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. Results of Operations The following table provides selected financial data about our company for the years ended June 30, 2024, and June 30, 2023. Statement of Operation June 30, 2024 2023 Change USD USD USD % Revenue $ 96,584 $ 100,777 (4,193 ) $ (4.2 )% Cost of revenue (62,978 ) (238,153 ) 175,175 (73.6 )% Gross profit (loss) 33,606 (137,376 ) 170,982 (124.5 )% Selling, general and administrative expenses (2,882,376 ) (3,216,022 ) 333,646 (10.4 )% Other operating expenses (237,047 ) - (237,047 ) Loss from operation (3,085,817 ) (3,353,398 ) 267,581 (8.0 )% Interest expense (176,483 ) (1,918,572 ) 1,742,089 (90.8 )% Other income 74,638 1,273,010 (1,198,372 ) (94.1 )% Net loss before income tax (3,187,662 ) (3,998,960 ) 811,298 (20.3 )% Provision of Income Tax (112 ) - (112 ) NET LOSS $ (3,187,774 ) $ (3,998,960 ) 811,186 (20.3 )% Revenue The revenue was derived from sale of Biochar Asphalt Premix in 2024 in addition to the distribution of renewable commodities and compost spreading in 2023. We have generated $96,584 and $100,777 revenues for the years ended June 30, 2024, and 2023, respectively, Revenue decreased primarily due to the non-generation of revenue from compost spreading offset by the increase in the sale of Biochar Asphalt Premix in 2024. A gross profit of $33,606 compared to a gross loss of $137,376 for the year ended June 30, 2024, and 2023 respectively. Cost of revenue Cost of revenue decreased from $238,153 to $62,978 during the year ended June 30, 2024 due to cessation of the operations in the production and distribution of renewable commodities. Arising from this, the expenditure related to the plant have been categorized under other operating expenses. Selling, General and Administrative Expenses Selling, general and administrative expenses comprised mainly of salaries, office costs, legal and professional fees, consultancy fee and travelling expenses. We have incurred $2,882,376 and $3,216,022 in selling, general and administrative expenses through June 30, 2024, and June 30, 2023 respectively. Selling, general and administrative expenses decreased by 10.4%, or $333,646, primarily due to decrease of consultancy fee as most of the agreements with service providers expired in current financial year and the new agreements were only entered into in the last 2 months of the current financial year and selling, general and administrative expenses contributed by CSB which was disposed on April 20, 2023. Other Operating Expenses Other operating expenses comprised of expenditure related to the operations of the plant in the production and distribution of renewable commodities which have been categorized under other operating expenses. This categorization was due there being no production processed by the plant for the year ended 30 June 2024. Interest expense The Company recorded interest expense of $116,917 and $1,881,807 on the promissory notes for the years ended June 30, 2024, and 2023, respectively. Lease interest expenses amounted to $45,926 and $35,344 for the years ended June 30, 2024, and 2023, respectively. Bank loan interest amounted to $13,640 and $1,421 for the years ended June 30, 2024, and 2023, respectively. The decrease in interest expense is mainly due to conversion of promissory notes with a principal amount of $20,355,000 on December 9, 2022 and accordingly no further interest charges recorded with regards to the PN thereafter. The charge in the current period is in respect of a new PN issued of $675,888. Other income We have other income of $74,638 and $1,273,010 for the year ended June 30, 2024, and 2023. Other income of $1,215,689 for the year ended June 30, 2023, was mainly due to gain on disposal of a subsidiary of $980,714 and fair value adjustment on convertible promissory notes issued to BOC of $194,865. The balance mainly represented rental income earned. Net loss As a result of the above factors, the Company recorded a net loss of $3,187,774 and $3,998,960 for the years ended June 30, 2024, and 2023, respectively. 18 Table of Contents Plan of Operation Expansion Plans 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. The Company is working to lay the foundation for revolutionary infrastructure development, marked by innovative biochar asphalt showcase projects within the United States. Our commitment revolves around validating the concept’s feasibility and scalability for carbon sequestration, thereby transforming global infrastructure development, and proactively addressing pressing environmental challenges. Biochar-asphalt, an innovative, eco-friendly, high performance, and cost-saving alternative to conventional high CO 2 footprint asphalt production and installation, holds immense promise in addressing environmental concerns. Through the integration and extensive utilization of biochar – a carbon-rich material derived from organic waste, The Company aims to reduce carbon emissions and the carbon footprint of infrastructure projects. The American showcase projects will serve as compelling evidence of the technology’s capability in carbon sequestration, efficiently mitigating greenhouse gas, enhancing durability and cost efficiencies, all while simultaneously addressing pressing environmental challenges. In 2023, Puro.earth, the world’s foremost crediting platform for durable carbon removal, officially registered the Company as a Carbon Removal Credit supplier as part of its Accelerate program. This partnership was formalized through a platform agreement signed in April 2023. It is worth noting that Puro.earth was acquired by Nasdaq in June 2021. The Company’s endeavors are poised to unlock revenue opportunities by generating Carbon Removal Credits (CORCs). This critical step incentivizes the broader adoption of climate technologies and enables the Company to supply these credits to companies seeking to offset their carbon footprint in pursuit of net-zero objectives. Simultaneously, this approach creates an additional and substantial revenue stream for the Company. The Company achieved a significant milestone by conducting the first-ever biochar-asphalt installation in the United States, just outside of Chicago, Illinois in August 2023. Subsequently, we replicated this success at our own facility in La Belle, Missouri. In September 2023, upon the invitation of the City of Gramercy, located near New Orleans, Louisiana, the Company executed another biochar-asphalt installation. As a testament to our efforts, we have already received several Letters of Intent (LOIs), and we are confident that our transition from mining to climate-tech and the green economy will yield tremendous results for the company in the years ahead. The Company entered into a Services Agreement with Donald R. Fosnacht in October 2023 to engage him as National Certification and Extensive BCR (Biochar Carbon Removal) Implementation Specialist to develop and implement a comprehensive strategy to obtain national and regional certification and endorsement for carbon net-negative construction products with high biochar content, encompassing asphalt, concrete, and soil stabilization as designated in the Services Agreement. The Company entered into two Services Agreements with Dr. Nam Tran and Dr. Raymond Powell in April 2024 to engage them as National Implementation Experts for its wholly-owned subsidiary Verde Renewables, Inc. to initiate connections with esteemed asphalt contractors, identify potential partners, explore potential collaborations through their extensive networks in the asphalt industry and recommend strategies to capitalize on emerging opportunities as designated in the Agreements. Furthermore, the Company entered into a Services Agreement with Dale Ludwig in June 2024 to engage him as Strategic Advisor to maintain and build strong relationships with policymakers at both state and federal levels, collaborate with Missouri Department of Transportation, build relationships with Missouri Asphalt Pavement Association (MAPA) members, collaborate with Missouri contractors to encourage the use of the Company's technologies, identify current biochar producers in Missouri and engage with the Missouri Department of Economic Development. On June 27, 2024, the Company entered into an agreement with The National Center for Asphalt Technology at Auburn University ("NCAT") to undertake a 3-year Performance Testing Project titled “Structural Capacity of Sustainable Pavement”. The Project, led by Dr. Nam Tran, Associate Director and Research Professor at NCAT, will involve comprehensive performance testing on the NCAT Test Track in Opelika, Alabama. This facility, sponsored by various state Departments of Transportation (DOTs) and in partnership with the Minnesota Road Research Facility (MnROAD), is dedicated to advancing sustainable pavement technologies. The NCAT Test Track will be constructed in the summer of 2024 to evaluate cutting-edge technologies that utilize enzymes to treat expansive soils and stabilize marginal base materials, potentially reducing or eliminating the need for carbon-intensive materials such as hydrated lime and Portland cement. Additionally, integrating biochar from biomass pyrolysis into enzyme-treated pavement materials is expected to improve performance, substantially reduce greenhouse gas (GHG) emissions, and sequester carbon dioxide. This pioneering approach is projected to generate Carbon Removal Credits upon completion of the test track installation, proving the viability of this next-generation blueprint for net-zero road construction. The Company is confident in its technology and aspires to attain the highest level of certification from NCAT. Success in this Project is expected to drive widespread adoption of a net-zero road construction blueprint by DOTs across the United States and the federal DOT. Additionally, the substantial Carbon Removal Credits generated will create a significant and separate revenue stream for the Company. The Project is expected to conclude in September 2027, with the first draft of the final report expected in spring 2027. 19 Table of Contents 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 $0.3 million as of June 30, 2024, and $0.2 million as of June 30, 2023. The following table provides selected cash flow data about our company for the years ended June 30, 2024, and 2023. Cash Flow Date June 30, 2024 June 30, 2023 Net cash used in operating activities $ (2,042,064 ) $ (1,656,896 ) Net cash used in investing activities $ (2,016,646 ) $ (387,938 ) Net cash provided by financing activities $ 4,081,720 $ 1,628,281 Effect of exchange rate changes on cash and cash equivalents $ 55,718 $ 198,045 Net increase in cash and cash equivalents $ 78,728 $ (218,508 ) Cash and cash equivalents at beginning of year $ 200,409 $ 418,917 Cash and cash equivalents at end of year $ 279,137 $ 200,409 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 right of use assets and stock-based compensation, impairment on receivables and the effects of changes in operating assets and liabilities. The increase in cash used in operating activities for the year ended June 30, 2024, as compared to 2023 was primarily due to increase of inventories for production and distribution of renewable commodities and decrease of advanced from related parties. In the operation analysis, the net cash used in operating activities decreased from $1,656,896 to $2,042,064. The operation loss of $3,187,662 was partially offset by the noncash expenses such as $417,517 in depreciation, $115,359 in amortization, $388,048 in share-based compensation, $103,380 in interest expenses on promissory notes, $45,926 in lease interest expense, $57,323 in impairment of receivables, $177,200 from advance to supplier written off, $134,042 in impairment of assets held for sale, property, plant and equipment written off of $3,979, write down of inventories of $15,587, inventories written off of $5,978 and $21,316 from deposit on acquisition of subsidiary written off. In the operating assets and liabilities, the net increase of cash outflow in current assets such as other receivables, deposits and prepayments, inventories and accounts receivables and current liabilities such as accrued liabilities and other payables which are greater than the net increase of cash inflow in current liabilities such as, advances from related parties, and accounts payable which resulted in $368,297 negative cash flow effect adding to loss in operation and after offset by non-cash expenses , the final result of the cash flow used in operating activities was $2,042,064. Net Cash Used In Investing Activities. The net cash used by investing activity of $16,646 resulted from purchase of property, plant and equipment of $16,646 and placement of deposit in bank of $2,000,000 for the year ended June 30, 2024. Net Cash Provided By Financing Activities. The net cash provided by financing activities of $4,081,720 resulted from proceeds from shares issued and shares to be issued of $4,108,379, advance from other payables of $136,983 and net proceeds from drawdown of loans of $20,440, set off partially by repayments to lease liabilities and related interests of $138,156 and $45,926 for the year ended June 30, 2024 respectively. 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. 20 Table of Contents