli Ji Gold Mine which is located in Shandong Province, the People Republic of China (“PRC”).
Following May 2011, the Company commenced its second project, the Dayuan Gold Mine which is located in Shandong Province, the PRC.



The details of the Company’s subsidiaries
and VIEs are described below:



|Name                                                    |  | Place of incorporation
        and kind of
        legal entity |  | Principal activities
        and place of operation                 |  | Particulars
                                         of issued/
        registered share
        capital |  | Effective interest
        Held
|------------------------------------------------------- |  | --------------------------------------------------------------- |  | ------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- |  | -------------------------------
|                                                        |  |                                                                 |  |                                                                     |  |                                                                                                          |  |                                
|Bei Sheng Limited (“BSL”)                               |  | British Virgin Islands, a limited liability company             |  | Investment holding in GWIL and provision of mining technical advice |  | 50,000 issued shares of US$1 each                                                                        |  | 100%                           
|                                                        |  |                                                                 |  |                                                                     |  |                                                                                                          |  |                                
|Golden Wide International Limited (“GWIL”)              |  | Hong Kong, a limited liability company                          |  | 100%-investment holding in SBCL                                     |  | 10,000 issued shares of HK$1 each                                                                        |  | 100%                           
|                                                        |  |                                                                 |  |                                                                     |  |                                                                                                          |  |                                
|Shoujin Business Consulting (Shenzhen) Limited (“SBCL”) |  | The PRC, a limited liability company                            |  | Provision of consulting service in the PRC                          |  | RMB100,000                                                                                               |  | 100%                           
|                                                        |  |                                                                 |  |                                                                     |  |                                                                                                          |  |                                
|Shenzhen Shouguan Investment Co., Ltd (“SSIC”) #        |  | The PRC, a limited liability company                            |  | 99%-investment holding in JinGuan                                   |  | RMB18,100,000                                                                                            |  | N/A                            
|                                                        |  |                                                                 |  |                                                                     |  |                                                                                                          |  |                                
|Yantai Jinguan Investment Limited (“JinGuan”) #         |  | The PRC, a limited liability company                            |  | 100%-investment holding in XinGuan                                  |  | RMB5,000,000                                                                                             |  | N/A                            



# 	represents variable interest entity (“VIE”)



The Company and its subsidiaries and VIEs are
hereinafter collectively referred to as (“the Company”).



F-6







47







CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)



NOTE –
3	GOING CONCERN UNCERTAINTIES



These condensed consolidated financial statements
have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and
the discharge of liabilities in the normal course of business for the foreseeable future.



As of March 31, 2014, the Company suffered
the accumulated deficits of $4,994,512 from prior years and suffered from a working capital deficit of $5,045,203. The continuation
of the Company as a going concern is dependent upon the continuing financial support from its stockholders or external financing.
Management believes the existing stockholders will provide the additional cash to meet with the Company’s obligations as
they become due. However, there can be no assurance that the Company will be able to obtain sufficient funds to meet its obligations.



These factors raise substantial doubt about
the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may
result in the Company not being able to continue as a going concern.





NOTE –
4	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



The accompanying condensed consolidated financial
statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying
condensed consolidated financial statements and notes.



| |  | Exploration
                                         stage company
| |  | ------------------------------------------------------------------



Despite the fact that the Company commenced
its production in 2009, it is still considered an exploration stage company under the criteria set forth by the Securities and
Exchange Commission (“SEC”) since it has not yet demonstrated the existence of proven or probable reserves, defined
by SEC Industry Guide 7 at Cunliji and Dayuan Gold Mines. As a result, and in accordance with accounting principles generally
accepted in the United States (“U.S. GAAP”) for exploration stage companies, all expenditures for exploration and evaluation
of the Company’s properties are expensed as incurred until mineralized material is classified as proven or probable reserves.
Accordingly, substantially all expenditures for mine development and mill construction have been expensed as incurred. Certain
expenditures, such as for rolling stock or other general-purpose equipment, may be capitalized, subject to evaluation for possible
impairment of the asset. As of March 31, 2014, none of the mineralized material at Cunliji and Dayuan Gold Mines met the SEC’s
definition of proven or probable reserves. The Company expects to remain an exploration stage company for the foreseeable future,
even though it has reached commercial production. The Company will not exit the exploration stage unless and until it demonstrates
the existence of proven or probable reserves that meet SEC guidelines.



F-7





48







CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)



| |  | Proven
                                         or probable reserves
| |  | --------------------------------------------------------------------



The definition of proven or probable reserves
is set forth in SEC Industry Guide 7. Proven reserves are reserves for which (a) quantity is computed from dimensions revealed
in outcrops, trenches, workings or drill holes; (b) grade and/or quality are computed from the results of detailed sampling; and
(c) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that
size, shape, depth and mineral content of reserves are well-established. Probable reserves are reserves for which quantity and
grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling,
and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for
proven reserves, is high enough to assume continuity between points of observation. In addition, reserves cannot be considered
proven or probable until they are supported by a feasibility study, indicating that the reserves have had the requisite geologic,
technical and economic work performed and are economically and legally extractable at the time of the reserve determination. As
of March 31, 2014, none of the Company’s mineralized resources met the definition of proven or probable reserves.



| |  | Use
                                         of estimates
| |  | ---------------------------------------------------------



In preparing these condensed consolidated financial
statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance
sheet and revenues and expenses during the periods reported. Actual results may differ from these estimates.



| |  | Basis
                                         of consolidation
| |  | ---------------------------------------------------------------



The condensed consolidated financial statements
include the financial statements of CHSO, its subsidiaries and VIEs. All inter-company balances and transactions between the Company
and its subsidiaries and VIEs have been eliminated upon consolidation.



The Company has adopted ASC Topic 810-10-5-8,
“Variable Interest Entities”, which requires a variable interest entity or VIE to be consolidated by a company
if that company is subject to a majority of the risk of loss for the VIEs or is entitled to receive a majority of the VIEs’
residual returns.



Variable interest entity



On May 15, 2010, the Company’s subsidiary,
SBCL entered into a series of agreements (“VIE agreements”) amongst SSIC, JinGuan and the individual owners of SSIC,
JinGuan and details of the VIE agreements are as follows :



| | 1. | Exclusive Technical Service and Business Consulting Agreement;
| | -- | --------------------------------------------------------------

| | 2. | Exclusive Option Agreement;
| | -- | ---------------------------

| | 3. | Equity Pledge Agreement, to pledge their legal interest to SBCL as
a security for the obligations under the Exclusive Technical Service and Business Consulting Agreement;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | Proxy Agreement, irrevocably grant and entrust SBCL the right to
exercise its voting and other stockholder’s right;
| | -- | -------------------------------------------------------------------------------------------------------------------

| | 5. | Operating Agreement.
| | -- | --------------------



F-8





49







CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)



With the above agreements, SBCL demonstrates
its ability to control SSIC and JinGuan as the primary beneficiaries and the operating results of the VIEs was included in the
condensed consolidated financial statements for the three months ended March 31, 2014 and 2013.



| |  | Cash
                                         and cash equivalents
| |  | ------------------------------------------------------------------



Cash and cash equivalents are carried at cost
and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments
with an original maturity of three months or less as of the purchase date of such investments.



| |  | Gold
                                         inventories
| |  | ---------------------------------------------------------



Gold inventories are stated at the lower of
cost or net realizable value. Costs are recorded as actually incurred, which are directly attributable to the development and production
of gold concentrates, including direct material, direct labor, sub-contracting mining fee, depreciation of mining plants, amortization
of mining rights and other operating overhead.



| |  | Mining
                                         rights, exploration and development costs
| |  | -----------------------------------------------------------------------------------------



Costs of mining rights are capitalized upon
acquisition.



Subsequent exploration and development costs
are expensed as incurred until such time as a feasibility study has been completed which establishes, in compliance with SEC
Industry Guide 7, that proven and probable reserves exist on the property. After proven and probable reserves have been established,
subsequent exploration and development costs are capitalized until such time as a property is placed in-service. Following a property's
in-service date, accumulated capitalized acquisition, exploration and development costs are reclassified as Mining Property assets
and are subject to amortization on a units-of-production basis when its production begins.



| |  | Prepaid
                                         mining rights
| |  | --------------------------------------------------------------



Prepaid mining rights represent certain amount
of lease prepayment made for the operation of the mining license of Dayuan Gold Mine and are being amortized using a straight-line
basis over its scheduled lease term.



The rent expense on prepaid mining rights for
the three months ended March 31, 2014 and 2013 was $539,229 and $522,913, respectively. As of March 31, 2014, the estimated annual
amortization of the prepaid mining rights for the next five years and thereafter is as follows:



|Years
    ending March 31: |  |  |  |  |   |          
|-------------------------- |  |  |  |  | - | ---------
|2015                       |  |  |  |  | $ | 2,141,327
|2016                       |  |  |  |  |   | 2,141,327
|2017                       |  |  |  |  |   | 2,141,327
|2018                       |  |  |  |  |   | 1,488,662
|2019                       |  |  |  |  |   | 32,444   
|Thereafter                 |  |  |  |  |   | 89,223   
|                           |  |  |  |  |   |          
|Total:                     |  |  |  |  | $ | 8,034,310



F-9



50







CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)



| |  | Property,
                                         plant and equipment
| |  | ----------------------------------------------------------------------



Property, plant and equipment are stated at
cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis
over the following expected useful lives from the date on which they become fully operational and after taking into account their
estimated residual values:



|                    | Expected
    useful life |  | Residual
    value
|------------------- | ------------------------ |  | ------------------
|Plant and machinery | 5-10 years               |  | 5%                
|Motor vehicles      | 5 years                  |  | 5%                
|Office equipment    | 3-5 years                |  | 5%                



Expenditure for repairs and maintenance
is expensed as incurred. When assets have retired or sold, the cost and related accumulated depreciation are removed from the accounts
and any resulting gain or loss is recognized in the results of operations.



Depreciation expense for the three months ended
March 31, 2014 and 2013 were $93,006 and $215,647, respectively.



| |  | Construction
                                         in progress
| |  | -----------------------------------------------------------------



Construction in progress is stated at cost,
which includes the costs of self-constructed assets, including mine development assets during the construction phase. Indirect
overhead costs are not included in the cost of self-constructed assets. Construction in progress is not depreciated until such
time as the assets are completed and put into operational use. No capitalized interest is incurred during the period of construction.



| |  | Impairment
                                         of long-lived assets
| |  | ------------------------------------------------------------------------



In accordance with the provisions of ASC Topic
360-10-5, “Impairment or Disposal of Long-Lived Assets ”, all long-lived assets held and used by the Company
are annually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an
asset to estimated future undiscounted cash flows expected to be generated by the asset. Future cash flows are based on estimated
quantities of gold and other recoverable metals, expected price of gold and other commodity (considering current and historical
prices, price trends and related factors), production levels and cash costs of production, capital and reclamation costs, all based
on detailed engineering life-of-mine plans. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amounts of the assets exceed the fair value of the assets.



Numerous factors including, but not limited
to, such things as unexpected grade changes, gold recovery problems, shortages of equipment and consumables, equipment failures,
and collapse of pit walls, could impact our ability to achieve forecasted production schedules from proven and probable reserves.
Additionally, commodity prices, capital expenditure requirements and reclamation costs could differ from the assumptions used in
the cash flow models used to assess impairment. The ability to achieve the estimated quantities of recoverable minerals from exploration
stage mineral interests involves further risks in addition to those factors applicable to mineral interests where proven and probable
reserves have been identified, due to the lower level of confidence that the identified mineralized material can ultimately be
mined economically. There has been no impairment charge for the periods presented.



F-10





51







CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)





| |  | Revenue
                                         recognition
| |  | ------------------------------------------------------------



In accordance with the ASC Topic 605, “Revenue
Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has
occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.



| | (a) | Product sales
| | --- | -------------



The Company derives revenues from the sales
of non-refined gold concentrate to smelters, whereas the smelter usually takes 6 days for the production from non-refined gold
concentrate to gold bullion. The Company generally recognizes its revenues, net of value-added taxes ("VAT") at the time
of gold bullion is produced by the smelter and its selling price is determined by the market value of gold bullion quoted by the
Shanghai Gold Exchange.



The Company is subject to VAT which is levied
on the standard gold products at the standard rate of 17% on the invoiced value of sales. The Company’s VIE, XinGuan is granted
with a preferential tax treatment under the Chinese tax law of the “Notice from Ministry of Finance and State Tax Bureau
in Relation to Exemption of Value Added Tax on Gold Production” and “Notice regarding issues on Tax Policy on
Gold Transaction”, whereas gold produced and sold by gold mining and smelting enterprises are exempted from VAT.



(b)	Interest
income



Interest income is recognized on a time apportionment
basis, taking into account the principal amounts outstanding and the interest rates applicable.



| |  | Resource
                                         compensation fees
| |  | -------------------------------------------------------------------



In accordance with the relevant regulations
under the Chinese Law, a company that is engaged in exploiting mineral resources is required to pay a resource tax and resources
compensation levy to the local government as the compensation for the depletion of mineral resources. Pursuant to “Provisional
Regulations on Resources Tax of the PRC” and “Administrative Rules on the Levy of Mineral Resources Compensation”,
the amounts of the resource tax and resources compensation levy are computed on the basis of the sales revenue of mineral products.
The Company was required to pay resource compensation fees of $0 and $19,875 for the three months ended March 31, 2014 and 2013,
respectively.



| |  | Comprehensive
                                         income
| |  | -------------------------------------------------------------



ASC Topic 220,“Comprehensive Income”,
establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive
income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income,
as presented in the accompanying condensed consolidated statement of stockholders’ equity, consists of changes in unrealized
gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense
or benefit.



F-11



52









CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)





| |  | Income
                                         taxes
| |  | -----------------------------------------------------



The Company adopts ASC Topic 740, “Income
Taxes” regarding accounting for uncertainty in income taxes which prescribes the recognition threshold and measurement
attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return.
In addition, the guidance requires the determination of whether the benefits of tax positions will be more likely than not sustained
upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not
sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon
ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained
upon audit, a company does not recognize any portion of the benefit in the financial statements. The guidance provides for de-recognition,
classification, penalties and interest, accounting in interim periods and disclosure.



For the three months ended March 31, 2014 and
2013, the Company did not have any interest and penalties associated with tax positions. As of March 31, 2014, the Company did
not have any significant unrecognized uncertain tax positions.



The Company conducts major businesses in the
PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are
subject to examination by the foreign tax authority.



| |  | Net
                                         income (loss) per share
| |  | --------------------------------------------------------------------



The Company calculates net income (loss) per
share in accordance with ASC Topic 260,“Earnings per Share.” Basic income (loss) per share is computed by dividing
the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted income (loss) per
share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional
common shares were dilutive.



| |  | Foreign
                                         currencies translation
| |  | -----------------------------------------------------------------------



Transactions denominated in currencies other
than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction.
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional
currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the
statement of operations.



The reporting currency of the Company is the
United States Dollars ("US$"). The Company's subsidiary in the PRC maintain its books and records in its local currency,
Renminbi Yuan ("RMB"), which is functional currency as being the primary currency of the economic environment in which
the entity operates.



F-12





53







CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)



In general, for consolidation purposes, assets
and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic
830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and
expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial
statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement
of stockholders’ equity.



Translation of amounts from RMB into US$1 has
been made at the following exchange rates for the respective period:



|                                      |  |  | March
    31, 2014 |  | March
    31, 2013
|------------------------------------- |  |  | ------------------ |  | ------------------
|Period-end RMB:US$1 exchange rate     |  |  | 6.1644             |  | 6.2855            
|Period average RMB:US$1 exchange rate |  |  | 6.1199             |  | 6.3108            



| |  | Related
                                         parties
| |  | --------------------------------------------------------



Parties, which can be a corporation or individual,
are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant
influence over the other party in making financial and operational decisions. Companies are also considered to be related if they
are subject to common control or common significant influence.



| |  | Segment
                                         reporting
| |  | ----------------------------------------------------------



ASC Topic 280, “Segment Reporting”
establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal
organization structure as well as information about geographical areas, business segments and major customers in financial statements.
For the three months ended March 31, 2014, the Company operates in one reportable operating segment in the PRC.



| |  | Fair
                                         value of financial instruments
| |  | ----------------------------------------------------------------------------



The carrying value of the Company’s financial
instruments include cash, accounts receivable, amounts due from (to) related parties, deposits and prepayments, accounts payable,
amount due to a related party, income tax payable, accrued liabilities and other payable. Fair values were assumed to approximate
carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair
values. The carrying value of the Company’s loans and note payable approximated its fair value based on the current market
prices or interest rates for similar debt instruments.



The Company also follows the guidance of ASC
Topic 820-10, “Fair Value Measurements and Disclosures” ("ASC 820-10"), with respect to financial
assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes
the inputs used in measuring fair value as follows:



|- | Level 1: Observable inputs such as quoted prices in active markets;
|- | -------------------------------------------------------------------



|- | Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|- | -----------------------------------------------------------------------------------------------------------------------



|- | Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions
|- | ------------------------------------------------------------------------------------------------------------------------------------------



F-13





54







CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)





Fair value estimates are made at a specific
point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.



| |  | Recent
                                         accounting pronouncements
| |  | -------------------------------------------------------------------------



The Company has reviewed all recently issued,
but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected
to cause a material impact on its financial condition or the results of its operations.



NOTE –
5	DISPOSAL OF A SUBSIDIARY



On March 31, 2014, the Company and its former
variable interest entity, Penglai XinGuan Investment Limited completed a Definitive Share and Asset Agreement with an independent
third party to sell and transfer all assets and liabilities primarily related to Cunliji Mine Project, at a purchase price of
approximately $7,300,000 (Equivalent to RMB 45 million). It resulted in a gain of $454,200 (equivalent to RMB 2.78 million) and
a consideration receivable of $3,649,990 (equivalent to RMB 22.5 million) at March 31, 2014, which is expected to be fully received
by the end of December 2014.



NOTE –
6	AMOUNT DUE TO A RELATED PARTY



As of March 31, 2014, amount due to a related
party represented temporary advances made by Mr. Zhang, the director of the Company, which was unsecured, interest-free with no
fixed repayment term. Imputed interest is considered insignificant.



NOTE –
7	LOANS PAYABLE, UNSECURED



As of March 31, 2014 and December 31,
2013, the Company also held the following short-term and long-term loans payable to third parties:



|                                                                                                                                                                              | 31-Mar-14 |           | 31-Mar-13
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | --------- | ---------
|                                                                                                                                                                              |           |           |          
|Loans payable to certain individuals and financial institution in the PRC, unsecured:                                                                                         |           |           |          
|                                                                                                                                                                              |           |           |          
|Equivalent to RMB4,500,000 (2013: RMB4,500,000) with interest rate at 2.7% per annum, payable at its maturity, due May 7, 2014                                                | $         | 729,998   |          
|                                                                                                                                                                              |           |           |          
|Equivalent to RMB7,400,000 (2013: RMB7,400,000) with interest rate at 2.7% per annum, payable at its maturity, due May 7, 2014                                                |           | 1,200,441 |          
|                                                                                                                                                                              |           |           |          
|Equivalent to RMB8,000,000 (2013: RMB8,000,000) with interest rate at 5.18% per annum, payable at its maturity, due June 14, 2014                                             |           | 1,297,774 |          
|                                                                                                                                                                              |           |           |          
|Equivalent to RMB2,700,000 (2013: RMB2,700,000) with interest rate at 5.18% per annum, payable at its maturity, due March 27, 2015                                            |           | 437,999   |          
|                                                                                                                                                                              |           |           |          
|Equivalent to RMB4,942,600 (2013: 4,942,600) with interest rate at the bank of China Benchmark Lending Rate, payable at its maturity, due March 7, 2015                       |           | 801,798   |          
|                                                                                                                                                                              |           |           |          
|Equivalent to RMB22,000,000 (2013: 22,000,000) with interest rate at 2% per annum, payable at its maturity, due August 12, 2014                                               |           | 3,568,879 |          
|                                                                                                                                                                              |           |           |          
|Equivalent to RMB0 (2013: 2,000,000) interest free, payable at its maturity, due January 17, 2014                                                                             |           | -         |          
|                                                                                                                                                                              |           |           |          
|Equivalent to RMB5,500,000 with interest rate at the bank of China Benchmark Lending Rate, payable at its maturity, due April 15, 2014                                        |           | 892,220   |          
|                                                                                                                                                                              |           |           |          
|Equivalent to RMB 1,929,801 (2013: RMB2,074,429) with effective interest rate at 8.97% per annum, payable with monthly principal and interest payments, due February 28, 2017 |           | 313,056   |          
|                                                                                                                                                                              |           |           |          
|Total current and long-term liabilities                                                                                                                                       |           | 9,242,165 |          
|Less: long-term portion                                                                                                                                                       |           | (214,191) |          
|                                                                                                                                                                              |           |           |          
|Total current liabilities                                                                                                                                                     | $         | 9,027,974 |          





F-14





55







CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)





As of March 31, 2014, the minimum future payments
of the loans payable in the next three years are as follow:



|Years
    ending March 31: |  |  |  |  |   |          
|-------------------------- |  |  |  |  | - | ---------
|2015                       |  |  |  |  | $ | 9,027,974
|2016                       |  |  |  |  |   | 107,411  
|2017                       |  |  |  |  |   | 106,780  
|                           |  |  |  |  |   |          
|Total:                     |  |  |  |  | $ | 9,242,165



NOTE – 8	LOANS PAYABLE,
RELATED PARTY



As of March 31, 2014, the loan $1,119,330 due
to Mr. Zhang, the director of the Company, due March 9, 2015, which was unsecured, carried annual interest at Bank of China Benchmark
Lending Rate and payable in a monthly installment. The interest expense to a related party amounted $15,578 and $15,851 for the
three months ended March 31, 2014 and 2013, respectively.



NOTE –
9	INCOME TAXES



For the three months ended March 31, 2014 and
2013, the local (United States) and foreign components of profit (loss) before income taxes were comprised of the following:



|                                  |  | Three
    months ended March 31,
|--------------------------------- |  | --------------------------------
|                                  |  | 2014                            
|Tax jurisdictions from:           |  |                                 
|– Local                           |  | $                               
|– Foreign                         |  |                                 
|Income (loss) before income taxes |  | $                               



The provision for income taxes consisted of
the following:



|                            |  | Three
    months ended March 31,
|--------------------------- |  | --------------------------------
|                            |  | 2014                            
|Current:                    |  |                                 
|– Local                     |  | $                               
|– Foreign, representing by: |  |                                 
|Hong Kong                   |  |                                 
|The PRC                     |  |                                 
|                            |  |                                 
|Deferred:                   |  |                                 
|– Local                     |  |                                 
|– Foreign                   |  |                                 
|Income tax expense          |  | $                               





F-15



56









CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)





The effective tax rate in the periods presented
is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The Company
has subsidiaries that operate in various countries: United States, BVI, Hong Kong and the PRC that are subject to taxes in the
jurisdictions in which they operate, as follows:



United States of America



The Company is registered in the State of Nevada
and is subject to the tax laws of the United States of America.



British Virgin Island



Under the current BVI law, Bei Sheng is not
subject to tax on its income or profits.



Hong Kong



Golden Wide is subject to Hong Kong Profits
Tax, which is charged at the statutory income rate of 16.5% on assessable income. For the three months ended March 31, 2014 and
2013, Golden Wide suffered from an operating loss of $168 and $129, respectively.



The PRC



The Company generated its income from
its subsidiaries and VIEs operating in the PRC for the three months ended March 31, 2014 and 2013, which are subject to the Corporate
Income Tax Law of the People’s Republic of China (the “New CIT Law”) at a unified income tax rate of 25%. A reconciliation
of income tax rate to the effective income tax rate for the three months ended March 31, 2014 and 2013 is as follows:



|                                                        |  | Three
    months ended March 31,
|------------------------------------------------------- |  | --------------------------------
|2014                                                    |  | 2013                            
|                                                        |  |                                 
|Income (loss) before income taxes                       |  | $                               
|Statutory income tax rate                               |  |                                 
|                                                        |  |                                 
|Income tax expense at the statutory rate                |  |                                 
|Net operating loss not recognized as deferred tax asset |  |                                 
|Non-taxable income                                      |  |                                 
|Non-deductible items                                    |  |                                 
|Income tax expense                                      |  | $                               
|                                                        |  |                                 



As of March 31, 2014, the Company incurred
$3,466,154 of aggregate net operating loss carryforwards available to offset its taxable income for income tax purposes. The Company
has provided for a full valuation allowance against the deferred tax assets of $866,539 on the expected future tax benefits from
the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized
in the future.



F-16





57









CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)







NOTE –
10	CONCENTRATIONS OF RISK



The Company is exposed to the following concentrations
of risk:



(a)	Major customers



For the three months ended March 31, 2014 and
2013, there was a single customer who accounted for 100% of the Company’s revenues with no accounts receivable balance at
period-end, respectively.



A customer is located in the PRC.



(b)	Major vendors



For the three months ended March 31, 2014
and 2013, the vendors who account for 10% or more of the Company’s purchases and its outstanding balance at period-end date,
are presented as follows:



|         |        |  | Three
    months ended March 31, 2014 |         | March
    31, 2014             
|-------- | ------ |  | ------------------------------------- | ------- | -------------------------------
|Vendor   |        |  | Purchases                             |         | Percentage
        of purchases
|         |        |  |                                       |         |                                
|Vendor A |        |  | $                                     | 505,045 |                                
|Vendor B |        |  |                                       | 253,565 |                                
|         |        |  |                                       |         |                                
|         | Total: |  | $                                     | 758,610 |                                



|         |        |  | Three
    months ended March 31, 2013 |         | March
    31, 2013             
|-------- | ------ |  | ------------------------------------- | ------- | -------------------------------
|Vendor   |        |  | Purchases                             |         | Percentage
        of purchases
|         |        |  |                                       |         |                                
|Vendor A |        |  | $                                     | 542,616 |                                
|Vendor C |        |  |                                       | 136,813 |                                
|Vendor D |        |  |                                       | 83,041  |                                
|         |        |  |                                       |         |                                
|         | Total: |  | $                                     | 762,470 |                                



All vendors are located in the PRC.



F-17





58









CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)





(c)	Credit risk



Financial instruments that are potentially
subject to credit risk consist principally of accounts receivables. The Company believes the concentration of credit risk in its
accounts and retention receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection
terms. The Company does not generally require collateral from customers. Credit is extended based on evaluation of a customer's
financial condition. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit
risk of specific customers, historical trends and other information.



(d)	Exchange rate risk



The reporting currency of the Company
is US$, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities
are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations
may be affected by fluctuations in the exchange rate between US$ and RMB. If RMB depreciates against US$, the value of RMB revenues
and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments
that expose to substantial market risk.



(f)	Economic and political risks



The Company's operations are conducted
in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political,
economic and legal environment in the PRC, and by the general state of the PRC economy.



The Company's operations in the PRC are
subject to special 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 environment and foreign currency exchange.
The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in
governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad,
and rates and methods of taxation.



(g)	Mining industry risks



The Company's mining operations are subject
to extensive national and local governmental regulations in China, which regulations may be revised or expanded at any time. Generally,
compliance with these regulations requires the Company to obtain permits issued by government regulatory agencies. Certain permits
require periodic renewal or review of their conditions. The Company cannot predict whether it will be able to obtain or renew such
permits or whether material changes in permit conditions will be imposed. The inability to obtain or renew permits or the imposition
of additional conditions could have a material adverse effect on the Company's ability to develop and operate its mines.



F-18





59









CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO
FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Currency expressed in United States Dollars
(“US$”), except for number of shares)

(Unaudited)





(h)	Risk on changing price in gold



At present,
the price of gold in the PRC is generally in line with the price of gold in the international market. There are many factors influencing
the price of gold in the international market, including the international economic situation (in particular the economic situation
in the US), petroleum prices, fluctuations in the exchange rates of the US$, fluctuations in the stock and other financial investment
markets and various political, military, social and economic contingencies. These factors are beyond the control of the Company.
Changes in the prices of the gold in the PRC and in the exchange rate of Renminbi as a result of these may adversely affect the
operating results of the Company. Under the relevant PRC laws and regulations, hedging activities presently are not permitted
in gold tracing in the PRC market. The Company has not been involved in hedging transactions or any alternative measures to manager
the potential price risk.



NOTE –
11	COMMITMENTS AND CONTINGENCIES



The Company is committed under several non-cancelable
operating leases for office premises and mining rights with the terms ranging from 1 to 10 years, with fixed monthly rentals or
scheduled payments. Total rent expenses (excluding amortization of prepaid mining rights) for the three months ended March 31,
2014 and 2013 was $30,398 and $27,827, respectively.



As of March 31, 2014, the Company has the aggregate
future minimum rental payments due under these non-cancelable operating leases, as follows:



|                          |  | Operating
    lease commitments
|------------------------- |  | -------------------------------
|                          |  | Office
    premises            
|Year
    ending March 31, |  |                                
|2015                      |  | $                              
|2016                      |  |                                
|2017                      |  |                                
|2018                      |  |                                
|                          |  |                                
|Total:                    |  | $                              
|                          |  |                                



NOTE – 12	SUBSEQUENT
EVENTS



The company evaluated subsequent events through
the date the financial statements were issued and filed with this Form10-Q. There were no subsequent events that required recognition
or disclosure.



F-19





60









Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure



There were no changes in or disagreements with
accountants on accounting and financial disclosures for the three months ended March 31, 2014, or since inception.



ITEM 9A(T). Controls and Procedures





Evaluation of Disclosure Controls and
Procedures



In accordance with the rules required by the
SEC for information required to be disclosed, in this annual report, the Company’s management evaluated, with the participation
of the Company’s Principal Executive Officer and Principal Financial Officer, the effectiveness and the operation of the
Company’s disclosure controls and procedures. Based upon their evaluation of these disclosure controls and procedures, Chief
Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective
for accumulating recording, processing, summarizing and communicating, to the Company’s management, to ensure timely decisions
regarding disclosure information needed within the time periods specified in the SEC rules and forms.





Management’s Report on Internal
Control over Financial Reporting



Our management is responsible for establishing
and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a - 15(f). Our
internal control system was designed to provide reasonable assurance to our management and the Board of Directors regarding the
preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed
have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Our management assessed the effectiveness of our internal control
over financial reporting as of March 31, 2013. In making this assessment, our management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control - Integrated Framework - Guidance
for Smaller Public Companies (the COSO criteria). Based on our assessment we believe that, as of March 31, 2014, our internal control
over financial reporting is effective based on those criteria.



This report does not include an attestation
report by our independent registered public accounting firm, regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary
rules of the SEC that permits the Company to only provide management’s report in this Form 10-K.



Changes in Internal Control over Financial
Reporting





There were no changes in our internal control
over financial reporting that occurred during the quarter ended March 31, 2014 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.



Item 9B. Other Information



None.





61









PART III.





Item 10. Directors, Executive Officers and
Corporate Governance.





Directors of the corporation are elected by
the stockholders to a term of one year and serve until a successor is elected and qualified. Officers of the corporation are appointed
by the Board of Directors to a term of one year and serves until a successor is duly appointed and qualified, or until he or she
is removed from office. The Board of Directors has no nominating, auditing or compensation committees at this time.



The name, address, age and position of our officers
and directors is set forth below:



|Name and Address                                                                                                                     | Age | Position(s)                          
|------------------------------------------------------------------------------------------------------------------------------------ | --- | -------------------------------------
|Feize Zhang
        Room 3207, New World Center, 6009 Yitian Road,
        Futian District, Shenzhen, PR China                       | 46  | Chairman, Principal Executive Officer
|                                                                                                                                     |     |                                      
|Jingfeng Lv
        Room 501-505, Lantian International Building,
        59 Changjiang Road, Development District, Yantai, PR China | 55  | Chief Technical Officer              
|                                                                                                                                     |     |                                      
|Terry Tsao
        Room 3207, New World Center, 6009 Yitian Road,
        Futian District,
        Shenzhen, PR China                | 49  | Principal Financial Officer          





The persons named above are expected to hold
said offices/positions until the next annual meeting of our stockholders. Mr. Feize Zhang is also the member and Chairman of the
Board of Directors of the company. These officers and directors are the only officers, directors and promoters of our Company.



Background Information about Our Officers
and Directors





Our management team, which includes our officers
and directors, as well as sophisticated mining experts, have extensive mining industry experience and excellent working relationships
with government departments, regulatory bodies, engineering and construction groups and suppliers across China. We also have a
team of senior engineers specialized in geology, mining resources, mining and refinery.









62









Mr. Feize Zhang - Chairman and Principal Executive
Officer



Feize Zhang has been the Principal Executive
Officer and a Director of the Company since inception on May 4, 2010. On December 1, 2008, Mr. Zhang co-founded Shenzhen Shouguan
Investment Ltd. (SSIC) with Jinfeng Lv, an officer of the Company. SSIC is a VIE of BSL, the Company's wholly-owned subsidiary
in the PRC. From July 2008 to December 1, 2008, Mr. Zhang devoted all of his efforts on planning for the establishment of the Company.
From December 2000 to June 2008, he was the CEO of CG Network Technology limited, a privately-held company engaged in the business
of systems integration in Shenzhen, PRC, in which he was responsible for the strategic planning and overall management of the company.
Mr. Zhang graduated from Central China Technology University with a Bachelor Degree in Mechanical and Electrical Technology in
2000 and is now an EMBA candidate of Tsinghua University. Mr. Zhang devotes full time to the business of our Company.



Mr. Jingfeng Lv - Chief Technical Officer



Jinfeng Lv has been the Chief Technical Officer
of the Company since inception on May 4, 2010. Mr. Lv is a senior mining engineer with over 30 years of mining industry experience.
Since 1976, Mr. Lv has been involved in numerous large-scale mine exploration and research projects in Shandong, China. He is a
senior member of various mining-related associations in China including Chinese Gold Society, Chinese Rock Mechanics and Engineering
Society, Chinese Society for Geodesy, Photogrammetry and Cartography. He is the Chief Engineer of Yantai JinGuan Investment Ltd,
a committee member of the technical committee of Shandong Gold Society. Over the past years, Mr. Lv has published over 30 theses
in academic periodicals and conferences in China, and received 6 awards in scientific achievements. On December 1, 2008, he co-founded
Shenzhen Shouguan Investment Co., Ltd (SSIC) with Feize Zhang, an officer and director of the Company. SSIC is a VIE of BSL, the
Company's wholly-owned subsidiary in the PRC. From September 2008 to December 1, 2008, Mr. Lv devoted all of his efforts on planning
for the establishment of the Company. From September 2005 to September 2008, he was Senior Engineer at Yantai Xinwan Mining Technology
Co., Limited, responsible for mineral research and technical work on various mining projects. From December 1993 to August 2005,
he was a Senior Engineer at the Yantai Gold Corporation in Yantai, China, a state-owned company, in which he was responsible for
mineral research and technical work in the central and eastern parts of Shandong Province in the PRC. Mr. Lv graduated from China
Northeastern University with a Bachelor Degree in Engineering Management in 1987. Mr. Lv devotes full time to the business of our
Company.



Mr. Terry Tsao - Principal Financial Officer



Mr. Tsao became the Principal Financial Officer
of the Company since December 30, 2013. Mr. Tsao has over 20 years experience in auditing, finance and listed public company controller
and CFO experience. Prior to joining the Company, Mr. Tsao was the Financial Controller and Company Secretary of Ningbo WanHao
Holdings Company Limited whose shares are listed on the Growth Enterprise Market of the Stock Exchange of Hong Kong (stock code:
8249). He is also the Independent Non-executive Director of Uni-Bio Science Group Limited whose shares are listed on the Main Board
of the Stock Exchange of Hong Kong (stock code: 690) since May 7, 2010. Mr. Tsao holds a Master of Business Administration degree
from the University of Warwick. He is a Certified Public Accountant of the Hong Kong Institute of Certified Public Accountants
and member of Institute of Chartered Accountants of New Zealand, Institute of Chartered Secretaries and Administrators, Australasian
Institute of Banking & Finance plus Bankers' Institute of New Zealand. Mr. Tsao devotes 50% of his time to the business of
our Company.



Key Employees



We have three key employees who are Mr. Chaoyang
Liu, Mr. Degen Wu and Mr. Jinfeng Yu.









63







Mr. Chaoyang Liu - Vice General Manager
/ Senior Geological Engineer



Mr. Liu is the Vice General Manager of Yantai
Jinguan Investment Company and is responsible for the company’s gold mine operation and investment management. He is a senior
geological engineer with over 20 years of mining industry experience.

Since 1990, Mr. Liu has been taken part in
a number of the well-known mine exploration and research projects in China and positioned as technician or management. Before joining
our company, he worked as an investment manager in Shanghai Sheng Di Group from 2008 to 2012 and was responsible for project due
diligence and post investment management. From 2005 to 2007, he worked at the Shanghai Jin Peng Yuan Irradiation Technology Co.,
Ltd., in which he was the production manager. During 1990 and 2005, he worked at China National Gold Corporation, a state-owned
company, and held the position as technician in Qinling gold mine, a large-scale project in China. Mr. Liu was graduated from China
University of Geosciences with a Bachelor Degree in Deposit Geology in 1990. Mr. Liu devotes full time to the business of our Company.



Mr. Degen Wu - Production Manager / Senior
Geological Engineer



Mr. Wu is the production manager of our company
and is responsible for mining and geological exploration work. He is a senior geological engineer with over 20 years of mining
industry experience. Since 1989, Mr. Wu has been involved in numerous well-known mine exploration and research projects in China.
Before joining our company, he has taken part in several mining and exploration projects owned by Xian Feng Mining Group from 2010
to 2012, including Dao Ping Lead and Zinc Mine in Guangxi Province China and Huang Gu Tun Lead and Zinc Mine in Inner Mongolia
China. He was positioned as the general engineer and responsible for geological exploration works at Dao Ping Mine and was positioned
as the general manager and responsible for mining production and exploration at Huang Gu Tun Mine. Under his lead, both of the
two mines achieved major breakthrough in their exploration history. During August 2009 and April 2010, he was appointed general
manager of the Niu Wei Po Gold Mine in Hunan Province China. Mr. Wu was graduated from China University of Geosciences with a Bachelor
Degree in Mineral Exploration. Mr. Wu devotes full time to the business of our Company.



Jinfeng Yu - Manager of Technical Sector
/ Technical Survey Engineer



Mr. Yu has been the manager of the technical
sector of our company since June 2009 and is responsible for the technical survey works and project approval. Mr. Yu has 24 years
of mining industry experience in Shandong Province China. Being a technical survey engineer, he is a member of Shandong Provincial
Gold Survey Association. Before joining our company, from 2007 to 2009, he was a technical director for Penglai Jin Ao Wan Mining
Co., Ltd. and was responsible for technical management. From 2001 to 2007, he worked as the survey manager at Xin Cheng Gold Mine
which was operated by Shandong Gold Corporation, a state-owned corporation, where he was responsible for underground survey technology.
During 1989 and 2001, he was a survey technician at Xin Cheng Gold Mine, which was once under the administration of Chinese Ministry
of Metallurgical Industry. Mr. Yu was graduated from the Wuhan Technical University of Surveying and Mapping with a Bachelor Degree
in Surveying in 1989. He devotes full time to the business of our Company.



Section 16(a) Beneficial Ownership Reporting
Compliance



Section 16(a) of the Securities Exchange Act
of 1934 requires our directors and executive officers, and persons who own more than ten percent of our common stock, to file with
the Securities and Exchange Commission initial reports of ownership and reports of changes of ownership of our common stock. Officers,
directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a)
forms they file.



We intend to ensure to the best of our ability
that all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners
are complied with in a timely fashion.





64









Board Committees; Corporate Governance







The Board of Directors acts as the Audit Committee
and the Board has no separate committees. We do not currently have an audit committee. We expect our Board of Directors to appoint
an audit committee, a nominating committee and a compensation committee and to adopt charters relative to each such committee in
the near future. We intend to appoint such persons to committees of the Board of Directors as are expected to be required to meet
the corporate governance requirements imposed by a national securities exchange, although we are not required to comply with such
requirements until we elect to seek listing on a national securities exchange.



Auditors; Code of Ethics; Financial Expert



We have adopted a Code of Ethics; however,
we do not currently have an audit committee financial expert. However, our Chief Financial Officer qualifies as an audit committee
financial expert.



Option Grants



There have been no individual grants of stock
options to purchase our common stock made to any of the executive officer named in the Summary Compensation Tables.



Aggregated Option Exercises and Fiscal Year-End
Option Value







There have been no stock options exercised
by the executive officers named in the Summary Compensation Table.



Long-Term Incentive Plan (“LTIP”)
Awards



There have been no awards made to a named executive
officer in the last completed fiscal year under any LTIP.



Compensation of Directors



Directors are permitted to
receive fixed fees and other compensation for their services as directors. The Board of Directors has the authority to fix the
compensation of directors. To date, no amounts have been paid to, or accrued to, our directors in such capacity.





Director Independence



Our securities are not currently traded on
any public exchange and as such, we are not currently subject to corporate governance standards of listed companies, which require,
among other things, that the majority of the board of directors be independent. We are not currently subject to corporate governance
standards defining the independence of our directors, and we have chosen to define an “independent” director in accordance
with the NASDAQ Global Market’s requirements for independent directors.



Under the NASDAQ rules, we have determined
that as employees of our Company, none of our current directors qualify as an independent director.





65







Employment Agreements



We do not have any employment agreements in place
with our officers and directors.



Certain Relationships and Related Transactions



We will present all possible transactions between
us and our officers, directors or 5% shareholders, and our affiliates to the Board of Directors for their consideration and approval.
Any such transaction will require approval by a majority of the disinterested directors and such transactions will be on terms
no less favorable than those available to disinterested third parties.



Conflicts of Interest



We do not currently have any conflicts of interest
by or among our current officers, directors, key employees or advisors. We have not yet formulated a policy for handling conflicts
of interest; however, we intend to do so upon completion of our initial public offering and, in any event, prior to hiring any
additional employees.



Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.



The following information and Security Ownership
Table set forth the total number of shares owned beneficially by our directors, officers and key employees, individually and as
a group, and the present owners of 5% or more of our total outstanding shares. The table also reflects what the percentage of ownership
will be assuming completion of the sale of all shares in our initial public offering, which we can't guarantee. The stockholder
listed below has direct ownership of his shares and possesses sole voting and dispositive power with respect to the shares.



|                                                                                                                       |                  | Percentage of
|---------------------------------------------------------------------------------------------------------------------- | ---------------- | -------------
|Name and Address of Beneficial Owner                                                                                   | Number of Shares | Ownership    
|                                                                                                                       |                  |              
|Feize Zhang
        Room 3207, New World Center, 6009 Yitian Road,
        Futian District, Shenzhen, PR China         | 27,510,000       | 22%          
|                                                                                                                       |                  |              
|Glory Knight International Limited (1)
        4C, BLK 32, Parc Versailles, Tai Po, New Territories,
        Hong Kong | 8,752,000        | 7%           
|                                                                                                                       |                  |              
|All Officers and Directors as a Group                                                                                  | 36,262,000       | 29%          



|(1) | Glory Knight International Limited is a limited partnership formed in the British Virgin Islands and is an unrelated third party, which purchased its shares in a private placement of our securities. Glory Knight is wholly owned by Mr. Poon-ho Chik, 4C, Blk 32, Parc Versailles, Tai Po, New Territories, Hong Kong. The shares were issued in reliance upon the exemption contained in Section 4(2) of the Securities Act of 1933. These securities were issued to unrelated parties of the registrant and bear a restrictive legend.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------









66







Future Sales by Existing Stockholders



A total of 115,000,000 shares have been issued
to the existing stockholders, and are restricted securities, as that term is defined in Rule 144 of the Rules and Regulations of
the SEC promulgated under the Act. Under Rule 144, such shares can be publicly sold, subject to volume restrictions and certain
restrictions on the manner of sale, commencing six months after their acquisition. Any sale of shares held by the existing stockholders
(after applicable restrictions expire) and/or the sale of shares purchased in our initial public offering (which would be immediately
resalable after the offering), may have a depressive effect on the price of our common stock in any market that may develop, of
which there can be no assurance.



Changes in Control









There are no arrangements, known to the Registrant,
including any pledge by any person of securities of the Registrant which may at a subsequent date result in a change in control
of the Registrant.



Securities Authorized for Issuance Under
Equity Compensation Plans



None.



Item 13. Certain Relationships and Related
Transactions, and Director Independence





Other than as disclosed below, none of our
present directors, officers or principal shareholders, nor any family member of the foregoing, nor any of our former directors,
senior officers or principal shareholders, nor any family member of such former directors, officers or principal shareholders,
has or had any material interest, direct or indirect, in any transaction, or in any proposed transaction which has materially affected
or will materially affect us.



Amount Due to a Related Party



As of March 31, 2014 and December 31, 2013,
amount due to a related party were $188,640 and $182,432 respectively. These represented temporary advances made by Mr. Zhang,
the director of the Company, which was unsecured, interest-free with no fixed repayment term. Imputed interest is considered insignificant.





Director Independence



We are not currently subject to corporate governance
standards of listed companies, which require, among other things, that the majority of the board of directors be independent.



Since we are not currently subject to corporate
governance standards relating to the independence of our directors, we choose to define an “independent” director
in accordance with the NASDAQ Global Market’s requirements for independent directors (NASDAQ Marketplace Rule 4200). The
NASDAQ independence definition includes a series of objective tests, such as that the director is not an employee of the company
and has not engaged in various types of business dealings with the company.



We do not have any independent directors under
the above definition. We presently do not have an audit committee, compensation committee, nominating committee, executive committee
of our Board of Directors, stock plan committee or any other committees.





67







Item 15. Exhibits.



(a) The following listed exhibits are filed as
a part of this quarterly report:



|Exhibit No. |  | Description                                                                    
|----------- |  | -------------------------------------------------------------------------------
|            |  |                                                                                
|31.1        |  | Rule 13a-14(a)/15d-14(a) certification of Principal Executive Officer*         
|31.2        |  | Rule 13a-14(a)/15d-14(a) certification of Principal Accounting Officer*        
|32.1        |  | Certification pursuant to 18 USC, section 1350 of Principal Executive Officer* 
|32.2        |  | Certification pursuant to 18 USC, section 1350 of Principal Accounting Officer*



The following exhibits marked with one asterisk
have been omitted from this filing, are incorporated herein by this reference and can be found in their entirety in our original
Form S-1 registration statement filed on July 2, 2010. The following exhibits marked with two asterisks have been omitted in this
filing, are incorporated herein by this reference and can be found in their entirety in our Form S-1/A-1 filed on September 22,
2010. The following exhibits marked with three asterisks have been omitted in this filing, are incorporated herein by this reference
and can be found in their entirety in our Form S-1/A-2 filed on October 26, 2010. All documents listed can be found on the SEC
website at www.sec.gov under our CIK Number 0001493893



|Exhibit No. |                                                                                                                                                                                                                     | Description                                                                                                                 
|----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------
|            |                                                                                                                                                                                                                     |                                                                                                                             
|2           | * Share Exchange Agreement                                                                                                                                                                                         
|3.1         | * Articles of Incorporation                                                                                                                                                                                        
|3.2         | * Bylaws                                                                                                                                                                                                           
|4           | * Form of Common Stock Certificate                                                                                                                                                                                 
|5           | * Opinion of Michael M. Kessler, Esq. re: Legality (** Amended Opinion filed with Form S1/A-1 on September 22, 2010)                                                                                               
|10.1        | * Operating Lease Agreement for Cunli Ji Gold Mine                                                                                                                                                                 
|10.2        | * Acquisition Agreement for Cunli Ji Gold Mine                                                                                                                                                                     
|10.3        | * Option Agreement to Purchase Equity Interests by and among Shoujin Business Consulting (Shenzhen), Shenzhen ShouGuan Investment Limited, Yantai JinGuan Investment Limited and Penglai XinGuan Investment Limited
|10.4        | * Equity Pledge Agreement                                                                                                                                                                                          
|10.5        | * Operating Agreement                                                                                                                                                                                              
|10.6        | * Exclusive Technical Service and Business Consulting Agreement                                                                                                                                                    
|10.7        |                                                                                                                                                                                                                     | * Proxy Agreement                                                                                                           
|10.9        |                                                                                                                                                                                                                     | * Office Lease - Yantai, China                                                                                              
|10.10       |                                                                                                                                                                                                                     | * Office Lease - Shenzhen, China                                                                                            
|10.11       |                                                                                                                                                                                                                     | ** Master Agreement between Penglai City Gold Mining Holding Co. Limited and Penglai XinGuan Investment Limited             
|10.12       |                                                                                                                                                                                                                     | ** Construction Project Agreement between Penglai XinGuan Investment Limited and Jinhai Mine Underground Engineering Limited
|10.12(a)    |                                                                                                                                                                                                                     | ***Renewed Construction Project Agreement to extend one year term to August 28, 2011                                        
|10.13       |                                                                                                                                                                                                                     | ** Gold Concentrate Processing Agreement between XinGuan and Shandong Humon Smelting Co., Ltd.                              
|14          |                                                                                                                                                                                                                     | * Code of Ethics                                                                                                            
|21          |                                                                                                                                                                                                                     | * List of Subsidiaries/Variable Interest Entities of Registrant                                                             
|23.2        |                                                                                                                                                                                                                     | * Consent of Michael M. Kessler, Esq. (see Exhibit 5)                                                                       





68











SIGNATURES





Pursuant to the requirements of the Securities
Exchange Act of 1933, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



|China ShouGuan Mining Corporation , Registrant
        
        By: /s/ Feize Zhang
        ___________________________________________
        Feize Zhang, Chairman and Principal Executive
        Officer |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 













Pursuant to the requirements of the Securities
Act of 1933, this report has been signed by the following persons in the capacities indicated on May 15, 2014.



China ShouGuan Mining Corporation , Registrant



By: /s/ Feize Zhang

Feize Zhang, Chairman and Principal Executive
Officer



By: /s/ Terry Tsao

Terry Tsao, Principal Financial Officer





























69