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VRDR > SEC Filings for VRDR > Form 10-Q on 17-Feb-2017All Recent SEC Filings

Show all filings for VERDE RESOURCES, INC.



Quarterly Report

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 September 30, 2013. 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 is 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.

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.

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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 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.

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 following diagram illustrates our current corporate structure:

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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.

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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 :

1. Management Agreement, FMR entrusted the management rights of its subsidiary CSB to GBL that include:
i) management and administrative rights over the day-to-day business affairs of CSB and the mining operation at Site IV-1 of the Merapoh Gold Mine;
ii) final right for the appointment of members to the Board of Directors and the management team of CSB;
iii) act as principal of CSB;
iv) obligation to provide financial support to CSB;
v) option to purchase an equity interest in CSB;
vi) entitlement to future benefits and residual value of CSB;
vii) right to impose no dividend policy;
viii) human resources management.

2. Debt Assignment, FMR assigned to GBL the sum of money in the amount of US Dollars Three Hundred Nine Thousand Three Hundred Thirty One And Ninety Two cents (US$ 309,331.92), now due to GBL from CSB under the financing obligation from the FMR to CSB.

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 25 kilogram gold from January 2016 to December 2016. 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.

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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).

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Description of the Mining Process

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

Identifying the resource
Creating access to the ore body
Removing the ore from the ore body
Refining of the concentrate

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.

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Process for removing ore concentrates from the ore body

1. The ore body is transported to the treatment plants in vehicles capable of hauling huge, heavy loads.
2. The ore body is separated into Ore Type 1 Stockpile and Ore Type 2 Stockpile.
3. The monitor washes finer gold bearing material off larger rocks which is screened on an inclined coarse wire screen.
4. An excavator is used to turn over the rocks so wash is removed from all sides of the coarse material.
5. A monitor pushes the rock down the inclined coarse screen where the course is removed and stockpiled at the bottom.
6. Finer material passes through the mesh screen into the sluice system and runs over the sluice.
7. The carpets are removed and taken to refining facility for gold recovery.
8. A suction pipe recovers water of the fine tailings pond for use in the system.

Refining of the concentrate

1. The carpets holding concentrate from the sluice are brought to a shed in the camp site where the gold refined.
2. The first stage of the refining is to wash the gold containing concentrate into large bins. This is pumped to a jig and shaking table.
3. Nuggets are handpicked from the coarse fraction and the fine fraction is amalgamated to remove the gold. After distillation gold from the amalgam and the coarse are melted with flux and the gold is poured into small bars.

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Results of Operations

For the three months ended December 31, 2016 and 2015:

We have generated $186,767 and $201,748 revenues for the three months ended December 31, 2016 and 2015, and have recorded a gross income (loss) of $55,739 and $(79,681) for the three months ended December 31, 2016 and 2015. We have incurred $102,371 and $140,306 in operating expenses through December, 2016 and December 31, 2015. We have other income (expenses) $35,450 and $(33) for the three months ended December 31, 2016 and 2015.

The following table provides selected financial data about our company for the three months ended December 31, 2016 and December 31, 2015.

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