VERDE RESOURCES, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-Looking Statements Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed herein as well as in the “Description of Business – Risk Factors” section in our Annual Report on Form 10-K, as filed on September 30, 2013. You should carefully review the risks described in our Annual Report and in other documents we file from time to time with the Securities and Exchange Commission. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. All references in this Form 10-Q to the “Company,” “Verde Resources,” “we,” “us,” or “our” are to Verde Resources, Inc. Business Overview The Company is a Nevada corporation that conducts business operations in Pahang Malaysia through Champmark Sdn Bhd (“CSB”), a privately limited liability company incorporated in Malaysia which is a deemed subsidiary under the management control of our 100% subsidiary GBL. On October 25, 2013, we entered into an Assignment Agreement For the Assignment of Management Right in Merapoh Gold Mines in Malaysia (“Assignment Agreement”) with Federal Mining Resources Limited (“FMR”), a company incorporated under the laws of the British Virgin Islands. FMR owns 85% equity interest in CSB, a privately limited liability company incorporated in Malaysia. CSB is the Mining Contractor of the Mining Lease for Site IV-1 at the Merapoh Gold Mine under the Contract for Work with MMC Corporation Berhad, the Permit Holder of the Mining Lease. Under the terms of the Assignment Agreement, FMR assigned its management rights of CSB’s mining operation in the Mining Lease to the Company, through its wholly-owned subsidiary Gold Billion Global Limited (“GBL”), in exchange for 80,000,000 shares of the Company’s common stock, which constituted 95.26% of our issued and outstanding capital stock as of and immediately after the consummation of the acquisition. GBL was established on February 7, 2013, by the Board of Directors of FMR to monitor the CSB operation. The acquisition of 100% of the issued and outstanding capital stock of GBL was agreed upon on October 18, 2013, and completed on October 25, 2013, subject to the approval of the Board of Directors and the audit of GBL. On February 17, 2014, we entered into a Supplementary Agreement to the Assignment Agreement and completed a reverse acquisition of GBL pursuant to the Supplementary Agreement. As a result of the acquisition, the Company holds 100% equity interest in GBL and 85% variable interest in CSB. Our consolidated subsidiaries include GBL being our wholly-owned subsidiary and 85% of CSB being a variable interest entity (VIE) and deemed subsidiary of GBL. On April 1, 2014, GBL purchased 85% equity interest of CSB, and CSB became indirect subsidiary of the Company. 29 Table of Contents Corporate History and Structure Verde Resources, Inc. was incorporated on April 22, 2010, in the State of Nevada, U.S.A. On April 1, 2014, the Board of Directors of Gold Billion Global Limited (“GBL”) notified Federal Mining Resources Limited (“FMR”) upon the decision to exercise the right of option to purchase 85% equity interest of Champmark Sdn Bhd (“CSB”) under Management Agreement Section 3.2.4 dated July 1, 2013, between GBL and FMR. This acquisition was completed on April 1, 2014, with consideration of US$1, and GBL then became 85% shareholder of CSB. Effective February 20, 2016, Mr. Chen Ching was appointed Director of the Company, and the entire Board of Directors now consists of Mr. Balakrishnan B S Muthu and Mr. Chen Ching. Effective February 2, 2018, the Company s Articles of Incorporation were amended to increase the authorized shares of the Company from 250,000,000 shares of common stock to 10,000,000,000 shares of common stock. A copy of the Certificate of Amendment was filed with the Nevada Secretary of State. Effective March 31, 2021, Mr. Carl M. Craven was appointed Director of the Company and the entire Board of Directors now consists of Mr. Balakrishnan B S Muthu, Mr. Chen Ching and Mr. Carl M. Craven. The Form 8-K announcing the change in officers and directors were filed with SEC on April 1, 2021. The following diagram illustrates our current corporate structure: According to ASC 810-05-08 A, CSB is a deemed subsidiary of GBL where GBL has control the Board of Directors of CSB, rights to receive future benefits and residual value, and obligation to absorb loss and finance for CSB. GBL has the power to direct the activities of CSB that most significantly impact CSB’s economic performance and the obligation to absorb losses of CSB that could potentially be significant to the CSB or the right to receive benefits from CSB that could potentially be significant to CSB. GBL is the primary beneficiary of CSB because GBL can direct the activities of CSB through the common directors and 85% shareholder FMR. Under 810-23-42, 43, it is determined that CSB is de-facto agent of the principal GBL and so GBL will consolidate CSB from July 1, 2013. 30 Table of Contents Contractual Arrangements Our exploration and mining business is currently provided through contractual arrangements with CSB through our wholly-owned subsidiary GBL. CSB, the VIE of GBL, sells gold minerals directly to the registered gold trading company in Malaysia. We have been and are expected to continue to be dependent on our VIE to operate our exploration and mining business. GBL has entered into contractual arrangements with its VIE, which enable us to exercise effective control over the VIE, receive substantially all of the economic benefits from the VIE, and have the option to purchase equity interests in the VIE. On July 1, 2013, the Company’s subsidiary GBL entered into a series of agreements (“VIE agreements”) with FMR and details of the VIE agreements are as follows : 1. Management Agreement, FMR entrusted the management rights of its subsidiary CSB to GBL that include: i) management and administrative rights over the day-to-day business affairs of CSB and the mining operation at Site IV-1 of the Merapoh Gold Mine; ii) final right for the appointment of members to the Board of Directors and the management team of CSB; iii) act as principal of CSB; iv) obligation to provide financial support to CSB; v) option to purchase an equity interest in CSB; vi) entitlement to future benefits and residual value of CSB; vii) right to impose no dividend policy; viii) human resources management. 2. Debt Assignment, FMR assigned to GBL the sum of money in the amount of US Dollars Three Hundred Nine Thousand Three Hundred Thirty One And Ninety Two cents (US$ 309,331.92), now due to GBL from CSB under the financing obligation from the FMR to CSB. With the above agreements, GBL controls CSB as the primary beneficiary and the operating results of the VIE was included in the condensed consolidated financial statements for the nine months ended March 31, 2014. CSB holds the operating right to Merapoh Gold Mine (the “Mine”) with all regulatory and government operating licenses in Malaysia. On April 1, 2014, GBL purchased 85% equity interest of CSB, and CSB became indirect subsidiary of the Company. Stage of Operation The Company does not own any title and/or concession right in any mines. The Company is undertaking natural mineral resource extraction management services. The Company has negotiated with Malaysia state agency PKNP on a 2-year lease for a new mining location that is about 5 km from the current Merapoh mine site. For the period between January 2020 to December 2020, there was no production at the Merapoh Gold Mine. The objective of the Company is to improve the productivity at the new mine to ensure that the operation will be carried out effectively and efficiently at minimum cost. 31 Table of Contents Current Mining Property and Location Merapoh Gold Mine (the “Mine”) The Merapoh Gold Mine is located in northern Pahang, with convenient road access through Kelantan directly to mine site and is about 400 kilometers away from Kuala Lumpur. Current State of Exploration: As of the date of this report, the Merapoh Gold Mine property is without significant known reserves. The Merapoh Gold Mine commenced exploratory operation in alluvia mining and achieved its first gold pour in July 2011. Through the years of operation, the Company has performed ongoing exercises to improve upon the matching of processing method with the types of ore in order to optimize cost to recovery ratio. In July 2013, production was outsourced to a reputable subcontractor, and developed a resource management system to match ore against processes to achieve the most cost efficient and highest recovery production procedure. There was no gold ore extraction of the Merapoh Gold Mine and no gold concentrate sold for the period between January 1, 2020 and December 31, 2020. Our revenues have been derived from gold production from the Merapoh Gold Mine, but currently there is no production from that mine and we are not certain that there will be production in the coming future. Management continues to search for mining opportunities to generate revenues for the Company in the future. 32 Table of Contents Results of Operations For the three months ended March 31, 202 1 and 20 20 : We have generated $14,326 and $0 revenues for the three months ended March 31, 2021 and 2020, and have recorded a gross profit of $14,326 and gross profit of $0 for the three months ended March 31, 2021 and 2020. We have incurred $81,605 and $96,858 in operating expenses through March 31, 2021 and March 31, 2020. We have other income $0 and $0 for the three months ended March 31, 2021 and 2020. The following table provides selected financial data about our company for the three months ended March 31, 2021 and March 31, 2020. 3/31/2021 3/31/2020 Change Statement of Operation Amount Amount % Revenue $ 14,326 $ - 100 % Cost of revenue $ - $ - - % Gross Profit (Loss) $ 14,326 $ - 100 % Operating Expenses $ 81,605 $ 96,858 (16 )% Other Income $ - $ - - % For the nine months ended March 31, 202 1 and 20 20 : We have generated $14,326 and $0 revenues for the nine months ended March 31, 2021 and 2020, and have recorded a gross profit of $14,326 and gross profit of $0 for the nine months ended March 31, 2021 and 2020. We have incurred $180,398 and $276,904 in operating expenses through March 31, 2021 and March 31, 2020. We have other income $0 and $0 for the nine months ended March 31, 2021 and 2020. The following table provides selected financial data about our company for the nine months ended March 31, 2021 and March 31, 2020. 3/31/2021 3/31/2020 Change Statement of Operation Amount Amount % Revenue $ 14,326 $ - 100 % Cost of revenue $ - $ - - % Gross Profit (Loss) $ 14,326 $ - 100 % Operating Expenses $ 180,398 $ 276,904 (35 )% Other Income $ - $ - - % The revenue was derived from the sales of wash sand to customers in Malaysia. The increase of revenue for the three months period ended March 31, 2021, was mainly due to seeking new customer of wash sand sales during the three months period. Operating expenses comprised mainly of salaries, office costs, legal and professional fees and travelling expenses. The decrease in operating expenses for the three months period was mainly due to the decrease of salaries during the period. The revenue derived from the sales of wash sand to customers in Malaysia. The increase of revenue for the nine months period ended March 31, 2021, was mainly due to seeking new customer of wash sand sales during the last three months period. Operating expenses comprised mainly of salaries, office costs, legal and professional fees, consultancy service fee, stock-based compensation and travelling expenses. The operating expenses were mainly denominated in MYR and decrease compared with nine months period ended March 31, 2021. Moreover, the average rate of MYR :USD for nine months March 31, 2021 and March 31, 2020 was 0.2430 and 0.2395 respectively. 33 Table of Contents Plan of Operation Our Industry and Principal Markets The report by BMI Research states that global gold mine output growth will pick up in the next few years, supported by higher gold prices and solid projects in key countries. BMI Research forecasts global gold production to increase from 105moz in 2018 to 125moz by 2026, averaging 2.3% annual growth. While a steady pace of growth, this represents a slight deceleration in growth rate compared with the previous eight-year average of 3.1%. Subcontractor In an effort to enhance the efficiency of mine operations at the Merapoh Gold Mine, Champmark Sdn Bhd (“CSB”) entered into an Operation Term Sheet (“OTS”) agreement in July 2013 to outsource the exploitation works of alluvial gold resources at Site IV-1 of the Merapoh Gold Mine to a subcontractor Borneo Oil & Gas Corporation Sdn Bhd (“BOG”). BOG has the experience and local knowledge in managing the exploitation of alluvial gold at the Merapoh Gold Mine. The Company will provide necessary disclosure when any significant agreements have been made with sub-contractors in the future. BOG became the Company’s shareholder in January 29, 2014, and was no longer a third party subcontractor. Expansion Plans The Company has negotiated with Malaysia state agency PKNP on a 2-year lease for a new mining location that is about 5 km from the current Merapoh mine site. The leasing premium has been paid but the mining lease certificate will only be issued upon clearance from the Malaysia Forest Department, which is expected around mid-2021 subject to review on COVID-19 “Movement Control Order” by the Malaysian government. The Company believes that there are excellent growth opportunities for its business outside Malaysia. We are constantly exploring for potential acquisition of mining projects in other parts of the world. As our business is affected by the fluctuations of gold prices, the Company intends to diversify its product line by acquiring mining projects with potential for different mineral resources other than gold. We continue to hold discussions with other mining companies for potential collaboration to carry out exploration and exploitation works on other mineral resources in Southeast Asia regions. Apart from the mining industry, the Company is taking steps to look into investment opportunities in the non-mining areas that include the bioenergy industry and the food & beverage sector. Limited Operating History; Need for Additional Capital There is no historical financial information about us upon which to base an evaluation of our performance. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the exploration of our properties, and possible cost overruns due to price and cost increases in services. We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing could result in additional dilution to existing shareholders. 34 Table of Contents Liquidity and Capital Resources The following table provides selected cash flow data about our company for the nine months ended March 31, 2021 and March 31, 2020. Cash Flow Date 3/31/2021 3/31/2020 Net Profit (Loss) from operation $ (166,072 ) $ (276,904 ) Net Cash Generated/(Used) from operating activities $ (116,928 ) $ (319,588 ) Net Cash Generated/(Used) from investing activities $ - $ - Net Cash Generated/(Used) from financing activities $ - $ (191 ) Effect of exchange rate changes on cash and cash equivalents $ 120,530 $ 328,326 Net increase (decrease) in cash and cash equivalents $ 3,602 $ 8,547 Cash and cash equivalents at beginning of year $ 24,027 $ 10,662 Cash and cash equivalents at end of year $ 27,629 $ 19,209 For the nine months ended March 31, 2021, the Company had incurred net loss from operation of $166,072, which posted a negative impact to the company’s cash flow. The reconciliation on non-cash items such as depreciation and amortization provide positive impact on cash. In the operation analysis, the net cash used in operating activities decreased from $319,588 to $116,928. The $166,072 net loss was partially offset by the noncash expense such as $9,417 in depreciation and amortisation. In the operating assets and liabilities, the net increase in current assets, such as trade receivables was $14,326, whereas the net increase in current liabilities, such as accounts payable, accrued liabilities and advanced from related parties was $54,053, which provided positive cash flow effect to the $166,072 loss in operation. The final result of the cash flow from operating activities was a negative cash flow effect. In the investing and financing cash flow analysis, there was no change for the nine months ended March 31, 2021. Besides, the net increase in exchange rate effect of $120,530 provided a positive cash flow effect. The cash and cash equivalents at the end of March 31, 2021, was increased by $3,602 with $27,629 as a closing balance. The cash flow situation will not allow for operations in the coming next 12 months by self-generated cash provided from operating activities. The Company needs to increase cash flow supplies with a long term plan until the Company makes sustainable profits and has a positive cash flow. Otherwise, loans from related parties may be a temporary solution, although we have no written loan agreements. There is no guarantee that we will be able to secure adequate financing. If we fail to secure sufficient funds, our business activities may be curtailed, or we may cease to operate. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. 35 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a “smaller reporting company”, we are not required to provide the information required by this Item.