UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period endedAugust 31, 2009.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from _________ to _______ .
Commission file number:000-51775
STERLING GROUP VENTURES, INC.
(Exact name of registrant as specified in its charter)
Nevada | 72-1535634 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
Suite 900 - 789 West Pender Street, Vancouver, B.C. V6C 1H2
(Address of principal executive offices) (Zip Code)
(604) 893-8891
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changes since last report)
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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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]
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 13, 2009.
Title of each class | Number of shares |
Common Stock, par value $0.001 per share | 43,826,175 |
1
STERLING GROUP VENTURES, INC.
FORM 10-Q
INDEX
2
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
CONSOLIDATED BALANCE SHEETS |
August 31, 2009 and May 31, 2009 |
August 31, | May 31, | |||||
Stated in U.S. dollars | 2009 | 2009 | ||||
(Unaudited) | ||||||
ASSETS | ||||||
Current Assets | ||||||
Cash | $ | 238,892 | $ | 192,002 | ||
Cash held in trust - Note 5 | 33 | 55,320 | ||||
GST refundable | 11,356 | 9,577 | ||||
Prepaid expenses | 74 | 270 | ||||
Total current assets | 250,355 | 257,169 | ||||
Equipment | 188 | 454 | ||||
Total Assets | $ | 250,543 | $ | 257,623 | ||
LIABILITIES AND CAPTIAL DEFICIT | ||||||
Current Liabilities | ||||||
Accounts payable and accrued liabilities - Note 3 | $ | 504,086 | $ | 461,545 | ||
Capital Deficit | ||||||
Common Stock : $0.001 Par Value - Note 4 | ||||||
Authorized : 500,000,000 | ||||||
Issued and Outstanding : 43,826,175 | 43,826 | 43,826 | ||||
Additional Paid In Capital | 2,652,924 | 2,652,924 | ||||
Warrants - Note 4 | 544,964 | 544,964 | ||||
Accumulated Other Comprehensive Loss | (583 | ) | (583 | ) | ||
Deficit accumulated during the exploration stage | (3,494,674 | ) | (3,445,053 | ) | ||
Total Capital Deficit | (253,543 | ) | (203,922 | ) | ||
Total Liabilities and Capital Deficit | $ | 250,543 | $ | 257,623 |
See accompanying notes to consolidated financial statements
3
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
CONSOLIDATED STATEMENTS OF OPERATIONS |
For the three months ended August 31, 2009 and 2008 and |
for the period from July 27, 1994 (date of inception) to August 31, 2009 |
(Unaudited) |
July 27, 1994 | |||||||||
(Date of | |||||||||
inception) | |||||||||
Three months ended August 31, | to August 31, | ||||||||
Stated in U.S. dollars | 2009 | 2008 | 2009 | ||||||
Expenses | |||||||||
Accounting, audit and legal fees | $ | 32,449 | $ | 25,582 | $ | 402,757 | |||
Bank charges | 131 | 62 | 1,817 | ||||||
Consulting fees - Note 3 | 5,515 | 28,991 | 694,518 | ||||||
Depreciation | 266 | 327 | 9,158 | ||||||
Filing fees and transfer agent | 1,846 | 454 | 38,392 | ||||||
Foreign exchange loss (gain) | 1,192 | (12,476 | ) | (28,317 | ) | ||||
General and administrative - Note 3 | 3,549 | 6,119 | 102,091 | ||||||
Mineral property costs - Note 2 | 4,694 | 29,596 | 1,269,088 | ||||||
Printing and mailing | - | - | 16,883 | ||||||
Shareholder information and investor relations | - | 1,530 | 61,230 | ||||||
Stock-based compensation | - | - | 862,018 | ||||||
Travel and entertainment | - | - | 122,432 | ||||||
Recovery of doubtful collection - Note 2(b) | - | - | (272,358 | ) | |||||
Allowance for doubtful collection - Note 2(b) | - | - | 246,708 | ||||||
(49,642 | ) | (80,185 | ) | (3,526,417 | ) | ||||
Other item | |||||||||
Interest income | 21 | 3,523 | 31,743 | ||||||
Net loss for the period | $ | (49,621 | ) | $ | (76,662 | ) | $ | (3,494,674 | ) |
Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | |||
Weighted average number of shares outstanding | 43,826,175 | 43,826,175 |
See accompanying notes to consolidated financial statements
4
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
For the three months ended August 31, 2009 and 2008 and |
for the period from July 27, 1994 (date of inception) to August 31, 2009 |
(Unaudited) |
July 27, 1994 | |||||||||
(Date of | |||||||||
inception) | |||||||||
Three months ended August 31, | to August 31, | ||||||||
Stated in U.S. dollars | 2009 | 2008 | 2009 | ||||||
Cash flows from operating activities | |||||||||
Net loss for the period | $ | (49,621 | ) | $ | (76,662 | ) | $ | (3,494,674 | ) |
Adjustments to reconcile net loss to net cash | |||||||||
provided by (used in) operating activities | |||||||||
Stock based compensation expense | - | - | 862,018 | ||||||
Depreciation | 266 | 327 | 9,158 | ||||||
Permit and engineering studies | - | - | 150,000 | ||||||
Shareholder information and investor relations | - | - | 20,447 | ||||||
Accounting, audit and legal fees | - | - | 49,000 | ||||||
Translation adjustment | - | - | (106 | ) | |||||
Changes in non-cash working capital items | |||||||||
related to operations | |||||||||
GST refundable | (3,506 | ) | (2,118 | ) | (11,356 | ) | |||
Prepaid expenses | (68 | ) | 11 | 21,479 | |||||
Advance receivable | 1,307 | (142 | ) | - | |||||
Accounts payable and accrued liabilities | 17,766 | 52,169 | 523,566 | ||||||
Net cash used in operating activities | (33,856 | ) | (26,415 | ) | (1,870,468 | ) | |||
Cash flows from investing activities | |||||||||
Advance on investment | - | - | (150,000 | ) | |||||
Additions to equipment | - | - | (9,346 | ) | |||||
Net change in cash held in trust | 55,287 | - | (33 | ) | |||||
Net cash flows provided by (used in) investing activities | 55,287 | - | (159,379 | ) | |||||
Cash flows from financing activities | |||||||||
Net proceeds on issuance of common stock | - | - | 2,266,858 | ||||||
Amounts contributed by director | - | - | 1,881 | ||||||
Net cash flows provided by financing activities | - | - | 2,268,739 | ||||||
Foreign currency translation effect on cash | 25,459 | ||||||||
Net increase (decrease) in cash | 21,431 | (26,415 | ) | 238,892 | |||||
Cash - beginning of period | 192,002 | 374,127 | - | ||||||
Cash - end of period | $ | 238,892 | $ | 347,712 | $ | 238,892 | |||
Supplemental Information: | |||||||||
Cash paid for : | |||||||||
Interest | $ | - | $ | - | $ | - | |||
Income taxes | $ | - | $ | - | $ | - | |||
Non-cash Transactions: | |||||||||
Issuance of shares for commission paid to broker for | |||||||||
private placement | $ | - | $ | - | $ | 72,396 | |||
Issuance of shares for services rendered | $ | - | $ | - | $ | 91,000 | |||
Issuance of shares for settlement of accounts payable | $ | - | $ | - | $ | 19,480 | |||
Issuance of share purchase warrants for finder's fee | |||||||||
paid to broker for private placement | $ | - | $ | - | $ | 11,477 |
See accompanying notes to the consolidated financial statements
5
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIT) |
For the period from July 27, 1994 (date of inception) to August 31, 2009 |
(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 | ) | ||||||||||||
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 year | - | - | - | - | - | (461,201 | ) | (461,201 | ) | ||||||||||||
Balance, May 31, 2006 | 40,277,500 | $ | 40,278 | $ | 2,190,611 | $ | 40,110 | $ | (583 | ) | $ | (1,818,723 | ) | $ | 451,693 | ||||||
Issuance of shares for cash pursuant to a private | |||||||||||||||||||||
placement - at $0.15 | 2,750,300 | 2,750 | 409,795 | - | - | - | 412,545 | ||||||||||||||
Issuance of shares for finder's fee of | |||||||||||||||||||||
private placement | 123,690 | 124 | 21,522 | - | - | - | 21,646 | ||||||||||||||
Finders' fees | - | - | (21,646 | ) | (21,646 | ) | |||||||||||||||
Share issuance costs | - | - | (3,687 | ) | - | - | - | (3,687 | ) | ||||||||||||
Fair value of share purchase warrants (finders' fees) | - | - | (9,895 | ) | 9,895 | - | - | - | |||||||||||||
Revaluation of share purchase warrants | - | - | (1,582 | ) | 1,582 | - | - | - | |||||||||||||
Issuance of shares for services rendered | 350,000 | 350 | 48,650 | - | - | - | 49,000 | ||||||||||||||
Net loss for the year | - | - | - | - | - | (864,485 | ) | (864,485 | ) | ||||||||||||
Balance, May 31, 2007 | 43,501,490 | $ | 43,502 | $ | 2,633,768 | $ | 51,587 | $ | (583 | ) | $ | (2,683,208 | ) | $ | 45,066 | ||||||
Issuance of shares for services rendered at $0.06 - Note 5 | 324,685 | 324 | 19,156 | - | - | - | 19,480 | ||||||||||||||
Revaluation of share purchase warrants - Note 5 | - | - | 409,525 | - | - | 409,525 | |||||||||||||||
Net loss for the year | - | - | - | - | - | (516,440 | ) | (516,440 | ) | ||||||||||||
Balance, May 31, 2008 | 43,826,175 | $ | 43,826 | $ | 2,652,924 | $ | 461,112 | $ | (583 | ) | $ | (3,199,648 | ) | $ | (42,369 | ) | |||||
Revaluation of share purchase warrants - Note 5 | - | - | - | 83,852 | - | - | 83,852 | ||||||||||||||
Net loss for the year | - | - | - | - | - | (245,405 | ) | (245,405 | ) | ||||||||||||
Balance, May 31, 2009 | 43,826,175 | $ | 43,826 | $ | 2,652,924 | $ | 544,964 | $ | (583 | ) | $ | (3,445,053 | ) | $ | (203,922 | ) | |||||
Net loss for the period | - | - | - | - | - | (49,621 | ) | (49,621 | ) | ||||||||||||
Balance, August 31, 2009 | 43,826,175 | $ | 43,826 | $ | 2,652,924 | $ | 544,964 | $ | (583 | ) | $ | (3,494,674 | ) | $ | (253,543 | ) |
See accompanying notes to consolidated financial statements
6
STERLING GROUP VENTURES, INC. |
(An Exploration Stage Company) |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
(Stated in US Dollars) |
August 31, 2009 and 2008 |
(Unaudited) |
Note 1 | Interim Reporting and Ability to Continue as a Going Concern |
While the information presented in the accompanying interim three-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 consolidated financial statements be read in conjunction with the Company’s May 31, 2009 annual consolidated financial statements.
Operating results for the three-month period ended August 31, 2009 are not necessarily indicative of the results that can be expected for the year ending May 31, 2010.
The interim consolidated 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 consolidated 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 August 31, 2009, the Company had a working capital deficiency of $253,731 has not yet achieved profitable operations, has accumulated losses of $3,494,674 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.
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.
(a) | Recently Adopted Accounting Policies | |
The Company adpted the following accounting policies from June 1, 2009: | ||
The Company adopted SFAS No. 157,“Fair Value Measurements”(“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. In February 2008, the FASB deferred the effective date of SFAS 157 by one year for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). On June 1, 2008, the Company adopted the provisions of SFAS 157, except as it applies to those non-financial assets and non-financial liabilities for which the effective date was delayed by one year, which the Company adopted on June 1, 2009. |
7
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
August 31, 2009 and 2008 |
(Stated in US Dollars) |
(Unaudited) |
Note 1 | Interim Reporting and Ability to Continue as a Going Concern - Continued |
(a) | Recently Adopted Accounting Policies - Continued | ||
The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels: | |||
Level one – Quoted market prices in active markets for identical assets or liabilities; | |||
Level two – Inputs other than level one inputs that are either directly or indirectly observable; and | |||
Level three – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use. | |||
The adoption of SFAS 157 did not have a material effect on the Company’s financial position or results of operations. The book values of cash and cash equivalents, cash held in trust, accounts payable and accrued liabilities approximate their respective fair values due to the short-term nature of these instruments. The Company has no assets or liabilities that are measured at fair value on a recurring basis. There were no assets or liabilities measured at fair value on a non-recurring basis during the three months ended August 31, 2009. | |||
The Company adopted SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. Adoption of SFAS 159 did not have a material effect on the Company’s consolidated financial statements. | |||
The Company adopted the ratified EITF No. 07-1,“Accounting for Collaborative Arrangements”, that discusses how parties to a collaborative arrangement (which does not establish a legal entity within such arrangement) should account for various activities. The consensus indicates that costs incurred and revenues generated from transactions with third parties (i.e. parties outside of the collaborative arrangement) should be reported by the collaborators on the respective line items in their income statements pursuant to EITF Issue No. 99-19,“Reporting Revenue Gross as a Principal Versus Net as an Agent”. Additionally, the consensus provides that income statement characterization of payments between the participants in a collaborative arrangement should be based upon existing authoritative pronouncements; analogy to such pronouncements if not within their scope; or a reasonable, rational, and consistently applied accounting policy election. EITF Issue No. 07-1 is to be applied retrospectively to all periods presented for collaborative arrangements existing as of the date of adoption. Adoption of EITF No. 07-1 did not have a material effect on the Company’s consolidated financial statements. | |||
The Company adopted FASB Staff Position No. 142-3,“Determination of the Useful Life of Intangible Assets”(“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing assumptions about renewal or extension used in estimating the useful life of a recognized intangible asset under SFAS No. 142,“Goodwill and Other Intangible Assets”(“SFAS 142”). This standard is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007),“Business Combinations”(“SFAS 141(R)”) and other GAAP. Adoption of FASB Staff Position No. 142-3 did not have a material effect on the Company’s consolidated financial statements. |
8
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
August 31, 2009 and 2008 |
(Stated in US Dollars) |
(Unaudited) |
Note 1 | Interim Reporting and Ability to Continue as a Going Concern - Continued |
(a) | Recently Adopted Accounting Policies - Continued | |
The Company adopted FASB Staff Position (“FSP”) No. APB 14-1“Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlements)”(previously FSP APB 14-a), which changes the accounting treatment for convertible securities which the issuer may settle fully or partially in cash. Under the final FSP, cash settled convertible securities will be separated into their debt and equity components. The value assigned to the debt component will be the estimated fair value, as of the issuance date, of a similar debt instrument without the conversion feature, and the difference between the proceeds for the convertible debt and the amount reflected as a debt liability will be recorded as additional paid-in capital. As a result, the debt will be recorded at a discount reflecting its below market coupon interest rate. The debt will subsequently be accreted to its par value over its expected life, with the rate of interest that reflects the market rate at issuance being reflected on the income statement. This change in methodology will affect the calculations of net income and earnings per share for many issuers of cash settled convertible securities. The adoption did not have a material effect on the Company’s consolidated financial statements. | ||
The Company adopted SFAS statement No. 162,“The Hierarchy of Generally Accepted Accounting Principles”(“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of non- governmental entities that are presented in conformity with GAAP in the United States. Any effect of applying the provisions of this Statement shall be reported as a change in accounting principle in accordance with FASB statement No. 154,“Accounting Changes and Error Corrections”. The adoption of FSAS No. 162 did not have an impact on the Company’s consolidated financial statements. | ||
The Company adopted FSP EITF 03-6-1,“Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities”. FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and affects entities that accrue cash dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the awards. FSP EITF 03-6-1 states that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FSP EITF 03-6-1 did not have a material impact on the Company’s consolidated financial statements. | ||
The Company adopted FSP FAS 157-3,“Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”, which addresses the application of Statement of Financial Accounting Standards (“SFAS”) No.157 for illiquid financial instruments. FSP FAS 157-3 clarifies that approaches to determining fair value other than the market approach may be appropriate when the market for a financial asset is not active. The adoption of FSP FAS 157-3 did not have a material effect on the Company’s consolidated financial statements. | ||
The Company adopted EITF Issue No. 07-05 (“EITF 07-05”),“Determining Whether an Instrument (or embedded feature) Is Indexed to an Entity’s Own Stock.”. EITF 07-05 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which would qualify as a scope exception under SFAS 133. The adoption of EITF 07-05 did not have a material effect on the financial position, results of operations and cash flows of the Company. |
9
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
August 31, 2009 and 2008 |
(Stated in US Dollars) |
(Unaudited) |
Note 1 | Interim Reporting and Ability to Continue as a Going Concern - Continued |
(a) | Recently Adopted Accounting Policies - Continued | |
The Company adopted FASB Staff Position No. FAS 107-1 and APB 28-1 ("FSP FAS 107-1 and APB 28-1"),"Interim Disclosures about Fair Value of Financial Instruments". The FSP amends SFAS 107,"Disclosure about Fair Value of Financial Instruments", and Accounting Principles Board Opinion No. 28,"Interim Financial Reporting",to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. Adoption of FAS 107-1 and APB 28-1 did not have a material impact on the Company’s consolidated financial statements. | ||
The Company adopted FASB Staff Position No. FSP FAS 115-2 and FAS 124-2 ("FSP FAS 115-2 and FAS 124-2"),"Recognition and Presentation of Other-Than-Temporary Impairments". The FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The adoption of this FSP did not have a material impact on the Company’s consolidated financial statements. | ||
The Company adopted FASB Staff Position No. FAS 157-4 ("FSP FAS 157-4"),"Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly". The FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157,"Fair Value Measurements", when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. The adoption of this FSP FAS 157-4 did not have a material impact on the Company’s consolidated financial statements. | ||
The Company adopted SFAS 141R“Business Combinations”. SFAS 141R, which will replace FAS 141, is applicable to business combinations consummated after the effective date of December 15, 2008. The adoption of SFAS No. 141R might have effect the Company’s financial position or results of operations in the future when the Company enters into business combination with another company. | ||
The Company adopted SFAS No. 160,“Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB 51”. SFAS No. 160 changes the accounting and reporting for minority interests, which is re-characterized as non-controlling interests and classified as a component of equity. SFAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. The adoption of the SFAS No. 160 did not have a material impact on the Company’s consolidated financial statements. | ||
The Company adopted SFAS 161“Disclosures about Derivative Instruments and Hedging Activities – an amendment of SFAS 133”. This Statement requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The adoption of the SFAS No. 161 did not have a material impact on the Company’s consolidated financial statements. | ||
The Company adopted SFAS No. 165,“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 or are available to be issued. The adoption of the SFAS No. 161 did not have a material impact on the Company’s consolidated financial statements. |
10
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
August 31, 2009 and 2008 |
(Stated in US Dollars) |
(Unaudited) |
Note 1 | Interim Reporting and Ability to Continue as a Going Concern - Continued |
(b) | Recently Announced Accounting Pronouncements | |
In December 2007, the SEC issued Staff Accounting Bulletin (“SAB”) No. 110 regarding the use of a “simplified” method, as discussed in SAB No. 107 (SAB 107), in developing an estimate of expected term of “plain vanilla” share options in accordance with SFAS No. 123 (R), Share-Based Payment. In particular, the staff indicated in SAB 107 that it will accept a company’s election to use the simplified method, regardless of whether the company has sufficient information to make more refined estimates of expected term. At the time SAB 107 was issued, the staff believed that more detailed external information about employee exercise behavior (e.g., employee exercise patterns by industry and/or other categories of companies) would, over time, become readily available to companies. Therefore, the staff stated in SAB 107 that it would not expect a company to use the simplified method for share option grants after December 31, 2007. The staff understands that such detailed information about employee exercise behavior may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The Company will continue to assess the impact of SAB 110. It is not believed that this will have an impact on the Company’s consolidated financial statements. | ||
In June 2009, the FASB issued FASB No. 166,“Accounting for Transfers of Financial Assets - an amendment of FASB Statement No. 140”(“SFAS 166”). SFAS 166 requires additional disclosures about the transfer and derecognition of financial assets and eliminates the concept of qualifying special-purpose entities under SFAS 140. SFAS 166 is effective for fiscal years beginning after November 15, 2009. The adoption of the standard is not expected to have a material impact on the Company. | ||
In June 2009, the FASB issued SFAS No. 167,“Amendments to FASB Interpretation No. 46(R)”(“SFAS 167”). SFAS 167 amends certain requirements of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities”, to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. This Statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company is currently assessing the impact of the adoption of SFAS 167 on the Company’s financial condition, results of operations and cash flows. | ||
In July 2009, the FASB issued Financial Accounting Standard No. 168,“The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162”(FAS 168). In addition in June 2009, the FASB issued Accounting Standards Update No. 2009-01,“Topic 205 – Generally Accepted Accounting Principles - amendments based on Statement of Financial Accounting Standards No. 168 – The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”(ASU 2009-1). Both FAS 168 and ASU 2009-1 recognize the FASB Accounting Standards Codification as the source of authoritative U.S. generally accepted accounting principles to be utilized by nongovernmental entities. FAS 168 and ASU 2009-1 are effective for interim and annual periods ending after September 15, 2009. The adoption of this pronouncement is not expected to have a material effect on the Company’s consolidated financial statements. |
11
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
August 31, 2009 and 2008 |
(Stated in US Dollars) |
(Unaudited) |
Note 2 | Mineral Properties |
Summary of mineral properties expenses for the three months ended August 31, 2009 and 2008 and for the cumulative period from date of inception (July 27, 1994) to August 31, 2009:
DXC | |||
Salt Lake | |||
Property | |||
Three months ended August 31, 2009 | |||
Administrative | $ | 88 | |
Travel | 4,606 | ||
$ | 4,694 | ||
Three months ended August 31, 2008 | |||
Administrative | $ | 116 | |
Consulting fees | 14,662 | ||
Travel | 7,809 | ||
Legal fees | 7,009 | ||
$ | 29,596 |
12
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
August 31, 2009 and 2008 |
(Stated in US Dollars) |
(Unaudited) |
Note 2 | Mineral Properties- Continued |
DXC | Jiajika | |||||
Salt Lake | Spodumene | |||||
Summary of mineral property expenditures | Property | Property | ||||
From Date of Inception (July 27, 1994) to May 31, 2009 | ||||||
Balance, May 31, 2003 | $ | - | $ | - | ||
Administrative | - | 471 | ||||
Consulting fees | - | 9,263 | ||||
Travel | - | 2,763 | ||||
Balance, May 31, 2004 | - | 12,497 | ||||
Administrative | - | 6,598 | ||||
Consulting fees | - | 33,799 | ||||
Feasibility study | - | 157,769 | ||||
Permit costs | - | 150,000 | ||||
Travel | - | 15,085 | ||||
Balance, May 31, 2005 | - | 375,748 | ||||
Administrative | 5,560 | 2,100 | ||||
Consulting fees | 46,629 | 12,062 | ||||
Engineering studies | 26,933 | - | ||||
Feasibility study | 29,080 | - | ||||
Geophysical study | 31,114 | - | ||||
Legal fees | 623 | - | ||||
Topography measurement | 32,266 | - | ||||
Travel | 30,953 | 8,009 | ||||
Wages and benefits | 33,601 | - | ||||
Cost recovery | - | (309,058 | ) | |||
Balance, May 31, 2006 | 236,759 | 88,861 | ||||
Administrative | 5,200 | - | ||||
Consulting fees | 134,580 | - | ||||
Engineering studies | 38,063 | - | ||||
Mining permit | 382,920 | - | ||||
Topography measurement | 15,001 | - | ||||
Legal fees | 9,695 | - | ||||
Travel | 53,262 | 488 | ||||
Wages and benefits | 35,687 | - | ||||
Balance, May 31, 2007 | 911,167 | 89,349 | ||||
Administrative | 706 | - | ||||
Consulting fees | 60,548 | - | ||||
Travel | 5,456 | - | ||||
Legal fees | 11,566 | - | ||||
Balance, May 31, 2008 | 989,443 | 89,349 | ||||
Administrative | 867 | - | ||||
Consulting fees | 27,890 | - | ||||
Travel | 16,959 | - | ||||
Legal fees | 7,008 | - | ||||
Balance, May 31, 2009 | 1,042,167 | 89,349 | ||||
Administrative | 88 | - | ||||
Travel | 4,606 | - | ||||
Balance, August 31, 2009 | $ | 1,046,861 | $ | 89,349 | ||
Abandoned properties | - | - | ||||
Balance August 31, 2009 | $ | 1,046,861 | $ | 89,349 |
13
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
August 31, 2009 and 2008 |
(Stated in US Dollars) |
(Unaudited) |
Note 2 | Mineral Properties– Continued |
Not included in the table above was a total of $132,878 of costs incurred on other properties which were abandoned during the years ended May 31, 2006 and 2007.
a) | Dangxiongcuo Salt Lake Project | |
On September 16, 2005, the Company, through its wholly owned subsidiary, Micro Express Holdings Inc. (“Micro”), signed an agreement (the “Mianping Agreement”) for the development of Dangxiongcuo salt lake property (“DXC Salt Lake”) in Nima county of Naqu district in Tibet, China. | ||
Pursuant to the Mianping Agreement, the parties agreed to set up a Cooperative Company, (the “Cooperative”) to develop the DXC Salt Lake. The objective of the Cooperative was to use the funds provided by the Company and the skills and technology provided by the other party to produce lithium carbonate and borate from brine. The Company, through Micro, was to own 65% of the Cooperative. It was anticipated that the total investment in the Cooperative would be approximately 240 million RMB (or approximately US$35 million). The Cooperative Company was never set up. On July 3, 2007, Micro received a letter from the other party to the Mianping Agreement stating that the agreement between Micro and the other party should be deemed terminated as a result of lack of progress in the approval for the establishment of the joint venture company and is considering a lawsuit against the Company and Micro. Micro has responded that the other party’s claim has no legal grounds as the lack of progress is not caused by Micro. There has been no legal action to date and none is expected. By letter dated August 25, 2008, Beijing Mianping Salt Lake Research Institute (“Mianping”) has confirmed that the agreement dated September 16, 2005 was terminated effective July 8, 2008. This agreement was replaced by the agreement with Zhong Chuan International Mining Holdings Co. Ltd. dated July 8, 2008. | ||
On July 8, 2008, the Company signed an agreement (the "Agreement") with the shareholders of Monte Sea Holdings Ltd. ("Monte Sea Shareholders") and a third party to restructure the transactions contemplated under the September 16, 2005 agreement. The parties wish to jointly develop the DXC Salt Lake property and lithium resources in Tibet including an exploration license, and elsewhere (the “Property”), by way of a cooperative joint venture. Monte Sea Shareholders and the third party are to provide RMB100,000,000 ($14,584,000) to finance the DXC property to production. | ||
Pursuant to the Agreement, the parties wish to establish a Sino-foreign cooperative joint venture company ("CJV") for the purpose of applying for and holding required approvals, permits and licenses with respect to the development of the Property. | ||
The Parties agree that an operating company ("Opco") will be established in Tibet prior to the establishment of the CJV for the purpose of applying for and holding required approvals, permits and licenses with respect to the development of the Property. The Opco shall hold all such approvals, permits and licenses in trust for the CJV. | ||
Under the Agreement, the CJV will be established within 90 days, subject to required regulatory approval and based on a joint venture agreement by way of acquisition of interest in the Opco by Monte Sea Holdings Ltd. (“Monte Sea”), or by way of incorporation under the Chinese laws. Monte Sea shall hold up to 65% but no less than 51% of shares in the CJV. CJV shall own and hold all the Property. | ||
If for any Chinese regulatory or policy reasons, Monte Sea is not permitted to have more than fifty-one percent (51%) interest in the CJV, then the CJV agreement will be revised such that: |
14
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
August 31, 2009 and 2008 |
(Stated in US Dollars) |
(Unaudited) |
Note 2 | Mineral Properties– Continued |
a) | Dangxiongcuo Salt Lake Project – Continued | ||
(i) | Monte Sea shall have a forty-nine percent (49%) interest in the CJV; | ||
(ii) | Monte Sea shall be entitled to receive returns on its investment in the CJV on a priority and accelerated basis until its investment in the CJV and the Property is fully recovered; and | ||
(iii) | Monte Sea shall be permitted to manage the daily operation of the CJV pursuant to a management agreement to be entered into on terms and conditions satisfactory to the Company. | ||
Upon the Agreement being effective and termination of the agreement dated September 16, 2005, the Company will be repaid RMB6,000,000 (approximately $875,000). As of August 31, 2009, the Company has received $nil in regards to this agreement. | |||
Upon signing of this Agreement and subject to applicable regulatory approval, Monte Sea Shareholders shall subscribe for 5,000,000 units (the "Units") to be issued by the Company at $0.15 per Unit. Each Unit shall consist of one common share in the stock of the Company, and one warrant which shall entitle the Monte Sea shareholders to purchase one common share in the stock of the Company at $0.16 per share within two years from the date of the issuance of the Units. | |||
Subject to applicable regulatory approval, the Company shall cause 200,000,000 shares to be issued to the Monte Sea Shareholders within ten working days from the date transfer of the exploration license to the CJV is approved by the Chinese regulators, in exchange for all the shares then issued and outstanding in the stock of Monte Sea and held by Monte Sea Shareholders (the "Share Exchange"). The Share Exchange may be conducted and completed at an earlier date as long as the Company and Monte Sea Shareholders may agree in writing. This transaction would be accounted for as a reverse acquisition. | |||
Subject to applicable regulatory approval, the Company shall cause 87,910,000 shares in the capital of the Company to be issued to the Monte Sea Shareholders at no additional cost, upon receipt by the CJV of a mining license and such other permits or approvals for the Property, permitting the full exploitation and development of the Property. | |||
The Company intends to, when and as required by the CJV, arrange and complete financing for the operation of the CJV. | |||
Zhong Chuan shall, together with Monte Sea Shareholders, provide funds no less than RMB 100,000,000 (or US dollar equivalent thereof) for the purpose of meeting registered capital payment requirements in the registration and operation of the CJV. Zhong Chuan shall keep other Parties informed of any development in the registration of the CJV and transfer of the Exploration License. | |||
The application to establish a joint venture has not yet been approved by the regulators in Tibet, China. | |||
As of August 31, 2009, the Company has incurred a total of $1,046,861 in mineral property costs on this property. |
15
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
August 31, 2009 and 2008 |
(Stated in US Dollars) |
(Unaudited) |
Note 2 | Mineral Properties– Continued |
a) | Dangxiongcuo Salt Lake Project – Continued | |
The Company received verbal termination of the Agreement with Zhong Chuan in July 2009, as advised by third party legal counsel, at a meeting in Beijing, China. The Agreement, in effect, allows Zhong Chuan to terminate the Agreement if it pays the Company double the amount of funds paid by the Company to date to secure and develop the DXC Project. Zhong Chuan has not paid the required amount anticipated by the Agreement to date. The delay in payment has delayed the termination process and the Company is pursuing Zhong Chuan to complete the termination, as the Company deems, is mandated by the Agreement. | ||
b) | Jiajika Spodumene Property | |
On September 16, 2003, the Company, through its wholly owned subsidiary, Micro Express Ltd. (“Micro”), entered into an agreement (the “Agreement”) with Sichuan Province Mining Ltd. to acquire a 75% interest in a 30-year mining joint venture company. The joint venture company would hold the mining licenses to develop the Jiajika spodumene property located in Sichuan Province, China for the extraction of lithium and lithium salts. Pursuant to the Agreement, the total investment required was estimated at 88.5 million RMB (US$10.8 million) for the initial capacity of 240,000 tonnes/annum. The initial registered capital was 56 million RMB (US$6.8 million). Sichuan Province Mining Ltd. would contribute 14 million RMB (US$1.7 million) including the mining permits to hold 25% of the JV Company. Micro would contribute 42 million RMB (US$ 5.1 million) to hold 75% of the JV Company. | ||
On April 5, 2005, the Company, through its wholly-owned subsidiary Micro Express Ltd. (“MEL”), signed a joint venture contract with a Chinese partner for the establishment of a joint venture company, Jihai Lithium Ltd. and the development of the Jiajika lithium deposit in Kangding District, Sichuan Province, China. On March 3, 2006, both parties agreed to terminate the joint venture and the Chinese partner agreed to pay back RMB2,480,000 ($309,058) incurred by MEL on the project. The Chinese partner agreed to pay RMB1,200,000 ($149,520) and RMB1,280,000 ($159,538) before April 15, 2006 and March 30, 2007, respectively. If the Chinese partner does not pay the RMB1,280,000, the amount will be converted into an interest in the Jiajika project based on the percentage of MEL’s investment as to the registered capital contribution in Jiajika project by the Chinese partner. As at May 31, 2006, the Company had received RMB500,000 ($62,350) and a receivable of RMB1,980,000 ($246,708) was recorded. As of May 31, 2009, the Company had received the full amount of RMB2,480,000 ($334,707) from the Chinese partner. | ||
As the Chinese partner had not paid the remaining RMB700,000 ($87,170) and the recoverability of the RMB1,280,000 ($159,538) was uncertain, the Company recorded an allowance for doubtful collection totalling $246,708 for the year ended May 31, 2006. | ||
During the year ended May 31, 2007, the Company received RMB 300,000 ($40,381) from the Chinese Partner and this was recorded as a recovery of doubtful collection on the statement of operations. | ||
During the year ended May 31, 2008, the Company received RMB1,100,000 ($147,154) from the Chinese partner. This amount was reported as recovery of doubtful collection in the consolidated statements of operation. |
16
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
August 31, 2009 and 2008 |
(Stated in US Dollars) |
(Unaudited) |
Note 2 | Mineral Properties– Continued |
b) | Jiajika Spodumene Property– Continued | |
During the year ended May 31, 2009, the Company received RMB580,000 ($84,823) (2008 - RMB1,100,000 ($147,154)) from the Chinese partner and this was recorded as a recovery of doubtful collection on the statement of operations. | ||
As at August 31, 2009, the Company had incurred a total of $398,407 in the Jiajika Spodumene Property before the cumulative cost recovery of RMB2,480,000 ($309,058) up to August 31, 2009. |
Note 3 | Related Party Transactions |
The Company was charged consulting fees for administrative, corporate, financial, engineering, and management services during the three months ended August 31, 2009 totalling $5,515 (2008: $28,728) by companies controlled by two directors of the Company.
The Company was charged rental fees included in General and Administrative expense during the three months ended August 31, 2009 totalling $3,069 (2008: $5,284) by a company controlled by a director of the Company.
The Company was charged consulting fees included in mineral property costs during the three months ended August 31, 2009 in the amount of $nil (2008: $1,753) by the Vice President of Micro.
The Company was charged consulting fees included in mineral property costs during the three months ended August 31, 2009 in the amount of $nil (2008: $11,858) by a company controlled by a director of the Company.
Cash and cash equivalents at August 31, 2009 include $33 (May 31, 2009 : $55,320) held in trust by a director of the Company.
Included in accounts payable and accrued liabilities is $470,245 (May 31, 2009: $459,043) which was due to companies controlled by the directors of the Company for their services provided.
Note 4 | Capital Stock |
a) Stock Options |
On February 3, 2004, the Board of Directors of the Company approved the 2004 Stock Option Plan which allows the Company to grant up to 3,636,000 stock options as an incentive to directors, officers, employees and consultants.
During the three months ended August 31, 2009 and 2008, no stock options were granted or exercised. On February 3, 2009, 3,636,000 stock options with an exercise price of $0.50 per share expired unexercised.
At August 31, 2009, there were no outstanding stock options (May 31, 2009 – nil).
17
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
August 31, 2009 and 2008 |
(Stated in US Dollars) |
(Unaudited) |
Note 4 | Capital Stock - Continued |
b) Share Purchase Warrants |
Share purchase warrants outstanding at August 31, 2009 were as follows:
Number | Price | Expiry | ||||
3,817,500 | $0.50 | February 16, 2010 | ||||
2,873,990 | $0.18 | February 26, 2010 | ||||
6,691,490 |
During the three-month period ended August 31, 2009 and 2008, no warrants were exercised, cancelled or expired.
Each Series “A” warrant entitles the holder thereof the right to purchase one common share at $0.50 per share expiring on the earlier of:
1) | February 16, 2008; or | |
2) | The 90th day after the day on which the weighted average trading price of the Company's shares exceeds $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 (i) or (ii) as described above. The Series "A" Share Purchase Warrants were originally issued in 2004 pursuant to a private placement commenced in February 2004.
On February 7, 2008, the Company extended the expiry date of the 3,817,500 Series “A” Share Purchase Warrants from February 16, 2008 to February 16, 2009. The exercise price of the warrants remains unchanged at $0.50 per share. The additional fair value of the 3,817,500 extended life Series “A” Share Purchase Warrants was estimated at $252,989, by using the Black-Scholes Option Pricing Model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 218.52%, risk free interest rates of 2.08%, and expected life of 1 year.
On February 6, 2009, the Company re-extended the expiry date of 3,817,500 Share Purchase Warrants (the Series "A" Share Purchase Warrants) from February 16, 2009 to February 16, 2010. The exercise price of the warrants remains unchanged at $0.50 per share. The additional fair value of the 3,817,500 extended life Series “A” Share Purchase Warrants was estimated at $35,593 using the Black-Scholes Option Pricing Model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 223.36%, risk free interest rates of 0.82%, and expected life of 1 year.
On February 7, 2008, the Company extended the expiry date of the 2,873,990 Series “C” Share Purchase Warrants from February 29, 2008 to February 27, 2009. The exercise price of the warrants remained unchanged at $0.18 per share. The additional fair value of the 2,873,990 extended life Series “C” Share Purchase Warrants was estimated at $156,536, by using the Black-Scholes Option Pricing Model with the following weighted average assumptions: dividend yield of 0% expected volatility of 222.09%, risk-free interest rates of 2.08% and expected life of 1 year.
18
Sterling Group Ventures, Inc. |
(An Exploration Stage Company) |
Notes to Consolidated Financial Statements |
August 31, 2009 and 2008 |
(Stated in US Dollars) |
(Unaudited) |
Note 4 | Capital Stock - Continued |
b) Share Purchase Warrants - Continued |
The Company also re-extended the expiry date of 2,873,990 Share Purchase Warrants (the Series "C" share purchase Warrants) from February 27, 2009 to February 26, 2010. The exercise price of the warrants remains unchanged at $0.18 per share. The Series "C" Share Purchase Warrants were originally issued in September 2006 pursuant to a private placement commenced in August 2006. The additional fair value of the 2,873,990 extended life Series “C” Share Purchase Warrants was estimated at $48,259 using the Black-Scholes Option Pricing Model with the following weighted average assumptions: dividend yield of 0% expected volatility of 244.01%, risk-free interest rates of 0.82% and expected life of 1 year.
As at August 31, 2009, the Company has a total of 3,817,500 and 2,873,990 Series “A” and “C” share purchase warrants outstanding, respectively.
Note 5 | Foreign Currency Risk |
The Company is exposed to fluctuations in foreign currencies through amounts held in China in RMB: | |
- Cash held in trust $33 (May 31, 2009 - $55,320) | |
Note 6 | Comparative Figures |
Certain comparative figures have been reclassified to conform to current year’s presentation. |
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes for the year ended May 31, 2009 , the financial statements and related notes in this Quarterly Report, the risk factors in our 10K for the year ended May 31, 2009 , and all of the other information contained elsewhere in this report.
As used in this quarterly report, the terms “we”, “us”, “our”, “our company”, “Company” and “Sterling” refer to Sterling Group Ventures, Inc. and its subsidiaries, unless otherwise indicated.
Forward-Looking Statements.When used in this Form 10-Q, the words “believe”, “may”, “will”, “plan”, “estimate”, “continue”, “anticipate”, “intend”, “expect”, “project”, “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.
Overview
On July 8, 2008, the Company signed an agreement (the "Agreement") with Zhong Chuan International Mining Holding Co., Ltd. ("Zhong Chuan"), Ximing Sun and Charles Yan - shareholders of Monte Sea Holdings Ltd. (collectively hereinafter "Monte Sea Shareholders") to complete an equity financing, to accelerate the development of the DXC salt lake deposits in China and to restructure the transactions contemplated under the initial agreement signed by Beijing Mianping Salt Lake Research Institute ("Mianping") and Micro Express Holdings Inc. ("MEH") on September 16, 2005. Pursuant to the Agreement, the parties wish to establish a Sino-foreign cooperative joint venture company ("CJV") for the purpose of applying for and holding required approvals, permits and licenses with respect to the development of the DXC Salt Lake property (the "Property") located in Tibet of China. In July 2009, the Company received verbal termination of the Agreement with Zhong Chuan, as advised by third party legal counsel, at a meeting i n Beijing, China. Formal written notice has not been received from Zhong Chuan. The Agreement in effect, allows Zhong Chuan to terminate the Agreement if it pays the Company double the amount of funds paid by the Company to date to secure and develop the DXC Project. Zhong Chuan has not repaid the required amount as anticipated by the Agreement to date. This unfortunate delay on the part of Zhong Chuan places the termination it gave the Company in dispute as the termination is conditional upon repayment of the required funds. At this point then, the termination is incomplete. The Company is pursuing Zhong Chuan to complete the termination, as the Company deems, is mandated by the Agreement.
Business of Sterling Group Ventures Inc.
Sterling Group Venture Inc. is a start-up, exploration stage company engaged in the search and exploration of lithium and related minerals. The Company has DXC Salt Lake Project for the exploration of lithium and lithium Carbonate.
Application of Critical Accounting Policies and Use of Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ significantly from these estimates under different assumptions or conditions. There have been no material changes to these estimates for the periods presented in this quarterly report.
20
Interim Reporting
The information presented in the accompanying interim consolidated financial statements is without audit pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in the interim consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading.
These statements reflect all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. Except where noted, the interim consolidated financial statements follow the same accounting policies and methods of their application as our May 31, 2009 annual consolidated financial statements. All adjustments are of a normal recurring nature. It is suggested that these interim consolidated financial statements be read in conjunction with our May 31, 2009 annual consolidated financial statements.
Operating results for the three months ended August 31, 2009 are not necessarily indicative of the results that can be expected for the year ending May 31, 2010.
Results Of Operations
The Company had no revenue for the three months ended August 31, 2009 and 2008 except interest income of $21 for the quarter ended August 31, 2009 as compared to $3,523 for the quarter ended August 31, 2008.
The operating loss decreased to $49,621 for the quarter ended August 31, 2009 as compared to $76,662 for the quarter ended August 31, 2008 mainly due to the reduction of mineral property costs and consulting fees.
For the three months ended August 31, 2009, relative to the same period in 2008, consulting services decreased by $23,476.
Accounting, audit and legal fees increased by $6,867 for the three months ended August 31, 2009 when compared to the same period in 2008.
Mineral property costs decreased by $24,902 for the three months ended August 31, 2009 when compared to the same period in 2008.
General and administrative expenses decreased by $2,570 for the three months ended August 31, 2009 when compared to the same period in 2008.
The Company expects the trend of losses to continue until we can achieve commercial production on some of the mineral properties, of which there can be no assurance as described in Risk Factors.
Liquidity And Working Capital
As of August 31, 2009, the Company had total current assets of $250,355 and total liabilities of $504,086. As of August 31, 2009, the Company had cash of $238,892 and negative working capital of $253,731.
Cash used in operating activities for the three months ended August 31, 2009 was $33,856 as compared to cash used in operating activities for the same period in 2008 of $26,415. The decrease in cash used in operating activities was primarily due to a decrease in cash expenditures for consulting and mineral property costs.
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According to the agreement signed with Zhongchuan on July 8, 2008, Mianping will repay the Company RMB 6,000,000 ($875,000) and Monte Sea Shareholders shall subscribe for 5,000,000 units (the "Units") to be issued by the Company at $0.15 per unit. As a result, the Company expects to raise working capital in the amount of $750,000 and a total of $1,625,000 including the repayment of approximately RMB 6,000,000 described earlier to meet its short term working capital requirements.
However, in July 2009, the Company received verbal termination of the Agreement with Zhong Chuan, as advised by third party legal counsel, at a meeting in Beijing, China. Formal written notice has not been received from Zhong Chuan. The Agreement in effect, allows Zhong Chuan to terminate the Agreement if it pays the Company double the amount of funds paid by the Company to date to secure and develop the DXC Project. Zhong Chuan has not repaid the required amount as anticipated by the Agreement to date. This unfortunate delay on the part of Zhong Chuan places the termination it gave the Company in dispute as the termination is conditional upon repayment of the required funds. At this point then, the termination is incomplete. The Company is pursuing Zhong Chuan to complete the termination, as the Company deems, is mandated by the Agreement.
The Company has no other capital resources other than the ability to use its common stock to raise additional capital or the exercise of the warrants by the unit holders. The Company's current cash can provide the Company with working capital for over one year since consulting fees are being accrued. Estimated cash needed for next 12 months is about $80,000. The cash will be mainly used for general administrative, corporate (legal, accounting and audit), financing and management.
No commitments to provide additional funds have been made by management or other stockholders except as set forth above. Accordingly, there can be no assurance that any additional funds will be available to the Company to allow it to cover operation expenses. This raises substantial doubt that the Company will be able to continue as a going concern unless additional capital is raised
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In addition to the U.S. Dollar, we conduct our business in Chinese Yuan (RMB) and Canadian Dollar and, therefore, are subject to foreign currency exchange risk on cash flows related to expenses and investing transactions. In July 2005, the Chinese government began to permit the Chinese Yuan to float against the U.S. Dollar. All of our costs to operate our Chinese project are paid in Chinese Yuan and all of our costs to operate our principal executive office in Canada are paid in Canadian dollar. Our exploration costs in China may be incurred under contracts denominated in Chinese Yuan or U.S. Dollars. If the Chinese Yuan continues to appreciate with respect to the U.S. Dollar, our costs in China may increase. If the Canadian Dollar continues to appreciate with respect to the U.S. Dollar, our costs in Canada may increase. To date we have not engaged in hedging activities to hedge our foreign currency exposure. In the future, we may enter into hedging instruments to manage our foreign currency exchange risk or continue to be subject to exchange rate risk.
Although inflation has not materially impacted our operations in the recent past, increased inflation in China or Canada could have a negative impact on our operating and general and administrative expenses, as these costs could increase. China has recently experienced inflationary pressures, which could increase our costs associated with our operations in China. If there are material changes in our costs, we may seek to raise additional funds earlier than anticipated.
ITEM 4. CONTROLS AND PROCEDURES
a. Evaluation of Disclosure Controls and Procedures:
We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report..
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b. Changes in Internal Control over Financial Reporting:
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 1A. 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.
Factors That May Affect Future Results and Market Price of Stock
The business of the Company involves a number of risks and uncertainties that could cause actual results to differ materially from results projected in any forward-looking statement, or statements, made in this report. These risks and uncertainties include, but are not necessarily limited to the risks set forth below. The Company's securities are speculative and investment in the Company's securities involves a high degree of risk and the possibility that the investor will suffer the loss of the entire amount invested.
Limited Operating History; Anticipated Losses; Uncertainty of Future Results (Risk of Going Concern)
Sterling is in the exploration stage. The Company has entered into joint venture agreements to explore and develop mineral properties located in China and has not yet determined whether these properties contain reserves that are economically recoverable. The Company has not yet achieved profitable operations and is dependent on its ability to raise capital from shareholders or other sources to meet its obligations and repay its liabilities arising from normal business operations when they come due. These factors raise substantial doubt that the Company will be able to continue as a going concern.
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.
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.
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The company’s exploration properties have not been examined in the field by professional geologists or mining engineers. 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 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.
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 and is listed on Berlin Bremen Stock Exchange under the symbol GD7. As of August 31, 2009, there were 43,826,175 shares of common stock outstanding. There can be no assurance that a trading market will be sustained in the future.
Dependence on Executive Officers and Technical Personnel
The success of our business plan depends on attracting qualified personnel, and failure to attract and 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, the Company has to seek loans or equity placements to cover longer-term cash needs to continue operations and expansion.
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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.
Dilution to the Existing Shareholders
The Company has no other capital resources other than the ability to use its common stock to raise additional capital or the exercise of the warrants by the unit holders. Pursuant to the agreement signed on July 8, 2008 with Zhongchuan, the Company shall cause 292,910,000 shares to be issued to Monte Sea Shareholders for the DXC Salt Lake project, which will significantly dilute the Company's stockholders.
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.
Circumstances related to Tibet political activities and resulting political upheaval are beyond the control of the Company and constitute a risk to investors.
Other Risks and Uncertainties
The business of mineral deposit exploration and development involves a high degree of risk. Few properties that are explored are ultimately developed into production. 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.
Since October 2008, a severe general downturn in the U. S. economy and global economy slowdown which already affected the securities markets took place. Such a deleterious turn of events has made it much more difficult for the Company to access financing should it be required to do so.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to Exhibits beginning on page 27 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Sterling Group Ventures Inc. | |
/s/ Raoul Tsakok | |
Raoul Tsakok, Chairman and Chief Executive Officer | |
Date: October 14, 2009 | |
/s/ Richard Shao | |
Richard Shao, President and Chief Financial Officer | |
Date: October 14, 2009 |
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INDEX OF EXHIBITS
Exhibit | |
Number | Description |
3.1 | Articles of Incorporation of the Company, (filed as Exhibit 3.1 to the Company's Registration Statement on Form SB-2 filed on July 26, 2002, and incorporated herein by reference). |
3.2 | Bylaws of the Company (filed as Exhibit 3.2 to the Company's Registration Statement on Form SB-2 filed on July 26, 2002, and incorporated herein by reference). |
4.1 | Specimen stock certificate (filed as Exhibit 4.1 to the Company's Registration Statement on Form SB-2 filed on July 26, 2002, and incorporated herein by reference). |
10.1 | Acquisition Agreement between the Company and Micro Express Ltd., dated January 20, 2004. (Filed as Exhibit 10.1 to the Company's current report on Form 8-K filed on January 29, 2004, and incorporated herein by reference). |
10.2 | Joint Venture Contract between Micro Express Ltd. .(the Company’s wholly subsidiary) and Sichuan Province Mining Ltd., dated April 5, 2005 (Filed as Exhibit 10.1 to the Company's current report on Form 8-K filed on April 11, 2005, and incorporated herein by reference). |
10.3 | Agreement for Development of DXC Salt Lake Property between Micro Express Holdings Inc. .(the Company’s wholly subsidiary) and Beijing Mianping Salt Lake Research Institute, dated September 16, 2005 (Filed as Exhibit 10.1 to the Company's current report on Form 8-K filed on September 21, 2005, and incorporated herein by reference). |
10.4 | Agreement for Termination of Joint Venture between Micro Express Ltd. and Sichuan Province Mining Ltd., dated March 3, 2006 (Filed as Exhibit 10.1 to the Company's current report on Form 8- K filed on March 6, 2006, and incorporated herein by reference). |
10.5 | Agreement between the Company, Zhong Chuan International Mining Holding Co., Ltd. , and shareholders of Monte Sea Holdings Ltd., dated July 8, 2008 (Filed as Exhibit 10.1 to the Company's current report on Form 8-K filed on July 15, 2008, and incorporated herein by reference). |
14.1 | Code of Ethics. ( Filed as Exhibit 14.1 to the Company's Annual report on Form 10-K filed on August 28, 2009, and incorporated herein by reference) |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
99.1 | Audit Committee Charter. (Filed as Exhibit 99.1 to the Company's Annual report on Form 10-K filed on August 28, 2009, and incorporated herein by reference) |
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