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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,
D. C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2013

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to __________

Commission File Number 0-29657

SILVER DRAGON RESOURCES
INC.(Exact name of registrant as specified in its
charter)

|Delaware                        | 33-0727323                          
|------------------------------- | ------------------------------------
|(State or other jurisdiction of | (I.R.S. Employer Identification No.)
|incorporation or organization)  |                                     

200 Davenport Road Toronto,Ontario, M5R
1J2(Address of principal executive offices) (Zip Code)

(416) 223-8500(Registrants telephone
number, including area code)

Securities registered under Section 12(b) of the Exchange
Act:

|Title of Each Class: | Name of Each Exchange on Which Registered
|-------------------- | -----------------------------------------
|N/A                  | N/A                                      

Securities registered under Section 12(g) of the Exchange Act:
Common Stock $0.0001 par value(Title of Class)

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 15(d) of the Act.

Yes [   ]                 No [x]

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [   ]               No [x]

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Indicate by check mark whether the registrant has submitted
electronically and posted on the corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T 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, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one)

Large accelerated filer [   ]
    Non-accelerated filer [   ]
    Accelerated filer [   ]
    Smaller reporting company [x](Do not check if smaller reporting company)


Indicate by check mark whether registrant is a shell company
(as defined in Rule 12b-2 of the Act).

Yes [   ]                 No [x]

As of June 30, 2013, the aggregate market value of the
registrant's common stock held by non-affiliates of the registrant was not
greater than $2,679,996, based upon the closing sale price on that date of the
common stock as reported by Yahoo! Finance, which reports the share price as an
amount rounded to the nearest whole cent. As of March 31, 2014, there were
267,999,611 shares of the registrants common stock outstanding, par value
$0.0001.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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TABLE OF CONTENTS

|PART I   |                                                                                                             | 8 
|-------- | ----------------------------------------------------------------------------------------------------------- | --
|Item 1.  | Description of Business                                                                                     | 8 
|Item 1A. | Risk factors                                                                                                | 14
|Item 1B. | Unresolved Staff Comments                                                                                   | 24
|Item 2.  | Description of
      Properties                                                                             | 25
|Item 3.  | Legal proceedings                                                                                           | 38
|Item 4.  | Mine Safety
      Disclosures                                                                               | 38
|PART II  |                                                                                                             | 39
|Item 5.  | Market for common
      equity and other shareholder matters                                                | 39
|Item 6.  | Selected Financial Data                                                                                     | 39
|Item 7.  | Managements
      Discussion and Analysis of Financial Condition and Results of Operations.                | 39
|Item 7A. | Quantitative and Qualitative
      Disclosures about Market Risk                                            | 49
|Item 8.  | Financial
      Statements and Supplementary Data                                                           | 49
|Item 9.  | Changes In and Disagreements with
      Accountants on Accounting and Financial Disclosure                  | 49
|Item 9A. | Controls and
      Procedures                                                                               | 49
|Item 9B. | Other Information                                                                                           | 50
|         |                                                                                                             |   
|PART III |                                                                                                             | 50
|Item 10. | Directors,
      Executive Officers, and Corporate Governance                                               | 50
|Item 11. | Executive compensation                                                                                      | 53
|Item 12. | Security
      ownership of certain beneficial owners and management and related
      stockholder matters. | 56
|Item 13. | Certain relationships and related
      transactions, and Director Independence                             | 58
|Item 14. | Principal
      accountant fees and services                                                                | 58
|PART IV  |                                                                                                             | 60
|Item 15. | Exhibits, Financial Statement
      Schedules                                                               | 60

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this Annual Report
on Form 10-K that are subject to risks and uncertainties. Forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the 1933 Act), and Section 21E of the Securities Exchange Act of
1934, as amended (Exchange Act), are subject to the safe harbor created by
those sections. The forward-looking statements in this report are based on our
managements beliefs and assumptions and on information currently available to
our management. You can identify forward-looking statements by terms such as
anticipates, believes, continue, could, estimates, expects,
intends, may, plans, seeks, should, will or would and similar
expressions intended to identify forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors, which may
cause our actual results, performance, time frames or achievements to be
materially different from any future results, performance, time frames or
achievements expressed or implied by the forward-looking statements. We discuss
many of these risks, uncertainties and other factors in this document in greater
detail under the heading Risk Factors. We believe it is important to
communicate our expectations to our investors. However, there will be events
that we are not able to predict accurately, or over which we have no control.
The risks described in Risk Factors included in this report, as well as any
other cautionary language in this report, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock (Common Stock), you should be aware that the
occurrence of the events described in Risk Factors and elsewhere in this
report could harm our business.

The forward-looking statements and associated risks set forth
in this Annual Report include or relate to, among other things, (a) our future
plans and expectations, (b) anticipated trends in the mining industry, (c) our
ability to obtain and retain sufficient capital for future operations, and (d)
our anticipated needs for working capital. These statements may be found under
Managements Discussion and Analysis of Financial Condition and Results of
Operations and Description of Business. The forward-looking statements herein
are based on current expectations that involve a number of risks and
uncertainties. Such forward-looking statements are based on assumptions
described herein. The assumptions are based on judgments with respect to, among
other things, future economic, competitive and market conditions, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond our control. Accordingly, although we
believe that the assumptions underlying the forward-looking statements are
reasonable, any such assumption could prove to be inaccurate and therefore there
can be no assurance that the results contemplated in forward-looking statements
will be realized. In addition, as disclosed in Risk Factors, there are a
number of other risks inherent in our business and operations, which could cause
our operating results to vary markedly and adversely from prior results or the
results contemplated by the forward-looking statements. Management decisions,
including budgeting, are subjective in many respects and periodic revisions must
be made to reflect actual conditions and business developments, the impact of
which may cause us to alter marketing, capital investment and other
expenditures, which may also materially adversely affect our results of
operations. In light of significant uncertainties inherent in the
forward-looking information included in the report statement, the inclusion of
such information should not be regarded as a representation by us or any other
person that our objectives or plans will be achieved.

Given these risks, uncertainties and other factors, you should
not place undue reliance on these forward-looking statements. Also, these
forward-looking statements represent our estimates and assumptions only as of
the date of this filing. You should read this document completely and with the
understanding that our actual future results may be materially different from
what we expect. We hereby qualify our forward-looking statements by these
cautionary statements. Except as required by law, we assume no obligation to
update these forward-looking statements publicly, or to update the reasons
actual results could differ materially from those anticipated in these
forward-looking statements, even if new information becomes available in the
future.

NOTE REGARDING TECHNICAL REPORTS AND
MINERALIZATION

This Form 10-K was prepared
pursuant to Industry Guide 7. Under Industry Guide 7, mineralization may not be
classified as a reserve unless the determination has been made that the
mineralization could be economically and legally produced or extracted at the
time the reserve determination is made. The Company has not established any
reserves on any of its properties.

The Companys property interests
are located in China, and the Companys corporate headquarters are located in
Canada. From time to time, the Company, the companies in which it has equity
interests, and/or third parties with which they have contracted have found it
necessary or advisable to prepare reports regarding such property interests in
accordance with the laws and regulations of other jurisdictions, including
National Instrument 43-101 (NI 43-101) in Canada and the laws and regulations
of China. Certain of these reports, such as the preliminary feasibility study
for the Companys Dadi Silver Polymetallic project located in Inner Mongolia,
China, are referenced in this report (collectively, the Non-US Reports). Such
Non-US Reports have not been prepared in accordance with the rules and
regulations promulgated by the Securities and Exchange Commission (SEC),
including Industry Guide 7. The standards for identification of reserves in
certain jurisdictions, including Canada, differ from those of the SEC, and any
reserves reported in the Non-US Reports do not constitute reserves under
applicable SEC rules and regulations. In addition, the standards for disclosure
of mineralization in certain jurisdictions, including Canada, permit the
disclosure of certain types of mineralization that do not qualify as reserves.
Investors are cautioned that units of mineralization disclosed under such
standards have not been determined to have economic or legal viability. In
addition, there may be uncertainty as to the existence of such mineralization.
Further, while the laws and regulations of certain jurisdictions permit or
require the disclosure of economic projections contained in preliminary economic
assessments and preliminary feasibility studies involving mineral properties
without defined reserves, the staff of the SEC does not generally permit U.S.
companies to include such preliminary economic projections in their filings with
the SEC. Accordingly, the Non-US Reports (notwithstanding any reference thereto
contained in this Form 10-K) are not incorporated into this Form 10-K, and
readers are cautioned not to assume that any part of the mineral deposits
discussed in the Non-US Reports will ever be converted to reserves. Investors
are also cautioned that the information contained in each of the Non-US Reports
was prepared as of the date stated in such Non-U.S. Report. Any reference to a
Non-US Report contained herein should not be considered to update any
forward-looking statement contained in such Non-US Report.

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EXCHANGE RATES

The Companys functional currency is the U.S. dollar. The
Company also uses the Chinese Yuan and Canadian dollars and converts to the U.S.
dollar and states conversion rates where applicable.

METRIC CONVERSION TABLE AND ABBREVIATIONS

For ease of reference, the following conversion factors are
provided:

1 tonne
    = 1,000 kg or 2,204.6 lbs
    1 kilogram
    = 2.204 pounds or 32.151troy oz1 hectare
    = 10,000 square meters
    1 hectare
    = 2.471 acres


The following abbreviations may be used herein:

|Ag  | = silver            | m2     | = square meter              
|--- | ------------------- | ------ | ----------------------------
|Au  | =gold               |        |                             
|g   | = gram              | m3     | = cubic meter               
|g/t | = grams per tonne   | mg     | = milligram                 
|Ha  | = hectare           | mg/m3  | = milligrams per cubic meter
|Km  | = kilometer         | T or t | = tonne                     
|Km2 | = square kilometers | oz     | = troy ounce                
|Kg  | = kilogram          | ppm    | = parts per million         
|m   | = meter             | Ma     | = million years             

Note: All units in this report are stated in metric
measurements unless otherwise noted.

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GLOSSARY OF MINING TERMS

Alteration means any change in the mineral composition of a
rock brought about by physical or chemical means.

Assay means a measure of the valuable mineral content.

Development stage means a project that is undergoing
preparation of an established commercially mineable deposit for its extraction
but which is not yet in production. This stage occurs after completion of a
feasibility study.

Diamond drilling means rotary drilling using diamond-set or
diamond-impregnated bits, to produce a solid continuous core of rock sample.

Dip means the angle that a structural surface, a bedding or
fault plane, makes with the horizontal, measured perpendicular to the strike of
the structure.

Disseminated means minerals that occur as scattered particles
in the rock.

Exploration stage means a prospect that is not in either the
development or production stage.

Fault means a surface or zone of rock fracture along which
there has been displacement.

Feasibility study means a comprehensive study of a mineral
deposit in which all geological, engineering, legal, operating, economic,
social, environmental and other relevant factors are considered in sufficient
detail that it could reasonably serve as the basis for a final decision by a
financial institution to finance the development of the deposit for mineral
production.

Formation means a distinct layer of sedimentary rock of
similar composition.

Geochemistry means the study of the distribution and amounts
of the chemical elements in minerals, ores, rocks, solids, water, and the
atmosphere.

Geophysics means the study of the mechanical, electrical and
magnetic properties of the earths crust.

Grade means the quantity of metal per unit weight of host
rock.

Heap leach means a mineral processing method involving the
crushing and stacking of an ore on an impermeable liner upon which solutions are
sprayed to dissolve metals i.e. gold, copper etc.; the solutions containing the
metals are then collected and treated to recover the metals.

Host rock means the rock in which a mineral or an ore body
may be contained.

In-situ means in its natural position.

Mapped or geological mapping means the recording of
geologic information including rock units and the occurrence of structural
features, attitude of bedrock, and mineral deposits on maps.

Mineral means a naturally occurring inorganic crystalline
material having a definite chemical composition.

Mineralization means a natural accumulation or concentration
in rocks or soil of one or more potentially economic minerals, also the process
by which minerals are introduced or concentrated in a rock.

Mineralized material means material that is not included in
the reserve as it does not meet all of the criteria for adequate demonstration
for economic or legal extraction.

Outcrop means that part of a geologic formation or structure
that appears at the surface of the earth.

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Production stage means a project is actively engaged in the
process of extraction and beneficiation of mineral reserves to produce a
marketable metal or mineral product.

Quartz means a mineral composed of silicon dioxide, SiO2
(silica).

Rock means indurated naturally occurring mineral matter of
various compositions.

Sampling and analytical variance/precision means an estimate
of the total error induced by sampling, sample preparation and analysis.

Sediment means particles transported by water, wind, gravity
or ice.

Sedimentary rock means rock formed at the earths surface
from solid particles, whether mineral or organic, which have been moved from
their position of origin and re-deposited.

Strike means the direction or trend that a structural
surface, e.g. a bedding or fault plane, takes as it intersects the horizontal.

Strip means to remove barren rock or overburden in order to
expose ore.

Sulfide means a mineral including sulfur (S) and iron
(Fe) as well as other elements; metallic sulfur-bearing mineral often
associated with gold mineralization.

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Part I

Available Information

We file annual, quarterly, current reports, proxy statements
and other information with the SEC. You may read and copy documents that have
been filed with the SEC at their Public Reference Room, 450 Fifth Street, N. W.
Washington DC. You may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. You can also obtain
copies of our SEC filings by going to their website at www.sec.gov.

Item 1. Description of Business

Corporate Overview and History

Silver Dragon Resources Inc. was initially incorporated in the
State of Delaware on May 9, 1996 under the name American Electric Automobile
Company Inc. On July 16, 2002, we amended our Certificate of Incorporation to
change our name to American Entertainment & Animation Corporation. On
February 25, 2005, we again amended our Certificate of Incorporation to change
our name to Silver Dragon Resources Inc. to reflect our current business focus
on silver.

The following organizational chart sets forth (i) our wholly
and partially owned direct and indirect subsidiaries, (ii) certain properties in
which we have an interest:



Our interest in Sanhe Sino-Top Resources and Technologies Ltd.
(Sino-Top) may be diluted and we may be subject to bankruptcy, insolvency
and/or dissolution. See the disclosures below and Risk Factors.

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Business Overview

We are engaged in the acquisition and exploration of silver and
other mineral properties. We are an exploration stage company, have no known
reserves and have never generated any revenues from our operations. No
assurances can be given that we will ever have any known reserves or generate
any such revenues.

We are a mineral exploration company focused on the exploration
of six properties located in the Erbahuo Silver District in Northern China
(Inner Mongolia), namely, the Dadi, Laopandao, Aobaotugounao, Shididonggou,
Yuanlinzi and Zhuanxinhu properties (collectively, the Sino-Top Properties),
in which we have a 40% indirect interest by virtue of our equity holdings in
Sanhe Sino-Top Resources and Technologies, Ltd. (Sino-Top).
Our equity holdings in Sino-Top may be diluted. See below.

Sino-Top Joint Venture



On March 16, 2006, we entered into an asset purchase agreement
(the Asset Purchase Agreement) pursuant to which we originally acquired a 60%
interest in Sino-Top from Sino Silver Corp. (Sino Silver). Sino-Top is
operated as a joint venture under a joint venture agreement dated January 20,
2005 originally between Sino Silver and certain other parties, as amended on
each of March 16, 2006, October 31, 2006, July 4, 2008, March 20, 2009, July 3,
2009, December 12, 2009 and September 13, 2011, and currently between the
Company, Gansu Shengda Group Ltd. (Shengda), a private Chinese conglomerate
(Shengda), and five individual persons (as so amended, the Joint Venture
Agreement). Pursuant to the Asset Purchase Agreement, we acquired all of Sino
Silvers interest in Sino-Top and became a party to the Joint Venture Agreement.
Sino-Top holds certain exploration and mining rights to certain properties in
the Erbahuo Silver District in Northern China. The total purchase price under
the Asset Purchase Agreement was $650,000 plus 4,000,000 shares of our
restricted Common Stock, all of which has been delivered to Sino Silver.

In March 2007, we increased our interest from 60% to 90% in
exchange for 2 million restricted common shares of the Company. On July 4, 2008,
we signed a definitive agreement to sell 50% of Sino-Top to five individual
persons. Immediately prior to such time, such individuals collectively owned 10%
of Sino-Top. Therefore, immediately following such sale, these five individuals
collectively owned 60% of Sino-Top, and we owned the remaining 40%. On November
20, 2008, Shengda agreed to acquire 52% of the equity interests in Sino-Top from
those five individuals. As a result of the foregoing conveyances, we currently
own a 40% equity interest in Sino-Top, the aforementioned five individuals own
an aggregate of 8%, and Shengda owns 52%. We understand that one of such five
individuals, Zhou Lin (who owns 6.8%), holds such common shares on behalf of
Huaguan Industrial Corp. Due to name changes and translation issues, the
Comprehensive Gross Exploration Department, North China Comprehensive
Geological Brigade, North China non-ferrous geological survey brigade and
HIC all refer to the same organization, which is Silver Dragon Resources
Inc.s Chinese joint venture partner, now more formally called Exploration Unit
of Tianjin North China Geological Exploration Bureau or Huaguan Industrial
Corp (HIC).

Sino-Top is governed by its board of directors, which makes
decisions on all major issues regarding the joint venture and in accordance with
the Sino-foreign Cooperative Joint Venture law of P.R. China and the articles of
association. The general manager, which is presently Mr. Zhuang Haichao, is
appointed by the board and is responsible for implementing the resolutions of
the board and managing the daily operations of the joint venture. The board
currently consists of five members, with two members appointed by Shengda, two
members appointed by Silver Dragon, and one member appointed by the five natural
person owners of Sino-Top. In general, the board may pass a resolution by a
majority vote of the directors. Among other things, the board has the power and
authority to distribute cash or assets from time to time to the shareholders in
proportion to such shareholders equity interests in Sino-Top. No shareholder
has the obligation to pay additional capital contribution to the joint venture.
If the board deems it necessary, each party may but is not obliged to contribute
additional capital to the joint venture in accordance with the timing and amount
as decided by the board. The parties operate under an arrangement whereby any
contributions to Sino-Top are funded by Shengda and Silver Dragon at a ratio of
5:4; i.e., Shengda funds approximately 55.56% and Silver Dragon funds
approximately 44.44%, with the other joint venture partners not making any
capital contributions. Our interest in Sino-Top may be diluted if the board
authorizes the issuance of additional securities in a manner that does not allow
us to contribute capital in accordance with the foregoing arrangement or in the
event that we are extended the opportunity to so contribute but are unable to do
so due to insufficient funds.

Sino-Top renewed its business license on February 15, 2012. The
license was issued by the Industrial and Commercial Administration Agency of
Sanhe City, China, extending the business operating period to March 24, 2023 and
increasing the registered capital to $7,270,000. The business license scope
covers the exploration and development of deposits of copper, lead, zinc,
silver, gold and associated metals, and sales of developed products from the
properties operated by Sino-Top.

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Sino-Top currently holds the exploration rights to the
following six properties: Dadi, Laopandao, Aobaotugounao, Shididonggou,
Yuanlinzi and Zhuanxinhu properties. For a description of the Sino-Top
Properties and Sino-Tops activities on such properties, see Item 2 
Description of Properties.

Status of Sino-Top Joint Venture Funding

The Sino-Top board met on May 9, 2013 and passed resolutions
regarding corporate operation plans, the budget and the funding schedule for
2013. The 2013 funding gap is Renminbi (RMB)90,000,000 or $14,490,000. In
accordance with the investment ratio of 5:4, Shengda should contribute
RMB50,000,000 or $8,050,000 and Silver Dragon should contribute RMB40,000,000 or
$6,440,000. The funding gap shall be filled in four installments, with the first
payment of RMB10,000,000 or $1,610,000 to be made before May 31, 2013, the
second payment of RMB20,000,000 or $3,220,000 before June 30, 2013, the third
payment of RMB30,000,000 or $4,830,000 before September 30, 2013 and the fourth
payment of RMB 30,000,000 of $4,830,000 before December 31, 2013. To date,
Shengda has contributed RMB19,655,600 or $3,164,552 for part of their
contribution (of which RMB12,355,600 or $1,989,252 was contributed before
December 31, 2013). The Companys required contributions totaling RMB40,000,000
or $6,440,000 were to be contributed as follows: RMB4,440,000 or $716,840
before May 31, RMB8,890,000 or $1,431,290 before June 30, RMB13,330,000 or
$2,146,130 before September 30, and RMB13,340,000 or $2,147,740 before December
31, 2013. The Company has not been able to make any of these contributions. All amounts based on the noon exchange rate reported by the Bank of Canada on March 28, 2014.

At the recent Sino-Top board of directors meeting held on March 29, 2014, the 2014 budget was finalized. The total budget for 2014 is RMB171,000,000 or $27,531,000 and the Company's contribution is RMB76,000,000 or $12,236,000.  The Company's investment in Sino-Top will be diluted to 20% if it does not make a contribution of RMB50,000,000 or $8,050,000 by April 8, 2014 and a further contribution of RMB26,000,000 or $4,186,000 by June 15, 2014, with no further contributions. These are cumulative amounts and include past contributions which were not made by the Company.

Potential Transaction with Investor

In 2013, the Company began to engage in discussions with an
investor based in China, Man Kwan Fong, regarding a potential transaction that,
if completed, would have involved the investor making a secured loan to the
Company and taking over control of the management and board of directors of the
Company. On November 29 and December 31, 2013, the Company received advances totaling $1,069,279 from the investor; however, the parties have not resolved
definitive agreements, nor has the investor funded the remaining amounts
required to complete the initial closing. Due to funding delays by the investor
and changes in the investors offer,
the Companys board of directors has determined not to proceed with the
contemplated transaction. The Company is seeking to resolve the treatment of the
initial $1,069,279 with the investor, and may be required to return such funds,
with or without interest, to the investor.

Sale of Interest in Chifeng

As previously disclosed, on May 28, 2012, the Company entered
into a definitive agreement to sell its 70% interest in Chifeng Silver Dragon
Resources & Technologies, Ltd. (Chifeng), which then owned the Erbahuo
silver mine located on the boundary of Wengniute County and Keshiketeng County,
Inner Mongolia. The Company sold such interest to Deng Zuoping, a private
Chinese investor, for RMB 7.4 million or US$1,164,020, of which RMB1 million was
to be paid within three business days after signing the agreement, RMB5 million
was to be paid before July 15, 2012 and RMB1.4 million was to be paid by
November 1, 2012. On June 1, 2012, an initial deposit of RMB1.0 million or
$157,300 was received, of which $12,584 was contributed to Chifeng for expenses
incurred until the date of the sale. Concurrently with such payment, we
transferred to the purchaser title to our interest in Chifeng. Of the remaining
payments, RMB5 million or $790,980 was paid to the Company during the fourth
quarter of 2012. During 2013, RMB900,000 or $146,141 was paid. In addition, in
the third quarter of 2013, RMB400,000 or $64,880 was added to the costs in
connection with the Chifeng sale. As at December 31, 2013, RMB100,000 or $16,520
remained outstanding. This balance was received on January 3, 2014.

Strategic Evaluation

Our management and board of directors are assessing recent
developments, our financial position and related risks, and evaluating our
alternatives. These alternatives may include dissolution or bankruptcy. See
Risk Factors.

Competition

We currently face strong competition from other mineral
resource exploration companies for financing and for the acquisition of new
mineral properties. Many of the companies engaged in mineral resource
exploration with whom we compete have greater financial and technical resources
than those available to us. Accordingly, these competitors may be able to spend
greater amounts on acquisitions of mineral properties of merit, on exploration
of their mineral properties and on development of their mineral properties. In
addition, they may be able to afford more geological expertise in the targeting
and exploration of mineral properties. We also compete with other mineral
resource exploration companies for available resources, including, but not
limited to, professional geologists, camp staff, helicopter or float planes,
mineral exploration supplies and drill rigs. This competition could result in
competitors having mineral properties of greater quality and interest to
prospective investors who may finance additional exploration and development.
Such competition could adversely impact our ability to achieve the financing
necessary for us to conduct further exploration of our mineral properties or to
acquire additional properties.

Regulatory obligations and government approvals in China

Exploration for and exploitation of mineral resources in China
is governed by the Mineral Resources Law of the Peoples Republic of China
(PRC) of 1986, amended effective January 1, 1997, and the Implementation Rules
for the Mineral Resources Law of the PRC, effective March 26, 1994. In order to
further implement these laws, on February 12, 1998, the State Council issued
three sets of regulations: (i) Regulation for Registering to Explore Mineral
Resources Using the Block System, (ii) Regulation for Registering to Mine
Mineral Resources, and (iii) Regulation for Transferring Exploration and Mining
Rights (together with the mineral resources law and implementation rules being
referred to herein as Mineral Resources Law).

Under Mineral Resources Law, the Ministry of Land and Resources
and its local authorities (the MLR) is in charge of the supervision of mineral
resource exploration and development. The mineral resources administration
authorities of provinces, autonomous regions and municipalities, under the
jurisdiction of the State, are in charge of the supervision of mineral resource
exploration and development in their respective administration areas. The PRCs
governments of provinces, autonomous regions and municipalities, under the
jurisdiction of the State, are in charge of coordinating the supervision by the
mineral resources administration authorities on the same level.

The Mineral Resources Law, together with the Constitution of
the PRC, provides that mineral resources are owned by the State, and the State
Council, the highest executive organization of the State, which regulates
mineral resources on behalf of the State. The ownership rights of the State
include the rights to: (i) occupy, (ii) use, (iii) earn, and (iv) dispose of,
mineral resources, regardless of the rights of owners or users of the land under
which the mineral resources are located. Therefore, the State is free to
authorize third parties to enjoy its rights to legally occupy and use mineral
resources and may collect resource taxes and royalties pursuant to its right to
earn. In this way, the State can control and direct the development and use of
the mineral resources of the PRC.

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Mineral resources licenses

China has adopted, under the Mineral Resources Law, a licensing
system for the exploration and exploitation of mineral resources. The MLR is
responsible for approving applications for exploration licenses and mining
licenses. The approval of the MLR is also required to transfer exploration
licenses and mining licenses.

Applicants must meet certain conditions as required by related
rules/regulations. Pursuant to the Regulations for Registering to Mine Mineral
Resources, the applicant for mining rights must present the required documents,
including a plan for development and use of the mineral resources and an
environmental impact evaluation report. The Mineral Resources Law allows
individuals to exploit sporadic resources, sand, rocks and clay for use as
construction materials and a small quantity of mineral resources for sustenance.
However, individuals are prohibited from mining mineral resources that are more
appropriately mined at a certain scale by a company, specified minerals that are
subject to protective mining by the State and certain other designated mineral
resources.

Once granted, all exploration and mining rights under the
licenses are protected by the State from encroachment or disruption under the
Mineral Resources Law. It is a criminal offence to steal, seize or damage
exploration facilities, or disrupt the working order of exploration areas.

Exploration rights

In order to conduct exploration, a Sino-foreign cooperative
joint venture (CJV) must apply to the MLR for an exploration license. Owners
of exploration licenses are licensees. The period of validity of an
exploration license can be no more than three years. An exploration license area
is described by a basic block. An exploration license for metallic and
non-metallic minerals has a maximum of 40 basic blocks. When mineral resources
that are feasible for economic development have been discovered, a licensee may
apply for the right to develop such mineral resources. The period of validity of
the exploration license can be extended by application and each extension can be
for no more than two years. The annual use fee for an exploration license is RMB
100 per square kilometer for the first three years and increases by RMB 100 per
square kilometer for each subsequent year, subject to a maximum fee of RMB 500
per square kilometer.

During the term of the exploration license, the licensee has
the privileged priority to obtain mining rights to the mineral resources in the
exploration area, provided that the licensee meets the qualifying conditions for
mining rights owners. An exploration licensee has the rights, among others, to:
(i) explore without interference within the area under license during the
license term, (ii) construct the exploration facilities, and (iii) pass through
other exploration areas and adjacent ground to access the licensed area.

After the licensee acquires the exploration license, the
licensee is obliged to, among other things: (i) begin exploration within the
prescribed term, (ii) explore according to a prescribed exploration work scheme,
(iii) comply with State laws and regulations regarding labor safety, water and
soil conservation, land reclamation and environmental protection, (iv) make
detailed reports to local and other licensing authorities, (v) close and occlude
the wells arising from exploration work, (vi) take other measures to protect
against safety concerns after the exploration work is completed, and (vii)
complete minimum exploration expenditures as required by the Regulations for
Registering to Explore Resources Using the Block.

Mining rights

In order to conduct mining activities, a CJV must also apply
for a mining license from the MLR. Owners of mining rights, or
concessionaires, are granted a mining license to mine for a term of no more
than ten to thirty years, depending on the magnitude or size of the mining
project. A mining license owner may extend the term of a mining license with an
application 30 days prior to expiration of the term. The annual use fee for a
mining license is RMB 1,000 per square kilometer per year.

A mining license owner has the rights, among others, to: (i)
conduct mining activities during the term and within the mining area prescribed
by the mining license, (ii) sell mineral products (except for mineral products
that the State Council has identified for unified purchase by designated units),
(iii) construct production and living facilities within the mine area, and (iv)
use the land necessary for production and construction, in accordance with
applicable laws.

A mining license owner is required to, among other things: (i)
conduct mine construction or mining activities within a defined time period,
(ii) conduct efficient production, rational mining and comprehensive use of the
mineral resources, (iii) pay resources tax and mineral resources compensation
(royalties) pursuant to applicable laws, (iv) comply with State laws and
regulations regarding labor safety, water and soil conservation, land
reclamation and environmental protection, (v) be subject to the supervision and
management by the departments in charge of geology and mineral resources, and
(vi) complete and present mineral reserves forms and mineral resource
development and use statistics reports, in accordance with applicable law.

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Transfer of exploration and mining rights

A mining company may transfer its exploration or mining
licenses to others, subject to the approval of MLR.

An exploration license may only be transferred if the
transferor: (i) held the exploration license for two years after the date that
the license was issued, or discovered minerals in the exploration block, which
are able to be explored or mined further, (ii) has a valid and subsisting
exploration license, (iii) completed the stipulated minimum exploration
expenditures, (iv) paid the user fees and the price for exploration rights
pursuant to the relevant regulations, and (v) obtained the necessary approval
from the authorized department in charge of the minerals.

Mining rights may only be transferred if the transferor needs
to change the ownership of such mining rights because it is: (i) engaging in a
merger or split, (ii) entering into equity or cooperative joint ventures with
others, (iii) selling its enterprise assets, or (iv) engaging in a similar
transaction that will result in an alteration of the property ownership of the
enterprise.

Additionally, when state-owned assets or state funds are
involved in a transfer of exploration licenses and mining licenses, the related
state-owned assets rules and regulations apply and a proper evaluation report
must be completed and filed with the MLR.

Speculation in exploration and mining rights is prohibited. The
penalties for speculation are that the rights of the speculator may be revoked,
illegal income from speculation confiscated and a fine levied.

Environmental laws

In the past ten years, Chinese laws and policies regarding
environmental protection have moved towards stricter compliance standards and
stronger enforcement. In accordance with the Environmental Protection Law of the
PRC adopted by the Standing Committee of the PRC National Peoples Congress on
26 December 1989, the General Administration of Environmental Protection Bureau
under the State Council sets national environmental protection standards. The
various local environmental protection bureaus may set stricter local standards
for environmental protection. CJVs are required to comply with the stricter of
the two standards.

The basic laws in China governing environmental protection in
the mineral industry sector of the economy are the Environmental Protection Law
and the Mineral Resources Law. Applicants for mining licenses must submit
environmental impact assessments, and those projects that fail to meet
environmental protection standards will not be granted licenses. In addition,
after the exploration, a licensee must take further actions for environmental
protection, such as performing water and soil maintenance. After the mining
licenses have expired or a licensee stops mining during the license period and
the mineral resources have not been fully developed, the licensee shall perform
other obligations such as water and soil maintenance, land recovery and
environmental protection in compliance with the original development scheme, or
must pay the costs of land recovery and environmental protection. After closing
the mine, the mining enterprise must perform water and soil maintenance, land
recovery and environmental protection in compliance with mine closure approval
reports, or must pay certain costs, which include the costs of land recovery and
environmental protection.

Compliance with environmental laws

We are responsible for providing a safe working environment,
not disrupting archaeological sites, and conducting our activities to prevent
unnecessary damage to the area in which our mineral claim is located. At this
time, we do not believe that the cost of compliance at the federal, state and
local levels will be significant.

We intend to secure all necessary permits required for
exploration. We anticipate no discharge of water into active streams, creeks,
rivers, lakes or other bodies of water regulated by environmental law or
regulation. We also anticipate that no endangered species will be disturbed.
Restoration of the disturbed land will be completed according to law, and all
holes, pits and shafts will be sealed upon abandonment of the mineral claims.
During the exploration phase that we are in now, compliance costs are nil or
nominal. It is difficult to estimate the cost of compliance with the
environmental laws, because the full nature and extent of our proposed
activities cannot be determined until we start our operations.

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We believe we are in compliance with the environment laws, and
that we will continue to be able to comply with such laws in the future.

Land and construction

The holder of an exploration license or mining license should
apply for land use right with MLR to conduct exploration or mining activities on
the land covered by the exploration license or mining license. The license
holder should file an application to MLR for the land use right with its
exploration license or mining license. If the application is approved by the
competent government authority, the MLR would issue an approval to the land use
right applicant. Then, the local MLR would enter into a land use right contract
with the license holder. The license holder should pay relevant price and fees
in accordance with the contract and then obtain a land use right certificate
from MLR. In practice, instead of obtaining a long-term land use right, an
exploration license holder may apply for a temporary land use right, which would
normally be valid for 2 years and may be renewed upon application.

The company should also apply for other zoning and construction
permits to conduct construction on the land. PRC laws require a company to
obtain the land zoning permit and construction zoning permit with the local
zoning authorities under the Ministry of Construction (MOCON). Then, the
company is required to enter into a construction contract with a qualified
constructor and file the construction contract to the local construction
authorities under the MOCON and obtain a construction permit. After the
construction is completed, the company should apply for the construction
authorities and related environmental and fire departments for the check and
acceptance of the construction. Upon the pass of check and acceptance, the
company should apply with local housing authorities to register the constructed
buildings in its own name and obtain a housing ownership certificate.

Foreign Exchange Controls

Pursuant to PRC foreign exchange regulations, foreign exchange
dealings are administered by the State Administration of Foreign Exchange and
its local agencies (the SAFE) and transacted through designated financial
institutions. CJVs are required to conduct their corporate activities in
accordance with the relevant PRC foreign exchange rules/regulations.

CJVs are entitled to borrow funds from overseas within such
CJVs total investment amount. Once such loan agreements have been registered
with the SAFE in accordance with the formal requirements, the principal and
interest of loan can be paid out of China.

The shareholder of a CJV is entitled to transfer the funds out
of China when it sells its equity in the CJV to a Chinese buyer, but such
transfer of money should be approved by SAFE.

The PRC government imposes control over the convertibility
between Renminbi and foreign currencies. Under the PRC foreign exchange
regulations, payments for current account transactions, including remittance
of foreign currencies for payment of dividends, profit distributions, interest
and operation-related expenditures, may be made without prior approval but are
subject to procedural requirements. Strict foreign exchange control continues to
apply to capital account transactions, such as direct foreign investment and
foreign currency loans. These capital account transactions must be approved by
or registered with the PRC State Administration of Foreign Exchange, or SAFE.
Further, any capital contribution by an offshore shareholder to its PRC
subsidiaries should be approved by the Ministry of Commerce in China or its
local counterparts.

On August 29, 2008, SAFE promulgated the Circular on the
Relevant Operating Issues concerning the Improvement of the Administration of
Payment and Settlement of Foreign Currency Capital of Foreign- invested
Enterprises, or Circular 142, to regulate the conversion by foreign invested
enterprises (FIEs), of foreign currency into Renminbi by restricting how the
converted Renminbi may be used. Circular 142 requires that Renminbi converted
from the foreign currency-dominated capital of a FIE may only be used for
purposes within the business scope approved by the applicable government
authority and may not be used for equity investments within the PRC unless
specifically provided for otherwise. In addition, SAFE strengthened its
oversight over the flow and use of Renminbi funds converted from the foreign
currency-dominated capital of a FIE. The use of such Renminbi may not be changed
without approval from SAFE, and may not be used to repay Renminbi loans if the
proceeds of such loans have not yet been used. Compliance with Circular 142 may
delay or inhibit our ability to complete such transactions, which could affect
our ability to expand business.

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Employees

As of March 31, 2014, the Company had no employees. The
services of our Chief Executive Officer and other personnel are provided on a
consulting basis.

Item 1A.Risk factors

You should consider each of the following risk factors and any
other information set forth in this Form 10-K and the other reports we file with
the SEC, including our financial statements and related notes, in evaluating our
business and prospects. The risks and uncertainties described below are not the
only ones that might affect our operations and business. Additional risks and
uncertainties not presently known to us, or that we currently consider
immaterial, may also impair our business or operations.

Risks relating to our Business

We have inadequate capital to pay our debts and to fund
our business as currently planned, and we therefore face a risk of bankruptcy
and/or loss of our assets.

As of December 31, 2013, we had a cash balance of $226,937 and
current debt obligations in the amount of $5,961,246. We do not have sufficient
funds to satisfy our current debt obligations. Should our creditors seek or
demand payment, we do not have the resources to pay or satisfy any such claims.
Thus, we face a risk of bankruptcy.

As discussed in Item 1, we received advances totaling
$1,069,279 from an investor in contemplation of a secured loan and change of
control transaction that has not closed. This amount is included within our
current debt obligations. Due to funding delays by the investor and changes in
the investors offer, the Company's
board of directors has determined not to proceed with the contemplated
transaction. The Company is seeking to resolve the treatment of the advance with
the investor; however, no assurance can be provided as to the resolution of this
matter. The Company may be required to return the advances to the investor, with
or without interest, and may incur additional costs and expenses with respect to
this matter.

In addition to having insufficient cash to pay our debts, we
have no funds to support any business operations. We have been unable to satisfy
our commitment to fund 44.44% of owners contributions to the Sino-Top joint
venture, and our funding of an aggregate of RMB40,000,000 or $6,440,000
to Sino-Top is overdue. There is a significant risk that our inability to fund
Sino-Top will result in a dilution of our 40% equity ownership in Sino-Top.

At the recent Sino-Top board of directors meeting held on March 29, 2014, the 2014 budget was finalized. The total budget for 2014 is RMB171,000,000 or $27,531,000 and the Company's contribution is RMB76,000,000 or $12,236,000.  The Company's investment in Sino-Top will be diluted to 20% if it does not make a contribution of RMB50,000,000 or $8,050,000 by April 8, 2014 and a further contribution of RMB26,000,000 or $4,186,000 by June 15, 2014, with no further contributions. These are cumulative amounts and include past contributions which were not made by the Company.

To pay our debts and to fund any future operations, we require
significant new funds, which we may not be able to obtain. In addition to the
funds we require to liquidate our $5,961,246 in current debt obligations, and
the funds we require to satisfy our RMB76,000,000 or $12,236,000  required contributions to Sino-Top, we estimate that we must raise
approximately $1,200,000 to fund capital requirements and general corporate
expenses for the next 12 months.

We have historically satisfied our working capital requirements
through the private issuances of equity securities and convertible notes. We
may continue to seek additional funds through such channels and from
collaboration and other arrangements with corporate partners. However, we may
not be able to obtain adequate funds when needed or funding that is on terms
acceptable to us. Our ability to obtain additional capital on acceptable terms
is subject to a variety of uncertainties, including:

| | investors perception of, and demand for,
      securities of Chinese-based mining exploration companies;
|- | ---------------------------------------------------------------------------------------------------------
| | economic, political and other conditions in
      China;                                                 
| | conditions of the U.S. and other capital
      markets in which we may seek to raise funds;              
| | our future results of operations, financial
      condition and cash flows;                              
| | the terms of our existing indebtedness;                                                                  
| | regulatory restrictions;                                                                                 
| | the limited liquidity of our common stock; and                                                           
| | the limited number of shares of common stock we
      have authorized and unissued.                      

If we fail to obtain sufficient funds to satisfy our debt
obligations before a valid demand for payment by our creditors, and/or if we
fail to obtain sufficient funds to satisfy our capital requirements and general
corporate expenses, we will need to sell certain or all of our property
interests in China (assuming the existence of an interested buyer and our
ability to do so under applicable regulations), refrain from
financially contributing to the future operations of Sino-Top, or, as mentioned
above, go into bankruptcy proceedings. In the event of bankruptcy, our creditors
would assert claims that could result in the total liquidation of the Company
or, failing that, our creditors could acquire control of the Company and our
existing stockholders could lose their entire investment.

Dilution of our interest in Sino-Top and the loss of
other assets and operations may result in our company being deemed an investment
company, which may require us to limit our activities and dissolve our company.

Operational difficulties and our inability to obtain adequate
funding in recent years has resulted in our interests in certain assets being
lost or diluted and our staff being reduced. Our principal asset is currently
our 40% equity interest in Sino-Top, and if we are unable to satisfy capital
contributions to Sino-Top we anticipate being diluted to a 20% equity interest
in Sino-Top. Dilution or loss of our assets may result in the SEC or other
parties alleging that we are, or we may otherwise be deemed, an investment
company that is required to register under the Investment Company Act of 1940,
as amended, and analogous state laws. Registration under such Act would be a
significant financial and operational burden and is unlikely to be feasible for
our company. If we were deemed an investment company and we failed to register
under such Act, we would be subject to significant legal restrictions, including
being prohibited from engaging in the following activities, except where
incidental to our dissolution: offering or selling any security or any interest
in a security; purchasing, redeeming, retiring or otherwise acquiring any
security or any interest in a security; controlling an investment company that
engages in any of these activities; engaging in any business in interstate
commerce; or controlling any company that is engaged in any business in
interstate commerce. In addition, certain or all of our contracts might not be
enforceable and civil and criminal actions could be brought against us and
related persons. Our management and board of directors are assessing this risk
and evaluating our alternatives. As a result of this risk, we may be required to
significantly limit our business activities and dissolve.

Our breaches of covenants under our convertible financing
arrangements may have material adverse effects.

As of December 31, 2013, but for the forbearance agreements
between us and four lenders under our convertible financing arrangements, we
would have been in breach or default under the covenants for some or all of our
convertible financing arrangements. Our forbearance agreements with such
lenders, in the aggregate, provide that if we pay such lenders $3,319,114 on or
before June 30, 2014, such payments will constitute payment in full of any and all
obligations due and owing under our outstanding promissory notes owed to these
lenders. However, we do not have the funds necessary to make such payments, and
there can be no assurances that we will be able to make any or all of such
payments prior to such deadline. Upon the expiration of the forbearance
agreements, if we are unable to pay such amounts or extend such agreements, we
may therefore be in default under such financing arrangements. Depending upon
the financing arrangement, a default may mean that the lender is entitled to
default interest, acceleration of amounts due and/or other special rights, to
impose additional penalties against us, and/or to refrain from taking certain
actions such as advancing additional funds to us or converting existing
indebtedness into equity. Such breaches or defaults may therefore increase the
size of our indebtedness, increase our costs, increase the amount of funding
that we will require, accelerate our funding needs, prevent us from raising
additional funds from the affected lenders and prevent such lenders from
converting existing indebtedness into equity. We have not paid default interest
in connection with the repayment of any notes. There may be a risk that a lender
claims default interest on notes previously paid. Defaults may also make it more
difficult for us for us to raise funding from other sources, and cause
cross-defaults under other obligations. Defaults may result in litigation,
bankruptcy, loss of assets or our ceasing operations altogether. Such defaults
may also affect our stock price, which would increase the dilution resulting
from any conversion of those convertible notes that convert at a discount to
market. There can be no assurance that we will be successful in eliminating such
defaults, paying our debts when due or negotiating other satisfactory
arrangements with our lenders.

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None of the properties in which we have an interest or
the right to earn an interest has, and none may ever be discovered to have, any
known reserves.

We have no known bodies of commercial ore or economic deposits
and have not defined or delineated any proven or probable reserves on any of our
properties. We may never discover any silver or other minerals from mineralized
material in commercially exploitable quantities and any identified mineralized
deposit may never qualify as a commercially mineable (or viable) reserve. In
addition, we are in the early stages of exploration and substantial additional
work will be required in order to determine if any economic deposits exist on
our properties. Substantial expenditures are required to establish ore reserves
through drilling and metallurgical and other testing techniques. No assurance
can be given that any level of recovery of any ore reserves will be realized or
that any identified mineral deposit will ever qualify as a commercial mineable
ore body that can be legally and economically exploited.

Even if commercial quantities of minerals were to be discovered
on the properties in which we own an interest, those properties might not be
brought into a state of commercial production. Estimates of mineralization are
inherently imprecise and depend to some extent on statistical inferences drawn
from limited drilling, which may prove unreliable. Fluctuations in the market
prices of minerals may render reserves and deposits containing relatively lower
grades of mineralization uneconomic. Material changes in mineralized material,
grades or recovery rates may affect the economic viability of projects. Finding
mineral deposits is dependent on a number of factors, not the least of which are
the technical skills of exploration personnel involved. The commercial viability
of a mineral deposit, once discovered, is also dependent on a number of factors,
some of which are particular attributes of the deposit, such as size, grade and
proximity to infrastructure and resource markets, as well as factors independent
of the attributes of the deposit, such as government regulations and metal
prices. Most of these factors are beyond the control of the entity conducting
such mineral exploration.

These risks may limit or prevent us from making a profit from
the exploration and development of the properties in which we have an interest
and could negatively affect the value of our securities.

All of the properties in which we hold an interest are
subject to one material agreement and are located in one geographical area in
China, making us vulnerable to risks resulting from lack of diversification.

All of the properties in which we hold an interest are
concentrated in one geographical area in China, with such interest being subject
to one material agreement. As a result, we have no diversification
contractually, operationally or geographically, and we are therefore
disproportionately exposed to the impact of any failure of the joint venture
governing our properties, as well as to any disruptions in our operations in
China as a result of any lack of availability of equipment, facilities,
personnel or services, significant governmental regulation, natural disasters or
otherwise. Due to the concentrated nature of our property portfolio, a number of
the properties could experience the same adverse conditions at the same time,
resulting in a relatively greater impact on our results of operations than they
might have on other companies that have a more diversified portfolio of
properties. Any such disruptions or failures could have a material adverse
effect on our financial condition and results of operations.

We are exposed to a variety of risks due to the fact that
all of our property interests are held through a partially-owned subsidiary.

All of our current property interests are held through a
partially owned subsidiary, and we may enter into similar corporate or
contractual structures in the future. As a result of holding all of our property
interests through such vehicles, there are limits to our control with regard to
the management, operations, compliance and strategic direction of the ventures.
For example, joint ventures and partially owned subsidiaries can often require
unanimous approval of the owners for certain fundamental decisions such as an
increase or reduction of registered capital, merger, division, dissolution,
dividends, amendments of constating documents, and the pledge of assets. In
particular, under our Joint Venture Agreement governing Sino-Top, we occupy only
two of the five seats on the board and accordingly, have limited ability to
influence the venture. In addition, we have no protection against dilution of
our present interest in Sino-Top. As such, as discussed above our interest in
Sino-Top will be diluted to 20% if we cannot meet the contribution requirements established at the Sino-Top board of directors meeting held on March 29, 2014, with no further contributions.

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While we provide strategic management and operational advice to
our partially owned subsidiary and its other equity owners, we cannot always
ensure that it is operated in compliance with applicable standards or laws. If
such an entity is not operated effectively, efficiently or lawfully, including
as a result of weaknesses in the policies, procedures and controls implemented
by the other equity owners, our investment in the relevant project could be
adversely affected. In addition, any negative publicity associated with
operations that are ineffective or inefficiently operated, particularly relating
to any resulting accidents or environmental incidents, could harm our reputation
and therefore our prospects and potentially our financial condition.
Furthermore, any failure of other equity owners to meet their obligations to us
or to third parties, or any disputes with respect to the parties respective
rights and obligations, could have a material adverse effect on the joint
ventures or their properties and, therefore, could have a material adverse
effect on our results of operations, financial performance, cash flows and share
price.

Estimates of mineral deposits and operating costs or
profitability associated with mining activities are based on interpretation and
assumptions and are inherently imprecise.

From time to time, we may publish on our website, in press
releases or through other public channels estimates of mineral deposits and
associated operating costs or profitability. However, until mineral deposits are
actually mined and processed, the quantity of mineral deposit and expected
operating costs and profitability must be considered as estimates only, and no
assurances can be given that the indicated levels of metals will be produced or
that we will receive the price assumed. Any such estimates are expressions of
judgment based on knowledge, mining experience, analysis of drilling results and
industry practices. Estimates can be imprecise and depend upon geological
interpretation and statistical inferences drawn from drilling and sampling
analysis, which may prove to be unreliable. In addition, estimates made at a
given time may significantly change when new information becomes available.
Furthermore, fluctuations in the market price of metals, as well as increased
capital or production costs or reduced recovery rates may render mineral deposit
extraction uneconomic. No assurances can be given that any mineral deposit
estimate will ultimately be reclassified as proven or probable mineral reserves
or that mineralization can be mined or processed profitably. If our mineral
deposit estimates and related projections are inaccurate or are reduced in the
future, our future cash flows, earnings, results of operations and financial
condition could be adversely impacted.

Third parties have successfully challenged in the past,
and could challenge in the future, title for the properties in which we have an
interest.

Neither we nor Sino-Top has obtained title insurance for our
properties. Title to the properties in which we have an interest may be
challenged in the future. In Mexico, as previously disclosed, we lost title to
the property interests in which we held an interest, and we will never recover
the rights we lost. If we were to be subjected to additional challenges over
title to our assets or encounter other issues relating to our title, we would
likely incur significant costs and lose valuable time in defending such matters.
If such challenges against us were to be successful, as they have been in the
past, we could lose part or all of our interest in the respective properties and
our business could be materially adversely affected.

Our staffing may be inadequate to support our legal and
planned business requirements.

As of the date of this filing, the Company had no employees.
The services of our Chief Executive Officer and other personnel are provided by
consultants on contract. This reduced level of staffing is primarily a result of
the Companys limited financial resources. Our limited staffing may adversely
affect our ability to fulfill our SEC reporting and other legal requirements,
including improvements to our disclosure controls and procedures and our
internal control over financial reporting, and to execute our planned business
activities, including the raising of necessary capital. Limitations on staffing
may require us to restrict our planned business activities. It also increases
our reliance upon the efforts of Marc Hazout, our President and principal
financial and accounting officer, who is serving as our principal executive,
financial and accounting officer as of the date of this filing and provides his
services under a consulting agreement. Any loss of contracted individuals,
including any loss of Mr. Hazouts services, could have a material adverse
effect on the Company.

Additional personnel with technical training or
experience in exploring for, starting and operating an exploration program will
be needed in respect of the properties in which we have an interest. If such
personnel cannot be effectively supervised or retained, mining operations may
need to be suspended or terminated, which could result in the loss of your
investment.

Additional contractors must be recruited and retained in order
to perform surveying, exploration and excavation of the properties in which we
have an interest. Management must rely on the personnel it has hired or retained
to assist them in making critical engineering and business decisions.
Consequently, our operations, earnings and ultimate financial success could
suffer irreparable harm if management is unable to supervise and retain
qualified personnel to carry out these tasks. As a result, operations with
respect to the properties in which we have an interest may need to be suspended
or terminated, which could result in the loss of your investment.

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Our success also depends on the ability to hire and retain
skilled operating, marketing, technical, financial and management personnel. In
the mining sector, competition in connection with hiring and retaining skilled,
dependable personnel is intense. We or our joint venture partners may not offer
salaries or benefits that are competitive with those offered by our competitors,
who may have significantly more resources when compared to us. As such, even if
we or our joint venture partners were to succeed in hiring skilled personnel, it
may not be possible to retain them.

We have concluded that neither our disclosure controls
and procedures nor our internal control over financial reporting was effective
as of December 31, 2013. Failure to improve them could lead to errors in our
financial statements and could adversely affect the Company.

As a public company, we are required to comply with the
periodic reporting obligations of the Exchange Act including preparing annual
reports, quarterly reports and current reports. Our failure to prepare and
disclose the requisite information in a timely manner could subject us to
penalties under federal securities laws, expose us to lawsuits and restrict our
ability to access financing. In addition, we are required under applicable law
and regulations to integrate our systems of disclosure controls and procedures
and internal control over financial reporting. We conducted an evaluation, under
the supervision and with the participation of our principal executive officer
and principal financial officer, of the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a15 (e) and 15d15(e) under
the Exchange Act) and our internal control over financial reporting, each as of
December 31, 2013. Based on such evaluation, our principal executive officer and
principal financial officer concluded that, as of such date, our disclosure
controls and procedures and our internal controls over financial reporting were
not effective. If we fail to improve our disclosure controls and procedures and
internal control over financial reporting, we may not be able to produce
reliable financial reports and investors may lose confidence in us, either of
which could harm our business and negatively impact the trading price of our
Common Stock.

We are an exploration stage company, and based on our
negative cash flows from operating activities there is uncertainty as to our
ability to continue as a going concern.

From inception, we have generated limited revenues and have
experienced negative cash flows from operating losses. We anticipate continuing
to incur such operating losses and negative cash flows for the foreseeable
future, and to accumulate increasing deficits as we increase our expenditures
for exploration and mining of minerals, infrastructure, research and development
and general corporate purposes. Any increases in our operating expenses will
require us to achieve significant revenue before we can attain profitability.
Our history of operating losses and negative cash flows from operating
activities will result in our continued dependence on external financing
arrangements. In the event that we are unable to achieve or sustain
profitability or are otherwise unable to secure additional external financing,
we may not be able to meet our obligations as they come due, raising substantial
doubts as to our ability to continue as a going concern. Any such inability to
continue as a going concern may result in our security holders losing their
entire investment. There is no guarantee that we will generate revenues or
secure additional external financing. Our financial statements, which have been
prepared in accordance with the United States Generally Accepted Accounting
Principles (GAAP), contemplate that we will continue as a going concern and
do not contain any adjustments that might result if we were unable to continue
as a going concern. Changes in our operating plans, our existing and anticipated
working capital needs, the acceleration or modification of our expansion plans,
lower than anticipated revenues, increased expenses, potential acquisitions or
other events will all affect our ability to continue as a going concern. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations.

The reports of independent auditors of our consolidated
financial statements included in this annual report contain explanatory
paragraphs which note our recurring operating losses since inception, our lack
of capital and lack of long term contracts related to our business plans, and
that these conditions give rise to substantial doubt about our ability to
continue as a going concern. In the event that we are unable to successfully
achieve future profitable operations and obtain additional sources of financing
to sustain our operations, we may be unable to continue as a going concern. See
Managements Plan of Operation and our consolidated financial statements and
notes thereto included in this annual report.

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We have a history of operating losses and we anticipate
future losses.

Since we changed our business focus to silver exploration, we
have generated no revenues. We incurred losses of $2,907,682 and $5,239,185 for
the fiscal years ended December 31, 2013 and 2012 respectively. We have
accumulated losses since inception of $48,197,148. We anticipate that losses
will continue until such time as revenue from operations is sufficient to offset
our operating costs, which may never occur. If we are unable to generate our
revenues and to increase them sufficiently to cover our costs, our financial
condition will worsen and you could lose some or all of your investment.

Because we do not have sufficient capital, we may have
limited our exploration activity, which may result in a loss of your investment.

Because we are small and do not have much capital, we have
limited our exploration activity and we may not be able to complete exploration
programs as planned. In that event, an existing ore body may go undiscovered.
Without an ore body, we cannot generate revenues, in which case, you will lose
your investment.

Because our property interests are located in China, our
activities are subject to foreign (Chinese) governmental regulations that may
subject us to penalties for failure to comply, may limit our ability to conduct
exploration activities and could cause us to delay or abandon our
projects.

Various regulatory requirements affect our current and future
activities, including exploration activities on our property. Exploration
activities require permits from various foreign (Chinese) federal, state and
local governmental authorities and are subject to laws and regulations
governing, among other things, prospecting, exports, taxes, labor standards,
occupational health, waste disposal, toxic substances, land use, environmental
protection, mine safety, and others that currently or in the future may have a
substantial adverse impact on us. Exploration activities are also subject to
substantial regulation under these laws by governmental agencies and may require
that we obtain permits from various governmental agencies.

Licensing and permitting requirements are subject to changes in
laws and regulations and in various operating circumstances. There can be no
assurance that we will be able to obtain or maintain all necessary licenses
and/or permits that may be required for our activities or that such permits will
be obtainable on reasonable terms or on a timely basis or that such laws and
regulations will not have an adverse effect on any project which we might
undertake. If we are unable to obtain the necessary licenses or permits for our
exploration activities, we might have to change or abandon our planned
exploration for such non-permitted properties and/or to seek other joint venture
arrangements. In such event, we may be forced to sell or abandon our property
interest.

Failure to comply with applicable laws, regulations, and
permitting requirements may result in enforcement actions, including orders
issued by regulatory or judicial authorities causing exploration activities to
cease or be curtailed, and may include corrective measures requiring capital
expenditures, installation of additional equipment, or remedial actions. Parties
engaged in mining activities may be required to compensate those suffering loss
or damage by reason of the mining activities and may have civil or criminal
fines or penalties imposed for violations of applicable laws or regulations and,
in particular, environmental laws.

Any change in or amendments to current laws, regulations and
permits governing activities of mineral exploration companies, or more stringent
implementation thereof, could require increases in exploration expenditures, or
require delays in exploration or abandonment of new mineral properties. The cost
of compliance with changes in governmental regulations has a potential to
increase our expenses.

Chinese regulatory restrictions may limit our ability to
receive and use our cash effectively.

We are exposed to the risks associated with foreign exchange
controls and restrictions in China due to the fact that a portion of our cash is
denominated in Renminbi, which is currently not freely exchangeable. The PRC
government imposes control over the convertibility between Renminbi and foreign
currencies. Under the PRC foreign exchange regulations, payments for current
account transactions, including remittance of foreign currencies for payment of
dividends, profit distributions, interest and operation-related expenditures,
may be made without prior approval but are subject to procedural requirements.
Strict foreign exchange control continues to apply to capital account
transactions, such as direct foreign investment and foreign currency loans.
These capital account transactions must be approved by or registered with the
PRC State Administration of Foreign Exchange, or SAFE. Further, any capital
contribution by an offshore shareholder to its PRC subsidiaries should be
approved by the Ministry of Commerce in China or its local counterparts. We
cannot assure you that we are able to meet all of our foreign currency
obligations to remit profits out of China or to fund operations in China.

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Because all of our assets, our officers and our directors
are located outside the United States of America, it may be difficult for an
investor to enforce within the United States any judgments obtained against us,
our officer or our director.

All of our assets are located outside of the United States, the
individuals serving as our officers and directors are nationals of a country
other than the United States, and all or a substantial portion of such persons
assets are located outside the United States. As a result, it may be difficult
for an investor to effect service of process or enforce within the United States
any judgments obtained against us or our officers and directors, including
judgments predicated upon the civil liability provisions of the securities laws
of the United States or any state thereof. In addition, there is uncertainty as
to whether the courts of Canada and other jurisdictions would recognize or
enforce such judgments rendered by the courts of the United States. There is
also uncertainty as to whether the courts of Canada or other jurisdictions would
be competent to hear original actions brought in Canada or other jurisdictions
against us or our officers and directors predicated upon the securities laws of
the United States or any state thereof.

Risks relating to the industry in general

Planned exploration, and if warranted, development and
mining activities involve a high degree of risk.

We cannot assure you of the success of our planned operations.
Exploration costs are not fixed, and resources cannot be reliably identified
until substantial development has taken place, which entails high exploration
and development costs. The costs of mining, processing, development and
exploitation activities are subject to numerous variables which could result in
substantial cost overruns. Mining for silver and other base or precious metals
may involve unprofitable efforts, not only from dry properties, but from
properties that are productive but do not produce sufficient net revenues to
return a profit after accounting for mining, operating and other costs.

Our operations may be curtailed, delayed or cancelled as a
result of numerous factors, many of which are beyond our control, including
economic conditions, mechanical problems, title problems, weather conditions,
compliance with governmental requirements and shortages or delays of equipment
and services. If our drilling activities are not successful, we will experience
a material adverse effect on our future results of operations and financial
condition.

There is a substantial risk that the properties that we drill
will not eventually be productive or may decline in productivity over time. We
do not insure against all risks associated with our business because insurance
is either unavailable or its cost of coverage is prohibitive. The occurrence of
an event that is not covered by insurance could have a material adverse effect
on our financial condition.

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The impact of government regulation could adversely
affect our business.

Our business is subject to applicable domestic and foreign laws
and regulations, including laws and regulations on taxation, exploration, and
environmental and safety matters. Many laws and regulations require drilling
permits and govern the spacing of mines, rates of production, prevention of
waste and other matters. These laws and regulations may increase the costs and
timing of planning, designing, drilling, installing, operating and abandoning
our silver mines and other facilities. In addition, our operations are subject
to complex environmental laws and regulations adopted by domestic and foreign
jurisdictions where we operate. We could incur liability to governments or third
parties for any unlawful discharge of pollutants into the air, soil or water,
including responsibility for remedial costs.

The submission and approval of environmental impact
assessments may be required.

Environmental legislation is evolving in a manner which means
stricter standards; enforcement, fines and penalties for noncompliance are more
stringent. Environmental assessments of proposed projects carry a heightened
degree of responsibility for companies and directors, officers and employees.
The cost of compliance with changes in governmental regulations has a potential
to reduce the profitability of operations.

Because the requirements imposed by these laws and regulations
frequently change, we cannot assure you that laws and regulations enacted in the
future, including changes to existing laws and regulations, will not adversely
affect our business. In addition, because we acquire interests in properties
that have been operated in the past by others, we may be liable for
environmental damage caused by former operators. In China, political instability
and unexpected state intervention could adversely affect our assets.

Decline in silver prices may make it commercially
infeasible for us to develop our property and may cause our stock price to
decline.

The value and price of your investment in our common shares,
our financial results, and our exploration, development and mining activities
may be significantly adversely affected by declines in the price of silver and
other precious metals. Silver prices fluctuate widely and are affected by
numerous factors beyond our control such as interest rates, exchange rates,
inflation or deflation, fluctuation in the value of the United States dollar and
foreign currencies, global and regional supply and demand, and the political and
economic conditions of silver-producing countries throughout the world. The
price of silver fluctuates in response to many factors, which are beyond
anyones prediction abilities. The prices used in making the estimates in our
plans differ from daily prices quoted in the news media. Because mining occurs
over a number of years, it may be prudent to continue mining for some periods
during which cash flows are temporarily negative for a variety of reasons. Such
reasons include a belief that the low price is temporary, and/or the expense
incurred is greater when permanently closing a mine.

Weather interruptions in China may affect and delay our
proposed exploration operations.

Our proposed exploration work in China can only be performed
approximately six to seven months out of the year. The cold, rain and snow make
the roads leading to our claims impassible every year during certain times from
November to March. When the roads are impassible, we are unable to conduct
exploration operations on the mineral claim.

We may not have access to all of the supplies and
materials we need to begin exploration, which could cause us to delay or suspend
operations.

Competition and unforeseen limited sources of supplies in the
industry could result in occasional spot shortages of supplies such as dynamite
as well as certain equipment like bulldozers and excavators that we might need
to conduct exploration. If we cannot obtain the necessary supplies, we will have
to suspend our exploration plans until we do obtain such supplies.

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Risks relating to our Common Stock

We have been and may continue to be subject to regulatory
actions that have a material adverse effect on the liquidity and price of our
Common Stock, directly or indirectly through the effect of such actions on
investor confidence.

On September 17, 2012, the SEC announced the temporary
suspension, pursuant to Section 12(k) of the Exchange Act, of trading in the
securities of the Company, commencing at 9:30 a.m. EDT on September 17, 2012,
and terminating at 11:59 p.m. EDT on September 28, 2012. The Commission
temporarily suspended trading in the securities of the Company because of
questions regarding the adequacy and accuracy of information about the Company,
including its assets, business operations, current financial condition and/or
issuances of shares in company stock. Although the Company subsequently amended
and updated its SEC disclosures, no assurance can be provided that the Companys
disclosures will be considered adequate by the SEC or that the SEC or other
regulators will not take further legal or regulatory actions against the Company
if they are not satisfied with the Companys disclosures or its compliance with
other legal requirements.

Following this type of trading suspension, a broker-dealer
generally may not solicit investors to buy or sell the previously-suspended
over-the-counter stock until certain requirements are met. A broker-dealer must
file and clear with the Financial Industry Regulatory Authority, Inc. (FINRA)
a Form 211 representing that it has satisfied all applicable requirements,
including those of Rule 15c2-11 and FINRA Rule 6432. Rule 15c2-11 requires,
among other things, that broker-dealers review and maintain certain information
regarding an issuer and have a reasonable basis under the circumstances for
believing that the information is accurate in all material respects and the
sources of the information are reliable. FINRA has not yet approved a Form 211
with respect to our common stock. Accordingly, broker-dealers generally may not
solicit investors to buy or sell our stock. No assurance can be provided that a
Form 211 will be filed and approved by FINRA or that our stock will again be
eligible for solicitations by broker-dealers.

The discount conversion features under our convertible
financing arrangements have rapidly increased the number of outstanding shares
of our Common Stock. We now have insufficient authorized capital to satisfy our
contractual obligations for reserving and, if required, issuing shares of our
Common Stock pursuant to outstanding convertible financing arrangements and
other rights to acquire shares of Common Stock.

We have 300,000,000 shares of Common Stock authorized for
issuance pursuant to our certificate of incorporation. As of March 31, 2014,
there were 267,999,611 shares of Common Stock outstanding, leaving 32,000,389
shares of Common Stock available for issuance, significantly less than the
number of shares of Common Stock into which our outstanding convertible
promissory notes payable and other rights to acquire Common Stock would have
been convertible without taking into account the Companys deferral agreements
with its lenders, and may again become convertible if we are unable to pay the
convertible notes under such agreements. This deficiency violates the terms of
several of our financing arrangements. Our lenders may take actions against us,
including demanding payment in cash or seeking other remedies, subject to the
aforementioned deferral agreements. For a further discussion regarding these
matters, see Item 7 -Managements Discussion and Analysis of Financial
Condition and Results of Operations.

In addition, the inadequacy of our authorized capital, combined
with the low trading price of our Common Stock, may prevent us from raising any
significant equity-based financing. We may be required to settle outstanding
obligations in cash, subject to availability of funds, and/or seek shareholder
approval in order to increase our authorized capital. Any further conversions of
debt, especially at a discount to the market, may further dilute our
shareholders and depress the price of our Common Stock. Should we be unable to
negotiate a satisfactory resolution with our lenders or obtain alternative means
of financing, we may be required to limit or discontinue operations, we may be
required to sell or we may lose to our creditors some or all of our assets, or
we may go bankrupt or liquidate

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Shareholders may suffer dilution as a result of our
issuance of additional Common Stock either through future financings or through
the conversion of currently outstanding convertible securities, and such
issuances may also serve to suppress our stock price.

We have historically funded our operations and paid for a
portion of services provided to us through the issuance of shares of Common
Stock and securities convertible into Common Stock. In order to conduct further
exploration of our properties and to fund general corporate expenses, we intend
to seek additional financing involving the issuance of Common Stock or
securities convertible into Common Stock. Furthermore, as discussed in detail
under Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources, we presently
have outstanding a substantial amount of promissory notes that are convertible
into Common Stock at a discount to the trading price of our Common Stock at the
time of conversion. Issuances of Common Stock either through future financings
or through the conversion of convertible securities would dilute the voting
power and ownership interest of the Companys existing shareholders and may
depress the price of the Companys Common Stock. Furthermore, any other
development that reduces the price of our Common Stock will reduce the
conversion price of such securities, resulting in further dilution and
potentially further depressing the price of our Common Stock.

Because the public market for shares of our Common Stock
is limited, investors may be unable to resell their shares of Common
Stock.

Currently there is only a limited public market for our Common
Stock on the OTC in the United States. Thus investors may be unable to resell
their shares of our Common Stock. The development of an active public trading
market depends upon the existence of willing buyers and sellers who are able to
sell their shares as well as market makers willing to create a market in such
shares. Under these circumstances, the market bid and ask prices for the shares
may be significantly influenced by the decisions of the market makers to buy or
sell the shares for their own account. Such decisions of the market makers may
be critical for the establishment and maintenance of a liquid public market in
our Common Stock. Market makers are not required to maintain a continuous
two-sided market and are free to withdraw firm quotations at any time. We cannot
give you any assurance that an active public trading market for the shares will
develop or be sustained.

The price of our Common Stock is volatile, which may
cause investment losses for our shareholders.

The market for our Common Stock is highly volatile, having
ranged in the last twelve months from a low of $0.0000 to a high of $0.02 on the
OTC. The trading price of our Common Stock on the OTC is subject to wide
fluctuations in response to, among other things, quarterly variations in
operating and financial results, and general economic and market conditions. In
addition, statements or changes in opinions, ratings, or earnings estimates made
by brokerage firms or industry analysts relating to our market or relating to us
could result in an immediate and adverse effect on the market price of our
Common Stock. The highly volatile nature of our stock price may cause investment
losses for our shareholders. In the past, securities class action litigation has
often been brought against companies following periods of volatility in the
market price of their securities. If securities class action litigation is
brought against us, such litigation could result in substantial costs while
diverting managements attention and resources.

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As a public company, we are subject to complex legal and
accounting requirements that will require us to incur significant expenses and
expose us to risk of non-compliance.

As a public company, we are subject to numerous legal and
accounting requirements that do not apply to private companies. The cost of
compliance with many of these requirements is material, not only in absolute
terms but, more importantly, in relation to the overall scope of the operations
of a small company. Our relative inexperience with these requirements increases
the cost of compliance and also increases the risk that we will fail to comply.
We failed to satisfy the reporting requirements applicable to our Form 10-K for
the fiscal year ended December 31, 2011 and for the quarters ended March 31,
2012 and June 30, 2012, which necessitated the filing of amendments thereto, and
we either filed late or failed to file a number of other reports with the SEC
during 2012 and 2013 that were required to have been filed. Failure to comply
with these reporting requirements can have numerous adverse consequences
including, but not limited to, governmental or private actions against us, an
inability to file required periodic reports on a timely basis and loss of market
confidence. We cannot assure you that we will be able to comply with all of
these requirements going forward, that we will not be subjected to governmental
action or sanctions as a result of failure to comply or that the cost of
compliance will not prove to be a substantial competitive disadvantage vis-à-vis
our privately held and larger public competitors.

Our Common Stock is considered to be a penny stock,
which may make it more difficult for investors to sell their shares.

Our Common Stock has been subject to the provisions of Section
15(g) and Rule 15g-9 of the Exchange Act, commonly referred to as the penny
stock rule. Section 15(g) sets forth certain requirements for transactions in
penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as
that used in Rule 3a51-1 of the Exchange Act. The Commission generally defines
penny stock to be any equity security that has a market price less than $5.00
per share, subject to certain exceptions. Rule 3a51-1 provides that any equity
security is considered to be penny stock unless that security is: registered and
traded on a national securities exchange meeting specified criteria set by the
Commission; issued by a registered investment company; excluded from the
definition on the basis of price (at least $5.00 per share) or the registrants
net tangible assets; or exempted from the definition by the Commission. .Our
Common Stock is considered to be a penny stock. The SEC has adopted rules that
regulate broker-dealer practices in connection with transactions in penny
stocks. As our Common Stock is considered to be penny stock, trading in our
Common Stock will be subject to additional sales practice requirements on
broker-dealers who sell penny stock to persons other than established customers
and accredited investors. This may reduce the liquidity and trading volume of
our shares.

Financial Industry Regulatory Authority, Inc. (FINRA)
sales practice requirements may limit a shareholders ability to buy and sell
our common shares.

In addition to the penny stock rules described above, FINRA
has adopted rules that require that in recommending an investment to a customer,
a broker-dealer must have reasonable grounds for believing that the investment
is suitable for that customer. Prior to recommending speculative low priced
securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customers financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, FINRA believes that there is a high probability that speculative
low priced securities will not be suitable for at least some customers. FINRA
requirements make it more difficult for broker-dealers to recommend that their
customers buy our Common Stock, which may limit your ability to buy and sell our
stock and have an adverse effect on the market for our shares.

We do not intend to pay dividends.

We do not anticipate paying cash dividends on our Common Stock
in the foreseeable future. We may not have sufficient funds to legally pay
dividends. Even if funds are legally available to pay dividends, we may
nevertheless decide in our sole discretion not to pay dividends. The
declaration, payment and amount of any future dividends will be made at the
discretion of our board of directors, and will depend upon, among other things,
the results of our operations, cash flows and financial condition, operating and
capital requirements, and other factors our board of directors may consider
relevant. There is no assurance that we will pay any dividends in the future,
and, if dividends are paid, there is no assurance with respect to the amount of
any such dividend.

We may be subject to shareholder litigation, thereby
diverting our resources that may have a material effect on our profitability and
results of operations.

As discussed in the preceding risk factors, the market for our
common shares is characterized by significant price volatility when compared to
seasoned issuers, and we expect that our share price will continue to be more
volatile than a seasoned issuer for the indefinite future. In the past,
plaintiffs have often initiated securities class action litigation against a
company following periods of volatility in the market price of its securities.
We have in the past been, and may in the future be, the target of similar
litigation. Securities litigation will result in substantial costs and
liabilities and will divert managements attention and resources.

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Compliance with changing regulation of corporate
governance and public disclosure will result in additional expenses and pose
challenges for our management.

Changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Dodd-Frank Wall Street Reform
and Consumer Protection Act, and the rules and regulations promulgated
thereunder, the Sarbanes-Oxley Act and SEC regulations, have created uncertainty
for public companies and significantly increased the costs and risks associated
with accessing the U.S. public markets. Our management team will need to devote
significant time and financial resources to comply with both existing and
evolving standards for public companies, which will lead to increased general
and administrative expenses and a diversion of management time and attention
from revenue generating activities to compliance activities.

SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL
RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED,
EXPECTED, INTENDED OR PLANNED.

Item 1B.Unresolved Staff Comments

Not applicable.

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Item 2. Description of Properties

Introduction

We currently have an interest in the following six silver
poly-metallic exploration properties in the Erbahuo Silver District located in
Inner Mongolia, China: Dadi; Laopandao; Aobaotugounao; Shididonggou; Yuanlinzi;
and Zhuanxinhu. The nature and extent of our interest in such properties is
discussed above under the heading Item 1  Description of Business.
Only two of such properties are material to us at the current date: Dadi and
Laopandao.We no longer consider Aobaotugounao to be material as a result of
Sino-Top having determined not to further invest in Aobaotugounao during 2013.
The following table briefly summarizes certain details relating to these
properties.



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Dadi Silver-Polymetallic Project

The Dadi silver-polymetallic property (Dadi or the Dadi
Property) is owned by Sino-Top, in which the Company owns a 40% equity
interest. As discussed above, this interest may be diluted to 20%.

The Dadi Property is without known reserves, and the 2014
exploration program will include mill and tailings pond construction.

Location and Description

The Dadi Property is situated in north central Inner Mongolia
in the Xilin Gol Administrative District, approximately 450 kilometers north of
Beijing. The geographic coordinates of the Property are Longitude 117° 36 15
to 117° 38 45 E and Latitude 43° 2100 to 43° 23 00 N. Modern multi-lane
divided highways provide excellent access to within five kilometers of the
Property.

Regionally, the Dadi Property is located on the intersection of
the northern edge of the microplates that makes up the North China platform,
striking east-west, and the Siberian platform, and is situated in the area where
the Altaids belt intersects the Yanshanian orogenic belt. These structural belts
are major mineral-forming belts of China and this tectonic setting provides a
dynamic environment for the development of mineralizing systems. Mesozoic
(Yanshanian) continental volcano-magmatic activity took place along a
northeasterly trend to form the Butelaqu-Duolun volcanic zone. This zone
consists of a series of fault basins filled with volcanic rocks developed along
a northeasterly trend.

The Dadi Property is on the margin of the Toudi-Liudguo
Jurassic volcanic basin and is situated on the southwest end of the south side
of Huanggangliang-Ganzhuermiao Anticlinorium and is underlain by the volcanic
and volcanic-clastic rocks of the upper Jurassic Balyingaolao Formation.

Two explosive magazines were newly built in 2011. Gravel and
dirt roads have been constructed on the property and are in good condition.
Equipment on the property includes air compressors, cinder scrapers, jack
drills, generators, all purchased in 2011. A total of over 10,000 meters of
tunneling have been completed. The total cost incurred to date by Sino-Top on
the exploration of Dadi is RMB39 million. The anticipated aggregate future cost
to bring Dadi into production is RMB76 million. This includes further
exploration and the development of infrastructure to develop an operating mine
to extract underground minerals. The funds are expected to be contributed by the
joint venture partners. The source of power is the state grid. Water is
transported from local supply by tankers, but four water wells on the property
are currently under construction.

Geology and Mineralization

Regional Geology

Regionally, the Dadi Property is located on the intersection of
the northern edge of the microplates that make up the North China platform,
striking east-west, and the Siberian platform, and is situated in the area where
the Altaids belt intersects the Yanshanian orogenic belt.

Mesozoic (Yanshanian) continental volcano-magmatic activity
took place along a northeasterly trend to form the Butelaqu-Duolun volcanic
zone. This zone consists of a series of fault basins filled with volcanic rocks
developed along a northeasterly trend. The Property is on the margin of the
Toudi-Liudguo, Jurassic volcanic basin.

Local and Property Geology

The Dadi Property is underlain by the volcanic and
volcanic-clastic rocks of the upper Jurassic Balyingaolao Formation.

Minerals occur in a gangue of quartz, chalcedony, carbonate
minerals, fluorite, barite, sericite, adularia and clay minerals. Banding of the
minerals is common. The veins can also contain minerals in crusty, vuggy and
colloform textures. Widespread wall rock alteration includes chlorite, sericite,
quartz, pyrite and locally carbonate and feldspar minerals. Heavily oxidized
rock consists of limonite with sulphide inclusions.

Alteration in the Dadi Property is pervasive. Type and
intensity of the alteration varies with proximity to mineralization and the host
rock. Near surface oxidation of the sulfide minerals is pervasive and is
characterized by the development of box work structures providing evidence of
extensive leaching. Limonite is the dominant alteration product. Oxidation
moderates with the transition to the sulphide environment at depth.

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Within the sulphide environment the nature, extent and
intensity of the wall rock alteration is directly related to proximity to
mineralization and to a lesser degree on the rock type. Limonitization and
pyritization are dominant with weak chloritization and carbonatization; the
alteration products include limonite and pyrite, which exhibit a grainy or
cellular appearance and chlorite and calcite occurs as veinlets.

Mining Claims



The Dadi Property comprises one exploration license,
T15120090602031788, which covers 1,248 hectares. The license was granted on
August 2, 2013 and is valid until June 30, 2015. The exploration license is
under the name of Inner Mongolia Guangda Mining, Ltd. (a wholly owned subsidiary
of Sino-Top). The license grants the right to detailed exploration over an area
of 12.48 square kilometers in Keshiketeng County, Inner Mongolia. The registrant
of the license must file annual geological reports with the local land and
resources administration at year end. Prior to expiration of the license, which
is usually valid for two years, the registrant can apply for license renewal,
which requires relevant materials to be presented in order to show that the
stage of exploration work on the property is further advanced. Stages of
exploration work advance from reconnaissance, general exploration, detailed
exploration and prospecting. If the registrant cannot fully complete the
necessary exploration work on the property due to geological conditions, the
registrant has one opportunity to apply for the license renewal at the same
stage of exploration. The application materials for renewal presented to the
Land and Resources Department include property location map, exploration
license, opinions from the local government, exploration work design/contracts,
qualification certificates of contractors, source of project funds, annual
exploration reports reviewed/approved by the local land and resources
administration and financial reports. While management expects that the license
will be renewed following application, there can be no assurance thereof.

There are no environmental liabilities, royalties, back-in
rights or other payments known to us to which the Dadi Property is subject, and
there are no other significant factors or risks known to us that may affect
access, title, or the right or ability to perform work on the property.

27

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The following map illustrates the general location of the Dadi
Project and the associated mining claims:



History of Previous Operations

The silver, lead and zinc mineralization on the Dadi Property
was discovered by silt geochemical surveys in 1963 and 1964 by the North China
Exploration Bureau. Over the next three decades, to our knowledge, very little
work was done on the Dadi Property.

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In 2005, Sino-Top acquired Dadi and commenced work in 2006.
Over the next eight years, extensive surface and underground exploration was
carried out.

Over the past eight years, as discussed below, exploration on
the Dadi Property has included geological mapping at various scale, soil
geochemistry, trenching, geophysics, diamond drilling, extensive underground
exploration on two levels.

An extensive underground tunnel system has been constructed and
a drilling, trenching & tunneling program is well underway with a total of
7,174 meters of surface trenching 19,113 meters of diamond drilling, and 10,071
meters of underground exploration and infrastructure tunneling completed to
date.

Trenching

The majority of the trenching activity on the Dadi Property
over the past 5 years focused on exploring the primary deposit zone 1 (PD1)
deposit area (mineralized zone), excavating over 30 trenches and extracting over
4,600 metres3of overburden-regolith. The results of this work were
encouraging, resulting in the discovery of 10 mineralized zones. During this
time, three trenches (TC24, TC25-1 and TC2) exposed the primary deposit 2
(PD2) deposit along strike for 250 metres. During 2010, trenching activity
shifted to the PD2 deposit area, excavating six additional trenches, extracting
approximately 225 metres3of overburden-regolith to expose and trace
the PD2 deposit along strike for an additional 550 metres for a total strike
length of 800 metres. Samples from trenching were delivered to the field office
for temporary secure storage and held for shipment to the Yanjiao Central
Laboratory of North China Nonferrous Geological Bureau in Sanhe for analysis.
Results of the sample analysis were used to evaluate and further define future
exploration targets and focus.

Underground Exploration

The underground infrastructure work on the Dadi Property was
carried out under contract by Wenzhou Mining Engineering Co. Ltd., The contract
called for nominal two metre by two metre underground openings; however, in most
cases, the openings are slightly larger. During the 2010 exploration Program,
1,910.7 metres of underground tunneling was completed. This work connected the
PD1 deposit accessed by the PD1 adit level (1384 meters ASL) with the PD2
deposit accessed by the PD-2 adit level (1426 metres ASL), thereby integrating
both deposits into the Dadi mine plan.

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Underground Channel Sampling

Extensive underground channel sampling was completed during the
2010 exploration program.

Underground exploration during 2010 exposed the PD1 and PD2
mineralized zones. The mineralized zone was mapped and sample locations
identified by a geologist. The sample locations were based on visual inspection
of the exposed mineralized zone. Samples were delivered to the field office for
temporary secure storage and held for shipment to the Yanjiao Central Laboratory
of North China Nonferrous Geological Bureau in Sanhe for analysis.

Results of the sample analysis were used to evaluate and
further define future exploration targets and focus.

Initially, the program focused on sampling the mineralized
zones intersected along the crosscut drift connecting the PD1 and PD2 deposits.

Diamond Drilling

Concurrent with the underground exploration program, Sino-Top
contracted HIC to perform a diamond-drilling program consisting of 18 diamond
drill holes totaling 8,476.04 metres. These holes were located to test deep
targets on the PD1 and PD2 deposits. The core boxes were delivered to the field
office by a technician, and the core was stored in a secure location pending
logging and sampling. The drill core was logged and sample intervals identified
for diamond saw cutting and sampling. The intervals to be sampled were based on
the visual presence or absence of lead and zinc mineralization in the drill
core. Nominally, the sample interval was 1.0 meters, respecting geologic
control, and depending on the nature of the mineralization the samples would
range between 3 and 5 kilograms. The samples were stored in the field at a
secure location and delivered to the Yanjiao Central Laboratory of North China
Nonferrous Geological Bureau in Sanhe for analysis. Results of the sample
analysis were used to evaluate and further define future exploration targets and
focus.

2012 Operations

Exploration work for 2012 at Dadi commenced on February 24,
2012, focusing on underground drifting (face drilling) and underground drilling.
Twelve underground drill holes have been completed with a total drilling length
of 1,039 meters. In addition, underground drifting, including transverse drifts
at the 1,350m level and in tunnel PD4, was also completed. The total tunneling
length was 692.8 meters, including transverse drifts and transportation tunnels.
At present, 149 samples from drill core and channel sampling within the
transverse drifts have been analyzed.

Twelve underground drill holes and six underground transverse
drifts were completed to define mineralization zones I, II and IV. A total of
five mineralization zones have been discovered at Dadi, of which, zones I, II
and IV haven been the main targets for this years exploration work.

Samples were collected from drill holes and transverse drifts
at Dadi: three transverse drifts at 1,350 meters showed silver-lead-zinc
mineralization in mineralization zone II; and one transverse drift revealed
silver-lead-zinc mineralization in mineralization zone IV. Three underground
drill holes showed silver-lead-zinc mineralization.

According to assay results, four of the completed underground
drill holes (ZK0808, ZK0308, ZK0702, and ZK0901) have revealed significant
Silver-Lead-Zinc mineralization.

The four underground drill holes located in the 1,384m level
PD1 tunnel at exploration lines No. 3, No. 7 and No. 9 at Dadi further define
mineralization zones I and II, at deeper levels.

Two mineralized intervals at Dadi have been discovered at the
underground drill hole ZK0808: azimuth 220°, dip angle 86°, drilling length
120m. One is from 61.5m to 63.0m interval and the second interval is from 97.5m
to 100.5m.

Four intervals at Dadi hit silver, lead and zinc mineralization
at underground drill hole ZK0702: azimuth 220°, dip angle 85°, drilling length
71.5m; the first interval is from 58.5m to 60.0m , the second and the third
intervals are from 63.0m to 66.0m, and the fourth interval is from 67.5m to
69.0m. Additionally, in intervals from 45.65m to 70.0m, the rocks are strongly
altered and assay results show most of the samples reaching industrial grades or
near cutoff grades of lead and zinc. These results demonstrate a concentration
of lead and zinc mineralization.

Three samples taken at Dadi from intervals from 56.4m to 60.6m,
at underground drill hole ZK0901: azimuth 220°, dip angle 87°, drilling length
72m show relatively strong zinc mineralization and weak silver and lead
mineralization.

30

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Based on assay results for underground dill hole ZK0308 at
Dadi: azimuth 220°, dip angle 86°,drilling length 120.85m, one sample (from
84.0m to 85.5m interval) reveals mineralization.

2013 Operations

Exploration and mine development were conducted in 2013 in
preparation for mining and ore processing. Surface and underground exploration
was conducted in 2013 to further probe the extensions of mineralization in
mineralization zones I, II and IV, with 3,071.62m tunneling (incl. 2,120.92m
adit, 225.1m ventilation shaft, 637.3m cutting and 88.3m winze), and 3,823.74m3
mine development (tunnel expansion and consolidation) completed. In addition, a
shaft above the main mining tunnel was commenced and progressed to approximately
18 meters, and an inclined shaft inside adit No. IV progressed to 88.3 meters.
Also 359.25m surface drilling and 4,122.1m in-pit drilling were completed in
2013.

In preparation for mill construction, 120,000 square meters
(approximately 30 acres) of land was acquired for the sites of the mill and
tailings pond.

Mining license application is in progress, currently in the
stage of environmental appraisal (including water resource utilization review).
The management expects to obtain the mining license by the end of the year.

Exploration Plans for 2014

The 2014 exploration plans at Dadi will include: mill and
tailings pond construction; core drilling,
trenching and tunneling program; metallurgical study of the minerals; and
additional sample testing and assaying.

Laopandao Silver-Tin-Polymetallic Project

Location and Description

Located in north central Inner Mongolia in Keshiketeng County,
approximately 650 kilometers north of Beijing, the Laopandao
Silver-Tin-Polymetallic Project (the Laopandao Property) is readily
accessible by car along modern, interprovincial, multi-lane highways, secondary
paved and gravel roads. Inner Mongolia is located in north-central China and
covers approximately 1.183 million km2, and borders Russia and Mongolia. The
geographic coordinates of the Laopandao Property are: Longitude from 117° 37
00 E to 117° 40 00 East and Latitude from 43° 31 00 N to 43° 37 00 North.

The following map illustrates the general location of the
Laopandao Property and the associated mining claims:

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The Laopandao Property is strategically located at the
intersection of two major mineral rich metallogenic belts in northern China. The
Greater Hinggan Mountain Range is a result of this dynamic junction environment.
The Laopandao Property is dominantly underlain by the Upper Jurassic
Baiyinggaolao Formation dacitic-tuffaceous lava, rhyolite tuff, tuffaceous
sandstone and conglomerate of the Greater Hinggan Mountain Range. The principal
host rocks for the mineralization on the Property are dacitic-tuffaceous lava,
dacitic tuff and granite.

The Laopandao Property is without known reserves.

An explosives magazine was newly built in 2011. Gravel and dirt
roads have been constructed on the property and are in good condition. A total
of 2,800 meters of tunneling have been completed. The total cost incurred to
date by Sino-Top on exploration of Laopandao is RMB19.2 million. The source of
power is on-site diesel generators. Water is transported from local water supply
to the project by tankers.

Geology and Mineralization

In the Laopandao Project area, faults are well developed and
control not only the formation, distribution and spatial shape of magmatic
rocks, but also the formation and distribution of mineral deposits. In
particular, torsion and deflection of NE-trending structure provides the space
for mineral formation, especially the junction of numerous structures; the
intersection part of rhombus faulted blocks is a favorable place for mineral
deposition.

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Faults are well developed in the Anomaly 95 area. The prominent
regional north-northeasterly trending F1 faults are not mineralized; however,
the north-northwesterly trending F2, F5 and F4 dominantly control the mineral
deposition in the area and on the Property.

Hydrothermal tin-polymetallic fracture filling and disseminated
mineralization in granite prophyry occur on the Laopandao Property. The
hydrothermal tin-polymetallic mineralization consists of marcasite,
arsenopyrite, chalcopyrite, chalcocite, tetrahedrite, pyrrhotite, cassiterite,
argentite, sphalerite and native silver. Occasionally, limonite fills the
fissure on the shallow surface and replaces arsenopyrite and pyrite. Metallic
minerals vary irregularly along the dip and strike. However, there is no obvious
difference between mineral combination and content. Gangue minerals are mainly
composed of feldspar, quartz, sericite, carbonate and minor tourmaline.

Major elements in the sulphide bodies include Ag, Cu and Sn,
with minor Au, As, Mo and Sb. The structure and texture is hypidiomorphic,
allotriomorphic granular or irregular and granular cataclastic textures, and
sparse, dense or strip-like dissemination or scattered or massive structures.
The disseminated mineralization include cassiterite, arsenopyrite, chalcopyrite,
pyrrhotite, magnetite, pyrite, silver tetrahedrite, tennantite and anatase. Tin
is the major element and ranges from 0.1% to 34.08% with minor Ag, Cu, As, Mo
and Sb. The gangue minerals mainly include quartz, acid plagioclase, feldspar,
biotite, fluorite and tourmaline.

Anomaly 95 has been the primary focus of the exploration
activity over the years. This anomaly contains Zone I, Zone II and Zone III.
Each structure contains mineralized pods or lenses of fracture filling type
massive sulphide mineralization, which is shown in the following diagram:

Zone I Mineralization

Hosted by the volcanic sequence of the Baiyingaolao Formation,
Zone I strikes WNW and dips 75° to 80° NNE. The structure has been exposed along
strike by trenching, intersected in diamond drill holes and exposed underground
as being approximately 540m long, 100m wide and has been traced by diamond
drilling to a depth of 300m. HIC has identified seven mineralized bodies hosted
by this structure. The alteration consists of chloritization, silicification,
argillization, fluoritization, limonitization and tourmalinization, with minor
pyritization.

Zone II Mineralization

Zone II is hosted by the volcanic Baiyingaolao Formation and is
located approximately 150m south-southwest of Zone I. Zone II strikes WNW and
dips 75° to 80° NNE. The structure has been exposed along strike by trenching
and intersected in diamond drill holes as being approximately 200 long, 250 wide
and has been traced by diamond drilling to a depth 300m. HIC has identified
three mineralized bodies hosted by this structure. The bodies are parallel
features approximately 50m apart; each has parallel zones of mineralization
hanging wall and footwall of the Zone. The alteration consists of
chloritization, silicification, argillization, fluoritization, limonitization
and tourmalinization, with minor pyritization. Further work is required on this
Zone to determine its potential.

Zone III Mineralization

Zone III is located in the southern portion of Anomaly 95 and
is hosted by the marginal-phase Granite Porphyry-Late Yanshanian Period (γπ53).
This Zone strike East-West and is comprised of twenty-one (21) parallel tin
polymetallic mineralized lenses which has been exposed in trenching, drill holes
and underground. The lenses have been traced along strike for 300m being exposed
in trenches and intersected in drill holes. The lenses dip variably to the north
at between 31° and 73°. In general the dips are steeper in the upper portion of
the hole and tend to flatten at depth.

In the 15 drill holes which defined Zone III, there is locally
intense mineralization, particularly in the line 304 in the east, and the
alteration continues to a depth of over 400m. Alteration consists of
tourmalitization, seritization and feldsparization, followed by lesser
fluoritization.

Channel sampling across the mineralized zones and the enclosing
hanging wall and footwall rocks was carried out under geologic control by
technicians under the supervision of HICs geologists. The sampling channels
were 10cm wide and 3cm deep and cut with a hammer and chisel. Sampling was
carried out across the working face immediately following a blast or across the
back or along the ribs of the drift or cross cut. Rock chip samples were also
taken every 3m along the drift or cross-cut to obtain a composite 250 to 300
gram sample. One rock chip sample was taken every 1m2 along the main haulage
adit.

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Mining Claims

The Laopandao Property comprises one exploration license,
T15120090702032551, covering 33.67 square kilometers. The license is valid from
June 30, 2012 to June 30, 2014 and is renewable by way of an application. The
exploration license is owned by Inner Mongolia Guangda Mining, Ltd. (a wholly
owned subsidiary of Sino-Top). It grants the right to detailed exploration over
an area of 33.67 square kilometers in Keshiketeng County, Inner Mongolia. The
registrant must file annual geological reports with the local land and resources
administration at year end. Prior to expiration of the exploration license,
which is usually valid for two years, the registrant can apply for license
renewal, which requires relevant materials to be presented in order to show that
the stage of exploration work on the property is further advanced. Stages of
exploration work advance from reconnaissance, general exploration, detailed
exploration and prospecting. If the registrant cannot fully complete the
necessary exploration work on the property due to geological conditions, the
registrant has one chance to apply for the license renewal at the same stage of
exploration. The materials required to be presented to the Land and Resources
Department include renewal application, property location map, exploration
license, opinions from the local government, exploration work design/contracts,
qualification certificates of contractors, source of project funds, annual
exploration reports reviewed/approved by the local land and resources
administration, financial reports on exploration expenses, and the exploration
work summary/plan. While the Company anticipates that the license renewal
request will be approved, there can be no assurances.

There are no environmental liabilities, royalties, back-in
rights or other payments known to us to which the Laopandao Property is subject,
and there are no other significant factors known to us that may affect access,
title, or the right or ability to perform work on the Laopandao Property.

The exploration program, as conducted from 2005 through present
day, has been carried out by HIC under a contract with Sino-Top.

History of Operations

The following summarizes the history of the exploration
activity on the Laopandao Property from 1960 to the present.

1960-1980

During the 1960s, an airborne magnetometer survey was carried
over Keshiketeng County as part of the regional mapping program. Subsequent
prospecting, soil geochemical surveys and geological mapping during the 1970s
and early 1980s by North China Geological Exploration Bureau resulted in the
delineation of tin-polymetallic (silver, lead and zinc) soil geochemical
dispersion trains and mineral occurrences referred to as Anomaly 95, Anomaly 102
and Anomaly 104 (falls outside the Property). The anomalous areas are up to 300m
wide and contain lenticular mineralized bodies ranging from 1 to 7m wide.

1985-1986

Follow-up trenching and sampling during this period resulted in
the discovery of 37 tin occurrences. Exploration on the Laopandao Property was
suspended from 1986 until 2004.

2004

After almost two decades of inactivity, Sino-Top acquired the
Laopandao Property.

2005

During the 2005 exploration season, HIC, on behalf of Sino-Top,
completed follow-up magnetometer and electromagnetic surveys, reconnaissance
geological mapping and soil geochemical profiling over the known tin
occurrences. The results of the work further defined Anomaly 95 and Anomaly 104.

2006

The 2006 exploration program focused on the Anomaly 95. The
work associated therewith included preliminary geological mapping (1:5000), soil
geochemical profiling, IP and resistivity profiling, two diamond drill holes
totaling 3,265m and underground exploration, mapping and sampling on the PD6
adit.

2007

34

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During 2007, the exploration program at the Laopandao Property
continued to focus on Anomaly 95. HIC completed reconnaissance prospecting and
detailed exploration, consisting of preliminary geological mapping (1: 5000),
topographic mapping (1: 2000), geological mapping (1: 2000), random primary
litho-geochemical halo mapping (1: 5000), soil geochemical and geophysical
profiling (1: 2000), 11,613 metres of diamond drilling in 7 holes and
underground exploration, mapping and sampling (PD2 Adit). Geological mapping and
reconnaissance soil geochemical sampling was also carried out on Anomaly 102 and
Anomaly 104.

Detailed exploration of Anomaly 95 identified three prominent
mineralized structures hereafter referred to as (Zone 1, Zone II and Zone
III). Each such zone contains a number of lenticular mineralized bodies-
lenses. Zone I contains 7 lenses, Zone II contains 16 lenses and Zone III
contains 15 mineralized lenses, for a total of 38 mineralized bodies.

2008

During the 2008 exploration season, HIC carried out prospecting
and detailed surveys over Anomaly 95 completing a soil geochemical survey (1:
2000), a reconnaissance and detailed Induced Polarization (IP) surveys, 501
metres of diamond drilling in 1 hole and 217 metres of underground exploration
extending the PD6 adit for a total of 1,617m and PD3 adit for a total of
1,468m.

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2009

The North China Geological Bureau continued to focus on Anomaly
95, completing detailed exploration of Zone I and Zone II, as well as
reconnaissance exploration on Zone III and confirmation of Anomaly 102. This
work included a topographic survey (1:2000) and preliminary geological survey
(1: 2000), continued underground exploration and surface diamond drilling.
Further work was also carried out on Anomaly 102, which included underground
infrastructure construction and a deep penetrating IP survey.

2010

Advanced geological exploration work was continued and the
exploration targets were focused on mineralization Zone I and Zone III. The
exploration consisted of 11 drill holes (4,696 m), 634m tunneling, and an
additional geophysical survey.

2011

In 2011, the exploration work focused on mineralization Zone
III and included 308 meters tunneling, 192 pieces of sampling and assaying, as
well as hydrogeological, engineering, geological, and environmental surveys
within the Laopandao Property demonstrating a potential viable operation

2012

In 2012, Beijing Longxing Shengxuan Technology Investment Co.,
Ltd. was commissioned by Sino-Top to conduct metallurgic tests on Mineralization
Zones I, II and III of Laopandao Sn-Polymetallic Property.

A summary of the metallurgic test on Mineralization Zones I and
II of Laopandao Sn-Polymetallic Property is as follows:

The metallurgic test mainly involves Cu and Ag recovery. The
major metallic minerals include chalcopyrite, tetrahedrite and arsenopyrite,
followed by sphalerite, galena, pyrite, native bismuth, bismuthinite,
cassiterite, wolframite, etc. Gangue minerals are mainly quartz, feldspar, mica,
followed by kaolinite, apatite, rutile, xenotime, zircon, etc. The results of
chemical phase analysis show that most of Cu and Ag elements exist in Cu-bearing
sulfide, which is favorable for the recovery of copper and silver.

The challenge of this metallurgic test is the high content of
arsenic in the mineral. Arsenic is mainly in the form of arsenopyrite, but the
arsenic-bearing tetrahedrite is the major obstacle that impedes the effort of
separating arsenic from Cu concentrate. In order to improve the sale of the Cu
(Ag) concentrate, the arsenic content in the concentrate should be reduced as
much as possible. During the test, we applied coarse grinding to separate Cu and
Ag and processed the coarse concentrate to further reduce the content of arsenic
in Cu/Ag concentrate.

A summary of the metallurgic test on Mineralization Zone III of
Laopandao Sn-Polymetallic Property is as follows:

The results of chemical phase analysis show that tin
mineralization mainly exists in cassiterite. The major metallic minerals include
cassiterite, limonite, pyrite, arsenopyrite, etc. Gangue minerals are mainly
quartz, white mica, feldspar, chlorite, rutile, zircon, monazite, xenotime, etc.
Cassiterite in the mineral form ranges in size from micrograined to fine
granular. Due to poor floatability of cassiterite and its fine-grained
granularity, and the complexity of the minerals that affect cassiterite recovery
by gravity separation method, the recovery of cassiterite is complicated.

The mineral contains iron-bearing minerals in high specific
gravity. First, we extracted iron-bearing minerals by coarse grinding and
magnetic separation method (60% at -0.074mm level); then we processed the
magnetic separation tailings by gravity separation method in two categories (
+0.037mm and -0.037mm), so that cassiterite at +0.037mm level can be recovered
well and that of -0.037mm level recovered to the greatest extent. The mineral
contains pyrite and arsenopyrite, which gather and concentrate with cassiterite
during gravity separation, resulting in heavy contents of sulfur and arsenic.
Thus we conducted reverse flotation to separate sulfur and arsenic from Sn
concentrate and eventually obtained qualified Sn concentrate.

2013

No exploration work was conducted in 2013. Mining license
application is in progress, currently in the stage of mining area delimitation.
The management expects to obtain the mining license by the end of the year.

Exploration Plans for 2014

The 2014 exploration plans at Laopandao will include: core drilling, trenching and tunneling program;
metallurgical study of the minerals; and additional sample testing and assaying.

36

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Other Exploration Properties

The following properties, which have no known reserves and are
exploratory in nature, began exploration during 2013.

| | Yuanlinzi Beishan
|- | -----------------

Located in Keshiketeng County, Inner
Mongolia, China the property is 5,120 hectares (12,652 acres).

Identified commodities are silver and
tin. The Company has a 40% interest in this property through its Sino-Top joint
venture. As discussed above, this interest may be diluted to 20%.

The exploration license is held by HIC
for the benefit of Sino-Top. It grants the right to detailed exploration over an
area of 38.1 square kilometers in Keshiketeng County, Inner Mongolia. The
validity period is from June 30, 2013 to June 30, 2015.

Surface exploration was conducted in
2013 to verify the existence of mineralization in the geophysical and
geochemical anomalies, with 1,000m3trenching work completed, including three
trenches (TC250-1, TC190-1 and TC31). Ordinary chemical analysis was conducted
on 21 samples. The total cost incurred by Sino-Top on the exploration of Yuanlinzi in 2013 was RMB192,000.



| | Shididonggou
|- | ------------

Located in Keshiketeng County, Inner
Mongolia, China the property is 311 hectares (768 acres).

Identified commodities are silver lead
and zinc. The Company has a 40% interest in this property through its Sino-top
joint venture. As discussed above, this interest may be diluted to 20%. Sino-Top owns the exploration rights for this property.

The exploration license is under the
name of Sino-Top. It grants the right to detailed exploration over an area of
3.11 square kilometers in Keshiketeng County, Inner Mongolia. The validity
period is from April 4, 2012 to April 3, 2014. The license renewal application
has been submitted to the local government for review and approval.

Surface exploration was conducted in
2013 to probe the extensions of mineralization, with 617m drilling (3 holes) and
594 m3trenching completed. Ordinary chemical analysis was conducted on 103
samples, and mineralogical analysis on 2 samples. Drill hole ZK3501 hit two
layers of Pb-Zn-Ag-Cu mineralization with a total thickness of 2.5m. Drill hole
ZK2502 also hit mineralization. The controlled mineralization zone II-1 has an
average thickness of 2  3 meters and a maximum along-hole depth of 218 meters.
The total cost incurred by Sino-Top on the exploration of Shididonggou in 2013
was RMB632,000.



| | Zhuanxinhu
|- | ----------

Located in Keshiketeng County, Inner
Mongolia, China the property is 624 hectares (1,542 acres).

Identified commodities are silver and
copper. The Company has a 40% interest in this property through its Sino- top
joint venture. As discussed above, this interest may be diluted to 20%. Sino-Top owns the exploration rights for this property.

The exploration license is under the
name of Sino-Top. It grants the right to detailed exploration over an area of
6.24 square kilometers in Keshiketeng County, Inner Mongolia. The validity
period is from April 4, 2012 to April 3, 2014. The license renewal application
has been submitted to the local government for review and approval.

Surface exploration was conducted in
2013 to probe the extensions of mineralization, with 3,022m drilling (12 holes)
and 377m3trenching completed. Ordinary chemical analysis was conducted on 449
samples, and mineralogical analysis on 10 samples. The controlled mineralization
zone No. I has a length of 650 meters and an along-hole depth of 300  400
meters. The total cost incurred by Sino-Top on the exploration of Zhuanxinhu in
2013 was RMB2.4 million.

Aobaotugounao

In addition, Sino-Top owns the Aobaotugounao
silver-polymetallic property. This property was previously considered material
to us, but is no longer considered material because Sino-Top determined in 2013
not to fund further exploration during 2013. The Aobaotugounao Property is
exploratory in nature and without known reserves.

The Aobaotugounao property covers a total of 21.07 km2. It is
approximately 9km northwest of Tongxing Township, Keshiketeng County,
Inner-Mongolia. Geologically, it is characterized by a hydrothermal vein
Ag-polymetallic deposit within Jurassic volcanic series. Major alterations are
limonitization, siliconization, chloritization and fluoritization.

The
exploration license is held by Sino-Top. It grants the right to detailed
exploration over an area of 21.07 square kilometers in Keshiketeng County, Inner
Mongolia. The validity period is from January 15, 2013 to January 14,
2015.

In 2012, the Exploration Unit of North China Geological Exploration
Bureau completed exploration projects on the property. The main tasks of the
exploration were to operate advanced geological mapping of the whole property
area and to detect mineralization zones I and II in northern property by
trenching and drilling with 100m × 100m exploratory grid in order to obtain 333
degree resources of silver, lead and zinc.

Completed exploration projects in 2012

The exploration projects completed in 2012 include 14 drill
holes and one surface trenching. The exploration work was focused on Ag-Pb-Zn
mineralization zone no. I (particularly ore zone [1]) , which was discovered by
geophysical and geochemical detection, surface trenches, and 4 drill holes in
2011. The following table (Table 1) shows detailed exploration items of 2012. As
a result, a total of 12 Ag-Pb-Zn ore zones and mineralized bodies were
identified in the Property.

Table of Exploration work completed in 2012



|no.  | Exploration work                                | Completed work
|---- | ----------------------------------------------- | --------------
|Item | Unit                                           
|1    | 1:2000 geological and
      topographic mapping | km2           
|2    | Measurement of exploration
      lines          | km            
|3    | Drilling (14 drill holes)                       | m             
|4    | Trenching                                       | m3            
|5    | Sample assaying                                 | piece         
|6    | Petrologic study on samples                     | piece         
|7    | engineering measurement                         | point         

37

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Item 3. Legal proceedings

None.

Item 4. Mine Safety Disclosures

Not applicable.

38

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Part II

Item 5. Market for common equity and other shareholder
matters

Our Common Stock is quoted on the Over-the-Counter Grey market
(OTC) under the symbol SDRG. On March 26, 2014, the last reported sale of
our Common Stock as reported on the OTC was $0.008 per share. Our Common Stock
commenced trading on the OTC on January 1, 2001, and trading has been limited
since then; there can be no assurance that a viable and active trading market
will develop. There can be no assurance that even if a market were developed for
our shares, there will be a sufficient market so that holders of Common Stock
will be able to sell their shares, or with respect to any price at which holders
may be able to sell their shares. Future trading prices of our Common Stock will
depend on many factors, including, among others, our operating results and the
market for similar securities.

The following table shows the quarterly high and low trade
prices for one share of our Common Stock on the OTC. The prices reflect
inter-dealer prices, without retail mark-up, mark-down, or commission and may
not represent actual transactions.

Sales Price
      on theOver-The-Counter ($)High
    
    
    LowFiscal Year Ended December
      31, 2013First Quarter
    
    0.000
    
    
    0.0000Second Quarter
    
    0.01
    
    
    0.0000Third Quarter
    
    0.02
    
    
    0.0000Fourth Quarter
    
    0. 01
    
    
    0.0000Fiscal Year Ended December
      31, 2012First Quarter
    
    0.10
    
    
    0.04Second Quarter
    
    0.046
    
    
    0.0044Third Quarter
    
    0.012
    
    
    0.0028Fourth Quarter
    
    0.011
    
    
    0.0001


Holders

As of March 31, 2014, there were 394 shareholders of record of
our Common Stock.

Dividends

We have never paid and do not intend to pay any cash dividends
on our Common Stock for the foreseeable future. We currently intend to retain
any future earnings for reinvestment in our business. Any future determination
to pay cash dividends will be at the discretion of our board of directors and
will be dependent upon our financial condition, results of operations, capital
requirements and other relevant factors.

Sales of Unregistered Securities during 2013

We did not issue any equity securities during 2013.

Item 6. Selected Financial Data

Not applicable

Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations.

This Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) should be read in conjunction
with the financial statements included herein. Further, this MD&A should be
read in conjunction with the Business and Risk Factors sections of this
Annual Report on Form 10-K. Our financial statements have been prepared in
accordance with GAAP.

Overview

Our primary objective is to explore for silver minerals. Our
secondary objective is to locate, evaluate, and acquire other mineral
properties, and to finance our exploration through equity or debt financing, by
way of joint venture or option agreements or through a combination of both, if
and to the extent available.

Plans for the Year 2014

Our management and board of directors are assessing recent
developments, our financial position and related risks, and evaluating our
alternatives. These alternatives may include dissolution or bankruptcy. See
Risk Factors.

Subject to the foregoing, with respect to operations,
Sino-Tops primary plan is to obtain a mineral mining right and processing
license at Dadi and Laopandao. In January 2013 Sino-Top obtained a mining area
delimitation approval for Dadi issued by the Land & Resources Department of
Inner Mongolia. The validity period of the mining area delimitation is one year
from January 14, 2013, within which period the company must fulfill all the
other mining license application requirements, including plans or reports for
mineral development, water preservation, environmental assessment, and land
restoration, and applying for and receiving a mining right. The mining license
application requirements were fulfilled in 2013 and submitted to receive a
mining right license. In addition, Dadi,  plans include mill and tailings pond
construction; continue the core drilling, trenching and
tunneling program; conduct a metallurgical study of the minerals; and perform
additional sample testing and assaying. At Laopandao, while not yet finalized or
approved by the board of Sino-Top, plans are to find a buyer and sell the
property once a mining right license is obtained. There is no assurance that a
buyer may be found or that a mining right license may be obtained.

Cash Requirements

Our current level of cash is significantly insufficient to
satisfy our current debt obligations and to fund our business as currently
planned for 12 months. We will need significant additional funds to satisfy such
obligations and to continue operations, which we may not be able to obtain. See
Risk Factors and Liquidity and Capital Resources.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. These estimates are based on
managements best knowledge of current events and actions the Company may
undertake in the future. Significant areas requiring the use of estimates relate
to mineral rights, equity investment, plant and equipment, and stock-based
compensation. Actual results could differ from these and other estimates. These
estimates are reviewed periodically and as adjustments become necessary, they
are reported in earnings in the respective period.

39

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We have identified below certain accounting policies that we
believe are most important for the portrayal of our current financial condition
and results of operations. Our significant accounting policies are disclosed in
Note 3 to the Consolidated Financial Statements included in this Annual Report
on Form 10-K.

Mineral Rights

We record our interest in mineral rights at cost. Exploration
costs are expensed. Costs associated with acquisition and development of mineral
reserves, including directly related overhead costs, are capitalized and are
subject to ceiling tests to ensure the carrying value does not exceed the fair
value.

Investments in unproved properties and major exploration
projects are not amortized until proved reserves associated with the projects
can be determined or until impairment occurs. If the results of an assessment
indicate that the properties are impaired, the capitalized cost of the property
will be added to the costs to be amortized. We presently have no proven
reserves. Where estimates of future net cash flows are not available and where
other conditions suggest impairment, management assesses whether the carrying
values can be recovered. If the carrying values exceed estimated recoverable
values, then the costs are written-down to fair values with the write-down
expensed in the period.

Equity Investment

Equity investments are entities over which we exercise
significant influence but do not exercise control. These are accounted for using
the equity method of accounting in accordance with APB 18 and are initially
recognized at cost net of any accumulated impairment loss. Our share of these
entities profits or losses after acquisition of our interest is recognized in
the statement of operations and cumulative post-acquisition movements are
adjusted against the carrying amount of the investment. When our share of losses
on these investments equals or exceeds the carrying amount of the investment, we
only recognize further losses where we have incurred obligations or made
payments on behalf of the affiliate.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements or
contractual obligations that have had or are reasonably likely to have a
material current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that have not been disclosed in our
financial statements.

Results of Operations for the Years Ended December 31, 2013
and 2012

Net sales were $nil for both of the years ended December 31,
2013 and December 31, 2012, as there was no production at any of the properties.

The net loss for the year ended December 31, 2013 was
$2,907,682, significantly lower that the net loss of $5,239,185 in the prior
year, primarily due to reduced interest expense on the convertible notes
payable, the absence of a loss on settlement, and a lower net loss on our equity
investments, offset by the absence of the gain on sale of interest in mining
property of $1,143,371 in the prior year..

The general and administration expenses decreased significantly
by $441,841 from $1,649,842 for the year ended December 31, 2012 compared to
$1,208,001 for the year ended December 31, 2013, as we took measures to decrease
operating costs relating to the head office.

Total other expenses decreased significantly by $1,889,662 from
$3,589,343 for the year ended December 31, 2012, compared to $1,699,681 for the
year ended December 31, 2013, primarily due to reduced interest expense on the
convertible notes payable, the absence of a loss on settlement of $2,195,458,
and a lower net loss on our equity investments of $130,610, offset by the
absence of the gain on sale of interest in mining property of $1,143,371 in the
prior year. Total other expenses in the current year included a loss on sale of
interest in mining property of $64,880, relating to our past interest in
Chifeng. The reduced interest expense in the current year, a reduction of
$757,076, was the result of not having the issuances and conversions of the
convertible notes payable, as was experienced in the prior year.

Liquidity and Capital Resources

As of December 31, 2013, we had a cash balance of $226,937 and
current debt obligations in the amount of $5,961,246. We do not have sufficient
funds to satisfy our current debt obligations. Should our creditors seek or
demand payment, we do not have the resources to pay or satisfy any such claims.
Thus, we face a risk of bankruptcy.

As discussed in Item 1, we received advances totaling
$1,069,279 from an investor in contemplation of a secured loan and change of
control transaction that has not closed. This amount is included within our
current debt obligations. In addition to having insufficient cash to pay our
debts, we have no funds to support any business operations. We have been unable
to satisfy our commitment to fund 44.44% of owners contributions to the
Sino-Top joint venture, and our requirement to fund an aggregate of RMB40,000,000
or $6,440,000 to Sino-Top is overdue. There is a significant risk that our
inability to fund Sino-Top will result in a dilution of our 40% equity ownership
in Sino-Top. In addition, we expect that Sino-Top will continue to call for
further contributions which, if not satisfied by the Company, could result in
further dilution of the Companys interests in Sino-Top.

At the recent Sino-Top board of directors meeting held on March 29, 2014, the 2014 budget was finalized. The total budget for 2014 is RMB171,000,000 or $27,531,000 and the Company's contribution is RMB76,000,000 or $12,236,000. The Company's investment in Sino-Top will be diluted to 20% if it does not make a contribution of RMB50,000,000 or $8,050,000 by April 8, 2014 and a further contribution of RMB26,000,000 or $4,186,000 by June 15, 2014, with no further contributions. These are cumulative amounts and include past contributions which were not made by the Company.

To pay our debts and to fund any future operations, we require significant new funds, which we may not be able to obtain. In addition to the funds we require to liquidate our $5,961,246 in current debt obligations, and the funds we require to satisfy our RMB76,000,000 or $12,236,000
contributions to Sino-Top, we estimate that we must raise approximately $1,200,000 million to fund capital requirements and general corporate expenses for the next 12 months.

Our primary cash requirements are for the exploration and
acquisition of mining exploration properties and corporate and administrative
costs. At December 31, 2013, we had a working capital deficit of $5,622,503
(2012-$4,001,000). During the year ended December 31, 2013, we contributed $nil
(2012-$1,630,240) to Sino-Top for exploration purposes. For the year ended
December 31, 2013 we spent $1,265,377 (2012-$2,823,894) on operating activities.

During 2013, we received RMB900,000 or $146,141 relating to the
sale of our interest in Chifeng.In addition, in the third quarter of
2013, RMB400,000 or $64,880 was added to the costs in connection with the
Chifeng sale. As at December 31, 2013, RMB100,000 or $16,520 remained
outstanding. This balance was received on January 3, 2014.

During 2010, 2011 and 2012, we undertook, and we had defaulted
under the terms of a number of convertible note financings, as set forth below:

Asher Note Financing

During 2010, 2011 and 2012, we issued a series of unsecured
convertible promissory notes to Asher Enterprises, Inc. (Asher) for cash
consideration pursuant to securities purchase agreements. The notes issued to
Asher and the notes that matured are summarized in the following table:

40

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Date Repaidin Full /OutstandingPrincipal
    
    as ofIssue Date
    Amount
    Maturity
    12/31/13Repaid on06/18/2010
    $75,000
    03/21/2011
    01/24/2011Repaid on07/20/2010
    $45,000
    04/22/2011
    02/15/2011Repaid on11/09/2010
    $50,000
    08/11/2011
    05/27/2011Repaid on01/11/11
    $65,000
    10/13/11
    07/25/11Repaid on03/01/11
    $55,000
    12/02/11
    09/27/11Repaid on04/08/11
    $50,000
    01/12/12
    10/27/11Repaid on08/24/11
    $55,000
    05/29/12
    03/13/12Repaid on11/20/11
    $75,000
    09/05/12
    07/05/12Repaid on01/27/12
    $42,500
    Part III 10/30/12
    8/22/12Subject todeferralagreement03/15/12
    $51,000
    12/19/12
    (see below)Subject todeferralagreement05/16/12
    $42,500
    02/21/13
(see below)


The securities purchase agreements provide that, subject to
limited exceptions, the Company may not conduct an equity offering (including
debt convertible into equity) for 12 months following the note issuance date
without first providing Asher with a right of first refusal. In addition, the
notes, when outstanding, have the following attributes:

| | Interest accrues at a rate of 8% per annum (and any
      amount not paid when due bears interest at a rate of 22% per annum from
      the due date thereof until paid).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At any time during the period beginning on the date that
      is 180 days from the issue date, the notes are convertible into Common
      Stock, at the lenders option. The number of shares of Common Stock
      deliverable upon such conversion will be calculated by dividing the amount
      of the note that is being converted by 70 % of the average of the closing
      prices of the Common Stock for the three trading days with the lowest
      closing prices during the 10 trading days prior to the conversion. The
      notes contain anti-dilution protection such that the conversion price will
      be reduced to match the price of any Common Stock sold by the Company at a
      lower price than the conversion price. Upon a request for conversion, if
      the shares of Common Stock are not timely delivered, the Company will be
      subjected to a penalty at a rate of $2,000 per day for each day the
      Company fails to satisfy the Common Stock delivery obligations. The lender
      has agreed to restrict its ability to convert the notes and receive shares
      of Common Stock such that the number of shares of Common Stock owned by
      the lender and its affiliates in the aggregate after such conversion does
      not exceed 4.99% of the then total outstanding shares of Common Stock.
      Upon a default, all amounts are immediately due and payable.
| | The Company may not undertake certain actions without the
      holders consent, including among other things, that the Company may not,
      subject to limited exceptions, incur any additional debt, or sell, lease
      or otherwise dispose of a significant portion of its assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The lender has agreed to restrict its ability to convert
      the convertible promissory notes payable and receive shares of common
      stock such that the number of shares of common stock held by them and
      their affiliates in the aggregate after such conversion or exercise does
      not exceed 4.99% of the then issued and outstanding shares of common
      stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Several defaults occurred commencing in 2011 under the terms of
several Asher notes, including certain of the notes that we have since repaid,
as a result of which all amounts outstanding under our Asher notes become
immediately due and payable. However, pursuant to a letter agreement dated
November 29, 2012, as amended effective April 12, 2013, June 27, 2013, November
8, 2013 and March 25, 2014 between the Company and Asher, Asher has agreed that,
if the Company pays Asher $93,520 before a fixed time on June 30, 2014, such
payment will constitute payment in full of any and all obligations owing under
the convertible promissory notes issued to Asher by the Company and certain
other agreements between the parties (collectively, the Asher Documentation).
In consideration of the foregoing, Asher has agreed, through June 30, 2014, to
forbear from exercising any right or remedy under the Asher Documentation,
including without limitation any right to conversion, right to delivery of
shares, right to assignment, purchase right or any remedy arising as the result
of any default or event of default. The parties have also agreed to a mutual
release of claims, subject to and effective upon receipt and collection of the
payoff amount as set forth in the letter agreement. If such payoff amount is not
paid by June 30, 2014, Ashers agreements under such letter agreement shall be
deemed canceled.

41

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Tonaquint Note Financing

On February 15, 2011, the Company entered into a Note and
Warrant Purchase Agreement (the Purchase Agreement) with Tonaquint, Inc., a
Utah corporation (Tonaquint) whereby the Company issued and sold for cash, and
Tonaquint purchased: (i) a secured convertible promissory note of the Company in
the original principal amount of $2,766,000 (the Tonaquint Note) and (ii) a
warrant to purchase Common Stock of the Company (the Tonaquint Warrant). In
connection with the transaction, the Company also issued to Tonaquint 50,000
shares of Common Stock. The Purchase Agreement, the Tonaquint Note and the Buyer
Notes (defined below) are collectively referred to herein as the Original
Tonaquint Agreements.

The original principal amount of the Tonaquint Note was
$2,766,500 (Maturity Amount) and the Tonaquint Note is due 48 months from the
issuance date of February 15, 2011. The Tonaquint Note has an interest rate of
5.5% per annum. The total amount funded (in cash and notes) at closing was
$2,500,000, representing the Maturity Amount less an original issue discount of
$251,500 and the payment of $15,000 to Tonaquint to cover its fees, with payment
consisting of $500,000 in cash advanced at closing and $2,000,000 in a series of
ten secured notes with interest rates of 5% described in more detail below. The
Company also has the right to offset the payment of any of these notes and not
receive payment for such notes or be obligated to pay such portion of the notes,
subject to certain conditions and obligations.

Beginning six months after closing, Tonaquint has the right to
convert, subject to restrictions described in the Tonaquint Note, all or a
portion of the outstanding amount of the Tonaquint Note that is eligible for
conversion into shares of the Companys Common Stock. The number of common
shares delivered to Tonaquint upon conversion will be calculated by dividing the
amount of the Tonaquint Note that is being converted by the market price of the
Common Stock, which is defined as 70% of the average of the volume
weighted-average prices (VWAP) of the Common Stock for the three trading days
with the lowest VWAPs during the 10 trading days prior to the conversion. The
Company recognized $nil (2012 - $565,714) as the beneficial conversion feature
and recorded interest of $363,922 (2012-$247,397) and loss on settlement of $nil
(2012-$670,557) during the year. The beneficial conversion feature was being
amortized over the period ending February 15, 2015.

Tonaquint also received a warrant to purchase 8.6 million
shares of Common Stock of the Company at an exercise price of US$0.50 per share
at any time within three years after February 15, 2011. The Tonaquint Warrant
also contains a net exercise provision. The warrants were initially valued at
$242,090 representing the relative fair value allocation of the warrants. The
warrants are being charged to interest expense over the term of the secured
convertible note payable and amounted to $nil (2012 - $58,000) and a loss on
settlement of $nil (2012-$131,132) in the year. The warrants expired on February
15, 2014.

Each of the Tonaquint Note and the Tonaquint Warrant contain a
provision such that Tonaquint shall not be permitted to hold, by virtue of
payment of interest or principal under the Tonaquint Note or conversion of the
Tonaquint Note or the exercise of the Tonaquint Warrant, a number of shares of
Common Stock exceeding 9.99% of the number of shares of the total Common Stock
outstanding on such date (the 9.99% Cap). The Company shall not be obligated
and shall not issue to Tonaquint shares of its Common Stock which would exceed
the 9.99% Cap, but only until such time as the 9.99% Cap would no longer be
exceeded by any such receipt of shares of Common Stock by Tonaquint.

Tonaquints obligation to pay the balance of the purchase price
of the Tonaquint Note is evidenced by 10 Secured Buyer Notes (Buyer Notes).
Each Buyer Note is in the principal amount of $200,000. Three of the Buyer Notes
are secured by a trust deed (Trust Deed) encumbering a parcel of real estate
with improvements in the State of Utah, which is owned by Tonaquint (the Real
Estate). The Company has received a first priority lien and security interest
in the Real Estate by virtue of the Trust Deed to be recorded in the county
office where the Real Estate is located. Prior to the execution of the Tonaquint
Amendment (defined below), each Buyer Note was due and payable on or before the
earlier of (i) 49 months from February 15, 2011, or (ii) subject to certain
conditions described in each Buyer Note, a date beginning on September 15, 2011
for the first Buyer Note, October 15, 2011 for the second Buyer Note and so
forth on the 15thof each subsequent month thereafter for each
subsequent Buyer Note.

On June 10, 2011,the Company entered into an amendment
to the Original Tonaquint Agreements. Under this amendment, Tonaquint agreed to
accelerate payment of a portion of the amounts payable to the Company under the
first and second Buyer Notes. The aggregate amount Tonaquint paid in respect
thereto was $271,562, which the parties agreed was in full satisfaction of the
aggregate principal amount owing under such notes of $400,000. The effect of
this amendment was that the Company agreed to repay when due the full amount of
the corresponding portion of the Tonaquint Note, which is $440,000, even though
the Company only received $271,562 in respect thereof.

42

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On January 31, 2012, Tonaquint and the Company entered into a
second amendment to the Original Tonaquint Agreements. Under this amendment,
Tonaquint agreed to accelerate payment of a portion of the amounts payable to
the Company under the third, fourth, fifth, sixth, seventh (collectively, Buyer
Notes 3-7) and eighth Buyer Notes. The aggregate amount Tonaquint paid in
respect thereto was $800,000, which was in full satisfaction of the aggregate
principal amount of $1,142,857 collectively owing under the following: the full
amount owing under Buyer Notes 1-7; and a portion of the amount owing under the
eighth Buyer Note. The effect of this amendment was that the Company agreed to
repay when due the full amount of the corresponding portion of the Tonaquint
Note, which is $1,142,857. This amount would equal the sum of the principal
amount of Notes 3-7, plus the portionof the principal amount the Company
owed under note 8, even though the Company only received $800,000 from Tonaquint
in respect thereof.

As of December 31, 2012, we had received $1,200,000 in funds
under the Buyer Notes, and the outstanding unfunded balance was $300,000. As of
March 19, 2014, we had received $1,320,000 in funds under the Buyer Notes and
the outstanding unfunded balance was $nil. In accordance with the letter
agreement signed December 20, 2012, this balance has been offset against the
convertible notes payable outstanding. There can be no assurance that the
Company will ever receive any funds from Tonaquint under the remaining unfunded
Buyer Notes.

The Buyer Notes each contain various events of default related
to payment, certain covenants and bankruptcy events. The Trust Deed (and lien of
the Company on the Real Estate) will be released upon the first to occur of: (i)
written notice from the Company that the full amount of the Buyer Notes has been
repaid, or (ii) the date that is six months and three days following the date
the Trust Deed is recorded (or such longer period as indicated in a written
notice from Tonaquint) (the Release Date). The termination of the Trust Deed
may be delayed if the Buyer Notes are then in default. The instruments needed to
release the Trust Deed, specifically the Request for Reconveyance and the Deed
of Reconveyance will be held in escrow by an appointed escrow agent, under the
terms of the Escrow Agreement dated February 15, 2011, by and among the
parties.

The Tonaquint Note, the Tonaquint Warrant, the Buyer Notes, the
Escrow Agreement, the Trust Deed, the Request for Reconveyance, and the Company
Security Agreement were each delivered pursuant to the terms of the Purchase
Agreement. The Purchase Agreement contains representations and warranties of the
Company and Tonaquint that are customary for transactions of this kind. The
Purchase Agreement contains certain penalties and damages in the event Tonaquint
is unable to sell shares of the Companys Common Stock under Rule 144 because
the Company is not current in regards to its required reports under the Exchange
Act, or if the Company fails to timely deliver (generally within five business
days) any shares of Common Stock issuable to Tonaquint upon conversion of the
Tonaquint Note or exercise of the Tonaquint Warrant.

On March 1, 2011, the Company defaulted on terms of the secured
convertible note payable which required the Company to file with the SEC in a
timely manner all required reports. Consequently, the secured convertible note
payable and the secured buyer notes receivable would be permitted to be offset
at the option of the lender and the default interest of 12% per annum would
apply to the outstanding balance. Also, upon written notice the entire
outstanding balance would be immediately due and payable.

On July 16, 2012, the Company entered into a forbearance
agreement with Tonaquint to commence the settlement process of certain notes
receivable and convertible promissory notes payable. As part of the forbearance
agreement, Tonaquint agreed to forbear from selling the Companys shares until
September 15, 2012 in exchange for an increase in principal of 5% and the
ability to prepay the remaining balance of note 8.

On October 4, 2012, the Company agreed with Tonaquint to redeem
the outstanding balance on a note 9 with two payments of $30,000 subject to
certain conditions. $30,000 of the note receivable was redeemed and the
remaining balance was not paid, due to the conditions not being met. In
addition, the Company entered into a forbearance agreement to commence the
settlement process of certain notes receivable and convertible promissory notes
payable.

On December 19, 2012, the Company entered into a payoff
agreement and as a result of the agreement the secured buyer notes receivable
were offset against the secured convertible promissory note payable.

43

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During the year ended December 31, 2012, $513,944 of principal
for the Tonaquint note was repaid in shares.

On June 3, 2013, the Company entered into an amendment to the
original agreements which consist of the note and warrant purchase agreement
dated February 15, 2011 with the lender, secured convertible promissory note of
the Company in the principal amount or $2,766,500, 10 secured notes in favor of
the Company (each, a Buyer Note) and a warrant to purchase common stock of the
Company. Under the amendment, the lender agreed to accelerate payment of a
portion of the amounts payable to the Company under the tenth Buyer Note. The
aggregate amount the lender agreed to accelerate was $120,000 (the Payoff
Amount), which the parties agreed was satisfaction in full of the aggregate
principal amount owing under the tenth Buyer Note of $200,000. The Company and
the buyer agreed that the amount, $120,000, once paid to the Company, will
become a conversion eligible tranche under the Buyer Note in the amount of
$220,000 plus interest and other amounts accrued under the Buyer Note.

The Payoff Amount was payable in two installments. The first
payment of $60,000 was paid upon execution of the amendment of June 3, 2013. If
the Company met all of the second payment conditions at any time during the
period beginning July 3, 2013 and continuing until November 30, 2013, the lender
would pay the second payment of $60,000. Although the Company had not yet met
all of the second payment conditions, the lender agreed to advance the second
payment of $60,000 on August 2, 2013 and the Company received such payment.

In addition, pursuant to a letter agreement dated December 20,
2012, as amended effective April 12, 2013, August 7, 2013, November 13, 2013 and
November 27, 2013, between the Company and Tonaquint, Tonaquint has agreed that,
if the Company pays Tonaquint $2,500,000 on or before a fixed time on March 31,
2014, such payment will constitute payment in full of any and all obligations
due and owing to Tonquint under the convertible note issued to Tonaquint and
certain other agreements between the parties (collectively, the Tonaquint
Documentation). In consideration of the foregoing, Tonaquint has agreed,
through March 31, 2014, to forbear from exercising any right or remedy under the
Tonaquint Documentation, including without limitation any right to conversion,
right to delivery of shares, right to assignment, purchase right or any remedy
arising as the result of any default or event of default. If such payoff amount
is not paid by March 31, 2014, Tonaquints agreements under such letter
agreement shall be deemed canceled. The parties have also agreed to a mutual
release of claims.

On March 27, 2014 Tonaquint agreed to replace reference to the
Payoff Amount and accept an amount equal to $2,750,000, so long as such payment
is made on or before June 30, 2014. All other terms and conditions of the payoff
letter remain in full force and effect.

Gel Properties Note Financing

2011 Gel Financing

On April 11, 2011, the Company issued two convertible
promissory notes to Gel Properties, LLC (Gel) in the amounts of $100,000 and
$300,000, respectively, and on December 15, 2011, the Company issued two
convertible promissory notes to Gel in the amounts of $150,000 and $250,000,
respectively. Each note was issued at a 4% original issue discount. The notes
bear interest at a rate of 6% per annum (with interest payable in Common Stock)
and mature two years from the respective issue dates. The notes contain standard
events of default, and in the event of a default, the notes accrue interest at
24% per annum. The notes are convertible, at the lenders option, into shares of
Common Stock. The number of shares of Common Stock deliverable upon such
conversion will be calculated by dividing the amount of the note that is being
converted by 70% of the lowest closing bid price of the Common Stock for any of
the four trading days prior to and including the date of the requested
conversion.

The agreement was amended on October 12, 2011, and as a result
$200,000 was paid on October 14, 2011 and the remaining $100,000 was paid on
November 15, 2011. On December 15, 2011 an additional promissory note was issued
for $250,000, bearing interest at 6% per annum and secured by assets pledged as
collateral. $125,000 of principal under this note shall be due and payable on
June 15, 2012 and the balance of $125,000 of principal and accrued interest
shall be due and payable on August 1, 2012.

The Company has the option to redeem the notes and, in such
case, pay to the holder 150% of the unpaid principal amount (which may be paid
in Common Stock, at the request of the holder). In the event of certain
fundamental transactions involving the Company (including, but not limited to, a
merger or sale of all or substantially all of the Companys assets), the Company
must, if requested by the holder, redeem the notes on the terms set forth in
foregoing sentence.

While the notes are in effect, if the Company grants more
favorable terms in a debt or convertible debt financing of less than $500,000
with regard to discount rate, interest rate or warrant coverage (or a similar
equity booster arrangement), then the notes will be adjusted to give the holder
the benefit of such enhanced treatment.

On April 19, 2011, the Company defaulted on terms of the
convertible redeemable note payable which required the Company to maintain a
dollar trading volume greater than $75,000 in any five trading days. On October
12, 2011 the Company entered into an amendment to change the amount of trading
volume to be $50,000 in any five trading days. The note issued on October 12,
2011 was paid on February 28, 2012.

2012 Gel Financings

On February 10, 2012, the Company issued a convertible
redeemable note payable in the principal amount of $150,000. As consideration
the Company received cash. The unsecured convertible redeemable note payable
bears interest at the rate of 6% per annum and is due February 10, 2014. On
February 10, 2012, the Company defaulted on certain terms of the convertible
redeemable note payable which required the Company to reserve a bank of
12,000,000 shares. The default called for an increase to the interest rate from
6% to 24% per annum.

On February 10, 2012, the Company issued a convertible
redeemable note payable in the principal amount of $200,000. As consideration
the Company received a promissory note receivable. The unsecured convertible
redeemable note payable bears interest at the rate of 6% per annum and is due
February 10, 2014. On February 10, 2012, the Company defaulted on certain terms
of the convertible redeemable note payable which required the Company to reserve
a bank of 12,000,000 shares. The default called for an increase to the interest
rate from 6% to 24% per annum.

Each of the foregoing two convertible redeemable note payables
is convertible into common stock, at the lenders option at a 30% discount on
the lowest close bid price during any four trading days prior to and including
the day of conversion. The Company recognized $nil (2012 - $150,000) as the
beneficial conversion feature and recorded interest expense of $nil (2012 -
$234,606) and loss on settlement of $nil (2012-$63,288) during the year. The
beneficial conversion feature is being amortized over the term of the
convertible redeemable notes.

Each also reflected an original issue discount of 4% which the
Company recorded as deferred financing costs in the amount of $nil (2012 -
$14,000). In addition the Company incurred transaction costs of $nil (2012 -
$nil) which were capitalized to deferred financing costs. The deferred financing
costs were being charged to interest expense over the term of the convertible
redeemable notes payable and amounted to $nil (2012 - $21,411) and a loss on
settlement of $nil (2012-$14,972) in the year.

44

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Gel Deferral Agreements

Pursuant to a letter agreement dated December 6, 2012, as
amended effective April 10, 2013, July 30, 2013, November 8, 2013 and March 25,
2014 between the Company and Gel, Gel has agreed that, if the Company pays Gel
$271,520 by the earlier of (i) the closing of a sale of all or substantially all
of the assets of the Company or a merger or acquisition of the Company or (ii) a
fixed time on June 30, 2014 (as applicable, the Gel Payoff Date), such payment
will constitute payment in full of any and all obligations due and owing to Gel
under the convertible promissory notes issued to Gel by the Company and certain
other agreements between the parties (collectively, the Gel Documentation). In
consideration of the foregoing, Gel has agreed, through the Gel Payoff Date, to
forbear from exercising any right or remedy in respect of the Gel Documentation,
including without limitation any right to conversion, right to delivery of
shares, right to assignment, purchase right or any remedy arising as the result
of any default or event of default. If such payoff amount is not paid by the Gel
Payoff Date, Gels agreements shall be deemed canceled. The parties have also
agreed to a mutual release of claims.

In addition, as a result of the letter agreement dated December
6, 2012, as amended, the promissory notes receivable were offset against the
convertible redeemable notes payable.

Initial Note from JMJ

On April 19, 2011, the Company issued an uncollateralized
convertible promissory note to JMJ Financial (JMJ) in the principal amount of
$1,050,000 for consideration of $1,000,000 under the following cash payment
schedule: $250,000 is payable (and was received) following execution of the
promissory note; $150,000 is payable (and was received) following the filing of
the registration statement we were obligated to file covering the Common Stock
issuable upon conversion of the note (we filed such registration statement on
May 10, 2011); $100,000 is payable (and was received) following effectiveness of
such registration statement (the registration statement was declared effective
on May 19, 2011); $250,000 is payable within 120 days of such effectiveness (as
of December 31, 2011, we had received $125,000 of the $250,000) (the Third
Tranche); and $250,0000 is payable within 180 days of such effectiveness (the
Fourth Tranche and together with the Third Tranche, the Last Tranches). Each
of the foregoing payments was conditioned upon the satisfaction, at the time of
each payment interval, of the following conditions:



| | The then applicable JMJ Conversion Price (defined below)
      must equal or exceed $0.0919;                                                                                                                                                                                   
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There must then be an adequate number of shares remaining
      under the aforementioned registration statement to cover any unconverted
      amounts previously paid in, as well as the payment being contemplated;                                                          
| | The total dollar trading volume of the Common Stock for
      the previous 23 trading days (after removing the three highest dollar
      volume days and then summing the dollar value for the remaining 20 trading
      days) must be equal to or greater than $750,000; and
| | There shall not then be an event of default under any
      agreements between the Company and JMJ.                                                                                                                                                                            

As of December 31, 2012, we had received a total of $625,000 of
the $1,000,000 in potential funds under this note. On April 25, 2012, the
Company entered into an amendment to cancel the remaining amount of $375,000.

The note matures on April 19, 2014. The note is subject to a 5%
one-time interest charge payable at maturity. The principal and interest may be
converted, at the election of the holder, into that number of shares of Common
Stock equal to the then outstanding principal amount of the note divided by 75%
of the average of the three lowest closing prices in the 20 trading days prior
to the conversion (JMJ Conversion Price). Notwithstanding the foregoing, JMJ
may not convert an amount of the notes into Common Stock that would result in
JMJ owning more than 4.99% of the then total outstanding Common Stock. Upon a
request by JMJ for conversion, if the shares of Common Stock are not timely
delivered or if the Company does not timely deliver instructions to its transfer
agent in respect thereto, the Company will be subjected to a penalty at a rate
of $2,000 per day for each day the Company fails to satisfy each of the
foregoing.

The note was repaid in shares, as follows:



|               |  | **Conversion** |  |  | **Conversion** |  |  |           |  |  |                       |  |  | **shares**          | 
|-------------- |  | -------------- |  |  | -------------- |  |  | --------- |  |  | --------------------- |  |  | ------------------- | 
|**Conversion** |  | **Amount**     |  |  | **Amount**     |  |  |           |  |  | **Conversion**        |  |  | **Number
      of** | 
|**Date**       |  | **Principal**  |  |  | **Interest**   |  |  | **Total** |  |  | **Stock
      Price** |  |  |                     | 
|31-May-11      |  | 20,719         |  |  |                |  |  | 20,719    |  |  | 0.0829                |  |  | 250,000             | 
|8-Jul-11       |  | 38,925         |  |  |                |  |  | 38,925    |  |  | 0.0779                |  |  | 500,000             | 
|14-Jul-11      |  | 46,035         |  |  |                |  |  | 46,035    |  |  | 0.0767                |  |  | 600,000             | 
|23-Aug-11      |  | 62,269         |  |  |                |  |  | 62,269    |  |  | 0.0830                |  |  | 750,000             | 
|31-Aug-11      |  | 60,188         |  |  |                |  |  | 60,188    |  |  | 0.0803                |  |  | 750,000             | 
|7-Sep-11       |  | 37,613         |  |  |                |  |  | 37,613    |  |  | 0.0752                |  |  | 500,000             | 
|16-Sep-11      |  | 32,625         |  |  |                |  |  | 32,625    |  |  | 0.0653                |  |  | 500,000             | 
|22-Nov-11      |  | 59,963         |  |  |                |  |  | 59,963    |  |  | 0.0400                |  |  | 1,500,000           | 
|14-Dec-11      |  | 33,750         |  |  |                |  |  | 33,750    |  |  | 0.0338                |  |  | 1,000,000           | 
|09-Jan-12      |  | 69,750         |  |  |                |  |  | 69,750    |  |  | 0.0279                |  |  | 2,500,000           | 
|01-Feb-12      |  | 4,328          |  |  |                |  |  | 4,328     |  |  | 0.0433                |  |  | 100,000             | 
|09-Feb-12      |  | 40,800         |  |  |                |  |  | 40,800    |  |  | 0.0408                |  |  | 1,000,000           | 
|21-Feb-12      |  | 66,113         |  |  |                |  |  | 66,113    |  |  | 0.0323                |  |  | 2,050,000           | 
|29-Feb-12      |  | 30,975         |  |  |                |  |  | 30,975    |  |  | 0.0310                |  |  | 1,000,000           | 
|09-Mar-12      |  | 20,134         |  |  | -              |  |  | 20,134    |  |  | 0.0310                |  |  | 650,000             | 
|14-Mar-12      |  | 816            |  |  | 64,063         |  |  | 64,879    |  |  | 0.0310                |  |  | 2,094,552           | 
|               |  | 625,000        |  |  | 64,063         |  |  | 689,063   |  |  |                       |  |  | 15,744,552          | 

45

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On June 23, 2011, the Company defaulted on the terms of the
note, which required the Company to be able to settle equity transactions
electronically with DWAC/FAST. As a result of the Companys default, all
outstanding amounts under the note became immediately due and payable, although
the Company and JMJ have entered into an agreement deferring payment for a
limited period of time (see JMJ Deferral Agreements below).

Exchange of Notes between JMJ and the Company

On each of April 20, 2011, September 21, 2011 and April 26,
2012, the Company issued a $525,000 convertible promissory note to JMJ
(collectively, the Additional Notes). In exchange therefor and in
consideration thereof, the Company issued to JMJ the Reciprocal JMJ Notes
(defined below). Accordingly, as the Reciprocal JMJ Notes were issued as the
sole consideration for the Additional Notes, the Company did not receive (and,
to date, has not received) any cash upon the issuance of the Additional Notes.
The Additional Notes bear interest in the form of a one-time interest charge of
5.00% . Principal and interest on each Additional Note is payable on the
respective maturity date, which is three years from the date of the Additional
Notes issuance date. Each Additional Note is also payable on demand in an
amount not to exceed the cash amount paid in by JMJ towards the applicable
Reciprocal JMJ Note.

As at December 31, 2012 the principal amount of $1,197,615
remained outstanding. In accordance with the letter agreement signed December
13, 2012, the note receivable balance was offset against the convertible
promissory note balance.

All or a portion of each Additional Notes principal and
interest is convertible, at the option of the JMJ, into that number of shares of
Common Stock equal to the then outstanding principal amount of the Additional
Note divided by the JMJ Conversion Price. However, conversions of the Additional
Notes are only available after JMJ has paid in cash to the Company under the
applicable Reciprocal JMJ Note or has surrendered the collateral underlying such
Reciprocal JMJ Note. Notwithstanding the foregoing, JMJ may not convert an
amount of the Additional Notes into Common Stock that would result in JMJ owning
more than 4.99% of the total outstanding Common Stock. Upon a request by JMJ for
conversion, if the shares of Common Stock are not timely delivered or if the
Company does not timely deliver instructions to its transfer agent in respect
thereto, the Company will be subjected to a penalty at a rate of $2,000 per day
for each day the Company fails to satisfy each of the foregoing.

46

---

Concurrently with the issuance of the Additional Notes, on each
of April 20, 2011, September 21, 2011 and April 26, 2012, JMJ issued and
delivered to the Company secured and collateralized promissory notes (the
Reciprocal JMJ Notes), which served as the sole consideration to the Company
for the Companys issuance of the Additional Notes. The Reciprocal JMJ Notes are
each in the principal amount of $500,000 and bear interest in the form of a
one-time interest charge of 5.25% . Principal and interest on each Reciprocal
JMJ Note is payable to the Company on the maturity date, which is three years
from the date of the Reciprocal JMJ Notes issuance. Each Reciprocal JMJ Note is
secured by JMJ assets in the form of money market fund or other assets having a
value of at least $500,000. While no principal or interest payments are required
until the maturity date of each Reciprocal JMJ Note, the Reciprocal JMJ Notes
state that JMJ plans to make payments in total bimonthly amounts of $200,000
beginning 210 days from the date of issuance of the Reciprocal JMJ Note. The
terms further provide that any payments that may be made prior to maturity shall
be on a best efforts basis by JMJ, and JMJ does not guarantee that it will make
any payments prior to maturity. There can be no assurance that we will ever
receive any funds from JMJ under the remaining unfunded Additional Notes.

For each of the Additional Notes, (1) the Company recorded
deferred financing costs in the amount of $nil (2012 -$25,000) representing the
difference between the face value of the secured convertible note payable and
the consideration provided and (2) the Company incurred transactions costs of
$nil (2012 - $nil), which were capitalized to deferred financing costs. The
deferred financing costs are being charged to interest expense over the term of
the secured convertible note payable and the Company recorded interest expense
of $nil (2012 - $38,927) and a loss on settlement of $nil (2012-$139,023) during
the year.

On June 23, 2011, the Company defaulted on the terms of the
April 20, 2011 Additional Note, and upon their issuance, the Company defaulted
on the terms of the September 21, 2011 and April 26, 2012 Additional Notes. The
default occurred due to the Company becoming unable to settle equity
transactions electronically with DWAC/FAST. As a result of the Companys
default, all outstanding amounts under the note became immediately due and
payable, although the Company and JMJ have entered into an agreement deferring
payment for a limited period of time, as discussed below.

JMJ Deferral Agreements

On July 16, 2012, the Company entered into a standstill
agreement to commence the settlement process of certain notes receivable and
convertible promissory notes payable. As a result, JMJ agreed to not convert any
amount of the notes issued by the Company into common stock for the period
between July 20, 2012 and September 15, 2012 and not to sell any common stock of
the Company until September 15, 2012.

Pursuant to a letter agreement dated December 13, 2012, as
amended effective April 9, 2013, August 7, 2013, November 8, 2013 and March 25,
2014 between the Company and JMJ, JMJ has agreed that, if the Company pays JMJ
$204,104 on or before a fixed time on June 30, 2014, such payment will
constitute payment in full of any and all obligations due and owing to JMJ under
the convertible notes issued to JMJ by the Company and certain other agreements
between the parties (collectively, the JMJ Documentation). In consideration of
the foregoing, JMJ has agreed, through June 30, 2014, to forbear from exercising
any right or remedy in respect of the JMJ Documentation, including without
limitation any right to conversion, right to delivery of shares or any remedy
arising as the result of any default or event of default. If such payoff amount
is not paid by June 30, 2014, JMJs agreements shall be deemed canceled. The
parties have also agreed to a mutual release of claims.

Summary of Status of Outstanding Notes

Although certain of the debt obligations under the outstanding
notes described above have long term maturity dates, such debts became currently
due and payable, or payable upon demand, as a result of our breach of various
applicable covenants. However, the aforementioned deferral agreements generally
provide that, if we are able to pay an aggregate of $3,319,144 to the lenders by
June 30, 2014 , such payments will constitute payment in full of any and all
obligations due and owing under our outstanding promissory notes owed to these
lenders. There can be no assurances that we will be able to make any or all of
such payments or obtain further extensions prior to the expiry of such deadline.
If we are unable to do so, we will be in default under some or all of the notes.

Potential Transaction with Investor

In 2013, the Company began to engage in discussions with an
investor based in China, Man Kwan Fong, regarding a potential transaction that,
if completed, would have involved the investor making a secured loan to the
Company and taking over control of the management and board of directors of the
Company. In November and December 2013, the Company received advances totaling
$1,069,279 from the investor; however, the parties have not resolved definitive
agreements, nor has the investor funded the remaining amounts required to
complete the initial closing. Due to funding delays by the investor and changes
in the investors offer, the
Companys board of directors has determined not to proceed with the contemplated
transaction. The Company is seeking to resolve the treatment of the initial
$1,069,279 with the investor, and may be required to return such funds, with or
without interest, to the investor.

Loan Facility with Travellers International Inc.

47

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On November 19, 2012, by resolution and without a written
agreement, the Companys board of directors approved a loan facility pursuant to
which Travellers International Inc., an Ontario corporation (Travellers), a
company controlled by the Companys President, Chief Executive Officer and
Principal Financial and Accounting Officer, Marc Hazout, has made certain
historical loans to or for the benefit of the Company and may in the future make
future loans to or for the benefit of the Company. The board of directors
resolved (1) to treat all historical loans, and any potential future loans, as
unsecured, due on demand and non-interest bearing and (2) to retain the
discretion to terminate its prospective approval of potential future loans at
any time. The amounts loaned by Travellers and repaid by the Company through to
March 31, 2014, in Canadian dollars are as follows:

|Date             | LoanAmountAdvanced | LoanAmountRepaid
|---------------- | ------------------ | ----------------
|                 |                    |                 
|August15,2012    | 4,000.00           |                 
|August16,2012    |                    | 4,000.00        
|August17,2012    | 1,000.00           |                 
|August21,2012    | 4,600.00           |                 
|August23,2012    |                    | 5,600.00        
|September27,2012 | 5,000.00           |                 
|September27,2012 | 15,000.00          |                 
|October4,2012    | 5,000.00           |                 
|October18,2012   |                    | 3,000.00        
|November1,2012   | 52,000.00          |                 
|November15,2012  | 6,000.00           |                 
|November19,2012  | 8,500.00           |                 
|November22,2012  | 2,000.00           |                 
|November28,2012  | 29,500.00          |                 
|December6,2012   | 50,000.00          |                 
|December14,2012  | 10,000.00          |                 
|December18,2012  | 8,000.00           |                 
|January15,2013   | 3,000.00           |                 
|January18,2013   | 2,000.00           |                 
|February4,2013   | 2,000.00           |                 
|February15,2013  | 3,000.00           |                 
|February20,2013  | 6,500.00           |                 
|March1,2013      | 7,500.00           |                 
|March5,2013      | 2,500.00           |                 
|March28,2013     | 28,500.00          |                 
|April2,2013      | 12,000.00          |                 
|April12,2013     | 17,000.00          |                 
|April15,2013     | 1,000.00           |                 
|April30,2013     | 29,000.00          |                 
|June4,2013       | 6,000.00           |                 
|June4,2013       |                    | 6,000.00        
|July2,2013       | 6,500.00           |                 
|July15,2013      | 1,500.00           |                 
|July15,2013      | 1,000.00           |                 
|July22,2013      |                    | 1,000.00        
|July25,2013      | 1,000.00           |                 
|August7,2013     |                    | 1,500.00        
|August16,2013    | 50,000.00          |                 
|September3,2013  | 8,000.00           |                 
|September3,2013  | 1,000.00           |                 
|September12,2013 |                    | 8,000.00        
|September16,2013 | 1,000.00           |                 
|October1,2013    | 9,000.00           |                 
|October24,2013   | 2,000.00           |                 
|October25,2013   |                    | 2,000.00        
|December31,2013  |                    | 370,500.00      
|March24,2014     | 10,000.00          |                 

As of December 31, 2013, there was no balance owing on the
loans because $370,500 (CAD) or $334,870 based on the noon exchange rate reported by the Bank of Canada on March 28, 2014 of the amounts advanced by the Chinese investor
  on December 31, 2013 were used to repay Travellers. As of March 31, 2014, the
  amount owing to Travellers was $10,000 (CAD) or $9,038 based on the noon exchange rate reported by the Bank of Canada on March 28, 2014.

2013 Equity Issuances

There were no equity issuances in 2013.

Going Concern

Our consolidated financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

At December 31, 2013, the Company had a working capital deficit
of $5,622,503 (December 31, 2012 $4,001,000), had not yet achieved profitable
operations, incurred a net loss of $2,907,682 for the year ended December 31,
2013 (2012  $5,239,185), has accumulated losses of $48,197,148 since its
inception and expects to incur further losses in the development of its
business. These factors cast substantial doubt as to the Companys ability to continue as a
going concern, which is dependent upon its ability to obtain the necessary
financing to repay liabilities when they come due, and in the long-run is
dependent upon achieving profitable operations. Management has been unable to
secure additional financing to meet its cash requirements, including ongoing
working capital, cash contributions for its equity investment and
funds to repay all or certain of its convertible note holders. There is no
assurance of additional funding in any form, being available or available on
acceptable terms. In addition, the Company received
extensions of its obligations to repay the convertible note holders from a date
of March 31, 2014 to June 30, 2014. Further,  the Company
has forbearance agreements in place with its convertible note holders. If
management is unable to secure additional funding and/or extend the payoff date
for its convertible note obligations beyond June 30, 2014, the Company may be forced to dilute its
equity investment which will occur if it is not able to make the required
contributions in the amounts and dates as specified by the Sino-Top board of
directors or may ultimately have to file for bankruptcy. Realization values may
be substantially different from carrying values as shown. The consolidated
financial statements do not include any adjustments to reflect the future
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result if the Company were unable to
continue as a going concern.

48

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Item 7A.Quantitative and Qualitative Disclosures about
Market Risk

Not applicable

Item 8. Financial Statements and Supplementary Data

The financial statements required by this Item, the
accompanying notes thereto and the reports of independent accountants are
included, as part of this Form 10-K immediately following the signature page.

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

None.

Item 9A.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our senior
management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period
covered by this annual report (the Evaluation Date). Based on this evaluation,
Marc Hazout, our chief executive officer and principal financial officer,
concluded as of the Evaluation Date that such disclosure controls and procedures
were not effective as of the Evaluation Date. Such conclusions were based on our
missing a Form 8-K during the fourth quarter, and certain other filings being
made late or with errors earlier in 2013.

Report by Management on Internal Control over Financial
Reporting

49

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Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act. The framework used by management
to evaluate internal controls over financial reporting is Internal Control 
Integrated Frameworkissued by the Committee of Sponsoring Organizations
(COSO), as implemented by their subsequent publication Internal Control over
Financial Reporting  Guidance for Smaller Public Companies.Based on this
evaluation, Marc Hazout, our chief executive officer and principal financial
officer, concluded that our internal control over financial reporting was not
effective as of December 31, 2013 due to the weaknesses referred to above under
Evaluation of Disclosure Controls and Procedures and due to inadequate
financial staffing.

Changes in internal controls

There were no changes to the Companys internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during our fourth fiscal quarter ended December 31, 2013
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

Item 9B.Other Information

The Company failed to report on Form 8-K the advances made by
Man Kwan Fong, as further described in Item 1.

Part III

Item 10. Directors, Executive Officers, and Corporate
Governance

Directors and Executive Officers

Information about our directors and executive officers as of
March 31, 2014 is set forth below:



|            |     |                                           | Date of first election or
|----------- | --- | ----------------------------------------- | -------------------------
|            | Age | Position                                  | appointment              
|Name        |     |                                           |                          
|            |     |                                           |                          
|Executive   |     |                                           |                          
|Officers    |     |                                           |                          
|            |     |                                           |                          
|Marc Hazout | 49  | Chief
      Executive Officer, President, | May 31, 2002             
|            |     | Principal Financial and Accounting        |                          
|            |     | Officer and Director                      |                          
|            |     |                                           |                          
|            |     |                                           |                          
|Directors   |     |                                           |                          
|Manuel Chan | 64  | Director                                  | August 7, 2007           
|Charles     | 80  | Director                                  | September 28, 2010       
|McAlpine    |     |                                           |                          
|R.Glen      | 44  | Director                                  | December 6, 2007         
|MacMullin   |     |                                           |                          
|Haijun Tang | 40  | Director                                  | April 9, 2013            

A brief biography of our directors and executive officers
follows. Each director has been elected to serve until our next annual meeting
of shareholders and until his successor has been elected and qualified. Each
executive officer serves at the discretion of our board of directors.

Mr. Marc Hazout,age 49, founded Silver Dragon Resources
Inc. and currently serves as a Director, President, CEO and Principal Financial
and Accounting Officer . Mr. Hazout brings over 15 years of experience in public
markets, finance and business operations to Silver Dragon Resources Inc. Over
the past several years, Mr. Hazout has been involved in acquiring, restructuring
and providing management services as both a director and an officer to several
publicly traded companies. In 1998, Mr. Hazout founded and has been President
and CEO of Travellers, a private investment banking firm headquartered in
Toronto. Over the past few years, Travellers has focused on building
relationships in China with the objective of participating in that countrys
growth opportunities. Mr. Hazout attended York University in Toronto studying
International Relations and Economics. Mr. Hazout speaks English, French, Hebrew
and Arabic as well as some Spanish and Italian. The determination was made that
Mr. Hazout should serve on our Board of Directors due to the fact that he is a
founding member and CEO of the company, possesses significant experience in
securities and capital markets and brings an extensive network of relationships
in China.

50

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Mr. Manuel Chan, age 64, is a real estate agent and has
over 20 years of experience in this field. He holds a Bachelor of Commerce
Degree in Management Information Systems and Accounting from the University of
British Columbia, Canada. Through his business dealings, Mr. Chan has
established an extensive network of business and personal relationships
throughout the Hong Kong and China investment community. Mr. Chan is also a
member of the Board of Directors of Sino-Top, of which Silver Dragon owns a 40%
equity interest. The determination was made that Mr. Chan should serve on our
Board of Directors due to his experience and extensive professional
relationships in China.

Mr. Charles McAlpine, age 80 and retired for the last 7
years, brings over 50 years of experience at executive-level positions in the
mining industry. He holds a Business Administration degree from The Ivey School,
University of Western Ontario and is a Chartered Accountant. Mr. McAlpine was
President of Campbell Chibougamau Mines Ltd., (a listed Canadian copper-gold
mining company) in 1973 when Campbell won The Ryan Trophy for Best Safety Record
of all metalliferous mines in Canada. From 1989 to 2007 he was a Director of
Hecla Mining Company, now the largest and one of the lowest cost silver
producers in the USA. The determination was made that Mr. McAlpine should serve
on our Board of Directors due to his understanding of the precious metals
industry, his financial background and qualifications and his extensive
experience in the mining sector.

Mr. Glen MacMullin,age 44, is currently Senior Vice
President, Asset Management with Minto Group, an integrated real estate
development, construction and management company. Prior to joining Minto Group
in 2008, he was a Managing Director at Xavier Sussex, LLC; a private investment
firm he co-founded in 2004. Previously, Mr. MacMullin was a Director and Chief
Operating Officer with DB Advisors, LLC, a $6 billion hedge fund group based in
New York and wholly owned by Deutsche Bank AG. He has also held several senior
management positions with Deutsche Bank Offshore in the Cayman Islands,
including Head of Investment Funds. He started his career in public accounting
with Coopers & Lybrand in Ottawa, Canada and KPMG in the Cayman Islands. Mr.
MacMullin received a Bachelor of Business Administration degree from Saint
Francis Xavier University and is a member of the Canadian Institute of Chartered
Accountants. He serves on the Board of Directors of Wind Works Power Corp. and
Pensato Europa Absolute Return Fund from 2010 to the present for both companies.
The determination was made that Mr. MacMullin should serve on our Board of
Directors due to his extensive financial background, professional relationships
and industry knowledge.

Mr. Haijun Tang, age 40, is currently the head of HIC,
a.k.a. Exploration Unit of North China Geological Exploration Bureau. Mr. Tang
has been head of HIC since July 2012. Prior to that, he served with Tianjin
North China Geological Exploration Bureau, the parent of HIC, for six years,
taking various posts such as director of the general office and director of the
asset management department. HIC holds approximately 8.6 million shares of the
registrant. HIC is also a joint venture partner of the registrant. The
determination was made that Mr. Tang should serve on our Board of Directors due
to the following: Mr. Tang replaced Mr. Guoqiang Hao, a former director of the
company, as Head of HIC. Mr. Hao resigned from the Board of Silver Dragon on
April 7, 2013 thereby creating a vacancy and recommending Mr. Tang to be
appointed, as the new head of HIC, to the Board of Silver Dragon. The Board of
Silver Dragon deemed it advisable and in the best interests of the Company and
its stockholders to appoint Mr. Haijun to fill the current vacancy on the Board
and replace Director Hao.

Involvement in Certain Legal Proceedings

During the past ten years, none of our directors or executive
officers has been involved in any legal proceedings that are material to an
evaluation of the ability or integrity of such person.

51

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive
officers, directors, and persons who beneficially own more than ten percent of a
registered class of equity securities to file reports of ownership and changes
in ownership with the SEC and to furnish us with copies of these reports.

Based solely on a review of the reports received by the SEC,
furnished to us, or written representations from reporting persons that all
reportable transactions were reported, we believe that our officers, directors
and greater than ten percent owners timely filed all reports they were required
to file under Section 16(a) for 2013, except for the following reports and
transactions in 2013: Mr. Tang failed to file a Form 3.

52

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Code of Conduct and Ethics Policy

We have adopted a Code of Conduct and Ethics Policy that
applies to our officers and employees, including our principal executive
officer, principal financial officer, principal accounting officer or persons
performing similar functions. The Code of Conduct and Ethics Policy is available
on our website at www.silverdragonresources.com.

Audit Committee and Audit Committee Financial Expert

The Audit Committee was established by the Board of Directors
in accordance with Section 3(a)(58)(A) of Exchange Act to oversee the Companys
corporate accounting and financial reporting processes and audits of its
financial statements. The members of our Audit Committee are Messrs. McAlpine
and MacMullin. Mr. MacMullin is chairman of the Audit Committee, and the Board
of Directors has determined that he qualifies as an audit committee financial
expert, as defined in the applicable rules of the SEC. Each committee member
qualifies as independent director under the applicable NASDAQ standards and SEC
rules. The Audit Committee held two meetings during the fiscal year ended
December 31, 2013.

We have established an Audit Committee Charter that deals with
the establishment of the Audit Committee and sets out its duties and
responsibilities. The Audit Committee reviews and reassesses the adequacy of the
Audit Committee Charter on an annual basis. The Audit Committee Charter is
available on our Company website at www.silverdragonresources.com.

Item 11. Executive compensation

Summary Compensation Table

The following table sets forth information concerning the
compensation for services in all capacities for the fiscal years ended December
31, 2013 and 2012 of the named executive officers.

NonqualifiedNon-Equity
    DeferredName and
    
    
    
    Stock
    Option
    Incentive Plan
    Compensation
    All OtherPrincipal
    Year
    Salary
    Bonus
    Awards
    Awards
    Compensation
    Earnings
    Compensation
    TotalPosition
    
    ($)
    ($)
    ($)
    ($)
    ($)
    ($)
    ($)
    ($)Marc Hazout,(1)
    2013
    324,000(2)
    -
    -
    
    -
    -
    -
    324,000President and ChiefExecutive Officer, Chief Financial Officer
      and Principal Accounting Officer
    2012
    324,000(2)
    -
    -
    15,900(3)
    -
    -
    -
    339,900


|(1) | A summary of the consulting agreement governing the terms
      of Mr. Hazouts compensation is set forth under the heading Consulting
      Agreements.                                                                                                                                                                                                                                                                  
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Payments were made to Travellers, a corporation owned by
      Mr. Hazout.                                                                                                                                                                                                                                                                                                                                                  
|(3) | Represents warrants granted to Travellers a corporation
      owned by Mr. Hazout. The 300,000 warrants were issued on March 22, 2012 at
      an exercise price of $0.06 and expire March 22, 2015. $15,900 reflects the
      aggregate grant date fair value of each award computed in accordance with
      FASB ASC Topic 718 using a stock price of $0.06; a volatility of 227.32%
      and a discount rate of 0.56%.

53

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Outstanding Equity Awards at 2013 Fiscal Year End

The following table provides information related to the
outstanding warrants held by our Named Executive Officers NEOs at December 31,
2013.

Option Awards(1)Name
    No. of
    No. of
    Equity
    Option
    OptionSecurities
    Securities
    Incentive
    Exercise
    ExpirationUnderlying
    Underlying
    Plan
    Price
    DateUnexercised
    Unexercised
    Awards:
    ($)Options
    Options
    Number of(#)
    (#)
    SecuritiesExercisable
    Unexercisable
    UnderlyingUnexercisedUnearnedOptions(#)(a)
    (b)
    (c)
    (d)
    (e)
    (f)Marc Hazout
    200,000 (2)
    -
    -
    $0.11
    January 25, 2014Marc Hazout
    300,000 (3)
    -
    -
    $0.06
    March 22, 2015


54

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|(1) | All of the securities set forth in this table represent
      common shares underlying outstanding warrants that were granted for
      compensation purposes. These warrants were not granted pursuant to any
      formal written plan that authorizes or sets aside any particular number of
      securities for issuance. The amount of warrants, if any, to be awarded to
      an NEO in any given year is determined on an annual basis by the
      compensation committee of the board of directors based upon a variety of
      considerations, including, among other things, the availability of
      authorized capital, the dilutive impact of the grants and the performance
      of the NEO.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(2) | Represents warrants granted to Travellers, a corporation
      owned by Mr. Hazout. The 200,000 warrants were issued on January 25, 2011
      at an exercise price of $0.11 and expire January 25, 2014. $16,138
      reflects the aggregate grant date fair value of each award computed in
      accordance with FASB ASC Topic 718 using a stock price of $0.115; a
      volatility of 117.3% and a discount rate of 1%.                                                                                                                                                                                                                                                                                  
|(3) | Represents warrants granted to Travellers, a corporation
      owned by Mr. Hazout. The 300,000 warrants were issued on March 22, 2012 at
      an exercise price of $0.06 and expire March 22, 2015. $15,900 reflects the
      aggregate grant date fair value of each award computed in accordance with
      FASB ASC Topic 718 using a stock price of $0.06; a volatility of 227.32%
      and a discount rate of 0.56%.                                                                                                                                                                                                                                                                                   

Compensation of Directors

Directors who are also officers of the Company are not
remunerated for their services rendered as a director of the Company. The
Company does not have a standard policy as to the type and amount of
remuneration payable to directors and instead determines the nature of director
remuneration an on annual basis. Directors do not receive any additional
compensation for their service on any committee of the board. Directors are
reimbursed for any reasonable expenses incurred in the connection with
attendance at board or committee meetings or any expenses generated in
connection with the performance of services on the behalf of the company.

55

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No compensation was paid or earned by our directors for their
services as directors of our Company during the fiscal year ended December 31,
2013.

Consulting Agreements

On November 1, 2010, we entered into a consulting agreement
with Travellers, a corporation owned by Mr. Hazout, to provide consulting
services including all activities required to direct, oversee, and manage us
including providing the services that would be provided by a chief executive
officer. The consulting agreement provides that Mr. Hazout is entitled to an
annual fee of $288,000 for a term of five years, a travel allowance of $3,000
per month, and eight weeks paid holidays each calendar year. Upon termination of
the consulting agreement, Mr. Hazout will be provided with 100% of his annual
fee rate for the remaining period of the agreement. The agreement contains
provisions prohibiting him from competing with us or soliciting customers or
employees for a period of one year following the termination of the agreement.

Effective September 1, 2012, we entered into a consulting
agreement with Manuel Chan, one of our directors, in which Mr. Chan agreed to
provide services to us in China as agreed from time to time, at a rate of $6,000
per month. The consulting agreement is in effect until August 31, 2014, except
that either party may terminate with six months notice.

Item 12. Security ownership of certain beneficial owners and
management and related stockholder matters.

Equity Compensation Plan Information

56

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|                                                                 |  | (a)           |  |   | (b)          |  |  | (c)           | 
|---------------------------------------------------------------- |  | ------------- |  | - | ------------ |  |  | ------------- | 
|                                                                 |  | Number of     |  |   | Weighted     |  |  | Number of     | 
|                                                                 |  | securities to |  |   | average      |  |  | securities    | 
|Plan Category                                                    |  | be            |  |   | exercise     |  |  | remaining     | 
|                                                                 |  | issued upon   |  |   | price        |  |  | available for | 
|                                                                 |  | exercise of   |  |   | of           |  |  | future        | 
|                                                                 |  | outstanding   |  |   | outstanding  |  |  | issuance      | 
|                                                                 |  | options,      |  |   | options,     |  |  | under equity  | 
|                                                                 |  | warrants and  |  |   | warrants and |  |  | compensation  | 
|                                                                 |  | rights        |  |   | rights       |  |  | plans         | 
|                                                                 |  |               |  |   |              |  |  | (excluding    | 
|                                                                 |  |               |  |   |              |  |  | securities    | 
|                                                                 |  |               |  |   |              |  |  | reflected in  | 
|                                                                 |  |               |  |   |              |  |  | column (a))   | 
|Equity compensation plans
      approved by security holders     |  | -             |  |   | -            |  |  | -             | 
|Equity compensation plans not approved by
      security holders |  | 2,225,000     |  | $ | 0.06         |  |  | N/A(1)        | 
|Total                                                            |  |               |  |   |              |  |  |               | 

|(1) | All of the securities set forth in this row represent
      common shares underlying outstanding warrants that have been granted to
      employees, directors and consultants for compensation purposes. These
      warrants were not granted pursuant to any formal written plan that
      authorizes or sets aside any particular number of securities for issuance.
      Instead, the amount of warrants and the recipients thereof are determined
      on an annual basis by the compensation committee of the board of directors
      based upon a variety of considerations, including, among other things, the
      availability of authorized capital, the dilutive impact of the grants and
      the performance of recipients.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table sets forth certain information regarding
beneficial ownership of our Common Stock as of March 31, 2014, by: (1) our
directors, named executive officers set forth in the summary compensation table
under Item 11 above and beneficial holders of more than 5% of our Common Stock,
and (2) all of our current directors and executive officers as a group. The
number and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 under the Exchange Act, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Except as indicated in
the footnotes to this table, and as affected by applicable community property
laws, all persons listed have sole voting and investment power for all shares
shown as beneficially owned by them.

|                                                              | Number of Shares            | Percentage of
|------------------------------------------------------------- | --------------------------- | -------------
|Name and Address of Beneficial
      Owner(1)                 | Beneficially
      Owned(2) | Shares(3)    
|                                                              |                             |              
|Marc Hazout (4)                                               | 17,873,206                  | 6.64%        
|Manuel Chan (5)                                               | 752,500                     | 0.28%        
|Haijun Tang                                                   | NIL                         | 0.00%        
|Glen MacMullin (6)                                            | 300,000                     | 0.11%        
|Charles McAlpine
      (7)                                    | 300,000                     | 0.11%        
|Executive Officers and Directors as a group
      (5 persons) | 19,225,706                  | 7.14%        
|Tonaquint, Inc.(8)                                            | 26,773,161                  | 9.95%        
|Chan King Yuet(9)                                             | 23,631,584                  | 8.78%        
|Barry King Hon Chan(9)                                        | 16,124,238                  | 5.99%        

|(1) | Each officer and directors business address is, 200
      Davenport Road, Toronto, Ontario, M5R 1J2. The business address of
      Tonaquint, Inc. is set forth in footnote 8 below. The business address of
      Chan King Yuet and Barry King Hon Chang is provided in footnote 9
      below.                               
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                  
|(2) | Includes shares of Common Stock deemed to be beneficially
      owned by such person or group pursuant to rights that are exercisable
      within 60 days from March 31, 2014.                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                  
|(3) | Based on 267,999,611 shares outstanding as of March 31,
      2014, plus any shares of Common Stock deemed to be beneficially owned
      pursuant to rights that are exercisable within 60 days from March 31,
      2014.                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                  
|(4) | Includes 17,573,206 shares of Common Stock owned by
      Travellers, which is solely owned by Mr. Hazout. Mr. Hazout is the
      President and CEO of Travellers. Travellers owns further share purchase
      warrants, expiring March 21, 2015 to purchase 300,000 shares of Common
      Stock at an exercise price of $0.06

57

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|(5) | Includes 452,500 shares of Common Stock owned by Manuel
      Chan. In addition, he owns further share purchase warrants, expiring March
      21, 2015 to purchase 300,000 shares of Common Stock at an exercise price
      of $0.06.                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(6) | Glen MacMullin owns share purchase warrants, expiring
      March 21, 2015 to purchase 300,000 shares of Common Stock at an exercise
      price of $0.06.                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(7) | Charles McAlpine owns share purchase warrants, expiring
      March 21, 2015 to purchase 300,000 shares of Common Stock at an exercise
      price of $0.06.                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(8) | Based on a Schedule 13G/A jointly filed on January 13,
      2014 by Tonaquint, Inc., Utah Resources Interational, Inc., Inter-Mountain
      Capital I Corp, JFV Holdings, Inc. and John M. Fife, each such person
      beneficially owns 26,773,161 shares of Common Stock, or 9.95% of the
      Common Stock, due to Tonaquints ownership of a warrant and a secured
      convertible promissory note. The Schedule 13G/A reports the address for each
      such person is 303 East Wacker Drive, Suite 1200, Chicago, IL
  60601.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9) | Based on a Schedule 13D/A jointly filed on April 17, 2013
      by Chan King Yuet, Barry King Hon Chan, Magnolia Ulan Fung, Su Hu, Hing
      Choi Hui, Yun Ming Roger Leung and Yuen Wah Leung (JT TEN) and Wai Ngai
      Hui, pursuant to a voting agreement dated April 12, 2013 among such
      persons, Chan King Yuet has shared voting power over 23,481,584 shares in
      addition to sole voting and dispositive power over 150,000 shares, and
      Barry King Hon Chan has shared voting power and sole dispositive power
      over 16,124,238 shares. The Schedule 13D/A reports that the address for
      Chan King Yuet is 10/F, Asia Rich Court, No. 5 Staunton Street, Central,
      Hong Kong, and the address for Barry King Hon Chan is 122, 5 Shouson Hill
      Road, Aberdeen, Hong Kong.

Item 13. Certain relationships and related transactions, and
Director Independence

Glen MacMullin and Charles McAlpine were both considered
independent under the independence standards of the NASDAQ Stock Market Rule
5605 during the past fiscal year. Mr. MacMullin and Mr. McAlpine currently sit
on the audit committee and on the compensation committee.

On December 19, 2011, the Companys wholly-owned subsidiary,
Silver Dragon Resources Ltd. (Silver Dragon Canada), and Haute Inc., a company
owned and controlled by Marc Hazout, the Companys President and Chief Executive
Officer (Landlord), entered into a commercial lease pursuant to which, for a
three year term starting April 1, 2012, Silver Dragon Canada will lease the
premises at 200 Davenport Road, Toronto, Ontario from Landlord for the purposes
of general office space. Silver Dragon Canada covenants to maintain the premises
in good condition, and agrees to pay base and additional rent. Base rent for the
initial three year term is CAD$51,875 (as amended) per annum plus taxes.
Additional rent, which is intended to cover all costs, charges, expenses and
outlays of Landlord with respect to the premises, including, without limitation,
costs for utilities, taxes, licenses, maintenance and insurance, commences at
CAD$16,600 (as amended) per annum plus taxes during the first year and is to be
adjusted annually based on Landlords actual costs. Silver Dragon Canada is
required to deliver to Landlord 10 post-dated checks for CAD$5,706 each prior to
the commencement of the term, and to deliver 12 postdated checks for CAD$5,706
each year thereafter. Silver Dragon Canada is also required to deliver upon
signing a deposit of CAD$11,560 for first and last months basic and additional
rent plus taxes. During the first quarter of 2012, the commercial lease was
amended to provide that the three year term would commence on June 1, 2012
instead of April 1, 2012.

The Company is currently party to a loan facility pursuant to
which Travellers, a corporation controlled by the Companys President, Chief
Executive Officer and Principal Financial and Accounting Officer, Marc Hazout,
has made certain historical loans to or for the benefit of the Company and may
in the future make future loans to or for the benefit of the Company. As of the
date of this filing, the net amount of loans outstanding under the facility was
CAD$10,000. For more information regarding this loan facility, please Liquidity and
Capital Resources.

In 2013, the Company began to engage in discussions with an
investor based in China, Man Kwan Fong, regarding a potential transaction that,
if completed, would have involved the investor making a secured loan to the
Company and taking over control of the management and board of directors of the
Company. On November 29 and December 31, 2013, the Company received advance totaling $1,069,279 from the investor; however, the parties have not resolved
definitive agreements, nor has the investor funded the remaining amounts
required to complete the initial closing. Due to funding delays by the investor
and changes in the investor's offer,
the Companys board of directors has determined not to proceed with the
contemplated transaction. The Company is seeking to resolve the treatment of the
initial $1,069,279 with the investor, and may be required to return such funds,
with or without interest, to the investor. In the negotiations relating to this
transaction, one of the investors representatives has been Chan King Yuet, who
has filed a Schedule 13D/A disclosing that pursuant to a voting agreement she
has shared voting power over 23,481,584 shares of our common stock, in addition
to sole voting and dispositive power over 150,000 shares of our common
stock.

The Company is currently party to the Tonaquint Documentation
with Tonaquint, Inc., the beneficial owner of 9.99% of the shares of the
Companys Common Stock. See Managements Discussion and Analysis of Financial
Condition and Results of OperationsLiquidity and Capital ResourcesTonaquint
Note Financing for a full discussion of the Companys obligations under the
Tonaquint Documentation.

Item 14. Principal accountant fees and services

The aggregate fees billed by the Companys external auditors in
each of the last two fiscal years are as follows:

2013
    2012Audit fees
    42,116
    61,068Audit-related fees (1) (2)
    93,708
    50,539Tax fees
    -
    -All other fees
    -
    -Total
    $
    135,824
  $ 111,607


58

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|(1) | Included in the audit- related fees for 2013 is $57,910
      (2012 - $18,952) of fees charged related to the financial statement
      restatement for the fiscal year ended December 31, 2011.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | These fees were for reviews of quarterly financial
      statements.                                                                                                                            

The Audit Committee Charter provides that the Audit Committee
is responsible for the pre-approval of all audit and non-audit services to be
provided to the Company by the independent public accountants. The Audit
Committee has not, however, adopted any specific policies and procedures for the
engagement of non-audit services. For 2013 and 2012, none of the services
related to amounts billed by the Companys independent public accountants were
pre-approved by the Audit Committee.

59

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Part IV

Item 15. Exhibits, Financial Statement Schedules

The financial statements filed as part of this report are
listed separately in the Index to Financial Statements.

|Exhibit | Name of Exhibit                                                                                                                                
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------
|No.     |                                                                                                                                                
|        |                                                                                                                                                
|3.1(1)  | Certificate of Incorporation of
      American Electric Automobile Company, Inc., dated May 9, 1996                                            
|3.2(2)  | Certificate of Amendment to Certificate of
      Incorporation of American Electric Automobile Company, Inc., dated July
      16, 2002        
|3.3(3)  | Certificate of Amendment to
      Certificate of Incorporation of American Entertainment & Animation
      Corporation, dated February 25, 2005
|3.4(3)  | Certificate of Amendment of Certificate of
      Incorporation of Silver Dragon Resources Inc., dated September 23, 2011                       
|3.5(9)  | Amended and Restated Bylaws                                                                                                                    
|4.1(8)  | Form of Warrant                                                                                                                                
|4.2(4)  | Company Note dated February 15,
      2011 between Silver Dragon Resources Inc. and Tonaquint, Inc.                                            
|4.3(4)  | Warrant to Purchase Shares of Common Stock
      issued to Tonaquint, Inc. and dated February 15, 2011                                         

60

---

|10.1(5)   | Asset Purchase Agreement dated as of March 16, 2006 among
      Silver Dragon Resources Inc., Sino Silver Corp. and Sanhe Sino-Top
      Resources and Technologies, Ltd.            
|--------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.2(7)   | Consulting Services Agreement dated November 1, 2010
      between Silver Dragon Resources Ltd., Silver Dragon Resources Inc. and
      Travellers International Inc. and Marc Hazout
|10.3(7)   | Equity Transfer Contract dated July 4, 2008 by and
      between Silver Dragon Resources Inc. and Exploration Unit of North China
      Nonferrous Geological Exploration Bureau     
|10.4(7)   | Equity Transfer Agreement dated July 4, 2008 regarding
      Sanhe Sino-Top Resources & Technologies, Ltd. between Silver Dragon
      Resources Inc. and Zhou Lin                   
|10.5(6)   | Order Approving Stipulation for Settlement of Claim in
      the matter entitled Socius CG II, Ltd. v. Silver Dragon
      Resources Inc. filed on January 27, 2011                  
|10.6(4)   | Note and Warrant Purchase Agreement dated February 15,
      2011 by and between Silver Dragon Resources Inc. and Tonaquint, Inc.                                                    
|10.7(4)   | Form of Buyer Trust Deed Note dated February 15, 2011
      between Tonaquint, Inc. and Silver Dragon Resources Inc.                                                                 
|10.8(4)   | Form of Secured Buyer Note dated February 15, 2011
      between Tonaquint, Inc. and Silver Dragon Resources Inc.                                                                    
|10.9(4)   | Form of Deed of Reconveyance                                                                                                                                                         
|10.10(10) | Amendment dated June 10, 2011 to outstanding Buyer Trust
      Deed Notes between Tonaquint, Inc. and Silver Dragon Resources Inc.                                                   
|10.11(4)  | Form of Request for Full Reconveyance                                                                                                                                                
|10.12(4)  | Security Agreement dated February 15, 2011 between Silver
      Dragon Resources Inc. and Tonaquint, Inc.                                                                            
|10.13(8)  | Convertible Promissory Note A-04192011 issued to JMJ
      Financial                                                                                                                 
|10.14(8)  | Convertible Promissory Note B-04192011a issued to JMJ
      Financial                                                                                                                
|10.15(8)  | Convertible Promissory Note B-04192011b issued to JMJ
      Financial                                                                                                                
|10.16(8)  | Convertible Promissory Note B-04192011c issued to JMJ
      Financial                                                                                                                
|10.17(8)  | Secured & Collateralized Promissory Note C-04192011a
      from JMJ Financial                                                                                                        
|10.18(8)  | Secured & Collateralized Promissory Note C-04192011b
      from JMJ Financial                                                                                                        
|10.19(8)  | Secured & Collateralized Promissory Note C-04192011c
      issued by JMJ Financial                                                                                                   
|10.20(8)  | Letter Agreement between JMJ Financial and Silver Dragon
      Resources Inc. dated April 19, 2011                                                                                   
|10.21(8)  | Additional Default Provisions related to the Convertible
      Promissory Notes issued to JMJ Financial                                                                              
|10.22     | Promissory Note issued April 6, 2011 from GEL Properties,
      LLC                                                                                                                  
|10.23     | Promissory Note issued April 11, 2011 to GEL Properties,
      LLC ($300,000)                                                                                                        
|10.24     | Amendment #1 dated October 12, 2011 to Promissory Note
      issued April 11, 2011 to GEL Properties, LLC ($300,000)                                                                 
|10.25     | Promissory Note issued April 11, 2011 to GEL Properties,
      LLC ($100,000)                                                                                                        
|10.26     | Promissory Note issued December 15, 2011 to GEL
      Properties, LLC ($250,000)                                                                                                     
|10.27     | Promissory Note issued December 15, 2011 to GEL
      Properties, LLC ($150,000)                                                                                                     
|10.28     | Commercial lease dated December 19, 2011 between Silver
      Dragon Resources Ltd. and Haute Inc., as amended                                                                       
|10.29     | Amendment dated January 31, 2012 between Tonaquint, Inc.
      and the Company                                                                                                       
|10.30     | Promissory Note issued February 10, 2012 from GEL
      Properties, LLC                                                                                                              
|10.31     | Promissory Note issued February 10, 2012 to GEL
      Properties, LLC ($200,000)                                                                                                     
|10.32     | Promissory Note issued February 10, 2012 to GEL
      Properties, LLC ($150,000)                                                                                                     
|10.33     | Equity Transfer Agreement dated May 28, 2012 between the
      Company and Den Zuoping                                                                                               

61

---

|10.34                                                                 | Joint Venture Contract related to Sino-Top dated January
      20, 2005, together with amendments and related agreements dated March 16,
      2006, October 31, 2006, July 4, 2008, March 20, 2009, July 3, 2009,
      December 12, 2009 and September 13, 2011
|--------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.35                                                                 | Amendment dated April 25, 2012 between JMJ Financial and
      the Company                                                                                                                                                                                       
|10.36                                                                 | Convertible Promissory Note B-04192011c issued to JMJ
      Financial                                                                                                                                                                                            
|10.37                                                                 | Secured & Collateralized Promissory Note C-04192011c
      from JMJ Financial                                                                                                                                                                                    
|10.38                                                                 | Forbearance Agreement dated July 16, 2012 between the
      Company and Tonaquint, Inc.                                                                                                                                                                          
|10.39                                                                 | Standstill Agreement dated July 16, 2012 between the
      Company and JMJ Financial.                                                                                                                                                                            
|10.40                                                                 | Amended and Restated Forbearance Agreement dated August
      23, 2012 between the Company and Tonaquint, Inc.                                                                                                                                                   
|10.41                                                                 | First Amendment to Amended and Restated Forbearance
      Agreement dated October 4, 2012 between the Company and Tonaquint, Inc.                                                                                                                                
|10.42(11)                                                             | Loan facility between the Company and Travellers
      International Inc.                                                                                                                                                                                        
|10.43(10)                                                             | Letter agreement dated November 29, 2012 between the
      Company and Asher Enterprises, Inc.                                                                                                                                                                   
|10.44(10)                                                             | Letter agreement dated December 6, 2012 between the
      Company and GEL Properties, LLC                                                                                                                                                                        
|10.45(10)                                                             | Letter agreement dated December 13, 2012 between the
      Company and JMJ Financial                                                                                                                                                                             
|10.46(10)                                                             | Letter agreement dated December 20, 2012 between the
      Company and Tonaquint, Inc.                                                                                                                                                                           
|10.47(10)                                                             | Letter agreement effective April 12, 2013 between the
      Company and Asher Enterprises, Inc.                                                                                                                                                                  
|10.48(10)                                                             | Letter agreement effective April 12, 2013 between the
      Company and GEL Properties, LLC                                                                                                                                                                      
|10.49(10)                                                             | Letter agreement effective April 12, 2013 between the
      Company and JMJ Financial                                                                                                                                                                            
|10.50(10)                                                             | Letter agreement effective April 12, 2013 between the
      Company and Tonaquint, Inc.                                                                                                                                                                          
|10.51                                                                 | Amendment dated June 3, 2013 between the Company and
      Tonaquint, Inc.                                                                                                                                                                                       
|10.52                                                                 | Letter agreement effective July 10, 2013 between the
      Company and Asher Enterprises, Inc.                                                                                                                                                                   
|10.53                                                                 | Letter agreement effective August 8, 2013 between the
      Company and GEL Properties, LLC                                                                                                                                                                      
|10.54                                                                 | Letter agreement effective August 8, 2013 between the
      Company and JMJ Financial                                                                                                                                                                            
|10.55                                                                 | Letter agreement effective August 8, 2013 between the
      Company and Tonaquint, Inc.                                                                                                                                                                          
|10.56                                                                 | Letter agreement effective November 8, 2013 between the
      Company and GEL Properties, LLC                                                                                                                                                                    
|10.57                                                                 | Letter agreement effective November 8, 2013 between the
      Company and JMJ Financial                                                                                                                                                                          
|10.58                                                                 | Letter agreement effective November 8, 2013 between the
      Company and Asher Enterprises, Inc.                                                                                                                                                                
|10 59                                                                 | Letter agreement effective November 13, 2013 between the
      Company and Tonaquint, Inc.                                                                                                                                                                       
|10.60                                                                 | Letter agreement effective November 27, 2013 between the
      Company and Tonaquint, Inc.                                                                                                                                                                       
|10.61                                                                 | Consulting agreement effective September 1, 2012 between
      the Company and Manuel Chan                                                                                                                                                                       
|10.62                                                                 | Letter agreement effective March 27, 2014 between the
      Company and Tonaquint, Inc.                                                                                                                                                                          
|10.63                                                                 | Letter agreement effective March 25, 2014 between the
      Company and Gel Properties, LLC.                                                                                                                                                                     
|10.64                                                                 | Letter agreement effective March 25, 2014 between the
      Company and JML Financial                                                                                                                                                                            
|10.65                                                                 | Letter agreement effective March 25, 2014 between the
      Company and Asher Enterprises, Inc.                                                                                                                                                                  
|                                                                      |                                                                                                                                                                                                                                                                  
|21.1                                                                  | Subsidiaries of the Company (included in Item 1)                                                                                                                                                                                                                 
|31.1                                                                  | Certification pursuant to Section 302 of the
      Sarbanes-Oxley Act                                                                                                                                                                                            
|31.2                                                                  | Certification pursuant to Section 302 of the
      Sarbanes-Oxley Act                                                                                                                                                                                            
|32.1                                                                  | Certification pursuant to Section 906 of the
      Sarbanes-Oxley Act                                                                                                                                                                                            
|101.INS*                                                              | XBRL Instance Document                                                                                                                                                                                                                                           
|101.SCH* XBRL Taxonomy Extension Schema Document                     
|101.CAL*XBRL Taxonomy Extension Calculation Linkbase
      Document  
|101.DEF* XBRL Taxonomy Extension Definition Linkbase
      Document  
|101.LAB*XBRL Taxonomy Extension Label Linkbase Document              
|101.PRE* XBRL Taxonomy Extension Presentation Linkbase
      Document

|(1) | Incorporated by reference to Form 10-SB filed on February
      23, 2000
|--- | ------------------------------------------------------------------------
|(2) | Incorporated by reference to Form 10-SB/A filed on July
      17, 2002  
|(3) | Incorporated by reference to Form 8-K filed September 26,
      2011    
|(4) | Incorporated by reference to Form 8-K filed February 18,
      2011     
|(5) | Incorporated by reference to Form 8-K filed March 24,
      2006        
|(6) | Incorporated by reference to Form 8-K filed on January
      28, 2011   

|(7)  | Incorporated by reference to Form 10-K for the year ended
      December 31, 2010 filed on March 22, 2011                                                                                    
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8)  | Incorporated by reference to Form 8-K filed on April 21,
      2011                                                                                                                          
|(9)  | Incorporated by reference to Form 8-K filed on August 4,
      2011                                                                                                                          
|(10) | Incorporated by reference to Form 10-K for the year ended
      December 31, 2012 filed on April 26, 2013                                                                                    
|(11) | Incorporated by reference to Item 1.01 of Form 8-K filed
      on November 26, 2012, as supplemented by the Item 1.01 disclosure of Form
      8-Ks filed on March 6, 2013 and April 30, 2013

|* | Users of this data are advised, in accordance with Rule
      406T of Regulation S-T promulgated by the SEC, that this Interactive Data
      file is deemed not filed or part of a registration statement or prospectus
      for purposes of Sections 11 or 12 of the 1933 Act, is deemed not filed for
      purposes of Section 18 of the Exchange Act, and otherwise is not subject
      to liability under these sections.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

62

---

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto authorized.

SILVER DRAGON RESOURCES INC.

By:/s/ Marc M.
Hazout Marc M. HazoutPresident, Chief Executive Officer and
Principal Financial and Accounting Officer

Dated: March 31, 2014

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

|Signature                |  | Title                                                                  |  | Date          
|------------------------ |  | ---------------------------------------------------------------------- |  | --------------
|                         |  |                                                                        |  |               
|/s/
      Marc M. Hazout |  | President and Chief Executive Officer, and                             |  | March 31, 2014
|Marc M. Hazout           |  | Director (principal executive, financial and
      accounting officer) |  |               
|                         |  |                                                                        |  |               
|                         |  |                                                                        |  |               
|/s/
      Manuel Chan    |  | Director                                                               |  | March 31, 2014
|Manuel Chan              |  |                                                                        |  |               
|                         |  |                                                                        |  |               
|/s/
      Glen MacMullin |  | Director                                                               |  | March 31, 2014
|Glen MacMullin           |  |                                                                        |  |               
|                         |  |                                                                        |  |               
|/s/
      Haijun Tang    |  | Director                                                               |  | March 31, 2014
|Haijun Tang              |  |                                                                        |  |               
|                         |  |                                                                        |  |               
|/s/ Charles McAlpine     |  | Director                                                               |  | March 31, 2014
|Charles McAlpine         |  |                                                                        |  |               

63

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|                                              
|CONSOLIDATED FINANCIAL STATEMENTS             
|                                              
|FOR THE YEARS ENDED DECEMBER 31, 2013 and 2012
|                                              
|(EXPRESSED IN UNITED STATES FUNDS)            
|                                              
|CONTENTS                                      

Report of the
      Independent Registered Public Accounting Firm
    F-2Consolidated Balance Sheets as of
      December 31, 2013 and 2012
    F-3Consolidated Statements
      of Operations and Comprehensive Loss for the Years Ended December 31, 2013
      and 2012, and Cumulative forthe Period from May 9,
      1996 (Date of Inception) Through to December 31, 2013
    F-4Consolidated Statements of
      Stockholders (Deficit) Equity, Cumulative for the Period from May 9, 1996, (Date
      of Inception) Through December31, 2013
    F-5-F-8Consolidated Statements
      of Cash Flows for the Years Ended December 31, 2013 and 2012, and
      Cumulative for the Period from May 9,1996, (Date of Inception)
      Through December 31, 2013
    F-9Notes to the Consolidated Financial
      Statements
    F-10-F-34


F-1

---

REPORTOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM

To the Board of Directors and Stockholders of 
Silver Dragon Resources Inc. and Subsidiary

We have audited the accompanying consolidated balance sheets of
Silver Dragon Resources Inc. and Subsidiaries (a Delaware corporation in the
exploration stage) as of December 31, 2013 and 2012, and the consolidated
statements of operations and comprehensive loss, stockholders (deficit) equity
and cash flows for each of the two years in the period ended December 31, 2013,
and cumulative from inception (May 9, 1996) through to December 31, 2013, except
as explained as follows: we did not audit the cumulative data from May 9, 1996
to December 31, 2004. The cumulative data was audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to the
amounts in the cumulative data through December 31, 2004, is based solely on the
report of other auditors. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Silver Dragon Resources Inc. and Subsidiaries as of December 31, 2013 and 2012,
and the results of its operations and its cash flows for each of the two years
in the period ended December 31, 2013 in conformity with accounting principles
generally accepted in the United States of America.

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in note 2 to the consolidated financial statements, the Company has
experienced operating losses since inception and expects to incur further losses
in the development of its business. Management has been unable to secure
additional financing to meet its cash requirements, including ongoing working
capital requirements, cash contributions for its equity investment and funds to
repay all or certain of its convertible notes. There is no assurance of
additional funding in any form, being available or available on acceptable
terms. If management is unable to secure additional funding and or extend the
pay off dates for its convertible note obligations beyond June 30, 2014, the
Company may be forced to dilute its equity investment which will occur if it is
not able to make the required contributions in the amounts and dates as
specified under note 18(c) or may ultimately have to file for bankruptcy. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Realization values may be substantially different from Carrying
values as shown. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/S/SF Partnership,
LLPCHARTERED ACCOUNTANTS

Toronto, CanadaMarch 31, 2014

F-2

---

|SILVER DRAGON RESOURCES INC.  
|------------------------------
|(AN EXPLORATION STAGE COMPANY)
|Consolidated Balance Sheets   

|                                                                                                                                                                                       |   | December 31, |   |   | December 31, |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                                                                                                                                                       |   | 2013         |   |   | 2012         |  
|ASSETS                                                                                                                                                                                 |   |              |   |   |              |  
|Current assets                                                                                                                                                                         |   |              |   |   |              |  
|Cash                                                                                                                                                                                   | $ | 226,937      |   | $ | 13,406       |  
|Other receivables (note 6)                                                                                                                                                             |   | 20,488       |   |   | 224,700      |  
|Deferred expenses                                                                                                                                                                      |   | 55,999       |   |   | 55,999       |  
|Prepaid expenses                                                                                                                                                                       |   | 35,319       |   |   | 30,141       |  
|Total current assets                                                                                                                                                                   |   | 338,743      |   |   | 324,246      |  
|                                                                                                                                                                                       |   |              |   |   |              |  
|                                                                                                                                                                                       |   |              |   |   |              |  
|Deferred expenses                                                                                                                                                                      |   | 42,000       |   |   | 98,000       |  
|Plant and equipment, net(note 7)                                                                                                                                                       |   | 207,968      |   |   | 335,108      |  
|Equity
      investment(note 8)                                                                                                                                                        |   | 3,680,774    |   |   | 4,743,949    |  
|                                                                                                                                                                                       |   |              |   |   |              |  
|Total
      assets                                                                                                                                                                     | $ | 4,269,485    |   | $ | 5,501,303    |  
|                                                                                                                                                                                       |   |              |   |   |              |  
|LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY                                                                                                                                         |   |              |   |   |              |  
|Current liabilities                                                                                                                                                                    |   |              |   |   |              |  
|Advance credit note (note 9)                                                                                                                                                           | $ | 1,069,279    |   | $ | -            |  
|Accounts payable                                                                                                                                                                       |   | 722,700      |   |   | 694,043      |  
|Accrued liabilities                                                                                                                                                                    |   | 704,590      |   |   | 586,402      |  
|Promissory note payable (note
      10)                                                                                                                                                |   | 166,623      |   |   | 166,623      |  
|Convertible notes payable (note 11)                                                                                                                                                    |   | 3,298,054    |   |   | 2,689,132    |  
|Related party payable (note 12)                                                                                                                                                        |   | -            |   |   | 189,046      |  
|Total
      liabilities                                                                                                                                                                |   | 5,961,246    |   |   | 4,325,246    |  
|                                                                                                                                                                                       |   |              |   |   |              |  
|Capital stock(note 13)                                                                                                                                                                 |   |              |   |   |              |  
|Preferred stock, $0.0001 par
      value, 20,000,000 shares authorized, none issued and outstanding                                                                                    |   | -            |   |   | -            |  
|Common stock, $0.0001 par value, 300,000,000
      shares authorized (2012  300,000,000), 267,999,611 shares issued and
      outstanding (2012  267,999,611 issued and outstanding) |   | 26,915       |   |   | 26,915       |  
|Additional paid-in capital(note 13)                                                                                                                                                    |   | 46,569,009   |   |   | 46,569,009   |  
|Treasury(550,000 shares)                                                                                                                                                               |   | (209,000     | ) |   | (209,000     | )
|Deficit accumulated during the exploration stage                                                                                                                                       |   | (48,197,148  | ) |   | (45,289,466  | )
|Accumulated
      comprehensive income                                                                                                                                                 |   | 118,463      |   |   | 78,599       |  
|Stockholders
      (deficit) equity                                                                                                                                                   |   | (1,691,761   | ) |   | 1,176,057    |  
|                                                                                                                                                                                       |   |              |   |   |              |  
|Total
      liabilities and stockholders (deficit) equity                                                                                                                             | $ | 4,269,485    |   | $ | 5,501,303    |  

Goingconcern(note 2)
Commitmentsandcontingencies(note 16)

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

F-3

---

|SILVER DRAGON RESOURCES INC.                                                             
|-----------------------------------------------------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                                                           
|Consolidated Statements of Operations and
      Comprehensive Loss                       
|For the Years ended December 31, 2013 and 2012,
      and                                
|Cumulative for the period from May 9, 1996 (date of
      inception) to December 31, 2013

|                                                                               |   |             |   |   |             |   |   | For the period    |  
|------------------------------------------------------------------------------ | - | ----------- | - | - | ----------- | - | - | ----------------- | -
|                                                                               |   |             |   |   |             |   |   | from May 9,       |  
|                                                                               |   |             |   |   |             |   |   | **1996 (date of** |  
|                                                                               |   | December    |   |   | December    |   |   | inception) to     |  
|                                                                               |   | 31, 2013    |   |   | 31, 2012    |   |   | December 31,      |  
|                                                                               |   |             |   |   |             |   |   | 2013              |  
|                                                                               |   |             |   |   |             |   |   |                   |  
|Operating expenses                                                             |   |             |   |   |             |   |   |                   |  
|Exploration                                                                    | $ | -           |   | $ |            |   | $ | 7,174,048         |  
|General and administrative                                                     |   | 1,208,001   |   |   | 1,649,842   |   |   | 30,788,219        |  
|Write-off of
      Mexican assets                                              |   | -           |   |   |            |   |   | 3,242,039         |  
|Total operating expenses                                                       |   | 1,208,001   |   |   | 1,649,842   |   |   | 41,204,306        |  
|Loss from
      operations                                                     |   | (1,208,001  | ) |   | (1,649,842  | ) |   | (41,204,306       | )
|                                                                               |   |             |   |   |             |   |   |                   |  
|Other (expenses) income                                                        |   |             |   |   |             |   |   |                   |  
|Gain on disposal of plant and equipment
      (note 7)                         |   | 14,769      |   |   | -           |   |   | 14,769            |  
|Interest expense                                                               |   | (586,395    | ) |   | (1,343,471  | ) |   | (3,531,661        | )
|Interest income                                                                |   | -           |   |   | -           |   |   | 85,553            |  
|Loss on settlement                                                             |   | -           |   |   | (2,195,458  | ) |   | (2,195,458        | )
|Net loss on equity investment (note 8)                                         |   | (1,063,175  | ) |   | (1,193,785  | ) |   | (3,537,137        | )
|Forgiveness of debt                                                            |   | -           |   |   | -           |   |   | 38,871            |  
|Gain on sale of interest in subsidiary                                         |   | -           |   |   | -           |   |   | 1,816,733         |  
|(Loss) gain on sale of interest in mining property (note 8)                    |   | (64,880     | ) |   | 1,143,371   |   |   | 1,078,491         |  
|Non-recurring items                                                            |   | -           |   |   | -           |   |   | (713,269          | )
|Total other
      (expenses) income                                            |   | (1,699,681  | ) |   | (3,589,343  | ) |   | (6,943,108        | )
|                                                                               |   |             |   |   |             |   |   |                   |  
|Loss before income taxes                                                       |   | (2,907,682  | ) |   | (5,239,185  | ) |   | (48,147,414       | )
|Provision for income taxes (note 15)                                           |   | -           |   |   | -           |   |   |                  |  
|                                                                               |   |             |   |   |             |   |   |                   |  
|Net loss from continuing operations, after
      tax                           |   |             |   |   |             |   |   |                   |  
|                                                                               |   | (2,907,682  | ) |   | (5,239,185  | ) |   | (48,147,414       | )
|Minority interest                                                              |   | -           |   |   | -           |   |   | 253,021           |  
|Loss from discontinued operations (net of tax)                                 |   | -           |   |   | -           |   |   | (302,755          | )
|                                                                               |   |             |   |   |             |   |   |                   |  
|Net loss                                                                       |   | (2,907,682  | ) |   | (5,239,185  | ) |   | (48,197,148       | )
|Other comprehensive income (loss)                                              |   |             |   |   |             |   |   |                   |  
|Foreign exchange
      gain (loss)                                             |   | 39,864      |   |   | (36,388     | ) |   | 118,463           |  
|                                                                               |   |             |   |   |             |   |   |                   |  
|Comprehensive
      loss                                                       | $ | (2,867,818  | ) | $ | (5,275,573  | ) | $ | (48,078,685       | )
|                                                                               |   |             |   |   |             |   |   |                   |  
|Net loss per
      common share  basic and diluted                            | $ | (0.01       | ) | $ | (0.02       | ) |   |                   |  
|                                                                               |   |             |   |   |             |   |   |                   |  
|Weighted
      average number of common shares outstanding  basic and diluted |   | 267,999,611 |   |   | 215,626,389 |   |   |                   |  

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

F-4

---

|SILVER DRAGON RESOURCES INC.                                                             
|-----------------------------------------------------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                                                           
|Consolidated Statements of Stockholders (Deficit)
      Equity                          
|Cumulative for the period from May 9, 1996 (date of
      inception) to December 31, 2013

DeficitCommon Stock
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    During the
    
    
    
    
    
    
    
    
    Comprehensive
    
    
    TotalPaid-in
    
    
    Exploration
    
    
    Stock
    
    
    Treasury
    
    
    Income
    
    
    StockholdersNumber of
    
    
    Amount
    
    
    Capital
    
    
    Stage
    
    
    Subscription
    
    
    Stock
    
    
    (Loss)
    
    
    (Deficit) EquityShares
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**Shares issued to founders
    
    388,334
    
    
    39
    
    
    1,126
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,165Share issued
    
    413,333
    
    
    41
    
    
    47,564
    
    
    (1,060
    )
    
    -
    
    
    -
    
    
    -
    
    
    46,545Net loss, 1996
    
    -
    
    
    -
    
    
    -
    
    
    (14,198
    )
    
    -
    
    
    -
    
    
    -
    
    
    (14,198
    )Balance, December 31, 1996
    
    801,667
    
    
    80
    
    
    48,690
    
    
    (15,258
    )
    
    -
    
    
    -
    
    
    -
    
    
    33,512Share issued
    
    116,999
    
    
    12
    
    
    88,638
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    88,650Net loss, 1997
    
    -
    
    
    -
    
    
    -
    
    
    (142,622
    )
    
    -
    
    
    -
    
    
    -
    
    
    (142,622
    )Balance, December 31, 1997
    
    918,666
    
    
    92
    
    
    137,328
    
    
    (157,880
    )
    
    -
    
    
    -
    
    
    -
    
    
    (20,460
    )Share issued
    
    69,334
    
    
    7
    
    
    57,994
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    58,001Net loss, 1998
    
    -
    
    
    -
    
    
    -
    
    
    (54,404
    )
    
    -
    
    
    -
    
    
    -
    
    
    (54,404
    )Balance, December 31, 1998
    
    988,000
    
    
    99
    
    
    195,322
    
    
    (212,284
    )
    
    -
    
    
    -
    
    
    -
    
    
    (16,863
    )Share issued
    
    203,918
    
    
    20
    
    
    191,999
    
    
    -
    
    
    ( 4,000
    )
    
    -
    
    
    -
    
    
    188,019Forgiveness of debt of
      related party
    
    -
    
    
    -
    
    
    23,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    23,000Net loss, 1999
    
    -
    
    
    -
    
    
    -
    
    
    (181,898
    )
    
    -
    
    
    -
    
    
    -
    
    
    (181,898
    )Balance, December 31,
      1999
    
    1,191,918
    
    
    119
    
    
    410,321
    
    
    (394,182
    )
    
    (4,000
    )
    
    -
    
    
    -
    
    
    12,258Share issued for services
    
    4,950,333
    
    
    495
    
    
    695,435
    
    
    -
    
    
    (278,539
    )
    
    -
    
    
    -
    
    
    417,391Shares cancelled
    
    (453,100
    )
    
    (45
    )
    
    (169,867
    )
    
    -
    
    
    157,791
    
    
    -
    
    
    -
    
    
    (12,121
    )Forgiveness of debt
      reclassification
    
    -
    
    
    -
    
    
    (23,000
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (23,000
    )Net loss, 2000
    
    -
    
    
    -
    
    
    -
    
    
    (419,296
    )
    
    -
    
    
    -
    
    
    -
    
    
    (419,296
    )Balance, December 31,
      2000
    
    5,689,151
    
    
    569
    
    
    912,889
    
    
    (813,478
    )
    
    (124,748
    )
    
    -
    
    
    -
    
    
    (24,768
    )Share issued for services
    
    1,179,415
    
    
    118
    
    
    89,784
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    89,902Cash received for subscription
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    124,748
    
    
    -
    
    
    -
    
    
    124,748Other adjustment
    
    -
    
    
    -
    
    
    -
    
    
    1
    
    
    -
    
    
    -
    
    
    -
    
    
    1Net loss, 2001
    
    -
    
    
    -
    
    
    -
    
    
    (339,546
    )
    
    -
    
    
    -
    
    
    -
    
    
    (339,546
    )Balance, December 31,
      2001
    
    6,868,566
    
    
    687
    
    
    1,002,673
    
    
    (1,153,023
    )
    
    -
    
    
    -
    
    
    -
    
    
    (149,663
    )Shares issued
    
    29,859,173
    
    
    2,986
    
    
    386,394
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    389,380Shares cancelled
    
    (21,978,215
    )
    
    (2,198
    )
    
    7
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (2,191
    )Stock warrants issued
    
    -
    
    
    -
    
    
    31,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    31,000Stock warrants exercised
    
    3,255,880
    
    
    326
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    326Net loss, 2002
    
    -
    
    
    -
    
    
    -
    
    
    (570,874
    )
    
    -
    
    
    -
    
    
    -
    
    
    (570,874
    )Balance, December 31, 2002
    
    18,005,404
    
    
    1,801
    
    
    1,420,074
    
    
    (1,723,897
    )
    
    -
    
    
    -
    
    
    **-**
    
    
    (302,022
    )


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

F-5

---

|SILVER DRAGON RESOURCES INC.                                                                        
|----------------------------------------------------------------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                                                                      
|Consolidated Statements of Stockholders (Deficit)
      Equity                                     
|Cumulative for the period from May 9, 1996 (date of
      inception) to December 31, 2013(continued)

Common Stock
    
    
    
    
    
    DeficitAccumulated
    
    
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    During the
    
    
    
    
    
    
    
    
    Comprehensive
    
    
    TotalPaid-in
    
    
    Exploration
    
    
    Stock
    
    
    Treasury
    
    
    Income
    
    
    StockholdersNumber of
    
    
    Amount
    
    
    Capital
    
    
    Stage
    
    
    Subscription
    
    
    Stock
    
    
    (Loss)
    
    
    (Deficit) EquityShares
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**Balance, December 31, 2002
      (carried forward)
    
    18,005,
      404
    
    
    1,801
    
    
    1,420,074
    
    
    (1,723,897
    )
    
    -
    
    
    -
    
    
    -
    
    
    (302,022
    )Share issued for services
    
    4,927,411
    
    
    493
    
    
    150,833
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    151,326Shares returned
    
    (66,300
    )
    
    (7
    )
    
    (1,319
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,326
    )Net loss, 2003
    
    -
    
    
    -
    
    
    -
    
    
    (414,601
    )
    
    -
    
    
    -
    
    
    -
    
    
    (414,601
    )Balance, December 31, 2003
    
    22,866,515
    
    
    2,287
    
    
    1,569,588
    
    
    (2,138,498
    )
    
    -
    
    
    -
    
    
    -
    
    
    (566,623
    )Share issued
    
    575,000
    
    
    58
    
    
    24,942
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    25,000Short swing profits of shareholder
    
    -
    
    
    -
    
    
    50,496
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    50,496Net loss, 2004
    
    -
    
    
    -
    
    
    -
    
    
    (399,028
    )
    
    -
    
    
    -
    
    
    -
    
    
    (399,028
    )Balance, December 31, 2004
    
    23,441,515
    
    
    2,345
    
    
    1,645,026
    
    
    (2,537,526
    )
    
    -
    
    
    -
    
    
    -
    
    
    (890,155
    )Shares issued
    
    15,729,018
    
    
    1572
    
    
    2,612,433
    
    
    -
    
    
    (9,500
    )
    
    -
    
    
    -
    
    
    2,604,505Shares cancelled
    
    (3,500,000
    )
    
    (350
    )
    
    (724,650
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (725,000
    )Net loss, 2005
    
    -
    
    
    -
    
    
    -
    
    
    (584,879
    )
    
    -
    
    
    -
    
    
    -
    
    
    (584,879
    )Balance, December 31, 2005
    
    35,670,533
    
    
    3,567
    
    
    3,532,809
    
    
    (3,122,405
    )
    
    (9,500
    )
    
    -
    
    
    -
    
    
    404,471Share issued
    
    25,790,000
    
    
    2,579
    
    
    13,949,985
    
    
    -
    
    
    458,500
    
    
    -
    
    
    -
    
    
    14,411,064Warrants issued
    
    -
    
    
    -
    
    
    4,941,036
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    4,941,036Share issuance costs
    
    -
    
    
    -
    
    
    (63,237
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (63,237
    )Treasury stock
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (392,830
    )
    
    -
    
    
    (392,830
    )Other comprehensive loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (1,562
    )
    
    (1,562
    )Net loss, 2006
    
    -
    
    
    -
    
    
    -
    
    
    (8,692,208
    )
    
    -
    
    
    -
    
    
    -
    
    
    (8,692,208
    )Balance, December 31, 2006
    
    61,460,533
    
    
    6,146
    
    
    22,360,593
    
    
    (11,814,613
    )
    
    449,000
    
    
    (392,830
    )
    
    (1,562
    )
    
    10,606,734Shares issued
    
    8,362,000
    
    
    836
    
    
    7,114,194
    
    
    -
    
    
    (334,000
    )
    
    -
    
    
    -
    
    
    6,781,030Treasury stock
    
    (276,545
    )
    
    (27
    )
    
    (392,803
    )
    
    -
    
    
    -
    
    
    392,830
    
    
    -
    
    
    -Warrants issued
    
    -
    
    
    -
    
    
    2,717,020
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    2,717,020Options issued
    
    -
    
    
    -
    
    
    459,959
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    459,959Share issuance costs
    
    
    
    
    
    
    
    (75,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    (75,000
    )Other comprehensive loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (18,141
    )
    
    (18,141
    )Net loss, 2007
    
    -
    
    
    -
    
    
    -
    
    
    (10,665,000
    )
    
    -
    
    
    -
    
    
    -
    
    
    (10,665,000
    )Balance, December 31, 2007
    
    69,545,988
    
    
    6,955
    
    
    32,183,963
    
    
    (22,479,613
    )
    
    115,000
    
    
    -
    
    
    (19,703
    )
    
    9,806,602


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

F-6

---

|SILVER DRAGON RESOURCES INC.                                                                        
|----------------------------------------------------------------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                                                                      
|Consolidated Statements of Stockholders (Deficit)
      Equity                                     
|Cumulative for the period from May 9, 1996 (date of
      inception) to December 31, 2013(continued)

Common Stock
    
    
    
    
    
    DeficitAmount
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    During the
    
    
    
    
    
    
    
    
    Comprehensive
    
    
    TotalNumber of
    
    
    
    
    
    Paid-in
    
    
    Exploration
    
    
    Stock
    
    
    Treasury
    
    
    Income
    
    
    StockholdersShares
    
    
    
    
    
    Capital
    
    
    Stage
    
    
    Subscription
    
    
    Stock
    
    
    (Loss)
    
    
    (Deficit) Equity**$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**Balance, December 31,
      2007 (carried forward)
    
    69,545,988
    
    
    6,955
    
    
    32,183,963
    
    
    (22,479,613
    )
    
    115,000
    
    
    -
    
    
    (19,703
    )
    
    9,806,602Shares issued for cash
    
    8,349,167
    
    
    835
    
    
    1,141,023
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,141,858Shares issued for settlement
    
    2,833,333
    
    
    283
    
    
    398,050
    
    
    -
    
    
    (165,000
    )
    
    -
    
    
    -
    
    
    233,333Shares issued for services
    
    1,450,000
    
    
    145
    
    
    156,855
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    157,000Shares issued for compensation
    
    875,000
    
    
    87
    
    
    135,663
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    135,750Shares issued for settlement
      of due to related parties
    
    1,200,000
    
    
    120
    
    
    107,880
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    108,000Shares issued for cash pursuant toexercise of warrants
    
    500,000
    
    
    50
    
    
    74,950
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    75,000Warrants issued for cash
    
    -
    
    
    -
    
    
    260,642
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    260,642Warrants issued for
      settlement of due to related parties
    
    -
    
    
    -
    
    
    192,000
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    192,000Warrants issued for services
    
    -
    
    
    -
    
    
    44,600
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    44,600Options issued for services
    
    -
    
    
    -
    
    
    82,200
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    82,200Share issuance costs
    
    -
    
    
    -
    
    
    (6,562
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (6,562
    )Shares to be returned
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (67,500
    )
    
    -
    
    
    -
    
    
    (67,500
    )Other comprehensive loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    77,949
    
    
    77,949Net loss, 2008
    
    -
    
    
    -
    
    
    -
    
    
    (3,969,299
    )
    
    -
    
    
    -
    
    
    -
    
    
    (3,969,299
    )Prior period adjustment
    
    -
    
    
    -
    
    
    -
    
    
    (417,477
    )
    
    -
    
    
    -
    
    
    -
    
    
    (417,477
    )Balance, December 31,
      2008
    
    84,753,488
    
    
    8,475
    
    
    34,771,264
    
    
    (26,866,389
    )
    
    (117,500
    )
    
    -
    
    
    58,246
    
    
    7,854,096Share issued for cash
    
    4,729,198
    
    
    473
    
    
    489,232
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    489,705Shares issued for services
    
    2,490,000
    
    
    249
    
    
    347,909
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    348,158Shares issued for
      compensation
    
    175,000
    
    
    18
    
    
    14,857
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    14,875Shares issued for property
    
    550,000
    
    
    55
    
    
    208,945
    
    
    -
    
    
    -
    
    
    (209,000
    )
    
    -
    
    
    -Warrants issued for cash
    
    -
    
    
    -
    
    
    728,771
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    728,771Warrants issued for services
    
    -
    
    
    -
    
    
    1,442,484
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,442,484Options issued for services
    
    -
    
    
    -
    
    
    24,134
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    24,134Share issuance costs
    
    -
    
    
    -
    
    
    (54,877
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (54,877
    )Shares returned
    
    (1,100,000
    )
    
    (110
    )
    
    (201,390
    )
    
    -
    
    
    117,500
    
    
    -
    
    
    -
    
    
    (84,000
    )Accumulated comprehensive loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (17,742
    )
    
    (17,742
    )Net loss, 2009
    
    -
    
    
    -
    
    
    -
    
    
    (4,869,373
    )
    
    -
    
    
    -
    
    
    -
    
    
    (4,869,373
    )Balance, December 31, 2009
    
    91,597,686
    
    
    9,160
    
    
    37,771,329
    
    
    (31,735,762
    )
    
    -
    
    
    (209,000
    )
    
    40,504
    
    
    5,876,231


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

F-7

---

|SILVER DRAGON RESOURCES INC.                                                                        
|----------------------------------------------------------------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                                                                      
|Consolidated Statements of Stockholders (Deficit)
      Equity                                     
|Cumulative for the period from May 9, 1996 (date of
      inception) to December 31, 2013(continued)

Common Stock
    
    
    
    
    
    DeficitAccumulated
    
    
    
    
    
    
    
    
    **Accumulated**Additional
    
    
    During the
    
    
    
    
    
    
    
    
    **Comprehensive**
    
    
    TotalNumber of
    
    
    
    
    
    Paid-in
    
    
    Exploration
    
    
    Stock
    
    
    Treasury
    
    
    Income
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Stage
    
    
    Subscription
    
    
    Stock
    
    
    (Loss)
    
    
    (Deficit) Equity**$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**
    
    
    **$**Balance, December 31, 2009
      (carried forward)
    
    91,597,686
    
    
    9,160
    
    
    37,771,329
    
    
    (31,735,762
    )
    
    -
    
    
    (209,000
    )
    
    40,504
    
    
    5,876,231Share issued for cash
    
    4,038,237
    
    
    404
    
    
    468,298
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    468,702Shares issued for services
    
    3,092,094
    
    
    309
    
    
    790,076
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    790,385Warrants issued for cash
    
    -
    
    
    -
    
    
    264,298
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    264,298Warrants issued for services
    
    -
    
    
    -
    
    
    274,067
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    274,067Share issuance costs
    
    -
    
    
    -
    
    
    (26,497
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (26,497
    )Beneficial conversion feature
    
    -
    
    
    -
    
    
    99,841
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    99,841Accumulated comprehensive loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (19,150
    )
    
    (19,150
    )Net loss, 2010
    
    -
    
    
    -
    
    
    -
    
    
    (4,318,318
    )
    
    -
    
    
    -
    
    
    -
    
    
    (4,318,318
    )Balance, December 31, 2010
    
    98,728,017
    
    
    9,873
    
    
    39,641,412
    
    
    (36,054,080
    )
    
    -
    
    
    (209,000
    )
    
    21,354
    
    
    3,409,559Shares issued for cash
    
    2,812,500
    
    
    281
    
    
    249,719
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    250,000Shares issued for services
    
    1,490,000
    
    
    149
    
    
    174,426
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    174,575Shares issued on conversion of notes
    
    27,736,036
    
    
    2,774
    
    
    1,352,849
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,355,623Shares issued for settlement of debt
    
    5,883,896
    
    
    588
    
    
    434,085
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    434,673Shares cancelled
    
    (750,000
    )
    
    (75
    )
    
    (83,550
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (83,625
    )Warrants issued for cash
    
    -
    
    
    -
    
    
    80,389
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    80,389Warrants issued for services
    
    -
    
    
    -
    
    
    373,695
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    373,695Shares issued on financing
    
    500,000
    
    
    50
    
    
    24,950
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    25,000Share issuance costs
    
    -
    
    
    -
    
    
    (8,750
    )
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (8,750
    )Beneficial conversion feature
    
    -
    
    
    -
    
    
    1,641,770
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,641,770Accumulated comprehensive loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    93,633
    
    
    93,633Net loss, 2011
    
    -
    
    
    -
    
    
    -
    
    
    (3,996,201
    )
    
    -
    
    
    -
    
    
    -
    
    
    (3,996,201
    )Balance, December 31, 2011
    
    136,400,449
    
    
    13,640
    
    
    43,880,995
    
    
    (40,050,281
    )
    
    -
    
    
    (209,000
    )
    
    114,987
    
    
    3,750,341Shares issued for cash
    
    700,000
    
    
    70
    
    
    20,930
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    21,000Shares issued for services
    
    457,143
    
    
    46
    
    
    25,954
    
    
    -
    
    
    - -
    
    
    
    
    
    -
    
    
    26,000Shares issued on conversion of notes
    
    130,442,019
    
    
    13,159
    
    
    1,574,634
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,587,793Warrants issued for services
    
    -
    
    
    -
    
    
    117,925
    
    
    -
    
    
    - -
    
    
    
    
    
    -
    
    
    117,925Beneficial conversion feature
    
    -
    
    
    -
    
    
    948,571
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    948,571Accumulated comprehensive loss
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    
    
    
    
    
    
    (36,388
    )Net loss, 2012
    
    -
    
    
    -
    
    
    
    
    
    (5,239,185
    )
    
    -
    
    
    -
    
    
    
    
    
    (5,239,185
    )Balance, December 31, 2012
    
    267,999,611
    
    
    26,915
    
    
    46,569,009
    
    
    (45,289,466
    )
    
    -
    
    
    **(209,000**
    )
    
    **78,599**
    
    
    1,176,057Accumulated comprehensive loss
    
    -
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    
    -
    
    
    39,864
    
    
    39,864Net loss, 2013
    
    -
    
    
    -
    
    
    -
    
    
    (2,907,682
    )
    
    -
    
    
    -
    
    
    -
    
    
    (2,907,682
    )Balance, December 31, 2013
    
    267,999,611
    
    
    26,915
    
    
    46,569,009
    
    
    (48,197,148
    )
    
    -
    
    
    (209,000
    )
    
    118,463
    
    
    (1,691,761
    )


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

F-8

---

|SILVER DRAGON RESOURCES INC.                                                             
|-----------------------------------------------------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                                                           
|Consolidated Statements of Cash Flows                                                    
|For the Years ended December 31, 2013 and 2012,
      and                                
|Cumulative for the period from May 9, 1996 (date of
      inception) to December 31, 2013

|                                                                      |   |              |   |   |              |   |   | For the period                     |  
|--------------------------------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ---------------------------------- | -
|                                                                      |   |              |   |   |              |   |   | **from May 9, 1996(date
      of** |  
|                                                                      |   | December 31, |   |   | December 31, |   |   | inception) through                 |  
|                                                                      |   | 2013         |   |   | 2012         |   |   | December 31, 2013                  |  
|                                                                      |   |              |   |   |              |   |   |                                    |  
|Cash flows from operating activities                                  |   |              |   |   |              |   |   |                                    |  
|Net loss                                                              | $ | (2,907,682   | ) | $ | (5,239,185   | ) | $ | (48,197,148                        | )
|Net loss from discontinued
      operations                           |   | -            |   |   | -            |   |   | 302,755                            |  
|Net loss from continuing operations excluding
      minority interest |   | (2,907,682   | ) |   | (5,239,185   | ) |   | (47,894,393                        | )
|Adjustments for:                                                      |   |              |   |   |              |   |   |                                    |  
|Gain on disposal
      of plant and equipment                         |   | (14,769      | ) |   | -            |   |   | (14,769                            | )
|Depreciation                                                          |   | 127,140      |   |   | 90,127       |   |   | 789,220                            |  
|Amortization of
      deferred costs                                  |   | 56,000       |   |   | 99,083       |   |   | 391,825                            |  
|Loss (gain) on sale of investment                                     |   | 64,880       |   |   | (1,143,371   | ) |   | (1,078,491                         | )
|Net loss from
      equity investment                                 |   | 1,063,175    |   |   | 1,193,785    |   |   | 3,537,137                          |  
|Interest on convertible notes payable                                 |   | -            |   |   | -            |   |   | 145,060                            |  
|Shares issued for
      services                                      |   | -            |   |   | 26,000       |   |   | 8,590,071                          |  
|Warrants and options issued for services                              |   | -            |   |   | 117,925      |   |   | 3,991,090                          |  
|Amortization of
      beneficial conversion feature                   |   | -            |   |   | 1,790,637    |   |   | 2,337,940                          |  
|Write-down of mineral rights                                          |   | -            |   |   | -            |   |   | 3,411,309                          |  
|Write-down of
      assets                                            |   | -            |   |   | -            |   |   | 240,063                            |  
|Other                                                                 |   | -            |   |   | -            |   |   | (1,630,814                         | )
|Changes in non-cash working capital:                                  |   |              |   |   |              |   |   |                                    |  
|Other receivables                                                     |   | 204,212      |   |   | (142,909     | ) |   | (27,343                            | )
|Prepaid expenses                                                      |   | (5,178       | ) |   | (23,582      | ) |   | 48,412                             |  
|Accounts payable                                                      |   | 28,657       |   |   | 167,773      |   |   | 2,359,873                          |  
|Accrued
      liabilities                                             |   | 118,188      |   |   | 239,823      |   |   | 673,755                            |  
|Other                                                                 |   | -            |   |   | -            |   |   | 778,688                            |  
|Net cash used in operating activities                                 |   | (1,265,377   | ) |   | (2,823,894   | ) |   | (23,351,367                        | )
|                                                                      |   |              |   |   |              |   |   |                                    |  
|Cash flows from investing activities                                  |   |              |   |   |              |   |   |                                    |  
|Investments in mineral rights                                         |   | -            |   |   | -            |   |   | (1,920,441                         | )
|(Disbursements)
    proceeds from sale of investment                  |   | (64,880      | ) |   | 1,164,020    |   |   | 1,099,140                          |  
|Proceeds on disposal of plant and equipment                           |   | 14,769       |   |   | -            |   |   | 14,769                             |  
|Additional contribution to Sino-Top                                   |   | -            |   |   | (1,630,240   | ) |   | (5,281,795                         | )
|Acquisition of plant and equipment                                    |   | -            |   |   | (381,473     | ) |   | (1,362,959                         | )
|Other                                                                 |   | -            |   |   | -            |   |   | 4,364,090                          |  
|Net cash used in investing activities                                 |   | (50,111      | ) |   | (847,693     | ) |   | (3,087,196                         | )
|                                                                      |   |              |   |   |              |   |   |                                    |  
|Cash flows from financing activities                                  |   |              |   |   |              |   |   |                                    |  
|Advances on credit note                                               |   | 1,069,279    |   |   | -            |   |   | 1,069,279                          |  
|Proceeds from issuance of common stock and
      warrants             |   | -            |   |   | 21,000       |   |   | 18,168,492                         |  
|Share issuance costs                                                  |   | -            |   |   | -            |   |   | (206,686                           | )
|Related party payable                                                 |   | -            |   |   | 189,046      |   |   | 1,381,968                          |  
|Repayments of related party payable                                   |   | (189,046     | ) |   | -            |   |   | (911,859                           | )
|Minority interest                                                     |   | -            |   |   | -            |   |   | 253,021                            |  
|Promissory note payable                                               |   | -            |   |   | -            |   |   | 516,623                            |  
|Write-down of promissory note payable                                 |   | -            |   |   | -            |   |   | (350,000                           | )
|Issuance of convertible notes payable                                 |   | 608,922      |   |   | 3,396,767    |   |   | 6,641,276                          |  
|Other                                                                 |   | -            |   |   | -            |   |   | (59,609                            | )
|Net cash provided by financing activities                             |   | 1,489,155    |   |   | 3,606,813    |   |   | 26,502,505                         |  
|                                                                      |   |              |   |   |              |   |   |                                    |  
|Effect of exchange rate on cash                                       |   | 39,864       |   |   | (36,388      | ) |   | 162,995                            |  
|Increase (decrease) in cash                                           |   | 213,531      |   |   | (101,162     | ) |   | 226,937                            |  
|Cash - beginning of year                                              |   | 13,406       |   |   | 114,568      |   |   | -                                  |  
|Cash - end of year                                                    | $ | 226,937      |   | $ | ****13,406   |   | $ | 226,937                            |  

Supplementalcash flowinformation(note 14)

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

F-9

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

1. Nature ofBusinessand Basis ofPresentation

Silver Dragon Resources Inc. was incorporated on May 9, 1996 in
the State of Delaware and its executive office is in Toronto, Canada. It carries
out operations in Canada and China .Silver Dragon Resources Inc. and its
subsidiaries (collectively referred to as Silver Dragon or the Company) are
in the exploration stage as defined by Financial Accounting Standards Boards
(FASB) Accounting Standard Codification (ASC) 915 Accounting and Reporting
For Development Stage Entities. 

The Companys strategy is to acquire and develop a portfolio of
silver properties in proven silver districts globally. To date, the Company has
generated no sales and has devoted its efforts primarily to financing, by
issuing common shares and convertible debt, and exploring its properties.

The consolidated financial statements of the Company have been
prepared in accordance with accounting principles generally accepted in the
United States of America (US GAAP), and are expressed in United States funds.

2. GoingConcernandExplorationStageActivities

These consolidated financial statements have been prepared in
accordance with US GAAP applicable to a going concern, which assumes that the
Company will be able to meet its obligations and continue its operations for the
next twelve months.

At December 31, 2013, the Company had a working capital deficit
of $5,622,503 (December 31, 2012 $4,001,000), had not yet achieved profitable
operations, incurred a net loss of $2,907,682 for the year ended December 31,
2013 (2012  $5,239,185), has accumulated losses of $48,197,148 since its
inception and expects to incur further losses in the development of its
business. These factors cast substantial doubt as to the Companys ability to
continue as a going concern, which is dependent upon its ability to obtain the
necessary financing to repay liabilities when they come due, and in the long-run
is dependent upon achieving profitable operations. Management has been unable to
secure additional financing to meet its cash requirements, including ongoing
working capital, cash contributions for its equity investment and funds to repay
all or certain of its convertible note holders. There is no assurance of
additional funding in any form, being available or available on acceptable
terms. In addition, as noted under note 18, the Company received extensions of
its obligations to repay the convertible note holders from a date of March 31,
2014 to June 30, 2014. Further, as noted under note 11, the Company has
forbearance agreements in place with its convertible note holders. If management
is unable to secure additional funding and/or extend the payoff date for its
convertible note obligations beyond June 30, 2014, the Company may be forced to
dilute its equity investment which will occur if it is not able to make the
required contributions in the amounts and dates as specified under note 18 (c)
or may ultimately have to file for bankruptcy. Realization values may be
substantially different from carrying values as shown. These consolidated
financial statements do not include any adjustments to reflect the future
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result if the Company were unable to
continue as a going concern.

F-10

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

3. Summary of Significant Accounting Policies

a) Principles of consolidation

The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Silver Dragon Resources Ltd. (a
Canadian corporation) and Silver Dragon Mining De Mexico S.A. de C.V and Silver
Dragon Resources de Mexico S.A. de C.V. ( Mexican corporation) . All significant
inter-company balances and transactions have been eliminated on consolidation.
The Companys 40% ownership in Sanhe Sino-Top Resources & Technology, Ltd.
(a China corporation) (Sino-Top) is recorded on the equity basis.

b) Use of estimates

The preparation of consolidated financial statements in
conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting periods. These estimates are based on managements best knowledge of
current events and actions the Company may undertake in the future. Significant
areas requiring the use of estimates relate to the estimated useful lives of
plant and equipment and valuation of equity investments. Actual results could
differ from these estimates. These estimates are reviewed periodically and as
adjustments become necessary, they are reported in earnings in the period in
which they become available.

c) Cash and cash equivalents

Cash and cash equivalents consist of deposits held in financial
institutions and liquid investments with original maturities of three months or
less at the time of purchase.

d) Financial instruments

The Company classifies all financial instruments as
held-for-trading, loans and receivables, or other financial liabilities. Loans
and receivables and other financial liabilities are measured at amortized cost.
Instruments classified as held for trading are measured at fair value with
unrealized gains and losses recognized in the statement of operations. Debt
transaction costs are allocated to the related debt and amortized over the life
of the loan using the effective interest method. Equity transaction costs are
recorded in equity.

The Company has designated its cash as held for trading, which
is measured at fair value. Advance credit note, accounts payable, accrued
liabilities, promissory and convertible notes payable and related party payables
are classified as other liabilities, which are measured at amortized cost, which
approximates fair value due to their short-term nature. Other receivables are
classified as loans and receivables, which are measured at amortized cost, which
approximates fair value due to their short-term nature.

F-11

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

3. Summary of Significant Accounting Policies continued

e) Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. Valuation
techniques used to measure fair value maximize the use of observable inputs and
minimize the use of unobservable inputs. The fair value hierarchy is based on
three levels of inputs, of which the first two are considered observable and the
last unobservable, that may be used to measure fair value, which are the
following:

- Level 1  Quoted prices in active markets for identical assets or
  liabilities.
- Level 2  Inputs other than Level 1 that are observable, either directly
  or indirectly, such as quoted prices for similar assets or liabilities, quoted
  prices in markets that are not active, or other inputs that are observable or
  can be corroborated by observable market data for substantially the full term
  of the assets or liabilities.
- Level 3  Unobservable inputs that are supported by little or no market
  activity and that are significant to the fair value of the assets or
  liabilities.

The Company uses the following methods and significant
assumptions to estimate fair values:

The fair value of cash is measured using Level 1 inputs.

Convertible notes payable: The Company revalues convertible
beneficial features on a regular basis, and amortizes the feature over the life
of the convertible note payable from the recognition date. The Company evaluates
the notes payable for covenant breaches and default events. If a covenant breach
or default event is incurred the Company records default interest and other
financial obligations in accordance with the signed contractual agreements.

A portion of the Companys financial instruments, however, lack
an available, or readily determinable, trading market as characterized by a
willing buyer and willing seller engaging in an exchange transaction.

F-12

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

3. Summary of Significant Accounting Policies continued

f) Mineral rights

The Company records its interest in mineral rights at cost.
Accordingly, costs associated with the acquisition and the development of
mineral reserves are capitalized. Exploration costs are expensed as incurred.

Capitalized costs of mineral properties are amortized using the
unit-of-production method using estimates of proved reserves. Investments in
unproved properties and major exploration and development projects are not
amortized until proved reserves associated with the projects can be determined
or until impairment occurs. If the results of an assessment indicate that a
property is impaired, the capitalized cost of that property will be charged to
expense at that time. The Company presently has no proven reserves. Where
estimates of future net cash flows are not available and where other conditions
suggest impairment, management assesses whether the carrying values can be
recovered. If the carrying values exceed estimated recoverable values, then the
costs are written-down to fair values with the write-down expensed in the
period. The Company evaluates the carrying amounts of its mineral rights when
events or changes in circumstances indicate that the carrying amount may not be
recoverable.

g) Equity investment

The Company exercises significant influence but does not
exercise control over its equity investment, Sino-Top. It is accounted for using
the equity method of accounting and is initially recognized at cost. The
Companys share of the entitys income or loss is recognized in the consolidated
statement of operations, and cumulative post-acquisition changes in the
investment are adjusted against the carrying amount of the investment. Were the
Companys share of losses on its investment to equal or exceed the carrying
amount of the investment, the Company would then only recognize further losses
if it incurred obligations or made payments on behalf of the equity investment.

h) Income taxes

The Company accounts for income taxes in accordance with FASB
ASC 740, Income Taxes. Deferred tax assets and liabilities are recorded for
differences between the accounting and tax basis of the assets and liabilities
that will result in taxable or deductible amounts in the future based on enacted
tax laws and rates. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is recorded for the amount of income tax payable or receivable for the
period, increased or decreased by the change in deferred tax assets and
liabilities during the period.

i) Revenue recognition

The Company has not earned revenues from its planned principal
operations. Revenues incidental to the planned principal operations will be
recognized as follows:

Revenues from the provision of mine exploration services are
recognized when the services are performed and collection is reasonably assured.
Revenues from the sale of silver and other byproducts are recognized when title
and risk of ownership of metal and metal bearing concentrates passes to the
buyer and collection is reasonably assured.

Interest income is recognized as it is earned and collection is
reasonably assured, taking into account the principal outstanding and the
effective rate over the period to maturity, when it is determined that such
income will accrue to the Company.

F-13

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

3. Summary of Significant Accounting Policies continued

j) Plant and equipment

Plant and equipment are stated at cost. Equipment awaiting
installation on site is not depreciated until it is commissioned. Depreciation
is based on the estimated useful life of the asset and depreciated annually as
follows:

|Category               | Rate    | Method           
|---------------------- | ------- | -----------------
|Computer hardware      | 30%     | Declining balance
|Computer software      | 30%     | Declining balance
|Vehicles               | 20%     | Declining balance
|Office equipment       | 20%     | Declining balance
|Mine equipment         | 20%     | Declining balance
|Leasehold improvements | 3 years | Straight line    

k) Loss per share

Basic loss per share is computed by dividing the net loss by
the weighted average number of common shares outstanding during the year.
Diluted loss per share is computed by dividing net loss by the weighted average
number of common shares outstanding plus potentially dilutive securities
outstanding for each year. The computation of diluted loss per share has not
been presented as its effect would be anti-dilutive.

l) Stock-based compensation

From time to time the Company grants options and/or warrants to
management, directors, employees and consultants. The Company recognizes
compensation expense at fair value. Under this method, the fair value of each
warrant is estimated on the date of the grant and amortized over the vesting
period, with the resulting amortization credited to accumulated paid in capital.
The fair value of each grant is determined using the Black-Scholes
option-pricing model. Consideration paid upon the exercise of stock options
and/or warrants are recorded in equity as share capital.

m) Asset retirement obligations

The Company recognizes liabilities for statutory, contractual
or legal obligations associated with the reclamation of mineral properties.
Initially, a liability for an asset retirement obligation is recognized at its
fair value in the period in which it is incurred and the corresponding asset
retirement cost is added to the carrying amount of the related asset. The cost is amortized over the
economic life of the asset using either the unit-of-production method or the
straight-line method, as appropriate. Following the initial recognition of the
asset retirement obligation, the carrying amount of the liability is adjusted
for changes to the amount or timing of the underlying cash flows needed to
settle the obligation. As at December 31, 2013, the Company had not incurred any
asset retirement obligations related to the exploration of its mineral
properties.

F-14

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

3. Summary of Significant Accounting Policies continued

n) Impairment of long lived assets

In accordance with ASC 360, Property, Plant and Equipment,
long lived assets to be held and used are analyzed for impairment whenever
events or changes in circumstances indicate that the related carrying amounts
may not be recoverable.

The Company evaluates at each balance sheet date whether events
and circumstances have occurred that indicate possible impairment. If there are
indications of impairment, the Company uses future undiscounted cash flows of
the related asset or asset grouping over the remaining life in measuring whether
the carrying amounts are recoverable. In the event such cash flows are not
expected to be sufficient to recover the recorded asset values, the assets are
written down to their estimated fair value.

o) Comprehensive Loss

The Company accounts for comprehensive loss in accordance with
ASC 220, Comprehensive Income, which establishes standards for reporting and
presentation of comprehensive loss and its components. Comprehensive loss is
presented in the consolidated statements of stockholders equity, and consists
of net loss and foreign currency translation adjustments.

p) Foreign currency translation

The Company accounts for foreign currency translation pursuant
to ASC 830, Foreign Currency Matters . The Companys functional currency is
United States dollars. For operations in Mexico, the local currency is the
functional currency. All assets and liabilities denominated in Mexican Pesos are
translated into United States dollars using the current exchange rate. Revenues
and expenses are translated using average exchange rates during the year.
Foreign exchange gains or losses are included in consolidated other
comprehensive loss for the period. The functional currency of the equity
investment in China is United States dollars. Net income or loss recorded on the
equity basis is translated using average exchange rates during the year.

4. RecentAccountingPronouncements

There were various accounting standards and interpretations
issued during the year ended December 31, 2013, none of which are expected to
have a material impact on the Companys consolidated financial position,
operations or cash flows.

F-15

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

5.FinancialInstruments

The carrying value of cash, other receivables, advance credit
note, accounts payable, accrued liabilities, promissory note payable,
convertible notes payable and related party payables approximated their fair
value as of December 31, 2013 and December 31, 2012 due to their short-term
nature.

Interest and Credit Risk

In the opinion of management, the Company is not exposed to
significant interest or credit risks arising from its financial instruments.

Currency Risk

While the reporting currency is the United States Dollar,
$99,974 of consolidated expenses for the year ended December 31, 2013 are
denominated in Mexican Pesos; and $840,058 of consolidated expenses for the year
ended December 31, 2013 are denominated in Canadian Dollars. As at December 31,
2013, $1,144,110 of the net monetary liabilities are denominated in Mexican
Pesos; and $24,017 of the net monetary assets are denominated in Canadian
Dollars. The Company has not entered into any hedging transactions to reduce the
exposure to currency risk.

6. OtherReceivables

In May 2012, the Company entered into an agreement to sell its
investment in Chifeng Silver Dragon Resources & Technologies, Ltd.
(Chifeng) for RMB7.4 million or $1,164,020. As at December 31, 2013,
RMB100,000 or $16,520 remains outstanding. Also included in other receivables
are commodity taxes receivable of $3,968.

F-16

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

7 . Plant andEquipment,net

|                       |   |         |  |   |              |  |   | December 31,   |  |   | December 31,   | 
|---------------------- | - | ------- |  | - | ------------ |  | - | -------------- |  | - | -------------- | 
|                       |   |         |  |   | Accumulated  |  |   | 2013           |  |   | 2012           | 
|                       |   | Cost    |  |   | depreciation |  |   | Net book value |  |   | Net book value | 
|Computer hardware      | $ | 40,559  |  | $ | 36,338       |  | $ | 4,221          |  | $ | 5,983          | 
|Office equipment       |   | 45,720  |  |   | 34,622       |  |   | 11,098         |  |   | 13,831         | 
|Leasehold improvements |   | 381,558 |  |   | 188,909      |  |   | 192,649        |  |   | 315,294        | 
|                       | $ | 467,837 |  | $ | 259,869      |  | $ | 207,968        |  | $ | 335,108        | 

F-17

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

During the year ended December 31, 2013, the Company disposed
of certain leasehold improvements which had been fully depreciated, resulting in
a gain of $14,769. The gain is disclosed in the consolidated statements of
operations and comprehensive loss under gain on disposal of plant and equipment.

8. EquityInvestment

Sanhe Sino-TopResources&TechnologiesLtd., China (Sino-Top)

The Company owns 40% of Sino-Top, whose assets mainly consist
of six exploration properties.

In May 2012, the Company entered into an agreement to sell its
investment in Chifeng to a private Chinese investor for RMB7.4 million or
$1,164,020 and recognized a gain of $1,143,371 on the transaction. During the
current year, the Company was charged RMB400,000 or $64,880 for additional
expenses relating to this sale, which is disclosed in the consolidated
statements of operations and comprehensive loss under (loss) gain on sale of
interest in mining property.

The Company is required to fund its equity share of ongoing
operations at Sino Top. At a Sino-Top meeting of its board of directors held on
May 13, 2013, a budget was finalized and the Companys funding requirements
total approximately RMB40 million or $6,608,000. This funding is currently
outstanding. See under note 18 (c).

|                                                           |   | 2013       |   |   | 2012       |  
|---------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|Carrying value of investment at December
      31, 2012    | $ | 4,743,949  |   | $ | 4,328,143  |  
|Additional investment and advances                         |   | -          |   |   | 1,630,240  |  
|Adjusted cost base of property sold                        |   | -          |   |   | (20,649    | )
|40% share of net loss for the year ended December 31, 2013 |   | (1,063,175 | ) |   | (1,193,785 | )
|Carrying value of investment at December
      31, 2013    | $ | 3,680,774  |   | $ | 4,743,979  |  

Share of loss for the year endingDecember31:

|                                    |   | 2013       |   |   | 2012       |  
|----------------------------------- | - | ---------- | - | - | ---------- | -
|Exploration expenses                | $ | (807,877   | ) | $ | (784,492   | )
|General and administrative expenses |   | (255,298   | ) |   | (409,293   | )
|Share of loss for the year (at 40%) | $ | (1,063,175 | ) | $ | (1,193,785 | )

Summarizedunauditedfinancialdata of Sino-Top for the years endedDecember31:

|                    |   | 2013       |   |   | 2012       |  
|------------------- | - | ---------- | - | - | ---------- | -
|Revenue             | $ | -          |   | $ | -          |  
|Net loss            | $ | (2,657,938 | ) | $ | (2,984,462 | )
|Current assets      | $ | 1,217,696  |   | $ | 2,068,185  |  
|Total assets        | $ | 2,173,338  |   | $ | 2,553,695  |  
|Current liabilities | $ | 6,875,663  |   | $ | 4,367,162  |  
|Total liabilities   | $ | 6,875,663  |   | $ | 4,367,162  |  

9.AdvanceCredit Note

During the fourth quarter, the Company received advances on a
note, in the amount of $1,069,279, from a private investor. A significant
portion of the funds were disbursed before year-end, to settle certain
outstanding obligations and payables. The Company and the private investor have
not resolved definitive agreements, nor has the investor funded the remaining
amounts required to complete the initial closing. Due to funding delays by the
investor and changes in the investor's offer, the Companys board of directors has determined not to proceed with
the contemplated transaction. The Company is seeking to resolve the treatment of
the initial $1,069,279 with the investor, and may be required to return such
funds, with or without interest, to the investor.

10.PromissoryNotePayable

In 2008, a promissory note was signed with a vendor in the
amount of $166,623 with a carried interest rate of 5% per month, unsecured, and
no maturity date. During the year ended December 31, 2013, the Company accrued
interest of $99,974 (2012 - $99,974) .

F-18

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

11.ConvertibleNotesPayable

Secured
    
    
    Convertible
    
    
    ConvertibleConvertible
    
    
    Redeemable
    
    
    Promissory
    
    
    Convertible
    
    
    TotalPromissory
    
    
    Note (b)
    
    
    Note (c)
    
    
    Notes (d)Note (a)Balance, December 31, 2011
    $
    1,931,806
    
    $
    220,345
    
    $
    1,039,662
    
    $
    98,779
    
    $
    3,290,592Issued
    
    -
    
    
    336,000
    
    
    500,000
    
    
    135,000
    
    
    971,000Deferred FinancingCosts Capitalized
    
    -
    
    
    14,000
    
    
    25,000
    
    
    -
    
    
    39,000Cancelled
    
    -
    
    
    (450,000
    )
    
    (425,000
    )
    
    -
    
    
    (875,000
    )Warrant accretion
    
    58,000
    
    
    -
    
    
    -
    
    
    -
    
    
    58,000BeneficialConversion Feature, net of accretion
    
    (318,317
    )
    
    84,034
    
    
    11,367
    
    
    33,286
    
    
    (189,630
    )Interest Accrual
    
    196,535
    
    
    70,575
    
    
    (20,441
    )
    
    3,524
    
    
    250,193Converted
    
    (513,944
    )
    
    (110,400
    )
    
    (609,688
    )
    
    (172,500
    )
    
    (1,406,532
    )Accretion ofFinancing Costs
    
    87,475
    
    
    4,729
    
    
    13,757
    
    
    -
    
    
    105,961Offset of NotesReceivable
    
    (317,808
    )
    
    -
    
    
    (975,000
    )
    
    
    
    
    (1,292,808
    )Settlement
    
    1,006,301
    
    
    102,217
    
    
    634,427
    
    
    (4,589
    )
    
    1,738,356Balance, December 31, 2012
    
    2,130,048
    
    
    271,500
    
    
    194,084
    
    
    93,500
    
    
    2,689,132Interest and other charges
    
    476,392
    
    
    10
    
    
    10,010
    
    
    10
    
    
    486,422Issued
    
    122,500
    
    
    -
    
    
    -
    
    
    -
    
    
    122,500Balance, December 31, 2013
    $
    2,728,940
    
    $
    271,510
    
    $
    204,094
    
    $
    93,510
    
    $
    3,298,054


F-19

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

11.ConvertibleNotesPayable, continued

|(a) | On July 16, 2012, the Company entered into a forbearance
      agreement to forbear from reselling the Companys common stock until
      September 30, 2012 and to commence the settlement process of certain notes
      receivable and convertible promissory notes payable.                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                              
|    | On August 23, 2012, the Company entered into an amended
      and restated forbearance agreement to forbear from reselling the Companys
      common stock until September 15, 2012 and to commence the settlement
      process of certain notes receivable and convertible promissory notes
      payable.
|    |                                                                                                                                                                                                                                                                                                              
|    | On October 4, 2012, the Company entered into a
      forbearance agreement to forbear from initiating collections against the
      Company and to commence the settlement process of certain notes receivable
      and convertible promissory notes payable.                                               

F-20

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

11.ConvertibleNotes Payable, continued

|(a) | On December 19, 2012, the Company entered into a payoff
      agreement and as a result of the agreement the secured buyer notes
      receivable were offset against the secured convertible promissory note
      payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | In addition, on December 19, 2012, the Company entered
      into a letter of agreement with the holder of the convertible note,
      pursuant to which the Company agreed to pay $2,130,048 on or before March
      31, 2013. Such payment will constitute payment in full of any and all
      obligations due and owing under the convertible note and certain other
      agreements between the parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | In consideration of the foregoing, the lenders agreed,
      from the date of the letter agreement through the payoff date, to forbear
      from exercising any right or remedy in respect of the convertible note and
      certain other agreements between the parties, including without limitation
      any right to conversion, right to delivery of shares, right to assignment,
      purchase right or any remedy arising as the result of any default or event
      of default. The parties have also agreed to a mutual release of claims,
      subject to and effective upon receipt and collection of the payoff amount
      as set forth in the letter of agreement. If the payoff amount is not paid
      by the payoff date, the lenders agreements shall be deemed
    cancelled.                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | On April 12, 2013, the Company entered into a
      supplemental letter of agreement with the holder of the convertible note
      providing, amount other things, that if the Company agrees to pay
      $2,130,048 by June 30, 2013, such payment would constitute payment in full
      of any and all obligations due and owing under the secured convertible
      promissory note.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | On June 3, 2013, the Company entered into an Amendment to
      the original agreements which consist of the note and warrant purchase
      agreement dated February 15, 2011 with the lender, secured convertible
      promissory note of the Company in the principal amount or $2,766,500, 10
      secured notes in favor of the Company (each, a Buyer Note) and a warrant
      to purchase common stock of the Company. Under the Amendment, the lender
      agreed to accelerate payment of a portion of the amounts payable to the
      Company under the tenth Buyer Note. The aggregate amount the lender agreed
      to accelerate was $120,000 (the Payoff Amount), which the parties agreed
      was satisfaction in full of the aggregate principal amount owing under the
      tenth Buyer Note of $200,000. The Company and the buyer agreed that the
      amount, $120,000, once paid to the Company, will become a Conversion
      Eligible Tranche under the Note in the amount of $220,000 plus interest
      and other amounts accrued under the Note.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Payoff Amount was payable in two installments. The
      first payment of $60,000 was paid upon execution of the Amendment of June
      3, 2013. If the Company met all of the Second Payment Conditions at any
      time during the period beginning July 3, 2013 and continuing until
      November 30, 2013, the lender would pay the second payment of $60,000.
      Although the Company had not yet met all of the Second Payment Conditions,
      the lender agreed to advance the second payment of $60,000 on August 2,
      2013 and the Company received such payment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|    | On August 7, 2013, the Company and the lender entered
      into a second supplemental letter of agreement, pursuant to which the lender
      agreed to extend the Payoff Date to September 30, 2013. In consideration
      for the extension to the payoff date, the Company agreed to increase the
      outstanding balance of certain notes and other obligations to the lender
      by $30,000. All other terms and conditions of the original Letter
      Agreement remains in full force and effect.                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | On November 13, 2013, the Company and the lender entered
      into a third supplemental letter agreement, pursuant to which the lender
      agreed to extend the Payoff Date for the secured convertible promissory
      note from September 30, 2013 to December 31, 2013. All other terms and
      conditions of the original Letter Agreement remains in full force and
      effect.                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | And, on November 27, 2013, the Company and the lender
      entered into a fourth supplemental letter agreement, pursuant to which
      the lender agreed that, if the Company pays $2,500,000 by a fixed time on March
      31, 2014, such payment would constitute payment in full of any and all
      obligations due and owing to the lender pursuant to certain secured
      convertible promissory note issued by the Company to the lender and
      certain other agreements between the parties. All other terms and
      conditions of the original Letter remains in full force and
  effect.                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | In consideration of the foregoing, the lender agreed,
      from the date of the letter of agreement through the Payoff Date, to
      forbear from exercising any right or remedy in respect of the convertible
      note and certain other agreements between the parties,, including without limitation any right to conversion, right to
      delivery of shares, right to assignment, purchase right or any remedy
      arising as the result of any default or event of default. The parties have
      also agreed to a mutual release of claims, subject to and effective upon
      receipt and collection of the Payoff Amount as set forth in the letter of
      agreement. If the Payoff Amount is not paid by the Payoff Date, the
      lenders agreement shall be deemed cancelled.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(b) | On February 10, 2012, the Company issued a convertible
      redeemable note payable in the principal amount of $150,000. As
      consideration the Company received cash. The convertible redeemable note
      payable bears interest at the rate of 6% per annum, is due February 10,
      2014, and is unsecured. On February 10, 2012, the Company defaulted on
      certain terms of the convertible redeemable note payable which required
      the Company to reserve a bank of 12,000,000 shares. The default called for
      an increase to the interest rate from 6% to 24% per
  annum.                                                                                                                                                                                               

F-21

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

11.ConvertibleNotesPayable, continued

|(b) | On June 15, 2012, the Company settled a convertible
      redeemable note payable and a promissory note receivable on a net basis
      that were issued December 15, 2011 in the amount of $250,000.                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | On August 31, 2012, the Company settled a convertible
      redeemable note payable and a promissory note receivable on a net basis
      that were issued February 10, 2012 in the amount of $200,000.                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Each convertible redeemable note payable is convertible
      into common stock, at the lenders option at a 30% discount on the lowest
      close bid price during any four trading days prior to and including the
      day of conversion. The Company recognized $nil (2012 - $150,000) as the
      beneficial conversion feature and recorded interest expense of $nil (2012
      - $234,606) and a loss on settlement of $nil (2012-$163,288). The
      beneficial conversion feature was being amortized over the term of the
      convertible redeemable notes.  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Each convertible redeemable note payable reflected an
      original issue discount of 4% which the Company recorded as deferred
      financing costs in the amount of $nil (2012 - $14,000). In addition the
      Company incurred transaction costs of $nil (2012 - $nil) which were
      capitalized to deferred financing costs. The deferred financing costs were
      being charged to interest expense over the term of the convertible
      redeemable notes payable and amounted to $nil (2012 - $21,411) and a loss
      on settlement of $nil (2012-$14,972).
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | On December 6, 2012, the Company entered into a payoff
      agreement and as a result of the agreement the promissory notes receivable
      was offset against the convertible redeemable notes payable.                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | In addition, on December 6, 2012, the Company entered
      into a letter of agreement with the holders of the convertible note,
      pursuant to which the Company agrees to pay $271,500 on or before the
      earlier of i) March 31, 2013 or ii) the closing of sale or merger or
      acquisition of the Company. Such payment will constitute payment in full
      of any and all obligations due and owing under the convertible note and
      certain other agreements between the parties.                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | On April 10, 2013, the Company entered into a
      supplemental letter of agreement with the holder of the convertible
      redeemable note providing, among other things, that if the Company agrees
      to pay $271,500 by June 30, 2013, such payment would constitute payment in
      full of any and all obligations due and owing under the convertible
      redeemable note.                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | On July 30, 2013, the Company and the lender entered into
      a second supplemental letter of agreement, pursuant to which the lender
      agreed to extend the Payoff Date to September 30, 2013. In
consideration for the extension to the payoff date, the Company agreed to
increase the outstanding balance of the convertible redeemable notes and other
obligations to the lender by $10. All other terms and conditions of the original
Letter Agreements remain in full force and effect.                                                                         

On November 8, 2013, the Company
entered into a third supplemental letter of agreement with the lender, pursuant to
which the lender agreed to extend the Payoff Date for the convertible redeemable
note owed from September 30, 2013 to March 31, 2014.

In consideration of the foregoing, the
lender agreed, from the date of the letter of agreement through the Payoff Date,
to forbear from exercising any right or remedy in respect of the convertible
redeemable note and certain other agreements between the parties,, including without limitation any right to conversion, right to
delivery of shares, right to assignment, purchase right or any remedy arising as
the result of any default or event of default. The parties have also agreed to a
mutual release of claims, subject to and effective upon receipt and collection
of the Payoff Amount as set forth in the letter of agreement. If the Payoff
Amount is not paid by the Payoff Date, the lenders agreement shall be deemed
cancelled.

F-22

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

11.ConvertibleNotes Payable, continued

|(c) | On April 25, 2012, the Company entered into an amendment
      to cancel the remaining convertible promissory note payable that was
      issued on April 19, 2011 and the $375,000 receivable.                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On April 26, 2012, the Company issued a convertible
      promissory note payable in the principal amount of $525,000. As
      consideration the Company received a secured and collateralized promissory
      note receivable. The convertible promissory note payable bears interest
      one time at the rate of 5% on the principal amount and is due April 26,
      2015. The secured and collateralized promissory note receivable bears
      interest at a one-time charge of 5.25% per annum, due April 26,
    2015.                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Each convertible promissory note payable is convertible
      into common stock, at the lenders option at a 25% discount on the average
      of the three lowest closing prices during the 20 trading day period prior
      to conversion. The Company recognized $nil (2012 - $175,000) as the
      beneficial conversion feature in accordance with ASC 470 Debt and recorded
      interest expense of $nil (2012-186,667) and a loss on settlement of $nil
      (2012-$550,091). The beneficial conversion feature was being amortized
      over the term of the convertible promissory notes payable.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The lender has agreed to restrict its ability to convert
      the convertible promissory notes payable and receive shares of common
      stock such that the number of shares of common stock held by them and
      their affiliates in the aggregate after such conversion or exercise does
      not exceed 4.99% of the then issued and outstanding shares of common
      stock.                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company recorded deferred financing costs in the
      amount of $nil (2012 - $25,000) representing the difference between the
      face value of the secured convertible note payable and the consideration
      provided. In addition the Company incurred transactions costs of $nil
      (2012 - $nil) which were capitalized to deferred financing costs. The
      deferred financing costs are being charged to interest expense over the
      term of the secured convertible note payable and amounted to $nil
      (2012-$38,927) and a loss on settlement of $nil
  (2012-$139,023).        

F-23

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

11.ConvertibleNotes Payable, continued

|(c) | On July 16, 2012, the Company entered into a standstill
      agreement to not convert any amount of the convertible promissory notes
      issued by the Company into common stock and not to resell any common stock
      of the Company from July 20, 2012 to September 15, 2012 and to commence
      the settlement process of certain notes receivable and convertible
      promissory notes payable.                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | On December 12, 2012, the Company entered into a payoff
      agreement and as a result of the agreement the secured and collateralized
      promissory notes receivable was offset against the convertible promissory
      notes payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | In addition, on December 12, 2012, the Company entered
      into a letter of agreement with the holders of the convertible note,
      pursuant to which the Company agrees to pay $194,084 on or before March
      31, 2013. Such payment will constitute payment in full of any and all
      obligations due and owing under the convertible note and certain other
      agreements between the parties.                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | In consideration of the foregoing, the lenders agreed,
      from the date of the letter agreement through the payoff date, to forbear
      from exercising any right or remedy in respect of the convertible note and
      certain other agreements between the parties, including without limitation
      any right to conversion, right to delivery of shares, right to assignment,
      purchase right or any remedy arising as the result of any default or event
      of default. The parties have also agreed to a mutual release of claims,
      subject to and effective upon receipt and collection of the payoff amount
      as set forth in the letter agreement.                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | On April 9, 2013, the Company entered into a supplemental
      letter of agreement with the holder of the convertible promissory note
      providing, amount other things, that if the Company agrees to pay $194,084
      by June 30, 2013, such payment would constitute payment in full of any and
      all obligations due and owing under the convertible promissory
  note.                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | On August 7, 2013, the Company and the lender entered
      into a second supplemental letter of agreement, pursuant to which the lender
      agreed to extend the Payoff Date to September 30, 2013. In consideration
      for the extension to the payoff date, the Company agreed to increase the
      outstanding balance of the convertible promissory note and other
      obligations to the lender by $10,000. All other terms and conditions of
      the original Letter Agreements remain in full force and effect.                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | On November 8, 2013, the Company entered into a third
      supplemental letter of agreement with the lender, pursuant to which the
      lender agreed to extend the Payoff Date for the convertible promissory
      note owed from September 30, 2013 to March 31, 2014. In consideration for
      the extension to the payoff date, the Company agreed to increase the
      outstanding balance of the convertible promissory notes and other
      obligations to the lender by $10. All other terms and conditions of the
      original Letter Agreements remain in full force and effect.                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | In consideration of the foregoing, the lender agreed,
      from the date of the letter of agreement through the Payoff Date, to
      forbear from exercising any right or remedy in respect of the convertible
      note and certain other agreements between the parties, including without limitation any right to conversion, right to
      delivery of shares, right to assignment, purchase right or any remedy arising as the result of any
default or event of default. The parties have also agreed to a mutual release of
claims, subject to and effective upon receipt and collection of the Payoff
Amount as set forth in the letter of agreement. If the Payoff Amount is not paid
by the Payoff Date, the lenders agreement shall be deemed cancelled.

F-24

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

11.ConvertibleNotes Payable, continued

|(d) | On January 27, 2012, the Company issued a convertible
      note payable in the principal amount of $42,500, which was settled in full
      on August 22, 2012. The convertible note payable bears interest at the
      rate of 8% per annum, is due October 30, 2012, and is unsecured. The
      convertible note payable is convertible into common stock, at the lenders
      option, at a 30% discount to the average of the three lowest closing
      prices of the common stock during the 10 trading day period prior to
      conversion.                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | On March 15, 2012, the Company issued a convertible note
      payable in the principal amount of $51,000. The convertible note payable
      bears interest at the rate of 8% per annum, is due December 19, 2012, and
      is unsecured. The convertible note payable is convertible into common
      stock, at the lenders option, at a 30% discount to the average of the
      three lowest closing prices of the common stock during the 10 trading day
      period prior to conversion.                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | On May 16, 2012, the Company issued a convertible note
      payable in the principal amount of $41,500. The convertible note payable
      bears interest at the rate of 8% per annum, is due February 21, 2013, and
      is unsecured. The convertible note payable is convertible into common
      stock, at the lenders option, at a 30% discount to the average of the
      three lowest closing prices of the common stock during the 10 trading day
      period prior to conversion.                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The lender has agreed to restrict its ability to convert
      the convertible promissory notes payable and receive shares of common
      stock such that the number of shares of common stock held by them and
      their affiliates in the aggregate after such conversion or exercise does
      not exceed 4.99% of the then issued and outstanding shares of common
      stock.                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | On November 29, 2012, the Company entered into a letter
      of agreement with the holders of the convertible note, pursuant to which
      the Company agrees to pay $93,500 on or before March 31, 2013. Such
      payment will constitute payment in full of any and all obligations due and
      owing under the convertible note and certain other agreements between the
      parties.                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | In consideration of the foregoing, the lenders agreed,
      from the date of the letter of agreement through the payoff date, to forbear
      from exercising any right or remedy in respect of the convertible note and
      certain other agreements between the parties, including without limitation
      any right to conversion, right to delivery of shares, right to assignment,
      purchase right or any remedy arising as the result of any default or event
      of default. The parties have also agreed to a mutual release of claims,
      subject to and effective upon receipt and collection of the payoff amount
      as set forth in the letter agreement. If the payoff amount is not paid by
      the payoff date, the lenders agreements shall be deemed
  cancelled.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | On April 12, 2013, the Company entered into a
      supplemental letter of agreement with the holder of the convertible notes
      providing, amount other things, that if the Company agrees to pay $93,500
      by June 30, 2013, such payment would constitute payment in full of any and
      all obligations due and owing under the convertible notes.                                                                                                                                                                                                                                                                                                                                                                                                                                        

On June 27, 2013, the Company and the
lender entered into a second supplemental letter of agreement, pursuant to which
the lender agreed to extend the Payoff Date to September 30, 2013. In
consideration for the extension to the payoff date, the Company agreed to
increase the outstanding balance of the convertible notes and other obligations
to the lender by $10. All other terms and conditions of the original Letter
Agreements remain in full force and effect.

On November 8, 2013, the Company
entered into a third supplemental letter of agreement with the lender, pursuant to
which the lender agreed to extend the Payoff Date for the convertible notes owed
from September 30, 2013 to March 31, 2014.

In consideration of the foregoing, the
lender agreed, from the date of the letter of agreement through the Payoff Date,
to forbear from exercising any right or remedy in respect of the convertible
note and certain other agreements between the parties, including without limitation any right to conversion, right to
delivery of shares, right to assignment, purchase right or any remedy arising as
the result of any default or event of default. The parties have also agreed to a
mutual release of claims, subject to and effective upon receipt and collection
of the Payoff Amount as set forth in the letter of agreement. If the Payoff
Amount is not paid by the Payoff Date, the lenders agreement shall be deemed
cancelled.

As noted under note 18 (a) and (b), Subsequent Events, subsequent to the year end, the Company obtained extensions of the Payoff Date  from each lender.

F-25

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

12.RelatedPartyTransactionsandBalances

|                                                                                |   | December 31, 2013 |  |   | December 31, 2012 | 
|------------------------------------------------------------------------------- | - | ----------------- |  | - | ----------------- | 
|Related party payable, non-interest
      bearing, due on demand and unsecured. | $ | -                 |  | $ | 189,046           | 

As at December 31, 2013, unpaid remuneration in the amount of
$102,000 (2012 - $138,000) in relation to one director (2012 - two directors) is
included in accrued liabilities.

During the year ended December 31, 2013, the Company incurred
$324,000, (2012 - $328,894) in management fees paid to a company controlled by a
director and officer of the Company for his services as chief executive officer
and $72,000 (2012 - $30,000) of accrued fees to a director for management
services, included in accrued liabilities. On December 31, 2013, the outstanding
amounts for the chief executive officers services and for the related party
payable consisting of outstanding loans were paid in full.

During the year, the Company incurred $77,595 (2012 - $64,272)
in rent paid to a company controlled by a director and officer. Included in
prepaids is a rental deposit of $4,809 (2012 - $5,141).

In addition, included under prepaid expenses, as at December
31, 2013, in the consolidated balance sheets, is a prepayment of management fees
paid to a company controlled by a director and office of the Company in the
amount of $30,510 (2012 - $nil).

These transactions were in the normal course of operations and
have been recorded at the exchange amounts which the parties believe to be fair
value.

F-26

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

13.CapitalStock

On February 3, 2012, the Company issued 357,143 shares of the
Companys restricted common stock for legal services rendered for, fair value of
$20,000.

On February 15, 2012 the Company issued 100,000 shares of the
Companys restricted common stock to an individual for services rendered, for
fair value of $6,000.

On March 22, 2012, the Company issued 2,225,000 common share
purchase warrants to directors and employees for services rendered at an
exercise price of $0.06 exercisable for a period of three years from the date of
issuance, for fair value of $117,925.

On April 10, 2012, the Company issued 700,000 shares of the
Companys restricted common stock to an accredited investor pursuant to a
private placement at $0.03 per unit for fair value of $21,000.

During the year ended December 31, 2012, the Company issued
37,638,219 common shares pursuant to the conversion of a note of $513,944
principal and $107,616 interest (note 11(a)).

During the year ended December 31, 2012, the Company issued
10,344,198 common shares pursuant to the conversion of a note of $110,400
principal and $2,683 interest (note 11(b)).

During the year ended December 31, 2012, the Company issued
46,242,798 common shares pursuant to the conversion of a note of $609,688
principal and $64,063 interest (note 11(c)).

F-27

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

13.CapitalStock,continued

During the year ended December 31, 2012, the Company issued
36,216,804 common shares pursuant to the conversion of notes of $172,500
principal and $6,900 interest (note 11(d)).

Warrants

As at December 31, 2013, 12,235,000 warrants were outstanding,
having an exercise price between $0.06 and $0.50 per share with an average
remaining contractual life of 0.32 years.

|                           |  |            |   |   | Weighted         |  
|-------------------------- |  | ---------- | - | - | ---------------- | -
|                           |  | Number of  |   |   | average exercise |  
|                           |  | warrants   |   |   | price            |  
|Balance, December 31, 2011 |  | 22,978,000 |   | $ | (0.48            |  
|Issued during the year     |  | 2,225,000  |   |   | 0.06             |  
|Expired during the year    |  | (6,400,000 | ) |   | (0.58            | )
|Forfeited during the year  |  | (5,100,000 | ) |   | (0.47            | )
|Balance, December 31, 2012 |  | 13,703,000 |   | $ | 0.36             |  
|Expired during the year    |  | (1,468,000 | ) |   | (0.27            | )
|Forfeited during the year  |  | -          |   |   | -                |  
|Balance, December 31, 2013 |  | 12,235,000 |   | $ | 0.38             |  

As at December 31, 2013, the range of exercise prices of the
outstanding warrants were as follows:

|                         |            |                   | Weighted        
|------------------------ | ---------- | ----------------- | ----------------
|                         | Number of  | Average remaining | average exercise
|Range of exercise prices | warrants   | contractual life  | price           
|$0.06 - $0.50            | 12,235,000 | 0.32 years        | $0.38           

F-28

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

14.SupplementalCash FlowInformation

Issuanceofconvertiblenotespayable

|                                           |   |              |  |   |              |   |   | For the period     |  
|------------------------------------------ | - | ------------ |  | - | ------------ | - | - | ------------------ | -
|                                           |   |              |  |   |              |   |   | from May 15,       |  
|                                           |   |              |  |   |              |   |   | **1996 (date of**  |  
|                                           |   |              |  |   |              |   |   | inception) through |  
|                                           |   | December 31, |  |   | December 31, |   |   | December 31,       |  
|                                           |   | 2013         |  |   | 2012         |   |   | 2013               |  
|                                           |   |              |  |   |              |   |   | (Unaudited)        |  
|                                           |   |              |  |   |              |   |   |                    |  
|Issuance of convertible notes payable      | $ | 122,500      |  | $ | 725,000      |   | $ | 5,037,500          |  
|Cash advances                              |   | -            |  |   | 136,000      |   |   | 1,794,493          |  
|Interest  and other charges                |   | 486,422      |  |   | (49,560      | ) |   | 667,684            |  
|Notes receivable                           |   | -            |  |   | (850,000     | ) |   | (4,952,500         | )
|Cash repayments on notes receivable        |   | -            |  |   | 1,542,143    |   |   | 2,392,143          |  
|Deferred charges                           |   | -            |  |   | 999,097      |   |   | 807,869            |  
|Settlement of notes payable and receivable |   | -            |  |   | 894,087      |   |   | 894,087            |  
|                                           | $ | 608,922      |  | $ | 3,396,767    |   | $ | 6,641,276          |  

For the year ended December 31, 2013 there were no cash
payments or receipts for income taxes (2012 - $nil). Cash payments for interest
expense amounted to $nil (2012 - $nil).

15.IncomeTaxes

The Companys income tax provision has been calculated as
follows:

|                                                                                                                   |   | 2013       |       |   | 2012       |  
|------------------------------------------------------------------------------------------------------------------ | - | ---------- | ----- | - | ---------- | -
|                                                                                                                   |   |            |       |   |            |  
|Loss before income taxes                                                                                           | $ | (2,907,682 | )     | $ | (5,239,185 | )
|Deferred: Expected tax income tax recovery at the combined
      average statutory rates of 31.72% (2012  32.55%) |   | (922,424   | **)** |   | (1,705,220 | )
|Permanent differences                                                                                              |   | 383,694    |       |   | 506,521    |  
|Change in valuation allowance                                                                                      |   | 538,730    |       |   | 1,198,699  |  
|Provision for income taxes                                                                                         | $ | -          |       | $ | -          |  

The following summarizes the principal temporary differences
and related future tax:

|Losses carried forward    | $ | 11,860,091  |   | $ | 11,321,361  |  
|------------------------- | - | ----------- | - | - | ----------- | -
|Valuation allowance       |   | (11,860,091 | ) |   | (11,321,361 | )
|Deferred income tax asset | $ | -           |   | $ | -           |  

Potential benefits of income tax losses are not recognized in
the accounts until realization is more likely than not. The Company computes tax
asset benefits for net operating losses carried forward.

Potential benefits of net operating losses have not been
recognized in these consolidated financial statements because the Company cannot
be assured it will more likely than not utilize the net operating losses carried
forward in future years.

F-29

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

15.IncomeTaxes, continued

The Companys tax returns have not yet been filed and when they
are filed they will be subject to audit and potential penalties and reassessment
by taxation authorities. The outcome of the audits cannot be reasonably
determined and the potential impact on the consolidated financial statements is
not determinable.

16.CommitmentsandContingencies

|(a) | On December 19, 2011, the Company entered into a
      three-year lease agreement with a related party for an office, which was
      amended during the first quarter to commence from June 1, 2012 and end on
      May 31, 2015. The future minimum commitment under the lease obligations
      for office premises are as follows:
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2014 | $ | 66,510 | 
| | ---- | - | ------ | 
| | 2015 |   | 27,712 | 
| |      | $ | 94,222 | 

|    | In addition, the Company is required to pay its
      proportionate share of realty taxes and certain other occupancy costs
      under the terms of the lease.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                
|(b) | The Company has committed to provide capital
      contributions to cover expenses proportionate to its equity interest into
      Sino-Top.                   

The Companys Mexican subsidiary was subjected to
irregularities that it was seeking to redress. Legal proceedings were heard and
decided on an ex parte basis, without notice to the Company that resulted in its
Mexican subsidiary losing title to its mineral assets. In December 2010, the
Company became aware of this situation, and took steps through the courts in
Mexico to redress the situation. It included a Constitutional Rights Claim
before the Federal Court in the City of Durango, premised on procedural
irregularities. On May 22, 2012, the Court ruled against the Constitutional
Rights Claim. As a result, we have determined that we will not pursue any
further recourse with regard to this matter, and accordingly, we will never
recover the Mexican Concessions. The Company is working with its legal counsel
to dissolve the Mexican subsidiaries.

F-30

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

17.SegmentedInformation

The Company uses a management approach for determining
segments. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Companys reportable segments. The Companys management
reporting structure provides for only one segment: exploration of mines.

The regions and countries in which the Company had identifiable
assets and revenues are presented in the following table. Identifiable assets
are those that can be directly associated with a geographic area.

|As at December 31, 2013      |   | Corporate  |   |   | Mexico   |   |   | China      |   |   | Total      |  
|---------------------------- | - | ---------- | - | - | -------- | - | - | ---------- | - | - | ---------- | -
|Equity investment            | $ | -          |   | $ | -        |   | $ | 3,680,774  |   | $ | 3,680,774  |  
|Total assets                 | $ | 588,711    |   | $ | -        |   | $ | 3,680,774  |   | $ | 4,269,485  |  
|                             |   |            |   |   |          |   |   |            |   |   |            |  
|Year ended December 31, 2013 |   | Corporate  |   |   | Mexico   |   |   | China      |   |   | Total      |  
|Revenues                     | $ | -          |   | $ | -        |   | $ | -          |   | $ | -          |  
|Depreciation                 | $ | (127,140   | ) | $ | -        |   | $ | -          |   | $ | (127,140   | )
|Loss before income tax       | $ | (1,744,533 | ) | $ | (99,974  | ) | $ | (1,063,175 | ) | $ | (2,907,682 | )
|                             |   |            |   |   |          |   |   |            |   |   |            |  
|As at December 31, 2012      |   | Corporate  |   |   | Mexico   |   |   | China      |   |   | Total      |  
|Equity investment            | $ | -          |   | $ | -        |   | $ | 4,743,949  |   | $ | 4,743,949  |  
|Total assets                 | $ | 757,354    |   | $ | -        |   | $ | 4,743,949  |   | $ | 5,501,303  |  
|                             |   |            |   |   |          |   |   |            |   |   |            |  
|Year ended December 31, 2012 |   | Corporate  |   |   | Mexico   |   |   | China      |   |   | Total      |  
|Revenues                     | $ | -          |   | $ | -        |   | $ | -          |   | $ | -          |  
|Depreciation                 | $ | ( 90,127   | ) | $ | -        |   | $ | -          |   | $ | (90,127    | )
|Loss before income tax       | $ | (3,945,426 | ) | $ | ( 99,974 | ) | $ | (1,193,785 | ) | $ | (5,239,185 | )

F-31

---

|SILVER DRAGON RESOURCES INC.                  
|----------------------------------------------
|(AN EXPLORATION STAGE COMPANY)                
|Notes to the Consolidated Financial Statements
|December 31, 2013 and 2012                    

18.SubsequentEvents

|(a) | On March 25, 2014, the Company and the remaining three lenders, agreed to replace all references to March 31, 2014 in the payoff letter with June 30, 2014. The Company will pay each of these three lenders $10 in consideration for this extension to the Payoff Date. All other terms and conditions of the payoff letter remain in full force and effect.                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(b) | On March 27, 2014, a lender, Tonaquint, Inc. agreed to replace reference to the Payoff Amount and accept an amount equal to $2,750,000, so long as such payment is made on or before June 30, 2014. All other terms and conditions of the payoff letter remain in full force and effect.                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(c) | At the recent Sino-Top board of directors meeting held on March 29, 2014, the 2014 budget was finalized. The total budget for 2014 is RMB171,000,000
($27,531,000) and the Company's contribution is RMB76,000,000  ($12,236,000).  The Company's investment in Sino-Top will be diluted to 20% if it does not make a contribution of RMB50,000,000
($8,050,000) by April 8, 2014 and a further contribution of RMB26,000,000 ($4,186,000) by June 15, 2014, with no further
required contributions. These are cumulative amounts and include past contributions which were not made by the Company
(note 8).

F-32

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