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EX-31.2 - SECTION 302 CERTIFICATION OF CFO - STERLING GROUP VENTURES INCexhibit31-2.htm
EX-32.1 - SECTION 906 CERTIFICATION OF CEO - STERLING GROUP VENTURES INCexhibit32-1.htm
EX-32.2 - SECTION 906 CERTIFICATION OF CFO - STERLING GROUP VENTURES INCexhibit32-2.htm
EX-31.1 - SECTION 302 CERTIFICATION OF CEO - STERLING GROUP VENTURES INCexhibit31-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

[   ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended May 31, 2011

OR

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_____________to _____________.

Commission file number: 000-51775

STERLING GROUP VENTURES, INC.
(Exact name of registrant as specified in its charter)

Nevada 72-1535634
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)  
   
308-1228 Marinaside Cr.  
Vancouver BC Canada V6Z 2W4
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (604) 689-4407

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
None None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001
(Title of class)

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 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):

Large accelerated filer [   ] Accelerated filer [   ]

Non-accelerated filer [   ] Smaller reporting company [ x ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [   ] No [ x ]

The aggregate market value of the voting and non-voting share of Common Stock held by non-affiliates of the registrant was approximately $2,522,748 based on the closing trading price for the common equity as of November 30, 2010 (at $0.105 average ask and bid price).

The number of shares of common stock, par value $0.001 per share, outstanding as of August 22, 2011 was 75,730,341.

Documents incorporated by reference: None.

1



STERLING GROUP VENTURES INC.
Form 10-K
TABLE OF CONTENTS

    Page
     
 PART I 
Item 1. Business 4
Item 1A. Risk Factors 8
Item 1B. Unresolved Staff Comments 10
Item 2. Properties 10
Item 3. Legal Proceedings 16
Item 4. (Removed and Reserved) 16
     
  PART II  
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 16
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 21
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 45
Item 9A. Controls and Procedures 45
Item 9B. Other Information 45
     
  PART III  
Item 10. Directors, Executive Officers and Corporate Governance 46
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 49
Item 13. Certain Relationships and Related Transactions and Director Independence 50
Item 14. Principal Accountant Fees and Services 50
     
  PART IV  
Item 15. Exhibits and Financial Statement Schedules 51
     
 SIGNATURES 

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Cautionary Statement Regarding Forward-Looking Statements

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 lithium in Tibet, China and phosphate through its recent acquisition of Chenxi County Hongyu Mining Co. Ltd. (Hongyu) in Hunan, China. There is no assurance it 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.

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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 17, 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. On July 8, 2011, Sterling acquired a 90% interest in Hongyu and issued 10,000,000 shares of the Company’s common stock to existing Hongyu shareholders as part of the transaction.

In addition to lithium, we are a mining company engaged in the search, exploration and development of phosphate and related minerals through our recent acquisition of Chenxi County Hongyu Mining Co. Ltd. We have not yet generated or realized any revenues from our business operations. 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 308-1228 Marinaside Cr., Vancouver, B.C., Canada, V6Z 2W4. Our telephone number is (604) 689-4407 and fax number is (604) 408-8515

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 40% to 5%. 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.

Lithium and Lithium Carbonate Overview

Lithium is a solid soft alkali metal which has an atomic number of 3 and is the lightest of all metals, with a density of about half of that of water. The metal is naturally occurring in minute amounts in ore and brine deposits. The major ores used to mine lithium are spodumene, petalite and lepidolite. While spodumene is the most common lithium ore mined, it is also more expensive than mining brine deposits as the process is more complicated.

Lithium carbonate (Li2CO3) occurs naturally in brine or salt lake deposits or water and is the starting point in the manufacturing of lithium and various lithium chemicals which are used in batteries, ceramics and glass, in primary aluminum production, in the manufacture of lubricants and greases, drugs and others products.

According to the Mineral Information Institute (MII), most lithium is recovered from brine, or water with a high concentration of lithium carbonate. Brines trapped in the Earth’s crust (called subsurface brines) are the major source material for lithium carbonate. These sources, which are recovered generally through solar evaporation, are less expensive to mine than sources from rock such as spodumene, petalite, and other lithium-bearing minerals.

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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 is 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 is inactive without current operations being conducted. The GP Property is a sedimentary phosphate type deposit. The number of the mining permit is 4300002009116120048322. The area covered by the Permit is 0.425 km2 (42.5 hectares) and it is valid until November 10, 2014. The recording date is November 10, 2009. The mining permit allows initial production up to 100,000 tonnes phosphate ore per year.

The Agreements also required an investment company to be incorporated in Hong Kong (the “Investment Company”) which would be owned 20% by the Hongyu Shareholders and 80% by Sterling. The Investment Company acquired 90% of Hongyu with the other 10% of Hongyu transferred to nominees of Sterling. Upon completion of the acquisition, Hongyu became a Hong Kong / China joint venture company and within five business days of the approval of such joint venture company by the appropriate Chinese authorities, Sterling is required to pay RMB 2,000,000 to the Hongyu Shareholders. During the acquisition phase, Sterling would ensure that Hongyu’s net assets retain a minimum value of RMB 5,000,000. At any time 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 to them all subject to the rules and requirements of the US regulatory bodies bearing jurisdiction. If Sterling does not complete taking over Hongyu through the Investment Company within three months after signing the Agreements, Sterling should pay RMB 200,000 to the Hongyu Shareholders as down payment.

Pursuant to the Agreements, Hongyu agreed to surrender its future exclusive cooperative rights to Sterling, and the Hongyu Shareholders agreed that Sterling should have all Hongyu's title and interest in any phosphate properties, including but not limited to the GP Property, and Sterling shall 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.

During the year ended May 31, 2011, the Investment Company was incorporated in Hong Kong under the name Silver Castle Investments Ltd (“Silver Castle”). Sterling paid RMB 200,000 ($30,862) to the Hongyu shareholders as down payment on December 14, 2010. Hunan Provincial Government issued a Certificate of Approval for establishment of Hong Kong invested Hongyu on May 16, 2011.

Subsequent to the year ended May 31, 2011, Sterling has received all required approvals from the Chinese authorities for the acquisition of Hongyu pursuant to the Agreements dated October 18, 2010. Hongyu received an amended business license on June 14, 2011. On July 5, 2011, Sterling issued 10,000,000 shares of its common stock to existing Hongyu shareholders and obtained the remaining 20% of Silver Castle that it did not previously own and paid the balance of RMB 1,800,000 Yuan ($279,504) to the Hongyu shareholders as consideration for the acquisition on July 8, 2011. As a result, Silver Castle became a wholly owned subsidiary of Sterling holding 90% of Hongyu with other 10% held by the nominees of Sterling.

Hongyu is currently preparing plans to put its phosphate deposit into production.

Shimen Phosphate Project

On November 10, 2010, Sterling signed a letter of intent (the "LOI") with Shimen County Merchants Bureau, Hunan Province, China regarding the development of Shimen Phosphate project.

Under the terms of the LOI, Sterling will conduct due diligence on the Shujiatai phosphate property located in Shimen County, Hunan Province, China (the "SJT Property") within one and half years and update any Chinese study reports if necessary to build a mining, processing and chemical plant. After the due diligence is completed, Sterling will set up a joint venture in Shimen County for developing the SJT Property.

5


DXC Salt Lake Project

On July 11, 2005, the Company signed a letter of intent with Beijing Mianping Salt Lake Research Institute (“Mianping”) for the development of Dangxiongcuo (DXC) salt lake property in Nima county of Naqu district in Tibet, China. Pursuant to the Letter of Intent, the parties have agreed to set up a Joint Venture Company in Tibet, China to share the benefits, risks and losses of the project.

On September 16, 2005, the Company through its wholly owned subsidiary, Micro Express Holdings Inc. (“MEH”), signed an agreement (“the Mianping Agreement”) with Beijing Mianping Salt Lake Research Institute for the development of Dangxiongcuo salt lake property in Nima county of Naqu district in Tibet, China. The Agreement follows a Letter of Intent signed between the parties on July 11, 2005.

Mianping which is a private company holds the exploration permit on the Dangxiongcuo Salt Lake and the surrounding area issued by Tibet Bureau of Land and Resources of China. Dangxiongcuo Salt Lake is a classic brine type deposit. The number of the exploration permit is 5400000620013. The area covered by the permit is 89.06 km2 (8,906 hectares) and it was valid until Feb 23, 2007. The recording date is February 24, 2006. Mianping has renewed its permit on March 4th 2007. The new number is 5400000730283. The area covered by the permit is 89.06 km2 (8,906 hectares) and it was valid until March 14th 2008. The recording date is March 4, 2007. The license is now under renewal process. There is a mandated routine for converting this exploration permit into a mining permit.

Pursuant to the Mianping Agreement signed on September 16, 2005, the parties agreed to set up a Cooperative Company (the “Cooperative”) to develop DXC Salt Lake. The objective of the Cooperative was to use the funds provided by Sterling through MEH and the skills and technology provided by Mianping to produce lithium carbonate (Li2CO3), potash and other chemicals from brine. MEH was to own 65% and Mianping to own 35% of the Cooperative. It was anticipated that the total investment in the Cooperative shall be approximately 240 million RMB (or approximately US$35 million) and would result in production of 5,000 tonnes per year of lithium carbonate and by products (potash and other chemicals). Mianping guaranteed the production cost of lithium carbonate would be less than 11,000 RMB per tonne (or approximately US $1,600 per tonne).

On July 3, 2007, MEH received a letter from Mianping stating that the agreement between MEH and Mianping should be deemed terminated as a result of lack of progress in the approval for the establishment of the joint venture company and was considering a lawsuit against the Company and MEH. MEH had responded that Mianping’s claim had no legal grounds as the lack of progress was not caused by MEH or the Company. There has been no legal action to date and none is expected. By letter dated August 25, 2008, Mianping had confirmed to the Company’s auditor that the agreement dated September 16, 2005 was terminated effective July 8, 2008. This agreement was replaced by the agreement with Zhong Chuan International Mining Holdings Co. Ltd. dated July 8, 2008.

On July 8, 2008, the Company signed an agreement (the "Agreement") with Zhong Chuan International Mining Holding Co., Ltd. ("Zhong Chuan"), Ximing Sun and Charles Yan - shareholders of Monte Sea Holdings Ltd. (collectively hereinafter "Monte Sea Shareholders") to restructure the transactions contemplated under the Mianping Agreement signed by Mianping and MEH on September 16, 2005. Pursuant to the Agreement, the parties wish to establish a Sino-foreign cooperative joint venture company ("CJV") for the purpose of applying for and holding required approvals, permits and licenses with respect to the development of the Dangxiongcuo Salt Lake property (the "Property") located in Tibet of China.

Zhong Chuan is a Chinese mining company with connections and mineral properties in Tibet, China. Zhong Chuan is interested in expanding into lithium business. Zhong Chuan has also acquired interests in certain other salt lakes in Tibet ("Other Interests"). Monte Sea Shareholders are the shareholders holding all the issued and outstanding shares in the stock of Monte Sea Holdings Ltd. ("Monte Sea"), a company incorporated in Hong Kong.

Under the Agreement, the Mianping Agreement between Mianping and the Company shall be replaced and superseded by this Agreement upon this Agreement becoming effective. Upon this Agreement being effective and termination of the Mianping Agreement, Zhong Chuan shall cause Mianping to repay to the Company RMB 6,000,000 ($875,000) by depositing the said amount into an account designated by the Company. Mianping has not paid the Company the required amount anticipated from the termination of the agreement.

The Parties agree that Zhong Chuan shall cause an operating company ("Opco") to be established in Tibet prior to the establishment of the CJV for the purpose of applying for and holding required approvals, permits and licenses with respect to the development of the Property. The Opco shall hold all such approvals, permits and licenses in trust for the CJV, and pursuant to the letters and spirit of this Agreement.

6


Under the Agreement, Monte Sea Shareholders and Zhong Chuan shall cause the CJV to be established within 90 days from date of this Agreement, subject to required regulatory approval and based on a joint venture agreement by way of acquisition of interest in the Opco by Monte Sea, or by way of incorporation under the Chinese laws. Monte Sea shall hold up to 65% but no less than 51% of shares in the CJV. CJV shall own and hold all Mianping's (and/or Opco's) title to and interest in any exploration or mining licenses in lithium resources in Tibet including the Exploration license and Other Interests.

If for any Chinese regulatory or policy reasons, Monte Sea is not permitted to have more than fifty-one percent (51%) interest in the CJV, then Monte Sea and Zhong Chuan shall cause the JV Agreement to be revised such that:

(a) Mont Sea shall have a forty-nine percent (49%) interest in the CJV;

(b) Mont Sea shall be entitled to receive returns on its investment in the CJV on a priority and accelerated basis until its investment in the CJV and the Property is fully recovered; and

(c) Mont Sea shall be permitted to manage the daily operation of the CJV pursuant to a management agreement to be entered into between Mont Sea and Zhong Chuan, on terms and conditions satisfactory to Sterling.

The Parties shall cause all necessary corporate actions to be taken to approve and effect the transactions contemplated above, and to make any adjustment, registration or filings necessary to meet applicable regulatory requirements.

Upon signing of this Agreement and subject to applicable regulatory approval, Monte Sea Shareholders shall subscribe for 5,000,000 units (the "Units") to be issued by the Company at $0.15 per unit. Each Unit shall consist of One (1) common share in the stock of the Company, and One (1) warrant which shall entitle Monte Sea Shareholders to purchase One (1) common share in the stock of the Company at $0.16 per share within two (2) years from the date of the issuance of the Units.

Subject to applicable regulatory approval, the Company shall cause 200,000,000 shares to be issued to Monte Sea Shareholders within ten (10) working days from the date transfer of the Exploration License to the CJV is approved by the Chinese regulators, in exchange for all the shares then issued and outstanding in the stock of Monte Sea and held by Monte Sea shareholders (the "Share Exchange"). The Share Exchange may be conducted and completed at an earlier date so long as the Company and Monte Sea Shareholders may agree in writing.

Subject to applicable regulatory approval, the Company shall cause 87,910,000 shares in the capital of the Company to be issued to Monte Sea Shareholders at no additional cost, upon receipt by the CJV of a mining license and such other permits or approvals for the Property, permitting the full exploitation and development of the Property.

The Company shall use its best efforts to secure business relationships with selected major companies outside China in the form of equity participation or off-take arrangement for lithium products from the CJV.

The Company intends to, when and as required by the CJV, arrange and complete financing for the operation of the CJV. There are no assurances that the Company will be able to obtain such financing.

Zhong Chuan shall, together with Monte Sea Shareholders, provide funds no less than RMB 100,000,000 (or US dollar equivalent thereof) for the purpose of meeting registered capital payment requirements in the registration and operation of the CJV. Zhong Chuan shall keep other Parties informed of any development in the registration of the CJV and transfer of the Exploration License.

Monte Sea Shareholders shall, together with Zhong Chuan, make funds available for the purpose of acquisition and meeting registered capital payment requirements in the registration and operation of the CJV.

CJV will be located in Tibet, China and will develop Dangxiongcuo lithium property, extract and process commercially lithium carbonate using internationally advanced technologies.

In July 2009, the Company received verbal termination of the Agreement with Zhong Chuan, as advised by third party legal counsel, at a meeting in Beijing, China. Formal written notice has not been received from Zhong Chuan. The Agreement in effect, allows Zhong Chuan to terminate the Agreement if it pays the Company double the amount of funds paid by the Company to date to secure and develop the DXC Project. Zhong Chuan has not repaid the required amount as anticipated by the Agreement to date. This unfortunate delay on the part of Zhong Chuan places the termination it gave the Company in dispute as the termination is conditional upon repayment of the required funds. At this point then, the termination is incomplete. The Company is pursuing Zhong Chuan to complete the termination, as the Company deems, is mandated by the Agreement.

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As a result, the company is now in negotiation with Mianping to sell the project back to them.

Employees

At present, we have no employees, other than our officers and directors. Our officers and directors do not have employment agreements with us, except consulting agreements which can be cancelled on 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 in the exploration stage. The Company has entered into joint venture agreements to explore and develop mineral properties located in China and has not yet determined whether these properties contain reserves that are economically recoverable. The Company has not yet achieved profitable operations and is dependent on its ability to raise capital from shareholders or other sources to meet its obligations and repay its liabilities arising from normal business operations when they come due. These factors raise substantial doubt that the Company will be able to continue as a going concern.

Lack of Technical Training of Management

The Management of our Company has academic and scientific experience related to mining issues but lacks technical training and experience exploring for, commissioning and operating a mine. With no direct training or experience in these areas, management may not be fully aware of many of the specific requirements related to working within this industry. The decisions and choices may not take into account standard engineering or managerial approaches mineral exploration companies commonly use. Consequently, operations, earnings and the ultimate financial success of the Company could suffer irreparable harm due to management’s lack of experience in this industry. The company has recently hired an experienced mining engineer.

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 company’s properties have not been examined in the field by professional geologists or mining engineers. There is no assurance that commercial quantities of ore will be discovered on any of the Company’s properties. There is also no assurance that, even if commercial quantities of ore are discovered, a mineral property will be brought into commercial production. The discovery of mineral deposits is dependent upon a number of factors not the least of which is the technical skill of the exploration personnel involved. The commercial viability of a mineral deposit, once discovered, is also dependent upon a number of factors, some of which are the particular attributes of the deposit, such as size, grade and proximity to infrastructure, metal prices and government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection. In addition, assuming discovery of a commercial ore body, depending on the type of mining operation involved, several years can elapse from the initial phase of drilling until commercial operations are commenced. Most of the above factors are beyond the control of the Company.

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The exploration process is conducted in phases. When each phase of a project is completed, and upon analysis of the results of that phase, the Company will make a decision whether to proceed with each successive phase of the exploration program. There is no assurance that projects will be carried to completion.

Limited Management Resource Development Experience

The Company does not have a track record of exploration and mining operation history. The Company's management has limited experience in mineral resource development and exploitation, and has relied on and may continue to rely upon consultants and others for development and operation expertise. The company recently hired an experienced mining engineer.

Limited Financial Resources

Furthermore, the Company has limited financial resources with no assurance that sufficient funding will be available to it for future exploration and development or to fulfill its obligations under current agreements. There is no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of its projects.

Limited Public Market, Possible Volatility of Share Price

The Company's Common Stock is currently quoted on the NASD OTC QB under the ticker symbol SGGV and is listed on Berlin Bremen Stock Exchange under the symbol GD7. As of May 31, 2011, there were approximately 65,730,341 shares of common stock outstanding. There can be no assurance that a trading market will be sustained in the future.

Dependence on Executive Officers and Technical Personnel

The success of our business plan depends on attracting qualified personnel, and failure to retain the necessary personnel could adversely affect our business. Competition for qualified personnel is intense, and we may need to pay premium wages to attract and retain personnel. Attracting and retaining qualified personnel is critical to our business. Inability to attract and retain the qualified personnel necessary would limit our ability to implement our business plan successfully.

Need for Additional Financing

The Company believes it has sufficient capital to meet its short-term cash needs, including the costs of compliance with the continuing reporting requirements of the Securities Exchange Act of 1934. However, if losses continue, it may have to seek loans or equity placements to cover longer-term cash needs to continue operations and expansion.

No commitments to provide additional funds have been made by management or other stockholders. Accordingly, there can be no assurance that any additional funds will be available to the Company to allow it to cover operation expenses.

If future operations are unprofitable, it will be forced to develop another line of business, or to finance its operations through the sale of assets it has, or enter into the sale of stock for additional capital, none of which may be feasible when needed. The Company has no specific management ability or financial resources or plans to enter any other business as of this date.

Dilution to the Existing Shareholders

The Company has no other capital resources other than the ability to use its common stock to raise additional capital or the exercise of the warrants by the unit holders, which will significantly dilute the Company's stockerholders.

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.

9


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 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.

Since October 2008, a severe general downturn in the U. S. economy and global economy slowdown which already affected the securities markets took place. Such a deleterious turn of events has made it much more difficult for the Company to access financing should it be required to do so. As of August 2011, the outlook remains uncertain as growth in the US and Europe experienced another downturn such that another recession is now possible in the US and Europe.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTY

Gaoping Phosphate Property

Gaoping Phosphate which is part of Tanjiachang phosphate district is located in NEE 80°direction of Chenxi County town with straight-line distance 26 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 district’s ranges:
Longitude East 110° 25 '15 "- 110° 30 '00", Latitude North 28°00 '00"-28° 07'30". The area is about 32km2.

The location of the property is shown in the following map.

10


The property is located in Tanjiachang of Chenxi county, Hunan Province of China. Chenxi county is about 250 km from Zhangjiajie city and about 120 km from Huaihua city. Both cities have airports. The roads from the cities to Chenxi are well paved. The property is about 38 km from Chenxi County. The road from County to the property is paved. The property is in mountain area and elevation is about 700 meters. The mountain is quite steep.

Hongyu currently holds a mining permit allowing 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.

The ore of the deposit is mainly consisted of crytocrysta-microcrystal phosphorite with small volume of tiny oolite and it is a marine sediment deposit with banded texture. According to weathering and oxidization level, the ore can be defined as weathered and primary types. Under weathering effect, carbonate content can be decreased and phosphorite minerals can be enriched while vein mineral and structure & texture of ore changed and forming weathered ore. The changing of grade and thickness of weathered ore is relatively big in the deposit while that is small for primary ore. After weathering, the grade would increase 5- 8% and the ore grade can reach around 28% after simple washing by water. It can be utilized directly in phosphate fertilizer processing then.

Strata outcropped in this mine area include Jiangkou Formation, Xiangmeng Formation and Hongjiang Formation of Lower Sinian, Jinjiadong Formation, Liuchapo Formation of Upper Sinian and Xiaoyanxi Formation of Lower Cambrian. Phosphorite deposit of Tanjiachang mining area is in interlayers or interbeddings of phosphorite and mudstone, silty platy shale within middle section of Jinjiadong Formation, Upper Sinian, and the geology structure is simple. The strata strike NNE and dip into SEE in general.

Phosphorite is in yellow platy shale and epizonal metamorphism clastic rock, mainly mudstone, of middle section of Jinjiadong Formation, Upper Sinian, and it is in layer structure. The ore layers are made of several tens of siliceous phosphorite layers with thickness mostly 2- 6m. The ore is made of dark grey siliceous and cal-siliceous phosphorite and ore mineral is minicrystal apatite. Ore texture is mainly with microcrystal texture then colloidal texture. Structure is mainly massive structure then bending and thin stratiform structure, etc. The grade (P2O5 content) is 19.8% and it can increase with weathering effect becoming stronger. The phosphorite in Tanjiachang phosphate zone is siliceous and cal-siliceous phosphorite and the grade is medium, mainly in Chinese standard level III. The grade of hand- collecting sample is relative higher and can be close to or reach Chinese standard level I. Nature type of ore is in mainly massive shape or bending shape. The deposit is in shallow marine sediment deposit type.

11


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 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. There are none specific geology works had been done for phosphorite deposit within Tanjiachang and the institute (Chemical Geology Exploration Institute, Hunan Province) has 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. It has been defined as Tanjiachang and they submitted General Geological Survey Design for Tanjiachang Phosphorite Mining Area, Chenxi county of Hunan Province. 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 so far.


Item

unit
  Quantity  
sub-total

Remarks
1993 1994 1995
1:10000 Geology Mapping km2 10.9 10.5 10.5 31.9  
1:1000 Onsite Geology Section Mapping m 2305 2212 1450 5967 5 lines
Trenching and Logging m3 1521.3 1200 1125 3846.3 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  

The deposit range is in mountain area of Xiangxi (west Hunan Province) region and elevation is from 237.1m (minimum) to 985.8m (maximum) with maximum relative elevation difference of 748.7m (500- 600m in general). The terrain is seriously incised and with relatively developed vegetation conditions. Water system is mainly made of hill streams in shape of comb generally running from north to south and injecting to River Yuan. The water volume is related to local climate and the local climate type of Tanjiachang is subtropical humid one, with annual average temperature 16.5 degree and frost-free season/period 270 days. The precipitation is concentrated from April to August with flood frequently. It is arid in autumn and winter seasons and the stream will become very small and even drought. The area is also the 2nd largest timber producing basis and the main product is Matsuyama tree. The general agriculture product is rice and others include sweet potatoes, oil, tea and tung, etc. The nature economy condition within Tanjiachang is poor. Water and power resources are fully supplied and manpower is mainly in agriculture and its sideline producing industry, timber managements. Telecommunication is very good. Cellular phone can be accessed in the property area. Transportation is good and truck can arrive in the property area.

During the application of mining permit period, major workload accomplished include 6 GPS control surveys, 17 engineering survey points, geology mapping in scale of 1:5000 with area of 0.75km2, 3 geology section lines’ mapping with length 1500m, investigating and clearing 8 trenches and 6 old workings, slag removal with volume 100m3, 4 existing inclined shafts survey, 39 samples’ sampling and assaying, 10 small weight tests. In total, there are 6 participants involved in this work and 9 months spent from November 2006 to March 2007.

Water comes from mountain springs. River Yuan is nearby, and ships can navigate the river. The power line is connected to the mining site already.

12


The stratum of phosphorite deposit is stable with shallow buried-depth and geology structure is simple. According to requirements of general geology survey, geology mapping and surface trenches have been done in the round exploration work, and original geology logging and channel samples for phosphorite chemical assay all have been gotten to control deposit scale, occurrence and measure ore quality, ore type generally. Then estimation of geology prospective resources has been reached and data has been collected for further detailed geology exploration. Self- checking, peer review and technique director checking of data have been conducted during general geology survey period and the principles of accordance of report & map, physical sample & map, report & physical sample, relevant words & relevant physical sample have been insisted. The quality is guaranteed and the records of peer review of onsite data and detailed technique director checking has been kept. The data without checking and reviewing record can’t be used in comprehensive compilation.

Through onsite survey and by onsite geology cross-section mapping and united geology mapping, the geology map with scale of 1:10,000 has been drafted and the base map is topography map with scale of 1:10,000 published by Hunan Provincial Bureau of Surveying and Mapping. The mapping area is 31.90km2 and the mapping method is tracing assisted by crossing method.

Geology mapping unit is mainly for stratigraphic formations and lithology sections have been divided within ore-bearing Jinjiadong Formation. Upper and lower sections have been differentiated for Xiaoyanxi Formation, Cambrian for the lithology variation and lithology characteristics are obvious.

Geology mapping spot spacing is mainly 100- 150m in ore-bearing strata to control ore layer and its top and bottom plates. The spot spacing of none ore strata is 150 -250m. In total, 1494 geology observation points have been surveyed.

The data of geology point observation is with good quality and the logs are true and complete reflecting the true onsite geology conditions. The location of geology points is measured by geology compass and according to terrain features. The stratum boundary points take account of 50- 60% of total geology points.

Trenches has been done to disclose the phosphorite ore layers with spacing 400m (mainly 300- 500m) and totally 47 trenches have been finished with earthwork volume 3846.3 m3. 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). The trenches, operation 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 with representative and following 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 P2O5 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 make sure the lithology and mineral compositions. Totally, 73 samples have been collected. Based on basic assay results, combination sample analysis has been done on backup samples from selected representatives 12 trenches to make sure benefit and harmful components. The major parameter of combination analysis is sample length.

SJT Phosphate Property of Shimen Phosphate Project

Shimen county located in west Hunan province of China and is rich in phosphate. Shimen is one of tenth large phosphate areas in China, which holds 78% of Hunan Province’s phosphate resources. However, currently local miners only mine near surface high grade ores. Shimen government wants to comprehensively utilize the resources. Under the agreement with Shimen county, Shimen county allows Sterling to conduct due diligence on the SJT phosphate property located in Shimen County, Hunan Province, China (the "SJT Property") within one and half years and update any Chinese study reports if necessary to build a mining, processing and chemical plant. Sterling intents to review available information, and conduct own technical due diligence. If the due diligence is completed and satisfied to Sterling, Sterling will set up a joint venture in Shimen County for developing the SJT Property.

SJT phosphate property is shallow marine sedimentary phosphate deposit and occurred in Doushantuo formation of Sinian. The location of the property is shown in the following map.

13


DXC Salt Lake Property

Dangxiongcuo Salt Lake (“DXC”) is located in the south-western part of Xizang plateau in Nima County, Tibet of China. The geographic co-ordinates are between 86°38'00" and 86°49'00" east and 31°30'00" to 31°40'00" north.

The location of the property is shown in the following map.

14


Access to Tibet is through Lhasa which has a good efficient international airport. Road access into the property area is difficult at best. The road heads northwest from Lhasa to the town of Zamsar then northeast. This first 200 km is good paved road. Then down into the valley turning right onto a rough gravel road near the Nam Tsho Salt Lake. Thence around the eastern and northern side of the Nam Tsho Lake and on 300 kilometers to the isolated village of Pankgo. Thence proceed 400 kilometers to the City of Nima. Thence proceed another 90 kilometers of very rough road down to the DXC. The trip takes 26 hours of difficult 4X4 driving from Lhasa.

The deposit is a large salt lake 55.53 km2 (5,553 hectares) in area with a maximum depth of 14 m. Brines are a common source of lithium and the DXC Salt Lake is a classic surface brine type deposit as compared with subsurface brine deposit in South America. This type of deposit is known throughout the world where ever desert climates allow evaporite deposits to form. Mineralization in the lake is in the form of dissolved salts of sodium, potassium, lithium and boron, as chlorides, oxides, sulfates and carbonates. These can be recovered through fractional precipitation of the various salts by the evaporation of the water. Variations in salinity, pH and temperature determine which compound will form crystals and precipitate from the brine.

In 1980’s, 1: 1,000,000 regional geology was conducted by the Tibet Regional Geology Brigade. 1: 250,000 regional geology was conducted by the Jiangxi Regional Geology Brigade in 2004. In 1999, two Chinese geologists conducted preliminary study in the area. In 2002, Mianping started exploration work in the area. 1:50,000 geology investigation and hydrogeology was conducted.1:2,000 salt field site engineering geology and topography mapping was conducted. 20,000 square meters salt field was built in 2003. In 2004, 10,000 square meters of the salt field was revamped. In December 2005, Sterling and Mianping commissioned the Tibet Geothermal brigade to conduct measurements for the 20 km2 salt field (1:2,000 and 1:5,000). In March 2006, Sterling and Mianping commissioned the Zhengzhou Comprehensive Utilization Institute of China Academy of Geology to conduct the purification test for the DXC salt lake rough concentrate. In 2006, the Tibet Geothermal Brigade conducted the geothermal exploration work. In May 2006, a Canadian standard NI 43-101 report was conducted by a qualified geologist. In June 2006, Mianping finished Chinese geology report and the report has passed the auditing of Ministry of Land and Resources of China. Since 2005, a technical team from Mianping has been working on the DXC Salt Lake site to conduct salt field technical test, weather monitoring and related tests and monitoring according to the plan designed by Sterling and Mianping.

There is almost no local infrastructure. The only solar power, water, and roads are those installed by the Mianping. Beicun village at the head of the lake appeared to have perhaps 300 people, local Tibetan herdsman of the Han ethnic group. They are mainly occupied with herding yaks, sheep, goats, and a few horses. They plant small gardens of barley and vegetables but are not self sufficient and import food stuffs from outside. Although people would be available from this village to work on a project in this area the skill level would be very low. Communication with the outside world is by satellite telephone. The nearest land line is at Nima a distance of 90 km away. Shipment of product does not seem to be a problem as numerous heavy trucks were noted all along the road to the property. National rail service is available from Naqu about 700 km distance to the east.

Generally, the physiography could be termed basin and range with broad valleys between sharp ridges and arretes. The valleys are generally gentle in profile both laterally and longitudinally with small to medium rivers coursing through the bottoms of the valleys. Few of the rivers are bridged and most of the crossings are by shallow fords. Along these tracks for much of the route were seen numerous large trucks of 30 – 40 tonnes. Most were freighting bagged material, probably salt from one of the salt lake operations. There are no services along the route except for Pankgo and Nima. The DXC Salt Lake sits in a rather confined basin between high rugged ridges. There are numerous benches or beaches around the lake indicating lake levels at one time were 200 meters above the present levels of the lake, as the last glaciation receded.

Vegetation throughout the plateau is sparse grasses which have been grazed down to the root level. Sheep, goats and yaks graze in large herds on what appeared to be very lean fodder. Herdsmen and herdswomen tend these flocks with no visible support and often many miles from the nearest shelter. Some of the herdsmen seem to rely on the 125cc motor bike for transportation. The women appeared mainly to walk. Occasional five tonne trucks were seen hauling personal belongings grossly overloaded with household items and people.

In June 2006, Mianping finished a Chinese geology report (Chinese reserve report) and the report passed the auditing of the Ministry of Land and Resources of China on September 13, 2006 which is the basis for converting the exploration permit into a mining permit. Mianping led by Professor Mianping Zheng, an academician of Chinese Academy of Engineering, is still collecting information such as yearly weather information, wind information and brine chemistry using a test pond system. Development plans are being studied.

Mianping has installed solar power, water, and roads on the site. Water comes from mountain springs. There are several rivers which flow into the lake area.

DXC salt lake Sampling by Mianping was done on a 2 km X 2 km grid with 106 samples taken at 16 sample points at various depths. Location control was provided by GPS. If the water depth was less than 2 meters deep, one sample was taken; if the water depth was between 2 and 10 meters, then two samples were taken at 3 and 8 meters and if the water was deeper than 10 meters then three samples were taken. Each sample consisted of two 500 ml. bottles of brine.

15


The sampling method used a standard water sampling technique where a bottle is lowered into the lake to the required depth, the stopper removed, and the bottle allowed to fill. AAS analytical techniques were used to determine the composition of the brine sample. This sampling program was repeated several times during the various seasons of the year. Several hundred samples have been collected in this way and analyzed by Mianping at their AAS laboratory on site.

Two samples were collected by Norm Tribe, an independent geologist, for the confirmation of Mianping’s assay and analyzed by an independent laboratory, ALS Canada Ltd., in Vancouver, BC, Canada in June 2006. The results indicate that the concentration of salts is comparable with the results provided by Mianping. The lake water returned values of 376 ppm lithium, 893 ppm boron and 11,300 ppm potassium. This sample was collected from DXC Lake at a depth of 1.0 meter.

Mianping’s analytical procedures were also reviewed by the Resources & Reserve Audit Center of Ministry of Land and Resources of China.

As of the date of this report, the application to establish a joint venture has not yet been approved by the regulators in Tibet, China

As at May 31, 2011, the Company incurred expenses of $1,042,167 related to the DXC Salt Lake Property.

Sterling is currently in the process of selling its interest in the project.

For further discussion of our interests in DXC Salt Lake Property, see the discussion of the agreements under "DXC Salt Lake Project" contained in Item 1. Business.

ITEM 3. LEGAL PROCEEDINGS

We have no knowledge of any pending or threatened material litigation, settlement of litigation, or other material claim involving us.

ITEM 4. REMOVED AND RESERVED

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock

Our common stock is traded on the OTC QB under the symbol “SGGV”. The table below sets forth the high and low sales prices for the Company’s common stock for the fiscal years ended May 31, 2010 and 2011. The quotations below reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.

16



Quarter Ended   High ($)     Low ($)  
August 31, 2009   0.12     0.01  
November 30, 2009   0.06     0.03  
February 28, 2010   0.08     0.03  
May 31, 2010   0.04     0.03  
August 31, 2010   0.05     0.02  
November 30, 2010   0.13     0.02  
February 28, 2011   0.36     0.06  
May 31, 2011   0.26     0.15  

Pacific Stock Transfer Company is the registrar and transfer agent for our common shares, and is located at Suite 403, 4045 South Spencer Street, Las Vegas, NV 89119 (Telephone: (702) 361-3033; Facsimile: (702) 433-1979).

On August 22, 2011, we had 75,730,341 shares of common stock outstanding and we had approximately 60 stockholders of record plus common shares held by brokerage clearing houses, depositories or other entity.

We currently intend to retain all future earnings to fund the development and growth of our business. We have not paid dividends on our common stock and do not anticipate paying cash dividends in the immediate future. We did not repurchase any of our equity securities and have not adopted a stock repurchase program.

Recent Sales of Unregistered Securities

During the year ended May 31, 2011, the Company completed a private placement of 20,000,000 units at $0.10 per unit for total proceeds of $2,000,000. Each unit consists of one common share and one share purchase warrant entitling the holder the right to purchase one common share at $0.15 per share expiring on January 31, 2012 (the Series “D” Share Purchase Warrants). Additional 752,500 units were issued as finders’ fees.

The Company also received $144,300 from the exercise of 801,666 Series “C” Warrants at $0.18 per share and issued 801,666 common shares for the exercise of these warrants during the year ended May 31, 2011

On May 25, 2011, the Company issued 350,000 shares to a consultant for its services.

On July 5, 2011, the Company issued 10,000,000 common shares to the Hongyu shareholders pursuant to the Agreements signed on October 18, 2010.

Equity Compensation Plan Information

On February 3, 2004, the Board of Directors of the Company approved the 2004 Stock Option Plan, which was also approved at the Company’s Annual Meeting of Shareholders on January 17, 2005, and registered on May 12, 2004. Pursuant to the stock option plan, the number of shares that may be issued under the plan may not exceed 15% of the issued and outstanding shares of the company. 15% of the issued and outstanding shares of the Company were 9,859,551 as of May 31, 2011.

During the year ended May 31, 2010, no stock options were outstanding, granted or exercised.

On April 27, 2011, the Company granted 4,700,000 stock options to directors, officers and consultants at an exercise price of $0.25 each expiring on February 3, 2019. The options were vested immediately.

At May 31, 2011, there were 4,700,000 stock options outstanding with an exercise price at $0.25 each expiring on February 3, 2019.

Number of securities to
be issued upon exercise
of outstanding options
Weighted-average
exercise price of
outstanding options
Number of securities remaining
available for future issuance
under equity compensation plans
                           4,700,000 $0.25 5,159,551

Share Purchase Warrants

During the year ended May 31, 2011, there were 801,666 Series “C” share warrants exercised at $0.18 per share and 2,072,324 “C” warrants expired. The Company also issued 20,752,500 Series “D” share purchase warrants at an exercise price of $0.15 each expiring on January 31, 2012.

17


On February 14, 2011, the Company re-extended the expiry date of 3,817,500 Share Purchase Warrants (the Series "A" Share Purchase Warrants) from February 16, 2011 to February 16, 2012. The exercise price of the warrants remains unchanged at $0.50 per share.

Each Series “A” warrant entitles the holder thereof the right to purchase one common share at $0.50 per share expiring on the earlier of:

1) February 16, 2012; or
2) The 30th day after the day on which the weighted average trading price of the Company's shares exceeds $0.80 per share for 20 consecutive trading days.

Upon exercise of the Series "A" Share Purchase Warrant at $0.50 each, the holder will receive one Common Share of the Company and a Series "B" Share Purchase Warrant exercisable at $1.00 expiring one year after the occurrence of either (1) or (2) as described above.

As of May 31, 2011 the Company has a total of 3,817,500 and 20,752,500 Series “A” and “D” share purchase warrants outstanding, respectively.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

The information presented here should be read in conjunction with Sterling Group Venture Inc.'s financial statements and other information included in this Form 10-K. When used in this Form 10-K, the words "expects," "anticipates," "estimates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to risks and uncertainties, including those set forth below under "Risks and Uncertainties," that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

Overview

Sterling is a mining company, and its objective is to become a recognized leader in mineral property acquisition, exploration, development and production.

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 is a Chinese private mining company with connections and resources in Hunan, China. 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, the company has been inactive with no operations being conducted. The GP Property is a sedimentary phosphate type deposit. The number of the mining permit is 4300002009116120048322. The area covered by the Permit is 0.425 km2 (42.5 hectares) and it is valid until November 10, 2014. The recording date is November 10, 2009. The mining permit allows initial production up to 100,000 tonnes phosphate ore per year.

18


The Agreements also require an investment company to be incorporated in Hong Kong (the “Investment Company”) which will be owned 20% by the Hongyu Shareholders and 80% by Sterling. The Investment Company will acquire 90% of Hongyu with the other 10% of Hongyu being transferred to the nominees of Sterling. Upon completion of this acquisition, Hongyu will become a Hong Kong / China joint venture company and within five business days of the approval of such joint venture company by the appropriate Chinese authorities, Sterling will pay RMB 2,000,000 to the Hongyu Shareholders. During the acquisition phase, Sterling will ensure that Hongyu’s net assets retain a minimum value of RMB 5,000,000. At any time when requested by Sterling, the Hongyu Shareholders agree 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 to them all subject to the rules and requirements of the US regulatory bodies bearing jurisdiction. If Sterling does not complete taking over Hongyu through the Investment Company within three months after signing the Agreements, Sterling shall pay RMB 200,000 to the Hongyu Shareholders as down payment.

Pursuant to the Agreements, Hongyu agrees to surrender its future exclusive cooperative rights to Sterling, and the Hongyu Shareholders agree that Sterling shall have all Hongyu's title and interest in any phosphate properties, including but not limited to the GP Property, and Sterling shall 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.

During the year ended May 31, 2011, Silver Castle Investments Limited, incorporated in Hong Kong, was set up. Sterling paid RMB 200,000 ($30,862) to the Hongyu shareholders as down payment on December 14, 2010. Hunan Provincial Government issued a Certificate of Approval for establishment of Hong Kong invested Hongyu on May 16, 2011.

Subsequent to the year ended May 31, 2011, Sterling has received all required approvals from Chinese authorities for the acquisition of Hongyu pursuant to the Agreements dated October 18, 2010. Hongyu received amended business license on June 14, 2011. On July 5, 2011, Sterling issued 10,000,000 shares of the its common stock to Hongyu shareholders and the balance of RMB 1,800,000 Yuan ($279,504) was paid to the Hongyu shareholders as consideration for the acquisition. As a result, Silver Castle Investments Ltd. became a wholly owned subsidiary of Sterling holding 90% of Hongyu with other 10% held by the nominees of Sterling.

Sterling is currently preparing plans to put its phosphate deposit into production.

Results of Operations

The Company had no operating revenue except interest income of $140 for the year ended May 31, 2011 and interest income of $412 for the year ended May 31, 2010. The comprehensive loss increased to $1,863,447 for the year ended May 31, 2011, as compared to $213,704 for the year ended May 31, 2010 mainly due to the increase of audit and professional fees, investor relations, travel, and stock-based compensation expenses of $1,692,526 with respect to granting options and the Series “D” warrants and as a result of extending the Series “A” warrants.

For the year ended May 31, 2011 relative to the year ended May 31, 2010, audit and professional fees increased by $10,661, foreign exchange loss increased by $12,186, investor relations increased by $17,298, travel increased by $14,827, and Stock-based compensation expense increased by $1,600,822, mainly due to the granting of stock options as well as the extension of the Series “A” warrants, which are non cash items.

The Company also incurred expenses on the following related party transactions during the year ended May 31, 2011:

  (a)

The Company was charged consulting fees for administrative, corporate, financial, and management services during the year ended May 31, 2011 totalling $23,840 (2010: $22,625) by companies controlled by a director of the Company.

     
  (b)

The Company was charged rental fees included in general and administrative expense during the year ended May 31, 2011 totalling $1,091 (2010: $12,847) by a company controlled by a director of the Company.

     
  (c)

Cash held in trust at May 31, 2011 includes $43,312 (2010: $33) held in trust by a director of the Company.

     
  (d)

Included in accounts payable and accrued liabilities is $524,233 (2010: $509,990) which was due to companies controlled by the directors of the Company for their services provided.

The Company expects the trend of losses to continue.

Liquidity and Working Capital

As of May 31, 2011, the Company had total current assets of $2,221,931, and total liabilities of $551,277. As of May 31, 2011, the Company had cash and cash held in trust of $2,138,827 and working capital of $1,670,654.

19


Cash used in operating activities for the year ended May 31, 2011 was $140,649 as compared to cash used in operating activities for the year ended May 31, 2010 of $54,787. The increase in cash used in operating activities was primarily due to the increase in cash expenditures for travel, audit and professional fees as well as the increase in accounts payable and accrued liabilities.

According to the agreement signed with Zhong Chuan International Mining Holdings Co. Ltd. (“Zhong Chuan”) on July 8, 2008, Beijing Mianping Salt Lake Research Institute (“Mianping”) will repay the Company RMB 6,000,000 ($875,000) and Monte Sea Shareholders shall subscribe for 5,000,000 units (the "Units") to be issued by the Company at $0.15 per unit. As a result, the Company expected its working capital to rise in the amount of $750,000 to a total of $1,625,000 including the repayment of approximately RMB 6,000,000 ($875,000) described earlier to meet its short term working capital requirements.

However, in July 2009, the Company received verbal termination of the Agreement with Zhong Chuan, as advised by third party legal counsel, at a meeting in Beijing, China. Formal written notice has not been received from Zhong Chuan. The Agreement in effect, allows Zhong Chuan to terminate the Agreement if it pays the Company double the amount of funds paid by the Company to date to secure and develop the DXC project. Zhong Chuan has not repaid the required amount as anticipated by the Agreement to date. This unfortunate delay on the part of Zhong Chuan places the termination it gave the Company in dispute as the termination is conditional upon repayment of the required funds. At this point, the termination is incomplete.

During the year ended May 31, 2011, the Company received $2,000,000 through the subscription of 20,000,000 Units that consist of one common share and a warrant entitling the investor to purchase an additional common share for $0.15 expiring on January 31, 2012 and the Company also received $144,300 through the exercise of 801,666 Series “C” Warrants by the warrants holders.

The Company has no other capital resources other than the ability to use its common stock to raise additional capital or the exercise of the warrants by the unit holders. The Company’s current cash can meet its short term need. The cash will be mainly used for mining property acquisition, general administrative, corporate (legal, accounting and audit), financing and management.

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 operational expenses. This raises substantial doubt that the Company will be able to continue as a going concern unless additional capital is raised.

Off-Balance Sheet Arrangements

As of May 31, 2011, we were not involved in any form of off-balance sheet arrangement.

Application of Critical Accounting Policies

Our consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our consolidated financial statements is critical to an understanding of our financial statements. We further 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.

Mineral Property Costs

Costs of acquiring mineral properties are capitalized by the project area unless the mineral properties do not have proven reserves. 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. 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, 2011 and 2010, the Company did not have proven or probable ore reserves.

20


Stock-based Compensation

On June 1, 2006, the Company accounts for stock-based compensation in accordance with ASC Topic 718-10, Compensation -Stock Compensation – Overall.

In accordance with ASC Topic 718-10 compensation expenses is amortized on a straight-line basis over the requisite service period which approximates the vesting period 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. The Company has estimated the fair value of share purchase warrants and options for the years ended May 31, 2011 and 2010 using the assumptions more fully described in Note 5(b) & (c) to the financial statements

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 consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

Use of Estimates

The preparation of 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 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 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 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.

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 consolidated financial statements.

At May 31, 2011, the Company had not yet achieved profitable operations and has accumulated losses of $5,522,205 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 lithium in Tibet, China and phosphate in Hunan, China. Both projects are not yet commercial and have not reached profitability.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In addition to the U.S. Dollar, we conduct our business in Chinese Yuan (RMB) and Canadian Dollar and, therefore, are subject to foreign currency exchange risk on cash flows related to expenses and investing transactions. In July 2005, the Chinese government began to permit the Chinese Yuan to float against the U.S. Dollar. All of our costs to operate our Chinese project are paid in Chinese Yuan and all of our costs to operate our principal executive office in Canada are paid in Canadian dollar. Our exploration costs in China may be incurred under contracts denominated in Chinese Yuan or U.S. Dollars. If the Chinese Yuan continues to appreciate with respect to the U.S. Dollar, our costs in China may increase. If the Canadian Dollar continues to appreciate with respect to the U.S. Dollar, our costs in Canada may increase. To date we have not engaged in hedging activities to hedge our foreign currency exposure. In the future, we may enter into hedging instruments to manage our foreign currency exchange risk or continue to be subject to exchange rate risk.

21


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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  Page
Report of Independent Registered Public Accounting Firm 23
Consolidated Balance Sheets 24
Consolidated Statements of Operations 25
Consolidated Statements of Changes in Stockholders' Equity (Capital Deficit) 26-27
Consolidated Statements of Cash Flows 28
Notes to the Consolidated Financial Statements 29-44

22


 
Tel: 604 688 5421 BDO Canada LLP
Fax: 604 688 5132 600 Cathedral Place
www.bdo.ca 925 West Georgia Street
  Vancouver BC V6C 3L2 Canada

 
Report of Independent Registered Public Accounting Firm
 

To the Stockholders,
Sterling Group Ventures, Inc.
(An Exploration Stage Company)

We have audited the accompanying consolidated balance sheets of Sterling Group Ventures Inc. (the “Company”) (An Exploration Stage Company) and its subsidiaries as of May 31, 2011 and 2010, and the related consolidated statements of operations, cash flows and changes in stockholders’ equity (capital deficit) for the years then ended and for the period from July 27, 1994 (Date of Inception) to May 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sterling Group Ventures Inc. and its subsidiaries as of May 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended and for the period from July 27, 1994 (Date of Inception) to May 31, 2011, in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company is in the exploration stage, 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, along with other matters as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BDO Canada LLP

Chartered Accountants

Vancouver, Canada
August 18, 2011

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

23



STERLING GROUP VENTURES, INC.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
May 31, 2011 and 2010

    May 31,     May 31,  
Stated in U.S. dollars   2011     2010  
             
ASSETS            
             
Current Assets            
   Cash $  2,095,515   $  192,502  
   Cash held in trust - Note 4   43,312     33  
   GST/HST receivable   7,917     4,000  
   Prepaid expenses and other receivable   75,187     12  
Total current assets   2,221,931     196,547  
             
Advance on investment - Note 3(a)   55,945     -  
Equipment   1,358     47  
             
Total Assets $  2,279,234   $  196,594  
             
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)  
             
Current Liabilities            
   Accounts payable and other accrued liabilities - Note 4 $  551,277   $  522,516  
             
Stockholders' Equity (Capital Deficit)            
   Common Stock : $0.001 Par Value - Note 5
      Authorized : 500,000,000
      Issued and Outstanding : 65,730,341 (2010: 43,826,175)
 

65,730
   

43,826
 
   Additional Paid In Capital - Note 5(c)   7,185,014     3,289,592  
   Accumulated Other Comprehensive Loss   (582 )   (583 )
   Deficit accumulated during the exploration stage   (5,522,205 )   (3,658,757 )
Total Stockholders' Equity (Capital Deficit)   1,727,957     (325,922 )
             
Total Liabilities and Stockholders' Equity (Capital Deficit) $  2,279,234   $  196,594  

See accompanying notes to consolidated financial statements

24



STERLING GROUP VENTURES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended May 31, 2011 and 2010 and
for the period from July 27, 1994 (date of inception) to May 31, 2011

                July 27, 1994  
                (Date of  
                inception)  
    Years ended May 31,     to May 31,  
Stated in U.S. dollars   2011     2010     2011  
                   
Expenses                  
 Accounting, audit, legal and professional fees $  75,377   $  64,716   $  510,401  
 Bank charges   551     228     2,465  
 Consulting fees - Note 4   26,206     22,625     737,834  
 Depreciation   103     407     9,402  
 Filing fees and transfer agent   7,069     5,074     48,689  
 Foreign exchange loss (gain)   18,269     6,083     (5,157 )
 General and administrative - Note 4   6,756     18,673     123,971  
 Mineral property costs - Note 3   -     -     1,264,394  
 Printing and mailing   -     -     16,883  
 Shareholder information and investor relations   17,298     -     78,528  
 Stock-based compensation - Note 5 (b) (c)   1,692,526     91,704     2,646,248  
 Travel and entertainment   19,433     4,606     146,471  
 Recovery of doubtful collection   -     -     (272,358 )
 Allowance for doubtful collection   -     -     246,708  
                   
    (1,863,588 )   (214,116 )   (5,554,479 )
                   
Other item                  
 Interest income   140     412     32,274  
                   
                   
Net loss for the period $  (1,863,448 ) $  (213,704 ) $  (5,522,205 )
                   
Currency translation adjustment   1     -     (582 )
                   
Comprehensive loss for the period $  (1,863,447 ) $  (213,704 ) $  (5,522,787 )
                   
Basic and diluted loss per share $  (0.04 ) $  (0.00 )      
                   
Weighted average number of shares outstanding   50,337,093     43,826,175        

See accompanying notes to consolidated financial statements

25



STERLING GROUP VENTURES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
For the period from July 27, 1994 (date of inception) to May 31, 2011

                            Deficit        
                      Accumulated     Accumulated          
          Stock     Additional     Other     During The        
    Common     Amount At       Paid In     Comprehensive      Exploration         
Stated in U.S. dollars   Shares     Par Value     Capital     Income (Loss)     Stage     Total  
                                     
                                     
Balance, July 27, 1994 (Date of inception)   -   $  -   $  -   $  -   $  -   $  -  
Common stock   1     1     -     -     -     1  
Amount contributed by director   -     -     1,881     -     -     1,881  
Net loss for the periods   -     -     -     -     (7,902 )   (7,902 )
Balance, May 31, 2001   1   $  1   $  1,881   $  -   $  (7,902 ) $  (6,020 )
Net loss of the year   -     -     -     -     (1,860 )   (1,860 )
Balance, May 31, 2002   1   $  1   $  1,881   $  -   $  (9,762 ) $  (7,880 )
Net loss of the year   -     -     -     -     (1,360 )   (1,360 )
Balance, May 31, 2003   1   $  1   $  1,881   $  -   $  (11,122 ) $  (9,240 )
Reverse acquisition   (1 )   (1 )   (1,881 )   -     -     (1,882 )
Issuance of common shares for reverse acquisition   25,000,000     25,000     (23,119 )   -     -     1,881  
Outstanding common shares of Company prior to acquisition   11,360,000     11,360     (10,883 )   (583 )   -     (106 )
Issuance of shares for cash pursuant to a private placement - at $0.50   1,766,000     1,766     881,234     -     -     883,000  
Stock-based compensation   -     -     368,641     -     -     368,641  
Net loss of the year   -     -     -     -     (527,446 )   (527,446 )
Balance, May 31, 2004   38,126,000   $  38,126   $  1,215,873   $  (583 ) $  (538,568 ) $  714,848  
Issuance of shares for cash pursuant to a private placement - at $0.50   1,950,000     1,950     973,050     -     -     975,000  
Issuance of shares for finder's fee of private placement   101,500     102     50,648     -     -     50,750  
Finders' fees   -     -     (50,750 )   -     -     (50,750 )
Issuance of shares for services rendered   100,000     100     41,900     -     -     42,000  
Net loss of the year   -     -     -     -     (818,954 )   (818,954 )
Balance, May 31, 2005   40,277,500   $  40,278   $  2,230,721   $  (583 ) $  (1,357,522 ) $  912,894  
Net loss for the year   -     -     -     -     (461,201 )   (461,201 )
Balance, May 31, 2006   40,277,500   $  40,278   $  2,230,721   $  (583 ) $  (1,818,723 ) $  451,693  
Issuance of shares for cash pursuant to a private placement - at $0.15   2,750,300     2,750     409,795     -     -     412,545  
Issuance of shares for finder's fee of private placement   123,690     124     21,522     -     -     21,646  
Finders' fees   -     -     (21,646 )   -     -     (21,646 )
Share issuance costs   -     -     (3,687 )   -     -     (3,687 )
Issuance of shares for services rendered   350,000     350     48,650     -     -     49,000  
Net loss for the year   -     -     -     -     (864,485 )   (864,485 )
Balance, May 31, 2007   43,501,490   $  43,502   $  2,685,355   $  (583 ) $  (2,683,208 ) $  45,066  
Issuance of shares for services rendered at $0.06   324,685     324     19,156     -     -     19,480  
Revaluation of share purchase warrants   -     -     409,525     -     -     409,525  
Net loss for the year   -     -     -     -     (516,440 )   (516,440 )
Balance, May 31, 2008   43,826,175   $  43,826   $  3,114,036   $  (583 ) $  (3,199,648 ) $  (42,369 )
Revaluation of share purchase warrants   -     -     83,852     -     -     83,852  
Net loss for the year   -     -     -     -     (245,405 )   (245,405 )
Balance, May 31, 2009   43,826,175   $  43,826   $  3,197,888   $  (583 ) $  (3,445,053 ) $  (203,922 )
Revaluation of share purchase warrants   -     -     91,704     -     -     91,704  
Net loss for the year   -     -     -     -     (213,704 )   (213,704 )
Balance, May 31, 2010   43,826,175   $  43,826   $  3,289,592   $  (583 ) $  (3,658,757 ) $  (325,922 )

See accompanying notes to consolidated financial statements

26



                      Accumulated      Accumulated         
          Stock     Additional     Other     During The        
    Common     Amount At     Paid In     Comprehensive      Exploration         
Stated in U.S. dollars   Shares     Par Value     Capital     Income (Loss)     Stage     Total  
Balance, May 31, 2010   43,826,175   $  43,826   $  3,289,592   $  (583 ) $  (3,658,757 ) $  (325,922 )
Issuance of shares for cash pursuant to a private placement - at $0.10   20,000,000     20,000     1,980,000     -     -     2,000,000  
Issuance of shares for finder's fee of private placement   752,500     752     (752 )   -     -     -  
Issuance of shares for execise of "C" warrants - at $0.18   801,666     802     143,498     -     -     144,300  
Issuance of shares for services rendered   350,000     350     80,150     -     -     80,500  
Stock-based compensation   -     -     1,692,526     -     -     1,692,526  
Currency translation adjustment   -     -     -     1     -     1  
Net loss for the period   -     -     -     -     (1,863,448 )   (1,863,448 )
Balance, May 31, 2011   65,730,341   $  65,730   $  7,185,014   $  (582 ) $  (5,522,205 ) $  1,727,957  

See accompanying notes to consolidated financial statements

27



STERLING GROUP VENTURES, INC.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended May 31, 2011 and 2010 and
for the period from July 27, 1994 (date of inception) to May 31, 2011

                July 27, 1994  
                (Date of  
                inception)  
    Years ended May 31,     to May 31,  
Stated in U.S. dollars   2011     2010     2011  
Cash flows from operating activities                  
   Net loss for the period $  (1,863,448 ) $  (213,704 ) $ (5,522,205 )
   Adjustments to reconcile net loss to net cash provided by (used in) operating activities            
   Stock compensation expenses   1,692,526     91,704     2,646,248  
   Depreciation   103     407     9,402  
   Permit and engineering studies   -     -     150,000  
   Shareholder information and investor relations   80,500     -     100,947  
   Accounting, audit and legal fees   -     -     49,000  
   Translation adjustment   1     -     (105 )
                   
Changes in non-cash working capital items related to operations            
   GST/HST refundable   (3,917 )   5,577     (7,917 )
   Prepaid expenses and other receivable   (75,175 )   258     (53,634 )
   Accounts payable and accrued liabilities   28,761     60,971     570,757  
Net cash used in operating activities   (140,649 )   (54,787 )   (2,057,507 )
                   
Cash flows from investing activities                  
   Advance on investment   (55,945 )   -     (205,945 )
   Additions to equipment   (1,414 )   -     (10,760 )
   Net change in cash held in trust   (43,279 )   55,287     (43,312 )
Net cash flows used in investing activities   (100,638 )   55,287     (260,017 )
                   
Cash flows from financing activities                  
   Net proceeds on issuance of common stock   2,144,300     -     4,411,158  
   Amounts contributed by director   -     -     1,881  
Net cash flows provided by financing activities   2,144,300     -     4,413,039  
                   
                   
Net increase in cash   1,903,013     500     2,095,515  
Cash - beginning of period   192,502     192,002     -  
Cash - end of period $  2,095,515   $  192,502   $ 2,095,515  
                   
                   
Supplemental Information :                  
Cash paid for :                  
   Interest $  -   $  -   $ -  
   Income taxes $  -   $  -   $ -  
Non-cash Transactions :                  
   Issuance of shares for commission paid to broker for private placement $  75,250   $  -   $ 147,646  
   Issuance of shares for services rendered $  80,500   $  -   $  171,500  
   Issuance of shares for settlement of accounts payable $  -   $  -   $ 19,480  
   Issuance of share purchase warrants for finder's fee paid to broker for private placement $  -   $  -   $  11,477  

See accompanying notes to consolidated financial statements

28



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (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. The cumulative figures are shown on a reverse acquisition basis with respect to the accounting acquirer’s date of inception, July 27, 1994.

Sterling Group Ventures Inc. (the “Company”) is in the exploration stage. The Company has entered into joint venture agreements to explore and develop mineral properties located in China and has not yet determined whether these properties contain reserves that are economically recoverable. The recoverability of amounts from these properties will be dependent upon the discovery of economically recoverable reserves, confirmation of the Company’s interest in the underlying properties, 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 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. At May 31, 2011, the Company had not yet achieved profitable operations and has accumulated losses of $5,522,205 since its inception and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available.

Note 2 Summary of Significant Accounting Policies

The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of consolidated financial statements for a period necessarily involves the use of estimates, which have been made using careful judgement. Actual results may vary from these estimates.

The consolidated financial statements have, in management’s opinion, been properly prepared within the framework of the significant accounting policies summarized below:

Exploration Stage Company

The Company complies with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915, “Development Stage Entities” and Exchange Commission Act Guide 7 for its characterization of the Company as an exploration stage company.

29



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 2 Summary of Significant Accounting Policies – (cont’d)

Principles of Consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Micro Express Holdings Inc., Micro Express Ltd., Huyana Ventures Limited., Makaelo Holdings Inc., Makaelo Limited, and Silver Castle Investments Ltd. All inter-company transactions and account balances have been eliminated. The Company’s subsidiaries were all incorporated under the laws of the Territory of the British Virgin Islands on the following dates: Micro Express Holdings Inc. was incorporated on February 25, 2004; Micro Express Ltd. was incorporated on July 27, 1994; Huyana Ventures Limited was incorporated on August 18, 2004; Makaelo Holdings Inc. was incorporated on March 21, 2005, Makaelo Limited was incorporated on February 14, 2005, and Silver Castle Investments Ltd. was incorporated in Hong Kong on October 13, 2010.

Cash and Cash Equivalents

For the purposes of the statements of cash flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Mineral Properties

Costs of acquiring mineral properties are capitalized by the project area unless the mineral properties do not have proven reserves. 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. 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, 2011 and 2010, the Company did not have proven or probable ore reserves.

Impairment of Long-lived Assets

In accordance with Financial Accounting Standards Board FASBASC Topic 360-10, “Property, Plant and Equipment - Overall”, the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.

Asset Retirement Obligations

The Company recognizes the fair value of a liability for an asset retirement obligation in the year in which it is incurred when a reasonable estimate of fair value can be made. The carrying amount of the related long-lived asset is increased by the same amount as the liability.

Changes in the liability for an asset retirement obligation due to the passage of time will be measured by applying an interest method of allocation. The amount will be recognized as an increase in the liability and an accretion expense in the statement of operations. Changes resulting from revisions to the timing or the amount of the original estimate of undiscounted cash flows are recognized as an increase or a decrease in the carrying amount of the liability for an asset retirement obligation and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset. No asset retirement obligation was recognized at May 31, 2011 and 2010.

30



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 2 Summary of Significant Accounting Policies – (cont’d)

Equipment

Equipment is carried at cost and consists of computer equipment. Depreciation is provided on a straight-line basis over the useful life of the equipment being 3 years.

Income Taxes

The Company accounts for income taxes under the provisions of ASC Topic 740, “Income Taxes”. Under ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income taxes are provided using the liability method. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the period of change. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not be realized.

ASC Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties accrued on unrecognized tax benefits within general and administrative expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction in general and administrative expenses in the period that such determination is made. The tax returns for fiscal 2009, through 2011 are subject to audit or review by the US tax authority, where as fiscal 2005 through 2011 are subject to audit or review by the Canadian tax authority.

Fair Value of Financial Instruments

The Company applies the provisions of ASC 820, “Fair Value Measurements and Disclosures". ASC 820 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - observable inputs other than Level I, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

Level 3 - assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities.

31



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 2 Summary of Significant Accounting Policies – (cont’d)

The Company did not have any assets or liabilities stated at fair value utilizing Level 1, Level 2 or Level 3 inputs as at May 31, 2011.

The Company’s financial instruments consist of cash, cash held in trust, GST/HST receivables and accounts payable and accrued liabilities. The carrying values of the Company’s financial instruments approximate fair value due to the short maturity of these instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.

Basic Loss per Share

The Company reports basic loss per share in accordance with the ASC Topic 260-10, “Earnings Per Share -Overall”. Basic loss per share is computed using the weighted average number of shares outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. In addition, in computing the dilutive effect of convertible securities, the numerator is adjusted to add back any convertible preferred dividend and the after-tax amount of interest in the period associated with any convertible debt. The numerator is also adjusted for any other changes in income or loss that would result from the assumed conversion of these potential common shares. Common share equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company’s net loss position at the calculation date. At May 31, 2011, the Company had 29,270,000 (2010 – 6,691,490) common share equivalents in respect to options and warrants. Because the Company incurred a loss, diluted loss per share is the same as basic loss per share.

Concentration of Credit Risk

The Company places its cash and cash equivalents with high credit quality financial institutions. As of May 31, 2011, the Company had no deposit in a bank beyond insured limits.

Comprehensive Loss

The Company reports comprehensive income (loss) in accordance with ASC Topic 220-10, “Comprehensive Income - Overall”. Comprehensive loss is comprised of foreign currency translation adjustments.

Foreign Currency Translation

Foreign currency transactions are translated into US dollars, the functional and reporting currency, by the use of the exchange rate in effect at the date of the transaction, in accordance with ASC Topic 830-20, “Foreign Currency Matters - Foreign Currency Translation”.

Assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the period end and capital accounts are translated at historical rates. Income statement accounts are translated at the average rates of exchange prevailing during the period which approximates the exchange rate in effect at the date of the transaction. Translation adjustments from the use of different exchange rates from period to period are included in the Comprehensive Income account in Stockholders’ Equity, if applicable.

Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any exchange gains and losses are included in the Statement of Operations.

32



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 2 Summary of Significant Accounting Policies – (cont’d)

Stock-based Compensation

The Company accounts for stock-based compensation in accordance with ASC Topic 718-10, Compensation -Stock Compensation – Overall. Under this application, the Company is required to record compensation expense, based on the fair value of the awards. 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 the options and the extension of the expiry dates of share purchase warrants previously granted. The Company has estimated the fair value of the options and share purchase warrants for the years ended May 31, 2011 and May 31, 2010 using the assumptions more fully described in Note 5(b) (c).

Comparative Figures

Certain comparative figures have been reclassified to conform to current year’s presentation.

Recent Accounting Pronouncements

Except as noted below, the Company has evaluated all recent accounting pronouncements and believes that none of them will have a material effect on the Company’s consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update 2010-06 (ASU 2010-06), “Improving Disclosures about Fair Value Measurements”, which is included in the ASC in Topic 820 (Fair Value Measurements and Disclosures). ASU 2010-06 requires new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. ASU 2010-06 also requires disclosure of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements and clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a material impact on the Company’s financial statements.

In April 2010, the FASB issued ASU 2010-13, "Compensation - Stock Compensation (Topic 718)." This Update provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. It is applicable to the Company’s fiscal year beginning June 1, 2011. The Company is currently evaluating this guidance, but does not expect its adoption will have a material effect on its consolidated financial statements.

In December 2010, the FASB also issued ASU 2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations” to clarify the reporting of pro forma financial information related to business combinations of public entities and expand certain supplemental pro forma disclosures. This guidance is effective prospectively for business combinations that occur on or after the beginning of the fiscal year beginning on or after December 15, 2010, with early adoption permitted. It is applicable to the Company’s fiscal year beginning June 1, 2011. The Company is currently evaluating this guidance, but does not expect its adoption will have a material effect on its consolidated financial statements.

33



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 2 Summary of Significant Accounting Policies – (cont’d)

Recent Accounting Pronouncements – (cont’d)

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. This ASU is intended to result in convergence between U.S. GAAP and International Financial Reporting Standards (“IFRS”) requirements for measurement of and disclosures about fair value. The amendments are not expected to have a significant impact on companies applying U.S. GAAP. Key provisions of the amendment include: a prohibition on grouping financial instruments for purposes of determining fair value, except when an entity manages market and credit risks on the basis of the entity’s net exposure to the group; an extension of the prohibition against the use of a blockage factor to all fair value measurements (that prohibition currently applies only to financial instruments with quoted prices in active markets); and a requirement that for recurring Level 3 fair value measurements, entities disclose quantitative information about unobservable inputs, a description of the valuation process used and qualitative details about the sensitivity of the measurements. In addition, for items not carried at fair value but for which fair value is disclosed, entities will be required to disclose the level within the fair value hierarchy that applies to the fair value measurement disclosed. This ASU is effective for interim and annual periods beginning after December 15, 2011. The adoption of this ASU is not expected to have a significant impact on the Company’s fair value measurements, financial condition, results of operations or cash flows.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”. This ASU will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The standard does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. This standard is effective for interim and annual periods beginning after December 15, 2011. Because this ASU impacts presentation only, it will have no effect on the Company's financial condition, results of operations or cash flows.

34



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 3 Mineral Properties

Summary of mineral properties expenses for the cumulative period from date of inception (July 27, 1994) to May 31, 2011:

    DXC  
    Salt Lake  
Summary of mineral property expenditures   Property  
       
From Date of Inception (July 27, 1994) to May 31, 2011  
       
Balance, May 31, 2005 $  -  
Administrative   5,560  
Consulting fees   46,629  
Engineering studies   26,933  
Feasibility study   29,080  
Geophysical study   31,114  
Legal fees   623  
Topography measurement   32,266  
Travel   30,953  
Wages and benefits   33,601  
Balance, May 31, 2006   236,759  
Administrative   5,200  
Consulting fees   134,580  
Engineering studies   38,063  
Mining permit   382,920  
Topography measurement   15,001  
Legal fees   9,695  
Travel   53,262  
Wages and benefits   35,687  
Balance, May 31, 2007   911,167  
Administrative   706  
Consulting fees   60,548  
Travel   5,456  
Legal fees   11,566  
Balance, May 31, 2008   989,443  
Administrative   867  
Consulting fees   27,890  
Travel   16,959  
Legal fees   7,008  
Balance, May 31, 2009   1,042,167  
Balance, May 31, 2010   1,042,167  
Balance, May 31, 2011 $  1,042,167  

Not included in the table above was a total of $222,227 of costs incurred on other properties which were abandoned during the years ended May 31, 2006, 2007 and 2009.

35



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 3 Mineral Properties – (cont’d)

a) Gaoping Phosphate Property

On October 18, 2010, the Company 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.

The Agreements also require an investment company to be incorporated in Hong Kong (the “Investment Company”) which will be owned 20% by the Hongyu Shareholders and 80% by the Company. The Investment Company will acquire 90% of Hongyu with the other 10% of Hongyu being transferred to the nominees of Sterling. Upon completion of this acquisition, Hongyu will become a Hong Kong / China joint venture company and within five business days of the approval of such joint venture company by the appropriate Chinese authorities, the Company will pay RMB 2,000,000 ($310,366) to the Hongyu Shareholders. During the acquisition phase, the Company will ensure that Hongyu’s net assets retain a minimum value of RMB 5,000,000 ($771,545). At any time when requested by the Company, the Hongyu Shareholders agree to sell their 20% interest in the Investment Company to the Company for the issuance of 10,000,000 common shares of the Company’s capital stock to them all subject to the rules and requirements of the US regulatory bodies bearing jurisdiction. If the Company does not complete taking over Hongyu through the Investment Company within three months after signing the Agreements, the Company shall pay RMB 200,000 to the Hongyu Shareholders as down payment.

Pursuant to the Agreements, Hongyu agrees to surrender its future exclusive cooperative rights to the Company, and the Hongyu Shareholders agree that the Company shall have all Hongyu's title and interest in any phosphate properties, including but not limited to the GP Property, and the Company shall 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.

On October 13, 2010, the Company incorporated the Investment Company called Silver Castle Investments Ltd. (“Silver Castle”) in Hong Kong. The acquisition of Hongyu is in process and the Company paid RMB 200,000 ($30,862) to the Hongyu shareholders as a down payment on December 14, 2010, the Company has also deferred $25,083 of legal fees related to the acquisition of Hongyu which was recorded as Advance on Investment as at May 31, 2011.

As of May 31, 2011, the Company has not incurred mineral property costs on this property.

See Note 8.

36



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 3 Mineral Properties – (cont’d)

b) Dangxiongcuo Salt Lake Project

On September 16, 2005, the Company, through its wholly owned subsidiary, Micro Express Holdings Inc. (“Micro”), signed an agreement (the “Mianping Agreement”) for the development of Dangxiongcuo salt lake property (“DXC Salt Lake”) in Nima county of Naqu district in Tibet, China.

Pursuant to the Mianping Agreement, the parties agreed to set up a Cooperative Company, (the “Cooperative”) to develop the DXC Salt Lake. The objective of the Cooperative was to use the funds provided by the Company and the skills and technology provided by the other party to produce lithium carbonate and borate from brine. The Company, through Micro, was to own 65% of the Cooperative. It was anticipated that the total investment in the Cooperative would be approximately 240 million RMB (or approximately US$35 million). The Cooperative Company was never set up. On July 3, 2007, Micro received a letter from the other party to the Mianping Agreement stating that the agreement between Micro and the other party should be deemed terminated as a result of lack of progress in the approval for the establishment of the joint venture company and is considering a lawsuit against the Company and Micro. Micro has responded that the other party’s claim has no legal grounds as the lack of progress is not caused by Micro. There has been no legal action to date and none is expected. By letter dated August 25, 2008, Beijing Mianping Salt Lake Research Institute (“Mianping”) has confirmed that the agreement dated September 16, 2005 was terminated effective July 8, 2008. This agreement was replaced by the agreement with Zhong Chuan International Mining Holdings Co. Ltd. (Zhong Chuan) dated July 8, 2008.

On July 8, 2008, the Company signed an agreement (the "Agreement") with the shareholders of Monte Sea Holdings Ltd. ("Monte Sea Shareholders") and Zhong Chuan to restructure the transactions contemplated under the September 16, 2005 agreement. The parties wish to jointly develop the DXC Salt Lake property and lithium resources in Tibet including an exploration license, and elsewhere (the “Property”), by way of a cooperative joint venture. Monte Sea Shareholders and Zhong Chuan are to provide RMB100,000,000 ($14,584,000) to finance the DXC property to production.

Pursuant to the Agreement, the parties wish to establish a Sino-foreign cooperative joint venture company ("CJV") for the purpose of applying for and holding required approvals, permits and licenses with respect to the development of the Property.

The Parties agree that an operating company ("Opco") will be established in Tibet prior to the establishment of the CJV for the purpose of applying for and holding required approvals, permits and licenses with respect to the development of the Property. The Opco shall hold all such approvals, permits and licenses in trust for the CJV.

Under the Agreement, the CJV will be established within 90 days from date of this Agreement, subject to required regulatory approval and based on a joint venture agreement by way of acquisition of interest in the Opco by Monte Sea Holdings Ltd. (“Monte Sea”), or by way of incorporation under the Chinese laws. Monte Sea shall hold up to 65% but no less than 51% of shares in the CJV. CJV shall own and hold all the Property.

If for any Chinese regulatory or policy reasons, Monte Sea is not permitted to have more than fifty-one percent (51%) interest in the CJV, then the CJV agreement will be revised such that:

  (i)

Monte Sea shall have a forty-nine percent (49%) interest in the CJV;

     
  (ii)

Monte Sea shall be entitled to receive returns on its investment in the CJV on a priority and accelerated basis until its investment in the CJV and the Property is fully recovered; and

     
  (iii)

Monte Sea shall be permitted to manage the daily operation of the CJV pursuant to a management agreement to be entered into on terms and conditions satisfactory to the Company.

37



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 3 Mineral Properties – (cont’d)

b) Dangxiongcuo Salt Lake Project – (cont’d)

Upon the Agreement being effective and termination of the agreement dated September 16, 2005, the Company will be repaid RMB6,000,000 (approximately $875,000). As of May 31, 2011, the Company has received $nil in regards to this agreement.

Upon signing of this Agreement and subject to applicable regulatory approval, Monte Sea Shareholders shall subscribe for 5,000,000 units (the "Units") to be issued by the Company at $0.15 per Unit. Each Unit shall consist of one common share in the stock of the Company, and one warrant which shall entitle the Monte Sea shareholders to purchase one common share in the stock of the Company at $0.16 per share within two years from the date of the issuance of the Units. As of May 31, 2011, Monte Sea Shareholders have subscribed for nil units in regards to this agreement.

Subject to applicable regulatory approval, the Company shall cause 200,000,000 shares to be issued to the Monte Sea Shareholders within ten working days from the date transfer of the exploration license to the CJV is approved by the Chinese regulators, in exchange for all the shares then issued and outstanding in the stock of Monte Sea and held by Monte Sea Shareholders (the "Share Exchange"). The Share Exchange may be conducted and completed at an earlier date as long as the Company and Monte Sea Shareholders may agree in writing. This transaction would be accounted for as a reverse acquisition. As of May 31, 2011, the exploration license has not been transferred and no shares have been issued.

Subject to applicable regulatory approval, the Company shall cause 87,910,000 shares in the capital of the Company to be issued to the Monte Sea Shareholders at no additional cost, upon receipt by the CJV of a mining license and such other permits or approvals for the Property, permitting the full exploitation and development of the Property. As of May 31, 2011, no shares were issued in regards to this Agreement.

The Company intends to, when and as required by the CJV, arrange and complete financing for the operation of the CJV.

Zhong Chuan shall, together with Monte Sea Shareholders, provide funds no less than RMB 100,000,000 (or US dollar equivalent thereof) for the purpose of meeting registered capital payment requirements in the registration and operation of the CJV. Zhong Chuan shall keep other Parties informed of any development in the registration of the CJV and transfer of the exploration license.

The application to establish a joint venture has not yet been approved by the regulators in Tibet, China.

As of May 31, 2011, the Company has incurred a total of $1,042,167 in mineral property costs on this property.

The Company received verbal termination of the Agreement with Zhong Chuan in July 2009, as advised by third party legal counsel, at a meeting in Beijing, China. The Agreement, in effect, allows Zhong Chuan to terminate the Agreement if it pays the Company double the amount of funds paid by the Company to date to secure and develop the DXC Project. Zhong Chuan has not paid the required amount anticipated by the Agreement to date. The delay in payment has delayed the termination process. At this point, the termination is incomplete.

38



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 4 Related Party Transactions

The Company was charged consulting fees for administrative, corporate, financial, engineering, and management services during the year ended May 31, 2011 totalling $23,840 (2010: $22,625) by companies controlled by a director of the Company.

The Company was charged rental fees included in general and administrative expense during the year ended May 31, 2011 totalling $1,091 (2010: $12,847) by a company controlled by a director of the Company.

Cash held in trust at May 31, 2011 includes $43,312 (2010: $33) held in trust by a director of the Company for Company related expenses.

Included in accounts payable and accrued liabilities is $524,233 (2010: $509,990) which was due to companies controlled by the directors of the Company for their services provided.

These transactions were measured at the exchange amount which represented the amount of consideration established and agreed to by the related parties.

Note 5 Capital Stock

a) Capital Stock

During the year ended May 31, 2004 and 2005, the Company completed a private placement of 3,716,000 units at $0.50 per unit for total proceeds of $1,858,000. Each unit consists of one common share and one share purchase warrant entitling the holder the right to purchase one common share at $0.75 per share, expiring on February 16, 2006 (the Series “A” Share Purchase Warrants). Upon exercise of the “A” share purchase warrant, an additional share purchase warrant will be granted at $1.00 per share, expiring February 16, 2007 (the Series “B” Share Purchase Warrants). An additional 101,500 units were issued as finders’ fees.

On December 18, 2004, the Company issued 100,000 shares with a fair value of $42,000 to a consultant for investor relations services for a period of one year.

During the year ended May 31, 2007, the Company completed a private placement of 2,750,300 units at $0.15 per unit for total proceeds of $412,545. Each unit consists of one common share and one share purchase warrant entitling the holder the right to purchase one common share at $0.18 per share expiring on December 29, 2006 (the Series “C” Share Purchase Warrants). An additional 123,690 units were issued as finders’ fees.

During the year ended May 31, 2008, the Company issued 324,685 common shares at $0.06 per share to settle accounts payable of $19,480.

During the year ended May 31, 2011, the Company completed a private placement of 20,000,000 units at $0.10 per unit for total proceeds of $2,000,000. Each unit consists of one common share and one share purchase warrant entitling the holder the right to purchase one common share at $0.15 per share expiring on January 31, 2012 (the Series “D” Share Purchase Warrants). An additional 752,500 units were issued as finders’ fees.

On May 25, 2011, the Company issued 350,000 shares at a quoted market price of $0.23 each to a consultant for its services.

39



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 5 Capital Stock - (cont’d)

b) Stock Options

On April 27, 2011, the Company granted 4,700,000 stock options to employees and consultants at an exercise price of $0.25 each expiring on February 3, 2019. The options were vested immediately.

During the year ended May 31, 2010, no stock options were granted or exercised.

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with weighted average assumptions for grants as follows:

    2011  
Risk free interest rate   2.74%  
Expected life of options in years   7.83 years  
Expected volatility   238.7%  
Dividend per share $ 0.00  

During the year ended May 31, 2011, the weighted average fair value of options granted was $0.25 per share. The Company recognized a total stock based compensation expense of $1,175,000 for options granted and vested using the Black-Scholes option pricing model.

At May 31, 2011, there were 4,700,000 stock options (2010: nil) outstanding and exercisable with an exercise price at $0.25 each expiring on February 3, 2019.

c) Share Purchase Warrants

Changes in share purchase warrants for the years ended May 31, 2011 and 2010 are summarized as follows:

          Average  
    Number of     exercise  
    shares     price  
             
Balance, May 31, 2010   6,691,490   $  0.363  
Granted   20,752,500     0.150  
Exercised   (801,666 )   0.180  
Expired   (2,072,324 )   0.180  
Balance, May 31, 2011   24,570,000   $  0.204  

Share purchase warrants outstanding at May 31, 2011:

Series Number Price Expiry Date
"A" 3,817,500 $ 0.50 February 16, 2012
"D" 20,752,500 $ 0.15 January 31, 2012
  24,570,000    

40



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 5 Capital Stock - (cont’d)

c) Share Purchase Warrants - (cont’d)

Each Series “A” warrant entitles the holder thereof the right to purchase one common share at $0.50 per share expiring on the earlier of:

1)February 16, 2008; or
2)The 30th day after the day on which the weighted average trading price of the Company's shares exceeds $0.80 per share for 20 consecutive trading days.

Upon exercise of the Series "A" Share Purchase Warrant at $0.50 each, the holder will receive one Common Share of the Company and a Series "B" Share Purchase Warrant exercisable at $1.00 expiring one year after the occurrence of either (1) or (2) as described above. The Series "A" Share Purchase Warrants were originally issued in 2004 pursuant to a private placement commenced in February 2004.

On February 7, 2008, the Company extended the expiry date of the 3,817,500 Series “A” Share Purchase Warrants from February 16, 2008 to February 16, 2009. The exercise price of the warrants remains unchanged at $0.50 per share. The additional fair value of the 3,817,500 extended life Series “A” Share Purchase Warrants was estimated at $252,989 using the Black-Scholes Option Pricing Model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 218.52%, risk free interest rates of 2.08% and expected life of one year.

On February 6, 2009, the Company re-extended the expiry date of 3,817,500 Series “A” Share Purchase Warrants from February 16, 2009 to February 16, 2010. The exercise price of the warrants remains unchanged at $0.50 per share. The additional fair value of the 3,817,500 extended life Series “A” Share Purchase Warrants was estimated at $35,593 using the Black-Scholes Option Pricing Model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 223.36%, risk free interest rates of 0.82% and expected life of one year.

On February 12, 2010, the Company re-extended the expiry date of 3,817,500 Series "A" Share Purchase Warrants from February 16, 2010 to February 16, 2011. The exercise price of the warrants remains unchanged at $0.50 per share. The additional fair value of the 3,817,500 extended life Series “A” Share Purchase Warrants was estimated at $44,283 using the Black-Scholes Option Pricing Model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 244%, risk free interest rates of 0.56% and expected life of one year.

On February 14, 2011, the Company re-extended the expiry date of 3,817,500 Series "A" Share Purchase Warrants from February 16, 2011 to February 16, 2012. The exercise price of the warrants remains unchanged at $0.50 per share. The additional fair value of the 3,817,500 extended life Series “A” Share Purchase Warrants was estimated at $517,526 using the Black-Scholes Option Pricing Model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 201%, risk free interest rates of 0.29% and expected life of one year.

On February 7, 2008, the Company extended the expiry date of the 2,873,990 Series “C” Share Purchase Warrants from February 29, 2008 to February 27, 2009. The exercise price of the warrants remained unchanged at $0.18 per share. The additional fair value of the 2,873,990 extended life Series “C” Share Purchase Warrants was estimated at $156,536 using the Black-Scholes Option Pricing Model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 222.09%, risk-free interest rates of 2.08% and expected life of one year.

41



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 5 Capital Stock - (cont’d)

c) Share Purchase Warrants – (cont’d)

On February 6, 2009, the Company re-extended the expiry date of 2,873,990 Series "C" share purchase Warrants from February 27, 2009 to February 26, 2010. The exercise price of the warrants remains unchanged at $0.18 per share. The Series "C" Share Purchase Warrants were originally issued in September 2006 pursuant to a private placement commenced in August 2006. The additional fair value of the 2,873,990 extended life Series “C” Share Purchase Warrants was estimated at $48,259 using the Black-Scholes Option Pricing Model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 244.01%, risk-free interest rates of 0.82% and expected life of one year.

On February 12, 2010, the Company re-extended the expiry date of 2,873,990 the Series "C" share purchase Warrants from February 26, 2010 to February 16, 2011. The exercise price of the warrants remains unchanged at $0.18 per share. The additional fair value of the 2,873,990 extended life Series “C” Share Purchase Warrants was estimated at $47,421 using the Black-Scholes Option Pricing Model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 244%, risk-free interest rates of 0.56% and expected life of one year.

During the year ended May 31, 2011, 801,666 Series "C" Share Purchase Warrants with an exercise price of $0.18 per share were exercised for gross proceeds of approximately $144,300. On February 16, 2011, the remaining Series "C" Share Purchase Warrants expired unexercised.

Note 6 Foreign Currency Risk

The Company is exposed to fluctuations in foreign currencies through amounts held in China in RMB:
- Cash held in trust $43,312 (2010 - $33)

The Company is exposed to fluctuations in foreign currencies through amounts held in Canada in CAD:
- Cash $42,891 (2010 - $105,544)

Note 7 Deferred Tax Assets

The Company's income tax expense for the years ended May 31, 2011 and 2010 differed from the United States statutory rates:

    2011     2010  
             
Effective tax rate   35%     35%  
             
Statutory rate applied to loss before income taxes $  (652,200 ) $  (74,800 )
Increase in income taxes resulting from:            
         Foreign income taxed at other than US statutory rates   1,800     1,600  
         Non-deductible expenses   -     -  
Permanent differences   300     32,100  
Other   (63,000 )      
Change in valuation allowance   713,100     41,100  
Income tax expense $  -   $  -  

42



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 7 Deferred Tax Assets – (cont’d)

The significant components of the Company’s deferred tax assets are as follows:

    2011     2010  
Deferred income tax assets (liability)            
         Equipment $  3,600   $  3,600  
         Mineral property and related deferred explorations   -     520,600  
         Stock based compensation   624,500     -  
         Net operating losses   1,009,900     400,700  
    1,638,000     924,900  
         Valuation allowance   (1,638,000 )   (924,900 )
  $  -   $  -  

At May 31, 2011, the Company has incurred accumulated net operating losses totaling approximately $2,891,000 (2010: $2,721,000) which are available to reduce taxable income in future taxation years.

If not utilized to reduce future taxable income, the Company’s net operating loss carryforwards will expire as follows:

2022   7,000  
2023   20,000  
2024   159,000  
2025   819,000  
2026   461,000  
2027   864,000  
2028   107,000  
2029   162,000  
2030   122,000  
2031   170,000  
                                                                                                                                                    $  2,891,000  

The amount taken into income as deferred tax assets must reflect that portion of the income tax loss carryforwards that is more likely-than-not to be realized from future operations. The Company has chosen to provide an allowance of 100% against all available income tax loss carryforwards, regardless of their time of expiry.

The Company operates in foreign jurisdictions and is subject to audit by taxing authorities. These audits may result in the assessment of amounts different than the amounts recorded in the consolidated financial statements. The Company liaises with the relevant authorities in these jurisdictions in regard to its income tax and other returns. Management believes the Company has adequately provided for any taxes, penalties and interest that may fall due.

43



Sterling Group Ventures, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
May 31, 2011 (Stated in US Dollars)

Note 8 Subsequent Event

Subsequent to the year ended May 31, 2011, the Company has received all required approvals from Chinese authorities for the completion of its acquisition of Hongyu pursuant to the Agreements dated October 18, 2010. 10,000,000 shares of the Company’s common stock have been issued and the balance of RMB 1,800,000 Yuan ($279,504) was paid to the Hongyu shareholders as consideration for the acquisition. The Company through its wholly owned subsidiary, Silver Castle Investments Ltd. holds 90% of Hongyu with other 10% of Hongyu held by the nominees of the Company.

44


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

a. Evaluation of Disclosure Controls and Procedures:

The management of the Company has evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period of the report, May 31, 2011 and has concluded that the disclosure controls, and procedures was effective based upon their evaluation as of the evaluation date.

b. Management's Report on Internal Control over Financial Reporting

The Company’s management, including its chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our chief executive and chief financial officers and implemented by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of their inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

An evaluation was performed under the supervision and with the participation of the Company’s management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of the Company's internal controls over financial reporting as defined in Rules 13a-15(e) or 240.15d -15(e) of the Securities Exchange Act of 1934, as amended, as of May 31, 2011. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's internal controls over financial reporting are effective.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit our company to provide only management’s report in this annual report.

c. Changes in Internal Control over Financial Reporting:

There were no significant changes in the Company’s internal control over financial reporting identified in connection with the Company’s evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange act that during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

45


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.

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
Richard Shao President, Director, CFO 48 January 21, 2004
Raoul Tsakok Chairman of the Board, CEO 61 January 21, 2004
Gerald Runolfson Director 69 April 5, 2004
Robert Smiley Director 67 June 6, 2007

Business Experience

The following sets forth the business experience of each of the Company's directors and executive officers:

Raoul N. Tsakok, Chairman

Mr. Tsakok has worked in the Investment Management business for over 30 years. He has been Chairman of Sagit Investment Management Ltd. since 1987. He has been Chairman and director of Richco Investors Inc. and Constitution Insurance Company of Canada. He holds an MBA degree.

Xuxin (Richard) Shao, President and Director

Mr. Shao was born and educated in China. He received his degrees from engineering schools in China, specializing in mineral processing. Between his Bachelor and Ph.D. degrees, he held a research engineer position with the Chemical Mines Design and Research Institute of the Ministry of Chemical Industry in Lianyun Harbour, Jiangsu, China. During his graduate studies at the China University of Mining and Technology, he conducted research on phosphate flotation using interfacial, colloidal and solution chemical theories and authored and coauthored more than 50 research reports and publications on this and other related subjects. After receiving his Ph.D. in 1990 from China University of Mining and Technology, Mr. Shao taught as an associate Professor and was acting Department Head in Mineral Processing at the China University of Mining and Technology for six years.

In 1996, Mr. Shao accepted a position as Research Scientist for the Center for Applied Energy Research at the University of Kentucky in cooperation with the Department of Energy of the US Federal Government. Since 1998, Dr. Shao has worked as an advisor to a number of companies in the evaluation and processing of minerals in North America and China.

Gerald Runolfson, Professional Engineer, Director

Mr. Runolfson is a professional engineer (P. Eng.) and has been in the construction industry for over 35 years. He is currently President and controlling shareholder of Elkon Products Inc., a company that has the exclusive 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.

46


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 president of Richco Investors Inc. and Drucker, Inc. and a director of Canadian Imperial Ventures Corp., Teuton Resource 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 offences);

  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; or

  4.

being found by a court of competent jurisdiction (in a civil action), the 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.

Employees

At present, we have no employees, other than our officers and directors. Our officers and directors do not have employment agreements with us, except consulting agreements which can be cancelled on 30-days notice.

Audit Committee and Charter

We have an audit committee and audit committee charter. Our audit committee is comprised of Mr. Raoul Tsakok, Mr. Richard Shao and Mr. Robert Smiley. During the year ended May 31, 2011, 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.

47


ITEM 11. EXECUTIVE COMPENSATION

(a) Officers' Compensation.

Compensation paid by the Company for all services provided up to the fiscal years ended May 31, 2011 and 2010 to each of the executive officers and to all officers as a group is set forth below.

SUMMARY COMPENSATION TABLE OF EXECUTIVES
(For fiscal years ended May 31, 2011 and 2010)

             Cash Compensation Security Grants TOTAL ($)


Name and Principal
Position
Year ended
May 31,
Salary
( $) (1)
Bonus
($)
All Other
Compensation
( $) (2)
Option
Awards
($)(3)
Richard Shao
President
2010            0 0 0 0 0
2011            0 0 0 50,000 50,000
Raoul Tsakok
Chairman
2010            0 0 0 0 0
2011            0 0 0 50,000 50,000
Kathy Wang
Secretary
2010            0 0 22,625 0 22,625
2011            0 0 23,840 75,000 98,840
Officers as A Group
2010            0 0 22,625 0 22,625
2011            0 0 23,840 175,000 198,840

(1)

Executive officers did not receive any salary during the fiscal years ended May 31, 2011 or 2010.

(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.

(3)

Please refer Note 5(b) to the financial statements included herein.

(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, 2011 and 2010)


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
($)
Raoul Tsakok
Director
2010 0 0 0 0 0 0
2011 0 0 0 150,000 0 150,000
Richard Shao
Director
2010 0 0 0 0 0 0
2011 0 0 0 150,000 0 150,000
Gerald Runolfson
Director
2010 0 0 0 0 0 0
2011 0 0 0 150,000 0 150,000
Robert G. Smiley
Director
2010 0 0 0 0 0 0
2011 0 0 0 150,000 0 150,000
Directors as a Group
2010 0 0 0 0 0 0
2011 0 0 0 600,000 0 600,000

(1)

Please refer Note 5(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.

48


OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
(For fiscal years ended May 31, 2011 and 2010)

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
800,000

0

0

$0.25

Feb 3,
2019
0

0

0

0

Raoul
Tsakok
Chairman
800,000

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 3,100,000 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 August 22, 2011, 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 August 22, 2011, 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 4,800,000 (5) 6.34%
Common stock Gerald Runolfson 2,000,000 (4)(6) 2.64%
Common stock Robert Smiley 600,000 (6) 0.79%
  TOTAL 23,200,000 30.63%

49



  (1)

The address of each beneficial owner is 308 – 1228 Marinaside Cr., Vancouver, BC V6Z 2W4 Canada

  (2)

Based on 75,730,341 shares outstanding as of August 22, 2011 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. 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.

Changes in Control

As of August 22, 2011, 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.

ITEM 14. PRINCIPAL ACCOUNTANT 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, 2011 and May 31, 2010. The aggregate fees billed by BDO for the May 31, 2011 year ended audit and the fiscal year 2011 quarterly reviews of the Company was $46,195. The aggregate fees billed by BDO for the May 31, 2010 year ended audit and the fiscal year 2010 quarterly reviews of the Company was $37,838.

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 that are not disclosed in "Audit Fees" above.

Tax Fees

No fees were billed by BDO to the Company in the years ended May 31, 2011 and 2010 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, 2011 and 2010.

50


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 audit work was performed by the auditors' full time employees.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this report:

1.

Financial Statements.

Our consolidated financial statements are included in Part II, Item 8 of this report:

  Page
Report of Independent Registered Public Accounting Firm 23
Consolidated Balance Sheets 24
Consolidated Statements of Operations 25
Consolidated Statements of Changes in Stockholders' Equity (Capital Deficit) 26-27
Consolidated Statements of Cash Flows 28
Notes to the Consolidated Financial Statements 29-44

2.

Financial statement schedules and supplementary information required to be submitted.

   

Schedules other than that listed above are omitted because they are not applicable.

   
3.

Exhibits

A list of the exhibits filed or furnished with this report on Form 10-K (or incorporated by reference to exhibits previously filed or furnished by us) is provided in the Exhibit Index beginning on page 52 of this report. Those exhibits incorporated by reference herein are indicated as such by the information supplied in the parenthetical thereafter. Otherwise, the exhibits are filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    STERLING GROUP VENTURES, INC.
     
    (Registrant)
  By: /s/ Richard Shao
    Richard Shao, President and Chief Financial Officer
    Date: August 25, 2011
     
  By: /s/ Raoul Tsakok
    Raoul Tsakok, Chairman and Chief Executive Officer
    Date: August 25, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

  By: /s/ Richard Shao
    Richard Shao, President and Chief Financial Officer
    Date: August 25, 2011

  By: /s/ Raoul Tsakok
    Raoul Tsakok, Chairman and Chief Executive Officer
    Date: August 25, 2011

51


Index of Exhibits

Exhibit  
Number Description
   
3.1 Articles of Incorporation of the Company, (filed as Exhibit 3.1 to the Company's Registration Statement on Form SB-2 filed on July 26, 2002, and incorporated herein by reference).
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's Registration Statement on Form SB-2 filed on July 26, 2002, and incorporated herein by reference).
4.1 Specimen stock certificate (filed as Exhibit 4.1 to the Company's Registration Statement on Form SB-2 filed on July 26, 2002, and incorporated herein by reference).
10.1 Acquisition Agreement between the Company and Micro Express Ltd., dated January 20, 2004. (Filed as Exhibit 10.1 to the Company's current report on Form 8-K filed on January 29, 2004, and incorporated herein by reference).
10.2 Joint Venture Contract between Micro Express Ltd. (the Company’s wholly subsidiary) and Sichuan Province Mining Ltd., dated April 5, 2005 (Filed as Exhibit 10.1 to the Company's current report on Form 8-K filed on April 11, 2005, and incorporated herein by reference).
10.3 Agreement for Development of DXC Salt Lake Property between Micro Express Holdings Inc. (the Company’s wholly subsidiary) and Beijing Mianping Salt Lake Research Institute, dated September 16, 2005 (Filed as Exhibit 10.1 to the Company's current report on Form 8-K filed on September 21, 2005, and incorporated herein by reference).
10.4 Agreement for Termination of Joint Venture between Micro Express Ltd. and Sichuan Province Mining Ltd., dated March 3, 2006 (Filed as Exhibit 10.1 to the Company's current report on Form 8- K filed on March 6, 2006, and incorporated herein by reference).
10.5 Agreement between the Company, Zhong Chuan International Mining Holding Co., Ltd., and shareholders of Monte Sea Holdings Ltd., dated July 8, 2008 (Filed as Exhibit 10.1 to the Company's current report on Form 8-K filed on July 15, 2008, and incorporated herein by reference).
10.6 Agreement between the Company, Hongyu Mining Co., Ltd. , and the shareholders of Hongyu Mining Co., Ltd., dated October 18, 2010 (Filed as Exhibit 10.1 to the Company's current report on Form 8-K filed on October 21, 2010, and incorporated herein by reference).
10.7 Letter of Intent between the Company and Shimen County Merchants Bureau, dated November 10, 2010 (Filed as Exhibit 10.1 to the Company's current report on Form 8-K filed on November 16, 2010, and incorporated herein by reference).
14.1 Code of Ethics. (Filed as Exhibit 14.1 to the Company's annual report on Form 10-K filed on August 28, 2009, and incorporated herein by reference).
31.1 Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2 Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Sec. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Sec. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
99.1 Audit Committee Charter. (Filed as Exhibit 99.1 to the Company's annual report on Form 10-K filed on August 28, 2009, and incorporated herein by reference).

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