UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934.
For the quarterly period ended September 30, 2006.
[ ] Transition report pursuant to Section 13 or 15(d) of the Exchange
Act for the transition period from ____________ to _____________.
Commission File Number: 0-32477
EAST DELTA RESOURCES CORP.
(Exact name of registrant as specified in charter)
DELAWARE 98-0212726
-------- ----------
(State of or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
447 St. Francois Xavier St.
Montreal, Quebec, Canada H2Y 2T1
(Address of Principal Executive Offices)
(514) 845-6448
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant: (1) has filed all reports required to be filed by
Section 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 the number of shares outstanding of each of the issuer's classes of
stock as of November 17, 2006.
46,714,842 Common Shares
Transitional Small Business Disclosure Format:
YES [_] NO [X]
EAST DELTA RESOURCES CORP.
(A Development Stage Company)
INDEX TO FORM 10-QSB
Page
PART I. FINANCIAL INFORMATION 3
Item 1. Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005 3
Consolidated Statements of Operations for the three and nine months
ended September 30, 2006 and 2005, and the period from March 4, 1999 (Inception)
to September 30, 2006 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2006 and 2005, and the period from March 4, 1999 (Inception)
to September 30, 2006 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 9
Operations or Plan of Operations (including cautionary statement)
Item 3. Controls and Procedures 14
PART II. OTHER INFORMATION 15
Item 1. Legal Proceedings 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Securities Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
PART I - FINANCIAL INFORMATION
Item 1.
EAST DELTA RESOURCES CORP.
(A development stage company)
CONSOLIDATED BALANCE SHEETS
September 30, 2006 and December 31, 2005
(unaudited)
ASSETS
2005
2006 (restated)
---- ----------
Current assets:
Cash $ 730,297 $ 735,974
Prepaid expense and other current assets 9,694 -
Notes receivable 200,731 150,545
Deferred financing costs, current portion 40,757 -
------------ ------------
Total current assets 981,479 886,519
Deferred financing costs 24,547 -
------------ ------------
Total assets $ 1,006,026 $ 886,519
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 332,969 $ 172,399
Note payable - related party 27,000 150,000
------------ ------------
Total current liabilities 359,969 322,399
Convertible notes 1,193,565 -
------------ ------------
Total liabilities 1,553,534 322,399
------------ ------------
Minority interest in subsidiary 104,295 103,743
Stockholders' equity (deficit)
Common stock, $0.0001 par value, 50,000,000
shares authorized, 45,509,842 and 45,101,326 shares
issued and outstanding, respectively 4,551 4,510
Additional paid-in-capital 23,247,511 22,893,786
Deferred compensation (86,500) -
Deficit accumulated during the development stage (23,817,365) (22,437,919)
------------ ------------
Total stockholders' equity (deficit) (651,803) 460,377
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 1,006,026 $ 886,519
============ ============
See accompanying notes to consolidated financial statements.
3
EAST DELTA RESOURCES CORP.
(A development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months Three months Nine months Nine months For the period
ended ended ended ended March 4, 1999
September 30, September 30, September 30, September 30, (inception)
2006 2005 2006 2005 to September 30,
(restated) (restated) 2006
------------ ------------ ------------ ------------ ------------
Revenues:
Consulting $ - $ - $ - $ - $ 86,544
Operating expenses:
Officer and director compensation - - - 6,000 393,255
Consulting and professional 483,953 160,465 879,490 2,164,363 7,967,100
General and administrative 91,247 - 503,311 645,246 7,835,650
------------ ------------ ------------ ------------ ------------
Total operating expenses 575,200 160,465 1,382,801 2,815,609 16,196,005
------------ ------------ ------------ ------------ ------------
Operating loss (575,200) (160,465) (1,382,801) (2,815,609) (16,109,461)
Loss on derivative liabilities - (5,514,289) - (5,923,315) (7,723,499)
Other income (expense) (17,909) (6,996) 1,958 (12,519) 13,638
------------ ------------ ------------ ------------ ------------
Net loss before minority interest (593,109) (5,681,750) (1,380,843) (8,751,443) (23,819,322)
Minority interest in subsidiary
(income) loss (3,481) 560 1,397 560 1,957
------------ ------------ ------------ ------------ ------------
Net loss $ (596,590) $ (5,681,190) $ (1,379,446) $ (8,750,883) $(23,817,365)
============ ============ ============ ============ ============
Net loss per share
- basic and diluted $ (0.01) $ (0.14) $ (0.03) $ (0.21)
Weighted average shares outstanding
- basic and diluted 45,509,842 41,984,614 45,414,235 41,561,963
See accompanying notes to consolidated financial statements.
4
EAST DELTA RESOURCES CORP.
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months For the period
Nine months ended March 4, 1999
ended September 30, (inception)
September 30, 2005 to September 30,
2006 (restated) 2006
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,379,446) $ (8,750,883) $(23,817,365)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 11,356 - 11,356
Loss on derivative instruments - 5,923,315 7,723,499
Stock issued for services 264,205 2,359,208 9,894,037
Warrant / option expense - - 2,556,318
Minority interest (1,397) (560) (1,957)
Deferred compensation - 390,000 -
Changes in assets and liabilities
Prepaid expenses and other receivables (29,870) (182,280) (20,176)
Accounts payable and accrued liabilities 124,240 (226,519) 286,944
------------ ------------ ------------
NET CASH USED IN OPERATING
ACTIVITIES (1,010,912) (487,719) (3,367,344)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received from purchase of Omega
with common stock - - 157,687
Note receivable to third party (30,010) - (30,010)
Net advances from (to) related party 25,000 - (28,000)
Loan to Sino Silver - - (150,545)
------------ ------------ ------------
NET CASH PROVIDED BY USED IN INVESTING
ACTIVITIES (5,010) - (50,868)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred financing costs (38,330) - (38,330)
Repayments from related party - - 53,000
Sale of minority interest in subsidiary 5,000 300,500 305,500
Proceeds from related party loan - 335,000 397,474
Repayments of related party loan (150,000) - (397,474)
Shares issued for cash, net of offering costs 10 728,850 2,634,774
Proceeds from convertible notes 1,193,565 - 1,193,565
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,010,245 1,364,350 4,148,509
------------ ------------ ------------
NET CHANGE IN CASH (5,677) 876,631 730,297
Cash, beginning of period 735,974 899,392 -
------------ ------------ ------------
Cash, end of period $ 730,297 $ 1,776,023 $ 730,297
============ ============ ============
Cash paid for:
Interest $ - $ - $ -
Income Taxes - - -
Non-cash investing and financing activities:
Stock payable for deferred financing costs 38,330 - 38,330
See accompanying notes to consolidated financial statements
5
EAST DELTA RESOURCES CORP.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of East Delta Resources
Corp., (a development stage company), have been prepared in accordance with
accounting principles generally accepted in the United States of America and the
rules of the Securities and Exchange Commission, and should be read in
conjunction with the audited financial statements and notes thereto contained in
East Delta's latest Annual Report filed with the SEC on Form 10-KSB. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
financial statements that would substantially duplicate the disclosure contained
in the audited financial statements for the most recent fiscal year, 2005, as
reported in Form 10-KSB, have been omitted.
NOTE 2 - STOCK-BASED COMPENSATION
Effective January 1, 2006, East Delta began recording compensation expense
associated with stock options and other forms of equity compensation in
accordance with Statement of Financial Accounting Standards No. 123R,
Share-Based Payment, as interpreted by SEC Staff Accounting Bulletin No. 107.
Prior to January 1, 2006, East Delta accounted for stock options according to
the provisions of Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, and therefore no related
compensation expense was recorded for awards granted with no intrinsic value.
East Delta adopted the modified prospective transition method provided for under
SFAS No. 123R, and, consequently, has not retroactively adjusted results from
prior periods.
During the nine months ended September 30, 2006 and 2005, East Delta did not
grant any options to its employees.
East Delta adopted the disclosure requirements of FAS 123, Accounting for
Stock-Based Compensation and FAS No. 148 with respect to pro forma disclosure of
compensation expense for options issued. For purposes of the pro forma
disclosures, the fair value of each option grant is estimated on the grant date
using the Black-Scholes option-pricing model. The following table illustrates
the effect on net loss and net loss per share if East Delta had applied the fair
value provisions of FAS 123, to stock-based employee compensation.
For the period
Nine months Nine months March 4, 1999
ended ended (inception)
September 30, September 30, to September 30,
2006 2005 2006
---- ---- ----
Net loss as reported $ (1,379,446) $ (8,750,883) $ (23,817,365)
Add: stock based compensation determined under intrinsic
value-based method - - 84,000
Less: stock based compensation
determined under fair value - based method - - (175,000)
-------------- ------------ -------------
Pro forma net loss $ (1,379,446) $ (8,750,883) $(23,908,365)
============== ============ =============
Basic and diluted net loss per common share:
As reported $ (0.03) $ (0.21) N/A
Pro forma (0.03) (0.21) N/A
6
NOTE 3 - NOTES RECEIVABLE
During the third quarter of 2006:
- East Delta advanced $10,000 to a consultant. The note bears 3%
interest and is due February 20, 2007.
- East Delta advanced $20,010 to a consultant. The note bears 3%
interest and is due September 1, 2007.
NOTE 4 - NOTE PAYABLE - RELATED PARTY
During the nine months period ended September 30, 2006:
- East Delta repaid its related party loan in the amount of $150,000.
- East Delta received an advance of $25,000 from a related party to fund
its operations. This advance is due on demand, bears interest at 12%
per annum and is unsecured. As of September 30, 2006, the balance of
the note includes $2,000 of accrued interest.
There were no related party transactions during the second and third quarters of
2006.
NOTE 5 - CONVERTIBLE NOTES
During the period between March 15, 2006 and May 2, 2006, East Delta sold an
aggregate of 980,000 Euros, or approximately $1,193,565, in convertible
debentures at a price of 1 Euro per debenture. The debentures are 6% senior
secured convertible notes, convertible at the option of the note holders into
shares of the East Delta's common stock, at a conversion price of 0.80 Euros.
The maturity date for these notes is March 31, 2008. A sales commission totaling
6% of the proceeds, in cash and common stock, was paid related to this issuance.
The total commission of $76,660 on the sale was capitalized as deferred
financing costs and will be amortized over the life of the note using the
effective interest method. As of September 30, 2006, the cash portion of this
commission was paid and the common stock portion was accrued. As of September
30, 2006, $11,356 of deferred financing costs had been amortized. Because the
conversion prices are higher than the market trading price of East Delta's
common stock when the notes were issued, no Beneficial Conversion Feature was
created. East Delta analyzed these instruments for derivative accounting
consideration under SFAS 133 and EITF 00-19. East Delta determined the
convertible notes were conventional and the warrants met the criteria for
classification in stockholders equity under SFAS 133 and EITF 00-19. Therefore,
derivative accounting is not applicable for these instruments.
NOTE 6 - COMMON STOCK
During the nine months ended September 30, 2006, East Delta issued 408,500
shares of common stock to consultants for their services. These shares were
recorded at their fair value of $264,205.
NOTE 7 - MINORITY INTEREST RESTATEMENT
In August 2006, East Delta determined there was an error in accounting from
2005. In April 2005, East Delta incorporated a subsidiary in Delaware under the
name Sino-Canadian Metals Inc. East Delta consolidated Sino-Canadian Metal and
previously recorded a minority interest of $299,940. East Delta determined that
the recognition on the minority was improperly recorded. Originally, minority
interest was recorded at the value of cash received for stock issued by
Sino-Canadian Metal. Minority interest should have been recorded at the
percentage of ownership of the minority shareholders in the net assets of
Sino-Canadian Metal. Consequently, the consolidated balance sheet was restated
for the line items shown below.
As of December 31, 2005
As originally filed Restated
------------------- --------
Minority interest $ 299,940 $ 103,743
Additional paid in capital 22,697,589 22,893,786
Total stockholders' equity 564,120 460,377
7
NOTE 8 - DERIVATIVE RESTATEMENT
East Delta evaluates the application of SFAS 133 and EITF 00-19 for all of its
financial instruments and concluded the outstanding warrants at September 30,
2005 were derivatives because East Delta did not have sufficient number of
authorized shares to settle these warrants. East Delta is required to record the
warrants on its balance sheet as liabilities measured at fair value with changes
in the values of these derivatives reflected in the consolidated statements of
operations as "Gain (loss) on derivative liabilities." The warrants were
originally accounted for as equity instead of liabilities. The consolidated
statements of operations for the three and nine months ended September 30, 2005
has been restated to reflect the impact of SFAS 133 and EITF 00-19. The effects
of the restatements for the three and nine months ended September 30, 2005 were
a loss of $5,514,289 and a loss of $5,923,315, respectively. In May 2006, East
Delta received waivers effective as of January 1, 2006 from its warrant holders
acknowledging that East Delta does not have sufficient authorized shares of
common stock available to issue upon the exercise of all of East Delta's
outstanding warrants and agreed not to request East Delta to exercise their
warrants. These waivers expire at the earlier of December 31, 2006 or at such
time as East Delta has amended its Certificate of Incorporation to permit the
exercise of all outstanding warrants. As a result of receiving these waivers,
East Delta discontinued derivative accounting as of December 31, 2005.
NOTE 9 - SUBSEQUENT EVENTS
Subsequent to September 30, 2006, East Delta issued 1,205,000 shares of common
stock for services.
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OR PLAN OF OPERATIONS
Overview
East Delta Resources Corp., formerly Avic Technologies Ltd., ("we", or the
"Company" or "EDLT"), a Delaware corporation, was incorporated on March 4, 1999.
We are a start-up, development stage company and have not yet generated or
realized any revenues from our new business operations. Since inception, we have
sold our equity to raise money for property acquisitions, corporate expenses and
to repay outstanding indebtedness. Our current business strategy focuses on gold
exploration and mining development in main land China.
There is little historical financial information about our company upon which to
base an evaluation of our performance. We have never generated any revenues from
our mining operations. Accordingly, comparisons with prior periods are not
meaningful. We are 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.
Our Business
In January 2004, our Board of Directors decided that we should reorganize and
reorient the company to profit from the recent worldwide strong revival of
interest in precious minerals. Towards this goal, on February 4, 2004, we signed
an agreement to acquire 100% of the common stock of Omega Resources, Inc.
("Omega"), a related party by virtue of common ownership and management. The
acquisition, which was consummated on June 30, 2004, permitted us to undertake
our business direction towards mineral exploration and mining, as Omega was in
the business of mineral exploration in China.
As stated, our objective is to profit from the recent worldwide revival of
interest in precious metals. Our primary activity will be in gold exploration,
mining development and production. We also plan to participate in other mineral
exploration and mining, specifically, nickel, zinc and lead. The geographic
focus is in growth mining regions in Southeast Asia, primarily in China. Our
goal is to establish ourselves, in these areas, as a major force in the mining
industry by bringing together a network of financing sources, management
expertise, the latest mining technology and extensive local industry contacts.
Business Strategy
We plan to develop our business mostly through acquisitions and/or joint
ventures with local participants, in which they will have substantial equity and
management control. Priority will be given to the more advanced potential mining
properties, where most of the exploration and pre-feasibility study work have
already been completed or by the outright purchase of a majority interest in
operating mines. The objective is to become the owner of producing mines in the
shortest term possible. With profit potential adequately demonstrated and
funding available, a new plant can be in production as quickly as twelve months.
Business Activities
As its initial entry into the mining business, Omega previously acquired 100% of
the common shares of Amingo Resources Inc. ("Amingo"). Amingo is a Canadian
based company whose major work is in gold exploration and mining development in
China and whose principals have been exploring in China for over five years. Our
efforts for the immediate term will be directed to develop Amingo and its
Chinese properties.
In February, 2004, Amingo signed a Joint Venture Contract with the provincial
and county governments of Guizhou Province and Jinping County, respectively, to
explore and mine gold within their territories. Under the terms of the
agreement, Amingo has acquired rights to develop an 85 square kilometer property
in the county, and is eligible to earn up to 84% of the net revenues extracted
from this particular property. In early May, 2004 the Guizhou Provincial
Industrial and Commercial Administrative Bureau approved the "Joint Venture" for
Guizhou Amingo Resources Inc. The success of this venture is fully dependant on
us obtaining the necessary financing, and no assurances can be given that
sufficient funding will be found, and even if such funding is located, that the
venture will result in any viable ore bodies being uncovered and profitably
mined. As at September 30, 2004, our Chinese Joint Venture, operating under the
name Guizhou Amingo Resources Inc., received its business license, valid for a
period of twenty years.
9
With respect to such financing, Amingo has agreed to contribute $1,000,000 to
fund Guizhou's early stage preliminary exploration activities. As of December
31, 2005, Amingo has funded $850,000 of this amount and the remaining $150,000
must be funded by December 31, 2006. Amingo also contributed approximately
$614,000, which is to be used for activities outside of the Joint Venture and
accordingly, Amingo's net investment in China are approximately $1,770,000 at
September 30, 2006. To date Amingo recognized approximately $1,500,000 loss from
its investment in China.
In late 2005, we signed an agreement with a Chinese mining company, Huaqiao Gold
Mining Company of China ("Huaqiao Gold Mine") that would acquire majority
ownership of the Huaqiao Gold Mine. In September 2005, Guizhou placed a deposit
of $151,043 on this potential purchase. Under the terms of the agreement, East
Delta will own 77.5% of the acquired company and will be required to inject
$500,000 over three months, while Huaqiao will transfer complete ownership of
all assets and permits related to the mine to this entity. In addition, the
acquired company will have rights to explore and mine an additional one sq. km.
of prospective land situated to the NE side of the existing mine. The mine has
well-developed underground access and surface facilities, including a 150 tonne
per day flotation mill built in 2003, and is currently being rehabilitated with
the intent to increase gold production. As of September 30, 2006, the
acquisition has not been closed and the deposit of $151,043 was expensed.
In October 2005, Guizhou Amingo signed a Consignment Cooperation Agreement with
Beijing TianMeng Rui Si Information Consulting Ltd ("Beijing TianMeng") to
manage and supervise its exploration activity on the Mining Project. Under the
terms of the agreement, Beijing TianMeng will be responsible for the complete
project exploration management, including, but not limited to, drilling planning
and drilling, geochemical and geophysical studies, trenching, survey and
mapping, related geological research, engineering flow sheet development,
logistics, staffing, and equipment rental. Under the terms of the contract
Guizhou-Amingo agreed to pay 8,500,000 RMB towards the future costs of work
contemplated at the site. 7,000,000 RMB was paid prior to December 31, 2005 and
was expensed by East Delta. The remaining 1,500,000 RMB was paid in January
2006.
In March 2006, our subsidiary, Sino-Canadian Metals signed a letter of intent
with Qinghai Hua Long Ding Shun Minerals Ltd of Qinghai Province, China, to form
a joint venture to develop a nickel-copper property covering an area of
approximately 17 square kilometers. The property is located 160 kilometers
southeast of XiNing, the capital of Qinghai Province in northwest China. The
proposed joint venture agreement calls for Sino-Canadian to initially deposit
$300,000 into the project in order to eventually obtain 80% equity ownership,
with further exploration and development expenditure of up to $4.7 million
within two years, upon receipt of positive preliminary results. Due diligence on
this potential acquisition is planned to be completed by the end of November
2006.
During this quarter we appointed Mr. David Bikerman as President of the Company,
replacing Mr. Victor I.H. Sun who remained as CEO. He was also named to the
Board of Directors. This appointment corresponded with our ongoing activities
related to re-organizing management intended to bring strong and very
experienced mining personnel to senior levels at the Company and further our
growth oriented aggressive business objectives.
David Bikerman is a mining engineer trained in all aspects of mining enterprises
from exploration through operation in the boardroom. Mr. Bikerman has
significant experience in China as President and CEO of Sino Silver Corp., a
mining exploration and development company on mainland China. He has consulted
to the mining industry in financial modeling; exploration and geologic model
preparation; geo-statistical and reserve analyses; environmental plans; project
feasibility, design and management.
David Bikerman has built gold mines worldwide, including ten years of experience
in Central America where he guided technical analysis, project design,
engineering and overseeing the construction of many gold mining projects.
Previous experience also includes Behre Dolbear & Co., the United Nations
Development Project (UNDP) in New York as a consultant, Consolidation Coal
Company,and the Mathies Mine in Cannonsburg, Pennsylvania. Mr. Bikerman holds
three degrees in mining engineering. He earned the degrees of Engineer of Mines
(1995) and Master of Science in mining engineering (1985) from the Henry Krumb
School of Mines at Columbia University in New York, as well as a Bachelors of
Science in mining engineering (1981) from the University of Pittsburgh.
Also in the quarter we engaged Mr. Thomas McGrail, a Canadian citizen, to
re-start and supervise commercial mining operations at the Huaqiao Gold Mine.
Mr. McGrail is a veteran mining expert with extensive underground mining
experience in Canada, Mexico, Nicaragua and Colombia. McGrail's recent
underground mine experience includes Marmato Mountain in Colombia (Colombia
Goldfields Ltd.), and the Bonanza Gold Mine in eastern Nicaragua (HEMCO Inc,
Nicaragua). Mr. McGrail visited the mine site in September with Mr. Bikerman,
and commenced full time work onsite in early October.
10
Management Discussion and Analysis of Financial Condition
Readers are referred to the cautionary statement below that addresses
forward-looking statements.
As a result of the transaction above, the following discussion and analysis
should be read in conjunction with our consolidated financial statements as of
and for the three and nine months ended September 30, 2006 and 2005 included in
this Form 10-QSB and our recent 10-KSB filing for the nine months transition
period ending December 31, 2005.
Our operations have been fairly minimal to date, and have not generated any
revenues. Accordingly, we are considered to be in the development stage as
defined in Financial Accounting Standards Board Statement No. 7.
Revenues and Cash Position
During the three and nine months ended September 30, 2006 and 2005, we had no
revenues.
As of September 30, 2006, our cash position was $730,297 compared to $1,776,023
as of September 30, 2005.
We are of the opinion that East Delta needs to obtain additional funds for the
next 12 months to further develop its major property, Bake and to integrate at
least one acquisition of an additional property into operations. The subsequent
progress on this acquisition and on any additional acquisitions will depend on
East Delta's ability to find several million dollars in financing.
Operating Expenses and Net Loss
Our total expenses for the three and nine months ended September 30, 2006 were
$575,200 and $1,382,801, respectively, of which a large portion was in stock
based compensation valued at $264,205. This amount was paid in common stock as
finder's fees to compensate consultants in assisting us in several potential
Chinese acquisition and for services related to investor relations. Total
expenses compare to $160,455 and $2,815,609 paid in the three and nine months
ended September 30, 2005, respectively. Our general and administrative expenses
for the three and nine months ended September 30, 2006 amounted to $91,247 and
$503,311. This compares to $0 and $645,246 for the three and nine months ended
September 30, 2005, respectively.
Our average monthly recurring expenses during these three months approximated
$30,000, and includes employee salaries, management salaries, office overhead,
professional fees, travel, business entertainment, equipment, and insurance.
No officer and director compensation expenses were paid for the three and nine
months ended September 30, 2006. Total officer and director compensation
expenses amounted to $6,000 for the nine months ended September 30, 2005.
We currently occupy a 500 sq. ft. of space for our offices in Suite 600, 447
St-Francois Xavier St., Montreal, Quebec under a month to month arrangement,
rent free. As of April 1, 2005, the owner of our office space who is also a
director and shareholder of East Delta, agreed to let us continue occupying
these offices rent free until further notice.
During the three and nine months ending September 30, 2006, the Company incurred
an operating loss of $575,200 and $1,382,801, respectively, as compared to
$160,455 and $2,815,609 for the three and nine months ended September 30, 2005.
As of September 30, 2006, we have a deficit accumulated during the development
stage of $23,817,365.
Loss per share was $0.01 and $0.03 for the three and nine months ended September
30, 2006 as compared to $0.14 and $0.21 for the three and nine months ended
September 30, 2005.
Plan of Operations
Overall, during 2006 and early 2007, the Company's emphasis will be to:
a) Complete drilling at the core property (Bake) per exploration plan;
b) Define the mineral resources and reserves at Bake in accordance with
US/Canadian reporting standards;
11
Although the acquisition at Huaqiao has not been closed as yet, management has
decided to proceed as if it has and has begun to do the following:
c) map, sample and plan drill program at Huaqiao;
d) Rehabilitate and modernize underground mine and surface milling and
administrative facilities (including addressing environmental and
safety issues) at Huaqiao;
e) Expand capacity.
Additional plans are:
f) Complete ongoing property acquisitions and seek other acquisitions;
g) Consolidate the acquisitions by integrating them into the Company's
Chinese operations.
Bake
Surface mapping has been completed for an 8 square kilometer area of interest
lying within the 85 square kilometer Bake-Jiaoyun concession. The objective of
the next phase is to focus activities on the most promising of the many
mineralization zones that have been mapped within different sectors of the
mapped portions of the property, while completing the surface mapping of the
remaining 2 square kilometer area of interest.
The company will conduct geophysical analysis as well as trenching and drilling
campaigns to determine/verify the grades and thickness of the zones that are
predicted in resource models and preliminary exploration results.
The company intends to:
a) assess and prioritize the potential of known mineralized zones;
b) explore the high priority deposits;
c) prepare resource estimates to US/Canadian standards; and
d) substantially increase our measured and indicated (proven and
probable) gold resource and reserve base.
Bake - (RuiXin Extensions)
The Bake exploration concession completely encircles the RuiXin mining
concession. RuiXin has identified at least 7 veins on their property, which
protrude into the Bake territory both at their head and tail ends. The immediate
activities underway in these two areas are surface mapping programs, intended to
determine the extent that these seven veins continue into the Bake claim.
Drilling plans have been formulated based on the results of the scoping study.
The goal is to prioritize the potential of known mineralized zones, explore the
high priority deposits, and prepare resource estimates to US/Canadian standards.
Upon successful determination of the resources in this zone, preparatory work
for the sizing of the future gold extraction plan will continue. This program
should yield additional proven/probable reserves in the short term.
Huaqiao
The acquisition at Huaqiao has not been closed, nevertheless management has
decided to proceed as if it has by budgeting and planning activities at the
existing mine site.
Huaqiao is an operating gold mine with a maximum daily throughput of 100-150
tonnes per day. The historical mine operational procedures and mine records are
not sufficient to show production statistics such as daily tonnes processed,
grade, recovery etc. The operation was sufficiently successful to have purchased
and installed a new, state of the art mill in 2003 consisting of:
2-stage crushing; ball mill, classifier, jig, thickener, 12 flotation cells, and
2 gravity shaker tables. This mill was operated for a short time, but stopped
about two months after the trainers departed due to a lack of familiarity by the
owners, who went back to using the shaker tables as before. The mining
underground is not well developed, and while underground maps are available,
there is little geologic mapping and no electronic model of the veins as
encountered. Also lacking is regular sampling of the veins to indicate
continuity of grade along the vein.
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East Delta intends to do the following in the late 2006 and early 2007 at
Huaqiao:
Exploration
o Complete surface survey over an additional 0.4 km2;
o Complete underground geologic mapping of all openings;
o Create new computerized geologic model for resource/reserve
estimation;
o Establish a systematic sampling regime for exploration and mining;
o Based on results from the mapping, model and sampling, plan drill
holes.
Production
o Contract an expatriate mine manager to oversee all operations at the
mine;
o Complete rehabilitation of mine facilities by first quarter of 2007;
o Begin surface facility training for flotation mill in December 2006;
o Determine most suitable mining method for maximizing extraction;
o Train operators in underground mining methods;
o Address tailings disposal concerns;
o Complete construction of new labor living quarters;
o Purchase and install additional production equipment as required; and
o Assess and streamline management reporting structure.
The above activities should build upon the proven gold reserves on this property
offering the option to increase future ore production from 150 t/d to 300 t/d or
more.
CAUTIONARY STATEMENT
This Form 10-QSB, press releases and certain information provided periodically
in writing or orally by our officers or our agents contain statements which
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act, as amended and Section 21E of the Securities Exchange Act of
1934. The words expect, anticipate, believe, goal, plan, intend, estimate and
similar expressions and variations thereof if used are intended to specifically
identify forward-looking statements. Those statements appear in a number of
places in this Form 10-QSB and in other places, particularly, Management's
Discussion and Analysis or Results of Operations, and include statements
regarding the intent, belief or current expectations us, our directors or our
officers with respect to, among other things: (i) our liquidity and capital
resources; (ii) our financing opportunities and plans and (iii) our future
performance and operating results. Investors and prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in the forward-looking statements as a
result of various factors. The factors that might cause such differences
include, among others, the following: (i) any material inability to successfully
internally develop our products; (ii) any adverse effect or limitations caused
by Governmental regulations; (iii) any adverse effect on our positive cash flow
and ability to obtain acceptable financing in connection with our growth plans;
(iv) any increased competition in business; (v) any inability to successfully
conduct our business in new markets; and (vi) other risks including those
identified in our filings with the Securities and Exchange Commission. We
undertake no obligation to publicly update or revise the forward looking
statements made in this Form 10-QSB to reflect events or circumstances after the
date of this Form 10-QSB or to reflect the occurrence of unanticipated events.
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ITEM 3 - CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
Management has evaluated, with the participation of our President, the
effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) as of the end of the period covered by this
report. Based upon this evaluation, our President concluded that, as of the end
of the period covered by this report, our disclosure controls and procedures
were not effective to ensure that information required to be disclosed by us in
the reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms.
We identified deficiencies in our internal controls and disclosure
controls related to the expense recognition of deferred financing costs and
accounting for minority interest. We are in the process of improving our
internal control over financial reporting in an effort to remediate these
deficiencies through improved supervision and training of our accounting staff.
These deficiencies have been disclosed to our Board of Directors. We believe
that this effort is sufficient to fully remedy these deficiencies and we are
continuing our efforts to improve and strengthen our control processes and
procedures. Our President and directors will continue to work with our auditors
and other outside advisors to ensure that our controls and procedures are
adequate and effective.
(b) Changes in Internal Control Over Financial Reporting.
There have been no significant changes in our internal controls over
financial reporting that occurred during the fiscal quarter covered by this
report that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
14
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ending September 30, 2006, we issued no shares of stock for
services.
During the quarter ending March 31, 2006, we issued 408,500 shares issued to
various consultants for services rendered to us. These services were valued at
$264,250. The stock was issued in transactions exempt from registration either
under section 4(2) to U.S. persons or under Regulation S to non-U.S persons as
promulgated under the Securities Act of 1933, 1933, as amended (the "Securities
Act").
During the period between March 15, 2006 and May 2, 2006, East Delta sold an
aggregate of 980,000 Euros in convertible debentures at a price of 1 Euro per
debenture. The debentures are 6% senior secured convertible notes, convertible
at the option of the note holders into shares of the East Delta's common stock,
at a conversion price of 0.80 Euros. The maturity date for these notes is March
31, 2008.
Total proceeds to East Delta amounted to $1,193,565. The sale of the securities
was done to non-resident foreign shareholders, exempt from registration under
Regulation S of the Securities Act of 1933. A sales commission totaling 6% of
the proceeds, in cash and common stock, was paid relating to this issuance.
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Securities Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
31.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (Rules 13a-14 and 15d-14 of the Exchange Act)
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350)
(b) Reports on Form 8-K
NONE
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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.
Dated: November 20, 2006 By: /s/ Victor Sun
-----------------------------
Victor I.H. Sun, CEO and acting CFO
16