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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KSB

(Mark One)

x ANNUAL REPORT PURSUANT
  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
  For the fiscal year ended MAY 31, 2004

 ̈ TRANSITION REPORT
  UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
  For the transition period from _____ to _______

Commission file number: 333-97187

STERLING GROUP VENTURES, INC.
  (Exact name of small business issuer in its charter)

|Nevada                                                               | 72-1535634                                
|-------------------------------------------------------------------- | ------------------------------------------
|(State or other jurisdiction of incorporation
      or organization) | (I.R.S. Employer Identification
      No.)
|                                                                    
|900  789 West Pender
      StreetVancouver BC                       | V6C 1H2                                   
|(Address of principal executive
      offices)                       | (Zip Code)                                

Issuer's telephone number: (604) 893-8891

Securities Registered Under Section 12(b) of the Exchange Act:
  None

Securities Registered Under Section 12(g) of the Exchange Act:
  Common Stock, $0.001 par value
  (Title of class)

Check whether the Issuer (1) has filed all reports required
  to be filed by Section 13 or 15(d) of the Exchange Act during the past 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
   ̈

Check if there is no disclosure of delinquent filers in response
  to Item 405 of Regulation S-B is not contained in this form, and no disclosure
  will 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-KSB or any amendment to this Form 10-KSB. x

The issuer's revenues for its most recent fiscal year ended May 31, 2004 were nil.

1

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Aggregate market value of the voting and non-voting share of Common Stock held by non-affiliates was approximately $14,403,935 based on the closing trading price for the common equity as of August 19, 2004 (at $0.91 per share closing price).

(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Check whether the issuer has filed all documents and reports
  required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
  distribution of securities under a plan confirmed by a court. Yes  ̈    No
  x

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date: 40,128,500 common shares issued and outstanding as of August 19, 2004.

Transitional Small Business Disclosure Format (Check one):
  Yes  ̈    No x

2

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STERLING GROUP VENTURES, INC.FORM 10-KSB
  INDEX

|           |                                                                                                      | Page
|---------- | ---------------------------------------------------------------------------------------------------- | ----
|Part I    
|           |                                                                                                      |     
|Item 1.    | Description of Business                                                                              | 4   
|           |                                                                                                      |     
|Item 2.    | Description of Property                                                                              | 5   
|           |                                                                                                      |     
|Item 3.    | Legal Proceedings                                                                                    | 6   
|           |                                                                                                      |     
|Item 4.    | Submission of Matters to a Vote
      of Security Holders                                            | 7   
|          
|Part II   
|           |                                                                                                      |     
|Item 5.    | Market for Common Equity and Related
      Stockholder Matters                                       | 7   
|           |                                                                                                      |     
|Item 6.    | Management's Discussion and Analysis
      or Plan of Operation                                      | 8   
|           |                                                                                                      |     
|Item 7.    | Financial Statements                                                                                 | 12  
|           |                                                                                                      |     
|Item 8.    | Changes in and Disagreements
      with Accountants on Accounting and Financial Disclosure           | 12  
|           |                                                                                                      |     
|Item 8A.   | Controls and Procedures                                                                              | 12  
|          
|Part III  
|           |                                                                                                      |     
|Item 9.    | Directors, Executive Officers,
      Promoters and Control Persons                                   | 12  
|           |                                                                                                      |     
|Item 9A.   | Compliance With Section 16(a)
      of the Exchange Act                                              | 14  
|           |                                                                                                      |     
|Item 10.   | Executive Compensation                                                                               | 14  
|           |                                                                                                      |     
|Item 11.   | Security Ownership of Certain
      Beneficial Owners and Management And Related Stockholder Matters | 16  
|           |                                                                                                      |     
|Item 12.   | Certain Relationships and Related
      Transactions                                                 | 17  
|          
|Part IV   
|           |                                                                                                      |     
|Item 13.   | Exhibits and Reports on Form
      8-K                                                               | 17  
|           |                                                                                                      |     
|Item 14.   | Principal Accountant Fees and
      Services                                                         | 18  
|           |                                                                                                      |     
|Signatures |                                                                                                      | 19  

3

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PART I

Item 1. Description of Business.

Cautionary Statement Regarding 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",
  that 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 "CA $" refer to Canadian Dollars 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",
  and "Sterling" mean Sterling Group Ventures, Inc., unless otherwise indicated.

Sterling is an exploration stage company. There is no assurance
  that commercially viable mineral deposits exist on the claims that we have under
  option. Further exploration will be required before a final evaluation as to
  the economic and legal feasibility of the claims is determined.

Business Development During Last Three Years

We were incorporated in the state of Nevada on September 13,
  2001. Since our incorporation, we have been in the business of the exploration
  and development of a mineral property. Our mining property consists of four
  mineral claims situated in north-western British Columbia. These claims comprised
  approximately 250 acres in size. Our property is without known reserves and
  our program is exploratory in nature. We have not completed any exploration
  on our property, but we do not plan on completing the projected exploration
  program in the next twelve months due to our acquisition of Micro Express Ltd.
  We have not been involved in any bankruptcy, receivership or similar proceeding
  nor has there been any material reclassification or merger, consolidation or
  purchase or sale of a significant amount of assets not in the ordinary course
  of business.

Our Current Business

4

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We were incorporated in the State of Nevada on September 13,
  2001 and established a fiscal year end of May 31. We are a start-up, exploration
  stage company engaged in the search for lithium and related minerals; we have
  not yet generated or realized any revenues from our business operations. Our
  statutory registered agent's office is located at 251 Jeanell Drive, No. 3,
  Carson City, Nevada 89703 and our business office is located at 900  789
  West Pender Street, Vancouver, B.C., Canada, V6C 1H2. Our telephone number is:
  (604) 893-8891.

On September 16, 2003, the Company, through Micro, entered
  into an agreement with Sichuan Province Mining Ltd. to acquire 75% interest
  in a 30-year mining joint venture company, which will hold the mining licenses
  to develop the Jiajika spodumene property located in the Sichuan Province of
  China for the extraction of lithium and lithium salts. The Company is required
  to contribute through Micro an estimated $62,000,000 Chinese Yuan (US$7,500,000)
  to earn its 75% interest for 900,000 tonnes/annum capacity. On March 18, 2004,
  Micro and Sichuan Province Mining Ltd. amended the initial capacity as 240,000
  tonnes/annum pursuant to the mining permit contract signed between Sichuan Province
  Mining Ltd. and Sichuan Bureau of Land and Resources. The spodumene lithium
  concentrate expected to be produced is 47,320 tonnes/annum and tantalum concentrate
  is 43.2 tonnes/annum. The total investment required is estimated at 88.5 million
  Chinese Yuan (US$10.8 million) for the initial capacity of 240,000 t/a . The
  initial registered capital is 56 million Chinese Yuan (US$6.8 million). Sichuan
  Mining Ltd. will contribute 14 million Chinese Yuan (US$1.7 million) including
  the mining permits to hold 25% of the JV company. Micro will contribute 42 million
  Chinese Yuan (US$ 5.1 million) to hold 75% of the JV company, which should be
  contributed within 24 months after the joint venture company is established.

The Jiajika mining permit was issued to Sichuan Province Mining
  Ltd. on May 24, 2004. On June 22, 2004, The Bureau of Land and Resources of
  Sichuan Province also approved the joint venture proposal submitted by Sichuan
  Province Mining Ltd. Pursuant to the approval document, Sichuan Province Mining
  Ltd. will use its mining permit and part of cash as its contributions in the
  proposed joint venture company with Micro Express Ltd.("Micro") which is a wholly
  subsidiary of Sterling. Micro will bring the project into production. The name
  for the joint venture, which is Jihai Lithium Ltd., has already been
  approved by the Business Department of Sichuan Province.

On June 17, 2004, the Company commissioned Fluor Canada Ltd.
  to perform a review of the existing Feasibility Studies for the Jiajika project.

On April 10, 2004, the Company entered into the formal joint
  venture agreement with Lushi Guanpo Minerals Development Ltd. ("Lushi of Henan
  Province of China) to bring the project into production and earn 90% of the
  interest of the project. According to Chinese geological Brigades, the property
  is estimated to contain 200,000 tonnes of Li2O with grading of 1%. The concession
  is about 100 square km and has a large potential to increase the resources of
  lithium. Currently, Lushi holds three mining permits.

On May 26, 2004, the Company signed the contract with Beijing
  General Research Institute of Mining & Metallurgy ("Institute") for the
  resource audit of the Lushi spodumene property. On June 15, 2004, the Company
  paid the first installment (45,000 Yuan RMB) to the Institute.

Micro has also signed a letter of intent, which has expired
  with the Hunan Daoxian County Local Government, to develop the lithium/rubidium
  mine in Daoxian, Hunan Province. The Hunan County will contribute a mining license
  to earn 10% of a 30-year mining joint venture to be formed. Micro will earn
  90% by developing and putting the lithium mine into production if it decides
  to proceed and renew the letter of intent.

Item 2. Property

Overview

5

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On January 20, 2004, the Company acquired all the issued and
  outstanding shares of Micro Express Ltd. ("Micro") for 25,000,000 common shares
  of the Company. Micro is a company incorporated in the British Virgin Islands
  and has been inactive since incorporation until year 2003. Micro has entered
  into several agreements to develop industrial mineral properties in China.

Through the acquisition of Micro, the Company has the following
  property interests:

(a) Jiajika Spodumene Joint Venture

On September 16, 2003, the Company, through Micro, entered
  into an agreement with Sichuan Province Mining Ltd. to acquire 75% interest
  in a 30-year mining joint venture company, which will hold the mining licenses
  to develop the Jiajika spodumene property located in Sichuan Province of China
  for the extraction of lithium and lithium salts. The Company is required to
  contribute through Micro an estimated $62,000,000 Chinese Yuan (US$7,500,000)
  to earn its 75% interest for 900,000 t/a capacity. The initial capacity will
  be 240,000 t/a and will be increased to 900,000 t/a in stages. The Company is
  required to contribute through Micro an estimated $42 million Chinese Yuan (US$
  5.1 million) as registered capital to earn its 75% interest of joint venture
  company for the initial capacity of 240,000 t/a. An initial contribution of
  $150,000 has been made as part of the contribution to obtain the mining permit
  according to the contract signed between our Chinese partner and the Sichuan
  Bureau of Land and Resources.

(b) Lushi Spodumene Property

On December 28, 2003, the Company, through Micro, entered
  into a Letter of Intent to earn an interest of between 90% to 92% in a 30-year
  mining joint venture, which will hold the rights to develop the Lushi spodumene
  property located in Henan Province, China. The Company shall contribute the
  total investment in the project. The amount of the investment will be determined
  by a pre-feasibility study. On April 10, 2004, the Company entered the formal
  joint-venture agreement with the Chinese party by bringing the project into
  production and earning 90% of the interest of the project. On May 26, 2004,
  the Company, through Micro, signed the contract with Beijing General Research
  Institute of Mining & Metallurgy ("Institute") for the resource audit of
  the Lushi spodumene property. On June 15, 2004, the Company paid the first installment
  (45,000 Yuan RMB) to the Institute.

(c) Daoxian Lithium Joint Venture

On November 15, 2003, the Company, through Micro, entered
  into a Letter of Intent with a Chinese partner to earn a 90% interest in a 30-year
  mining joint venture company, which will hold the rights to develop the Daoxian
  lithiumrubidium property located in Hunan Province of China. The Company
  shall contribute the total investment in the project. The amount of this investment
  will be determined by a pre-feasibility study. As of May 31, 2004, no funds
  have been contributed. Preliminary investigation indicated that the property
  is located near a tourist area. Due to an environmental impact issue, the Company
  delayed the project and its letter of intent has expired.

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 within 30-days
  notice.

Item 3. Legal Proceedings

We know of no material, active or pending legal proceedings
  against our company, nor are we involved as a plaintiff in any material proceeding
  or pending litigation. There are no proceedings in which any of our

6

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directors, officers or affiliates, or any registered or beneficial
  shareholder, is an adverse party or has a material interest adverse to our interest.

Item 4. Submissions of Matters to a Vote of Security Holders

Within the current fiscal year, no matters have been submitted
  to a vote of security holders.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Overview

Our common stock is traded on the OTC Bulletin Board under
  the symbol "SGGV". The table below sets forth the high and low sales prices
  for the Company's common stock for the fiscal year ended May 31, 2004. The quotations
  below reflect inter-dealer prices, without retail markup, markdown or commission
  and may not represent actual transactions.

|Year | Quarter                  | High ($) | Low ($)
|---- | ------------------------ | -------- | -------
|2004 | First                    | n/a      | n/a    
|     | Second                   | n/a      | n/a    
|     | Third
      *            | 1.10     | 0.50   
|     | Fourth                   | 1.40     | 0.85   
|     | August
      16, 2004 ** | 1.08     | 0.80   

|*  | Trading in our common stock on the OTC BB did not begin until approximately
      February 3, 2004.
|-- | ---------------------------------------------------------------------------------------------------
|  
|** | Indicates partial period                                                                           

Our common shares are issued in registered form. Pacific Stock
  Transfer Company is the registrar and transfer agent for our common shares,
  and is located at Suite 240, 500 East Warms Springs Road, Las Vegas, Nevada
  89119 (Telephone: (702) 361-3033; Facsimile: (702) 433-1979).

As of May 31, 2004 the shareholders' list of our common shares
  showed 30 registered shareholders and 38,126,000 shares outstanding.

We have not declared any dividends since incorporation and
  do not anticipate that we will do so in the foreseeable future. Although there
  are no restrictions that limit the ability to pay dividends on our common shares,
  our intention is to retain future earnings for use in our operations and the
  expansion of our business.

Equity Compensation Plan Information

On May 12, 2004, the Company registered a 2004 incentive stock
  option plan consisting of 3,636,000 common shares. As of the year ended May
  31, 2004, 3,636,000 options were issued and outstanding to various consultants,
  officers or directors. The above options are exercisable at US$0.50 per share
  with expiry on February 3, 2009. As of the date of this report, none of the
  above options has been exercised.

7

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Recent Sales of Unregistered Securities

In February 2004, the Company commenced a private placement
  of up to 5,000,000 units at $0.50 per unit for total proceeds of $2,500,000.
  Each unit consists of one common share and one non-transferable share purchase
  warrant entitling the holder to purchase one common share for two years, at
  $0.50 per share in the first year or $0.75 in the second year ("A" warrant).
  Upon exercising an "A" warrant, the holder of each unit will have one additional
  non-transferable share purchase warrant at $1.00 ("B" warrant) for another year.
  The proceeds from this private placement will be used to update a 1999 feasibility
  study, and design the development of the Jiajika deposit, and resource audit
  and metallurgical tests for the Lushi deposits and working capital.

A 7% finder's fee will be paid in units with the same terms.

As of May 31, 2004, the Company had received $883,000 for
  the purchase of 1,766,000 units.

Changes in Securities

On January 20, 2004, the Registrant completed the acquisition
  of all of the issued and outstanding shares of Micro pursuant to an Acquisition
  Agreement, filed as an exhibit to the Registrant's Current Report on the 8K
  filed January 29, 2004 and April 2, 2004. Pursuant to the transaction, the Registrant
  issued an aggregate of 25,000,000 shares of the Registrant's common stock to
  the stockholders of Micro in exchange for 100% of the shares of Micro common
  stock. A majority of the shares were issued to Cobilco Inc. of which Raoul Tsakok
  is the owner (15,000,000 shares), and Richard Shao (4,000,000 shares), who are
  officers or directors of the Registrant.

The foregoing description of the transactions is qualified
  in its entirety to the full text of the Capital Stock Exchange Agreement and
  the Stock Purchase Agreement, filed as exhibits in the Registrant's 8K.

Item 6. Management's Discussion and Analysis or Plan of
  Operation

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

Plan of Operations

On January 20, 2004, the Company completed the acquisition
  of all of the issued and outstanding shares of Micro Express Ltd., a British
  Virgin Islands corporation ("Micro") pursuant to an Acquisition Agreement, filed
  as an exhibit to a Form 8-K on January 29, 2004. Pursuant to the transaction,
  the Company issued an aggregate of 25,000,000 shares of common stock to the
  stockholders of Micro in exchange for 100% of the shares of Micro common stock.

Micro is a party to an agreement with Sichuan Province Mining
  Ltd, which is 40% held by the Bureau of Sichuan Geology and Resources of the
  Sichuan Government. Under the terms of the agreement, Micro has the right to
  acquire at least 75% of the shares of a co-operative joint-venture company to
  be formed and

8

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which will hold the necessary mining licenses. The business
  of the joint-venture company is to develop the Jiajika spodumene property for
  the extraction of lithium, lithium salts, and other minerals. The initial capacity
  of the company is 240,000 tonnes/annum and will be increased to 900,000 t/a
  in stages pursuant to the approval of Bureau of Land and Resources of Sichuan
  province. The spodumene concentrate expected to be produced is 47,320 tonnes/annum
  and tantalum concentrate is 43.2 tonnes/annum. The total investment required
  is estimated at 88.51 million Chinese Yuan. The initial registered capital is
  56 million Chinese Yuan (US$6.8 million). Sichuan Province Mining Ltd. will
  contribute 14 million Chinese Yuan (about US$1.7 million) including the mining
  permits and previous works to hold 25% of the JV company. Micro will contribute
  42 million Chinese Yuan (about US$5.1 million) to hold 75% of the JV company.
  An initial contribution of $150,000 has been made by the Company as part of
  the contribution to obtain the mining permit pursuant to the contract signed
  between our Chinese partner and Sichuan Bureau of Land and Resource.

On April 10, 2004, Micro has signed the joint venture agreement
  with Lushi Guanpo Minerals Development Ltd. ("Lushi") of the Henan Province
  of China to earn more than 90% of the lithium project by taking the project
  into production. On May 26, 2004, the Company, through Micro, has signed the
  contract with Beijing General Research Institute of Mining & Metallurgy
  ("Institute") for the resource audit of Lushi spodumene property. On June 15,
  2004, the Company paid the first installment (45,000 Yuan RMB) to the Institute.

Micro signed a letter of intent with the Hunan Daoxian County
  Local Government to develop the lithium/rubidium mine in Daoxian, Hunan Province.
  The Hunan County will contribute a mining license and earn 10% of the 30-year
  mining joint venture to be formed. Micro will earn a 90% interest by developing
  and putting the lithium mine into production. As of May 31, 2004, no funds have
  been contributed. A preliminary investigation indicated that the property is
  located near a tourist area. Due to an environmental impact issue, the Company
  has delayed the project.

Results of Operations

The Company had no operating revenue for the year ended May
  31, 2004 and no revenue for the same period in 2003. The Company incurred expenses
  of $527,446, stemming from consulting fees, travel, and general and administrative
  expenditures as compared to $1,360 for the same period last year. The increase
  of $526,086 was mainly due to the compensation expenses incurred from the granting
  of incentive stock options to consultants. The fair value of options granted
  to non-employees and non-directors was $368,641, however, this amount consisted
  of options granted and was not a cash expenditure.

The Company expects the trend of losses to continue at an
  increasing rate until we can achieve commercial production on some of the mineral
  properties, of which there can be no assurance.

Liquidity and Working Capital

As of May 31, 2004, the Company had total current assets of
  $640,044, and total liabilities of $75,196. The Company has a working capital
  surplus of $564,848, as a result of a private placement of $883,000 during the
  year.

As of May 31, 2004, the Company received $883,000 through
  the subscription of 1,766,000 Units that consist of one common share and a warrant
  entitling the investor to purchase an additional common share for $0.50 in the
  first year or $0.75 in the second year.

The Company has no other capital resources other than the
  ability to use its common stock to achieve additional capital or exercise of
  the warrants by the unit holders.

Factors That May Affect Future Results and Market Price
  of Stock

9

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The business of the Company involves a number of risks and
  uncertainties that could cause actual results to differ materially from results
  projected in any forward-looking statement, or statements, made in this report.
  These risks and uncertainties include, but are not necessarily limited to the
  risks set forth below. The Company's securities are speculative and investment
  in the Company's securities involves a high degree of risk and the possibility
  that the investor will suffer the loss of the entire amount invested.

Limited Operating History; Anticipated Losses; Uncertainty
  of Future Results

Sterling Group Ventures Inc. has only a limited operating
  history upon which an evaluation of the Company and its prospects can be based.
  The Company's prospects must be evaluated with a view to the risks encountered
  by a company in an early stage of development, particularly in light of the
  uncertainties relating to the new and evolving distribution methods with which
  the Company intends to operate and the acceptance of the Company's business
  model. To the extent that such expenses are not subsequently followed by commensurate
  revenues, the Company's business, results of operations and financial condition,
  will be materially adversely affected. There can be no assurance that the Company
  will be able to generate sufficient revenues from the sale of its products.
  If cash generated by operations is insufficient to satisfy the Company's liquidity
  requirements, the Company may be required to sell additional equity or debt
  securities. The sale of additional equity or convertible debt securities would
  result in additional dilution to the Company's stockholders.

Limited Public Market, Possible Volatility of Share Price

The Company's Common Stock is currently quoted on the NASD
  OTC Bulletin Board under the ticker symbol SGGV and is listed on Berlin Bremen
  Stock Exchange under the symbol GD7. As of May 31, 2004, there were approximately
  38,126,000 shares of common stock outstanding. There can be no assurance that
  a trading market will be sustained in the future.

Management of Growth

The Company's future success depends upon its ability to raise
  adequate financing to meet its mineral exploration and operation expenses. This
  need to manage its expenses will place a significant strain on the Company's
  management and operational resources. If the Company is unable to manage its
  expenses effectively, the Company's business, results of operations, and financial
  condition will be materially adversely affected.

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.

The effects of inflation have not had a material impact on
  its operation, nor is it expected to in the immediate future.

10

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Political Risks

The market in China is monitored by the government, which
  could impose taxes or restrictions at any time which would make operations unprofitable
  and infeasible and cause a write-off of investment in the mineral properties.
  Other factors include political policy on foreign ownership, political policy
  to open the doors to foreign investors, and political policy on mineral claims
  and metal prices.

Market Risk

The Company does not hold any derivatives or other investments
  that are subject to market risk. The carrying values of any financial instruments,
  approximate fair value as of those dates because of the relatively short-term
  maturity of these instruments, which eliminates any potential market risk associated
  with such instruments.

Other Risks and Uncertainties

The business of mineral deposit exploration and 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.

The Company has sought to identify what it believes to be
  the most significant risks to its business, but cannot predict whether or to
  what extent any of such risks may be realized, nor can there be any assurances
  that the Company has identified all possible risks that might arise. Investors
  should carefully consider all of such risk factors before making an investment
  decision with respect to the Company's stock.

Outlook

Since the Company's Chinese joint-venture partner received
  the mining permits to develop the Jiajika spodumene property on May 24, 2004,
  the Company will concentrate its efforts on raising the US$5.1 million necessary
  to earn its 75% interest and put the Jiajika lithium deposit into production.

The pre-feasibility studies for the Lushi property will determine
  to what extent, if any, the required funding will be for the property.

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.

Going Concern

These consolidated financial statements have been prepared
  on the 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.

11

---

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.

Item 7. Financial Statements.

The response to this item is included on pages F-1 through
  F-16 of this report.

Our financial statements are stated in United States Dollars
  (US$) and are prepared in accordance with United States Generally Accepted Accounting
  Principles.

The Report of Independent Auditor's by Amisano Hanson for
  the audited consolidated financial statements for the year ended May 31, 2004,
  are included herein immediately preceding the audited financial statements.

Item 8. Changes In & Disagreements With Accountants
  on Accounting & Financial Disclosure

Amisano Hanson, Chartered Accountants (the "New Accountant")
  has been engaged as principle independent accountants for Sterling Group Ventures,
  Inc. (the "Company") effective June 17, 2004 and until the New Accountant chooses
  to resign or the Company chooses to dismiss them. Amisano Hanson, Chartered
  Accountants replaces Cordovano and Honeck, P.C. (the "Former Accountant") as
  principal independent accountants as of June 17, 2004, the date the Former Accountants
  were dismissed by the Company. The decision to change accountants has been approved
  by the Company's board of directors.

Other than as disclosed in the previous paragraph, there have
  been no changes in or disagreements with our accountants on issues of accounting
  or financial disclosure since inception of Sterling on September 13, 2001.

Item 8A. Controls and Procedures

The registrant's Principal executive officers and principal
  financial officer, based on their evaluation of the registrant's disclosure
  controls and procedures (as defined in Rules 13a-14 ( c ) of the Securities
  Exchange Act of 1934 ) as of May 31, 2004 have concluded that the registrants'
  disclosure controls and procedures are adequate and effective to ensure that
  material information relating to the registrants and their consolidated subsidiaries
  is recorded, processed , summarized and reported within the time periods specified
  by the SEC' s rules and forms, particularly during the period in which this
  quarterly report has been prepared.

The registrants' principal executive officers and principal
  financial officer have concluded that there were no significant changes in the
  registrants' internal controls or in other factors that could significantly
  affect these controls subsequent to May 31, 2004, the date of their most recent
  evaluation of such controls, and that there was no significant deficiencies
  or material weaknesses in the registrant's internal controls.

PART III

Item 9. Directors, Executive Officers, Promoters and Control
  Persons

All directors of our company hold office until the next annual
  general meeting of the shareholders or until their successors are elected and
  qualified. The officers of our company are appointed by our board of directors
  and hold office until their earlier death, retirement, resignation or removal.

12

---

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            | 41  | January 20, 2004              
|Raoul Tsakok     | Chairman                       | 54  | January 20, 2004              
|Patrick Chan     | Director                       | 51  | January 20, 2004              
|Gerald Runolfson | Director                       | 64  | April 5, 2004                 

Business Experience

The following sets forth the business experience of each of
  the Registrant'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 of Richco Investors Inc. for almost 10 years.
  He holds an MBA degree and is a Chartered Financial Analyst (CFA).

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.

Patrick P. L. Chan, B.Comm, C.A. FHKSA, Director

Mr. Chan was born in Hong Kong and graduated from McGill University
  with a Bachelor of commerce degree in accounting and finance. He has more than
  25 years of accounting and corporate finance experience in both North America
  and in Asia. Besides being a Chartered Accountant (CA), Mr. Chan is also a Fellow
  of the Hong Kong Society of Accountants (FHKSA). He was the partner in charge
  of Coopers and Lybrand Mergers and Acquisitions Group (now PriceWaterhouse Coopers)
  and left his practice in Toronto, Canada in 1993 to pursue operational and merchant
  banking opportunities in Asia and in The Peoples' Republic of China. At present,
  Patrick is a senior member of the management team of a premier PRC beverage
  and consumer products company. In his career, Mr. Chan has served as a board
  of director member of listed companies and has provided corporate finance and
  strategic advice to many North America and Asian based public and private companies.

Gerald Runolfson, Professional Engineer, Director

13

---

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.

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.                                             

Item 9A. Compliance With Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended,
  requires our executive officers and directors and persons who own more than
  10% of a registered class of our equity securities to file with the Securities
  and Exchange Commission initial statements of beneficial ownership, reports
  of changes in ownership and annual reports concerning their ownership of our
  common stock and other equity securities, on Forms 3, 4 and 5 respectively.
  Executive officers, directors and greater than 10% shareholders are required
  by the Securities and Exchange Commission regulations to furnish our company
  with copies of all Section 16(a) reports they file.

To the best of our knowledge, all executive officers, directors
  and greater than 10% shareholders filed the required reports in a timely manner.

Item 10. Executive Compensation.

(a) Officers' Compensation.

Compensation paid by the Company for all services provided
  up to the fiscal year ended May 31, 2004 to each of the executive officers and
  to all officers as a group is set forth below.

SUMMARY COMPENSATION TABLE OF EXECUTIVES

|             | Cash Compensation |        |       | Security Grants |            |            |             
|------------ | ----------------- | ------ | ----- | --------------- | ---------- | ---------- | ------------
|Name and     | Year              | Salary | Bonus | Annual          | Restricted | Securities | Long Term   
|Principal    |                   | ($)    |       | Compensation    | Stock      | Underlying | Compensation
|Position     |                   |        |       | / Other         | Awards     | Options /  | / Options   
|             |                   |        |       | ($)             |            | SARs (#)   |             
|             |                   |        |       |                 |            | (SHARES)   |             
|Richard Shao | 2004              | 0      | 0     | 7,869           | 0          | 800,000(1) | 0           
|President    |                   |        |       |                 |            |            |             
|Raoul Tsakok | 2004              | 0      | 0     | 0               | 0          | 800,000(2) | 0           
|Chairman     |                   |        |       |                 |            |            |             

14

---

|Kathy Wang    | 2004 | 0 | 0 | 4,722  | 0 | 200,000(3) | 0 | 0 | 0
|------------- | ---- | - | - | ------ | - | ---------- | - | - | -
|Secretary     |      |   |   |        |   |            |   |   |  
|Officers as A | 2004 | 0 | 0 | 12,591 | 0 | 1,800,000  | 0 | 0 | 0
|Group         |      |   |   |        |   |            |   |   |  

| | (1) | 800,000 options to purchase shares at $0.50 per share.
| | --- | ------------------------------------------------------
| | (2) | 800,000 options to purchase shares at $0.50 per share.
| | (3) | 200,000 options to purchase shares at $0.50 per share.

(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 has granted options to directors under its 2004 Incentive Stock
  Option Plan subsequently adopted.

SUMMARY COMPENSATION TABLE OF DIRECTORS
  (For fiscal year ended May 31, 2004)

|               | Cash Compensation |          |          | Security Grants |        |           
|-------------- | ----------------- | -------- | -------- | --------------- | ------ | ----------
|Name and       | Year              | Annual   | Meeting  | Consulting      | Number | Securities
|Principal      |                   | Retainer | Fees ($) | Fees/ Other     | of     | Underlying
|Position       |                   | Fees ($) |          | Fees            | Shares | Options / 
|               |                   |          |          | ($)             | (#)    | SARs (#)  
|               |                   |          |          |                 |        | (SHARES)  
|Raoul Tsakok   | 2004              | 0        | 0        | 0               | 0      | 800,000(1)
|Director       |                   |          |          |                 |        |           
|Brian Doutaz   | 2004              | 0        | 0        | 0               | 0      | 0         
|Director       |                   |          |          |                 |        |           
|(Resigned on   |                   |          |          |                 |        |           
|April 5, 2004) |                   |          |          |                 |        |           
|Richard Shao   | 2004              | 0        | 0        | 0               | 0      | 800,000(2)
|Director       |                   |          |          |                 |        |           
|Patrick Chan   | 2004              | 0        | 0        | 0               | 0      | 300,000(3)
|Director       |                   |          |          |                 |        |           
|Gerald         | 2004              | 0        | 0        | 0               | 0      | 300,000(4)
|Runolfson      |                   |          |          |                 |        |           
|Director       |                   |          |          |                 |        |           
|James          | 2004              | 0        | 0        | 0               | 0      | 0         
|Hutchison      |                   |          |          |                 |        |           
|Director       |                   |          |          |                 |        |           
|(Resigned on   |                   |          |          |                 |        |           
|Jan. 21, 2004) |                   |          |          |                 |        |           
|Directors as a |                   |          |          |                 |        |           
|Group          | 2004              | 0        | 0        | 0               | 0      | 2,200,000 

| | (1) | 800,000 options to purchase shares at $0.50 per share.
| | --- | ------------------------------------------------------
| | (2) | 800,000 options to purchase shares at $0.50 per share.
| | (3) | 300,000 options to purchase share at $0.50 per share. 
| | (4) | 300,000 options to purchase share at $0.50 per share. 

During the year ended May 31, 2004, we granted 2,400,000 stock
  options to our directors or officers. The options were granted at an exercise
  price of $0.50 per share with an expiry date of February 3, 2009.

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

15

---

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 11. Security Ownership of Certain Beneficial Owners
  and Management and Related Stockholder Matters.

The following table sets forth, as of August 19, 2004, 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 19, 2004, there were 40,128,500 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) (4)                        | 39.4 %                
|Common stock   | Richard Shao                             | 4,800,000 (5)                             | 11.9 %                
|Common stock   | Patrick Chan                             | 300,000 (6)                               | 0.7 %                 
|Common stock   | Brian Doutaz                             | 5,000,000                                 | 12.5 %                
|Common stock   | Gerald Runolfson                         | 1,200,000 (7) (8)                         | 3 %                   
|               | TOTAL                                    | 27,100,000                                | 67.5 %                

|(1) | The address of each beneficial is 900  789
        West Pender Street, Vancouver, BC V6C 1H2 Canada                                                                                                                                                                                                                
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Based on 40,128,500 shares outstanding as of August
        19, 2004 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.                                                                                                                                                                                                                                                                  
|(4) | Raoul Tsakok has 800,000 options to purchase shares
        at $0.50 per share.                                                                                                                                                                                                                                     
|(5) | Include 800,000 options to purchase shares at $0.50
        per share.                                                                                                                                                                                                                                              
|(6) | Patrick Chan has 300,000 options to purchase share
        at $0.50 per share.                                                                                                                                                                                                                                      
|(7) | Include 300,000 common shares and 300,000 "A" warrants
        and 300,000 "B" warrants held through Elkon Products Inc.                                                                                                                                                                                            
|(8) | Gerald Runolfson has 300,000 options to purchase
        share at $0.50 per share.                                                                                                                                                                                                                                  

Changes in Control

16

---

We are unaware of any contract or other arrangement the operation
  of which may at a subsequent date result in a change in control of our company.

Item 12. Certain Relationships and Related Transactions.

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 13. Exhibits, Financial Statement Schedules, and Reports
  on Form 8-K.

|a) | Financial Statements and Schedules. The following financial statements
      and schedules for the Company as of May 31, 2004 and 2003 are filed as part
      of this report.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(1) Financial Statements of Sterling Group Ventures, Inc.

|                                                              | Page       
|------------------------------------------------------------- | -----------
|                                                              |            
|Report of Independent Registered Public
      Accounting Firm | F-3        
|                                                              |            
|Consolidated Balance Sheets                                   | F-4        
|                                                              |            
|Consolidated Statements of Operations                         | F-5        
|                                                              |            
|Consolidated Statements of Cash Flows                         | F-6        
|                                                              |            
|Consolidated Statements of Stockholders'
      Equity         | F-7 to F-8 
|                                                              |            
|Notes to Consolidated Financial Statements                    | F-9 to F-16

(2) Financial Statement Schedules

All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

(3) Exhibits

The exhibits listed below are required by Item 601 of Regulation S-K. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K has been identified.

The following are exhibits to this Annual Report

|31.1 | Certification of Chief Executive Officer Pursuant
      to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|31.2 | Certification of Chief Financial Officer Pursuant
      to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.

17

---

|32.1 | Certification of Chief Executive Officer Pursuant
      to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|32.2 | Certification of Chief Financial Officer Pursuant
      to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.

|b) | The following reports on Form 8-K were filed during
        the year ended May 31, 2004:
|-- | ----------------------------------------------------------------------------------------

8-K filed on January 29, 2004,

8-K/A filed on April 2, 2004.

8-K filed on June 18, 2004

8-K/A filed on June 23, 2004

Item 14. Principal Accountant Fees and Services.

Audit Fees

Amisano Hanson ("AH") provided audit services to the Company
  in connection with its annual report for the fiscal year ended May 31, 2004.
  Cordovano & Honeck, P. C. ("CH") provided audit services to the Company
  in connection with the Company's annual report for the fiscal year ended May
  31, 2003. The aggregate fees billed by AH for the May 31, 2004 year ended audit
  of the Company's annual financial statements was $10,000 and the aggregate fees
  billed by CH for the fiscal year 2004 quarterly reviews of the Company was $2,500.
  The aggregate fees billed by CH for the fiscal year 2003 audit of the Company's
  annual financial statements and a review of the Company's quarterly financial
  statements was $4,354.

Audit Related Fees

No fees were billed by AH or CH 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 AH to the Company in 2004 for professional
  services rendered in connection with the preparation of the Company's tax returns
  for the period. The fees of $600 were billed by CH to the Company in 2003 for
  professional services rendered in connection with the preparation of the Company's
  tax returns for the year ended May 31, 2003.

All Other Fees

The aggregate fees of $6,003 were bill by AH to the Company
  for other professional services rendered or any other services not disclosed
  above during the period from June 1, 2003 to May 31, 2004. No fees were billed
  by CH to the Company for other professional services rendered or any other services
  not disclosed above.

Audit Committee Pre-Approval

The Company's Board acts as the audit committee and had no
  "pre-approval policies and procedures" in effect for the auditors' engagement
  for the audit year 2003 and 2004.

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

18

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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:                          
| |                              
| |                              
| |                              
| | By:                          
| |                              
| |                              

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                                    
| |     |                                            
| | By: | /s/ "Raoul Tsakok"                         
| |     | Chairman and Chief Executive Officer       
| |     | Date: September 8, 2004                    

19

---

STERLING GROUP VENTURES, INC.

(A Pre-exploration Stage Company)

REPORT AND CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2004 and 2003

(Stated in US Dollars)



F-1

---

STERLING GROUP VENTURES, INC.(A Development Stage Company) 
  Index to Financial Statements

|                                                              | Page       
|------------------------------------------------------------- | -----------
|                                                              |            
|Report of Independent Registered Public
      Accounting Firm | F-3        
|                                                              |            
|Consolidated Balance Sheets                                   | F-4        
|                                                              |            
|Consolidated Statements of Operations                         | F-5        
|                                                              |            
|Consolidated Statements of Cash Flows                         | F-6        
|                                                              |            
|Consolidated Statements of Stockholders'
      Equity         | F-7 to F-8 
|                                                              |            
|Notes to Consolidated Financial Statements                    | F-9 to F-16

F-2

---

|TERRY AMISANO LTD. | AMISANO HANSON      
|------------------ | --------------------
|KEVIN HANSON, CA   | CHARTERED ACCOUNTANS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders, 
  Sterling Group Ventures, Inc.

We have audited the accompanying consolidated balance sheets
  of Sterling Group Ventures, Inc. (A Pre-exploration Stage Company) and its subsidiaries
  as of May 31, 2004 and 2003 and the related consolidated statements of operations,
  stockholders' equity (deficiency) and cash flows for the years ended May 31,
  2004 and 2003 and for the period from date of incorporation, July 27, 1994 to
  May 31, 2004. These consolidated 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. The financial statements of
  the Company prior to the reverse acquisition by Micro Express Ltd. (Note 3)
  were audited by other auditors whose report dated August 20, 2003 expressed
  an unqualified opinion on these statements.

We conducted our audits in accordance with the standards of
  the Public Company Accounting Oversight Board (United States of America). Those
  standards require that we plan and perform an audit to obtain reasonable assurance
  about whether the financial statements are free of material misstatement. An
  audit 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 financial statement presentation. We believe
  that our audit provides a reasonable basis for our opinion.

In our opinion, these 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, 2004 and 2003
  and the results of their operations and their cash flows for the years ended
  May 31, 2004 and 2003 and for the period from date of incorporation, July 27,
  1994 to May 31, 2004, in conformity with accounting principles generally accepted
  in the United States of America.

The accompanying consolidated financial statements referred
  to above have been prepared assuming that the Company will continue as a going
  concern. As discussed in Note 1 to the financial statements, the Company is
  in the pre-exploration stage, and has no established source of revenue and is
  dependent on its ability to raise capital from shareholders or other sources
  to sustain operations. These factors, along with other matters as set forth
  in Note 1, raise substantial doubt that the Company will be able to continue
  as a going concern. The financial statements do not include any adjustments
  that might result from the outcome of this uncertainty.

|Vancouver, Canada                 | "Amisano Hanson"         
|--------------------------------- | -------------------------
|July 31, 2004                     | Chartered Accountants    
|                                 
|F-3                              
|                                 
|                                 
|750 WEST PENDER STREET, SUITE 604 | TELEPHONE: 604-689-0188  
|VANCOUVER CANADA                  | FACSIMILE: 604-689-9773  
|V6C 2T7                           | E-MAIL: amishan@telus.net

---

STERLING GROUP VENTURES, INC.(A Pre-exploration Stage Company)
  CONSOLIDATED BALANCE SHEETS
  May 31, 2004 and 2003
  (Stated in US Dollars)

|ASSETS                                                |   | 2004      |   |   | 2003    |  
|----------------------------------------------------- | - | --------- | - | - | ------- | -
|Current                                               |   |           |   |   |         |  
|Cash and cash equivalents                             | $ | 634,207   |   | $ | 2,275   |  
|Amount receivable  Note 5                            |   | 5,837     |   |   | -       |  
|                                                      |   |           |   |   |         |  
|                                                      |   | 640,044   |   |   | -       |  
|Advance on investment  Note 4                        |   | 150,000   |   |   | -       |  
|                                                      |   |           |   |   |         |  
|                                                      | $ | 790,044   |   | $ | -       |  
|                                                      |   |           |   |   |         |  
|LIABILITIES                                           |   |           |   |   |        
|Current                                               |   |           |   |   |         |  
|Accounts payable and accrued liabilities              | $ | 75,196    |   | $ | 9,241   |  
|                                                      |   |           |   |   |         |  
|STOCKHOLDERS' EQUITY (DEFICIENCY)                     |   |           |   |   |        
|Common stock, $0.001 par value                        |   |           |   |   |         |  
|500,000,000 shares authorized,                        |   |           |   |   |         |  
|38,126,000 outstanding (2003: 25,000,000 outstanding) |   |           |   |   |         |  
| Note 6                                              |   | 38,126    |   |   | 25,000  |  
|Additional paid in capital                            |   | 1,215,873 |   |   | (23,119 | )
|Accumulated other comprehensive loss                  |   | (583      | ) |   | -       |  
|Deficit accumulated during the pre-exploration stage  |   | (538,568  | ) |   | (11,122 | )
|                                                      |   |           |   |   |         |  
|                                                      |   | 714,848   |   |   | (9,241  | )
|                                                      |   |           |   |   |         |  
|                                                      | $ | 790,044   |   | $ | -       |  
|                                                      |   |           |   |   |         |  
|Nature and Continuance of Operations  Note 1         |   |           |   |   |         |  
|Commitments  Notes 4 and 6                           |   |           |   |   |         |  
|Subsequent Events  Notes 6 and 9                     |   |           |   |   |         |  

F-4

SEE ACCOMPANYING NOTES

---

STERLING GROUP VENTURES, INC.(A Pre-exploration Stage Company)
  CONSOLIDATED STATEMENTS OF OPERATIONS
  for the years ended May 31, 2004 and 2003 and
  for the period July 27, 1994 (Date of Incorporation) to May 31, 2004
  (Stated in US Dollars)

|                                              |   |            |   |   |              |   |   | July 27, 1994   |  
|--------------------------------------------- | - | ---------- | - | - | ------------ | - | - | --------------- | -
|                                              |   |            |   |   |              |   |   | (Date of Incor- |  
|                                              |   | Year ended |   |   | poration) to |  
|                                              |   | May 31,    |   |   | May 31,      |  
|                                              |   | 2004       |   |   | 2003         |   |   | 2004            |  
|Expenses                                      |   |            |   |   |              |   |   |                 |  
|Accounting, audit and legal fees              | $ | 28,386     |   | $ | 500          |   | $ | 29,886          |  
|General and administrative fees               |   | 5,047      |   |   | -            |   |   | 5,047           |  
|Bank charges                                  |   | 150        |   |   | -            |   |   | 150             |  
|Consulting fees  Note 5                      |   | 51,130     |   |   | -            |   |   | 51,130          |  
|Filing fees and transfer agent                |   | 8,752      |   |   | 860          |   |   | 18,374          |  
|Printing and mailing                          |   | 9,571      |   |   | -            |   |   | 9,571           |  
|Stock-based compensation  Note 6             |   | 368,641    |   |   | -            |   |   | 368,641         |  
|Travel and entertainment                      |   | 55,769     |   |   | -            |   |   | 55,769          |  
|                                             
|Net loss for the year                         | $ | (527,446   | ) | $ | (1,360       | ) | $ | ( 538,568       | )
|                                             
|Basic loss per share                          | $ | 0.02       |   | $ | 0.00         |   |   |                 |  
|                                             
|Weighted average number of shares outstanding |   | 28,104,372 |   |   | 25,000,000   |   |   |                 |  

F-5

SEE ACCOMPANYING NOTES

---

STERLING GROUP VENTURES, INC.(A Pre-exploration Stage Company) 
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  for the years ended May 31, 2004 and 2003 and 
  for the period July 27, 1994 (Date of Incorporation) to May 31, 2004
  (Stated in US Dollars)

|                                                  |            |          |      |              |        |      |   | July 27, 1994  |  
|------------------------------------------------- | ---------- | -------- | ---- | ------------ | ------ | ---- | - | -------------- | -
|                                                  |            |          |      |              |        |      |   | (Date of Incor |  
|                                                  | Year ended |          |      | poration) to |       
|                                                  | May 31,    |          |      | May 31,      |       
|                                                  | 2004       |          | 2003 |              |        | 2004 |  
|Cash Flows used in Operating Activities           |            |          |      |              |        |      |   |                |  
|Net loss for the period                           | $          | (527,446 | )    | $            | (1,360 | )    | $ | (538,568       | )
|Items not affecting cash:                         |            |          |      |              |        |      |   |                |  
|Translation adjustment                            |            | (106     | )    |              | -      |      |   | (106           | )
|Stock-based compensation                          |            | 368,641  |      |              | -      |      |   | 368,641        |  
|Changes in non-cash working capital items         |            |          |      |              |        |      |   |                |  
|Amount receivable                                 |            | (5,837   | )    |              | -      |      |   | (5,837         | )
|Accounts payable and accrued liabilities          |            | 65,955   |      |              | 1,360  |      |   | 75,196         |  
|                                                 
|                                                  |            | (98,793  | )    |              | -      |      |   | (100,674       | )
|                                                 
|Cash Flows from Investing Activity                |            |          |      |              |        |      |   |                |  
|Advance on investment                             |            | (150,000 | )    |              | -      |      |   | (150,000       | )
|                                                 
|Cash Flows from Financing Activities              |            |          |      |              |        |      |   |                |  
|Capital stock issued                              |            | 883,000  |      |              | -      |      |   | 883,000        |  
|Amounts contributed by a director                 |            | -        |      |              | -      |      |   | 1,881          |  
|                                                 
|                                                  |            | 883,000  |      |              | -      |      |   | 884,881        |  
|                                                 
|Increase in cash during the year                  |            | 634,207  |      |              | -      |      |   | 634,207        |  
|                                                 
|Cash, beginning of the year                       |            | -        |      |              | -      |      |   | -              |  
|                                                 
|Cash, end of the year                             | $          | 634,207  |      | $            | -      |      | $ | 634,207        |  
|                                                 
|Cash and cash equivalents consist of:             |            |          |      |              |        |      |   |                |  
|Cash                                              | $          | 63,916   |      | $            | -      |      | $ | 63,916         |  
|Term deposits                                     |            | 570,291  |      |              | -      |      |   | 570,291        |  
|                                                 
|                                                  | $          | 634,207  |      | $            | -      |      | $ | 634,207        |  
|                                                 
|Supplemental disclosure of cash flow information: |            |          |      |              |        |      |   |                |  
|Cash paid for:                                    |            |          |      |              |        |      |   |                |  
|Interest                                          | $          | -        |      | $            | -      |      | $ | -              |  
|                                                 
|Income
      taxes                                | $          | -        |      | $            | -      |      | $ | -              |  
|                                                 
|Non-cash Transaction  Note 8                     |            |          |      |              |        |      |   |                |  

F-6

SEE ACCOMPANYING NOTES

---

STERLINGGROUPVENTURESINC.(A Pre-exploration Stage Company) 
  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
  for the period July 27, 1994 (Date of Incorporation) to May 31, 2004
  (Stated in US Dollars)

|                         |               |  |           |   |             |            |               |      | Deficit     |         |             |       |   |  |   |       
|------------------------ | ------------- |  | --------- | - | ----------- | ---------- | ------------- | ---- | ----------- | ------- | ----------- | ----- | - |  | - | ------
|                         |               |  |           |   |             |            |               |      | Accumulated |         |             |       |   |  |   |       
|                         |               |  |           |   |             |            |               |      | During the  |         | Accumulated |       |   |  |  
|                         |               |  |           |   |             | Additional |               | Pre- |             | Other   |             |       |   | 
|                         | Common Shares |  | Paid-in   |   | exploration |            | Comprehensive |      |             |         |            
|                         | Number        |  | Par Value |   | Capital     |            | Stage         |      | Loss        |         |             | Total |  
|                        
|Balance, July 27, 1994   |               |  |           |   |             |            |               |      |             |         |             |       |   |  |   |       
|(Date of Incorporation)  | -             |  | $         | - |             | $          | -             |      | $           | -       |             | $     | - |  | $ | -     
|                        
|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 for the year    | -             |  |           | - |             |            | -             |      |             | (1,860  | )           |       | - |  |   | (1,860
|                        
|Balance, May 31, 2002    | 1             |  |           | 1 |             |            | 1,881         |      |             | (9,762  | )           |       | - |  |   | (7,880
|Net loss for the year    | -             |  |           | - |             |            | -             |      |             | (1,360  | )           |       | - |  |   | (1,360
|                        
|Balance, May 31, 2003    | 1             |  |           | 1 |             |            | 1,881         |      |             | (11,122 | )           |       | - |  |   | (9,240

/cont'd

F-7

SEE ACCOMPANYING NOTES

---

Continued

STERLINGGROUPVENTURESINC. 
  (A Pre-exploration Stage Company) 
  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
  for the period July 27, 1994 (Date of Incorporation) to May 31, 2004 
  (Stated in US Dollars)

|                            |               |   |           |         |   |               |            |      |             |      |       |                 | Deficit   |       |   |         |  
|--------------------------- | ------------- | - | --------- | ------- | - | ------------- | ---------- | ---- | ----------- | ---- | ----- | --------------- | --------- | ----- | - | ------- | -
|                            |               |   |           |         |   |               |            |      | Accumulated |      |       | Accumulated     |           |       |   |        
|                            |               |   |           |         |   |               | Additional |      | Other       |      |       | During the Pre- |           |       |   |        
|                            | Common Shares |   |           | Paid in |   | Comprehensive |            |      | exploration |      |       |                 |          
|                            | Number        |   | Par Value |         |   | Capital       |            | Loss |             |      | Stage |                 |           | Total |  
|                           
|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 for the year       | -             |   |           | -       |   |               | -          |      |             | -    |       |                 | ( 527,446 | )     |   | 527,446 | )
|                           
|Balance, May 31, 2004       | 38,126,000    |   | $         | 38,126  |   | $             | 1,215,873  |      | $           | (583 | )     | $               | ( 538,568 | )     | $ | 714,848 |  

F-8

SEE ACCOMPANYING NOTES

---

STERLING GROUP VENTURES, INC.(A Pre-exploration Stage Company)
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  May 31, 2004 and 2003
  (Stated in US Dollars)

|Note 1 | Nature and Continuance of Operations
      The Company is in the pre-exploration stage. The Company
        has entered into several 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 property, 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 for the
        sale thereof.
      These consolidated financial statements have been prepared
        on a going concern basis. The Company has accumulated a deficit of $538,568
        since inception. Its ability to continue as a going concern is dependent
        upon the ability of the Company to generate profitable operations in the
        future and/or to obtain the necessary financing to meet its obligations
        and repay its liabilities arising from normal business operations when
        they come due.
      Sterling Group Ventures Inc. was incorporated in the
        State of Nevada on September 13, 2001 and its fiscal year end is May 31.
        Micro Express Ltd. was incorporated under the laws of the Territory of
        the British Virgin Islands on July 27, 1994
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|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 reasonable limits of materiality
        and within the framework of the significant accounting policies summarized
        below:
      Pre-exploration Stage Company
      The Company complies with Financial Accounting Standard
        Board Statement No. 7 and Securities and Exchange Commission Act Guide
        7 for its characterization of the Company as pre-exploration stage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F-9

---

Sterling Group Ventures, Inc. 
  (A Pre-exploration Stage Company) 
  Notes to the Consolidated Financial Statements 
  May 31, 2004 and 2003 
  (Stated in US Dollars)  Page 2

|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., incorporated under the laws of the Territory of the British
        Virgin Islands, and Micro Express Ltd., incorporated under the laws of
        the Territory of the British Virgin Islands. All significant inter-company
        transactions and balances have been eliminated.
      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.
      Investments
      The Company follows the cost method of accounting for investments.
      Income Taxes
      The Company follows Statement of Financial Accounting
        Standards, No. 109 ("FAS No. 109"), "Accounting for Income Taxes" which
        requires the use of the asset and liability method for accounting for
        income taxes. Under the asset and liability method of FAS No. 109, deferred
        tax assets and liabilities are recognized for the future tax consequences
        attributable to temporary differences between the financial statements
        carrying amounts of existing assets and liabilities and loss carryforwards
        and their respective tax bases. Deferred tax assets and liabilities are
        measured using enacted tax rates expected to apply to taxable income in
        the year in which those temporary differences are expected to be recovered
        or settled.
      Financial Instruments
      The carrying value of cash and cash equivalents, amount
        receivable and accounts payable and accrued liabilities approximates fair
        value because of 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 FAS No. 128, "Earnings Per Share". Basic loss per share is computed
        using the weighted average number of shares outstanding during the years.
        Diluted loss per share has not been provided as it would be antidilutive.
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-10

---

Sterling Group Ventures, Inc. 
  (A Pre-exploration Stage Company) 
  Notes to the Consolidated Financial Statements 
  May 31, 2004 and 2003 
  (Stated in US Dollars)  Page 3

|Note 2 | Summary of Significant Accounting Policies  (cont'd)
      Comprehensive Loss
      The Company reports comprehensive income (loss) in accordance
        with Statement of Financial Accounting Standards ("SFAS) No. 130, "Reporting
        Comprehensive Income". 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 FAS
        No. 52, "Foreign Currency Translation". At each balance sheet date, recorded
        balances that are denominated in a currency other than US dollars are
        adjusted to reflect the current exchange rate.
      Stock-based Compensation
      The Company has elected to account for stock-based compensation
        following APB No. 25, "Accounting for Stock Issued to Employees", and
        provide the disclosure required under FAS No. 123, "Accounting for Stock-based
        Compensation", as amended by FAS No. 148, "Accounting for Stock-based
        Compensation  Transition and Disclosure, amendment of FAS Statement
        No. 123".
      New Accounting Standards
      Management does not believe that any recently issued,
        but not yet effective accounting standards if currently adopted could
        have a material effect on the accompanying financial statements.
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Note 3 | Business Acquisition
      On January 20, 2004, the Company's Board of Directors
        approved to acquire all the issued and outstanding shares of Micro Express
        Ltd. ("Micro") for 25,000,000 common shares of the Company. Micro is a
        company incorporated in British Virgin Islands and has been inactive since
        incorporation until 2003. Micro has entered into several joint venture
        agreements to develop industrial mineral properties in China.
      Micro Express Holdings Inc. was incorporated on February
        25, 2004 by the Company to hold the Company's investment in Micro.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F-11

---

Sterling Group Ventures, Inc. 
  (A Pre-exploration Stage Company) 
  Notes to the Consolidated Financial Statements 
  May 31, 2004 and 2003 
  (Stated in US Dollars)  Page 4

|Note 3 | Business Acquisition  (cont'd)
      The business combination has been accounted for as a
        reverse acquisition whereby the purchase method of accounting has been
        used with Micro being the accounting parent and the Company being the
        accounting subsidiary. These consolidated financial statements include
        the operations of the Company, being the accounting subsidiary, from the
        date of acquisition. The net liabilities of the Company at fair value
        at the date of acquisition were as follows:
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Current assets           | $ | 1,662  |  
| | ------------------------ | - | ------ | -
| | Current liabilities      |   | (1,768 | )
| |                          |   |        |  
| | Net liabilities acquired | $ | (106   | )

| | The results of operations of the accounting subsidiary
        for the period June 1, 2003 to January 21, 2004 (the date of reverse acquisition)
        are summarized as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue                        | $ | -       |  
| | ------------------------------ | - | ------- | -
| |                                |   |         |  
| | Expenses                       |   |         |  
| | Legal and accounting fees      |   | 4,835   |  
| | Consulting fees                |   | 4,000   |  
| | Exploration costs              |   | 29,528  |  
| | Stock transfer and filing fees |   | 2,145   |  
| | Travel                         |   | 1,929   |  
| | Office and miscellaneous       |   | 9,113   |  
| |                                |   |         |  
| |                                |   | 51,550  |  
| |                                |   |         |  
| | Net loss for the period        | $ | (51,550 | )

| | The Company's comparative consolidated financial statements,
        and its financial results for the year ended May 31, 2003, represent the
        financial position of operations and cash flows of Micro.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-12

---

Sterling Group Ventures, Inc. 
  (A Pre-exploration Stage Company) 
  Notes to the Consolidated Financial Statements 
  May 31, 2004 and 2003 
  (Stated in US Dollars)  Page 5

|Note 4 | Advance on Investment
|------ | ---------------------

| | (a) | Jiajika Spodumene Project  Note 9                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | On September 16, 2003, the Company, entered into
        an agreement with a Chinese partner to acquire at least a 75% interest
        in a 30-year mining joint venture company, which will hold the mining
        licenses to develop the Jiajika Spodumene property located in Sichuan
        Province, China for the extraction of lithium and lithium salts. The Company
        is required to contribute an estimated $62,000,000 Chinese Yuan (US$7,500,000)
        to earn its 75% interest. As of May 31, 2004, the Company has advanced
        $150,000 towards this project.                                                                     
|
| | (b) | Lushi Spodumene Property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     | On December 28, 2003, the Company, entered into
        a Letter of Intent to earn an interest of between 90% to 92% in a 30-year
        mining joint venture, which will hold the rights to develop the Lushi
        Spodumene property located in Henan Province, China. The Company shall
        contribute the total investment in the project. The amount of the investment
        will be determined by a pre-feasibility study. On April 10, 2004, the
        Company entered into a formal joint venture agreement with its Chinese
        partner to commence earning its 92% interest. As of May 31, 2004, no funds
        have been contributed.

|Note 5 | Related Party Transactions
      The Company was charged consulting fees during the year
        ended May 31, 2004 in the amount of $12,591 (2003: Nil) by a company controlled
        by a director of the Company.
      These charges were measured by the exchange amount which
        is the amount agreed upon by the transacting parties.
      Amounts receivable at May 31, 2004 includes $5,663 (2003:
        $Nil) due from a director of the Company with respect to travel advances.
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-13

---

Sterling Group Ventures, Inc. 
  (A Pre-exploration Stage Company) 
  Notes to the Consolidated Financial Statements 
  May 31, 2004 and 2003 
  (Stated in US Dollars)  Page 6

|Note 6 | Capital Stock
      Commitments:
|------ | --------------------------------

| | (a) | Capital Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | The Company has arranged a private placement of
        up to 5,000,000 units at $0.50 per unit for total proceeds of $2,500,000.
        Each unit consists of one common share and one share purchase warrant
        entitling the holder the right to purchase one common share for two years,
        at $0.50 per share in the first year or $0.75 in the second year. Upon
        exercising of the warrant, the holder of each unit will have the right
        to purchase one additional share purchase warrant at $1.00 per share for
        another year. A 7% finder's fee will be paid in units with the same terms.
        As of May 31, 2004, the Company has received subscriptions of $883,000
        for 1,766,000 units.                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | Subsequent to May 31, 2004, the Company issued 1,200,000
        units at $0.50 per unit pursuant to a private placement for proceeds of
        $600,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (b) | Stock Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | On February 3, 2004, the Board of Directors of the
        Company has approved the 2004 Stock Option Plan which allows the Company
        to grant up to 3,636,000 stock options as an incentive to directors, officers,
        employees and consultants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | During the year ended May 31, 2004, the Company granted 2,100,000 fully
          vested stock options to directors and officers of the Company at an
          exercise price of $0.50 per share. These stock option s expire February
          3, 2009.
        The Company accounts for its stock based compensation plans using the
          intrinsic value method whereby no compensation costs have been recognized
          in the financial statements for stock options granted to employees and
          directors. If the fair value method had been used for options granted,
          a fair value of $504,000 would be recorded as compensation expenses.
          The Company's net loss and net loss per share would approximate the
          following pro-forma amounts:

| |                                |   | 2004       |   |   | 2003   |  
| | ------------------------------ | - | ---------- | - | - | ------ | -
| | Net loss:                      |   |            |   |   |        |  
| | As reported                    | $ | (527,446   | ) | $ | (1,360 | )
| | Compensation cost for the year |   | (504,000   | ) |   | -      |  
| |                                |   |            |   |   |        |  
| | Pro-forma                      | $ | (1,031,446 | ) | $ | (1,360 | )
| | Net loss per common share:     |   |            |   |   |        |  
| | As reported                    | $ | (0.02      | ) | $ | (0.00  | )
| | Pro-forma                      | $ | (0.04      | ) | $ | (0.00  | )

F-14

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Sterling Group Ventures, Inc. 
  (A Pre-exploration Stage Company) 
  Notes to the Consolidated Financial Statements 
  May 31, 2004 and 2003 
  (Stated in US Dollars)  Page 7

|Note 6 | Capital Stock  (cont'd)
|------ | ------------------------

| | (b) | Stock Options  (cont'd)                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | During the year ended May 31, 2004 the Company also
        granted 1,536,000 fully vested stock options to consultants at an exercise
        price of $0.50 per share. These stock option expire February 3, 2009.
        The fair value of options granted to non-employees and non- directors
        is $368,641 and has been recorded as compensation expense.                                                                       
|
| |     | The fair value of each option grant is $0.24 and
        was estimated on the date of grant using the Black-Scholes option pricing
        model with the following assumptions used for the options granted on February
        3, 2004: dividend yield of 0%, expected volatility of 51.15%, risk-free
        interest rate of 3.26%, and an expected life of 5 years.                                                                   
|
| | (c) | Share Purchase Warrants                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     | During the year ended May 31, 2004, 1,766,000 share
        purchase warrants were issued and outstanding. Each share purchase warrant
        entitles the holder the right to purchase one common share for two years,
        at $0.50 per share in the first year or $0.75 in the second year. Upon
        exercising of the warrant, an additional share purchase warrant will be
        granted at $1.00 per share for another year.

|Note 7 | Deferred Tax Assets
      There is no current or deferred tax expense for the
        years ended May 31, 2004 and 2003, due to the Company's loss position.
        The Company has fully reserved for any benefits of these losses. The deferred
        tax consequences of temporary differences in reporting items for financial
        statement and income tax purposes are recognized, as appropriate. Realization
        of the future tax benefits related to the deferred tax assets is dependent
        on many factors, including the Company's ability to generate taxable income
        within the net operating loss carryforward period. Management has considered
        these factors in reaching its conclusion as to the valuation allowance
        for financial reporting purposes. The income tax effect of temporary differences
        comprising the deferred tax assets and deferred tax liabilities on the
        accompanying consolidated balance sheets is a result of the following:
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                         |   | 2004      |   |   | 2003    |  
| | ----------------------- | - | --------- | - | - | ------- | -
| |                         |   |           |   |   |         |  
| | Deferred tax assets     | $ | 179,379   |   | $ | 4,076   |  
| | Valuation allowance     |   | ( 179,379 | ) |   | ( 4,076 | )
| | Net deferred tax assets | $ | -         |   | $ | -       |  

F-15

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Sterling Group Ventures, Inc. 
  (A Pre-exploration Stage Company) 
  Notes to the Consolidated Financial Statements 
  May 31, 2004 and 2003 
  (Stated in US Dollars)  Page 8

|Note 7 | Deferred Tax Assets  (cont'd)
      The net change in the valuation allowance for 2004 and
        2003 was an increase of $175,303 and $2,987, respectively, and are principally
        the result of net losses of approximately $555,000 for tax purposes to
        offset future taxable income, which expire through 2024. All of the net
        operating loss carryforwards were generated by the parent company. The
        Company does not file a consolidated tax return because all of its subsidiaries
        are foreign corporations. Pursuant to the Tax Reform Act of 1986, annual
        utilization of the Company's net operating loss carryforwards may be limited
        if a cumulative change in ownership of more than 50% is deemed to occur
        within any three year period.
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Note 8 | Non-cash Transaction
      Investing and financing activities that do not have
        a direct impact on current cash flows are excluded from the cash flow
        statement. During the year ended May 31, 2004, the Company issued 25,000,000
        common shares at a value of $1,881 to acquire 100% of Micro Express Ltd.
        This transaction was excluded from the statement of cash flows.                                                                                                                                                                                                                                                                                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Note 9 | Subsequent Events  Note 6
      Subsequent to May 31, 2004, the Company advanced $45,000 as part of
        it's investment in the Jiajika Spodumene Project.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F-16

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