VERDE RESOURCES, INC. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this annual report, particularly in the section entitled “Risk Factors” of this annual report. Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. 21 Table of Contents Results of Operations The following table provides selected financial data about our company for the year ended June 30, 2022 and June 30, 2021. Statement of Operation June 30, 2022 2021 Change USD USD USD % Revenue $ 38,169 $ - 38,169 $ 100 % Cost of revenue (145,356 ) - (145,356 ) 100 % Gross loss (107,187 ) - (107,187 ) 100 % Operating expenses (1,905,301 ) (574,174 ) (1,331,127 ) 231.8 % Goodwill impairment (4,879 ) - (4,879 ) 100.0 % Loss from operation (2,017,367 ) (574,174 ) (1,443,193 ) 251.4 % Interest expense (1,949,151 ) (245,392 ) (1,703,759 ) 694.3 % Other income 12,104 26,559 (14,455 ) (54.4 )% Net loss before income tax (3,954,414 ) (793,007 ) (3,161,407 ) 398.7 % Provision of Income Tax - - NET LOSS (3,954,414 ) (793,007 ) (3,161,407 ) 398.7 % Net loss attributable to non-controlling interests 6,979 18,158 (11,179 ) (61.6 )% Net loss attributable to shareholders of the group $ (3,947,435 ) $ (774,849 ) (3,172,586 ) 409.4 % Revenue The revenue derived from the sales production and distribution of renewable commodities of gold mineral to customers in Malaysia. We have generated $38,169 and $0 revenues for the years ended June 30, 2022 and 2021, respectively, and have recorded a gross loss of 107,187 and $0 for the year ended June 30, 2022 and 2021. Cost of revenue We incurred cost of revenue of $145,356 in the production and distribution of renewable commodities during the year ended June 30, 2022. No cost of revenue was incurred during the year ended June 30, 2021. Operating Expenses Operating expenses comprised mainly of salaries, office costs, legal and professional fees and travelling expenses. We have incurred $1,905,301 and $574,174 in operating expenses through June 30, 2022 and June 30, 2021. Operating expenses increased by 231.8%, or $1,331,127, primarily due to increase of professional fees charged for the potential acquisition and increase of directors’ emolument for the year ended June 30, 2022. Interest expense The Company recorded interest expense of $1,948,086 and $245,392 on the promissory notes for the years ended June 30, 2022 and 2021, respectively. Lease interest amounted to $1,065 and $0 for the years ended June 30, 2022 and 2021, respectively. Other income We have other income of $12,104 and $26,559 for the year ended June 30, 2022 and 2021. We generated other income from the sales of wash sand to customers in Malaysia since January 2021 to September 2021. Net loss We recorded a net loss of $3,954,414 and $793,007 for the years ended June 30, 2022 and 2021, respectively. 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 subcontractor, Borneo Oil & Gas Corporation Sdn Bhd (“BOG”), who throughout the financial years 2022 and 2021 was a related party via its holding company Borneo Oil Berhad, a substantial shareholder of the Company.. BOG has the experience and local knowledge in managing the exploitation of alluvial gold at the Merapoh Gold Mine. The Company currently intends to continue to outsource the exploitation of alluvial gold at our mine site to BOG and will provide necessary disclosure when any significant agreements have been made with the sub-contractor in the future. Expansion Plans The Company is in the process of negotiating 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 2023 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. 22 Table of Contents As our business is affected by the fluctuations of gold prices, the Company intends to diversify its product line by acquiring mining projects with potential for different mineral resources other than gold. We continue to hold discussions with other mining companies for potential collaboration to carry out exploration and exploitation works on other mineral resources in Southeast Asia regions. Apart from the mining industry, the Company is taking steps to look into investment opportunities in the non-mining areas that include the bioenergy industry and the food & beverage sector. 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 degC to 500 degC 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. 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. Limited Operating History; Need for Additional Capital There is limited 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. Liquidity and Capital Resources Our primary sources of liquidity are cash generated from private placements. Cash generated from operations is highly dependent on the sale of our products, which are still under development stage. Cash and cash equivalents totaled $0.4 million as of June 30, 2022, and $2.1 million as of June 30, 2021 The following table provides selected cash flow data about our company for the year ended June 30, 2022 and 2021. Cash Flow Date June 30, 2022 June 30, 2021 Net cash used in operating activities $ (1,595,961 ) $ (126,011 ) Net cash used in investing activities $ (1,348,823 ) $ (905,575 ) Net cash generated from financing activities $ 989,594 $ 3,100,000 Effect of exchange rate changes on cash and cash equivalents $ 256,485 $ 25,181 Net increase in cash and cash equivalents $ (1,698,705 ) $ 2,093,595 Cash and cash equivalents at beginning of year $ 2,117,622 $ 24,027 Cash and cash equivalents at end of year $ 418,917 $ 2,117,622 Net Cash Used In Operating Activities. Cash used in operating activities reflects net loss adjusted for certain non-cash items, including depreciation expense, amortization of intangible assets, asset impairments, and stock-based compensation, and the effects of changes in operating assets and liabilities. The increase in cash used in operating activities for the year ended June 30, 2022 as compared to 2021 was primarily due to higher net loss adjusted for non-cash interest expense of promissory notes and the increase of other deposits and prepayments. Net Cash Used In Investing Activities. For the year ended June 30, 2022, net cash used for investing activities consisted primarily of $1.1 million of expenditures for property, plant, and equipment. For the year ended June 30, 2021, net cash used for investing activities consisted primarily of $0.9 million from the payment of acquisition of equity interest, right of use assets and property and equipment. Net Cash Generated From Financing Activities. For the year ended June 30, 2022, net cash generated from financing activities included $1.0 million for the issuance of our common stock under private placement. For the year ended June 30, 2021, net cash generated from financing activities included $3.1 million for the issuance of our common stock under private placement. 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. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. As a “smaller reporting company”, we are not required to provide the information required by this Item. 23 Table of Contents