China Shouguan Investment Holding Group Corp - FORM 10-Q

China Shouguan Investment Holding Group Corp - FORM 10-Q - May 16, 2014

China Shouguan Investment Holding Group Corp Reports

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER THE SECURITIES ACT OF 1933

For the three months ended March 31, 2014

Commission File No. 333-167964

CHINA SHOUGUAN MINING CORPORATION

(Exact name of registrant as specified in its charter)

Nevada

(State or other jurisdiction of incorporation)

27-2513824

(IRS Employer Identification No.)

6009 Yitian Road

New World Center Rm. 3207

Futian District, Shenzhen

People’s Republic of China

Telephone 0086-755-82520008

Facsimile 0086-755-82520156

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

__________________________

Frank J. Hariton

1065 Dobbs Ferry Road

White Plains, New York

Tel: 914 674 4373; Fax: 914 693 2963

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

__________________________

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

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

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

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

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

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

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

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

Large accelerated filer Accelerated filer

Non-accelerated filer Smaller reporting company x

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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

TABLE OF CONTENTS

PART I
ITEM 1.	Business	4
ITEM 1A.	Risk Factors	17
ITEM 1B.	Unresolved Staff Comments	28
ITEM 2.	Properties	28
ITEM 3.	Legal Proceedings	28
ITEM 4.	Mine Safety Disclosure	28

PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
ITEM 6.	Selected Financial Data	29
ITEM 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	40
ITEM 8.	Financial Statements	42
ITEM 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	61
ITEM 9A(T).	Controls and Procedures	61
ITEM 9B.	Other Information	61

PART III
ITEM 10.	Directors and Executive Officers and Corporate Governance	62
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	66
ITEM 13.	Certain Relationships and Related Transactions and Director Independence	67

PART IV
ITEM 15	Exhibits, Financial Statement Schedules	68

SIGNATURES		69

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

Available Information

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

PART I.

Item 1. Business

Overview

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Corporate History and Structure

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

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

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

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

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

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

The following diagram illustrates our current corporate structure:

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

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

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

Contractual Arrangements

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Current Mining Property and Location

Cunli Ji Gold Mine (“CJ Mine”)

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

Mining Areas:

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

Location and Access:

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

Identifying Information of the Cunli Ji Mine:

Mining license No.: 3700000720179

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

Exploration license No.: 3700000710963

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

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

Exploration Rights:

Exploration license No.: T37120080102000548

Exploration license No.: T37120080602009999

Area of the Cunli Ji Mine:

Cunliji Mining Area: 106.255 acres

Chenjiagou Exploration Area: 3995.69 acres

Jiyingshan Exploration Area: 437.90 acres

Regional Geology

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

Rock Formations and Mineralization :

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

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

Work Completed and Present Conditions:

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

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

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

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

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

Current State of Exploration

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

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

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

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

Dayuan Gold Mine (“Dayuan Mine”)

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

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

Mine Area

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

Location and Access

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

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

Source of Power and Water:

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

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

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

Type of claim :

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

Identifying Information of the Dayuan Mine:

Mining Right:

Mining license no.: C3700002008094120000887

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

Concession period: From 29 December 2010 to 29 December 2013

Exploration license no.: 3700000310175

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

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

Area of the Dayuan Mine:

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

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

Regional Geology

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

Rock Formations and Mineralization :

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

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

Work Completed and Present Conditions:

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

Equipment, Infrastructure and Other Facilities of the Dayuan Mine:

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

Current State of Exploration:

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

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

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

Description of Processing Facilities :

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

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

Sample Collection, Preparation, Analysis and Assay Control

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

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

Our Proposed Business Strategy

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

Future potential mining projects

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

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

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

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

Procedures for assessing a potential acquisition:

1) Two standard criteria must be satisfied;

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

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

Item 1A. Risk Factors

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

RISKS ASSOCIATED WITH OUR COMPANY:

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

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

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

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

We may not be able to find commercially viable reserves.

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

Limited amount of drilling completed to date;

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

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

Preliminary nature of the mine plans and processing concepts;

Preliminary nature of operating and capital cost estimates

Metallurgical flow sheets and recoveries still in development;

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

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

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

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

Geologic Uncertainty and Inherent Variability: Estimated reserves and additional mineralized materials are generally derived from appropriately spaced drilling to provide a high degree of assurance in the continuity of the mineralization, however, there is generally variability between duplicate samples taken adjacent to each other and between sampling points that cannot be reasonably eliminated. There are also unknown geologic details that are not always identified or correctly appreciated at the current level of delineation. This results in uncertainties that cannot be reasonably eliminated from the estimation process. Some of the resulting variances can have a positive effect and others can have a negative effect on mining operations. Acceptance of these uncertainties is part of any mining operation.

Metal Price Variability: The prices for gold, silver, copper and other precious metals fluctuate in response to many factors beyond anyone's ability to predict. The prices used in making the reserve estimates are disclosed and differ from daily prices quoted in the news media. The percentage change in the price of a metal cannot be directly related to the estimated reserve quantities, which are affected by a number of additional factors. For example, a ten percent (10%) change in price may have little impact on the estimated reserve quantities and affect only the resultant positive cash flow, or it may result in a significant change in the amount of reserves. Because mining occurs over a number of years, it may be prudent to continue mining for some period during which cash flows are temporarily negative for a variety of reasons, including a belief that the low price is temporary and/or the greater expense would be incurred in closing a property permanently.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

levying fines;

revoking our business and other licenses;

requiring that we restructure our ownership or operations; and/or

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

Mining risks and insurance could negatively effect on our profitability.

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

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

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

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

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

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

RISKS RELATED TO DOING BUSINESS IN CHINA:

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

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

• the higher level of government involvement;

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

• the rapid growth rate;

• the higher level of control over foreign exchange; and

• the allocation of resources.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

We do not currently own any properties.

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

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

Item 3. Legal Proceedings

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

Item 4. Mine Safety Disclosure

Not applicable.

PART II.

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

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

Dividend Policy

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

Recent Sales of Unregistered Securities

None.

Item 6. Selected Financial Data.

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

Income Statement Data:		Three months ended March 31,
		2014		2013
Sales revenue
-Product	$	518,073	$	1,088,598
Cost of sales
-Product	$	(327,524)	$	(968,605)
Gross profits	$	190,549	$	119,993
Administrative expenses	$	(253,214)	$	(305,495)
Interest expenses	$	(39,207)	$	(39,789)
Interest income	$	219	$	182
Gain on disposal of a subsidiary	$(1	454,200	$	-
Income tax expenses	$	-	$	(6,099)
Net income (loss)	$	352,547	$	(231,208)
Net income (loss) per share (Basic and diluted)	$	0.00	$	(0.00)

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

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

Forward Looking Statements

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

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

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

Plan of Operation

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

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

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

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

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

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

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

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

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

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

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

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

· environmental hazards;

· industrial accidents;

· unusual or unexpected geologic formations;

· explosive rock failures; and

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

Any such risks could result in:

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

· personal injury or death;

· environmental damage;

· delays in mining;

· monetary losses; and

· legal liability.

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

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

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

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

Current Operations

Cunli Ji Mine

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

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

Dayuan Mine

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

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

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

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

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

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

Others

Results of Operations

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

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

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

		Three months ended March 31,
		2014	2013	Increase (Decrease)	% Increase ( Decrease)
Sales revenue
-Product	$	518,073	1,088,598	(570,525)	(52%)
Cost of sales
-Product	$	(327,524)	(968,605)	(641,081)	(66%)
Gross profits	$	190,549	119,993	70,556	59%
Administrative expenses	$	(253,214)	(305,495)	(52,281)	(17%)
Loss from operations	$	(62,665)	(185,502)	(122,837)	(66%)
Interest expenses	$	(39,207)	(39,789)	(582)	(1%)
Interest income	$	219	182	37	20%
Gain on disposal of a subsidiary		454,200	-	454,200	NM
Profit (Loss) before income tax	$	352,547	(225,109)	577,656	226%
Income tax expenses	$	-	(6,099)	(6,099)	NM
NET LOSS	$	352,547	(231,208)	583,755	252%
Other comprehensive income (loss):
- Foreign currency translation adjustment	$	(123,702)	67,120	190,822	284%
COMPREHENSIVE INCOME (LOSS)	$	228,845	(164,088)	392,933	239%
Weighted average common stock outstanding		115,000,000	124,146,067
Net income (loss) per share (Basic and diluted)	$	0.00	(0.00)

NM: Not meaningful

Net Revenues

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

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

		Three months ended March 31,
		2014	%		2013	%
Sales revenue
-Product	$	518,073	100.00	$	1,088,598	100.00
Cost of sales
-Product	$	(327,524)	100.00	$	(968,605)	100.00

Gross profits (loss)	$	190,549	100.00	$	119,993	100.00

Gross profit margin		36.78%	n/a		11.02%	n/a

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

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

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

Cost of Revenue

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

Gross Profit

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

General and Administrative Expenses

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

Income Tax Expense

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

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

United States of America

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

British Virgin Islands

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

Hong Kong

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

The PRC

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

Net Profit (Loss)

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

Liquidity and Capital Resources

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

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

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

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

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

Off-Balance Sheet Arrangements

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

Amount Due to a Related Party

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

Commitments and Contingencies

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

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

Operating lease commitments

Years ending December 31,	Office premises	Mine operating rights	Total

2015	$ 114,134	$ -	$ 114,134
2016	$ 91,174	-	$ 91,174
2017	-	-	-
2018	-	$ 7,006,353	$ 7,006,353
Total:	$ 205,308	$ 7,006,353	$ 7,211,661

Subsequent Events

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

Critical Accounting Policies and Estimates

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

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

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

Basis of Consolidation

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

Variable Interest Entities (VIEs)

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

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

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

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

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

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

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

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

Impairment of Long-lived Assets

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

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

Revenue Recognition

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

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

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

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

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

We are exposed to the following concentrations of risk:

(a) Major customers

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

A customer is located in the PRC.

(b) Major vendors

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

		Three months ended March 31, 2014			March 31, 2014
Vendor		Purchases		Percentage of purchases	Accounts payable, trade

Vendor A		$	505,045	67%	$	132,485
Vendor B			253,565	33%		89,511
						-

	Total:	$	758,610	100%	$	221,996

		Three months ended March 31, 2013			March 31, 2013
Vendor		Purchases		Percentage of purchases	Accounts payable, trade

Vendor A		$	542,616	68%	$	511,568
Vendor C			136,813	17%		-
Vendor D			83,041	10%		-

	Total:	$	762,470	95%	$	511,568

All vendors are located in the PRC.

Credit risk

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

Exchange rate risk

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

Economic and political risks

Our operations are conducted in the PRC. Accordingly, our business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. Our operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

Industry risks

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

Risk on changing price in gold

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

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

Item 8. Financial Statements

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

CHINA SHOUGUAN MINING CORPORATION

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

		Page

Condensed Consolidated Balance Sheets as of March 31, 2014 And December 31, 2013 (Audited)		F-2

Condensed Consolidated Statements of Operations And Comprehensive Income for the Three Months ended March 31, 2014 And 2013		F-3

Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2014 And 2013		F-4

Condensed Consolidated Statement of Stockholders’ Equity for the Three Months ended March 31, 2014		F-5

Notes to Condensed Consolidated Financial Statements		F-6 – F-19

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2014 AND DECEMBER 31, 2013

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

	March 31, 2014		December 31, 2013
	(Unaudited)		(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	229,947	$	248,983
Deposits and prepayments		118,013		96,854
Gold inventories		259,237		-
Consideration receivable		3,649,990		-
Prepaid mining rights, current		2,141,327		2,158,979
Assets held for sale		-		6,961,956
Total current assets		6,398,514		9,466,772

Non-current assets:
Prepaid mining rights		5,892,983		5,131,944
Property, plant and equipment, net		2,426,766		2,504,611
Construction in progress		811,463		-
TOTAL ASSETS	$	15,529,726	$	17,103,327

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	514,349	$	508,659
Amount due to a related party		188,640		182,432
Loans payable, unsecured		9,027,974		9,427,468
Note payable, related party		1,119,330		1,406,608
Accrued liabilities and other payable		593,424		1,762,312
Liabilities held for sale		-		874

Total current liabilities		11,443,717		13,288,353

Long-term liabilities:
Loans payable, unsecured		214,191		241,657

Total long-term liabilities		214,191		241,657

Total liabilities	$	11,657,908	$	13,530,010

Commitments and contingencies

Stockholders’ equity:
Common stock, $0.0001 par value; 300,000,000 shares authorized; 115,000,000 shares issued and outstanding, respectively		11,500		11,500
Additional paid-in capital		8,899,597		8,899,597
Subscription receivable		(718,459)		(718,459)
Statutory reserve		308,898		645,781
Accumulated other comprehensive income		364,794		488,496
Accumulated deficits		(4,994,512)		(5,753,598)

Total stockholders’ equity		3,871,818		3,573,317

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	15,529,726	$	17,103,327

F-2

See accompanying notes to condensed consolidated financial statements.

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

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

(Unaudited)

	Three months ended March 31,
	2014		2013
Revenues, net:
- Product sales	$	518,073	$	1,088,598

Cost of revenue		(327,524)		(968,605)

Gross profit		190,549		119,993

Operating expenses:
General and administrative		(253,214)		(305,495)
Total operating expenses		(253,214)		(305,495)

Loss from operations		(62,665)		(185,502)

Other income (expense):
Interest expense		(39,207)		(39,789)
Interest income		219		182
Gain on disposal of a subsidiary		454,200		-

Income (loss) before income taxes		352,547		(225,109)

Income tax expense		-		(6,099)

NET INCOME (LOSS)	$	352,547	$	(231,208)

Other comprehensive income (loss):
- Foreign currency translation (loss) gain		(123,702)		67,120

COMPREHENSIVE INCOME (LOSS)	$	228,845	$	(164,088)

Net loss per share – Basic and diluted	$	0.00	$	(0.00)

Weighted average common shares outstanding – Basic and diluted		115,000,000		124,146,067

F-3

See accompanying notes to condensed consolidated financial statements.

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

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

(Unaudited)

	Three months ended March 31,
	2014		2013
Cash flows from operating activities:
Net income (loss )	$	352,547	$	(231,208)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation of property, plant and equipment		93,006		215,647
Amortization of prepaid mining right		539,229		522,913
Gain on disposal of a subsidiary		(454,200)		-
Changes in operating assets and liabilities:
Accounts receivable		-		1,011,634
Deposits and prepayments		(21,812)		(2,134,047)
Gold inventories		(261,124)		-
Accounts payable		(153,839)		(152,606)
Income tax payable		-		(241,142)
Accrued liabilities and other payable		307,273		486,866

Net cash provided by (used in) operating activities		401,080		(521,943)

Cash flows from investing activities:
Proceed from disposal of a subsidiary		2,205,936		-
Payments on leased mining rights		(1,348,072)		-
Purchase of plant and equipment		(727)		(191,247)
Payments on construction in progress		(653,611)		-

Net cash provided by (used in) investing activities		203,526		(191,247)

Cash flows from financing activities:
Proceeds from short-term bank borrowing		898,715		-
Repayment to short-term bank borrowing		(898,715)		-
Proceeds from loans payable		-		620,788
Repayment to loans payable		(350,438)		-
Proceeds from related party note		784,333		-
Repayment of related party note		(1,062,118)		(15,846)
Advance from (repayment to) a related party		6,358		(27,190)

Net cash (used in) provided by financing activities		(621,865)		577,752

Effect of exchange rate changes on cash and cash equivalents		(1,777)		71,761

NET CHANGE IN CASH AND CASH EQUIVALENTS		(19,036)		(63,677)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		248,983		227,928

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	229,947	$	164,251

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	-	$	247,240
Cash paid for interest	$	38,950	$	39,789

F-4

See accompanying notes to condensed consolidated financial statements.

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

	Common stock			Additional paid-in capital		Subscription receivable		Statutory reserve		Accumulated other comprehensive income		Accumulated deficits		Total stockholders’equity
	*No. of shares*	*Amount*		Additional paid-in capital		Subscription receivable		Statutory reserve		Accumulated other comprehensive income		Accumulated deficits		Total stockholders’equity

Balance as of January 1, 2014	115,000,000	$	11,500	$	8,899,597	$	(718,459)	$	645,781	$	488,496	$	(5,753,598)	$	3,573,317

Disposal of a subsidiary	-		-		-		-		(336,883)		-		326,243		69,656

Foreign currency translation adjustment	-		-		-		-		-		(123,702)		-		(123,702)

Net income for the period	-		-		-		-		-		-		352,547		352,547
Balance as of March 31, 2014	115,000,000	$	11,500	$	8,899,597	$	(718,459)	$	308,898	$	364,794	$	(4,994,512)	$	3,871,818

F-5

See accompanying notes to condensed consolidated financial statements.

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

NOTE – 1 BASIS OF PRESENTATION

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

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

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

NOTE – 2 ORGANIZATION AND BACKGROUND

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

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

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

Name	Place of incorporation and kind of legal entity	Principal activities and place of operation	Particulars of issued/ registered share capital	Effective interest Held

Bei Sheng Limited (“BSL”)	British Virgin Islands, a limited liability company	Investment holding in GWIL and provision of mining technical advice	50,000 issued shares of US$1 each	100%

Golden Wide International Limited (“GWIL”)	Hong Kong, a limited liability company	100%-investment holding in SBCL	10,000 issued shares of HK$1 each	100%

Shoujin Business Consulting (Shenzhen) Limited (“SBCL”)	The PRC, a limited liability company	Provision of consulting service in the PRC	RMB100,000	100%

Shenzhen Shouguan Investment Co., Ltd (“SSIC”) #	The PRC, a limited liability company	99%-investment holding in JinGuan	RMB18,100,000	N/A

Yantai Jinguan Investment Limited (“JinGuan”) #	The PRC, a limited liability company	100%-investment holding in XinGuan	RMB5,000,000	N/A

# represents variable interest entity (“VIE”)

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

F-6

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

NOTE – 3 GOING CONCERN UNCERTAINTIES

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

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

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

NOTE – 4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Exploration stage company

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

F-7

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

Proven or probable reserves

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

Use of estimates

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

Basis of consolidation

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

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

Variable interest entity

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

Exclusive Technical Service and Business Consulting Agreement;

Exclusive Option Agreement;

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

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

Operating Agreement.

F-8

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

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

Cash and cash equivalents

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

Gold inventories

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

Mining rights, exploration and development costs

Costs of mining rights are capitalized upon acquisition.

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

Prepaid mining rights

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

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

Years ending March 31:
2015	$	2,141,327
2016		2,141,327
2017		2,141,327
2018		1,488,662
2019		32,444
Thereafter		89,223

Total:	$	8,034,310

F-9

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

Property, plant and equipment

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

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

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

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

Construction in progress

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

Impairment of long-lived assets

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

F-10

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

Revenue recognition

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

(a)

Product sales

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

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

(b) Interest income

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

Resource compensation fees

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

Comprehensive income

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

F-11

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

Income taxes

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

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

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

Net income (loss) per share

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

Foreign currencies translation

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

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

F-12

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

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

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

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

Related parties

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

Segment reporting

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

Fair value of financial instruments

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

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

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

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

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

F-13

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

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

Recent accounting pronouncements

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

NOTE – 5 DISPOSAL OF A SUBSIDIARY

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

NOTE – 6 AMOUNT DUE TO A RELATED PARTY

NOTE – 7 LOANS PAYABLE, UNSECURED

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

	31-Mar-14		31-Mar-13

Loans payable to certain individuals and financial institution in the PRC, unsecured:

Equivalent to RMB4,500,000 (2013: RMB4,500,000) with interest rate at 2.7% per annum, payable at its maturity, due May 7, 2014	$	729,998	$	736,016

Equivalent to RMB7,400,000 (2013: RMB7,400,000) with interest rate at 2.7% per annum, payable at its maturity, due May 7, 2014		1,200,441		1,210,337

Equivalent to RMB8,000,000 (2013: RMB8,000,000) with interest rate at 5.18% per annum, payable at its maturity, due June 14, 2014		1,297,774		1,308,472

Equivalent to RMB2,700,000 (2013: RMB2,700,000) with interest rate at 5.18% per annum, payable at its maturity, due March 27, 2015		437,999		441,609

Equivalent to RMB4,942,600 (2013: 4,942,600) with interest rate at the bank of China Benchmark Lending Rate, payable at its maturity, due March 7, 2015		801,798		808,407

Equivalent to RMB22,000,000 (2013: 22,000,000) with interest rate at 2% per annum, payable at its maturity, due August 12, 2014		3,568,879		3,598,299

Equivalent to RMB0 (2013: 2,000,000) interest free, payable at its maturity, due January 17, 2014		-		327,118

Equivalent to RMB5,500,000 with interest rate at the bank of China Benchmark Lending Rate, payable at its maturity, due April 15, 2014		892,220		899,575

Equivalent to RMB 1,929,801 (2013: RMB2,074,429) with effective interest rate at 8.97% per annum, payable with monthly principal and interest payments, due February 28, 2017		313,056		339,292

Total current and long-term liabilities		9,242,165		9,669,125
Less: long-term portion		(214,191)		(241,657)

Total current liabilities	$	9,027,974	$	9,427,468

F-14

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

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

NOTE – 8 LOANS PAYABLE, RELATED PARTY

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

NOTE – 9 INCOME TAXES

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

	Three months ended March 31,
	2014		2013
Tax jurisdictions from:
– Local	$	-	$	-
– Foreign		352,547		(225,109)
Income (loss) before income taxes	$	352,547	$	(225,109)

The provision for income taxes consisted of the following:

	Three months ended March 31,
	2014		2013
Current:
– Local	$	-	$	-
– Foreign, representing by:
Hong Kong		-		-
The PRC		-		6,099

Deferred:
– Local		-		-
– Foreign		-		-
Income tax expense	$	-	$	6,099

F-15

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

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

United States of America

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

British Virgin Island

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

Hong Kong

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

The PRC

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

	Three months ended March 31,
	2014		2013

Income (loss) before income taxes	$	373,283		$	(216,982)
Statutory income tax rate		25%			25%

Income tax expense at the statutory rate		93,321			(54,246)
Net operating loss not recognized as deferred tax asset		(155,159)			(98,691)
Non-taxable income		(113,550)			-
Non-deductible items		175,388			146,838
Income tax expense	$	-		$	6,099

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

F-16

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

NOTE – 10 CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a) Major customers

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

A customer is located in the PRC.

(b) Major vendors

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

		Three months ended March 31, 2014			March 31, 2014
Vendor		Purchases		Percentage of purchases	Accounts payable, trade

Vendor A		$	505,045	67%	$	132,485
Vendor B			253,565	33%		89,511

	Total:	$	758,610	100%	$	221,996

		Three months ended March 31, 2013			March 31, 2013
Vendor		Purchases		Percentage of purchases	Accounts payable, trade

Vendor A		$	542,616	68%	$	511,568
Vendor C			136,813	17%		-
Vendor D			83,041	10%		-

	Total:	$	762,470	95%	$	511,568

All vendors are located in the PRC.

F-17

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

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

(d) Exchange rate risk

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

(f) Economic and political risks

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

The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

(g) Mining industry risks

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

F-18

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

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

(Unaudited)

(h) Risk on changing price in gold

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

NOTE – 11 COMMITMENTS AND CONTINGENCIES

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

	Operating lease commitments
	Office premises		Mine operating rights		Total
Year ending March 31,
2015	$	114,134	$	-	$	114,134
2016		91,174		-		91,174
2017		-		-		-
2018		-		7,006,353		7,006,353

Total:	$	205,308	$	7,006,353	$	7,211,661

NOTE – 12 SUBSEQUENT EVENTS

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

F-19

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

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

ITEM 9A(T). Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Management’s Report on Internal Control over Financial Reporting

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

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

Changes in Internal Control over Financial Reporting

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

Item 9B. Other Information

None.

PART III.

Item 10. Directors, Executive Officers and Corporate Governance.

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

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

Name and Address	Age	Position(s)
Feize Zhang Room 3207, New World Center, 6009 Yitian Road, Futian District, Shenzhen, PR China	46	Chairman, Principal Executive Officer

Jingfeng Lv Room 501-505, Lantian International Building, 59 Changjiang Road, Development District, Yantai, PR China	55	Chief Technical Officer

Terry Tsao Room 3207, New World Center, 6009 Yitian Road, Futian District, Shenzhen, PR China	49	Principal Financial Officer

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

Background Information about Our Officers and Directors

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

Mr. Feize Zhang - Chairman and Principal Executive Officer

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

Mr. Jingfeng Lv - Chief Technical Officer

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

Mr. Terry Tsao - Principal Financial Officer

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

Key Employees

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

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

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

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

Mr. Degen Wu - Production Manager / Senior Geological Engineer

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

Jinfeng Yu - Manager of Technical Sector / Technical Survey Engineer

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

Section 16(a) Beneficial Ownership Reporting Compliance

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

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

Board Committees; Corporate Governance

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

Auditors; Code of Ethics; Financial Expert

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

Option Grants

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

Aggregated Option Exercises and Fiscal Year-End Option Value

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

Long-Term Incentive Plan (“LTIP”) Awards

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

Compensation of Directors

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

Director Independence

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

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

Employment Agreements

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

Certain Relationships and Related Transactions

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

Conflicts of Interest

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

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

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

		Percentage of
Name and Address of Beneficial Owner	Number of Shares	Ownership

Feize Zhang Room 3207, New World Center, 6009 Yitian Road, Futian District, Shenzhen, PR China	27,510,000	22%

Glory Knight International Limited (1) 4C, BLK 32, Parc Versailles, Tai Po, New Territories, Hong Kong	8,752,000	7%

All Officers and Directors as a Group	36,262,000	29%

(1)

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

Future Sales by Existing Stockholders

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

Changes in Control

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

Securities Authorized for Issuance Under Equity Compensation Plans

None.

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

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

Amount Due to a Related Party

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

Director Independence

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

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

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

Item 15. Exhibits.

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

Exhibit No.		Description

31.1		Rule 13a-14(a)/15d-14(a) certification of Principal Executive Officer*
31.2		Rule 13a-14(a)/15d-14(a) certification of Principal Accounting Officer*
32.1		Certification pursuant to 18 USC, section 1350 of Principal Executive Officer*
32.2		Certification pursuant to 18 USC, section 1350 of Principal Accounting Officer*

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

Exhibit No.		Description

2		* Share Exchange Agreement
3.1		* Articles of Incorporation
3.2		* Bylaws
4		* Form of Common Stock Certificate
5		* Opinion of Michael M. Kessler, Esq. re: Legality (** Amended Opinion filed with Form S1/A-1 on September 22, 2010)
10.1		* Operating Lease Agreement for Cunli Ji Gold Mine
10.2		* Acquisition Agreement for Cunli Ji Gold Mine
10.3		* Option Agreement to Purchase Equity Interests by and among Shoujin Business Consulting (Shenzhen), Shenzhen ShouGuan Investment Limited, Yantai JinGuan Investment Limited and Penglai XinGuan Investment Limited
10.4		* Equity Pledge Agreement
10.5		* Operating Agreement
10.6		* Exclusive Technical Service and Business Consulting Agreement
10.7		* Proxy Agreement
10.9		* Office Lease - Yantai, China
10.10		* Office Lease - Shenzhen, China
10.11		** Master Agreement between Penglai City Gold Mining Holding Co. Limited and Penglai XinGuan Investment Limited
10.12		** Construction Project Agreement between Penglai XinGuan Investment Limited and Jinhai Mine Underground Engineering Limited
10.12(a)		***Renewed Construction Project Agreement to extend one year term to August 28, 2011
10.13		** Gold Concentrate Processing Agreement between XinGuan and Shandong Humon Smelting Co., Ltd.
14		* Code of Ethics
21		* List of Subsidiaries/Variable Interest Entities of Registrant
23.2		* Consent of Michael M. Kessler, Esq. (see Exhibit 5)

SIGNATURES

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

China ShouGuan Mining Corporation , Registrant

By: /s/ Feize Zhang

___________________________________________

Feize Zhang, Chairman and Principal Executive Officer

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

China ShouGuan Mining Corporation , Registrant

By: /s/ Feize Zhang

Feize Zhang, Chairman and Principal Executive Officer

By: /s/ Terry Tsao

Terry Tsao, Principal Financial Officer

Years ending March 31: