VERDE RESOURCES, INC. - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number: 000-55276

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 19, 2019 there were 115,038,909 shares of the issuer’s common stock, par value $0.001, outstanding.

VERDE RESOURCES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

VERDE RESOURCES, INC.

INDEX TO INTERIMCONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD OF ENDED SEPTEMBER 30, 2019

Verde Resources, Inc.

Condensed Consolidated Balance Sheets

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

Verde Resources, Inc.

Condensed Consolidated Statements of Operations

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

Verde Resources, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

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

Verde Resources, Inc.

Condensed Consolidated Statements of Changes in Equity

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

Verde Resources, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019

(Unaudited)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Verde Resources, Inc. (the “Company” or “VRDR”) was incorporated on April 22, 2010, in the State of Nevada, U.S.A. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America, and the Company’s fiscal year end is June 30.

Gold Billion Global Limited (“Gold Billion” or “GBL”) was incorporated in British Virgin Islands on February 7, 2013. GBL was setup by the Board of Directors of Federal Mining Resources Limited (“FMR”). The major operation of GBL is to manage and monitor the mineral exploration and mining projects of FMR.

On July 1, 2013, FMR assigned its rights and obligation on Champmark Sdn Bhd (“CSB”) to GBL. Four of the five members of CSB Board of Directors were appointed by FMR, with two of the GBL Board of Directors currently sitting on the CSB Board. According to ASC 810-05-08 A, CSB is a deemed subsidiary of GBL, where it has controlled the CSB Board of Directors, has assigned rights to receive future benefits and residual value and obligations to absorb loss and finance for CSB by GBL. GBL has the power to direct the activities of CSB that most significantly impact CSB’s economic performance and the obligation to absorb losses of CSB that could potentially be significant to the CSB or the right to receive benefits from CSB that could potentially be significant to CSB. GBL is the primary beneficiary of CSB because it has been assigned with all relevant rights and obligation and can direct the activities of CSB through the common directors and the 85% shareholder, FMR. Under 810-23-42, 43, it is determined that CSB is de-facto agent of GBL and GBL is the de-facto principal of CSB. GBL started to consolidate CSB from July 1, 2013, and the Company consolidated GBL and CSB from October 25, 2013, onwards.

On February 17, 2014, the Company entered into a Supplementary Agreement to the Assignment Agreement and completed an acquisition of GBL pursuant to the Supplementary Agreement. The acquisition was 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 Champmark SDN BHD (“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.

As a result of the acquisition, the Company holds 100% equity interest in GBL and 85% variable interest in CSB. Our consolidated subsidiaries include GBL being our wholly-owned subsidiary and 85% of CSB being a variable interest entity (VIE) and deemed subsidiary of GBL.

On March 17, 2014, the Company through GBL and its deemed subsidiary CSB entered into a Sub-Contract Agreement with Borneo Oil & Gas Corporation Sdn Bhd (“BOG”) for the engagement of its sub-contractor services to carry out exploration and exploitation works on alluvial and lode gold resources at Site IV-1 of the Merapoh Mine. The Sub-Contract Agreement is for a period of 5 years with a renewal for another 5 years subject to review by both parties. BOG is a wholly-owned subsidiary of Borneo Oil Berhad (BOB) which is listed on the main market of Kuala Lumpur Stock Exchange. BOG being a local company in Malaysia provides the Company with the advantage of local knowledge and well-established connection in dealing with the relevant local authorities in our mining operations.

On April 1, 2014, GBL purchased 85% equity interest of CSB, and CSB became indirect subsidiary of the Company.

Effective August 27, 2014, the Company’s Articles of Incorporation were amended to increase the authorized shares of the Company from 100,000,000 shares of common stock to 250,000,000 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 September 15, 2014.

Effective February 20, 2016, Mr. Wu Ming Ding resigned 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 now consists of Mr. Balakrishnan B S Muthu and Mr. Chen Ching. The SC 14F1 and Form 8-K announcing the change in officers and directors were filed with SEC on February 10, 2016 and February 22, 2016 respectively.

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.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Condensed Consolidated Financial Statements

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The results of operations for the periods ended September 30, 2019 are not necessarily indicative of the operating results for the full years.

Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP). These condensed consolidated financial statements are expressed in United States dollars ($). Financial statements prepared in accordance with GAAP contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. These condensed consolidated audited financial statements include all adjustments that, in the opinion of management, are necessary in order to make the financial statements not misleading.

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 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

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 :

With the above agreements, GBL demonstrates its ability to control CSB as the primary beneficiary and the operating results of the VIE was included in the condensed consolidated financial statements for the year ended June 30, 2014.

On April 1, 2014, the Board of Director of GBL notified FMR upon the decision to exercise the right of option to purchase 85% equity interest of CSB under Management Agreement Section 3.2.4 dated July 1, 2013 between GBL and FMR. This acquisition was completed on April 1, 2014 with consideration of US$1. GBL then became 85% shareholder of CSB and is required to consolidate CSB as a subsidiary.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s periodic filings with the Securities and Exchange Commission include, where applicable, disclosures of estimates, assumptions, uncertainties and markets that could affect the financial statements and future operations of the Company.

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. The Company had $14,493 and $10,662 in cash and cash equivalents at September 30, 2019 and June 30, 2019, respectively.

Concentrations of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents and related party payables it will likely incur in the near future. The Company places its cash and cash equivalents with financial institutions of high credit worthiness. At times, its cash and cash equivalents with a particular financial institution may exceed any applicable government insurance limits. The Company’s management plans to assess the financial strength and credit worthiness of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.

Risks and Uncertainties

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.

Accounts Receivable

Accounts receivable are recognized and carried at net realizable value. An allowance for doubtful accounts will be recorded in the period when a loss is probable based on an assessment of specific evidence indicating troubled collection, historical experience, accounts aging, ongoing business relation and other factors. Accounts are written off after exhaustive efforts at collection. If accounts receivable are to be provided for, or written off, they would be recognized in the consolidated statement of operations within operating expenses. At and, the Company has no allowance for doubtful accounts, as per management’s judgment based on their best knowledge. As of September 30, 2019 and June 30, 2019, the longest credit term for certain customers are 60 days.

Provision for Doubtful Accounts

The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables and reviews accounts receivable by amounts due by customers which are past due to identify specific customers with known disputes or collectability issues. In determining the amount of the reserve, the Company makes judgments about the creditworthiness of customers based on past collection experience and ongoing credit risk evaluations. At September 30, 2019 and June 30, 2019 there was no allowance for doubtful accounts.

Fair Value

ASC Topic 820 “Fair Value Measurement and Disclosures” establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.

These tiers include:

The Company’s financial instruments consist of cash and cash equivalents, trade receivables, other receivables, payables, and short term and long-term debt. The carrying values of cash and cash equivalents, trade receivables, other receivables, and payables approximate their fair value due to their short maturities. The carrying value of long-term debt approximates the fair value of debt of similar terms and remaining maturities available to the company.

The Company’s non-financial assets are measured on a recurring basis. These non-financial assets are measured for impairment annually on the Company’s measurement date at the reporting unit level using Level 3 inputs. For most assets, ASC 820 requires that the impact of changes resulting from its application be applied prospectively in the year in which the statement is initially applied.

The Company’s non-financial assets measured on a non-recurring basis include the Company’s property, plant and equipment and finite-use intangible assets which are measured for recoverability when indicators for impairment are present. 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 September 30, 2019 and June 30, 2019.

Foreign Currency Translation

The Company’s reporting currency is the United States dollar (“$”) and the accompanying consolidated financial statements have been expressed in United States dollars. The Company’s functional currency is the Malaysian Ringgit ( “MYR”) which is a functional currency as being the primary currency of the economic environment in which their operations are conducted.

In accordance with ASC Topic 830 “Translation of Financial Statements” , capital accounts of the consolidated financial statements are translated into United States dollars from MYR at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the respective year. The resulting exchange differences are recorded in the consolidated statement of operations.

Comprehensive Income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive income includes net income and the foreign currency translation changes.

Segment Reporting

The Company currently engages in one operation segment: Gold Mining. The expenses incurred were consisting principally of management services. The Company’s major operation is located in Malaysia.

Mineral Acquisition and Exploration Costs

The Company has been primarily engaged in the acquisition, exploration, and development of mining properties. The Company was no longer considered an exploration stage after the reverse take-over with its subsidiary GBL.

Mineral property acquisition and exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs incurred to develop such property are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the probable reserves.

Environmental Expenditures

The operations of the Company have been, and may in the future be, affected from time to time in varying degree by changes in environmental regulations, including those for future reclamation and site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly and are not predictable. The Company’s policy is to meet or, if possible, surpass standards set by relevant legislation by application of technically proven and economically feasible measures.

Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against earnings as incurred or capitalized and amortized depending on their future economic benefits. All of these types of expenditures incurred since inception have been charged against earnings due to the uncertainty of their future recoverability. Estimated future reclamation and site restoration costs, when the ultimate liability is reasonably determinable, are charged against earnings over the estimated remaining life of the related business operation, net of expected recoveries.

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 collectability 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 periods ended September 30, 2019 and June 30, 2019 were $0.

Income Taxes

The provision for income taxes is determined in accordance with the provisions of ASC Topic 740, “Accounting for Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. As of September 30, 2019 and June 30, 2019, the Company did not have any significant unrecognized uncertain tax positions.

Recent Accounting Pronouncements

NOTE 3 – CASH AND CASH EQUIVALENT

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. At September 30, 2019 and June 30, 2019 cash and cash equivalents consisted of bank deposits in Malaysia bank and petty cash on hands.

NOTE 4 – ACCOUNTS PAYABLE AND ADVANCED FROM RELATED PARITES

Accounts Payable

Accounts payable at September 30, 2019 and June 30, 2019 consist of the following items:

_____________

(*) Due to Changxin Wanlin Technology Co Ltd are accounts payable derived from ordinary business transactions. One of the directors of Changxin Wanlin Technology Co. Ltd., Mr. 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). This accounts payable bears no interest or collateral, repayable and renewable under normal business accounts payable terms.

Advanced from related parties

Advanced from related parties at September 30, 2019 and June 30, 2019, consist of the following items:

(#1) BOG is one of the shareholders of the Company. 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. Another director of Federal Mining Resources Limited, Mr. Wu Ming Ding, has resigned as director of the Company effective 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.

(#3) One of the directors of Federal Capital Investment Limited, Mr. Wu Ming Ding, resigned as director of the Company effective 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.

(#4) One of the directors of Yorkshire Capital Limited, Mr. Lai Kui Shing, Andy, resigned as director of CSB effective 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.

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

Property and equipment at September 30, 2019 and June 30, 2019 are summarized as follows:

The depreciation expenses charged for the period ended September 30, 2019 and 2018 was $0 and $2,312.

NOTE 6 – LOANS FROM BANKS (HIRE PURCHASE INSTALLMENT LOANS)

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

Hire purchase installment loans with total amount $0 and $2,050 as at September 30, 2019 and June 30, 2019 are $0 and $2,005 net of imprest charges equivalent to interest $0 and $45 are summarized as follows:

_____________

(*) 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% for the entire loans life and periods.

The scheduled maturities of the CSL’s hire purchase installment loans are as follows:

_____________

(#) Minimum payment reflected in the balance sheet as current and noncurrent obligations under hire purchases installment loans as at September 30, 2019.

NOTE 7 – INCOME TAX

The Company and its subsidiaries are subject to income taxes on an entity basis on income arising in, or derived from, the tax jurisdiction in which they operate. The Company is a Nevada incorporated company and subject to United State Federal Income Tax. The Tax Cuts and Jobs Act of (“TCJ Act”) was signed into law in December 2017, and among its many provisions, it imposed a mandatory one-time transition tax on undistributed international earnings and reduced the U.S. corporate income tax rate to 21%, effective January 1, 2018. No provision for income taxes in the United States has been made as the Company had no taxable income for the periods ended September 30, 2019 and 2018. GBL is a British Virgin Islands incorporated company and not required to pay income tax on corporate income. CSB is a Malaysia incorporated company and required to pay corporate income tax at 25% of taxable income.

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

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

The Company has recorded valuation allowances for certain tax attribute carry forwards and other deferred tax assets due to uncertainty that exists regarding future realizability. If in the future the Company believes that it is more likely than not that these deferred tax benefits will be realized, the majority of the valuation allowances will be recognized in the consolidated statement of operations. The Company did not have any interest and penalty provided or recognized in the income statements for period September 30, 2019 and June 30, 2019 or balance sheet as of September 30, 2019 and June 30, 2019. The Company did not have uncertainty tax positions or events leading to uncertainty tax position within the next 12 months.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

As at September 30, 2019, 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 9 – EARNINGS/(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 period.

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

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

NOTE 10 - CAPITAL STOCK

Authorized Stock

The Company has authorized 10,000,000,000 common shares and 50,000,000 preferred shares, both with a par value of $0.001 per share. Each common share entitles the holder to one vote, in person or proxy, on any matter on which action of the stockholders of the corporation is sought.

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.

Share Issuance

On September 29, 2016, the Company issued a total of 4,750,000 common shares at US$0.04 per share, of which 2,375,000 common shares to Vincent Lee Sen Min and 2,375,000 common shares to Reggie Abraham, both are Malaysian citizens.

On March 1, 2018, the Company issued a total of 10,000,000 common shares at US$0.02 per share to each of the two directors, of which 5,000,000 common shares to Balakrishnan B S Muthu and 5,000,000 common shares to Chen Ching. An aggregate of $200,000 for this transaction was recognized as stock-based compensation under selling, general and administrative expenses during the three and six months ended March 31, 2018.

On March 1, 2018, the Company issued a total of 9,000,000 common shares at US$0.02 per share to three consultants under the Consultant Agreements, of which 5,000,000 common shares to Vincent Yong Tuck Seng, 2,500,000 common shares to Georgia Suzanne Lingam and 1,500,000 common shares to Liu Jiew Shin, all are Malaysian citizens. An aggregate of $180,000 for this transaction was recognized as stock-based compensation under selling, general and administrative expenses during the three and six months ended March 31, 2018.

There were 115,038,909 common shares issued and outstanding at September 30, 2019 and June 30, 2019 respectively.

There are no preferred shares outstanding. The Company has issued no authorized preferred shares. The Company has no stock option plan, warrants, or other dilutive securities.

NOTE 11 – RELATED PARTY TRANSACTIONS

As of September 30, 2019, advances were made by five companies of $2,060,482 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.

NOTE 12 – 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 and for the period ended September 30, 2019, the Company had an accumulated deficit of $4,986,577 and working capital deficiency of $2,214,452. The Company intends to fund operations through debt and equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements for the period ending September 30, 2019 and subsequently.

The ability of the Company to survive is dependent upon, among other things, obtaining additional financing to continue operations, and development of its business plan.

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 13 – CONCENTRATIONS

Suppliers

The Company’s major suppliers for the period ended September 30, 2019 and 2018 are listed as following:

Customers

The Company’s major customers for the period ended September 30, 2019 and 2018 are listed as following:

NOTE 14 – SUBSEQUENT EVENTS

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 items to disclose.

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 October 11, 2019. You should carefully review the risks described in our Annual Report and in other documents we file from time to time with the Securities and Exchange Commission. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

All references in this Form 10-Q to the “Company,” “Verde Resources,” “we,” “us,” or “our” are to Verde Resources, Inc.

Business Overview

The Company is a Nevada corporation that conducts business operations in Pahang Malaysia through Champmark Sdn Bhd (“CSB”), a privately limited liability company incorporated in Malaysia which is a deemed subsidiary under the management control of our 100% subsidiary GBL.

On October 25, 2013, we entered into an Assignment Agreement For the Assignment of Management Right in Merapoh Gold Mines in Malaysia (“Assignment Agreement”) with Federal Mining Resources Limited (“FMR”), a company incorporated under the laws of the British Virgin Islands.

FMR owns 85% equity interest in CSB, a privately limited liability company incorporated in Malaysia. CSB has been the Mining Contractor of the Mining Lease for Site IV-1 at the Merapoh Gold Mine under the Contract for Work with MMC Corporation Berhad, the Permit Holder of the Mining Lease. CSB is currently in discussion with Pahang State Development Corporation to accept their offer for CSB to act as the contractor and operator for Site IV-1 at the Merapoh Gold Mine.

Under the terms of the Assignment Agreement, FMR assigned its management rights of CSB’s mining operation in the Mining Lease to the Company, through its wholly-owned subsidiary Gold Billion Global Limited (“GBL”), in exchange for 80,000,000 shares of the Company’s common stock, which constituted 95.26% of our issued and outstanding capital stock as of and immediately after the consummation of the acquisition.

GBL was established on February 7, 2013, by the Board of Directors of FMR to monitor the CSB operation. The acquisition of 100% of the issued and outstanding capital stock of GBL was agreed upon on October 18, 2013, and completed on October 25, 2013, subject to the approval of the Board of Directors and the audit of GBL.

On February 17, 2014, we entered into a Supplementary Agreement to the Assignment Agreement and completed a reverse acquisition of GBL pursuant to the Supplementary Agreement. As a result of the acquisition, the Company holds 100% equity interest in GBL and 85% variable interest in CSB. Our consolidated subsidiaries include GBL being our wholly-owned subsidiary and 85% of CSB being a variable interest entity (VIE) and deemed subsidiary of GBL. On April 1, 2014, GBL purchased 85% equity interest of CSB, and CSB became indirect subsidiary of the Company.

Corporate History and Structure

Verde Resources, Inc. was incorporated on April 22, 2010, in the State of Nevada, U.S.A. On October 17, 2013, Stephen Spalding and Michael Stiege resigned from all of their positions as officers and directors of the Company. In addition, 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. Mr. Wu and Mr. Muthu were added to the Board of Directors.

On April 1, 2014, the Board of Directors of Gold Billion Global Limited (“GBL”) notified Federal Mining Resources Limited (“FMR”) upon the decision to exercise the right of option to purchase 85% equity interest of Champmark Sdn Bhd (“CSB”) under Management Agreement Section 3.2.4 dated July 1, 2013, between GBL and FMR. This acquisition was completed on April 1, 2014, with consideration of US$1, and GBL then became 85% shareholder of CSB.

Effective February 20, 2016, Mr. Wu Ming Ding resigned 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 now consists of Mr. Balakrishnan B S Muthu and Mr. Chen Ching.

Effective February 2, 2018, the Company’s Articles of Incorporation were amended to increase the authorized shares of the Company from 250,000,000 shares of common stock to 10,000,000,000 shares of common stock. A copy of the Certificate of Amendment was filed with the Nevada Secretary of State. The Form 8K announcing the increase of the authorized shares of the Company was filed with SEC on February 6, 2018.

The following diagram illustrates our current corporate structure:

According to ASC 810-05-08 A, CSB is a deemed subsidiary of GBL where GBL has control the Board of Directors of CSB, rights to receive future benefits and residual value, and obligation to absorb loss and finance for CSB. GBL has the power to direct the activities of CSB that most significantly impact CSB’s economic performance and the obligation to absorb losses of CSB that could potentially be significant to the CSB or the right to receive benefits from CSB that could potentially be significant to CSB. GBL is the primary beneficiary of CSB because GBL can direct the activities of CSB through the common directors and 85% shareholder FMR. Under 810-23-42, 43, it is determined that CSB is de-facto agent of the principal GBL and so GBL will consolidate CSB from July 1, 2013. 

Contractual Arrangements

Our exploration and mining business is currently provided through contractual arrangements with CSB through our wholly-owned subsidiary GBL.

CSB, the VIE of GBL, sells gold minerals directly to the registered gold trading company in Malaysia. We have been and are expected to continue to be dependent on our VIE to operate our exploration and mining business. GBL has entered into contractual arrangements with its VIE, which enable us to exercise effective control over the VIE, receive substantially all of the economic benefits from the VIE, and have the option to purchase equity interests in the VIE. 

On July 1, 2013, the Company’s subsidiary GBL entered into a series of agreements (“VIE agreements”) with FMR and details of the VIE agreements are as follows:

With the above agreements, GBL controls CSB as the primary beneficiary and the operating results of the VIE was included in the condensed consolidated financial statements for the nine months ended March 31, 2014.

CSB holds the operating right to Merapoh Gold Mine (the “Mine”) with all regulatory and government operating licenses in Malaysia.

On April 1, 2014, GBL purchased 85% equity interest of CSB, and CSB became indirect subsidiary of the Company.

Stage of Operation

The Company does not own any title and/or concession right in any mines. The Company is undertaking natural mineral resource extraction management services. 

According to the United States Industry Guide 7 (a) (4) on mining operations, the Merapoh Gold Mine is currently in the production stage because the mine has produced approximately 0.1 kilogram gold from July 2018 to June 2019. According to the ASC 930-330-20 Glossary, the production phase is defined as “when saleable minerals are extracted (produced) from an ore body, regardless of the level of production”. However, the production is limited to a small part of the site, and extraction is alluvial gold only. The objective of the Company is preparing to improve the productivity of the mines to ensure that the operation will be carried out effectively and efficiently at minimum cost.

Current Mining Property and Location

Merapoh Gold Mine (the “Mine”)

The Merapoh Gold Mine is located in northern Pahang, with convenient road access through Kelantan directly to mine site and is about 400 kilometers away from Kuala Lumpur. The Mine is located in the middle of Malaysia gold metallogenic belt. The central gold belt is the source of the majority of the gold deposits in the peninsula. It lies between the western and eastern tin belts and extends from Kelantan (Sungai Pergau, Sungai Galas) to Pahang (Merapoh, Kuala Lipis, Raub), Terengganu (Lubuk Mandi), Negri Sembilan and Johor (Gunung Ledang).

Description of the Mining Process

A planned sequence of events is involved in mining a pit:

Our in-house exploration team identifies a target and undertakes exploration. Before any hole is drilled or rock mined, much planning goes into making sure the mining sequence runs smoothly and safely as possible. The process of creating access to the possible ore body includes possible ore excavation, possible ore assessment and possible ore segregation.

Process for removing ore concentrates from the ore body

Refining of the concentrate

Results of Operations

For the three months ended September 30, 2019 and 2018:

We have generated $0 and $8,879 revenues for the three months ended September 30, 2019 and 2018, and have recorded a gross loss of $0 and $2,387 for the three months ended September 30, 2019 and 2018. We have incurred $149,377 and $57,353 in operating expenses through September 30, 2019 and 2018. We have other income, net $0 and $273,367 for the three months ended September 30, 2019 and 2018.

The following table provides selected financial data about our company for the three months ended September 30, 2019 and September 30, 2018. 

The revenue derived from the sales of gold mineral to customers in Malaysia. The decrease of revenue for the period ended September 30, 2019 was mainly due to a decrease in gold production because of depleting mineral reserves in the mine and gold sales during the period. The decrease of cost of revenue was mainly due to a decrease of gold production during the period and a substantial increase in closing inventories as during the period-end. Operating expenses comprised mainly of salaries, office costs, legal and professional fees and travelling expenses. The decrease in operating expenses for the period was mainly due to the decrease of salaries during the period. Net other income comprises mainly of miscellaneous non-operating expenses, equipment rental income and gain on disposal of property, plant and equipment. The increase in net other income for the period was mainly due the gain on disposal of property, plant and equipment.

The revenue derived from the sales of gold mineral to customers in Malaysia. The decrease of revenue for the period ended September 30, 2019, was mainly due to a decrease in gold production and gold sales during the period. Operating expenses comprised mainly of salaries, office costs, legal and professional fees, consultancy service fee, stock-based compensation and travelling expenses. The operating expenses were mainly denominated in MYR and decrease compared with three months ended September 30, 2019, due to decrease of cost of revenue. Moreover, the average rate of MYR :USD for three months September 30, 2019 and September 30, 2018 was 0.2397 and 0.2439 respectively.

Plan of Operation

Our Industry and Principal Markets

As reported in the GFMS Gold Surveys H1 2018 released by Thomson Reuters, after closing 2017 in fine fettle gold sentiment changed early in 2018, pressuring prices towards $1,240/oz. While professional sentiment has been gold-averse, there are shifts in some regional areas of demand and growing scope for a short-covering rally. In Malaysia, the report expects the Malaysian gold market to benefit from the removal of Goods and Services Tax (GST) as a new government takes over. The jewelry demand is expected to pick up as a result of the removal of the consumption tax but the rate of recovery will depend largely on the prevailing gold price.

Another report by BMI Research states that global gold mine output growth will pick up in the next few years, supported by higher gold prices and solid projects in key countries. BMI Research forecasts global gold production to increase from 105moz in 2018 to 125moz by 2026, averaging 2.3% annual growth. While a steady pace of growth, this represents a slight deceleration in growth rate compared with the previous eight-year average of 3.1%.

Subcontractor

In an effort to enhance the efficiency of mine operations at the Merapoh Gold Mine, Champmark Sdn Bhd (“CSB”) entered into an Operation Term Sheet (“OTS”) agreement in July 2013 to outsource the exploitation works of alluvial gold resources at Site IV-1 of the Merapoh Gold Mine to a subcontractor Borneo Oil & Gas Corporation Sdn Bhd (“BOG”).

BOG has the experience and local knowledge in managing the exploitation of alluvial gold at the Merapoh Gold Mine. The Company will provide necessary disclosure when any significant agreements have been made with sub-contractors in the future.

BOG became the Company’s shareholder in January 29, 2014, and was no longer a third party subcontractor.

Expansion Plans

At present, we are well positioned working with our third party subcontractor, who has the experience and local knowledge to manage our exploitation of alluvial gold at the Merapoh Gold Mine. 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.

The Company, through its wholly-owned subsidiary company Gold Billion Global Ltd (“GBL”) entered into a letter of intent with Xinjiang Changhe Mining Co., Ltd (“XCM”) on September 29, 2014. Under the letter of intent, GBL has offered to acquire ownership in XCM for the Ayigate Gold Project subject to due diligence. The Ayigate gold mine is located within the Tianshan region in Wuqia County, Xinjiang Uygur Autonomous Region of the People’s Republic of China. After several discussions, the Company decided not to proceed with the offer to acquire ownership in XCM.

As our business is affected by the fluctuations of gold prices, the Company intends to diversify its product line by acquiring mining projects with potential for different mineral resources other than gold. We continue to hold discussions with other mining companies for potential collaboration to carry out exploration and exploitation works on other mineral resources in Southeast Asia regions. Apart from the mining industry, the Company is taking steps to look into investment opportunities in the non-mining areas that include the bioenergy industry and the food & beverage sector.

Limited Operating History; Need for Additional Capital

There is no historical financial information about us upon which to base an evaluation of our performance. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the exploration of our properties, and possible cost overruns due to price and cost increases in services.

We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing could result in additional dilution to existing shareholders.

Liquidity and Capital Resources

The following table provides selected cash flow data about our company for the three months ended September 30, 2019 and 2018.

For the three months ended September 30, 2019, the Company had incurred net loss from operation of $149,377 which posted a negative impact to the company’s cash flow.

In the operation analysis, the net cash used in operating activities decreased from $(29,562) to $(156,564). In the operating assets and liabilities, the net increase in current assets, such as deposits and prepayment was $329 whereas the net decrease in current liabilities, such as accounts payable, accrued liabilities and other payables, advanced from sub-contractor & related parties and taxation payable was $7,516. The final result of the cash flow from operating activities was $(156,564) negative cash flow effect.

In the investing cash flow analysis, there was no change for the three months ended September 30, 2019.

In the financing analysis, there was the repayments of bank loans of $191.

The net decrease in exchange rate effect of $160,586 provided a positive cash flow effect. The cash and cash equivalents at the end of September 30, 2019, was increased by $3,831 with $14,493 as a 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.

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.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of September 30, 2019, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee, (2) lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (3) inadequate segregation of duties consistent with control objectives; and (4) management is dominated by three individuals without adequate compensating controls. The aforementioned material weaknesses were identified by our Chief Executive and Financial Officers in connection with the review of our financial statements as of September 30, 2019.

Management believes that the material weaknesses set forth above did not have an immediate negative effect on our financial results because of our small size of operation. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements if the Company were growing substantially in the future periods.

Changes in Internal Controls

There have been no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the nine months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

Item 1A. Risk Factors.

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

N/A.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosure.

Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“ Dodd-Frank Act “), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic and annual reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities under the regulation of the Federal Mine Safety and Health Act of 1977. The Company did not have any mines in the United States during the period ended September 30, 2019.

Item 5. Other Information.

There were changes in Directors and Executive Officers effective on February 20, 2016. For details, please refer to SC 14F1 and Form 8-K filed by the registrant to SEC on February 10, 2016 and February 22, 2016 respectively, at SEC website: www.sec.gov.

Item 6. Exhibits.

The following exhibits are included as part of this report:

___________ 

* The following financial information from Verde Resources, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of September 30, 2019, and June 30, 2019, (ii) Condensed Statements of Operations for the three months ended September 30, 2019 and 2018, (iii) Condensed Statements of Cash Flows for the nine months ended September 30, 2019 and 2018, and (iv) Notes to Condensed Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.