Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This annual 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 of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our audited financial statements are stated in United States Dollars ($) 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 to the consolidated financial statements included elsewhere in this Form 10-K. 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 annual report.
In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common stock” refer to the common stock in our capital stock.
As used in this annual report, the terms “we”, “us”, “our” or the “Company” mean TGS International Ltd., a Nevada corporation, and our subsidiaries, unless otherwise indicated.
General Overview
TGS International Ltd. was established on December 1, 2016 in Nevada, USA. On September 14, 2018, TGS International Ltd. and Arcus entered into a Share Exchange Agreement, dated September 14, 2018, with Chi Kin Loo, Billion Plus Limited, First Fortune Investment Limited, Great Win Limited and Master Value Holdings Limited, pursuant to which the Selling Stockholders agreed to sell all of their ordinary shares of Arcus to the Company in exchange for an aggregate of 7,000,000 shares of common stock of TGS International Ltd.
We are a mining company focused on both fluorite mining operations in Mongolia (3 mines in total, Mining license numbers: MV-016819, MV-017305 and MV-009918) and sales of fluorite across Mongolia and China. During 2015 to 2017, we were setting up infrastructure at Mine B and appointed SRK Consulting China Limited for resource exploration for Mine A and Mine B. The trial production at Mine A and Mine B started in 2019 and 2018 respectively and have been ongoing since that time.
The global COVID-19 situation shows no sign of improvement in most countries and regions. We expect that the global economy will take a considerably long time to stabilize and recover from the ongoing pandemic as the situation remains very volatile and uncertain. Although COVID-19 vaccines are now available, no side effects and 100% success rate are not guaranteed at this point and the World Health Organization and health experts have advised that COVID-19 will not be eradicated without effective treatment and vaccination.
Many countries around the world have imposed travel restrictions in response to the outbreak of COVID-19, including Mongolia. The Mongolian Government has implemented the measure of closing all ports of entry from and into China, effective until April 30, 2021. Continuously evolving government responses to the pandemic may create challenges for us. For example, the Mongolian Government has extended the measure of closing ports since early 2020, and has not changed their stance after reviewing more than ten times. It is difficult to predict if the Mongolian Government will further extend the measures in place. Our Chinese workers are not allowed to enter into Mongolia, which has led to no activity at Mine B. Furthermore, with limited operation income which is generated mainly from Mine A, is compounded with the high expenses in our three offices: the Hong Kong headquarters, the Erenhot office in China and the Mongolian office.
The Company is always ready and prepared for the ports to reopen - our office in Ulaanbaatar has liaised with the relevant government departments to prepare visa applications for our Chinese workers, in case workers are allowed to enter into Mongolia.
The construction of the refinery at Mine B was almost completed in late November 2019, while the last step of power supply upgrade at Mine B is still underway. We expect to get the power supply upgraded in 2021 once our Chinese workers are allowed to enter into Mongolia. The entire refinery could be put to trial once it is ready. Nonetheless, keeping workers safe is at the top of our priority. Paramount importance will be given to the health and safety of all of our workers, even if the Mongolian Government lifts the above measures.
In this unprecedented time, COVID-19 has transformed the world since earlier 2020, affecting every corner of society and shaking the global economy. The global economy has been dramatically impacted by the COVID-19 pandemic which continues to have a profound impact on our operations and markets around the world. Despite the unpredictable nature of the pandemic, our response has remained strong – the management has been endeavoring to do their best to minimize the negative impact on our operations and trial production. We have worked extremely hard and tried every single possible way to keep the Company’s operations running in these most challenging circumstances.
On September 22, 2020, two directors, Mr. Shaowei DENG and Miss Ka Yi POON, resigned from the Company for personal reasons.
On December 10, 2020, Mr. Chi Kin LOO was appointed as a director of the Company.
There were a total of four convertible bond agreements entered into between the Company, a subsidiary of the Company, Arcus Mining Holdings Limited (“Arcus”), and third party investors during 2020.
On January 2, 2020, a convertible bond agreement was entered into between the Company, Arcus and a third party investor. On February 1, 2020, the convertible bond matured and was settled by issuing 53,236 common shares at a price of $3.62 per share representing loans of HK$1.5 million and interest expenses of HK$3,185, for a total of HK$1,503,185 (equivalent to $192,708).
On January 14, 2020, a convertible bond agreement was entered into between the Company, Arcus and a third party investor. On February 13, 2020, the convertible bond matured and was settled by issuing 14,196 common shares at a price of $3.62 per share representing loans of HK$400,000 and interest expenses of HK$849, for a total of HK$400,849 (equivalent to $51,389).
On February 24, 2020, a convertible bond agreement was entered into between the Company, Arcus and a third party investor. On March 25, 2020, the convertible bond matured and was settled by issuing 7,098 common shares at a price of $3.62 per share representing loans of HK$200,000 and interest expenses of HK$425, for a total of HK$200,425 (equivalent to $25,695).
On February 29, 2020, a convertible bond agreement was entered into between the Company, Arcus and a third party investor. On March 30, 2020, the convertible bond matured and was settled by issuing 17,745 common shares at a price of $3.62 per share representing loans of HK$500,000 and interest expenses of HK$1,062, for a total of HK$501,062 (equivalent to $64,235).
On April 20, 2020, the Company issued 25,641 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$800,000 (equivalent to $102,564).
On September 14, 2020, the Company issued 39,677 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$1,237,941 (equivalent to $158,710).
On December 21, 2020, the Company issued 13,809 common shares at a price of $4.00 per share to settle the amount due to a director of HK$430,855 (equivalent to $55,238).
Apart from the exploration and infrastructure work at the mine sites, the Company might consider further fund raising activities through the capital markets and from stockholders with the aim of speeding up the development of the Company.
Results of Operations
Comparison of Years Ended December 31, 2020 and December 31, 2019
Revenue
Revenue consisted mainly of fluorite products generated from production at Mine A. In 2020, we had total revenue of $753,694, as compared to revenue of $282,857 during 2019. The percentage of such increment was approximately 166% as a result of the adoption of open-pit mining at Mine A. This method is more flexible to cope with weather conditions. Although revenue in Mine A increased in 2020, nil revenue was generated from Mine B as a result of the closure of Mongolia since January 31, 2020 due to COVID-19.
Exploration cost
Exploration costs are expensed as incurred and included labor and benefits, construction service fee, mining overhead, including food, supplies, utilities and lubricants related to mine exploration. Exploration costs decreased significantly from $737,248 in 2019 to $467,745 in 2020. The percentage of such decrease was approximately 37% and was mainly because of the decrease in mining overheads and utilities cost as no operating activities were carried out in Mine B in 2020.
Selling and distribution cost
Selling and distribution costs included transportation and handling costs related to the movement of finished goods from mines to customer designated locations, security fee, royalty and custom tax. Selling and distribution costs decreased slightly from $105,279 in 2019 to $102,715 in 2020. The percentage of such decrease was approximately 2% and was mainly due to the net effect of the increase in tax paid to the Mongolian Government and the decrease in transportation costs.
Administrative expenses
Administrative expenses included salaries and benefits, consulting, audit, tax, legal, insurance, rent, utilities, net foreign exchange losses and other general operating expenses.
Administrative expenses decreased significantly from $1,645,900 in 2019 to $1,252,925 in 2020. The percentage of such decrease was approximately 24% and was mainly due to commission expenses related to subscription package in 2019, but nil was incurred in 2020, and also the net effect of the increase in net foreign exchange losses, and the decrease in staff salaries, entertainment, legal and professional fees, travelling and other general operating expenses in 2020.
Other income
Other income decreased significantly from $195,576 in 2019 to $31,958 in 2020. The percentage of such decrease was approximately 84% as a result of the net effect of a waiver of consultancy fee and a write back of receipt in advance due to the dissolution of our customer in 2019, but nil in 2020, and the increase of subsidies received from Hong Kong and Mongolian Governments in 2020 resulting from the outbreak of COVID-19 so as to ease the effects impacted on the corporation’s business.
Interest expenses
Interest expenses mainly included other loan interest, related party loan interest and bond interest arising from convertible bonds.
Interest expenses increased from $76,824 in 2019 to $124,040 in 2020. The percentage of such increment was approximately 61% and was mainly due to the net effect of the increase in amortization of non-cash interest expenses and bond discount related to the convertible bonds and non-current loan interest and the decrease in related party loans interest as a result of repayment of related party loans in 2019.
Net loss
As a result of the factors described above, we had a net loss of $1,218,463 for the year ended December 31, 2020 as compared to a net loss of $2,115,716 for the year ended December 31, 2019. The net loss decreased mainly resulted from the increase in revenue and decrease in cost on mining infrastructure project. This was within our management expectation since our mine is still under trial production and we expect to further increase the productions and revenue in 2021.
Liquidity and Capital Resources
Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less. As of December 31, 2020 and 2019, the Company’s cash was $69,401 and $106,850, respectively. There were no cash equivalents.
Factors affecting our liquidity include (i) net cash used in operating activities that consists of (a) cash required to fund the mining sites operating activities and continued expansion of our mining sites and (b) our working capital needs, which include advanced payments for several mining supplies and repair and maintenance, payment of our operating expenses; and (ii) net cash used in investing activities that consists of the investments in purchasing new and additional property, plant and equipment for mining sites. To date, we have financed our liquidity needs primarily through advances from stockholders, proceeds from related parties and unrelated party loans, proceeds from issuance of common stock and the proceeds from issuance of convertible bonds.
We expect to continue to make capital expenditures to keep pace with the expansion of the production and scale of operations of our mining sites, which we expect to fund in part with the proceeds from issuance of convertible bonds and other loans in the future. We expect that the proceeds from the above and our existing cash and cash equivalents will be used to fund working capital and for capital expenditures and other general corporate purposes, such as partnering arrangements, or reduction of debt obligations. However, there can be no assurance that we will be able obtain financing, if at all or upon terms that will be acceptable to us.
Cash Flows
As of December 31, 2020, we had $69,401 in cash and cash equivalents, compared to $106,850 on December 31, 2019.
Net cash used in operating activities
Our net cash used in operating activities decreased to $1,070,424 in 2020 from $1,228,886 in 2019. Net cash used in operating activities for the year ended December 31, 2020 primarily reflected our net loss of $1,218,463 and the add-back of non-cash items, mainly consisting of depreciation of property, plant and equipment of $48,884, loss on disposal of property, plant and equipment of $4,089, amortization of non-cash interest expenses and bond discount related to convertible bonds of $21,059, exchange difference of $327,779, non-cash interest expenses related to other loans of $17,603 and changes in operating assets and liabilities primarily consisting of an increase in accounts receivable of $727,979, an increase of other receivables of $68,596, an increase of deposits and prepayments of $48,607, decrease in accrued charges of $125,594 and offset by an increase of trade and other payables of $648,012, an increase in income tax payable of $23,212, an increase in provision for asset retirement obligations of $3,300 and an increase in provision for exploration asset compensation of $24,877.
Net cash used in investing activities
Our net cash used in investing activities decreased to $55,416 in 2020 from $976,818 in 2019. This was mainly due to a decrease of acquisition of property, plant and equipment at mine sites.
Net cash provided by financing activities
Our net cash provided by financing activities decreased to $1,092,060 in 2020 from $2,216,864 in 2019. This was mainly due to a decrease of proceeds from unrelated party loan, issuance of common stock and convertible bonds.
Future Financings
We anticipate continuing to rely on related party and unrelated party loans, convertible bonds or equity sales of our common stock in order to continue to fund our business operations. We believe this will enable us to meet our cash needs for the next 12 months. Issuances of additional shares will result in dilution to our existing stockholders. Importantly, there is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing (whether from related parties or otherwise) to fund our planned business activities.
Except for the convertible bonds and loans from others, we presently do not have any other arrangements or commitments for additional financing for the expansion of our 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
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us 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 reported period. The critical accounting policies we employ in the preparation of our consolidated financial statements are those which involve impairment of long-lived assets, intangible assets and income taxes.
Below, we discuss these policies further, as well as the estimates and judgments involved. We believe that our other policies either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period. For a discussion of all our significant accounting policies, see Note 2 to the consolidated financial statements included elsewhere in this Annual Report.
Impairment of Long-Lived Assets and Intangible Assets
Long-lived assets held and used by the Company and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company evaluates recoverability of assets to be held and used by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the asset. If such assets are considered to be impaired, the impairment loss is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets calculated using a discounted future cash flows analysis.
Income Taxes
The Company complies with ASC 740 which prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of ASC 740. The Company’s accounting policy is to treat interest and penalties as a component of income taxes.
Amounts in the consolidated financial statements related to income taxes are calculated using the principles of ASC 740 and ASU 2013-11 “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASC 740 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting bases and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Future tax benefits, such as net operating loss carry forwards, are recognized as deferred tax assets. Recognized deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.
Going Concern
The Company incurred an operating loss of $1,218,463 for the year ended December 31, 2020, and as of that date, the Company’s current liabilities exceeded its current assets by $1,262,026. Notwithstanding the operating loss incurred for the year ended December 31, 2020 and the net current liabilities as of December 31, 2020, the accompanying consolidated financial statements have been prepared on a going concern basis. Since the Company is currently in the exploration stage, it is still in the capital investing period. The Company’s business forecast indicates that the Company will have positive cash inflow after the commencement of formal production in 2022. Management believes the Company will have sufficient working capital to meet its financing requirements for the next 12 months based on the financial support of certain stockholders, issuance of new convertible bonds, proceeds from unrelated party loans and upon their experience and their assessment of the Company’s projected performance, production ability and product market.
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements, together with the report of our independent registered public accounting firm, begin on page 21 of this Annual Report and are incorporated herein by reference.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of TGS International Ltd.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of TGS International Ltd. and subsidiaries (collectively, the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Material Uncertainty related to Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered an operating loss of $1,218,463 for the year ended December 31, 2020, and as of that date, the Company’s current liabilities exceeded its current assets by $1,262,026, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the Board of Directors and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment assessment of property, plant and equipment (“PPE”)
Critical Audit Matter Description
As described in Notes 2 and 3 to the consolidated financial statements, management reviews and evaluates the net carrying amount of property, plant and equipment for impairment upon the occurrence of events or changes in circumstances that indicate that the related carrying amounts may not be recoverable. The test for recoverability is based on undiscounted future cash flows that will be generated from operations at each mining site. The total PPE balance was $2,307,570 as of December 31, 2020. Management performed a carrying amount analysis and concluded the undiscounted cash flows and estimated value of the PPE exceeded their carrying amounts and an impairment was not recognized. The carrying amount analysis is sensitive to the assumptions used including quantities of recoverable minerals, expected fluorite prices, production levels and operating cost of production and capital, based upon the projected remaining future fluorite production from each mining site.
We identified PPE as a critical audit matter because of the significant estimates and assumptions management makes in developing the undiscounted cash flows. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecast quantities of recoverable minerals, expected fluorite prices, production levels and operating costs of production and capital of each mining site.
How the Critical Audit Matter Was Addressed in the Audit
Our primary procedures related to address this critical audit matter included:-
·
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We evaluated the reasonableness of management’s assumptions by comparing the forecasts to historical results, internal communications to management and the Board of Directors, and publicly available information about the industry.
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Impairment assessment of intangible assets – acquired mining rights (“acquired mining rights”)
Critical Audit Matter Description
As described in Notes 2 and 4 to the consolidated financial statements, management reviews and evaluates the net carrying amount of acquired mining rights for impairment upon the occurrence of events or changes in circumstances that indicate that the related carrying amounts may not be recoverable. The test for recoverability is based on an estimate of fair values of acquired mining rights. The Company utilized a third-party valuation specialist to assess the fair value of acquired mining rights using the discounted cash flow model and the income approach. The determination of the fair value requires management to make significant estimates and assumptions related to forecasts of quantities of recoverable minerals, expected fluorite prices, production levels and operating costs of production and capital, based upon the projected remaining future fluorite production from each mining site and discount rate. The total acquired mining rights balance was $1,097,362 as of December 31, 2020. Based on the third-party valuation specialist’s report, the fair value exceeded its carrying amounts as of the measurement date and, therefore, no impairment was recognized. The fair value is sensitive to changes in forecasts of quantities of recoverable minerals, expected fluorite prices, production levels and operating cost of production and capital as well as discount rate.
We identified acquired mining rights as a critical audit matter because of the significant estimates and assumptions management makes in estimating its fair value. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts quantities of recoverable minerals, expected fluorite prices, production levels and operating costs of production and capital as well as discount rate.
How the Critical Audit Matter Was Addressed in the Audit
Our primary procedures related to address this critical audit matter included:-
·
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We evaluated the independence and skills, knowledge, and expertise qualifications of the third-party valuation specialist engaged by the Company.
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·
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We evaluated the reasonableness of management’s assumptions by comparing the forecasts to historical results, internal communications to management and the Board of Directors, and forecasted information included in the fair value measurement reported by the third-party valuation specialist.
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·
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We evaluated the reasonableness of the Company’s calculation of fair value by:
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–
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Assessing the appropriateness of the valuation methodology used to determine the company-specific risk premiums in calculating the discount rate.
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–
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Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation.
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–
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Evaluating the reasonableness of the estimated fluorite price through comparison to publicly available information about the industry.
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/s/Moore Stephens CPA Limited
Certified Public Accountants
We have served as the Company's auditor since 2015.
Hong Kong
March 19, 2021
TGS International Ltd.
Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019
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Note
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December 31,
2020
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December 31,
2019
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Assets
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Current assets
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|
|
|
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Cash and cash equivalents
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$
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69,401
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$
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106,850
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Other receivables
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|
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|
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532,943
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|
|
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459,846
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Prepayments and deposits
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205,169
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|
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|
197,995
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Accounts receivable
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|
|
|
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787,023
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58,825
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|
|
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Total current assets
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1,594,536
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823,516
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Non-current assets
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Property, plant and equipment
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3
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2,307,570
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|
|
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2,406,368
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Intangible assets
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|
|
4
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|
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1,097,362
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|
|
|
1,097,362
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Right-of-use assets
|
|
|
5
|
|
|
|
-
|
|
|
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189,456
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Deposit
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50,299
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-
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|
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|
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Total assets
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$
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5,049,767
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$
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4,516,702
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Liabilities and Stockholders’ Equity
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Current liabilities
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Accounts payable
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$
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457,824
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$
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9,769
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Accrued charges
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|
|
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|
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123,241
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|
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228,283
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Other payables
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|
|
7
|
|
|
|
1,568,875
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|
|
|
1,304,355
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Lease liabilities
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|
|
5
|
|
|
|
-
|
|
|
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189,456
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Income tax payable
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|
|
|
|
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22,951
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|
|
|
-
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Amount due to a director
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14(d)
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|
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77,964
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|
|
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73,950
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Loan from a related person
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|
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14(a)
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|
|
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386,916
|
|
|
|
385,158
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Convertible bond payable, net
|
|
|
8
|
|
|
|
190,954
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|
|
|
187,995
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Other loan
|
|
|
9
|
|
|
|
27,837
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
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Total current liabilities
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|
|
|
|
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2,856,562
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|
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2,378,966
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|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due to stockholders
|
|
|
14(c)
|
|
|
|
376,246
|
|
|
|
872,968
|
|
Amounts due to directors
|
|
|
14(d)
|
|
|
|
951,569
|
|
|
|
45,045
|
|
Other loan
|
|
|
9
|
|
|
|
147,326
|
|
|
|
132,423
|
|
Provision for asset retirement obligations
|
|
|
10
|
|
|
|
35,350
|
|
|
|
33,443
|
|
Provision for exploration asset compensation
|
|
|
11
|
|
|
|
119,336
|
|
|
|
98,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
4,486,389
|
|
|
|
3,561,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
-Preferred stock, $0.0001 par value; 100,000,000 shares authorized, nil issued and outstanding
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
-Common stock, $0.0001 par value; 200,000,000 shares authorized, 14,962,298 shares issued and outstanding as of December 31, 2020 and 14,790,896 shares issued and outstanding as of December 31, 2019
|
|
|
12
|
|
|
|
1,496
|
|
|
|
1,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
|
|
|
|
11,483,220
|
|
|
|
10,824,927
|
|
Accumulated deficit
|
|
|
|
|
|
|
(10,951,630
|
)
|
|
|
(9,733,167
|
)
|
Accumulated other comprehensive income/(loss)
|
|
|
|
|
|
|
30,292
|
|
|
|
(138,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
|
|
|
|
563,378
|
|
|
|
955,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
|
|
|
|
$
|
5,049,767
|
|
|
$
|
4,516,702
|
|
The accompanying notes are an integral part of these consolidated financial statements.
TGS International Ltd.
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
Note
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
13
|
|
|
$
|
753,694
|
|
|
$
|
282,857
|
|
Cost, expenses and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration
|
|
|
|
|
|
|
(467,745
|
)
|
|
|
(737,248
|
)
|
Selling and distribution
|
|
|
|
|
|
|
(102,715
|
)
|
|
|
(105,279
|
)
|
Depreciation of factory equipment
|
|
|
|
|
|
|
(33,478
|
)
|
|
|
(28,898
|
)
|
Administrative
|
|
|
|
|
|
|
(1,252,925
|
)
|
|
|
(1,645,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
|
|
|
|
(1,103,169
|
)
|
|
|
(2,234,468
|
)
|
Other income
|
|
|
|
|
|
|
31,958
|
|
|
|
195,576
|
|
Interest expense
|
|
|
|
|
|
|
(124,040
|
)
|
|
|
(76,824
|
)
|
Loss before provision for income taxes
|
|
|
|
|
|
|
(1,195,251
|
)
|
|
|
(2,115,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
6
|
|
|
|
(23,212
|
)
|
|
|
-
|
|
Net loss
|
|
|
|
|
|
|
(1,218,463
|
)
|
|
|
(2,115,716
|
)
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
168,416
|
|
|
|
129,599
|
|
Comprehensive loss
|
|
|
|
|
|
$
|
(1,050,047
|
)
|
|
$
|
(1,986,117
|
)
|
Net loss per share:
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Basic and Diluted net loss per share
|
|
|
|
|
|
$
|
(0.08
|
)
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
|
|
14,900,748
|
|
|
|
14,532,189
|
|
The accompanying notes are an integral part of these consolidated financial statements.
TGS International Ltd.
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020 and 2019
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
comprehensive
|
|
|
|
|
|
|
Note
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
deficit
|
|
|
(loss)/income
|
|
|
Total
|
|
Balance as of December 31, 2018
|
|
|
|
|
|
14,165,000
|
|
|
$
|
1,417
|
|
|
$
|
8,937,243
|
|
|
$
|
(7,617,451
|
)
|
|
$
|
(267,723
|
)
|
|
$
|
1,053,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
12
|
|
|
|
625,896
|
|
|
|
62
|
|
|
|
1,887,684
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,887,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,115,716
|
)
|
|
|
-
|
|
|
|
(2,115,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
129,599
|
|
|
|
129,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
|
|
|
|
|
|
14,790,896
|
|
|
$
|
1,479
|
|
|
$
|
10,824,927
|
|
|
$
|
(9,733,167
|
)
|
|
$
|
(138,124
|
)
|
|
$
|
955,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
12
|
|
|
|
171,402
|
|
|
|
17
|
|
|
|
658,293
|
|
|
|
-
|
|
|
|
-
|
|
|
|
658,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,218,463
|
)
|
|
|
-
|
|
|
|
(1,218,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
168,416
|
|
|
|
168,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020
|
|
|
|
|
|
|
14,962,298
|
|
|
$
|
1,496
|
|
|
$
|
11,483,220
|
|
|
$
|
(10,951,630
|
)
|
|
$
|
30,292
|
|
|
$
|
563,378
|
|
The accompanying notes are an integral part of these consolidated financial statements.
TGS International Ltd.
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
Note
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
$
|
(1,218,463
|
)
|
|
$
|
(2,115,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:-
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
3
|
|
|
|
48,884
|
|
|
|
51,898
|
|
Loss on disposal of property, plant and equipment
|
|
|
|
|
|
|
4,089
|
|
|
|
-
|
|
Net foreign exchange losses
|
|
|
|
|
|
|
327,779
|
|
|
|
246,346
|
|
Stock compensation expenses
|
|
|
12
|
|
|
|
-
|
|
|
|
122,100
|
|
Waiver of consultancy fee
|
|
|
|
|
|
|
-
|
|
|
|
(34,556
|
)
|
Write back of receipt in advance
|
|
|
|
|
|
|
-
|
|
|
|
(160,542
|
)
|
Amortization of right-of-use asset
|
|
|
5
|
|
|
|
202,357
|
|
|
|
206,643
|
|
Amortization of non-cash interest expenses and bond discount related to convertible bonds
|
|
|
|
|
|
|
21,059
|
|
|
|
13,732
|
|
Non-cash interest expenses related to other loans
|
|
|
|
|
|
|
17,603
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:-
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
(727,979
|
)
|
|
|
(60,314
|
)
|
Other receivables
|
|
|
|
|
|
|
(68,596
|
)
|
|
|
(394,560
|
)
|
Prepayments and deposits
|
|
|
|
|
|
|
(48,607
|
)
|
|
|
(56,795
|
)
|
Accrued charges
|
|
|
|
|
|
|
(125,594
|
)
|
|
|
(40,022
|
)
|
Accounts and other payables
|
|
|
|
|
|
|
648,012
|
|
|
|
1,196,364
|
|
Income tax payable
|
|
|
|
|
|
|
23,212
|
|
|
|
-
|
|
Lease liabilities
|
|
|
|
|
|
|
(202,357
|
)
|
|
|
(206,643
|
)
|
Provision for asset retirement obligations
|
|
|
|
|
|
|
3,300
|
|
|
|
3,179
|
|
Provision for exploration asset compensation
|
|
|
|
|
|
|
24,877
|
|
|
|
-
|
|
Net cash used in operating activities
|
|
|
|
|
|
|
(1,070,424
|
)
|
|
|
(1,228,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of property, plant and equipment
|
|
|
|
|
|
|
1,065
|
|
|
|
-
|
|
Acquisition of property, plant and equipment
|
|
|
|
|
|
|
(56,481
|
)
|
|
|
(976,818
|
)
|
Net cash used in investing activities
|
|
|
|
|
|
|
(55,416
|
)
|
|
|
(976,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from stockholders
|
|
|
|
|
|
|
726,362
|
|
|
|
517,329
|
|
Repayment to stockholders
|
|
|
|
|
|
|
(20,156
|
)
|
|
|
-
|
|
Advances from directors
|
|
|
|
|
|
|
139,819
|
|
|
|
165,392
|
|
Repayment to a director
|
|
|
|
|
|
|
(112,938
|
)
|
|
|
-
|
|
Repayment of loan from a related person
|
|
|
|
|
|
|
-
|
|
|
|
(127,648
|
)
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
-
|
|
|
|
825,000
|
|
Proceeds from new loan – other
|
|
|
|
|
|
|
25,641
|
|
|
|
131,663
|
|
Proceeds from issuance of convertible bonds
|
|
|
|
|
|
|
333,332
|
|
|
|
705,128
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
1,092,060
|
|
|
|
2,216,864
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
|
|
|
|
|
(33,780
|
)
|
|
|
11,160
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
(3,669
|
)
|
|
|
(2,431
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
|
106,850
|
|
|
|
98,121
|
|
Cash and cash equivalents, end of year
|
|
|
|
|
|
$
|
69,401
|
|
|
$
|
106,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:-
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
|
|
|
$
|
54,148
|
|
|
$
|
66,377
|
|
Income tax paid
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for amounts included in measurement of lease liabilities
|
|
|
5
|
|
|
$
|
202,357
|
|
|
$
|
206,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing transactions:-
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization of advances from stockholders
|
|
|
14(c)
|
|
|
$
|
261,274
|
|
|
$
|
-
|
|
Capitalization of advances from a director
|
|
|
14(d)
|
|
|
$
|
55,238
|
|
|
$
|
121,133
|
|
Capitalization of loans from related persons
|
|
|
12
|
|
|
$
|
-
|
|
|
$
|
289,578
|
|
Recognition of Beneficial Conversion Feature (“BCF”) discount at inception of convertible bond
|
|
|
8
|
|
|
$
|
7,771
|
|
|
$
|
16,047
|
|
Conversion of convertible bond and accrued interest into common stock
|
|
|
8
|
|
|
$
|
334,027
|
|
|
$
|
513,888
|
|
Stock compensation expenses
|
|
|
12
|
|
|
$
|
-
|
|
|
$
|
122,100
|
|
Right-of-use assets obtained in exchange for lease obligations
|
|
|
|
|
|
$
|
-
|
|
|
$
|
369,874
|
|
The accompanying notes are an integral part of these consolidated financial statements.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN
TGS International Ltd. (“TGS”, “the Company”) was incorporated in the state of Nevada, United States on December 1, 2016. On September 14, 2018, the Company entered into a Share Exchange Agreement with Arcus Mining Holdings Limited (“Arcus”) and Chi Kin Loo, Billion Plus Limited, First Fortune Investment Limited, Great Win Limited and Master Value Holdings Limited (the “Selling Stockholders”), pursuant to which the Selling Stockholders agreed to sell all of their ordinary shares of Arcus to the Company in exchange for an aggregate of 7,000,000 shares of common stock of the Company. Arcus, which was incorporated in the Republic of Seychelles on June 17, 2014, and its subsidiaries are engaged in fluorite mining operations in Mongolia, including the processing and sales of fluorite products. Up to December 31, 2020 and the date of this report, the Company owns three mining rights in Mongolia (Mining license numbers: MV-016819, MV-017305 and MV-009918). For the year ended December 31, 2020, the Company has adopted open-pit mining at Mine A which is located in Uulbayansoum, Sukhbaatar province (Mining license number: MV-009918). Due to COVID-19, the Mongolian Government has closed all ports of entry from and into China since early 2020. The Company could not perform any exploration work at Mine B which is located in Bayan-Ovoo soum, Khentii province (Mining license number: MV-016819) during 2020.
Going Concern
The Company incurred an operating loss of $1,218,463 for the year ended December 31, 2020, and as of that date, the Company’s current liabilities exceeded its current assets by $1,262,026. Notwithstanding the operating loss incurred for the year ended December 31, 2020 and the net current liabilities as of December 31, 2020, the accompanying consolidated financial statements have been prepared on a going concern basis. Since the Company is currently in the exploration stage, it is still in the capital investing period. Management has prepared a business cash flow forecast and it indicates that the Company will have positive cash inflow after the commencement of formal production in 2022. Management believes the Company will have sufficient working capital to meet its financing requirements for the next 12 months based on the financial support of certain stockholders, issuance of new convertible bonds, proceeds from unrelated party loans and upon their experience and their assessment of the Company’s projected performance, production ability and product market.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
These consolidated financial statements include the accounts of the Company, TGS, and all of the wholly owned subsidiaries of TGS. All intercompany balances have been eliminated in consolidation.
Use of estimates in the preparation of consolidated financial statements
The preparation of consolidated financial statements in accordance with U.S. GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Although these estimates are based on management’s best assessment of the current business environment, actual results may be different from those estimates. The significant estimates and assumptions that affect the consolidated financial statements include, but are not limited to, deferred tax valuation allowances, income-tax uncertainties, assumptions used to determine the incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, depreciation and amortization periods, recoverability of long-lived assets including intangible assets, valuation of warrant equity, and valuation and impairment losses on mining rights and valuation of asset retirement obligations and exploration asset compensation.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
Concentration and credit risks
Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.
All of the Company’s cash and cash equivalents are held at financial institutions that management believes to be of high credit quality. The Company has not experienced any losses on cash and cash equivalents to date. The Company does not require collateral or other securities to support financial instruments that are subject to credit risk.
The Company operates principally in the People’s Republic of China (“PRC”) (including Hong Kong) and Mongolia and grants credit to its customers in these geographic regions. Although the PRC is economically stable, it is always possible that unanticipated events in foreign countries could disrupt the Company’s operations.
As of December 31, 2020 and 2019, the Company had credit risk exposure of uninsured cash and deposits with maturities of less than one year in banks of $25,625 and $96,495, respectively.
The net sales to customers representing at least 10% of net total sales are as follows:
|
|
Year ended
December 31, 2020
|
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
700,762
|
|
|
|
93
|
|
|
|
Year ended
December 31, 2019
|
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
Customer B
|
|
$
|
40,907
|
|
|
|
15
|
|
Customer C
|
|
|
60,314
|
|
|
|
21
|
|
Customer D
|
|
|
181,636
|
|
|
|
64
|
|
|
|
$
|
282,857
|
|
|
|
100
|
|
The following customers had balances of at least 10% of the total accounts receivable as follows:
|
|
Year ended
December 31, 2020
|
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
681,503
|
|
|
|
87
|
|
Customer C
|
|
|
105,520
|
|
|
|
13
|
|
|
|
$
|
787,023
|
|
|
|
100
|
|
|
|
Year ended
December 31, 2019
|
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
Customer C
|
|
$
|
58,825
|
|
|
|
100
|
|
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
Accounts receivable
Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Bad debt expense is included in administrative expenses.
The Company recognizes an allowance for doubtful receivables to ensure accounts and other receivables are not overstated due to uncollectibility. Allowance for doubtful receivables is maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience. An additional allowance for individual accounts is recorded when the Company becomes aware of customers’ or other debtors’ inability to meet their financial obligations, such as bankruptcy filings or deterioration in the customer’s or other debtor’s operating results or financial position. If circumstances related to customers or debtors change, estimates of the recoverability of receivables will be further adjusted. Accounts receivable are written off when deemed uncollectible. As of December 31, 2020 and 2019, there were no allowance of accounts receivable.
Cash and cash equivalents
Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less. As of December 31, 2020 and 2019, the Company’s cash amounted to $69,401 and $106,850, respectively, and there were no cash equivalents.
Intangible assets
Intangible assets consist of acquired mining rights and are initially measured at fair value as at the date of acquisition. Following the initial recognition, intangible assets are stated at cost less accumulated amortization and impairment losses.
Intangible assets are amortized on the units-of-production method utilizing only proven and probable fluorite reserves in the depletion base.
Property, plant and equipment
|
(i)
|
Property, plant and equipment are stated at cost less accumulated depreciation. Buildings are depreciated on a straight-line basis over 15 to 40 years, representing the shorter of the remaining term of the mining right or the expected useful life to the Company.
|
|
|
|
|
(ii)
|
Other categories of property, plant and equipment are recorded at cost and depreciated to their estimated residual values using the straight-line method over their estimated useful lives, as follows:
|
|
·
|
Leasehold improvements: 5 years or, if shorter, the remaining term of the lease
|
|
·
|
Furniture and equipment: 3 to 10 years
|
|
·
|
Motor vehicles: 3 to 10 years
|
|
·
|
Factory equipment: 3 to 10 years
|
|
·
|
Mineral properties: Unit-of-production
|
|
(iii)
|
Normal repairs and maintenance are charged to operating expenses as incurred, while costs incurred that extend the useful life of an asset, improve the safety of our operations, or improve operating efficiency are capitalized.
|
Impairment of long-lived assets
The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. An impairment loss is measured and recorded based on discounted estimated future cash flows or upon an estimate of fair value that may be received in an exchange transaction. Future cash flows are estimated based on quantities of recoverable minerals, expected fluorite prices, production levels and operating costs of production and capital, based upon the projected remaining future fluorite production from each mining site. Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization that is not part of the measured, indicated or inferred resource base, are included when determining the fair value of mine site reporting units at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable minerals” refers to the estimated amount of fluorite that will be obtained after taking into account losses during processing and treatment. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. The Company’s estimates of future cash flows are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, fluorite prices, production levels and operating costs of production and capital are each subject to significant risks and uncertainties. As of December 31, 2020 and 2019, there was no impairment of long-lived assets.
Income taxes
Deferred income taxes are provided using the asset and liability method in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 740, “Income Taxes”. Under this method, deferred income taxes are recognized for all significant temporary differences at enacted rates and classified as a non-current asset or liability. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all, the deferred tax assets will not be realized.
FASB ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements, and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides accounting guidance on de-recognition, classification, interest and penalties, accounting in years, disclosure and transition. Interest and penalties from tax assessments, if any, are included in income taxes in the statements of operations and comprehensive income.
A tax position must be more likely than not of being sustained in order to be recognized in the consolidated financial statements. As of December 31, 2020 and 2019, the Company did not have any uncertain tax positions or accrued interest and penalties related to uncertain tax positions. The Company does not expect to have a material change to its income tax provisions in the next year.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
Restoration and remediation costs (Asset retirement obligations)
In Mongolia, the mining laws and regulations require the Company to reclaim the surface areas and restore underground water quality for its mine projects to the pre-existing mine area average quality after completion of the mining activities.
Future reclamation and remediation costs, which include extraction equipment removal and environmental remediation, are accrued at the end of each period based on management’s best estimate of the costs expected to be incurred for each project. Such estimates consider the costs of future surface and groundwater activities, current regulations, actual expenses incurred, and technology and industry standards.
In accordance with FASB ASC 410, “Asset Retirement and Environmental Obligations”, the Company capitalizes the measured fair value of asset retirement obligations to mineral properties. The asset retirement obligations are accreted to an undiscounted value until the time at which they are expected to be settled. The accretion expense is charged to earnings and the actual retirement costs are recorded against the asset retirement obligations when incurred. Any difference between the recorded asset retirement obligations and the actual retirement costs incurred will be recorded as a gain or loss in the period of settlement.
On a regular basis, the Company reviews the assumptions used to estimate the expected cash flows required to settle the asset retirement obligations, including changes in estimated probabilities, amounts and timing of the settlement of the asset retirement obligations, as well as changes in any regulatory or legal obligations for each of its mineral projects. Changes in any one or more of these assumptions may cause revision of asset retirement obligations for the corresponding assets.
Revenue recognition
The Company recognizes revenue in accordance with ASC 606 when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company recognizes revenue when it satisfies a performance obligation in accordance with the provisions of a customer order or contract. This is achieved when control of the product has been transferred to the customer, which is generally determined when title, ownership, and risk of loss pass to the customer, all of which occurs upon shipment or delivery of the product. In determining when and how much revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation. The sales of the Company’s products to its customers represent a single performance obligation for which revenue is recognized at a point in time. Based on the foregoing, no significant judgment is required to determine when control of a product has been transferred to a customer.
The Company measures revenue based on the consideration it expects to be entitled to receive in exchange for its products. The standard terms and conditions of customer orders and contracts does not provide its customers with the right of return (except for quality), price protection, rebates or discounts. All sales are based on firm customer orders with fixed terms and conditions, which generally cannot be modified.
See note 13 regarding the Company’s revenue disaggregated by reporting segment.
Provision for exploration asset compensation
The Government of Mongolia issued a policy that requires all mining companies to pay compensation to the Government if the exploration work on their mining license area was funded by the Government. The compensation amount for the exploration work done has been estimated by the Mineral Resources and Petroleum Authority of Mongolia.
The provision for exploration expenditure is calculated as the discounted net present value of estimated future net cash outflows of the reclamation and closure costs.
Exploration costs
Exploration costs are expensed as incurred. Costs to identify new mineral resources and to evaluate potential resources are considered exploration costs.
Selling and distribution costs
Selling and distribution costs included transportation and handling costs related to the movement of finished goods from mines to customer designated locations, security fee, royalty and custom tax.
Administrative expenses
Administrative expenses include salaries and benefits, consulting, audit, tax, legal, insurance, rent, utilities, net foreign exchange losses, and other general operating expenses.
Shipping and handling costs
Shipping and handling costs are expensed as incurred.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
Foreign currency transactions and translations
These consolidated financial statements are presented in United States dollars (“USD”), which is different from TGS subsidiaries’ functional currencies. The functional currency of the subsidiaries in Mongolia, Khan Shashir LLC and Shek Hung Gold LLC, is the Mongolian Tugrik (“MNT”). The functional currency of the subsidiary in the People’s Republic of China (“PRC”), Best Metro Import & Export Trading (Inner Mongolia) Limited is the Chinese Renminbi (“RMB”), while the functional currency of all other subsidiaries is the Hong Kong dollar (“HKD”).
The functional currency of TGS is the USD. The financial statements of foreign subsidiaries where HKD, MNT and RMB are the functional currencies and which have transactions denominated in non-HKD/MNT/RMB currencies are translated into HKD/MNT/RMB at the exchange rates existing on that date. The translation of local currencies into HKD/MNT/RMB creates transaction adjustments which are included in administrative expenses in the accompanying consolidated statements of operations and comprehensive loss. The amounts of foreign currency translation were ($327,779) and ($246,346) for the years ended December 31, 2020 and 2019, respectively.
The financial statements of TGS’s foreign subsidiaries, where non-USD currencies are the functional currencies, are translated into USD using exchange rates in effect at period end for assets and liabilities and average exchange rates during each reporting period for the statement of operations. Adjustments resulting from translation of these financial statements are reflected as a separate component of stockholders’ deficit.
Comprehensive loss
Comprehensive loss is defined as all changes in equity/(deficit), exclusive of transactions with stockholders, such as capital investments. Comprehensive loss includes net loss and changes in certain assets and liabilities that are reported directly in equity.
Basic and Diluted Loss per Share
The Company computes loss per share in accordance with FASB ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common stock equivalents outstanding during the period. Dilutive loss per share excludes all common stock equivalents if their effect is anti-dilutive.
As of December 31, 2020, the Company had warrants and convertible bonds outstanding which could potentially dilute basic loss per share in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been anti-dilutive due to the net losses.
Fair value measurement
The Company complies with FASB ASC 820, “Fair Value Measurements”, which clarifies the definition of fair value, prescribes methods for measuring fair value and establishes a fair value hierarchy to classify the inputs used in measuring fair value.
Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:-
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
Financial instruments are measured as follows:-
The notional amounts of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values.
The fair value of balances with related parties have not been determined as the timing of the expected cash flows of these balances cannot be reasonably determined because of the relationship.
Conversion Option – Convertible bonds
The Company accounts for convertible bond in accordance with the guidelines established by ASC 470-20, “Debt with Conversion and Other Options”. The Company separates the convertible bond into liability and equity components. The Beneficial Conversion Feature ("BCF") of a convertible bond, which is the equity component and recorded as additional paid-in capital, is normally characterized as the convertible portion or feature of certain bonds payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of a convertible bond when issued.
To determine the effective conversion price, the Company first allocates the proceeds received to the convertible instrument, and then uses those allocated proceeds to determine the effective conversion price. The intrinsic value of the conversion option should be measured using the effective conversion price for the convertible instrument on the proceeds allocated to that instrument.
The accounting for a BCF requires that the BCF be recognized by allocating the intrinsic value of the conversion option to additional paid in capital, resulting in a discount to the convertible instrument. This discount should be accreted from the date on which the BCF is first recognized through the earliest conversion date for instruments that do not have a stated redemption date.
The discount is amortized to interest expense over the expected term of the convertible bonds using the effective interest method.
Warrants
ASC 815-40, “Contracts in Entity’s Own Equity”, requires freestanding contracts that are settled in a company’s own stock, including common stock warrants, to be designated as an equity instrument, asset or a liability. Under the provisions of ASC 815-40, a contract designated as an asset or a liability must be carried at fair value on a company’s balance sheet, with any changes in fair value recorded in the Company’s results of operations. A contract designated as an equity instrument must be included within equity, and no fair value adjustments are required from period to period.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
Lease
The Company determines if an arrangement is a lease at inception of the contract. Leases are recorded in "Right-of-use ("ROU") assets" and "lease liabilities" in the Company's consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. For leases in which the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date for determining the present value of lease payments. Lease term includes the effects of options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease arrangements is recognized on a straight-line basis over the lease term.
The Company reviews ROU assets for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable.
Recent changes in accounting standards
Pending Adoption as at year end
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments”. In November 2018, FASB issued ASU No. 2018-19, “Codification Improvements to ASC 326, Financial Instruments-Credit Losses”, which amends the scope and transition requirements of ASU 2016-13. ASC 326 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. ASC 326 will originally become effective for the Company beginning January 1, 2020, with early adoption permitted, on a modified retrospective approach. As a smaller reporting company, the effective date for the Company has been delayed until fiscal years beginning after December 15, 2022, in accordance with ASU 2019-10, although early adoption is still permitted. This standard is not expected to have a material impact to the Company’s consolidated financial statements after evaluation.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes”. The amendments in this ASU simplify the accounting for income taxes, eliminates certain exceptions to the general principles in ASC 740 and clarifies certain aspects of the current guidance to improve consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. This standard is not expected to have a material impact to the Company’s consolidated financial statements after evaluation.
In August 2020, the FASB issued No. ASU 2020-06, “Debt with Conversion and Other Options (ASC 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (ASC 815-40)”. This ASU simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
The Company has implemented all new accounting pronouncements that are in effect and that could impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued, but are not yet effective, that might have a material impact on the consolidated financial statements of the Company.
NOTE 3 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment include the following:-
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
152,902
|
|
|
$
|
159,364
|
|
Leasehold improvements
|
|
|
-
|
|
|
|
120,524
|
|
Furniture, fixture and equipment
|
|
|
67,770
|
|
|
|
66,582
|
|
Motor vehicles
|
|
|
314,776
|
|
|
|
338,320
|
|
Factory equipment
|
|
|
216,801
|
|
|
|
230,290
|
|
Mineral properties
|
|
|
1,322,125
|
|
|
|
1,375,608
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(431,378
|
)
|
|
|
(522,609
|
)
|
|
|
|
1,642,996
|
|
|
|
1,768,079
|
|
Construction in progress
|
|
|
664,574
|
|
|
|
638,289
|
|
Total property, plant and equipment
|
|
$
|
2,307,570
|
|
|
$
|
2,406,368
|
|
Construction in progress is mainly related to a power station under construction and stall cables to be used during the construction of the shaft at the mine sites. During the years ended December 31, 2020 and 2019, depreciation expenses charged to the consolidated statements of operations amounted to $48,884 ($15,406 to administrative expenses and $33,478 to depreciation of factory equipment) and $51,898 ($23,000 to administrative expenses and $28,898 to depreciation of factory equipment), respectively.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
NOTE 4 – INTANGIBLE ASSETS
Intangible assets consist of acquired mining rights.
As of December 31, 2020 and 2019, the Company owned three mining rights in Mongolia.
Cost
|
|
|
|
At December 31, 2020 and 2019
|
|
$
|
1,097,362
|
|
|
|
|
|
|
Accumulated amortization and impairment loss
|
|
|
|
|
At December 31, 2020 and 2019
|
|
|
-
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
At December 31, 2020
|
|
$
|
1,097,362
|
|
|
|
|
|
|
At December 31, 2019
|
|
$
|
1,097,362
|
|
As of December 31, 2020, future minimum amortization expenses in respect of intangible assets are as follows:
Year ending December 31,
2021
|
|
$
|
-
|
|
2022
|
|
|
70,304
|
|
2023
|
|
|
75,991
|
|
2024
|
|
|
80,854
|
|
2025
|
|
|
81,848
|
|
Thereafter
|
|
|
788,365
|
|
|
|
$
|
1,097,362
|
|
NOTE 5 – LEASING ARRANGEMENT
The Company leases certain office and warehouse spaces under operating leases in Hong Kong and Mongolia. Operating lease assets and obligations are reflected within right-of-use asset, and current lease liability respectively, on the consolidated balance sheet.
The discount rate implicit within the leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for the leases is determined based on lease term and currency in which lease payments are made, adjusted for impacts of collateral. The weighted average discount rate used to measure the operating lease liabilities in 2020 and 2019 was 11%.
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Assets
|
|
|
|
|
|
|
Right-of-use assets
|
|
$
|
-
|
|
|
$
|
189,456
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current portion of operating lease liabilities
|
|
$
|
-
|
|
|
$
|
189,456
|
|
|
|
|
|
|
|
|
|
|
Total lease liabilities
|
|
$
|
-
|
|
|
$
|
189,456
|
|
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
NOTE 5 – LEASING ARRANGEMENT (CONTINUED)
Maturity Analysis of Lease Liabilities:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
$
|
-
|
|
|
$
|
217,033
|
|
December 31, 2021
|
|
|
13,284
|
|
|
|
4,106
|
|
Total lease payments, undiscounted
|
|
|
13,284
|
|
|
|
221,139
|
|
Less short-term lease payments
|
|
|
(13,284
|
)
|
|
|
(20,564
|
)
|
Less amount of lease payment representing interest
|
|
|
-
|
|
|
|
(11,119
|
)
|
Total present value of lease payments
|
|
|
-
|
|
|
|
189,456
|
|
Less: Current portion of operating leases liabilities
|
|
|
-
|
|
|
|
(189,456
|
)
|
|
|
|
|
|
|
|
|
|
Non-current operating leases liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
Lease costs for all operating leases classified under ASC 842 for the years ended December 31, 2020 and 2019 were $202,357 and $206,643 respectively.
Supplemental cash flow and other information related to leases is as follows:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Total lease liabilities
|
|
$
|
-
|
|
|
$
|
189,456
|
|
Cash payment for amounts included in the measurement of lease liabilities within operating cash flows
|
|
$
|
202,357
|
|
|
$
|
206,643
|
|
Weighted average remaining lease term (years)
|
|
|
-
|
|
|
|
0.97
|
|
Weighted average discount rate
|
|
|
11
|
%
|
|
|
11
|
%
|
NOTE 6 – INCOME TAXES
The Company is subject to tax on an entity basis on income arising in or derived from the United States of America, Republic of Seychelles, Mongolia, PRC and Hong Kong.
United States Tax
The federal income tax rate in the United States is 21%. The Company is subject to income taxes in the United States of America for each of the years ended December 31, 2020 and 2019.
Seychelles Tax
The statutory tax rate in the Republic of Seychelles is 25% on the first 1 million Seychelles Rupee of taxable income and 33% on the remainder. The Company is subject to income taxes in the Republic of Seychelles for each of the years ended December 31, 2020 and 2019.
Hong Kong Tax
BMHK, AHK and CAHK are subject to Hong Kong profits tax at the rate of 16.5% on the assessable profits. No provision for Hong Kong profits tax has been made as these companies incurred a loss for each of the years ended December 31, 2020 and 2019.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
NOTE 6 – INCOME TAXES (CONTINUED)
Mongolia Corporate Income Tax
KSS and SHG are registered and operate in Mongolia and are subject to Mongolia Corporate Income Tax at the rate of 10% on taxable income below MNT6 billion (2019: MNT3 billion), or MNT600 million (2019: MNT300 billion) plus 25% on taxable income exceeding MNT6 billion for the year ended December 31, 2020 (2019: MNT3 billon). Provision for Mongolia corporate income tax has been made for the year ended December 31, 2020 as SHG generated profits in the current year (2019: Nil). No provision for Mongolia corporate income tax has been made for KSS as it incurred a loss for each of the years ended December 31, 2020 and 2019.
PRC Enterprise Income Tax
BMIM is subject to PRC Enterprise Income Tax at the statutory rate of 25%. No provision for PRC Enterprise Income Tax has been made as this company incurred a loss for each of the years ended December 31, 2020 and 2019.
The Company’s deferred tax assets and liabilities as of December 31, 2020 and 2019 are attributable to the following:
|
|
As of
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Tax loss carry forwards
|
|
$
|
406,048
|
|
|
$
|
301,091
|
|
Less: Valuation allowance
|
|
|
(406,048
|
)
|
|
|
(301,091
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Changes in valuation allowance are as follows:
|
|
As of
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
301,091
|
|
|
$
|
287,735
|
|
Increase in valuation allowance
|
|
|
100,769
|
|
|
|
13,011
|
|
Exchange difference
|
|
|
4,188
|
|
|
|
345
|
|
Ending balance
|
|
$
|
406,048
|
|
|
$
|
301,091
|
|
As of December 31, 2020 and 2019, the Hong Kong subsidiaries have tax losses arising in Hong Kong of approximately $2,165,359 (2019: $1,602,522) that are available indefinitely for offsetting against their future taxable profits. The PRC subsidiary has tax losses arising in PRC of approximately $195,057 (2019: $146,700) that are available for offsetting against its future taxable profits, which expire between 2022-2025 and between 2022-2024, respectively. The Company had total accumulated tax losses amounting to approximately $2,360,416 and $1,749,222 (the tax effect thereon being approximately $406,048 and $301,091), respectively, subject to the final agreement by the relevant tax authorities, which may be carried forward and applied to reduce future taxable income which is earned in or derived from the jurisdictions in which the tax losses were incurred. Realization of deferred tax assets associated with tax loss carry forwards is dependent upon generating sufficient taxable income prior to their expiration. A full valuation allowance is established against such tax losses at each balance sheet date since management believes it is more likely than not that such tax losses will not be utilized.
A reconciliation of the income tax expense to the amount computed by applying the statutory tax rate of 21% to the loss before income taxes in the consolidated statements of operations and comprehensive loss is as follows:-
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(1,195,251
|
)
|
|
$
|
(2,115,716
|
)
|
|
|
|
|
|
|
|
|
|
Tax loss at the statutory tax rate of 21%
|
|
|
(251,003
|
)
|
|
|
(444,300
|
)
|
Effect of different tax rates in other jurisdictions
|
|
|
(30,398
|
)
|
|
|
(12,910
|
)
|
Non-deductible items
|
|
|
210,460
|
|
|
|
488,717
|
|
Non-taxable items
|
|
|
(5,964
|
)
|
|
|
(44,518
|
)
|
Change in valuation allowance
|
|
|
100,769
|
|
|
|
13,011
|
|
Tax effect of temporary differences not recognized
|
|
|
(652
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
23,212
|
|
|
$
|
-
|
|
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
NOTE 7 – OTHER PAYABLES
|
|
As of
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Tax and social insurance payable
|
|
$
|
86,601
|
|
|
$
|
53,087
|
|
Contract liabilities
|
|
|
296,657
|
|
|
|
289,786
|
|
Temporary receipts
|
|
|
739,948
|
|
|
|
720,278
|
|
Other payables
|
|
|
445,669
|
|
|
|
241,204
|
|
|
|
$
|
1,568,875
|
|
|
$
|
1,304,355
|
|
Contract liabilities are consideration received from the customers or billed in advance of providing goods or services promised in the future. The Company defers recognizing this consideration as revenue until it has satisfied the related performance obligation to the customer.
Temporary receipts represented the fund received from Yantai Fulin Mining Machinery Co., Ltd, a strategic partner of the Company, to build a refinery factory in Mongolia.
NOTE 8 – CONVERTIBLE BONDS
As of December 31, 2020 and 2019, the Company had the following convertible bond outstanding:
|
|
As of
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
Accrued Interest
|
|
|
Principal
|
|
|
Accrued Interest
|
|
November 2019 HK$1.5 million (equivalent to $192,308) convertible into common shares at $3.60 per share, 5% interest, due April 30, 2021
|
|
$
|
192,308
|
|
|
$
|
10,564
|
|
|
$
|
192,308
|
|
|
$
|
930
|
|
Less: Bond discount
|
|
|
(1,354
|
)
|
|
|
-
|
|
|
|
(4,313
|
)
|
|
|
-
|
|
|
|
$
|
190,954
|
|
|
$
|
10,564
|
|
|
$
|
187,995
|
|
|
$
|
930
|
|
For the year ended December 31, 2020, four new convertible bond agreements were entered into between the Company, Arcus and third party investors. All of them matured during the year and were settled by issuing 92,275 common shares at a price stated in the respective agreements, representing loans of HK$2.6 million and interest expenses of HK$5,521, for a total of HK$2,605,521 (equivalent to $334,027) (see note 12). In addition, the Company recognized a beneficial conversion feature discount to the bond of $7,390 that was amortized during the year. Additionally, the Company recognized non-cash interest of $695 on these bonds.
For the year ended December 31, 2019, four convertible bond agreements were entered into between the Company, Arcus and third party investors. Three of the bonds matured in 2019 and were settled by issuing 141,782 common shares at a price stated in the respective agreements, representing loans of HK$4 million and interest expenses of HK$8,333, for a total of HK$4,008,333 (equivalent to $513,888) (see note 12). In addition, the Company recognized a beneficial conversion feature discount to the bond of $10,705 that was amortized during the preceding year. Additionally, the Company recognized non-cash interest of $1,068 on these bonds.
On November 26, 2019, a convertible bond agreement was signed including a HK$1.5 million (equivalent to $192,308) loan bearing interest of 5% per annum for six months. The convertible bond originally matured on May 25, 2020 with a conversion price of $3.60 per share. In addition, the Company recognized a beneficial conversion feature discount to the bond of $5,342 that is being amortized over the period using the effective interest method. On May 11, 2020, the Company signed an extension letter with the bondholder to extend the maturity date from May 25, 2020 to September 30, 2020. Therefore, the Company recognized an additional beneficial conversion feature discount to the bond of $234 that is being amortized over the period using the effective interest method. On September 11, 2020, the Company signed an extension letter with the bondholder to further extend the maturity date from September 30, 2020 to April 30, 2021. Therefore, the Company further recognized an additional beneficial conversion feature discount to the bond of $147 that is being amortized over the period using the effective interest method. For the year ended December 31, 2020, the Company amortized $3,340 (2019: $1,029) of the discount and recognized non-cash interest of $9,634 (2019: $930) to interest expenses. The unamortized debt discount on the convertible bond as of December 31, 2020 was $1,354 (2019: $4,313).
NOTE 9 – OTHER LOANS
As of December 31, 2020 and December 31, 2019, a loan of $147,326 and $132,423 respectively was borrowed from an unrelated party. The loan is unsecured, has no collateral or guarantee and carries interest at 11.61% per annum and repayable on December 31, 2029.
As of December 31, 2020, a loan of HK$217,133 (equivalent to $27,837) was borrowed from an unrelated party. The loan is unsecured, has no collateral or guarantee and carries interest at 10% per annum and repayable on June 23, 2021.
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
NOTE 10 – PROVISION FOR ASSET RETIREMENT OBLIGATIONS
The Company’s asset retirement obligations relate to future remediation and decommissioning activities at the three fluorite mines.
At December 31, 2018
|
|
|
31,383
|
|
Additions
|
|
|
3,179
|
|
Exchange adjustments
|
|
|
(1,119
|
)
|
|
|
|
|
|
At December 31, 2019
|
|
|
33,443
|
|
Additions
|
|
|
3,300
|
|
Exchange adjustments
|
|
|
(1,393
|
)
|
|
|
|
|
|
At December 31, 2020
|
|
$
|
35,350
|
|
NOTE 11 – PROVISION FOR EXPLORATION ASSET COMPENSATION
At December 31, 2018
|
|
|
102,127
|
|
Exchange adjustments
|
|
|
(3,385
|
)
|
|
|
|
|
|
At December 31, 2019
|
|
|
98,742
|
|
Additions
|
|
|
24,877
|
|
Exchange adjustments
|
|
|
(4,283
|
)
|
|
|
|
|
|
At December 31, 2020
|
|
$
|
119,336
|
|
NOTE 12 – CAPITAL STOCK
For the year ended December 31,2019, the Company issued a second subscription package (the “Second Subscription Package”) of up to $825,000, consisting of 330,000 common shares and 66,000 warrants exercisable at $3.00 to purchase common stock within three years from the respective issuance dates, to accredited investors. The Company also issued to the placement agent 33,000 common shares at a price of $3.70 per common share for the services rendered (equivalent to $122,100).
For the year ended December 31, 2019, there were four convertible bond agreements entered into between the Company, Arcus and third party investors. Three of the bonds matured in 2019 and were settled by issuing 141,782 common shares at a price stated in the respective agreements, representing loans of HK$4 million and interest expenses of HK$8,333, for a total of HK$4,008,333 (equivalent to $513,888).
On May 15, 2019, the Company issued 88,018 common shares at a price of $3.29 per share to settle the loans from related persons of HK$2 million and accrued interest expenses of HK$258,709, for a total of HK$2,258,709 (equivalent to $289,578).
On September 29, 2019, the Company issued 33,096 common shares at a price of $3.66 per share to settle the amount due to a director of HK$944,832 (equivalent to $121,133).
For the year ended December 31, 2020, there were a total of four new convertible bond agreements entered into between the Company, a subsidiary of the Company, Arcus Mining Holdings Limited (“Arcus”), and third party investors.
On January 2, 2020, a convertible bond agreement was entered into between the Company, Arcus and a third party investor. On February 1, 2020, the convertible bond matured and was settled by issuing 53,236 common shares at a price of $3.62 per share representing loans of HK$1.5 million and interest expenses of HK$3,185, for a total of HK$1,503,185 (equivalent to $192,708).
On January 14, 2020, a convertible bond agreement was entered into between the Company, Arcus and a third party investor. On February 13, 2020, the convertible bond matured and was settled by issuing 14,196 common shares at a price of $3.62 per share representing loans of HK$400,000 and interest expenses of HK$849, for a total of HK$400,849 (equivalent to $51,389).
On February 24, 2020, a convertible bond agreement was entered into between the Company, Arcus and a third party investor. On March 25, 2020, the convertible bond matured and was settled by issuing 7,098 common shares at a price of $3.62 per share representing loans of HK$200,000 and interest expenses of HK$425, for a total of HK$200,425 (equivalent to $25,695).
On February 29, 2020, a convertible bond agreement was entered into between the Company, Arcus and a third party investor. On March 30, 2020, the convertible bond matured and was settled by issuing 17,745 common shares at a price of $3.62 per share representing loans of HK$500,000 and interest expenses of HK$1,062, for a total of HK$501,062 (equivalent to $64,235).
On April 20, 2020, the Company issued 25,641 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$800,000 (equivalent to $102,564).
On September 14, 2020, the Company issued 39,677 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$1,237,941 (equivalent to $158,710).
On December 21, 2020, the Company issued 13,809 common shares at a price of $4.00 per share to settle the amount due to a director of HK$430,855 (equivalent to $55,238).
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
NOTE 13 – REVENUE
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Disaggregation of revenue:-
|
|
|
|
|
|
|
Revenue from contract with customers within the scope of ASC 606, types of goods and services
|
|
|
|
|
|
|
Sales of minerals – point in time
|
|
$
|
753,694
|
|
|
$
|
282,857
|
|
NOTE 14 – SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
(a)
|
Loan from a related person
|
|
|
|
As of December 31, 2020 and December 31, 2019, loan from a related person included HK$3 million (equivalent to $386,916 and $385,158 respectively) borrowed from the wife of one of the Company’s stockholders on May 21, 2018. The loan is unsecured, has no collateral or guarantee and carries interest at a monthly rate of 3.08% for the first month and a monthly rate of 1.08% for the rest of the term. The loan originally was due to be repaid on May 20, 2019, however, on April 24, 2019, the repayment date was extended to May 20, 2020. On April 28, 2020, the repayment date was extended to May 20, 2021, and the interest changed to be at a monthly rate of 2.08% for the first month and a monthly rate of 1.08% for the rest of the term.
|
(b)
|
Interest expense paid to related persons
|
|
|
|
For the years ended December 31, 2020 and 2019, interest expense of HK$420,000 (equivalent to $54,148) and HK$462,326 (equivalent to $59,015), respectively, was paid to related persons.
|
(c)
|
Amounts due to stockholders
|
|
|
|
As of December 31, 2020, amounts due to stockholders, Kwong Bun Mak, Xianqin Pan and Kwing Chun Chu, were $376,246; while as of December 31, 2019, amounts due to stockholders, Chi Kin Loo, Kwong Bun Mak, Xianqin Pan and Tak Leung Ho, were $872,968. The Company is currently in the exploration stage, and the stockholders advanced $349,387 working capital to meet the financing requirement in 2020.
On April 20, 2020, the Company issued 25,641 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$800,000 (equivalent to $102,564) (see note 12). On September 14, 2020, the Company issued 39,677 common shares at a price of $4.00 per share to settle the amount due to a stockholder of HK$1,237,941 (equivalent to $158,710) (see note 12). Amounts due to stockholders are unsecured, interest-free and there are no fixed terms for repayment. The stockholders have agreed not to demand repayment within the next 12 months from the balance sheet date.
|
(d)
|
Amount due to directors
|
|
|
|
As of December 31, 2020 and 2019, amount due to a director, Tak Shing Eddie Wong, of HK$604,500 (equivalent to $77,964) and HK$576,000 (equivalent to $73,950) respectively. The amount is unsecured, has no collateral or guarantee and is interest-free. The amount was fully settled on March 3, 2021.
As of December 31, 2019, amount due to a director, Sai Kit Leung, was HK$350,855 (equivalent to $45,045). During the year, he advanced HK$80,000 (equivalent to $10,314) to the Company. On December 21, 2020, the Company issued 13,809 common shares at a price of $4.00 per share to settle the amount due to the director of HK$430,855 (equivalent to $55,238) (see note 12).
On December 10, 2020, Mr. Chi Kin Loo was appointed as a director of the Company. As of December 31, 2020, there was an amount due to the director of HK$7,378,106 (equivalent to $951,569). During the year, he advanced HK$3,024,000 (equivalent to $389,868) to the Company. This amount is unsecured, interest-free and there are no fixed terms for repayment. The director has agreed not to demand repayment within 12 months of the balance sheet date.
|
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
NOTE 15 — NET LOSS PER SHARE
Loss per common share is presented under two formats: basic loss per common share and diluted loss per common share. Basic loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period, plus the potentially dilutive impact of common stock equivalents (e.g. stock options, warrants and convertible bonds). Dilutive common stock equivalents consist of the incremental common stock issuable upon exercise of stock options and warrants. The following table sets forth the computation of basic and diluted net loss per share:
|
|
Years Ended
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,218,463
|
)
|
|
$
|
(2,115,716
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average common stock, basic
|
|
|
14,900,748
|
|
|
|
14,532,189
|
|
Dilutive effect of warrants
|
|
|
–
|
|
|
|
–
|
|
Dilutive effect of convertible bonds
|
|
|
–
|
|
|
|
–
|
|
Incremental dilutive shares
|
|
|
–
|
|
|
|
–
|
|
Weighted-average common stock, diluted
|
|
|
14,900,748
|
|
|
|
14,532,189
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.15
|
)
|
Note: During the year ended December 31, 2020 and 2019, the Company had warrants and convertible bond outstanding which could potentially be anti-dilutive in the future, but were excluded from the computation of diluted net loss per share, as their effect would have been anti-dilutive due to the net losses.
NOTE 16 — WARRANT EQUITY
On November 21, 2018 (“Issuance Date”), the Company issued First Subscription Package of up to $52,500, consisting of 150,000 common shares and 50,000 warrants exercisable at $1.00 (the “Warrants”) to purchase common stock within three years from the Issuance Date, to accredited subscribers.
For the year ended December 31, 2019, the Company issued Second Subscription Package of up to $825,000, consisting of 330,000 common shares and 66,000 warrants exercisable at $3.00 to purchase common stock within three years from the respective issuance dates, to accredited subscribers.
The two investors in the First Subscription Package, which was completed on November 21, 2018, forfeited their rights to exercise the 25,000 warrant at $1.00 of their own accord.
The Company determined that these warrants are free standing financial instruments that are legally detachable and separately exercisable from the common stock included in the subscriptions. All of the Company’s outstanding warrants are considered to be indexed to the Company’s own stock and are therefore classified as equity under ASC 480. The warrants, in specified situations, provide for certain compensation remedies to a holder if the Company fails to timely deliver the shares underlying the warrants in accordance with the warrant terms.
As of December 31, 2019, the Company reviewed the valuation technique and inputs used to determine the fair value of the outstanding warrants. The Company engaged an outside valuation company to calculate the fair value of warrants based on the Binominal Option Pricing Model (“Binomial”).
Set out below are the major parameters adopted in the valuation:
Grant date
|
|
January to April
2019
|
|
Stock price of the issuer at respective grant dates
|
|
$
|
3.50
|
|
Risk-free rate
|
|
|
14.01% to 14.27
|
%
|
Volatility
|
|
|
54.63% to 56.74
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
The warrants outstanding and fair values at each of the respective valuation dates are summarized below:
Grant date
|
|
Warrants Outstanding
|
|
|
Fair Value
per Share
|
|
|
Fair
Value $
|
|
2018
|
|
|
50,000
|
|
|
$
|
0.07
|
|
|
$
|
3,490
|
|
2019
|
|
|
66,000
|
|
|
|
1.91
|
|
|
|
125,900
|
|
Less: warrants forfeited
|
|
|
(50,000
|
)
|
|
|
(0.07
|
)
|
|
|
(3,490
|
)
|
As at December 31, 2019 and 2020
|
|
|
66,000
|
|
|
|
|
|
|
$
|
125,900
|
|
TGS International Ltd.
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
|
NOTE 17 – SUBSEQUENT EVENTS
The Company was supposed to resume exploratory and construction work at Mine B in the early second quarter of 2020. However, the global COVID-19 outbreak has resulted in delays in the resumption of work since the Chinese workers cannot enter into Mongolia until April 30, 2021 at the earliest.
The Company is dependent on its workforce, mainly Chinese workers, to perform the mining work. The closure of borders implemented by the Mongolian Government has impacted the Company’s ability to deploy its workforce effectively. While expected to be temporary, prolonged workforce disruptions have negatively impacted sales in Mine B in fiscal year 2020 and the Company’s overall liquidity.
If these developments continue throughout 2021, we expect very limited sales and operations in Mine B in 2021 as well. However, the Mongolian office has liaised with the relevant government departments to prepare visa applications for the Chinese workers, in case workers are allowed to enter into Mongolia since April 30, 2021.
Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for the 2021 fiscal year.