UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 Or 15(d) Of The Securities Act Of 1934
For the quarterly period endedFebruary 28, 2006
Commission file number:000-51775
STERLING GROUP VENTURES, INC.
(Exact name of small business issuer as specified in its charter)
Nevada | 72-1535634 |
(State or other jurisdiction of | (IRS Employer Identification No.) |
incorporation or organization) |
Suite 900 - 789 West Pender Street, Vancouver, B.C. V6C 1H2
(Address of principal executive offices)
(604) 893-8891
(Issuer's telephone number)
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 and 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 ¨
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the last
practicable date:
Common Stock, $0.001 par value | 40,277,500 |
(Class) | (Outstanding as of April 3, 2006) |
Transitional Small Business Disclosure Format (Check one): Yes ¨ No x
1
STERLING GROUP VENTURES, INC.
FORM 10-QSB
INDEX
2
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
INTERIM CONSOLIDATED BALANCE SHEETS |
February 28, 2006 and May 31, 2005 |
(Unaudited) |
February 28, | May 31, | |||||
Stated in U.S. dollars | 2006 | 2005 | ||||
ASSETS | ||||||
Current Assets | ||||||
Cash and cash equivalents - Note 4 | $ | 467,452 | $ | 913,343 | ||
Other receivable | 10,860 | 13,094 | ||||
Prepaid expenses | 4,129 | 28,093 | ||||
Advance to joint venture partner - Note 3 | 124,430 | - | ||||
Total current assets | 606,871 | 954,530 | ||||
Equipment | 2,735 | 4,091 | ||||
Total Assets | $ | 609,606 | $ | 958,621 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Current Liabilities | ||||||
Accounts payable and other accrued liabilities – Note 4 | $ | 55,338 | $ | 45,727 | ||
Stockholders' Equity | ||||||
Common Stock : $0.001 Par Value | ||||||
Authorized : 500,000,000 | ||||||
Issued and Outstanding: 40,277,500 (May 31, 2005: 40,277,500) | 40,278 | 40,278 | ||||
Additional Paid In Capital | 2,190,611 | 2,190,611 | ||||
Warrants | 40,110 | 40,110 | ||||
Accumulated Other Comprehensive Loss | (583 | ) | (583 | ) | ||
Deficit accumulated during the exploration stage | (1,716,148 | ) | (1,357,522 | ) | ||
Total Stockholders' Equity | 554,268 | 912,894 | ||||
Total Liabilities and Stockholders' Equity | $ | 609,606 | $ | 958,621 |
See accompanying notes to consolidated financial statements
3
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS |
For the three and nine months ended February 28, 2006 and 2005 and |
for the period from July 27, 1994 (date of inception) to February 28, 2006 |
(Unaudited) |
July 27, 1994 | |||||||||||||||
(Date of | |||||||||||||||
Three months ended | Nine months ended | inception) | |||||||||||||
February 28, | February 28, | to February 28, | |||||||||||||
Stated in U.S. dollars | 2006 | 2005 | 2006 | 2005 | 2006 | ||||||||||
Revenue | |||||||||||||||
Interest income | 1,381 | $ | 4,600 | $ | 3,091 | $ | 10,429 | $ | 14,973 | ||||||
Expenses | |||||||||||||||
Accounting, audit and legal fees | $ | 7,941 | $ | 14,515 | $ | 41,654 | $ | 56,577 | $ | 167,040 | |||||
Bank charges | 13 | 104 | 156 | 390 | 928 | ||||||||||
Consulting fees - Note 4 | 31,124 | 42,757 | 94,333 | 134,132 | 297,508 | ||||||||||
Depreciation | 452 | 387 | 1,356 | 972 | 2,690 | ||||||||||
Filing fees and transfer agent | 378 | 379 | 3,561 | 4,241 | 27,677 | ||||||||||
Foreign exchange loss (gain) | 883 | 1,005 | (5,391 | ) | 1,674 | (1,821 | ) | ||||||||
General and administrative - Note 4 | 3,386 | 3,006 | 9,558 | 11,430 | 29,511 | ||||||||||
Mineral property costs - Schedule A - Note 4 | 91,837 | 108,101 | 173,997 | 403,045 | 660,568 | ||||||||||
Printing and mailing | 1,524 | 1,721 | 1,524 | 4,979 | 16,884 | ||||||||||
Shareholder information and investor relations | 1,658 | 19,000 | 21,553 | 28,200 | 59,700 | ||||||||||
Stock-based compensation | - | - | - | - | 368,641 | ||||||||||
Travel and entertainment | 13,995 | 4,217 | 19,416 | 23,170 | 101,795 | ||||||||||
(153,191 | ) | (195,192 | ) | (361,717 | ) | (668,810 | ) | (1,731,121 | ) | ||||||
Net loss for the period | $ | (151,810 | ) | $ | (190,592 | ) | $ | (358,626 | ) | $ | (658,381 | ) | $ | (1,716,148 | ) |
Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.02 | ) | |||
Weighted average number of shares | |||||||||||||||
outstanding | 40,277,500 | 40,258,611 | 40,277,500 | 40,072,291 |
See accompanying notes to consolidated financial statements
4
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS |
For the nine months ended February 28, 2006 and 2005 and |
for the period from July 27, 1994 (date of inception) to February 28, 2006 |
(Unaudited) |
July 27, 1994 | |||||||||
(Date of | |||||||||
Nine months ended | inception) | ||||||||
February 28, | to February 28, | ||||||||
Stated in U.S. dollars | 2006 | 2005 | 2006 | ||||||
Cash flows from operating activities | |||||||||
Net loss for the period | $ | (358,626 | ) $ | (658,381 | ) | $ | (1,716,148 | ) | |
Adjustments to reconcile net loss to net cash | |||||||||
provided by (Used in) operating activities | |||||||||
Stock compensation expenses | - | - | 368,641 | ||||||
Depreciation | 1,356 | 972 | 2,690 | ||||||
Permit and engineering studies | - | 150,000 | 150,000 | ||||||
Shareholder information and investor relations | - | 10,500 | 20,447 | ||||||
Translation adjustment | - | - | (106 | ) | |||||
Changes in non-cash working capital items | |||||||||
related to operations | |||||||||
Other receivable | 2,234 | (2,836 | ) | (10,860 | ) | ||||
Prepaid expenses | 23,964 | (3,016 | ) | 17,424 | |||||
Accounts payable and accrued liabilities | 9,611 | (49,042 | ) | 55,338 | |||||
Net cash used in operating activities | (321,461 | ) | (551,803 | ) | (1,112,574 | ) | |||
Cash flows from investing activities | |||||||||
Advance on investment | - | - | (150,000 | ) | |||||
Advance to joint venture partner | (124,430 | ) | - | (124,430 | ) | ||||
Additions to equipment | - | (4,646 | ) | (5,425 | ) | ||||
Net cash flows used in investing activities | (124,430 | ) | (4,646 | ) | (279,855 | ) | |||
Cash flows from financing activities | |||||||||
Common stock | - | 975,000 | 1,858,000 | ||||||
Amounts contributed by director | - | - | 1,881 | ||||||
Net cash flows provided by financing activities | - | 975,000 | 1,859,881 |
…/cont’d
See accompanying notes to consolidated financial statements
5
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS |
For the nine months ended February 28, 2006 and 2005 and |
for the period from July 27, 1994 (date of inception) to February 28, 2006 |
(Unaudited) |
July 27, 1994 | |||||||||
(Date of | |||||||||
Nine months ended | inception) | ||||||||
February 28, | to February 28, | ||||||||
2006 | 2005 | 2006 | |||||||
Net increase (decrease) in cash and cash equivalents | (445,891 | ) | 418,551 | 467,452 | |||||
Cash and cash equivalents - beginning of period | 913,343 | 634,207 | - | ||||||
Cash and cash equivalents - end of period | $ | 467,452 | $ | 1,052,758 | 467,452 | ||||
Cash and cash equivalents consist of: | |||||||||
Cash | $ | 392,566 | $ | 71,972 | 392,566 | ||||
Term deposits | 74,886 | 980,786 | 74,886 | ||||||
$ | 467,452 | $ | 1,052,758 | $ | 467,452 | ||||
Supplemental Information : | |||||||||
Cash paid for : | |||||||||
Interest | $ | - | $ | - | $ | - | |||
Income taxes | - | - | - | ||||||
Non-cash Transactions : | |||||||||
Issuance of shares for commission paid to broker | |||||||||
for private placement | $ | - | $ | 50,750 | $ | 50,750 | |||
Issuance of shares for services rendered | - | 42,000 | 42,000 |
See accompanying notes to consolidated financial statements
6
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY |
For the period from July 27, 1994 (date of inception) to February 28, 2006 |
(Unaudited) |
Deficit | |||||||||||||||||||||
Accumulated | Accumulated | ||||||||||||||||||||
Stock | Additional | Other | During The | ||||||||||||||||||
Common | Amount At | Paid In | Comprehensive | Exploration | |||||||||||||||||
Stated in U.S. dollars | Shares | Par Value | Capital | Warrants | Loss | Stage | Total | ||||||||||||||
Balance, July 27, 1994 (Date of inception) | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||
Common stock | 1 | 1 | - | - | - | - | 1 | ||||||||||||||
Amount contributed by director | - | - | 1,881 | - | - | - | 1,881 | ||||||||||||||
Net loss for the periods | - | - | - | - | - | (7,902 | ) | (7,902 | ) | ||||||||||||
Balance, May 31, 2001 | 1 | $ | 1 | $ | 1,881 | $ | - | $ | - | $ | (7,902 | ) | $ | (6,020 | ) | ||||||
Net loss of the year | - | - | - | - | - | (1,860 | ) | (1,860 | ) | ||||||||||||
Balance, May 31, 2002 | 1 | $ | 1 | $ | 1,881 | $ | - | $ | - | $ | (9,762 | ) | $ | (7,880 | ) | ||||||
Net loss of the year | - | - | - | - | - | (1,360 | ) | (1,360 | ) | ||||||||||||
Balance, May 31, 2003 | 1 | $ | 1 | $ | 1,881 | $ | - | $ | - | $ | (11,122 | ) | $ | (9,240 | ) | ||||||
Reverse acquisition | (1 | ) | (1 | ) | (1,881 | ) | - | - | - | (1,882 | ) | ||||||||||
Issuance of common shares for reverse acquisition | 25,000,000 | 25,000 | (23,119 | ) | - | - | - | 1,881 | |||||||||||||
Outstanding common shares of Company prior to | |||||||||||||||||||||
acquisition | 11,360,000 | 11,360 | (10,883 | ) | - | (583 | ) | - | (106 | ) | |||||||||||
Issuance of shares for cash pursuant to a private | |||||||||||||||||||||
placement - at $0.50 | 1,766,000 | 1,766 | 881,234 | - | - | - | 883,000 | ||||||||||||||
Stock-based compensation | - | - | 368,641 | - | - | - | 368,641 | ||||||||||||||
Net loss of the year | - | - | - | - | - | (527,446 | ) | (527,446 | ) |
…/cont’d
See accompanying notes to consolidated financial statements
7
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY |
For the period from July 27, 1994 (date of inception) to February 28, 2006 |
(Unaudited) |
Deficit | |||||||||||||||||||||
Accumulated | Accumulated | ||||||||||||||||||||
Stock | Additional | Other | During The | ||||||||||||||||||
Common | Amount At | Paid In | Comprehensive | Exploration | |||||||||||||||||
Shares | Par Value | Capital | Warrants | Loss | Stage | Total | |||||||||||||||
Balance, May 31, 2004 | 38,126,000 | $ | 38,126 | $ | 1,215,873 | $ | - | $ | (583 | ) | $ | (538,568 | ) | $ | 714,848 | ||||||
Issuance of shares for cash pursuant to a private | |||||||||||||||||||||
placement - at $0.50 | 1,950,000 | 1,950 | 973,050 | - | - | - | 975,000 | ||||||||||||||
Issuance of shares for finder's fee of | |||||||||||||||||||||
private placement | 101,500 | 102 | 50,648 | - | - | - | 50,750 | ||||||||||||||
Finders' fees | - | - | (50,750 | ) | (50,750 | ) | |||||||||||||||
Fair value of share purchase warrants (finders' fees) | - | - | (40,110 | ) | 40,110 | - | - | - | |||||||||||||
Issuance of shares for services rendered | 100,000 | 100 | 41,900 | - | - | - | 42,000 | ||||||||||||||
Net loss of the year | - | - | - | - | - | (818,954 | ) | (818,954 | ) | ||||||||||||
Balance, May 31, 2005 | 40,277,500 | $ | 40,278 | $ | 2,190,611 | $ | 40,110 | $ | (583 | ) | $ | (1,357,522 | ) | $ | 912,894 | ||||||
Net loss for the nine months ended February 28, 2006 | - | - | - | - | - | (358,626 | ) | (358,626 | ) | ||||||||||||
Balance, February 28, 2006 | 40,277,500 | $ | 40,278 | $ | 2,190,611 | $ | 40,110 | $ | (583 | ) | $ | (1,716,148 | ) | $ | 554,268 |
See accompanying notes to consolidated financial statements
8
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
SCHEDULE A : MINERAL PROPERTY COSTS |
For the nine months ended February 28, 2006 and 2005 and |
for the period from July 27, 1994 (date of inception) to February 28, 2006 |
(Unaudited) |
Jiajika | Lushi | DHLT | DX | DXC | ||||||||||||||
Spodumene | Spodumene | Spodumene | Polymetallic | Salt Lake | ||||||||||||||
Stated in U.S. Dollars | Property | Property | Property | Property | Property | Total | ||||||||||||
Three months ended February 28, 2006 | ||||||||||||||||||
Administrative | - | - | - | - | 2,700 | 2,700 | ||||||||||||
Consulting fees | 1,563 | 745 | - | - | 13,253 | 15,561 | ||||||||||||
Feasibility study | - | - | - | - | 14,204 | 14,204 | ||||||||||||
Engineering studies | - | - | - | - | 38,391 | 38,391 | ||||||||||||
Wages and benefits | - | - | - | - | 15,738 | 15,738 | ||||||||||||
Travel | - | - | - | - | 5,243 | 5,243 | ||||||||||||
Balance, February 28, 2006 | $ | 1,563 | $ | 745 | $ | - | $ | - | $ | 89,529 | $ | 91,837 | ||||||
Three months ended February 28, 2005 | ||||||||||||||||||
Administrative | 1,577 | 648 | - | - | - | 2,225 | ||||||||||||
Consulting fees | 9,135 | 6,980 | - | - | - | 16,115 | ||||||||||||
Travel | 3,626 | 1,092 | - | - | - | 4,718 | ||||||||||||
Feasibility study | 68,087 | 16,956 | - | - | - | 85,043 | ||||||||||||
Balance, February 28, 2005 | $ | 82,425 | $ | 25,676 | $ | - | $ | - | $ | - | $ | 108,101 | ||||||
Nine months ended February 28, 2006 | ||||||||||||||||||
Administrative | 2,689 | - | 50 | 578 | 3,537 | 6,854 | ||||||||||||
Consulting fees | 11,548 | 1,494 | - | 9,688 | 32,045 | 54,775 | ||||||||||||
Feasibility study | - | - | - | - | 29,080 | 29,080 | ||||||||||||
Engineering studies | - | - | - | - | 38,391 | 38,391 | ||||||||||||
Wages and benefits | - | - | - | - | 15,738 | 15,738 | ||||||||||||
Legal fees | - | - | 247 | - | 623 | 870 | ||||||||||||
Travel | 6,421 | - | 7,205 | 2,046 | 12,617 | 28,289 | ||||||||||||
Balance, February 28, 2006 | $ | 20,658 | $ | 1,494 | $ | 7,502 | $ | 12,312 | $ | 132,031 | $ | 173,997 | ||||||
Nine months ended February 28, 2005 | ||||||||||||||||||
Administrative | 4,082 | 1,357 | - | - | - | 5,439 | ||||||||||||
Consulting fees | 25,063 | 18,926 | - | - | - | 43,989 | ||||||||||||
Travel | 9,602 | 9,163 | - | - | - | 18,765 | ||||||||||||
Feasibility study | 148,883 | 35,969 | - | - | - | 184,852 | ||||||||||||
Permit costs | 150,000 | - | - | - | - | 150,000 | ||||||||||||
Balance, February 28, 2005 | $ | 337,630 | $ | 65,415 | $ | - | $ | - | $ | - | $ | 403,045 |
…/cont’d
See accompanying notes to consolidated financial statements
9
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
SCHEDULE A : MINERAL PROPERTY COSTS |
For the nine months ended February 28, 2006 and 2005 and |
for the period from July 27, 1994 (date of inception) to February 28, 2006 |
(Unaudited) |
Jiajika | Lushi | DHLT | DX | DXC | ||||||||||||||
Spodumene | Spodumene | Spodumene | Polymetallic | Salt Lake | ||||||||||||||
Property | Property | Property | Property | Property | Total | |||||||||||||
From Date of Inception (July 27, 1994) to February 28, 2006 | ||||||||||||||||||
Balance, May 31, 2003 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||
Administrative | 471 | 276 | - | - | - | 747 | ||||||||||||
Consulting fees | 9,263 | 3,027 | - | - | - | 12,290 | ||||||||||||
Travel | 2,763 | 1,953 | - | - | - | 4,716 | ||||||||||||
Balance, May 31, 2004 | 12,497 | 5,256 | - | - | - | 17,753 | ||||||||||||
Administrative | 6,598 | 1,357 | 186 | 843 | - | 8,984 | ||||||||||||
Consulting fees | 33,799 | 18,925 | - | 6,552 | - | 59,276 | ||||||||||||
Feasibility study | 157,769 | 35,969 | - | - | - | 193,738 | ||||||||||||
Exploration costs | - | - | - | 30,266 | - | 30,266 | ||||||||||||
Permit costs | 150,000 | - | - | - | - | 150,000 | ||||||||||||
Travel | 15,085 | 9,163 | 521 | 1,785 | - | 26,554 | ||||||||||||
Balance, May 31, 2005 | 375,748 | 70,670 | 707 | 39,446 | - | 486,571 | ||||||||||||
Administrative | 2,689 | - | 50 | 578 | 3,537 | 6,854 | ||||||||||||
Consulting fees | 11,548 | 1,494 | - | 9,688 | 32,045 | 54,775 | ||||||||||||
Feasibility study | - | - | - | - | 29,080 | 29,080 | ||||||||||||
Engineering studies | - | - | - | - | 38,391 | 38,391 | ||||||||||||
Wages and benefits | - | - | - | - | 15,738 | 15,738 | ||||||||||||
Legal fees | - | - | 247 | - | 623 | 870 | ||||||||||||
Travel | 6,421 | - | 7,205 | 2,046 | 12,617 | 28,289 | ||||||||||||
Balance, February 28, 2006 | $ | 396,406 | $ | 72,164 | $ | 8,209 | $ | 51,758 | $ | 132,031 | $ | 660,568 |
See accompanying notes to consolidated financial statements
10
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
February 28, 2006 |
(Stated in US Dollars) |
(Unaudited) |
Note 1 | Interim Reporting and Continuance of Operations |
While the information presented in the accompanying interim nine month consolidated financial statements is unaudited, it includes all adjustments which are, in the opinion of management, necessary to present fairly the financial position, result of operations and cash flows for the interim periods presented. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. It is suggested that these financial statements be read in conjunction with the Company’s May 31, 2005 annual financial statements.
Operating results for the quarter ended February 28, 2006 are not necessarily indicative of the results that can be expected for the year ending May 31, 2006.
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At February 28, 2006, the Company had not yet achieved profitable operations, has accumulated losses of $1,716,148 since its inception and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available.
Note 2 | Principles of Consolidation |
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Micro Express Holdings Inc., Micro Express Ltd., Huyana Ventures Limited., Makaelo Holdings Inc. and Makaelo Limited. All inter-company transactions and account balances have been eliminated.
Note 3 | Mineral Properties |
Dangxiongcuo Salt Lake Project
On September 16, 2005, the Company, through its wholly owned subsidiary, Micro Express Holdings Inc. (“Micro”), signed an Agreement (the “Agreement”) with Beijing Mianping Salt Lake Research Institute (“Mianping”) for the development of Dangxiongcuo salt lake property (“DXC Salt Lake”) in Nima county of Naqu district in Tibet, China. The Agreement follows a Letter of Intent signed between the parties on July 11, 2005.
11
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to the Interim Consolidated Financial Statements |
February 28, 2006 |
(Stated in US Dollars) |
(Unaudited) |
Note 3 | Mineral Properties– (cont’d) |
Dangxiongcuo Salt Lake Project – (cont’d)
Pursuant to the Agreement, the parties have agreed to set up a Cooperative Company, Tibet Saline Lake Mining High-Science & Technology Co. Ltd. (the “Cooperative”) to develop the DXC Salt Lake. The objective of the Cooperative is to use the funds provided by the Company and the skills and technology provided by Mianping to produce lithium carbonate (Li2CO3) and borate from brine. The Company, through Micro, will own 65% and Mianping will own 35% of the Cooperative. It is anticipated that the total investment in the Cooperative will be approximately RMB240 million (approximately $30 million).
As of February 28, 2006, the Company has advanced RMB1 million ($124,430) to the joint venture partner as project deposit which will be used as part of the transfer fee for the mining permit. The Company also incurred $132,031 in mineral property costs.
Jiajika Spodumene Project
The Company, through Micro Express Ltd. (“MEL”), and the Chinese partner, Sichuan Province Mining Ltd. (“SPM”) started the co-operation on the Sichuan Ganzi Jiajika Spodumene project since 2003. Due to the change of the external conditions, both parties have agreed on March 3, 2006 to terminate the co-operation and SPM will pay back RMB2,480,000 ($308,586) incurred by MEL on the project. SPM shall pay RMB1.2 million ($149,316) and RMB1.28 million ($159,270) before April 15, 2006 and March 30, 2007, respectively. If SPM does not pay the RMB1.28 million, the amount will be converted into an interest in the Jiajika project based on the percentage of MEL’s investment as to the total investment in the Jiajika project,
Note 4 | Related Party Transactions |
The Company was charged consulting fees during the three and nine months ended February 28, 2006 in the amount of $30,902 (2005: $30,257) and $92,039 (2005: $68,660), respectively, by two companies separately controlled by two directors of the Company.
The Company was charged rental fees included in General and Administrative during the three and nine months ended February 28, 2006 totalling $2,517 (2005: $2,452) and $7,442 (2005: $4,720), respectively, by a company controlled by a director of the Company.
The Company was charged mineral property costs - consulting during the three and nine months ended February 28, 2006 in the amount of $10,943 (2005: $10,231) and $32,096 (2005: $27,874), respectively, by a company controlled by a director of the Company.
These charges were measured by the exchange amount which is the amount agreed upon by the transacting parties.
Cash and cash equivalents at February 28, 2006 include $372,734 (May 31, 2005: $NIL) held in trust by a director of the Company.
Included in accounts payable is $20,355 (2005: $8,909) which is due to the companies controlled by the directors of the Company for their services provided.
12
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to the Interim Consolidated Financial Statements |
February 28, 2006 |
(Stated in US Dollars) |
(Unaudited) |
Note 5 | Capital Stock |
Commitments:
a) | Capital Stock | ||
The Company has arranged a private placement of up to 5,000,000 units at $0.50 per unit for total proceeds of $2,500,000. Each unit consists of one common share and one share purchase warrant entitling the holder the right to purchase one common share at $0.75 per share, expiring on February 16, 2006 (see Note 5(c)). Upon exercise of the share purchase warrant, an additional share purchase warrant will be granted at $1.00 per share, expiring February 16, 2007. As at February 28, 2006, the Company has received total subscriptions of $1,858,000 for 3,716,000 units. Finder's fee of 101,500 units with the aforementioned terms was issued. | |||
b) | Stock Options | ||
During the nine months ended February 28, 2006, no stock options were granted, exercised or cancelled. | |||
As at February 28, 2006, there were 3,636,000 stock options outstanding exercisable at $0.50 per share, expiring on February 3, 2009. | |||
c) | Share Purchase Warrants | ||
During the nine months period ended February 28, 2006, there were no warrants issued, exercised or cancelled. | |||
On February 14, 2006, the Company has reduced the exercise price of the 3,817,500 Series “A” Share Purchase Warrants from $0.75 to $0.50 each and extended the terms of Series “A” Share Purchase Warrants for two years to the earlier of: | |||
(a) | February 16, 2008; and | ||
(b) | The 90th day after the day on which the weighted average trading price of the Company’s shares exceed $0.85 per share for 30 consecutive trading days. | ||
Upon exercise of the Series “A” Share Purchase Warrant at $0.50 each, the holder will receive one Common Share of the Company and a Series “B” Share Purchase Warrant exercisable at $1.00 expiring one year after the occurrence of either (a) or (b) as described above. | |||
As at February 28, 2006, the Company has a total of 3,817,500 Series “A” Share Purchase Warrants outstanding. |
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Safe Harbor Statement under the United States Private Securities Litigation Reform Act of 1995: Except for the statements of historical fact contained herein, the information constitutes "forward-looking statements" within the meaning of the Private Securities Litigation reform Act of 1995. Such forward looking statements, including but not limited to those with respect to the price of lithium, lithium carbonate, other metals and chemicals, the timing and amount of estimated production, costs of production, reserve determination and reserve conversion rates, involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Such factors include, among others, risks relating to the integration of the acquisition, risks that the company may not be able to raise the necessary capital, risks relating to international operations, risks relating to joint venture operations, the actual results of current exploration activities, the actual results of current reclamation activities, conclusions of economic evaluations, changes in project parameters as plans continue to be refined, future prices of lithium, beryllium, niobium, tantalum, and other metals, as well as those factors affecting the mineral industry. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
INTRODUCTION
The information presented here should be read in conjunction with Sterling Group Ventures, Inc.'s (the "Company") financial statements and other information included in this Form 10-QSB. The Company has presented its quarterly financial statements, which should be read in conjunction with its annual financial statements and the notes thereto for the fiscal year ended May 31, 2005.
As used in this quarterly report, the terms "we", "us", "our", "our company", "Company" and “Sterling” mean Sterling Group Ventures, Inc. and its subsidiaries , unless otherwise indicated.
When used in this Form 10-QSB, the words "expects", "anticipates", "estimates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to risks and uncertainties, including those set forth below under "Risks and Uncertainties," that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
PLAN OF OPERATIONS
Sterling is an exploration stage company and there is no assurance a commercially viable mineral deposit exists on any of the properties. Further exploration will be required before final evaluation as to the economic and legal feasibility is determined.
On January 20, 2004, the Company completed the acquisition of all of the issued and outstanding shares of Micro Express Ltd., a British Virgin Islands corporation (“Micro”) pursuant to an Acquisition Agreement, filed as an exhibit to a Form 8-K on January 29, 2004. Pursuant to the transaction, the Company issued an aggregate of 25,000,000 shares of common stock to the stockholders of Micro in exchange for 100% of the shares of Micro common stock. Micro Express Ltd. is a subsidiary of Micro Express Holdings Inc., which is a wholly owned subsidiary of Sterling.
Micro is a party to an agreement with Sichuan Province Mining Ltd, which is 40% held by the Bureau of Sichuan Geology and Resources of Sichuan Government. Under the terms of the agreement, Micro has the right to acquire at least 75% of the shares of a co-operative joint-venture company which will hold the necessary mining licenses. The business of the joint-venture company is to develop the Jiajika spodumene property for the extraction of lithium, lithium salts, and other minerals. The total investment required is estimated at 88.51 million Chinese Yuan. The initial registered capital is 56 million Chinese Yuan (US$6.8 million). Sichuan Province Mining Ltd. will contribute 14 million Chinese Yuan (about US$1.7 million) including the mining permits and previous works to hold 25% of the JV company. Micro will contribute 42 million Chinese Yuan (about US$5.1 million) to hold 75% of the JV company. An initial contribution of $150,000 has been made by the Company as part of the contribution to obtain the mining permit pursuant to the contract signed between our Chinese partner and Sichuan Bureau of Land and Resource.
On April 10, 2004, Micro has signed the joint venture agreement with Lushi Guanpo Minerals Development Ltd. (“Lushi”) of the Henan Province of China to earn more than 90% of the lithium project by taking the project into production.
On March 2, 2005, the Company through its subsidiary, Makaelo Limited (“Makaelo”), a BVI company, had entered into a Joint Venture Agreement with Aifeng Li, an individual residing in Anyang, Henan Province of China. Pursuant to the Agreement, the parties will set up a Joint Venture company in Inner Mongolia for the exploration and development of copper and silver in the areas of Donggou and Xiaoxigou (DX). Aifeng Li will contribute all the necessary exploration licenses, achievements and geological data to the Joint Venture in exchange for 48% of the Joint Venture company, while the Company will finance the cost of exploration in return for 52% of the Joint Venture company. The Company expects the cost of exploration to be approximately $630,000 to be contributed over the three years.
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On April 5, 2005, the Company through Micro, signed a joint venture contract with Sichuan Province Mining Ltd. for the establishment of Jihai Lithium Ltd. and the development of the Jiajika lithium deposit. Pursuant to the Contract, the project will be developed in two (2) stages.
On May 21, 2005, the Company through its wholly-owned subsidiary, Huyana Ventures Limited (“Huyana”), signed a letter of intent with Xinjiang Hetian Xinlong Mining Co. Ltd. for the development of Dahongliutan (DHLT) spodumene deposit. Pursuant to the LOI, the parties have agreed to set up a Joint Venture Company in Hetian City of Xinjiang Province, China to share the benefits, risks and losses of the project.
On June 19, 2005, the Company signed a Cooperative Agreement (the “Agreement”) with a Chinese partner in Sichuan Province, China for the possible development of the Lithium Metal and Lithium Salt Projects in Sichuan Province, China. Under the terms of the Agreement, two joint venture companies will be set up, one for lithium metal production and the other for lithium salt production. It is intended that the final terms of the Agreement will be decided upon further negotiations between the parties to the Agreement and will be subject to a formal contract to be signed by both parties.
On July 11, 2005, the Company signed a letter of intent (the “LOI”) with Beijing Mianping Salt Lake Research Institute for the development of Dangxiongcuo salt lake property (“DXC Salt Lake”) in Nima county of Naqu district in Tibet, China. Pursuant to the LOI, the parties have agreed to set up a joint venture company in Tibet, China to share the benefits, risks and losses of the project. It is intended that the terms of the joint venture will be decided upon further negotiations between the parties to the LOI.
On September 16, 2005, the Company through its wholly owned subsidiary, Micro Express Holdings Inc. (“MEH”), signed an agreement with Beijing Mianping Salt Lake Research Institute (“Mianping”) for the development of Dangxiongcuo salt lake property (“DXC Salt Lake Project”) in Nima county of Naqu district in Tibet, China. The Agreement follows a Letter of Intent signed between the parties on July 11, 2005.
On March 3, 2006, Sterling Group Ventures, Inc. (“Sterling ”), through its wholly owned subsidiary, Micro Express Ltd. (“Micro”), signed an agreement (the “Agreement”) with Sichuan Province Mining Ltd. (“SPM”) regarding early investment of Micro to Sichuan Jiajika Spodumene project.
Pursuant to the Agreement, the parties have confirmed that Micro’s early investment of 2.48 million Yuan (RMB) to Sichuan Ganzi Jiajika Spodumene project shall be paid back 1.2 million Yuan (RMB) before April 15, 2006 and 1.28 million Yuan (RMB) before March 30, 2007 to Micro by SPM. If SPM does not make the payment of 1.28 million to Micro before March 30, 2007, then 1.28 million yuan will be converted into Micro’s interest in Jiajika project of SPM as the formula of 1.28 million Yuan divided by registered capital contribution in Jiajia project by SPM, then multiply 100%. Either party shall not have any other liabilities to the other party and the Agreement shall replace all previous signed agreements, contracts and MOU between Micro and SPM.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited financial statements and notes thereto included in the Company's annual report on Form 10-KSB for the fiscal year ended May 31, 2005; and should further be read in conjunction with the financial statements included in this report. Comparisons made between reporting periods herein are for the three and nine months ended February 28, 2006, as compared to the three and nine months ended February 28, 2005.
The Company had interest income of $1,381 for the quarter ended February 28, 2006 as compared to $4,600 for the quarter ended February 28, 2005. For the nine months ended February 28, 2006 the Company had interest income of $3,091 as compared to $10,429 for the nine months ended February 28, 2005.
The operating loss decreased to $151,810 for the quarter ended February 28, 2006, as compared to $190,592 for the quarter ended February 28, 2005, while the operating loss for the nine months ended February 28, 2006 was $358,626 as compared to $658,381 for the nine months ended February 28, 2005.
For the three months ended February 28, 2006 relative to the same period in 2005, consulting services decreased by $11,633, while consulting services decreased by $39,799 for the nine months ended February 28, 2006 relative to the same period in 2005.
Accounting, audit and legal fees decreased by $6,574 for the three months ended February 28, 2006 when compared to the same period in 2005. Accounting, audit and legal fees decreased by $ 14,923 for the nine months ended February 28, 2006 when compared to the same period in 2005.
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Mineral property costs decreased by $16,264 for the three months ended February 28, 2006 when compared to the same period in 2005. Mineral property costs decreased by $229,048 for the nine months ended February 28, 2006 when compared to the same period in 2005.
Travel expenses increased by $9,778 for the three months ended February 28, 2006 when compared to the same period in 2005. Travel expenses decreased by $3,754 for the nine months ended February 28, 2006 when compared to the same period in 2005.
The Company expects the trend of losses to continue at an increasing rate until we can achieve commercial production on some of the mineral properties, of which there can be no assurance.
LIQUIDITY AND WORKING CAPITAL
As of February 28, 2006, the Company had total current assets of $ 606,871 and total liabilities of $55,338. The Company has a working capital surplus of $ 551,533 as a result of proceeds of $1,858,000 from a private placement commenced in February 2004.
Stock Options
During the three months ended February 28, 2006, no stock options were granted, exercised or cancelled.
As of February 28, 2006, there were 3,636,000 stock options outstanding exercisable at $0.50 per share, expiring on February 3, 2009.
Share Purchase Warrants
During the three months period ended February 28, 2006, there were no warrants issued, exercised or cancelled.
On February 14, 2006, the Company has reduced the exercise price of the 3,817,500 Series “A” Share Purchase Warrants from $0.75 to $0.50 each and extended the terms of the Series “A” Share Purchase Warrants for two years to the earlier of:
(a) February 16, 2008; and
(b) The 90th day after the day on which the weighted average trading price of the Company’s shares exceed $0.85 per share for 30 consecutive trading days.
Upon exercise of the Series “A” Share Purchase Warrant at $0.50 each, the holder will receive one Common Share of the Company and a Series “B” Share Purchase Warrant exercisable at $1.00 expiring one year after the occurrence of either (a) or (b) as described above.
As at February 28, 2006, the Company has a total of 3,817,500 Series “A” Share Purchase Warrants outstanding.
The Company has no other capital resources other than the ability to use its common stock to achieve additional capital or exercise of the options or exercise of the warrants by the unit holders.
RISK FACTORS
We have sought to identify what we believe to be the most significant risks to our business. However, we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our Common Stock. We provide the following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could adversely affect us.
Lack of Technical Training of Management
The Management of our Company has academic and scientific experience related to mining issues but lacks technical training and experience exploring for, commissioning and operating a mine. With no direct training or experience in these areas, management may not be fully aware of many of the specific requirements related to working within this industry. The decisions and choices may not take into account standard engineering or managerial approaches mineral exploration companies commonly use. Consequently, operations, earnings and the ultimate financial success of the Company could suffer irreparable harm due to management’s lack of experience in this industry.
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Exploration Risk
Development of mineral properties is contingent upon obtaining satisfactory exploration results. Mineral exploration and development involves substantial expenses and a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able to adequately mitigate.
There is no assurance that commercial quantities of ore will be discovered on any of the Company’s exploration properties. There is also no assurance that, even if commercial quantities of ore are discovered, a mineral property will be brought into commercial production. The discovery of mineral deposits is dependent upon a number of factors not the least of which is the technical skill of the exploration personnel involved. The commercial viability of a mineral deposit, once discovered, is also dependent upon a number of factors, some of which are the particular attributes of the deposit, such as size, grade and proximity to infrastructure, metal prices and government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection. In addition, assuming discovery of a commercial ore body, depending on the type of mining operation involved, several years can elapse from the initial phase of drilling until commercial operations are commenced. Most of the above factors are beyond the control of the Company.
The exploration process is conducted in phases. When each phase of a project is completed, and upon analysis of the results of that phase, the Company will make a decision whether to proceed with each successive phase of the exploration program. There is no assurance that projects will be carried to completion.
Limited Management Resource Development Experience
The Company does not have a track record of exploration and mining operation history. The Company's management has limited experience in mineral resource development and exploitation, and has relied on and may continue to rely upon consultants and others for development and operation expertise.
Limited Operating History; Anticipated Losses; Uncertainty of Future Results
Sterling is an exploration stage company and there is no assurance a commercially viable mineral deposit exists on any of the properties. Further exploration will be required before final evaluation as to the economic and legal feasibility is determined.
Sterling Group Ventures, Inc. has only a limited operating history upon which an evaluation of the Company and its prospects can be based. The Company's prospects must be evaluated with a view to the risks encountered by a company in an early stage of development, particularly in light of the uncertainties relating to the new and evolving distribution methods with which the Company intends to operate and the acceptance of the Company's business model. To the extent that such expenses are not subsequently followed by commensurate revenues, the Company's business, results of operations and financial condition will be materially adversely affected. There can be no assurance that the Company will be able to generate sufficient revenues from the sale of its products. If cash generated by operations is insufficient to satisfy the Company's liquidity requirements, the Company may be required to sell additional equity or debt securities. The sale of additional equity or convertible debt securities would result in additional dilution to the Company's stockholders.
Limited Financial Resources
Furthermore, the Company has limited financial resources with no assurance that sufficient funding will be available to it for future exploration and development or to fulfill its obligations under current agreements. There is no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of its projects.
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Limited Public Market, Possible Volatility of Share Price
The Company's Common Stock is currently quoted on the NASD OTC Bulletin Board under the ticker symbol SGGV. As of April 3, 2006, there were approximately 40,277,500 shares of Common Stock outstanding. There can be no assurance that a trading market will be sustained in the future.
Potential Fluctuations in Quarterly Results
Significant variations in our quarterly operating results may adversely affect the market price of our common stock. Our operating results have varied on a quarterly basis during our limited operating history, and we expect to experience significant fluctuations in future quarterly operating results. These fluctuations have been and may in the future be caused by numerous factors, many of which are outside of our control. We believe that period-to-period comparisons of our results of operations will not necessarily be meaningful and that you should not rely upon them as an indication of future performance. Also, it is likely that our operating results could be below the expectations of public market analysts and investors. This could adversely affect the market price of our common stock.
Dependence on Executive Officers and Technical Personnel
The success of our business plan depends on attracting qualified personnel, and failure to retain the necessary personnel could adversely affect our business. Competition for qualified personnel is intense, and we may need to pay premium wages to attract and retain personnel. Attracting and retaining qualified personnel is critical to our business. Inability to attract and retain the qualified personnel necessary would limit our ability to implement our business plan successfully.
Need for Additional Financing
The Company believes it has sufficient capital to meet its short-term cash needs, including the costs of compliance with the continuing reporting requirements of the Securities Exchange Act of 1934. However, if losses continue it may have to seek loans or equity placements to cover longer term cash needs to continue operations and expansion.
No commitments to provide additional funds have been made by management or other stockholders. Accordingly, there can be no assurance that any additional funds will be available to the Company to allow it to cover operation expenses.
If future operations are unprofitable, it will be forced to develop another line of business, or to finance its operations through the sale of assets it has, or enter into the sale of stock for additional capital, none of which may be feasible when needed. The Company has no specific management ability or financial resources or plans to enter any other business as of this date.
Political Risks
The market in China is monitored by the government, which could impose taxes or restrictions at any time which would make operations unprofitable and infeasible and cause a write-off of investment in the mineral properties. Other factors include political policy on foreign ownership, political policy to open the doors to foreign investors, and political policy on mineral claims and metal prices.
Market Risk
The Company does not hold any derivatives or other investments that are subject to market risk. The carrying values of any financial instruments, approximate fair value as of those dates because of the relatively short-term maturity of these instruments which eliminates any potential market risk associated with such instruments.
Other Risks and Uncertainties
The business of mineral deposit exploration and extraction involves a high degree of risk. Few properties that are explored are ultimately developed into production. At present, none of the Company’s properties has a known body of commercial mineral deposit. Other risks facing the Company include competition, reliance on third parties and joint venture partners, environmental and insurance risks, political and environmental instability, statutory and regulatory requirements, fluctuations in mineral prices and foreign currency, share price volatility, title risks, and uncertainty of additional financing.
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The Company has sought to identify what it believes to be the most significant risks to its business, but cannot predict whether or to what extent any of such risks may be realized nor can there be any assurances that the Company has identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to the Company's stock.
ITEM 3. CONTROLS AND PROCEDURES
The management of the company has evaluated the effectiveness of the issuer's disclosure controls and procedures as of May 31, 2005, the date of their last annual report on Form 10KSB, and have concluded that the disclosure controls and procedures are adequate and effective based upon their evaluation as of the evaluation date.
There were no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of the most recent evaluation of such, including any corrective actions with regard to significant deficiencies and material weaknesses.
OUTLOOK
The Company is under going feasibility studies for the development of DXC salt lake property in Tibet.
The pre-feasibility studies for the Lushi property will determine to what extent, if any, the required funding will be for the property.
As a joint venture contract with the property owner has so far not been completed on acceptable terms, the Company may not proceed with the DX project for the exploration and development of copper and silver in the areas of Donggou and Xiaoxigou (DX) in Inner Mongolia, China.
The Company is also conducting due diligence and is in further negotiations for the possible development of the Lithium Metal and Lithium Salt Projects with Jianzhong Chemicals Corporation.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Capital Stock
In February 2004, the Company commenced a private placement of up to 5,000,000 units at $0.50 per unit for total proceeds of $2,500,000. Each unit consists of one common share and one non-transferable share purchase warrant entitling the holder to purchase one common share for two years, at $0.50 per share in the first year or $0.75 in the second year (“A” warrant), with a expire date on February 16, 2006. Upon exercising an “A” warrant, the holder of each unit will have one additional non-transferable share purchase warrant at $1.00 (“B” warrant) for another year, with an expire date on February 16, 2007.
As of February 28, 2006, the Company has received total subscriptions of $1,858,000 for 3,716,000 units. Finder's fee of 101,500 units with the aforementioned terms was issued.
Stock Options
During the three months ended February 28, 2006, no stock options were granted, exercised or cancelled.
As of February 28, 2006, there were 3,636,000 stock options outstanding exercisable at $0.50 per share, expiring on February 3, 2009.
Share Purchase Warrants
During the three months period ended February 28, 2006, there were no warrants issued, exercised or cancelled.
On February 14, 2006, the Company has reduced the exercise price of the 3,817,500 Series “A” Share Purchase Warrants from $0.75 to $0.50 each and extended the terms of the Series “A” Share Purchase Warrants for two years to the earlier of:
(a) February 16, 2008; and
(b) The 90th day after the day on which the weighted average trading price of the Company’s shares exceed $0.85 per share for 30 consecutive trading days.
Upon exercise of the Series “A” Share Purchase Warrant at $0.50 each, the holder will receive one Common Share of the Company and a Series “B” Share Purchase Warrant exercisable at $1.00 expiring one year after the occurrence of either (a) or (b) as described above.
As at February 28, 2006, the Company has a total of 3,817,500 Series “A” Share Purchase Warrants outstanding.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 11, 2006 | |
STERLING GROUP VENTURES, INC. | |
/s/ Richard Shao | |
Richard (Xuxin) Shao, President |
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