[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
[ ] No [X]
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Act.
Yes [
] No [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
[X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S–T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
Yes [X] No [
]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Act).
Yes [
] No [X]
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked prices of such common
equity, as of the last business day of the registrant’s most recently completed
second fiscal quarter.
The aggregate market value of the voting and non-voting share
of Common Stock held by non-affiliates of the registrant was approximately
$874,805 based on the closing trading price for the common equity as of November
30, 2015 (at $0.015) .
The number of shares of common stock, par value $0.001 per
share, outstanding as of September 15, 2016 was 75,730,341.
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 phosphate, potassium, nitrogen, and other
commodities, 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 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 phosphate, potassium, nitrogen,
fertilizer and other commodities, 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.
This annual report contains forward-looking statements as that
term is defined in the Private Securities Litigation Reform Act of 1995. These
statements relate to future events or our future financial performance. Some
discussions in this report may contain forward-looking statements that involve
risk and uncertainty. A number of important factors could cause our actual
results to differ materially from those expressed in any forward-looking
statements made by us in this report. Forward-looking statements are often
identified by words like: “believe”, “expect”, “estimate”, “anticipate”,
“intend”, “project” and similar expressions or words which, by their nature,
refer to future events.
In some cases, you can also identify forward-looking statements
by terminology such as “may”, “will”, “should”, “plans”, “predicts”, “potential”
or “continue” or the negative of these terms or other comparable terminology.
These statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks in the section entitled
"Risk Factors", which may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.
Our financial statements are stated in United States Dollars
(US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles. All references to “ $” refer to US Dollars, all
references to “CA $” refer to Canadian Dollars, all references to “RMB” refer to
Chinese Yuan and all references to "common shares" refer to the common shares in
our capital stock.
As used in this annual report, the terms "we", "us", "our",
“the Company” and "Sterling" mean Sterling Group Ventures, Inc., unless
otherwise indicated.
Sterling is a mining and exploration company, involved in the
development of Gaoping property, a phosphate deposit through its acquisition of
Chenxi County Hongyu Mining Co. Ltd. (Hongyu) in Hunan, China, and is developing
a mining operation on the Gaoping property. There is no assurance we will be
able to commercially develop mineral deposits on the claims that we have under
option. Further exploration may be required before a final evaluation as to the
economic and legal feasibility of the claims is determined.
PART I
ITEM 1. BUSINESS.
General
We were incorporated in the state of Nevada on September 13,
2001 and established a fiscal year end of May 31. Since our incorporation, we
have engaged in the business of mining exploration and development. On January
20, 2004, Sterling completed the acquisition of all of the issued and
outstanding shares of Micro Express Ltd. (“Micro”), which was incorporated on
July 27, 1994 and engaged in exploration and development of Lithium. Pursuant to
the transaction, the Company issued an aggregate of 25,000,000 shares of
Sterling’s common stock to the stockholders of Micro in exchange for 100% of the
outstanding shares of Micro’s common stock. The business combination was
accounted for as a reverse acquisition whereby the purchase method of accounting
was used with Micro being the accounting parent and the Company being the
accounting subsidiary. The Company has since terminated the joint venture
agreements related to the Lithium projects in 2011 as more fully described
herein. On July 8, 2011, Sterling acquired a 90% interest in Chenxi County
Hongyu Mining Co. Ltd. (“Hongyu”), and the other 10% of Hongyu was transferred
to the nominees of Sterling. Pursuant to the transaction, Sterling issued
10,000,000 shares of its common stock to the existing Hongyu shareholders. On
April 9, 2016 Sterling signed a Purchase and Sale Agreement (“the Agreement”)
with Chenguo Capital Limited. Under the terms of the Agreement, Sterling issued
85,000,000 shares into escrow to be released upon transfer to Sterling of the
Business Assets as described in that agreement, and provided $295,726 in working
capital towards the development of a timeshare platform. On September 5, 2016
Sterling, Chenguo, and Sterling Group Ventures (HK) Ltd. signed a Settlement and
Termination Agreement terminating the aforementioned Purchase and Sale
Agreement. As part of the termination, Sterling Group Ventures (HK) Ltd.
(formerly named Euro Asia Premier Realty (HK) Ltd.) has been sold back to
Chenguo and the Company paid $16,090 to Sterling Group Ventures (HK) Ltd. for
its expenses together with the sum of $7,750 to a third party for his expenses
incurred in relation to Sterling Group Ventures HK Ltd. to expedite the
termination. Any shares issued pursuant to the Agreement have been cancelled.
All parties to the Termination Agreement agree not to sue any of the other
parties for anything performed or not performed under the Agreement before or
after the signing of the Termination Agreement. See Note 10 of the consolidated
financial statements for more information.
Given the Chenguo Agreement termination, we will be engaged in
the search, exploration and development of phosphate and related minerals in
China and other countries.
Our statutory registered agent's office is located at 123 West
Nye Lane, Suite 129, Carson City, Nevada 89706 and our business office is
located at 904 – 1455 Howe Street, Vancouver, B.C., Canada, V6Z 1C2. Our
telephone and fax number is (604) 684-1001.
Phosphate Overview
Phosphate rock is a general description applied to several
kinds of rock which contain significant concentrations of phosphate minerals,
which are minerals that contain the phosphate ion in their chemical structure,
and is the eleventh most abundant element in the lithosphere.
Many kinds of rock contain mineral components containing
phosphate or other phosphorus compounds in small amounts. However, rocks which
contain phosphate in quantity and concentration which are economic to mine as
ore, for their phosphate content, are not particularly common. The two main
sources for phosphate are guano, formed from bird droppings, and rocks
containing concentrations of the calcium phosphate mineral, apatite.
In general, lower concentrations of phosphate and lower quality
deposits require increasing amounts of energy and chemicals in order to produce
phosphate and can represent a significant increase in costs.
Phosphorus, P in the table of elements, is present in every
living cell in both plants and animals and is essential to the process of
photosynthesis in plants. As such, phosphorus, among other fertilizers, is
essential to plant growth. Plants absorb phosphorus through the soil as various
forms of phosphate. Besides nitrogen and potassium, phosphorus is one of the
three nutrients required for plant growth and cannot be substituted. It is also
insoluble so that it can be washed easily.
Phosphate content in currently mined rocks can range anywhere
from 5% to 40%. Thus, the rocks must be processed to remove the bulk of the
contained minerals and impurities normally through washing as the initial step
thus increasing phosphate grades.
4
Gaoping Phosphate Project
On October 18, 2010, Sterling Group Ventures, Inc. (“Sterling”)
signed two agreements (the “Agreements”) with Chenxi County Hongyu Mining Co.
Ltd. (“Hongyu”) and its shareholders (“Hongyu Shareholders”) regarding the
Gaoping phosphate mine (the “GP Property”) located in Tanjiachang village,
Chenxi County, Hunan Province, China and other phosphate resources in Hunan
Province.
Hongyu is a Chinese private mining company with connections and
resources in Hunan, China. Hongyu was an inactive company holding a mining
permit and a deposit of $122,134 placed with local land administrative bureau
for undertaking the restoration of land to its present condition when the lease
term expires after the property is mined. Hongyu is interested in exploring,
developing and expanding its Phosphate business. Hongyu is the holder of a
mining permit (the “
Permit
”) in the GP Property located in Tanjiachang
village, Chenxi County, Hunan Province, China. Due to lack of funds, Hongyu was
inactive without current operations being conducted. The GP Property is a
sedimentary phosphate type deposit. The number of the mining permit is
4300002009116120048322 and it is valid until November 10, 2014. On April 29,
2015, Hongyu obtained the renewal of the mining permit, which is valid until
April 2, 2018. The area covered by the Permit is 0.4247 km2 (42.47 hectares).
The mining permit allows initial production up to 100,000 tonnes of phosphate
rock per year.
The Agreements required an investment company to be
incorporated in Hong Kong (the “Investment Company”) which was to be owned 20%
by the Hongyu Shareholders and 80% by Sterling. On October 13, 2010, the
Investment Company was incorporated in Hong Kong under the name Silver Castle
Investments Ltd. (“Silver Castle”). Silver Castle acquired 90% of Hongyu with
the other 10% of Hongyu transferred to the nominees of Sterling. Upon completion
of this acquisition, Hongyu became a Hong Kong / China joint venture company.
Sterling received all required approvals from Chinese authorities for the
completion of its acquisition of Hongyu pursuant to the Agreements dated October
18, 2010. The Company paid a total RMB 2,000,000 ($310,438) to the Hongyu
Shareholders with RMB 200,000 (US$30,934) paid as down payment on December 14,
2010 and the remaining RMB1,800,000 ($279,504) paid on July 8, 2011 for
completion of the transaction.
Pursuant to the Agreements, Hongyu agreed to surrender its
future exclusive cooperative rights to Sterling, and the Hongyu Shareholders
agreed that Sterling shall have all Hongyu's title and interest in any phosphate
properties, including but not limited to the GP Property, and Sterling should
arrange for the financing of building a mining and processing plant on the GP
Property together with other facilities required for a mining operation thereon.
When requested by Sterling, the Hongyu Shareholders agreed to
sell their 20% interest in the Investment Company to Sterling for the issuance
of 10,000,000 common shares of Sterling’s capital stock. On July 5, 2011,
Sterling issued 10,000,000 shares to the Hongyu Shareholders with the closing
market price of the shares at $0.22 for acquiring the remaining 20% equity
interest in Silver Castle from the Hongyu Shareholders. As a result of this
transaction, Sterling effectively controls 100% of Hongyu through its wholly
owned subsidiary, Silver Castle Investments Ltd. which holds 90% of Hongyu with
the other 10% held by the nominees of Sterling.
Sterling through its subsidiary company, Silver Castle
Investments Ltd., also signed a letter of intent for a larger area known as
Tanjiachang Exploration Concession with Chenxi County Merchants Bureau, Hunan
Province, China. Tanjiachang Exploration Concession is surrounding the Gaoping
Mining permit.
As a mining license was obtained for the Gaoping Phosphate
Property and a Chinese engineering report was completed, Hongyu made the
following progress. On February 13, 2012, Hongyu received approval for
installing the power line for the Gaoping Phosphate Property. Hongyu also
reached an understanding for land rental with a local village committee on March
17, 2012. Hongyu signed and completed a land rental agreement with each family
in the mining area on March 27, 2012. On April 1, 2012, Hongyu also received
conditional safety approval from the Supervision and Management Bureau for
Safety Operation of Chenxi County and the project is essentially ready to begin
production on a small scale basis to be further ramped up as the development and
production plan takes effect. On April 22, 2012, Hongyu signed a mining
agreement with the mining contractor, Yichang Rongchang Mining Co. Ltd., to be
the operator of the mining and production activities on the project. On June 16,
2012, Hongyu completed power line construction. On July 19, 2012, Hongyu
received the explosive operation permit. Accommodations for mining people have
been built. An onsite office and accommodations for workers and mining
management are complete. The water supply for the mining operation and living
quarters is connected to the site. The road to the mining site has been
completed. Three adits have been dug and they will be used to access the
phosphorite along its strike length.
On March 10, 2013, Hongyu signed a profit sharing agreement
with Yichang Baolin Mining Engineering Co. Ltd (“Baolin”) for mining and
processing phosphate rock from the Project. Baolin has a processing plant using
a scrubbing processing which can process up to 100,000 t/a. However, Baolin has
also built a new simple washing processing plant near Gaoping property to reduce
the transportation cost. Hongyu has also signed an agreement with the Yichang
Yinuo Biotech Co. Ltd (“Yinuo”) to jointly produce and market bio-phosphate
fertilizer. Yinuo has its own microbial inoculants and its fertilizer market
brand is Mingxinglinde which is an organic biofertilizer. The
aforementioned progress is presented as an interim measure to gauge the ease and
efficiency of the mining process together with the efficacy of the contractual
arrangements made to produce and market the phosphate rock.
5
As a substantial decrease of phosphate rock and phosphate
fertilizer market pricing has occurred, Hongyu has halted further exploration
and development since August 2013 until the world market prices rebound and has
kept the property in care and maintenance mode. Such an action preserves the
phosphate rock in situ and saves operating capital while world prices for
phosphate rock are in a depressed state. The Company’s capital contributions to
the project were held to a minimum by its contracting the mining and washing
functions to Yichang Baolin Mining Engineering Co. Ltd.
The Company has continued the services of several key employees
in China to review other mining properties and opportunities. In pursuit of one
such opportunity, Hongyu has obtained a registration code from Customs of
People’s Republic of China for the import and export business which may afford
the Company the opportunity to act as an agent or distributor for the
importation and exportation of fertilizer products. Hongyu is also continuously
reviewing and looking other opportunities in mining.
As of May 31, 2016, the Gaoping mineral property is still an
exploration stage property as it does not yet have proven reserves.
Employees
At present, we have 9 employees in China. We have no employees
in Canada, other than our officers and directors. Our officers and directors do
not have employment agreements with us, except consulting agreements which can
be cancelled with 30 days’ notice.
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.
There is Substantial Doubt About the Company’s Ability to
Continue as a Going Concern
Sterling is engaged in acquisition, exploration and development
of mineral properties. The Company has acquired the Gaoping phosphate properties
located in Chenxi County, Hunan Province, China. 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.
Failure to comply with the United States Foreign Corrupt
Practices Act could subject us to penalties and other adverse
consequences.
We are subject to the United States Foreign Corrupt Practices
Act, which generally prohibits U.S. companies from engaging in bribery or other
prohibited payments to foreign officials for the purpose of obtaining or
retaining business. In addition, we are required to maintain records that
accurately and fairly represent our transactions and have an adequate system of
internal accounting controls. Foreign companies, including some that may compete
with us, are not subject to these prohibitions, and therefore may have a
competitive advantage over us. Our executive officers and employees have not
been subject to the United States Foreign Corrupt Practices Act prior to 2010.
We have no control over whether our employees or other agents will or will not
engage in such conduct for which we might be held responsible. If our employees
or other agents are found to have engaged in such practices, we could suffer severe penalties and other
consequences that may have a material adverse effect on our business, financial
condition and results of operations.
6
The PRC laws and regulations governing our current
business operations are sometimes vague and uncertain. Any changes in
such PRC laws and regulations may have a material and adverse effect
on our business
.
The PRC’s legal system is a civil law system based on written
statutes, in which system-decided legal cases have little value as precedents
unlike the common law system prevalent in the United States. There are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including but not limited to the laws and regulations
governing our business, or the enforcement and performance of our arrangements
with customers in the event of the imposition of statutory liens, death,
bankruptcy and/or criminal proceedings. The Chinese government has been
developing a comprehensive system of commercial laws, and considerable progress
has been made in introducing laws and regulations dealing with economic matters
such as foreign investment, corporate organization and governance, commerce,
taxation and trade. However, because these laws and regulations are relatively
new, and because of the limited volume of published cases and judicial
interpretation and their lack of force as precedents, interpretation and
enforcement of these laws and regulations involve significant uncertainties that
are unclear at this time. New laws and regulations that affect existing and
proposed future businesses may also be applied retroactively. We are considered
a “foreign persons” or “foreign funded” enterprise under PRC laws, and as a
result, we are required to comply with PRC laws and regulations. We cannot
predict what effect the interpretation of existing or new PRC laws or
regulations may have on our businesses. If the relevant authorities find us in
violation of any PRC laws or regulations, they would have broad discretion in
dealing with such a violation, including, without limitation:
-
levying fines;
-
revoking our business and other licenses;
-
requiring that we restructure our ownership or operations; and/or
-
requiring that we discontinue any portion or all of our business
operations in the PRC.
Restrictions on currency exchange may limit our ability
to receive and use our foreign cash effectively.
Foreign exchange transactions by PRC operating subsidiaries
under the capital account continue to be subject to significant foreign exchange
controls and require the approval of or need to register with PRC government
authorities, including State Administration of Foreign Exchange or SAFE. In
particular, if the PRC subsidiaries borrow foreign currency through loans from
us or other foreign lenders, these loans must be registered with SAFE, and if we
finance the subsidiaries by means of additional capital contributions, these
capital contributions must be approved by certain government authorities,
including the Ministry of Commerce, or their respective local counterparts.
These limitations could affect the PRC operating subsidiaries’ ability to obtain
foreign exchange through debt or equity financing, which could limit our
business operations and impact our future revenues and financial condition.
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.
Our disclosure controls and procedures and internal
control over financial reporting were not effective, which may cause
our
financial reporting to be unreliable and lead to
misinformation being disseminated to the public
Our management evaluated our disclosure controls and procedures
as of May 31, 2016 and concluded that as of that date, our disclosure controls
and procedures were not effective. In addition, there were material weaknesses
in our internal control over financial reporting as of that date and that our
internal control over financial reporting was not effective as of that date. A
material weakness is a control deficiency, or combination of control
deficiencies, such that there is a reasonable possibility that a material
misstatement of the financial statements will not be prevented or detected on a
timely basis.
We have not yet remediated this material weakness and we
believe that our disclosure controls and procedures and internal control over
financial reporting continue to be ineffective. Until these issues are
corrected, our ability to report financial results or other information required
to be disclosed on a timely and accurate basis may be adversely affected and our
financial reporting may continue to be unreliable, which could result in additional
misinformation being disseminated to the public. Investors relying upon this
misinformation may make an uninformed investment decision.
7
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.
The Gaoping property has been examined in the field by
professional geologists/mining engineers. The Company received the National
Instrument 43-101 report (Canadian Standard) entitled “Property Evaluation
Report” (PER). The production decision announced was based on Chinese Technical
Reports and the PER and not based on a Preliminary Economic Assessment (PEA) or
mining study (a Prefeasibility or Feasibility Study) of mineral reserves
demonstrating economic and technical viability. Resources that are not reserves
do not have demonstrated economic viability. There is an increased risk of
technical and economic failure because the development decision was based on
inferred resources, without a preliminary economic analysis or mining study as
defined by NI 43-101. Professional geologists also made an exploration proposal
for the Tanjiachang Exploration Concession which is surrounding the Gaoping
property which is under letter of intent with Chenxi County Merchants Bureau,
Hunan Province, China. There is no assurance that the exploration license for
the Tanjiachang Exploration Concession will be issued. There is no assurance
that commercial quantities of ore will be discovered on the Tanjiachang
Exploration Concession. There is also no assurance that, even if commercial
quantities of ore are discovered, the Tanjiachang Exploration Concession will be
brought into commercial production. Since 2012, the Central Government made its
move to change the mining laws to provincial jurisdiction. The new application
process was held. Previously issued licenses are being honored.
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 properties may need exploration and such exploration
processes shall be conducted in phases. When each phase of a particular project
is completed, and upon analysis of the results thereto, the Company will make a
decision on 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 OTCQB
marketplace under the ticker symbol SGGV. As of May 31, 2016, there were
75,730,341 shares of common stock outstanding. There is no assurance that a
sufficient market will develop in our stock, in which case it could be difficult
for shareholders to sell their stock. The market price of our common stock could
fluctuate substantially due to a variety of factors, including market perception
of our ability to achieve our planned growth, quarterly operating results of our
competitors, trading volume in our common stock, changes in general conditions
in the economy and the financial markets or other developments affecting our
competitors or us. In addition, the stock market is subject to extreme price and
volume fluctuations. This volatility has had a significant effect on the market
price of securities issued by many companies for reasons unrelated to their
operating performance and could have the same effect on our common stock.
8
A decline in the price of our common stock could affect
our ability to raise further working capital and adversely impact our
ability to continue operations.
A prolonged decline in the price of our common stock could
result in a reduction in the liquidity of our common stock and a reduction in
our ability to raise capital. Because a significant portion of our operations
have been and will be financed through the sale of equity securities, a decline
in the price of our common stock could be especially detrimental to our
liquidity and our operations. Such reductions may force us to reallocate funds
from other planned uses and may have a significant negative effect on our
business plan and operations, including our ability to develop new properties
and continue our current operations. If our stock price declines, we can offer
no assurance that we will be able to raise additional capital or generate funds
from operations sufficient to meet our obligations. If we are unable to raise
sufficient capital in the future, we may not be able to have the resources to
continue our normal operations.
The market price for our common stock may also be affected by
our ability to meet or exceed expectations of analysts or investors. Any failure
to meet these expectations, even if minor, may have a material adverse effect on
the market price of our common stock.
If we issue additional shares in the future, it will
result in the dilution of our existing shareholders.
Our articles of incorporation, as amended, authorizes the
issuance of up to 500,000,000 shares of common stock with a par value of $0.001.
Our board of directors may choose to issue some or all of such shares to acquire
one or more businesses or to provide additional financing in the future. The
issuance of any such shares will result in a reduction of the book value and
market price of the outstanding shares of our common stock. If we issue any such
additional shares, such issuance will cause a reduction in the proportionate
ownership and voting power of all current shareholders. Further, such issuance
may result in a change of control of our corporation.
Trading of our stock may be restricted by the Securities
Exchange Commission’s penny stock regulations, which may limit a
stockholder’s ability to buy and sell our stock
.
The Securities and Exchange Commission has adopted regulations
which generally define “penny stock” to be any equity security that has a market
price (as defined) less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. Our securities are covered by
the penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
“accredited investors”. The term “accredited investor” refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the Securities and
Exchange Commission, which provides information about penny stocks and the
nature and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer’s account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer’s confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchaser’s written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.
The Financial Industry Regulatory Authority, or FINRA,
has adopted sales practice requirements which may also limit a
stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, FINRA
has adopted rules that require that in recommending an investment to a customer,
a broker- dealer must have reasonable grounds for believing that the investment
is suitable for that customer. Prior to recommending speculative low priced
securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, FINRA believes that there is a high probability that speculative
low priced securities will not be suitable for at least some customers. FINRA
requirements make it more difficult for broker-dealers to recommend that their
customers buy our common stock, which may limit your ability to buy and sell our
stock and have an adverse effect on the market for our shares.
9
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 does not haves sufficient capital to meet its needs
for at least the next 12 months, including the costs of compliance with the
continuing reporting requirements of the Securities Exchange Act of 1934. If
losses continue, it may have to seek loans or equity placements to cover
longer-term cash needs to continue operations and expansion within the next 6
months. The Company does not currently have any commitments for financing.
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, the Company 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.
Market Risk and Political Risks
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.
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.
The disruptions in the financial markets and economic
conditions have adversely affected the US and the world economy. Turmoil in
global credit markets and turmoil in the geopolitical environment in many parts
of the world have adversely affected global economic conditions. There can be no
assurances that government responses to the disruptions in financial markets
will restore investor confidence and economic activity. This could affect our
ability to raise capital.
Additionally, the uncertain economic environment may cause
farmers to use less fertilizer to cut costs, which will adversely affect the
demand for phosphate. A similar situation occurred in 2008 leading to a sharp
decline in phosphate prices.
The Hongyu’s phosphate deposit is located in China which, as a
result of its operations, exposes the Company to political and market risks in
China. Exports of phosphate rock are currently subject to an export tax due to
domestic phosphate requirements.
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
10
ITEM 2. PROPERTY
Gaoping Phosphate Property
Gaoping Phosphate Property which is surrounded by Tanjiachang
Phosphate Exploration Concession is located in NEE 80°direction of Chenxi County
town with distance 38 km and is under jurisdiction of Tanjiachang village,
Chenxi county of Hunan Province. Geographical coordinates of mining permit’s
ranges:
Longitude East 110°26'15" ~ 110°27'05", Latitude North 28°01'49" ~ 28°03'14".
Geological coordinates of Tanjiachang Phosphate Exploration
Concession’s ranges:
Longitude East 110° 25'15' ~ 110° 30'00", Latitude
North 28°00'00" ~ 28° 07'30". The area is about 32 km
2
.
The location of the property is shown in the following map.
The property is located in Hunan Province in South Eastern
China some 250 kilometers west of the Provincial Capital of Changsha and 120
kilometers north east of the regional center of Huaihua and 38 kilometers east
of the County seat at Chenxi. There are several flights per day into Changsha
from Beijing or Shanghai and three flights per week into Huaihua. Several daily
bus schedules are available from Changsha to Huaihua and Chenxi. Huaihua is a
city of about six million people. The County of Chenxi has a population of five
million and the city of Chenxi is the county seat. Chenxi has no air service and
is quite agrarian in its culture. Currently high speed trains are available in
Huaihua city.
The Gaoping Phosphate property consists of a mining permit
outlined by the following UTM Coordinates:
|
1. X=3102000 Y=37444690
|
2. X=3102985 Y=37444925
|
|
3. X=3103920 Y=37445430
|
4. X=3104210 Y=37445300
|
|
5. X=3104593 Y=37445604
|
6. X=3104555 Y=37445715
|
|
7. X=3104215 Y=37445465
|
8. X=3103910 Y=37445600
|
|
9. X=3102915 Y=37445065
|
10. X=3102000 Y=37444850
|
The Gaoping mining permit was issued on November 10, 2009 and
valid until November 10, 2014. On April 29, 2015, Hongyu obtained the renewal of
the mining permit, which is valid until April 2, 2018. The number of the permit
is 4300002009116120048322. The permit is 0.4247 km
2
and the elevation
is from +600m to +510m. These 10 boundary points of Gaoping mining permit are
surveyed by official land surveyors.
The mining permit allows initial production up to 100,000
tonnes phosphate ore per year. In order to acquire more resources under the
mining permit, Hongyu needs to invest not less than RMB 20 million Yuan in
county including paying resource fees to the Chinese government according to related Chinese regulations
and applies to expand the scale of current mining permit through the legal
process in China.
11
The Tanjiachang phosphate district is located in the
Xiuxi-Luojiawan anticlinorium and Tanjiachang syncline. The strata generally
occur in an undeformed or weak monoclinal structure. Strata outcropping in
Tanjiachang region ranges from Banxi Group of Upper Proterozoic to Cambrian of
the Lower Paleozoic.
Strata outcropping in the mine area includes Jiangkou
Formation, Xiangmeng Formation and Hongjiang Formation of Lower Sinian and
Jinjiadong Formation, Liuchapo Formation of Upper Sinian and Xiaoyanxi Formation
of Lower Cambrian. The phosphorite deposits lie in the middle part of Jinjiadong
Formation. The phosphorite is Interbedded with argillaceous & silty platy
shale. The deposit is in shallow marine sediment deposit type.
The regional geological structure is relatively complicated and
the main structure is Xiuxi- Luojiawan Anticlinorium with many cross faults.
Geological structure of mine area is relatively simple in general. The strata
strikes NNE and dips SEE.
The main mineral resource with industrial significance in this
region is the phosphorite, and is the middle to lower part of Jinjiadong
Formation, Upper Sinian. Some Pb- Zn mineralization has been discovered in the
lower part of the Jinjiadong Formation and Cu mineralization has been discovered
in middle part of the sandy slabby shale beds. The lower part is green grey
laminar sandy slate. Manganese carbonate within black platy shale of Xiangmeng
Formation could set up local industry scale operations. Manganese carbonate is
easy to process, with good market conditions, providing realistic opportunities
to do exploration and development.
There is a history of mining in the Gaoping area. In the past,
numerous artisanal lead zinc mines have been worked. In the permit area the
phosphorite has been mined for many years and there are at least ten adits old
and new, which have accessed the phosphorite and where the local artisanal
miners have harvested this material for sale to the local agriculture industry.
Regional Geology Survey with scale of 1:200,000 had been done
by Regional Geology Survey Team of Hunan Provincial Geology in 1970’s and
Mineral Resources Bureau and Regional Geology Survey Report (in scale of
1:200,000) and Regional Mineral Resources Report have been submitted. The No.
407 Geology Team from Hunan Provincial Geology and Mineral Resources Bureau
launched the General Survey for Pb-Zn Mineralization in Upper-Jingzhuxi,
Lower-Jingzhuxi inside Tanjiachang mining area and Dabanlin outside of
Tanjiachang, etc in 1980s. They drilled five boreholes but the data is
unavailable for data collection. Chemical Geology Exploration Institute, Hunan
Province had organized early stage big area scouting and field trips in
September to October 1992 and chose Jingzhuxi section as the General Geology
Survey working area in the year of 1993 which has been defined as Tanjiachang.As the General Geology Survey work moving forward, Tanjiachang
Phosphorite Mining Area becomes enlarged step by step and it has been divided
into three sections of Jingzhuxi, Gaoping and Wenshuitang.
The following table summarizes the geological works conducted
by Chemical Geology Exploration Institute, Hunan Province.
12
|
Item
|
Unit
|
Quantity
|
sub-total
|
Remarks
|
|
1993
|
1994
|
1995
|
|
1:10000 Geology Mapping
|
km
2
|
10.9
|
10.5
|
10.5
|
31.9
|
|
|
1:1000 Onsite Geology Section Mapping
|
m
|
2305
|
2212
|
1,450
|
5,967
|
5 lines
|
|
Trenching and Logging
|
m
3
|
1,521.3
|
1,200
|
1,125
|
3,846.3
|
47 lines
|
|
Channel Sampling & Basic Assay
|
|
121
|
126
|
144
|
391
|
|
|
Identification of Rock and Minerals
|
|
30
|
22
|
21
|
73
|
|
|
Small Weight Sample Testing
|
|
30
|
20
|
25
|
75
|
|
|
Basic Chemical Assay
|
|
121
|
126
|
144
|
391
|
|
|
Assembly Assay
|
|
|
6
|
6
|
12
|
|
Trenches have been created to disclose the phosphorite ore
layers with spacing 400m (mainly 300- 500m) and a total of 47 trenches have been
finished with earthwork volume of 3,846.3 m
3
. The operation of
trenches is accurate and the spacing is tried to be placed evenly. All the
trenches have demonstrated good surface control effects on ore layers except for
TC20 (the surface cover is too thick and it can’t control ore layers) and TC 47
(ore layers are missing due to fault) according to Chemical Geology Exploration
Institute, Hunan Province. The trenches and sampling are all following State
Code of
Original Geology Logging General Principles for Solid Mineral
Exploration Registration (china)
and data has been logged in time.
Basic assay samples all came from channel sampling of trench
projects and the samples are representative and following China State Code and
Geology Standard. The scale of channel sampling is 5cm*3cm and the length is
mainly 1m, separately sampled from different layers. Totally, 391 samples have
been sampled from ore layers and their top and bottom plates. The samples have
been prepared in time according with ID, tag, record and onsite logs. Small
weight samples have been collected with representative year by year in history
and certain related relationship has been detected between density of
phosphorite and P
2
O
5
content. In general, the density and
grade are with positive correlation. The petrology identification and testing
samples are coming during onsite geology section survey to determine the
lithology and mineral compositions. Totally, 73 samples have been collected.
Based on basic assay results, composite sample has been made on backup samples
from selected representatives 12 trenches to determine the useful and harmful
components in the ore.
There are at least ten exploration adits driven into favorable
locations along the mountain side. The artisans essentially find an outcrop move
six to ten meters below the bed and drive into the mountain. Those adits,
intersect the phosphorite and are turned into producing mines. By building a
chute off the end of the waste pile at the entrance to the adit, the
infrastructure for an artisanal mining operation is complete. The transportation
infrastructures is completed by building a service road under the chute and
loading the phosphorite onto the truck for haulage to the buyer in Chenxi.
Contract haulers do the hauling. No drilling has been done on the property. Some
exploratory trenching has been done at the various outcrops along the sidehill
to test the validity of the above described adit exploration methods. Five
samples were collected by Norm Tribe - an independent geologist from the active
adits along the strike of the phosphorite bed. The results vary from
19.40%
P
2
O
5
to 32.86% P
2
O
5
. The
assays of
the samples collected serve to verify the existence and grade of
the deposit.
Hunan has a humid, subtropical climate. The monsoon rain falls
mostly in April, May, and June. July and August are hot and humid. Annual
rainfall is 1,250 - 1,750 millimeters (49.2 to 68.9 inches) in Chenxi and is
probably higher at the property due to an increase in elevation. Temperatures
are 4
o
C to 8
o
C in January and 26
o
C to
30
o
C in July. The area is said to have a variety of animals including
70 kinds of mammals, including tigers, bears and macaques, 310 kinds of birds,
over 70 kinds of creeping animals and over 160 kinds of fish. The mining permit
is in mountainous terrain with steep hill sides forested with native species and
some planted pine forest. No wildlife was noted in the area. The valley bottoms
are developed into terraced rice paddies. The coincident phosphate deposits
which have been cut by the erosion of the steeply incised valleys has rendered
these valley bottoms very fertile. Local infrastructure is at a low level but
adequate for small mining. The roads are adequate for start up, the population
is moderate with a collection of experienced miners available in the area. A
moderate level power line passes through the property but would require
upgrading for heavy industrial use. Artisanal miners working the property at
this time are using readily available trucking contractors, to haul their
product to the railhead. Railhead infrastructure is available 58 kilometers away
at Chenxi. Water is abundant in the valley bottoms but will require some
infrastructure to accommodate the mining. Telecommunication is very good.
Cellular phone can be accessed in the property area. Transportation is good and
truck can arrive in the property area.
As of May 31, 2016, the Company has incurred mineral property
costs of $1,176,475 on the Gaoping Phosphate property in addition to acquisition
costs $3,271,005.
13
As a result of prolonged and significant decline in the
phosphate metal price and the lack of a planned exploration program on the
property in the foreseeable future, the carrying value of the mineral properties
and environmental deposit of $3,271,005 was impaired to a nominal amount.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
All directors of the Company hold office until the next annual
general meeting of the shareholders or until their successors are duly elected
and qualified. The officers of our company are appointed by our board of
directors and hold office until the earlier of death, retirement, resignation or
removal.
As at May 31, 2016, our directors, executive officers and other
significant employees, their ages, positions held and duration each person has
held that position, are as follows:
|
Name
|
Position Held with the
Company
|
Age
|
Date First Elected /
Appointed
|
|
Christopher Tsakok
|
Chairman of the Board
CEO
|
36
|
July 18, 2014
July 18, 2014
|
|
Gerald Runolfson
|
Director
|
74
|
April 5, 2004
|
|
Robert Smiley
|
Director
CFO
|
72
|
June 6, 2007
April 11, 2016
|
|
Hanwei Guo
|
Director
|
43
|
April 19, 2016
|
As at August 22, 2016 Mr. Hanwei Guo resigned as a Director of
the Company.
36
Business Experience
The following sets forth the business experience of each of the
Company's directors and executive officers:
Christopher J. Tsakok, Chairman & CEO
Mr. Tsakok has been in the investment business for the past 10
years. He is President and CEO of Richco Investors, Inc., a company whose
principal business is to provide financial, management and other administrative
services to early development stage business. He holds a Bachelor of Commerce
(B.Comm.), an MBA degree, and is a Chartered Financial Analyst (CFA).
Gerald Runolfson, Professional Engineer, Director
Mr. Runolfson is a professional engineer (P. Eng.) and has been
in the construction industry for over 40 years. He is currently President and
controlling shareholder of Elkon Products Inc., a company that has the
distribution rights for all silica fume produced in Canada. Silica fume is used
in oil well cementing operation and concrete construction. Major customers
include Halliburton and BJ Services. Mr. Runolfson has been a Director of a
number of public companies.
Robert G. Smiley, J. D, Director
Mr. Smiley is a business consultant working with junior
companies. He has been self-employed in this capacity for the past ten years. He
is a former lawyer who specialized in oil and gas and securities law for
twenty-five years. He is currently a director of Richco Investors Inc, Canadian
Imperial Ventures Corp., and Silver Grail Resources Inc. He has served on the
boards of a number of junior and intermediate companies in the past.
Our directors, executive officers and control persons have not
been involved in any of the following events during the past five years:
|
|
1.
|
any bankruptcy petition filed by or against any business
of which such person was a general partner or executive officer either at
the time of the bankruptcy or within two years prior to that
time;
|
|
|
2.
|
any conviction in a criminal proceeding or being subject
to a pending criminal proceeding (excluding traffic violations and other
minor offenses);
|
|
|
3.
|
being subject to any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activities;
|
|
|
4.
|
being found by a court of competent jurisdiction (in a
civil action), the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated a federal or state securities
or commodities law, and the judgment has not been reversed, suspended, or
vacated;
|
|
|
5.
|
being the subject of, or a party to, any federal or state
judicial or administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged
violation of: (i) any federal or state securities or commodities law or
regulation; or (ii) any law or regulation respecting financial
institutions or insurance companies including, but not limited to, a
temporary or permanent injunction, order of disgorgement or restitution,
civil money penalty or temporary or permanent cease- and-desist order, or
removal or prohibition order; or (iii) any law or regulation prohibiting
mail or wire fraud or fraud in connection with any business entity;
or
|
|
|
6.
|
being the subject of, or a party to, any sanction or
order, not subsequently reversed, suspended or vacated, of any self-
regulatory organization (as defined in Section 3(a)(26) of the Securities
Exchange Act of 1934), any registered entity (as defined in Section
1(a)(29) of the Commodity Exchange Act), or any equivalent exchange,
association, entity or organization that has disciplinary authority over
its members or persons associated with a member.
|
Term of Office
Our directors hold office until the
next annual meeting of shareholders and until their successors have been elected
and qualified, or until they resign or are removed. Our officers are elected by
our board of directors. Our officers hold office until the next annual meeting
of our board of directors and until their successions have been elected and
qualified, or until they resign or are removed.
Family Relationships
A former director of the
Company who resigned April 2016 is the husband of the corporate secretary. There
are no other family relationships among our directors or officers.
37
Audit Committee and Charter
We have an audit committee and audit committee charter. Our
audit committee is comprised of Mr. Christopher Tsakok, and Mr. Robert Smiley.
Mr. Christopher Tsakok qualifies as an "audit committee financial expert" as
defined in Item 407(5)(ii) of Regulation S-K. We believe that the audit
committee members are collectively capable of analyzing and evaluating our
financial statements and understanding internal controls and procedures for
financial reporting. During the year ended May 31, 2016, the audit committee met
six times. A copy of our audit committee charter is filed as an exhibit to the
Form 10-K on August 28, 2009.
The Audit Committee's responsibilities include:
-
selecting and reviewing our independent registered public accounting firm
and their services;
-
reviewing and discussing the audited financial statements, related
accounting and auditing principles, practices and disclosures with the
appropriate members of management;
-
reviewing and discussing our quarterly financial statements prior to the
filing of those quarterly financial statements;
-
establishing procedures for the receipt of, and response to, any complaints
received regarding accounting, internal accounting controls, or auditing
matters, including anonymous submissions by employees;
-
reviewing the accounting principles and auditing practices and procedures
to be used for the audit of our financial statements and reviewing the results
of those audits; and
-
monitoring the adequacy of our operating and internal controls as reported
by management and the independent registered public accounting firm.
Code of Ethics
We have adopted a corporate code of ethics that applies to all
employees, including our directors and officers. A copy of the code of ethics is
filed as an exhibit to the Form 10-K on August 28, 2009. We believe our code of
ethics is reasonably designed to deter wrongdoing and promote honest and ethical
conduct; provide full, fair, accurate, timely and understandable disclosure in
public reports; comply with applicable laws; ensure prompt internal reporting of
code violations; and provide accountability for adherence to the code.
ITEM 11. EXECUTIVE COMPENSATION
(a) Officers' Compensation.
Compensation paid by the Company for all services provided up
to the fiscal years ended May 31, 2016 and 2015 to each of the executive
officers and to all officers as a group is set forth below.
38
SUMMARY COMPENSATION TABLE OF EXECUTIVES
(For fiscal
years ended May 31, 2016 and 2015)
|
|
Cash Compensation
|
Security Grants
|
TOTAL
($)
|
Name and Principal
Position
|
Year ended
May 31,
|
Salary
( $) (1)
|
Bonus
($)
|
All Other
Compensation
( $) (2)
|
Option
Awards
($)
|
Richard Shao
President
(resigned
on April 3, 2016)
|
2016
|
0
|
0
|
0
|
0
|
0
|
|
2015
|
0
|
0
|
0
|
0
|
0
|
Christopher Tsakok
Chairman
& CEO
|
2016
|
0
|
0
|
0
|
0
|
0
|
|
2015
|
0
|
0
|
0
|
0
|
0
|
Kathy Wang
Secretary
|
2016
|
0
|
0
|
18,019
|
0
|
18,019
|
|
2015
|
0
|
0
|
20,728
|
0
|
20,728
|
Robert Smiley
CFO
|
2016
|
0
|
0
|
0
|
0
|
0
|
|
2015
|
0
|
0
|
0
|
0
|
0
|
Officers as A Group
|
2016
|
0
|
0
|
18,019
|
0
|
18,019
|
|
2015
|
0
|
0
|
20,728
|
0
|
20,728
|
|
(1)
|
Executive officers did not receive any salary during the
fiscal years ended May 31, 2016 or 2015.
|
|
(2)
|
The amounts listed under the Column entitled “All other
Compensation” in the “Summary Compensation Table” related to consulting
fees earned during the period reported.
|
(b) Directors' Compensation
Directors who are also officers receive no cash compensation
for services as a director. However, the directors will be reimbursed for
out-of-pocket expenses incurred in connection with attendance at board and
committee meetings. The Company granted options to directors under its 2004
Incentive Stock Option Plan subsequently adopted.
SUMMARY COMPENSATION TABLE OF DIRECTORS
(For fiscal
years ended May 31, 2016 and 2015)
|
|
Cash Compensation
|
Security
Grants
|
|
TOTAL
($)
|
Name and Principal
Position
|
Year ended
May 31,
|
Annual
Retainer
Fees ($)
|
Meeting
Fees ($)
|
Consulting
Fees/ Other
Fees ( $)
|
Option
Awards
($)(1)
|
All Other
Compensation
($)
|
Christopher Tsakok
Director
|
2016
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2015
|
0
|
0
|
0
|
0
|
0
|
0
|
Richard Shao
Director (resigned
on
April 3, 2016)
|
2016
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2015
|
0
|
0
|
0
|
0
|
0
|
0
|
Gerald Runolfson
Director
|
2016
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2015
|
0
|
0
|
0
|
0
|
0
|
0
|
Robert G. Smiley
Director
|
2016
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2015
|
0
|
0
|
0
|
0
|
0
|
0
|
Hanwei Guo
Director
|
2016
|
0
|
0
|
0
|
0
|
0
|
0
|
|
N/A
|
0
|
0
|
0
|
0
|
0
|
0
|
|
Directors as a Group
|
2016
|
0
|
0
|
0
|
0
|
0
|
0
|
|
2015
|
0
|
0
|
0
|
0
|
0
|
0
|
|
(1)
|
Please refer Note 6(b) to the financial statements
included herein.
|
During the year ended May 31, 2011, we granted 3,100,000 stock
options to our directors or officers. The options are granted at an exercise
price of $0.25 per share and expiring on February 3, 2019.
39
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
(For
fiscal years ended May 31, 2016)
Name
|
Number of
securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
Number
of
Unvested
Shares
(#)
|
Market
Value of
Unvested
Shares
($)
|
Number of
Unearned
Unvested
Shares
(#)
|
Market Value
of Unearned
Unvested
Shares ($)
|
Richard Shao
President (resigned on April 3, 2016)
|
800,000
|
0
|
0
|
$0.25
|
Feb 3, 2019
|
0
|
0
|
0
|
0
|
|
Christopher Tsakok Chairman
|
300,000
|
0
|
0
|
$0.25
|
Feb 3, 2019
|
0
|
0
|
0
|
0
|
Kathy Wang
Secretary
|
300,000
|
0
|
0
|
$0.25
|
Feb 3, 2019
|
0
|
0
|
0
|
0
|
Gerald Runolfson
Director
|
600,000
|
0
|
0
|
$0.25
|
Feb 3, 2019
|
0
|
0
|
0
|
0
|
Robert G. Smiley
Director
|
600,000
|
0
|
0
|
$0.25
|
Feb 3, 2019
|
0
|
0
|
0
|
0
|
|
Total
|
2,600,000
|
0
|
0
|
|
|
0
|
0
|
0
|
0
|
Directors are entitled to reimbursement for reasonable travel
and other out-of-pocket expenses incurred in connection with attendance at
meetings of our board of directors. Our board of directors may award special
remuneration to any director undertaking any special services on our behalf
other than services ordinarily required of a director. No director received
and/or accrued any compensation for their services as a director, including
committee participation and/or special assignments.
There are no management agreements with our directors or
executive officers and we do not anticipate that written agreements will be put
in place in the foreseeable future.
We have no plans or arrangements in respect of remuneration
received or that may be received by our executive officers to compensate such
officers in the event of termination of employment (as a result of resignation,
retirement, change of control) or a change of responsibilities following a
change of control.
There are no plans or arrangements in which we provide pension,
retirement or similar benefits for directors or executive officers. We have no
material bonus or profit sharing plans pursuant to which cash or non-cash
compensation is or may be paid to our directors or executive officers, except
that stock options may be granted at the discretion of the Board of Directors or
a committee thereof.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of September 15, 2016,
certain information with respect to the beneficial ownership of our common
shares by each shareholder known to us to be the beneficial owner of 5% of our
common shares, and by each of our officers and directors. Each person has sole
voting power with respect to the common shares, except as otherwise indicated.
Beneficial ownership consists of a direct interest in the common shares, except
as otherwise indicated. As of September 15, 2016, there were 75,730,341 common
shares issued and outstanding.
Title of Class
|
Name and Address of
Beneficial
Owner (1)
|
Amount and Nature of
Beneficial
Ownership
|
Percentage of Class(2)
|
|
Common stock
|
Raoul Tsakok
|
15,800,000 (3) (5)
|
20.86%
|
|
Common stock
|
Richard Shao
|
4,000,000
|
5.28%
|
|
Common stock
|
Christopher Tsakok
|
1,910,000 (7)
|
2.52%
|
|
Common stock
|
Gerald Runolfson
|
2,000,000 (4)(6)
|
2.64%
|
|
Common stock
|
Robert Smiley
|
600,000 (6)
|
0.79%
|
|
|
TOTAL
|
24,310,000
|
32.10%
|
|
|
(1)
|
The address of each beneficial owner is 904 – 1455 Howe
Street, Vancouver, BC Canada V6Z 1C2
|
40
|
|
(2)
|
Based on 75,730,341 shares outstanding as of September
15, 2016 and, as to a specific person, shares issuable pursuant to the
conversion or exercise, as the case may be, of currently exercisable or
convertible debentures, share purchase warrants and stock options within
60 days.
|
|
|
(3)
|
15,000,000 common shares held through Cobilco Inc., a
company 100% owned by Mr. Raoul Tsakok.
|
|
|
(4)
|
Includes 800,000 common shares and 300,000 “A” warrants,
and 300,000 “B” warrants held through Elkon Products Inc., a company 100%
owned by Mr. Runolfson
|
|
|
(5)
|
Includes 800,000 stock options.
|
|
|
(6)
|
Includes 600,000 stock options.
|
|
|
(7)
|
Includes 300,000 stock options.
|
Changes in Control
As of September 15, 2016, management had no knowledge of any
arrangements which may at a subsequent date result in a change in control of the
Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
There have been no transactions, or proposed transactions,
which have materially affected or will materially affect us in which any
director, executive officer or beneficial holder of more than 10% of the
outstanding common stock, or any of their respective relatives, spouses,
associates or affiliates, has had or will have any direct or material indirect
interest.
As at the date of this annual report, we do not have any
policies in place with respect to whether we will enter into agreements with
related parties in the future.
We have determined that Gerald Runolfson is an independent
director.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
BDO Canada LLP (“BDO”) provided audit services to the Company
in connection with its annual report for the fiscal years ended May 31, 2016 and
May 31, 2015. The aggregate fees billed by BDO for the May 31, 2016 year ended
audit and the fiscal year 2016 quarterly reviews of the Company was $81,120. The
aggregate fees billed by BDO for the May 31, 2015 year ended audit and the
fiscal year 2015 quarterly reviews of the Company was $67,945.
Audit Related Fees
No fees were billed by BDO to the Company for professional
services that are reasonably related to the audit or review of the Company's
financial statements.
Tax Fees
No fees were billed by BDO to the Company in the years ended
May 31, 2016 and 2015 for professional tax services.
All Other Fees
No fees were billed by BDO to the Company for other
professional services rendered or any other services not disclosed above during
the years ended May 31, 2016 and 2015.
Audit Committee Pre-Approval
The Audit Committee has the sole authority to appoint,
terminate and replace our independent auditor and to approve the scope, fees and
terms of all audit engagements, as well as all permissible non-audit engagements
of our independent auditor. All the services provided by the auditors were
approved by our Audit Committee.
All audit work was performed by the auditors' full time
employees.
41