10QSB 1 a11206010qsb.txt FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006 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. 12 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. 13 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 15 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