What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-11-12 compared with 2020-10-22 · 393 added, 349 removed, 327 unchanged (69% of the section changed)

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(852) 2122 9078

Report of Independent Registered Public Accounting Firm

The board of directors and stockholders of

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(“the Company”)

Report of Independent Registered Public Accounting Firm

Opinion of the Financial Statements

We have audited the accompanying consolidated balance sheets of Verde Resources, Inc.

and its subsidiaries (the “Company”) as of June 30, 2020 and 2019, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for each of the years in the two-year period ended June 30, 2020.

The Company’s management is responsible for these financial statements.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

and its subsidiaries (the “Company”) as of June 30, 2021 and 2020, and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended June 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at June 30, 2021 and 2020, and the consolidated results of its operations and its cash flows for each of the two years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

Consideration of the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 14 to the consolidated financial statements, the Company had a working capital deficiency and accumulated deficit from recurring net losses as of June 30, 2020.

All these factors raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also discussed in Note 14 to the consolidated financial statements.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 15 to the consolidated financial statements, the Company has suffered recurring net losses, and records an accumulated deficits as of June 30, 2021.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 15.

These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

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Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Basis of Presentation and Going Concern – Disclosure

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 15 to the consolidated financial statements, the Company has an accumulated deficit from recurring net losses as of June 30, 2021.

The Company has contractual obligations such as commitments for acquisition of property, plant and equipment, and subsidiaries and promissory notes (collectively “obligations”).

Currently management’s forecasts and related assumptions illustrate their ability to meet the obligations through management of expenditures and, if necessary, obtaining additional debt financing, loans from existing directors and shareholders and private placements of capital stock for additional funding to meet its operating needs.

Should there be constraints on the ability to access such financing, the Company can manage cash outflows to meet the obligations through reductions in capital expenditures and other operating expenditures.

We identified management’s assessment of the Company’s ability to continue as a going concern as a critical audit matter.

Management made judgments to conclude that it is probable that the Company’s plans will be effectively implemented and will provide the necessary cash flows to fund the Company’s obligations as they become due.

Specifically, the judgments with the highest degree of impact and subjectivity in determining it is probable that the Company’s plans will be effectively implemented included its ability to reduce capital expenditures and other operating expenditures, its ability to access funding from the capital market and its ability to obtaining loans from existing directors and shareholders.

Auditing the judgments made by management required a high degree of auditor judgment and an increased extent of audit effort.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included the following, among others:

(i) evaluating the probability that the Company will be able to access funding from the capital market;

(ii) evaluating the probability that the Company will be able to reduce capital expenditures and other operating expenditures if required and (iii) evaluating the probability that the Company will be able to obtain the loan from existing directors and shareholders.

/s/ Centurion ZD CPA & Co.

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Hong Kong, China

October 22, 2020

November 12, 2021

Verde Resources, Inc

Consolidated Balance Sheets

(in US$ except for number of shares)

Current Assets

Cash and cash equivalents

Amount due from related parties

Other receivables

Advanced to related parties

Other deposit & prepayment

Total Current Assets

Long Term Assets

Non-current Assets

Property, plant and equipment

Total Long Term Assets

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Right of use assets

Deposit paid for acquisition of subsidiaries

Deposit paid for acquisition of property, plant and equipment

Total non-current Assets

LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)

Current Liabilities

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Accrual and other payables

Taxation payable

Loans from banks

Total Current Liabilities

Long term Liabilities

Loans from banks (non-current)

Total Long Term Liabilities

Non-current Liabilities

Promissory notes

Total Non-current Liabilities

TOTAL LIABILITIES

STOCKHOLDERS’ DEFICIT

STOCKHOLDERS’ EQUITY(DEFICIT)

Preferred stock, par value $ 0.001 , 50,000,000 shares authorized, none issued and outstanding

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Accumulated deficit

Accumulated other comprehensive income(loss)

Non-controlled interest

Total Stockholders’ Deficit

( 5,913,255 )

( 5,138,406 )

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

Accumulated other comprehensive income

Non-controlled interest

Total Stockholders’ Equity(Deficit)

$ ( 2,293,018 )

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)

The accompanying notes are an integral part of these consolidated financial statements.

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Consolidated Statements of Operations

(In US$ except for number of shares)

Cost of revenue

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LOSS FROM OPERATIONS

OTHER INCOME (EXPENSE)

NET INCOME (LOSS) BEFORE INCOME TAX

$ ( 574,174 )

$ ( 309,402 )

INTEREST EXPENSE

NET LOSS BEFORE INCOME TAX

$ ( 793,007 )

$ ( 309,402 )

Provision of Income Tax

NET INCOME (LOSS)

Non-controlled interest

Net profit (loss) contributed to the group

$ ( 793,007 )

$ ( 309,402 )

Net loss attributable to non-controlling interests

Net loss attributable to shareholders of Verde Resources, Inc.

Other comprehensive income (loss)

Foreign currency translation gain

Comprehensive (loss) income

Basic and Diluted (Loss) Earnings per Common Share

Foreign currency translation adjustment

Comprehensive loss

Comprehensive (gain) loss attributable to non-controlling interests

Comprehensive loss attributable to Verde Resources, Inc.

Basic and Diluted Loss per Common Share

Weighted Average Number of Common Shares Outstanding

Basic and diluted

*Less than $0.01 per share

The accompanying notes are an integral part of these consolidated financial statements.

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Statement of Changes in Stockholders’ Equity (Deficit)

For the years ended June 30, 2021 and 2020

(In US$ except for number of shares)

Common Shares

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Accumulated Other Comprehensive

Income (Loss)

Balance - June 30, 2019

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$ ( 434,777 )

Net profit for the period

$ ( 2,220,831 )

Shares issued

Net loss for the period

Foreign currency translation gain

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$ ( 411,740 )

Shares issued

$ ( 2,293,018 )

Shares issued for debt repayment and acquisition

Shares issued to directors

Shares issued to service providers

Shares issued in private placement

Net loss for the period

Foreign currency translation gain

Foreign currency translation loss

Balance - June 30, 2021

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Cash flows from operating activities:

Net (loss) profit

$ ( 793,007 )

$ ( 309,402 )

Adjustments to reconcile loss to net cash used in operations

Stock-based compensation

Gain on disposal of fixed assets

Issuance of common stock (non-cash)

Interest expenses

Changes in operating assets and liabilities

(Increase) decrease in:

Amount due from related party

Deposits and prepayment

Other receivables

Other deposit & prepayment

Increase (decrease) in:

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Advanced from sub-contractor & related parties

GST Tax payable

Net cash (used in) / provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

Proceeds from disposal of plant and equipment

Payments of fixed assets

Payments of deposit paid for equity acquisition and property, plant and equipment

Advanced to related parties

Acquisitions of right of use assets

Payments of acquisition of property, plant and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from bank loans

Repayments of bank loans

Proceeds from issuance of common stock

Net cash provided by / (used in) financing activities

Net (decrease) / increase in cash and cash equivalents

Net cash provided by financing activities

Net increase / (decrease) in cash and cash equivalents

Effect of exchange rate changes on cash

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Cash and cash equivalents at end of year

Supplementary cash flow information

Income taxes paid

Cash paid during the year for:

Interest paid

Supplementary non-cash investing and financing activities:

Issuance of common stock

- offset accounts payable (note 7)

- offset advanced from related parties (note 7)

- deposit paid for acquisition of subsidiaries (note 6)

- deposit paid for acquisition of property, plant and equipment (note 6)

The accompanying notes are an integral part of these consolidated financial statements.

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The Form 8K announcing the increase of the authorized shares of the Company was filed with SEC on February 6, 2018.

On May 10, 2021, the Company announced the Sale and Purchase Agreement to acquire the assets of biofraction plant and the right to use intellectual property license in Sabah, Malaysia from Borneo Energy Sdn Bhd, in consideration of issuance of 166,666,667 share of the Company’s stock at $ 0.03 per share, valued at $ 5,000,000 .

135,666,667 shares and 31,000,000 shares were issued on May 10, 2021 and July 1, 2021, respectively.

The completion of the S&P Agreement is subject to all such acts necessary, including but not limited to due diligence exercise to ascertain the valuation of the assets of the biofraction plant and the right to use the licensed intellectual property in Sabah, Malaysia.

The consideration shall be refundable if the transaction fails to complete.

The Company also announced the Share Sale Agreement on May 12, 2021 for the acquisition of the entire issued and paid-up share capital of Bio Resources Limited from Taipan International Limited, an unrelated third party, The Wision Project Limited (formerly known as “Borneo Resources Limited”), an unrelated third party, and other individuals unrelated third parties, in consideration of issuance of 321,500,000 shares of the Company’s restricted common stock at $ 0.03 per share, valued at $ 9,645,000 , and the issuance of promissory notes with two-year term period with a principal amount of $ 20,355,000 .

321,500,000 shares were issued on May 12, 2021 and the promissory notes were issued on May 12, 2021.

The face value (principal) amount of $ 20,355,000 is repayable by May 12, 2023, and bearing zero coupon interest.

The promissory note is priced at $ 16,290,550 considering the current market interest rate.

This acquisition is currently in progress and the completion of the S&P Agreement is subject to all such acts necessary, including but not limited to auditing and due diligence exercise to ascertain the valuation of Bio Resources Limited.

The consideration shall be refundable if the transaction fails to complete.

On June 9, 2021, the Company entered into a Settlement of Debt Agreement (the “Debt Settlement Agreement”) with the Company’s creditors Beijing Changxin Wanlin Technology Co., Ltd, Federal Mining Resources Ltd, Federal Capital Investment Limited and Yorkshire Capital Limited (collectively the “Creditors”) to convert a total of USD 1,945,096 of the Company’s accounts payable to the Creditors into equity by increasing the share capital by means of a subscription for 64,836,533 new restricted shares of the Company’s common stock at a subscription price of $ 0.03 per share.

As set out in the Debt Settlement Agreements, the new restricted shares for settlement of the account payable to Beijing Changxin Wanlin Technology Co., Ltd, Federal Mining Resources Ltd and Federal Capital Investment Limited issued to their nominee Internet.com Ltd on June 9, 2021.

On June 11, 2021, GBL entered into a Sale and Purchase of Assets Agreement (the “SPA Agreement”) to purchase a factory site from a Malaysia company Segama Ventures Sdn Bhd (“Segaman Ventures”), an unrelated third party, in order to expand the Company’s biofraction plant in Malaysia.

Under the terms of the SPA Agreement, the acquisition is satisfied by cash payment of $ 1,600,000 in two instalments of $ 800,000 each, one payment upon signing the SPA Agreement, and the second payment within three (3) months from the date of the SPA Agreement.

A deposit of $ 800,000 was paid to Segaman Ventures on June 10, 2021.

The consideration shall be refundable if the transaction fails to complete.

On June 17, 2021, the Company through its prospective indirect subsidiary Bio Resources Limited (“BRL”), a company incorporated under the laws of the Labuan, entered into a Shares Sale Agreement with Hermalis Binti Mohmad Tahir (“Hermalis”), a company incorporated under the laws of the Malaysia, to acquire the entire issued and paid-up share capital of Global Renewables.

Under the terms of the Shares Sale Agreement, the consideration for the acquisition shall be satisfied in full by the payment of Malaysia Ringgit MYR 25,000 upon the execution of the Shares Sale Agreement.

The acquisition of Global Renewables was subject to the successful completion of the acquisition of the entire issued and paid-up share capital of BRL.

Therefore, the acquisition of Global Renewables will dependent upon the successful acquisition of BRL.

On June 18, 2021, GBL entered into a Shares Sale Agreement with Lamax Gold Limited (“LGL”), a company incorporated under the laws of the British Virgin Islands, in relation to acquisition of the remaining 15 % of the issued and paid-up share capital of CSB.

Prior to this acquisition, GBL owned 85 % equity in CSB.

Upon completion of the acquisition, GBL would own the entire issued and paid-up share capital of CSB.

Under the terms of the Shares Sale Agreement, the consideration for the acquisition shall be satisfied in full by the payment of Malaysia Ringgit MYR 150,000 ($ 36,130 ) upon the execution of the Shares Sale Agreement.

A deposit of MYR 150,000 ($ 36,130 ) was paid to LGL on June 21, 2021.

The consideration shall be refundable if the transaction fails to complete.

On August 10, 2021, the Company formed a wholly owned subsidiary, Verde Renewables, Inc., for the purpose of conducting business in Missouri (using palm waste to create biochar and related products).

Another entity, Verde Estates, LLC, was also formed on August 10, 2021 to own property in Missouri.

Verde Estates, LLC is a wholly owned subsidiary of Verde Renewables, Inc.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Basis of Consolidation

The condensed consolidated financial statements include the financial statements of Verde Resources, Inc., its wholly owned subsidiary Gold Billion Global Limited (“GBL”) and the 85% of the deemed subsidiary variable interest of Champmark SDN BHD (“CSB”).

All inter-company balances and transactions between the Company and its subsidiary and variable interest entity (VIE) have been eliminated upon consolidation.

The consolidated financial statements include the financial statements of Verde Resources, Inc., its wholly owned subsidiary Gold Billion Global Limited (“GBL”) and 85% of the indirect subsidiary Champmark SDN BHD (“CSB”).

All inter-company balances and transactions between the Company and its subsidiary and indirect subsidiary have been eliminated upon consolidation.

The Company has adopted ASC Topic 810-10-5-8, “Variable Interest Entities”, which requires a variable interest entity or VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns.

Variable Interest Entity

Variable Interest Entity and Indirect Subsidiary

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:

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GBL then became 85 % shareholder of CSB and is required to consolidate CSB as a subsidiary.

On June 18, 2021, GBL entered into a Shares Sale Agreement to acquire the remaining 15 % of the issued and paid-up share capital of CSB.

GBL would own the entire issued and paid-up share capital of CSB upon completion of the acquisition.

Operating leases

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (Topic 842), which is effective for annual reporting periods (including interim periods) beginning after December 15, 2018, and early adoption is permitted.

The Company adopted the Topic 842 on July 1, 2019 using a modified retrospective and has elected not to recast comparative period in the consolidated financial statements.

The Company leases its facility, which are classified as operating leases in accordance with Topic 842.

Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases) on the commencement date:

(i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis;

and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

At the commencement date, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease.

The right-of-use asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received.

All right-of-use assets are reviewed for impairment.

There was no impairment for right-of-use lease assets as of June 30, 2021.

Use of Estimates

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Cash and Cash Equivalents

Cash and cash equivalents include cash in banks, money market funds, and certificates of term deposits with maturities of less than three months, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value.

Cash and cash equivalents include cash in banks, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value.

The Company had $ 2,117,622 and $ 24,027 in cash and cash equivalents at June 30, 2021 and June 30, 2020, respectively.

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The Company operates in the resource exploration industry that is subject to significant risks and uncertainties, including financial, operational, technological, and other risks associated with operating a resource exploration business, including the potential risk of business failure.

Property and equipment

Property and equipment are stated at cost.

The straight-line depreciation method is used to compute depreciation over the estimated useful lives of the assets with a 5% estimated residual values, as follows:

Land & Buildings

Furniture, fixture and electronic equipment

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred.

Expenditures for major renewals and betterment which substantially extend the useful life of assets are capitalized.

The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income and other comprehensive income in other income or expenses.

Accounts Receivable

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ASC 820 requires companies to disclose assets and liabilities measured on a non-recurring basis in the period in which the re-measurement at fair value is performed.

The Company did not have any convertible bonds as of June 30, 2020 and June 30, 2019.

Foreign Currency Translation

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$1 exchange rate

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718-10 “Compensation-Stock Compensation” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock units, and stock appreciation rights are based on estimated fair values.

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period.

The Company accounts for non-employee stock-based awards at fair value in accordance with the measurement and recognition criteria of ASC 505-50 “Equity-Based Payments to Non-Employees.

Comprehensive Income

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Comprehensive income includes net income and the foreign currency translation changes.

Related Party

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions.

Parties are also considered to be related if they are subject to common control or significant influence, such as a family member or relative, shareholder, or a related corporation.

Non-controlling Interest

The Company’s non-controlling interest represents the minority shareholder’s ownership interest related to the Company’s subsidiary, CSB.

The Company reports its non-controlling interest in subsidiaries as a separate component of equity in the Consolidated Balance Sheets and reports both net loss attributable to the non-controlling interest and net loss attributable to the Company’s common shareholders on the face of the Consolidated Statements of Operations.

The Company’s equity interest in CSB is 85.0 % and the non-controlling stockholder’s interest is 15 %.

This is reflected in the Consolidated Statements of Equity.

Segment Reporting

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Revenue Recognition

In accordance with the ASC Topic 605, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.

The Company derives revenues primarily from the sales of gold mineral to registered gold trading companies in Malaysia.

The Company generally recognizes its revenues at the time of gold sales and its selling price is determined by the prevailing market value of gold bullion quoted by the leading registered gold trading company in Malaysia.

Sales invoice will be duly presented to the trading companies when delivery is completed and revenue is then recognized.

Cost of Revenue

The cost of revenue consists of exploration cost, mine equipment depreciation, production cost, mine site management cost, sub-contractor cost, and royalty and tribute payment which are levied on the gross revenue at the rate of 18% on the invoiced value of gold sales.

Advertising Expenses

Advertising costs are expensed as incurred under ASC Topic 720, “Advertising Costs” .

Advertising expenses incurred for the years ended June 30, 2020 and year ended June 30, 2019 were $0.

In accordance with the ASC Topic 606, “Revenue from Contracts with Customers”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.

The Company derives revenues primarily from the sales of gold mineral or other minerals to registered gold trading companies or other customers in Malaysia.

The Company generally recognizes its revenues in accordance with the following core principles:

at the time of gold or minerals sales, the contract with customers and the performance obligations are identified.

The transaction and selling price is determined by the prevailing market value of gold bullion quoted by the leading registered gold trading company in Malaysia or at an agreed price.

Sales invoice will be prepared to reflect the proper transaction price based on the performance obligation allocation.

After delivery is completed and the performance obligation is satisfied, sales invoice will be presented to the customers and so revenue is then recognized accordingly.

The provision for income taxes is determined in accordance with the provisions of ASC Topic 740, “Accounting for Income Taxes” (“ASC 740”).

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Recent Accounting Pronouncements

The FASB has issued Accounting Standards Update (ASU) No.

2018-01, Leases (Topic 842):Land Easement Practical Expedient for Transition to Topic 842, which clarifies the application of the new leases guidance to land easements and eases adoption efforts for some land easements.

ASU 2018-01 is expected to reduce the cost of adopting the new leases standard for certain land easements.

It is also an attempt to help ensure that companies can make a successful transition to the standard without compromising the quality of information provided to investors about these transactions.

Land easements (also commonly referred to as rights of way) represent the right to use, access, or cross another entity’s land for a specified purpose.

Land easements are used by utility and telecommunications companies, for example, when they need to take a small strip of land, or easement, to bury wires.

Not all companies have historically accounted for them as leases.

Stakeholders pointed out that the requirement to evaluate all old and existing land easements, sometimes numbering in the tens of thousands, to determine if they meet the definition of a lease under the new standard could be very costly.

They also noted there would be limited benefit to applying this requirement, as many of their land easements would not meet the definition of a lease, or even if they met that definition, many of their easements are prepaid and, therefore, already are recognized on the balance sheet.

The land easements ASU addresses this by:

Providing an optional transition practical expedient that, if elected, would not require an organization to reconsider their accounting for existing land easements that are not currently accounted for under the old leases standard;

Clarifying that new or modified land easements should be evaluated under the new leases standard, once an entity has adopted the new standard.

The FASB issued an Accounting Standards Update (ASU No.

2018-02) that helps organizations address certain stranded income tax effects in accumulated other comprehensive income (AOCI) resulting from the Tax Cuts and Jobs Act.

2018-02, Income Statement—Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S.

federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded.

The ASU requires financial statement preparers to disclose:

A description of the accounting policy for releasing income tax effects from AOCI;

Whether they elect to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act;

Information about the other income tax effects that are reclassified.

The amendments affect any organization that is required to apply the provisions of Topic 220, Income Statement—Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP.

The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

Early adoption is permitted.

Organizations should apply the proposed amendments either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S.

federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.

FASB Adds SEC Guidance to the Codification on the Tax Cuts and Jobs Act.

The FASB has issued Accounting Standards Update (ASU) No.

2018-05, Income Taxes (Topic 740):

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

ASU 2018-05 amends certain SEC material in Topic 740 for the income tax accounting implications of the recently issued Tax Cuts and Jobs Act (Act).

ASU 2018-05 adds the following guidance, among other things, to the FASB Accounting Standards Codification™ regarding the Act:

Question 1:If the accounting for certain income tax effects of the Act is not completed by the time a company issues its financial statements that include the reporting period in which the Act was enacted, what amounts should a company include in its financial statements for those income tax effects for which the accounting under Topic 740 is incomplete?

Answer 1:In a company’s financial statements that include the reporting period in which the Act was enacted, a company must first reflect the income tax effects of the Act in which the accounting under Topic 740 is complete.

These completed amounts would not be provisional amounts.

The company would then also report provisional amounts for those specific income tax effects of the Act for which the accounting under Topic 740 will be incomplete but a reasonable estimate can be determined.

For any specific income tax effects of the Act for which a reasonable estimate cannot be determined, the company would not report provisional amounts and would continue to apply Topic 740 based on the provisions of the tax laws that were in effect immediately prior to the Act being enacted.

For those income tax effects for which a company was not able to determine a reasonable estimate (such that no related provisional amount was reported for the reporting period in which the Act was enacted), the company would report provisional amounts in the first reporting period in which a reasonable estimate can be determined.

If an entity accounts for certain income tax effects of the Act under a measurement period approach, what disclosures should be provided?

Answer 2:The staff believes an entity should include financial statement disclosures to provide information about the material financial reporting impacts of the Act for which the accounting under Topic 740 is incomplete, including:

Qualitative disclosures of the income tax effects of the Act for which the accounting is incomplete;

Disclosures of items reported as provisional amounts;

Disclosures of existing current or deferred tax amounts for which the income tax effects of the Act have not been completed;

The reason why the initial accounting is incomplete;

The additional information that is needed to be obtained, prepared, or analyzed in order to complete the accounting requirements under Topic 740;

The nature and amount of any measurement period adjustments recognized during the reporting period;

The effect of measurement period adjustments on the effective tax rate;

When the accounting for the income tax effects of the Act has been completed.

ASU 2018-05 is effective upon inclusion in the FASB Codification.

The FASB has issued an Accounting Standards Update (ASU) intended to reduce cost and complexity and to improve financial reporting for nonemployee share-based payments.

The ASU expands the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services.

Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned.

The ASU supersedes Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees.

The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.

For all other companies, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers.

The FASB has released Accounting Standards Update (ASU) No.

2018-09, Codification Improvements.

ASU 2018-09 affects a wide variety of Topics in the Codification including:

Amendments to Subtopic 220-10,Income Statement— Reporting Comprehensive Income—Overall.

The guidance in paragraph 220-10-45-10B(b) states that taxes not payable in cash are required to be reported as a direct adjustment to paid-in capital.

This requirement conflicts with other guidance in Topic 740,Income Taxes, Subtopic 805-740,Business Combinations—Income Taxes, and Subtopic 852-740,Reorganizations—Income Taxes, which generally states that income taxes and adjustments to those accounts upon a business combination or a bankruptcy that is eligible for fresh-start reporting must be recognized in income.

2018-09 clarifies the guidance in paragraph 220-10-45-10B by removing the generic phrase taxes not payable in cash and adding guidance that is specific to certain quasi-reorganizations.

Amendments to Subtopic 470-50,Debt—Modifications and Extinguishments.The guidance in paragraph 470-50-40-2 requires that the difference between the reacquisition price of debt and the net carrying amount of extinguished debt be recognized in income in the period of extinguishment.

The guidance in that paragraph was not amended by FASB Statement No.

155, Accounting for Certain Hybrid Financial Instruments, or FASB Statement No.

159,The Fair Value Option for Financial Assets and Financial Liabilities;

therefore, it does not specifically address extinguishments of debt when the fair value option is elected.

2018-09 clarifies that:

When the fair value option has been elected on debt that is extinguished, the net carrying amount of the extinguished debt equals its fair value at the reacquisition date, and

Related gains or losses in other comprehensive income must be included in net income upon extinguishment of the debt.

Amendments to Subtopic 480-10,Distinguishing Liabilities from Equity—Overall.The guidance in paragraph 480-10-25-15 prohibits the combination of freestanding financial instruments within the scope of Subtopic 480-10 with noncontrolling interest, unless the combination is required by Topic 815,Derivatives and Hedging.

The example in paragraphs 480-10-55-55 and 480-10-55-59 conflicts with that guidance by stating that freestanding option contracts with the terms in Derivative 2 should be accounted for on a combined basis with the noncontrolling interest.

The source of the example in paragraph 480-10-55-59 is from EITF Issue No.

00-4, “Majority Owner’s Accounting for a Transaction in the Shares of a Consolidated Subsidiary and a Derivative Indexed to the Noncontrolling Interest in That Subsidiary.” Issue 00-4 was nullified by FASB Statement No.

150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, but a conforming amendment to the example in paragraph 480-10-55-59 was not made to align it with the guidance in Statement 150.

The amendment in this Update conforms the guidance in paragraphs 480-10-55-55 and 480-10-55-59 with the guidance in Statement 150.

Amendments to Subtopic 718-740,Compensation—Stock Compensation—Income Taxes.

The guidance in paragraph 718-740-35-2, as amended, is unclear on whether an entity should recognize excess tax benefits (or tax deficiencies) for compensation expense that is taken on the entity’s tax return.

The amendment to paragraph 718-740-35-2 in ASU No.

2018-09 clarifies that an entity should recognize excess tax benefits (that is, the difference in tax benefits between the deduction for tax purposes and the compensation cost recognized for financial statement reporting) in the period when the tax deduction for compensation expense is taken on the entity’s tax return.

This includes deductions that are taken on the entity’s return in a different period from when the event that gives rise to the tax deduction occurs and the uncertainty about whether (1) the entity will receive a tax deduction and (2) the amount of the tax deduction is resolved.

Amendments to Subtopic 805-740,Business Combinations— Income Taxes.

The amendments to paragraph 805-740-25-13 removes a list of three methods for allocating the consolidated tax provision to an acquired entity after acquisition that is inconsistent with guidance in Topic 740.

The three methods for tax allocation described in paragraph 805-740-25-13 do not follow the broad principles of being systematic, rational, and consistent with Topic 740.

The amendment removes the allocation methods in paragraph 805-740-25-13 and conforms the guidance in Subtopic 805-740 with the guidance in Topic 740.

Amendments to Subtopic 815-10,Derivatives and Hedging— Overall.

The amendment to paragraphs 815-10-45-4 and 815-10-45-5 in ASU No.

2018-09 clarifies the circumstances in which derivatives may be offset.

Under certain specific conditions, derivatives may be offset if three of the four criteria in paragraph 210-20-45-1 are met.

One of the criteria—the intent to set off—is not required to offset derivative assets and liabilities for certain amounts arising from derivative instruments recognized at fair value and executed with the same counterparty under a master netting agreement.

Amendments to Subtopic 820-10,Fair Value Measurement— Overall.

The amendments to paragraph 820-10-35-16D in ASU No.

2018-09 clarify the Board’s decisions about the measurement of the fair value of a liability or instrument classified in a reporting entity’s shareholder’s equity from the perspective of a market participant that holds an identical item as an asset at the measurement date.

A technical inquiry questioned how transfer restrictions embedded in an asset should affect the fair value of the corresponding liability or equity instrument from the perspective of the issuer.

The amendments correct the wording of paragraph 820-10-35-16D to clarify how an entity should account for those restrictions.

The amendments are not intended to substantively change the application of GAAP.

However, it is possible that the amendments may result in a change to existing practice for some entities.

The amendments to paragraphs 820-10-35-18D through 35-18F and 820-10-35- 18H through 35-18L revise the current guidance to allow portfolios of financial instruments and nonfinancial instruments accounted for as derivatives in accordance with Topic 815 to use the portfolio exception to valuation.

The amendments improve guidance by adding wording that explicitly states that a group of financial assets, financial liabilities, nonfinancial items accounted for as derivatives in accordance with Topic 815, or a combination of these items that otherwise meet the criteria to do so are permitted to apply the portfolio exception for measuring fair value of the group.

This allows entities to measure fair value on a net basis for those portfolios in which financial assets and financial liabilities and nonfinancial instruments are managed and valued together.

Amendments to Subtopic 940-405,Financial Services—Brokers and Dealers—Liabilities.

Paragraph 940-405-55-1 contains incomplete guidance about offsetting on the balance sheet.

The current guidance focuses only on explicit settlement dates as a determining criterion for offsetting when, in fact, an entity should consider all the requirements in Section 210-20-45,Balance Sheet—Offsetting—Other Presentation Matters, to determine whether a right of offset exists.

There is similar guidance in paragraph 942-210-45-3.

Paragraphs 940-405-55-1 and 942-210-45- 3 originated from two different AICPA Audit and Accounting Guides and paraphrase the guidance in Subtopic 210-20, albeit each slightly differently.

The Board decided to amend both paragraphs so that the industry Topic guidance refers to the complete guidance for offsetting.

Amendments to Subtopic 962-325,Plan Accounting—Defined Contribution Pension Plans—Investments—Other.The amendment to Subtopic 962-325 removes the stable value common collective trust fund from the illustrative example in paragraph 962-325-55-17 to avoid the interpretation that such an investment would never have a readily determinable fair value and, therefore, would always use the net asset value per share practical expedient.

Rather, a plan should evaluate whether a readily determinable fair value exists to determine whether those investments may qualify for the practical expedient to measure at net asset value in accordance with Topic 820.

Transition and Effective Date.

The transition and effective date guidance is based on the facts and circumstances of each amendment.

Some of the amendments in ASU No.

2018-09 do not require transition guidance and will be effective upon issuance of ASU No.

However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities.

In addition, there are some conforming amendments in ASU No.

2018-09 that have been made to recently issued guidance that is not yet effective that may require application of the transition and effective date guidance in the original ASU.

For example, there are conforming amendments to Topic 820 and Subtopic 944-310, Financial Services—Insurance—Receivables, that are related to the amendments in Accounting Standards Update No.

2016-01, Financial Instruments—Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities, which require application of the transition and effective date guidance in that ASU.

The FASB has issued Accounting Standards Update (ASU) No.

2018-10, Codification Improvements to Topic 842, Leases.

2018-10, among other things, amends Topic 842 as follows:

Residual Value Guarantees - Paragraph 460-10-60-32 in Topic 460, Guarantees - This paragraph incorrectly refers readers to the guidance in Topic 842 about sale-leaseback-sublease transactions, when, in fact, it should refer readers to the guidance about guarantees by a seller-lessee of the underlying asset’s residual value in a sale and leaseback transaction.

The amendment corrects the cross-reference in paragraph 460-10-60-32.

Rate Implicit in the Lease - The amendment clarifies that a rate implicit in the lease of zero should be used when applying the definition of the term “rate implicit” in the lease results in a rate that is less than zero.

Lessee Reassessment of Lease Classification - The amendment consolidates the requirements about lease classification reassessments into one paragraph and better articulates that an entity should perform the lease classification reassessment on the basis of the facts and circumstances, and the modified terms and conditions, if applicable, as of the date the reassessment is required.

Lessor Reassessment of Lease Term and Purchase Option - The amendment clarifies that a lessor should account for the exercise by a lessee of an option to extend or terminate the lease or to purchase the underlying asset as a lease modification unless the exercise of that option by the lessee is consistent with the assumptions that the lessor made in accounting for the lease at the commencement date of the lease (or the most recent effective date of a modification that is not accounted for as a separate contract).

Variable Lease Payments That Depend on an Index or a Rate - The amendment clarifies that a change in a reference index or rate upon which some or all of the variable lease payments in the contract are based does not constitute the resolution of a contingency subject to the guidance in paragraph 842-10-35-4(b).

Variable lease payments that depend on an index or a rate should be remeasured, using the index or rate at the remeasurement date, only when the lease payments are remeasured for another reason (that is, when one or more of the events described in paragraph 842-10-35- 4(a) or (c) occur or when a contingency unrelated to a change in a reference index or rate under paragraph 842-10-35-4(b) is resolved).

Investment Tax Credits - There is an inconsistency in terminology used about the effect that investment tax credits have on the fair value of the underlying asset between the definition of the term rate implicit in the lease and the lease classification guidance in paragraph 842-10-55-8.

The amendment removes that inconsistency by clarifying that the period covered by a lessor-only option to terminate the lease is included in the lease term.

Lease Term and Purchase Option - The description in paragraph 842-10-55- 24 about lessor-only termination options is inconsistent with the description in paragraph 842-10-55- 23 about the noncancellable period of a lease.

The amendment removes that inconsistency by clarifying that the period covered by a lessor-only option to terminate the lease is included in the lease term.

Transition Guidance for Amounts Previously Recognized in Business Combinations - The transition guidance for lessors in paragraph 842-10-65-1(h)(3) is unclear because it relates to leases classified as direct financing leases or sales-type leases under Topic 840, while the lead-in sentence to paragraph 842-10-65-1(h) provides transition guidance for leases classified as operating leases under Topic 840.

The amendment clarifies that paragraph 842-10-65-1(h)(3) applies to lessors for leases classified as direct financing leases or sales-type leases under Topic 842, not Topic 840.

In other words, paragraph 842- 10-65-1(h)(3) applies when an entity does not elect the package of practical expedients in paragraph 842-10-65-1(f), and, for a lessor, an operating lease acquired as part of a previous business combination is classified as a direct financing lease or a sales-type lease when applying the lease classification guidance in Topic 842.

The amendment also cross-references to other transition guidance applicable to those changes in lease classification for lessors.

Certain Transition Adjustments - The amendments clarify whether to recognize a transition adjustment to earnings rather than through equity when an entity initially applies Topic 842 retrospectively to each prior reporting period.

Transition Guidance for Leases Previously Classified as Capital Leases under Topic 840 - Paragraph 842-10-65-1(r) provides guidance to lessees for leases previously classified as capital leases under Topic 840 and classified as finance leases under Topic 842.

Paragraph 842-10-65-1(r)(4) provides subsequent measurement guidance before the effective date when an entity initially applies Topic 842 retrospectively to each prior reporting period, but it refers readers to the subsequent measurement guidance in Topic 840 about operating leases.

It should refer them to the subsequent measurement guidance applicable to capital leases.

The amendment corrects that reference.

Transition Guidance for Modifications to Leases Previously Classified as Direct Financing or Sales-Type Leases under Topic 840 - Paragraph 842-10-65-1(x) provides transition guidance applicable to lessors for leases previously classified as direct financing leases or sales-type leases under Topic 840 and classified as direct financing leases or sales-type leases under Topic 842.

For modifications to those leases beginning after the effective date, paragraph 842-10-65-1(x)(4) refers readers to other applicable guidance in Topic 842 to account for the modification, specifically paragraphs 842-10-25-16 through 25- 17, depending on how the lease is classified after the modification.

Stakeholders noted that it should refer to how the lease is classified before the modification to be consistent with the guidance provided in paragraphs 842-10-25-16 through 25-17.

The amendment corrects that inconsistency.

Transition Guidance for Sale and Leaseback Transactions - The amendments clarify that the transition guidance on sale and leaseback transactions in paragraph 842-10-65-1(aa) through (ee) applies to all sale and leaseback transactions that occur before the effective date and corrects the referencing issues noted.

Impairment of Net Investment in the Lease - Paragraph 842-30-35-3 provides guidance to lessors for determining the loss allowance of the net investment in the lease and describes the cash flows that should be considered when the lessor determines that loss allowance.

Stakeholders questioned whether the guidance, as written, would accelerate and improperly measure the loss allowance because the cash flows associated with the unguaranteed residual asset appear to be excluded from the evaluation.

The amendment clarifies the application of the guidance for determining the loss allowance of the net investment in the lease, including the cash flows to consider in that assessment.

Unguaranteed Residual Asset - The amendment clarifies that a lessor should not continue to accrete the unguaranteed residual asset to its estimated value over the remaining lease term to the extent that the lessor sells substantially all of the lease receivable associated with a direct financing lease or a sales-type lease, consistent with Topic 840.

Effect of Initial Direct Costs on Rate Implicit in the Lease - The ordering of the illustration in Case C of Example 1 in paragraphs 842-30-55- 31 through 55-39 raised questions about how initial direct costs factor into determining the rate implicit in the lease for lease classification purposes for lessors only.

The amendment more clearly aligns the illustration to the guidance in paragraph 842-10-25-4.

Failed Sale and Leaseback Transaction - The amendment clarifies that a seller lessee in a failed sale and leaseback transaction should adjust the interest rate on its financial liability as necessary to ensure that the interest on the financial liability does not exceed the total payments (rather than the principal payments) on the financial liability.

This clarification is also reflected in the relevant illustration on failed sale and leaseback transactions that is contained in Subtopic 842-40.

The FASB has issued Accounting Standards Update (ASU) No.

2018-11, Leases (Topic 842):

Targeted Improvements.

This ASU is intended to reduce costs and ease implementation of the leases standard for financial statement preparers.

“The targeted improvements in the ASU address areas our stakeholders identified as sources of unnecessary cost or complexity in the leases standard,” stated FASB Chairman Russell G.

“They represent the FASB’s commitment to proactively address implementation issues raised by our stakeholders to ensure a successful transition to the new standard without compromising the quality of information provided to investors.”

ASU 2018-11 provides a new transition method and a practical expedient for separating components of a contract.

The FASB has issued Accounting Standards Update (ASU) No.

2019-01, Leases (Topic 842):

Codification Improvements .

The new ASU aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance.

As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply.

However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value (in Topic 820, Fair Value Measurement) should be applied.

The ASU also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities.

Finally, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard.

In June 2016, the FASB issued Accounting Standards Update No.

2016-13, In June 2016, the FASB issued Accounting Standards Update No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology.

The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification.

Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities.

Since the issuance of Update 2016-13, the Board has assisted stakeholders in implementing the amendments formally through the activities of the Credit Losses Transition Resource Group (TRG) and informally through other implementation assistance activities.

Through this assistance, the Board has identified certain areas that require clarification and improvement.

The FASB received several agenda request letters asking that the Board consider amending the transition guidance for Update 2016-13.

The entities that submitted the agenda request letters noted that certain financial statement preparers have begun (or are planning) to elect the fair value option on newly originated or purchased financial assets, although those entities historically have measured similar financial assets at amortized cost basis.

Without the targeted transition relief provided by the amendments in this Update, those entities noted that they would be required to maintain dual measurement methodologies for identical or similar financial instruments that are being managed in the same manner and that they would not provide financial statement users with decision-useful information because the financial statement information would not be comparable.

That is, the portion of an entity’s financial instruments measured at fair value may not be comparable to other identical, or similar, financial instruments measured at amortized cost basis that are owned by the same entity.

The amendments in this Update address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis.

For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets.

Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information.

Comparative Reporting at Adoption

The amendments ASU 2018-11 provide entities with an additional (and optional) transition method to adopt the new leases standard.

Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption consistent with preparers’ requests.

Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP in Topic 840, Leases.

An entity that elects this additional (and optional) transition method must provide the required Topic 840 disclosures for all periods that continue to be in accordance with Topic 840.

The amendments do not change the existing disclosure requirements in Topic 840 (for example, they do not create interim disclosure requirements that entities previously were not required to provide).

Separating Components of a Contract

The amendments in ASU 2018-11 provide lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue guidance (Topic 606) and both of the following are met:

The timing and pattern of transfer of the nonlease component(s) and associated lease component are the same.

The lease component, if accounted for separately, would be classified as an operating lease.

An entity electing this practical expedient (including an entity that accounts for the combined component entirely in Topic 606) is required to disclose certain information, by class of underlying asset, as specified in the ASU.

Effective Date

The amendments in ASU 2018-11 related to separating components of a contract affect the amendments in ASU No.

2016-02, which are not yet effective but can be early adopted.

For entities that have not adopted Topic 842 before the issuance of this ASU, the effective date and transition requirements for the amendments in this update related to separating components of a contract are the same as the effective date and transition requirements in ASU 2016-02.

For entities that have adopted Topic 842 before the issuance of ASU 2018-11, the transition and effective date of the amendments related to separating components of a contract in this ASU are as follows:

The practical expedient may be elected either in the first reporting period following the issuance of this ASU or at the original effective date of Topic 842 for that entity.

The practical expedient may be applied either retrospectively or prospectively.

The FASB has further issued Accounting Standards Update (ASU) No.

2019-01, Leases (Topic 842):

Codification Improvements.

The new ASU aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance.

As a result, the fair value of the underlying asset at lease commencement is its cost, reflecting any volume or trade discounts that may apply.

The ASU also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities.

Finally, the ASU exempts both lessees and lessors from having to provide certain interim disclosures in the fiscal year in which a company adopts the new leases standard.

All entities, including early adopters that elect the practical expedient related to separating components of a contract in this ASU must apply the expedient, by class of underlying asset, to all existing lease transactions that qualify for the expedient at the date elected.

Recent Adopted Accounting Standards

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value hierarchy.

The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures.

The Company applied the new standard beginning January 1, 2020.

The adoption of this standard did not have an impact on the Company’s consolidated financial position, results of operations and cash flows.

Recently issued accounting pronouncements not yet adopted

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost.

Adoption of the ASUs is on a modified retrospective basis.

As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022.

The Company is currently evaluating the impact that the standard will have on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU No.

2017-04, simplifying the Test for Goodwill Impairment.

The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.

A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

The guidance should be adopted on a prospective basis.

As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022, with early adoption permitted.

The Company is currently evaluating the impact of adopting this standard on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities.

The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted.

Upon adoption, we must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.

The Company is evaluating the impact this update will have on our financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”).

ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur.

The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity.

This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt:

Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock;

(2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification;

and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method.

In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.

For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period.

The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.

NOTE 3 - CASH AND CASH EQUIVALENT

1 unchanged sentence

As of June 30, 2021 and June 30, 2020 cash and cash equivalents consisted of bank deposits in banks in Malaysia and petty cash on hands.

NOTE 4 - AMOUNT DUE FROM RELATED PARTIES

Amount due from related parties at June 30, 2020 and June 30, 2019 consist of the following items:

Amount due from Stable Treasure Sdn.

NOTE 4 - OTHER RECEIVABLE, AND ADVANCED TO RELATED PARTIES -

Other receivables

Other receivables at June 30, 2021 and June 30, 2020 consist of the following items:

Other receivable

allowance for doubtful debts

Advanced to related parties

Advanced from related parties at June 30, 2021 and June 30, 2020 consist of the following items:

Advanced to Global Renewable Sdn Bhd (#1) (note 1)

______________

(*) One of the directors of Stable Treasure Sdn.

Balakrishnan B S Muthu is also the director of the Company.

The advances related to ordinary business transactions and bear no interest or collateral, repayable and renewable under normal business advancement terms.

NOTE 5 - INVENTORIES

Inventories are valued at cost, not in excess of market.

Inventories are determined at first in first out basis and comprised of production cost, mine site management cost and sub-contractor cost.

Inventories, at June 30, 2020 and June 30, 2019 are summarized as follows:

The inventories represent the gold minerals as at June 30, 2020 and June 30, 2019, which were comprised of 8% share by the Company and 92% share by the sub-contractor and the other parties such as original mine assigner.

(#1) Balakrishnan B.S.

Muthu is the common director of Global Renewable Sdn Bhd and the Company.

The advances are related to ordinary business transactions and bear no interest or collateral, repayable and renewable under normal business advancement terms.

NOTE 5 - OPERATING LEASE

As of June 30, 2021, the Company leases minings space under a non-cancelable operating lease, with terms of two years.

Lease expense for lease payment is recognized on a straight-line basis over the lease term.

On June 14 2021, a lump sum payment of RM260,500 ($ 62,754 ) was made upfront to rent the mining space with lease period for 2 years up to June 13, 2023, and no ongoing payments will be made under the terms of these mining leases.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The table below presents the operating lease related assets and liabilities recorded on the balance sheets.

Balance as at the beginning of period

Amortization charge for the year

Foreign exchange adjustment

Balance as of June 30, 2021

Amortization charge of rights of use lease assets was $2,636 and $nil for the years ended June 30, 2021 and 2020.

Lease term and discount rate

Weighted-average remaining lease term - years

NOTE 6 - DEPOSIT AND PREPAYMENT

At June 30, 2021 and June 30, 2020 deposit and prepayment consists of the following:

Deposits paid for acquisition of subsidiaries

- Bio Resources Limited (#1)

- Champmark Sdn Bhd (#2)

Deposits paid for acquisition of property, plant and equipment

- Intellectual property license (#3)

- Factory site (#4)

(#1) The Company announced the Share Sale Agreement on May 12, 2021 for the acquisition of the entire issued and paid-up share capital of Bio Resources Limited from Taipan International Limited, an unrelated third party, The Wision Project Limited (formerly known as “Borneo Resources Limited”), an related third party, and other individuals unrelated third parties, in consideration of issuance of 321,500,000 shares of the Company’s restricted common stock at $ 0.03 per share, valued at $ 9,645,000 , and the issuance of promissory notes with two-year term period with a principal amount of $ 20,355,000 .

321,500,000 shares were issued on May 12, 2021 and the promissory notes were issued on May 12, 2021.

The face value (principal) amount of $20,355,000 is repayable by May 12, 2023, and bearing zero coupon interest.

The promissory note is priced at $ 16,290,550 considering the current market interest rate.

The consideration shall be refundable if the transaction fails to complete.

(#2) On June 18, 2021, GBL entered into a Shares Sale Agreement with Lamax Gold Limited (“LGL”), a company incorporated under the laws of the British Virgin Islands, in relation to acquisition of the remaining 15% of the issued and paid-up share capital of CSB.

Prior to this acquisition, GBL owned 85 % equity in CSB.

Upon completion of the acquisition, GBL would own the entire issued and paid-up share capital of CSB.

Under the terms of the Shares Sale Agreement, the consideration for the acquisition shall be satisfied in full by the payment of Malaysia Ringgit MYR 150,000 ($36,130) upon the execution of the Shares Sale Agreement.

A deposit of MYR 150,000 ($36,130) was paid to LGL on June 21, 2021.

The consideration shall be refundable if the transaction fails to complete.

(#3) On May 10, 2021, the Company announced the Sale and Purchase Agreement to acquire the assets of biofraction plant and the right to use intellectual property license in Sabah, Malaysia from Borneo Energy Sdn Bhd, in consideration of issuance of 166,666,667 share of the Company’s stock at $ 0.03 per share, valued at $ 5,000,000 .

135,666,667 shares and 31,000,000 shares were issued on May 10, 2021 and July 1, 2021, respectively.

This acquisition is currently in progress and the completion of the S&P Agreement is subject to all such acts necessary, including but not limited to due diligence exercise to ascertain the valuation of the assets of the biofraction plant and the right to use the licensed intellectual property in Sabah, Malaysia.

The consideration shall be refundable if the transaction fails to complete.

(#4) On June 11, 2021, GBL entered into a Sale and Purchase of Assets Agreement (the “SPA Agreement”) to purchase a factory site from a Malaysia company Segama Ventures Sdn Bhd (“Segaman Ventures”), an unrelated third party, in order to expand the Company’s biofraction plant in Malaysia.

A deposit of $ 800,000 was paid to Segaman Ventures on June 10, 2021.

The consideration shall be refundable if the transaction fails to complete.

NOTE 7 - ACCOUNTS PAYABLE AND ADVANCED FROM RELATED PARTIES

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Accounts payable at June 30, 2021 and June 30, 2020 consist of the following items:

Due to Changxin Wanlin Technology Co Ltd(*)

Due to Beijing Changxin Wanlin Technology Co., Ltd.

Other accounts payable

______________

(*) Due to Changxin Wanlin Technology Co Ltd are accounts payable derived from ordinary business transactions.

One of the directors of Changxin Wanlin Technology Co.

Wu Ming Ding, has resigned as director of VRDR (as of February 20, 2016), GBL (as of February 11, 2016) and CSB (as of February 17, 2016).

(*) Due to Beijing Changxin Wanlin Technology Co., Ltd.

are accounts payable derived from ordinary business transactions.

One of the directors of Beijing Changxin Wanlin Technology Co., Ltd., Mr.

Wu Ming Ding, has resigned as director of VRDR (on February 20, 2016), GBL (as of February 11, 2016) and CSB (on February 17, 2016).

This accounts payable bears no interest or collateral, repayable and renewable under normal business accounts payable terms.

On June 9, 2021, the Company entered into a Settlement of Debt Agreement (the “Debt Settlement Agreement”) with Beijing Changxin Wanlin Technology Co., Ltd.

to convert a total of USD 1,602,631 of the Company’s accounts payable to the creditor as of December 31, 2020 into equity by means of a subscription for 53,421,033 new restricted shares of the Company’s common stock at a subscription price of $0.03 per share.

Advanced from related parties

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______________

(#1) BOG is one of the shareholders of the Company.

(#1) Borneo Oil and Gas Corporation SDN (“BOG”) is a wholly owned subsidiary of Borneo Oil Berhad (“BOB”) (holding 20.0% and 23.0% of the Company’s issued and outstanding common stock as of June 30, 2021 and November 10, 2021, respectively).

BOG is one of the shareholders of the Company and did not own any shares of the Company since April 28, 2017.

The advances are related to ordinary business transactions and bear no interest or collateral, repayable and renewable under normal business advancement terms.

(#2) One of the directors of Federal Mining Resources Limited, Mr.

Chen Ching, has been appointed as director of the Company effective February 20, 2016.

Chen Ching, has been appointed as director of the Company effective on February 20, 2016.

Another director of Federal Mining Resources Limited, Mr.

Wu Ming Ding, has resigned as director of the Company effective February 20, 2016.

Wu Ming Ding, has resigned as director of the Company effective on February 20, 2016.

The advances are related to ordinary business transactions and bear no interest or collateral, repayable and renewable under normal business advancement terms.

On June 9, 2021, the Company entered into a Settlement of Debt Agreement (the “Debt Settlement Agreement”) with Federal Mining Resources Limited, to convert a total of USD 173,465 of the Company’s accounts payable to the creditor as of December 31, 2020 into equity by means of a subscription for 5,782,167 new restricted shares of the Company’s common stock at a subscription price of $ 0.03 per share.

(#3) One of the directors of Federal Capital Investment Limited, Mr.

Wu Ming Ding, has resigned as director of the Company effective February 20, 2016.

Wu Ming Ding, has resigned as director of the Company effective on February 20, 2016.

The advances are related to ordinary business transactions and bear no interest or collateral, repayable and renewable under normal business advancement terms.

On June 9, 2021, the Company entered into a Settlement of Debt Agreement (the “Debt Settlement Agreement”) with Federal Capital Investment Limited, to convert a total of USD 142,000 of the Company’s accounts payable to the creditor as of December 31, 2020 into equity by means of a subscription for 4,733,333 new restricted shares of the Company’s common stock at a subscription price of $ 0.03 per share.

(#4) One of the directors of Yorkshire Capital Limited, Mr.

Lai Kui Shing, Andy, has resigned as director of CSB effective February 17, 2016.

Lai Kui Shing, Andy, has resigned as director of CSB effective on February 17, 2016.

The advances are related to ordinary business transactions and bear no interest or collateral, repayable and renewable under normal business advancement terms.

On June 9, 2021, the Company entered into a Settlement of Debt Agreement (the “Debt Settlement Agreement”) with its creditor Yorkshire Capital Limited, to convert a total of USD 27,000 of the Company’s accounts payable to the creditor as of December 31, 2020 into equity by means of a subscription for 900,000 new restricted shares of the Company’s common stock at a subscription price of $ 0.03 per share.

NOTE 8 - PROPERTY, PLANT AND EQUIPMENT

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Accumulated depreciation

The depreciation expenses charged for the year ended June 30, 2020 and 2019 were $126 and $6,016 respectively.

NOTE 8 - LOANS FROM BANKS (HIRE PURCHASE INSTALLMENT LOANS)

The loans from banks include long term and short term and are summarized as follow:

Loans from banks

Loans from banks(non-current)

Hire purchase installment loans with total amount $0 and $194 as at June 30, 2020, and June 30, 2019, are $0 and $193 net of imprest charges equivalent to interest $0 and $1 respectively are summarized as follows:

Financial institution in Malaysia

Hire purchase loans payable to banks

( 1,682,358 )

(*) Hire purchase installment loans with Motor Vehicles as collateral.

The financial institutions in Malaysia are Islamic banks and bear no interest in the installment agreement.

However, there are certain imprest charges equivalent to interests which are being calculated at an average annual rate of approximate 0.42% for the rest of entire loans life and periods.

( 1,629,871 )

The depreciation expenses charged for the year ended June 30, 2021 and 2020 were $ 170 and $ 126 respectively.

NOTE 9 - PROMISSORY NOTES

On May 10, 2021, the Company announced the Share Sale Agreement on May 12, 2021 for the acquisition of the entire issued and paid-up share capital of Bio Resources Limited from Taipan International Limited, an unrelated third party, The Wision Project Limited (formerly known as “Borneo Resources Limited”), an un-related third party, and other individuals unrelated third parties, in consideration of issuance of 321,500,000 shares of the Company’s restricted common stock at $0.03 per share, valued at $ 9,645,000 , and the issuance of promissory notes with two-year term period with a principal amount of $ 20,355,000 .

321,500,000 shares were issued on May 12, 2021 and the promissory notes were issued on May 12, 2021.

The face value (principal) amount of $ 20,355,000 is repayable by May 12, 2023, and bearing zero coupon interest.

The fair value of the outstanding promissory notes was calculated with the following assumptions:

Risk free rate

Credit spread

Liquidity risk premium

The following is a reconciliation of the beginning and ending balances of promissory notes payable using Level 3 inputs:

Balance at the beginning of period

Promissory notes issued to unrelated third parties at fair value

Interest expense

Balance at the end of period

The Company recorded $ 245,392 and nil interest expense for the year ended June 30, 2021 and 2020, respectively.

NOTE 10 - INCOME TAX

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A reconciliation between the income tax computed at the relevant statutory rate and the Company’s provision for income tax is as follows:

For the period

US Federal Income Tax Rate.

Valuation allowance - US Rate

BVI Income Tax Rate

Valuation allowance - BVI Rate

Malaysia Income Tax Rate

Valuation allowance - Malaysia Rate

Provision for income tax

Loss before income taxes

Non-deductible items/non-taxable income

Tax effect of tax exempt entity

Share based payments

Changes in valuation allowances

Effect of different tax rate of subsidiaries operating in other jurisdictions

Effective tax rate

Summary of the Company’s net deferred tax liabilities and assets are as follows:

Deferred tax assets:

Tax attribute carryforwards

Tax attribute carry forwards

Valuation allowances

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NOTE 11 - COMMITMENTS AND CONTINGENCIES

As at June 30, 2020, the Company’s office rent has expired and is currently being rent under month to month term.

There are no commitments and contracts on such rental expenses as at June 30, 2020.

As at June 30, 2020, the Company’s hire purchase installment agreements are disclosed in Note 8.

See Note 8 for the commitments for minimum installment payments under these agreements.

NOTE 11 - EARNINGS/(LOSS) PER SHARE

As of June 30, 2021, the Group had the following contracted capital commitments:

For purchase of property, plant and equipment

For acquisition of subsidiary

NOTE 12 - LOSS PER SHARE

The Company has adopted ASC Topic No.

260, “Earnings Per Share,” (“EPS”) which requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures, and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation.

In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year.

In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year.

The following table sets forth the computation of basic and diluted earnings per share:

Year Ended June 30,

Net (loss) / profit applicable to common shares

Weighted average common shares outstanding (Basic)

Weighted average common shares outstanding (Diluted)

Net (loss) / earnings per share (Basic and Diluted)

$ ( 793,007 )

$ ( 309,402 )

Net loss attributable to non-controlling interests

Net loss attributable to shareholders of Verde Resources, Inc.

Weighted average shares used in basic and diluted computation

Net loss per share (Basic and Diluted)

*Less than $0.01 per share

The Company has no potentially dilutive securities, such as options or warrants, currently issued and outstanding.

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Share Issuance

On June 15, 2020, the Company issued a total of 1,000,000 common shares for US$12,000 at US$0.012 per share, of which 50,000 common shares to each of the twenty non-US shareholders.

135,666,667 shares and 31,000,000 shares were issued on May 10, 2021 and July 1, 2021, respectively.

On May 12, 2021, the Company, through its wholly-owned subsidiary GBL, entered into a Share Sale Agreement in relation to acquisition of the entire issued and paid-up share capital of Bio Resources Limited with Taipan International Limited, an unrelated third party, The Wision Project Limited (formerly known as “Borneo Resources Limited”), an unrelated third party and other individuals unrelated third parties, in consideration of issuance of 321,500,000 shares of the Company’s restricted common stock at $ 0.03 per share, valued at $9,645,000, and the issuance of promissory notes two-year term period a principal amount of $ 20,355,000 .

321,500,000 shares were issued on May 12, 2021 and the promissory notes were issued on May 12, 2021.

The face value (principal) amount of $ 20,355,000 is repayable by May 12, 2023, and bearing zero coupon interest.

The promissory note is priced at $16,290,550 considering the current market interest rate.

On June 4, 2021, the Company issued a total of 65,900,000 restricted common shares for US$ 1,647,500 at US$ 0.025 per share to six non-US shareholders, who Borneo Oil Berhad and Victor Subbrayan Paul are existing shareholders

On June 9, 2021, the Company entered into a Settlement of Debt Agreement (the “Debt Settlement Agreement”) with the Company's creditors Beijing Changxin Wanlin Technology Co., Ltd, Federal Mining Resources Ltd, Federal Capital Investment Limited and Yorkshire Capital Limited (collectively the “Creditors”) to convert a total of USD 1,945,096 of the Company’s accounts payable to the Creditors into equity by increasing the share capital by means of a subscription for 64,836,533 new restricted shares of the Company’s common stock at a subscription price of $ 0.03 per share.

On June 10, 2021, the Company issued a total of 4,690,500 restricted common shares at US$ 0.03 per share to each of the two directors, of which 2,095,233 restricted common shares to Balakrishnan B S Muthu and 2,595,267 restricted common shares to Chen Ching to serve as a director of the Company for a one-year term (from July 1, 2020 to June 30, 2021).

An aggregate of $ 140,715 for this transaction was recognized as stock-based compensation under selling, general and administrative expenses for the year ended June 30, 2021.

On June 10, 2021, the Company issued a total of 13,009,500 restricted common shares at US$ 0.03 per share to five consultants under the Consultant Agreements, of which 3,695,233 restricted common shares to Vincent Yong Tuck Seng, 3,695,233 restricted common shares to Lai Kui Shing Andy, 2,095,233 restricted common shares to Chan Hoi Kwong Paul, 2,095,233 restricted common shares to Sylvia Chan and 1,428,568 restricted common shares to Ng Tung to serve as a consultant of the Company for a one-year term (from June 10, 2021 to June 9, 2022.

An aggregate of $ 390,285 for this transaction, $ 34,716 was recognized as stock-based compensation according the service period under selling, general and administrative expenses for the year ended June 30, 2021.

On June 18, 2021, the Company issued a total of 58,100,000 restricted common shares for US$ 1,452,500 at US$0.025 per share to twenty-four non-US shareholders.

There were 779,742,109 and 116,038,909 common shares issued and outstanding at June 30, 2021 and June 30, 2020 respectively.

3 unchanged sentences

NOTE 14 - RELATED PARTY TRANSACTIONS

As at June 30, 2020, advances were made by five companies of $2,160,389 related to ordinary business transactions.

All advances related to ordinary business transactions, bear no interest or collateral, repayable and renewable under normal advancement terms.

Details are disclosed in Note 6.

Related party transaction

For the Year ended

Other income - Sales of wash sand to:

Jusra Mining Merapoh Sdn Bhd (#1)

Professional services provided by:

Federal Capital Investment Limited (#2)

Related party balances

Deposits paid for acquisition of property, plant and equipment

- Intellectual property license of Borneo Energy Sdn Bhd (#3) (note 6)

Other receivable

Jusra Mining Merapoh Sdn Bhd (#1)

(#1) Lamax Gold Limited (“LGL”) holding 15% equity interests of GBL was the major shareholder of Jusra Minging Merapoh Sdn Bhd , .

(#2) One of the directors of Federal Capital Investment Limited, Mr.

Wu Ming Ding, has resigned as director of the Company effective February 20, 2016.

(#3) Borneo Oil Berhad (“BOB”) is ultimate holding company of Borneo Energy Sdn Bhd and holding 20.0% and 23.0% of the Company’s issued and outstanding common stock as of June 30, 2021 and November 10, 2021, respectively.

NOTE 15 - GOING CONCERN AND LIQUIDITY CONSIDERATIONS

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.

As of June 30, 2020, the Company has an accumulated deficit of $5,138,406 and working capital deficiency of $2,293,723.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.

As of June 30, 2021, the Company has suffered recurring net losses and records an accumulated deficit of $5,913,255.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company intends to fund operations through debt and equity financing arrangements.

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In response to these problems, management intends to raise additional funds through public or private placement offerings, and related party loans.

These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 15 - CONCENTRATIONS

The Company’s major suppliers for the year ended June 30, 2020 and 2019 are listed as following:

Subcontractors

Accounts Payable

Major Suppliers

The Company’s major customers for the year ended June 30, 2020 and 2019 are listed as following:

Accounts Receivable

Major Customers

No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company.

Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stock holders, in the case of equity financing.

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread around the world.

There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the Malaysia’s and global economy.

While it is difficult to estimate the financial impact of COVID-19 on the Company’s operations, management believes that COVID-19 could have a material impact on its financial results at this time.

These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern.

NOTE 16 - SUBSEQUENT EVENTS

The Company’s office rent has expired as at June 30, 2020, and the Company intends to renew the rental agreement for one year period pending final execution with the landlord.

On May 10, 2021, the Company announced the Sale and Purchase Agreement to acquire the assets of biofraction plant and the right to use intellectual property license in Sabah, Malaysia from Borneo Energy Sdn Bhd (“BESB”) in consideration of issuance of 166,666,667 share of the Company’s stock at $ 0.03 per share, valued at $ 5,000,000 .

135,666,667 shares and 31,000,000 shares were issued on May 10, 2021 and July 1, 2021, respectively.

On August 6, 2021, the Company and BESB entered into a supplementary agreement to vary the completion date.

The consideration shall be refundable if the transaction fails to complete.

The Company also announced the Share Sale Agreement on May 12, 2021 for the acquisition of the entire issued and paid-up share capital of Bio Resources Limited in consideration of issuance of 321,500,000 shares of the Company’s restricted common stock at $ 0.03 per share, valued at $ 9,645,000 , and the issuance of promissory notes with two-year term period for the amount of $ 20,355,000 .

On November 11, 2021, the Company and Taipan International Limited, The Wision Project Limited (formerly known as “Borneo Resources Limited”) and other individuals unrelated third parties entered into an supplementary agreement to vary the completion date.

This acquisition is currently in progress and and the completion of the S&P Agreement is subject to all such acts necessary, including but not limited to auditing and due diligence exercise to ascertain the valuation of the assets.

The consideration shall be refundable if the transaction fails to complete.

On June 11, 2021, GBL entered into a Sale and Purchase of Assets Agreement (the “SPA Agreement”) to purchase a factory site from a Malaysia company Segama Ventures Sdn Bhd (“Segaman Ventures”) in order to expand the Company’s biofraction plant in Malaysia.

A deposit of $ 800,000 was paid to Segaman Ventures on June 10, 2021.

On September 8, 2021, GBL and Segaman Ventures entered into an supplementary agreement to vary the completion date.

The consideration shall be refundable if the transaction fails to complete.

On June 17, 2021, the Company through its indirect subsidiary Bio Resources Limited (“BRL”), a company incorporated under the laws of the Labuan, entered into a Shares Sale Agreement with Hermalis Binti Mohamad Tahir (“Hermaliss”), a company incorporated under the laws of the Malaysia, to acquire the entire issued and paid-up share capital of Global Renewables.

On June 30, 2021, BRL and Global Renewables entered into an supplementary agreement to vary the completion date.

The acquisition of Global Renewables was subject to the successful completion of the acquisition of the entire issued and paid-up share capital of BRL.

Therefore, the acquisition of Global Renewables will dependent upon the successful acquisition of BRL.

Prior to this acquisition, GBL owned 85 % equity in CSB.

Upon completion of the acquisition, GBL would own the entire issued and paid-up share capital of CSB.

Under the terms of the Shares Sale Agreement, the consideration for the acquisition shall be satisfied in full by the payment of Malaysia Ringgit MYR 150,000 upon the execution of the Shares Sale Agreement.

On June 30, 2021, GBL and LGL entered into an supplementary agreement to vary the completion date.

A deposit of MYR 150,000 ($ 36,130 ) was paid to LGL on June 21, 2021.

The consideration shall be refundable if the transaction fails to complete.

On July 7, 2021, the Company issued a Press Release announcing a partnership with MRX Technologies, a market leader in commercial extraction systems for cannabis and hemp.

The partnership includes an agreement for Verde Resources to white-label THC-free CBD products from MRX Technologies.

The Company will distribute non-psychoactive, THC-free CBD products in Europe, Hong Kong and the United States.

On August 10, 2021, the Company formed a wholly owned subsidiary, Verde Renewables, Inc., for the purpose of conducting business in Missouri (using palm waste to create biochar and related products).

Another entity, Verde Estates, LLC, was also formed on August 10, 2021 to own property in Missouri.

Verde Estates, LLC is a wholly owned subsidiary of Verde Renewables, Inc.

The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and determined that there are no additional significant or material items to be required to disclose except the above mentioned matters.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data