UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER THE SECURITIES ACT OF 1933

For the Period ended September 30, 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 nine months ended September 30, 2014 were $1,919,715.

As of September 30, 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			3
ITEM 1.		Financial statements	3
ITEM 2		Management’s Discussion and Analysis of Financial Conditions and Results of Operations	4
ITEM 3.		Quantitative and Qualitative Disclosures About Market Risk	10
ITEM 4		Controls and procedures	12
PART II			13
ITEM 1		Legal proceedings	13
ITEM 1A		Risk factors	13
ITEM 2		Unregistered sales of equity securities and use of proceeds	13
ITEM 3		Defaults upon senior securities	13
ITEM 4		Mine Safety Disclosures	13
ITEM 5.		Other Information	13
ITEM 6		Exhibits	13

 

2

---

PART I

ITEM 1. FINANCIAL STATEMENTS

CHINA SHOUGUAN MINING CORPORATION

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

		Page
Condensed Consolidated Balance Sheets as of September 30, 2014 And December 31, 2013 (Audited)		F-1
Condensed Consolidated Statements of Operations And Comprehensive Loss for the Three and Nine Months ended September 30, 2014 And 2013		F-2
Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2014 And 2013		F-3
Condensed Consolidated Statement of Stockholders’ Equity for the Nine Months ended September 30, 2014		F-4
Notes to Condensed Consolidated Financial Statements		F-5 to F-18

 

3

---

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2014 AND DECEMBER 31, 2013

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

			September 30, 2014			December 31, 2013
		(Unaudited)				(Audited)
ASSETS
Current assets:
Cash and cash equivalents		$		284,666		$	248,983
Accounts receivable				555,957			-
Deposits and prepayments				118,336			96,854
Amount due from a related party				120,197			-
Consideration receivable				1,462,820			-
Prepaid mining rights, current				2,145,469			2,158,979
Assets held for sale				-			6,961,956
Total current assets				4,687,445			9,466,772
Non-current assets:
Prepaid mining rights				4,465,942			5,131,944
Property, plant and equipment, net				3,052,544			2,504,611
TOTAL ASSETS		$		12,205,931		$	17,103,327
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$		554,616		$	508,659
Amount due to a related party				-			182,432
Loans payable, unsecured				7,070,981			9,427,468
Notes payable, related party				1,073,654			1,406,608
Accrued liabilities and other payable				449,149			1,762,312
Liabilities held for sale				-			874
Total current liabilities				9,148,400			13,288,353
Long-term liabilities:
Loans payable, unsecured				161,911			241,657
Notes payable, related party				1,050,083			-
Total long-term liabilities				1,211,994			241,657
Total liabilities				10,360,394		$	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				396,689			488,496
Accumulated deficits				(7,052,688)			(5,753,598)
Total stockholders’ equity				1,845,537			3,573,317
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$		12,205,931		$	17,103,327

See accompanying notes to condensed consolidated financial statements.

F-1

---

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

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

(Unaudited)

 

		Three months ended September 30,						Nine months ended September 30,
		2014			2013			2014			2013
Revenues, net		$	554,157		$	1,292,135		$	1,919,715			$	3,771,437
Cost of revenue			(1,017,159)			(1,295,432)			(3,223,204)				(3,779,666)
Gross loss			(463,002)			(3,297)			(1,303,489)				(8,229)
Operating expenses:
General and administrative			(199,764)			(363,234)			(637,086)				(1,014,053)
Total operating expenses			(199,764)			(363,234)			(637,086)				(1,014,053)
Loss from operations			(662,766)			(366,531)			(1,940,575)				(1,022,282)
Other income (expense):
Interest expense			(99,786)			(36,617)			(219,693)				(113,376)
Interest income			95			48			439				427
Other income			-			74,062			454,200				74,062
Loss before income taxes			(762,457)			(329,038)			(1,705,629)				(1,061,169)
Income tax expense			-			-			-				(13,664)
NET LOSS		$	(762,457)		$	(329,038)		$	(1,705,629)			$	(1,074,833)
Other comprehensive income:
- Foreign currency translation (loss) gain			149,157			22,100			(91,807)				10,812
COMPREHENSIVE LOSS		$	(613,300)		$	(306,938)		$	(1,797,436)			$	(1,064,021)
Net loss per share – Basic and diluted		$	(0.01	)	$	(0.00)		$	(0.01)			$	(0.01)
Weighted average common shares outstanding      – Basic and diluted			115,000,000			125,000,000			115,000,000				124,577,778

See accompanying notes to condensed consolidated financial statements.

 

F-2

---

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

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

(Unaudited)

		Nine months ended September 30,
		2014			2013
Cash flows from operating activities:
Net loss		$	(1,705,629)		$	(1,074,833)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property, plant and equipment			285,445			375,874
Amortization of prepaid mining right			1,609,154			1,593,946
Gain on disposal of subsidiary			(454,200)			-
Changes in operating assets and liabilities:
Accounts receivable			(555,975)			1,250,070
Deposits and prepayments			(21,944)			(5,925,583)
Accounts payable			(113,754)			(171,535)
Income tax payable			-			(251,213)
Accrued liabilities and other payable			160,348			170,025
Net cash used in operating activities			(796,555)			(4,033,249)
Cash flows from investing activities:
Proceed from disposal of subsidiary			4,388,603			-
Purchase of plant and equipment			(651,862)			(204,344)
Payments on mining rental deposits			(975,245)			-
Payments on construction in progress			-			(2,893)
Net cash provided by (used in) investing activities			2,761,496			(207,237)
Cash flows from financing activities:
Proceeds from private placement, net of expense			-			481,541
Proceeds from loans payable			3,848,243			4,271,454
Repayments to loans payable			(6,224,048)			(210,432)
Proceeds from notes payable, related party			2,568,145			-
Repayments to notes payable, related party			(1,842,191)			(51,750)
Amount due to a director			(302,368)			-
Net cash (used in) provided by financing activities			(1,952,219)			4,490,813
Effect of exchange rate changes on cash and cash equivalents			22,961			78,248
NET CHANGE IN CASH AND CASH EQUIVALENTS			35,683			328,575
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			248,983			227,928
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	284,666		$	556,503
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes		$	-		$	264,877
Cash paid for interest		$	219,693		$	113,437

 

See accompanying notes to condensed consolidated financial statements

F-3

---

CHINA SHOUGUAN MINING CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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
		No. of shares		Amount																										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)					-							406,539								69,656
Foreign currency translation adjustment		-			-			-			-			-					(91,807)							-								(91,807)
Net income for the period		-			-			-			-			-					-							(1,705,629)								(1,705,629)
Balance as of September 30, 2014		115,000,000		$	11,500		$	8,899,597		$	(718,459)		$	308,898			$		396,689					$		(7,052,688)						$		1,845,537

 

 See accompanying notes to condensed consolidated financial statements.

F-4

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 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 and DYM respectively		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
Daxinganling Yiguanyuan Mining Investment Company Limited (“DYM”) #		The PRC, a limited liability company		Mine exploration in Daxinganling		RMB4,010,000		N/A

# represents variable interest entity (“VIE”)

 

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

F-5

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 2014, the Company suffered the accumulated deficits of $7,052,688 from prior years and suffered from a working capital deficit of $4,460,955. 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 Dayuan Gold Mine. 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 September 30, 2014, the mineralized material at Dayuan Gold Mine did not meet 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.

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 September 30, 2014, none of the Company’s mineralized resources met the definition of proven or probable reserves.

 

F-6

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

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

(Unaudited)

Use of Estimates

 

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

Basis of Consolidation

 

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

 

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

 

Variable Interest Entity

 

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

1.  Exclusive Technical Service and Business Consulting Agreement;

2.  Exclusive Option Agreement;

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

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

5.  Operating Agreement.

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 and nine months ended September 30, 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.

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.

F-7

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

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

(Unaudited)

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 September 30, 2014 and 2013 was $534,954 and $528,227, respectively.

 

The rent expense on prepaid mining rights for the nine months ended September 30, 2014 and 2013 was $1,609,154 and $1,593,946, respectively.

As of September 30, 2014, the estimated annual amortization of the prepaid mining rights for the next five years and thereafter is as follows:

Years ending September 30:
2015	$	2,145,469
2016		2,145,469
2017		2,145,469
2018		69,355
2019		32,507
Thereafter		73,142
Total:	$	6,611,411

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 September 30, 2014 and 2013 were $102,469 and $106,639, respectively.

 

Depreciation expense for the nine months ended September 30, 2014 and 2013 were $285,445 and $375,874, 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.

F-8

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

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

(Unaudited)

Impairment of Long-Lived Assets

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

 

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

 

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.

 

(b) Interest income

 

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

 

F-9

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

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

(Unaudited)

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.

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 and nine months ended September 30, 2014 and 2013, the Company did not have any interest and penalties associated with tax positions. As of September 30, 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 loss per share

 

The Company calculates net loss per share in accordance with ASC Topic 260, “Earnings per Share.” Basic income (loss) per share is computed by dividing the net 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.

 

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:

		September 30, 2014		September 30, 2013
Period-end RMB:US$1 exchange rate		6.1525		6.1480
Period average RMB:US$1 exchange rate		6.1523		6.2110

F-10

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

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

(Unaudited)

 

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 and nine months ended September 30, 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, 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 notes 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

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) from disposal of a subsidiary and a consideration receivable of $1,462,820 (equivalent to RMB 9 million) at September 30, 2014, which is expected to be fully received by the end of December 2014.

NOTE 6 - AMOUNT DUE FROM A RELATED PARTY

 

As of September 30, 2014, amount due from a related party represented temporary advances made to Mr. Zhang, the director of the Company, which was unsecured, interest-free and repayable on demand. 

 

F-11

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

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

(Unaudited)

NOTE 7 - LOANS PAYABLE

 

As of September 30, 2014 and December 31, 2013, the Company also held the following short-term and long-term loans payable to third parties:

	September 30, 2014			December 31, 2013
Loans payable to certain individuals and financial institutions in the PRC:
Loans payable to individuals, 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, 2015	$	731,410		$	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, 2015		1,202,763			1,210,337
Equivalent to RMB1,320,825 (2013: RMB8,000,000) with interest rate at 5.18% per annum, payable at its maturity, due June 14, 2015		214,680			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		438,846			441,609
Equivalent to RMB2,448,144 (2013: RMB4,942,600) with interest rate at the bank of China Benchmark Lending Rate, payable at its maturity, due March 7, 2015		397,911			808,407
Equivalent to RMB5,000,000 (2013: RMB22,000,000) with interest rate at 2% per annum, payable at its maturity, due August 12, 2014		812,678			3,598,299
Equivalent to RMB9,000,000 (2013: RMB0) interest-free, due October 28, 2014		1,462,820			-
Equivalent to RMB2,000,000 interest-free, payable at its maturity, fully repaid on January 17, 2014		-			327,118
Equivalent to RMB 1,631,396 (2013: RMB2,074,429) with effective interest rate at 8.97% per annum, payable with monthly principal and interest payments, due February 28, 2017		265,160			339,292
		5,526,268			8,769,550
Loans payable to financial institutions:
Equivalent to RMB5,500,000 with interest rate at the bank of China Benchmark Lending Rate, payable at its maturity, full repaid on April 15, 2014, which is secured by the property and personal guarantee provided by the director		-			899,575
Equivalent to RMB5,500,000 with interest rate at 1.5 times of the Bank of China Benchmark Lending Rate, payable at its maturity, due April 16, 2015, which is secured by the property and personal guarantee provided by the director		893,946			-
Equivalent to RMB5,000,000 with interest rate at 1.1 times of the Bank of China Benchmark Lending Rate, payable at its maturity, due April 24, 2015, which is collateralized by its pledged deposit provided by the director		812,678			-
Total loans payable		7,232,892			9,669,125
Less: long-term portion		(161,911)			(241,657)
Total current portion	$	7,070,981		$	9,427,468

F-12

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

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

(Unaudited)

 

As of September 30, 2014, the minimum future payments of the loans payable in the next three years are as follow:

Years ending September 30:
2015		$	7,070,981
2016			112,175
2017			49,736
Total:		$	7,232,892

NOTE 8 - NOTES PAYABLE, RELATED PARTY

 

As of September 30 2013, the Company held the following notes payable to Mr. Zhang, the director of the Company:

Equivalent to RMB2,500,000, unsecured and interest free, due on March 9, 2015					406,339
Equivalent to RMB3,000,000, unsecured and interest free, due on July 22, 2015					487,607
Equivalent to RMB8,000,000, unsecured, with interest rate at 1.3 times of the Bank of China Benchmark Lending Rate, payable with monthly principal and interest payments, due on April 21, 2020					1,229,791
Total					2,123,737
Less: long-term portion					(1,050,083)
Current portion				$	1,073,654

 

As of September 30, 2014, the minimum future payments of the aggregate notes due to a related party in the next five years and thereafter are as follows:

 

Years ending September 30:
2015					$	1,073,654
2016						195,622
2017						212,945
2018						231,802
2019						252,328
Thereafter						157,386
Total:					$	2,123,737

The interest expense to a related party amounted to $66,479 and $40,605 for the nine months ended September 30, 2014 and 2013, respectively.

F-13

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

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

(Unaudited)

NOTE 9 - INCOME TAXES

 

For the nine months ended September 30, 2014 and 2013, the local (United States) and foreign components of profit (loss) before income taxes were comprised of the following:

 

		Nine months ended September 30,
		2014			2013
Tax jurisdictions from:
– Local		$	-		$	-
– Foreign			(1,705,629)			(1,061,169)
Loss before income taxes		$	(1,705,629)		$	(1,061,169)

 

The provision for income taxes consisted of the following:

 

	Nine months ended September 30,
	2014			2013
Current:
– Local	$	-		$	-
– Foreign, representing by:
Hong Kong		-			-
The PRC		-			13,664
Deferred:
– Local		-			-
– Foreign		-			-
Income tax expense	$	-		$	13,664

 

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 nine months ended September 30, 2014 and 2013, Golden Wide suffered from an operating loss of $1,235 and $2,898, respectively.

 

The PRC

 

The Company generated its income from its subsidiaries and VIEs operating in the PRC for the nine months ended September 30, 2014and 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 nine months ended September 30, 2014 and 2013 is as follows:

 

F-14

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

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

(Unaudited)

		Nine months ended September 30,
		2014			2013
Loss before income taxes		$	(1,667,008)		$	(1,022,977)
Statutory income tax rate			25%			25%
Income tax expense at the statutory tax rate			(416,752)			(255,744)
Net operating loss not recognized as deferred tax asset			310,012			(306,906)
Non-taxable items			(296,469)			-
Non-deductible items			403,209			576,314
Income tax expense		$	-		$	13,664

As of September 30, 2014, the Company incurred $4,113,504 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 $1,028,376 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.

NOTE 10 - CONCENTRATIONS OF RISK

 

The Company is exposed to the following concentrations of risk:

 

(a) Major customers

 

For the three and nine months ended September 30, 2014, there was a single customer who accounted for 100% of the Company’s revenues with $555,957 accounts receivable balance at period-end.

 

For the three and nine months ended September 30, 2013, the customer who accounts for 10% or more of the Company’s revenues and its outstanding balance at period-end date, are presented as follows:

				Three months ended September 30, 2013					September 30, 2013
Customer				Revenue			Percentage of revenue		Accounts receivable, trade
Customer A				$	691,351		54%		$	-
Customer D					600,784		46%			-
	Total:			$	1,292,135		100%		$	-

 

				Nine months ended September 30, 2013					September 30, 2013
Customer				Revenue			Percentage of revenue		Accounts receivable, trade
Customer D				$	2,885,628		77%		$	-
Customer A					885,809		23%			-
	Total:			$	3,771,437		100%		$	-

All customers are located in the PRC.

 

(b) Major vendors

 

For the three and nine months ended September 30, 2014, 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:

F-15

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

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

(Unaudited)

Three months ended September 30, 2014

September 30, 2014

Vendor

Purchases

Percentage of purchases

Accounts payable, trade

Vendor A

Total:

$

343,644

100%

$

170,743

 

				Nine months ended September 30, 2014					September 30, 2014
Vendor				Purchases			Percentage of purchases		Accounts payable, trade
Vendor A				$	959,076		79%		$	170,743
Vendor B					252,228		21%			89,684
	Total:			$	1,211,304		100%		$	260,427

For the three and nine months ended September 30, 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 September 30, 2013					September 30, 2013
Vendor				Purchases			Percentage of purchases		Accounts payable, trade
Vendor A				$	632,259		65%		$	271,881
Vendor D					188,353		19%			122,435
	Total:			$	820,612		84%		$	394,316

  

				Nine months ended September 30, 2013					September 30, 2013
Vendor				Purchases			Percentage of purchases		Accounts payable, trade
Vendor A				$	1,749,701		60%		$	271,881
Vendor D					637,400		21%			122,435
Vendor C					280,063		10%			-
	Total:			$	2,667,164		91%		$	394,316

F-16

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

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

(Unaudited)

(c) Credit risk

 

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

 

(d) Exchange rate risk

 

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

 

(e) 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.

 

(f) 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-17

---

CHINA SHOUGUAN MINING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

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

(Unaudited)

 

(g) 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 manage the potential price risk. 

 

NOTE 11 - RELATED PARTY TRANSACTIONS

For the nine months ended September 30, 2014 and 2013, the Company paid interest expense of $66,479 and $40,605 to its director on related party notes payable for the nine months ended September 30, 2014 and 2013, respectively.

For the nine months ended September 30, 2014, the director of the Company also provided his personal guarantee and his personal assets as security to the loan borrowings at no charge.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

 

(a)   Operating lease commitments

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 nine months ended September 30, 2014 and 2013 was $88,173 and $85,985, respectively.

 

As of September 30, 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 September 30,
2015		$	107,357		$	-		$	107,357
2016			42,489			-			42,489
2017			-			-			-
2018			-			7,151,564			7,151,564
Total:		$	149,846		$	7,151,564		$	7,301,410

NOTE 13 - SUBSEQUENT EVENTS

 

The Company evaluated and disclosed the material subsequent events through the date the financial statements were issued and filed with this Form10-Q.

F-18

---

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

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.

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.

 

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.

4

---

 

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 and further to September 30, 2015.

 

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 February 21, 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 acquisition was subsequent completed in July 2014.

 

On March 31, 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. 

Current Operations

 

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

5

---

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 and further to September 30, 2015..

 

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 nine months ended September 30, 2014, total gold ore production of the Dayuan Mine was approximately 16,018 tons or a monthly average of 2,288 tons (using seven months’ average), with an average gold grade of 3.24 g/t. Gold concentrate sold for the period was 46.18 kg. The production level, in units of daily tonnage of raw mineral rocks extracted, averaged 103.34 tons/day (seven months’ average) during the period. 

 

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

 

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

 

Others

 

On February 21, 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 acquisition was completed in July 2014 and the operating results of the subsidiary were included in the condensed consolidated financial statements in the third quarter of 2014.

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 2009, 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 tables set forth key components of our results of operations for the three and nine months ended September 30, 2014 compared to the same period in 2013. All numbers referenced are in U.S. Dollars:

 

6

---

		Three months ended September 30,				Increase	% Increase
		2014		2013		(Decrease)	(Decrease)
Revenues, net:	$	554,157	$	1,292,135		(737,978)	(57%)
Cost of revenue		(1,017,159)		(1,295,432)		(278,273)	(21%)
Gross loss		(463,002)		(3,297)		459,705	13943%
General and administrative expense		(199,764)		(363,234)		(163,470)	(45%)
Loss from operations		(662,766)		(366,531)		295,235	81%
Other income (expense)
Interest expense		(99,786)		(36,617)		63,169	173%
Interest income		95		48		47	98%
Other income		-		74,062		(74,062)	100%
Loss before income taxes		(762,457)		(329,038)		433,419	132%
Income tax expenses		-		-		-	0%
NET LOSS		(762,457)		(329,038)		433,419	132%
Other comprehensive income:
- Foreign currency translation adjustment		149,157		22,100		127,057	575%
COMPREHENSIVE LOSS	$	(613,300)	$	(306,938)		306,362	100%
Net loss per share – Basic and diluted	$	(0.01)	$	(0.0)
Weighted average common stock outstanding (Basic and diluted)		115,000,000		125,000,000

		Nine months ended September 30,				Increase	% Increase
		2014		2013		(Decrease)	(Decrease)
Revenues, net:	$	1,919,715	$	3,771,437		(1,851,722)	(49%)
Cost of revenue		(3,223,204)		(3,779,666)		(556,462)	(15%)
Gross loss		(1,303,489)		(8,229)		1,295,260	15740%
General and administrative expense		(637,086)		(1,014,053)		(376,967)	(37%)
Loss from operations		(1,940,575)		(1,022,282)		918,293	90%
Other income (expense)
Interest expense		(219,693)		(113,376)		106,317	94%
Interest income		439		427		12	3%
Other income		454,200		74,062		380,138	513%
Loss before income taxes		(1,705,629)		(1,061,169)		644,460	61%
Income tax expenses		-		(13,664)		(13,664)	(100%)
NET LOSS	$	(1,705,629)	$	(1,074,833)		630,796	59%
Other comprehensive income:
- Foreign currency translation adjustment		(91,807)		10,812		(102,619)	(949%)
COMPREHENSIVE LOSS	$	(1,797,436)	$	(1,064,021)		733,415	69%
Net loss per share – Basic and diluted	$	(0.01)	$	(0.01)
Weighted average common stock outstanding (Basic and diluted)		115,000,000		124,577,778

 

NM: Not meaningful

7

---

Revenue

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.

Sales revenue derived from sales of gold concentrate for the three months ended September 30, 2014 decreased to $554,157, a decrease of $737,978, or 57% from sales revenue of $1,292,135 for the three months ended September 30, 2013. The decrease of revenue was mainly attributable to a decrease in gold concentrate sold as a result of comparatively lowered gold grade in the area mined during the three months ended September 30, 2014 and a decrease of world’s gold price.

 

Sales revenue derived from sales of gold concentrate for the nine months ended September 30, 2014 decreased to $1,919,715, a decrease of $1,851,722, or 49% from sales revenue of $3,771,437 for the nine months ended September 30, 2014. The decrease of revenue was mainly attributable to a decrease in gold concentrate sold as a result of comparatively lowered gold grade in the area mined during the nine months ended September 30, 2014 and a decrease of world’s gold price.

Cost of Revenue

Cost of revenue for the three months ended September 30, 2014 and 2013 were $1,017,159 and $1,295,432 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.

 

Cost of revenue for the nine months ended September 30, 2014 and 2013 were $3,223,204 and $3,779,666, 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.

Gross Loss

We recorded a gross loss of $463,002 for the three months ended September 30, 2014, an increase of $459,705 or 13943%, from the gross loss of $3,297 for the three months ended September 30, 2013. The increase was mainly attributable to the decrease in gold concentrate sold as a result of comparatively lowered gold grade in the area mined during the three months ended September 30, 2014 and a decrease of world’s gold price.

We recorded a gross loss of $1,303,489 for the nine months ended September 30, 2014, an increase of $1,295,260 or 15740%, from the gross loss of $8,229 for the nine months ended September 30, 2013. The increase was mainly attributable to the decrease in gold concentrate sold as a result of comparatively lowered gold grade in the area mined during the nine months ended September 30, 2014 and a decrease of world’s gold price.

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 September 30, 2014, decreased by $163,470 or 45%, from $363,234 to $199,764, for the same comparable period in 2013.

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 nine months ended September 30, 2014, decreased by $376,967 or 37%, from $1,014,053 to $637,086, for the same comparable period in 2013.

Income Tax Expense

Income tax expenses amounted to Nil for both the three months ended September 30, 2014 and 2013.

 

Income tax expenses amounted to Nil and $13,664 for the nine months ended September 30, 2014 and 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.

8

---

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 and nine months ended September 30, 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 loss

 

We recorded a net loss of $762,457 for the three months ended September 30, 2014, an increase of $433,419 from a net loss of $329,038 for the three months ended September 30, 2013. The increase was mainly attributable to the increase in gross loss $459,705.

Also, we recorded a net loss of $1,705,629 for the nine months ended September 30, 2014, an increase of $630,796 from a net loss of $1,074,833 for the nine months ended September 30, 2013. The increase was mainly attributable to the increase in gross loss $1,295,260, the decrease in general and administrative expenses $376,967 and the increase in other income $380,138.

 

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 September 30, 2014, our current assets were $4,687,445, and our current liabilities were $9,148,400. Cash and cash equivalents totaled $284,666 as of September 30, 2014. accumulated deficits at September 30, 2014 was $7,052,688.

 

Net cash used in operating activities was $796,555 for the nine months ended September 30, 2014 as compared to net cash used in operating activities of $4,033,249 for the nine months ended September 30, 2013. Net cash used in operating activities decreased by $3,236,694 was primarily due to the decrease in deposits and prepayments.

 

Net cash provided by investing activities amounted to $2,761,496 for the nine months ended September 30, 2014 as compared to net cash used in investing activities of $207,237 for the nine months ended September 30, 2013. Net cash provided by investing activities increased by $2,968,733 was primarily due to the proceeds from disposal of subsidiary $4,388,603, payments on mining rental deposits $975,245 and purchase of plant and equipment $651,862.

 

Net cash used in financing activities amounted to $1,952,219 for nine months ended September 30, 2014 as compared to net cash provided by financing activities of $4,490,813 for nine months ended September 30, 2013. Net cash used in financing activities increased by $6,443,032, was primarily due to repayments to loans payable and notes payable from related parties plus proceeds from loans payable and notes payable from related parties.

 

Off-Balance Sheet Arrangements

 

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

 

Amount Due from a Related Party

 

As of September 30, 2014, amount due from a related party represented temporary advances made to Mr. Zhang, the director of the Company, which was unsecured, interest-free and repayable on demand.

 

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.

The rent expense on prepaid mining rights for the three months ended September 30, 2014 and 2013 was $534,954 and $528,227, respectively.

9

---

 

The rent expense on prepaid mining rights for the nine months ended September 30, 2014 and 2013 was $1,609,154 and $1,593,946, respectively.

As of September 30, 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
		Office premises			Mine operating rights			Total
Year ending September 30,
2015		$	107,357		$	-		$	107,357
2016			42,489			-			42,489
2017			-			-			-
2018			-			7,151,564			7,151,564
Total:		$	149,846		$	7,151,564		$	7,301,410

 

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 September 30, 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.

 

Item 3.  Quantitative and qualitative disclosures about market risk

We are exposed to the following concentrations of risk:

 

(a) Major customers

 

For the three and nine months ended September 30, 2014, there was a single customer who accounted for 100% of the Company’s revenues with $555,957 accounts receivable balance at period-end.

 

For the three and nine months ended September 30, 2013, the customer who accounts for 10% or more of the Company’s revenues and its outstanding balance at period-end date, are presented as follows:

				Three months ended September 30, 2013					September 30, 2013
Customer				Revenue			Percentage of revenue		Accounts receivable, trade
Customer A				$	691,351		54%		$	-
Customer D					600,784		46%			-
	Total:			$	1,292,135		100%		$	-

 

				Nine months ended September 30, 2013					September 30, 2013
Customer				Revenue			Percentage of revenue		Accounts receivable, trade
Customer D				$	2,885,628		77%		$	-
Customer A					885,809		23%			-
	Total:			$	3,771,437		100%		$	-

A customer is located in the PRC.

 

(b) Major vendors

 

For the three and six months ended September 30, 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:

10

---

Three months ended September 30, 2014

September 30, 2014

Vendor

Purchases

Percentage of purchases

Accounts payable, trade

Vendor A

Total:

$

343,644

100%

$

170,743

 

				Nine months ended September 30, 2014					September 30, 2014
Vendor				Purchases			Percentage of purchases		Accounts payable, trade
Vendor A				$	959,076		79%		$	170,743
Vendor B					252,228		21%			89,684
	Total:			$	1,211,304		100%		$	260,427

For the three and nine months ended September 30, 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 September 30, 2013					September 30, 2013
Vendor				Purchases			Percentage of purchases		Accounts payable, trade
Vendor A				$	632,259		65%		$	271,881
Vendor D					188,353		19%			122,435
	Total:			$	820,612		84%		$	394,316

				Nine months ended September 30, 2013					September 30, 2013
Vendor				Purchases			Percentage of purchases		Accounts payable, trade
Vendor A				$	1,749,701		60%		$	271,881
Vendor D					637,400		21%			122,435
Vendor C					280,063		10%			-
	Total:			$	2,667,164		91%		$	394,316

All vendors are located in the PRC.

 

(c) Credit risk

 

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

 

(d) Exchange rate risk

 

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

 

(f) Economic and political risks

 

11

---

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.

  

(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 manage the potential price risk. 

 

Item 4.  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 September 30, 2014. 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 September 30, 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 September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

12

---

PART II

Item 1.  Legal Proceedings

 

In early May of 2014, the Company was received an injunction on its certain assets from the court of Fuzhou City in China.  The dispute was involved between two individuals (shareholders of the Company) on their personal claims.  The plaintiff issued a writ to sue the defendant for contractual claim and in the action applied for injunction order on certain assets of the Company. The matter is now under settlement and the injunction has not caused any negative impact to the Company.

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

None.

  

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

None

Item 6.  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

 

13

---

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 on November 14, 2014.

 

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 November 14, 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

14