[X] Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
for the quarterly period ended
August 31, 2016.
[ ] Transition report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
for the transition period from _________ to _______ .
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
ST (§ 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 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.
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 14, 2016.
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
STERLING GROUP VENTURES, INC.
CONDENSED INTERIM
CONSOLIDATED BALANCE SHEETS
Stated in U.S.
dollars
(
Unaudited)
|
|
As at
|
|
|
|
August 31, 2016
|
|
|
May 31, 2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
789,783
|
|
$
|
907,158
|
|
Prepaid expenses
and other receivable
|
|
16,704
|
|
|
12,620
|
|
Total current assets
|
|
806,487
|
|
|
919,778
|
|
|
|
|
|
|
|
|
Equipment - Note 4
|
|
63,477
|
|
|
71,422
|
|
Environmental deposit, net of
provision - Note 3
|
|
1
|
|
|
1
|
|
Mineral Properties, net of provision - Note 3
|
|
1
|
|
|
1
|
|
Total Assets
|
$
|
869,966
|
|
$
|
991,202
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable and other
accrued liabilities - Note 5
|
$
|
398,138
|
|
$
|
426,566
|
|
Total Liabilities
|
|
398,138
|
|
|
426,566
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
Common Stock : $0.001 Par Value
- Note 6
|
|
|
|
|
|
|
Authorized :
500,000,000
Issued
and Outstanding : 75,730,341 (May 31, 2016: 75,730,341)
|
|
75,730
|
|
|
75,730
|
|
Additional Paid In Capital
|
|
10,831,422
|
|
|
10,831,422
|
|
Accumulated
Other Comprehensive Loss
|
|
(35,270
|
)
|
|
(20,854
|
)
|
Accumulated deficit
|
|
(10,400,054
|
)
|
|
(10,321,662
|
)
|
Total Stockholders'
Equity
|
|
471,828
|
|
|
564,636
|
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders' Equity
|
$
|
869,966
|
|
$
|
991,202
|
|
See accompanying notes to condensed interim consolidated
financial statements
3
STERLING GROUP VENTURES, INC.
CONDENSED INTERIM
CONSOLIDATED STATEMENTS OF OPERATIONS
Stated in U.S.
dollars
(Unaudited)
|
|
For the three months ended August 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Accounting, audit,
legal and professional fees
|
$
|
48,105
|
|
$
|
33,085
|
|
Bank charges
|
|
300
|
|
|
164
|
|
Consulting fees - Notes
5
|
|
5,107
|
|
|
5,036
|
|
Depreciation - Note 4
|
|
6,963
|
|
|
10,125
|
|
Filing fees and
transfer agent
|
|
2,213
|
|
|
2,478
|
|
General and administrative
|
|
605
|
|
|
671
|
|
Travel and
entertainment
|
|
5,595
|
|
|
-
|
|
Mineral property costs - Note 3
|
|
21,407
|
|
|
25,094
|
|
Shareholder information
and investor relations
|
|
1,875
|
|
|
750
|
|
|
|
(92,170
|
)
|
|
(77,403
|
)
|
|
|
|
|
|
|
|
Other items
|
|
|
|
|
|
|
Interest income
|
|
112
|
|
|
3,923
|
|
Foreign exchange gain(loss)
|
|
13,666
|
|
|
(10,488
|
)
|
|
|
13,778
|
|
|
(6,565
|
)
|
|
|
|
|
|
|
|
Net loss and Comprehensive
loss for the period
|
$
|
(78,392
|
)
|
$
|
(83,968
|
)
|
|
|
|
|
|
|
|
Basic and diluted loss per
share
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
Weighted average number of
shares outstanding
|
|
75,730,341
|
|
|
75,730,341
|
|
See accompanying notes to condensed interim consolidated
financial statements
4
STERLING GROUP VENTURES, INC.
CONDENSED INTERIM
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the
three months ended August 31, 2016 and year ended May 31,
2016
(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
|
|
|
Loss
|
|
|
Stage
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2015
|
|
75,730,341
|
|
$
|
75,730
|
|
$
|
10,831,422
|
|
$
|
(582
|
)
|
$
|
(7,229,917
|
)
|
$
|
3,676,653
|
|
Issuance of shares - Note 9
|
|
93,000,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Shares held in escrow - Note
9
|
|
(93,000,000
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,091,745
|
)
|
|
(3,091,745
|
)
|
Translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(20,272
|
)
|
|
-
|
|
|
(20,272
|
)
|
Balance, May 31, 2016
|
|
75,730,341
|
|
$
|
75,730
|
|
$
|
10,831,422
|
|
$
|
(20,854
|
)
|
$
|
(10,321,662
|
)
|
$
|
564,636
|
|
Net loss for the period
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(78,392
|
)
|
|
(78,392
|
)
|
Translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(14,416
|
)
|
|
-
|
|
|
(14,416
|
)
|
Balance, August 31, 2016
|
|
75,730,341
|
|
$
|
75,730
|
|
$
|
10,831,422
|
|
$
|
(35,270
|
)
|
$
|
(10,400,054
|
)
|
$
|
471,828
|
|
See accompanying notes to condensed interim consolidated
financial statements
5
STERLING GROUP VENTURES, INC.
CONDENSED INTERIM
CONSOLIDATED STATEMENTS OF CASH FLOWS
Stated in U.S.
dollars
(Unaudited)
|
|
For the three months ended August 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
Net loss for the period
|
$
|
(78,392
|
)
|
$
|
(83,968
|
)
|
Adjustments to
reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
Depreciation
|
|
6,963
|
|
|
10,125
|
|
Foreign exchange
|
|
(13,368
|
)
|
|
6,581
|
|
|
|
|
|
|
|
|
Changes in non-cash working
capital items
|
|
|
|
|
|
|
Prepaid expenses and other
receivable
|
|
(4,150
|
)
|
|
(10,281
|
)
|
Accounts payable
and accrued liabilities
|
|
3,736
|
|
|
21,293
|
|
Net cash used in operating activities
|
|
(85,211
|
)
|
|
(56,250
|
)
|
|
|
|
|
|
|
|
Cash flows from investing activity
|
|
|
|
|
|
|
Additions to
equipment
|
|
-
|
|
|
(752
|
)
|
Net cash used in investing activity
|
|
-
|
|
|
(752
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activity
|
|
|
|
|
|
|
Amounts repaid
to a director
|
|
(32,164
|
)
|
|
(13,635
|
)
|
Net cash used in financing activity
|
|
(32,164
|
)
|
|
(13,635
|
)
|
|
|
|
|
|
|
|
Net decrease in cash and cash
equivalents
|
|
(117,375
|
)
|
|
(70,637
|
)
|
Cash and cash equivalents
- beginning of period
|
|
907,158
|
|
|
1,433,109
|
|
Cash and cash equivalents - end of
period
|
$
|
789,783
|
|
$
|
1,362,472
|
|
|
|
|
|
|
|
|
Supplemental Information :
|
|
|
|
|
|
|
Cash paid for :
|
|
|
|
|
|
|
Interest
|
$
|
-
|
|
$
|
-
|
|
Income taxes
|
$
|
-
|
|
$
|
-
|
|
See accompanying notes to condensed interim consolidated
financial statements
6
Sterling Group Ventures, Inc.
Notes to the Condensed
Interim Consolidated Financial Statements
August 31, 2016
(Unaudited)
(Stated in US Dollars)
Note 1
|
Nature of Operations and
Ability to Continue as a Going Concern
|
|
|
|
Sterling Group Ventures, Inc. was incorporated in the
State of Nevada on September 13, 2001 and its fiscal year-end is May 31.
On January 20, 2004, the Company acquired all of the issued and
outstanding shares of Micro Express Ltd. (Micro), which was incorporated
on July 27, 1994. The business combination was accounted for as a reverse
acquisition whereby the purchase method of accounting was used with Micro
being the accounting acquirer and the Company being the accounting
subsidiary.
|
|
|
|
Sterling Group Ventures, Inc. (the Company) is in the
exploration stage. The Company 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 recoverability of amounts from these properties will be
dependent upon the discovery of economically recoverable reserves, the
ability of the Company to obtain necessary financing to satisfy the
expenditure requirements under the joint venture agreements and to
complete the development of the properties and upon future profitable
production or proceeds from the sale thereof.
|
|
|
|
These condensed 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 fiscal year. Realization values may be substantially different from
carrying values as shown as these financial statements do not give effect
to adjustments that would be necessary to the carrying values and
classification of assets and liabilities should the Company be unable to
continue as a going concern. The Company incurred a net loss of $78,392
during the period ended August 31, 2016 and, as at that date, had a
cumulative loss of $10,400,054 since its inception and expects to incur
further losses in the development of its business, all of which casts
substantial doubt about the Companys ability to continue as a going
concern. The Companys 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.
|
|
|
|
Certain information and footnote disclosures normally
included in the condensed 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 condensed interim
consolidated financial statements follow the same accounting policies and
methods of their application as our May 31, 2016 annual consolidated
financial statements. All adjustments are of a normal recurring nature. It
is suggested that these condensed interim consolidated financial
statements be read in conjunction with our May 31, 2016 annual
consolidated financial statements.
|
|
|
|
Operating results for the three months ended August 31,
2016 are not necessarily indicative of the results that can be expected
for the year ending May 31, 2017.
|
|
|
|
These condensed interim 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., Makaelo Limited, Silver Castle Investments Limited
(Silver Castle) and its 100% controlled subsidiary, Chenxi County Hongyu
Mining Co. Ltd. ("Hongyu"). All inter-company transactions and account
balances have been eliminated.
|
7
Sterling Group Ventures, Inc.
Notes to the Condensed
Interim Consolidated Financial Statements
August 31, 2016
(Unaudited)
(Stated in US Dollars)
Note 2
|
Recent Accounting Pronouncements
|
|
|
|
The Company has evaluated all the recent accounting
pronouncements and believes that none of them will have a material effect
on the Companys condensed interim consolidated financial statements.
|
|
|
|
a. Accounting standards adopted
|
|
|
|
On June 1, 2016, the Company adopted FASB issued
Accounting Standard Update (ASU) 2014-12, Accounting for Share-Based
Payments When the Terms of an Award Allow a Performance Target to Be
Achieved After the Requisite Service Period, which requires that a
performance target that could be achieved after the requisite service
period be treated as a performance condition that affects the vesting of
the award. The Company applies the amendments in ASU 2014-12 prospectively
to all awards granted or modified after the effective date. Adoption of
the new update to ASU 2014-12 did not have any impact on the financial
statements of the Company.
|
|
|
|
b. Accounting standards not yet adopted
|
|
|
|
In August, 2014, the FASB issued ASU 2014-15, Disclosure
of Uncertainties About an Entitys Ability to Continue as a Going
Concern, which provides guidance on determining when and how to disclose
going-concern uncertainties in the financial statements. The new standard
requires management to perform interim and annual assessments of an
entitys ability to continue as a going concern within one year of the
date the financial statements are issued. An entity must provide certain
disclosures if conditions or events raise substantial doubt about the
entitys ability to continue as a going concern. The ASU applies to all
entities and is effective for annual periods ending after December 15,
2016, and interim periods thereafter, with early adoption permitted. The
Company is currently assessing the impact the new standard will have on
the financial statements.
|
|
|
|
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting,
which
modifies the accounting for excess tax benefits and tax deficiencies
associated with share-based payments, the accounting for forfeitures, and
the classification of certain items on the statement of cash flows. ASU
2016-09 eliminates the requirement to recognize excess tax benefits in
additional paid-in capital ("APIC"), and the requirement to evaluate tax
deficiencies for APIC or income tax expense classification, and provides
for these benefits or deficiencies to be recorded as an income tax expense
or benefit in the income statement. With these changes, tax-related cash
flows resulting from share-based payments will be classified as operating
activities as opposed to financing, as currently presented. The standard
is effective for us in the first quarter of fiscal year 2018, although
early adoption is permitted. We are currently assessing the impact the new
standard will have on our financial statements.
|
8
Sterling Group Ventures, Inc.
Notes to the Condensed
Interim Consolidated Financial Statements
August 31, 2016
(Unaudited)
(Stated in US Dollars)
Note 3
|
Mineral Properties
|
|
|
|
A summary of mineral property costs for the period ended
August 31, 2016 and year ended May 31, 2016 were incurred and accounted
for in the condensed interim consolidated statement of operations as
follows:
|
|
|
Gaoping Phosphate
|
|
Summary of
mineral property expenditures
|
|
Property
|
|
|
|
|
|
Balance, May 31, 2015
|
$
|
1,074,701
|
|
Administrative
|
|
536
|
|
Consulting fees
|
|
6,935
|
|
Mining permit
|
|
2,107
|
|
Wages and benefits
|
|
15,516
|
|
Balance, August
31, 2015
|
$
|
1,099,795
|
|
Administrative
|
|
2,826
|
|
Consulting fees
|
|
9,388
|
|
Mining permit
|
|
8,815
|
|
Travel & promotion
|
|
13,092
|
|
Wages and benefits
|
|
42,559
|
|
Balance, May 31,
2016
|
$
|
1,176,475
|
|
Administrative
|
|
2,064
|
|
Consulting fees
|
|
1,880
|
|
Travel & promotion
|
|
2,601
|
|
Wages and benefits
|
|
14,862
|
|
Balance, August 31, 2016
|
$
|
1,197,882
|
|
a)
Gaoping
Phosphate Property
During the period ended August 31,
2016, the Company incurred mineral property expenditures of $21,407 (August 31,
2015: $25,094). As of August 31, 2016, the Company has incurred total mineral
property costs of $1,197,882 (May 31, 2016: $1,176,475) on this property which
have been expensed to the statement of operations as disclosed in the table
above.
On May 31, 2016, in accordance with
its accounting policy, the Company performed an impairment test on the carrying
value of the Gaoping Phosphate Property. Due to the prolonged and significant
decline in the phosphate price and the lack of planned exploration program on
the property, the Company recorded impairment provisions to the mineral
properties and its related environmental deposit of $3,147,801 and $123,204,
respectively, during its fiscal year ended May 31, 2016.
9
Sterling Group Ventures, Inc.
Notes to the Condensed
Interim Consolidated Financial Statements
August 31, 2016
(Unaudited)
(Stated in US Dollars)
|
|
|
August 31, 2016
|
|
|
May 31, 2016
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Value
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
$
|
14,710
|
|
$
|
14,139
|
|
$
|
571
|
|
$
|
14,742
|
|
$
|
14,073
|
|
$
|
669
|
|
|
Automobile
|
|
55,923
|
|
|
50,057
|
|
|
5,866
|
|
|
56,738
|
|
|
47,962
|
|
|
8,776
|
|
|
Office equipment
|
|
3,332
|
|
|
3,332
|
|
|
-
|
|
|
3,381
|
|
|
3,381
|
|
|
-
|
|
|
Machinery
|
|
152,788
|
|
|
95,748
|
|
|
57,040
|
|
|
155,012
|
|
|
93,035
|
|
|
61,977
|
|
|
|
$
|
226,753
|
|
$
|
163,276
|
|
$
|
63,477
|
|
$
|
229,873
|
|
$
|
158,451
|
|
$
|
71,422
|
|
|
The depreciation for the period ended August 31, 2016 was
$6,963 (August 31, 2015: $10,125).
|
|
|
Note 5
|
Related Party Transactions
|
|
|
|
The Company was charged consulting fees for
administrative, corporate, financial, engineering, and management services
during the three-month period ended August 31, 2016 totalling $4,637
(August 31, 2015: $4,541) by company controlled by a former director of the
Company.
|
|
|
|
Included in accounts payable and accrued liabilities is
$365,017 (May 31, 2016: $397,181) which was due to companies controlled by
the directors and former directors for their services provided in previous
years.
|
|
|
|
These transactions were measured at the amount of
consideration established and agreed to by the related parties.
|
|
|
Note 6
|
Capital Stock
|
|
|
|
a) Capital Stock
|
|
|
|
There were 93,000,000 shares issued in escrow during the
year ended May 31, 2016 in connection with the Purchase and Sales
Agreement and were then cancelled on September 9, 2016 (Note 9). There
were no share issuances during the period ended August 31, 2016 and year
ended May 31, 2016.
|
|
|
|
b) Stock Options
|
|
|
|
There were no stock options granted during the period
ended August 31, 2016 and year ended May 31, 2016. At August 31, 2016,
there were 5,200,000 stock options (May 31, 2016: 5,200,000) outstanding
and exercisable with an exercise price at $0.25 each expiring on February
3, 2019, with an aggregate intrinsic value of $nil (May 31, 2016: $nil)
and a weighted average remaining contractual term of 2.43 years (May 31,
2016: 2.68 years).
|
|
|
|
c) Share Purchase Warrants
|
|
|
|
At August 31, 2016, there were 24,570,000 share purchase
warrants (May 31, 2016: 24,570,000) outstanding and exercisable with
weighted average exercise price at $0.204.
|
Series
|
Number
|
Price
|
Expiry
Date
|
"A"
|
3,817,500
|
$ 0.50
|
February 17, 2017
|
"D"
|
20,752,500
|
$
0.15
|
February 17, 2017
|
|
24,570,000
|
|
|
10
Sterling Group Ventures, Inc.
Notes to the Condensed
Interim Consolidated Financial Statements
August 31, 2016
(Unaudited)
(Stated in US Dollars)
Note 7
|
Foreign Currency Risk
|
|
|
|
The Company is exposed to fluctuations in foreign
currencies through amounts held in China in RMB: Cash and cash equivalents
$14,433 (May 31, 2016 - $30,615).
|
|
|
|
The Company is exposed to fluctuations in foreign
currencies through amounts held in Canada in CAD: Cash $19,025 (May 31,
2016 - $15,595).
|
|
|
|
The Company is exposed to fluctuations in foreign
currencies through amounts held in Hong Kong in HKD: Cash $147 (May 31,
2016 - $76).
|
|
|
Note 8
|
Segment Information
|
|
|
|
The Company has offices in Canada and China, with
operations in one segment only, i.e. mineral resources sector. The
Companys assets are allocated to each country as follows:
|
|
|
|
August 31, 2016
|
|
|
May
31, 2016
|
|
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
Canada
|
|
|
China
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
56,227
|
|
$
|
733,556
|
|
$
|
789,783
|
|
$
|
132,382
|
|
$
|
774,776
|
|
$
|
907,158
|
|
|
Prepaid expense and other receivable
|
|
14,326
|
|
|
2,378
|
|
|
16,704
|
|
|
6,438
|
|
|
6,182
|
|
|
12,620
|
|
|
Equipment
|
|
121
|
|
|
63,356
|
|
|
63,477
|
|
|
154
|
|
|
71,268
|
|
|
71,422
|
|
|
Environmental deposit
|
|
-
|
|
|
1
|
|
|
1
|
|
|
-
|
|
|
1
|
|
|
1
|
|
|
Mineral properties
|
|
-
|
|
|
1
|
|
|
1
|
|
|
-
|
|
|
1
|
|
|
1
|
|
|
|
$
|
70,674
|
|
$
|
799,292
|
|
$
|
869,966
|
|
$
|
138,974
|
|
$
|
852,228
|
|
$
|
991,202
|
|
Note 9
|
Purchase and Sales Agreement
|
|
|
|
On April 9, 2016, the Company signed a Purchase and Sale
Agreement (Agreement) with Chenguo Capital Limited (Chenguo). As a
result of the transaction, the Company had plans to diversify and become a
timeshare exchange provider, a manager of timeshare assets through
agreements, and a developer of timeshare assets with fee relationships
with other organizations or resorts.
|
|
|
|
Under the terms of the Agreement, the Company would be
required to issue 85,000,000 shares on April 19, 2016 to Chenguo. Pursuant
to an escrow agreement, the 85,000,000 shares are contingently issuable
and only released from escrow upon completion of the transaction and when
the timeshare assets are transferred to the Company. In connection with
this agreement, the Company also issued 8,000,000 shares, pursuant to an
escrow agreement, representing a finders fee to be released on completion
of the transaction.
|
|
|
|
The Company also remitted RMB1,895,353 ($295,726) to the
other party on April 22, 2016 for the development of the timeshare
platform.
|
|
|
|
On September 5, 2016, both parties agreed to terminate
the Agreement and the Company agreed to reimburse the parties to the
Agreement HK$125,000 ($16,090) on the related expenses incurred.
|
|
|
|
Pursuant to the termination agreement, on September 9,
2016, the Company cancelled the 85,000,000 escrow shares and 8,000,000
shares issued as finders fees, subject to the escrow agreement. During
the year ended May 31, 2016, the Company also expensed in project
development cost $295,726 funds advanced for the development of timeshare
platform and recorded $16,090 and an additional $7,750 for expenses
incurred by the other parties affiliated with Chenguo termination in due
diligence cost in the consolidated statement of operations. The Company
has determined there is a contingent liability related to the cancellation
of the 8,000,000 shares related to the finders fee. Based on the early
stage of the claim and evaluation of the facts available at this time, the
amount or range of reasonably possible losses to which the Company is
exposed cannot not be estimated and the ultimate resolution of this matter
and the associated financial impact to the Company, if any, remains
uncertain at this time. We believe the claim is without merit and intend
to defend ourselves vigorously.
|
11
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, 2016, the financial statements and related notes in this Quarterly Report for the period ended August 31, 2016, the risk factors in our 10K for the year ended May 31, 2016, 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
Business of Sterling Group Ventures Inc.
Sterling is a natural resource company engaged in acquisition and exploration of mineral properties. At present, the Company has acquired the Gaoping phosphate Property and is exploring for phosphate concentrate. It continues to seek out other projects to add value to the Company.
Gaoping Phosphate Property
On October 18, 2010, 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 holds a business license and a mining permit in the GP Property which is in effect until November 10, 2014 and covers 42.5 hectares. On April 29, 2015, Hongyu obtained the renewal of the mining permit, which is valid until April 2, 2018.
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 and the other 10% of Hongyu was transferred to the nominees of Sterling. During the acquisition phase, Sterling ensured that Hongyu's net assets retained a minimum value of RMB 5,000,000 ($771,545). 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. Sterling 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.
12
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 is making progress on this property as follows. 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.
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 August 31, 2016, the Gaoping mineral property is still an exploration stage property as it does not yet have proven reserves.
On April 9, 2016, the Company signed a Purchase and Sale Agreement ("Agreement") with Chenguo Capital Limited ("Chenguo"). As a result of the transaction, the Company had plans to diversify and become a timeshare exchange provider, a manager of timeshare assets through agreements, and a developer of timeshare assets with fee relationships with other organizations or resorts.
Under the terms of the Agreement, the Company would be required to issue 85,000,000 shares on April 19, 2016 to Chenguo. Pursuant to an escrow agreement, the 85,000,000 shares are contingently issuable and only released from escrow upon completion of the transaction and when the timeshare assets are transferred to the Company. In connection with this agreement, the Company also issued 8,000,000 shares, pursuant to an escrow agreement, representing a finder's fee to be released on completion of the transaction.
13
The Company also remitted RMB1,895,353 ($295,726) to the other party on April 22, 2016 for the development of the timeshare platform.
On September 5, 2016, both parties agreed to terminate the Agreement and the Company agreed to reimburse the parties to the Agreement HK$125,000 ($16,090) on the related expenses incurred.
Pursuant to the termination agreement, on September 9, 2016, the Company cancelled the 85,000,000 escrow shares and 8,000,000 shares issued as finder's fees, subject to the escrow agreement. The Company also expensed in project development cost $295,726 funds advanced for the development of timeshare platform and recorded $16,090 and an additional $7,750 for expenses incurred by the other parties affiliated with Chenguo termination in due diligence cost in the consolidated statement of operations. The Company has determined there is a contingent liability related to the cancellation of the 8,000,000 shares related to the finder's fee. Based on the early stage of the claim and evaluation of the facts available at this time, the amount or range of reasonably possible losses to which the Company is exposed cannot not be estimated and the ultimate resolution of this matter and the associated financial impact to the Company, if any, remains uncertain at this time. We believe the claim is without merit and intend to defend ourselves vigorously.
Application of Critical Accounting Policies and Use of Estimates
Our condensed interim 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.
We believe that of our significant accounting policies, which are described in Note 2 to our annual financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, the following policies are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Basis of Presentation
These condensed interim consolidated financial statements include the accounts of our Company and our wholly-owned subsidiaries, Micro Express Holdings Inc., Micro Express Ltd., Huyana Ventures Limited, Makaelo Holdings Inc., Makaelo Limited, Silver Castle Investments Limited ("Silver Castle") and our 100% controlled subsidiary, Chenxi County Hongyu Mining Co. Ltd. ("Hongyu"). All inter-company transactions and account balances have been eliminated.
Interim Reporting
The information presented in the accompanying condensed 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 condensed 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 condensed interim consolidated financial statements follow the same accounting policies and methods of their application as our May 31, 2016 annual consolidated financial statements. All adjustments are of a normal recurring nature. It is suggested that these condensed interim consolidated financial statements be read in conjunction with our May 31, 2016 annual consolidated financial statements.
Operating results for the three months ended August 31, 2016 are not necessarily indicative of the results that can be expected for the year ending May 31, 2017.
14
Mineral Property Costs
Costs of acquiring mineral properties are capitalized by the project area. Costs to maintain mineral rights and leases are expensed as incurred. When a property reaches the production state, the related capitalized costs are amortized using the unit of production method on the basis of annual estimates of ore reserves. The Company does not consider a resource property to be at the development stage until such time as either mineral reserve are proven or permits to operate the mineral resource property are received and financing to complete the development has been obtained. Development expenditures incurred subsequent to a development decision, and to increase or to extend the life of existing production, are capitalized and amortized on the unit of production method based upon estimated proven and probable reserves or resources.
Management reviews the carrying value of mineral properties at least annually and will recognize impairment in value based upon current exploration results, and any impairment or subsequent losses are charged to operations at the time of impairment. If a property is abandoned or sold, its capitalized costs are charged to operations. Mineral property exploration costs are expensed as incurred. Exploration activities conducted jointly with others are reflected at the Company's proportionate interest in such activities. As at May 31, 2016, management reviewed the carrying value of the mineral properties and the environmental deposit and determined that the prolonged and significant decline in phosphate prices and the lack of a current and foreseeable planned exploration budget on its Gaoping phosphate property and has impaired these assets to a nominal value. An impairment charge of $3,271,005 has been recorded in the consolidated statement of operations for the year ended May 31, 2016. As at August 31, 2016 and 2015, the Company did not have proven or probable ore reserves.
Stock-based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718-10, Compensation - Stock Compensation - Overall.
In accordance with ASC 718-10, the compensation expense is amortized on a straight- line basis over the requisite service period which approximates the vesting period. ASC Topic 718-10 requires excess tax benefits to be reported as a financing cash inflow rather than as a reduction of taxes paid. The Company has elected to use the Black-Scholes option pricing model to determine the fair value of options and the extension of the expiry date of share purchase warrants previously granted
Foreign Currency Translation
Our functional and reporting currency is U.S. dollars. Our consolidated financial statements are translated to U.S. dollars in accordance with ASC 830, "Foreign Currency Matters". Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. We have not, to the date of these condensed interim consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Use of Estimates
The preparation of condensed interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed interim consolidated financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from these estimates.
Going Concern
These condensed interim consolidated financial statements have been prepared on a going concern basis which assumes that adequate sources of financing will be obtained as required and that our assets will be realized and liabilities settled in the ordinary course of business. These condensed interim consolidated financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary if we are unable to continue as a going concern.
15
In order to continue as a going concern, we require additional financing. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to continue as a going concern, we would likely be unable to realize the carrying value of our assets reflected in the balances set out in the preparation of the condensed interim consolidated financial statements.
At August 31, 2016, the Company had not yet achieved profitable operations and has accumulated losses of $10,400,054 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.
Sterling is involved in the development of Phosphate in Hunan, China. The projects are not yet commercial and have not reached profitability.
Results Of Operations
The Company had no operating revenue except interest income of $112 for the quarter ended August 31, 2016 compared with interest income of $3,923 for the quarter ended August 31, 2015. The net loss for the quarter ended August 31, 2016 decreased to $78,392, as compared to $83,968 for the quarter ended August 31, 2015 as a result of foreign exchange gains of $13,666. Without the foreign exchange gain, overall expenses of would have been $92,170, an increase of $14,767 over the quarter ended August 31, 2015 due to an increase in professional fees.
Accounting, audit, legal and professional fees increased by $15,020 for the quarter ended August 31, 2016 when compared to the quarter ended August 31, 2015 due to complexities in the year-end Audit as a result of the Purchase and Sale Agreement signed with Chenguo which has since been cancelled.
Depreciation decreased by $3,162 for the quarter ended August 31, 2016 when compared to the quarter ended August 31, 2015.
Foreign exchange gain increased by $24,154 for the quarter ended August 31, 2016 when compared to the quarter ended August 31, 2015 because of the exchange rate fluctuation among US dollar, Canadian dollar and RMB.
Travel and entertainment increased by $5,595 for the quarter ended August 31, 2016 when compared to the quarter ended August 31, 2015. These expenses were incurred in relation to the Purchase and Sale Agreement with Chenguo which has since been cancelled.
Mineral property costs decreased by $3,687 for the quarter ended August 31, 2016 when compared to the quarter ended August 31, 2015 because the Gaoping phosphate property was kept in care and maintenance mode during the period ended August 31, 2016 due to ongoing challenges in the phosphate market.
The Company expects the trend of losses to continue until we can achieve commercial production at the Gaoping phosphate project, of which there can be no assurance as described in Risk Factors.
Liquidity And Working Capital
As of August 31, 2016, the Company had total current assets of $806,487 and total current liabilities of $398,138. As of August 31, 2016, the Company had cash totaling $789,783, and a working capital of $408,349. A balance of approximately $733,556 of cash is held on deposit in China at August 31, 2016. The cash held on deposits in Hongyu is regulated by the People Republic of China laws and regulations relating to intercorporate transfers and capital accounts.
Cash used in operating activities for the three months ended August 31, 2016 was $85,211 as compared to cash used in operating activities for the three months ended August 31, 2015 was $56,250.
16
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. If all warrants outstanding are exercised, the Company will receive approximately $5 million in cash. The Company's current cash cannot meet its needs for the next 12 months. The Company is currently looking at funding its activities such as a private placement, related party advances, sale of non-core assets and possible repatriation of our foreign capital. The Company believes it needs to raise $100,000 in order to meet its needs for the next 12 months. The cash will be mainly used for general administrative, corporate (accounting, audit, and legal), financing and management. The Company currently does not have commitments in place for financing as of the date of this filing.
No other 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. In order to continue as a going concern, we require additional financing.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
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 mining costs in China may be incurred under contracts denominated in Chinese Yuan or U.S. Dollars. If the Chinese Yuan continues to depreciate with respect to the U.S. Dollar, our costs in China may decrease. If the Canadian Dollar continues to depreciate with respect to the U.S. Dollar, our costs in Canada may decrease. 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.
The majority of the Company's assets, liabilities, revenues and expenses are denominated in Chinese RMB. The appreciation of the RMB against the U.S. dollar would result in an increase in the assets, liabilities, revenues and expenses of the Company and a foreign exchange gain included in comprehensive income. Conversely, the devaluation of the RMB against the U.S. dollar would result in a decrease in the assets, liabilities, revenues and expenses of the Company and a foreign exchange loss included in comprehensive income.
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:
As required by paragraph (b) of Rules 13a-15 under the Exchange Act, the Company's principal executive officer and principal financial officer evaluated the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, these officers concluded that as of the end of the period covered by this quarter report on Form 10-Q, the Company's disclosure controls and procedures were not effective. The ineffectiveness of the Company's disclosure controls and procedures was due to the existence of unresolved material weaknesses identified in the company's 10-K for the year ended May 31, 2016.
The disclosure controls and procedures are controls and procedures that are designed to ensure that the information required to be disclosed by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and include controls and procedures designed to ensure that such information is accumulated and communicated to the Company's management, including the company's principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
17
b. Changes in Internal Control over Financial Reporting:
There were no changes in the Company's internal control over financial reporting that occurred during the last quarter ended August 31, 2016 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.
There is Substantial Doubt About the Companys 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.
18
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 PRCs 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 managements 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 August 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.
19
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 August 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.
20
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 Commissions penny stock regulations, which may limit a
stockholders 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 customers 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 customers 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
purchasers 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
stockholders 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 customers 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.
21
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 Hongyus 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.
22
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
None
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 24 of this Quarterly
Report on Form 10-Q, which is incorporated herein by reference.