VERDE RESOURCES, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-Looking Statements Except for historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed herein as well as in the “Description of Business – Risk Factors” section in our Annual Report on Form 10-K, as filed on November 12, 2021. You should carefully review the risks described in our Annual Report and in other documents we file from time to time with the Securities and Exchange Commission. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. All references in this Form 10-Q to the “Company,” “Verde Resources,” “we,” “us,” or “our” are to Verde Resources, Inc. Business Overview The Company has negotiated with Malaysia state agency PKNP on a 2-year lease for a new mining location that is about 5 km from the current Merapoh mine site. The leasing premium has been paid but the mining lease certificate will only be issued upon clearance from the Malaysia Forest Department, which is expected in mid 2022 subject to review on COVID-19 “Movement Control Order” by the Malaysian government. For the current Site IV-1 of the Merapoh Gold Mine, our mining operation would focus on mining other resources such as limestones. The Company believes that there are excellent growth opportunities for its business outside Malaysia. We are constantly exploring for potential acquisition of mining projects in other parts of the world. As our business is affected by the fluctuations of gold prices, the Company intends to diversify its product line by acquiring mining projects with potential for different mineral resources other than gold. We continue to hold discussions with other mining companies for potential collaboration to carry out exploration and exploitation works on other mineral resources in Southeast Asia regions. Apart from the mining industry, the Company has taken steps to look into investment opportunities in the non-mining areas that include the bioenergy industry and the food & beverage sector. The Company is diversifying into the green industry with its acquisition of Bio Resources Ltd (“BRL”), the beneficial and/or registered proprietor of the intellectual property known as “Catalytic Biofraction Process”, which is a slow pyrolysis process using a proprietary catalyst to depolymerise palm biomass wastes (empty fruit bunches or palm kernel shells) in temperature range of 350 degree Celsius to 500 degree Celsius to yield commercially valuable bio products: bio-oil, wood vinegar (pyroligneous acid), biochar and bio-syngas. The intellectual property is a second-generation pyrolysis process where non-food feedstock like the palm biomass wastes is used as feedstock. The success of venturing into the green industry is dependent on the completion of the acquisition subject to auditing and due diligence exercise to ascertain the valuation of BRL. Apart from the green industry, the Company is also working on 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. 5 Table of Contents Corporate History and Structure Verde Resources, Inc. was incorporated on April 22, 2010, in the State of Nevada, U.S.A. The following persons were appointed to serve as directors and to assume the responsibilities of officers on October 17, 2013. Mr. Wu Ming Ding, as President and Director; Mr. Balakrishnan B S Muthu as Treasurer Chief Financial Officer, General Manager and Director; and Mr. Liang Wai Keen as Secretary. On April 1, 2014, the Board of Directors of GBL notified Federal Mining Resources Limited (“FMR”) of the decision to exercise its option to purchase an 85% equity interest of Champmark Sdn Bhd (“CSB”) pursuant to Section 3.2.4 of the Management Agreement dated July 1, 2013, between GBL and FMR. This acquisition was completed on April 1, 2014, with consideration of $1, and GBL then became an 85% shareholder of CSB. Effective February 20, 2016, Mr. Wu Ming Ding resigned from all of his positions as President and Director of the Company, with Mr. Balakrishnan B S Muthu being appointed President to fill the vacancy created. Effective February 20, 2016, Mr. Chen Ching was appointed Director of the Company and the entire Board of Directors then consisted of Mr. Balakrishnan B S Muthu and Mr. Chen Ching. Effective February 2, 2018, the Company’s Articles of Incorporation were amended to increase the authorized shares of the Company from 250,000,000 shares of common stock to 10,000,000,000 shares of common stock. A copy of the Certificate of Amendment was filed with the Nevada Secretary of State. The Form 8K announcing the increase of the authorized shares of the Company was filed with SEC on February 6, 2018. Effective March 31, 2021, Mr. Carl M. Craven was appointed Director of the Company and the entire Board of Directors now consists of Mr. Balakrishnan B S Muthu, Mr. Chen Ching and Mr. Carl M. Craven. The Form 8-K announcing the change in officers and directors were filed with SEC on April 1, 2021. The following diagram illustrates our current corporate structure: Pursuant to an Assignment Agreement For The Assignment of Management Right in Merapoh Gold Mines in Malaysia (“Assignment Agreement”) dated October 25, 2013, and a Supplementary Agreement dated February 17, 2014 on further clarifications to the Assignment Agreement signed by the Company with FMR, a company incorporated under the laws of the British Virgin Islands, the 100% interest of FMR in GBL was transferred to VRDR at a consideration of $1. This transaction was recorded as a reverse acquisition in accordance with ASC 805-40 “Reverse Acquisitions”. The legal parent was VRDR, which was the accounting acquiree, while GBL was the accounting acquirer. There was a 15% non-controlling interest of CSB after the acquisition. This transaction was accounted for as a recapitalization effected by a share exchange, wherein GBL with its 85% deemed subsidiary CSB was considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at their book value and no goodwill has been recognized. Prior to the acquisition of GBL, on July 1, 2013, FMR had assigned its rights and obligations pursuant to its 85% interest in Champmark Sdn Bhd (“CSB”) to GBL. According to ASC 810-05-08 A, CSB is a deemed subsidiary of GBL because due to the assignment, GBL had gained control of the Board of Directors of CSB, GBL’s rights to receive future benefits and residual value, and GBL’s obligation to absorb losses and provide financing for CSB. GBL had the power to direct the activities of CSB that most significantly impact CSB’s economic performance, and the obligation to absorb losses or receive benefits of CSB that could potentially be significant to CSB. Accordingly, GBL was the primary beneficiary of CSB. Under 810-23-42, 43, it was determined that CSB was de-facto agent and GBL, the principal, and consequently, CSB was considered as a deemed subsidiary of GBL beginning July 1, 2013. With the above transactions, GBL became a wholly-owned subsidiary of the Company and CSB, its 85% deemed indirect subsidiary. On April 1, 2014, the Board of Directors of GBL notified FMR of the decision to exercise its option to purchase an 85% equity interest of CSB pursuant to Section 3.2.4 of the Management Agreement dated July 1, 2013, between GBL and FMR. This acquisition was completed on April 1, 2014, with consideration of $1, and GBL then became an 85% shareholder of CSB. 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 for a consideration of MYR 150,000 ($35,669). Prior to this acquisition, GBL owned 85% equity in CSB. Upon completion of the acquisition on October 20,2021, CSB became a wholly owned subsidiary of GBL, and indirectly, of the Company. On August 10, 2021, the Company formed a wholly owned subsidiary, VRI. 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 branch of Verde Renewables, Inc. On November 15, 2021, the Company formed a wholly owned subsidiary, Verde Life Inc., an Oregon corporation for the purpose of conducting business in the distribution of THC-free cannabinoid products. On January 17, 2022, the Company formed a wholly owned subsidiary, Verde Resources (Malaysia) Sdn Bhd, a company incorporated under the laws of Malaysia, for the purpose of conducting consultation services and distribution of renewable agricultural commodities. On March 23, 2022, the Company, through Verde Resources (Malaysia) Sdn Bhd, entered into a Sale of Shares Agreement (“SSA”) with The Wision Project Sdn Bhd (“Wision”), a company incorporated under the laws of Malaysia, to acquire the one hundred percent (100%) of the issued and paid up ordinary shares in Wision. 6 Table of Contents Stage of Operation The Company has negotiated with Malaysia state agency PKNP on a 2-year lease for a new mining location that is about 5 km from the current Merapoh mine site. The leasing premium has been paid but the mining lease certificate will only be issued upon clearance from the Malaysia Forest Department, which is expected in mid 2022 subject to review on COVID-19 “Movement Control Order” by the Malaysian government. For the current Site IV-1 of the Merapoh Gold Mine, our mining operation would focus on mining other resources such as limestones. The Company believes that there are excellent growth opportunities for its business outside Malaysia. We are constantly exploring for potential acquisition of mining projects in other parts of the world. As our business is affected by the fluctuations of gold prices, the Company intends to diversify its product line by acquiring mining projects with potential for different mineral resources other than gold. We continue to hold discussions with other mining companies for potential collaboration to carry out exploration and exploitation works on other mineral resources in Southeast Asia regions. Apart from the mining industry, the Company has taken steps to look into investment opportunities in the non-mining areas that include the bioenergy industry and the food & beverage sector. The Company is diversifying into the green industry with its acquisition of Bio Resources Ltd (“BRL”), the beneficial and/or registered proprietor of the intellectual property known as “Catalytic Biofraction Process”, which is a slow pyrolysis process using a proprietary catalyst to depolymerise palm biomass wastes (empty fruit bunches or palm kernel shells) in temperature range of 350 degree Celsius to 500 degree Celsius to yield commercially valuable bio products: bio-oil, wood vinegar (pyroligneous acid), biochar and bio-syngas. The intellectual property is a second-generation pyrolysis process where non-food feedstock like the palm biomass wastes is used as feedstock. The success of venturing into the green industry is dependent on the completion of the acquisition subject to auditing and due diligence exercise to ascertain the valuation of BRL. Apart from the green industry, the Company is also working on 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. 7 Table of Contents Results of Operations For the three months ended March 31, 2022 and 2021: We have generated $16,712 and $14,326 revenues for the three months ended March 31, 2022 and 2021, and have recorded a gross (loss)/ profit of ($69,989) and $0 for the three months ended March 31, 2022 and 2021. We have incurred $498,773 and $81,606 in operating expenses through March 31, 2022 and 2021. We have interest expense of $486,977 and $0 for the three months ended March 31, 2022 and 2021. We have other income $99 and $0 for the three months ended March 31, 2022 and 2021. The following table provides selected financial data about our company for the three months ended March 31, 2022 and March 31, 2021. 03/31/2022 03/31/2021 Change Statement of Operation Amount Amount % (Unaudited) (Unaudited) Revenue $ 16,712 $ 14,326 17 % Cost of revenue $ 86,701 $ - 100 % Gross (loss) profit $ (69,989 ) $ 14,326 -589 % Operating expenses $ 498,774 $ 81,606 511 % Interest expense $ 486,977 $ - 100 % Other income, net $ 99 $ - 100 % The revenue is normally derived from the sales of gold mineral to customers in Malaysia. There was no revenue for the three months ended March 31, 2022 and 2021 because of the depletion of mineral reserves in the mine. The revenue instead was derived from sales of wood vinegar and bio char for these periods. Operating expenses comprised mainly of salaries, office costs, legal and professional fees. The increase in operating expenses for the period was mainly due to the increase of consultancy, salary, legal and professional fees during the period. The increase in salary expenses for the period was mainly due to the increase number of staff for segment development during the period. For the nine months ended March 31, 2022 and 2021: We have generated $16,712 and $14,326 revenues for the nine months ended March 31, 2022 and 2021, and have recorded a gross (loss) / income of ($69,989) and $14,326 for the nine months ended March 31, 2022 and 2021. We have incurred $1,221,874 and $180,398 in operating expenses through March 31, 2022 and 2021. We have interest expense of $1,441,911 and $0 for the nine months ended March 31, 2022 and 2021. We have other income $12,214 and $0 for the nine months ended March 31, 2022 and 2021. The following table provides selected financial data about our company for the nine months ended March 31, 2022 and March 31, 2021. 03/31/2022 03/31/2021 Change Statement of Operation Amount Amount % (Unaudited) (Unaudited) Revenue $ 16,712 $ 14,326 17 % Cost of revenue $ 86,701 $ - 100 % Gross (loss) profit $ (69,989 ) $ 14,326 -589 % Operating expenses $ 1,221,875 $ 180,398 577 % Interest expense $ 1,441,911 $ - 100 % Other income, net $ 12,214 $ - 100 % The revenue is normally derived from the sales of gold mineral to customers in Malaysia. There was no revenue for the nine months ended March 31, 2022 and 2021 because of the depletion of mineral reserves in the mine. The revenue instead was derived from sales of wood vinegar and bio char for the periods mentioned Operating expenses comprised mainly of salaries, office costs, legal and professional fees. The increase in operating expenses for the period was mainly due to the increase of consultancy, salary, legal and professional fees during the period. The increase in salary expenses for the period was mainly due to the increase in the number of staff for new segment development during the period. 8 Table of Contents Plan of Operation Our Industry and Principal Markets The report by BMI Research states that global gold mine output growth will pick up in the next few years, supported by higher gold prices and solid projects in key countries. BMI Research forecasts global gold production to increase from 105moz in 2018 to 125moz by 2026, averaging 2.3% annual growth. While a steady pace of growth, this represents a slight deceleration in growth rate compared with the previous eight-year average of 3.1%. Subcontractor In an effort to enhance the efficiency of mine operations at the Merapoh Gold Mine, Champmark Sdn Bhd (“CSB”) entered into an Operation Term Sheet (“OTS”) agreement in July 2013 to outsource the exploitation works of alluvial gold resources at Site IV-1 of the Merapoh Gold Mine to a subcontractor Borneo Oil & Gas Corporation Sdn Bhd (“BOG”). BOG has the experience and local knowledge in managing the exploitation of alluvial gold at the Merapoh Gold Mine. The Company will provide necessary disclosure when any significant agreements have been made with sub-contractors in the future. Limited Operating History; Need for Additional Capital There is no historical financial information about us upon which to base an evaluation of our performance. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the exploration of our properties, and possible cost overruns due to price and cost increases in services. We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing could result in additional dilution to existing shareholders. 9 Table of Contents Liquidity and Capital Resources The following table provides selected cash flow data about our company for the nine months ended March 31, 2022 and March 31, 2021. Cash Flow Date 03/31/2022 03/31/2021 Net Loss from operation $ (2,721,561 ) $ (166,072 ) Net Cash Used in operating activities (1,097,381 ) (189,317 ) Net Cash Used in investing activities (310,332 ) - Net Cash Generated from/(Used in) financing activities 1,004,887 (72,389 ) Effect of exchange rate changes on cash and cash equivalents 7,787 120,530 Net (decrease) increase in cash and cash equivalents (395,039 ) 3,602 Cash and cash equivalents at beginning of year 2,117,622 24,027 Cash and cash equivalents at end of year $ 1,722,583 $ 27,629 For the nine months ended March 31, 2022, the Company had incurred net loss from operation of $2,721,561 which posted a negative impact to the company’s cash flow. In the operation analysis, the net cash used in operating activities increased from $189,317 to $1,097,381. The operation loss of $2,721,561 was partially offset by the noncash expenses such as $9,831 in depreciation, $29,434 in amortization, $284,249 in share based compensation and $1,441,911 in interest expenses on promissory notes. In the operating assets and liabilities, the net decrease in current assets resulted from an increase of trade receivables at $14,818, increase of other deposits and prepayments of $85,132, an increase in inventories of $81,492 and decrease in right of use assets of $16,142 whereas the net increase in current liabilities resulted from an increase of accrued liabilities and other payables at $24,774 and $719 decrease of accounts payable. The net cash used by investing activities of $310,332 resulted from security deposit paid at $240,000 and acquisition of plant and equipment at $70,332 for the nine months ended March 31, 2022. The net cash provided by financing activities of $1,004,887 resulted from proceeds from shares to be issued of $1,000,000, net of repayment of lease liabilities for the nine months ended March 31, 2022 of $5,220 and advances from/(to) related parties of $10,107 The net decrease in exchange rate effect of $7,787 provided a positive cash flow effect and the overall cash and cash equivalents at the end of March 31, 2022, was decreased by $396,039 with $1,722,583 as the closing balance. The cash flow situation will not allow for operations in the coming next 12 months by self-generated cash provided from operating activities. The Company needs to increase cash flow supplies with a long term plan until the Company makes sustainable profits and has a positive cash flow. Otherwise, loans from related parties may be a temporary solution, although we have no written loan agreements. There is no guarantee that we will be able to secure adequate financing. If we fail to secure sufficient funds, our business activities may be curtailed, or we may cease to operate. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. 10 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a “smaller reporting company”, we are not required to provide the information required by this Item.