ZHEN DING RESOURCES INC. FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws ofthe United States , we do not intend to update any of the forward-looking statements to conform these statements to actual results. Our unaudited financial statements are stated inUnited States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly 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 quarterly report.
Our financial statements are stated in
In this quarterly report, unless otherwise specified, all dollar amounts are expressed inUnited States dollars and all references to "common shares" refer to the common shares in our capital stock.
As used in this quarterly report, the terms "we", "us", "our" and "our company"
mean
General Overview
We are engaged in seeking business partnership opportunities with companies that are in the field of exploration and extraction of precious and/or base metals, primarily inChina , which are in need of funding and improved management. We would provide the necessary management expertise and assist in financing efforts of these mining operations. In exchange, we would acquire metal ores produced by these mines and process the ores in our ore milling plant and sell the ore concentrates to metal refineries. Our only operating company is Zhen Ding JV, which engages in the processing of metal ore and the selling of ore concentrates of gold, silver, lead, zinc and copper at purity levels ranging from 65% to 80%. Zhen Ding JV purchases metal ore in rock form from its joint venture partner,Xinzhou Gold , which has rights to explore and mine ore from a property located in the southwestern part ofAnhui province inChina .
Our Corporate History and Structure
Our principal office is located at Suite 111, 3900 Place De Java, Second Floor,Brossard, Quebec, Canada J4Y 9C4. The offices, located in a suburb ofMontreal , are not under written lease but are rented through a verbal agreement, on a month to month basis, fromImmeubles Wing Kei Inc. at$500 per month, due and payable at each calendar quarter end. The occupancy beganOctober 15, 2018 .
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Our operational offices are located at:
We were incorporated inSeptember 1996 asRobotech Inc. , and began our business in the development and marketing of specialized technological equipment. At that time we estimated that we would require approximately$6,000,000 to realize our plans. Through the year of 2003, we had not reached our financing goals and therefore abandoned that particular business plan. Since that time, we have been seeking suitable candidates for acquisition. In the pervious decade there was been a worldwide recovery in the price and interest in precious metals, minerals and industrial commodities. Such interest was fueled to a large degree by the economic awakening of the two most populous nations,China andIndia , and further bolstered by a sharp decline in the US dollar. A particular beneficiary of this revival was the market prices of gold, silver and copper. Thus, in early 2010, the business direction of our company changed to seek to profit from this revival, and we began to focus our acquisition search in that industry, particularly on companies engaged in the mining of gold, silver and copper. InJanuary 2012 , our Board of Directors, with authorization from a majority of our shareholders, made an offer to the shareholders ofZhen Ding Resources Inc. , aNevada corporation ("Zhen Ding NV "), to acquire, at the very least, the majority of their common shares, and, if available, up to 100% ownership.Zhen Ding NV through its wholly owned subsidiary,Z&W Zhen Ding Corporation , aCalifornia corporation ("Zhen Ding CA"), has been engaged in a joint venture withJing Xian Xinzhou Gold Co., Ltd. ("Xinzhou Gold"), a company organized under the laws ofthe People's Republic of China ("PRC"). The joint venture company,Zhen Ding Mining Co. Ltd. ("Zhen Ding JV") is 70% held byZhen Ding NV through Zhen Ding CA. It is a common practice inChina to append the name of the town or city where an enterprise is located to its legally incorporated name. Thus many documents referencing Zhen Ding JV may refer to it asJing Xian Zhen Ding Mining Co. Ltd. Zhen Ding JV engages in the processing of metal ore and the selling of ore concentrates of gold, silver, lead, zinc and copper at purity levels ranging from 65% to 80%. Zhen Ding JV purchases metal ore in rock form from Xinzhou Gold. OnMarch 8, 2012 , we changed our name fromRobotech, Inc. toZhen Ding Resources Inc. , in anticipation of the acquisition ofZhen Ding NV . Our trading symbol, RBTK, however remained unchanged. During 2012, a total of 50,746,358 shares of the issued and outstanding common stock ofZhen Ding NV were tendered to our company. OnAugust 13, 2013 , an additional 13,100,000 shares were tendered to us. Thus, as ofAugust 13, 2013 the shareholders ofZhen Ding NV had tendered 100% of the issued and outstanding shares of common stock, representing 100% of the issued and outstanding equity ofZhen Ding NV to us.
On
OnOctober 28, 2013 , we dissolvedZhen Ding NV by merging it with and into Zhen Ding DE. As a result, Zhen Ding CA became a wholly-owned subsidiary of Zhen Ding DE. Zhen Ding CA continues to exist as an intermediate holding company with no operations of its own, but which in turn owns our 70% interest in Zhen Ding
JV. 15 Table of Contents
The following illustrates our corporate and share ownership structure:
[[Image Removed]] 16 Table of Contents Our Current Business Background
Presently, we conduct our operations exclusively through Zhen Ding JV, our joint venture company. However, we continue to look for other attractive potential acquisition targets in the mining industry. Our joint venture, Zhen Ding JV, is equipped to process ore mined by our joint venture partner Xinzhou Gold when in operation. Zhen Ding JV purchases the ore in rock form from Xinzhou Gold and processes the ore into our final product, which is a gold, silver, lead, zinc and copper ore concentrate. We estimate that our processed product is 65% to 80% pure. The product is then sold to refineries which further purify and separate the concentrate. Zhen Ding JV also arranges all exploration, mining process and operations, and financial and administrative support for Xinzhou Gold's mine, known as theWuxi Gold Mine . We purchase all of our raw material from Xinzhou Gold for our ore processing operation and rely solely on Xinzhou Gold for our supply of ores. The veins most recently excavated by Xinzhou Gold in the permitted areas of our mines are very low grade and, as such, the production is minimal. The higher yielding and therefore more profitable veins run outside Xinzhou Gold's permitted mining area boundaries under its current license. Xinzhou Gold applied for an extension of the permitted mining area, however, the application was rejected by the government inDecember 2016 due to Xinzhou Gold's insufficient working capital. Xinzhou Gold intends to reapply for an extension of the permitted mining area when it is able to demonstrate sufficient working capital to drill the extended area. However, if sufficient working capital is unavailable, or if the application be denied on other grounds, we would not be able to secure another source with higher-grade ores for our processing plant, which would severely limit our ability to execute our plan of operation and our potential profitability. At the beginning of fiscal 2015, we idled our mineral processing plant due to an overall downturn in the demand and market prices for our concentrates. This downturn coincided with an overall economic recession inChina and downturn in the global commodities market during fiscal 2015 through 2016. OnMay 9, 2018 , DeGang Wei resigned as Chairman, Chief Financial Officer and Director of the Company andZhou Zhi Bin resigned as a director of the Company. The resignations did not result from any disagreement with our company regarding our operations, policies, practices or otherwise. Recent Activities Since idling our mineral processing plant, we have actively sought an investment of between$3,000,000 and$4,000,000 , which we believe is required to expand Xinzhou Gold's mining permit, and which would allow us to resume our ore extraction and refinery activities. However, as at the date of this report we have not successfully secured any financing commitment. Due to our continued inability to raise sufficient financing to expand Xinzhou Gold's mining permit, Xinzhou Gold elected to reapply for a new drilling permit based on a scaled-down drilling plan. The resulting new permit application, which was submitted to theAnhui Province Land & Resources Bureau for approval onMarch 8, 2017 , sought renewed permission to continue drilling in the areas directly adjacent to our concentration plant. That application was subsequently rejected due to environmental concerns regarding wastewater runoff onto nearby agricultural lands. Accordingly, during the last six months of fiscal 2019, the Company was primarily devoted to refining its environmental impact compliance proposal and design in consultation with government officials. A new proposal and design for a tailing pond treatment facility was submitted to the environmental protection authorities onJune 30, 2019 . 17 Table of Contents
During the fall of 2019, the Zhen Ding JV received feedback from theLand & Resource Bureau regarding itsJune 30, 2019 proposal and design submission. The authorities requested certain improvements to the tailing pond and wastewater treatment facility on the proposed drilling site as a condition of granting any new drilling permit. Zhen Ding JV subsequently retained a new environmental expert to rework the tailing pond treatment facility. The new design would employ automated pumping systems to optimize water transfer while lowering both cost and risk. The design affords immediate control of pressure and flowrate, as well as real-time monitoring of pump speed, flowrate, inlet/outlet water pressures, water temperature, engine performance, and engine fuel level. The improved water treatment design report was submitted to the government in December, 2019 and was estimated to cost approximately$1.75 million over two years. The Company was expecting a ruling on the proposal in 2020, however the response was delayed due to COVID-19 containment measures inAnhui province, which resulted in reduced staffing and operations across all levels of the public service. Subsequently, during the second quarter of 2021, we were informed by theLand & Resources Bureau that no further consideration would be given to our proposal or design submission until we provide a cash payment of$500,000 to finance additional research and due diligence.
Financing and Restructuring Efforts
During fiscal 2019 our management entered into negotiations with various related party lenders regarding a possible restructuring or conversion of related party debt. EffectiveDecember 14, 2020 , we issued an aggregate of 46,442,550 shares of our common stock to ten lenders at the price of$0.02 per share in consideration for the cancellation of$928,851 of interest bearing debt payable on demand to the lenders in respect of cash advances made by them to the Company.
Activities during the Three Months Ended
The three months endedSeptember 30, 2022 saw a progressive decline in global commodities markets, including the market for precious metals. Because of these adverse market conditions, our management has suspended efforts to identify sources of equity financing required to complete permitting and resumption of our mineral extraction and refining operations. Meanwhile, our management has continued to identify and evaluate businesses opportunities and other strategic transactions with a view to diversifying our business and creating shareholder value. Results of Operations
Three Months Ended
We had a net loss of$143,374 from operations for the three month period endedSeptember 30, 2022 , which was a nominal decrease from our net loss of$148,749 from operations for the three month period endedSeptember 30, 2021 . The change in our results over the two periods is a result of nominal decreases in our general and administrative expense and in our interest expense during 2021. The following table summarizes key items of comparison and their related increase (decrease) for the three month periods endedSeptember 30, 2022 and 2021: Percentage Increase (Decrease) From Three Month Period Ended Three Months Three Months September 30, 2021 to Ended Ended Three Month Period September 30, September 30, Ended September 30, 2022 2021 2022 General and administrative$ 17,945 $ 15,710 14.22 % Other (Income) Expense 2 (39 ) (105.12 )% Interest expense 125,421 133,078 (6.12 )% Net loss$ 143,374 $ 148,749 (3.61 )%
Nine Months Ended
We did not earn any revenues in the nine months endedSeptember 30, 2022 orSeptember 30, 2021 . Our lack of revenue was due to the continued idling of our mineral processing operations and our inability to secure a renewed permit or financing to resume our mining activities. 18 Table of Contents
We had a net loss of$457,728 for the nine month period endedSeptember 30, 2022 , which was 2.62% greater than the net loss of$445,999 for the nine month period endedSeptember 30, 2021 . The change in our results over the two periods is a result of nominal increase in our general and administrative expense and in our interest expense during 2022. The following table summarizes key items of comparison and their related increase (decrease) for the nine month periods endedSeptember 30, 2022 and 2021: Percentage Increase (Decrease) From Nine Month Period Ended Nine Months Nine Months September 30, 2021 to Ended Ended Nine Month Period September 30, September 30, Ended 2022 2021 September 30, 2022 General and administrative$ 66,939 $ 48,282 38,64 % Other (Income) Expense (267 )
(42 ) 535.71 % Interest expense 391,154 397,759 (1.66 )% Net loss$ 457,728 $ 445,999 (2.62 )%
Liquidity and Capital Resources
Our balance sheet as ofSeptember 30, 2022 reflects current assets of$10,712 and a working capital deficit of$9,888,834 . Our current assets consisted entirely of cash and cash equivalents. We have insufficient working capital to carry out our stated plan of operation for the next twelve months. Working Capital At At September 30, December 31, 2022 2021 Current assets$ 10,712 $ 29,782 Current liabilities 9,899,546 10,548,025 Working capital (deficit)$ (9,888,834 ) $ (10,518,243 )
As of
Cash Flows
Nine Months Ended
September 30,
2021 2020
Net cash provided by (used in) operating activities $ (96,309 ) $ (49,502 )
Net cash provided by (used in) financing activities 40,103 61,121
Foreign currency transaction 37,136 (1,516 )
Net increase in cash during period $ 19,070 $ 10,103
Operating Activities
Net cash used in operating activities during the nine months ended September 30,
2022 was $96,309 , a 95% increase from the $49,502 net cash outflow during the
nine months ended September 30, 2021 . The increase was a result of an increase
in accounts payable and accrued liabilities owed to related parties and
non-related parties. During the nine months ended September 30, 2022 we had no
sales and did not purchase any raw materials.
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Table of Contents
Financing Activities
Cash used in financing activities during the nine months ended September 30,
2022 was $40,103 , which was a 34% decrease from the $61,121 in cash provided by
financing activities during the nine months ended September 30, 2021 . The
decrease in cash provided was a result of an increase interest accrual on
related party loans during the fiscal 2022.
Plan of Operation
Our operating plan for the 12 months beginning
Our operating plan for the balance of fiscal 2022 is to seek an investment of approximatelyUS$3,350,000 , which we believe is required to restart our mineral processing plant inChina and extend Xinzhou Gold's mining permit, which would allow us to resume our ore extraction and refinery activities, although we have not secured any financing commitment thus far.
The funds raised would be used to:
1. upgrade tailings pond and water treatment facility;
2. extend and expand permitted mining area of Xinzhou Gold to access higher
concentrate ore veins;
3. resume ore exploration and extraction activities;
4. re-start the mill; 5. re-test the mill;
6. develop expansion plans for our plant capacity;
7. drill additional holes near the concentration plant; and
8. undertake at least three deep drill holes in the permitted area to re-commence
greater milling operations as soon as possible.
This will involve re-testing the plant equipment and re-hiring all personnel
that was laid off as a result of the mining halt. We will reactively seek
partnerships with mining enterprises primarily active in the gold, silver and/or
copper fields and subject to the general parameters described earlier to
increase our supply of raw material. In addition, we will look for a partner in
the natural resources field in order to enhance our future capability to access
necessary funding and seek other businesses opportunities and other strategic
transactions with a view toward diversifying our business and attracting new
investment.
In order to execute our business plan over the next twelve months we expect to expend funds as follows:
Estimated Net Expenditures During the Next Twelve Months
$
Restart mill and mining related operations 3,000,000 General, Administrative Expenses
100,000
Consulting & Permit Fees 150,000
Misc 100,000
Total 3,350,000
In light of our nominal cash resources, we expect that we will be required to raise approximately$3,500,000 in order to execute our proposed business plan during fiscal 2022. In the event that we are unable to raise sufficient funds to carry out our planned investment in drilling equipment and our planned exploration program, we anticipate that we will require a minimum of$350,000 to maintain our current business operations without engaging in any significant exploration activities or investment. We have suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. 20 Table of Contents The continuation of our business is dependent upon obtaining further financing, a successful program of exploration and/or development, and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. There are no assurances that we will be able to obtain further funds required for our continued operations. As noted herein, we are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our other obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations. We are not aware of any known trends, demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or decreasing in any material way. Future Financings We anticipate continuing to rely on equity sales of our common stock in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned business activities. We presently do not have any arrangements for additional financing for the expansion of our exploration operations, and no potential lines of credit or sources of financing are currently available for the purpose of proceeding
with our plan of operations.
Off-Balance Sheet Arrangements
We have no 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, and capital expenditures or capital resources that are material to stockholders. Critical Accounting Policies
Use of Estimates and Assumptions
The Company prepares its financial statements in conformity withU.S. GAAP, which 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 amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. Foreign Currency Adjustments
Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Any translation adjustments are reflected as a separate component of stockholders' equity (deficit) and have no effect on current earnings. Gains and losses resulting from foreign currency transactions are included in current results of operations. During the periods endedSeptember 30, 2022 and 2021, the Company had aggregate foreign currency translation gains (loss) of$1,087 ,137and ($121,778 ), respectively. Non-controlling Interests Non-controlling interests in the Company's subsidiaries are reported as a component of equity, separate from the Company's equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the minority interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings. 21 Table of Contents Revenue Recognition
Revenue is recognized when products are shipped, title and risk of loss is passed to the customers and collection is reasonably assured. Payments received prior to the satisfaction of above criteria are deferred.
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